"With the current state of our economy, every dollar counts, yet we're depositing our money in other people's pockets by investing in big corporate banks without seeing much lending in return. It's time for the Mitten State to lend itself a helping hand and establish a bank that is willing to invest in our small businesses and offer the financial support necessary to see job growth."
For startup capital, Senate Democrats suggested that Michigan could sell voter-approved bonds. With an initial capitalization of $150 million, they estimated the bank could lend up to $1 billion to small businesses, students and farmers, and offer low-interest credit cards to consumers. For deposits, the bank could follow the model of the Bank of North Dakota and use state revenues. So says Gene Taliercio, a Republican candidate for the state Senate, who has also put his weight behind the Michigan Development Bank. In a video clip on the website of the local Oakland Press, he says:
"We're talking about restructuring the whole tax system, in the sense that the way its set up is that all taxes are going to go into this central bank. . . . Every dollar that the state of Michigan makes goes into this bank."
The State Bank of Washington
A similar bill, HB 3162, was introduced to the Washington State Legislature on February 1. The bill has generated so much interest that Steve Kirby, chair of the Financial Institutions and Insurance Committee, has scheduled a special work session on it. According to John Nichols in The Nation, the State Bank of Washington was formally proposed by House finance committee vice chair Bob Hasegawa, a Seattle Democrat. Nichols quotes Hasegawa:
"Imagine financing student aid, infrastructure, industry and community development. Imagine providing access to capital for small businesses, or otherwise leveraging our resources instead of having to do it with tax incentives. Imagine keeping our resources local instead of exporting them as profits, never to be seen again--that's what this bank could do."
Leveraging rather than taxing is how private banks have been creating "credit" for centuries. States could do the same thing, cutting the middlemen out of the equation, saving significant sums in interest and fees and generating revenue for the state.
A nonpartisan analysis of the Washington bill prepared for the state legislature noted that the bank would be the depository for all state funds and the funds of state institutions, and that these deposits would be guaranteed by the state. The bank would be run by a board of 11 members and would be chaired by the State Treasurer. It would have the same rules and privileges as a private bank chartered in the state. To get the bank off the ground, voters would have to approve amendments to the state Constitution, since current law prohibits the state from lending credit and investing in private firms.
The Community Bank of Illinois
A third bill, introduced by Illinois Representative Mary Flowers, is on its way through the legislative process in Illinois. According to the Illinois General Assembly website, the Community Bank of Illinois Act would establish a state bank with the express purpose of boosting agriculture, commerce and industry. State funds and money held by penal, educational, and industrial institutions owned by the state would be deposited in the bank and would serve as reserves for loans. The bank could also serve as a clearinghouse for other banks, including handling domestic and foreign exchange; and it could buy property under Eminent Domain. All deposits would be guaranteed with the assets of the state. The Bank would be managed and controlled by the Department of Financial and Professional Regulation, with input from an advisory board representing private banking and public interests.
An amendment to the initial bill would enable the Community Bank of Illinois to make loans directly to the state's General Revenue Fund, helping the state cope with its current budget challenges.
A Massachusetts-owned Bank
On March 12, the Associated Press reported that a jobs bill sponsored by Massachusetts Senate President Therese Murray also includes a call to study a Massachusetts-owned bank. She told a business group that a state-owned bank has worked in North Dakota, helping to insulate that state from the worst of the recession while also keeping its foreclosure rate down. A state-owned bank could spur job creation and free up lending to Massachusetts businesses.
Grandfather of the Concept: The Bank of North DakotaAll of these proposals take their inspiration from the Bank of North Dakota, which was founded in 1919 to resolve a credit crisis like that facing other states today. Last year, North Dakota had the largest budget surplus it had ever had; and it was the only state that was actually adding jobs when others were losing them. In March 2009, when 46 of 50 states were in fiscal crisis, North Dakota was in the enviable position of discussing tax cuts and looking for ways to spend its surplus.
By January 2010, according to a National Public Radio news clip, only two states could still meet their budgets North Dakota and Montana. On February 8, however, the Montana paper the Missoulian reported that the Montana State Legislature's chief revenue forecaster foresees a budget deficit by mid-2011, leaving North Dakota the only state still boasting a surplus.
North Dakota's riches have been attributed to oil, but many states with oil are floundering. The sole truly distinguishing feature of North Dakota seems to be that it has managed to avoid the Wall Street credit freeze by owning and operating its own bank. According to the North Dakota Department of Commerce, the BND turned a profit in 2009 of $58.1 million; and this money goes into the state's General Fund. North Dakota's economy is ten times smaller than Michigan's, suggesting that Michigan could generate $500 million per year in this way; and Washington State and Illinois present similarly inviting possibilities.
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