Although some legislators and public officials say the state does not have any money lying around that it could use to create a public bank, the state and local governments actually have a number of sources they could use to create public banks.
Transfer deposits. Colorado currently keeps its money and liquid assets in JP Morgan Chase, Wells Fargo and other banks. These would be transferred to a public bank and could furnish some of the necessary capital and deposits. That is how the Bank of North Dakota started in 1919, in addition to issuing $2 million in bonds. .
Revenue bonds. The state or local government could issue revenue bonds to start a public bank. Unlike general obligation bonds, revenue bonds do not create a general obligation of the government. By definition, the revenue to pay the bondholders comes solely from the interest and other income of the public bank or other entity. No vote of the people is required. The bank can and should be made large enough to fully restore the economy. If its management and lending operations were properly planned and in line with the very low overhead of the Bank of North Dakota, it would be highly profitable every year, starting the very first year.
Transfer existing loan funds. The state and local governments have established loan funds for essential purposes, such as the Colorado Housing and Finance Authority (CHFA). These are revolving loan funds. They could be transferred to a public bank as capital and generate 10 times as much money through loans. California and Washington state have pending legislation to do the equivalent.
Investment pools. The state could authorize existing government investment pools to be used as capital and/or deposits for a state public bank or local public banks.
Pension funds. Pension funds are a significant potential source of funds to start a public bank. Much of the pension funds in Colorado are currently invested in risky enterprises producing low returns and sometimes big losses. It is recommended that pension boards such as PERA authorize the investment of up to 5% or 10% of pensions as capital for a state or local public bank. PERA now has $49.3 billion in pension assets. If just 5% of that or $2.45 billion were used as capital to start a public bank, it would be put to much better use. The bank would create a stronger and more stable economy and thus protect jobs and pension, and would pay a higher and steadier return to PERA than it has been getting from its current investment in volatile stocks and hedge funds. If Colorado had a public bank proportional in size to the public bank of Alberta province in Canada, for our population, the bank would have $60 billion in loans, enough to overcome our $3 billion deficit.
Cares Act Funds. It might be possible that some of the federal Cares Act funds could be used for capital for a public bank. The U.S. Treasury Department’s guidelines for Cares Acts funds allow them to be used to make grants to businesses that lost income due to the shut down orders and encourages states and local communities to use their reasonable judgment in using the funds. A public bank could enable such funds to go much farther by making loans to businesses harmed by the shutdown orders.
Any combination of the above. If enough money were put into one or more public banks, we could rapidly restore our entire economy.