Originally posted by Albert B. Kelly on NJ.com on 8/7/2016
Why a municipal bank may not be a bad idea | Opinion
In this season of campaign rhetoric about the state of our country, you occasionally come across an idea or proposal that goes beyond the standard stuff about jobs, growth, and strengthening cities. Sometimes you actually bump into some innovative thinking.
That was my impression of a report on "Municipal Banking" produced by the Roosevelt Institute, a nonprofit organization connected to the Franklin D. Roosevelt Library and Museum in New York which focuses on a range of public policy issues and ways we can improve government.
As I understand it, the idea with municipal banking is to create an alternative allowing cities to maximize their financial options and keep as much of the revenue connected with public finance responsive to local priorities, especially in urban communities.
With municipal banks, we're talking about bona fide state-chartered depository institutions, working with community banks and CDFI's, that would allow cities to recapture revenues that go to paying principle and interest on bonds, instead of just going to underwriters.
Having a municipal bank might well allow cities or counties to recapture other monies, such as interest or fees that otherwise end up in the pockets of Wall Street firms and investors. In the case of large cities, the amounts we're talking about are not insignificant.
The report by the Roosevelt Institute worked up a scenario for San Francisco using a series of bonds issued between 2007 and 2015 with maturities ranging from one to five years. Under their scenario, the potential amount of money recaptured between 2008 and 2020 (when the bonds matured) came to about $930 million or roughly $68 million per year.
For any single small city or county, the process and cost of setting up a municipal bank may not be feasible or worth the expense. But what if the municipal bank were an entity set up at the county level not only for the benefit of the county, but for all the smaller municipalities within that county?
In the case of Cumberland County, along with all 14 of its local government units, a municipal bank alternative might allow each government unit to access cheaper finance and more importantly, allow for recapture of the money that would otherwise end up outside the communities as is the case under the current way of doing things.
This would allow us locally to upgrade the water and sewer systems, do major road repaving, repairing of bridges, new housing construction, repair government buildings, or whatever else traditionally gets done through a bond issue- but with less cost.
Recaptured money would always be reinvested at the local level on the priorities of each community as opposed to making Wall Street types fat and happy. I'm not necessarily against Wall Street guys, nor am I against "fat and happy" as those who know me will attest.
But I am opposed to unnecessarily leaking money if there's a way to recapture that money and put it to work on the street where it will do the most good. For urban cities and resource-poor areas, this is the difference between gaining real traction and a continuing cycle of loss or stagnation.
The report by the Roosevelt Institute explores ways to do set up a municipal bank but much will depend on state law. The report cites the Public Bank Project and their template developed for California cities for setting up, funding, and operating a municipal bank.
As stated by the Roosevelt Institute report, "...with modifications this basic template can be implemented by municipalities in other states that grant substantial 'home rule powers' to local governments." I can't help but to think of New Jersey when I hear "home rule."
There are a lot of moving parts to a municipal bank -- more than we can cover here. But we're talking about a genuine depository institution separate from the local government unit -- one that can get a lot more bang for the buck on the ground where taxpayers live, work and play.
Setting up a municipal bank won't be easy. There will be pushback from those making money off the current streams. But if we keep doing the same thing, we'll keep getting the same result. Municipal banking may well offer the opportunity to do something that's far more responsive to local priorities.
Karl Beitel via the Roosevelt Institute makes a case for how municipal banks can be a real answer for 2016 and beyond. Check out the details at http://rooseveltinstitute.org/municipal-banking-overview/
Albert B. Kelly is mayor of Bridgeton. Contact him by phone at 856-455-3230 Ext. 200.
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