The North Dakota Miracle--Not All about Oil
Ellen Brown
http:/WebofDebt.com/articles
August 22, 2011
Many states have oil, but North Dakota has one thing that no other state has its own state-owned bank.
In an article in the New York Times on August 19th titled The North Dakota Miracle, Catherine Rampell writes:
Forget the Texas Miracle. Let's instead take a look at North Dakota, which has the lowest unemployment rate and the fastest job growth rate in the country.
According to new data released by the Bureau of Labor Statistics today, North Dakota had an unemployment rate of just 3.3 percent in July that's just over a third of the national rate (9.1 percent), and about a quarter of the rate of the state with the highest joblessness (Nevada, at 12.9 percent).
North Dakota has had the lowest unemployment in the country (or was tied for the lowest unemployment rate in the country) every single month since July 2008.
Its healthy job market is also reflected in its payroll growth numbers. . . . [Y]ear over year, its payrolls grew by 5.2 percent. Texas came in second, with an increase of 2.6 percent.
Why is North Dakota doing so well? For one of the same reasons that Texas has been doing well: oil.
Maybe, but oil is not what put North Dakota over the top. Alaska has roughly the same population as North Dakota and produces nearly twice as much oil, yet unemployment in Alaska is running at 7.7%. Montana, South Dakota, and Wyoming have all benefited from a boom in energy prices, with Montana and Wyoming extracting much more gas than North Dakota has. Yet North Dakota not only has the lowest unemployment rate in the country but is the only state to be in continuous budget surplus since the banking crisis of 2008.
Mineral-rich states that were initially not affected by the economic downturn lost revenues with the later decline in oil prices. But North Dakota's balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts. It also has the lowest foreclosure rate and lowest credit card default rate in the country, and it had NO bank failures during the banking crisis.
If North Dakota's secret is not oil, what is so special about the state? North Dakota has one thing that no other state has“ its own state-owned bank. Generating oil revenues requires more than just having oil in the ground. Developing a viable oil industry takes infrastructure and ready access to business credit, and that is where the state-owned bank comes in.
The Bank of North Dakota (BND) is providing the primary funding for new oil and gas infrastructure in the state. It serves the local economy in many other ways as well, including a loan program called Flex Pace which allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, smaller tourist businesses and essential community services. The BND does not compete with local banks but partners with them, participating in loans and helping with capital requirements. In 2010, according to the BND annual report:
The need for Flex PACE funding was substantial, growing by 62 percent to help finance essential community services as energy development spiked in western North Dakota. Commercial bank participation loans grew to 64 percent of the entire $1.022 billion portfolio.
Access to credit is the enabling factor that has fostered the boom in oil, along with record profits from agriculture and a thriving economy generally.
According to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did. Oil and gas revenues added $71 million while the Bank of North Dakota returned $60 million. Other data shows that over a 15 year period, the BND has contributed more to the state budget than oil taxes have. The BND has contributed over $300 million in revenues over the last decade to state
coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County.
Both the local economy and the local banking system are well served by the BND, which acts as a mini-Fed for the state, helping with bank liquidity needs and capitalization. In 2010, according to its annual report:
The Bank provided Secured and Unsecured Federal Fund Lines to 95 financial institutions with combined lines of over $318 million for 2010. Federal Fund sales averaged over $13 million per day, peaking at $36 million in June.
North Dakota's money and banking reserves are being kept in its own state and invested there, as shown by a steady uninterrupted increase in North Dakota lending programs since 2006:
source: 2010 BND Annual Report
According to the 2010 BND report:
Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. Earnings were fueled by a strong and growing deposit base, brought about by a surging energy and agricultural economy. We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the states return on its investment.
A 19% return on equity! How many states are getting that sort of return on their Wall Street investments?
In a June 2011 paper called The Public Option: The Case for Parallel Public Banking Institutions,†Timothy Canova, Professor of Law at Chapman University, attributes North Dakotas persistent budget surpluses at least in part to the practice of keeping state revenues in the states own publicly-owned bank:
The state deposits its tax revenues in the Bank which in turn ensures that a high portion of state funds are invested in the state economy. In addition, the Bank is able to remit a portion of its earnings back to the state treasury . . . . Thanks in part to these institutional arrangements, North Dakota is the only state that has been in continuous budget surplus since before the financial crisis and it has the lowest unemployment rate in the country.
Professor Canova compares the very comfortable North Dakota budget to the budget crisis in California:
In contrast, California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the states own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts. The states only response has been to stumble from one budget crisis to another for the past three years, with each round of spending cuts further weakening its economy, tax base, and credit rating.
Many states have oil and other resources, but it is North Dakotas state-owned bank that allows the state to capitalize on its resources to full advantage. States that deposit their revenues and invest their capital in large Wall Street banks are giving this economic opportunity away.
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Ellen Brown is president of the Public Banking Institute and the author of eleven books. She developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, she turns those skills to an analysis of the Federal Reserve and the money trust.†Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.
Ellen Brown
http:/WebofDebt.com/articles
August 22, 2011
Many states have oil, but North Dakota has one thing that no other state has its own state-owned bank.
In an article in the New York Times on August 19th titled The North Dakota Miracle, Catherine Rampell writes:
Forget the Texas Miracle. Let's instead take a look at North Dakota, which has the lowest unemployment rate and the fastest job growth rate in the country.
According to new data released by the Bureau of Labor Statistics today, North Dakota had an unemployment rate of just 3.3 percent in July that's just over a third of the national rate (9.1 percent), and about a quarter of the rate of the state with the highest joblessness (Nevada, at 12.9 percent).
North Dakota has had the lowest unemployment in the country (or was tied for the lowest unemployment rate in the country) every single month since July 2008.
Its healthy job market is also reflected in its payroll growth numbers. . . . [Y]ear over year, its payrolls grew by 5.2 percent. Texas came in second, with an increase of 2.6 percent.
Why is North Dakota doing so well? For one of the same reasons that Texas has been doing well: oil.
Maybe, but oil is not what put North Dakota over the top. Alaska has roughly the same population as North Dakota and produces nearly twice as much oil, yet unemployment in Alaska is running at 7.7%. Montana, South Dakota, and Wyoming have all benefited from a boom in energy prices, with Montana and Wyoming extracting much more gas than North Dakota has. Yet North Dakota not only has the lowest unemployment rate in the country but is the only state to be in continuous budget surplus since the banking crisis of 2008.
Mineral-rich states that were initially not affected by the economic downturn lost revenues with the later decline in oil prices. But North Dakota's balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts. It also has the lowest foreclosure rate and lowest credit card default rate in the country, and it had NO bank failures during the banking crisis.
If North Dakota's secret is not oil, what is so special about the state? North Dakota has one thing that no other state has“ its own state-owned bank. Generating oil revenues requires more than just having oil in the ground. Developing a viable oil industry takes infrastructure and ready access to business credit, and that is where the state-owned bank comes in.
The Bank of North Dakota (BND) is providing the primary funding for new oil and gas infrastructure in the state. It serves the local economy in many other ways as well, including a loan program called Flex Pace which allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, smaller tourist businesses and essential community services. The BND does not compete with local banks but partners with them, participating in loans and helping with capital requirements. In 2010, according to the BND annual report:
The need for Flex PACE funding was substantial, growing by 62 percent to help finance essential community services as energy development spiked in western North Dakota. Commercial bank participation loans grew to 64 percent of the entire $1.022 billion portfolio.
Access to credit is the enabling factor that has fostered the boom in oil, along with record profits from agriculture and a thriving economy generally.
According to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did. Oil and gas revenues added $71 million while the Bank of North Dakota returned $60 million. Other data shows that over a 15 year period, the BND has contributed more to the state budget than oil taxes have. The BND has contributed over $300 million in revenues over the last decade to state
coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County.
Both the local economy and the local banking system are well served by the BND, which acts as a mini-Fed for the state, helping with bank liquidity needs and capitalization. In 2010, according to its annual report:
The Bank provided Secured and Unsecured Federal Fund Lines to 95 financial institutions with combined lines of over $318 million for 2010. Federal Fund sales averaged over $13 million per day, peaking at $36 million in June.
North Dakota's money and banking reserves are being kept in its own state and invested there, as shown by a steady uninterrupted increase in North Dakota lending programs since 2006:
source: 2010 BND Annual Report
According to the 2010 BND report:
Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. Earnings were fueled by a strong and growing deposit base, brought about by a surging energy and agricultural economy. We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the states return on its investment.
A 19% return on equity! How many states are getting that sort of return on their Wall Street investments?
In a June 2011 paper called The Public Option: The Case for Parallel Public Banking Institutions,†Timothy Canova, Professor of Law at Chapman University, attributes North Dakotas persistent budget surpluses at least in part to the practice of keeping state revenues in the states own publicly-owned bank:
The state deposits its tax revenues in the Bank which in turn ensures that a high portion of state funds are invested in the state economy. In addition, the Bank is able to remit a portion of its earnings back to the state treasury . . . . Thanks in part to these institutional arrangements, North Dakota is the only state that has been in continuous budget surplus since before the financial crisis and it has the lowest unemployment rate in the country.
Professor Canova compares the very comfortable North Dakota budget to the budget crisis in California:
In contrast, California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the states own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts. The states only response has been to stumble from one budget crisis to another for the past three years, with each round of spending cuts further weakening its economy, tax base, and credit rating.
Many states have oil and other resources, but it is North Dakotas state-owned bank that allows the state to capitalize on its resources to full advantage. States that deposit their revenues and invest their capital in large Wall Street banks are giving this economic opportunity away.
---
Ellen Brown is president of the Public Banking Institute and the author of eleven books. She developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, she turns those skills to an analysis of the Federal Reserve and the money trust.†Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.
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