In 2014, the City of Santa Fe authorized a feasibility study to determine if establishing a city public bank would be advantageous. Last week, the feasibility study was released. (You can read it here.)
The bottomline: YES! Establishing a Santa Fe public bank would save the city millions of dollars in financing fees paid to Wall Street.
Here is an excerpt from the Santa Fe New Mexican.
A feasibility study released Wednesday concluded that the city of Santa Fe could save money by establishing a public bank.
Currently, when the city needs money to build roads, recreation centers, sewer lines, libraries or senior centers, it has to make its case to big investment firms and mutual funds that buy municipal bonds.
A debt package is compiled, analyzed, rated and then advertised — and whichever financial institution offers the lowest interest rate gets to loan the city money. The proceeds are deposited electronically, and the debt is paid off in small amounts over decades by water ratepayers, shoppers who pay taxes on goods and services, or perhaps those who play a round of golf.
But even during a time of historically low interest rates, borrowing funds has a cost to the government of 2 percent to 5 percent. That can be significant when amortized over decades. Santa Fe estimates it could have saved $10 million since 2009 on its $80 million of current debt had the government been able to borrow from its own community instead of Wall Street.
The City Council in 2014 authorized the feasibility study on whether Santa Fe could pull its cash out of financial institutions and use the funds to establish a public bank. The analysis concluded that such a bank could sustain itself and make a profit for taxpayers, but the concept should move ahead slowly, with transparency, and start small with the city paying for its own borrowing before offering loans to other governments or businesses.
A public bank could have an economic impact of $24 million its first seven years, according to consultant Katherine L. Updike of Building Solutions and Christopher Erickson, an economist with New Mexico State University.
“It’s a lost opportunity with every debt payment we make,” Mayor Javier Gonzales said about the costs of using large investment houses to finance capital needs.
He added that the money saved from avoiding debt payments to private lenders — which will increase as interest rates rise — could be used not just for basic public services such as police and fire, but also for innovative projects that can make Santa Fe a better place to live, such as helping early childhood initiatives and startup businesses.
But Gonzales recognized the trust issue many might have with a public bank, cautioning that the city is not going to get into the banking business to compete with local lenders, nor are city councilors going to serve as bank managers.
Any governance structure for the bank would have to be well thought out and balanced in a way that would gain support from both taxpayers and the business community. It would have to be independent from city politics. “We need to pursue this very carefully,” he said.
Here is the video from Mayor Gonzales’ press conference.