To hear credit unions tell it, they've come up with a way to save you money, even if you're not a member.

Banks' version of the same debate - whether to allow governmental agencies to deposit money in credit unions - is that credit unions have an unfair advantage because they don't pay income taxes.

For cash-strapped counties, cities, towns, school districts, fire districts and libraries, the ability to park money in credit unions is appealing. Because governments would get more money from higher interest rates and lower fees, using credit unions could be a way to keep a lid on taxes.

"I could never understand why we couldn't use them," Suffolk County Treasurer Angie Carpenter said this week. "The more [banking] vehicles we have, the better we can negotiate on rates. It's so basic why I would support it."

She's not alone. Statewide associations of mayors, towns, counties, firefighters, school boards and libraries all support the effort to change a 1909 law requiring governments to deposit money only in commercial banks.

Gov. David A. Paterson included the change in his budget, and the State Senate also included it in theirs.

New York City Mayor Michael Bloomberg has promised to deposit $25 million of city funds in credit unions as soon as he is allowed.

Banks object.

"Taxpayer deposits should be made with taxpaying institutions," said Michael Smith, president and chief executive of the New York Bankers Association. "This is a core business of banking institutions. Credit unions have a price advantage because they do not pay taxes."

Credit unions, which are not-for-profit organizations owned by their members, are exempt from paying income taxes. They do, however, pay property and other taxes.

Smith said the banks' loss of some deposits would affect earnings, thus decreasing the state income taxes they pay. He said estimates of that decrease range from $15 million to $30 million. Credit union advocates question that figure and say the benefit of better interest rates would more than offset any income tax loss.

The additional deposits would help credit unions extend credit to more people and small businesses and could further boost rates, said Robert Allen, president and chief executive of Farmingville-based Teachers Federal Credit Union.

"The money would go to work locally," Allen said Thursday.

Further, it won't hurt banks, said Linda Armyn, a senior vice president at Bethpage Federal Credit Union.

"We're not putting any bank out of business," she said.

Credit union facts

Credit unions last year had about 10 percent of the approximately $100 billion in deposits on Long Island.

Both Bethpage Federal Credit Union and Teachers Federal Credit Union, based in Farmingville, are among the nation's 40 largest.

Credit unions are not-for-profit organizations that are owned by their members. Because they do not distribute profits to shareholders, they often offer better interest rates on deposits and loans and usually have lower fees.

Many credit unions are open only to employees of certain businesses or members of certain organizations, but others are open to anyone who lives or works in a certain area.

Andrew Smith

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