By Sarah Snell Cooke, Principal, Cooke Consulting Solutions

Susan Mitchell, president/CEO of Mitchell, Stankovic & Associates, expected the Underground Collision’s taxation discussion to be a table-stakes talk—the old standby. The follow up blog post, however, demonstrated there’s still a fire stirring in credit union leaders’ bellies regarding the value of the tax exemption.

Bret Weekes, CEO at eDoc Innovations, responded by asking whether credit unions need to re-evaluate their point of unification: The value of the cooperative credit union charter. “What is at the heart of that value?” he posed. “Member ownership and patronage with democratic control. Enabling, promoting and ensuring sustainability of the cooperative charter isn’t a tax exemption issue, it has nothing to do with the tax status of credit unions.

“It’s a leadership issue, and unfortunately we are seeing too many cases of failure…The fundamental value that member ownership and democratic participation were the reason for credit union financial services, that is the heritage; defending and advocating those foundational principles and values is a requirement for the sustainability of credit union’s cooperative charter, regardless of the tax status of credit unions. The issue of taxation can be manipulated to serve too many masters, but the value of member ownership, patronage and democratic control has only one master: The member!

Read the original blog post, “Win or Lose, Take Taxation Off the Table.”

One credit union CEO responded that it’s not that simple to separate the tax exemption from credit unions’ cooperative structure. “The tax exemption exists because of the cooperative ownership structure, member ownership and patronage with democratic control.” He added that if the tax-exempt status were eliminated, it should be paired with amended rules for charter conversion, including requirements on disbursing the former credit union capital back to the members.

The bankers often contort the argument that credit unions are supposed to be limited in their authorities and who they can serve, saying it’s primarily consumers with no money. “This a patent falsehood,” the CEO stated. “If it weren’t, we could only serve our members until they became financially successful at which time they would have to ‘graduate’ to a commercial bank.” He continued that he’s always been successful in fending off these banker falsehoods with legislators by pointing out banks almost never convert to credit unions, so the advantages they claim credit unions enjoy is a moot point.

Victor Pantea, manager of marketplace alliances for CU*Answers, applauded that response. “I can’t imagine how any legislator not financially beholden to a local bank or banker can refute your explanation.” Pantea also explained that he likes “to watch the reaction of the local community banker who tells us all that they provide similar value and do everything for the local community that a credit union does. That’s when I ask him if when he and his local partners sell out at some multiple of book value to a larger regional, how much of their gain will they be sharing with their local customers who have contributed to their financial largesse. That usually helps them understand the real difference between [a bank] and the local credit union.

CU*Answers President/CEO Randy Karnes agreed with Weekes that the issue is leadership. “[The tax exemption] is a simple financial advantage that CUs enjoy today. No more or less important than most advantages earned or lost over time. The key to a business person is what weight do you put on it when battles arise to gain or strip an advantage,” he said.

“Should CUs be leveraged to put up a fight no matter the ROI on that fight?” Karnes asked. “No! And for too long lobby groups, both pro and con, have used this rally call to their advantage.”

According to Karnes, not giving up the tax-exempt status has become a default answer, and those long-standing responses often expire. “It is time for some fresh leadership to think this through and decide what could be won through fighting for new things and taking new stances on this issue. Thinking about proactive steps to lead for our communities as diverse cooperatives—not simply a group too easy to capitulate to a lazy, one-for-all and all-for-one approach from a historic past where credit unions were far more bound by common profiles and interests.”

But how? “For me taxation is not the major issue. My issue is how do we revamp our trade organizations and the presentation of our issues and advocacy,” Karnes said. “Too much is based on yesterday's banking schemes and not enough on the layered hopes of today's cooperatives. Let's focus here.”