Is it a punitive tool to tax more than 500,000 Utahns, or is it an attempt to provide an equitable playing field for banks and credit unions?
Legislators will get their first real crack at the issue next week when HB162 is reviewed and debated by the House Business and Labor Standing Committee. The proposed legislation is expected to come up on Monday or Wednesday morning, having finally emerged from the House Rules Standing Committee.
In preparation for the first official debate on the bill, sponsor Jeff Alexander, R-Provo, held a news conference Friday afternoon to reiterate his reasons for bringing HB162 forward.
"It's about competitive equity and tax fairness," Alexander said. "I don't see any reason why a credit union cannot continue to grow and be competitive in their market. But, when they decide to go outside their market, that is, in my opinion, outside the scope of their charter."
HB162 would make credit unions with $100 million or more in assets operating in more than one county subject to the state's business income tax. Those credit unions — Alexander maintains only Mountain America, America First and Goldenwest credit unions would be immediately impacted by the bill — would be restricted from opening branches outside their "domicile" counties, merging with other credit unions or making business loans.
All that changes if the credit union agrees to pay an estimated 30 percent "competitive equity fee." At that point, the credit union would be free to expand at will, both in terms of geography and membership.
Alexander maintained the state's largest credit unions have been retaining millions in earnings, to the detriment of their own members and Utah's schoolchildren — the money from the state's business income tax goes directly to the Uniform School Fund. The bill, he asserted, would allow credit unions to expand while bringing them under a similar tax liability with banks.
"I want to establish competitive equity," he said. "I want to open it up so they can expand in any way they want. They'll be able to do that as a taxable credit union."
Alexander said the bill would help both small credit unions and community banks find a more level playing field. But what he called "competitive equity," some credit unions are calling "punitive."
"It is just full of things that are punitive to credit unions," said Brent Allen, executive vice president of America First Credit Union. "The banks say we have profits we're not distributing back to members, but that money is money we've put into reserves. It's our safety and soundness funds. A large portion of those reserves are required by law."
The law requires that a credit union keep 7 percent of its assets in reserve, Allen said. America First likes to keep about 10 percent, he said, as a safety net of sorts.
"As you head into the kinds of rough economic conditions we're in right now, where loan losses are going up and the economy is showing instability, you need those reserves," he said.
Allen and Utah League of Credit Unions president Scott Earl accused Alexander of excluding credit unions during the drafting process and of pandering to bankers' interests.
"This is purely a banker's bill," Earl said. "It's one industry attacking another industry in the Legislature. . . . This bill has more sweeping changes, affecting more Utahns, than any other bill this year."
More than 600,000 Utahns are members of the state's three biggest credit unions, Earl estimated, amounting to about 70 percent of credit union membership in Utah.
But Howard Headlee, president of the Utah Bankers Association, said the conflict is not really between banks and credit unions. Whereas the UBA welcomes competition from credit unions, Headlee asserted, the biggest credit unions are more like banks than anything else. Which is why Alexander's bill is appropriate, Headlee said.
"The dispute between banks and credit unions is something that needs to be addressed, and you can't address it unless you address taxation," Headlee said. "I think (the UCLU and big credit unions) are committed to preserving their tax-exempt status, even for the largest credit unions that aren't acting like credit unions anymore.
"But as long as they're adamant about defending that position, there won't be any common ground. They must realize that there is a point where taxation needs to be addressed. Taxing one entity while leaving another exempt is a recipe for disaster in the financial services industry."
On the eve of its first real hearing, Alexander said there's no telling which way the bill will go. Though he feels support for it now, "with all the lobbying going on, you just don't know where some people are going to be from one day to the next," he said.
Ron Allen, D-Stansbury Park, the Senate Democratic Whip, said he will be watching the bill closely as it makes its way through the House.
"I expect amendments, and I expect the debate to be vigorous," Allen said. "As it stands right now, I just think it's unfortunate it has to come to this. On the one hand, I can see what the banks are saying. But if they get what they want, the credit unions will switch to a federal charter. So what good does that do? For now, I'm just waiting, watching it, and we'll see what version of the bill we get."
E-mail: jnii@desnews.com