Faced with a tight credit market, recession and dwindling state funds, one proposal lawmakers have on the table is setting up a state bank.
Bills in the House and Senate would create the Washington Investment Trust, a move applauded by many small business owners, but opposed by the State Treasurer, who says it would be risky and unconstitutional.
Rep. Bob Hasegawa, the House bill’s sponsor, said the proposal was modeled after a similar institution in North Dakota and based on the idea that state credit should not be at the disposal of Bank of America, where Washington currently keeps its money.
“Why don’t we create our own institution, keep that money in our state and we make money off our money that we can then reinvest back into our community?” said Hasegawa.
He said that the North Dakota bank had been successful, leading to a budget surplus this year and preventing bank failures during the 2008 financial crisis.
The bills would set up a blue ribbon task force charged with organizing the bank, in which all state funds would be deposited. The bank could then use that money to make loans to businesses, farms and students and could also lend to other financial institutions to stabilize the Washington economy.
Assistant State Treasurer Wolfgang Opitz said he and Treasurer James McIntire opposed the idea.
“This bill, if adopted, would place both public funds and the state as a whole at significant risk,” he said.
Opitz said that the measure would violate the state constitution, which prohibits state credit from being loaned to any individual, association, company or corporation. Also, he said, setting up and operating a bank would be expensive, and he would want the bills to include a risk tolerance, or a set amount that the state would be willing to lose in loan defaults.
He said the State Treasurer already makes sure the state gets good returns on investments, and from 2008-10 state investments had brought in about $500 million.
“I’m not sure how I could save on banking services by implementing this bill,” said Opitz. “Nor am I sure how I could get a better deal for the taxpayers than I’m getting now.”
The bills, which had hearings in both the House and the Senate Tuesday, do not yet have fiscal notes estimating how much the bank would cost.
Representatives from commercial banks also opposed the idea.
Denny Eliason of the Washington Bankers Association said a state bank would compete with other financial institutions because it would not be taxed or have to pay FDIC insurance and it would mean a loss of credit for banks where the state currently deposits money.
Joshua Welter of Main Street Alliance, a Washington small business coalition, said the proposal was a good idea because it would stimulate lending to companies too small to get commercial loans in a tight credit market.
Sen. Steve Hobbs, Lake Stevens Democrat and Chairman of the Senate Financial Institutions, Housing and Insurance Committee where the Senate bill had a hearing, said he did not think the bill was dead because of the constitutional issues surrounding it, but he did not know if it would have enough votes to make it out of committee.
“I find the idea very intriguing, and it’s not something that’s new,” he said, referring to the North Dakota bank and the Federal Reserve. “We just kind of have to wait and see at this point.”