Manufactured State Budget Crisis Worsens: We Need a Publicly Owned Bank!

                                                                  By David Samuels

This column appears in the May 8 – 15 edition of the Hartford News…. Trayvon Martin Act Update: The Community Party has not heard a word from WNPR Where We Live host John Dankosky, who promised to talk to us about the Malcolm X Grassroots Movement report on the extrajudicial killing of Blacks by the police, and the efforts by the so-called Connecticut Racial Profiling Prohibition Project to kill our Trayvon Martin Act enforcement language.  Stay tuned…
Last weekend the Connecticut General Assembly passed a state budget bill, cobbled together by Gov. Dannel Malloy’s administration and majority Democratic legislators after poor tax revenues blew a $300 million dollar hole in the budget, one week before the 2014 legislative session ended on Wednesday. The Connecticut Mirror reported that there will be a built in $52 million dollar hole in the new budget, due to the failure to fund health care benefits that are contractually owed to retiring state prison guards. Tax breaks for teachers and consumers will be “pushed back” (translation: they ain’t happening). State jobs will be frozen and eliminated in an effort to save $20 million dollars.  The Mirror reported, “Gov. Dannel P. Malloy and Democratic legislative leaders announced a tentative budget deal Friday that postpones tax relief for teachers and consumers, repeals the launch of keno and relies on tens of millions of dollars in questionable assumptions about savings. Full details of the agreement – the product of hectic last-minute negotiations to counter shrinking tax revenue projections this week – were not released during a late morning press conference at the Capitol. Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, confirmed that the agreement preserves $70 million in new grants to cities and towns, but that it suspends a new, $9 million tax break for municipalities. The deal also cuts about $20 million over several years from a new initiative to shore up the finances of the merged public college and university system. And this year’s budget surplus, once projected at $505 million but reduced this week to $43 million, would be deposited in the emergency reserve, commonly known as the Rainy Day Fund.” The Democrats pulled a rabbit out of their hat Saturday morning, inserting in the budget document what they claim will be $75 million in anticipated revenue from delinquent taxpayers. The Mirror reported that the Office of Fiscal Analysis could not vouch for the “Ante Up, the State is Broke and Needs Your Money” plan. “Nonpartisan legislative fiscal analysts not only declined to confirm the estimate, but added that ‘we have sought, but not been able to obtain other information to support’ the tax department’s assertion.” This plan was not mentioned at the budget press conference the day before. The Democrats again raided the transportation fund and the tobacco health trust and swiped cash from the so-called surplus. Money meant to finance the state’s conversion to Generally Accepted Accounting Principles (GAAP) was also snatched. The Republicans added icing on the cake by introducing a budget which included a provision to refinance the state’s 2009 operating debt to remain in balance. The GOP had previously ridiculed this tactic as a Malloy budget gimmick. .Connecticut Voices for Children predicted this debacle in their July 2013 report on the 2014-15 budget.
Last Friday Malloy administration Chief of Staff Mark Ojakian responded to a reporter’s question about the possibility of cutting the State Earned Income Tax Credit for the poor, which was already cut last year, by saying, “Everything is on the table.” Well, not quite everything; a truly progressive income tax on the rich, closing corporate tax loopholes and implementing regulation of corporate welfare isn’t on the table, in the room, in the house, or anywhere in the neighborhood as far as Malloy and lawmakers are concerned. The projected deficit following the November election is $1.33 billion. Last week during a debate between Republican gubernatorial candidates (Tom Foley did not participate) there was a call for more “shared sacrifice” in the form of additional state employee concessions, layoffs and the repeal of collective bargaining rights (I’m a state worker). State employees have agreed to concessions, including a wage freeze, twice since 2009. During the debate over the budget bill GOP lawmakers read a laundry list of statistics, which they cited as proof that the state is headed in the wrong direction under Malloy and the Democratic Party controlled legislature. These conservatives conveniently left out one number; the $3.6 billion deficit that Malloy inherited from his predecessor, Republican M. Jodi Rell. The common denominator in Connecticut’s economic nightmare are the Democrats and the GOP. While their failed economic policies consisting of coddling the rich and corporations at the expense of the working class and the poor, spending cuts, fund raids and shell games keep this state drowning in red ink, the national movement for publicly owned banks continues to grow. Elected officials on the left and the right realize that public banks are a common sense solution to state budget woes and can be a boost to local economies. Two of the public bank bills that have been introduced in over 25 states were sponsored by Republicans in Arizona and Virginia. North Dakota, the home of the country’s only publicly owned bank, is a red state.  Budget deficits are used as a pretext for the nationwide attacks on public employees. This corporatist agenda is all about using privatization to roll back the wages and benefits of all workers. Once again lawmakers celebrated the end of another legislative session where the issue of poverty and racial economic disparity was ignored. Don’t get it twisted; the $10.10 minimum wage bill, which doesn’t go in effect for another three years, is an election year gimmick which will not change the economic condition of low wage workers. A $15.00 wage indexed to inflation is the real deal. A comprehensive measure like the Malcolm X Grassroots Movement’s Jackson Plan, which was implemented by the late Jackson, Mississippi Mayor Chokwe Lumumba, a Democrat, prior to his sudden death in February, is a true formula for economic justice.  CP will be talking to city leaders in the coming weeks about the Jackson Plan and strengthening fire safety laws.
This week we’ll share researcher and author Stacy Mitchell’s 2011 Yes Magazine column on how public banks can revitalize state and local economies. Stay tuned in the coming months for updates on CP’s A Public Bank for Connecticut campaign.
                                                                  How State Banks Bring the Money Home   
                          Big banks freeze out small business, but North Dakota’s state bank supports local jobs. The idea is catching on.           
                                                                                    by Stacy Mitchell
One of the most significant, but least noticed, consequences of the rapid and dramatic consolidation of the banking industry over the last decade is how much it has hindered the U.S. economy’s ability to create jobs.
To begin to understand this, take a look at each end of the banking spectrum. On one end are the nation’s 6,900 small, locally owned, community banks. These institutions control $1.4 trillion in assets. That’s 11 percent of all bank assets. They currently have $257 billion in loans to small businesses and farms on their books.
On the other end, four giant banks—JP Morgan Chase, Bank of America, Citibank, and Wells Fargo—now command $5.4 trillion in assets, or 40 percent of the total. Given that they are nearly four times as large as all local banks combined, one might expect that they would have made four times the small-business loans, or about $1 trillion. In fact, these banks have a mere $85 billion in small-business and farm loans on their balance sheets.
Why do giant banks make so few small-business loans? Automation is the short answer. The only way these sprawling institutions can function efficiently is by taking a mass production approach to lending: Plug credit score, income, and appraisal into the computer—out comes the loan. That’s why the mortgage business was supposed to be so safe. The economic meltdown of 2007 shows that it’s actually very risky.
North Dakota’s struggling farmers, tired of being at the mercy of powerful out-of-state financial interests that controlled the availability and cost of credit, decided they needed a bank better aligned with their own interests.
Small-business loans are not so easily mechanized. Each is a custom job, requiring human judgment to evaluate the risk associated with a particular entrepreneur, a particular business plan, and a particular market. Community banks excel at this. Their lending decisions are made locally, informed by face-to-face relationships with borrowers and an intimate understanding of their hometown economies. Big banks, whose decision-making is long-distance and dictated more by computer models than judgment, are pretty bad at it. So they don’t make many small-business loans.
It’s no wonder, then, that unemployment has been so persistent. Our financial system is top-heavy with big banks that are scaled to meet the needs of large multinational corporations. The Commerce Department estimates that U.S.-based multinationals have eliminated 3 million American jobs over the last decade. Meanwhile, small businesses, historically responsible for about two-thirds of new jobs, have found it harder and harder to obtain credit.
In short, we have a financial system that is mismatched to the economic needs of American communities. This mismatch will become more acute as we attempt to transition to a carbon-efficient economy, which, by its very nature, will be the domain of small-scale enterprises: local food producers, community-owned wind and solar electricity, neighborhood stores that provide goods within walking distance of homes, and so on. To take root, these businesses will need a robust array of community-based financial institutions capable of meeting their capital and credit needs.
State Banks graphic
What a State Bank Can Do for a State’s Economy
Lots of lending by banks is a measure of a healthy economy.
1. Lending in North Dakota is consistently higher than nearby states that are economically similar. One reason? The support that the State Bank of North Dakota offers local banks. 
2 That’s also why North Dakota has nearly double the number of banks per 100,000 than its neighbors, and more than four times the national average. 

State Partnership Banks

Home of Economy photo by Ellis Grafton
Photo by Ellis Grafton.
There’s no single solution to the thorny problem of how to restructure our financial system, but one of the most promising strategies involves creating state-owned banks that can bolster the lending capacity of local banks, helping them grow and multiply.
North Dakota is the only state, so far, that has a publicly owned bank. Founded in 1919, the Bank of North Dakota (BND) was a populist response to dynamics similar to those we face today. The state’s struggling farmers, tired of being at the mercy of powerful out-of-state financial interests that controlled the availability and cost of credit, decided they needed a bank better aligned with their own interests.
BND is wholly owned by the state, which deposits all of its money, except pension funds, with the bank. BND does not compete with local banks; it does not solicit retail banking business and has no branch offices or ATMs.
Instead, BND partners with local banks to expand their lending capacity. Much of BND’s $2.8 billion loan portfolio consists of “participation loans.” These are business loans originated by local banks, which then invite BND to finance a portion of the loan (and share part of the risk). This enables local banks to make more loans and maintain more diverse portfolios.
Thanks largely to BND, North Dakota has a more robust community banking network than any other state. It has 35 percent more local banks per capita than South Dakota and four times as many as the U.S. average. Small local banks account for 60 percent of deposits in North Dakota, compared to only 16 percent nationally.
Inspired by the North Dakota model, activists and small-business owners in more than a dozen states backed bills this year to create state-owned banks.
Over the last decade, lending by North Dakota’s local banks has averaged about $12,000 per capita (plus about $2,400 in participation lending by BND), compared to just $3,000 for community banks nationally. BND has also enabled local banks to maintain a higher loan-to-asset ratio than their counterparts in other states, which means they devote more of their assets to productive lending, rather than safer holdings like U.S. securities.
Although BND has some loan programs that accept a higher risk or lower return to meet specific economic objectives, such as its Beginning Entrepreneur Loan Guarantee Program, the vast majority of its lending decisions are made on a for-profit basis. It participates only in loans that make economic sense. As a result, BND has pumped $300 million in profit into the state’s general fund over the last decade. (In a state like Illinois that has a population of 13 million, the equivalent return would be about $6 billion.)
U.S. Treasury, photo by Ryan MacFarland
The Public Banking Revolution

From California to Washington, more articles on what state banks could mean for a new economy.
Inspired by the North Dakota model, activists and small-business owners in more than a dozen states, including Oregon, Maine, Massachusetts, Montana, and Washington, backed bills this year to create state-owned banks. Although none of these bills passed on the first round, they did pick up a remarkable amount of support from lawmakers, given how unfamiliar most people, including most local bankers, are with BND.
To help educate lawmakers and counter misinformation put out by big-bank lobbyists, the Center for State Innovation has produced several reports analyzing how a public bank would function in various states. Its analysis of Oregon, for example, concluded that a state bank would help local banks expand lending by $1.3 billion, leading to 5,391 new small-business jobs in its first three to five years.
Many of these states, and others, are likely to take up the state bank idea again in the coming months. Although opponents like to suggest that these proposals would simply create yet another (unnecessary) state loan fund, the real power of a state bank lies not so much in its own lending, but rather in its capacity to support local banks and remake the financial landscape to better meet the needs of small businesses and communities.
Follow CP on Twitter for state, national and global headlines and updates on the status of our Trayvon Martin Act and Safe Work Environment Act.  Check out CP’s No Sellout blog for the archive of our Hartford News columns.  Listen to WQTQ 89.9 FM for CP’s public service announcements on our racial justice initiatives. Contact us at 860-206-8879 or
 David Samuels
 Community Party
Connecticut Mirror coverage of the legislature’s passage of the state budget bill:
Community Party A Public Bank for Connecticut Facebook page:
Center for State Innovation information page on publicly owned banks:
CT Voices for Children reports on the Earned Income Tax Credit, the state’s regressive income tax structure, a plan for corporate tax reform and the need for regulation of corporate welfare:


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