The state of New Jersey, its 21 county governments and 565 localities hold billions of public money in private banks. These funds are managed by commercial banks and have been used to finance destructive businesses such as private prisons, immigration detention centers, assault weapon manufacturers, fossil fuel infrastructure, and additional properties that give the priority of profit over ethical and moral decision-making. Some of these institutions also engaged in risky and fraudulent practices that caused global markets to collapse during the 2008 financial crisis, particularly in the mortgage derivatives segment.
New Jersey now has the opportunity to create an alternative banking operation through locally controlled, ethically, socially and environmentally responsible public banks, which will allow cities and counties to recoup public money and have a say in it. community funding.
The idea of creating this type of public entity for New Jersey was first proposed as a campaign pledge by then-gubernatorial candidate Phil Murphy in 2017, but the only step taken to achieve this goal was a 2019 decree that created and appointed an Implementation Council of 14 members. With a significant inflow of over $ 10 billion in US bailout allocations to the state over the next two years, now is the time to successfully implement this plan by capitalizing on this influx of immediate cash – the start-up cash needed to establish the banking business.
Unlike private commercial banks, a public bank is a financial institution operated by a government entity such as a city or county, with a non-profit civic mission and governed by a public commission, the interest and profit of which belongs to the community. Government revenue deposits will create loans locally with profits and interest ceded to localities and their ability to raise capital to serve the public rather than private shareholders. Rather than leaving taxpayer money in merchant banks, the funds will go to the public bank, which will provide below-market capital for solvent and socially beneficial projects.
The Bank of New Jersey
The Bank of New Jersey will accept and insure state, county and municipal deposits, guarantee liquidity, and provide all banking and purchasing services to these public bodies, as well as provide informed and targeted loans to institutions responsible for the sectors. of the local economy where capital can make a calculable difference in the lives of residents. By recirculating New Jersey government deposits back into local lines of credit and investments, a public bank will grow the economy faster than if that same money were invested in Wall Street banks and paid in fees to brokers. New infrastructure projects, schools and transportation designs will no longer be subject to excessive interest paid to bondholders, accounting for around 50% of all infrastructure spending when incorporating life span interest on the debt. A public bank will finance these investments at a fraction of the cost of private capital, which means that if people finance public projects themselves through a public bank, they can halve infrastructure costs and multiply the capacity of investment of their communities.
To ensure efficiency and transparency, the implementation committee should design the bank’s charter with an independent mandate, free from political interference and nepotism; the institution will be banned from dangerous and unhealthy banking practices and will develop a strict order to protect and expand assets through lending to local businesses and public entities. In addition, the board of directors should include a mix of qualified banking professionals, chartered accountants and members of the public, regardless of political patronage.
It is time for New Jersey to develop a banking system that reflects the values of the community and invests in the priorities identified by the community. This creates a multigenerational source of capital that funds long-term impact goals for residents and businesses and keeps public money invested locally to serve a public purpose.