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A years-long effort to establish a public bank in New Mexico took its first step forward Thursday, Feb. 18, on a 5-4 vote in the House Commerce and Economic Development Committee.
In past years, legislators had been unwilling to even study the issue, given the fierce opposition from community bankers from throughout the state. That opposition remains, and was bolstered by the fiscal-impact report on the bill, in which state officials from several agencies raised questions about it.
House Bill 236 would appropriate $100 million to start the Public Bank of New Mexico, and create a new 11-person board that would provide oversight and hire the CEO to manage the bank. Supporters said it would keep more of our money in the state and would make more funds available for lending.
“The concept is pretty simple, we leverage taxpayer dollars to create our own economic instrument and foster community development,” said cosponsor Sen. Jeff Steinborn, D-Las Cruces. He said North Dakota has had a state bank for 100 years, and it has served the state well through a number of different crises, including the current pandemic.
The public bank would not be like other banks. It would not have locations throughout the state and would not make loans directly to consumers. It would instead partner with existing banks to make more money available for loans.
It would be a “bankers’ bank” said Dan Mayfield of the Alliance for Local Economic Prosperity, which is leading the effort for the bank. They have learned from the mistakes of others, and intentionally designed the public bank so as not to compete with community banks, he said. The plan calls for them to work in partnership, with the public bank underwriting loans issued through the community bank.
“We wish (community banks) were on board,” he said. “They are the key to making this work.”
That may be a problem, given that none of the bankers who spoke Tuesday wanted anything to do with the plan.
Jed Fanning, president and CEO of Citizens Bank in Las Cruces, said community banks are already meeting the needs of the areas they serve. Michael Martin, Chairman and CEO of Western Bank in Lordsburg, said if loans were made based on the desire to achieve political goals, that would open the door for abuse. Jay Jenkins, president and CEO of CNB Bank in Carlsbad, said his bank could not survive without public funds.
“We’re going to commit $100 million to create a new entity that will compete for existing resources,” said John Anderson, head of the New Mexico Bankers Association.
Anderson said the state bank in North Dakota is not chartered, and any losses are backed by the state. New Mexico’s bank would be self-chartered, Mayfield said, adopting the same standards as the Federal Deposit Insurance Corporation. Any losses would be covered by the state.
Steinborn said that was no riskier than other state investments.
“This is to serve community development,” he said. “At any one time we have $3 billion sitting in an account. This is a smart way to leverage those public dollars for public purposes.”
The fiscal impact report anticipates a recurring loss of about $150 million a year in comparison to the money being left in the state Severance Tax Permanent Fund.
Officials with the State Treasurer’s Office were concerned that if too much money was tied up in lending, they could be at risk of not being able to meet the day-to-day cash needs of the state. Officials with the State Investment Council said the bill provides no means for dollars taken from the permanent fund to produce any financial returns, raising legal questions as to whether they meet the definition of an investment, as required by the state Constitution.
Officials with the New Mexico Finance Authority predicted that after the bank’s initial $1 million deposit, it would be difficult to attract new investors. The State Treasurer has the option to make further deposits, but is not required to and has no incentive to, they said.
The five committee members who voted for the “do pass” recommendation said they did so with the understanding that the bill would get a closer look when it moves on to the Judiciary Committee.
A duplicate bill sponsored by Steinborn in the Senate, SB 313, is awaiting its first committee hearing.
Walter Rubel can be reached at firstname.lastname@example.org.