By Sten Spinella, The Day | August 5, 2020
As Connecticut reckons with the economic impact of the COVID-19 pandemic, lawmakers and community organizers have returned to the idea of public banking as a possible saving grace.
Public banks — described as “operated in the public interest” and “owned by the people through their representative governments” by the Public Banking Institute, or PBI — are not an unfamiliar concept to the Connecticut legislature. Multiple bills to establish such banks, or to study the feasibility of doing so, have been introduced without success in the past five years.
Public Bank Connecticut, a grassroots group supported by PBI, is leading an effort to educate the public on the issue.
Justin Good, a philosopher, professor and community development activist who lives in East Haddam, noted that Public Bank Connecticut has grown rapidly since its July inception, in part because of the COVID-19 pandemic. That’s how the group couches its current appeal in a petition to start a public bank in the state.
“Even after the CARES stimulus package, states and cities face serious budget crises and communities are struggling to survive, in the wake of mass unemployment, exploding costs, and plummeting tax revenues,” the petition reads. “Interest rates on municipal bonds have shot up, while interest rates for banks have dropped virtually to zero.”
What can states and municipalities do in the face of this, as well as the end of unemployment benefits/eviction freezes? “Form their own publicly-owned banks,” according to the petition.
Good and other public bank proponents believe that money should be considered a public utility. Public banks have the express purpose of benefiting community members; public bank promoters argue that private banks only indirectly benefit their customers.
There is precedent for public banking elsewhere in the country. A favorite refrain of public banking backers is, “Look at North Dakota,” the only state in the U.S. with a public bank. While the rest of the country experienced delays in getting bailout money to small businesses, “there was one exception, a place where loans found their mark more quickly than any other: North Dakota,” the Washington Post reported.
“Small businesses there secured more PPP funds, relative to the state’s workforce, than their competitors in any other state — more than $5,000 per private-sector worker as of May 8, according to a Washington Post analysis,” The Post story continues. “In the program’s troubled first round in particular, the state put business lenders in the rest of the country to shame. North Dakota small businesses appeared to have a significant advantage in administration and organization.”
State Rep. Susan Johnson, D-Windham, noted the efficiency and flexibility of North Dakota’s public bank, which she also admires for its hyper-low interest rates compared to private banks. She has been a chief public banking advocate in Connecticut for years.
“We’re not trying to take over banks. We’re trying to give that support to our downtowns and keep the money in Connecticut,” Johnson said. “That’s what the state bank in North Dakota does. North Dakota got all the little community banks together, trained them on how to get PPP to local businesses, and did it faster and at a higher percentage than any other bank in the country.”
Johnson and others said establishing a public bank would not lead to competition with community banks or with branches of big banks, such as Bank of America. Public bank funds in North Dakota do not come directly from private citizens but rather from the state, which deposits its revenues into the bank. The public bank movement in Connecticut intends to mimic the Bank of North Dakota’s practice of lending money through private lenders. Moreover: “North Dakota … has more banks and credit unions per capita than any other state, a fact that is often attributed to the Bank of North Dakota’s model being based on partnering with smaller institutions,” according to Next City, a nonprofit that researches how to make cities more effective, equitable and sustainable.
“You don’t have an individual get an account at a public bank — a public bank creates new credit, and then it lends that at zero or super-low interest to local banks and credit unions so they can give out more loans,” Good said. The 101-year old bank has turned a profit 16 years in a row and has brought more than $1 billion to North Dakota’s budget since its founding. The bank’s work with getting farmers and students low-interest loans has been widely applauded.
Spreading the word
The Bank of North Dakota has attracted attention in recent years, often serving as the inspiration for bills meant to bring public banks to other states, including California and New York.
But finding the political will for the idea can be difficult.
Johnson knows that well. “We need to have students understand student loans and public banking are intertwined; that’s not quite connecting yet. We need the public involved, we can’t just have me proposing this year after year,” she said. She added that she’s been able to convince people in the legislature to co-sponsor bills she’s introduced related to public banking, some of whom have backgrounds in finance and Wall Street.
Last year, a bill to establish a state infrastructure bank eventually stalled in the House. The idea was for the bank to finance large transportation projects. The Connecticut Green Bank, a public banking offshoot, is defined as “an entity that accelerates the deployment of clean energy using limited public dollars to attract private capital investment in clean energy projects” on its website, ctgreenbank.com.
Mirna Martínez, one of those pushing for public banking, ran as a Green Party candidate in the 39th House District last year, finishing second in a four-way race to current Rep. Anthony Nolan. Until November 2019, she was a three-term member and former president of the New London Board of Education.
Martínez’s perspective from a third party lends itself to the question of how to garner widespread support for public banking.
“I think it’s just a natural pattern of moving social ideas: It’s going to rise because of legislative session, then dip, then have a resurgence,” she said of political momentum around public banking, noting it was an issue she took up when she was running for the House seat.
Martínez said Public Bank Connecticut is looking to educate the public and build enthusiasm for public banking.
“Legislators or candidates should show their peers that public banking is something they should grab on to,” she said. “People who are in those legislative positions would love to grab on to things that are not just popular but healing, helpful and positive for our communities.”
New Haven community organizer and activist Jayuan Carter, who also runs Executive Ecoscaping Inc., a landscaping company, has joined in the public banking initiative because of his entrepreneurship and passion for economics. He coined Public Bank Connecticut’s de facto motto: “Economics is a team sport.”
“You just need to figure out what team you’re on,” he added.
Carter is aiming to make public banking an inclusive issue. “I’m looking to create an opportunity to make this a safe space where more people of color can join,” he said. “If the people in our community don’t know the entire story, we’re not going to make the greatest decisions. It’s time to have more nuanced conversations about economic options.”
He explained why some may be resistant to the idea: “A lot of people are comfortable with the way things are because they’re winning.”
Johnson, Good and Martínez all said public banking is not a partisan issue. Lauren Gauthier, a Groton RTM member and Republican running for the 40th District House seat, agrees.
“You look at our problems and you just think, ‘We have to do something different.’ I don’t know if public banking is the answer, but we’d be remiss if we didn’t look at all the options,” Gauthier said. “Two things a public bank works really well for — infrastructure projects and pensions — are two things Connecticut has a big problem with.”
She’s also concerned about a lack of political will: “In the land of steady habits, we like the devil we know.” Still, she thinks that if the movement can emphasize a public bank’s cost efficiency in funding capital improvement projects, more people will support it.
Gauthier has acted as a well-meaning critic of public banking. During a July virtual town hall led by Public Bank Connecticut members and PBI, she asked about the cost of setting up a public bank in Connecticut. She said the panel of legislators, community activists and public banking experts answered by noting a public bank would partner with existing banks.
“How are we actually going to be able to afford this?” Gauthier asked. “You have to have that up-front capital; if we aren’t able to commit it to start the bank, then that bank’s never going to be solvent.”
The answer to cost on the PBI website is vague, stating that there is “no set minimum for start-up capital.” But, a public bank would not raise funds through new taxes, it would use only “existing financial assets.” And, “If new money is needed, the local government can issue a commercial bond, repayable over time from bank profits.”
Good was more specific in his answer to the question of cost.
“A public bank would start with the state buying a charter for a bank for maybe $5 (million) or $10 million,” Good said. “Then you set up the bank to look after the long-term economic health of the state. In the case of California, if its infrastructure bank bill passes, they will be financing that for zero cost. They’re literally loaning the money to themselves. Even if they’re charging interest, that’s profit that goes back into the state’s coffers.”
The management of the bank is another concern of Gauthier.
“I would want to be very secure in who we are getting to run this system,” she said. “You don’t want to put all of your trust into a private organization, but we in Connecticut have a well-established history of, if not corruption, poor management of public systems.” She cited the Connecticut Port Authority as an example.
The North Dakota model has the governor, attorney general and agriculture commissioner as its board of directors. PBI is aware of corruption concerns. Its website states that elected officials execute the bank’s charter with the assistance of an advisory committee, whereas daily management is left to professional bankers.
Johnson plans to introduce a bill or multiple bills regarding public banking at the start of the next legislative session. The first step is to pass legislation merely allowing for a public bank in Connecticut because, according to state law, the state cannot issue credit — that has to come from a private entity.