We live to fight another day! (Wa. State Bank Post-Mortem)

[DBP]

I asked my friend John Repp of the West Seattle Neighbors for Peace & Justice to give me an update on the State Bank Bill. He sent the following response . . .

–David

In the last three legislative sessions in Olympia, Rep. Bob Hasegawa (D-11) has worked very diligently to establish a publicly owned bank. In the 2012 legislature HB 2434, a bill to establish such a bank — called the Washington Investment Trust (WIT) — got 44 co-sponsors. So the idea is gaining acceptance in Olympia, even though it did not pass this year.

HB2434 was written by an Infrastructure Financing Task Force consisting of nine citizens with banking experience. Public banking is a proven concept and was used in the American colonies, as well as in several states in the 19th century. Currently there is a state bank in North Dakota and also an equivalent type of bank in West Germany, where public banking financed the post-World War II economic miracle.

The Washington Investment Trust, if approved by the legislature, will be an infrastructure bank that will allow Washington State to finance infrastructure projects for local government jurisdictions — instead of those jurisdictions having to sell bonds on the open market. This method of financing will significantly decrease the costs of borrowing for cities, counties, school districts and the state itself. For example, the Trust could finance municipal construction at 1% to 2% below current bond rates and still get a higher return to the State than the current practice of investing in Treasury securities. There is the added benefit of insuring that our state tax receipts, which would be the deposit base of WIT, will be invested here in Washington State creating jobs for Washingtonians.

 

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[kootchman]

ND has less people than King County…. and the state is the underwriter. No FDIC protections. I have visions and visions of the state making up budget shortfalls, funding their underfunded pension plans etc. etc.. ND sorta had to come up with a state bank because they each county individually were not attractive to bond investors..plusr a whole lot of ND is federal trust lands for tribes so the Feds pick up all the road, and infrastructure tab or kick in a whole bunch more than WA state would get…. they have agriculture in ND and not much else… I can see it now… a muni with a crappy bond rating gets a state bank loan… putting the state at risk for a sloppy muni for a few extra votes… . King, Pierce, Snohomish, Spokane all have a larger population and tax base than ND. …. I smell a WPPSS fiasco in the making. .. remember that fiasco? ND is is a uniquely rural state with unique rural tax rates (very low) that make any individual country a poor bond risk … that is not the case for WA state. That’s all we need… more state employees. I am skeptical. ONE rural state, with a total population base of 638K, is not a direct match up with WA state… bond ratings keep fiscal discipline in the local munis… a check on their spending and debt loads. Could you imagine Greg Nickels with his paws on a state bank? ye gads!! King County has 1, 938, 000 population with a per capita income of over 62K … ND has the lowest GDP of all fifty states… yes, even Mississippi. WA is hardly in the same class. That’s why they have a state bank.

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[DBP]

Thank you for engaging with me on this, mr. k. I find your comments thought provoking as usual.

1) Population. Yes, ND is smaller than Washington. ND also has oil revenue, which makes ND a better credit risk generally. But the proposed Washington bank (technically now called an “investment trust”) would be allowed to invest only in infrastructure. It could not be used to fund pensions or anything else.

2) FDIC. True again: commercial banks have FDIC protection, which a state bank wouldn’t have. But the state bank still would be secured — by state revenues. And if state revenues fail, then we’re screwed anyway. Ultimately the whole money system works this way. It’s based on “the full faith and credit of the United States,” which in turn is based on the government’s ability to borrow and tax.

3) State bank needed in ND because ND counties can’t raise money on their own. —I doubt it. North Dakota’s bank dates back to the pre-Depression era. Plus, why would ND be different from any other state with rural counties? Those other states weren’t forced to create a state bank; neither was ND.

4) Adding state employees. Yes. A small number. Most bank employees could be transferred from other existing positions in the state Treasury division.

It’s good to be skeptical. I still think this would be worth a try, though, at least on an experimental basis, and I’m sorry it didn’t make it through the legislature this session.

Right now Washington is paying commercial bond rates to finance municipal projects, when we should be getting the same discount financing rates that huge corporations get when they borrow money, because, as a state, we’re collateralized at least as strongly as those corporations.

If having a state bank caused us to embark on building projects we couldn’t afford, that would be a bad thing. But, on the other hand, if we’re going to build the projects anyway, we might as well do it as cheaply as possible. That’s the fiscally sound thing to do.

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[kootchman]

Because North Dakota farm land is relatively unproductive, compared to say… Kansas… it is glacial till and other than the Red River valley … pretty bad. ND was also a Homestead state. It is a very poor state. So sparse in population that there was no banking system..hence the state bank. Today, of course, that is not so, there are many thriving banks..but not pre-depression, The Bakken and Williston basin oil fields are being tapped with shale fracturing.. other then a few “Jenny” wells in W. ND… it wasn’t an Oklahoma for sure! It’s per capita income is still less than 32K. Compared to our robust 64K with 10 times the population. The need for a state bank was initially to buy farm lands… well before USDA programs of the post depression era. Bond yields are at record lows… and we have experimented… with WPPS and we defaulted… go see the Satsop facility. No The state already is NOT meeting it’s fixed benefit obligations in all the state pension funds… last year they were 5 billion short. You pay according to your risk … NO NO NO NEVER!!! This state needs the discipline of having to maintain bond ratings. King County has no problem raising money and bond yields are at record lows. Remember this is the state that in the dark of night after 3 NO votes from the public… decided to classify a damn ball park as an “essential facility” (like a sewer plant, or waste transfer station, or firehouse) so that the voters could not override by initiative, that kind of crap. The found a “whole new meaning” in the term essential facility… that’s the kind of crap they do. We don’t need to “experiment” with a major industrial state economy with access to international markets with their bond offerings. There simply is no “need” for it. BTY corporate bond rates have a higher default rate, followed by…. “investment development bonds”.. ie, building infrastructure in the hopes it will attract industry, housing etc.. see the downgrade this morning of the tunnel revenue projections….to HALF of what they said they would generate when the state, Gregoire, and Nickels were out shilling for the tunnel? General, muni obligations with a good rating pay a lower yield than commercial grade corporate bonds… I doubt ND would charter a state bank today with the oil extraction revenues, oil leases on state lands, and a widespread population of S & L’s, commercial banks, federal farm loan programs.. etc. In fact, they lost so much business they are branching out to gain revenue by making student loans to offset the loss. Hardly infrastructure invenstment is it?

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