By Mike Krauss
Bucks County Courier Times, February 9, 2015
Across the nation, in Pennsylvania and more than two dozen state legislatures and city councils, a well organized effort is underway to create a new tool to insure sound municipal finances and economic development: public banks, to take hundreds of millions of taxpayer funds out of Wall Street banks and put them to work locally with our community banks and credit unions for locally directed economic development and jobs creation.
The Wall Street banks and their allies are not anxious for the competition for our deposits, and want to keep them to underwrite their speculation in derivatives and commodities.
Last November nearly two dozen town meetings in Vermont voted strongly to support the creation of a state public bank. A solid measure of voter intent.
Armed with that support and the data to demonstrate conclusively the benefits, public bank advocates pressed the state legislature for a bill to create the bank.
But the political and economic elites of the state, led by the state treasurer, closed ranks and turned that effort aside, agreeing only to vote an appropriation of ten percent of the state’s revenue reserve to fund a new economic development initiative, apart from several other existing development agencies.
Supporters of this initiative rightly claim that it will make new funds available for investment in the state, this year about another $10 million.
But it is a setback for public banking.
Vermont public banking advocates have been maneuvered into creating yet another political lending agency, of the kind typical of the old, controlled economy which the voters in the town meetings were hoping to escape.
The network of interests that will manage and benefit from this new Vermont agency — politicians, political appointees, the professionals they retain and fund in the deal making process, the politically connected borrowers and the politicians they support — will grow politically more enabled and will resist any future diminution of their position, personal advantage and political power with the creation of a public bank that will make a claim on their funding source.
And while more of the state’s revenue will now be directed into some form of economic activity in the state, few if any of the other benefits of a public bank will be realized.
This agency will not direct any profits into the state’s general fund and will not be self-sustaining, requiring an annual appropriation of state revenues which could easily be cut or eliminated altogether in the next economic downturn.
This agency will not be a replacement for municipal rainy day funds that yield next to nothing. Nor will it be a source of immediate and low cost emergency relief funds, to meet natural or man- made disasters or budget shortfalls.
And as it is not a bank, this new agency must deposit its funds in a bank — no doubt, the Canadian mega bank now favored by the state treasurer — and pay the substantial fees for services common to such arrangements.
This new Vermont agency is a vertically integrated lending process controlled by political and economic elites. What was not achieved in this legislation is the singular benefit that owning a bank provides — the ability to create “new money” at affordable interest in the form of loans into the local economy.
Public banks facilitate a lateral and collaborative sharing of decision making in the creation of public credit and its cost, and its distribution into the local economy, separated from political management and working through a network of independent commercial lenders which are part of the local community.
The forward looking energy of those November town meetings has been deflected. There is now no public bank legislation pending in Vermont. Nor will there be, any time soon. It has been pushed off the agenda.
The new loan program was set to automatically expire in July, but the Vermont Bankers Association, representing the mega banks, already supports its continuation as a hedge against creation of a public bank.
Supporters of public banking in other states and municipalities should take heed of this cautionary tale. The path to a new and more democratic economy does not lead through creation of yet another political lending agency of the status quo and the old economy.
The first step on that path is clearly marked: banks owned by the public.
Mike Krauss is a founding director of the Public Banking Institute and chair of the Pennsylvania Project. Email: mike@mikekrausscomments www.publicbankingpa.org