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BIRMINGHAM, Ala. – Alabama voters’ defeat of a tax referendum that would have raised taxes to address an estimated $675 million shortfall in state funding was good news for the state’s residents. But looking long term, it may spell the beginning of a taxation battle that could put credit unions in the state on the defensive. Had Amendment One passed on Sept. 9, it would have raised an estimated $1.2 billion which Gov. Bob Riley argued was necessary to fill the budget deficit as well as improve the quality of the state’s education system. Instead, the state now has to consider other options to fill the budget gap such as cutting budgets for education, state services and state employees; approving legalized gambling to raise revenue; downsizing Gov. Bob Riley’s school system plan; or increasing some taxes but not the original overall tax reform and accountability plan developed earlier by Riley. Vicki Williams, senior executive vice president for the Alabama Credit Union League wasn’t surprised the amendment was defeated. She said numerous polls taken before the vote showed the proposal “never really got any traction.” It lost by a two-to-one margin. Williams said the League never took an official position on the amendment, but now that it’s been defeated and state legislators are being pressed to find new sources of revenue or ways to reduce the budget, the Alabama Credit Union League is gearing up to head off possible attempts to tax the 177 credit unions operating in the state. At presstime, Gov. Riley planned to call a special budget session of the state legislature to adopt a budget by Sept. 30. The state’s 2004 fiscal year begins Oct. 1. “The amendment’s defeat didn’t make us any more comfortable,” said Williams. “The banks haven’t been openly confrontational, but they also don’t pass up any opportunity they get.” Earlier this year, for example, banks succeeded in stripping some of credit unions’ credits from the financial institution excise taxes CUs pay. The credit unions managed to have those tax credits restored, but the bankers still lost theirs. In anticipation of the governor’s special budget session, representatives from the Alabama Credit Union League and credit unions met on Sept. 15 with leaders of the state House and Senate to ascertain what the legislature’s plans were for dealing with the budget shortfall. Williams said legislators for now plan to make “severe” cuts to balance the budgets and are not looking to raise taxes in 2003. But that will change in 2004, credit union reps were advised. By then, the state legislature will have to start looking at ways to increase revenue, including raising taxes. “There will be a tax battle next year,” said Williams. Alabama banks are interested in replacing the state excise tax with a corporate income tax. If they succeed at that, said Williams, they would try to apply that to credit unions. The Alabama Credit Union League is not waiting for 2004 to respond to the possible tax threat. It’s already started implementing a plan to meet with key state lawmakers to educate them on the credit union difference and how credit unions’ tax exemption benefits consumers. League officials met with the trustees of CU Vote, the ACUL’s dues organization formed four years ago, a defense fund voluntarily funded by credit unions, and credit union chapters are conducting state-level Hike the Hill visits. They’re also working with the league’s retained lobbying firm in Montgomery. In addition, to get the word out to consumers, the League plans to start running in the beginning of 2004 a consumer education campaign consisting of radio spots, billboards and direct mailing to educate consumers about why credit unions are tax exempt and to get public opinion behind credit unions. -

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