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“The best things in life are free, but you can give them to the birds and bees. I want money. That’s what I want.” Both the Beatles and the Rolling Stones covered the song “Money (that’s what I want)” back in the 1960s. Today that song is being sung by just about every state in the U.S. as legislatures figure out how to deal with record-high budget deficits. While the Beatles and Stones went on to earn plenty of money, the losses state governments are running are likely to be with us for a long time to come-and will have an enormous impact on many of the issues facing the state credit union system. In fact it’s already started. The banking lobby was quick to exploit state budget deficits in its escalating attacks on credit unions at the state level. During the banks’ effort to tax credit unions in Utah, their message shifted from the usual calls for a “level playing field” to the message that taxing credit unions would generate revenue state governments can use to repair roads and buy new books for school children. The Utah League of Credit Unions effectively countered this message by reminding Utahns that since credit unions are member owned, “a tax on credit unions is a tax on you.” Consumers in Utah got the message-public support for Utah credit unions was on the order of 75%-but you can look for the bankers to employ similar tax arguments in coming state battles. CUNA recognizes that in these state bank attacks the leagues-with their well-developed connections to local government, legislatures and the media-are best equipped to take the lead in defense of credit unions, with CUNA offering support any way we can. That’s what we did in Utah, for example, with polling, message development and advertising. As the state battles continue-as we know they will-part of CUNA’s role also is to ensure all credit unions, regardless of charter type or size, recognize they have a stake in the outcome. The type of blows the bankers are seeking to inflict on the dual chartering system would, if successful, weaken the credit union movement as a whole. Any gains the bankers make at the state level could be redirected against the federal system. That’s what could have happened at the meeting of the National Council of State Legislatures (NCSL) this summer in San Francisco. The failed attempt by the banks and their allies within NCSL to pass a resolution calling for federal credit unions to pay state taxes illustrates in very clear terms the value of the partnership between CUNA, the leagues and credit unions. The taxation amendment was defeated by a vote of 15-4. While the proposed policy would lack the force of law, its adoption would have had a significant amount of persuasive weight, coming from state legislators to their colleagues in the Congress. In short, the bankers could have had a field day in Washington with the NCSL policy endorsement – claiming state legislators were clamoring for taxation of federal credit unions — had it been adopted. CUNA confirmed what the banks were up to several weeks before the San Francisco meeting, got the word to league lobbyists who then began working to build support among their state legislators prior to the meeting, support that was reinforced by credit unions attending the meeting. The behind-the-scenes teamwork paid off: Several lawmakers voiced support for the credit union position in the run-up to the vote. Typically, the lawmakers eloquently described credit unions as member-directed cooperatives that are indeed different from banks. They also pointed out that the potential revenue to states from applying state sales taxes to credit unions would be minimal, and mentioned that they had encountered no support from state chartered credit unions to impose state taxes on federal credit unions. What happened in San Francisco illustrates the threat that lies in wait for credit unions. Moreover the American Bankers Association has created an ABA-State Association Coordinating Committee whose mission, according to the ABA Web site, is “to lead the fight against aggressive, growth-oriented credit unions, with the goal of introducing legislation to tax bank-like credit unions.” Warns the ABA at the bottom of the Web page: “You should see what we’ve got in store for the NEXT six months.” Recent ABA comments to Credit Union Times that this statement does not refer to credit unions seems patently absurd given that the statement is made on a Web page boasting of their CU attacks. As we did in San Francisco, however, CUNA and the leagues working in partnership will provide the united front for the CU community that can be the most effective in thwarting the bankers’ threat. Massive deficits at the state and federal level are giving rise to another issue confronting the state CU system: unrelated business income tax, or UBIT. As readers of this newspaper well know, the IRS has active audits of state chartered CUs underway in Alabama, Connecticut and Colorado, contending income derived from such services as insurance activities, ATM fees, and debit/credit card interchange operations are not core credit union services and are therefore subject to UBIT.Here, too, CUNA and the leagues along with CUNA Mutual and the National Association of State Credit Union Supervisors (NASCUS) are developing a coordinated strategy to prevent the IRS from unfairly taxing legitimate activities of state chartered credit unions. The three possible courses of action-administrative through contacts with Treasury, legislation or litigation-all have costs as well as benefits. We are weighing the options to be sure we pursue the most appropriate and effective approach, mindful that the IRS is likely to initiate UBIT-related audits in additional states. Any report on issues facing the states also has to mention financial privacy. The privacy bill just signed into law in California could presage similar legislation in other states and may well affect the shape of privacy legislation on Capitol Hill. The California law will require financial institutions to get permission from consumers before they share personal financial information-such as account balances or spending habits-with an unaffiliated company. It also includes a provision allowing consumers to bar a company from sharing information with an affiliated firm if that affiliate is in a different line of business. Through the work of the California Credit Union League, the legislation recognizes that credit unions do not have the same ability as larger financial institutions to bring all their operations in house and so it permits the less onerous opt-out process for CU information-sharing with financial third-parties. If indeed the California bill becomes a model for other states or even Congress, we want to be sure legislation takes into account credit union uniqueness as it did in California. Along those lines the CUNA State Credit Union Subcommittee has come up with a number of ideas that can be put forward as suggested legislative language if it comes to that. A final state issue that deserves note is the overhead transfer rate, which determines the percentage of the National Credit Union Administration’s insurance-related overhead costs paid by the National Credit Union Share Insurance Fund rather than operating fees of federal credit unions. The NCUA Board will again consider the OTR this fall, and the issue is expected to be no less contentious than it has been in the past. The OTR had been 50% for 15 years until the Board raised it to 66.72%, then reduced it to 62% for 2002 and 2003. Some state-chartered CUs undoubtedly feel the rate should be 0%, while some federals might argue for a much higher number. Rather than going to such extremes, CUNA feels a more reasoned approach is for the agency to distinguish between “insurance-related” expenses paid by the NCUSIF, and supervisory/chartering efforts more appropriately funded by operating fees. Although the NCUA conducted an independent study of the OTR, the study never made such a determination on insurance-related costs. Until the agency provides these specifics, the OTR no matter what the rate will continue to cause friction between state and federally chartered credit unions. Such internal divisiveness is the last thing we need in this environment, where the necessary strategy on so many state issues is to-quoting the Beatles again-come together.

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