Public bank puts community capitalism to work

MY VIEW – Peter Smith and Angela Merkert

Santa Fe New Mexican | January 8, 2022

We all know that New Mexico’s national rankings are poor when it comes to community economic development, regenerative agriculture, early childhood education, alternative energy and infrastructure enhancement, among other things. And we also know that, when the federal pandemic recovery funds fade away after 2022 and fossil fuel revenues decline in the years ahead, continuing investment in these and other priority spending areas will be a huge challenge for the Legislature and the governor.

But what if there were a solution that turned a one-time $50 million investment of pandemic money into a continuing $400 million to $600 million lending institution with no additional state support required? And what if that lending institution was locally focused, working through credit unions, community banks and Community Developmental Financial Institutions (CDFIs)? What if we promoted capitalism at the community level? That’s the promise of the Public Bank of New Mexico.

Yes, the Legislature does fund lending programs through various state departments, including Economic Development and the New Mexico Finance Authority. These are good programs. But there is a critical difference between the way they operate and the public bank. They are revolving funds, what is appropriated by the Legislature year to year, loaned and repaid with interest.

The Public Bank of New Mexico will expand its asset base, the way banks do, by eight to 10 times the amount of its equity. So, $50 million appropriated to capitalize the bank will make possible up to $500 million in lending in its first year with no additional appropriations.

Here are a few of the advantages that the public bank would bring to community economic growth and development:

As a locally-focused, nonprofit bank, the Public Bank of New Mexico’s loans are focused on local community needs. Deposits, earning interest from Treasury bills just like other banks, would be leveraged entirely for local economic and community development, not national and international investment and shareholder profit.

New businesses would be started, additional GRT revenues generated and new jobs created.

Public bank loans will support the priorities of “Empower and Collaborate,” the newly released state 20-year strategic economic development plan.

Working through their lending partners (credit unions, community banks and CDFIs), the public bank will increase access to lending support, reduce inconsistent borrowing criteria and increase support for innovation, especially in our agriculture and food system businesses. Loans that are smaller, shorter term or made to historically underserved populations and businesses will become more feasible because the public bank enables the assumption of more, but not unreasonable, risk in lending at lower interest rates.

The Public Bank of New Mexico will not compete with its partner lending programs. In fact, as the entry points for borrowers, the partner lending programs will develop new customers, thus expanding their business while ameliorating the pressure generated by fintech, technology in banking and regional bank mergers.

While supporting previously underserved local business owners and entrepreneurs, the public bank value-add also includes reducing the need for small-business owners to engage with payday lenders or maxing out their credit cards, two destructive high-interest-rate options currently employed.

The Federal Reserve has signaled it will raise interest rates four times in 2022. The Public Bank of New Mexico can reduce the impact of the increases since, as a nonprofit entity, it will issue loans at lower interest rates.

The Public Bank of New Mexico would function with a board of diverse business, community and state government members, operating under democratic principles. Thus there will be local input while assuring visibility to its sole owner, the state. Chartered as a state bank, Public Bank of New Mexico practices will conform to FDIC and Federal Reserve compliance standards.

Now is the time to energize capitalism in our local communities. Now is the time to establish the Public Bank of New Mexico.

Peter Smith is a board member and Angela Merkert executive director of the Alliance for Local Economic Prosperity. Smith lives in Santa Fe, where he also is a board member of KSFR radio.