Gov. Phil Murphy’s long-awaited first step to establish a public bank in New Jersey has thrilled advocates for financial reform. But it is also generating concerns, including from those who worry New Jersey is a poor fit for a state-run financial institution.
Murphy yesterday signed an executive order that formally set up a 14-member “implementation board” for a public bank in New Jersey. He has also given the panel a year to come up with a business plan and other operating guidelines for the institution.
While the move was praised by financial reform advocates, Republican lawmakers and a representative of the state’s banking community were among those critical of the move.
“It just seems a little strange to be creating another state agency,” said Michael Affuso, director of government relations for the New Jersey Bankers Association.
The basic premise of a public bank is to leverage the millions of dollars in taxpayer deposits that are normally kept in commercial banks and to use them as capital to underwrite loans that serve some sort of public purpose.
Right now, North Dakota is the only state that operates such a bank. But Murphy, a Democrat, made the establishment of a public bank in New Jersey a central issue during his run for office in 2017. Yesterday’s announcement marks the governor’s first significant move toward making it a reality since he took office in early 2018.
“I am so proud to be able to say we are governing as we said we would,” Murphy said moments before signing the executive order during an event in Newark.
Praise from financial reform advocates
Financial reform advocates immediately praised the governor’s action. Supporters included Joan Bartl, co-director of a group called Banking on New Jersey that has long called for the establishment of a public bank in the Garden State.
“It’s very exciting,” said Bartl, who Murphy picked to serve on the implementation board.
Advocates of public banks say they can provide borrowers with fairer interest rates and other favorable lending terms because there’s no need to charge high fees to fund things like large executive bonuses or to pump up shareholder profits. Murphy also suggested a public bank in New Jersey could be used to boost affordable housing projects, fund infrastructure investments and provide better lending terms to college students and small-business owners.
“A public bank is about power to the people,” said Lt. Gov. Sheila Oliver, who was also on hand yesterday as Murphy signed the executive order.
Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, said discussions about establishing a public bank in New Jersey go back decades. She credited Murphy for bringing the idea this far even while acknowledging there’s more work to do over the next year.
“Today marks a very important step toward making a state public bank in New Jersey a reality, and getting some of these very important projects funded,” said Salowe-Kaye, who will also serve on the implementation board.
Under the executive order, the 14-member panel will hold at least three public hearings as it sketches out a business plan for the bank. State Banking and Insurance Commissioner Marlene Caride will lead the board.
Supporting entrepreneurs, small businesses
Tim Sullivan, chief executive of the state Economic Development Authority , said after yesterday’s event that the bank could play an important role in a broader push to improve the state economy by giving more entrepreneurs and small-business owners access to capital in New Jersey.
“We’re trying to shift how the marketplace thinks about a lot of these opportunities,” Sullivan said.
He cited as an example an EDA small-business “microlending” program that currently has only $1 million in available funding.
“It could be scaled up with a public bank, for sure,” Sullivan said. “Hopefully, we can figure out some of the particulars of how this could work.”
Not everyone is thrilled to see the governor advance the public-bank initiative, including Republican lawmakers, who raised concerns yesterday about the potential for taxpayers to take on risky loans.
“This poses too great of a potential liability for New Jersey families who already struggle with taxes,” said Sen. Anthony Bucco (R-Morris).
Bucco also raised concerns about political influence in his own response to Murphy’s announcement, which came as his administration is still in the midst of probing the state’s administration of lucrative economic-development tax incentives. At least one criminal referral has been made as a result of that investigation.
“Governor Murphy needs to focus on New Jersey’s high property taxes and underfunded schools, rather than launch this bottomless money pit that will no doubt be run by politically connected folks,” Bucco said.
One of the big questions the implementation board will have to address is how the public bank would interact or complement existing financial institutions in New Jersey, including credit unions and community banks.
Affuso of the New Jersey Bankers Association said banks already have a responsibility under the federal Community Reinvestment Act to work with low- and moderate-income communities, which would also be one of the public bank’s goals. He also questioned the state’s creation of another financial bureaucracy, since there are already agencies like the EDA, the Higher Education Student Assistance Authority and the Housing and Mortgage Finance Agency operating in Trenton.
“We think we can get exactly where the governor wants to get without creating any additional state bureaucracy,” he added.
Also raising eyebrows was Murphy’s decision to appoint senior adviser Derrick Green to serve on the implementation board alongside advocates like Bartl and Salowe-Kaye, and administration officials like Caride and state Treasurer Elizabeth Maher Muoio. Green, according to northjersey.com reports, was connected to a campaign-finance scandal several years ago in Bermuda. He was never charged with any wrongdoing, but GOP lawmakers had already been critical of Murphy’s selection of Green to serve in his administration before he was picked to fill a seat on the public-bank panel.
“Governor Murphy is once again intentionally ignoring significant issues involving someone within his administration, and doing so conspicuously,” said Assemblywoman Holly Schepisi (R-Bergen). “It is a disturbing trend.”