By Kathryn Swenson / For The Herald
Washington state faces a projected $12 billion budget shortfall; an urgent fiscal crisis that demands practical, equitable solutions.
One promising step is House Bill 1506, sponsored by state Rep. Amy Walen, D-Kirkland, which would remove the exemption that state-chartered credit unions have from paying the business and occupation (B&O) tax when they acquire community banks. While that might sound technical, it is a proposal with profound benefits for consumer choice, public revenue, and the future of local banking in Washington.
The status quo is troubling. In 2024, 25 percent of all credit union acquisitions of community banks in the country happened right here in Washington. In essence, Washington taxpayers effectively subsidize these types of acquisitions, which reduce consumer choice and limit access to capital. Worse still, when a community bank disappears, the state loses out on the tax revenue that the acquired bank would otherwise pay.
Credit unions were originally intended to serve people of modest means who share a common bond, such as a workplace or neighborhood where they live. Some have grown far beyond their modest roots, however, using a sweeping tax exemption to become financial powerhouses with multi-billion-dollar asset portfolios, naming rights to sports arenas, and private jets. Yet, they remain exempt from the taxes that banks pay; even as they increasingly acquire banks.
The disparities go beyond taxes. Community banks must meet local needs under the federal Community Reinvestment Act (CRA), ensuring they lend to small businesses and low- to moderate-income communities. The Seattle area alone saw more than $72 billion in CRA-qualified lending from 2009 to 2020, underscoring the stakes for our communities. Credit unions, however, face no such requirement. Nor are credit unions subject to the same Fair Lending laws that apply to banks. When credit unions acquire community banks, borrowers lose these protections over access to capital.
Nationally, community banks contribute roughly $15 billion in annual tax revenue, while the tax exemption enjoyed by credit unions — an industry with nearly $2.2 trillion in assets — adds up to about $4 billion every year. As more credit unions acquire banks, tax revenue drops further. For Washington, where credit union assets are nearing $90 billion, the loss of tax revenue is particularly painful.
Lawmakers must find ways to close the budget gap without overburdening consumers. HB 1506 offers a commonsense fix: If a credit union is going to act like a bank — by acquiring a community bank — it should be taxed like one. This simple move would bolster state revenues and help preserve the vital role that community banks play in communities across Washington.
Rep. Walen’s proposal isn’t anti-credit union; it’s pro-fairness.
It recognizes the evolution of the financial industry and ensures our tax structure keeps pace. For the sake of Washington’s fiscal health, our communities’ access to credit, and a level playing field in financial services, state lawmakers should support HB 1506.
It’s time to make sure all financial institutions pay their fair share; and that our state’s budget and its taxpayers stop footing the bill for those that don’t.
Kathryn Swenson is the president and CEO of Community Bankers of Washington. As the state’s only advocate working solely for the interest of community banks and their customers, CBW is a member-driven organization, representing 70 percent of the state’s community banks, and is governed by a board of directors comprised of independent community bankers.
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