For more than 40 years, Senator Orrin Hatch (R-Utah) has been astaunch supporter of the credit union tax exemption. But thelongest serving Republican Senator in U.S. history is having secondthoughts about it, creating a new and serious threat that creditunion executives will be bringing up with Washington lawmakersduring CUNA's GAC this week.

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Even though the tax status survived H.R. 1, the Tax Cuts andJobs Act passed by Congress in December, CUNA President/CEO JimNussle warned there will very likely be an attempt to makecorrections to the bill that could once again put the tax status injeopardy.

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Scott Simpson, president/CEO of the Utah Credit UnionAssociation, who worked as a senior policy adviser for Hatch about18 years ago, said at first he was alarmed by Hatch's letter.

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“Once we got a sense about the why – the explanations from thesenator's folks – it calmed us a little bit, perhaps only a littlebit,” he said.

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However, even though Simpson is confident the industry willsuccessfully address Hatch's concerns and noted the senator hasbeen a long-time defender of the tax exemption, he is uncertainwhich side Hatch will inevitably land on this issue.

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“There is a powerful force in play here and he doesn't have thepolitical pressure he had over the last 42 years,” Simpson said. “Ithink it is a little more challenging to predict because there is afreedom that comes as an elected official when you are notdependent on the electorate. But again, I am leaning on the 42years he has been supportive [of the tax exemption].”

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Hatch wrote in a Jan. 31 letter to the NCUA that many creditunions are straying from their original tax-exempt purpose, and helisted seven questions for the federal agency to answer.Interestingly enough, the influential Tax Foundation on Jan. 30announced its support for Congress to re-examine “the extent towhich credit unions currently fulfill their [tax-exempt] originalpurpose.” And outside of the Washington beltway, Iowa bankerspledged a full-court press with the launch of a digital, radio andtelevision ad campaign targeting the credit union tax status.

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Over the years, there have been scores of challenges andcriticisms about the credit union tax exemption. But are theyseemingly different this time, particularly when you consider thata longstanding supporter of the tax exemption is now questioningit?

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“I am concerned that the credit union industry is evolving inways that take many credit unions further from their originaltax-exempt purpose,” Hatch wrote in his letter. “Recent actions bythe National Credit Union Administration (NCUA) have furtherrelaxed field of membership constraints, opened the door to the useof alternative capital, and lifted limits on other activity such asbusiness lending, which has traditionally been less associated withthe mission of tax-exempt credit unions. While these may beworthwhile pursuits, they should give us pause and cause areflection on the core mission of credit unions and theirtax-exempt purpose.”

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Ryan Donovan, CUNA's chief advocacy officer, acknowledged CUNAdid not expect Hatch's letter, but said the organization was notunsettled by it because Hatch, who chairs the powerful SenateFinance Committee, is simply carrying out its oversightresponsibilities.

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“I think it caught us off guard to the extent that we were notaware it was going on before [Hatch's letter] went [public],”Donovan said. “The Finance Committee, in recent years, has askedsimilar inquiries of other tax exempt entities. I think we'regrateful that this has come after the grand debate on tax reform[H.R. 1], but these are questions that I think the NCUA and thecredit union system have strong answers to, so I'm not sure that itunnerved us.”

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Brad Thaler, vice president of legislative affairs at NAFCU,didn't seem to be all that phased as well, even though NAFCU maileda letter to Hatch, as did CUNA, addressing the senator's concernssoon after they were made public.

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The fact that the credit union tax exemption survived lastyear's tax reform bill and Hatch waited to write this letter afterthe bill passed indicated to Thaler that Hatch still supports thetax exemption.

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“Because he asked oversight questions in the letter doesn'tnecessarily mean that he's changed his position,” he said.

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John Fairbanks, an NCUA spokesperson, said the federal agency isworking on a response letter, which must be submitted by thefinance committee's deadline of April 6.

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An analysis posted by the California and Nevada Credit UnionLeagues agreed that under Hatch's purview, the credit union taxstatus wasn't even discussed during the consideration of H.R. 1.However, this was only a partial reason for Hatch's “letter and itstiming.”

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“With the likelihood of a technical-corrections bill coming toH.R. 1, the credit union tax status is a probable target as anoffset, especially as the nation's annual budget deficit surpasses$1 trillion,” according to the league.

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The league's analysis pointed out “there are other reasons tosuspect why Hatch made this request of the NCUA.” Although itdidn't specify what those reasons are, it is clear that the usualsuspects are the bankers.

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A. Scott Anderson, president/CEO of the $65 billion Zions Bankin Salt Lake City, is the chair for the Orrin G. Hatch Foundationas CU Times columnist David Baumann revealed last week.The foundation plans to develop a Hatch Center at a yet-to-beannounced university in Utah.

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“Now, the Hatch Foundation is not accepting any governmentmoney, so it's raising money from the private sector,” Baumannwrote. “And the center's fundraising efforts have been criticized,as foundation officials are attempting to raise money from groupswith legislative issues before Hatch's committee.”

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The Hatch Foundation, established in 2015 with zero revenue, hasalready raised nearly $6 million, according to its 2016 IRS 990Form. The individual contributors are not listed on thedocument.

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In 2015, Anderson, a credit union critic, wrote a letter to CUNAthat raised “significant concerns” about the NCUA's plan to expandbusiness lending. Hatch also raised concerns about credit unionbusiness lending in his letter.

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Hatch's staff said there is no connection between the financecommittee and the foundation.

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However, the credit union industry should be concerned becausein the past, Hatch, like many elected officials, has not been shyabout authoring legislation that takes care of his friends andfamily.

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When he announced his retirement in January, the LosAngeles Times noted that throughout his four-decade tenure, hehas proven to be a “master of the down-is-up, wrong-is-right methodof obfuscating his favors to rich patrons,” according to thenewspaper.

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For example, Hatch introduced the Dietary Supplement Health andEducation Act of 1994, which eliminated government regulation ofthe highly dubious health claims of dietary and herbal supplementsunless the Food and Drug Administration learns of health or safetyproblems with products after the fact.

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The New York Times reported the Hatch act made many ofhis closest associates and family members wealthy. Moreover, thedietary and herbal supplement industry is one of Utah'slargest.

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The logical question now becomes whether Anderson's relationshipwith Hatch will influence the senator's decision to offer the $2.9billion credit union tax exemption as an offset when congressionalleaders discuss technical correction proposals for H.R. 1.

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The seven oversight questions that Hatch listed in his letterincluded how the NCUA examines associations as part of a creditunion's field of membership, whether the federal agency retainsdata on how many associational and community charters have beenrejected, and what the NCUA policies are when credit unions offerservices outside their tax-exempt purpose. Hatch also asked whatinformation the federal agency collects on executive compensation,how the federal agency has considered the issue of publicdisclosures of executive compensation, and what policies the NCUAenforces regarding marketing expenditures such as corporatesponsorships.

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“What concerns me, and what I think as a system we need tocontinue talking to Congress about, is this notion that becausewe've grown, that somehow that means we're not fulfilling thatmission, or that our structure has changed,” Donovan said. “Theability to do business lending is being confused with maybe notfulfilling our charter. That just doesn't jibe for me. It doesn'tmake any sense because policy makers should want a credit unionsystem that is out there serving the community, folks with modestmeans and all credit union members, and certainly that also meanssmall businesses in the community.”

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Thaler noted when concerns are raised, the credit union industrymust be prepared to explain why the tax exemption enables creditunions to deliver value to more than 100 million members.

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