ALEXANDRIA, Va. — Credit unions, regardless of charter, were given a reason to breathe a little easier last week during NCUA's Budget Briefing and Public Forum. NCUA Executive Director Len Skiles told participants that the agency was expecting a slight 0.82% increase in the budget for next year at $1.2 million. At the same time, the agency, funded by credit union dollars, planned to reduce the overhead transfer rate from 57% to 54% and potentially lower the operating fees paid by federal credit unions 2% to 4%. Skiles emphasized that “no decisions are made” during the budget briefing and the final budget will be presented during the November NCUA Board meeting.

Credit union groups have long complained of the gap between NCUA's budget and their actual spending, but the agency has worked to rein that in some. NAFCU President/CEO Fred Becker pointed out during his testimony that the variance by year-end 2006 is expected to be around 5% as opposed to 6.6% from 2005. “From what I can see, you're doing exactly what Len said you would do a year ago,” Becker said, quoting the executive director from last year's budget briefing.

Skiles explained, “The primary reason you see variance in our budget is vacancies.” NCUA has been able to fill open positions some with 30.5 vacancies year-to-date in 2006 versus nearly 50 open FTEs at the end of 2005. He also pointed out that about 49% of senior staff are eligible for retirement in the next five years, though, “normally, they stay a little bit longer than they're supposed to stay.” It is no secret that NCUA pays its senior staff better than the other federal banking regulators, which Becker also brought up in his testimony stating that salaries should be capped at the vice president's level.

The problem with a cap from the agency's standpoint, Skiles said, is getting lower grade employees to take on more responsibilities with little to no promise of more than they are already paid; many of these potential candidates for higher positions would also have a move to consider. Right now, NCUA salaries are capped at $225,000 as of last November with grandfathering and lump sum payments for those over that level.

Currently, NCUA staff is recommending keeping the same number of FTEs (958) for the 2007 budget despite the decreasing number of credit unions because of their increasing size and complexity, as well as greater Bank Secrecy Act, indirect subprime lending, and member business lending compliance responsibilities. Skiles said he did something unusual and called in all the regional directors to discuss where staffing could be reduced; they determined that reductions were not possible, but some shifting among the regions could take place.

Kansas Credit Union League President/CEO Marla Marsh, testifying on behalf of CUNA, warned, “In our view, sufficient staff resources for NCUA and the credit union movement are essential. Without them, including adequate regional examiners and supervisors, NCUA will not be able to meet its primary goal of promoting credit union safety and soundness. However, inflated staff levels may lead to inefficiencies, bloated budgets, and increased fees and assessments for credit unions.” She also said properly trained and skilled employees were more important than the number.

NCUA did realize cost savings through a number of avenues, including senior staff retirements, lower cost training locations, and migration toward electronic documents and delivery. At the same time, NCUA planned an average 3.1% merit pay increase across the agency as well as more expenses in the area of data security, which was “a growing budgetary issue.” So far NCUA has absorbed union negotiation costs into the budget, but, in the future, Skiles said an additional two FTEs could be required.

Regarding the calculation of the overhead transfer rate, a point of contention for state chartered credit unions, CUNA Chief Economist Bill Hampel commented that a “big part of the issue has been addressed.”

He said the structure NCUA made public a few years back is a good one. Previously, he said state credit union regulators were not getting credit for examining credit unions' asset liability management, which is not only a regulatory, but also a safety and soundness concern.

However, CUNA Deputy General Counsel Mary Dunn noted there is still the issue of defining what is “insurance-related.” “We never thought it was as precise as it needs to be,” she said, noting that even the survey of examiners on what they spend their time on is more subjective without a hard and fast definition.

Dunn did highlight, “NCUA sent a really big signal by lowering the OTR and not keeping it static.” That, she said, indicates the agency is keeping an eye out for fairness in the system.

NAFCU still took issue with NCUA funding training and equipment for state examiners who examine privately insured credit unions. NAFCU Chief Economist Tun Wai recommended accounting for the hours those examiners spend in the privately insured institutions. “Privately insured institutions don't contribute to the agency's budget…States have to recognize they have privately insured credit unions in their fold.”

The tenor of NASCUS' testimony, presented by Chair Linda Jekel, was all about collaboration and sharing between the state and federal regulators. However, on the issue of the cost of federal deposit insurance, relating to the OTR, the group had a few questions. “Our goal is to gain a better understanding of the allocation between NCUA's regulatory and insurance responsibilities…What are factors that potentially alter the calculation from year to year? Was more funding allocated to regulatory functions this year? We ask because the federal data collection project required resources that did not affect the NCUA's role in overseeing the insurance fund.”

NCUA will accept written comments regarding the budget through Nov. 1. –[email protected]