Minutes for SB259 - Committee on Financial Institutions and Insurance

Short Title

Privilege tax deduction for net interest on certain business and single family residence loans.

Minutes Content for Tue, Jan 21, 2020

Chairman Olson opened the hearing on SB 259 - Privilege tax deduction for net interest on certain business and single family residence loans.

Chairman Olson called upon Amelia Kovar-Donohue to provide a Revisor of Statutes overview of the bill. Ms. Kovar-Donohue provided the review.

(Attachment 1)

Chairman Olson called on Doug Wareham to provide proponent testimony on the bill.

Mr. Wareham called for the need to re-establish a level playing field between banks, credit unions and farm credit institutions. He cited three facts as the basis for the justification of this bill.

Kansas credit unions are exempt from paying state and federal income taxes allowing credit unions to offer lower interest rates to their customers.
The Farm Credit System is exempt from paying state income taxes and from paying federal income taxes on income derived from real estate lending.
The imposition of state and federal income tax burdens force banks and savings & loans to pass on the additional cost in the form of higher interest rates.

Mr. Wareham stressed that larger credit unions are successfully pursuing loans in the millions of dollars in traditional bank credit markets with the tax advantages initially intended for much smaller credit union applications.

Mr. Wareham stated that his organization endeavors to keep community banks competitive in order to sustain the community bank model and emphasized that the passage of SB 259 would help revitalize rural communities; benefit borrowers; and most importantly sustain local access to credit (currently community banks are the only financial institution with a physical presence in every Kansas county).

Mr. Wareham referenced several slides comparing Kansas bank/credit union statistics, interest rates and real estate farm debt/lending.

(Attachment 2)

Chairman Olson called upon Shawn Mitchell to provide proponent testimony.

Mr. Mitchell explained the importance and expected impact upon passage of the bill. He referred to maps to describe different types of financial institutions and where each type of institution currently serves. He pointed out that the bill is intended to level the playing field of banks and other institutions that serve business, agriculture and rural home loans. He expressed concerns that for-profit banks must compete with non-profit institutions. He specifically explained that credit union market share of businesses is small, but emphasized where credit unions do have a major share of mortgage and agricultural loans. He called for the committee to support the bill in order to provide a more level playing field. He referenced maps that depicted that community banks are in every Kansas county and provide a very large share of non-MSA locations.He pointed out that SB 259 is only a partial deduction of the privilege tax.

(Attachment 3)

Chairman Olson called upon Craig Heideman to provide proponent testimony from the perspective of a local community bank. Mr.Heideman indicated that all employees live in the surrounding communities that their institutions serve. He expressed that his community bank is based in Topeka and struggles to compete especially against the large Topeka credit unions. He claimed that his multi-generational customers are being disadvantaged by current privilege tax policies.

(Attachment 4)

Chairman Olson called upon Kent Buer for a perspective from an agricultural bank. He warned of the struggles of a local community without a strong competitive community banks. He stated that the legislature needs to decide if it considers local access to community bank credit important to rural Kansas.

(Attachment 5)

Chairman Olson called upon Julie Hower to provide proponent testimony from the perspective of a locally based community bank. She called for passage of the bill in order to support the revitalization of rural communities, benefit borrowers and sustain local access to credit. She made the point of the advantages of having a local brick and mortar bank facility. She pointed out the difficultly of competing with non-local institutions with no local overhead and non-profit tax status. Ms. Hower stressed an urgency for the legislature to level the playing field for community banks who have for some time and still today cope with on-going economic crises with its rural customers.

(Attachment 6)

Chairman Olson called upon David Clawson from the perspective of a local rancher. He pointed out that with competitive lower rates, most people will decide to do business locally. He insisted that the current and future markets will force community banks to pass on the savings created by the passage of this bill. Mr. Clawson stated that his family is a fifth generation customer of the local community bank. He shared that currently he must do business with farm credit because the local community bank is just not competitive for his business.

(Attachment 7)

Chairman Olson called upon Shan Hanes to provide proponent testimony from the perspective of a remote, small town rural market. He quoted a long time resident that stated that in order for a small community to survive, it needs to have a school, grocery store and a local bank. He cited that 78% of his loans are from agricultural home and business applications. He explained that in order to keep local access to credit, he pulled a group of local people together to make sure his town maintained a local community bank.

He called for the committee to support the bill in order to provide more competitive rates to rural and agricultural borrowers. He claimed that this bill would immediately help four out of five of his rural customers.

(Attachment 8)

Written-Only Proponent Testimony

Allan Towle, Fidelity State Bank & Trust

(Attachment 9)

Gary Walter, The Bank

(Attachment 10)

Gary Yager, Vision Bank

(Attachment 11)

Greg Saville, First National Bank & Trust

(Attachment 12)

Joe Jackson, Stanley Bank

(Attachment 13)