Progressive solutions to California's economic crisis

A lot of virtual ink has been spilled over the on-going economic crisis in California. Lost in the uproar is the fact that 6 other states are also having budget crisis of their own.

Most ideas for solving California's fiscal situation involve draconian cuts and higher taxes. Both are unavoidable at this late date.
However, in every crisis there is opportunity for more radical, progressive, long-term ideas. I would now like to present an idea for comment.

The magnitude of the problem

“Our wallet is empty, our bank is closed and our credit is dried up.”
– Governor Arnold Schwarzenegger, June 2, 2009

Many progressives have rallied around the idea of legalizing marijuana. What was once considered a wacky, fringe idea, now has the support of 56% of California voters.
It's practically an indictment of our political system that America's voters, combined with an unprecedented crisis, have had to force the politicians, kicking and screaming all the way, to even consider this common sense idea.

Legalizing marijuana would bring in $1.2 Billion a year of new revenue, according to one study. It would also save hundreds of millions of dollars in wasted law enforcement expenditures, and eventually free up space in our over-crowded jails.

$1.2 Billion is no small amount, unless you compare it to the $25 Billion state budget deficit.

When you put it into that context, legalizing marijuana is only a large drop in a much larger bucket. We need to think much bigger. And when I say "much bigger" I'm thinking of the amount of money spent that doesn't fix a single pothole, build a single school, provide health care for a single resident, or pay the salary of a single teacher or police officer.

I'm talking about the $4.5 Billion that will be spent this year on interest on past debt, or 4.4% of the state's budget.
That amount will rise to $9.2 Billion by 2017, around 6.1% of the state's budget.

That's a huge amount just by itself, but the numbers could get a lot worse very soon. That's because California's budget stalemate, unless resolved soon, will cause rating agencies to downgrade California's debt to junk status.

The state of California must pass a budget by tomorrow or its credit rating could tumble to junk status. Both Moody's and Standard & Poor's have warned the state of a multinotch downgrade if the state fails to approve a budget. California currently has an A2 rating, the lowest of any state.
Fitch Ratings downgraded California's general obligations Friday to single-A-minus from single-A, citing "the magnitude of the state's financial and institutional challenges and persistent economic and revenue weakening."

For your information, junk bond status starts just below BBB. This is an extremely serious situation because many investment funds, by their own internal rules, will only buy investment grade securities.
If California bonds are downgraded to junk status then these funds will be forced to liquidate billions of dollars worth of bonds in a very short period of time. This will add a liquidity crisis to a fiscal crisis, and bring the entire state to a screeching halt.
And the problems don't stop there.

The state's bond rating is not the only one at risk. The California State Teachers' Retirement System, the second-largest U.S. public pension, may face a lower credit rating as well. S&P told the pension system its credit rating could be cut.

S&P's rating criteria limits a pension fund rating to be no more than three levels higher than the general obligation creditworthiness of the governmental sponsor of the pension fund. As a result, if California's A rating were lowered, the teachers' pension fund's AA rating would also fall, S&P said in a statement.

To give you a better idea of the bond situation, here's a few numbers.

If bond ratings drop to near or below junk status California's debt service payments will go even higher for any debt it may need. Bloomberg reports the value of its bonds maturing in 2037 traded for as little as 83.35 cents on the dollar yesterday to yield 6.27 percent. In May the bond sold for 97.25 cents.

Year after year the Republicans have forced through tax cuts, while the Democrats have defended spending programs. In order to bridge that gap the state has borrowed more and more, and now the bill is coming due.

The problems sound insurmountable and depressing.
But what if I was to tell you that there was a long-term solution to this problem that wouldn't involve draconian spending cuts or massive tax increases? What if I was to tell you that this solution has already been in effect in another state since 1919 and has been working efficiently and without scandal?
If you want to see a very progressive solution to this crisis you must turn your eyes to the most unlikely state in the union for a progressive alternative - North Dakota.

Municipal Rating Scam

Before I go any further I should mention that the whole municipal bond rating system is a taxpayer rip-off.

Every state except Louisiana would be AAA if measured by the scale used for corporate borrowers, according to research by Moody's. Scrapping the municipal scale might save California $5 billion in debt costs on $61 billion of voter-approved debt the state plans to sell over the next 30 years, according to state Treasurer Bill Lockyer.

"The rating agencies have two scales," said Frank, during the second of two hearings on the municipal market since bond insurer downgrades in January pushed higher the variable interest rates many cities and towns pay. "This is not a minor, technical matter because schools, highways, sewers are now costing the public more."
...
Moody's plans to allow municipal issuers to request a corporate-equivalent rating for their tax-exempt bonds starting in May, Levenstein said. The so-called global scale ratings currently are only available on taxable bonds, and for an extra fee. Frank today called that extra cost "abusive."

This double-standard has been used by Wall Street to force municipal governments to buy "insurance" from such Wall Street firms as MBIA and Ambac in order to get a higher bond rating. It was a scam that worked for many years, but it blew up when the financial crisis hit in mid-2007.
Monoline insurers weren't satisfied with insuring just municipal bonds. They got into subprime mortgages as well. Now the monoline insurers no longer have AAA ratings, thus their reason for existing is gone.

However, the scam of stealing taxpayer money through artificially low bond ratings still exist. Months of congressional investigations and pressure haven't changed Wall Street's attitude a bit. What's more, Obama's proposed reforms almost completely overlook the rating agencies that have failed America repeatedly.
The House has proposed legislative reform, but I'm not holding my breath. Even if the reform bill somehow passes, it would only marginally cut costs. It wouldn't reduce the dependence on Wall Street.
Wall Street's dominance of Washington will continue.

However, that doesn't mean that the states are helpless.

Progressive ideas from the Progressive Era

North Dakota has the lowest unemployment rate in the country, positive economic growth of 7.3% in 2008, and even a budget surplus of $1.2 Billion. What's its secret?

To answer that you must get familiar with A. C. Townley, a farmer, a progressive, and a socialist. He founded the Non-Partisan League in 1915.

The Nonpartisan League advocated state control of mills, grain elevators, banks and other farm-related industries in order to reduce the power of corporate political interests...

In 1919, NPL candidate Lynn Joseph Frazier, another farmer, won the gubernatorial election with 79% of the vote and immediately adopted the NPL platform.
Frazier was recalled in 1921 during an economic Depression, the recall effort led by the conservative, capitalist Independent Voters Association, but Frazier won a Senate seat the very next year.

However, during Frazier's short stint as governor he created two lasting legacies:

1) The North Dakota Mill and Elevator. It's the largest flour mill in the country, as well as the only state-owned mill.

The facility was built by the state as a way of bypassing what many area wheat farmers considered unfair business practices on the part of the railroads and milling facilities in Minneapolis, Minnesota.

The North Dakota Mill has contributed over 50% of its profits to the state's general fund for the last 35 years. However, in fiscal 2008 the mill saw its first loss since 1994.

2) The Bank of North Dakota. It's this entity that relates to California's situation.

The Bank of North Dakota is a state-owned and-run financial institution. Under state law the bank is the State of North Dakota doing business.

we are the depository for all state tax collections and fees. And so we have a captive deposit base, we pay a competitive rate to the state treasurer....We take those funds and then, really what separates us is that we plow those deposits back into the state of North Dakota in the form of loans. We invest back into the state in economic development type of activities. We grow our state through that mechanism.

All state and local government agencies are required by state law to place their funds in the bank.
What really makes the bank so different is that it functions sort of like a central bank, doing things such as check clearing. It's deposits are guaranteed by the State of North Dakota itself, thus not dependent on FDIC.

The Bank of North Dakota provides such services as Student Loans, Farm Disaster Assistance, community development, real estate financing, and others.
On top of that, the Bank will return $60 million in profits to North Dakota's General Fund this year. Over the last decade they've returned about a third of a billion dollars in profits to the General Fund, for a state of just 600,000 people.

A few hundred million dollars is nice, but its a pittance compared to the larger concept - the state of North Dakota borrows from itself, thus profits from those loans get recycled back into the General Fund.

Let that concept sink in for a moment.
Imagine if California could save $4.5 Billion this year, and more than that every year going forward, by not having to pay interest on past loans. Wouldn't the budget problem look a lot less daunting?
Remember that slightly more than half of the cost of every bond-funded public project goes to interest payments. Now imagine the bond initiative you just voted for getting twice the results with the same amount of money. Wouldn't you vote for something like that?

“I understand that these cuts are very painful and they affect real lives. This is the harsh reality and the reality that we face. Sacramento is not Washington – we cannot print our own money. We can only spend what we have.
– Governor Arnold Schwarzenegger quoted in Time, May 22, 2009

The Governator told a falsehood here. We can print our own money. North Dakota is doing it right now.
To understand this concept, listen to the Federal Reserve:

“Banks actually create money when they lend it. Here’s how it works: Most of a bank’s loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank . . . holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.”

This is what the Bank of North Dakota is doing right now.

Not longer would the liquidity threat be an issue. No longer would taxpayers being sending billions in interest payments to out-of-state and foreign creditors. No longer would we be at the mercy of rating agencies on Wall Street. No longer would we even care about executive bonuses on Wall Street (except for you 401k money).
This isn't a short-term solution, but it is a long-term solution.

Lastly, for those of you who think something like this can't be done during a crisis, I give you the historic example of the island of Guernsey.

Comments

nice thinking

a very good proposal actually, I hope we can get a lot of people to read this post because at least for me, this is the first time I've heard of such a proposal for California.

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Very cool

I have to think that the same thing could be true if there were a Bank of the United States, so that the US government borrowed from itself...

It reminds me of the historical German sparkassen which funded industrialization in that country, and the cajas de ahorro which have done the same more recently in Spain.

In the latter case, the cajas where vital in getting the renewable energy industry (particularly wind) up and running in the country.

These little banks worked a lot like credit unions, and lent money locally to start up companies in that sector. They held the stock until the the companies were successful, piling the profits back into the caja. When the companies were able to stand on their own the cajas would hold an IPO to launch the company into the traded sector.

There is no reason that a reorganization of banks in the United States to put a large part of the credit function mostly back into state and local banks couldn't do the same in the US.

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State banks

What would that do to inflation? I assume they're creating balances in dollars, not rasbuckniks.

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Would need to repeal article I Section 10

To create balances in rasbucknicks.

But to answer your real question, it's largely inflation positive- which is what we need right now. If they work anything like the BND has, state banks free up credit for other uses, creating local inflation, which is what is needed to create local jobs.
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Maximum jobs, not maximum profits.

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Maximum jobs, not maximum profits.

State Banks are the Solution

Practically my entire blog is devoted to the idea of modeling state-owned banks in every state along the lines of the Bank of North Dakota.

Yes, the United States could eventually restore Hamilton's sovereign credit system to replace the (Keynesian fueled) monetarist system, and replace the privately owned Federal Reserve. We have cancelled the Rothschild-controlled private US banking charter several times since the signing of our Constitution, but it usually resulted in war. Then Wilson chartered the Federal Reserve and we were F#%KED.

http://www.youtube.com/watch?v=USGSOViaulc

But State banks can bring a soveregn credit system back to America at the state level. I have a Florida petition started but others should consider working their states as well.

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California budget crises is a hokes.

The debt problem or crisis as the state puts it only exists because the state and elected officials will not protect intellectual property. The full 34 billion dollar debt can be resolved in 2 weeks. I am a systems analyst and have developed a solution for the debt and the 40 billion coming in the next two years.
Costs the state nothing, the state would be required to do nothing and not only will it resolve the debt. It will also decrease the cost of living for the citizens of the state and increase the economy.

If you feel you can help me bring this to the public, I will give you a presentation and prove all five points.

I can't say with any conviction that I know exactly why the state is ignoring this solution. But unless they protect my intellectual property rights I will never explain it in detail. Nobody in the state works for nothing and even though this costs the state nothing I won't either.

You are free to pass this along to anyone that cares about this issue.

Frank Houck
396 Park Way
Chula Vista,ca 91910
619 691 1692
fkhouck@yahoo.com

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"Sustainable Development Initiative:" State Bank of California

This initiative measure is submitted to the people in accordance with the provisions of Article II, Section 8, of the California Constitution.

This initiative measure amends and adds sections to the Financial Code; therefore, new provisions proposed to be added are printed in italic type to indicate that they are new.

PROPOSED LAW

The Sustainable Development Act

Section 1. Name.

This act shall be known as the “Sustainable Development Act.”

SEC. 2. Findings, Intent and Purposes.

This act, adopted by the people of the State of California, makes the following Findings and Statement of Intent and Purpose:

A. Findings

1. Speculation-based development is economically unsustainable: speculative bubbles must inevitably burst…and when they do, all the gains made during the bubble turn into losses, underwritten by debts that can no longer be repaid.

The results are bankruptcy, closure of businesses, and chronic unemployment.

2. Speculation-based development is environmentally unsustainable: vast tracts of land, and billions of gallons of water, are converted from their natural state, and from productive uses, into whatever real-estate markets are being fuelled by speculation.

Meanwhile, the urgent need to curtail the emission of greenhouse gases is defeated by speculation-fuelled urban and suburban sprawl, necessitating ever-more investment in renewable energy production, and reductions in energy consumption.

3. California’s present financial system is unsustainable: year after year, the people of California suffer the consequences of endless state budget battles.

4. The State of North Dakota has proven that a State Bank can do for states what the Federal Reserve can do for the United States:
a. provide a means for the state government to continue to function in times of hardship and the resulting budget shortfalls;
b. act to help in the state’s economic recovery;
c. protect creditors and debtors from the financial fallout of economic crises;
d. promote economically and environmentally sustainable development.
A successful State Bank of California, modeled on the Bank of North Dakota, would demonstrate to other states the desirability of chartering their own State Banks, hence lessening their dependence on the Federal Government to finance their economic recovery and sustainable development.

B. Purposes

1. Charter a State Bank of California, modeled on the Bank of North Dakota, taking the differences in the laws of the two states into account;

2. Direct the State Bank of California to fund the continuous operation of the State Government, and to finance renewable-energy production, energy conservation, and other sustainable development initiatives and projects in order to jump-start and sustain California’s economic recovery.

C. Intent

SEC. 3. CHAPTER 9 (commencing with Section 32970) is added to Division 15.5 of the Financial Code, to read:

CHAPTER 9

THE STATE BANK OF CALIFORNIA

32970. Purpose and establishment of State Bank of California. For the purpose of encouraging and promoting sustainable development, the state of California shall engage in the business of banking, and for that purpose shall maintain a system of banking owned, controlled, and operated by it, under the name of the State Bank of California.

32971. State Assistance Fund for Enterprise, Business and Industrial Development Corporation to operate Bank - Business of Bank.

The State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall operate, manage, and control the State Bank of California, locate and maintain its places of business, of which the principal place must be within the state, and make and enforce orders, rules, regulations, and bylaws for the transaction of its business. The business and financial transactions of the Bank, in addition to other matters specified in this chapter, may include anything that any bank or bank holding company lawfully may do, except as it is restricted by the provisions of this chapter. This provision may not be held in any way to limit or qualify either the powers of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation granted by or the functions of said Bank as defined in this chapter. The powers of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation and the functions of the Bank must be implemented through actions taken and policies adopted by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation.

32972. Declaration and finding of public purpose - State Bank of California advisory board of directors.

To enlist the help of private enterprise and to encourage more active use of the purposes for which the State Bank of California was created, the governor shall appoint an advisory board of directors to the State Bank of California consisting of seven persons, at least two of whom must be officers of banks, the majority of the stock of which is owned by
California residents, and at least one of whom must be an officer of a state-chartered or federally chartered financial institution. The governor shall appoint a chairman, vice chairman, and secretary from the advisory board of directors. The term of a director is four years. The State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall define the duties of the advisory board of directors.

32973. Authority of the advisory board of directors to the State Bank of California.

The advisory board of directors to the State Bank of California shall:
1. Meet regularly with the management of the State Bank of California to review the
Bank's operations to determine whether recommendations should be made by the board to the State Assistance Fund for Enterprise, Business and Industrial Development Corporation relating to improved management performance, better customer service, and overall improvement in internal methods, procedures, and operating policies of the Bank.
2. Make recommendations to the State Assistance Fund for Enterprise, Business and Industrial Development Corporation relating to the establishment of additional objectives for the operation of the State Bank of California.
3. Make recommendations to the State Assistance Fund for Enterprise, Business and Industrial Development Corporation concerning the appointment of officers of the State Bank of California.
4. Meet regularly with the State Assistance Fund for Enterprise, Business and Industrial Development Corporation to present any recommendations concerning the State Bank of California.
5. In addition to the foregoing and pursuant to authorization from the industrial corporation, act on behalf of the Bank with respect to the powers and functions of the Bank.

32974. corporation to employ president and employees - Compensation, operation, and maintenance expenditures limited to appropriations, revenue, or capital.

The State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall appoint a president, and may appoint and employ such subordinate officers, employees, and agents as it may judge expedient and in the interests of the state, and shall define the duties, designate the titles, and fix the compensation of all such persons. The corporation may designate the president or other officers or employees as its agent in respect to the functions of the Bank, subject to its supervision, limitation, and control.
The total compensation of such appointees and employees, together with other expenditures for the operation and maintenance of the Bank, shall remain within the appropriation, revenues, or capital lawfully available for such purposes.

32975. Removal and discharge of appointees.

The State Assistance Fund for Enterprise, Business and Industrial Development Corporation may remove and discharge any and all persons appointed in the exercise of the powers granted by this chapter, whether by the corporation or by the president of the Bank. All appointments and removals contemplated by this chapter must be made as the corporation deems fit to promote the efficiency of the public service.

32976. State funds must be deposited in State Bank of California - Income of the Bank.

All state funds and funds of all state penal, educational, and industrial institutions must be deposited in the State Bank of California by the persons having control of such funds or must be deposited in accordance with constitutional and statutory provisions. All income earned by the Bank for its own account on state moneys that are deposited in or invested with the Bank to the credit of the state must be credited to and become a part of the revenues and income of the Bank.

32977. Nonliability of officers and sureties after deposit.

Whenever any of the public funds herein before designated are deposited in the State Bank of California, as hereinbefore provided, the official having control thereof and the sureties on the bond of every such official shall be exempt from all liability by reason of loss of any such funds while so deposited.

32978. Guaranty of deposits - Exemption from all taxation.

All deposits in the State Bank of California are guaranteed by the state. Such deposits are exempt from state, county, and municipal taxes of any and all kinds.

32979. Bank a clearinghouse.

For banks that make the State Bank of California a reserve depositary, it may perform the functions and render the services of a clearinghouse, including all facilities for providing domestic and foreign exchange, and may rediscount paper, on such terms as the State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall provide.

32980. Powers.

The State Bank of California may:
1. Make, purchase, guarantee, or hold loans:
a. To state-chartered or federally chartered lending agencies or institutions or any other financial institutions.
b. To holders of State Bank of California certificates of deposit and savings accounts up to ninety percent of the value of the certificates and savings accounts offered as security.
c. To actual residents of this state, if the loans are secured by recorded mortgages giving the State Bank of California a first lien on real estate in California in amounts not to exceed eighty percent of the value of the security.
d. That are insured or guaranteed in whole or in part by the United States, its agencies, or instrumentalities.
e. That are eligible to be guaranteed under Part 42 of the California Education Code. Loans made pursuant to this subdivision may provide for interest that remains unpaid at the end of any period specified in the loan to be added to the principal amount of the debt and thereafter accumulate interest.
f. To individuals or bank holding companies for the purpose of purchasing or refinancing the purchase of bank stock of a bank located in the state.
g. To nonprofit organizations that are exempt from federal taxation under section
501(c)(3) of the Internal Revenue Code [26 U.S.C. 501(c)(3)], the proceeds of the loans to be used for construction, reconstruction, repair, renovation, maintenance, and associated costs on property under the control of the parks and recreation department.
j. Obtained as security pledged for or originated in the restructuring of any other loan properly originated or participated in by the Bank.
k. To instrumentalities of this state.
l. As otherwise provided by this chapter or other statutes.
m. If the Bank is participating in the loan and the Bank deems it is in the best interests of the Bank to do so, it may purchase the remaining portion of the loan from a participating lender that is closed by regulatory action or from the receiver of the participating lender's assets.
n. To an investment company created for completing a trust preferred securities transaction for the benefit of a financial institution located in this state.
2. Purchase participation interests in loans made or held by banks, bank holding companies, state-chartered or federally chartered lending agencies or institutions, any other financial institutions, or any other entity that provides financial services and that meets underwriting standards that are generally accepted by state or federal financial regulatory agencies.
3. Invest its funds:
a. In conformity with policies of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation
b. In a public venture capital corporation organized and doing business in this state through the purchase of shares of stock.
c. In California alternative and venture capital investments and early-stage capital funds, not to exceed ten million dollars, for the purpose of providing funds for investment in California alternative and venture capital investments, early-stage capital funds, and entrepreneurship awards. The Bank may invest a maximum of two hundred thousand dollars per biennium in California-based venture capital entities that make investments in companies located outside California.
The Bank may allow for third-party management of the funds invested under this subdivision if the management is provided by a third party that is located in the state and that has demonstrated fund management experience.
4. Buy and sell federal funds.
5. Lease, assign, sell, exchange, transfer, convey, grant, pledge, or mortgage all real and personal property, title to which has been acquired in any manner.
6. Acquire real or personal property or property rights by purchase, lease, or, subject to chapter 3215, the exercise of the right of eminent domain and may construct, remodel, and repair buildings.
7. Receive deposits from any source and deposit its funds in any bank or other financial institution.
8. Perform all acts and do all things necessary, convenient, advisable, or desirable to carry out the powers expressly granted or necessarily implied in this chapter through or by means of its president, officers, agents, or employees or by contracts with any person, firm, or corporation.
9. Purchase mortgage loans on residential real property originated by financial institutions.

32981. Loans to general fund authorized - Continuing appropriation.

The state treasurer and the director of the Office of Management and Budget may, when the balance in the state general fund is insufficient to meet legislative appropriations, execute and issue on behalf of the state evidences of indebtedness on the state general fund which at no time exceed the total principal amount of ten million dollars with principal maturity of not more than twelve months. As a condition precedent to the issuance and sale of the evidences of indebtedness, the state treasurer must request and obtain a statement from the director of the Office of Management and Budget and Franchise Tax Board certifying that anticipated general fund revenues for the balance of the fiscal year in which the evidences of indebtedness are to be issued will exceed the principal amount and interest on the evidences of indebtedness to be issued. After evidences of indebtedness have been issued and sold pursuant to this section, the state treasurer shall establish a fund for the repayment of the principal upon maturity and the interest when due. The state treasurer shall place all available general fund revenues into this fund until the fund contains a sufficient balance for the repayment of the principal at maturity and interest when due, which moneys are hereby appropriated for this purpose.

32982. Bank loans to cooperatives - Revolving loan fund - Requirements.

1. A revolving loan fund must be maintained in the State Bank of California for the purpose of making or participating in loans to California cooperatives for the purchase of real estate, equipment, and supplies. All moneys transferred into the fund, interest upon moneys in the fund, and payments to the fund of principal and interest on loans made from the fund are appropriated for the purpose of providing loans and to supplement the interest rate on loans to cooperatives made by the State Bank of California under subdivision c of subsection 1 of section 3215 and in accordance with this section.
2. The revolving loan fund and loans made from the fund must be administered and supervised by the State Bank of California. The Bank may deduct a service fee for administering the fund from interest payments received on loans. An application for a loan from the fund must be made to the Bank and, upon approval, a loan must be made from the fund in accordance with this section.
3. A loan made from the fund may not exceed eighty percent of the appraised value of the collateral, with the actual percentage to be determined by the Bank.
The Bank may do all things and acts and may establish additional terms and conditions necessary to make a loan under this section. A loan made from the fund must have a first security interest.
4. A loan made from the fund must have the interest rate fixed at one percent below the Bank's then current base rate for the first five years with a maximum rate of six percent per year and variable at one percent below the Bank's then current base rate for the second five years. During the second five years, the variable rate must be adjusted annually on the anniversary date. The rate during the remaining term of the loan floats at the Bank's base rate as in effect from time to time.
5. The maximum term of a real estate loan is twenty-five years. The maximum term of an equipment or supplies loan is seven years.
6. The State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall contract with a certified public accounting firm to audit the fund as necessary. The cost of the audit, and any other actual costs incurred by the Bank on behalf of the fund, must be paid for by the fund.
7. The Bank shall adopt policies to implement this section.
8. Notwithstanding any other provision of law, the Bank may transfer any unobligated funds between funds that have been appropriated by the legislative assembly for interest buydown in the cooperative loan fund in assisting community expansion fund.
9. Notwithstanding any other provision of law, the Bank may transfer any unobligated funds to the value-added cooperative equity loan program for the purpose of interest buydown on a loan made for investment in a cooperative. Fund transfers under this subsection may not exceed one million dollars during a biennium.

32983. Limitations on loans by the State Bank of California - Disclosure of interests in certain loans.

Notwithstanding any other provision of law, the State Bank of California may not make any loan or otherwise give its credit to a member of the industrial corporation during the member's term on the State Assistance Fund for Enterprise, Business and Industrial Development Corporation. Before taking office, a member of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall file a statement with the State Bank of California indicating any personal interest that that member has in any loan or loan application in existence or pending at any time during the member's term on the State Assistance Fund for Enterprise, Business and Industrial Development Corporation .

32984. Name in which business conducted and titles taken - Execution of instruments.

All business of the Bank must be conducted under the name of "The State Bank of California". Title to property pertaining to the operation of the Bank must be obtained and conveyed in the name of "The State of California, doing business as The State Bank of California". Instruments must be executed in the name of the state of California. Within the scope of authority granted by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation, the president may execute instruments on behalf of the Bank, including any instrument granting, conveying, or otherwise affecting any interest in or lien upon real or personal property. Other officers or employees of, and legal counsel to, the Bank may execute instruments on behalf of the Bank when authorized by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation Any instrument executed prior to July 11, 1989, by the president, an attorney for the Bank, or an officer or employee of the Bank, and otherwise proper, is valid and effective.

32985. Civil actions on Bank transactions - Name of parties - Service - Venue.

Civil actions may be brought against the state of California on account of claims for relief claimed to have arisen out of transactions connected with the operation of the State Bank of California upon condition that the provisions of this section are complied with. In such actions, the state must be designated as "The State of California, doing business as The State Bank of California". The actions may be brought in the same manner and are subject to the same provisions of law as other civil actions.

32986. Surety on appeal, attachment, claim and delivery, and other cases in which undertaking required, not required of State Bank of California.

Provisions of law requiring that a surety or sureties be given on undertakings in actions on appeal, attachment, claim and delivery, and other cases in which an undertaking is required, are not applicable to the state of California, doing business as the State Bank of California, as the party seeking such relief. It is required to give its own undertaking without surety and to reimburse the adverse party when required by law.

32987. Examinations and audit reports.

The state auditor shall contract with an independent certified public accounting firm for an annual audit of the State Bank of California in accordance with generally accepted government auditing standards. The state auditor shall audit annually or contract for an annual audit of the separate programs and funds administered by the State Bank of California. On request of the state auditor, the State Assistance Fund for Enterprise, Business and Industrial Development Corporation shall assist the state auditor in the auditing firm selection process, but the selection of the auditing firm is the state auditor's responsibility. The auditor selected shall prepare an audit report that includes financial statements presented in accordance with the audit and accounting guide for banks and savings institutions issued by the American institute of certified public accountants. The auditor also shall prepare audited financial statements for inclusion in the comprehensive annual financial report for the state. The state auditor may conduct performance audits of the State Bank of California, including the separate programs and funds administered by the Bank. The auditor shall report the results of the audit to the State Assistance Fund for Enterprise, Business and Industrial Development Corporation and to the legislative assembly.
The State Bank of California or its separate programs and funds shall pay the costs of the audit.
The Department of Financial Institutions, through the Franchise Tax Board, shall examine the State Bank of California at least once each twenty-four months and conduct any investigation of the Bank which may be necessary. The Franchise Tax Board shall report the examination results, and the results of any necessary investigation, to the State Assistance Fund for Enterprise, Business and Industrial Development Corporation as soon as practicable and to the legislative assembly. The Department of Financial Institutions shall charge a fee for any examination or investigation at an hourly rate to be set by the Franchise Tax Board, sufficient to cover all reasonable expenses of the department associated with the examinations and investigations provided for by this section.

32988. Electronic fund transfer systems.

The State Bank of California may establish, under such rules and regulations as adopted by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation, a system to provide fund transfer services to its customers and to the customers of state-chartered and federally chartered banks located within the state of California, and to other financial institutions otherwise authorized to utilize the services of electronic fund transfer systems, to acquire such equipment as is necessary to establish electronic fund transfer systems, and to make such reasonable charges for services rendered to other banks hereunder as may be established by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation.

32990. Confidentiality of Bank records.

The following records of the State Bank of California are confidential:
1. Commercial or financial information of a customer, whether obtained directly or indirectly, except for routine credit inquiries or unless required by due legal process.
As used in this subsection, "customer" means any person who has transacted or is transacting business with, or has used or is using the services of, the State Bank of California, or for whom the State Bank of California has acted as a fiduciary with respect to trust property.
2. Internal or interagency memorandums or letters which would not be available by law to a party other than in litigation with the Bank.
3. Information contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of a state or federal agency responsible for the regulation or supervision of any Bank activity.
4. Information obtained from the state department of finance which would not be available from that agency.
5. The report by a Bank officer or member of the Bank's advisory board of directors concerning personal financial statements.

32991. State Bank of California - Custodian of securities.

Notwithstanding any other provision of law to the contrary, the State Bank of California shall replace the state treasurer as the custodian of all securities that are required to be deposited with the state except that the state treasurer is the custodian of all securities resulting from the investment of funds by the state treasurer.

32992. Sale and leasing of acquired real estate.

The sale and leasing of real estate with an appraised value of ten thousand dollars or more acquired by the State Bank of California through foreclosure or deed in lieu of foreclosure must be done in accordance with chapter 15-07 or 15-09 and policies adopted by the State Assistance Fund for Enterprise, Business and Industrial Development Corporation. The sale and leasing of real estate with an appraised value of less than ten thousand dollars, acquired by the State Bank of California through foreclosure or deed in lieu of foreclosure, may be done in a manner as the Bank determines is appropriate given the circumstances. In the case of a lease by the party holding the right of redemption, that party has the right to purchase at any time.

32993. California higher education savings plan - Administration - Rules -
Continuing appropriation.

The State Bank of California shall adopt rules to administer, manage, promote, and market a California higher education savings plan. The Bank shall ensure that the California higher education savings plan is maintained in compliance with internal revenue service standards for qualified state tuition programs. The Bank, as trustee of the California higher education savings plan, may impose an annual administrative fee to recover expenses incurred in connection with operation of the plan or for other programs deemed to promote attendance at an institution of higher education. Administrative fees received by the Bank are appropriated on a continuing basis to be used as provided in this section. Contributions made during the taxable year to a higher education savings plan administered by the Bank, pursuant to the provisions of the plan, are eligible for an income tax deduction. Information related to contributions is confidential except as is needed by the Franchise Tax Board for determining compliance with the income tax deduction.

32994. renewable energy development loan fund - Appropriation.

1. The renewable energy development loan fund is established in the Bank for the purpose of providing loans to renewable energy producers to purchase and upgrade renewable energy technology. This fund is a revolving loan fund. All moneys transferred into the fund, interest upon moneys in the fund, and collections of interest and principal on loans made from the fund are appropriated for disbursement according to this section.
2. The Bank shall make loans from this fund to renewable energy producers. A loan made under this fund must be repayable over a period that may not exceed ten years.
3. The Bank shall administer the renewable energy development loan fund. Funds in the loan fund may be used for loans as provided under this section and the costs of administration of the fund. Annually, the Bank may deduct a service fee for administering the revolving loan fund maintained under this section.
4. An application for a loan under this section must be made to the California Energy Commission. The California Energy Commission shall forward approved applications to the Bank. Upon approval of the application by the Bank, the Bank shall make the loan from the revolving loan fund as provided under this section.
5. The Bank may do all acts necessary to negotiate loans and preserve security as deemed necessary, to exercise any right of redemption, and to bring suit in order to collect interest and principal due the revolving loan fund under mortgages, contracts, and notes executed to obtain loans under this section. If the applicant's plan for financing provides for a loan of funds from sources other than the state of California, the Bank may take a subordinate security interest. The Bank may recover from the revolving loan fund amounts actually expended by the Bank for legal fees and to effect a redemption.

32995. renewable energy planning loan fund - Appropriation.

1. The renewable energy planning loan fund is established in the Bank for the purpose of providing low-interest loans to renewable energy entities to assist those entities in improving renewable energy infrastructure. This fund is a revolving loan fund. All moneys transferred into the fund, interest upon moneys in the fund, and collections of interest and principal on loans made from the fund are appropriated for disbursement according to this section.
2. The Bank shall make loans from this fund to renewable energy entities as approved by the California Energy Commission.
3. The Bank shall administer the renewable energy planning loan fund.
Funds in the loan fund may be used for loans as provided under this section and the costs of administration of the fund. Annually, the Bank may deduct a service fee for administering the revolving loan fund maintained under this section.
4. An application for a loan under this section must be made to the California Energy Commission. The California Energy Commission shall forward approved applications to the Bank. Upon approval of the application by the Bank, the Bank shall make the loan from the revolving loan fund as provided under this section.
5. The Bank may do all acts necessary to negotiate loans and preserve security as deemed necessary, to exercise any right of redemption, and to bring suit in order to collect interest and principal due the revolving loan fund under mortgages, contracts, and notes executed to obtain loans under this section. If the applicant's plan for financing provides for a loan of funds from sources other than the state of California, the Bank may make a loan subordinate security interest. The Bank may recover from the revolving loan fund amounts actually expended by the Bank for legal fees and to effect a redemption.

SEC. 5. Severability.
If any of the provisions of this measure or the applicability of
any provision of this measure to any person or circumstances shall
be found to be unconstitutional or otherwise invalid, such finding
shall not affect the remaining provisions or applications of this
measure to other persons or circumstances, and to that extent the
provisions of this measure are deemed to be severable.

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Not Socalist at all

The idea of a state having its own bank is not a socialist idea at all. In fact, what ND is doing is about as capitalist as you can get.

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