Heavy Lobbying Helps Trim Down Utah Bill, But Taxation Remains A Threat

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A full-court press by the credit union lobby succeeded in getting an onerous tax proposal cut back last week, but credit union representatives were still hoping to have the bill defeated. The Utah House was expected to vote on the bill late last week that would apply the state's 5% corporate franchise tax on all credit unions over $100 million in assets and operating in multiple countes. Rep. Jeff Alexander agreed to trim the measure from its original scope, which would have included a "competitive equity fee" of as much as 30% of annual income, as well as the 5% franchise tax, after support for his proposal faded in the legislature.

The difference in the two proposals is significant, as the 5% franchise tax would cost the three affected credit unions, America First CU, Mountain America CU, and Goldenwest CU, about $2 million, while the two taxes together would cost the three more than $15 million.

Both the credit union and banks were fixing for a fight throughout the week, with representatives of both sides filling the marbled halls of the Statehouse to buttonhole lawmakers.

Alexander, the House Majority Whip and sponsor of the tax bill, played it coy throughout the week, "circling" the bill on Monday, indicating his willingness to move it to a final vote, then withdrawing it several times as its prospects rose and dipped like a roller-coaster. Rep. David Hogue, a Republican colleague of Alexander's, said the strategy of House leaders was to pull a bill from consideration unless it seems likely to pass. "That's what leadership does, they hold it until they have enough votes," he said.

The credit union lobby was working to delay final passage of the tax and trying to convince lawmakers to study the issue for a year or two. "We're trying to get it into a study," said Barney Chapman, vice president of Mountain America.

"Our hope is to delay it by getting it into a study, if we can't defeat it," said Scott Earl, president of the Utah League of CUs.

A fiscal impact study of the proposal indicated that the measure would cost the three affected credit unions-America First CU, Mountain America CU and Goldenwest CU-about $15.4 million a year, with America First, the $2-billion giant, paying the brunt of it, about $9 million.

The potential tax bite already has the three credit unions exploring a switch to federal charter, which would shield them from the state tax and cost the state about $212,000 in lost fees. The board of Mountain America has already voted to convert to federal charter if the management finds "it in the best interests of the membership."

The tax issue has been festering in this state for decades but has risen to the surface in recent years as credit union membership has reached almost half the state's 2.5-million residents, one of the greatest penetration rates of any state.

The issue came to a head over the past year when Mountain America challenged the authority of state credit union regulators to oversee the member business lending of its wholly owned, but separately operated, CUSO. Mountain America, America First and Goldenwest all maintain that state credit union rules do not cover their CUSOs, allowing them to make MBLs exceeding the $250,000 limit set by credit union rules. A state court has sided with the credit unions, but the state's Department of Financial Institutions has introduced legislation that would specify that CUSOs are regulated by the DFI.

Meantime, Mountain America Financial Services has gone ahead with large business loans, one a line of credit of $3 million, and several more exceeding $1 million, according to Kent Moore, head of the operation. "We're focusing on the $750,000 to $1-million market," said Moore.

What has been viewed as a thumbing of their noses at regulators has enraged the banking lobby and prompted the tax fight, which targets just those three credit unions, for now. "It's a question of equity," said John Stillings, manager of commercial banking for Zions Bank. "We have two or three credit unions who are exploiting the loopholes in the law and quite frankly, I don't see the need for the subsidy (tax exemption) anymore."

The tax fight was one of two battles between credit unions and banks here last week. In the other, Rep. David Clark, also a VP at Zions Bank, proposed a bill that would have outlawed surcharge-free agreements, which would have required the dismantling of the state's cooperative CU ATM network. The bill was withdrawn.

The ongoing battles between the two powerful financial lobbies has taken a large financial toll. CUs are expected to spend as much as $1 million on a statewide print, radio and TV ad campaign to fight the tax, and the bankers are projected to spend about twice that amount, sources told The Credit Union Journal. That comes after last year's fight over the Republican nomination for the open House seat, won by credit union-backed Rob Bishop over banker Kevin Garn, which cost both sides more than $2 million.

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