posted on 16 November 2015
Written by Sig Silber
There was a recent Symposium in Albuquerque, New Mexico on November 7, 2015 to Promote Public Banking.
There have been three recent initiatives related to establishing a Public Bank in New Mexico. Prior to this meeting, there was a Symposium in Santa Fe on September 27, 2014 and in the most recent New Mexico Legislative Session, there was a bill to create part of the functionality of a Public Bank. Thus we must conclude that at least some are thinking about Public Banking in New Mexico.
First of all, what is a Public Bank? I am not sure there is a good definition but presumably it is not a private bank or even a non-profit bank but in some sense is associated with government and I think we are talking here about something other than the Central Bank of a nation. Thus perhaps the best way to look at a Public Bank is that it is a bank owned by a political jurisdiction and intended to advance the interests of the political jurisdiction which presumably means the residents of that political jurisdiction. But there may be differences of opinion as to the range of services that need to be provided in order for this entity to be considered a bank and receive a bank charter. Some of the answers may be found here. It is important to understand that certain banking functions are performed by governmental entities which do not have a bank charter. This could be important.
Let us now get up to speed by reviewing the prior Symposium in Santa Fe which is described in two articles published by Global Economic Intersection (GEI) which is the publisher of this article and you can read those two articles here and here. GEI has been providing extensive coverage of the Public Banking Movement.
Now let us focus on the Symposium which was held recently in Albuquerque. Below is a brief description of the meeting agenda. The full description can be found here.
Additional information on the goals and objectives of the group which organized this Symposium was included in a Position Paper which was distributed at the symposium and which you can read here.
I asked Senator Gerald Ortiz y Pino (Photo by Mark Bralley), the key speaker at this Symposium, to summarize and expand on his prepared address.
There was a very interesting video presentation by the former Chairmen of the South Dakota Investment Council who now lives in Santa Fe, New Mexico which can be viewed here. If for some reason the sound does not work, please hit the unmute button.
I think it is important to recognize that the South Dakota State Investment Council is not exactly a full service bank like the Bank of North Dakota but has some banking functions and is somewhat similar to the situation in New Mexico. More information on the South Dakota Investment Council can be found here.
There are aspects of activity in New Mexico in addition to those mentioned by Senator Ortiz y Pino that might be considered to be elements which could be used to create a State Bank and in fact there are already a variety of State of New Mexico investment programs.
The New Mexico State Treasurer invests all funds not needed immediately for the operation of State Government. You can learn more about the operation of the State Treasurer here.
The New Mexico Department of Finance and Administration facilitates the tax free bonding for private sector entities. You can learn more about that here. They have at least two other quasi-banking operations including The Smart Money Loan Participation Program and the Collateral Support Loan Participation Program.
A bill Titled "The Small Business Development Fund Act" was introduced in the last session of the NM Legislature to create essentially a public bank (without retail banking functionality) for assisting economic development. The text of the proposed legislation can be viewed here. It failed to be passed.
In New Mexico, there is what is called a Fiscal Impact Report (FIR) prepared on major legislation to assist in informing the work of the Legislature and here is the FIR for the above mentioned bill. It is well worth reading.
The major opposition to the concept came from the entity that was expected to provide the initial funding (from one component of the New Mexico Sovereign Trust Fund) our State Investment Council (SIC) which manages the New Mexico Sovereign Trust Fund.
What is the New Mexico State Investment Council (SIC)? It manages what technically is the Sovereign Trust Fund of New Mexico which is the largest in the U.S. other than Texas and Alaska. In New Mexico, the four components of the Sovereign Trust Fund are called "Permanent Funds" where "Permanent" means until a decision is made to dip into the piggy bank beyond the statutory or constitutional provisions for annual disbursements from these funds. New Mexico is mineral rich especially oil and gas and imposes a severance tax on the removal of most natural resources (which goes into the Severance Tax Permanent Fund) STPF and ten percent of the land area of NM is State owned and income from that land other than the severance tax goes into the Land Grant Permanent Fund which is the larger of the two. There are two other smaller funds. So this money and the investment returns comprises the four so-called permanent funds which in turn disperse a specified percentage of their year end value (generally about 5%) into the General Fund (Budget) of New Mexico or in some cases is paid directly to a variety of beneficiaries mostly related to education. I believe that New Mexico's share of Federal oil and gas royalties does not go into the State Sovereign Trust Fund but is paid directly into the General Fund (budget). The below is a slide from a recent SIC presentation. This article is a bit old but provides useful background information.
This from the FIR is the negative commentary by the State Investment Council (SIC)
Our Sovereign Trust Funds are targeted to return 7.5% (which is ridiculous right now and a cause of concern to me re stretching for return implies accepting higher risk).
This is a news article so I do not want to introduce my own opinions into the discussion but will simply note that from I what I read and have heard at two meetings on this subject the two key issues for New Mexico are:
A. the question of the benefit of a multiple-agency approach to the necessary banking functions of the State of New Mexico versus a more centralized approach but one that has governance that is separate from the existing State Entities although the governance of the banking function might well include representatives of these entities.
B. the merit of increasing the Sovereign Trust Fund by maximizing returns on investment in order to have protection from future hard times versus using some of of the proceeds related to the natural endowment of the State of New Mexico in a way that does not maximize the direct investment return to the State of New Mexico but instead improves the current economy i.e. the economic performance of the State of New Mexico including rural areas which traditionally have great difficulty improving their economic viability. This is a different approach to utilizing the finite natural endowment of the State of New Mexico to provide for a brighter future.
In order to deal with the Uniform Investor Protection Act it may be necessary to utilize funds from other sources than those related to the natural endowment of New Mexico or if related to the natural endowment of New Mexico, funds which have not yet been added to the New Mexico Sovereign Trust Fund.
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