ALEXANDRIA, Va.-For the first time since April 2004, the NCUA Board had its full complement of members serving. The agency wasted no time in throwing its newest board members into some of the touchiest issues the agency handles -NCUA's budget, the overhead transfer rate, and operating fees. The November meeting this year was moved from Nov. 17 to Nov. 29 to allow some time for the two newly installed members to get up to speed. The three-member NCUA Board approved a $150.8 million budget for 2006, up nearly $2.8 million or 1.89% from 2005. Staffing, measured by full-time equivalents and always the most significant chunk of the budget, was reduced by three positions to 958. "This is the lowest staffing level for NCUA in nine years," NCUA CFO Dennis Winans noted. Funds allotted to pay and benefits actually decreased $50,000 (0.04%) in the 2006 budget. Despite anticipated pay raises at 3.1% to be prorated for a total of more than $2.5 million, expected vacancies of 2% and `grade shifting savings' will bring the budget down almost $4 million. Grade shifting savings are funds saved when someone in an upper management position retires and is replaced by a lower-paid employee. Nearly half (47%) of NCUA senior staff will be eligible to retire in the next five years, new NCUA Board Member Rodney Hood noted with interest. "We do pay well," Winans acknowledged, "and some people don't want to retire." NCUA Board Member Gigi Hyland followed up on this question with another on turnovers due to retirement. Approximately 40% of NCUA employees that leave are due to retirements, according to Winans. NCUA Chairman JoAnn Johnson commended the CFO for working to base the 2006 budget on "actual expenses." She added that while other government agencies exhibit more of a "spend it or lose it mentality," NCUA is very mindful not to do so. Johnson asked whether the agency was budgeting enough, noting the less than 2% increase was below inflation, to which Winans answered that the agency was. Aside from the savings in the staffing area, the agency increased its budget in nearly all other areas. Travel expenses will increase this year partly due to the biennial regional training conferences and rising gas prices. However, NCUA is looking to relocate a number of training and other conferences to areas where hotels are less costly and per diem rates would be lower. Administrative expenses went up $1.2 million or 11.45%, mainly due to relocation expenses as a result of filling positions vacated by retirements and furniture and equipment depreciation. Following the Gulf Coast hurricanes, printing costs jumped because of increased demand for consumer brochures, like Your Insured Funds. NCUA is looking into greater electronic distribution of documents, such as its Annual Report. Network upgrades, implementation of an employee development program, and legal and consulting fees are driving contracted services up by 7.18%. NAFCU has expressed a perennial concern over NCUA's budgeting versus its actual expenses. The gap between the two continues to widen, with the budget moving further away from actual spending according to NAFCU. "I'll let the numbers speak for themselves," NAFCU Chief Economist Tun Wai said. In 2003, a budget to actual comparison shows NCUA's budget at $146.08 million with actual spending at $134.13 million, according to NAFCU. By 2004 the gap widened to a budget of $149.93 million but actual spending at $133.55 million. Overall, Wai said the budget process is improving. "I thought that Dennis did an excellent job explaining the transparency aspect of the process." CUNA Associate General Counsel Mary Dunn said her association's Examination and Supervision Subcommittee is continuing to monitor NCUA's budget. "Their view is it's credit union money and credit unions are entitled to have a tremendous amount of information about how their funds are being utilized," she said. Dunn added that the transparency is good. One issue CUNA is concerned about from a "macro level" is the agency's staffing issue. CUNA is keeping an eye on NCUA to determine, "Do they have sufficient staffing?" Dunn said. Also appropriate succession planning is of importance to the stakeholders. From the budget, the board moved on to the overhead transfer rate, which will remain at 57% in 2006. In recent years, NCUA has made a lot of changes to the OTR setting process. The agency has made the determination annual rather than on a three-year cycle and tried to explain to credit unions how they arrive at the rate. Chairman Johnson stressed, "The overhead transfer rate does not affect the budget. The budget is based on actual expenses." But, still out there Dunn said is the definition of what is insurance related and what is not. She agreed that there are some gray areas but more needs to be done to distinguish the two. BECU CEO Gary Oakland could not agree more. While he has not been able to make a personal appearance at the last couple NCUA budget briefings due to travel conflicts, when asked if his concerns over the OTR had been addressed, he quickly said, "No." "They've never really recognized or validated the study that Deloitte & Touche did a few years ago," he stated. He pointed out at last year's budget briefing the agency promised an in-depth look into the OTR, but he has not heard anything about it since. An NCUA spokesperson was unavailable for comment. Oakland said he plans to set up appointments with the two new board members in the next month or so to discuss the issue. "It's important that the new board members get a sense of the concerns out there," he stated. "Ultimately, it is depleting the insurance fund for uses not consistent with the safety and soundness of credit unions." However, he did say, "Over the five years they have made changes that are positive-sometimes it's like pulling teeth." "The definition of insurance and regulatory activities of the NCUA continues to be of great interest to the state system. We look forward to working with the NCUA Board and staff in this regard in the coming months," NASCUS CEO Mary Martha Fortney said in a statement on the group's Web site (www.nascus.org). Also related to the budget is the operating fee, the sliding scale for which was set at the board meeting. Operating fees are assessed to federal credit unions based on their asset size to fund regulatory expenses. Though credit union assets are expected to grow 4.25%, the operating fee scale was reduced 1.95%. Additionally, the asset dividing points will be increased by the expected asset growth (4.25%), making more credit unions eligible to pay less. Three hundred and forty-four small federal credit unions will not pay any operating fee, according to NCUA. A $5 million credit union will owe NCUA $131 and a $1 billion institution will pay $171,813. NCUA and NAFCU have provided calculators on their Web sites (www.ncua.gov and www.nafcu.org, respectively) so credit unions can figure their operating fees based on year-end 2005 assets. Operating fees are due in to NCUA by April 17, 2006. [email protected]