Analysis backs public lending of state cash
By Neal P. Goswami
VERMONT PRESS BUREAU | January 20,2014
MONTPELIER — A new report released by advocates for a state bank in Vermont supports legislation introduced in the Senate to grant banking authority to the Vermont Economic Development Authority.
The study, which explored the economic impacts of a public bank in Vermont, was conducted by the University of Massachusetts and the University of Vermont and funded by the Donella Meadows Institute.
According to its findings, if state government cash on hand were used by VEDA and the Vermont Housing Finance Agency to loan to businesses and homebuyers, the state could see more than 2,500 new jobs and infuse $192 million into the state’s economy.
“Those are some significant impacts, so I think it’s worth taking a more detailed look at what a bank would involve, how it would be structured and the benefits for the state of Vermont,” said Gwendolyn Hallsmith of Vermonters for a New Economy, an informal group backing a Vermont state bank.
Hallsmith said the study was completed with limited resources. However, it shows the viability of a state banking entity, she said.
According to Hallsmith, opponents have argued that the state would not have enough cash on hand if its current deposits in commercial banks were redirected exclusively to in-state investments. She said the study found that keeping a 34 percent reserve, higher than the 10 percent standard for commercial banks, would mean the state “would never be short of money to pay its ongoing obligations.”
Hallsmith, the former planning and community development director in Montpelier, was recently fired from that job after a public spat with Montpelier City Manager William Fraser and Mayor John Hollar, who represents banking interests as a lobbyist. Hallsmith maintains she was fired over her support for a public bank; in a letter to Hallsmith, the city manager had cited performance issues and insubordination.
The study compared the state bank in North Dakota, the only public bank in the U.S., with commercial banking in Vermont. Ultimately, the report steers away from calling for a state bank like the system in North Dakota. Instead, it recommends providing banking authority to VEDA and allowing it to become a depository for state money.
“Everybody that I talk to seems to think that VEDA does a great job with their lending and we should give them more money to lend,” Hallsmith said.
The report supports legislation introduced by Sen. Anthony Pollina, a Washington County Progressive. His bill calls for a new program, 10 Percent for Vermont, which would amend VEDA’s authority and allow it to engage in banking.
Under Pollina’s legislation, which has been referred to the Senate Finance Committee, 10 percent of the state’s cash would be deposited in VEDA and be used as capital for local economic growth projects.
The state currently deposits its cash in two large commercial banks — TD Bank and People’s United — that lend money wherever it creates the most profit. Pollina said his plan would have tax dollars invested where they would benefit the state most, like renewable energy projects, affordable housing and agriculture.
Hallsmith said her group is focused on educating the public on the benefits of a state bank and securing advisory questions on town meeting ballots around the state. She said the Montpelier City Council voted this week to place an advisory question on its ballot. East Montpelier has agreed, too, Hallsmith said.
Previous attempts to pass legislation concerning a state bank have been stymied. Hallsmith said she expects furious opposition from commercial banks to any effort to secure a public banking function in Vermont.
“I don’t mean to sound as if it’s terribly likely that we’ll end up with a state bank this legislative session,” she said. “There’s a lot of resistance on the part of large banks. They recognize that this necessarily isn’t in their best interests.”