A few weeks ago a Colorado grassroots group, Be the Change, of which I am a board member, sponsored an all -day conference on public banking. I know, it sounds like the equivalent of an all- day climate debate between aging Republican Senators, but the public banking concept may have some value, it might even surprise you. Indeed, it could provide a source of funding for desperately needed infrastructure, particularly at the local level.
Over 20 states are looking into the public banking option. But only one, North Dakota has a public bank, and it dates from the populist era, early in the last century. In a recent WSJ article the North Dakota bank was lauded for having a return on investment of almost 20 percent, a 70 percent greater return than either Goldman-Sachs or J.P. Morgan, two of Wall Street’s best bullies.
From a short-term perspective, a public bank’s chief advantage is that revenues generated at the city, county, and state level from taxes and fees, stay in the state. They would no longer be sent to the grand casino that has become Wall Street where the prospects of another melt down grow. The recent actions of Congress make it likely that giant retirement funds such as Colorado’s public employee’s retirement plan, PERA, can be appropriated to cover Wall Street speculative losses should a melt down occur. Even FDIC insured personal accounts might be at risk. Moreover, the high management fees Wall Street charges for using our money to gamble with would be eliminated, thus greatly increasing the amount available for local and regional projects of wide public support and interest.
Critical to a public bank is its structure. If it looks like just another bank, public support and interest will be ho hum, at best. But if it is chartered so that management rests with a citizen advisory board, with a professional banking staff answering to them, interest will be sustained, with the public interest more likely to be served.
And if the banking management is paid on a scale consistent with prevailing professional salaries within the state or region it serves, a sense of common or shared interest might be possible. Adopting anything resembling Wall Street’s outrageous self-dealing in salary and bonus structures would be self-defeating. Salaries based on public sector pay for professionals should be the model. After all bankers are no better than engineers, teachers, and scientists, as the numerous bank failures throughout our history clearly demonstrate. Teachers have a much better success ratio and a much tougher work environment.
In the long term, city and regional banks, the latter called mutual banks by public banking advocates, hold more promise. The closer to home the decision-making, the better the potential outcome is a truth self-evident. A dithering, science denying, money-corrupted, war-mongering Washington provides the mother of all counterpoints. Our state legislature isn’t that far behind, lagging only in money and war making capacity, though the legislature’s mindless catering to the oil industry in giving the industry preemptive rights over the people’s rights of self determination, when rightly understood, constitutes an undeclared war on the people.
So what might a local, county, or multi-county bank do in terms of the public interest? Ideally, in a post-carbon world, one in which we’ve moved inexorably away from a carbon based economy, the bank could be the source of financing community supportive infrastructure. It could underwrite distributive energy development. Rather than a chicken in every pot, the new mantra could be a solar panel on every roof. Mortgage-like financing of renewables could be central to its charter. Repayment could occur over time at reasonable interest, making the absolutely essential conversion to renewables more accessible, and practically risk free. Moreover, such a concept would encourage older home owners to buy their solar panels as a home improvement that would become part of the mortgage until paid off, say over 20 years.
Equally important is the role a public bank could play in reconstituting what is understood as The Commons. Locally grown seasonal food provides a nutrious and farm-saving means to reduce our carbon footprint. Local planning could identify prime agricultural land; preserve it for for that purpose by acquiring it when available, or even through condemnation under emergency circumstances. Farm size would be determined by the amount of labor provided by the family farmer, generally something greater than fifty percent of all farm labor. The local government could either lease or sell the land to interested local farmers. The lease would have to be low enough to allow for a reasonable profit margin. Outright sale to a local farmer might be negotiated under some sort of life trust arrangement. The land would be sold at a price allowing for reasonable profit, but if the landowner decided to change occupations, the land would have to be sold back to the local government at the original sale price, plus land improvements.
Making loans for the acquisition of open space to satisfy the public’s need and right to recreate, a form of wellbeing guaranteed under our constitution, could also be one of the local bank’s functions. Great preference should be shown to acquiring buffers along watercourses and wetlands. This land might not be revenue producing in the usual sense. Thus, the normal financial notions of return in terms of interest earned would have to be modified. Land dedicated to open space is itself a resource of fundamental importance to a healthy community. And as my dad used to say of land, “they ain’t making anymore.” So public bank ledgers would have to give some sort of modified financial recognition of the preserved land base–A land base with the highest value in the minds of many.
Solar farms either owned outright by cities or sited on public land under a lease arrangement could be a source of substantial revenue. Even today lease revenues from wind turbines are in the neighborhood of $6,000 to $7000 annually from each turbine. Of course, the income stream from the turbines would be many times greater if the municipality owned them outright, This revenue stream could help underwrite open space acquisitions.
Too, public banks could make money available at very low rates of interest to college students and graduates unable to pay more than interest on their outsized student loans at very low rates of interest. As is well understood, a well-educated populace is essential to a well-run local government. Thus, this activity, like the acquisition and preservation of farmland and open space, could be seen as a necessary investment in the future and our social wellbeing. The North Dakota Bank makes student loans available at one percent interest. That fact alone should cause every family with children and prospects to come running. Community colleges might be established and operated with some of the bank’s revenues. They could be modeled on California’s early community college concept where the only fees were for books.
A state public bank in Colorado faces hurdles that local and county banks do not, since most cities and counties have de-Bruced themselves. That is, they have voted to not be subject to The Taxpayers’ Bill of Rights, TABOR, on local tax issues. The state initiative establishing TABOR was authored by Douglas Bruce; thus the term de-Bruced came into our vocabulary. Revenues in de-Bruced cities and counties do not, therefore, have to be returned to individual taxpayers if unused in any fiscal year. The state, however, is subject to TABOR and a state bank might also be subject to a TABOR challenge. But assuming that a state bank could manage major state resources, reserve funds, PERA, etc, and just as Wall Street does now, it could be the source of loans to city and regional public banks. The local public banks could, in turn, loan to credit unions and local private banks to advance sustainable development and infrastructure locally. Private banks may appear to be superfluous under the public banking regimen, but they exist, and their support is pivotal for the establishment of public banks. In the long term, they might go the way of the pterodactyl, but in the short term, they are essential, I’m warned, to gaining acceptance from vested financial interests.
The futures discussion above is not the utopian pipedream of some besotted Marxist. More accurately, it starts to expose just how much we could do if we kept our money in public banks, and told Wall Street to go to hell, that the fleecing is over.
If this smacks of common sense, take a look at the lectures now available at our banking website. There you can listen to Ellen Brown explain how banks literally make money out of nothing. She shows how an investment of $20 million will return $5 million in the first year. This is the way Wall Street does it, but they take most of the return for themselves. It’s a process that would make even Theophrastus Bombastus (Paracelus) envious.
Phillip Doe is a writer living in Colorado.