By Kim Shanahan, Santa Fe New Mexican | February 6, 2021
Most national pollsters would peg North Dakota as one of the most conservative states in the country, certainly more so than reliably blue New Mexico. But it wasn’t always that way, which may help explain its overt flirtation with socialism more than 100 years ago.
Frustrated by national railroad interests and the banking industry gaining control over their agrarian economy, the state formed its own bank in 1918. To date, North Dakota is the only state to have done so. It’s still going strong. With a populace well versed in the historic Grange movement of agrarian co-ops, those in the Peace Garden State wouldn’t give up their state bank for anything.
Some progressives have touted the benefits of a state bank for years, some for the past decade. As recently as nine years ago, the homebuilding industry in Santa Fe was deep in a lending drought with no sign of ending. Many thought a public bank could resurrect local developments starved of financing for new subdivision infrastructure.
Many of us still do.
This legislative session, the notion is back and getting legs. Senate Bill 313, sponsored by Jeff Steinborn, D-Las Cruces, has been getting strong support from a well-organized group of Santa Feans called the Alliance For Local Economic Prosperity.
Many of its members served on the city’s look-see at its own municipal bank via a task force formed by Mayor Alan Webber. Its conclusion was that while feasible, it wasn’t practical at a municipal level. The state level is another matter. It is both feasible and could be very practical in the complex solutions of solving a housing crisis.
A class of financing called an ACD Loan — an acronym for Acquisition, Construction and Development — was deemed to be toxic after the housing collapse of 2008. Local banks used to be the primary lenders of such loans because they knew local market conditions and could risk such loans on leveraged property.
The rules in Steinborn’s bill would allow loans to be made to private individuals or legal entities in the form of debt or equity as long as the loans were approved by its board. That is exactly what local developers need: a partner willing to invest in speculative ventures deemed safe because market demand is so strong and well known.
The bank would have 11 board members — four appointed by the governor; four by the Legislative Council; and three held by the state treasurer, head of the New Mexico Mortgage Finance Authority and the secretary of the state Economic Development Department. Both the council and governor would appoint one person experienced with infrastructure, housing, codes and other areas of community development.
The bank would be seeded with $50 million from the state treasurer and $50 million from the state’s Severance Tax Permanent Fund.
I know a Santa Fe landowner/developer right now in dire need of $2 million to break ground on a local subdivision. He made the round of “local” banks who were happy to lend it if he deposited that amount in their banks or signed personal guarantees using $2 million of other assets. Ain’t happening.
The developer is offering 8 percent interest and 10 percent equity of profits, and he can pay it all back in two years of construction and sales. Unlike investing in a small business that may take years to become profitable, infrastructure loans, although with higher amounts and higher risk, pay back fast.
The purity of market forces is felt strongly in homebuilding environments. It is also the only way we get affordable homes built. Show us the money, and we’ll show you the houses.