Guest Writer, Marco Rosaire Rossi, is the executive director of Washingtonians for Public Banking and an adjunct professor in political science in Washington state.
Editor note: A superb 2 minute video that compliments this article is posted here.
With the budgetary crisis looming, the top priority of Washington’s legislators during this upcoming session—and perhaps all other sessions in the near future—will be closing the state’s critical revenue shortfall. Despite three years of consistent, and quite robust, economic growth, the state is facing a $14 billion deficit over the next four years.
The deficit could not come at a worse time. Washington remains mired in its housing crisis. Since 2020, the state has averaged building 46,400 new units per year, which is only slightly above the annual need. Nonetheless, more than one-third of households in the state are considered “cost-burdened,” meaning that they pay more than one-third of their income in rent. The lack of affordable units means that homelessness continues to be a significant problem for the state. Currently, Washington has the 6th highest homelessness rate in the country.
Additionally, the state’s schools are hurting. Districts throughout Washington have grappled with budgetary realities and have considered closing schools to manage the shortfalls. Seattle Public Schools (SPS) is currently considering closing four elementary schools, while Marysville School District is considering shutting down two of its elementary schools and a middle school. For Marysville, closing the three schools will potentially save the district $2 million, but it would still need to find another $1.2 million to ensure solvency.
On top of all that, Washington also must manage a difficult transition off of fossil fuels. Under the state’s 2019 Clean Energy Transformation Act, utilities are required to transition away from fossil fuels by 2050. The target is important for combatting climate change, but the state has not matched the lofty goals with equally ambitious investments in new clean energy sources. Without new, cleaner energy coming online, the state will need to import 43% of its energy, and will be at greater risk of rolling blackouts.
Incoming Governor Bob Ferguson has not yet indicated his plan for solving the state’s budget crisis, and has been equivocal on raising taxes. Regardless, outgoing Governor Jay Inslee has proposed a personal wealth tax on residents whose wealth is greater than $100 million. The plan would impact around 3,400 people and raise approximately $10.3 billion over the next four years.
Inslee’s proposal would shrink the shortfall, but it would not close it completely, nor would it necessarily position the state to make the needed investments for the future. Rather, it would essentially maintain the status quo. Trying to move beyond Inslee’s proposal also comes with its pitfalls. A progressive income tax is still considered unconstitutional, and raising regressive sales and property taxes will likely alienate voters, if not slowdown the economy.
Fortunately, there is another option. Washington could use its budgetary crisis to become the first state in a century in the United States to charter a public bank.
Annually, Washington takes in around $35 billion in tax revenue and fees. To keep track of that money, the state currently deposits those funds in 78 various commercial banks and credit unions, with the majority of the funds—approximately 63%--deposited in financial institutions that are headquartered or chartered outside the state. Instead of having this large sum of money distributed among various financial institutions, the state would place the entirety of it into a single state-owned and operated public bank. The bank would then be able to make loans based on the state’s deposits. Since banks operate through fractional reserve lending, meaning the deposit only needs to equal a fraction of the amount that is lent—usually equating to a 10:1 ratio—the state’s public bank would be able to make an approximately $300 billion annual investment into Washington’s economy in the form of credit. Additionally, because the bank would be a nonprofit institution, it would be well positioned to offer loans at a more competitive rate than the private market, thus helping drive down interest rates and create a fairer financial market for everyone.
The state would not need to go far to find successful examples of public banks. In the United States, North Dakota has had a state-owned public bank since 1919; it remains a backbone of the North Dakota economy, providing critical credit during economic downturns and natural disasters, and supporting the state’s many small community banks and credit unions. Similarly, after the Bank of Hawaii decided to leave the area, the Territory of American Samoa established its own public bank to provide financial services to residents of the island.
Washington’s budgetary shortfall is a sign that the state’s present economic model is failing. Despite years of robust growth, the state is still not able to get capital to the areas where it is most needed. If the state is going to move forward with an economy that can meet the challenges of the 21st century, then it needs to embrace new public institutions—specifically public banking. Doing so ensures that Washington will have a truly progressive economy, one that will guarantee a future that is both prosperous and just for all Washingtonians.
