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A new state banking development district was inaugurated in Jamaica, Queens, last week with much fanfare and a ribbon-cutting appearance by the mayor. It’s the first district in Queens (ninth in the city overall) where a bank can get financial benefits from the government in exchange for opening branches in a low-income, historically red lined neighborhood.

But while such districts are great for small banks, they are cause for consternation among another important group of lenders: New York City’s 143 credit unions. Although these lenders often serve underserved areas, they are excluded from the program.

Banking development districts (BDDs) were created in 1998 to combat the statewide problem of banks refusing to operate in poor neighborhoods. That’s why credit unions were originally excluded from the program, according to Amy Kramer, director of legislative affairs for the New York State Credit Union League. “Credit unions were not part of the problem they were trying to solve,” she said.

To lure small and midsized banks back into underserved areas, the state offered them property tax relief and access to municipal deposits. Carver Federal Savings Bank, for instance, will get a deposit of $10 million in city funds in exchange for opening their Jamaica Center Branch.

The New York City Banking Commission didn’t adopt the BDD program until last year, but since then the city has selected nine banks to operate in designated districts in areas like East New York, South Central Harlem and the Bronx.

As the number of BDDs has risen, so has the ire of credit union leaders. “We have been discriminated against by being excluded from that program,” said Lillian Bent, manager of the Union Settlement Federal Credit Union in East Harlem. She and other local credit union managers argue that BDDs should not be used solely to entice banks to work in neighborhoods they once fled, but also to reward credit unions for years of lending in low-income neighborhoods.

And credit unions need the help. Since September 11, economic instability, low interest rates and high housing costs have resulted in fewer requests for personal and mortgage loans, a loss in foundation and government grants, and virtually zero return on invested income, said Cliff Rosenthal, executive director of the National Federation of Community Development Credit Unions.

Bethex Federal Credit Union is a stark example. Founded in 1970 by a small group of women, Bethex had grown into a five-branch powerhouse by 2000 with a reputation for being among the most creative and successful credit unions in the city. However, after 9/11, Bethex was hit so hard by the double whammy of fewer personal loans and fewer foundation dollars, it had to close three branches and retrench.

Hoping to offer credit unions like Bethex a lift, Assemblymember Ivan Lafayette (D-District 34, Queens) recently introduced legislation that would allow credit unions in designated BDDs apply for the same financial benefits as banks. It won’t be an easy sell: Lafayette has sponsored a similar bill for the past three years, and every year it’s been blocked in the State Senate.

The New York State Bankers Association, a powerful lobby, has argued that credit unions already get government help, and should not get access to BDDs unless they are required pay the same corporate income taxes as banks.

Still, credit unions are hoping to win the BDD fight this year. They have an ally in Senator Hugh Farley (R-District 44) who chairs the Senate Banking Committee and introduced legislation in the Senate on April 13 to expand the BDDs to credit unions.

We need to have more state and federal support,” said Pablo DeFilippi, CEO of the Lower East Side People’s Federal Credit Union. “Providing services to low-income people is an expensive proposition.”