Across New York State, school districts and other municipalities are under intense financial pressure. Rising construction costs, inflation, unfunded mandates, borrowing expenses, and growing demands on public services have forced local governments to scrutinize every dollar.
Yet one of the most basic financial tools available to public entities—where they are allowed to deposit public funds—remains governed by an outdated law that restricts competition and quietly drains taxpayer resources.
The Problem: A State-Mandated Banking Monopoly
Under current New York law, municipalities—including school districts—are prohibited from depositing public funds with credit unions. Instead, they are limited almost exclusively to traditional commercial banks.
This restriction has nothing to do with safety, oversight, or financial stability. Deposits at credit unions are insured at the federal level through the National Credit Union Administration (NCUA), just as bank deposits are insured through the FDIC. From a risk standpoint, both institutions meet rigorous federal standards.
The result is not protection—it is forced dependency.
As the New York State School Boards Association testified to the New York State Legislature, school districts are barred from accessing credit unions despite the fact that credit unions routinely offer higher interest rates on deposits, better loan terms, and lower fees than traditional banks.
That difference may seem small in isolation. Across billions of dollars in municipal balances statewide, it becomes enormous.
The Hidden Cost: Lost Interest Income
School districts often hold significant cash balances throughout the year due to the timing of state aid payments, property tax collections, bond proceeds, and reserve funds. Even modest improvements in interest rates can translate into hundreds of thousands—or millions—of dollars annually.
Credit unions are structured as not-for-profit financial cooperatives. Because they are owned by their members rather than shareholders, they return more value in the form of better rates and lower fees. On average, credit unions consistently outperform commercial banks on deposit returns.
The NYSSBA noted that granting municipalities access to credit unions would:
• Generate direct financial savings
• Expand competition in the public deposit marketplace
• Potentially improve rates across all financial institutions, including banks
In an era where districts borrow short-term funds at high interest rates (Tax Anticipation Notes) while simultaneously earning minimal interest on idle cash, these restrictions are economically irrational.
New York Is an Outlier
New York is increasingly isolated in its refusal to modernize public banking laws.
According to the New York Credit Union Association, most states already permit credit unions to accept public deposits. These states have recognized what New York has not: competition benefits taxpayers.
The Association describes New York’s policy as an “antiquated law” that:
• Locks municipalities into a for-profit monopoly
• Prevents local governments from acting in their own financial best interest
• Drains public funds that could otherwise be reinvested locally
This is not about choosing credit unions over banks. It is about allowing choice.
Safety Is Not the Issue
Opposition arguments often rely on outdated perceptions of credit unions as smaller or less stable institutions. That claim no longer holds water.
More than 100 million Americans safely use credit unions every day. They are federally regulated, federally insured, and subject to extensive oversight. As NYSSBA testified, the historical reasons for excluding credit unions “simply no longer exist”.
If credit unions are safe enough for families, retirees, small businesses, and even other governmental entities in dozens of states, they are safe enough for New York’s school districts.
What This Could Mean for Schools
Allowing municipalities to use credit unions would not require mandates or forced changes. It would simply:
• Add another approved depository option
• Encourage competitive bidding for public funds
• Allow districts to maximize interest earnings responsibly
Those additional dollars would not disappear into corporate profits. They could be redirected toward:
• Classroom instruction
• Mental health supports
• School safety improvements
• Property tax relief
• Reduced reliance on short-term borrowing
In a state where districts are asked to do more with less every year, ignoring this opportunity is fiscally negligent.
The Legislative Path Forward
Legislation to modernize New York’s public deposit laws has been introduced in the past, including Assembly bill A.4818, which is sponsored by the Chair of the Banks Committee, Assemblyman Clyde Vanel.
The concept is simple and widely supported:
• Authorize credit unions as eligible public depositories
• Maintain all existing safeguards and collateral requirements
• Preserve local discretion—no mandates, only options
A Common-Sense Reform with Broad Benefits
This is not a partisan issue. It is not an ideological issue. It is a financial common-sense issue.
New York prides itself on progressive policy, innovation, and fiscal responsibility. Yet when it comes to public banking choice, the state is stuck in the past—at the expense of schools, taxpayers, and local communities.
Modernizing this law would:
• Increase competition
• Improve public returns
• Keep more public dollars working locally
• Strengthen financial stewardship statewide
At a time when every dollar matters, New York can no longer afford to leave millions on the table simply because the law has failed to keep up with reality.