PORTLAND, Me. – Will 2005 be a repeat of the 1994 credit union tax battle in Maine? The Maine Credit Union League is hoping it won't be necessary to pull out all the stops like it did 11 years ago to defeat a credit union tax measure recently initiated by a state legislator, but it will do everything it has to if that's what it comes down to. The Maine legislature convenes January 19, and League Governmental and Public Affairs Manager Jon Paradise said the League will know then whether a measure submitted by Rep. William Smith (D-13) to tax state-chartered credit unions, would be printed and taken up for consideration by the state legislature. According to Paradise, Rep. Smith submitted a title for his bill – "LR-2099, An Act to Tax Credit Unions' Net Worth Income" – and Paradise said bills have been printed on a regular basis since Jan. 5. Once a bill is printed, then by Maine law it has to go to a public hearing. The state legislature has an open end adjournment date, but it has to adjourn by the end of June. "Until the bill is printed, we won't know the language," said Paradise. "But if it is, we'll go in to another mode." The League spokesman said Smith's bill took the League by surprise. The last time Maine's state-chartered credit unions were engaged in a tax fight was in 1994 and that was against a bank-initiated bill to tax SCCUs. "Maine was one of the first states where credit unions faced an all out attack by the banking trade association. We put together an aggressive grassroots effort then and defeated their measure," said Paradise. This time Paradise said based on conversations the League has had with Smith, "we're almost 100% sure the banks aren't behind him." That's what makes the state legislator's initiative so puzzling to the League and Maine's state-chartered credit unions. "We expected a bill like this to be introduced in this year's or next year's session by the bankers because the leader of the Maine Bankers Association has made taxing credit unions his thing for years. In addition, given Congressman Bill Thomas' (R-Calif.) comments in Congress about taxing credit unions, we thought it was a good possibility," said Paradise. "But to my knowledge, Smith's relations with credit unions has been very good. He even filled out a legislative questionnaire for us last year that we sent to all the candidates, and he said he supported credit unions' not-for-profit tax-exempt status and understood the positive services credit unions provide," he added. What's more, said Paradise, Smith is a long-standing member of NorState FCU of Madawaska. According to Paradise, there are no state-chartered credit unions located in Smith's 13th District. All that has left the League and most Maine credit unions – both federal and state chartered – scratching their heads trying to figure out Smith's motivation for crafting the measure. Smith has told the League his bill is intended to help close the $260 million shortfall in the state's budget. But LR-2099 would only raise an estimated $130,000 and only affect state-chartered credit unions which are a minority in Maine – only 14 of Maine's 78 CUs are SCCU. "I'm not sure what to make of it. Rep. Smith has been a member of our Van Buren branch for some time. We've been trying to get him to withdraw the bill before it gets printed, but we haven't heard back from him," said David Rossignol, president/CEO of NorState FCU, adding that "I know he's received my messages and knows what I'm calling him about." Rossignol said the Arrostook County Chapter of the Maine League intended to send Smith a letter expressing its concern over the introduction of his bill. Rossignol is willing to give Smith the benefit of the doubt that his measure is intended to help fill Maine's "significant" budget shortfall. Legislators are looking for resources wherever they can find them, he opined. Still, given the potentially serious ramifications of Smith's measure, Rossignol said given the opportunity he would ask Smith why he introduced the measure to tax state-chartered credit unions and whether he understands the implications for the state's dual chartering system. Normand Dubreuil, president/CEO, Maine State Employees CU, Augusta, the state's largest state-chartered CU said the $195.2 million CU would consider converting to a federal charter if Smith's bill is passed. MSECU's net income as of Dec. 31, 2004 was $1.9 million. "Smith's bill comes out of left field, it leaves you wondering if he truly understands how credit unions are structured," he said. Howard Dunn, president/CEO of Maine's second largest state-chartered credit union – the $140 million in asset, $11.8 million net income University CU – said his credit union too would consider converting to a federal charter. University CU is in the process of having $140 million in asset Bansco FCU merged into it by the end of January. "As we grow, why would we want to remain a state-chartered credit union if we have to pay taxes. We wouldn't have the ability to offer the same services federal credit unions do because we'd have to pay additional taxes that would limit our ability to grow and provide low cost services," said Dunn. He added that, "With all that's going on with banks earning record profits, how can legislators come after credit unions when the banks are making tons of money. We're small potatoes compared to the banks." He opined that to help fill the state's budget shortfall, the state legislature should look for ways to reduce their size and reduce their own spending rather than tax credit unions. Rossignol, like other credit union folks around Maine, intends to follow developments on Smith's bill closely. "We have many staunch credit union supporters in Augusta and I feel confident something like Rep. Smith's bill won't get legs. Still it's important for us to be vocal at this juncture," he said. The Maine CU League's Paradise said Speaker of the House John Richardson (D-63) is "vehemently" opposed to the bill and was going to speak with Smith, as were other members of the House. MSECU's Dubreuil recalled the 1994 credit union tax battle, saying it was "very unpleasant." "But credit unions are more astute now and have gone through a tremendous learning curve as far as dealing with legislators is concerned. Credit unions carry more clout now and know more legislators. It would be a different battle now," he said, adding that Maine State Employees CU will take its marching orders from the League and be prepared to go in to public hearings. -

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