Public Money: Yes on 45

Proposition 45 on the June 3 ballot would allow the California Legislature to authorize the deposit of public money in credit unions in the state as well as in banks and savings-and-loan associations. This would affect both state funds and the funds of local governments, and would allow these governments to seek the highest return on the money that they are holding, consistent with prudent financial management. The federal government already allows federal funds to be deposited in credit unions; Proposition 45 would make the state’s practice consistent with Washington’s.

All credit unions are insured by the federal government or by private insurers. Under Proposition 45, credit unions that receive public money on deposit would be subject to regulation by the superintendent of banks. Opponents of the measure argue that in the event of the voluntary closure of a credit union holding public money, there could be a delay of two years or longer in getting the money back, during which the funds would not be available and no interest would be paid.

However, the law allows public agencies to require collateral for their deposits in credit unions, which would enable them to recover the money immediately in the event of voluntary closure. Moreover, voluntary closures of credit unions are extremely rare in California--so rare that they’re not worth worrying about.

Proposition 45 would allow governments to maximize the earning power of the people’s money. The Legislature approved it overwhelmingly. We urge a Yes vote.