COMMONOMICS
Growing Our Common Wealth™
AFter the Fire -- Using the Public's Credit to Rebuild
by Commonomics Media Team on November 24th, 2017

​What’s the connection between public banking and natural disasters? Plenty. And anyone with a fiduciary duty involving public finance should pay attention.

When a natural disaster happens unplanned expenses occur, not just for the general public but especially for city and county budgets. Overtime pay, and unplanned direct costs jeopardize the planning that went into the budget. Frequently these government organizations have to immediately cut other budgets, arrange for a line of credit, or plan for some other kind of funding to see them through.

A public bank, a bank that is owned by the city or state government and that uses government deposits to create credit, can provide this funding and alleviate many of the immediate budget shortfalls. Grand Forks, North Dakota, a city of about 50,000 people, experienced a devastating flood and fire in 1997. Within two weeks of the disaster, the Bank of North Dakota, the nation’s only public bank, established a disaster relief loan fund, set aside $5 million to assist flood victims, and set up additional credit lines of around $70 million:

$15 million for the ND Division of Emergency Management
$10 million for the ND National Guard
$25 million for the City of Grand Forks
$12 million for the University of North Dakota, located in Grand Forks
$7 million allocated to raise the height of a dike at Devil's Lake, about 90 miles west of Grand Forks

In other words, the public bank stepped in and provided about $1,400 ($2,135 in 2017 dollars) in credit per capita to government agencies immediately after the disaster. The $25 million line of credit for the City of Grand Forks is the equivalent of Santa Rosa obtaining a $134 million line of credit today.

But the value of a public bank in times of natural disasters does not stop there. Best of all, mortgage holders and students who had loans with the Bank of North Dakota were granted a six month moratorium on their monthly payments. Have private banks exercised this level of forbearance, especially for the young people of Santa Rosa saddled with student debt?

Why has the City of Santa Rosa, a state chartered city guaranteed by the state’s constitution to be able to further its “municipal affairs,” not been willing to take this low-cost public finance option? If it were to do so, it would find that the public’s credit can be used to effectively address affordable housing, wastewater treatment, local infrastructure, renewable energy production and use, and public health and safety matters. The list is familiar to many.

The reason for this taboo is really for the City Council members to disclose. Public banking is a bold move, but it’s a return to conservative banking and does not use Wall Street to bail us out. It’s a move that the City of Oakland is just now beginning to study and the new governor-elect of New Jersey, Phil Murphy, has promised to implement in New Jersey. And the fiscally prudent Germans have over 600 public banks with loan programs that address every one of these very same matters that prove so vexing to Santa Rosa city officials.

​Surely, Germany and North Dakota have the same public financing options as the public officials in Santa Rosa. They just don’t take the least expensive one off the table and, as a result, are able to more effectively be responsible with their taxpayers’ money by lowering debt service costs, providing more services with the same money, and lowering the risk of Wall Street dependence.

Let’s keep the public banking option on the table. A public bank of Santa Rosa can help meet the increasing demand for expanded -- and low cost -- public finance.


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