NC Teleconference Info June 2016

 

DATE & TIME:  June 20th, 2016, 5:30pm

 

AGENDA:

 

  1. Welcome, and purpose of organizing our efforts for public banking in NC
  2. Introductions around the room:  Name, where from, what you’d like to get out of our calls. Please say if you are most interested in public banking at the state or the local levels, or both
  3. PBI General information - Walt
  4. Organizing / Networking information - Mack
  5. Round the room for closing comments and takeaways

 

 

Meeting Materials/ Attachments

 

Advantages of States Owning Their Own Banks

Sustainable Economic Security and Health, Savings and Revenue

 

A public bank is not a new idea. North Dakota has owned its own public bank since 1919 and has provided that state with nearly 100 years of economic and financial advantage. On the other hand, other states pay hundreds of millions of taxpayer dollars each year to borrow funds from private banks instead of generating these funds themselves with their own public banks. When a state deposits its tax revenues into its State-Owned Public Bank (SOPB), it enables a State to have more control of its money, reduce risk, generate profits from community partnerships, retain significant savings, and gain new non-tax revenues and increased financial flexibility—all to the benefit of the taxpayers.

 

  • Reduce Risk - Instead of keeping State funds in private banks tied to global banks engaged in high risk investments, SOPB could be the primary depository for all state funds and would operate in the public interest.
  • Loan instead of Bond - Instead of incurring bond debt plus market-based interest, the state can borrow money from its SOPB at a lower interest rate without attendant fees and save tens of millions in interest over the course of the loan while earning the interest income for the State. (See example on page 2.)
  • Lowering Debt – A state could refinance its bond debt at a lower interest rate, thus saving millions in interest on the bond, and earning interest through the SOPB.
  • Additional Revenue – SOPB revenues could pay dividends to the State for budget shortfalls; in only ten years, the public Bank of North Dakota has returned over $350MM to the ND treasury—and the ND population is quite small.
  • Further Risk Reduction – The Dodd-Frank Act of 2010 was intended to prevent another taxpayer “bail-out” in case of bank failure. As a result, State and other deposits risk being confiscated by a mandated big bank “bail-in.”
  • Public Interest, Public Partnership – The mission of the SOPB would be to serve general or specific interests as expressed in its Charter; the bottom line would be public benefit, not private profits.
  • Economic Stability – SOPB helps provide protection to the State against the “boom and bust” economic cycle inherent in the private banking system. The State of North Dakota escaped the impacts of the 2008 bank collapse due to its public bank.
  • Strengthen State-based Community Banks and Credit Unions - SOPB could partner with private banks and credit unions to create special loan packages that a private institution would not offer on its own. SOPB could buy mortgages from local banks and offer student loans at lower rates, thus keeping interest income in the state and freeing local banks to make new loans without handing business to Wall Street competitors.
  • Security and Support for Municipal Government. SOPB could provide a more secure and local alternative for billions of dollars in county and municipal government deposits, thus making more money available within the state.
  • Attracting Businesses - SOPB could offer loan incentives on its own to attract or expand business in the State. For example, a SOPB could buy down the interest rate by 1-5% for loans to businesses that create jobs.
  • Support Students – the SOPB could offer much more affordable student loans as in ND.
  • Money Is On-hand to Start Your SOPB. For example, North Carolina has over $112 billion in investible resources that might be used to capitalize its own bank. Using just 10% of these funds could make a huge difference for its citizens. (See page 2 for table on North Carolina 2015 Comprehensive Annual Financial Report (CAFR).)
  • Public Servants, Not Developers. Employees and leadership of SOPB are public servants, and not eligible for the bonuses and incentives that push private banking employees and economic developers to take risks.
  • State Benefit. SOPB would operate primarily for the benefit of state or municipality that owns it, and would not compete for retail business against private banks. As such, it would not advertise, provide debit cards, ATM’s, etc.
  • Emergency Assistance. SOPB could provide emergency “rainy day” funds when needed rather than relying on expensive private capital markets.
  • Savings and Prudent Investing - The State could save on bank fees and maximize returns on public deposits.

 

Example using $2 billion bond, 20-year term, projected at 3.5–5.75% Interest

  • At 3.5% = $907,260,279.57 in interest
  • At 5.75% = $1,596,436,399.16 in interest

From this, we could say the range is roughly $900 million to $1.6 billion in interest for the term of the bond.

A $2 billion loan through a Public bank could reduce the interest rate by:

  • 0.25%, it would save $57,834,657.88 over the 20-year term
  • 0.5%, it would save $116,754,718.46 over the 20-year term
  • 1%, it would save $237,844,752.56 over the 20-year term
  • 2%, it would save $492,941,433.76 over the 20-year term

 

Revenues from Public Bank operations

A Public Bank makes loans in the interest of the state and its citizens, making a modest profit to be returned to the bank. For example, on a $2 billion loan with a 20-year term, every 0.25% of interest would bring in $57,834,657.88 over 20-years.

 

Example: Analysis of North Carolina 2015 Comprehensive Annual Financial Report (CAFR)

 

The NC CAFR shows that the State has over $112 billion invested that could be partially redeployed to start a public bank.

Governmental Fund Financial Statements: (in thousands) - page 58

 

 

 

 

 

Total Gov

Component Units

 

 

Total

Cash & Cash Equivalents

$4,775,579

 

 

 

$4,775,579

Investments:

$300,351

 

 

 

$300,351

Total

$5,075,930

$-

 

 

$5,075,930

 

 

 

 

 

 

Proprietary Fund Financial Statements (in thousands) - page 62

 

 

 

 

 

Total Enterprise

Funds

Governmental

Activities

 

 

 

Total

Cash & Cash Equivalents

$974,161

$92,426

 

 

$1,066,587

Investments

$302,640

$30,958

 

 

$333,598

Total

$1,276,801

$123,384

 

 

$1,400,185

 

 

 

 

 

 

Fiduciary Net Position (in thousands) - page 72

 

 

 

 

 

Pension & Other Employee Benefit

Trust Funds

 

Investment Trust

Funds

 

Private-Purpose Trust Funds

 

Agency Funds

 

 

Total

Cash & Cash Equivalents

$385,631

$8,847

$122,997

$4,499,631

$5,017,106

Investments

 

-

 

 

 

U.S. Government & agency securities

 

 

$311

 

$311

Corporate bonds

 

 

 

$1,692

$1,692

Certificates of deposit

 

 

$44,489

$525

$45,014

Collective investment funds

$228,407

 

 

 

$228,407

State Treasurer investment pool

$90,415,679

$1,108,148

$6,978

$44,127

$91,574,932

Unallocated insurance contracts

$782,219

 

 

 

$782,219

Synthetic guaranteed investment contracts

$1,308,771

 

 

 

$1,308,771

Non-State Treasurer pooled investments

$6,686,136

 

 

 

$6,686,136

Total

$99,806,843

$1,116,995

$174,775

$4,545,975

$105,644,588

 

 

 

 

 

 

Grand Total

$106,159,574

$1,240,379

$174,775

$4,545,975

$112,120,703

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