Critics have panned President Trump’s proposed budget for cutting funding for everything from the Environmental Protection Agency to the Corporation for Public Broadcasting and – a credit union favorite – the Community Development Financial Institution Fund. But some analysts are forecasting that increases to the military budget could help CUs serving the defense sector, and even some of the proposed cuts could actually be turned into opportunities, as well.
Trump’s proposal is what’s known as a “skinny budget,” long on ideas and short on details – something fairly common for budget proposals early in a president’s term. While details aren’t currently available, the budget does included proposals for a 10 percent increase in defense department spending, along with 6 and 7 percent increases, respectively, for funding at the Department of Homeland Security and Veterans Affairs. The EPA, Army Corps of Engineers and Departments of State, Labor and Agriculture are all forecasted to see reductions in funding ranging from 16 percent to more than 30 percent.
Could the beefed up military budget have a positive impact on CUs? Some say it’s too early to tell.
Carrie Hunt, executive vice president of government affairs and general counsel at the National Association of Federally-Insured Credit Unions, noted that the prognosis for military CUs is often easier to discern when there are cuts rather than increases in spending.
“When we’ve had cuts in the past that have resulted in base closures, obviously that has a very direct impact on our credit unions and how credit unions can provide services,” she said. “It’s a little bit harder on the flip side without knowing where this money is ultimately going to see what the direct impact is going to be.”
One analyst noted that while the increase in defense spending will likely have a positive impact, some of the nation’s largest credit unions – including Navy FCU and Pentagon FCU and others – are already doing such a good job that they are unlikely to see a boost.
“They might see their membership increase, but frankly, most of these defense department credit unions do such a good job already that they’re not going to be looking at a build-up in defense spending as a way to help solve problems because they don’t have any that are going to need to be solved just by adding members,” said Geoff Bacino, a CU consultant at Baciono Associates and a former NCUA board member. “I could see them having an increase in membership as you add more [defense] sector folks to areas where they have a membership base, but I don’t see any huge impact.”
Bacino also noted that the “skinny budget” doesn’t say specifically how those monies will be spent, and if money goes toward investing in things like military hardware rather than increasing the number of service members, CUs will be less likely to see their memberships increase.
‘MWR' funds
Tony Hernandez, chief operating officer at the Defense Credit Union Council, noted that no matter how the increased funds are allocated, the monies will likely be earmarked for specific projects, leaving credit unions with plenty of opportunities to provide services for individual military bases.
Hernandez explained that military budgets today rely heavily on centralization, so that rather than bases being funded directly, field operating agencies consolidate the funds and decide where the money is directed.
“It goes where it needs to go, but you lose discretion on where you put that extra buck,” he explained.
While he said centralization is a good thing, he added, “That really puts a squeeze on your MWR – your morale, welfare and recreation funds, which directly impacts the quality of life on base,” he told CU Journal. “When you get centralization, there’s not as much money to directly fund a lot of the bowling alleys, the rec centers, the things that we put on base to keep our military members occupied.”
It remains unknown whether or not the increased funding will result in more troops, but Hernandez said there could still be additional business opportunities even if the total number of service members does not go up.
“If your base is getting a lot of new people, some of them may want to buy a house, so there’s your credit union that has very favorable rates compared to banks that’s able to provide that mortgage,” he said. “They might have more families there and…if their family is growing, they might need a new car. If you have a lot of brand new airmen or marines on base, this might be the first time they’ve opened up a checking account, so the credit union is there to provide financial education and train people to manage their finances.”
Regardless of what happens, emphasized Hernandez, CUs should continue to take any opportunities they can to get involved with on-base activities, including sponsoring MWR events like sports days or on-base carnivals for families.
“It’s great for our credit unions because they’re putting back into the community,” he said. “It’s great for our military men and women and the families on the base because now they’ve got something to do and they don’t have to drive far away, plus they know the people there.”
Feast or famine?
The budget proposal may signal boon times ahead for the defense sector but, as indicated above, many other agencies are forecasting significant hits. And that’s another area where analysts say CUs could play a big role.
“A lot of specific government programs fill a niche and are there for a reason,” noted NAFCU’s Hunt. “If those programs are eliminated, certainly there would need to be a hard look to see if credit unions can step in, but in general…credit unions are already doing what they need to be doing in terms of continuing their outreach.”
After all, sources said, all the credit union programs in the world can’t replace Meals on Wheels or the EPA, but Bacino offered a reminder that the proposed budget is just that: a proposal.
“Once the house and Senate get involved, some of those things are going to be changed,” he said. “If you followed the president throughout this entire process, he has not been afraid to make waves.”
But CUs may also be able to help consumer affected by any cuts that make it into the final budget, added Bacino, “if they get creative.”
“Credit unions are going to look at this as an opportunity to be more proactive in serving people,” predicted John McKechnie, a former NCUA and CUNA staffer and now a credit union consultant at Total Spectrum. “The needs are still there. Credit unions ought to look at this and say ‘Congress and President Trump, give us more opportunities to serve people.’ Credit unions, if anything, want to do more to serve the consumer marketplace. Banks may not like that – they’ve made that plain – but credit unions are a ready solution to many of the problems that lower-income consumers have. We’re there and we’re ready to serve.”
