Creating a public bank in Santa Fe – an outside-the-box idea that has been kicking around since Mayor Javier Gonzales first raised it during his election campaign in 2014 – is coming back for a new round of public discussion.
City Councilor Renee Villarreal is calling for the formation of a task force to determine whether the city should move forward with the establishment of a public bank. Two other councilors, Carmichael Dominguez and Joe Maestas, have signed on to co-sponsor Villarreal’s proposal, and a nonprofit group called WeArePeopleHere! continues to push the public banking idea with support from the likes of state Sen. Peter With and school board member Linda Trujillo, recently elected to the state House of Representatives.
But some outside city government and with experience in the banking industry remain skeptical.
“To me, it’s one of those circumstances that sounds conceptually interesting. People say, ‘Why can’t we do this?’ ” Bryan “Chip” Chippeaux, chairman of the locally owned Century Bank, said in an interview this week. “But I think people underestimate the requirements of what becoming a public bank would entail. Plus, it’s one of those deals where you have to ask, ‘Is that the biggest issue Santa Fe has in front of it right now?’ ”
James Lodes, a retired loan officer, said he doesn’t want to see the city rush into anything. “It’s gone from the concept stage to ‘OK, how do we do this?’ ” he said. “No one has stopped to say, ‘Do we really want to do this?’ ”
Elaine Sullivan, president of the board of directors for WeArePeopleHere!, said that’s what’s happening now.
“That’s precisely what this resolution is about,” said Sullivan. “It’s to give it serious thought before we go into this,” she said.
The resolution calls for the formation of a task force to “define the process, resources, information and timelines” for preparing an application for a New Mexico bank charter and report back to the City Council in six months. It comes after the city spent $50,000 to contract with a consulting and project management firm that determined that starting up such a bank in Santa Fe was feasible.
The study, conducted by El Paso-based Building Solutions, LLC and the New Mexico State University’s Arrowhead Center, stated that the city could realize a fiscal and economic impact of $24 million in a public bank’s first year of implementation.
Lodes suggested that the feasibility study might have been a way for the city to justify its pursuit of creating a public bank. Lodes said the consulting firm really wasn’t instructed to conduct an objective cost/benefit analysis.
“The feasibility study pointed out things the city could have done to save millions, like paying off loans early and managing the way they drew bond proceeds. Those are the millions in savings the study attributes to a public bank,” he said. “Well, that’s not the bank saving them money, it’s the finance department using the cash more wisely.”
Mayor Gonzales talked about the possibility of creating a public bank while laying out his economic platform prior to his election in March 2014. Three months after taking office, he hosted a forum on the issue and, three months after that, the city staged a day-long symposium on the concept.
“We’re not going to rush into anything,” Gonzales said then, “but we are going to move forward in learning and understanding how to develop a bank in Santa Fe, and being honest about whether we can truly pull it off or not. That remains to be seen.”
More than two years later, it still does.
“You’d have to raise capital and infrastructure, and then be subject to regular examinations. I just don’t see that happening,” said Chippeaux.
It’s a slow process just to get through the application process for a bank charter.
Lodes said a public bank could be a good thing, but “Santa Fe is too small a community to carry the freight all on its own. Doing it on a statewide level or regional level might make sense, because it spreads out that initial startup cost and what’s estimated to be $1 million in operating costs. You’re starting a bank with no capital, you need to have loan loss reserves, so I don’t know how they could do that alone short of a huge gift.”
Initially, at least, the city would be the bank’s only customer, unless there was a collaboration with other entities.
Public banks in ND, Europe
Public banking is not a new concept. The nation’s only public bank, the Bank of North Dakota, is nearly 100 years old and, as of the second quarter of 2016, had built assets totaling more than $7.3 billion. The state has used some of its profits to fund expansion of child care services, financing for rural mortgages and consolidating student debt.
Most recently, North Dakota has tapped the bank for $10 million to help cover unexpected costs for law enforcement’s response to the Dakota Access Pipeline protests.
Public banks are more common in Europe, where there are more than 400 savings banks, as they are called there.
Gonzales has said that a public bank in Santa Fe could help build the city’s social infrastructure by financing such things as broadband expansion, early childhood education programs and health care services.
There’s growing interest in public banks across America, Sullivan said. She provided a list of entities in a dozen states that are considering the idea.
The benefits are numerous, she said.
“Forty to 45 percent of city funds go to Wells Fargo Bank. After that, we don’t know how it gets used,” she said. A public bank would keep the money here and the interest on loans would go back into the bank. Interest paid and earned would stay within the local economy, she said.
“If we keep the money local, we’re using it for our purposes and we’ll be able to see what’s happening to it,” she said. “It’s not a silver bullet, but it would be one piece to the solution to our economic challenges.”
Councilor Villarreal was reluctant to say much about the resolution she’s proposing.
“We’re still working on language so the resolution is consistent and we’re still exploring the mechanics,” she said.
But considering the feasibility study indicated a public bank would work in Santa Fe and public banking has worked elsewhere, she believes it’s worth taking a closer look.
“One of the things we’re looking at are other sources that can fund community projects, instead of always relying on bonds,” she said.
The current draft of the resolution charges the task force with determining what would be the most appropriate kind of bank charter, looking into potential sources and methods of capitalization, and recommending two or more governance models to the City Council. It would also be tasked with identifying a source for the $7,500 bank charter application fee and completing a five-year business plan, a requirement for the bank charter application.
The task force would comprise nine members appointed by the mayor and approved by the council. Its make up would include one city councilor who is a member of the council Finance Committee; the city’s finance director or a representative from that department; someone with legal expertise in the banking industry; another person with federal and state regulatory experience in the industry; three people with local financial and/or banking experience with a local community development financial institution, such as a community bank or credit union; and two residents at large “who have expressed a commitment to the goal of establishing a public bank.”
That would seem to suggest the city is looking mostly for people who have already made up their mind about supporting a public bank.
“That’s one of the sections we need to look at,” Villarreal said, adding that the resolution was still being tweaked before it begins the committee process.
One part of the resolution unlikely to change is a section that calls for the task force to hold at least two public meetings to report on its progress and take public comment before coming back the City Council with recommendations within the six-month time frame.