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Recommended 'Indirect Tax' on State-Chartered CUs Voted Down in Texas Sunset Commission
Friday, December 12, 2014 7:05 AM

The Texas Sunset Commission met Dec. 10, 2014, to consider a report by the Sunset staff on the Self-Directed, Semi-Independent (SDSI) status program for state agencies. The Texas Credit Union Department (TCUD) is one of eight agencies designated an SDSI agency, which allows the Credit Union Commission to set the budget for the TCUD rather than the Texas Legislature.

The staff report contained numerous recommendations relating to SDSI, including a moratorium on designating additional agencies with the SDSI status.

Of particular interest to credit unions were recommendations in Section 1.3 of the report, which moves its statutory authority out of the Finance Code for the Financial Regulators, including TCUD, and into the Government Code in the SDSI Act. That move would subject the TCUD to many more provisions not included in the Finance Code, some causing serious problems such as prohibiting the ownership of real property.

Also, the staff recommended that all penalties paid to financial regulators be swept from their independent funds and sent to the General Revenue Fund. This would require the TCUD and other financial regulators to increase their assessments on those they regulate to make up the difference, and that includes credit unions.

The Cornerstone Credit Union League had raised concerns about the recommendations in Section 1.3 with Rep. Raymond after the draft report was issued.

During the initial Sunset Commission hearing on the draft staff report Nov. 12, 2014, Rep. Richard Raymond (D-Laredo) expressed concern about Section 1.3, and he noted that the recommendation had the effect of being "an indirect tax on credit unions."

Also during the hearing, Sen. Schwertner (R-Georgetown) raised concerns regarding the SDSI program overall and the wisdom of not keeping all agencies in the appropriations process of the Legislature. Public member Dr. Dawn Buckingham echoed his concerns.

Texas Credit Union Association President Jeff Huffman said, "Rep. Raymond understood the problems that the recommendations in 1.3 would cause, which allowed us to work with him on amendments to the report to address credit union concerns."

Rep. Raymond and his staff worked with the other Sunset Commission members revising his original amendment to exempt financial regulators from the sweeping of funds recommendation, which would eliminate the "indirect tax" that would be imposed on credit unions and others.

Rep. Raymond’s revised amendment also addressed several problems that would be created by moving the SDSI authority from the Finance Code to the Government Code, specifically allowing the financial regulators to continue to own the buildings they occupy and cleaning up some of the reporting requirements.

Cornerstone Credit Union League President and CEO Dick Ensweiler said, "Rep. Raymond really stepped up for credit unions during the Sunset review of the SDSI status. We appreciate his leadership in addressing these important issues and the support other members of the commission gave to his amendment."

The Sunset commission adopted the staff recommendations in the report, with Rep. Raymond's amendment to the report included. There were no other amendments to the SDSI report.

These recommendations will most likely be drafted into legislation during the upcoming session of the Texas Legislature, which begins Jan. 13, 2015.

"We will continue to monitor the SDSI issue through the 84th Legislature," said Huffman. "It has been an important tool for the Credit Union Commission and allows the agency to have the proper funding to fulfill their mission."

Interested credit unions may review the recommendations and decision materials from the hearing.