Cutting Off Their Nose to Spite Their Face

April 15, 2015 at 8:38 am 2 comments

Currently, New York law not only prohibits municipalities from depositing their funds in credit unions, it also prohibits these funds from being deposited in savings banks and savings and loan associations. To me, it’s obvious that municipalities should be able to place their tax dollars wherever they get the best return. For several years now, the Association has advocated for municipalities to be able to deposit their funds not only in credit unions but in these thrifts, as well.

Unfortunately, the banking lobby is so dogmatically opposed to municipal choice that it would rather prohibit some of its own members from accepting municipal deposits than give municipalities the option of depositing funds in credit unions. The latest example of this short-sighted and wasteful viewpoint was revealed in an article in the American Banker last week, in which banking lobbyists proudly proclaimed that they are opposed to legislation once again introduced this session to permit all thrifts and credit unions to accept municipal deposits.

In fact, John Witkowski, President and Chief Executive of the Independent Bankers Association of New York State, sounded a bit paranoid when he explained to the American Banker that “we really have to defend ourselves against what credit unions are trying to do, to expand into the community banking territories geographically and business-wise.” As for the members of his Association harmed by this stance, he explained that “you can’t please everybody,” i.e. let them eat cake. These comments drew a retort from CUNA’s Jim Nussle, who explained that it’s unfortunate that banks put protecting themselves from competition ahead of increasing alternatives to municipalities and households.

It’s easy to get jaded around politics. After all, there are times when the best defense is a good offense. If I worked for the Bankers, I would have no choice but to argue that the big, bad credit unions are using their tax-exempt status to destroy banking as we know it. But, as jaded and cynical as I can get about politics, the most positive thing I will continue to say about it is that the person with the best argument will ultimately win the debate. It’s just a question of how long the battle will take.

It simply makes no sense to prohibit municipalities from placing funds in credit unions. They are federally insured, just like banks. Twenty-five states already give municipalities similar freedom, it would save taxpayers money by ensuring they get the best return on their tax dollars, and when a municipality places money in a credit union, it is assured that its  money is being reinvested within its local community for the benefit of its residents and employees. Oh, and one more thing, credit unions do pay taxes. They simply don’t pay corporate taxes.

By the way, since we’re talking about taxes, I wonder how many banks taking in municipal deposits are structured as S-Corporations precisely because this corporate structure allows them to avoid being taxed at the corporate level?

Entry filed under: Advocacy, New York State. Tags: , , .

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2 Comments Add your own

  • 1. Keith Leggett  |  April 15, 2015 at 4:46 pm

    Henry:

    Would you be willing to accept credit unions being taxed the same as Sub S businesses?

    Reply
    • 2. Henry Meier  |  April 16, 2015 at 10:16 am

      Hi Keith- I hope you are enjoying your retirement.

      I always get confused when banking organizations argue that the “ tax exempt status” of credit unions should preclude them from certain banking activities even as they actively lobby for their own tax exemptions like S corporation status. In lobbying for S corporation expansion community banks argued that they had to be treated more like credit unions to remain competitive. Why doesn’t this blatant attempt to avoid paying the taxes the ABA is so proud of paying disqualify these institutions from accepting municipal deposits?
      I think there is a legitimate need for S Corporations just like there is a crucial need for the tax status given to credit unions. The value to communities of having viable credit unions and truly independent community banks outweighs spurious squabbles about tax law. Do you thing the person paying less in taxes because their taxes are deposited in a credit union is harmed by the not-for-profit status of credit unions?

      Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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