"The regulatory issues really aren't subsiding," he said. "If anything they're really still increasing." For one thing, member

business lending at credit unions is up 9% this year, accounting for a small but growing proportion of credit unions' loan portfolio. Additionally, about half of all loans by credit unions--93% of all loan growth in the first half of the year--were real estate lending; though credit unions were not involved much in the subprime market, side effects are anticipated.

"We're actually increasing the amount of time we spend in a credit union," Skiles also pointed out. He noted that guarding against security breaches and the protection of personal information has partially driven this because less information leaves the credit union. As a related matter, travel costs are increasing plus the agency is

moving all new examiner training back to NCUA's Alexandria, Va. headquarters.

The agency also has concerns about broadening fields of membership. "There are a lot of great things about expanded fields of membership but there are also issues we need to be aware of," Skiles said.

All told, Skiles said that the number of full-time equivalents will likely trend back upward as assets and new products and services continue to grow.

Additionally, the agency will be purchasing cell phones for examiners next year at a cost of $230,000, a software upgrade will be installed for examiners to submit examination data and share information and emerging trends, and NCUA will be spending $2.7 million on a mandated update to its accounting system.

While not thrilled with the idea of an increased agency staffing and budget, CUNA Deputy General Counsel and Senior Vice President for Regulatory Advocacy Mary Dunn said they understood. "I don't know that support is the right word. I think we need to recognize the agency can't always continue to cut staff. I think it's more of a grudging appreciation."

CUNA's witness, Tennessee Credit Union League President Tom Gaines, also noted during his testimony that on top of the additional regulatory burdens expected to tap NCUA's budget, the agency is also considering whether to continue its data collection effort. The pilot program of just a few hundred credit unions came at a price tag of $1.1 million.

NAFCU President/CEO Fred Becker noted that NCUA's budget increases have averaged about half of inflation over the past seven years but the increase is roughly equal to inflation in this proposal. He also pointed out that the FTEs had been declining since 2000 but now there is an increase proposed with an indication of possibly more to come. "Are we headed down a slippery slope?" he wondered.

The overhead transfer rate--the percentage of the budget funded by a transfer from the NCUSIF for "insurance-related items"--is expected to drop from 53.3% to 52.3% for the 2008 budget based on increased supervisory responsibilities this year. NCUA has yet to officially define what is and is not insurance related, which Gaines brought up in testimony.

Between the increased budget and lower OTR, the operating fees charged to federal credit unions are expected to increase around 9.1%, according to Skiles. While Becker did not comment on the specific figure, he did state during his testimony and after the fact, "I do think it would be beneficial to know what Len is going to say before he says it."

Gaines agreed, stating, "To the extent they have a finished product, that would be great to have in advance." The reasoning, he emphasized, is as important as the numbers.

However, Skiles said he expects the operating fee to fall about the same amount and the OTR to increase again for the 2009 budget. "That part is fairly rational as far as how the system works," CUNA Chief Economist Bill Hampel commented.

The agency finalizes its budget at the November board meeting. Written comments on the budget proposal are being accepted through Nov. 1, at which time CUNA and NAFCU plan to submit additional comments. "It's good to know that you monitor our resources...I view this budget as your budget as well because you pay the bill," Skiles said.

NCUA Chairman JoAnn Johnson added "As we advocate for transparency within the industry itself, it's important we adhere to that as well."

Vice Chairman Rodney Hood highlighted that NCUA is the only government agency to hold a budget forum and Board Member Hyland emphasized that the agency is "very sensitive" to the fact its spending credit unions' money.

Put That on My Tab

NCUA is looking at shifting costs of certain examiner training to the states, Skiles explained during the Oct. 22 Budget Briefing and Forum.

In the past, the agency has allowed state examiners to attend its training seminars free of charge. However, Skiles raised the possibly requiring the state regulatory agencies allowing private insurance in the state to pick up the tab for some examiner training costs if they attend NCUA courses beginning in 2009. A specific formula has not yet been determined.

While NAFCU has pushed this issue in the past, it was not part of their testimony and in follow up, Becker only said, "The managing of examiners and how NCUA handles this issue is completely up to them." He did point out the constitutional issue of federal funding going to train examiners of privately insured, state chartered institutions.

NASCUS President/CEO Mary Martha Fortney plans to poll her members to get their input on the plan. In his testimony during the briefing NASCUS Chairman George Reynolds, the Georgia credit union regulator, commented, "Partnering is also important in [education]. Both NCUA and NASCUS provide valuable training programs. To be prudent with our budgets, it is essential that we partner whenever possible and remain cognizant of both of our training schedules to eliminate redundancies and combine resources. Let's continue to partner together on education; it provides the foundation for the effectiveness of our regulatory and supervisory programs."

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