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Committee rejects bill to let Arkansas local governments deposit funds with credit unions
Summary
After competing testimony from bankers, utility managers and credit union representatives, the Senate Insurance & Commerce Committee declined to advance SB 257, which would have allowed state and local governments to place deposits with federally insured credit unions; the motion to 'do pass' failed on a committee voice vote.
The Senate Insurance & Commerce Committee voted against advancing SB 257 after substantial testimony for and against the proposal to allow state, county, city and school entities to deposit public funds with federally insured credit unions.
Senator Hammer, the bill sponsor, said the bill "gives our state, county, cities, and school districts the ability of choice where they want to put their deposit and increase their revenues," and submitted letters from local officials and industry leaders supporting the option.
Opponents, including Larry Wilson of First Arkansas Bank & Trust and Kathy Owen of the Arkansas Bankers Association, argued credit unions’ tax-exempt status gives them an unfair competitive advantage when bidding for municipal deposits. Wilson said credit unions’ tax-free status "has enabled them to make loans at lower rates than banks and to attract deposits by paying more for those deposits than banks." Owen warned that shifting deposits to credit unions could reduce banks’ taxable income and thereby lower tax revenues.
Supporters said allowing credit unions as depositories would expand safe, federally insured options for public funds and could raise interest earnings for utilities and other public entities. Thea Hughes, general manager of Jacksonville Wastewater Utility, testified that her utility could have earned about $106,000 more in one year by investing with Arkansas Federal Credit Union.
A motion to "do pass" SB 257, moved by Senator Chesterfield and seconded by Senator Elliott, was decided by voice vote. The chair announced, "The motion does fail." The transcript records affirmations and objections but does not provide a roll-call tally. The sponsor was told he may seek expungement to bring the bill back to committee at a later date.
The committee hearing included discussion about federal insurance (FDIC for banks, NCUSIF for credit unions), comparative market share (banks hold roughly 96.5% of deposits in the state, credit unions about 3.5% as cited during testimony), and disputed estimates of lost tax revenue; one witness referenced a $2,300,000 figure but said she had not run the calculation herself.
Because the committee did not adopt the motion, SB 257 will not move forward from this hearing without further procedural action.
