Marco Rossi: Vermonters need a public bank

This commentary is by Marco Rosaire Rossi, who was born and raised in Barre but now lives in Tacoma, Washington. He is executive director of Washingtonians for Public Banking and an adjunct professor in American government at Cascadia Community College. Vermont is still scrambling from the destruction caused by the historic floodwaters that rampaged through the state in July.

Fortunately, the death toll from the natural disaster — the worst in nearly a century — was minor. So far, officials have attributed only two deaths to the flooding. Considering the level of destruction, the death toll could have been much worse. However, economically the state will likely face a much harsher situation.

As of writing this, the full cost of the destruction is still being calculated, but early on the management and consulting firm Aon PLC declared that the “total economic flood losses can potentially reach into the hundreds of millions of dollars, possibly higher.” Unfortunately, those numbers were foreseeable.

In January 2022, the Gund Institute for the Environment at the University of Vermont released a report that declared flood damage, largely driven by global warming, could cost the state over $5.2 billion over the next century. Even worse, the report notes that these costs will burden low-income Vermonters the most. If Vermont is going to survive a future of historic flooding, then historic investments need to be made into the state.

At this point it is not enough to build back from the flooding, instead — stealing a line from the Biden administration — Vermont needs to build back better. However, thequestion is: Where is the money for this historic investment going to come from? The answer is the state can create it by establishing a publicly owned and operated Bank of Vermont.

Unlike private banking, public banks are owned by a public institution — usually a government — and are mandated to operate in the public interest. Today, North Dakota is the only state that has a public bank, and its history demonstrates that public banking can be a critical tool for financing natural disaster relief. The Red River Flood of 1997 devastated areas of North Dakota, Minnesota, and the southern part of Manitoba, Canada.

In total, the flood caused approximately $3.5 billion in property damage. Instead of waiting for relief from the federal government, North Dakotans took matters into their own hands. The Bank of North Dakota financed a $25 million line of credit to the city of Grand Forks, a $12 million line of credit for the University of North Dakota, and another $25 million for state emergency management. Partly because of this support, the economy of Grand Forks recovered much more rapidly than East Grand Forks, which was located across the river in Minnesota. While North Dakota provides a contemporary model, Vermonters can also look to their past for successful examples.

In 1806, Vermont state legislators chartered the Vermont State Bank. Historians mostly know the bank for its Middlebury branch, which became a hub for corruption, leading to a major scandal that shook up state politics. What is often neglected is how the other branches of the bank greatly benefited the Vermont economy, especially within the context of a major recession in the lead-up to the War of 1812.

At the time, Gov. Jonas Galusha, who was an open critic of “country banks,” admitted that without the Vermont State Bank, “our citizens would, on the late bankruptcies, have been possessed of large sums of the depreciated paper of the failing private banks.” Despite this, within a few years, the majority of legislators had turned their backs on public banking.

In 1812, lawmakers abolished the Vermont State Bank. The state’s Jeffersonians regarded this as a tragedy. According to historian Kenneth Degree, for them “the problem was not that the bank was state-run, but rather that the men placed in charge were bereft of sufficient public virtue to be up to the task.

They had betrayed the trust of the citizens of the state.” Fortunately, the idea of honest public banking has been kept alive in Vermont through activist organizations like Vermonters for a New Economy. In 2013, that organization helped with a study that found investments from a Vermont public bank would create over 2,500 jobs, more than $190 million in value-added productivity, and more than $340 million in gross state product, amounting to a 1.26% increase in the state’s economy. Inspired by these numbers, Progressive Party state Sen.

Anthony Pollina pushed for legislation that would create a public bank using 10% of the state’s reserves for capitalization. In the end, the bill failed to pass, but advocates were successful in winning a compromise piece of legislation. The compromise bill did not create a public bank, but did make 10% of the Vermont state treasury’s cash balances available for low-cost loans to local projects. Nevertheless, Vermont’s historic flooding should compel a reassessment of Pollina’s previous legislation.

In a future besieged by unpredictable weather patterns, states like Vermont must make massive investments in natural disaster preparations. That goal is much easier to accomplish if the people of Vermont have direct control of lending practices. Public banking can provide Vermont with that opportunity, thus making the state not only “Vermont Strong” in the aftermath of its current crisis, but “Vermont Stronger” to face the next one.