Agenda 12/30/2003 - Laserfiche WebLink

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VIRGINIA BANKERS ,,/ SSOCIATION October 30, 2003 Dear Local Governing Official: Yours is no doubt a tough job, especially in today's environment of shrinking revenue vs. needs for services. In addressing the situation, Senator John Chichester, Chairman of the Senate Finance Committee, told policy makers that "we need to re- examine our tax preferences and exemptions." The Senator, we believe, was correctly focused. In the financial services industry, banks, thrifts, brokerage firms, and insurance operations all pay income taxes. But there is one glaring segment of the industry that is exempt fi.om federal and state income taxes. Credit unions get a free ride. That free ride is most significant to localities which receive 80% of the bank franchise tax, but receive no equivalent tax fi.om credit unions. For years, credit union tax exemption was not a problem. Credit unions remained what they were intended to be, that is, small local institutions that served a single employee group of folks of modest means who might not otherwise have services available. Public policy therefore assumed that exempting credit unions fi.om taxation was appropriate. But have you taken a hard look at credit unions recently? Conventional common bond restrictions on membership have become meaningless, with many credit unions adopting "multiple-group common bonds" or "community common bonds," meaning they can market their products to whomever they choose. In other words, they are the equivalent ora bank with a tax exemption. To illustrate, it is interesting to note that five of the ten largest depository institutions headquartered in Virginia today are now tax-exempt credit unions. And the large, growth-oriented credit unions are taking over. Just 15 credit unions in Virginia now control 83.57% of total credit union deposits. Credit unions argue that even though they have abandoned their original mission, they still deserve a tax exemption because they are organized as non-profit cooperatives. What they don't tell you is that the law exempts fi.om taxation CHARITABLE non- profits such as the Red Cross, United Way, Cancer Associations, etc., but does NOT typically exempt fi.om taxation COMMERCIAL cooperatives such as Southern States - Cooperative (and 100 other agricultural cooperatives), the National Cooperative Bank, mutual insurance companies, mutual savings and loans, etc., that are competing in commemial markets. Stated simply, credit unions are not charitable organizations. They are commercial enterprises that should be paying taxes. Now, what difference does this make to you as a local governing official? Simply this. Every customer who leaves a bank and moves his or her business to a credit union further reduces the tax base of your locality. A study (copy enclosed) by Dr. Neil Murphy and Dr. Dennis O'Toole of the VCU School of Business concludes that the exemption from taxes gives the credit union a 67-basis-points advantage over a bank. In other words, the tax exemption is the engine that enables expansion-minded credit unions For more infi)rmation visit our website at u'ww. vabankers.org P.O. Box 462 · Richmond. Virginia 23218 · Phone 804-64.3:7469 · Fax 804-643-6308