State banks and credit unions unsurprisingly at odds over bill covering municipal deposits.
New York credit unions are claiming a partial victory in their effort to enact a state law that would allow municipal governments to deposit funds in credit unions, even though the bill did not pass both chambers before the legislature adjourned.
“After years of lobbying and advocacy efforts, this priority legislation has passed in the Senate for the first time—a major victory for both credit unions and New York state municipalities and taxpayers,” William Mellin, president/CEO of the New York Credit Union Association, said late last week.
The state Senate passed the measure, but the bill died in the House.
State credit union association officials noted this marked the first time in decades the bill cleared one chamber of the assembly. They added that Senate passage provides them with momentum for passage in both chambers next year.
Credit Unions vs. Banks Feud Looms in Backdrop
New York is one of a handful of states that do not allow municipal deposits in credit unions. As might be expected, New York banking trade groups vehemently opposed the legislation and claimed partial credit for its lack of passage in the House.
The bill has been supported by groups representing the state’s school boards and towns, as well as the New York Conference of Mayors.
The mayors’ conference noted the state law that says local government deposits must be made in commercial banks and trust companies dates back to 1909.
“Consequently, the cash management needs of local governments in New York State, which are estimated to be $6 to $8 billion, all must be handled by commercial banks, effectively giving them a monopoly over the deposit of public funds,” the conference stated, in a policy statement.
That statement goes on to assert that limiting the number of depository options for municipalities keeps them from taking advantage of the best interest rates, thereby decreasing their ability to earn greater returns on investment.
“Not only can credit unions, at times, offer a better rate of return, they are 100% locally owned, not-for-profit institutions, which means the money they take in remains within the local community,” the conference contended.
It noted further that, “During these difficult economic times, municipal officials need to have as much flexibility as possible to assist them in their efforts to balance their tight budgets while keeping property taxes down.”
Similar legislation died in the Colorado General Assembly earlier this year, when the bill’s consideration was indefinitely postponed by the state’s House Business Affairs and Labor Committee.