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Current Events - 05/20/2002

"Bad debt" conformity proposed by Governor

Governor Gray Davis released the May Revision to the State Budget last week. Like every other year, the May Revision is the opportunity for the governor to make adjustments in the state's budget. Unlike years past, however, Gov. Davis has a $22 billion shortfall to address, and so he is getting creative - to the detriment of banks with more than $500 million in assets ("large banks").

Gov. Davis has proposed conforming to a 1986 change in federal tax law that prohibits "large banks" from using the reserve method of accounting for bad debts for tax purposes and forces the recapture of these reserves as income over a four year period. The only problem is that the Governor appears to be unaware of the other half of the 1986 tax deal that gave banks expansive new rules on net operating losses (NOLs) to mitigate the recapturing of those reserves. At issue is the ability to carry back 100 percent of NOLs 10 years - the key component missing from Gov. Davis' proposal. This "partial" conformity measure would cost large banks in excess of $500 million over the next four years.

CBA has written a letter to Governor Davis (see attached copy) to make him aware of the inconsistencies between his proposal and existing federal law. We encourage you to write your own letter to Gov. Davis, emphasizing the following points:

• The governor's proposal is not true tax conformity; it is a thinly veiled attempt to unfairly tax large banks.
  
  
• The California State Legislature considered and rejected full conformity with changes in federal law in 1987 for one major reason: California could not fully conform to the provisions of the 1986 Tax Reform Act.
  
  
• Current tax law governing bad debt is reasonable and rational and there is no reason to change it.

Please send your letters to Governor Davis to:

The Honorable Gray Davis
Governor, State of California
State Capitol, First Floor
Sacramento, CA 95814
916/445-4633 (fax)

If you have any questions about CBA's position or would like to become more involved in educating the governor or your legislator on the issue, please contact Jamie Clark, vice president of Government Relations at jaclark@calbankers.com or 916/441-7377 ext. 209

CBA's grassroots efforts continue bring bankers' issuers to legislators

In an effort to more thoroughly educate key decision-makers on CBA's legislative issues, CBA is undertaking a significant grassroots program. Integral to the success of this program is forging relationships with elected officials, and the first step in that process is conducting regular meetings in each targeted legislator's home district. Including those listed below, CBA has scheduled nearly 50 meetings with legislators and its member banks in the last four weeks. CBA members who participate are given updated information on key issues prior to their meetings. If you or one of your senior officers would like to participate in any of the following meetings or subsequent district meetings, please contact Mary Maybie at mmaybie@calbankers.com or 916/441-7377 ext. 207.

* Please note: Assembly Member Pat Wiggins meeting scheduled for Friday, May 24, 2002 at 2:30 p.m. has been cancelled. Meeting date has not been rescheduled.