Let State Entity Act as Bank

January 4, 2014
Neal P. Goswami

MONTPELIER — A Progressive state senator is floating a proposal to move 10 percent of the state’s cash on hand — or about $35 million — into the Vermont Economic Development Authority to allow for more investment in local businesses and jobs. Sen. Anthony Pollina, of Washington County, said his plan, 10 Percent for Vermont, would spur needed economic development projects across the state.

VEDA, created by the Legislature in 1974, is a state-sponsored lender that has provided about $1.9 billion in financing to entrepreneurs and businesses that create jobs in the state. It works with banks to provide low-interest lending in exchange for promises of job creation.

“The 10 Percent for Vermont plan will strengthen our economy, help middle class families and help break the cycle of budget deficits,” Pollina said.

The bill, S.204, would create the program within VEDA “for the purpose of establishing a banking system owned, controlled and operated by the state of Vermont.” It would amend VEDA’s statutory authority to allow it to engage in banking.

Pollina, a former candidate for governor, said the state’s budget gaps in recent years “are a symptom of a bigger problem.” He said revenues are down because of lost jobs and stagnant incomes that are not allowing Vermonters to spend at local businesses.

The proposal, Pollina said, would help create jobs by offering companies more financing while generating more tax revenue. That would allow the state to address what is projected to be a $70 million shortfall in fiscal year 2015 without cuts to existing state programs.

Pollina’s legislation would grant authority to VEDA to accept deposits from the state and lend money like commercial banks. He said the lending would still flow largely through local banks, but the state would have more control over how the money is used.

Currently, the state deposits its cash in two large commercial banks — TD Bank and People’s United — that lend money wherever it creates the most profit, according to Pollina. He said his plan would have tax dollars invested where they benefit the state most, like renewable energy projects, affordable housing and agriculture.

Any profits “beyond those necessary to accomplish the mission and sound operations of the program” would be returned to the general fund. The state would not see a loss of revenue, because interest would flow back directly to the state, he said.
It is estimated the plan could infuse $35 million, to start, into economic development projects based on the state’s recent average daily cash balance of about $350 million.

Pollina has been a longtime proponent of a state bank in Vermont. A proposal to launch one last year from Pollina and Rep. Susan Wizowaty, a Democrat from Burlington, failed to gain traction. North Dakota is the only state with a state-owned bank.
“What we were working on last year in the Legislature was really to study the idea of a state bank, not to actually implement one. That bill has been stuck for a couple of years,” Pollina said. “The way I would look at this particular proposal is it’s a smaller version, or pilot project version, to allow us to see how a state bank would benefit the economy.”

Providing more capital for local businesses and raising the state’s minimum wage, which Pollina also supports, would help the state increase the pace of economic recovery, he said.

“That’s the kind of thinking we need to build a stronger economy from the ground up,” he said. “One of the reasons the economy is weak is because people don’t have money to spend.”