In 2012, when I accepted the position as your associations’ President and CEO, the last topic I thought I would be working on would be a Federal Highway Bill.
Congress is currently standing on the edge of a slippery slope as it grasps at new and different ways to fund our nation’s highway system while still appeasing the promises they made to get elected. Most notably the promise to, under no circumstances, vote to raise taxes. Now community bankers are facing a “Pay For”, not a tax increase. This “Pay For” will raid the federal reserve dividend payment for all Federal Reserve banks over 1 billion in total assets.
As you are aware, all Federal Reserve member banks and all nationally chartered banks are required to purchase Federal Reserve stock. This stock is effectively “dead capital” because it may not be sold, transferred, or used as collateral. The dividend offsets the cost of setting aside capital that could otherwise be used for lending and other services.
The ICBSD is strongly opposed to any reduction in the Federal Reserve stock dividend rate as a means to pay for the highway transportation bill or any other legislation. This dividend reduction is a backdoor tax increase that will impact community banks and their customers. The prospect of converting the Federal Reserve’s balance sheet into a means of government spending is immensely troubling.
If you’re not concerned because your bank is under the billion dollar
threshold, you should be. At one billion, this will negatively affect many community banks within South Dakota. But let me assure you if we allow this door to be opened, this “Pay For” will slide downwards to negatively affect all Federal Reserve banks.
Reducing the dividend has not been studied or debated before Congress and could result in significant unintended consequences to the Federal Reserve system, member financial institutions and the individuals and businesses they try to serve. A reduction in the stock dividend rate to pay for unrelated spending items sets a terrible precedent.
This convoluted scheme to pay for roads is moving forward while the last time a gas tax increase was implemented was 18 years ago, in November 1997, raising it from 18.3 cents per gallon to 18.4 cents per gallon, which was not really an increase only a return to 1994 levels. The last significant raise occurred in 1993 when the tax was raised from 14.1 to 18.4.
We need to tell Congress enough with the games, schemes
and unstudied “Pay For” language in bills. I never thought community banks would be working to change a highway bill, but then again nothing surprises me anymore coming from our nation’s capital.
McCurry, a native of MN and resident of Mitchell, SD, holds a Bachelor of Arts degree in Communications / Marketing from the Minnesota State University, Mankato. Prior to joining the ICBSD as President and CEO, he directed the marketing, sales and government relations efforts at Santel