Proposition 88 Development Tax Limits : Would Let Thrifts Compete for Government Deposits : Initiative Called a ‘Ho-Hummer’

Even the staunchest backers of Proposition 88 characterize the Deposit of Public Moneys ballot measure as a “ho-hummer.”

At only 11 words, Proposition 88 is the shortest, simplest and one of least controversial measures on the November ballot. There is no organized opposition to the proposition and a similar technical amendment to the state Constitution was approved by voters in 1986.

Proposition 88 would allow state, county, local and district government bodies in California to invest their surplus funds in federally insured industrial loan companies, in the same way that they now make deposits in banks, savings and loans and credit unions.

Industry officials have projected that the state’s 55 industrial banks--more commonly known as thrift and loans--could tap upwards of $500 million in government deposits within the next three to five years.

And the state’s estimated 7,000 government bodies--from the smallest school, sewage or mosquito-abatement district to the multibillion-dollar state Treasury--could earn millions of dollars more in interest through the higher rates offered by thrift and loans and the competition for billions of dollars in government deposits that they could ignite.

Thrift and loans are “no-frills” financial institutions that take in deposits and make a variety of loans, but do not typically offer services such as checking, safe deposit boxes or traveler’s checks.

They generally offer interest rates on deposits that are a quarter to half a percent higher than those available from banks, savings and loans or credit unions.

Because of the attractive rates, some government bodies opened accounts at thrift and loans in the mid-1980s. But California banking officials eventually ruled that the state Constitution specifically allows deposits only in federally insured banks, S&Ls; and--as the result of a 1986 ballot measure--credit unions.

The $50 million to $75 million in government deposits thrift and loans attracted had to be returned.

Some Saw Advantages

But some thrift and loan executives saw advantages in accepting government deposits and set about to plug up the crack in the Constitution by drafting Proposition 88. Bills to put Proposition 88 on the ballot swept through the state Assembly and Senate earlier this year, with just one “no” vote.

The ballot measure is being backed by the California Taxpayers Assn., the California Chamber of Commerce, the Assn. of California Water Districts, state Controller Gray Davis, Los Angeles City Controller Rick Tuttle and scores of county and city treasurers.

It is also being backed by the California Assn. of Thrift and Loan Companies, which represents the 55 industrial loan companies now operating in the state with a combined $3 billion in assets.

Not everyone, however, is happy about the competition that could be ushered in by the measure.

“S&Ls; don’t like it and the banks don’t like it. But (they) couldn’t think of a good reason to oppose it,” said one Sacramento lobbyist who follows legislation affecting financial institutions.

“We’d love to see the voters vote it down, but they probably won’t,” said one savings and loan industry official.

Most officials in competing industries, however, do not see much of a threat.

Only a few dozen of the state’s 440 banks and 200 S&Ls; seek out state Treasury deposits in any deliberate fashion because of the strict conditions imposed by the state. Now, just 31 S&Ls; and four banks have state Treasury deposits. It is not clear how many banks, S&Ls; and credit unions seek out deposits from the myriad city, county and district treasuries.

But Gary Wehrle, president of Foothill Thrift & Loan Assn., said he expects all 55 thrift and loans in the state to actively seek out government deposits if the voters go along.

Wehrle said he expects government deposits to account for 10% of total industry deposits of $5 billion by 1993. Total industry deposits in California are now about $3 billion.

Gathering bulk deposits in $100,000 blocks from government agencies “could save us from having to open another branch,” Wehrle said. And, he said, a school district earning 1/2% more on a $10-million deposit would earn an extra $50,000, or enough to “hire an extra coach or teacher.”