Greetings to CommonBound Co-operators from Massachusetts Public Bank Advocates

The New Economy Institute’s CommonBound 2018 conference will take place this weekend in St. Louis. Here’s an open letter that one of our coordinating group members will be circulating, featuring background on our situation here in Massachusetts as well as a look at an alternative funding mechanism for cooperatives and employee-owned businesses. 

Our congratulations and thanks for this important meeting. We hope to make the next one in two years and are glad you have other public bank advocates here to share the important changes public banking could bring to our struggle for a more just, democratic, and transparent society.

Public bank advocacy is a little like extolling the virtues of eating worms to an audience of vegetarians and meat lovers. The deficit hawks (meat-eaters) fulminate against public banks making loans raising the specter of “inflation.” They don’t recognize that the 60% of the world’s banks that are “public” haven’t had this problem. And they seem blind to the fact that private banks already create money every time they make a computer entry for a loan. Austerity is their shining goal, for they don’t want “less-deserving” folk to benefit from public bank loans.

Enter the vegetarians! Locked in an old Jimmy Stewart movie, they imagine Aunt Maude’s savings are the source of the mortgage taken out by a young, upstanding couple. They don’t seem to grasp that banks never lend out deposits and that things in the banking world are just not all rosy. It is difficult to realize that Woodrow Wilson gave away our government’s power to create money to a cabal of private bankers from the largest banks (the so-called Federal Reserve). We fail to see the connection between financial fraud and rigged elections.

Hopefully, we’ll wake up before there is no choice but to eat worms!

The Massachusetts Infrastructure Bank was conceived as an answer to the inefficient, captive market of the largest banks for local infrastructure, whether roads and bridges or schools and hospital information systems. The current market prioritizes the safety of investors and lenders. Large banks claim that if a town or city already spends more than 6% of its budget on debt service, then they can charge double and triple the interest rate on bonds. While triple A-rated Boston has to pay an ever-rising interest rate on bonds approaching 5%, Worcester might have to pay 13% and more to borrow to fix a pothole. Boston gets less than 1/2% interest on its deposits in Bank of America but pays 5% on a bond?

Bank bond salesmen are shrewd. They spout legal and financial terms at town managers. They show contracts with stipulations hidden in fine print. These include rate hikes for delays, and non-competition clauses that tie the hands of public officials who come up with alternative solutions. We did a survey of mayors and town officials and found that 41% reported difficulty raising finance for infrastructure, 54% had to defer critical projects, and 96% were highly interested in an alternative to the private bond market. (How about a public bank loan with a 2 to 3% rate, the profit from which the bank invests again in unmet public needs.)

Another advocacy group filed legislation for a study commission on our Commonwealth having a public bank. The appointed members included large banks and the Massachusetts Bankers Association. In 2011 they, not surprisingly, vehemently opposed the idea of a public bank. (No one else should get to create money even for a public purpose! Only large private banks should get bailed out with free taxpayer funds and then invest these (our money!) in speculative derivatives to earn 20% for their own coffers.)

So we researched the profitability of local, community banks in North Dakota where they sometimes partner with a State public bank. We found that they were on average between two and three times more profitable than similar banks in Massachusetts. We went to the Banker’s Association and asked them not to oppose our bill as they, in general, don’t make large infrastructure loans. Further, we left the door open to partnering with interested community banks.

To fast forward for this brief summary, our bill, H3543, is before our State legislature. We wrote it to preclude the bank becoming a revolving loan fund or one used to extract public funds to support private profit. If it does not pass, we will re-file next year and develop social media support. See: HubPublicBanking.org.

Though our bill focuses only on infrastructure, once the bank achieves profitability in two to three years, the legislation is written so that the bank’s role can expand into funding student loans and other needs identified with public participation.

One such need under discussion is a funding mechanism for co-operatives, businesses transitioning towards worker ownership, and ESOPs.  Hopefully, it will eliminate the need for bridge loans. It is based on Switzerland’s WIR program and bank that started in 1932 and today includes fully one quarter of all small- and medium-sized businesses. Bernard Lietaer and Gwen Hallsmith also describe a “Commercial Credit Circuit” or “C3” program. It was almost adopted nationally in Uruguay until it met objections from large, private international banks.

Our C3 program will be designed to provide invoice insurance for a network of co-operative businesses at a cost of 1% of any invoice (for example; .01x$30,000=$300). In turn, an insured invoice may be used as cash within the network and to pay public debts, fees, and taxes and many utility bills. This program is open to co-operatives because documented research points to their hiring and retaining community members rather than offshoring jobs, their support of local efforts and other cooperatives, and their environmental record. Hence, preventing cash flow problems for these businesses is of paramount value. (Note that a public bank may make little profit on this program, perhaps only supporting the few computer technicians and administrative staff that run it. However, it can make a great difference to the prosperity and well being of communities.)

Our public banking program needs your support and help in designing a successful invoice insurance program. We need your ideas to know about the timing of needed bridge loans and how cooperative networks at a regional or state level might achieve the necessary strength and mutual support. Then there is the hope that a State-run public bank might also transition into a cooperatively run-bank as well.

Please contact us with your feedback, ideas, good humor and brave spirit of innovation. Many thanks. For the Massachusetts Infrastructure Bank, Stephen Snyder, asterix40@gmail.com, 401-248-8052.

Mass. lawmakers could lead in boosting a bank for infrastructure

This letter from Chuck Grigsby, who is one of the Hub Public Banking group working for a Massachusetts infrastructure bank. 

April, 17, 2018

In “How should Boston fund its future?” (Opinion, April 10), with regard to infrastructure needs, Matthew Kiefer and Sam Tyler state, “Boston is mostly on its own.” They are correct, except Boston is hardly alone in facing this challenge. In a survey last year of 38 mayors and town managers across the entire state, 41 percent of respondents reported that they experienced difficulty raising financing for infrastructure, 54 percent reported that they had to defer critical projects, and 96 percent replied that they would be highly interested in an alternative to the private bond market.

A potent new addition to current financing sources is now under consideration in the Massachusetts Legislature. House bill 3543 would authorize the formation of a state-owned bank focused on providing lower-cost infrastructure financing across the state. It’s drafted to become self-sufficient after initial capitalization and especially to avoid competing with banks and credit unions in the state.

Similar bills for publicly owned banks have been filed in New Jersey, Michigan, and Alaska. Feasibility studies are underway in St. Louis; Philadelphia; Los Angeles; San Francisco; Berkeley, Calif.; and Seattle. Other cities reviewing their options are Chicago, Santa Fe, and Baltimore.

Over the last several decades, the Legislature has led the way nationally in creating more than 11 quasipublic funding sources structured to meet specific needs. It’s poised to lead again.

Charles T. Grigsby
Jamaica Plain

Same as it ever was…

There is not much to say about the content of this article detailing the unsurprising ways that Australian banks have been doing business—”lying to regulators, falsifying documents and taking bribes to extracting fees from customers long since dead.” Australian banks are apparently lightly regulated, and Australian bankers have taken advantage of that. No surprise anywhere on the globe at this.

What needs pointing out are the article’s two subheadings: “Bribery, lies, and charging the dead among misconduct admitted,” and “Inquiry may lead to slower earnings growth, higher costs.” Because obviously the most important thing, after the facts of the story, is not that people lost homes, retirees lost savings, and no one caught on for decades, but that the highly profitable Australian banking sector might have to follow some appropriate rules, making it less of a draw for investors for whom ethical business practices just get in the way of a payday.

It’s a given that profits are negatively impacted by getting caught doing something wrong; pointing it out as the key concept of a news story just normalizes it in a way that really should end.

H3543 reporting deadline extended

On Monday, May 9, the Massachusetts House adopted an extension order H 4383 by Rep. Aaron Michlewitz granting the Joint Committee on Financial Services until Wednesday, May 9 to make its final report on H3543, establishing the Massachusetts infrastructure bank. So the public has about a month to reach out to the committee and show their support.

Mayors, city council members, town or city managers, planning or economic development or project board members—we need you! Please contact the chairs of the Joint Committee to let them know the importance of lower-cost financing for the projects that you have done or wish to do in order to improve quality of life for your municipality’s residents.

Voters, if your state Senator or Representative is a member of the Committee, please give them a call as well.

You can find names and contact info, as well as some background on the legislation, in this post.

You can access the bill text here.

We have posted some supporting information on the bill, including a look at the difference between an infrastructure bank and revolving loan funds, how the bank could help build resilience in the face of climate change, and a look at similar campaigns in other states. We are also happy to answer your questions, so please contact us.

Calls and emails in support of H3543 needed!

Good news! H3543 has been moved to the Joint Committee on Financial Services. We have an historic opportunity to pass legislation to start the first state public bank in the U.S. since 1919!

H3543, creating a Massachusetts public infrastructure bank, will give Commonwealth cities and towns an economical alternative to fund infrastructure projects. With twenty other States and cities pursuing public banks as well, we hope such a move will also strengthen their efforts.

Lower-cost financing means that cities and towns will have more money for education, vital services, and local quality of life amenities. Your city or town can save as much as 35%-50% on the cost of a new school, bridge, water treatment facility, health and public safety IT systems, agriculture, forestry and accessibility improvements, bike lanes, or other projects.

It is also a forward-looking green bill that will enable towns and cities to prepare for and mitigate the consequences of climate change. The bank does all this, whenever invited, in partnership with local, community banks and credit unions. There is no competition with local banks as the Massachusetts Infrastructure Bank is not a retail bank and handles only public money.

“Hold on” some might say, “then won’t my state taxes go up?” This might be true to support a revolving loan fund (sometimes erroneously called a “bank”) that will require re-appropriations to expand. But new taxes are not needed for a chartered, infrastructure public bank that will achieve profitability within two to three years and then use these profits to increase support for needed projects.

The Massachusetts Public Bank will be set up to serve the needs of all Commonwealth residents, be insulated from political influence, and be independently and regularly audited. The Massachusetts Infrastructure Bank will offer secure protection for public deposits, as it will never invest speculatively in derivatives. Its fiduciary responsibility is to the people of Massachusetts.

Please take a moment to contact the House and Senate Chairs of the Joint Financial Services Committee listed below. Other members of the committee are listed as well, so if you are a constituent, please call them as well.

While we have legislative support, we only have 10 days to influence it being reported favorably out of the Committee. So please, go for it! Make a call or send an email today.

Here’s a script:
I’m writing to ask you to ensure that H3543, creating the Massachusetts Infrastructure Bank, is reported favorably out of the Joint Committee on Financial Services. Our municipalities and taxpayers need reliable, cost-effective financing that allows us to plan for the future, improves our daily lives and puts people to work across the Commonwealth.

Chairs of the Joint Financial Services Committee

House Chair: Representative Aaron Michlewitz (617) 722-2220  Aaron.M.Michlewitz@mahouse.gov

Senate Chair: Senator James Eldridge  (617) 722-1120  James.Eldridge@masenate.gov

Other Members of the Joint Financial Services Committee–if you are a constituent, please call or email!

Vice Chair: Representative Michael J. Finn  (617) 722-2220  Michael.Finn@mahouse.gov

Vice Chair: Senator Eric Lesser  (617) 722-1291  eric.lesser@masenate.gov

Senator Joseph A. Boncore  (617) 722-1634  Joseph.Boncore@masenate.gov
Senator John F. Keenan  (617) 722-1494  John.Keenan@masenate.gov
Senator Sal N. DiDomenico  (617) 722-1650  Sal.DiDomenico@masenate.gov
Senator Viriato M. deMacedo  (617) 722-1330  Vinny.deMacedo@masenate.gov
Representative Thomas M. Stanley  (617) 722-2230  Thomas.Stanley@mahouse.gov
Representative Chris Walsh  (617) 722-2070  Chris.Walsh@mahouse.gov
Representative Marjorie C. Decker  (617) 722-2692  Marjorie.Decker@mahouse.gov
Representative Christine P. Barber  (617) 722-2210  Christine.Barber@mahouse.gov
Representative Michael S. Day  (617-722-2210  Michael.Day@mahouse.gov
Representative Jose F. Tosado  (617) 722-2464  Jose.Tosado@mahouse.gov
Representative Daniel Cahill  (617-722-2020  Daniel.Cahill@mahouse.gov
Representative F. Jay Barrows  (617) 722-2488  F.JayBarrows@mahouse.gov
Representative Shawn Dooley  (617) 722-2810  Shawn.Dooley@mahouse.gov

You may also want to let your own state legislators know about your support for the bill. You can find their contact info here.

Finally, contact your mayor or town manager. You may wish to remind your mayor that the current bond market charges 4.5% or 5% bond interest for AAA rated cities and towns. If a town has over 6% of its annual budget allocated to debt service, they are often charged exorbitant rates of 13% and up. This raiding of public treasuries must stop. Why should we taxpayers pay more for necessary improvements to our lives?

Ask your local public officials to please contact their Representatives and Senators and members of the Joint Financial Services Committee asking them to favorably consider H3543.

And if you have questions about this bill, please contact us!

 

Bill update

Our bill has been reported out of the  and sent to the Joint Committee on Financial Services. No hearing date scheduled yet! If your representative or senator sits on the committee, please contact them in support of the bill. We are also happy to come out to speak to local organizations about our bill and how a public bank could benefit Massachusetts.

Transportation problems? Why not try a public bank?

Massachusetts suffered an embarrassing drop in the US News and World Report best state ranking last week, especially so because we blew it so badly in just one thing: transportation. We are a dismal 45th out of 50, and to make it worse, it’s a score not just determined by resident surveys, but also backed up by another recent poll.

The MassINC Polling Group, working for the Barr Foundation found that improving Massachusetts highways, roads, and bridges was the top priority for respondents, ahead of improving education or lowering taxes. Since 80% of respondents drive alone as their primary means of transportation, with about 20% commuting between 30 minutes and an hour each day, addressing transportation issues would have some substantial economic and social benefits.

The poll found voters want more funding for both public transportation and roads but didn’t broadly back any one mechanism for generating the revenue needed. A change in state law to permit cities and towns to put funding measures for transportation on the ballot had strong support. Support was also high for adding electronic tolling to more state highways, but only if tolls were used to reduce congestion in the regions where they were collected.

A public infrastructure bank, such as our bill would institute, doesn’t yet have a high enough profile to make it on to polls as a possible solution to state transportation funding problems. (North Dakota, the only state with its own bank, topped the US News rankings for quality of life, and came in second for both fiscal stability and infrastructure.)

We think a public infrastructure bank could make a big difference in increasing the availability of funds for roads, schools, public buildings, recreational and emergency service facilities, and even climate change mitigation methods, and these polls clearly indicate that our state can use all the help it can get. But the MassINC poll also shows that state residents support addressing problems regionally, meaning that we don’t just need to sell the idea of a state bank, we need to ensure that it operates transparently, takes local preferences for solving transportation problems into account, and works for all regions of Massachusetts.