From Arizona, A Spectacular Public Banking Top 10 List

Our friends at the Arizona Public Bank Coalition/Arizonans for a New Economy are still on fire--in a good way. They recently prepared a list of the top ten benefits of a public bank. Every local movement ought to compile a similar list. Below, I re-publish and add additional commentary to those reasons. 

1. The non-partisan (we would say "transpartisan") nature of the public banking cause. It's no secret that both businesses and government entities benefit from public banking. Our friends in Arizona have built a coalition that includes Republicans and Democrats; elsewhere, both Greens and Libertarians are on board with public banks. Public banking has something for everyone politically. It means more local control, but it also means government that works. PBI's Mike Krauss is former chair of the Pennsylvania Republican Party, while Ellen Brown ran for California State Treasurer as a Green. People are tired of partisanship. They want solutions that work, and they don't care where they come from, as long as they come from a position of sincerity and knowledge.

2. Protection of taxpayer funds. As our Arizona allies point out, "the only state in the U.S. that doesn't allow taxpayer funds to be gambled on Wall Street is North Dakota." Moreover, only private banks (often filled with public funds) failed during the great recession; none of the public banks that make up 40% of banks in the world did. Over the coming months, insiders tell me, activists around the nation will press their state treasurers for assurances that their funds are safe, and ask why those funds aren't being kept stable, in public banks.

3. University-based spin-off businesses. This is a unique proposition from our Arizona allies. They write:

Under the current system, if University of Arizona professors discover a new drug or invent a new medical device, they seek venture capital (on Wall Street) to bring the drug or invention to market. What if they could get low-cost capital through a community bank and backed by a public bank? To date, the largest loan that Alliance Bank made through the City of Tucson’s Community Banking Project was $2.9 million to a medical services start-up, a spin-off from the UA. Research spin-offs strengthen the local economy and provide good-paying jobs for educated workers.

The thought that researchers will no longer need Wall Street venture capital might make the big bankers shake in their shoes, but it pleases us greatly.

4. Funding public education. Arizona is one of many states whose legislators pulled the rug out from under education funding a few years back, during a nationwide push for "austerity"--a term that has since been revealed to be a scam, a dirty word, a recipe for dystopia. Revenues generated by a public bank could fully fund public education in the state housing the bank. Given that Arizona courts have ordered the state to back-pay the schools to the tune of millions of dollars, this may be a good time to figure out where that money is coming from.

5. Debt forgiveness--both student and consumer debt. As Arizonans for a New Economy point out, the organization Strike Debt (good friends of PBI!) is buying up debt and excusing it. Public banks could do that. They could also re-finance that debt "with loans directly from the public bank or loans issued by community banks and backed by the public bank." Mortgages and consumer debt could work the same way.

And before you object that debt forgiveness creates some kind of "moral hazard," consider that consumer debt is already purchased for pennies on the dollar by private corporations; if your only objection is that a public entity can't do the same, that seems like a weak objection. Consider also that the best available evidence suggests that student debt is out of control, will never be paid off, and that forgiveness would stimulate the economy to an unprecedented degree.

6. Low-cost student loans. To replace the failed student debt debacle described above, and to solve the increasing lack of affordability of higher education, states can follow the model of the BND, whose affordable student loan program is not getting the attention it deserves.

Policymakers should consider the long-term cost of a lack of affordable higher education. Europe aims to "become the world's leading knowledge economy," and in many European countries, higher education is highly subsidized. Now, public banking could help create an infrastructure of free higher education in the U.S., but if that policy goal seems unrealistic at present, public banks could at least facilitate affordable financing of college costs.

7. Strengthening community banks. To this listing, I'll add: If they choose to be on our side. Some community bankers fancy themselves too-big-to-fail, and ignore the example of the very effective partnership between the BND and North Dakota's comparatively healthy community banks. The arguments of those naysaying community banks tend to be pretty weak. But that means supporters have to do a better job making the case: Public banks can help community banks with collateralization of deposits, resistance to poaching of customers by Wall Street banks, the creation of more successful deals, regulatory compliance, deposit and capital support programs, and prevention of bank failure.

In his December 30 American Banker article, Akshat Tewary raises the provocative point that community bankers are on the losing end of big banks’ lobbying and manipulation of cumbersome banking regulations. When community banks realize which side they're on, they'll look to the overwhelmingly positive example set by the BND's banking family.

8. Loans to small businesses and entrepreneurs. So much has been written about this that I don't need to do anything but link to the various pieces of good writing on the subject.

9. Jobs. If public banks fund infrastructure, higher education and small businesses, the outcome will not only be more jobs, but more stable ones. That last distinction is important, because while big private financial institutions often promise fast growth, they never deliver sustainable growth.

10. Infrastructure. Our nation's infrastructure is crumbling, and financing those repairs and upgrades, as well as new projects, is encumbered by interest rates that nearly double the cost of every project. Our friends from Arizona conclude:

For example, Tucson voters approved a ballot initiative to allow the City of Tucson to borrow $100 million over 10 years to fix our streets; an interest rate up to 8% was authorized as part of the deal. (We’ll get better streets, but it will cost us a bundle.)If Arizona had a state bank, it could lend money at low rates to cities and counties for infrastructure projects. If the state bank of Arizona loaned the City of Tucson $100 million at 2%, the state (not Wall Street investors) would make money on the deal, and Tucson would save tens of millions in interest payments.Think of all of the crumbling infrastructure around our state– particularly in rural Arizona. Roads, bridges, schools, community hospitals, public buildings, and even the crumbling rest stops on the freeway could be fixed, improved, or replaced with local infrastructure loans from a state bank. And what about that commuter train between Tucson and Phoenix? It would be far more affordable to build that with state funds, than with borrowed funds.

Do you have a public banking movement in your state? Does it have its own top ten list? Let us know.

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