HomeMy WebLinkAboutCOM 0899.007 2014-2016 PIFs
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Murashige, Laura
From: Stefanie Sakamoto Lee <stef@sakamotoconsulting.com>
Sent: Wednesday,June 01, 2016 8:45 AM
To: Council Testimony
Subject: Bill 212, re:credit unions
Attachments: Testimony on Bill 212 for Hawaii Countyy Council Finance Committee meeting
2016-06-02.pdf;Testimony Regarding Bill 121.doc; D00053116-05312016145836.pdf
Aloha,
Attached please find written testimony from several credit unions. Please let me know if there are questions or
problems opening any of the files.
Mahalo,
Stefanie Y. Sakamoto
Sakamoto Consulting, LLC
(808) 387-5501
stef@sakainotoconsulting.com
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1654 South King Street
Hawaii Credit Union League Honolulu, Hawaii 96826-2097
tirt Telephone: (808)82 2097
0556
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Fax: (808}945.0019
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Web site: www.hcul.org
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June 1, 2016
The Honorable Karen Eoff, Chair
and Members
Committee on Finance
Hawaii County Council
25 Aupuni Street
Hilo, HI 96720
Dear Chair Eoff and Members of the Committee:
Re: Bill 212 —Amends Chapter 19, Article 10, Sections 19-77 and 19-89.2
of the Hawaii County Code Relating to Real Property Taxes
Thank you for the opportunity to testify on behalf of 10 credit unions with offices in Hawaii
County that have total combined membership exceeding 147,000, as well as 63 credit unions in
the entire State of Hawaii that have membership exceeding 806,000. The credit unions of
Hawaii County and the entire state strongly oppose passage of Bill 212, which seeks to
repeal the credit unions'real property tax exemption.
Credit unions are nonprofit financial cooperatives chartered under the Federal Credit Union Act
of 1934. That law was enacted near the end of the Great Depression for the purpose of
promoting thrift among members and creating a source of credit for provident or productive
purposes. Now, in the wake of the Great Recession, such affordable financial services are
needed more than ever, especially by working-class residents and small businesses of Hawaii.
In a speech delivered at a credit union conference in February 2004, then Secretary of the
Treasury John Snow, put it best. He said, "You're in the business to do good, as well as to do
business. That's clear from your motto: 'Not for profit, not for charity, but for service.' And let
me say to you that I understand you are for service and not for profit, which is the fundamental
reason why this talk of taxation of your industry and what you do is something we [in the George
W. Bush administration] oppose. I said here last year, it's a truism in economics, you always get
less of anything you tax. Well, we don't want to get less of what you do."
Unlike for-profit financial service providers owned by investor-stockholders, credit unions are
nonprofit cooperatives owned by their members, who benefit by paying lower interest rates on
loans and lower fees, while earning higher returns on savings. Due to this fundamental
difference in structure and ownership, a tax on credit unions is a tax on its members.
Unlike for-profit financial service providers that are able to access capital from external sources
—such as issuing additional stock or acquiring subordinated debt—a credit union can
strengthen its capital only by retention of net income. Capital is needed to support growth and
as a reserve for contingencies. Consequently, as observed by Secretary Snow, taxation
reduces net income, thus reducing growth in capital of credit unions, and their ability to serve
more members.
1
Credit unions should not be treated differently than other nonprofit organizations. Tax-
exempt nonprofit healthcare agencies contribute to the medical wellness of residents; similarly,
credit unions contribute to the financial wellness of members in Hawaii County.
All credit unions have limited fields of membership, pursuant to the aforementioned Federal
Credit Union Act. Fields of membership can be occupation-based (such as employees of the
state or county government), association-based (such as members of a church or labor union),
or community-based (living or working within a well-defined local community). Regardless of
the field of membership type or asset size, all credit unions are deserving of the nonprofit tax
status because of their unique structure, purpose, and public benefit. Furthermore, credit
unions do not maintain a competitive advantage over for-profit financial service providers.
As to structure, credit unions are nonprofit financial cooperatives that are owned and operated
by members. Unlike for-profit corporations whose financial benefits accrue to a relatively small
group of investor-stockholders, financial benefits of credit unions accrue to all member-owners.
Unlike for-profit corporations where voting power is greater for those owning more stock, credit
unions are democratically controlled, with each member having one vote, without regard to the
amount on deposit. Additionally, unlike for-profit corporations, credit union directors are elected
by fellow members of the credit union without the use of proxies.
As to purpose, credit unions fulfill the statutory purpose of promoting thrift among members and
creating a source of credit for provident or productive purposes. Members come from all walks
of life, as evidenced by the vast membership of Hawaii County credit unions mentioned earlier.
Credit unions in Hawaii have a membership penetration rate of approximately 58 percent of the
state's resident population, which is one of the highest penetration rates in the nation. That
would not have been possible if Hawaii credit unions were not fulfilling their purpose.
As to public benefit, credit unions are an alternative provider of affordable financial services.
Especially in this time of economic and financial uncertainty—where for-profit financial service
providers have lowered deposit interest rates to almost zero, tightened loan underwriting
standards, and raised fees —credit unions have been a welcome beacon of hope to their
members. Non-members also benefit from having credit unions in the marketplace. Several
independent researchers have found that credit unions have a moderating influence on bank
pricing —thus, lowering bank loan rates and raising bank deposit interest rates.
As to credit unions having a competitive advantage over for-profit financial service providers,
credit unions must serve a limited field of membership and cannot serve wide geographic
expanses as banks can. In addition, the range of products and services credit unions are
permitted to offer is far narrower than the range of products and services banks are permitted to
offer, access to capital is far more limited for credit unions than for banks and thrift institutions,
credit unions cannot compensate directors whereas other financial service providers can, and
the list of differences goes on and on.
To evidence credit unions do not have a competitive advantage over banks in Hawaii, consider
the following key statistics, which show how tiny individual credit unions are in comparison to
the state's eight banking institutions:
All 8 Banking All 9 Credit Unions All 63 Credit Unions
Institutions Headquartered Headquartered
in State of Hawaii in Hawaii County in State of Hawaii
2015 asset growth 5.7% 1.48% 3.1%
2015 median return on assets 0.96% 0.34% 0.57%
2015 year-end assets $49.0 billion $1.5 billion $10.2 billion
2
To further evidence credit unions do not have a competitive advantage over banks in Hawaii,
consider that the state's youngest and smallest bank, Ohana Pacific Bank, was founded in June
2006, less than 10 years ago. Since its inception, Ohana Pacific Bank has grown to more than
$120 million in total assets. This is larger than 67% of the credit unions headquartered in
Hawaii County and 76% of the credit unions headquartered in the State of Hawaii; many of
which have been in business more than 75 years.
Conclusion
Put simply, these are financially challenging times for credit unions as well as their members.
Due to mounting financial challenges, two (18% of the) credit unions in Hawaii County were
forced to merge last year.
Credit unions should not be treated like for-profit financial service providers because they are
inherently different in structure, purpose, and public benefit. Repealing the nonprofit tax status
of credit unions will irreparably harm residents and small businesses in Hawaii County.
Therefore, we respectfully urge you not to report Bill 212 out of the Committee on
Finance.
Sincerely,
Dennis K. Tanimoto
President
3
Bit
( • H' JJJIsland
ANNIVERORY
1936-2016 Federal Credit Union
Proudly serving our members since 1936.
Hawaii County Council Finance Committee
Thursday,June 2, 2016
1:30 p.m.
RE: In Opposition to Bill 212
Dear Chair Eoff,Vice-Chair Pointdexter, and members of the Committee:
My name is Nicole Aguinaldo, and I am CEO of Big Island Federal Credit Union. In 1936, a group of
teachers formed the Big Island Teachers Federal Credit Union. It was the first chartered credit union in
the State of Hawaii. In January of 1973, our name was changed to the Big Island Educational Employees
Federal Credit Union. Later that year, the word "Employees"waseliminated and we became known as
the Big Island Educational Federal Credit Union. Prior to the end of the century, we received NCUA
approval to change from an occupational-based to a community credit union with an island-wide charter,
and in 2001, webecame the Big Island Federal Credit Union. This year marks our 80th Anniversary.
Big Island Federal Credit Union has three branches on the island (Hilo, Puna, & Kona),to serve our over
9,000 members. Our credit union exists to serve people who live, work or own a business on the island
of Hawaii. As a community chartered credit union owned and operated by its members, our purpose is to
provide quality financial services to our member-owners while ensuring financial stability. We aim to play
a leadership role in our community by providing high quality,.personal services in a friendly environment.
We seek to retain our non-profit tax status so that it remains possible for us tocontinue our mission.
Unlike for-profit financial institutions that have public stockholders, Big Island Federal Credit Union is a
not-for-profit financial cooperative where our members are both the account holders and owners. Each
member's account represents ownership of the credit union. All income after operating expenses and
federally-mandated reserves is returned to our member-owners, in the form of higher yield on depository
accounts, lower rates on loans, and lower fees on financial services.
We humbly ask the Hawaii County Council to consider our request to preserve the non-profit tax status of
Hawaii's credit unions. We are committed to providing low-cost, high-quality financial services to our
member base, and higher costs in the form of a new tax would harm our ability to continue our current
level of service.
Sincerely,
''‘‘.41 nla\
Nicole .uinaldo
President&CEO
66 Lono Street•Hilo, Hawaii 96720•(808)935-9778•Loans(808)'935-6665•Fax(808)934-7572
75-5737 Kuakini Highway,Suite 101 •Kailua-Kona,Hawaii 96740•(808)329-8889•Fax(808)326-4959
16-594.Kipimana Street•Keaau,Hawaii 96749•(808)930.2600•Loans(808)930-2610•Fax(808)930-2619
www.bigislandfcu.com
TESTIMONY OF THE
HAWAII COUNTY EMPLOYEES FEDERAL CREDIT UNION
PRESENTED TO THE COMMITTEE ON FINANCE
HAWAI`I COUNTY COUNCIL
June 1, 2016
TESTIMONY ON BILL NO. 212-DRAFT 1, REFERENCE COMMUNICATION NO. 899
AMENDING CHAPTER 19, ARTICLE 10, SECTIONS 19-77 AND 19-89.2 OF THE
HAWAII COUNTY CODE 1983 (2005 EDITION, AS AMENDED) RELATING TO
REAL PROPERTY TAXES
TO THE HONORABLE KAREN EOFF, CHAIRPERSON
AND MEMBERS OF THE COMMITTEE ON FINANCE
My name is Laurie Taka, General Manager of the Hawaii County Employees Federal
Credit Union. I appreciate the opportunity to provide written testimony in opposition to Council
Bill No. 212, which seeks to repeal the real property tax exempt status of credit unions within the
County of Hawai`i.
With the introduction of this Bill by Councilmember Wille, we are not made privy to the
reasons which prompted the introduction of this particular piece of legislation, which leaves our
island credit unions at a significant disadvantage. So the only thing we can do is to provide you
with an explanation of what makes your island credit unions an important part of the foundation
that supports communities throughout the island of Hawaii.
The first credit union in the state began on this island in the mid 1930s,the Big Island
Teachers' Federal Credit Union,which helped its teacher members with loans and other financial
services during the middle of the Great Depression. Credit unions are member-owned, not-for-
profit financial cooperatives that provide savings, credit and other financial services to their
members who share a common bond by belonging to a specific community, organization,
religion or place of employment. Credit unions pool their members' savings deposits and shares
to finance their own loan portfolios rather than rely on outside capital, typically through banks.
All gains are then returned to its members.
The section of Federal income tax law concerning not-for-profits states that credit unions
must"operate without profit and for the mutual benefit of its members". The income tax
privileges are not simply bestowed upon federal credit unions with no expectation of any benefits
in return. Federal law requires that all income tax-exempt organizations like Federal credit
unions be either non- or not-for-profit, meaning that all gains are returned to or exercised for the
sole benefit of its members. There are no stockholders or corporations that own our island's
credit unions. All credit unions are owned by its member depositors,who then all equally share
in any gains provided by their credit unions.
Testimony to the Committee on Finance
Hawai`i County Council
June 1, 2016
Page 2
Look at the very section of your own real property tax code that deals with Exemptions
(Article 10, Chapter 19, HCC). Some types of properties exempt from real property taxes
include:
• Schools • Property dedicated to public use
• Hospitals and nursing homes • Property owned by any nonprofit organization
• Churches • Historic residential properties for preservation
• Cemeteries • Hawaiian Home lands
Each of these tax exempt properties provide an important civic or social function in our
island society. Why are our island's credit unions being treated differently when our mission is
to provide for the same civic or social benefits?
Credit unions provide a unique choice for financial services to our island residents.
Bill No. 121, if adopted, will take away opportunities for credit unions to maintain its distinction
from typical financial institutions like banks. There was once about 200 credit unions located
throughout the state. That number has now dwindled to less than 70. When survival in the
financial services sector is more difficult than it has ever been,please do not stack more straw on
the backs of our credit union members.
On behalf of your island's credit unions and for the sake of its members,most of whom
are residents of this island, we humbly request that the Hawai`i County Council not adopt Bill
No. 121.
Thank you all for your kind and thoughtful consideration.
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