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Why your membership in the Alliance matters

I wanted to update you on the status of tax legislation in the state of Washington that the Alliance has been following for several weeks. Lawmakers in the Evergreen State have been struggling to reduce the state’s budget deficit and, not surprisingly, closing “loopholes” is viewed as a lucrative source of new revenues. While the fraternal exemption had not been mentioned in budget negotiations through last week, that all changed with the publication of this editorial in the Saturday, March 20, issue of The Seattle Times.

Even though the reference to the Grange Insurance Company as a fraternal insurer is incorrect, this may be an error without distinction. While the Grange is organized and regulated as a for-profit mutual insurer that provides property and casualty insurance products, the reference to fraternals clearly means 501(c)(8) organizations, like members of the Alliance. Moreover, we doubt seriously that the editors of the newspaper came up with this idea on their own and believe that they were briefed on the laundry list of exemptions by a state legislator who supports a proposal to increase the state’s tax revenue.

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The Alliance responded quickly and submitted the following letter to the editor to the newspaper:

Dear Editor:

Your March 30 editorial (“Target tax exemptions for needed state revenue”) correctly points out the need for state lawmakers to carefully review tax preferences in an effort to raise revenue. However, we are concerned that your support for the repeal of the tax exemption for fraternal benefit societies will do more harm than good to Washington taxpayers and the individuals and organizations that rely on the financial and volunteer support provided by fraternals.

Fraternals are not-for-profit organizations owned by and accountable to their members. They help secure their members’ financial futures by providing individual life insurance and annuity products and utilize the revenues from their business operations to positively impact the communities where their members live and work.

Fraternals play a vital role as community service providers at a time when government programs are strained to the breaking point. Fraternals fill the gaps in the social safety net more effectively than government funded programs. In 2011 alone, fraternals and their members provided communities in Washington with over 1.6 million hours of volunteer service and $7.1 million in direct financial support – far exceeding the value of any revenue to be gained by the elimination of the fraternal exemption.

The more than 120,000 fraternal members in Washington don’t seek headlines, but they make an important difference for people and communities every day. Policymakers and your newspaper should support and encourage their work, not threaten their ability to provide needed community services in a cost efficient – and uniquely American – manner.

Joseph J. Annotti
President and CEO
American Fraternal Alliance

More importantly, the Alliance retained a local legislative counsel in the state earlier this year to represent us on this issue. In addition, our member societies with the largest presence in the state, Thrivent and Knights of Columbus, are gearing up efforts to mobilize their members just in case we need to deliver a strong message to elected leaders from grassroots constituents in their home districts.

There are a number of factors in our favor in this debate. First, the Governor’s budget proposal does not contain any references to repeal of the fraternal exemption. Second, the Senate’s budget package, which came out yesterday, does not contain any “revenue generation” (i.e. exemption repeal) provisions. However, the House budget package is due out soon and it is likely to contain a variety of revenue generators, including a possible repeal of the fraternal exemption.

If that occurs and the bill gets scheduled for a hearing, you can rest assured that the Alliance will be there to testify against the measure, and that Alliance member societies will unleash their grassroots networks to reach out to state lawmakers to express their opposition to the measure.

The story will unfold over the next two weeks. While I am optimistic that we will win the day, this type of situation demonstrates the value of your membership in the Alliance. Our ability to track legislation, retain on-the-ground resources to represent your interests in state capitals, respond quickly to misguided news and editorial coverage of the fraternal exemption, provide lawmakers a reliable source of accurate information about the benefits of the fraternal business model, and work with members to generate grassroots contacts with public policymakers are among the Alliance’s core competencies.

No other state or national life insurance industry trade group is going to fight these battles – and we have to fight and win every one because one loss at the state level would undermine the viability of preserving our tax exempt status in every state legislature and in Congress.

I will keep you posted on the developments as they occur. In the meantime, if you have members in the state of Washington that you would like to know more about this negative legislation, please give me a call or send me an email. We’re happy to work with you on outreach to these individuals and to add them to our grassroots network.

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