NCUA budget process needs review

It's budget time at NCUA again, and the agency needs to take serious stock of how it can hold the line on both spending and personnel. NCUA also needs to afford credit unions some opportunity to substantively comment on the budget as it evolves. As it now stands, credit unions are now relegated to an after-the-fact exercise involvement, and this only builds frustration with the process in the context of sharply rising budgets. NAFCU commends NCUA for its announced intention to commission an independent study on how the agency calculates the overhead transfer rate. At the same time, NAFCU has strongly urged NCUA to expand that study to include a comprehensive assessment of the agency's overall staffing levels and staff allocations. We believe it makes sense to do both assessments together. We also simply stated, fear credit unions' confidence in the integrity of the NCUA budget process is at stake unless such a step is taken. In January, NAFCU challenged NCUA to reduce its staff slots - Full Time Equivalents (FTEs) in government lingo - by the number of FTEs that the agency had dedicated to deal with Y2K. That request has led to a series of correspondence with individual board members and most recently a meeting with board member Dennis Dollar to discuss the agency's budget. We are also scheduled to meet with board member Yolanda Wheat. NCUA has an unparalleled record in safety and soundness, and we fully recognize that credit unions are becoming more complex in day-to-day operations. We also understand that NCUA must remain committed to technological advancement. Nevertheless, it seems logical to us that as the number of federal credit unions declines so should FTEs and the NCUA budget. During the decade of the 1990s, FCUs declined by about 22%, from 8,511 to 6,623. But over the last decade, the NCUA budget has more than doubled, from $66 million to $134 million, and FTEs climbed from 913 to 1049. Chairman D'Amours asserted in a letter to NAFCU that we overlooked a most critical variable in determining staffing needs: asset growth and accompanying risk. It is certainly true that credit unions' assets have doubled over the last decade. For comparison purposes, however, federally insured assets in banks increased 25% from $4 trillion in 1994 to $5 trillion in 1997, while the number of FDIC bank examiners declined 28%, from 2,547 to 1,822, during the same period. This decline in bank examiners, despite a trillion-dollar increase in assets and accompanying risk, was more than balanced by a decline in other kinds of risk to the Bank Insurance Fund (BIF), specifically, a dramatic decrease in bank failures and assets under liquidation. From this perspective, we would assert that the risk accompanying the increase in insured shares is offset by the significant decline in troubled credit unions over time, coupled with an exceedingly strong capital position industry-wide. Again, from this perspective, it is NCUA's successes that present the most potent argument for holding the line on the budget. As for the NCUA budget process itself, NAFCU advocates using the kind of "budget to actual" comparison that most companies employ. Currently, NCUA uses a "budget to budget" comparison for planning purposes. The "budget to actual" method allows businesses to plan future expenses based on current expenses rather than estimated amounts. This makes expense allocation more closely aligned with the true costs incurred during the year. We also believe that NCUA must routinely conduct a serious re-evaluation of its existing resources and reallocation possibilities in order to increase its effectiveness and efficiency. When you look at the other banking regulators and, in fact, the whole federal government, the trend is a reduction in FTEs. NCUA is badly veering in the wrong direction with its budget and FTE increases. In keeping with the "spirit of government in the sunshine," we again call upon the NCUA Board to include in its overhead transfer rate study a comprehensive assessment of the agency's staffing needs.