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Move Your Money: Investing Public Money in Local Banks and Credit Unions to Spur Growth
Altaf Rahamatulla on January 28, 2010 - 2:12pm
In an effort to stimulate local economic growth and free up credit markets, New Mexico Sen. Tim Keller and Rep. Brian Egolf introduced HB66, which would require the state to give preference to community banks and credit unions to manage the state's general fund operating cash depository account. Currently, Bank of America holds the $1.4 billion account.
Rep. Egolf explained that he was particularly motivated by Move Your Money, an exciting campaign that encourages individuals to transfer their money from banks that are "too big to fail" and begin using smaller community banks that are much more likely to reinvest those funds in the community. The initiative is additionally a rebuke of the reckless actions of major financial institutions that led to the recession and the vast sums of government dollars that have flowed to these companies since the downturn began. As Sen. Keller explains, "[r]ight now national banks benefit from our state's taxes, every dollar of our state funds we deposit with local banks is another dollar available for New Mexican businesses and working families' mortgages and small business loans."
Strengthening Pension Fund Accountability: In a similar vein, Sen. Keller has also introduced SB18 to reform New Mexico's Investments Oversight Committee. Partly in response to pension scandals and other instances of corporate abuse, Sen. Keller intends to prevent corruption and promote good government by strengthening accountability mechanisms. To do so, the bill would ensure that the decision-making power of the Oversight Committee is not centralized in the executive branch and mandates that public members, to be appointed by various legislative officials, join the board. The bill would additionally create an Alternative Investment Advisory Committee that would provide recommendations and review certain assets and investment choices of the state's retirement board.
Other States Moving Money: New Mexico is not alone in recognizing that investing in local banks and credit unions foster growth and assist working families:
- Officials in Lake Oswego, Oregon plan to invest $1 million in local banks. The city's Finance Director, Ursula Euler, commented, "[i]t was really just an idea to show our support and goodwill toward the local economy and we wanted to balance that with an investment decision."
- In his State of the City Address, New York City Mayor Michael Bloomberg outlined a plan to invest $25 million in tax revenue in local credit unions: "With Albany’s approval, we’ll also strengthen neighborhood-friendly credit unions, which reach out to customers who may have never had a bank account... It’s a relatively small amount of City resources, but it will have a big impact by allowing credit unions to make more loans to more low-income families." This idea was originally proposed by the One City/One Future collaborative, who presented several innovative development and economic policy suggestions for New York City in their report, A Blue Print for Growth That Works for All New Yorkers.
The initiative is not likely to harm major financial institutions, but would have substantial impact as an engine of local growth. State lawmakers should explore the prospects of investing state funds in community banks and credit unions as a means to spur development, create jobs, assist state residents, and take proactive steps towards shoring up battered economies.
Drum Major Institute - New York City Moves the Money
Move Your Money - Will New Mexico Move Its Money?
Newsweek - Break Up the Banks Yourself
One City One Future - A Blue Print for Growth That Works for All New Yorkers