The California Credit Union Merger Bobsled Team?
Credit union mega-mergers have been hitting the proverbial wall in California of late. The quad-gods doing most of the public slippin' and slidin' are Cal Toast/San Diego County [link] and Safe/BECU [link] credit unions. In the rink of public opinion, they are skating on thin ice. That may soon become fiscally taxing in the halls of California political opinion.
Here's why. If you haven't been paying attention, California has a budget deficit tax problem - $2.9 billion in the red, fourth year in a row. [link] ("The deficit could require cuts and means the Democratic governor doesn’t have money to advance new programs during his last year in office.")
✔ Do note that in California, Sacramento (as in SAFE!) is still political home base and rumors are abundant that The Gov may have ambitions.
So let's go back to our merger example between SAFE Credit Union in Sacramento and BECU in Tukwila, Washington. If the California Department of Financial Protection and Innovation (CDFPI) approves the SAFE/BECU mega-merger, California will lose hundreds of millions of dollars in tax revenues - now and in the future.
How so? No one disputes that the ownership of SAFE CU will be pulled out of California into Washington State. "To the victor belong the spoils" and California is the loser! While an excellent economic argument can be made that California is needlessly losing a corporation worth over $800+ million; no one disputes that California state government is losing the potential tax revenue on $400+ million in SAFE reserves/equity.
Credit union reserves are tax deferred, not tax exempt! A point often overlooked. How do you know? Credit unions spend their earnings in three ways: 1) interest payments on savings to members (fully taxable to members!), 2) operational costs to employees, vendors and service providers (fully taxable to these folks!), and 3) retained earnings/reserves required by law to be withheld for potential future losses (tax deferred until distributed!).
Rather than lose the tax revenue to Washington State, it would be fairer to California and all SAFE members to require that at least $400 million in those SAFE reserves be distributed to the membership prior to the merger. Each SAFE member would receive @ $1,639 [link] - all fully taxable in California!
That would be a sound business practice for SAFE [link] and a helpful tax windfall for that California deficit !
😎 If this merger is approved, the California Department of Financial Protection and Innovation, will simply give away that $400 million taxable income stream to Washington State.
CDFPI might want to ask The Gov, if he wants to sign off on that donation... he may not see it as an "innovation"!
.
.
