Public Banks, An Economic Debate

A running joke amongst my friends was that North Dakota didn’t exist in that we had never met anyone from there, nor had we met anyone who knew someone from the state. Whether you know a North Dakotan or not, I can assure you that it is both real and is thriving. For instance, the state is home to two of the fastest growing cities in the US (Fargo and West Fargo) and a massive agricultural and extractive economy. Additionally, North Dakota is ranked fifth for lowest statewide unemployment as of October 2018. Even during the height of the recession, unemployment peaked at only 4.6%, compared to 10% and 7.4% for the United States and Virginia, respectively.

How has North Dakota continued growing amid national financial hardship- some point to its fiscal policy. North Dakota operates the nation’s only public bank, which has successfully managed the state’s revenue for 99 years. Unlike other private-investment based state financial systems, North Dakota deposits all revenues into a central, state-run bank. Instead of investing revenues in Wall Street, North Dakota invests its revenues by funding state projects through low interest loans offered directly through the state bank or through partnerships with other banks. Simply put, instead of investing state money in Wall Street backed bonds, derivatives, and speculative markets, the state invests its revenues in local projects and collects interest as a return.

This has helped the state in a number of ways but namely in its recirculation of taxpayer dollars within the state. Limiting the reinvestment of revenues to in-state projects has drastically improved infrastructure, bolstered business development during the recessionary period, and fund public services amid pressures to reduce budgets elsewhere. The success of the bank has directly contributed to the state’s balanced budget and budgetary surplus as well as low unemployment. The proof is in the pudding for public banking. During the financial crisis, North Dakota managed to sport a hefty budget and saw the lowest mortgage defaults and foreclosures nationwide. Furthermore, the state continues to balance its budget and avoid cuts due to its comparatively massive profits from interest paid on reinvestment programs

With general fund balances rising in the wake of the recessionary period, it might be time for state legislatures to look to the North Dakota Model and explore the feasibility of public banking. Public banking could be an important tool for reinvesting local revenues to spur community development, updating our rapidly deteriorating infrastructure, and lower taxes for state residents. Additionally, public banking measures could insulate government revenues from future financial crises through the municipal divestment in private market bonds, securities, and derivatives.

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