Hawaii House Democrats Consider Establishing a State Bank

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AP photo courtesy VOA News

BY MALIA ZIMMERMAN – Hawaii House Democrats are considering whether to form a state bank. The House Committee on Finance will several related bills on Wednesday, February 29, beginning at 11:30 a.m.

A statement from House Democrats sent on behalf of the Finance committee said hearing testimony on these bills will generate debate on how Hawaii can best use state tax revenue now deposited in private banks.


The state of Hawaii had $2.8 billion deposited in Hawaii’s private banks as of January 21, including $111 million in cash and $2.7 billion in certificates of deposit. The state also pays $500,000 annually in administrative fees to the banks.

Some Democratic legislators believe a state-owned bank will save the state money, and even bring in revenue for the state, create jobs, and assist those under-served by traditional banks. They also believe a state bank could better support clean energy and increase economic development for Hawaii.

The bills being considered include:

HB2103, PROPOSED HD2 – RELATING TO THE BANK OF THE STATE OF HAWAII would “direct the Department of Commerce and Consumer Affairs to draft legislation to establish a state-owned bank.  The bill would also require the Hawaii Housing Finance and Development Corporation to establish and operate a ‘mortgage cleansing’ program to assist the homeowners of foreclosed properties.”

HB1033, PROPOSED HD1 – RELATING TO PUBLIC FINANCE which would establish “an independent Clean Economy Bank of the State of Hawaii to provide financing and risk management support for clean energy projects that help to lessen Hawaii’s dependence on imported energy.”

HB1840, HD1 – RELATING TO STATE-OWNED BANK would establish a task force to “review, investigate and study the feasibility and costs of establishing a state-owned bank.  If enacted, this measure begins the process of identifying the needs within the community for a state-owned bank.”

HB304 PROPOSED HD1 – RELATING TO STATE FINANCES would allow the Department of Budget & Finance to enter into agreements with other bond issuers to pool bond allocations.  The bill authors said if a state bank were established, it could take advantage of low-interest financing of ‘green projects’ and broker multi-state projects, putting Hawaii in a position to serve as a national and international finance center.

However, House Minority Leader Gene Ward is opposed to the plan saying it is costly, bureaucratic and has a “huge infrastructure startup cost.”

He said there is no detailed business plan that addresses any of the implementation issues including startup time and diversion of funds; unknown funding sources; state liability; policy conflict of social good versus profits and tying up of public funds.

“Per Hawaii Credit Union League, funds would be deposited into a state bank that would be insured by the state itself. Without the benefit of being insured by a separate entity, the state would be in an extremely precarious situation in the event of any financial difficulty within the bank or in the state,” Ward added.

Ward also notes in the current proposal, the bank’s board of directors is appointed by the Governor, which could lead to the entire board being reappointed when a new governor is elected.

The Department of Commerce and Consumer Affairs, the agency that would likely be charged with the task of setting up the bank, did not take a position on the proposal but said before the state takes any action, a task force should explore the issue in more depth.

The only other state bank is The Bank of North Dakota, which largely receives bank deposits from public funds. The bank deposits are guaranteed by the State of North Dakota taxpayers not the Federal Deposit Insurance Corporation.

Sixteen 16 states have introduced bills to either study or create a state bank or investment trust since 2010, including Massachusetts, which in 2011, formed a 21-member commission that ultimately recommended against it, and California, which in 2012, passed a bill that was vetoed by the governor to study the proposal.