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Show 8A Emery County Progress, Castle Dale, Utah - Tuesday, December 8, 1998 Credit union vs. bank data requires further analysis: ( Continued from should not forget that all taxes are eventually paid by individuals. It is easy to say, tax that corporation or that erage salary and benefit to product, but that tax is Desertview eventually paid by the only employees, $20,698 and Universal Camentities that live and pus approximately $29,228 breath people. A tax on (approximate because of the credit unions would be a tax part time employee designa- on 1,000,000 Utahns. As with any cooperative, tion, which I halved). No one in the credit union the idea is to allow people to movement has complaint pool their resources, with the average bank em- whether it be money, wheat, milk or nuts. In most of ployee. The big bucks obviously go to the very elite of those cooperatives, taxes are management. I point this paid on monies not distribout only as a philosophical uted to its memberowners. difference that does make a In this regard, credit unions difference in how credit are different, in that they do unions are operated, and for not pay taxes on the undiwhat purposes. Credit union stributed income. Because presidents do not get a por- credit unions deal with tion of the credit union as a money, rather than nuts or retirement gift. wheat, the credit union is reRegarding taxation. The quired by law to keep a cerFederal Credit Union Act tain amount of income as reprovides a blanket federal in- serves. These reserves are come tax exemption to all meant to insulate the credit credit unions. The Act also union against bad loans, provides a state income tax ups and downs in the exemption and state sales economy, etc. Because there tax exemption to all federally are adequate reserves, credit chartered credit unions. The unions have never cost the exemption was granted to taxpayers a penny because credit unions based on their of losses. Taxpayers paid bestatween $100-30million dolcooperative, by Desertview Credit Union and 46 97c by Universal Campus. Using annual report figures, Zions paid $36,800 av- page 6 A) same. Any differences in salary and benefit philosophy resides with top manage- ment. Before addressing the data in the letter specifically, I would like to share with you information from a a study by Corporate Report-Minnesot- magazine. Banks landed seven of the top 10 CEO salaries in Minnesota. r comIndeed the one-yea- bank execupensation tives who landed in the studys top 25 totaled about $195 million. To put that in of perspective, consider that these 11 bank CEOs in Minnesota individually earned more than the combined assets of 193 of the states 199 credit unions. Also consider the American Banker report on the CEO of First Com- mercial Corp., Little Rock, Ark., who cashed in his stock worth about $39 million when his bank was sold. Credit unions are owned by their members. This would never happen with a credit union. The tables in the letter show credit unions and banks to be pretty equal in the salary and benefits area, when compared to total revenue. The first thing that jumps out at me in this comparison is that we already know that banks charge more on their loans, more in fees, and therefore their revenue is higher. This fact means that this measurement would always be tilted in the bankers direction. If we compare salaries and benefits to total expenses, we see that Zions spent 53.11 of income on salaries benefits, compared to 38.47c non-prof- it 0 tus. lars, or more, when study performed by Utahs bankers approximated this exemption to amount to $17 million per year, of which $2.5 million was state income tax. This would amount to about $4 per school aged child. At the same time, the average credit union family saves per year by doing business at a credit union. Which taxpayer wants to exchange $4 for a much larger sum? Citizens of this state $300-50- the sav- ings and loan industry collapsed in the 1980s. If we compare the $1 billion a year that all U.S. credit unions dont pay, it would take credit unions over 100 years to catch up with the taxpayer subsidy given to collapsed institutions. I would differ with Fielding when it is inferred that Emery Telephone Company profits are used to provide better rates and services, and that they provide this better level of rates and ser A 0 vices after paying income taxes. I would suggest that because ETC provides better rates and services, their profits are smaller and that they pay taxes on what is left. This is not unlike the credit unions, where they pay better rates and offer better service, leaving a smaller profit margin that at most banks. Utahs banks talk about taxing credit unions, but never mention the fact that, if they structure themselves appropriately, can qualify as Subchapter S corporations, and thus stop paying taxes at the corporate level. A Grant Thornton survey reveals that by the end of 1998, as many as 2,000 banks, nearly 257c of the entire com- munity banking industry, will use the new Subchapter S provision to change their corporate structure to avoid taxes. The first institution to take advantage of this was a $1.3 billion bank in Dallas, Texas. Why is the credit union tax exemption unfair while bank tax exemption is not? Much could be said about what bankers want to do to credit unions, but only a portion of that is visible to me at this time. It should be said, however, that the ruling of the 3rd District Court put many credit unions into a box that could eventually prove detrimental. When considering banker motives, has Fielding: 1) Questioned the motives not-for-prof- it for-prof- of it the UBA and its presi- dent? Formerly the head of the Utah Taxpayer Association, Mr. Headlee used to fight against all new taxes. Suddenly, as a fairly new UBA president, he is advo- tion. As a matter of fact, Utah banks control 887o of comof his taxation every deposit dollar in this cating state, compared to 10.8 by petitor. Is he acting on principle or at the whim of the credit unions.' Of the 40 most profitable community banks highest bidder? in America, the top two are 2) Questioned the motive behind a recent onslaught of Utah banks. Are they truly radio and newspaper ads at a competitive disadvanthat gave many people the tage? Despite the fact that impression that the ads were American Bankers own surfrom small credit unions vey indicates that the puba credit railing against their big lic likes dealing with brothers? If banker motives union more than a bank, the are pure, why the deception? public still places 7c88 of its To the professional PR permoney into banks. Why? son, these ads were low Surveys say it is definitely not the service they receive class. size at the bank, but it just indicates that Fielding is an issue. Nowhere did the might have to do with the federal act limit a credit competitive edge banks union to size. A credit union have in several service areas. is a credit union because of So much more could be its philosophy and all that said and pointed out. Allow goes with that philosophy. I me to close with a quote would like to hear particufrom the former House lars of how credit unions act Speaker Newt Gingrich who that makes them look like a jumped into the fight in where the bank. Remember, bank, or Washington, credit union bill passed the banking is a generic term in favor of alwhen another institution House 411-does something that a bank lowing credit unions to grow. does, it does not become a As banks get bigger, its bank. The corner gas station even more important to also sells pop and hot dogs have a strong, cooperative is it then a grocery store, or credit union movement that is it still a gas station? is locally owned. You dont to be Credit unions have a tax have to be anti-banunion. They have advantage. Banks have different roles and do differmany other advantages Cayman Island operations, ent things. A strong, vibrant credit union movement is an foreign deposits, commercial lending advantages, the asset to creating a savings-orienteinvestment-orienteability to raise capital from America. Strong, lothe public, more liberal investment rules, etc. The cally owned credit unions are playing field is not level-ba- nks essential to a strong and have many competistable financial system. (2 tive advantages over their 2498) small credit union friends. Lynn R. Kuehne Fielding ends the letter by Executive Vice President the that stating, despite Utah League of Credit unfair advantage, banks still Unions provide effective competi 8, k pro-cred- it d, d Ditto on further analysis: ing into other areas beyond their original field of memberships. In reality, the credit unions have operated since 1982 with the permission of their regulator who ruled they could expand beyond their original field of membership and this was not challenged by the banks until 1993. The law was changed in Congress this year and credit union advocates in Utah will petition our legislature to change the Utah law as was done at the national level. Banks are trying to prevent credit unions from changing and evolving with time. Credit unions must be able to attract new members from diverse groups to survive and to be more financially sound. One would conclude the banks would be more interested in a sound financial system rather than figuring ways to harm the stability of the system. I make reference to the current battle only to get to the bottom line of this pro (Continued from page 6 A) Credit unions, all 143 of them, have independent data pro- cessing systems, separate bookkeeping, loan departments, and VISA departments for each individual credit union. As a result, Zions has been able to pay an average salary and benefit package that is much higher than the credit unions in Mr. Fieldings example. The current battle between banks and credit unions is the same battle waged in Congress this past year on the federal level. The banks lost the battle in Congress and now have chosen to wage the identical battle at the state level. Banks have sued credit unions in district court and won in Utah as they did in the AT&T case in Washington. The suit effectively prevents credit unions from acquiring new membership beyond their county or select employee group. The banks believe that credit unions have operated illegally by branch tracted battle. The banks believe that they have a non level playing field because credit unions are not taxed. The banks, then, with all of their money, resources, and brain trusts decide that the only way to get taxation for credit unions is to force the denial of credit union membership to those who choose to obtain their financial services from credit unions. They also choose to attack credit unions by having an organization, Utahns for Fair Taxation, carry the battle for them so as not to soil their grand reputations. Credit unions, unlike the cooperatives mentioned in Mr. Fieldings letter, only serve their membership. Credit unions use their members money to loan to other members and then pay the depositing member dividends for the use of their money. Every member of a credit union is an owner of that institution and all of the earnings are used to further the value of their membership. Credit unions cannot provide service to non members of a credit union. The cooperatives in Mr. Fieldings letter serve the general public in 0.27c growth since 1982. The perceived non level playing field, apparently, hasnt affected the earnings or growth of banks in Utah or for that addition to their members matter in the whole country. .therefore, the retained earnHowever, let me close with ings are taxed. Credit unions, these final remarks. Presunlike banks, are limited in ently, there are well over 2000 the services they can provide banks in the United States i.e., banks can raise capital that dont pay taxes some of by selling stock credit unions those banks are domiciled in cannot sell stock to raise Utah. They are tax exempt capital, banks can invest in a because they are Sub Chapmore diverse investment ter S Corporations. The total portfolio than can credit assets of all 143 credit unions unions, credit unions are lim- in the State of Utah are less ited on the amount of com- than the combined assets of mercial loans that can be Zions Bank and First Security made to the membership, Bank. And finally, if credit 12.5 of assets vs banks with unions have such a distinct no limitations, credit unions advantage over banks becannot have brokerage opera- cause of this tax exemption, tions vs banks who provide why then havent the banks brokerage services, and the rushed to convert to a credit list goes on. union? Why? Because there Banks are recording record are distinct differences in the earnings and control 887c of make up of banks and credit the total deposits in the State unions that give an advanof Utah. Credit Unions Contage to banks, and, the proftrol 107r of the deposits in its go to the stockholders of Utah and have seen about banks rather than all of the , Our free Catalog STUDENTS OF THE WEEK helps you every IF YOUR SHOPPING PLANS INCLUDE GRAND JUNCTION v V lij) out tins ,id .uni hi 1154 it to ,m of these ( i and un turn pmpei ties to got a cut rate on a 100m Vm 11 fit if oc ut) imujiK stoics im hiding the Westoi n Slopes hugest tegional mall i vV on turn down our Cln istmas list. Visit our website k to In Ip awa J U V 4, - step of the way. Allison, a ninth grader at Canyon View Jr. High, is the daughter of Dan and Annette Wells of Cleveland. She is on the 7 ( ami the Down town Shopping l,u and entet this cu s (all basket ( Michael Milovich Helper, Utah Canyon View Jr. High Allison Wells usi customers who generate the profits for the banks. I have yet to meet a banker who would not capitalize on an opportunity to maximize the profits of the institution he or she represents. So bankers, why not convert to a credit union and share your profits with all of your customers? The reality, however, is that banks do have distinct advantages over credit unions and taxation just happens to be the easiest stick to use against credit unions to limit competition. If banks want credit unions taxed then credit unions should be able to have unlimited services to provide their members such as trusts, brokerage and insurance services, unlimited commercial services etc. I wonder what other avenues the banks will seek to keep competition from their door steps if that were to occur. j. activity committee for the student council, treasurer for the National Jr Honor Society, played varsity volleyball and loves basketball, softball and track. She enjoys singing and piano and is in the honor choir. She especially enjoys her friends and is known for her smile and bubbly personality. She sets high goals for herself and works very hard to achieve them. 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