Vermonters Lobby for Public BankāWin Millions for Local Investment
Advocates didnāt get the public bank they wanted. But the compromise they reached in the end was still a rare and significant win over Wall Street banks. Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā
Right before 2014 came to a close, Wall Street won an enormous victory in the year-end spending bill. The so-called āCRomnibusā bill, which included language written by Citigroup lobbyists, gutted a key piece of Wall Street reform meant to prevent future bailouts of big banks with taxpayer money.
This win came after the financial industry spent years chipping away at the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed in 2010. Wall Street lobbyists gained little victories along the way, but never stopped asking for more. By making bold and ongoing asks, Wall Street was able to win, even when lawmakers sought a compromise.
Thereās another group of Americans, however, with a different agenda for the future of bankingāpeople who are also pushing hard for policy change. Theyāre advocates of public banking, and they want to see new banks created that would be owned and operated by the government, usually at the state or city level. (This would greatly increase the amount of investment capital available for small business development, local infrastructure, and affordable public transportation, none of which are much favored by private banks seeking a high return on investment.)
Photo courtesy of Gwendolyn Hallsmith.
Gwendolyn Hallsmith is one of those advocates. Sheās currently the executive director of the Public Banking Institute, but she worked previously as a public servant in Montpelier, Vermont, where she resides and ran for mayor in 2014.
To Hallsmith, the main advantage of a public bank is lower-cost financing, which can enable the state to pay for things like building affordable housing, repairing infrastructure, and expanding educational opportunities. And each of these projects creates jobs. Public banks āallow cities, counties, and states to finance important public priorities without needing to rely on Wall Street and pay the hidden interest tax that Wall Street imposes on all our money,ā Hallsmith said.
Interest has been picking up around the country. Santa Fe, New Mexico, voted in October to conduct a study on the feasibility of a city-run public bank. And in December, the Seattle City Councilās finance committee hosted experts in public banking to explore the topic.
But nowhere have the steps toward public banking been more successful than in the state of Vermont. There, Hallsmith and other advocates won a small victory against Wall Street through an effort so relentless and strategic that it would have made any banking lobbyist proud. They combined savvy organizing with data-driven reports and policy briefs to prove the benefits of a public bankālike avoiding fat interest payments to Wall Street banksāfor the stateās economy.
And because the original bill put forward by Vermont state Senator Anthony Pollina and others included multiple demandsācreate a public bank, direct 10 percent of the stateās reserves to initially fund it, and establish an advisory committee on how best to invest locallyāadvocates won a decent compromise in the end.
$10 million additional dollars for local investment
The step Vermont took is called ā10 Percent for Vermont.ā Under this law, passed in June, up to 10 percent of the state treasuryās cash balanceāwhich as of November was about $350 millionācan be used for lending and investment within the state. The law also created a Local Investment Advisory Committee to advise the treasurer on āfunding prioritiesā and āmechanisms to increase local investment.ā
In 2014, the treasurerās office made several local investments that counted toward the ā10 Percentā total, but were authorized under previous laws. One example is the Vermont Clean Energy Loan Fund, which allocated $6.5 million in loans to encourage energy efficiency in residential home projects in the state. Another is a $2.8 million loan to Vermontās Housing Finance Agency to support 111 units of multifamily affordable housing. A third is a loan fund approved in June that allocated $8 million for improved energy efficiency in state government buildings, with the goal of reducing their energy use by at least 5 percent.
The long fight for a public bank in Vermont
Public bank advocates, state Treasurer Beth Pearce, and the Vermont Bankers Association (VBA) all agree that 10 Percent for Vermont is off to a good start.
The effort picked up steam in January 2012, when the Vermont House introduced legislation to conduct a study on creating a state bank, with 67 legislators co-sponsoring the bill. That February, the think tank Demos released a policy brief outlining the potential benefits.
In May 2013, the League of Women Voters of Vermont voted to conduct a study on the feasibility of a public bank. That December, a coalition of organizers, business, and individuals called Vermonters for a New Economy published a report again laying out the case for a public bank in the state.
All three studies showed significant benefits, and state legislators were starting to listen. Last January , six Vermont state senators proposed a stand-alone bill to implement the 10 Percent for Vermont program within the Vermont Economic Development Authority (VEDA), which would be granted a banking license and thus become the second state bank in the United States.
The idea didnāt sit well with the treasurerās office or the Vermont Bankers Association. Both argued that a public bank might hurt the stateās bond rating.
But Vermonters for a New Economy continued to build pressure through a campaign of āTown Hallā discussions.
At the end of March, Pollina abandoned the stand-alone version of the public bank bill and instead inserted a modified version as an amendment into a large, must-pass economic development bill.
But the VBA opposed even that. After Pollinaās amendment, it announced that it planned to fight in the Vermont House to get the public bank recommendation removed from the overall economic development bill.
The Vermont Bankers Association was successful in that. But the 10 Percent program survived, in an amended form.
Can other states learn from Vermontās fight?
By reducing a stateās need to borrow from Wall Street, public banks threaten private banksā profits.
But Hallsmith remains positive about the public bank movement and its momentum: āOnce we realize the power of credit creationāusing money we are now sending to Wall StreetāI donāt think there will be any stopping it,ā she said.
Could other cities and states stand to benefit from emulating what Vermonters have done? Pollina thinks so, noting that similar programs ācould help states and cities dig out of the Grand Recession.ā
Thatās exactly the kind of idea that thinkers like Mike Krauss of the Public Banking Institute are hoping to spread across the country.
Public banking is āa way to enable prosperity at the local level,ā he said.
Vermontās continued work on expanding local lending is a small step toward such prosperity. And if advocates can continue to combine their demands for a public bank with increases in local lending, they can ensure a small win for their city or state, even when the effort ends in a compromise. Those advocating for public banks in the rest of the country would do well to learn from the fight waged in Vermont.
Edited from source: Yes! Magazine, by Alexis Goldstein (January 2015) Ā Ā Ā Ā Ā Ā Ā
