For many years now, the state of Maine has been fertile ground for economic innovation. Public banking has been part of that story, and 2015 has featured passionate speeches, intelligent advocacy, and hard-hitting economic analysis. Randall Parr has been instrumental in keeping the movement alive and, importantly, in communicating goings-on in Maine with the rest of the nation.
Back in 2013, Randall Parr published an OpEd in the Bangor Daily News analyzing the state's budgetary shortfalls. Parr traced the need for the legislature to raise taxes (hardly popular in a state that values fiscal responsibility) to the state's failure to create a public bank at that time. Parr used the example of the Bank of North Dakota to point out the potential of a public bank to deposit millions of dollars into government coffers.
A public bank could have insulated Maine from reduced tax revenues during economic contractions, increasing liquidity, jobs and personal income, as the Bank of North Dakota has done for that state.
. . . The 2013 “Maine Treasurer’s Cash Pool Report” indicates millions of dollars were deposited by Maine in private banks and U.S. government securities during the fiscal year that ended June 30. If invested in a state bank, it could have created an equivalent amount of credit, which the “money multiplier” could have multiplied to billions of dollars.
Now, in 2015, Maine has an opportunity to duplicate North Dakota's success. A bill to establish The Maine Street Bank was introduced in the Maine legislature on 13 January 2015. Titled An Act to Create a Public Bank, the bill proposes to create a public bank by 1 July 2017 for the state of Maine that is largely modeled after the nearly century old Bank of North Dakota. It would also authorize the formation of public banks in municipalities and cities around the state.
Representative Dianne Russell, a former member of the Nation magazine's national "Progressive Honor Roll" who is in her fourth term in Maine's House, is the primary advocate for the bill, which she says has the potential to save working people from the tragedies of business closures and unemployment.
Now, Parr has more to say. In an email to public banking supporters nationwide yesterday, Parr points out that Maine again faces budget shortfalls, which a public bank would solve. He writes:
Even though Maine is required to balance its budget by law, its latest budget again predicts shortfalls for 2016 and 2017, which means that to achieve a balanced budget Maine must either reduce spending or increase revenues [See p 21 Tables c1 and c2 2016-7 "Budget Overview.pdf".] This is the same situation that Maine faced at this time in 2013 and prior years. The 2008 recession created continuing deficits in each state without a state-owned bank.
Recessions result in higher deficits because consumption and investment fall during recessions, generating less tax revenue. After 2008, U S state economic activity increased only in North Dakota, which has had budget surpluses each year since 2008, while all other states had shortfalls - because only North Dakota has a state-owned bank into which state funds are deposited by law. All other states are dependent on shenanigans of the national financial system, while North Dakota is shielded from it. Banks create money when they lend it, and extinguish money when loans are repaid. North Dakota creates its own money supply within its own borders, while Maine deposits state funds in private banks in France, England, Japan, Canada, and Wall Street. So Maine is helping foreign economies by exporting its money supply while North Dakota is boosting its own economy by lending within its state..
LD24 gives Maine a chance to create a state-owned bank modeled on the Bank of North Dakota to create an economy which is independent of national recessions,. With a state-owned bank, Maine's budget would be more stable and would be independent of the ups and downs of the U S economy. Maine would no longer have to deprive its children of a decent education and deprive its citizens of decent health care or other needs to balance its budget.
The proposed budget for 2016-2017 plans to reduce the income tax rate for wealthiest taxpayers and continue lower brackets unchanged. Since wealthiest taxpayers spend far lower shares of their incomes, consumption will not increase due to tax cuts for the top tax bracket; thus economic activity in Maine will not increase; new jobs will not be created; incomes will not rise; prosperity will not result; and poverty will not be reduced. Cutting the top bracket will yield smaller state revenues and increase deficits.
North Dakota's success is not due to its oil and gas production, which only began in 2010. In fact North Dakotas recent fossil energy boom has caused excess wear and tear on roads costing more to maintain, reduced its ability to transport farm produce due to oil and gas shipments, and suffered costly deadly accidents caused by exploding gas and oil. Other fossil energy states have faced deficits and recession like Maine. Economic activity fell in California, Texas, Oklahoma, Louisiana, and Alaska since 2008 while North Dakota activity grew. U S fossil fuel subsidies, including the depletion allowance, make Oil and Gas more profitable than renewable energy.
Local banks are more profitable in North Dakota than in Maine. Loan delinquencies are lower in North Dakota than Maine. Foreclosure rate is lower in North Dakota than Maine. Personal income is higher in North Dakota than Maine. Unemployment rate is lower in North Dakota than Maine. Upward mobility is higher in North Dakota than Maine. Education spending growth per student is higher in North Dakota than Maine where it is declining. North Dakota does not pay the debt service costs like Maine and its state bank returns about 18% on assets to its state treasury annually.
In a simulation, assuming 70% of all Maine cash deposited in a state-owned bank lent within Maine would create over 100K jobs, increase personal income over $4B, increase revenue over $200M, and eliminate debt service payments because the state bank could lend money for state projects for infrastructure and other needs. Details are in my book, Occupying a new Maine Economy, creating a State-owned bank. I provided copies of this book to the Governor and state legislators.
In his state address Maine's Governor set the goal of economic prosperity and ending poverty. Cutting the top income tax rate will lead to continuing budget deficits would increase, not end, poverty. It will put us deeper into the hole that Maine people now occupy. The Governor's strategy is a "trickle-down" approach that has failed repeatedly to revive the economy over the past 30 years and quadrupled the national debt between 1980-8.
For more information about Maine's public banking movement, visit the Maine Public Bank Coalition.