Notes on the Washington Investment Trust Forum

Co-authored with John Repp, both members of Washington Public Bank Project

For those of you unable to attend the forum last Thursday, Sept 27, 2012 sponsored by PSARA -“Would a State Investment Trust (AKA a public bank) Benefit the People of Washington”? We submit here our notes and comments. The forum was very well attended. Interest in the idea of a public bank remains high.

The three person panel was introduced by Robbie Stern, chair of PSARA.

Rep. Bob Hasegawa spoke first and he told us that the new bill for the upcoming legislature will focus on funding infrastructure in our state. The name of the public bank will be the Washington Investment Trust (WIT), same as last year. He said we need to use Washington tax money locally and for the benefit of the citizens of our state. He sees the WIT as a long term project for the future of our children and grandchildren. It will not get us out of the current recession. It is a step to get out from under the Wall Street Banks.

Jim McIntire, the state Treasurer, spoke next and began with the phrase, “the Treasurer’s Office is the ‘state bank’”. We think this shows 1) either he is being deceptive with the word “bank” or 2) he really does not understand the privileges a real bank has. He went on to talk about the good job that the Office of the Treasurer(OST) has done in investing and managing the state’s money. Later on when he makes the claim that we do not have enough cash flow to start a bank, this claim contradicts his statement that his office has invested and has earned billions for the state. If we don’t have enough cash flow to start a bank, where does his office get all the cash to invest and earn returns for the state? We are talking about the same money. ( For those of you who think we can solve the problem of Jim McIntire by elected a new Treasurer in 4 years, be aware that as soon as the Treasurer of Oregon got even close to working with the movement there to establish a public bank, he faced massive criticism from his fellow treasurers at the first national meeting of State Treasurers he attended.)

McIntire said that his main concern is “safety, liquidity and return.” We agree. On “safety”, the third speaker, Darel Grothaus told us that in 30 years there has not been default on public infrastructure bonds in this state. Therefore, if the WIT loans money to fund infrastructure, the funds will be safe and those loans will be carefully scrutinized for safety. The plan is for the WIT to follow good banking practices, be audited each year and follow guidelines set forth by the Department of Financial Institutions.

On “liquidity” McIntire does not seem to understand that managing liquidity is what banks do. A retired Bank of North Dakota official told us this spring that Treasurer McIntire simply does not understand how banks maintain liquidity as they deal with deposits flowing in and out of depositors accounts. That official told us off the record that he felt the opposition by State Treasurers to the public bank concept is primarily a “turf” thing.

McIntire told us that his office primarily invests in Federal Government Securities that can be sold at any time if the State needs the money. There is also a guaranteed return. Here we see the real difference between a public bank and an Office of the Treasury. The WIT will fund infrastructure projects, schools, sewers, water systems, roads and bridges here is Washington State. The current Office of the Treasury invests in paper i.e. Federal Government Securities and short-term CD’s.

When Darel spoke next, he repeated the idea that Washington State taxes need to be invested here at home in public infrastructure. Currently, the government jurisdiction, say school board, water district, city, county or an agency of the state must go to the private bond market to borrow money for the project. The Wall Street Banks underwrite the bonds i.e. loan the money. There are significant upfront fees as well as the interest on the loan that the jurisdiction must pay. The Washington Investment Trust (WIT) would be a short term revolving lender for these projects. He believes that the Office of the State Treasurer’s core portfolio can be used for infrastructure construction loans without endangering cash flow and the liquidity needed to pay current obligations. There are ways to calculate how much of this core portfolio could be used and still maintain liquidity. Darel emphasized that state and local government borrowing costs can be significantly reduced and the state can get a better return on investment compared to bond financing. If the state charged only 1% less interest, the savings to local government would be huge and the WIT would earn the interest instead of the Wall Street Banks. The creation of jobs in this state must be part of the calculation of “return”. For example a billion dollar loan for a sewer project could produce 13,000 jobs. And when that loan is repaid with interest the WIT could again leverage that money to create more loans and more jobs. So, on “safety, liquidity and return” the WIT is a better way for our state.

In the Q and A session, Jeff Johnson of the WA State Labor Council spoke about the support from labor unions for a WIT. He asked the Treasurer to use his expertise to help in finding a way to allow the State to keep its money local through a WIT and to use that money to make loans and create jobs.

An audience participant who is also a financial advisor said that she had looked into having some of her clients buy Washington State bonds when they were offered by the state. What she found was that the bonds were underwritten by the big Wall Street Banks and after their fees and the way the bonds were structured, only sold in large denominations, her clients, when and if they were able to buy them, would get very little return and that the Wall Street banks got the major benefits. She could not recommend to her clients that they buy WA state bonds. Her question to the Treasurer was, “Why can’t we think outside the box, do something different, how can we make a WIT possible and viable?”

Larry Brown from the Machinists Union wondered if the WIT could help bring another airplane company to Washington as a competitor to Boeing. Senator Marilyn Chase told the group that the University of Washington has an internal bank. The legislature gave the U of W bonding authority a few years ago. In effect, public banking already exists in this state and we have not heard McIntire speak out against this.

It was mentioned by several people that we need to get out from under the Wall Street Banks. Bank of America has foreclosed illegally on Washington State citizens, backs war, backs coal, and cares nothing for the people but only about profit. Why do we keep using it to collect our tax money? (B of A is contracted by the state to collect all the taxes and fees for the state). The mood of the crowd was in favor of the WIT and they wanted the help of the Treasurer to make it possible. However, legislation will be introduced once again this legislative session and we will work state wide to make a WIT happen. Stay tuned, there will be some actions to take as the session draws near.