Sacramento is abuzz with the news that the Sacramento Kings will tip off the 2016 season in a new arena recently unveiled as the Golden 1 Center. The California Bankers Association and several of our member banks, who are also headquartered and do business here, shared the region’s enthusiasm when it was announced the Kings were staying after years of uncertainty. Unfortunately, we don’t share in the enthusiasm over the new arena’s name.
Golden 1 Credit Union, the nation’s sixth largest credit union headquartered in Sacramento, reportedly purchased the naming rights at a price tag of $120 million for the next 20 years. Six million dollars annually for the right to have your name in bright lights on a sports arena is a sizable amount of money, but for a “nonprofit” corporation that pays zero dollars in state or federal income tax, it’s probably not too much of a stretch.
How is it possible that an individual Californian pays more taxes than Golden 1, a $9 billion corporation? The answer traces back to a Depression-era tax break that has long outlived its purpose. Congress established credit unions in the 1930s to provide small-dollar loans to close-knit groups of people of modest means and exempted them from federal income taxes.
Credit unions have leveraged their taxpayer subsidy to aggressively grow into a $1 trillion industry, at the expense of all taxpayers. There are now 208 credit unions with more than $1 billion in assets – 36 are headquartered in California.
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Studies have repeatedly documented that this tax exemption is poorly targeted and predominantly not going to people of modest means. A 2006 U.S. Government Accountability Office study found that 14 percent of credit union customers were low-income, 17 percent were moderate-income and 49 percent were upper-income. Credit unions were never meant to be tax-exempt banks, but that’s what they have become. Today, 235 credit unions are larger than 90 percent of taxpaying banks in this country.
In 2013, California-headquartered banks with more than $1 billion in assets paid more than $600 million in state taxes, a figure that doesn’t include taxes paid by banks headquartered outside of California that pay a significant amount in state taxes.
Based upon the asset size and net income of the $36 billion-plus California-headquartered credit unions, their state tax contribution, if they had one, would’ve been more than $111 million. Nationwide, the annual cost to U.S. taxpayers is approximately $2 billion in uncollected federal taxes from the entire credit union industry, funds that could be used to support our military and the needs of our senior citizens and children.
During the naming rights press conference, Golden 1’s president and CEO used the opportunity to advertise for new members, to add to their 720,000 existing members, directly proving the point of how outdated the credit unions’ tax-preferred status is. Anyone who lives or works in 34 of California’s 58 counties can join. She spoke of the free checking, low auto loan and mortgage rates available, and announced new benefits members can take advantage of at the new arena, including discounts on Kings merchandise and advance access to ticket sales, courtesy of their tax-exempt status.
California banks welcome the opportunity to compete head-to-head with credit unions, but on a level playing field. In what other industry would you find two direct business competitors where one is allowed to pay no taxes, yet has excess profits to spend $120 million on arena naming rights? The answer is you wouldn’t.
There is no longer any valid reason why these large, banklike credit unions should retain their tax exemption, a message we will continue to promote while supporting our local, state and national economies.
Rodney K. Brown is president and CEO of the California Bankers Association.