ALEXANDRIA, Va.-In a brief board meeting of the NCUA, the agency announced that it had cut its 2003 budget by 2.31%. According to NCUA's Board Action Memorandum, the agency's total operating costs for 2003 were going to be pared down by nearly $3.4 million or 2.31%. Much of the savings occurred due to the increase in job vacancies at NCUA from 23 at the beginning of the year to 38 at mid-year. NCUA Chairman Dennis Dollar explained that these jobs have not been left vacant by accident, but rather the agency is feeling its way through the realignment process and wants to make sure it does not become overstaffed. Employee pay and benefits fell $3.9 million, the BAM said, and administrative costs dropped nearly 18%. Contracted services costs did increase 7.42%, or $503,104, mainly because of homeland security related changes. NCUA is updating its employee access card readers ($89,314), as well as installing more ($18,000); placing a magnetometer in the lobby ($5,000); and adding a $40,000 x-ray machine at its loading dock. CUNA Associate General Counsel Mary Dunn commented, "I think it's fantastic! It's almost impossible for an agency this size to have that kind of budget reduction." She added that CUNA's Examination and Supervision Subcommittee would be sending out a report after it meets in mid-September to make credit unions aware of the significant reduction. NAFCU President and CEO Fred Becker was cautiously pleased. "It's headed in the right direction," he said. "I'm glad they kept those 38 positions open.At the same time I hope they'll give it a hard look." NAFCU has been after NCUA to cut the number of full-time equivalents at the agency, which accounts for the bulk of NCUA's budget between pay and benefits. Becker added that the agency's comparison of the 2003 budget with last year's budget is not an apples-to-apples comparison because NCUA did not have its biannual examiners conference in 2003, which boosts travel costs every other year. The 2003 mid-year budget decrease was the largest since 1999 when there was a 3.7% cut. Dollar also pointed out that NCUA had initially projected its realignment plan to cost the agency around $7.5 million. As the plan has gotten underway, however, that projection has dropped to $4 million. "It's a good example of not only the monitoring but all the wise use of resources," Vice Chair JoAnn Johnson said. NCUA Board Member Deborah Matz noted that only one employee was taking severance, while more than 20 in Region IV would be moving with NCUA, which she said demonstrated the value agency employees put in their employer. The budget reprogramming was unanimously approved. The three NCUA Board members also agreed on maintaining credit unions' usury ceiling at 18%. In the process of determining where it should be set, NCUA Senior Investment Officer Daniel Gordon explained that certain members of Congress and regulators must be consulted, none of whom raised any concerns about the 18% cap. Most credit unions still offer loans below 15%, he explained. Those who offer the most loans between 15% and 18% are between $2 and $10 million in assets and typically low-income and community development credit unions with risk-based loan offerings. Dollar remarked, "The markets like to see consistency and there is a value to consistency." Additionally, there are compliance costs associated with a change, including sending out notices to all the credit unions and then credit unions' changes to their product offerings, he added. The Financial Services Regulatory Relief legislation currently before Congress would lessen NCUA's documentation for setting the usury cap, but the chairman said he looked forward to the day when the agency would control it. Finally, the board was provided its quarterly insurance fund report. The National Credit Union Share Insurance Fund's net income has steadily decreased over the last four years from $204.2 million in 2000 to $164.1 million in 2001 to $116.7 million last year and a projected $55 million for 2003. NCUA CFO Dennis Winans said that this was mainly due to lower yields in the fund's portfolio. At mid-year, the NCUSIF equity ratio sat at 1.22% and is expected to end the year at 1.25%, so federally insured credit unions most likely will have to endure another year without a dividend payment. However, Winans anticipated returning to 1.3% by March 2004. Only 206 problem credit unions (with CAMEL Codes 4 or 5) existed as of the end of June. Of those, 194 were Code 4, Winans said. The percent of the insured shares in those credit unions to total shares was up slightly from 0.66% last year to 0.70% as of June 30, 2003. Just seven credit unions have failed in 2003, on track to decline from last year's 15. [email protected]