I am responding to NASCUS Chairman Roger Little’s letter entitled “The OTR: Here We Go Again” published in the December 1, 2004, edition of Credit Union Times. Unfortunately, the argument presented by Mr. Little regarding the Overhead Transfer Rate (OTR) in relation to the budget and the $9 million refund of surplus funds to federal credit unions is fundamentally flawed and detracts from the overall discussion of the OTR. The rate for the overhead transfer, expressed as a percent of the NCUA budget, is achieved by calculating the distribution of costs within the NCUA budget. The process for determining the OTR, i.e., insurance related costs for all federally insured credit unions (both federal and state credit unions are subject to the OTR), is thorough and transparent. This process has been fully explained to all of NCUA’s stakeholders, including NASCUS. However, regardless of anyone’s position on the appropriateness of the OTR and the method by which it is determined, one thing has remained constant over the years, and that is how the OTR is applied to NCUA’s budget. It is the application of the OTR to the budget that Mr. Little has factually misrepresented. Unlike the federal credit union operating fee, paid only by federal credit unions based on the approved budget, expenses subject to the OTR and thus charged to the NCUSIF are based on actual expenses, not budgeted expenses. It is easy to see how the result depicted by Mr. Little changes once the OTR is correctly applied. To illustrate, the approved OTR for 2004 was 59.8% (it is 57% for 2005). Using this rate, each month the NCUSIF has been charged 59.8% of actual expenses incurred in 2004. The NCUSIF is not charged until the expense is incurred. That is the critical difference between the collection of the operating fee based on the approved budget and the expensing of the NCUSIF through the application of the OTR based on actual expenses. The OTR has resulted in total costs of $65.5 million charged to the NCUSIF through October 31, 2004, which is 59.8% of the $109.6 million in actual NCUA expenses incurred as of this date. The estimated 2004 overhead transfer will be $80.7 million. A factually correct version of the table included in Mr. Little’s letter is as follows: 2004 NCUA Budget $149.9M 2004 Overhead Transfer Rate 59.8% 2004 Overhead Transfer (Projected) $89.6M 2004 Actual NCUA Expenses (through 10/31/04) $109.6M 2004 Overhead Transfer Rate 59.8% 2004 Overhead Transfer (Actual through 10/31/04) $65.5M 2004 NCUA Expenses (Estimated) * 135.0 2004 Overhead Transfer Rate 59.8% 2004 Overhead Transfer (Estimated) $80.7M *Actual 2004 NCUA expenses will be determined December 31, 2004, the close of the fiscal year. The Federal Credit Union operating fee (and corporate Federal credit union operating fee), however, is set and collected by April 15 of each year, based on budgeted expenses and cash reserve needs. Thus, when NCUA’s actual expenses or cash reserve needs are lower than budget or actual cash levels respectively, the surplus is attributable to funds collected from federal credit unions. As a result, the $9 million in surplus funds has accumulated from excess operating fee revenues collected from federal credit unions. Therefore, only federal credit unions are entitled to a refund, and this refund has no relationship to the costs allocated to the NCUSIF through the overhead transfer. Please note that the information about how the operating fee and overhead transfer rate are applied was provided at the November 18, 2004, public NCUA board meeting and in the respective Board Action Memorandums posted on our website. It is my sincere hope that federally insured credit unions appreciate NCUA’s efforts to make the overhead transfer rate and federal credit union operating fee processes as equitable as possible, and I want to reiterate our continued resolve in this regard. The OTR for 2004 can not be less than or exceed 59.8 percent. However, the amount collected based on the OTR will be less if actual expenses are lower than budgeted expenses. That is precisely what will occur in 2004. Thank you for the opportunity to set the record straight. J. Leonard Skiles Executive Director National Credit Union Administration Alexandria, Va.

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2023 ALM Global, LLC. All Rights Reserved.