Teachers and other government employees feel besieged as states and municipalities, struggling with fiscal deficits, slice budgets for everything from schools to firefighters. The drive for cutbacks has prompted legislation curbing the negotiating power of organized labor and threatening the ability to deduct union dues from paychecks.

Credit unions serving these groups are tracking the situation in their areas and trying to deal with the impact not only on members but on their credit unions.

"In Maine, there are a number of issues facing teachers and other public employees," Rick Lachance, CEO of the Maine Education Credit Union, said.

"To help balance the upcoming two-year budget, the state is considering wage freezes, increased employee contributions to fund retirement and reduced health insurance benefits for retirements before age 65."

"When you add these possibilities to the current economic challenges, it definitely has an impact on member behavior."

So far, he noted, there haven't been major layoffs, so delinquencies have been stable. But traditional lending has slowed.

"Members aren't upgrading vehicles as often, and generally, they are looking to reduce interest rates on existing debt. Refinancing seems to be where we're able to pick up some new loans, both in mortgages and autos."

Jerome Valco, CEO of the Ohio Educational Credit Union, sees a similar situation.

"The state of Ohio does have a budget deficit it is trying to reconcile. One of the ways they're trying to do that is by reducing funding to education. Most schools throughout Ohio are anticipating reductions under the bill that's being discussed right now in the legislature," Valco indicated.

"It does mean potential layoffs. The school system here in Cleveland announced 734 teachers are being laid off. There are reductions in many of the suburban school systems."

But so far the credit union hasn't seen a significant change in member financial patterns, although during the current economic cycle there has been deposit growth and a reduction in secured debt. That trend continued through the first quarter of 2011.

As for the pending layoffs, Valco noted that Cleveland Public Schools announced significant layoffs in early 2010. But most of that staff reduction was accomplished through retirements and early buyouts. So teachers and school staff have been through this cycle a couple times.

Valco stressed the credit union is always prepared to help members on a case-by-case basis.

As for other public employees, Robert King, CEO at State Employees 84 Credit Union in Modesto, Calif., said his members face cutbacks, furloughs and loss of income. Loan demand has slumped and delinquencies are up, although members appear to be striving to build their savings.

The credit union has tried to be creative with counseling and other programs. One result, King believes, has been a boost in member loyalty.

"A credit union in our economy is a real source of strength," he stated.

Another area credit union, Modesto's First Federal Credit Union, includes city employees in its field of membership..

"When this all started a couple years ago we were invited to come to exit interviews with city employees," said CEO Bruce Milgrom. "We made a presentation covering what they should do with current creditors they had obligations to, how they should be proactive on any issues concerning loans, how to put together a budget and other topics."

At that point there were significant layoffs. Currently, there is talk of consolidating certain services such as fire departments. As at other credit unions, members seem to be shying away from loans and increasing savings.

The effect on member loyalty is mixed. Some members who have lost city employment but found other jobs or moved have closed their accounts. Others who have been with rival financial institutions are becoming more cautious and returning to the credit union. In one case a member brought back $200,000.

Overall MFFCU is trying to be proactive. Members can take financial classes, learn how to prepare a budget and find ways to improve their credit scores. In some cases the credit union has counseled members whose obligations may be high in relation to their income.

"There is legislation affecting members and there are concerns out there," Milgrom said. "Sometimes there is a tendency to react to a situation and not totally understand it. If you hear one side of a story and don't research it, you can overreact and hurt the services we can offer by restricting what we can do or taking away certain sources of funding that can allow us to continue offer services at reduced cost."

William Byerly, CEO at Union Yes Credit Union in Orange, Calif., talked about some of the issues facing organized labor–at least those who are members of his credit union.

"Right-to-work laws don't seem to present a danger here," he indicated. "Union power is concentrated on the coasts, primarily in big cities. California and New York are probably the most unionized states."

"But there are a couple issues that impact our members. Most of our members are in the construction trades. The governor has indicated his desire to redirect the funds that go to redevelopment agencies. Communities use that money to acquire properties and redevelop those properties to increase the tax base. That impacts us because those are jobs that would normally go to our members."

"There are also some cities that have what's called a project labor agreement that call for paying union scale on those projects. There is talk about eliminating some of those agreements."

Labor unions have seen an increasing number of people out of work, Byerly continued. A good deal of stimulus money that went to the states in 2009 was used to keep police officers, firefighters and other government employees working instead of launching shovel-ready projects.

UYFCU hasn't seen an increase savings, but there is very little demand for loans. The credit union had worked with labor unions to establish vacation funds that build up and can be used by the member every six months. As members have turned to nonunion jobs, those accounts have been inactive. When a member returns to a union job, the account is reopened.

"Among the members we serve there is a good deal of loyalty to the union movement," Byerly said. "A lot of them have a natural desire to use union services. Our staff is all union, and when we make purchases we buy union-made goods as much as we can. We remind our members that we're owned by union members and run by union members."