(North Dakota Monitor) – A cash management study presented to lawmakers Tuesday recommends shifting state money away from the Bank of North Dakota to increase returns for state government.
The state keeps most of its operating funding at the Bank of North Dakota, the nation’s only state-owned bank. A consultant’s report found that this relationship could be harming both parties, but it was met with criticism during a meeting of the Legislature’s Government Finance Committee.
The report, prepared by consulting firm RVK Inc., likened the state to a “captive client” to the bank and reasoned that state agencies are subsidizing the bank’s income by accepting lower returns on their assets.
At the same time, this relationship also puts pressure on the Bank of North “to return dividends to the general fund,” said RVK senior consultant Josh Kevan.
The consulting firm proposed removing the state’s funds from the Bank of North Dakota and having state agencies take over some of the cash management duties currently performed by the bank.
“That is in no way a recommendation to seize the operations of Bank of North Dakota,” Kevan said. “We assume that that continues to be a valuable part of your state’s infrastructure, but we do recommend exploring other ways to finance the bank’s balance sheet.”
The firm estimated that implementing its recommendations would bring the state an additional $9.5 billion over the next two decades.
The report’s findings drew skepticism and ire from legislators and some members of the banking community, who fear moving the money could hurt the Bank of North Dakota and other financial institutions in the state.
Many questioned how the state would replace the funding if North Dakota were to move forward with the firm’s recommendations.
Kevan said that this was beyond the scope of the report.
Susan Sisk, director of the Office of Management and Budget, said the study’s steering committee recommends that lawmakers authorize an additional study that would research options for how the state could replace the Bank of North Dakota’s capital if the state’s operating funds were moved elsewhere.
Sisk told lawmakers that the steering estimates such a study would cost between $300,000 and $400,000.
The study presented Tuesday cost $395,000, not including travel costs, according to the Office of Management and Budget.
Bank of North Dakota CEO Don Morgan, who has led the bank for roughly a month, said he doesn’t yet have a position on the recommendations.
“This could be a really sound business idea,” he told the committee. “It really could, or it could not. At this point in time, for me, a key point is just not enough information.”
Alexis Baxley, president of the Independent Community Banks of North Dakota, said the association opposed the recommendations because members viewed them as an affront to the Bank of North Dakota’s mission.
“I think that removing the funding from the Bank of North Dakota would have a devastating impact on all of the rural communities,” said Sarah Getzlaff, CEO of Security First Bank of North Dakota.
Several people remarked during the meeting that they hadn’t had time to digest the report, since it was only made public a day ahead of the committee meeting.
Implementing the changes would require significant changes to state law, Kevan acknowledged.
Gov. Doug Burgum has advocated for a cash management study, highlighting that North Dakota could be earning higher returns for its rainy day funds. The North Dakota Industrial Commission, led by the governor, oversees the Bank of North Dakota.
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