Despite being left on the backburner in the State House, a new report suggests Gov. Phil Murphy’s proposal to establish a public bank in New Jersey could play a key role in advancing several big public-policy goals, like boosting investment in infrastructure and increasing access to affordable housing.
The report, released by the New Jersey Citizen Action Education Fund, addresses several issues that Murphy has yet to fully flesh out, including how the institution could be structured and the various ways it could raise capital to support its lending.
But the report’s authors concede their work should remain only a starting point for lawmakers should they decide to revisit the proposal, which was once a leading piece of Murphy’s economic-policy agenda.
“The process for creating a public state bank will require much more research and the involvement of many more expert stakeholders,” the report said.
The idea of establishing a state-owned bank is not a radical one from a historical perspective; there were several such institutions in the U.S. during the 1800s, when commercial institutions often charged interest rates of over 10 percent. But North Dakota’s state-owned bank remains the only one in the country still operating under the type of full-fledged government-banking structure that Murphy has envisioned. While the idea has been explored in other places in more recent years, no state has been able to bring a new public bank to the finish line.
New Jersey may be a prime location
The New Jersey Citizen Action Education Fund’s report suggests that New Jersey may be a prime location for a public-bank revival, given the state has many needs that are not being fully met by commercial banking institutions. It cites gaps in small-business lending, retirement savings, infrastructure investment, affordable-housing financing and the availability of low-cost student loans as examples.
“The primary mission of the (bank) would be to expand access to capital at competitive rates for creditworthy projects that fall within socially beneficial categories and are currently not adequately funded or financed,” the report said.
Murphy has suggested the bank could draw its capital from taxpayer deposits and other resources, which currently are held in large commercial banks that have been making profits off New Jersey’s assets without partnering with the state to fulfill its public-policy goals.
The report highlights such accounts as a source of capital for the public bank, but it suggests there are a host of other potential sources. They include security deposits in landlord-tenant agreements that by law must be kept in interest-bearing accounts. The state could also dedicate a portion of fees that are levied for things like environmental permits, sell bonds, or appropriate funds out of the annual budget to provide seed money for the bank.
Tax proceeds from the expected sale of legalized recreational marijuana could also provide a revenue stream for the bank that could be “used for appropriate social benefit projects,” according to the report. It also argues that the sources of capital should be diverse to ensure that the bank does not rely too heavily on “any single source.”
Key issue: keeping out political influence
The report also addresses one of the key issues raised by critics of Murphy’s proposal, which is whether the state has the ability and expertise to make sound lending decisions free from political influence. It recommends a board of trustees loosely based within the state Department of Treasury be established to manage the bank and its operations. And, in addition to adhering to industry-accepted lending rules and best practices, the report says the board should follow “triple bottom line” lending criteria that would be “sensitive to environmental and social equity public policy concerns, as well as traditional fiscal concerns.”
But left largely unaddressed in the report is the current status of the governor’s public-bank proposal, which hasn’t been touched by lawmakers since a public hearing just weeks after Murphy took office in January. Bills that have been introduced in both the Assembly and the Senate also remain stalled. And while Murphy laid out a major economic-policy agenda earlier this week, he did not highlight any role for the public bank even as he proposed other innovative fiscal initiatives, such as partnering with private-sector venture-capital funds to support more New Jersey-based startup businesses. (Murphy did go on to mention the public bank briefly at a separate event in Asbury Park, suggesting it ties into his goal to boost small-business lending.)
During a conference call with reporters yesterday, New Jersey Citizen Action executive director Phyllis Salowe-Kaye said she’s been pushing for years for a public bank in New Jersey, and Murphy remains the only governor in the country to have fully embraced the idea.
“Since the election of Gov. Murphy, we’ve taken a giant step forward,” Salowe-Kaye said. “We are on our way,” she added.
Beverly Brown Ruggia, the group’s financial justice organizer, also stressed the need for a strong deliberative process as the public-bank idea advances. She suggested advocates in other places where the idea has failed didn’t do a good enough job of bringing together stakeholders. She also emphasized a point that was once a key campaign message for Murphy as he railed against the failings of big, commercial banks.
“We really want to make sure we are using our assets to the benefit of the state,” she said.