By Erica Jedynak
One of the wackier ideas to emerge from last year’s gubernatorial campaign was Phil Murphy’s proposal to create a state-run bank that would hand out loans using taxpayer dollars. Now, some members of the legislature are working to make it a reality, which could have disastrous consequences for our state’s finances.
State Sens. Richard Codey and Nia Gill have introduced a bill to create a state-run financial institution empowered to extend loans, acquire real estate and fund pricey transportation projects. At a time when New Jersey faces a rapidly growing $248 billion pension crisis, the proposal would needlessly put billions in tax revenue at risk.
The risks aren’t limited to the possibility that businesses and other entities may default on their loans. The bank would also have the power of eminent domain to construct and remodel buildings — essentially putting the state in the business of obtaining and flipping properties. It’s a dangerous expansion of the government’s power into an area where it is unlikely to succeed.
The bank would also be charged with funding state transportation projects, which are plagued with cost overruns. A report by the Reason Foundation found that New Jersey spends a staggering $2 million per state-controlled mile of highway, more than double any other state. Such projects ought to be funded by government bonds as they are elsewhere.
Another risk inherent with a government-run bank is that loans could be given not based on sound economic principles but political favor. New Jersey politics does not exactly have a sterling record when it comes to corruption. Does anyone seriously believe that a state-run, billion-dollar bank would be insulated from our notoriously quid pro quo political culture?
Considering the risks, it’s no surprise that only one state, North Dakota, has a government-run bank. But North Dakota’s bank does not provide a replicable model for modern-day New Jersey. For starters, it was established in 1919 out of frustration with the high interest rates charged by out-of-state lenders, and today it mostly serves as a source of low-interest loans for the oil and gas industries. Moreover, North Dakota is a rural state with a small population, and it lacks our unsavory history of political corruption.
A 2011 report based on research provided by Federal Reserve Bank of Boston and other state agencies recommended the Massachusetts legislature not pursue the idea. The reasons cited are sound: A state-owned bank would require significant initial start-up capital; the economies of North Dakota and Massachusetts are substantially different; and “the public funds of the Commonwealth would be exposed to unacceptably high risk if deposited in a state-owned bank.”
It’s commendable that lawmakers wish to ease the economic burdens carried by New Jersey families and businesses, but a government-run bank is not the answer.
Erica Jedynak, New Jersey state director, Americans for Prosperity.