CU Volunteers Get First-Hand Report From Utah On The Bank/CU Battles
The president of a credit union that Utah's banks indirectly forced to change charters urged CU board members gathered here to get up to speed on what has been happening in the state.
Rick Craig, president and CEO of America First FCU, gave a first-hand report of the tax battle to attendees of an educational session at the CUES Directors Conference here. Craig's Riverdale, Utah-based credit union was one of three CUs targeted for taxation by the Utah Bankers' Association.
"The taxation attempt was pre-planned by bankers, was quite costly, and credit unions lost some powers as a result," Craig said. "Every credit union must be ready for a similar push in their states."
The Craig-led educational session occurred just days after Scott Earl abruptly resigned as president of the Utah League of CUs. Earl said he was worn out by the long fight with the bankers. Craig told the audience of directors they should read carefully the editorial on the events leading up to Earl's resignation authored by Frank Diekmann, editor of The Credit Union Journal, in the Dec. 8 issue of this publication.
Quoting Diekmann, Craig said: "For readers of The Credit Union Journal in the 49 other states, you may be thinking this doesn't apply to you...think again."
"Since HR 1151 passed, bankers have sued in numerous states," said Craig. "Just because we wear the white hats-or we feel like we do because we serve the public-we assume we will prevail. Credit unions have to become involved in elections and show they can make a difference."
When credit union representatives have met with state and federal lawmakers, they have been told CUs are "liked," but their wealth and influence makes bankers "feared."
"In politics, it is better to be feared than to be liked," observed Craig.
The Perfect Storm
Like the George Clooney movie of the same name, 2003 was a "perfect storm" for CU taxation in Utah, Craig explained to an audience largely unfamiliar with events in the state. Several factors came together that helped foster a climate favorable to the banks' call: the state faced a budget deficit, bankers had control of the Utah legislature, the Utah Bankers' Association's planning included a well-funded war chest, and it was not an election year.
In addition, the bankers tried to distinguish between two different kinds of CUs. They said credit unions deserved their tax exemption unless they had "exceeded" their charters. Credit unions that crossed a line that banks established were to be taxed.
"This was a new strategy that will continue to play well. They formerly said all credit unions should be taxed," said Craig. "In Utah, they wanted to tax the three biggest credit unions: America First, Mountain America and Goldenwest."
The bankers presented the tax fight as a move towards "fairness," he continued. They ran ads telling people large CUs should be taxed on profits they don't return to their members. They called for all credit unions with more than $100 million in assets who serve residents of more than one county to be taxed.
The bankers left no avenue untouched. Craig said they used prominent celebrities and spokespeople from different walks of life in various ad campaigns, and advised that a similar strategy will be used in the future in other states.
One strategic blunder the UBA made was sending a mailer asking people to call their senators and tell them to tax CUs. Instead, said Craig, people called to say "don't tax credit unions."
"Their mistake was to send this mailer to the general public, where credit unions have support, instead of concentrating on politicians," he said. "They won't make that mistake again.
The vote on the Utah CU taxation bill came down to three state senators. Craig said Project Zip Code-which helped identify thousands of CU members in those districts-played a big role in staving off the proposed tax.
In the end, credit unions were happy because there was no taxation. However, the bankers also were happy for the limits imposed on member business lending, and because they established an idea that some credit unions are different. "That will be the strategy they use in other states," warned Craig.
The three targeted CUs have since converted to federal charters, and the bankers tried to get Congress to intervene with the NCUA to prohibit or delay those conversions. "The bankers aren't going to stop," he said.
Salt Lake City-based Zions Bancorporation was a major player in the Utah tax fight, said Craig. Marty Stephens, a Zions' vice president, also served as the Speaker of the Utah House. (Stephens has since resigned his position with the bank and will run for governor.) Harris Simmons, Zions' chairman and CEO, currently is the vice-chairman of the American Bankers' Association and will move up to chairman in November 2005.
"Harris Simmons wants your credit union taxed," declared Craig. "He lined up the resources to try to do it in Utah, and he pumped $50,000 out of his own pocket into the ABA to fight for his cause at the federal level. He is adamant about it."
Taxation: Not Going Away Anytime Soon
Zions' political action committee contributed $52,850 to Utah state races and $126,243 to federal candidates in the 2002 election cycle. "We don't have those kinds of funds," said Craig.
"Credit union taxation is a topic that is not going away any time soon, and Harris Simmons is a big reason why," said Craig. "We are going to have to worry about it for many years, especially after he becomes ABA chairman."
According to Craig, Simmons said in an interview prior to the Utah vote he expected the CU taxation bill would pass.
"He said the Utah tax law would become a precedent copied by other states. But, credit unions should thank Simmons for making them active in local and national politics. We can't say 'thank goodness it didn't happen in Utah' and go back to non-involvement. Credit unions must become involved in politics-we have to be heard, and we have to be able to influence."
Addressing the audience of CU directors, Craig said the message he wanted them to take back to their credit unions was: if their state legislature were to pass bad legislation, it would set a bad precedent.
"I expect more state-level attacks before a national-level attack," he predicted. "Please involve your members, and find people willing to contact their legislators."