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Credit unions shouldn't get tax subsidy

Two Views: Different financial institutions, different rules


Credit unions are a viable component of our financial system.

They have allowed people with a common bond — teachers, building trades, technology workers — to pool their collective resources for mutual benefit.

Dozens of these credit unions exist in Oregon today, and we expect they will thrive well into the future.

The question we have asked the Legislature to consider is this: When a credit union becomes indistinguishable from a community bank, what is the purpose of its tax exemption?

Oregon’s largest credit unions are growing, consolidating and offering the same services as banks. According to noted Northwest economist William Conerly, the top four Oregon credit unions earned 42 percent of the industry’s collective profits in 2000. By 2012, the top four Oregon credit unions earned 73 percent of the industry’s profits.

Why does this matter? Because the vast majority of the credit union industry’s tax subsidy in Oregon is going to some of the state’s largest and most profitable financial institutions.

Another way to look at it is that those same top four Oregon credit unions received 41 percent of the value of the industry’s tax subsidy in 2000. By 2012, the top four were receiving 81 percent of the value of the industry’s tax subsidy.

If the credit union tax subsidy were removed, Conerly concludes that “the bulk of tax revenue would clearly come from a handful of large credit unions. A majority of credit unions would pay no income taxes and others would pay only a small portion of the credit union tax bill.”

Oregon’s largest credit union is OnPoint. It is the second largest financial institution based in Oregon. It also is the best example of a large, bank-like credit union.

OnPoint, with $3.2 billion in assets, was once known as the Portland Teachers Credit Union, but now virtually anyone can become a member. What’s more, OnPoint paid its CEO $2.6 million in compensation in 2011, a raise of $800,000 over the $1.8 million he made in 2010.

What other Oregon “not-for-profit” is paying that kind of compensation to its executives? In defending a credit union executive’s high salary, a credit union industry spokeswoman said: “He works in investment planning with high-wealth individuals. His compensation is a function of his sales role.”

At a time when government is cutting services, why are we subsidizing banking for high-wealth individuals?

What do Oregonians get in exchange for this tax subsidy? We don’t know because credit unions aren’t required to demonstrate public benefit or report what they do to serve low-income Oregonians or reinvest in Oregon communities. The credit unions justify their subsidy by noting their popularity among consumers and highlighting their contributions to various organizations and sports arenas.

If being liked, providing quality service and demonstrating philanthropy are justifications for a tax exemption, I can tell you that thousands of Oregon businesses would line up for one.

Oregon banks voluntarily contribute more than $14 million per year to Oregon not-for-profit organizations and they all receive favorable ratings for complying with the Community Reinvestment Act — something credit unions don’t have to do. While this is evidence of corporate social responsibility and a commitment to communities, it is not justification for a tax exemption.

Credit unions also have suggested that their tax exemption is due to their cooperative structure, noting that their members are their shareholders. How is this any different than the structure of Oregon’s mutual savings banks? Mutually owned banks in Oregon, like First Federal of McMinnville and Evergreen Federal of Grants Pass have ownership structures similar to credit unions, yet they pay taxes on their profits.

The fact is that Oregon’s largest and most aggressive credit unions offer nearly identical services as community banks. Once confined to serving just their members, many credit unions can now serve the general public, accept government deposits and make loans to businesses. Banks frequently compete against OnPoint and other credit unions for commercial loan customers. For smaller banks, competing against a taxpayer-subsidized financial institution that is eight to 10 times larger in size can be a daunting task. But it happens every day.

We celebrate growth and success, and we don’t begrudge a credit union’s desire to expand. But, there is a point at which a credit union no longer resembles the original intent of the law. If they’re going to act like a commercial bank, then they ought to pay taxes like a commercial bank.

The credit union association’s spokesperson recently said that “a credit union is as sophisticated as a bank in terms of the financial services it provides.” We agree. It simply doesn’t make sense for Oregon to subsidize profitable financial institutions that act just like banks.

Linda W. Navarro is president and chief executive officer of the Oregon Bankers Association in Salem.