Battle Over Public Deposits Rages on in N.Y. State Legislature

The complex battle over whether credit unions should be permitted to accept state and local deposits played out in a New York Assembly hearing Monday, as school officials said they want that option, while county officials raised red flags on the plan.

About half of the states allow state, local and school funds to be deposited in credit unions, while the other half do not, with many contending that the credit union tax exemption should make the institutions ineligible for public deposits.

New York prohibits such deposits, but the legislature is considering legislation to allow credit unions to accept public deposits.

“This is an issue that’s been around and discussed for many years,” said Assemblyman Fred Thiele, chairman of the Assembly’s Local Governments Committee.

Witnesses were divided on the issue.

“What I’m going to urge is caution,” Schoharie County Treasurer William Cherry, told the Assembly’s Banks Committee. “County governments have very complex banking relationships.”

He said he is concerned that commercial banks would be hurt. He also questioned the ability of credit unions to ensure cybersecurity protections and to provide funding when his county faces an emergency.

“When things get bad, we need a place to get money immediately,” he said.

But Brian Fessler, deputy director of governmental relations for the New York School Boards Association, said the decision should be left to local officials.

“We believe that it is best to allow school districts [to decide] what is best for them,” he said.

As is often the case with such issues, the hearing also pitted credit unions against the banking industry.

The prohibition is an “outdated holdover” in New York law, which was written before credit unions were well established, William Mellin, president/CEO of the New York Credit League Association, told the committee.

One credit union official cited a practical argument to lift the ban.

“We would offer a better rate of return to our municipalities,” said Pamela Heald, CEO of the Reliant Community Credit Union, a Sodus-based credit union with about $460 million in assets.

And Bill Crane, Chief Administrative Officer and General Counsel at the CFCU Community Credit Union in Ithaca told the committee that lifting the prohibition would provide communities with more choice and his credit union with much-needed funds to expand lending. Crane’s institution has about $1.1 billion in assets.

But Michael Smith, president/CEO of the New York Bankers Association, said that credit unions have an unfair advantage because of the tax exemption and because banks must comply with the Community Reinvestment Act, while credit unions do not.

“Bank deposits are required to be put back into the community,” he said, adding, “If the other side wants it, why aren’t they paying their taxes?”

And John Buran, president/CEO of the Flushing Financial Corp. said allowing credit unions to accept public deposits could have serious consequences.

“I think this legislation poses a real threat to community banking,” said Buran, who also is chairman of the New York Federal Home Loan Bank. “Municipal deposits support branches.”

Another banker summed up the battle.

“This one, there is no middle ground,” said Thomas Amell, president/CEO of Pioneer Bank in Albany.