S&L; deposits tax a windfall for state $84,000 needed, yet $2.6 million is raised


'TC Maryland will collect $2.6 million in taxes this year earmarked for regulation of state-chartered savings and loan associations. But regulating the thrifts will cost only $84,000.

In fact, there are only two state-chartered thrifts left to regulate. So lobbyists for the industry want to do away with the 30-year-old tax on deposits that pays for the remnants of regulation.

The House Ways and Means Committee is to take up a bill tomorrow to do just that. But even proponents doubt that the legislature will be willing to give up the money in a year of record deficits.

The tax, levied on both state- and federally chartered thrifts, was enacted in the early 1960s to pay for the operation of the state Division of Savings and Loan Associations. The tax amounts to ** 1.3 cents for every $100 of deposits.

While the money continues to flow into the state's coffers, only St. Casimirs Savings & Loan Association and Midstate Savings and Loan are left under the state's umbrella. And they will have to switch to other charters by June 1, 1992, under a law enacted by the General Assembly last year.

After the state's savings and loan scandal of 1985, most state-chartered thrifts switched to federal charters, merged with other institutions or went out of business.

As a result, the state will spend only $84,000 in fiscal 1991 to regulate thrifts. Yet the tax will bring in $2.6 million, according to Charles H. Kresslein Jr., president of the Maryland League of Financial Institutions, the trade group that represents the thrifts.

While Kresslein said he doubts that the bill will pass because of the state's tight finances, the legislators might consider getting rid of the tax in future years.

"Once the money gets into the general fund, the governor is not going to give it up easily," Kresslein said.

The tax has been a sore point for savings and loan associations for many years. Besides taking much more than the cost of regulation, the tax only applies to savings and loan deposits and not bank deposits, Kresslein said.

Early in 1985, the industry succeeded in getting a bill through the General Assembly to cut the tax in half over a three-year period. But on May 15, six days before Gov. Harry Hughes was scheduled to sign the bill, the Maryland savings and loan crisis erupted, and Hughes vetoed the measure.

The S&L; crisis, which involved state savings and loans with private insurance, was also the beginning of the end for state-chartered thrifts.

As depositors waited up to four years to get their money from insolvent institutions, the General Assembly cracked down. Besides eliminating the bankrupt private insurance group that had covered the thrifts, the General Assembly imposed tougher regulations, including a fee that requires S&Ls; to pay $250 per examiner for each day it takes to for state regulators to inspect their books.

This is in addition to the fee the thrifts had to pay to federal regulators, since they were required to have federal deposit insurance. This meant that state-chartered thrifts had to pay two examination fees while federally chartered institutions paid only one.

"It made state charters so onerous," Kresslein said.

As a result, a bill to phase out state-chartered thrifts altogether passed easily last year because there was little opposition from the industry, he said.

At the industry's peak in the early 1960s, there were about 450 state-chartered savings and loans in Maryland, according to Louis A. Reinhardt Jr., the director of the Division of Savings and Loan Associations.

By April 1986, there were only 115 state-chartered thrifts left. Now there are two.

When the remaining thrifts must change their charters next year, the Division of Savings and Loan Associations will go out of existence, Reinhardt said.

Eliminating the division should be relatively easy, since Reinhardt is the only remaining employee. Its examiner already have been absorbed into the Financial Audit Service Team, which is responsible for examining state-chartered banks, thrifts, credit unions and other financial businesses.

St. Casimirs one of the two remaining state-chartered thrifts, has applied to the state Bank Commissioner to convert to a state-chartered savings bank. Ronald E. Jasion, its president and chairman, said nothing will change with the new charter. "We're going to do the same thing that we have always done," he said.

The Baltimore mutual savings and loan, which has $105 million in assets and four branches, decided to stay with a state charter because there is a better rapport with local regulators, Jasion said. "You're controlled by local people and not by some force in some far off land," he said.

Midstate has yet to decide how it will go. "We're still thrashing it around," said Kathryn H. Gerling, chairperson of the thrift.

Midstate, with $68 million in assets and one location on York Road, has had both state and federal charters during its 107 years of existence. In the early 1950s, Midstate adopted a federal charter. But the thrift returned to a state charter in 1977 because it allowed Midstate to offer higher interest rates, Gerling said.

Gerling said Midstate is leaning toward a federal thrift charter rather than a state savings-bank charter. "I think, ultimately, we'll all be federal," she said, referring to financial institutions in general.

State charters are dying off elsewhere. There are fewer than two state-chartered thrifts left in Michigan, Montana, Wyoming, North Dakota, South Dakota, Arizona, Alaska and West Virginia, according to the American Council of State Savings Supervisors, the national group that represents state regulators of savings and loans.

Norman D'Amours, legislative counsel to the council, said the trend toward federal charters will ultimately be detrimental to consumers.

"Virtually every consumer benefit [for thrift customers] has come from that system and to throw that system away is irresponsible," he said.

D'Amours pointed to thrift checking accounts as one of the consumer benefits that originated with state-chartered savings and loans.

He rejects the charge that many of the problems of savings and loans can be traced back to state-chartered institutions. "We never claimed to be lily pure, but, on the other hand, everybody has some blame," he said.

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