House lawmakers propose creating state-operated bank

OLYMPIA – State government stores money at Bank of America, buys goods with U.S. Bank cards and distributes welfare aid through JP Morgan Chase ATMs.

Supporters of cutting such ties to big banks say the first step is creating the state’s own bank.

The idea of a state bank – a favorite of the Occupy movement that sees it as an alternative to Wall Street – has strong support among the Democrats who control the state House. Speaker Frank Chopp called it a top priority last week in a speech opening this year’s session of the Legislature.

“I think people see this as a form of empowerment, that we’re going to try to do something in our state to regain control over the safety of our finances,” said David Spring, a community college instructor from North Bend who has spoken at Occupy rallies.

Skeptics wonder where the money would come from to accomplish the bank’s goals, such as making low-interest loans to college students and to local governments for public works.

Republican lawmakers and the Democratic state treasurer, Jim McIntire, say government programs already exist to serve those functions. The Public Works Trust Fund loans out hundreds of millions of dollars a year to Washington’s local governments for infrastructure, and an alphabet soup of agencies have similar goals, including the Community Economic Revitalization Board, the Drinking Water State Revolving Fund and the Transportation State Infrastructure Bank.

Then there are federal student-loan programs.

“Why set up a whole new bureaucracy?” asked Rep. Barbara Bailey, R-Oak Harbor. “And one step leads to another step and next thing you know we have a full-blown financial institution that is in direct competition with our financial industry – which by the way is very good in this state.”

Spring says the problem with today’s crop of state programs is that the state has to tap into the banking system for its money instead of going directly to the Federal Reserve, as banks can.

The proposed champion in the Legislature of a Washington state bank is Rep. Bob Hasegawa, a Democrat whose district runs from Renton to South Seattle.

Hasegawa’s proposal last year went nowhere. But the House created a task force that Hasegawa led, which came up with scaled-back legislation addressing worries about whether a state bank would run afoul of constitutional prohibitions about lending the state’s credit.

Hasegawa wants a bank with more authority but said it might require a change to the state constitution. This version, he said, will pass constitutional muster.

“The (Supreme) Court has said you can use the state’s credit for the public benefit or to support the poor and infirm,” he said. The bill he introduced Friday has 44 sponsors, just six shy of a majority in the House.

It allows for student and infrastructure loans, and might also let the bank take over services related to welfare benefits cards, which are now managed by JP Morgan Chase under a government contract. Chase charges welfare recipients 85 cents for ATM withdrawals using their benefits cards.

Hasegawa’s proposal could run into trouble in the Senate, where Democrats have a smaller majority and where leaders say they’re interested – but didn’t include it on a list of dozens of government reforms they unveiled last week.

The bank would need money as capital and it’s unclear where that would come from, said Senate Majority Leader Lisa Brown, D-Spokane.

Spring said there is uncommitted money in the state’s accounts, but McIntire’s office said capitalization would be a big challenge.