NORTH DAKOTA’S ECONOMIC “MIRACLE”
—IT’S NOT OIL
North Dakota has had the nation's lowest unemployment ever since the economy tanked. What's its secret?
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.
Oil is certainly a factor, but it is not what has 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 percent. 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. The Bakken
oil field stretches across Montana as well as North Dakota, with the greatest Bakken oil
production coming from Elm Coulee Oil Field in Montana. Yet Montana’s
unemployment rate, like Alaska’s, is 7.7% percent.
A number of other mineral-rich states were initially not
affected by the economic downturn, but they lost revenues with the later
decline in oil prices. North Dakota is the only state to be in continuous
budget surplus since the banking crisis of 2008. Its 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 has had NO bank failures in
at least the
last decade.
If its secret isn’t oil, what is so unique about the state?
North Dakota has one thing that no other state has: its own state-owned bank.
Access to credit is the enabling factor that has fostered both
a boom in oil and record profits from agriculture in North Dakota. The Bank of
North Dakota (BND) does not compete with local banks but partners with them, helping
with capital and liquidity requirements. It participates in loans, provides
guarantees, and acts as a sort of mini-Fed for the state. In 2010, according to
the BND’s 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.
The BND also has a loan program called Flex PACE, which
allows a local community to provide assistance to borrowers in areas of jobs
retention, technology creation, retail, small business, and essential community
services. 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.
The BND’s revenues have also been a major boost to the
state budget. It 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. 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). Over a 15-year period, according to other data, the BND has
contributed more to the state budget than oil taxes have.
North Dakota’s money and banking reserves are being kept within
the state and invested there. The BND’s loan portfolio shows a steady
uninterrupted increase in North Dakota lending programs since 2006.
According to the annual 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 state’s return
on its investment.
A 19 percent return on equity! How many states are getting
that sort of return on their Wall Street investments?
Timothy Canova is Professor of International Economic Law
at Chapman University School of Law in Orange, California. In
a June 2011 paper called “The Public Option: The Case for Parallel Public
Banking Institutions,” he compares North Dakota’s financial situation to
California’s. He writes of North Dakota and its state-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.
He then compares the dire situation 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 state’s
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 state’s 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.
Not all states have oil, of course (and it’s hardly a
sustainable economic basis), but all could learn from the state-owned bank that
allows North Dakota 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.
This article was written for YES! Magazine. Ellen Brown is an attorney, president of the Public
Banking Institute, and the author of eleven books, including Web of Debt:
The Shocking Truth About Our Money System and How We Can Break Free. Her
websites are http://WebofDebt.com and
http://PublicBankingInstitute.org.
SOURCE: Ellen Brown - August 31st, 2011
www.webofdebt.com/articles/north_dakota.php
www.webofdebt.com/articles/north_dakota.php
