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Hawaii Legislature Considers State-Owned Bank

The House Committee on Finance will hear bills to discuss the concept and policy of a state-owned bank in Hawaii on Wednesday, February 29, 2012, 11:30 a.m.

SUMMARY:  These bills will generate discussion on how Hawaii can best use state tax revenue that is currently deposited in private banks.  The committee seeks information on whether a state-owned bank will generate more revenue for the state, create jobs, better support clean energy, provide assistance for parts of the community that are under-served by traditional banks, and increase economic development for Hawaii.

The hearing notice can be found online at: http://www.capitol.hawaii.gov/session2012/hearingnotices/HEARING_FIN_02-29-12_2_.HTM

The measures to be discussed are: HB2103, PROPOSED HD2 – RELATING TO THE BANK OF THE STATE OF HAWAII http://www.capitol.hawaii.gov/session2012/Bills/HB2103_HD2_PROPOSED_.htm

This bill would direct the Department of Commerce and Consumer Affairs to draft legislation to establish a state-owned bank.  The bill would also require the Hawaii Housing Finance and Development Corporation to establish and operate a “mortgage cleansing” program to assist the homeowners of foreclosed properties.

The recent multi-state settlement by the state attorneys general for faulty mortgage foreclosures may also impact this proposal.  Hawaii’s estimated share of the settlement is more than $71 million, of which $8.2 million would be provided to Hawaii to use at its discretion.  The proposed program would be in place until the state-owned bank is operational.

Once a state bank is established, $500 million of state funds held by private institutions on behalf of the state would be deposited into the state-owned bank, and not less than 50% of all state funds required to be held in depositories would be deposited in the state-owned bank.  Currently, Hawaii-based banks hold more than $2.8 billion of the State’s funds as deposits.

HB1033, PROPOSED HD1 – RELATING TO PUBLIC FINANCE http://www.capitol.hawaii.gov/session2012/Bills/HB1033_HD1_PROPOSED_.htm

This bill would establish an independent Clean Economy Bank of the State of Hawaii, to provide financing and risk management support for clean energy projects that help to lessen Hawaii’s dependence on imported energy.  The bank would enable the state, in partnership with other states, to fully leverage federal funds to create jobs, reduce carbon emissions, and ensure the nation’s energy security.

HB1840, HD1 – RELATING TO STATE-OWNED BANK http://www.capitol.hawaii.gov/session2012/bills/HB1840_HD2_.htm

This bill would establish a task force to review, investigate and study the feasibility and costs of establishing a state-owned bank.  If enacted, this measure begins the process of identifying the needs within the community for a state-owned bank.

HB304 PROPOSED HD1 – RELATING TO STATE FINANCES http://www.capitol.hawaii.gov/session2012/Bills/HB304_HD1_PROPOSED_.htm

This bill would allow the Department of Budget & Finance to enter into agreements with other bond issuers to pool bond allocations.  If a state bank were established, it could take advantage of low-interest financing of “green projects” and broker multi-state projects.  As such, Hawaii would be in position to serve as a national and international finance center.

Background Information

Bank of North Dakota: The Bank of North Dakota was formed in 1919 and is the only state-owned bank in the United States.  It has a single office in Bismarck, North Dakota and offers limited retail banking products; the Bank of North Dakota is a deposit institution only.  The majority of its bank deposits come from public funds, such as tax collections and state fees.  This bank in not insured by the FDIC – the Federal Deposit Insurance Corporation; its deposits are guaranteed by the State of North Dakota.  Since its creation in 1945, the North Dakota State Bank has added more than $555 million to the state’s general fund.

Since 2010, at least 16 states introduced bills to either study or create a state bank or investment trust.  In 2011, Massachusetts formed a 21-member commission to study the issue and recommended against it.  In 2012, the California legislature passed a bill to establish a task force to consider the viability of a state bank; it was vetoed by the Governor.

State of Hawaii Deposits: As of January 21, 2012, the State of Hawaii had $2.8 billion in deposits in Hawaii financial institutions.  Of this, $111 million was in cash and $2.7 billion in certificates of deposit.  Hawaii spends more than $500,000 per year in general funds to pay the administration fees for these deposits.

Mortgage Foreclosures in Hawaii: The great economic recession resulted in nearly 24,000 Hawaii families losing their homes to foreclosure, with over 33,000 jobs lost, and more than 200 small businesses going into bankruptcy — many due to the inability of businesses to get loans.

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