ALEXANDRIA, Va. -- The NCUA Board last week approved a higher than initially anticipated increase in its budget following an agreement on a bargaining contract between NCUA management and the National Treasury Employees Union.

The final 2008 budget was approved for $158,631,447, representing a $6.6 million increase or 4.35% over the 2007 budget. The agency had projected at its public budget briefing for an increase prior to the agreement reached just a couple weeks ago, but that was under 3.0% for a $156.5 million budget in 2008. However, NCUA Executive Director Len Skiles had acknowledged that the near-complete bargaining agreement at that time would have a budgetary impact.

Employee pay and benefits are always a significant portion of NCUA's budget as with most organizations. The category represents 75% of the 2008 budget or $118.43 million. During his presentation to the board, Skiles said merit pay increases will range anywhere from 2.75% to 8.25%, averaging 5.0%

With the completion and anticipated ratification in March of the bargaining agreement with NTEU--the first since agency staff voted to organize more than three years ago--NCUA is now ready to implement adjustments in the pay bands for the various grade levels and locality pay, which have been on

hold since 2003. The result was a 3.65% increase in the budget, partly offset by a $1.28 million decrease by increasing anticipated vacancies up from 2% to 3%. Locality pay is expected to go up in most areas

as well.

Additionally, NCUA had announced at the budget briefing in October that an increase in full-time equivalents was necessary to handle the effects of the burgeoning mortgage crisis. Seven new FTEs have been added to the budget for new examiners, bringing NCUA staffing capacity up to 965.

However, one of the largest budgetary items was an updating of the agency's accounting program at $5 million divided equally between 2008 and 2009. The current system, which cost $2 million to install 11 years ago, is no longer federally compliant and is becoming increasingly expensive to maintain.

Finally, travel costs are expected to go up just

over $1 million due to the biennial regional training meetings.

NCUA's projected 2009 budget accounts for even further increases. The agency presented a recommendation to the board of $168.4 million, an increase of $9.8 million or 6.17% over the requested 2008 budget.

NCUA budgets start at $0 then are determined from the Annual Performance Budget, also approved at the meeting. "Annual performance budgets provide near-term, agency-wide direction," the Board Action Memorandum read. "The goals and strategies included in annual performance budgets collectively support strategic goal achievement over the life of the strategic plan."

As a final note on the budget, Skiles said the projected implementation of the plan for state regulators allowing for private insurance to pay a proportional amount of the direct expenses has been pushed back from 2009 to 2010. Many state agency budgets are done two years in advance, he explained. "The formula for implementing this recommendation will be developed after consultation with NASCUS and would be implemented in 2010," Skiles said.

Once the budget is formulated, NCUA determines via survey how much of examiners' time is used on insurance- versus non-insurance-related items. That percentage, determined to be 52.0% for the 2008 budget, is then applied to the budget to determine the overhead transfer rate from the NCUSIF.

The remainder of the budget is funded solely by federal credit unions through operating fees. The 2008 operating fee was adjusted upward 9.85%. While some of this was due to lowering the OTR and the capital acquisition, the major factor was the growth in credit union assets, projected to be 6.0%.

The NCUA Board also unanimously approved a final rule to include a conflict of interest provision regarding eligible obligations. After considering all the budgetary matters, NCUA Chairman JoAnn Johnson quipped, "Not only are there not any complicated formulas but it does not add any additional regulatory burdens here." The other board members echoed this sentiment and noted that the change promoted consistency with other regulations.

NAFCU had supported the rule change while CUNA questioned any demonstrated need for it in their respective comment letters.

NCUA also approved the request from $96 million Shell New Orleans Federal Credit Union to convert to a community charter. The credit union sought to serve all of Jefferson and Orleans Parishes, part of which it was already serving, so the potential new membership is only 431,361.

The credit union already has three branches in addition to five shared branches and plans for three more over the next three years.

--scooke@cutimes.com

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NCUA Union Makes Significant Budget Impact; Final $158 Million Budget Represents 4.4% Increase

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