State treasurer prefers local investments to public banking

State Treasurer Beth Pearce isn’t keen on setting up a public bank in Vermont.

“The presumption that a state bank is the solution to something is premature,” she said.

Pearce would rather utilize existing finance structures in new ways to address the state’s unfunded capital needs. The sentiment surfaces as advocates for public banking have renewed their call for a new financing paradigm.

Currently, several quasi-public agencies sell bonds, then loan that borrowed money to private businesses, nonprofits and individuals: The Vermont Economic Development Authority provides business loans, the Vermont Housing Finance Agency supports affordable housing development and upgrades, the Vermont Student Assistance Corp. helps Vermonters pay for post-secondary education, and the Vermont Municipal Bond Bank facilitates loans for capital projects in cities and towns.

State Treasurer Beth Pearce. File from Nov. 22, 2011.

State Treasurer Beth Pearce.

Those agencies could be consolidated within a state-run bank, some advocates for banking reform suggest. Sen. Anthony Pollina, P/D-Washington, for one, wants to study the feasibility to moving the state’s financial assets out of private institutions, such as TD Bank. The public bank would loan money to state-based initiatives, as opposed to a private bank’s pooling of state and other deposits to be distributed around the world. The public banking movement has gained traction this fall with a grassroots effort to place discussion of the topic on town meeting agendas.

Pearce says she understands the sentiment, but disagrees with the strategy.

“I share people’s concerns and, frankly, the anger (about) Wall Street with the recession,” she said. “But I think to jump to the conclusion that we need to replace a system as opposed to maximize the use of our existing resource … is the wrong way to go.”

Local investment committee

To that end, Pearce is working with an ad-hoc group of state financing authorities to address capital needs not being met by the private market. In addition to borrowing through the sale of bonds, agencies such as VHFA and NeighborWorks of Western Vermont can borrow a limited amount of money from the state.

VEDA was the first agency to benefit from the Local Investment Working Group. In June, Gov. Peter Shumlin signed H.395 into law, creating the Vermont Sustainable Energy Loan Fund with $10 million to help finance sustainable energy projects for Vermont businesses and agricultural concerns.

The bill also authorized Pearce’s office to create two “short-term credit facilities,” through which the state can loan money for similar energy projects. The housing finance agency is currently negotiating a $2.8 million loan, and NeighborWorks of Western Vermont has secured $2 million. About $2 million more is left to be allocated.

Pearce underscores that the treasurer was not given appropriations authority, but rather the ability to loan certain funds to specific entities. The money will be paid back with interest — low enough for the loan to be attractive to the agencies, and high enough to yield more than a typical bank account might afford.

“More energy efficiency capital gets out there,” she said. “And we’re creating more efficient delivery of those services.”

Agencies can and do still borrow private funds, and they now can supplement that with what the Vermont treasurer makes available. Pearce conceded that state financing has replaced some of what VEDA would have borrowed at a higher cost from private institutions. But on the whole, she says, she likes this system because it adds to existing borrowing power. The opposite is true of public banking, she said.

“It’s replacing one form of capital for another,” she said. “To me, a solution needs to be additive.”

Public banking proponents suggest that keeping all the state’s deposits in a state bank would save money now spent on fees and services. That would free up funds to increase financing for agencies like VEDA and VHFA, the argument goes.

Long-term lending

Along with Pearce, VHFA director Sarah Carpenter is not convinced about the merits of public banking.

“I’m a little perplexed about how that group thinks they’re going to get the capital,” Carpenter said. “Most of the money comes in as taxes and goes out as paying bills. So I’m not sure how they would have access to long-term capital, which is critical to most lending activities.”

VHFA, in particular, requires long-term loans to fund construction and upgrades to multi-family homes around the state. In fact, regarding the pending $2.8 million Treasury loan, the time frame for repayment is part of what the agency is now negotiating with Pearce’s office.

Carpenter understands that the state is reluctant to make loans for longer than 10 years at a time due to concerns about “liquidity” — or having money on-hand when the state needs it.

“But in the housing world, that (10 years) is short,” Carpenter said.

This aspect of the deal returns the situation to the crux of the original problem the working group is trying to solve. VHFA is not having too hard a time getting short-term loans on the private market. It’s long-term loans that a hard to come by, and the state is trying to help. But long-term loans are hard for the state to offer, too.

Cost of borrowing

Scott Giles, president and CEO of VSAC, says his organization’s financing is more secure in the private market. His stake in state financing is therefore lower — whether through the working group or from a potential state bank. But he follows both discussions with interest.

“As a citizen, it makes sense to explore any options that might provide us the opportunity to … generate wealth and capital within the state,” Giles said. “The proponents of the state bank have done an excellent job of trying to articulate why they think a state bank is a good idea.”

As the head of VSAC, however, it’s more a theoretical inquiry for Giles at this point. Due to regulatory changes in 2011, the vast majority of student loans are now in the hands of the federal government. VSAC had been the primary lender for Vermonters pursuing higher education, and got involved in the working group when the organization’s needs were greater.

But now, the lending arm of the organization only gives out about $25 million per year in the state — compared to an estimated $350 million provided by the federal government.

Giles said VSAC’s remaining capital needs are more than met by the private market. He’s looking into creating a loan product directed more toward parents of students than students themselves, in which case lending potentially could double. But even still, Giles feels that need could be entirely satisfied by the private bond market.

With its capital needs met, Giles said, VSAC is “agnostic” on the concept of a public bank. Right now there is no problem with student loans, he said, so from the perspective of VSAC’s mission, there is no problem a public bank could solve.

“That having been said, if the treasurer finds a way we can do this less expensively, we’d be interested,” he said, because it would mean VSAC might be able to offer lower-priced loans to students and families.

Hilary Niles


  1. Sandra Bettis :

    so, in other words, she wants to keep sending our money out of state to a bank that not only is not vested in vt but is also vested in fracking?

  2. Stan Hopson :

    Somebody should be keen on asking Beth Pearce if she is still billing thousands and thousands of overtime hours in her office to Vermont taxpayers? It’s been going on for years, but doesn’t seem to bother anyone in Montpelier.

    Is she still charging off the overtime to my pension fund?

    Digger? Anyone?

  3. Connie Godin :

    I like her, not a politician.

  4. Elisabeth Hebert :

    I agree with Sandra – at least choose another bank and not TD to keep our money. There is a very good Vermont Savings Bank, wouldn’t that be a better place to keep our State-Money?

  5. Gary Flomenhoft :

    Beth Pierce is doing an excellent job in her efforts for local investing, witness her support for H.395 and making money available to local agencies. That only scratches the surface of the many efforts she is making in energy, housing, transportation, etc.

    However, her opposition to a state bank is premature. In particular she has one fact completely wrong, in claiming that public banking “does the opposite of adding to existing borrowing power.”

    In 2009 Vermont had $102 million in economic development lending while North Dakota had $1333 milliion. Why? Because the bank of North Dakota leverages investment by local banks, and ADDS to existing borrowing power.

    Pierce is entitled to her opinion about state banks, but not her own facts. Public Banks expand borrowing power, they don’t subtract from it. Ask any banker in North Dakota.

  6. Bruce Post :

    Having worked in North Dakota as the State Director for a U.S. Senator and executive director of the state teachers’ union, I lived with the Bank of North Dakota without thinking of it as the “socialist threat” some label it. Heck, a former president of the BND went on to become Governor and now a U.S. Senator from North Dakota. And, he is politically conservative, as is most of the state.

    I get back there every summer to visit my wife’s family and, as a result, maintain an acquaintance with a few state legislators. One recently wrote me that Bank of North Dakota “works great” and contributes profits to the State of North Dakota every year. He feels, though, that right-wing opposition would prevent other states from establishing a similar entity, today.

    In my mind, the right wing is not the greatest impediment to studying the establishment of a state-sponsored public bank in Vermont. I believe the obstacles are: 1. inertia; and 2. dominant financial and corporate interests.

    Of the two, inertia is probably the easiest obstacle to overcome. The comments from VHFA’s and VSAC’s leadership are to be expected; after all, they are trying to protect their bureaucratic turf and privileges. Of course, if there is a will, there is a way.

    Obviously, the large corporate interests will be the biggest impediments, and I am not just talking about Wall Street. Despite our state’s reputation of independence and grassroots government, Vermont has for much of its history been dominated by elite circles that had and continue to have an out-sized and determinative impact on politics and state government. The industries and players may change, but the corporatist beat goes on, even in Vermont. Lumber, banking, extractive industries, railroads, private utilities and even the ski/real estate industry are a line-up of the enterprises that historically have thrown their weight around to great effect.

    Quite frankly, what’s the “dough boy” afraid of ( by “dough” I mean money)? A comprehensive study certainly should pose no threat unless even the mere thought of a state bank needs to be expunged. As Leonard Cohen’s great song Anthem reminds us, cracks are what let the light in.

    So, Vermont, let some light in!

    Two final thoughts:

    1. I found this analysis by Cairn Cross on VTDigger to be informative and professional (; and
    2. I disagree somewhat with Connie Godin. Yes, Beth Pearce may be likable, but she most assuredly is a politician, having run for statewide elected office.

    • Sandra Bettis :

      it seems the biggest impediment in our state to a state bank is beth pearce. does she have some connection to td bank that we don’t know about?

  7. I am posting what Scott baker write for this discussion:

    Scott Baker, NY Coordinator for the Public Banking Institute:

    “I haven’t looked at Vermont’s CAFR to the same degree, but since the population is about the same as North Dakota’s, it’s not unreasonable to estimate their available CAFR non-capital assets are the same as well. It would not be hard to work out funding for a half billion, or even 1 billion dollar public bank out of that. More capital could be added, or grown organically out of successful loans, over time.

    This is only the first problem with the article.

    The second omission is almost as inexplicable.
    The reporter, Hilary Niles, seems to have no idea of what fractional reserve banking is, nor do the Treasurer or other officials seem inclined to tell her. Under fractional reserve banking, practiced by every bank, loan amounts are created when the loans are made and are NOT taken from deposits. It is true that a conservative, responsible bank, like the Bank of North Dakota (BND), but UNLIKE the money center banks like the 19 TBTF banks which leverage their non-loan investments with derivatives etc., will keep their loans to within a fraction of their deposit base – as former Senior VP of the BND answered during the first PBI conference “You had better be careful with loaning the state’s money, since there is no way to get it back if you get it wrong.” However, that doesn’t really change the fact that money is created when a bank makes a loan, as a debt to the borrower, but an asset to the bank. That is why depositors do not have to fear the vault will be empty when they come to retrieve their deposits (if a bank has made enough bad loans, that is something else, since then those loans will have to be written off and the assets will become liabilities, or losses. If that happens enough, there will be a liquidity issue and depositors won’t be able to get back their deposits).

    Third, the Treasurer seems committed to “a solution (that) needs to be additive.” While it would be nice, for her office, to be able to allocate more funds, and maybe not as nice, from her point of view, to lose access to funds her office now controls, but which could be used to fund a public bank, that does not address what would be in the best interest (using the term in both senses) for the people of Vermont. In addition to the relatively small savings in “money now spent on fees and services” cited by the reporter, there is the much bigger consideration of a dividend returned TO the state, instead of interest payments taken FROM the state. The BND has returned $30m/year for over 10 years – not bad for a state with less than 700,000 people over that period (though growing). Of course, a state like Vermont could expect similar returns if the bank was scaled up to North Dakota’s size, but even a smaller bank would return something. Then too, the smaller civil service salaries paid to the officers of a public bank would leave more for the bank to loan as well. (Somewhere along our political history, people seem to have forgotten it is the public sector, not the private one, that is cheaper to run).

    The Vermont Housing Finance Agency (VHFA) complains that they “require.. long-term loans to fund construction and upgrades to multi-family homes around the state” and for similar needs, but then goes on to say they are negotiating how to arrange that with the Treasurer. These are 10-year, or longer, loans, not unlike what a public bank might finance. So, it seems, pending successful “negotiations,” that the Treasurer already has enough long-term liquidity to support such loans. Why not do so through a properly regulated public bank, which would make such loans routinely, and not under “negotiated” special circumstances? The source of the money would be the same, only the people controlling it would differ.

    Finally, the “short term credit facilities” written of in the article may provide some small amount of money for things that banks were not going to fund anyway, but “Agencies can and do still borrow private funds,” according to the article, which means they are paying interest to private banks, ultimately. These so-called private-public partnerships are usually a losing proposition for the taxpayer and a risk-free winning one for the private lenders behind it all.

    In short, neither the public officials nor the reporter, have offered any substantive reasons why Vermont should not have its own public bank.”



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