Gov. Phil Murphy and lawmakers have set aside $20 million for a state-run Social Impact Investment Fund to advance what they are deeming “socially beneficial projects” in communities across the state.
The new fund will use both public and private investment dollars to advance affordable-housing developments, certain infrastructure-improvement projects, and the construction and maintenance of early childhood education centers, according to a law signed by Murphy late last month.
Advocates say the fund, administered by the Department of the Treasury, can help close financing gaps that often hold back otherwise worthy investments, including in New Jersey’s many underserved communities.
It could also help lay the groundwork for the eventual establishment of a public bank in New Jersey, something that Murphy, a second-term Democrat, first called for as a candidate in 2017.
For now, New Jersey isn’t creating an altogether new financial institution backed with taxpayer dollars to serve a social-equity mission. Instead, the fund will work in partnership with existing financing authorities, like the New Jersey Housing and Mortgage Finance Agency, to advance its policy goals, according to a news release from the governor’s office.
Different form of financing. “This is exactly the kind of alternative finance mechanism cities across New Jersey need for critical investments in low- and moderate-income communities,” said Phyllis Salowe-Kaye, president of New Jersey Citizen Action.
“The (fund) will act as a multiplier for public funding and expand the number of solutions to our state’s most pressing social and economic problems, modeling some of what a New Jersey public bank could achieve in the future,” said Salowe-Kaye, who is also a member of a public bank implementation board Murphy established in 2019.
The basic premise of public banking is to leverage taxpayer resources such as deposits that are normally kept in commercial banks and use them as capital to underwrite loans that serve some sort of public purpose.
Advocates of public banking say such an approach can provide borrowers with fairer interest rates and other favorable lending terms because there’s no need to charge high fees to fund things like large executive bonuses or to pump up shareholder profits. It can also jump-start worthy projects that may not be able to attract adequate capital from more traditional public and private lending programs.
Public banking is not a new concept, and many states, including California and New York, have explored ways to establish public banks in recent years. Meanwhile, North Dakota has operated a state-run banking institution for over 100 years.
Public bank: First steps. While running for governor in 2017, Murphy, a former Goldman Sachs executive, first suggested that New Jersey could benefit from the public-banking model, including as a way to boost long-stalled infrastructure and affordable-housing projects in underserved communities.
In 2019, Murphy signed an executive order to establish a 14-member implementation board for a public bank in New Jersey.
The establishment of the social-impact fund, which stems from the work of the implementation board, according to the governor’s office, would be an initial step to test the idea, several officials said.
The $20 million in seed money will come from the state budget’s general fund, according to legislation Murphy signed into law on June 30, just hours after it was approved by the Assembly and Senate.
The appropriation of public dollars will be used to leverage philanthropic investments and other contributions from the private sector, all to provide below-market-rate loans and other financing tools to fill funding gaps for socially beneficial projects throughout the state, the governor’s office said in a news release.
The nuts and bolts. According to a summary prepared by the nonpartisan Office of Legislative Services, Treasury will credit the fund with “moneys appropriated by the Legislature for the purpose of the fund; distributions from payments or repayments made to the fund; earnings received, if any, from the investment or reinvestment of money credited to the fund; and any money that, from time to time, may otherwise become available for the purposes of the fund.”
Treasury will also have the authority to select outside fund managers to administer the initiative, according to the law. A steering committee composed of representatives from Treasury and other relevant state agencies will provide guidance to the fund manager, the news release said.
Senate Majority Leader Teresa Ruiz (D-Newark) said the fund’s investments could be used to “tackle some of the greatest issues plaguing our communities.”
“This (fund) will assist in early-stage affordable housing development, provide municipal loans for water and transportation infrastructure and finance the construction and maintenance of early childhood education facilities,” said Ruiz, a primary sponsor of the legislation that led to the fund’s establishment.
For his part, Murphy said the new fund would provide a boost to “underserved and underinvested” communities that often “lack access to critical capital, rendering housing unaffordable, infrastructure ineffective, and opportunity unattainable.”
It remains to be seen whether the fund will lead to the establishment of the type of full-fledged, stand-alone public bank, owned and operated by the state, that many, including Murphy himself, would like to see take root in New Jersey.
Joan Bartl, director of Banking on New Jersey and long-time advocate for public banking, praised the state for taking what she called a “substantive first step” in the state bank-formation process.
“This initial Social Impact Investment Fund will demonstrate some of the benefits such a Bank could make, and more importantly provide a committed platform for advancing our State Bank work,” said Bartl, who also serves as a member of the implementation board.
John Reitmeyer is a budget and finance writer for NJ Spotlight. For more from NJ Spotlight, visit www.njspotlightnews.org.
