ALEXANDRIA, Va. – The bill working its way through the Utah State legislature to tax that state's largest credit unions would directly impact Utah's credit unions, but its effect – or the effect of any similar bill in another state – on the balance of the dual chartering system could be more far-reaching. NASCUS President/CEO Doug Duerr said a decision by any credit union – whether state or federal charter – to convert, "is a business decision they have to make based on what they determine is best for their members. "If the disadvantages of continuing to operate under their current charter are so severe to that credit union that they outweigh the advantages of operating under a certain type of charter, be it federal or state, then that credit union has the right and the option to convert," said Duerr. Even so, Duerr recognizes that conversions by many large state-chartered credit unions could have an effect on the balance of assets between the state and federal credit union systems. "We've always been concerned about this, and we've expressed our concern even when federal credit unions convert to state charters," said Duerr. "We want to be sure there's a reasonable balance between state-chartered and federal credit unions," he added. According to NASCUS, 40% of all credit unions are state-chartered. They have a total of $237 billion in assets compared to federal credit unions' $270 billion. NCUA Chairman Dennis Dollar alluded to this in identical letters he wrote to Utah State Sen. Ron Allen and state Rep. Sheryl Allen in response to the legislators' requests for the chairman's thoughts on the pending legislation in the Utah House of Representatives that would tax credit unions with more than $100 million in assets and that operate in more than one county at 35% (see sidebar). Emphasizing that NCUA is a "safety and soundness regulator, not a taxing authority", Dollar wrote, "that state taxation issues are a public policy matter which must be and are properly determined at the state level," and he refrained from taking an official position on the legislation being considered in Utah. Instead the chairman focused his remarks on the safety and soundness implications of public policy decisions concerning taxation of state-chartered credit unions and CUs' retained earnings. Dollar stated that he recognized that if the legislation to tax credit unions passes in Utah, it will only affect that state's credit unions. However, he stated, "Although the dual chartering system works very effectively in the credit union industry with the state and federal governments establishing their own separate chartering, regulatory and taxation policies, it should be recognized that actions by one may have a direct or indirect impact on the other. it is certain that any resulting net worth concerns that might arise could indeed become a significant issue for those credit unions having their retained earnings negatively impacted in that state. It could also serve to tip the delicate balance of the dual chartering system in that state by driving credit unions from the state charter." Duerr said that is not a position the credit union industry wants to find itself in. "Neither the state nor federal credit union system can afford to be comprised solely of small credit unions, it affects the credibility and influence of each system, and neither federal nor state credit unions should be disadvantaged," said Duerr, referring to the fact that the largest credit unions in states such as Utah have been the targets of banks' tax exemption status attack. What do state-chartered credit unions need to do to defeat state banking associations' attempts to have their state legislatures pass bills taxing SCCUs? "They need to make the same case credit unions have made before, that is emphasize the benefits of extending state-chartered credit unions' tax exemption," Duerr recommends. "State-chartered credit unions have to convince state legislators that their state stands to benefit from having a viable dual chartering system, and that these benefits outweigh anything they stand to gain from taxing the credit unions," he said. – [email protected]

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