Senate Bill Report — SB 5754

Summary

A Senate Bill Report on SB 5754, an act relating to the creation of the Washington state public bank, prepared by staff of the Senate Committee on Business, Financial Services & Trade as of February 17, 2025, with committee activity listed for 2/19/25. Its background section describes the Bank of North Dakota and existing Washington lending programs for local governments. The summary of the bill describes a state public bank that may be activated under set conditions, with state, local and tribal government members, a nine-member operating board, and oversight by the State Finance Committee. It lists the bank's powers and limits, including that its bonds are not obligations of the state of Washington, and a goal of lending 35 percent annually for housing in low to moderate-income areas. The report notes a fiscal note requested on February 13, 2025.

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                            SENATE BILL REPORT
                                  SB 5754

                                     As of February 17, 2025

Title: An act relating to the creation of the Washington state public bank.

Brief Description: Creating the Washington state public bank.

Sponsors: Senators Hasegawa, Trudeau, Conway, Dhingra, Lovelett, Saldaña, Stanford and
    Wilson, C..

Brief History:
     Committee Activity: Business, Financial Services & Trade: 2/19/25.


                                     Brief Summary of Bill
           • Provides authority to the state to activate a State Public Bank with a
             cooperative membership organization to lend to local and tribal
             governmental entities under certain conditions.
           • Permits local and tribal governments, along with the state, to be
             members of the State Public Bank.
           • Enables the State Public Bank to issue debt in the name of the bank
             rather than the state of Washington without creating state debt.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Clint McCarthy (786-7319)

     Background: Public Banking in the United States. A public bank is a bank, or a financial
     institution, in which a state, municipality, or public actors are the owners. As of 2021, the
     Bank of North Dakota is the only state public bank in the United States. Under North
     Dakota state law, the bank is the State of North Dakota doing business as the Bank of North
     Dakota. The bank is the only legal depository for all state funds. The state and its agencies
     are required to place their funds in the bank, but local governments are not required to do




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

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     so. Profits from the bank are either deposited in North Dakota's general fund, or are used to
     support economic development in the state. The bank is permitted to
     collateralize government deposits.

     State Lending Programs for Local Governments. Washington has more than 80 programs
     and subprograms administered by 12 agencies that provide financial support to local
     governments in the state. Some of the larger examples include:
         • Public Works Trust Program—provides planning, pre-construction, construction and
           emergency loans for local infrastructure improvements;
         • Water Pollution Control Revolving Loan Program—provides low-interest loans for
           planning, design, acquisition and construction of water pollution control facilities
           and nonpoint source pollution control activities;
         • Drinking Water State Revolving Fund —provides low-interest loans for public water
           systems to publicly owned—municipal—and privately owned drinking water systems
           statewide;
         • Community Economic Revitalization Board—provides loans and grants to finance
           public infrastructure improvements that encourage new business development and
           expansion in areas seeking economic growth; and
         • Housing Trust Fund—provides loans and grants for construction, acquisition, and
           rehabilitation of low-income multi-family and single-family housing.

     Two programs provide local governments with access to capital via the municipal bond
     market through programs administered by the Office of the State Treasurer. The LOCAL
     Program allows Washington municipalities to finance essential real estate and equipment as
     either a financing contract or lease, also known as certificate of participation. While these
     certificates are issued by the state, the state’s obligation is limited to the extent that the state
     is an obligor in the certificates; otherwise local governments participating in a specific
     contract are named as the obligor. The School Bond Guarantee Program was established in
     1999, following a voter-approved constitutional amendment. School districts must apply to
     the Office of the State Treasurer and demonstrate that their general obligation bonds were
     approved by voters. The School Bond Guarantee Program provides a backup general
     obligation pledge to school district’s bonds, providing a lower interest rate to the borrowing
     district.

     Washington State Bank Business Plan. In the 2018 supplemental budget, the Legislature
     included a proviso for the Washington State Office of Financial Management to contract
     with an entity or entities with expertise in public finance, and commercial and public
     banking to evaluate the benefits and risks of establishing the bank, and to develop a
     business plan for its creation and launch. This report was transmitted to the Legislature in
     May 2020.

     Summary of Bill: A state public bank is established as a public body corporate and politic,
     and as an instrumentality of the state of Washington. The bank may be activated under the
     following conditions:


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         • an appropriation of some combination of state and federal funds is provided from the
           state that is sufficient to allow the state to issue debt with a competitive rating;
         • articles of activation are completed in a format approved by the State Finance
           Committee and filed with the secretary of state; and
         • a duplicate of the original articles of activation and additional information is filed
           with the Department of Financial Institutions (DFI).

     The state treasurer is directed to transfer as much of the state's general fund and
     concentration account into the public bank as is deemed necessary and prudent by the
     operating board (board) to facilitate the growth of the bank with the goal of eventually
     transferring all state moneys currently held in deposit at large Wall Street banks.

     The state, local governments, and federally recognized tribes are permitted to invest in the
     bank, and the articles of activation must be approved by each, the member local, or tribal
     governments, that become a member. The State Finance Committee is directed to approve
     an amount for an initial contribution by local and tribal governments. Five years after
     activation, the bank shall have a goal of providing 35 percent of the amount it lends on an
     annual basis to support housing in low to moderate-income areas. The state treasurer is
     authorized to reinvest balances that are more than sufficient to meet the current
     expenditures into the bank.

     Operating Board Membership. The board consists of nine members including:
        • five member-appointed directors selected by a majority of the members of the bank;
        • three members appointed by the Governor and confirmed by the Senate; and
        • the state treasurer serving as an ex-officio member.

     One of the three public members appointed by the Governor shall be appointed as the chair
     of the board and serve at the pleasure of the Governor, with the initial chair having to serve
     a full four-year term. The state treasurer may designate an employee to act on their behalf.
     A majority of directors constitutes a quorum. Directors of the bank serve without
     compensation, but are entitled to reimbursement from the funds of the bank.

     Powers of the Operating Board. The board has the authority to hire and fire an executive
     director. The board must approve the budget of the bank on an annual basis. The board is
     directed to establish an internal audit committee.

     Employees of the Office of the State Treasurer (OST) will administer and operate the bank.
      The executive director is funded through the OST budget. The bank may consult with
     other state agencies at its discretion and without the approval of the Washington State
     Housing Finance Commission.

     State Oversight of the State Public Bank. The State Finance Committee serves as the
     oversight board of the bank. The State Finance Committee may require independent audits,
     and is subject to audits by the state auditor. DFI may review the deposits and transactions


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     of the bank.

     Powers and Limitations on the State Public Bank. The bank is authorized to:
        • sue and be sued in its own name;
        • adopt and alter an official seal;
        • establish rules to conduct its business;
        • engage independent experts and enter into contracts the bank may find necessary to
          conduct its business;
        • receive deposits from state, local, or tribal governments and invest the deposits in
          lawful funds;
        • open and maintain accounts in qualified public depositaries in the Federal Reserve
          Bank of San Francisco, the National Cooperative Bank, a federal home loan bank, or
          any other federal financing entity;
        • procure insurance;
        • apply for and accept grants, loans, advances, and from any source of money, property,
          labor, or other things of value;
        • borrow money and issue its bonds consistent and provide for and secure their
          payment;
        • develop and conduct a program to make loans to borrowers for project costs of
          infrastructure and economic development projects;
        • establish, revise, and collect member contributions and fees as the bank deems
          necessary;
        • charge for its costs and services in review or consideration of a proposed loan to a
          local or tribal government regardless of whether a loan is made;
        • make appropriate expenditures for paying administrative expenses;
        • establish reserve funds;
        • provide financial assistance and other forms of assistance to local or tribal
          governments;
        • make distributions to members amounts that the board deems surplus to the needs of
          the bank, subject to a two-thirds majority of the board; and
        • engage outside legal counsel.

     The bank must not:
        • constitute a bank or trust company within the jurisdiction under the control of DFI,
          the controller of the currency of the United States of America, or the United States
          Department of the Treasury; and
        • constitute a bank, broker, or dealer in securities.

     The bank may not issue bonds in a manner that would create state debt.

     Financing Powers of the State Public Bank. Bonds issued by the bank are not obligations of
     the state of Washington, and are only obligations of the bank. Such funds are not public
     moneys or funds of the state and at all times must be kept segregated and set apart from
     other funds. Obligations of the bank are not obligations of the state of Washington.


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     Bonds of the bank are subject to such terms, conditions, covenants, and protective
     provisions found necessary or desirable by the bank. Any bonds issued by the bank may be
     secured by a financing document between the bank and the purchasers or owners of the
     bonds. The bank may purchase its bonds with any of its funds available for purchase, and
     purchase its bonds in the open market. Any issuance of bonds requires advance notice to
     the chair of the State Finance Committee.

     The bank, the members, the directors or agents, nor bank employees are personally liable on
     bonds or subject to any personal liability or accountability. Any owner of bonds issued by
     the bank may become a purchaser at any foreclosure sale if the person is the highest bidder.

     Depending on the contracts between the bank and its borrowers, the bank may modify the
     rate of interest, time, and payment of installment of principal.

     Exemption from Disclosure. The following are exempt from disclosure:
        • financial and commercial information supplied by businesses or individuals during
          the application for loans or program services and records; and
        • examination reports and information obtained by DFI from banks, savings and loans,
          and credit unions.

     Appropriation: None.

     Fiscal Note: Requested on February 13, 2025.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.




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