This is the fifth NCUA budget I have voted on since I became a member of this Board in 2013. In each of those five years, the Board has acted to make the agency’s budget more transparent and efficient, and to reduce the rate of growth. No stone has been left unturned to find ways to economize, and I have consistently made cuts to the proposed budget for my own office every year I’ve been on the Board in order to lead by example.
This is not only the most transparent budget in NCUA’s history, it is also the most transparent of any of the federal financial services regulators, and is quite likely the most transparent of any federal agency. We have released more than 100 pages of information on the budget, including line items for every office and extensive details on our capital budget and contracted services. I’m, frankly, not aware of any public or private entity in the financial services sector that releases this level of detail on its budget. Under my leadership as Chairman, we not only increased the level of disclosure, but we also resumed the practice of holding pre-decisional budget briefings. That practice has continued under Chairman McWatters.
This is also the fifth consecutive year where the rate of budget growth has declined, from 6.7 percent in the 2014 budget to 2.1 percent in 2018, and 1.5 percent in 2019. It is less than one-sixth the 13.0 percent rate of growth in 2010 at the peak of the Great Recession. On an inflation-adjusted basis, the change in the proposed budget is actually negative. At our budget briefing, one industry representative even acknowledged that NCUA’s proposed budget, “compares favorably to both increases in headline inflation and to increases in credit union operating expenses,” which were 3.5 percent in the year ending June 2017.
Much of the reduction has come as the result of three agency initiatives over the last several years—the Exam Flexibility Initiative and space utilization reviews I initiated during my term as Chairman, and the reorganization initiative begun under Chairman McWatters’ leadership. These initiatives will enable us to make better use of our human resources and our physical assets, which make up the vast majority of our budget. Along with the work being done by our business innovation group, this will position the agency to meet the future needs of credit unions and their members. As hockey great Wayne Gretzky once observed, success is skating, “to where the puck is going to be, not to where it has been.”
Under this budget, over a 2-year period, NCUA’s headcount will decline by 95 positions, two of our five regional offices will close, the ratio of supervisory examiners to staff will increase 25 percent from 1:8 to 1:10, and our leased office space will decline by 80 percent. These are significant changes that will affect nearly all NCUA employees, not just the ones whose positions are being eliminated or transferred. I want to publicly thank our employees’ union, the NTEU, for working with us to avoid involuntary RIFs and to minimize the impact on our current employees. I also want to thank our employees for their patience and understanding as we implement these changes.
It is worth noting that even though there are well over 5,000 federally insured credit unions, we received fewer than ten comments on the proposed budget, all but one of which were from trade associations or their representatives. We received almost no specific requests for changes in budget line items. A few asked for clarification of some budget items, which we are providing in the information we are releasing today.
A few commenters suggested that the inflation-adjusted reductions were not sufficient and our budget should return to some arbitrary pre-recession level because current losses are at unusually low levels. They ignore problems on the horizon like institutions already in conservatorship, which are likely to result in significant losses to the Share Insurance Fund. They also ignore the fact that the purpose of examination and supervision is to prevent and minimize losses. The agency doesn’t exist just to clean up after losses occur.
Critics also compare changes in our budget with changes in other regulators’ budgets without adjusting for the fact that other regulators’ budgets started at much higher pre-recession baselines and do not include separate liquidation budgets. They also do not account for the fact that we are the only financial regulator that charters, supervises, and insures the entities we regulate. No other agency has all of those responsibilities. These criticisms are off the mark because they compare apples to oranges, not apples to apples.
We were also told by a few commenters that because the number of credit unions is declining, NCUA’s budget should decline too, even though membership, loans, and assets are growing, and credit unions are becoming more complex. Yet, those same critics who contend that the number of entities we regulate and insure should be the only metric used to determine our budget and staffing, would be horrified if we used the same budget and staffing ratios as the banking regulators who regulate, supervise, and insure roughly the same number of institutions. If the number of entities was the only thing that mattered, our budget would have to increase sevenfold to match the budget of the Federal Deposit Insurance Corporation and our staffing would have to increase fivefold. And those figures do not include the budgets and staffing levels for the Office of the Comptroller of the Currency or the Federal Reserve System that also examine and supervise banks.
Credit unions are receiving good value for their investments in our budget. NCUA’s budget is equal to 0.7 percent of credit unions non-interest expenses, less than a penny on the dollar. That is significantly less than their expenditures for: employee pay and benefits (52%), office operations (18%), professional services (8%), loan servicing (7%), office occupancy (7%), education and promotion (4%), and miscellaneous expenses (1%). It is even less than credit unions’ expenses for travel and conferences (1%). This may explain why I rarely receive complaints about our budget when I talk to actual credit union executives around the country. They know we provide a service that is valued by their members, and envied by consumers and credit union members in other nations.
In closing, I want to thank our staff for their work on this budget and the voluminous information we have released on it. I especially want to thank the Chairman and his staff for working collaboratively to develop and adopt a budget that protects credit union members and the Share Insurance Fund, while simultaneously minimizing the impact on credit union operations.