After a heated debate between credit union and banking representatives, the Utah House's Business and Labor Committee passed the credit union tax bill last week by a 9-to-4 vote, sending the controversial measure on to a vote by the full House. That vote could occur as early as this week as lawmakers rush bills through to accommodate the state's short, six-week legislative session.
The panel, after testimony from 15 different credit union executives and a dozen bankers, rejected several amendments before adopting one that will change the formula for the so-called competitive equity fee assessed large CUs operating in multiple counties.
The bill would apply the state's 5% corporate franchise tax to credit unions with more than $100 million in assets and operating in multiple counties and ban them from offering business loans for more than $250,000 and merging with other credit unions, unless they opt also to pay the equity tax of 30% of net income. That would immediately apply to three credit unions, America First CU, Mountain America CU and Goldenwest CU and cost them about $2 million a year.
"This is a very punitive bill. It puts Utah credit unions in the worst condition of any state in the country," said Scott Earl, president of the Utah League of CUs.
The bill not only penalizes the three credit unions but also boxes in nine other state-chartered credit unions at or near the $100 million asset mark from expanding their fields of membership (FOM), according to Earl. That means one of those credit unions that wanted to expand into a small rural community with a population of as little as 10,000 could be hit with the tax.
Howard Headlee, president of the Utah Bankers Association, which helped draft the bill, praised Wednesday's committee vote. "There's a lot of support for addressing this issue," he said. "We've got a couple of credit unions in this state that have gone way beyond their chartering authority."
The tax issue has come to a head, according to Headlee, because of the actions of the two largest credit unions, $2- billion America First CU and $1-billion Mountain America CU, which were allowed, along with Goldenwest CU, to keep their multiple county FOMs under a 1999 legislative compromise restricting all other state charters to a single county. Those credit unions have skirted state regulations on member business loans by creating independent CUSOs they say are not covered under credit union rules, which are making large MBLs of as much as several million dollars. The legality of this scheme is being challenged in state court.
"We've got a couple of credit unions that have gone well beyond their chartering and there's a fairly wide sense that they no longer need the tax exemption to continue building their assets," said Headlee. "The fundamental issue is that they really no longer need the state's assistance to grow."
Both the credit unions and banks will continue their expensive media campaign to sway public campaign on TV and radio for the remaining three weeks of the six-week legislative session, both Earl and Headlee said.
Before voting the bill last week the Committee voted down a substitute bill that would have assessed the 30% competitive equity fee even if the large credit unions agreed not to merge, operate in multiple counties, or make business loans over $250,000. They also rejected an amendment that would have sent the measure to a study, delaying it indefinitely.