by Kevin Joseph Ryan
You may have thought the State of Vermont only wanted to control the share of your money they were entitled to by tax law, plus your health care money, but it doesn’t end there. Next, the State may want your bank deposits.
Working it’s way through the Vermont Senate this week, at the tail end of the Legislative session, is Senate Bill S. 204, which would create a panel to study the creation of a Vermont State Bank. This bank would serve as the central repository for all state funds and accounts, and would be loosely modeled on the only other existing state bank in the United States, the Bank of North Dakota.
Should the bill pass the Senate this week, which appears favorable, it would have be approved by the Vermont House. While the session is planned to end soon, the bill (H. 542) had 64 initial sponsors in the House and so may very well pass into law.
Seventeen other states are looking at similar proposals, and name the North Dakota State Bank as an inspiration. The North Dakota bank provided that state with $70 million dollars in profits, but depending on how such a bank would implemented here in Vermont, the Green Mountain version may look quite different.
In North Dakota, the BND functions as a central bank, much like the Federal Reserve, and provides check clearing services, accepts all state revenue and outlay and deposits are guaranteed not by the FDIC as with most banks, but rather the general fund of North Dakota. With Vermont this year facing a shortfall of $45 million dollars, such a move could be financially shaky for the State. State taxpayers would be on the hook for any losses.
There are other potential differences. The Bank of North Dakota until recently had only functioned as an clearing house for the state and for municipalities, government economic development schemes and underwritten student loans. In fact, North Dakota is the only state permitted under a provision of the Obamacare Bill to provide student loan financing, thanks to a provision written to obtain support from Senate Budget Committee Chairman Senator Kent Conrad (D- ND). Also recently, the BND has undertaken home mortgages as well.
Senator Anthony Pollina (P- Washington), who has been advocating for such a bank for years, has suggested that a Vermont State Bank might be quite similar, providing low-interest loans to small business as the Small Business Administration Program does now and allowing Vermont to acquire a similar exemption as North Dakota to the Federal ban on student loans. This would certainly help Vermont Student Assistance Corporation, which had administered such loans in the past and will be shut out of future underwriting under the Obamacare law.
However, North Dakota is not Vermont, and with taxpayer potentially on the hook for any losses a State Bank might suffer, the significant differences in state economies must be considered. North Dakota has only a 4.4 unemployment rate, compared with Vermont’s 5.6, in large part to conventional energy production, something Governor Peter Shumlin’s Sustainable Energy Portfolio would prevent. North Dakota produces 90% of it’s energy from lignite coal, and is 2nd the nation for coal production. The Brakken formation of Western North Dakota holds up to 400 billion barrels of oil by most estimates, 25 times larger than that of the ANWR of Alaska.
Most of the North Dakota oil can only be obtained through hydraulic fracturing however, a process the Vermont Legislature banned this year. Currently, North Dakota is producing 355,000 barrels of oil per day, which accounts for $1.9 billion dollars of revenue to the state in resource extraction taxes alone this year. This may account for the windfall assets of Bank of North Dakota, which Vermont would not have available.
Bank of North Dakota weathered the recent recession quite well, actually growing its portfolio. The Bank’s President Eric Hardmeyer says one reason for that is that the bank did not invest in derivatives or sub-prime mortgages, however, until recently, it was not in the mortgage business at all. “We think of ourselves as kind of a little mini-Federal Reserve.” Hardmeyer said. Hardmeyer went on to say that the bank is not responsible for North Dakota’s economic prosperity. “To put this at our feet is flattering, but it frankly isn’t true.”
The State of Vermont needs to be very careful before it makes the decision to enter into the banking business. Bank of North Dakota has been in operation since it’s formation in 1915 by Socialist A.C. Townly and has been a financial success for it’s own state, however, North Dakota is financially prosperous in it’s own right. In fact, North Dakota is doing so well that in June of this year, it will be voting on a popular constitutional amendment proposal to abolish its property tax. Vermont is not quite in that league, financially speaking.
Here’s a proposal for the Vermont State Legislature: The State gets to establish it’s own bank, and the Legislature abolishes property tax. Any takers?