Business & Economy

Public banking advocates release economic study

Gwen Hallsmith (from left); Gary Flomenhoft; Sen. Anthony Pollina, P/D-Washington; Sen. Richard McCormack, D-Windsor; and Rep. Susan Hatch Davis, P/D-West Topsham, presented a preliminary study of public banking in Vermont at the Statehouse on Tuesday. Photo by Hilary Niles/VTDigger
Gwen Hallsmith (from left), Gary Flomenhoft, Sen. Anthony Pollina, P/D-Washington, Sen. Richard McCormack, D-Windsor, and Rep. Susan Hatch Davis, P/D-West Topsham, presented a preliminary study of public banking in Vermont at the Statehouse on Tuesday. Photo by Hilary Niles/VTDigger

Advocates of public banking, so far unsuccessful in their quest to get the Vermont Legislature to study the possibility of setting up a state-owned bank, have taken the task upon themselves. At a news conference Tuesday in the Cedar Creek Room of the Statehouse, Sen. Anthony Pollina, P/D-Washington, and others presented research commissioned by the group Vermonters for a New Economy.

The research was conducted by the Political Economy Research Institute at the University of Massachusetts-Amherst and prepared by Gary Flomenhoft, fellow at the Gund Institute for Ecological Economics at the University of Vermont. It was paid for by the Donella Meadows Institute of Norwich.

Flomenhoft said about $236.2 million of new credit could be created in the state, as well as 1,000 jobs and $100 million in savings. For the full report, see the document link below.

The numbers are neither comprehensive nor final, Gwen Hallsmith said. She’s an organizer with Vermonters for a New Economy and a board member at Donella Meadows. Hallsmith is also the director of planning and community development for the City of Montpelier, but she emphasized she was not wearing that hat at the news event.

“This is not the kind of study we (are) pushing the state to do,” Hallsmith noted. She indicated that more data points would be incorporated into a legislative study, which also would ask more questions. “(This) is really a very small study that can be seen as the first step for more work that needs to be done to understand this fully,” she said.

For example, a longer timeframe might be necessary if the state were to officially engage the issue. The New Economy study based its calculation of new credit on the the state’s average daily balance of unrestricted funds in fiscal year 2013. State Treasurer Beth Pearce noted in a memorandum to Pollina in July that “cash balances are very volatile,” and as recently as 2003 the state had to borrow money for operational costs.

Aside from more numbers, some persistent questions that advocates hope will be addressed in a legislative study include the amount of capital that would be required to start a state bank; the arrangements between the state bank, state lending agencies and private banking institutions; and risk management.

Pollina stressed that the goal of the research was not to undermine local banks, but to examine the possible economic impacts of a state-owned bank. His proposal, loosely modeled after a state bank that North Dakota set up in 1919, would move the state government’s cash deposits from commercial banking institutions into a state-owned bank.

A state bank could consolidate the state’s existing lending agencies into a new financial and organizational architecture, Pollina said in an earlier interview. The Vermont Economic Development Authority, Vermont Housing Finance Agency, Vermont Student Assistance Corp. and Vermont Municipal Bond Bank technically are not banks, although they do make loans.

Correction: This article was updated on Wednesday, Nov. 6, to reflect Treasurer Beth Pearce’s memo regarding the volatility of the state’s unrestricted funds.

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  • Jim Barrett

    This is another attempt by the socialist to now get a state run bank to do what has been done for years in the private market. This is expected as this state has gone to a socialism unseen in the history of Vermont. Run all banks in Vermont out of business and expect the rest of us to pay and pick up the pieces left by this bunch in Montpelier. Again, many of you voted for this left wing extremist group and now you can enjoy.

    • Alex Prolman

      A) Not an “extremist” position at all. Conservative North Dakota started theirs some 75 years ago. Most countries around the world have one. Many states across the country, regardless of political bent, are pursuing this option. If taxpayers send millions to Wall Street each year that they could keep in their communities, help funding a neighbor’s business, etc, why not try to hold onto some of that? We’re just giving away your money if we choose *not* to form a public bank.

      B) A public bank will not run VT banks out of business; it will help them compete against the few enormous corporations that dominate the global financial markets and send the world into turmoil every decade or so. To my knowledge, a public bank is in a sense a ‘banker’s bank’–that is, you and I wouldn’t be able to borrow from them, but the local banks would, if (for example) they were under-capitalized for any reason. TD, Bank of America, et al never have that problem, but I’d bet the credit unions and smaller banks do.

      C) Also, seriously, the creation of 1,000 jobs from the consolidation of a few agencies is a bad idea? There are still a lot of people that have a hard time making ends meet, that would stand to benefit (a lot, obviously) if we go through with this proposal. I feel that it’s unwise to turn down a thousand jobs on ideological grounds.

      • Nathan Gardner

        It is not just Wall Street in NYC in the USA – taxpayers are also sending millions to other countries – Canada (TD Bank), Scotland/UK (Citizens Bank) and Spain (Sovereign Bank).

    • Jim Barrett you made this claim about a state bank running private banks out of business in a post to another article and I asked you how a state bank would run them out of business. You did not answer my question in that thread so I will ask it again. How would a state bank run the private banks out of business?

  • Paul Donovan

    Actually, it’s not the first time Vermont has “gone to a socialism”. There was a Vermont State Bank in the early 1800s, for a time the center of Vermont’s financial system. There is a report from 1808 authored by Royall Tyler, Theophilus Herrinton and Jonas Galusha, justices of the Superior Court – pinko socialists to a man, no doubt.

  • Rep. Jim Condon

    The State Bank of North Dakota was started by the Non Partisan League, an off-shoot of the Socialist Party of North Dakota. That was in 1919. Under socialist control, the bank became insolvent in 1921. Even when more conservative types were brought in to salvage it, the state bank still failed to turn a profit until the end of World War II.

    Mortgage lending is, thankfully, much fairer across the board these days then in the distant past on the prairie. The Fair Housing Act of 1968 and the Community reinvestment Act of 1977 put an end to “redlining” and made the distribution of mortgage capital more equitable.

    Here in Vermont, our banks are well regulated. They provide hundreds of jobs and add millions to our state coffers through the bank franchise tax, a tax that is applied to the total amount of deposits the banks have on hand. Creation of a state bank would obviously cut into those receipts.

    Then, add on the creation of “1,000 new state jobs” and the risky extension of 236 million in credit and you’ve got yourself a recipe for a genuine economic disaster.

    We’ve got a lot of issues to deal with in the upcoming session. This should not be one of them.

    • john c. halasz

      !921 was a steep recession year and the entire 1920’s was essentially an agricultural depression. However, the BND wasn’t rendered insolvent by mis-management then, but rather had trouble selling its required capitalization bonds, due to entrenched opposition from out-of-state financial interests, which had been previously dominant. Here’s a link to the history of the BND:

      In my view, the proposal for a public bank in VT is a moderately progressive idea that is worth pursuing. However it is a limited initiative and not nearly as much of a game-changer as some of its supporters seem to think. And there might be alternative functional routes to achieve some of its objectives. But that would require our legislators and governor to step up to the plate and finance needed renovations and initiatives to revive our stagnant economy, rather than dithering to protect the interests of wealthy tax-payers.

  • Paul Bogosian

    This is one of the most interesting and timely public debates we could have. My hope, here, is that facts are allowed to prevail, and my justification for that hope is that it’s being debated in the Green Mountains of Vermont.

  • Peter van Schaick

    A question for Mr. Jim Barrett about his concern that “this state has gone to a socialism unseen in the history of Vermont.” What about the Common Benefits Clause of the Vermont Constitution?

    Our Common Benefits Clause provides: “That government is, or ought to be, instituted for the common benefit, protection, and security of the people, nation or community; and not for the particular emolument or advantage of any single man, family or set of men, who are a part only of that community; and that the community hath an indubitable, unalienable and indefeasible right, to reform, alter or abolish government, in such manner as shall be, by that community, judged most conducive to the public weal.” Vt. Const.

    Instituted for the common benefit of the community and not for the advantage of any set of men sounds kind of socialistic to me. Yet that seems to have been an important ambition of the Vermont leaders who wrote our constitution.

  • Gary Flomenhoft

    Let the red baiting begin! A sure sign hysteria will reign and the facts will take second place.
    I doubt any of these critics has actually read the report.

    “Run all the banks out of business”
    False-North Dakota has 102 banks. Vt has 22.

    “The State Bank of North Dakota was started by the Non Partisan League, an off-shoot of the Socialist Party of North Dakota.”
    False, it was an offshoot of the Republican party. The main organizer A. C. Townley was a former socialist.

    “Creation of a state bank will cut into deposits of VT banks”
    True-$236.3 million would be removed from TD Bank. $236.3 million is 2% of $10.9 Billion deposits in VT banks. Returns to the public bank would have to be compared to loss of bank franchise tax.

    “1000 new state jobs”.
    False-These are private construction jobs funded by the capital finance budget. State economist Tom Kavet calculations not ours.

    “risky extension of 236 million in credit”
    False-34% reserve rate is highly conservative. Bank of North Dakota has a 100% loan to deposit ratio. Fed allows 10% reserve rate. Loans would be to VEDA and VHFA, or capital finance. Are you saying you don’t trust VEDA, VHFA, or funding the state Capital finance budget?

    “A lie can travel half way around the world while the truth is putting on its shoes.”
    ― Mark Twain

  • Bruce Post

    Having been the State Director for a U.S. Senator from North Dakota and also the Executive Director of the North Dakota Education Association, I learned a bit about the history of North Dakota. The NPL was a complex organization and over time it proved somewhat reactionary. It made its share of mistakes, but it faced tremendous opposition from the out-of-state banks and the Minneapolis millers who wanted to have their way.

    That said, North Dakota is a very conservative state, but many, many North Dakotans appreciate the Bank of North Dakota. Here is a link to a Prairie Public Broadcasting historical documentary on the BND:

    As for charges that the League was full of incompetent socialists who ruined the bank, take a look at this list of banks, financial entities and companies bailed out during our current financial crisis: Even “capitalists” can be incompetent, but they still expect the taxpayer to bail them out.

    I would imagine the Legislature, despite facing important issues, can walk and chew gum at the same time. Therefore, a legislatively-sanctioned study of public banking should be something it can initiate in 2014.

  • Scott McCarty

    I would still like there to be a debate in the Legilsature. If North Dakota can make it work, I don’t see how we couldn’t.

    At least debate it and have a conversation. That’s why we send folks to the Legislature.

  • Very simply, the BOND works and has for 100 years to the dismay of wallstreet, which has repeatedly and is now trying to put it out of business because private creation of “money” is criminal according to the Constitution; art. 1, sec. 8, par. 6. the only fair way to generate money and put it into circulation is to have the government do it under strict controls, and I would add control by the states collectively using the 10th amendment to stop especially the federal reserve from this totally abusive and usurious activity.