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NCUA Approves 4.2% Increase in 2015 Budget; McWatters Dissents
Friday, November 21, 2014 6:40 AM

The National Credit Union Administration approved its 2015 budget yesterday morning, which allows a 4.2 percent spending increase over last year. The vote was 2 to 1, with board member J. Mark McWatters casting the dissenting vote.

The total budget amount is set at $279.5 million—up $11.187 million. While retiring CFO Mary Ann Woodson noted that the 2015 increase represents the smallest since 2008, it is still the eighth consecutive jump in year-to-year spending. The largest area of increase is contracted services at 8.5 percent; travel expenses up 2.7 percent. The largest expense in the budget is pay and benefits ($ 201.895 million) and travel ($29.288 million).

In its letter to NCUA last week, Credit Union National Association urged the agency to refrain from an increase in 2015. "We'd like the board members to look and see if there's a need to increase the budget every year, especially when the credit union system is doing well," said Mary Dunn, CUNA's deputy general counsel and senior vice president. "The NCUA is the steward of credit unions' funds, and we think it should be looking at ways to reduce costs, particularly when it comes to employee and travel costs."

Among CUNA's concerns listed in the letter are a lack of a process for credit unions to provide input on the budget, a proportionally higher increase in staffing costs at the agency compared with other regulators, and an overhead transfer rate of 69.2 percent, which is an all-time high.

At the budget meeting, NCUA Chair Debbie Matz emphasized that the agency's budget formulation process uses a zero-based budgeting technique and requires each NCUA central office director to justify their annual budget requests. She said cutting budget was not an option. "The only way to cut the budget is to cut staff...and we made that mistake during the crisis," Matz said.

However, newest board member McWatters said he is dismayed by the 2015 budget increases and called for a formal public budget hearing process. Next year, McWatters wants the credit union community to see budget items at least two weeks before any budget hearing. He invited specific, detailed comments on budget and the budgetary process to be sent directly to him.

CUNA President/CEO Jim Nussle issued this statement after the NCUA vote: "The Credit Union National Association remains very concerned that the National Credit Union Administration board has increased its budget yet again. Rather than reducing expenditures, the agency has continued to bolster its budget for eight straight years.

"Based on my own experience in building budgets, I know that monitoring and modernizing resources to maximize funds—which credit unions have been doing—are among the most effective methods for containing costs. NCUA is not following a similar path, and that's a concern for me and credit unions. CUNA will continue pressing the agency to be more efficient with credit unions' funds."

For future budgets, McWatters said he would like to see:

  • Additional detail regarding employee pay and benefits travel, rent/communications/utilities administrative and contracted services expenditures;
  • A detailed analysis of how NCUA may reduce those expenditures;
  • Submission of the NCUA's methodology in calculating the OTR for public comment, and a detailed description of the methodology adopted by NCUA following an analysis of the comments received;
  • A detailed analysis of expenditures among NCUA, the National Credit Union Share Insurance Fund, the Temporary Corporate Credit Union Stabilization Fund and the Central Liquidity Facility;
  • A detailed analysis of why NCUA's budget has increased by more than 50% in the past five years, as well as a year-by-year analysis of all such increases;
  • Analysis of all cost savings programs implemented by NCUA over the past five years;
  • Analysis of all expenditures incurred by NCUA to support the Financial Stability Oversight Council;
  • A detailed analysis of all expenditures incurred by NCUA in implementing the Sensitive Compartmented Information Facility;
  • A detailed analysis of all expenditures that NCUA anticipates to incur with respect to the proposed risk-based net worth rule, as well as all other proposed rules;
  • A formal cost-benefit analysis with respect to each rule or regulation proposed by NCUA, as well as a detailed description of the methodology employed by NCUA in conducting such analysis; and
  • A detailed reconciliation of how NCUA plans to allocate budget expenditures to achieve its strategic goals.

"The board's job, in my view, is not merely to follow the script set by other financial regulators, but to lead and to set the standard of transparency and accountability for all such regulators," McWatters said.

Also split 2 to 1—with McWatters dissenting—the NCUA approved an overhead transfer rate of 71.8 percent. The Federal Credit Union Act authorizes the NCUA to expend funds from the National Credit Union Share Insurance Fund for administrative and other expenses related to federal share insurance. An overhead transfer from the NCUSIF covers the expenses associated with insurance-related functions of the NCUA's operations.