AUSTIN, Texas – Virtually every state is facing a budget crunch in their coming fiscal year and many are already finding themselves in the thick of one, stemming from soft revenue growth and a weak economy. State credit union regulatory agencies so far have been pretty lucky and not had to tighten their purse strings, but as states' financial conditions further weaken, regulators' consensus is that it may only be a matter of time. Harold Feeney, commissioner of the Texas Credit Union Department said "so far" the state hasn't felt any revenue problem, and the word from the governor's office is that revenue projections for 2002-2003 are holding and meeting expectations. Texas has a biennium budget, and the current budget period ends August 31, 2003. Beyond that, said Feeney, "Our problem will be the 2004-2005 budget period." That's because, he explained, some 2002-2003 budget items were only partially funded. In addition, certain federally mandated entitlement programs that are based on population, are increasing on an annual basis. According to Feeney, the Texas Comptroller of Public Accounts has estimated the revenue shortfall for 2004-2005 will be "about $5 billion." Said Feeney: "That's serious when you stop and consider that most of the programs in the current budget are probably not areas where you can make cut backs, such as education, healthcare and transportation." Feeney said thus far Gov. Rick Perry hasn't mandated the implementation of any formal savings by state agencies, but the governor has "suggested we review our budgets," said Feeney. By Aug. 31, 2002, which marks the end of fiscal 2002, Feeney estimated the Credit Union Department will have about $90,000 in savings, and that comes from "vacancy savings" based on the department's examiner turnover rate. The department had one vacancy Feeney said it either delayed or was unable to fill. Any budgeted money not used in one fiscal year can be carried over to the next. The Texas Credit Union Department is authorized to have 18 examiners, and it currently has 17 on staff. "We think the quality of the state's regulatory program is very important. If we don't have the funds adequate to deliver on that, it could be serious," said Feeney. Asked if the department would send out a formal notice to state-chartered credit unions if the Credit Union Department found itself facing a budget crunch and having to compromise on certain services, Feeney responded, "No, but word would get out very quickly." Feeney stressed that the Credit Union Department is required to perform a certain number of examinations annually – there are 249 state-chartered credit unions in Texas. Examiners are divided between the northern (Dallas region) and southern (Houston region) half of the state. An examination typically takes about one week, but that can vary depending on the size and complexity of the credit union. If in the 2004-2005 budget year Feeney finds the Credit Union Department facing a budget shortfall, and he's forced to cut back on the number of the department's examiners, Feeney said the examinations would still be conducted annually, "but some may not be fully examined. Our focus is on the perceived risk with a particular institution." Besides, if that came to pass, it wouldn't be the first time Feeney has had to deal with a shortage of examiners from the department. At one time the department was dealing with a 50% turnover rate among examiners, "so we had to find ways to be able to statutorily continue to do what we were required but streamline the process. Many of the things we used to do on-site, we moved off-site." One thing that hasn't changed though -and Feeney said never would – is the on-site examination. We still have to make that on-site visit, he said. Fortunately virtually all credit union regulatory agencies are funded by the fees they assess their regulated financials, and that protects the regulators to a certain extent. It doesn't however mean they're immune from state budget shortfalls. The Colorado Division of Financial Services, for example, is a cash funded agency and doesn't receive any tax revenue from the state, but state Commissioner David Paul of the state Division of Financial Services said, "Colorado not unlike other states is suffering from a budget shortfall." So far, though, Paul hasn't seen any significant impact of the budget shortfall on the division's services. However, there was a hiring freeze in effect for about the first six months of 2002. That has since been lifted. In addition, the pool of money allocated in the budget for salaries was reduced 1.5%. Paul emphasized that "the Division of Financial Services will be alright because we have the ability to move money around the various agencies, so money that was allocated to those agencies that have more vacancies can be moved to those that have fewer. It's really a pool of money." Fortunately for the Colorado Division of Financial Services, it filled its last vacant examiner position before the end of 2001, "so we hired that person just under the wire," said Paul. Cuts were also made in the areas of "pay for performance" – a 30% cut in the pool of money used to bonus staff for high performance – and for out-of-state travel – down 25%. "We've had to make adjustments, but it's still pretty much business as usual," said Paul. He said reassuringly that the cuts in examiners' travel budget haven't affected their ability to attend classes or special training sessions because in-state travel has not been cut. The Florida Division of Banking is also funded by assessed fees – "What we make is what we spend," said Financial Administrator Sharon Whiddon, and with the increase in the number of federal credit unions in the state that have recently converted to state-charters such as the former $2.1-billion Jax Navy FCU, now called Vystar CU, the fee monies collected from Florida's state-chartered credit unions have increased. But Whiddon said that despite the increase in the total assets of the state's SCCUs, the Division of Banking has not – and has no plans to – increase the number of examiners. The division currently has 17 examiners – two each serving Pensacola and Tallahassee, four each serving Jacksonville and Tampa, and three serving West Palm Beach and Miami. There is currently a vacancy in the West Palm Beach/Miami area and Whiddon said she planned to fill it. Although the Division of Banking hasn't been directly impacted by the state's budget shortfall, Whiddon said it's trying to do examinations more efficiently. That means doing more things off-site to save examiners time when they go on-site to a credit union. "We're still trying to do our part and be more efficient where we can," she said. Fortunately, examiners' training has not been compromised, she said, since most of that is NCUA related. -

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