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A Better Way To Finance Public Projects

In a local newspaper I recently read an article regarding how a school district was looking to “refinance” their outstanding bonds in an effort to reduce the interest burden on their debt. In the same issue I read how another school district expends nearly $2,000,000 yearly just to pay the interest burden on their debt.

Clearly our school systems face a considerable interest burden on their debts. It is already a matter of public record that US municipalities, school districts, and pension funds were victims of fraud due to the rigging of the commission bids as laid out in an article called “The Scam Wall St Learned from the Mafia” by Matt Taibbi. Many of these municipalities, schools, or other entities were also the victims of a type of derivative called Interest Rate Swaps where the big banks induced them to gamble with public money on the direction of the market, but the end result was often that the “bet” went bad. A great example of this was Jefferson County in Alabama where the original cost for a sewer project was estimated at $250 million and ended up indebting the county $5 BILLION. Since we do not know all the details, it is difficult at this time to determine specifically how many states, counties, municipalities, and school districts may have been victims of financial fraud which resulted in an increased debt burden paid by the taxpayers as a result of the LIBOR rate rigging scandal that is still unfolding.

Consider this…, when a municipality or school district wishes to do a repair, a capital improvement or infrastructure project, the amount of money paid in interest costs to the financiers exceeds the amount of money paid to those who supply the materials and do the labor on the project. Most people should feel angered by this. Why should those who simply move money around, make more money than those who produce the materials and do the actual labor on the project? Most readers can probably relate to this personally because the interest burden of financing the purchase of their homes causes the final total cost of the purchase to far exceed the original cost of home itself. There needs to be a better system of financing public projects.

Perhaps engaging in creative thinking would result in cheaper financing of public projects. Proposed solutions still center on using conventional or Wall Street financing instead of looking to alternative sources. Well, there is a better way and it can provide any sized government or community entity with financing at zero or near zero interest. One needs only to look at the Bank of North Dakota (BND) for a solution, which is currently the only state-owned bank in the country. This bank has been in existence for 92 years and has a history of safe, secure, and highly profitable banking. In fact North Dakota has a budget surplus, much of which can be attributed to the reduced borrowing costs of public projects. The BND’s purpose is to provide loans to build economic capacity within the state. Examples include loans to state entities in the form of low cost loans to municipalities, schools, small businesses, agriculture, infrastructure projects, and students. The BND does not imperil state funds or tax money but is self-funding and self-sustaining. The BND enjoys broad political support from both major parties inside of North Dakota.

A public bank can be state wide or can be started or acquired by any sized government or community. It could extend county wide, allowing municipalities and other public entities access to its credit. It could be a consortium of school districts that form their own bank to save financing costs for large projects or purchases such as Haddonfield is considering. It could also be a consortium of colleges and universities seeking to reduce their interest costs which is currently driving the huge debt burden of higher education for students. Some might criticize this as “socialism”, but the system we currently have is “socialism”, where the big bank profits are kept by the banks, and the losses are subsidized by the taxpayers. The biggest advantage of a public bank is that public entities could access the resources of the bank to obtain zero or near zero interest loans. The bank would have access to the Federal Reserve discount window which makes loans available to banks currently at approximately .25% interest. This significant savings could be passed on to the loan seekers. Any profits generated by the bank are recycled back into its operation allowing it to charge the lowest rates possible. By keeping the profits inside of public coffers instead of sending them to Wall Street, the taxpayers are saved most of the costs of public projects by eliminating the financiers.

The costs associated with running a public bank are significantly lower than those for the large Wall Street banks because the employees are public workers and are not paid exorbitant salaries and multi-million dollar bonuses. A public bank is also counter-cyclical, meaning that is can extend credit precisely when private banks are reducing their credit availability and credit is most needed. A public bank is economically sustainable because they are run by professional bankers, operating transparently according to applicable banking principles. By returning credit income to the community in the form of near zero interest rates, the pressure for tax increases is reduced.

So why has this not been done outside of North Dakota? Inertia is a major force. Most commissioners, business administrators, treasurers, and others who handle local finance are not familiar with the concept of public banking. There are also the vested money interests on Wall Street who do not want to see their cash cow removed and they vigorously oppose any moves to initiate public banks or to advertise their advantages. Despite this, the momentum for public banking has been increasing with fourteen states now having either introduced bills to form state-owned banks or to do feasibility studies. The bills were introduced in Oregon, Washington State, Massachusetts, Arizona, Maryland, New Mexico, Maine, California, Montana, and New York. They join Illinois, Virginia, Hawaii, and Louisiana which introduced bills in 2010. Washington and Oregon commissioned the Center for State Innovation based in Madison Wisconsin to do a detailed analysis and it concluded that “state-owned banks would have a positive impact on employment, new lending, and state and local government revenue.” This is a viable solution.

As a former teacher for 15 years and a school administrator for 16 years, I have seen the devastating effect that budget cuts have had on our educational programs. During my time as an administrator, due to budget pressures I witnessed the elimination of the following programs and personnel in the school district where I was employed: Wood Shop, Home Economics, Metal Shop, Child Care Program, Cooperative Industrial Experience (work-study), Print Shop, Philosophy, Auto Shop, elementary librarians, the entire Business Department, Technology Lab, and Carpentry. There were also reductions in the following programs: Art, Music, Performing Arts, and Foreign Language. The loss of these enrichment programs degrades our educational offerings and leaves our society at a distinct disadvantage to other countries where the curriculum is more robust. Don’t we want more for our children and our country’s future?

Isn’t it time to redirect interest payments back into our schools? Isn’t it time to lower debt costs for local governments? Isn’t it time to cut the costs of infrastructure projects in half? Isn’t it time to invest local dollars into the local economy? Isn’t it time for interest payments for public projects to be returned back to be used for tax reduction instead of going into the pockets of the Wall Street bankers or to tax havens in Switzerland or the Cayman Islands?

So how can we make this happen? Taxpayers need to go to their town councils, their school boards, their county commissioners and ask them if public banking is being considered. If the answer is no, then ask why not? Ask these questions, do not accept “no” as an answer. If you are told that you do not understand these things, tell them to make you understand.

To those public officials who are truly interested in serving their communities better: be bold, be innovative, and empower your communities. We owe this to our fellow citizens, our children and our future. To learn more about the possibilities that that public banking offers, to learn how to get started, and where to find help in implementation, visit the following site:
http://publicbankinginstitute.org/advantages.htm

Rudy Avizius
http://www.endtheillusion.org

Rudy Avizius has been researching and writing articles on economic and social issues for over 10 years. He is concerned that our current path is not sustainable economically, socially and environmentally and that the time for real change is rapidly running out. He has also been a guest speaker on several radio talk shows in the US and internationally.

Are you WILLINGLY paying a 3% tax?

Are you WILLINGLY paying a 3% tax?  Are you then paying this money so that it can leave your community, so it can be shipped to tax havens abroad and to pay for the bonuses of bankers and the Wall Street types?

I pay my taxes, why don't the corporations The unfortunate answer is that you probably are. With 609 million credit cards(1) being held by US consumers and with credit cards being used for more than $2.5 trillion(2) in transactions every year  you are probably using credit cards for many of your purchases. Did you know that credit card companies charge their merchants a fee of approximately 3% of every transaction? This is on top of minimum monthly fees, gateway fees, statement fees, and address verification fees. The money from these fees goes to pay bonuses for the top bankers. The amounts of these bonuses actually exceed the profits that these banks make.

So, in the end who really has to pay these fees? Does the merchant absorb them or pass them on to the customers?

BankBuildingIn this difficult economy, most merchants operate on very tight margins and they cannot afford to absorb these fees, so they are passed on to their customer. This means that everything you buy has an extra 3% tacked onto the selling price. So, even if you are paying in cash, you are probably still being charged the extra 3% because so many others pay using credit cards. You are essentially paying a 3% BANK TAX for every purchase you make because of this. So no wonder the banks are doing well in this depressed economy: 3% of $2.5 trillion is a lot of money, and this does not count any interest, late fees, annual fees, and other fees that YOU pay to the credit card companies. No wonder some of the largest buildings in our cities are banks. These large banks are not producing anything, they create no wealth (except for themselves). They are parasites on the working people who place themselves in close proximity to large piles of workers’ money and find ways to siphon off as much as possible for themselves in the way of  bonuses and money to be used to “buy” legislation that will provide loopholes in the tax code so they can keep even more money for themselves.

Big Corporations The banks are not the only ones that are siphoning money from your community. The big corporations are also doing the same. When you do your shopping at a large chain store, they do provide jobs that basically minimum wage, while they take the profits and ship it out to the central offices and out of the community. Since 2 out of 3 corporations pay no federal taxes, this means that YOU are paying for their police protection, fire protection,  and for the wars that profit them. Much of this money is also sent out of the country to avoid paying their fair share in taxes which impoverishes not only your community, but your nation as well.

So what can you do to stop your money from leaving your community and enriching the elites?

Thank this merchant for passing savings on to youFIRST: Consider this, do you get upset when you go to a gas station and they charge you more for a credit card purchase as opposed to a cash purchase? Do you get upset with a merchant if they charge you extra if you pay by credit rather than with cash? These vendors are actually doing you a favor and passing the savings on to you for paying in cash instead of pocketing the extra money. Seek out these vendors and give them your business. Thank them for allowing you to save money by passing the cash savings to you. If your merchant does not give you a cash “discount”, ask them why not. Tell them you will purchase elsewhere if they do not.

SECOND: Pay with cash whenever possible. This denies the big banks the money for all of these fees and keeps it in your pocket and in your community. Tell your family, your neighbors, your friends to do the same thing. If we could collectively cut our credit card spending in half, this alone would save us $37 billion that would be kept in our pockets and in our communities. This would be an essentially “free stimulus” for our communities, rather than having the banks siphon this cash from our communities.

THIRD: Purchase as much as possible from smaller local merchants, rather than large corporations, huge chain stores, large franchises, and large banks. Buy from your local hardware store rather than going to Home Depot. Buy from your local clothing store rather at Walmart. Drink a local beer rather than Budweiser. Buy your food from your local farmer when possible. Buy your flower bulbs from the grandmother next door rather from mailorder. These banks and corporations take their profits and also ship it out of our communities where they use the money for “productive” things like executive bonuses. Your local bank, your local restaurant, your local hardware store will keep that money in your community rather than shipping it out. This helps to stimulate the local economy and has a ripple effect as the money circulates locally. The job you save may be your own.

lobbyist control of our government FOURTH: Become aware of which corporations are the large contributors to political campaigns and lobbyists. These corporations use this money to lobby our elected leaders to add to the 71,000 page tax code to insert tax breaks that benefit them, leaving the rest of us to pay the services they receive, such as roads, police, fire, military protection. If they are not paying for these services, YOU ARE! Roads and military protection do not come cheap! This shirking of their duty, results in even more money leaving our communities which impoverishes them even more. The Wall St speculators and bankers are thriving in this environment, while Main Street suffers. Avoid buying from these large entities, and instead buy from the local merchants who are not buying our politicians and are paying their fair share of taxes.

US Uncut PhillyFIFTH: Check out what the organization US Uncut is doing. These people are aware of the scale of theft that is taking place and how the result is draconian program cuts to ostensibly cut the deficit, but in reality is really of transfer of money from those who need it the most to those who need it the least in the form of tax cuts for the wealthiest. Our nation is actually debating cutting early childhood education, forcing veterans into homelessness, and cutting food aid to pregnant women and children, while giving tax breaks to billionaires, the banks, the speculators, and the big corporations. This is just plain wrong!

With so many of our fellow citizens unemployed, underemployed, or just worried about keeping the job they have, we need to take these simple steps to start protecting our communities and ourselves from the greed of these financial elites and to VOTE WITH OUR WALLETS!

(1)”The Survey of Consumer Payment Choice”, Federal Reserve Bank of Boston, (January 2010)

(2)American Bankers Association, (March 2009)

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