June 25, 2018
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Why Maine needs a public bank

The Bank of North Dakota, the only state-owned bank in the United States, has $5 billion in assets and contributed about $340 million in earnings to state coffers in the 12 years through mid-2009.
By Randall Parr, Special to the BDN

One state that emerged from the 2008 panic-recession without budget shortfalls was the “State of North Dakota Doing Business as Bank of North Dakota,” the nation’s only combined state-public bank.

Without a state-public bank — which Maine’s Legislature had the opportunity to create earlier this year — Maine lawmakers had to raise taxes in 2013 to meet revenue shortfalls in the aftermath of the 2008 recession. A public bank could have insulated Maine from reduced tax revenues during economic contractions, increasing liquidity, jobs and personal income, as the Bank of North Dakota has done for that state.

Unlike other businesses, banks create money when they loan it. This enables a public bank, modeled after North Dakota’s, to lift the economy on a tide of new liquidity, yielding many economic benefits. The 2013 “Maine Treasurer’s Cash Pool Report” indicates millions of dollars were deposited by Maine in private banks and U.S. government securities during the fiscal year that ended June 30. If invested in a state bank, it could have created an equivalent amount of credit, which the “money multiplier” could have multiplied to billions of dollars.

Public banks have a number of advantages. They can increase the availability of low-cost credit, especially when commercial banks are more hesitant to lend. North Dakota’s public bank, for example, collaborated with private banks at the peak of the recession, between 2007 and 2009, by contributing to the loans they made. This freed up credit and kept it in North Dakota, so banks could boost their local lending power and help small businesses create jobs.

Indeed, North Dakota’s public bank has helped to strengthen commercial banks in the state, according to the Public Banking Institute. Because North Dakota has a public bank, its private banks have higher average per-capita lending, greater loan-to-asset ratios, and higher loan success rates than other states without public banks.

Private banks in Maine could benefit if Maine formed a public bank. A public bank could also prop up the state’s finances.

Profits from a public bank in Maine could be returned to our treasury. The Bank of North Dakota returned about $300 million in profits to North Dakota state coffers between 2000 and 2010. That reduced the need for taxes that impoverish low-income workers. During the recession, North Dakota was the only state to run a budget surplus and cut personal and business taxes.

A public bank could also cut state borrowing costs, since the state could borrow interest-free from itself, up to its liquidity limit, or externally at the federal funds rate, which is cheaper than the state’s typical borrowing rates.

In fiscal year 2013, Maine could have saved much of the $122.2 million it spent on debt service costs by borrowing from its own public bank and used those funds instead to meet other budget needs.

Depositing taxpayer money in a public bank could also insulate our money from the risks inherent in banking with an entity that engages in risky investment practices.

North Dakota has the lowest unemployment rate in the United States, thanks in part to an energy boom that has boosted the state’s economy. The state’s public bank has aided North Dakota’s unprecedented economic growth.

Public banks helping to finance new businesses improve income distribution, enhance economic sustainability, strengthen economic competition, reduce wealth concentration, increase innovation and increase social justice. Public banks could create more stable, independent, self-reliant economies with more financial opportunities for people to succeed in Maine without leaving the state.

Randall Parr lives in Appleton.

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