While a number of state legislatures are considering imposing new taxes on credit unions, Arizona is looking at a regulatory relief bill that would allow CU boards to determine new additions to their fields of membership without having to apply for the state's blessing.
The bill was crafted by Sen. Dean Martin (R-Phoenix) after having sat down with the Arizona CU League as well as some credit unions in his district, including Deer Valley FCU, Grand Canyon State CU and First FCU (of which Martin is a member). Although boards would be empowered to define their own fields of membership, they would still be required to report to the state regulator on a regular basis-perhaps quarterly-to let the regulator know what they're doing, according to ACUL President Gary Plank.
The bill, which also includes provisions for parity with federal charters, was passed by the Senate Commerce Committee by a vote of 5-to-4 and is awaiting approval by the Rules Committee and then onto the Senate floor.
But it won't get there without a fight. The Arizona Bankers' Association opposes the bill and has turned some key lawmakers against it. "I'm running into problems with Robert Blendu. He's an investment stockbroker, and he's got a lot of accounts with banks. He's also the Rules chairman, and I think he has sort of sat on my bill in the Rules Committee," Martin told The Credit Union Journal. "But I think it will get out of Rules soon, because he and I are on the same side. Plus there are other ways to get around the Rules Committee, if it comes to that."
Still, the banking lobby's strength is nothing to sniff at, and it's not taking this bill lightly.
"I used to live in Wisconsin and there credit union have to go to the legislature to [expand their fields of membership. Here all they have to do is go to the state regulator, and now they're saying they don't even want to have to do that," said Kurt Bauer, EVP with the Arizona Bankers' Association. "We just want to ensure that credit unions' eyes aren't bigger than their vaults. This bill removes an important regulatory safeguard. Regulatory relief is one thing, but this requirement is not particularly onerous, and it's important for safety and soundness."
Surprised At Rhetoric
Indeed, Martin said he was surprised by the level of rhetoric during committee hearings. "They're talking like this is the end of the world as we know it, that there will be no regulation at all for credit unions and they'll be able to just go out there and stick it to consumers as much as they like," he related. "They even started in on the tax argument, saying credit unions don't pay taxes, but even they had to concede that's not true. Credit unions do pay taxes, but they are not-for-profit, so they don't pay income taxes. They still have to pay every other tax that everyone else does, and the banks did finally have to cede on that issue."
Martin was troubled-but not all that surprised-to learn of the battles over taxation taking place in a number of other states. "It's just like the old adage, never go grocery shopping when you're hungry-well the states are hungry right now," he commented. "We're seeing that in other areas but not with regard to credit unions. It's always a competitor who is looking to stick it to another competitor, but they march down to the statehouse and say, 'Here, we have a great way for you to raise revenue and equalize the playing field.' They love to say that; they don't say anything about raising taxes."
And of course, it goes well beyond simply "leveling the playing field," Martin noted. "It's the turf wars. The banks would rather make sure that credit unions have to push as much paper as possible than have their own regulatory burden reduced," he observed. "They would rather hurt credit unions than help themselves."
Both Bauer and Martin said there is still plenty of time left in the legislative session for the credit union bill to pass, and Martin said he believes it "has a fairly good shot." But there is no initiative for imposing a tax on credit unions, and Martin suggested banks would have a very difficult time pushing such a bill through in Arizona.
"I am the chairman of the Finance Committee, and I would never let that get through, so I think that's one reason we haven't see such a bill. If you do that to credit unions, you've created a slippery slope for all not-for-profits," Martin advised. "But on top of that it, we have Proposition 108 here in Arizona, and that requires a two-thirds vote to raise taxes or anything that raises revenue for the state."