Task force won’t back city-owned public bank for Santa Fe

March 21, 2018 GMT

The city’s public bank task force will not recommend that the municipal government pursue a Public Bank of Santa Fe, according to a draft of the panel’s final report.

Instead, after finding the establishment of a public bank in the state capital would face legal and regulatory hurdles, the task force will encourage the city to put its efforts toward working with state-level partners on a potential Public Bank of New Mexico.

The task force — a volunteer group of bankers, attorneys, financial veterans and advocates appointed last summer by former Mayor Javier Gonzales — was asked to research and compile information on the pros and cons of submitting an application to the state to charter a public bank, a localized financial reform initiative that has been floated in various states and U.S. municipalities, among them San Francisco, Seattle and Portland, Ore.

Backers of the idea say a public bank ensures taxpayers, not private investors or private banks, benefit as dollars remain local and are more likely to be locally invested.

But the immediate path forward for a financial institution owned and operated by the city appears hazy in light of the task force’s research. The group, still at work finalizing its report, was not able to definitively determine whether a Public Bank of Santa Fe would be viable but posited that startup costs and “daunting legal and regulatory obstacles” might well swamp whatever good might come of a community-centric alternative to corporate banks.

“If limited to the city of Santa Fe’s financial assets, the possible benefits that a public bank might generate are at best marginal and at worst would carry risk of non-viability because of the relatively small scale of the city’s financial means,” reads one draft task force conclusion.

The costs involved in developing a viable five-year business plan — which the volunteer task force wrote it had “neither the resources nor time” to complete — were part of substantial startup funds and resources needed to get a public city bank off the ground.

The group found those costs “would likely overwhelm the marginal benefit that could optimistically be realized because of the relatively small size of a Santa Fe public bank.”

The task force’s inability to compile a business plan — the applications for which would have taken hundreds of hours, according to the draft — left the panel without firm answers to some key questions, such as the bank’s necessary overhead. This, according to the draft, divided the task force, with some saying the bank could operate with low overhead because it would not have to serve multiple customers; others said the regulatory requirements for small banks, as well as the city’s financial service requirements, could smother “a bank this small.”

“Both views are credible, but without working through a business plan, a credible overhead estimate is purely speculative,” the draft reads.

Questions also linger, the draft report says, about the nature and volume of loans the bank could make and the chances of raising capital through revenue bonds or city investments.

The task force, in its months of study and discussion, did find a public bank could play a role in leveraging private money for local economic development and could help retain and expand local community banks, credit unions and community development financial institutions.

The draft report says a public bank also would ensure public dollars were invested in local priorities and could create partnerships with local financial institutions to increase the amount of capital available for community projects and small businesses.

All the same, according to the latest draft Tuesday, the task force plans to recommend the City Council work with state legislative and executive-level officials to explore the possibility of a Bank of New Mexico.

“We believe this more appropriate statewide scale would justify work needed to amend the current legal and regulatory restrictions,” the draft reads. “We also think incurring business planning costs and examining capitalization requirements would be justified.”

The only public bank in the U.S. belongs to the state of North Dakota, established in 1919.

State Rep. Daymon Ely, a Democrat of Corrales, this year introduced legislation calling for a study of the feasibility of a New Mexico public bank.

Ely’s memorial, pointing out more than 20 states have studied the matter, did not advance past its first committee in the 30-day session centered on the state budget.

In a fiscal analysis compiled for the legislation, state agencies flagged various questions that would need further analysis, including a possible amendment to the state constitution to charter a Bank of New Mexico similar in structure to the Bank of North Dakota, as it might violate the state’s anti-donation clause.

“I don’t know that there’s political support for it,” Ely said Tuesday. “But the reason I brought it forward is to start the conversation.”

The billions of dollars in the state’s permanent funds could be managed with more transparency and with greater emphasis on local investment, Ely said.

“I don’t think an argument could be made that local communities are getting near what they should be getting out of these billions of dollars,” he said. “I think that’s a problem. … The [public bank] idea makes people a little uncomfortable, and that’s a good thing.”

The city public bank task force met Tuesday afternoon to hash out some of the last additions and edits to its report, which are to be presented to the City Council, as soon as next month.

Contact Tripp Stelnicki at 505-428-7626 or tstelnicki@sfnewmexican.com.