A push to create a publicly owned financial institution in Washington has gained traction among key legislative leaders in Olympia, with 44 House members and 11 state senators signed on to bills that would put the state in the finance business.
The idea faces countless legal, financial and political obstacles. Symbolically, a State Bank of Washington faces a problem because its very name references two oft-reviled institutions: state government and the banking industry. To overcome that obstacle, the proposed legislation would establish something called the Washington Investment Trust, eliminating the troublesome words “state bank.”
Nationally and locally, the Occupy movement has brought new energy to the previously little-noticed push for state-run banks, which would be modeled after the nearly century-old Bank of North Dakota, the only state-owned bank. Now, more than a dozen states are looking at the North Dakota bank as a possible model for reducing financing costs for government services ranging from infrastructure construction to student loans. Proponents of state-owned banks in Washington and Oregon described the merits of such a bank to about two dozen local residents at a Wednesday evening meeting hosted by Occupy Vancouver.
Cindy Cole of Seattle, a founding member of the Washington Public Bank Coalition, said the proposed bank would not be a retail operation competing with existing banks. Instead, it would be a sort of banker’s bank, similar in concept to the Federal Reserve. All state taxes and fees would go into the Washington Investment Trust, and that money would be used to supplement and support community banking services. The bank also would finance infrastructure improvements and issue loans to local governments, at a
lower cost than the bond market. The bank would also administer the state student loan program.
Some 70 percent of Washington’s government investment funds go to banks based outside the Northwest, with much of the money landing in large national banks, Cole said. With a state bank, that money would remain local, lowering borrowing costs for public services and generating income for the state, she said. A similar push is underway in Oregon, but that state’s short off-year legislative session dims chances for a state banking bill to pass, said Jared Gardner of Oregonians for a State Bank.
In Washington, a state bank proposal died in the 2011 Legislature, and the current proposal is scaled back significantly because of constitutional and political barriers, Cole said. The Washington Constitution declares that the state cannot lend its credit to “private entities,” which could restrict a bank’s operations. Courts have allowed public lending for public good and to help the “poor and infirm,” which opens the door to student loans, she said.
The possibility of a Washington state bank got a boost when House Speaker Frank Chopp called the measure a top priority in his speech opening this year’s session. But the measure, as it now stands, would give the Washington Investment Trust a far narrower mission than the Bank of North Dakota, Cole said. “Hopefully you get your foot in the door, and it can be expanded,” she said.
That foot is getting plenty of stomping from opponents. The measure has no Republican supporters in the Legislature, Cole said. It faces opposition from State Treasurer Jim McIntire, a Democrat and former University of Washington economics professor, and from the Community Bankers of Washington trade group. National bankers associations and bond market lobbyists also oppose state efforts to replicate the Bank of North Dakota, Cole said.
This week, the National Federation of Independent Business/Washington, with 8,000 members, released results of a member poll showing 87 percent opposed to the Legislature establishing a state-owned bank. Five percent offered support while the rest were undecided.
Opponents say the state doesn’t have money to launch the bank and build capital reserves, and that its operations would duplicate existing service programs. They’re skeptical of government’s ability to operate efficiently, and some argue that the bank would compete unfairly with private banking services.
“This would be a new layer of bureaucracy,” said John Collins, president of Community Banks of Washington. Collins said he has spoken to his counterparts in North Dakota, who say that the Bank of North Dakota is not integral to their operations. The proposed Washington legislation is in House Bill 2434 and Senate Bill 6310. Locally, state representatives Jim Moeller and Sharon Wylie, both Vancouver Democrats, are co-sponsors of the House legislation.