NCUA Board Member Todd M. Harper Statement on 2020 Budget Reprogramming Request

As Prepared for Delivery on November 19, 2020

I will support this sensible package of budget revisions, and I am pleased that we are considering these matters publicly. In preparing for today’s meeting, I kept thinking about the title of a 1970s bestseller: “That Was Then, This Is Now.” When the Board considered the current year’s budget last December, we had no idea of the impending public health and related economic crises ahead of us. That was then.

In response to the COVID-19 pandemic, the agency quickly had to pivot its priorities, plans and operations to address new challenges and ensure its ability to continue to carry out mission-essential functions. This is now.

One of the biggest changes came from a significant decrease in staff travel. We have also achieved unexpected savings in parking and building operations because of the pandemic. We have already allocated some of this surplus to compensate our hardworking staff for the vacation time they have forgone, and consistent with the agency’s delegations, office directors have transferred additional money to cover other essential needs.

Of the original surplus, we still have $14.7 million remaining, and the matter before us would realign an additional $4.3 million toward new priorities and needs. Some of this money would pay for the information technology that supports the technical capabilities of the NCUA team to continue working from home. Some of this money would also pay for enhanced cleaning and maintenance of the agency’s ventilation systems to ensure they operate efficiently and in a sanitary manner. And, some of the money would cover expenditures for personal protective equipment and cleaning supplies. These pandemic-related expenditures are all necessary.

Additionally, $700,000 of this reallocation would pay for studies and activities designed to modernize how the agency conducts examinations and supervision. In 2017, the NCUA Board approved the virtual examination project to streamline processes, adopt enhanced examination techniques and leverage new technology and data to maintain high-quality supervision of federally insured credit unions with less onsite presence.

While the COVID-19 pandemic has created a real-world experiment to test the capacity of the agency to conduct virtual exams, we need to step back and determine what has worked, what has not and what needs further refinement. Accordingly, these funds will assist the NCUA in assessing the effectiveness of its virtual exam program, so that the Office of Examination and Insurance can build a better system for the future.

Finally, the remainder of these reprogrammed funds would expedite prior plans to make prudent investments in the NCUA Central Office to enhance security, improve public accessibility, create additional office and meeting space and modernize training facilities. Funding these infrastructure projects now, as opposed to waiting, makes sense because we could expeditiously proceed in completing the building’s modifications while the occupancy remains low, thus leading to less staff dislocation during construction. Also, the expenditure of these funds will result in future rental cost savings.

As I noted earlier, I will support this package of 2020 budget changes. However, in considering the 2020 budget reprogramming today, we should not only remind ourselves of that was then and this is now, but we should also start thinking about what lies ahead in 2021. Once we approve this reallocation, we will still carry over a sizable unspent budget surplus of more than $10 million into 2021. Some will hail this savings and the recently released the staff draft 2021 budget as good news, but these cheers may in fact be short-sighted.

We know that credit unions with higher risk profiles will require additional examiner attention and close supervision next year as the economic fallout of the pandemic unfolds. During prior economic downturns, like the 2008 financial crisis, the NCUA increased its field resources to handle safety and soundness problems. Our sister agencies did the same. Accordingly, we must engage in a comprehensive discussion at the Board level about supervisory priorities and field program expectations for 2021. In doing so, we will likely find that we need to budget for more examiners and specialists than provided in the staff draft.

As I have previously noted, we also know that the NCUA falls short when it comes to the agency’s oversight of consumer financial protection laws. Consumers, regardless of their financial provider of choice, deserve to have the same level of financial protection, yet we do not adequately assess consumer compliance management systems or even basic compliance with consumer financial protection laws in most credit unions. We also do not assign a separate consumer compliance rating in the way that other federal banking regulators — and even some state credit union supervisors — do.

What is more, the credit union system has continued to grow and become more complex with approximately 40 additional consumer credit unions holding in excess of $1 billion in assets than we did one year ago. To better safeguard consumers’ interests and ensure that the credit union system lives up to its commitment to serving members, we need to provide the resources to create an effective, dedicated program for supervising compliance with consumer financial protection laws. That will require more resources than envisioned in the current staff draft budget for 2021 and 2022.

Finally, we need to transparently allocate our resources, including reconsidering what positions should be designated as overhires and how we should strategically structure our operations to achieve greater efficiencies. I look forward to engaging in these discussions with my colleagues and their staff in the coming weeks.

In closing, I will support today’s reprogramming action, but I will need to see changes in the 2021 budget before I can support that spending plan.