Public funds issue gets a second hearing in Arkansas committee

Arkansas Governmental Affairs Update, Week Six

Senate Bill 257 got a second hearing with the Arkansas Senate Insurance and Commerce Committee yesterday.

The bill, by Sen. Kim Hammer (R-Benton), described as “To Include Financial Institutions Insured by the National Credit Union Administration as Institutions Allowed to Serve as Depositories of Public Funds,” would amend Arkansas law to permit federally insured credit unions to serve as a bank depository for public funds, thereby providing credit unions parity with banks. The amendment provides governmental entities with additional options in choosing a depository institution and allows federally chartered credit unions a chance to bid on deposits with the state, counties, cities, and school districts.

On Feb. 7, the Senate Insurance and Commerce Committee heard the first round of testimony from credit union advocates and banker opponents of the bill, but the committee was unable to cast votes up or down.

Yesterday, the bill got a motion and a second to pass, but the motion failed. The committee then turned around and voted to expunge that failed vote. The vote to expunge passed, so Sen. Jason Rapert, the committee chair, told Hammer he could run the bill again, if he wishes.

During the hearing, Hammer emphasized that SB257 is a not a credit union vs. bank bill. It simply gives cities, counties, and schools another option for where they can place their funds. He said county leaders have shown by their letters and emails of support that they would like this additional option, and he asked the committee to approach it with an open mind.

Thea Hughes, general manager of Jacksonville Wastewater Utility, testified in favor of the bill. She spoke for the Arkansas Water and Wastewater Managers Association (AWWMA), which represents 200 waste water utilities in the state. She also read into the record an email in support from the Springdale Waste Water Utility.

The committee members were provided with a packet of support letters from three county judges, two mayors, and others in support of the bill. Also presented was commentary by Arkansas Federal Credit Union CEO Rodney Showmar (“How to Grow Your Tax Dollars”), which appeared in the Feb. 18 edition of Arkansas Business News.

Tammy Passafiume, CEO of Diamond Lakes Federal Credit Union, rebutted the banker’s comments, and she reinforced the fact that banks are not remotely threatened by credit unions as competitors in the marketplace. In fact, banks hold 96.5 percent of the total deposits in Arkansas, leaving 3.5 percent for credit unions.

Larry Wilson, chairman, president and CEO, First Arkansas Bank and Trust in Jacksonville, and Cathy Owen, chairman of the Arkansas Bankers Association and Eagle Bank and Trust, testified Feb. 7 and again yesterday against the bill.

Wilson and Owen argued that credit unions have abandoned their mission and that the simple way to rectify things would be to tax credit unions.

“The bankers’ testimony reiterating these same anti-credit union tropes appeared to be just more cries about unfairness regarding the credit union tax exemption instead of the public funds choice issue that is at the heart of SB257,” said Arkansas Credit Union Association Lobbyist Ron Harrod. “But banks have long held a monopoly on public funds. And the truth is, despite their much smaller footprint in the financial services sector, credit unions create a competitive environment where banks aren't as free to assess even higher fees or lower interest rates than they currently do.”

Owen opined that credit unions, if taxed, would have paid $2.3 million in Arkansas income taxes in 2018. She also said banks would need to know they were bidding against a credit union and that if credit unions were allowed to accept public funds, banks would lose money and therefore the state would lose money. Witnesses at the hearing and on the committee seemed to recognize that these statements were misrepresentations of the facts.

Other News of the General Assembly

The Arkansas General Assembly has been working to pass portions of the governor’s legislative agenda. This week lawmakers are working on the highway maintenance and construction bill.

The other major issue is the government reorganization plan, which should reduce the cabinet positions reporting to the governor from 42 to 15. The legislature is continuing to review the various bills that will accomplish this goal, and thereafter all the reorganization bills will be withdrawn, to be replaced by one consolidated bill. To date, the draft of the one bill is already over 2,200 pages.

The legislature can refer three constitutional amendments this year for the November 2020 ballot. More than 30 bills were filed by the Feb. 13 deadline.

The governor’s income tax bill has passed the Senate and House. SB211 reduces the top individual income tax rate from 6.9 percent to 5.9 percent over a two-year period. The Department of Finance and Administration expects this measure to reduce tax revenue by $97 million per year after it is fully implemented.