Looking Back and Looking Ahead
By David Floreen
The elections are over and the political landscape in Massachusetts is just about where it was last October. Despite an aggressive campaign by Gov. Mitt Romney and the Republican Party to raise millions to support 130 Republican candidates for the Legislature (the most in over 10 years), the Democrats actually gained a net of three more seats in the House and Senate, retaining Massachusetts’ position as the most Democratic legislature in the nation. Why no real change? Political observers from the governor, Democrats and the media point to three factors: the absence of voter angst over any key issue, including the gay marriage vote last spring; a slowly improving economy; and the decision by former Speaker of the House Thomas Finneran to step down last October. Let’s take a final look at the successes of the 2003-2004 legislative session.
By several measures, the 2003-2004 legislative session was one of the most productive in recent years. The Massachusetts economy is improving but not recovered, companies are hiring more workers and state tax revenues are up more than six percent over 2003. These signs of optimism spurred the legislative leadership and Gov. Romney to work together to enact, on time, a state budget for FY 2005 that began the restoration of funding for critical programs while instituting notable reforms of many functions of state government. Last summer the Legislature enacted several major reform packages including: significant restructuring and streamlining of the state’s transportation agencies to facilitate better coordination; major reform of the school building assistance funding program; an overhaul of the public construction bidding and management process to reduce costs and delays; and a series of incentives to stimulate development in urban areas.
The Legislature also enacted corporate tax legislation introduced by Gov. Romney that will generate close to $100 million in additional tax revenues annually. From a banking industry perspective, the corporate tax bill preserved the essential features of the securities corporation language in current law; adopted reforms of the fiduciary tax laws, a key priority of bank trust departments and fiduciaries across the commonwealth; and established a special commission to study the impact a combined reporting requirement might have on Massachusetts businesses – a potentially explosive issue for 2005!
For the first time in several years, the Legislature enacted two important banking bills. Just after Christmas, Gov. Romney signed into law a major recodification package, Chapter 461 of the Acts of 2004, that substantially recodifies the state banking laws governing real estate lending and investments, streamlines the branch approval process for those banks that have an outstanding CRA record, allows for the establishment of limited purpose trust companies and, unfortunately, prohibits banks from selling title insurance. Another key new law was the passage of Chapter 268 of the Acts of 2004, which imposes significant new restrictions on high cost lending and requires lenders to ensure that loan refinancings are in the “borrower’s interest.” Unfortunately, the Legislature adjourned before enacting Association-sponsored legislation that would restrict the unauthorized use of a bank’s name by a third party and the creation of the Massachusetts Principal and Income Act. Both of these bills were top MBA priorities for 2004 and have been re-filed for 2005. The Legislature did not update portions of our EFT and check-return laws, regulate the issuance of so-called “live checks” or revise banking laws governing indirect lending and release of liens on motor vehicle titles.
Turning our attention to Capitol Hill, other than the renewal authorization of the national flood insurance program early in the year, Congress failed to act on any substantive legislation affecting banking during the final five months of 2004. In fact, it took two separate lame-duck sessions for Congress to enact a comprehensive homeland security intelligence reform package and the appropriation packages for the federal government agencies for FY 2005. This is not surprising, given that in 2003 Congress enacted two major banking bills: Check 21 and the FACT (Fair and Accurate Credit Transaction) Act. Congress, however, did reach a compromise on a corporate tax reform package that includes banker-sponsored provisions increasing the number of S corporations’ eligible shareholders from 75 to 150, allows existing IRAs that own bank stock to be eligible shareholders, and excludes interest and dividend income from passive income limitations. Unfortunately, Congress abolished the annual subsidy for the Small Business Administration 7(a) program, making the program self-supporting.
What’s Ahead in 2005?
First, the Massachusetts House last October elected Rep. Salvatore DiMasi (D-Boston) as its new Speaker of the House, replacing Thomas M. Finneran who resigned to become president of the Massachusetts Biotechnology Council. DiMasi soon will select a new leadership team and he is expected to provide a more open leadership style with a somewhat more progressive agenda. Of course, the real test will come when controversial issues hit the House floor. By all accounts 2005 will be a challenging year on Beacon Hill with health care, a Supreme Court decision on the adequacy of public education funding, and an alternative minimum tax for corporations among the top issues likely to generate considerable debate. Undoubtedly, many others will surface in the months ahead.
From a banking perspective, the Association’s agenda for 2005 includes electronic banking reform, strengthening the dual banking system, preserving charter choice/conversion options, prohibiting the unauthorized use of a bank’s name by a third party in certain mailings, strengthened penalties for bank robberies and check/electronic transaction fraud, corporate governance reform, preventing identity theft and several trust initiatives. Other high-visibility bills likely will include further restrictions on bank merger/acquisition practices (a fallout of the Bank of America/Fleet and Sovereign Bank/Compass Bank mergers last year), expanding the Community Reinvestment Act to mortgage companies and expanding credit unions’ powers to include accepting public deposits.
In Washington, President George W. Bush is revamping his Cabinet and claiming a mandate to act on a number of issues. The opportunity to move quickly on priorities, tempered with the escalating budget deficit, Social Security reform and the realities of the war in Iraq, will create lively dynamics on Capitol Hill in 2005. Congressman Barney Frank’s role as ranking minority member of the House Financial Services Committee ensures that the Association will have a key role in a number of issues before the committee this year. At the moment, GSE reform tops the list of key priorities. Other major issues likely will be: OCC pre-emption, real estate brokerage, appropriate deposit insurance enhancements, bankruptcy reform, regulatory burden relief, industrial loan corporations/interest on business checking, credit union fairness and rational accounting (FASB) determinations.
Furthermore, the regulatory agencies continue to move ahead with a number of initiatives. Congress and the agencies continue to monitor the banking industry’s implementation of Check 21, with a particular eye on making sure that customers receive the benefits of faster funds availability. The Federal Trade Commission and federal banking agencies still must finalize language on a few remaining portions of the FACT Act. The Securities and Exchange Commission (SEC) has postponed until March the release of final regulations to implement the bank broker-dealer provisions that will impact bank trust departments and those banks with third-party relationships that assist in the sale of securities and mutual funds. Banking regulatory agencies are not expected to advance revisions to the RESPA requirements or address regulatory burden relief in the immediate future. Other potential regulatory issues include: expanding the small bank CRA test, the Fed’s review of bounced-check-protection programs, and expanded use of the FTC Unfair and Deceptive Acts and Practices Rule.
2005 will be a very busy year for the banking community in both Boston and Washington. Banking industry involvement in the political process will be critical.
David Floreen is senior vice president at the MBA. He can be reached at email@example.com