New Mexico’s strange motto is “It grows as it goes.” We should take that as a threat when the Legislature is in session.
Many Democratic lawmakers want to spend at least $100 million of your money to start a dicey venture. That’s the amount they are seeking to create a public bank.
Proponents make the idea sound like a panacea. With a state-owned bank, they claim, money would stay in New Mexico instead of being gobbled up by the wolves of Wall Street.
Bedeviled developers who want to build affordable housing would have a fresh shot at elusive financing.
Commercial banks would gain a willing friend in the state bank. The public operation could help the private sector offer loans that otherwise might be too risky.
North Dakota, the only state still operating a publicly owned bank, is making a go of it with a population that’s less than half of New Mexico’s. And the Bank of North Dakota opened in 1919. Boosters say this is proof positive a public bank is overdue in New Mexico.
All those blue-sky claims and many more flowed freely last week when House Bill 236 skimmed over its first hurdle. The House Commerce and Economic Development Committee advanced the proposal for a public bank on a 5-4, party-line vote. Democrats voted for the bill, and Republicans opposed it.
Put another way, Republicans were the voice of reason while Democrats waved their pompoms for a bill that is half-baked.
Many advocates of New Mexico creating a public bank like to talk about North Dakota’s experience. They omit that 10 other states once owned banks, but all of them exited the business.
More important, it’s a stretch to compare the Bank of North Dakota to what Democrats propose for New Mexico.
North Dakota’s public bank has one location in the capital city of Bismarck. The bank offers North Dakota residents basic services such as checking and savings accounts. It also provides student and business loans, plus a range of services for government agencies.
New Mexico’s public bank wouldn’t be geared toward ordinary customers.
“It would provide public dollars for public purposes,” Sen. Jeff Steinborn said in an interview.
Steinborn, D-Las Cruces, calls himself the main author of the House bill for a public bank and of its companion proposal, Senate Bill 313.
His description of the public bank serving “public purposes” sounds a lot like what a state agency already does.
The Legislature in 1992 created the New Mexico Finance Authority to help cities, counties and other government agencies pay for public works projects.
The Finance Authority explains its mission as one of providing “low-cost financing for borrowers, particularly those in disadvantaged communities, who might not otherwise be able to access the tax-exempt bond market.”
In sum, the Finance Authority serves as a bank for the public sector.
A legislative staff analysis of Steinborn’s bill contains a critique from the New Mexico Finance Authority’s managers.
Part of it states: “In order for the Public Bank to grow beyond the initial state commitment of $100 million, its lending activity must capture new deposits. The State Treasurer has the option, but not the requirement, and likely not the incentive, to make deposits beyond the initial commitment specified in the Act. The Public Bank will need to attract deposits from either the public sector or the private sector, or both, with no market advantage in doing so.”
Steinborn’s bill would launch the public bank by taking $50 million from the state general fund and another $50 million from the State Severance Tax Permanent Fund.
This is enough to hurt other state programs, but insignificant for a bank. By comparison, North Dakota’s public bank had a loan portfolio of $4.5 billion, according to its annual report issued in July.
How did the frigid, rural state put that much money in the bank? It’s the law. All state funds must be deposited in the Bank of North Dakota.
Presidents of community banks in New Mexico testified against Steinborn’s bill. One reason is governments are customers of hometown banks.
“We have significant amounts of money — public fund money — on deposit that stay in our communities, that we use to reinvest in our communities,” said Jason Wyatt, president of banks in Carlsbad and Clovis.
Some will argue that community banks just don’t want competition from a public bank. They are the same people who claim community banks help Wall Street instead of Main Street.
Jerry Walker, president and CEO of the Independent Community Bankers Association of New Mexico, countered that argument.
“We have some 33 in-state headquartered, home-owned banks,” Walker said. “We employ some 2,800 people around the state [with] 220 locations in every corner, every county.”
Another myth is a public bank headquartered in Santa Fe will invigorate hometown economies.
The bill’s financial analysis states: “HB 236 does not provide the Public Bank with an exception to the Inspection of Public Records Act, which may prove to be problematic if it is to participate in economic development lending.”
The public bank might ask for secrecy while seeking more and more state money — “It grows as it goes.”
New Mexico’s bills for a public bank need years of study, preferably in icy Fargo or Minot. Better yet, send the bills straight to the scrapheap.