Public Banking in the United States. A public bank is a bank, a financial institution, in which a state, municipality, or public actors are the owners. As of 2021, the Bank Of North Dakota is the only state public bank in the United States. Under North Dakota State law, the bank is the State of North Dakota doing business as the Bank of North Dakota. The bank is the only legal depository for all state funds. The state and its agencies are required to place their funds in the bank, but local governments are not required to do so. Profits from the bank are either deposited in North Dakota's general fund, or are used to support economic development in the state. The bank is permitted to collateralize government deposits.
State Lending Programs for Local Governments. Washington has more than 80 programs and subprograms administered by 12 agencies that provide financial support to local governments in the state. Some of the larger examples include:
Two programs provide local governments with access to capital via the municipal bond market through programs administered by the Office of the State Treasurer. The LOCAL Program allows Washington municipalities to finance essential real estate and equipment as either a financing contract or lease, also known as certificate of participation). While these certificates are issued by the state, the state’s obligation is limited to the extent that the state is an obligor in the certificates; otherwise local governments participating in a specific contract are named as the obligor. The School Bond Guarantee Program was established in 1999, following a voter-approved constitutional amendment. School districts must apply to the State Treasurer’s Office and demonstrate that their general obligation bonds were approved by voters. The program provides a backup general obligation pledge to school district’s bonds, providing a lower interest rate to the borrowing district.
Washington State Bank Business Plan. In the 2018 supplemental budget, the Legislature included a proviso for the Washington State Office of Financial Management to contract with an entity or entities with expertise in public finance, and commercial and public banking to evaluate the benefits and risks of establishing the bank, and to develop a business plan for its creation and launch. This report was transmitted to the Legislature in May 2020.
Establishment and Activation of a State Bank. A public bank (bank) is established as a public body corporate and politic, and as an instrumentality of the state of Washington. The bank may be activated under the following conditions:
Local banks are permitted to invest in the bank, and the articles of activation must be approved by each, the member local, or tribal governments, that become a member. The State Finance Committee is directed to approve an amount for an initial contribution by local and tribal governments. Five years after activation, the bank shall have a goal of providing 35 percent of the amount it lends on an annual basis to support housing in low to moderate-income areas. The state treasurer is authorized to reinvest balances that are more than sufficient to meet the current expenditures into a public bank.
Operating Board Membership. The operating board consists of nine members including:
One of the three public members appointed by the Governor shall be appointed as the chair of the board and serve at the pleasure of the Governor, with the initial chair having to serve a full four-year term. The state treasurer may designate an employee to act on their behalf. A majority of directors constitutes a quorum. Directors of the bank serve without compensation, but are entitled to reimbursement from the funds of the bank.
Powers of the Operating Board. The board has the authority to hire and fire an executive director. The board must approve the budget of the public bank on an annual basis. The board is directed to establish an internal audit committee.
Employees of the Washington State Housing Finance Commission (WSHFC) will administer and operate the bank. The executive director is funded through the WSHFC budget. The bank may consult with other state agencies at its discretion and without the approval of the WSHFC.
State Oversight of the Public Bank. The state finance committee serves as the oversight board of the bank. The state finance committee may require independent audits, and is subject to audits by the state auditor. The Department of Financial Institutions (DFI) may review the deposits and transactions of the bank.
Powers and Limitations on the Public Bank. The bank is authorized to:
The bank must not:
Financing Powers of the Public Bank. Bonds issued by the bank are not obligations of the state of Washington, and are only obligations of the bank. Such funds are not public moneys or funds of the state and at all times must be kept segregated and set apart from other funds. Obligations of the bank are not obligations of the state of Washington.
Bonds of the bank are subject to such terms, conditions, covenants, and protective provisions as are found necessary or desirable by the bank. Any bonds issued by the bank may be secured by a financing document between the bank and the purchasers or owners of the bonds. The bank may purchase its bonds with any of its funds available for purchase, and purchase its bonds in the open market. Any issuance of bonds requires advance notice to the chair of the state finance committee.
The bank, the members, the directors or agents, nor bank employees are personally liable on bonds or subject to any personal liability or accountability. Any owner of bonds issued by the bank may become a purchaser at any foreclosure sale if the person is the highest bidder.
Depending on the contracts between the bank and its borrowers, the bank may modify the rate of interest, time, and payment of installment of principal.
Exemption from Disclosure. The following are exempt from disclosure:
PRO: The idea for a public bank has been around for a decade. The idea has evolved and the work that has come out of the task force is a professional business plan, that created the structure for this bill. This will provide an additional option for governments to finance needed improvements. Banks are accountable to their shareholders. This bank would be accountable to the taxpayers. A public cooperative bank can partner with other state programs to fill the gaps. The state would share in profits that would be returned to the community. Members pay themselves back, and the profits work for the people. This bill would provide more options to help connect last mile projects like connecting broadband networks to small communities. This will be an independent bank run by banking officials, and be accountable to the public. The public cooperative bank will not be susceptible to fund sweeps because it will be an independent entity. It is a bank of the people for the people. An additional lending authority for communities fighting issues like gentrification and redlining. This is good public policy. Operations would be lower because they would not have branches. There would be more public oversight and transparency because it would be accountable to our elected officials. Counties need reliable resource for investment—private banks are reluctant to invest. This would take the middleman out of what the government takes through taxes and what it pays for with respect to public improvements.
CON: This is a risky use of taxpayer funds and will be more expensive to use than what is currently available. There are examples of governmental entities going into default and having to be bailed out by counties, and the fear is that this could happen on a broader scale if we had a state bank. Only two public banks, North Dakota and American Samoa, are open while many others have failed. Many programs exist to assist rural counties. Many jurisdictions have studied to start a public bank, and no new banks were adopted as a result of those studies. There could conceivably be capital calls to members, and members might not have reserves to pay for those capital calls. The name bank and trust should not be used to describe this entity if you go forward. The public deposit board does not meet frequently enough for oversight. This structure mimics a credit union. This is not a public bank. Oversight is by elected officials, which makes it political. This is an intrusion by the government.
OTHER: Some cities find this concept intriguing. There are questions related to how this feels needed. Cities want grants for projects to keep utilities low. A lot of time cities have no payback options to pay for loans. They need to have very low interest rates. Smaller jurisdictions do not have reserve dollars necessary to fund this. This needs to be additive and not supplant programs. There are a lot of programs out there that need to be maintained. The Housing Commission is supportive of the underlying goals. The Board of Commissioners have not had a chance to meet and determine a position for the board. There is a concern that supporting the bank my detract from the Commission's mission to prevent homelessness and affordable housing.