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Public bank proposal in Santa Fe faces challenges

SANTA FE, N.M. — One thing was clear from a public forum held by the city of Santa Fe’s Public Bank Task Force, formed to research and identify barriers to forming a public bank: it won’t be easy.

On Monday, the task force presented findings so far made by four subcommittees addressing legal issues, regulations, capitalization and governance of a proposed public bank, then heard comments and questions from about a dozen of the 40 or so people present. Several of them expressed serious doubts about the feasibility of a public bank — a bank owned and funded by a government entity but governed by an independent bank board.

While the subcommittees laid out many of the challenges the city would face if it were to form a public bank, one in which the city, at least initially, would be the only client, some skeptics in the audience raised other concerns.

“Is anybody looking at if the numbers actually work out?” Jim Lodes asked, referring to figures used in a report prepared by Banking On New Mexico, a group advocating for the creation of a public bank.

Lodes noted that the city has refinanced or paid off about $125 million of its debt since that report was done two years ago. He suggested the city conduct a pro forma analysis with updated numbers. “I think it would behoove you to do that before spending money on legal opinions,” he said.

Committee chairman David Buchholtz, an attorney with experience in finance and banking, said at the outset of the meeting that legal issues related to the anti-donation clause and the investment of funds could be problematic, but in his view the anti-donation clause wouldn’t restrict the bank making loans.

That committee also noted that the FDIC had concerns about issuing deposit insurance to a domestic governmental unit.

Committee member Randy Hibben said there were other challenges having to do with liquidity to overcome.

“The city has to have the unrestricted liquidity to make this work. I don’t believe it does,” he said.

Banking On New Mexico’s report came out within months of a city-financed feasibility study that determined a public bank could potentially improve fiscal management, create a healthier local lending climate and generate better interest rate margins for the city. Earlier this year, the City Council passed a resolution to form a nine-member task force made up of people with backgrounds in bank finance, regulation and law, as well as a city staff member and two citizens at large. They were tasked with exploring what it would take to start a public bank and report back to the City Council to assist it in deciding whether to pursue a bank charter application.

Another man, Berl Brechner, said the city should abandon the idea altogether. Citing a recent audit that showed the city was susceptible to fraud and theft and an audit in 2015 that determined $2 million of a $30 million parks bond was misspent, and what he said was a “bias in favor of the project,” he said consideration of forming a public ban had already gone far enough. While the committee did not respond to Brechner’s comment, the next speaker did.

Charles Koenig said the Bank of North Dakota, one of the few public banks in America, has turned a profit every year since in was formed in 1919. And the profits didn’t go bankers or anyone on Wall Street, he said.

“If we can establish a public bank in Santa Fe, we can generate profits for the city,” he said.

The task force will present its findings to the Finance Committee on Dec. 4. A final report will be submitted to the City council early next year.