Op-Ed: Biden’s American Rescue Plan can help rescue NJ’s public bank

John J. Metro | March 26, 2021 | Opinion
Rather than parking taxpayer dollars in corporate banks, a public bank will provide below-market-rate capital to creditworthy and socially beneficial projects
John J. Metro

The state of New Jersey, its 21 county governments and 565 localities hold billions of public monies in private banks. These funds are managed by commercial banks and have been used to bankroll destructive enterprises such as private prisons, immigrant detention centers, assault weapon manufacturers, fossil-fuel infrastructure and additional properties that prioritize profit over ethical and moral decision-making. Some of these institutions also engaged in risky and fraudulent practices that collapsed the global markets during the 2008 financial crisis, particularly in the mortgage derivatives segment.

Now New Jersey has an opportunity to build an alternative banking operation through locally controlled, ethically, socially and environmentally responsible public banks that will permit cities and counties to recapture public dollars and have a say over community financing.

The idea of creating this type of public entity for New Jersey was first proposed as a campaign promise by then gubernatorial candidate Phil Murphy in 2017, but the only step that has been taken toward achieving that goal was a 2019 executive order that created and appointed a 14-member implementation board. With a large influx of over $10 billion from American Rescue Plan allocations coming to the state over the next two years, it is now time to successfully implement this plan by taking advantage of this immediate cash inflow — the necessary start-up liquidity required to establish the banking enterprise.

Unlike private commercial banks, a public bank is a financial institution maintained by a government entity like a city or county, with a nonprofit civic mission and governed by a public commission, whose interest and profit belong to the community. Deposits of governmental revenue will create loans locally with profits and interest yielded to localities and their ability to leverage capital to serve the public instead of private shareholders. Rather than parking taxpayer dollars in corporate banks, funds will go into the public bank, which will provide below-market-rate capital to creditworthy and socially beneficial projects.

The Bank of New Jersey

The Bank of New Jersey will accept and insure state, county and municipality deposits, secure liquidity and provide all the banking and purchasing services for these public organizations, as well as offer informed, targeted loans to the responsible institutions in the local economy sectors where capital can make a calculable difference in residents’ lives. By recirculating New Jersey governmental deposits into local lines of credit and investments, a public bank will grow the economy faster than if that same money were invested in Wall Street banks and paid in fees to brokers. No longer will new infrastructure projects, schools and transportation designs be subjected to excessive interest paid to bondholders, making up approximately 50% of all spending on infrastructure when incorporating the life of the debt interest. A public bank will finance these investments at a fraction of the price of private capital, meaning if the people fund public projects themselves through a public bank, they can halve infrastructure costs and multiply their communities’ abilities to invest.

To guarantee efficiency and transparency, the implementation board must design the bank charter in an independent mandate that’s free of political interference and nepotism; the institution will be prohibited from unsafe and unsound banking practices and will develop a strict order to safeguard and extend assets through loans to local businesses and public entities. Additionally, the board must comprise a mixture of qualified banking professionals, certified public accountants and members of the public — independent of political patronage.

It is time for New Jersey to develop a banking system that reflects community values and invests in community-identified priorities. Doing so creates a multigenerational source of capital that funds long-term impact purposes for residents and businesses and keeps public money invested locally to serve a public purpose.