A group of at least four banks have removed the $998million, 93,000-member Arkansas Federal Credit Union from a coalition of financialinstitutions assembled to fund a community development project inLittle Rock, Ark.

The project is the Little Rock Tech Park in central Little Rock,which the state's legislature and sponsoring universities have saidwill include “new and renovated buildings developed to form anintegrated environment for start-up and mature technologycompanies,” according to the Little Rock Tech Park Authority'swebsite.

The Arkansas legislature passed a law authorizing the park in2007, and a governing authority including the University ofArkansas at Little Rock, the University of Arkansas for MedicalSciences and the City of Little Rock came together under amemorandum of understanding in 2010, according to the Tech ParkAuthority.

When the Tech Park Authority requested loan proposals for theproject earlier this year, AFCU sent one of its communitydevelopment staff members to a meeting for financial institutionsinterested in helping fund the project. And, according to AFCUPresident/CEO RodneyShowmar (pictured), the AFCU staff member was generallywelcomed there.

“We never had an inkling, not a clue, that there would beanything wrong with our being part of this project,” Showmar said.“It wasn't until our involvement became more public that we startedto have a problem.”

According to Showmar and media accounts, the Tech Park Authoritysought $17.5 million for the project, which would be used topurchase property and fund necessary renovations, demolitions andother professional services.

The five banks that, along with AFCU, sent a joint letter ofintent on Aug. 7, 2015 to the Little Rock Tech Park Authority tobegin negotiations on the loan were Centennial Bank, First SecurityBank, Arvest Bank, Simmons First National Bank and up to two morebanks that were not named, the letter said.

AFCU's problems started, Showmar said, after media outletsreported AFCU was among the financial institutions involved in thelending group. After the consortium sent its letter of intent tothe authority, at the behest of the Arkansas Bankers Association,the group uninvited AFCU from participating in the deal.

In a statement about its actions, the ABA challenged AFCU'sfield of membership and tax-exempt status as it relates to theproject.

“Our request was to see if there was a possibility ofreplacing AFCU with one or more Arkansas banks that wished toparticipate in the loan package,” the ABA wrote in astatement.

“The request was made because some of our membership had readthe article and asked, rightfully so, how the Little Rock TechPark Authority could be a member of the AFCU,” the ABA wrote.“Congress granted credit unions a tax exemption so that they couldmeet the credit needs of people of modest means with a common bond.Credit unions were based on a simple concept, common bond,where members were from the same church, school, employer oreven small community. The Tech Park is a stretch, wellbeyond that intent.”

The ABA continued, “Also, we felt that since the Tech ParkAuthority is using sales tax revenues to acquire the initialproperties, and that there is a nine or 10 year commitment foradditional tax revenue use to help support the Tech Park, it makessense to have taxpaying Arkansas banks involved in thefinancing. Arkansas banks paid $258-plus millionin taxes in 2014. AFCU and 80 other Arkansas creditunions paid $0.00 in taxes. An individual taxpayer pays more intaxes than all credit unions combined. If the larger credit unionswish to compete for commercial lending, then let them converttheir charters and pay taxes.”

Showmar acknowledged that, had the credit union been allowed tocontinue, the Tech Park would have had to become one of the creditunion's SEGs or join an association that has a relationship withthe credit union. However, Showmar pointed out that hundreds oforganizations, both for-profit and non-profit, had become SEGs atthe credit union and there was no reason why the Little Rock TechPark could not have done so as well.

When asked for comment on the situation, ABA President/CEO BillHolmes stressed the tax issue more so than the field of membershipissue.

“There is something that is so incredibly ironic here,” Holmeswrote in an email to CU Times. “We are talking about anentity that is being financed and supported by sales tax revenues,and we, the ABA, believe that the financing should be throughtax-paying financial institutions. It seems simple.”

At this point, the issue appears to be unresolved. The banksuninvited AFCU after the deadline for the credit union to make aloan proposal on its own had passed, and the details of the loanare still up for negotiation. So in theory, the Tech Park Authoritycould insist that AFCU be allowed to participate in the consortiumif the loan is approved.

The Little Rock Tech Park project's director, Brent Birch,referred a question about the Tech Park Authority's officialposition on the controversy to two of the project's board members,but neither immediately responded to requests for comment.

Meanwhile, Cornerstone Credit Union League President/CEO RichardEnsweiler contrasted the banks' position on the matter.

“It amazes me that the best interests of the community are notthe priority of community banks,” Ensweiler said. “They petitionCongress saying they represent and serve the communities back home,but when it is time to step up to better the community, it is allabout themselves. Credit unions are community partners. Theyunderstand the needs and services of the community, and have noulterior motive to serve other than their total commitment to thebest interests of the individuals and businesses living and workingin the community or communities they serve. “