Federal credit unions are feeling left out when it comes to state investments.
Four years ago, a new state law enabled the State Treasurer to establish a pool of up to $100 million for investment in community banks and credit unions. To bid for consideration under the law, banks need to have fewer than $500 million in assets and credit unions needed to have between $10 million and $500 million.
But the law defines eligible credit unions as “Connecticut credit unions,” which means state-charted credit unions.
That definition eliminated from contention the 112 federal credit unions – or 73 percent of all those in the state – according to the Connecticut Credit Union Association.
So federal credit unions, backed by the CCUA, are trying to get the law changed.
“I think it’s important first of all because it levels the playing field with the state credit unions,” said Edward Danek Jr., president of Hartford Federal Credit Union.
Last summer, Danek downloaded the forms needed to apply for state investment, but he and his staff soon realized that federal institutions had been excluded.
Taking Action
Danek said he and other credit union presidents raised the problem at a CCUA meeting, prompting the organization’s president and CEO, Kevin Chandler, to take action.
“It’s a good way to get liquidity into local communities,” Chandler said. Credit unions were created to ensure that all segments of the population would have access to financial resources, he added, and “this legislation would only enhance that.”
In comments submitted to the Banks Committee, which passed the bill last week, CCUA referred to the law’s wording as an “inadvertent drafting oversight.”
State Treasurer Denise L. Nappier has lent her support for the bill, in the name of expanding investment opportunities for the state.
Danek said allowing the majority of credit unions to participate was an opportunity for the state to expand financial service offerings in underserved communities, an issue recently raised by members of the Banks Committee, including Rep. Marie Lopez Kirkley-Bey (D-Hartford).
He also thought it would lead to more competition for state money.
“It’s good business for the State of Connecticut, because a great many more credit unions will bid for the funds,” he said.
Danek also said he expected more credit unions to change from state to federal charters in order to avoid the Unrelated Business Income Tax (UBIT), for which only state chartered institutions are liable.
But another bill, also supported by the CCUA, would provide an exemption for state-chartered credit unions from the state sales and use tax, which would address growing UBIT costs. That bill will be considered by the Committee on Finance, Revenue and Bonding.
