Santa Fe Report: Public Bank Will Save Money

The following story is from the Santa Fe New Mexican, January 13, 2015

To read the Santa Fe Public Banking Feasibility Study report, click here

City could save money with public bank, study finds

Posted: Wednesday, January 13, 2016 9:30 pm | Updated: 6:00 am, Thu Jan 14, 2016.

A feasibility study released Wednesday concluded that the city of Santa Fe could save money by establishing a public bank.

Currently, when the city needs money to build roads, recreation centers, sewer lines, libraries or senior centers, it has to make its case to big investment firms and mutual funds that buy municipal bonds.

A debt package is compiled, analyzed, rated and then advertised — and whichever financial institution offers the lowest interest rate gets to loan the city money. The proceeds are deposited electronically, and the debt is paid off in small amounts over decades by water ratepayers, shoppers who pay taxes on goods and services, or perhaps those who play a round of golf.

But even during a time of historically low interest rates, borrowing funds has a cost to the government of 2 percent to 5 percent. That can be significant when amortized over decades. Santa Fe estimates it could have saved $10 million since 2009 on its $80 million of current debt had the government been able to borrow from its own community instead of Wall Street.

PBSantaFe.jpgThe City Council in 2014 authorized the feasibility study on whether Santa Fe could pull its cash out of financial institutions and use the funds to establish a public bank. The analysis concluded that such a bank could sustain itself and make a profit for taxpayers, but the concept should move ahead slowly, with transparency, and start small with the city paying for its own borrowing before offering loans to other governments or businesses.

A public bank could have an economic impact of $24 million its first seven years, according to consultant Katherine L. Updike of Building Solutions and Christopher Erickson, an economist with New Mexico State University.

“It’s a lost opportunity with every debt payment we make,” Mayor Javier Gonzales said about the costs of using large investment houses to finance capital needs.

He added that the money saved from avoiding debt payments to private lenders — which will increase as interest rates rise — could be used not just for basic public services such as police and fire, but also for innovative projects that can make Santa Fe a better place to live, such as helping early childhood initiatives and startup businesses.

But Gonzales recognized the trust issue many might have with a public bank, cautioning that the city is not going to get into the banking business to compete with local lenders, nor are city councilors going to serve as bank managers.

Any governance structure for the bank would have to be well thought out and balanced in a way that would gain support from both taxpayers and the business community. It would have to be independent from city politics. “We need to pursue this very carefully,” he said.

A bank board, for instance, could include independent financial experts, at-large residents, as well as representatives from other local governments such as public schools and the county, according to the analysis.

The study concluded that such a bank could be viable even if it only existed to finance city needs. It would be more robust with participation from Santa Fe County, Santa Fe Community College and other public and charter schools.

Updike said most of the city’s $200 million in cash accounts are not even held by local banks due to the collateral requirements.

She said that money can be better used to fund the city’s own needs. “All of our debt now goes to bondholders, earning them a profit,” she said. “Rather than have Wall Street earn that 3 to 4 percent, have the public hold those bonds and earn that 3 to 4 percent. You don’t need to go out to the public markets if we had as internal source to lend that money.”

The Bank of North Dakota, the only state bank with a public purpose, was created in 1919 and has been using its funds to support local and statewide needs. It operates more like a central bank, supporting commercial banks with partnerships and other activities.

Updike said it might be several years, if ever, before a public bank in Santa Fe could do any lending to private entities. And under no circumstances would it accept deposits from individuals.

Gonzales said the concept for a public bank needs to move forward with more public discussion. “We can take a step forward, but a very slow step,” he said.

In announcing the results of the feasibility study, Gonzales paid tribute to the late Craig Barnes, a Santa Fe author, playwright and progressive radio host who helped prompt community discussion of the idea of a public bank before he died in November.

“The state of paralysis in the Congress is such that we’re not going to get help from the federal government,” Barnes told a public forum in June 2014. “We’re going to have to do whatever we do on our own. We have to create the mechanisms.”

Contact Bruce Krasnow at 986-3034 or brucek@sfnewmexican.com.


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