North Dakota is currently the only state with such an institution, backed wholly by government deposits

Gov. Phil Murphy is planning to sign an executive order Wednesday that will create a 14-member “implementation board” to advance his goal of establishing a public bank in New Jersey.

The basic premise of such an institution is to hold the millions of dollars in taxpayer deposits that are normally kept in commercial banks and leverage them instead to serve some sort of public purpose.

The new board will be led by Marlene Caride, a former state lawmaker who now serves as Murphy’s commissioner of Banking and Insurance, according to information provided by the governor’s office ahead of a planned 11 a.m. announcement in Newark.

The panel’s other members will come from both the administration and the public, and it will hold at least three public meetings, according to the governor’s office. Additional details are expected to be made public during today’s announcement.

Advocates of public banks say they can also provide borrowers with fairer interest rates and other favorable lending terms because there’s no need to charge high fees to fund things like large executive bonuses or to pump up shareholder profits.

But others have raised concerns that a public bank would take business away from the state’s banking industry and also create new opportunities for corruption and undue political influence.

In North Dakota, and California soon

North Dakota currently is the only state that operates a public bank wholly backed by the deposit of government funds. Founded a century ago to help insulate farmers from predatory out-of-state lenders, the Bank of North Dakota offers residents, businesses and students low-cost services like checking accounts and loans. It has also been used to advance projects that boost infrastructure and economic development, and has even produced revenue for the state budget’s general fund, according to the bank’s promotional materials, thanks to lending operations that regularly turn a profit.

North Dakota may soon have company, thanks to a law passed last month in California permitting counties and municipalities to establish banking institutions, capped at a total of 10 statewide.

Impaneling the board appears to be just a starting point for the Murphy administration, but it also represents the first tangible step to advance a policy goal that Murphy made a centerpiece issue during his run for governor in 2017.

Among the tasks for the board is to identify ways to use a public bank to enhance services offered by state agencies like the Economic Development Authority, the Higher Education Student Assistance Authority and the Housing and Mortgage Finance Agency, the governor’s office said.

The implementation board will also be asked to develop a business plan for the bank, placing special emphasis on advancing the needs of New Jersey’s low-income and minority residents, according to the governor’s office.

On the back burner until now

During the 2017 gubernatorial, Murphy — a former Goldman Sachs executive — regularly championed public banking in speeches, town halls and campaign commercials, suggesting the concept could be used to advance such public-policy goals as affordable housing, infrastructure renewal and lending to students and small businesses.

But since taking office in early 2018, the administration has largely kept the initiative on the back burner, as other economic-policy goals, such as increasing the state’s hourly minimum wage and reforming economic-development tax-incentive programs, have become higher priorities during his first term.

Murphy did allude to some progress behind the scenes on his public-bank initiative during a recent appearance on public radio. But he declined to offer many specifics as he answered a listener’s question during last month’s “Ask Governor Murphy” radio show.

“It’s just been a lot harder to do than I thought from the outside,” Murphy said.

Last year, a report by the New Jersey Citizen Action Education Fund highlighted a number of ways a public bank could benefit New Jersey taxpayers. They included filling gaps in small-business lending, generating new financing opportunities for affordable-housing and public-infrastructure projects, and boosting the availability of low-cost student loans. The authors of the report also recommended ways financial policies and other safeguards could be written to ensure sound lending practices and guarantee that taxpayer dollars aren’t squandered underwriting faulty loans.

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