ALEXANDRIA, Va.-The biggest news to come out of NCUA's 2003 Budget Briefing last week was probably the announcement by Executive Director Len Skiles that the agency plans to eliminate Region IV and relocate Region VI out of the costly San Francisco area. Also of note, NCUA reduced its budget by 0.5%, or nearly $800,000. Skiles explained that San Francisco has a 36% geographic differential-affecting the cost of facilities, supplies and salaries, while Region IV, Chicago, has a 22% differential. The changes will result in significant savings for the agency over time. Skiles said NCUA is looking for a differential closer to 5%. The changes will require a 25-person shift per region and will eliminate seven senior positions including the regional director. "I think the regions can easily assimilate the additional workload," Skiles said. NAFCU President and CEO Fred Becker jumped on this comment during his testimony, saying that if the assimilation would be easy, then perhaps more money saving cuts could be reasonably accomplished. Becker, whose organization is the self-proclaimed "budget hawk" of the agency stated, "It was anticipated that the implementation of the `risk-based' examination cycle would also justify extending the period of time [between exams] without sacrificing or compromising safety and soundness. Yet, it appears as though the movement to an 18-month examination cycle has been delayed and has proven to be an elusive promise." The extended cycle is expected to save money by reducing trips to credit unions that do not need the additional supervision, focus on bolstering troubled credit unions' survival, and reducing the necessary number of examiners. If the proposal is approved, the agency will begin reserving this year and next year to fund the changes. In three years, Skiles expects NCUA to break even and save approximately $27 million over 10 years. With 57% of senior staff becoming eligible for retirement over the next five years, Skiles saw the present as a "window of opportunity." Those eligible for retirement by the end of the year include Region I Director Layne Bumgardner and Region VI Director Bob Blatner. Skiles added the changes had nothing to do with what other FIRREA agencies were doing, and in fact, NCUA was unaware of what the others were doing. Some of the groups that testified pointed to cuts at the other federal financial regulators as a model for NCUA. However, NCUA Chairman Dennis Dollar said that he would bet the 70 full-time equivalents NCUA has eliminated comprise a higher percentage than the approximately 700 employees the Federal Deposit Insurance Corporation (FDIC) has cut. Additionally, NCUA has made its cuts through attrition rather than Reductions in Force (RIFs), as other regulators, including FDIC, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency (OCC), have. Skiles commented about RIFs that were done in the early 1980s at the agency. "RIFs destroyed our morale. It was extremely expensive. From my experience, if you can avoid a RIF, avoid it." "Reducing one regional office may be a helpful first-step in the right direction," former Washington Credit Union League Chair and current President and CEO of Community Credit Union Don Larsen said on behalf of the league. He added that OCC has plans in place to cut three regional offices. Taking AIM In addition to the regional office restructuring announcement, NCUA proclaimed a 0.5% budget reduction for fiscal year 2003 from the current year's budget. Skiles said NCUA should also realize actual savings. If the board approves the budget proposal as is at its November meeting, it will include a $796,000 drop from the 2002 budget. Dollar instituted his Accountability In Management goals for the agency last year to prompt such budget decreases. "This budget represents a solid commitment to reduce spending, increase efficiencies and continue to provide the most professional and technologically advanced NCUA staff possible," Dollar said. "Also, the collective work of the Accountability in Management working group has produced a quality plan to meet our goals for reorganization and greater efficiency at NCUA, even as we reallocate our staffing resources in the right way." In 2002, NCUA's budget totaled $146,967,461, while the proposed 2003 budget is $146,171,397, representing a 0.54% decrease. A decrease was predicted during last year's briefing. NAFCU has been hounding NCUA about reducing its number of full-time equivalents, which it is anticipated to do beyond its initial goals by the end of 2003. With the declining number of troubled credit unions, in combination with risk-focused examinations and the 18-month cycle, the agency should be able to do more. NASCUS Chair Jerrie Lattimore noted, as did Larsen, that an area where the agency could experience great budget relief would be to put greater trust into state examinations when performing their own examinations on federally insured state chartered credit unions. "I think where we run into problems is the duplication of efforts," she explained. She quoted the Federal Credit Union Act, which states "examinations conducted by state regulatory agencies shall be utilized by the Board for such purposes to the maximum extent feasible," which Lattimore said is not being practiced. NAFCU's Becker implied that the agency should reconsider the sagacity of providing free training to state examiners. "NAFCU believes that the NCUA Board must consider the propriety of providing cost-free training to all examiners in a state if their time, or a significant portion of their time, is spent examining credit unions that have no relationship to the share insurance fund," he said. He also reminded board members that NCUA also provides free computers to all state examiners. While the budget briefing is not mandated, the credit union community expressed its appreciation to NCUA for providing the opportunity to input into the budget process. However, some, including NASCUS and Boeing Employees Credit Union CEO Gary Oakland, felt that they needed to be involved earlier in the budget process than just two weeks before the final decisions are made by the board. Oakland commented that the briefing was a laudable idea, but "stopped short of proceeding to a meaningful dialogue," which cast doubt on the agency's commitment to an open and accountable budget process. Oakland also commented that the overhead transfer rate setting process needs to be included in the budget discussion. He and Lattimore, North Carolina Credit Union administrator, both also said the agency should provide additional time after the hearing for comments, rather than only accepting responses through the 12th from the hearing that took place on the 7th of November with a three-day weekend in between. The budget is to be considered by the board at the November 21 board meeting. CUNA Associate General Counsel Mary Dunn said she felt the time was adequate, especially considering that the organization is in contact with the agency constantly on numerous issues, including the budget, and can sense the agency's direction. In fact, a letter to NCUA Board members from CUNA CEO Dan Mica, who was unable to attend the budget briefing in person, stated, "In our view, NCUA is making important strides to provide more information to credit unions about its budget. CUNA encourages the Board to continue seeking ways to enhance its stewardship of credit union funds by scrutinizing the budget, streamlining the resource allocation process and achieving greater accountability on behalf of credit unions." A complaint that CUNA, and others, noted concerned defining the difference between `insurance related costs' and regulatory expenses in determining the overhead transfer rate, as recommended in the Deloitte and Touche study released last November. NCUA officials reminded attendees several times that the overhead transfer rate is only set every other year and 2003 is an off year, still every single group testifying discussed the controversial issue. Testimony given by South Carolina Credit Union League President John Franklin on behalf of CUNA stressed the organization's opinion that the rate setting is a policy matter, and, therefore, should be open to public comment. CUNA also pushed for the continuance of NCUA's budget briefings regardless of who is heading up the board. Chairman Dollar's appointment expires in April, though he may serve beyond that time. Dollar pointed out that the budget briefing has no precedent, but that he hopes it is precedent setting. He pointed out that the budget briefing is not a hearing; there is no official transcript; it is not a rule making session and there is no official comment period, which would limit the scope of the comments that could be made. [email protected]