Making prognostications on the accomplishments of any legislative body months before it concludes its session is usually difficult. Nevertheless, with just over four months remaining in formal sessions on Beacon Hill, priorities for 2004 are emerging. As is often the case, however, unexpected issues divert attention from traditional matters. The ongoing debate over a constitutional amendment on gay marriage precipitated by the state supreme court decision last November, and the likely nomination of Sen. John F. Kerry (D-Mass.) as the Democratic nominee for president at the national convention in Boston in late July, continue to drain attention and energy away from pressing state issues.
Without question, adopting a budget for FY ’05 remains the most critical task for the legislature. Later this month the House will present and debate its version of a budget and later in May the Senate will do the same. Both the senate president and speaker of the house have repeatedly affirmed their intent to present a budget to Gov. Mitt Romney by mid-June, thus providing the governor ample time to review the budget, veto any sections he chooses, and give the legislature time to override any vetoes before they conclude formal sessions later in July.
With so few bills moving through the legislature, the state budget becomes a major vehicle to revise various state programs or laws. Last year’s budget enacted a major overhaul of human and public assistance programs and agency structure. It is not yet clear what major changes the FY ’05 budget will recommend, but the continuing annual double-digit increases in health care and school building assistance programs clearly dictate immediate action. Funding for local aid, including K-12 education and higher education is likely to be level-funded or receive a slight increase, unlike FY ’04. The legislature is also likely to approve much of Romney’s legislation with a number of technical state tax laws affecting businesses.
State revenue collections for the first two-thirds of FY ’04 continue to run about 4 to 5 percent ahead of targets, and if the pattern holds until June, the fiscal outlook for FY ’05 could be better than initially feared last fall. The one continuing deep concern remains the anemic job growth numbers and no real sign locally of employers hiring additional workers. Since 60 percent of Massachusetts revenues come from the personal income tax, until a steady and consistent pattern of employment growth emerges, particularly among the high tech and white collar work force, state budget writers will remain very cautious in restoring or initiating new programs. Despite improving revenues primarily from higher corporate earnings, the budget gap between anticipated revenues and expenses still will exceed $1 billion, with intense debate over where and how to close the gap, always a challenge in an election year.
All of the standing legislative committees have acted on nearly all of the bills on which they have held hearings over the past year, with the vast majority referred to study. The Committee on Banks and Banking completed hearings on all of its 80 bills and acted on all but two by the end of March. At this juncture, it appears that the priority legislative issues affecting the banking industry for the balance of 2004 will be: major recodification of the state’s bank lending and investment laws, adopting a new predatory lending law, restricting the improper use of a bank’s name in mail solicitations, updating our antiquated EFT statute, mandating the licensing of consumer credit counseling services and updating Massachusetts laws to ensure a smooth implementation of Check 21 this fall.
Affordable housing, some form of “smart-growth” incentives, health care financing, school building assistance reform, adoption of the uniform probate code, further regulating use of credit scores in insurance pricing, and strengthening identity theft laws, are among the frequently mentioned “big-picture” issues clamoring for attention between now and the end of July. The Banking Committee is still holding two bills that would impose CRA requirements on mortgage companies.
As is often the case, non-legislative issues can consume considerable attention and energy, and this past winter is a perfect example. Gov. Romney’s decision last December to issue Executive Order 455, regulating the practices by notaries public, and the new regulations issued by the Division of Professional Licensure governing pre-need funeral trust accounts attracted the attention of the banking industry this winter. The Association was successful in working with the Division of Banks to address concerns expressed by state banks in being able to act as a trustee of these accounts. The Association also was very active in working with the governor’s legal office to address a series of concerns identified with the new order on notaries and we were generally pleased with the outcome of those discussions.
Complicating the process is the Democratic National Convention in Boston during the last week of July, traditionally a very busy week in the Massachusetts Legislature. While legislative leaders have not formally announced any revised schedules, speculation continues on Beacon Hill that formal sessions may conclude by mid July, further compressing the opportunities to advance controversial items. The next issue of the Massachusetts Banker will update readers on the progress of these developments.
Federal Developments: A Quiet Year in Congress, Very Active in Regulations
As highlighted in detail in our previous issue, 2003 was one of the most successful sessions in Congress in recent years as the banking industry achieved two major victories: the Fair and Accurate Credit Transaction Act of 2003 (FACT) and the Check Clearing for the 21st Century Act (Check 21). For 2004 the challenge for the banking industry and its regulators shifts to developing the regulations and adopting the systems and procedures necessary to implement these important new laws.
Regarding Check 21, while banks can choose whether to originate electronic check conversion, all financial institutions must be able to accept these electronic payments and convert them to substitute checks by the Oct. 28, 2004 effective date. Both statutes affect all consumers and many businesses and will require extensive training of bank personnel along with consumer and media education later this summer and fall. The Association plans to play a leading role in those areas and will update member banks as information becomes available.
The legislative calendar is considerably shorter this year, with interruptions for the national political conventions in the summer and congressmen and senators anxious to get back to their districts to campaign in the fall. Therefore, we are not likely to see Congress enact many banking bills in 2004. A number of key issues are languishing before Congress: bankruptcy reform, deposit insurance reform, interest on business checking accounts and reform of government-sponsored enterprises. While the House of Representatives has approved its version of legislation addressing all of the above issues except GSE reform, the Senate appears to be reluctant to take these bills up for a variety of reasons. Here is a quick recap of where the major bills stand:
The House approved in 2003 a comprehensive bankruptcy reform bill, HR 975, similar to what it adopted in 2002, minus the controversial abortion clinic violence language that had derailed the legislation late last year. The House approved HR 522, the Federal Deposit Insurance Reform bill by a wide margin, but the Senate is unlikely to approve the bill as Senate Banking Chair Richard Shelby (R-Ala.) remains cool to increasing insurance coverage.
The Business Checking Freedom Act of 2003, HR 758, would provide 24 transaction business sweep accounts immediately, repeal the ban on the payment of interest on business checking accounts within 24 months and would allow the Fed to pay interest on bank reserve balances. HR 758 also includes the controversial amendment to permit industrial loan corporations to offer these accounts within two years, thus making it more attractive for firms like Wal-Mart to own a bank with certain restrictions. The House approved HR 758 in March 2003 and a companion bill is awaiting action in the Senate, but is not likely to see floor action this year. Last month the House approved legislation incorporating a number of provisions seeking to reduce the regulatory burden on banks, which incorporated the business checking amendment. The bill also introduces certain grandfathered limitations on industrial loan corporations from de novo banks. However, the bill also included provisions expanding powers for credit unions, thus making it uncertain whether the Senate will approve the bill this year.
Last year, Realtors failed to convince Congress to enact legislation preventing banks from conducting real estate brokerage services, irrespective of Gramm-Leach-Bliley, but Congress extended another one-year moratorium preventing banks from conducting real estate brokerage services in the omnibus appropriation bill. The Association vigorously opposes Realtor efforts to prevent bank regulators from carrying out their responsibilities under GLBA.
In addition, Congress may approve proposals to reform the retirement laws, including the ability of retirement plans to provide investment advice to plan participants and expand the ability of individuals to make a charitable contribution from an IRA plan. Separately, the Senate is expected to unveil legislation that would create a “world class” regulator with control over safety, soundness and mission for Fannie Mae, Freddie Mac and the Federal Home Loan Bank system.
Finally, the Department of Housing and Urban Development in late March pulled back a long expected revision of the RESPA regulations, asserting that the regulations needed further review, a move the Association applauded.