The bid to tax the state's largest credit unions moved forward last week with the state Senate's Commerce Committee approving the measure and sending it on to the tax-writing Ways and Means Committee.
The Commerce Committee vote appeared to favor credit unions but a single member switched at the last minute to narrowly sway the panel by 8-to-7.
A hearing on the House's version of the bill before that body's Ways and Means Committee has not been scheduled yet.
Pat Jury, chief lobbyist for the Iowa CU League, remained confident despite the vote, saying he doubted state legislators have the stomach for a tax hike even in the tight budgetary times. "My inclination is, the leadership in the House and Senate doesn't want to vote on a tax increase," he said.
The bill would set a 5% tax on the increase in retained earnings for all community chartered credit unions over $150 million in assets, costing the six credit unions it would apply to about $1.4 million a year.
Iowa is one of just five states that already tax credit unions, assessing a "Monies and Credit Tax" that amounts to 0.5% of legal and special reserves on its 176 state chartered credit unions.
But the bankers, who helped draft the proposal, were jubilant after last week's vote. "This is just a realization, a real eye-opener, for these policymakers who are seeing the net increase that their credit unions are making," said John Sorensen, president of the Iowa Bankers Association, who estimated that the six targeted credit unions earned net income of as much as $26 million last year.
Sorensen dismissed claims by the credit union lobby that the proposed tax would reduce capital levels and threaten the safety and soundness of credit unions. He noted that the targeted credit unions report high net capital of around 13% or 14%. "They're extremely well-capitalized," he said, noting that Iowa taxes other cooperatives in the same way. "That provides a great safe harbor for all of those credit unions."
He defended the proposal by saying it only taxes money retained by the credit union, encouraging credit unions to pay out more to members.
The committee's action came a day after more than 1,000 credit union loyalists crowded inside the state house to rally against the measure, and just hours after the bankers mustered about 500 people to demonstrate in favor of the bill.
Jury dismissed the notion that the additional tax revenue was a driving force behind the bill. "It's never really been a fiscal issue. It's a political issue," he said. "The banks aren't saying it's good for the state. It's just a way for the bankers to get a piece of us."
Iowa credit unions, he said, are not interested in creating a task force to study the matter, as lawmakers in Utah did earlier this month. "If it just means giving the banks another shot at us, then forget it," he stated.
