California Lawmaker Says CU Taxation Not Intent of Her Bill

SACRAMENTO, Calif. – A bill to study the imposition of a “fee” on state and federally chartered credit unions in California has been introduced in the California Assembly – but the sponsor of the measure insists that is not the intent of her legislation. “I realize it looks like we’re going after the tax credit but we have no intention of doing that,” insisted Janelle Beland, legislative director for freshman Assemblywoman Cindy Montaez ( D-San Fernando). Introduced on Friday (Feb. 21), the last day that a bill could be introduced in this session of the Legislature, AB1226 calls for the state’s Legislative Analyst’s Office to conduct a study to “determine the feasibility of imposing a fee on the state and federally chartered credit unions for purposes of funding public education and creating some parity between credit unions and other financial institutions, that are subject to state and federal taxation. “As the asset base and profitability of the credit unions continue to grow, there is no justification for continuation of a credit union subsidy in California,” the measure said. Beland admitted that the language in the bill came from the California Bankers Association and said it was only used because there wasn’t enough time to change it before the filing deadline. She said both the banking industry and the California Credit Union League were advised that the measure would be amended after it was introduced. “I made a courtesy call to the credit union league on Friday,” she said. “I wanted to alleviate any concerns and let them know that in the end it wasn’t going to be what it is now. “This is the language that we had,” she added. “We are using this bill as a vehicle. . . We’re forced to put in a vehicle that we know we’re going to have to amend and work on. This is the way things get done around here. It’s not a final product, and the credit union league knows this.” Even so, she said, the league launched a campaign to immediately oppose the bill. The league said it asked credit union CEOs to call Montaez’s office to “let her know we are completely opposed to this idea.” Montaez’s office said it had received numerous calls in opposition to the bill. “I know where they’re coming from because the tax credit is under attack in other states,” Beland said. “We are sympathetic to that.” Beland contended the actual intent of the legislation was to study such things as aspects of the Community Reinvestment Act and the benefits and differences between credit unions and banks. She admitted that one of the items to be studied was the taxation issue but said it was “only in the context of it being one of the benefits that credit unions have. “There are benefits that banks have that credit unions don’t have,” she added. “Our feeling is it could really end up being a good bill for credit unions and the financial industry as a whole,” Beland said. Bob Arnould, vice president of state governmental affairs for the league, said he believed that Montaez would move her bill away from the taxation issue. “They appear to be moving away from the taxation components of the bill,” said Arnould, who was in Washington, D.C., attending the Governmental Affairs Conference. “Their key concerns appear to be more access to financial services for low-income people. “I believe that Assemblywoman Montaez has an interest in improving the availability of financial services in distressed areas, and we intend to work with her to see if there’s anything we can do to address those issues,” he said. “We look forward in helping to educate her office on what credit unions are already doing to serve the underserved and to see if there are ways that we can find solutions that allow us to do an even better job,” said Arnould. The initial language of the bill, however, dealt only with the credit union taxation issue. It noted there was little difference between credit unions and banks and that credit unions should be taxed in a way similar to other financial institutions. “Credit unions in California have evolved from niche players with a limited membership base into full-service retail depository institutions that actively and successfully compete for bank customers, and are able to offer their customers virtually the same financial services as community banks,” her bill said. It said the common bond requirement of credit unions has “virtually vanished, and credit unions can solicit potential members from an ever-expanding customer base that has little or nothing to do with the original purpose of creating tax-exempt credit unions. “Indeed, the common bond required for a credit union has eroded to the point that the fundamental structure of many credit unions in California and the nature of financial services and products offered to their customers resemble those of other financial institutions, including community banks,” the bill reads. The measure did not indicate the amount of a “fee” that might be imposed on credit unions or where that fee would come from. It did say that the study should consider imposing the tax on credit unions with more than $1 billion in assets, those that offer commercial loan products and services to businesses and those that do not require a common bond for membership. “It really doesn’t have anything to do with parity or with funding public education,” a spokesman for the California Credit Union League said. “It’s about trying to drive a wedge between large and small credit unions and taxing credit unions to try to drive consumers away from credit unions and send them into the arms of banks and increase bank profits.” He also said statements in the measure were not only misguided but disingenuous when talking about helping to fund public education. “The reason why credit unions are tax exempt has nothing to with size, common bond or products or services,” he said. “It has to do with the non-profit nature and structure of credit unions . . . there is no difference between a $1 billion credit union and the tiniest credit union in the state.” And, he added, the amount of money that the bill might raise through fees on credit unions “is not going to do very much for public education. “But it sure is going to do a lot to boost bank profits,” the CCUL spokesman said. “That’s what it’s all about.” “By imposing this fee on credit unions-they don’t call it a tax-is to the advantage of the state’s banks but to the detriment of the state’s consumers,” he said. The bill, introduced Friday (Feb. 21) was not assigned to a committee at press time. It could be eligible for a committee hearing March 25. Montaez’s bill comes on the heels of a measure in the Utah Legislature to impose a precedent-setting 5% franchise tax on three state-chartered credit unions in that state. The Iowa and New Mexico Legislatures have introduced similar measures. -