NCUA's Annual Budget Briefing: Budget Up Slightly; OTR, Operating Fees Down Slightly

WASHINGTON-During remarks at NCUA’s Fifth Annual Budget Briefing and Public Forum, credit union representatives breathed a sigh of relief when NCUA Executive Director Len Skiles announced that the agency was not expecting to assess an insurance premium for 2006. After Hurricanes Rita and Katrina hit, there was a concern that losses could lead to a premium but the situation has not reached those proportions at this time. “We would have to go through $200 million before we hit the 1.25% in equity ratio,” Skiles explained. That is the point where the NCUA Board could consider assessing an insurance premium; a premium must be assessed at 1.2%. “We do not expect that to happen,” he concluded. He added that the agency could reexamine the premium option if necessary in 2006. CUNA representative Paul Parish, CEO of Wings Financial Federal Credit Union, said he was pleased that no premiums would be necessary. However, he urged NCUA, “We would encourage that in the event that should come up, if there is a need for an extra premium, CUNA would like to say do your best to communicate that ahead of time and let credit unions know why it’s taking place.” NAFCU President and CEO Fred Becker, who presented for the trade group, noted that it is a positive that insurance premiums are likely not necessary “but it’s what the fact that you don’t think you’ll need the insurance premium means.” He followed up after the briefing, “It really shows how the system works together.” This cooperation among credit unions to aid those in dire straits is exactly why the larger credit unions should not be taxed because they are the ones helping out the smaller ones and if larger credit unions go away, so would that synergy, Becker pointed out. Particularly in light of the massive hurricanes, the credit union trades were glad to see NCUA keep a handle on its budget. Skiles announced that NCUA’s 2006 budget rose about $2.8 million, or 1.92%, to $150.8 million for 2006 over 2005. In 2006, NCUA will hold its regional conferences, which traditionally boost the agency’s budget in even-numbered years. “Once again, this proposed budget represents the continued wise use of the agency’s resources,” NCUA Chairman JoAnn Johnson said. “This proposal reflects our strong commitment to maintaining a fiscally responsible budget for achieving the NCUA’s mission, while also making certain that America’s credit union system has the regulatory resources necessary in ensuring safety and soundness.” Skiles credited NCUA employees with keeping a leash on the budget. “We have, probably most importantly, pushed accountability of the budget process down to the lowest levels possible,” he said. He noted that President George W. Bush recently held a meeting with top level appointees, including Johnson and she reported back that he said, “It’s not your money; it’s the people’s money,” which is the way the agency tries to view the process. “We have to have a budget that allows us to meet our mission objectives, but, at the same time, also needs to meet contingencies that invariably come up,” Skiles stated. He added that he would like to keep the difference between NCUA’s actual spending and the budget to less than 5%. Right now, Skiles said it is about 5.2% but by the end of the year, it should reach 2.8%. By comparison, he said, for 2004 the variance was 10.9%, which was when the agency actually returned $9 million in operating fees to the federal credit unions. As is typical, pay and benefits accounted for 74.5% of the agency’s budget; add travel in and that becomes 83.7%, according to NCUA’s figures. The agency did trim approximately three full-time equivalents-none of which were from the field staff-to bring staffing to 957.92 FTEs. NCUA has had a problem with vacancies the last few years and despite hiring 85 new employees, it still has a net shortfall of 42 FTEs, 13.5 of which are in the field. These open FTEs have led to a portion of NCUA’s budgetary savings. The executive director also emphasized that 61, or about 7%, of NCUA staff will be eligible to retire in 2006, which ratchets up the importance of filling vacancies. The decline in the number of federally insured credit unions has brought a drop in agency staffing since 2000 (See chart below). But simply comparing the number of credit unions to the number of examiners does not provide a complete picture, Skiles indicated. Even though NCUA will save about 12,000 examiner hours due to consolidation, new requirements under the Bank Secrecy Act and Home Mortgage Disclosure Act add more than 17,000 examiner hours for a net of plus 5,300 hours, equal to four FTEs. Skiles went further to note that he would like examiners to spend a minimum of 50% of their time actually in their examination and supervision duties. Between the pure examination and supervision (50%) and the small credit union program (2%), NCUA is meeting that goal. CUNA Associate General Counsel Mary Dunn applauded the agency for its budget forum, noting it is the only federal financial institutions regulatory body to do so. She said CUNA appreciated NCUA’s efforts “to hold costs down, while at the same time provide sufficient resources.” In the future, she said CUNA feels it is important for NCUA to tie its budget into its strategic plan. Bill Hampel, CUNA’s chief economist, added that he was hopeful that the agency might in the future provide those wanting to testify with preliminary budget figures prior to the forum so commentary could be more specific. He explained that he was not looking for details, but only “top level numbers.” Becker was pleased with the direction of the briefing. He noted Skiles’ references to actual-to-actual expenditures during his presentation rather than budget-to-budget or budget-to-actual and his intention to maintain a 5% variance between the budget and spending. “He’s paying more attention.” Becker commented. “It is money from federal credit unions in the end.” He stated in his comments to the sole NCUA Board member that federal credit unions fund 74% of NCUA’s budget. The overhead transfer rate, which has typically been the highlight of the meeting as it indirectly relates to NCUA’s budget, caused less of a scene this year. NASCUS usually dives directly into the issue of the OTR rate setting process, but demonstrated a `kinder, gentler’ approach this time around. The theme for NASCUS’ presentation was cooperation and Chair Linda Jekel, director of credit unions for Washington State noted how the state and federal regulators worked in concert on the failed Columbia Credit Union conversion. The testimony was peppered with references to the “synergy.when the state regulator and NCUA work in consultation and cooperation.” About a third of NASCUS testimony talked around the OTR, funds transferred from the National Credit Union Share Insurance Fund to pay for the agency’s insurance-related expenses. Jekel noted that NCUA’s inspector general performed a review on the risk of state chartered credit unions on the NCUSIF. In it, she pointed out that the report said, “Since the state supervisory authority is the regulator of state-chartered credit unions, and the NCUA is the insurer, it would appear reasonable that in most cases the state supervisory authority would spend more time than the insurer in federally-insured, state-chartered credit unions.” Additionally, NASCUS continued in that vein, NCUA would spend more time as the regulator of federally-chartered credit unions than as NCUA, the insurer of federal credit unions. “Using this logic, we believe the calculation of how the agency accounts for its regulatory and insurance roles should reflect less time spent by the insurer of state-chartered credit unions, since the majority of time is spent by the state regulator in its regulatory role,” Jekel continued. “This is our observation: there are still concerns among state regulators and state-chartered credit unions about the definition of what NCUA deems insurance-related and what is safety and soundness-related when allocating examination expenses.” However, there was not one direct reference to the OTR in the entire commentary. Jekel finished up by suggesting NASCUS and NCUA further update and sign a new Document of Cooperation. “It is important that we continue to respect each other.it opens the door to learning from each other,” she said. Skiles said NCUA estimates the OTR will be set at 56.7%, down from 57% in 2005. On the flip side of the charter coin, federal credit unions’ operating fees will decline slightly, probably less than 1%, he said. [email protected]