Big Money at Stake in Credit Union Measure

In bureaucratic lingo, Proposition 45 on the June 3 primary election ballot “levels the playing field” by allowing credit unions to compete with banks and savings and loans for deposits of public funds.

Although no one can say with any precision how much cash might be deflected into the state’s more than 1,100 credit unions if voters approve the measure, the stakes appear high.

Larry Cox, a Sacramento lobbyist for the California Credit Union League, said passage of Proposition 45 could inject as much as $2 billion in extra cash into employee credit unions throughout the state. Currently, credit union assets in California total about $18.5 billion.

Some of the new cash would come from municipal money managers who invest millions of dollars in idle cash in mostly short-term certificates of deposit, federal securities and the like.

However, the biggest chunk, according to Cox, could come from public employee pension funds and deferred compensation plans that currently cannot be invested by state and local money managers in credit union certificates.

Such a possibility is not discussed in the Proposition 45 arguments in the California Ballot Pamphlet. However, Cox said the potential of tapping this vast reservoir of public employee funds is a “principal motivation” for the state’s credit unions to back the measure.

For the employee who belongs to a credit union, proponents say, should the credit union receive a deposit from a city treasurer, the new funds on hand could make loans easier and quicker to get and could increase members’ dividends.

Neither the California Bankers Assn. nor the California League of Savings Institutions, both potent lobbying forces, have publicly objected to potential competition from credit unions and are not opposing the ballot measure.

However, the California Municipal Treasurers Assn., consisting of about 700 city treasurers and finance directors, argues that passage could generate cash crises, particularly for small municipalities and special districts that decided to deposit their limited revenues in credit unions.

The crux of the municipal treasurers’ ballot argument against Proposition 45 turns on possible voluntary closures of credit unions, where, for example, the credit union’s parent company went out of business.

(Credit union deposits of up to $100,000 are federally insured in cases of involuntary closures and are not an issue in the Proposition 45 debate.)

“In cases of voluntary closure of a credit union, time delays of years might be encountered before all moneys are returned to depositors,” says the ballot argument against the measure. “Also during this period of time, there is no statutory duty to pay further interest on deposits.”

Thomas C. Rupert, Torrance’s veteran city treasurer and one of the signers of the opposition ballot argument, said small government entities could be especially vulnerable.

‘Special Agency’

“If a special agency, such as a small fire district, puts its bucks (into a credit union) and payment is not made on a timely basis, it could be in dire straits,” Rupert said.

However, Terry McGinnis, chief of supervision and examination of the National Credit Union Administration’s western region, said the opposition argument might be plausible in theory, but that “it’s not likely” to happen.

If a credit union is solvent and went into voluntary liquidation--because, for example, its parent company went out of business--it could still immediately meet demands for membership withdrawals, McGinnis said in a telephone interview from his Walnut Creek office.

The last time there was a voluntary closure in federal Region 6, which covers several western states, was in 1984, when a small credit union closed in Hawaii, McGinnis said.

“The payout was immediate,” he said.

Big Portfolio

“I don’t know how he could be that certain,” argued Liane C. Scott, president of the municipal treasurers’ group and the City of Lompoc treasurer who manages a $31-million portfolio. “It only takes once to create a problem.”

In their ballot argument in favor of the measure, Assemblyman Alister McAlister (D-Fremont) and Riverside finance director Hal E. Brewer stressed that public funds placed in credit unions would be safe because, under law, they would have to be secured by securities equal to 110% of any public money on deposit.

“The result is that existing statutes provide protection so a public agency would not have to wait to withdraw public funds or lose income in the event of a voluntary liquidation,” they said.