Gov.-elect Phil Murphy often told a story on the campaign trail about how, as a relative newcomer to statewide politics, few people in New Jersey had even heard of him before he jumped into this year’s governor’s race. After his victory last week, the same could be said about one of Murphy’s core fiscal-policy proposals — a plan to launch a state-run public bank in New Jersey.
The type of financial institution envisioned by Murphy would take state-government funds now deposited in accounts with large commercial banks, including those based overseas, and use them to back low-interest loans that would serve the public’s interest in New Jersey, including student debt, infrastructure investments, and small-business lending.
Only one other state in the country, North Dakota, currently operates such an institution, meaning Murphy now has a chance to set off a national revival for state banks, an idea that had its heyday nearly 200 years ago but has been rediscovered amid an era of corporate greed and rising income inequality.
Pot and the public bank
The public bank has a tie-in to another Murphy campaign promise, which is legalizing and taxing the sale of marijuana in New Jersey. That’s because federal regulations make it hard for banks in states where marijuana has been legalized to work with cannabis businesses since the feds still consider it to be illegal. A state-run bank could hold the tax revenues generated by those sales if the substance is legalized.
The leaders of New Jersey’s public-banking movement were giddy as they watched election returns during Murphy’s victory party in Asbury Park, and they’re predicting big things now that the issue has the state’s new governor-elect as its champion. Also watching closely from the sidelines is the state’s commercial banking community as it now waits to see when the public-bank campaign promise will eventually turn into a fully detailed policy proposal.
While several states owned banks during the 1800s, North Dakota is now the only state in the country that currently operates the type of full-fledged government-banking institution that Murphy has envisioned.
The Bank of North Dakota was established nearly 100 years ago, at a time when interest rates on commercial farm loans were running as high as 12 percent. Today, the Bank of North Dakota operates with more than $270 million in capital and partners with 100 other state-based banking institutions.
Eric Hardmeyer, the bank’s president and chief executive, described the institution as a “banker’s bank” in a piece published earlier this year by Prairie Business Magazine. He said the state bank works closely with local financial institutions in North Dakota, and also helps with student loans and economic development.
The $2 billion bank
Murphy, a Democrat, believes that New Jersey, with its nearly $2 billion in taxpayer-fund deposits, could create an institution that would be able to operate much like North Dakota’s bank by offering low-interest loans to students, small businesses, and local governments, ensuring the state’s dollars are used in ways that policymakers here see fit.
He first rolled out the public-bank proposal during a major speech on economic policy that was held more than a year before the election at New Jersey Institute of Technology in Newark.
“This money belongs to the people of New Jersey, it’s time to bring the money home,” Murphy said at the time.
But the idea of creating a public bank in New Jersey did not originate with Murphy’s campaign. In fact, Princeton resident Joan Bartl had already been talking up the idea locally, along with Walt McRee, national chairman for the nonprofit Public Banking Institute. Both attended Murphy’s election-night party at the Asbury Park Convention Hall to celebrate his victory.
“They did their homework and we fed them information about national developments and local applications that could significantly improve New Jersey’s fiscal standing from pension funds to infrastructure to student lending,” said McRee, who now leads an organization called Banking on New Jersey, along with Bartl.
“His focus on the bank’s ability to serve the many underserved sectors of our state economy and people is an inspiration in itself,” Bartl said. “There is such need here, and New Jersey is not broke. When we start to examine the possibilities for this bank, people are going to be surprised at what it can do.”
But getting the public bank to go beyond being just a campaign promise could take a lot of time and effort, with reams of both state and federal regulations to sort through.
Asked about the idea during an interview last week, Senate President Steve Sweeney (D-Gloucester) said he was open to getting additional details, but had yet to fully commit his support.
“I have to understand it more,” said Sweeney, who like Murphy, has also called for legalizing and taxing the use of marijuana in New Jersey.
A ‘wacky’ idea?
The idea of creating the first state-run bank in nearly a century in New Jersey also has its fair share of skeptics. Murphy’s opponent, Republican Lt. Gov, Kim Guadagno routinely called the proposal “wacky” during the gubernatorial election, and even members of Murphy’s own party have questioned whether the state’s patronage-driven political culture would be a good fit for a major, state-run financial institution.
For its part, the state’s banking community has adopted more of a wait-and-see posture until Murphy more fully sketches out exactly how the public bank would operate in New Jersey, said Michael Affuso, executive vice president of the New Jersey Bankers Association, a nearly 100-year-old organization that represents some 100 different institutions.
A key issue that still has to be determined is whether the institution Murphy envisions would go beyond harnessing state deposits and look to also use the billions more in local government funds that now are kept in local bank branches located on Main Streets up and down the state, Affuso said. Those deposits are typically used to underwrite loans to people making home improvements and nearby residents looking to launch a small business.
“That is certainly a concern,” Affuso said.
But he also said the organization has already been communicating with Murphy’s camp, and is open to finding ways to partner with his incoming administration.
“I think there are a lot of areas where we can work together,” Affuso said.