NCUA Board Member Todd M. Harper Statement on the 2020 Midsession Budget Briefing

As Prepared for Delivery on July 30, 2020

Thank you, Eugene, for this midsession briefing on the 2020 budget. I appreciate the OCFO team’s diligence on these matters.

In most years during the July meeting, the NCUA Board would typically consider adjustments to the Board-approved budget to reflect changes in anticipated expenses and address new priorities. However, 2020 has proven to be anything but typical.

The COVID-19 pandemic has quickly changed the NCUA’s priorities and operations. It also has made it difficult for the NCUA Board to consider and approve necessary budget changes at this time. Nevertheless, the NCUA team has responded superbly to this unprecedented situation.

We have moved nearly all of our office operations to a virtual status, with the vast majority of staff working from home. Except for instances of liquidations, conservatorships, and some fraud investigations, we are conducting our supervisory activities virtually.

And, staff are working very long hours to pivot our examination program both to assess how the pandemic’s economic ramifications will affect individual credit union operations and to plan for mitigating the coming turmoil in the credit union system. I say “coming turmoil” because—save for changes in member access to credit union branches and facilities, and the unfortunate decision of some credit unions to garnish government stimulus checks intended to pay for shelter, food, and medicine—the system seems to be performing well.

As America’s financial services first responders, credit unions are providing temporary financial support for out-of-work members who have lost their jobs. They are providing forbearances on mortgages, credit cards, and auto loans to households that no longer have a steady stream of income. And, they are providing much-needed financial advice to families living in fear of what lies ahead.

To date, we have not encountered reports of major operational or liquidity issues within the credit union system. And, thanks to a sizable fiscal stimulus approved by Congress, most federally insured credit unions are currently flush with the cash provided by economic impact payments and supplemental unemployment insurance benefits, as well as the deposits made as consumers moved their money out of the capital markets and into the safety of federally insured credit unions.

Those governmental payments to consumers and support for small businesses provided by the Paycheck Protection Program, as well as the other programs established by the Federal Reserve, have prevented our economy from experiencing a free fall. This federal financial life support, however, will eventually wane and end.

At that time, without the wide distribution of an effective vaccine or a cure for the disease, we should expect economic turmoil to increase. We also can expect credit unions to experience a drawdown in deposits and increases in loan losses, potentially leading to severe liquidity concerns.

That is why the NCUA must continue to ask Congress to extend the temporary enhancements to the Central Liquidity Facility. I appreciate the work of the Office of External Affairs and Communications on this urgent matter. It is also why more credit unions, both federally insured and privately insured, need to join the CLF. By joining the CLF, credit unions will be demonstrating the best of the cooperative nature of the credit union movement.

Every member who joins the Central Liquidity Facility will exponentially increase the capacity of the CLF to provide liquidity to others within the system. And even if a credit union ultimately does not use the CLF in the coming months, its support for the Central Liquidity Facility may help another credit union with significant liquidity needs to survive a crisis not of its own making.

With that said, Eugene, I do have some questions and a comment about your presentation today.

On slide 5 in the last bullet, you note that the forecasts “reflect the liquidation of a portion of NCUA’s accrued liabilities associated with employee leave in 2020, reducing the anticipated end of year balance.”

Eugene, aren’t we really talking about a leave payout program to compensate our hardworking workforce, who are foregoing vacations and time off during this crisis, for the annual leave that they have earned but will not use in 2020?

So, this program will, in a way, fairly compensate our employees who are clocking in long hours at home week after week, month after month for their hard work in protecting the credit union system. That is the right thing to do. Nevertheless, critics may claim otherwise.

Consequently, Eugene, I would like to know what fiscal guardrails we will put in place to manage this program and serve as an effective steward of the funds we manage on behalf of the members of credit unions.

Aren’t we talking about a maximum of 80 hours per employee?

I appreciate those observations. I have another question, Eugene, on a different matter. On slide 4, in the travel budget line, we are currently anticipating a $13 million decrease in spending. That estimate seems fairly conservative to me. In fact, given the current levels of COVID-19 cases and anticipated increases this fall, I would predict that we might end up spending considerably less on planes, trains, automobiles, and hotel rooms in the months ahead.

In the event we have a sizable travel budget surplus at the end of the year, and we have not allocated that funding toward other priorities, what will happen?

Finally, although it is not outlined in your public presentation, one of the larger increases in line items currently under consideration for the midsession budget is providing an additional $80,000 to $100,000 to the Office of External Affairs and Communications for contracts related to Section 508 compliance.

The Rehabilitation Act requires federal agencies like the NCUA to make their electronic and information technology accessible to people with disabilities. Spending by the agency on Section 508 compliance is long overdue, and it is wholly appropriate as we recognize this month the thirtieth anniversary of the enactment of the Americans with Disabilities Act. By increasing access to information on our website, we will be serving the American public and the credit union system well.

Before I close, I do have several comments about the coming 2021 budget. Ultimately, a budget is about setting priorities. And, as we look to the year ahead, I see several concerns we must address.

First, given the likely problems with loan losses, a struggling economy, and compressed earning margins that many federally insured credit unions will experience, we need to focus on safety and soundness by ensuring that we have sufficient examination staff with the necessary skills to supervise the system and protect the Share Insurance Fund and taxpayers from losses. Therefore, we cannot further cut field staff, and we should consider whether to return to an annual exam posture for all credit unions, as we did during the last financial crisis. And, the economic fallout of the pandemic will continue to affect consumers severely. As such, we can anticipate an increased number of consumer complaints that we must consider and resolve.

We will also need to ensure that credit unions follow consumer financial protection laws and comply with their responsibilities toward members.

As I noted at the Board table last year, robust consumer financial protection supervision of credit unions is vitally important, both for individual borrowers and for the health of the whole economy. Accordingly, we cannot yet again shortchange staffing in the Office of Consumer Financial Protection.

Finally, in response to the Black Lives Matter and social justice protests that our nation continues to experience in the last two months since George Floyd’s killing and the need for the NCUA to implement a concrete action plan to advance economic equality and justice within the credit union system, I will be working to ensure that our 2021 budget continues efforts to build a diverse and inclusive workforce and supplier chains; enhances support for minority depository institutions; enforces fair lending laws; and advances initiatives aimed at closing the wealth gap.

In closing, I recognize that my comments on this matter have run long today, Mr. Chairman, and I thank you for your indulgence. I also know that we share a commitment to advancing economic equality and justice, so I am optimistic that we will find common ground on these matters during the deliberations over the 2021 budget.

Finally, thank you again, Eugene, for the effort that you and your team put into the midsession budget review. Please let your team know that I am grateful for their diligence and professionalism during these very unusual times.

Mr. Chairman, I have no further questions and no additional comments.