Matz: Tax Fever is Contagious

Every Credit Union has a Stake in Tax Debate, Says Board Member

April 9, 2003, Boston, Mass. – National Credit Union Administration (NCUA) Board Member Debbie Matz told the attendees at the Massachusetts Credit Union League’s Government Affairs Day Conference, “The people-helping-people theme of this session is particularly timely with the movement to tax credit unions spreading from state to state. The philosophy of people helping people is the number one weapon in the credit union arsenal to fight tax proposals.”

According to Matz, “This is going to be a long-term battle which needs to be taken very seriously, even by those in states which are not considering taxing credit unions. The bankers,” she continued, “have chosen their states very carefully. And their timing could not be better; with many states suffering massive deficits, any new source of tax revenue is very appealing to legislators.”

Matz cautioned, “Some of you may be thinking that you’re not involved in the tax debate because it is not an issue in Massachusetts, or because you’re a federal charter, or because you’re small. But it’s important to understand that no matter what state, what charter or what size – every credit union has a stake in the tax debate. Tax fever is contagious. If one state decides to tax credit unions, undoubtedly other states will follow. And if large credit unions are taxed, it will be only a matter of time before smaller credit unions are, too. And once state-chartered credit unions are taxed, Congress may decide to reconsider the tax exemption for federal charters.”

Matz acknowledged that “Levying taxes is a state prerogative. State officials have the right to tax whomever they want, however much they want. But as a regulator I am very concerned about the likely impact on credit unions. The conventional wisdom is that since I am a federal regulator, I am pleased about this tax situation because it will likely result in conversions from state to federal charters. Nothing can be farther from the truth. The safety and soundness of the entire credit union community is threatened by taxes. Credit unions which do not have a significant net worth cushion will incur PCA sanctions, even those that are strong but have made a business decision to operate with a net worth slightly above 7 percent. Clearly, taxes would change the way credit unions do business.”

Matz continued, “One of the main distinctions between credit unions and banks, is the people-helping-people philosophy. But how many credit unions could continue to offer low interest loans, higher savings rates and a wide range of free services if they had to pay a 5 percent tax on retained earnings each year. Probably not very many.”

She counseled the credit union officials that “there are a few things each and every one of you can do to prevent this from occurring. First – educate your community leaders and your state and federal legislators. Make sure they know how much your credit union does for your members and your communities and what makes credit unions different from banks. Brag about your accomplishments. In addition, every day you should reach out to new members – old and young, Americans and recent immigrants, high- and low-income – especially those who do not have accounts at other insured financial institutions.”

Matz explained that her Partnering and Leadership Successes (PALS) initiative is intended to assist credit unions in this effort. “The purpose of PALS is to encourage the sharing of best practices so they can be adopted by other credit unions. PALS gives credit unions a forum in which to showcase innovative solutions to real-life problems.” Matz’s first PALS workshop was held on April 1 in San Francisco to encourage partnerships between credit unions and Neighborhood Reinvestment Corporation NeighborWorks organizations. Future planned workshops will focus on marketing to the Hispanic community, member business lending and the Small Business Administration 7(a) loan guarantee program.

A 23-year public service veteran, Matz is a member of three credit unions and resides in McLean, Va. with her husband and two children. Before her appointment to the NCUA Board, Matz was appointed by President Clinton as Deputy Assistant Secretary for Administration in the Department of Agriculture.

The National Credit Union Administration, governed by a three-member board appointed by the President and confirmed by the Senate, is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 80 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.

NOTE TO THE MEDIA:  More information about Board Member Matz is available at http://www.ncua.gov/org/ncua_board/matz.html, including text of speeches, news releases, full biography and appearance schedule.  Photos are available by contacting Molly Schar at 703-518-6338 or mschar@ncua.gov.