ALEXANDRIA, Va.–Federal credit unions will pay a lower operating fee in 2022 as the result of funds left over from 2021 and the elimination of plans to hire more than 40 people next year, according to NCUA.
Overall, the agency said, FCUs will see a near 30% decrease in what had been proposed for the operating fee next year.
The changes in its budget will come as a surprise to many credit unions, especially the reduction in planned headcount, which was included the public budget briefing the agency hosted last week and which CUToday.info provided extensive coverage of here.
The updates were offered during the NCUA board meeting here, with all three board members voting in favor of the new budgets for the next two years.
Officially, the NCUA board approved:
- A 2022 Operating Budget of $320,138,000 and 1,196 FTEs and a 2023 Operating Budget of $363,426,000 and 1,204 FTEs
- A 2022 Capital Budget of $13,069,000 and a 2023 Capital Budget of $13,069,000
- A 2022 Share Insurance Fund Administrative Budget of $6,246,000 and a 2023 Share Insurance Fund Administrative Budget of $4,770,000
- That $23 million from unspent prior-year budgets is available for expenditure in 2022 from the Operating Fund for contracted-services related expenses
- That $15 million of cash in the Operating Fund be returned to federal credit unions in the form of a credit (reduction) to the 2022 Operating Fee schedule, all as detailed in the Board Action Memorandum.
Reduction in Planned Headcount
Of particular note is the approved budget eliminates the hiring for 46 employees that had been included in the proposed staff budget. The agency said the total budgets with the carryover will increase overall spending by 4.1% in 2022 compared to the 2021 budget, an “amount lower than the present rate of inflation,” noted NCUA Chairman Todd Harper.
Under the new budget, the Operating Fee collected from federal credit unions will be further reduced by $15 million due to accumulated cash exceeding funding needs, which will lower the amounts that will be invoiced to federal credit unions for the annual Operating Fee collection due April 15, 2022, the agency said.
Speaking to the Operating Budget, NCUA CFO Eugene Schied said the total budget is $320.1 million, or $5.9 million below what had been proposed. It reflects a 1.8% increase over the 2021 budget.
Among the specific changes from the proposed staff draft budget, according to Schied:
- Of the 46 FTE positions that have been eliminated, specifically, NCUA said it will not hire the proposed additional 29 examiners. (Schied said the exam schedule will remain unchanged from 2021.)
- A conversion of three examiners to new roles will be reduced to two examiners converting roles.
- The two positions to be added for NCUA’s small CU program as part of the Office of Credit Union Resources (CURE) have been modified.
- Four fair lending examiner positions that were to be created to conduct fair lending exams will reduced to two FTEs.
- Funding for a speechwriter has been removed.
Schied said the reduction in proposed hires will also reduce travel expense by $2.7 million. There will be a small increase in the fees NCUA pays to the FFIEC of $220,000 over previous estimate.
Additional Changes from Proposal
In addition, Schied said:
- The 2022-23 capital budget is unchanged at $13.1million for each of the years, with the figure 31% below the 2021 budget.
- The SIF administrative budgets are also unchanged for the two years at $6.2 and $4.8 million respectively. He added the 2022 SIF administrative budget is more than 20% below 2021 budget.
- The 62% Overhead Transfer Rate has been set 70 BPS lower than the draft proposal, but is an increase over 2021. As a result, 37.3% of the agency’s operations will be paid by state-chartered CUs, with the remainder funded by FCUs—68% of that from FCUs.
- The operating fee assessed federal credit unions reflects FCY 27.3 % decrease and is 1,250 BPs below the estimate in staff draft, mostly attributable to the $15 million credit over 2021. FCUs of under $1 million in assets will again not be assessed the operating fee.
Harper: A ‘Consensus’ Budget
Harper noted NCUA has held a public hearing on its 2022–2023 staff draft budget where it heard input from four groups, and further received six comment letters on the same. He said the agency had “carefully reviewed and considered” that feedback prior to presenting its recommended budget.
“The recommended budget we are considering today is a consensus product that evolved from the staff draft,” said Harper. “Compared to the overall funding and staffing levels shown in the staff draft budget, the budget we are considering is smaller in dollars and full-time equivalents, but it still achieves the important goals of protecting credit union members, maintaining the safety and soundness of the credit union system, and safeguarding the Share Insurance Fund.”
Harper said the budget reflects one of his priorities, additional resources for small credit unions, as well as resources dedicated to supporting low-income and minority credit unions.
“In recent years we have pared back our assistance for small credit unions,” said Harper. “This budget reverses that trend by adding three examiner positions — one per region — in the recommended final budget to support the needs of small credit unions. In 2022, staff will also conduct a study and consider options for further supporting small credit unions in the future.”
Other Points Raised
Other points made by the chairman:
- Harper said he remains “deeply committed to strengthening the NCUA consumer compliance and fair lending programs,” a point on which he had received pushback from other board members. The budget includes two additional staff to expand the NCUA’s fair lending program.
- The NCUA COVID-19 response will continue to be a focus for the agency in 2022.
- On cybersecurity, he said the agency remains “deeply vigilant about the risks that cyber-attacks pose to the financial system. We will continue to mature and strengthen our cybersecurity program and make it appropriately transparent under this budget.”
- “Finally, we must remain vigilant when it comes to safety and soundness. With the expiration of pandemic-relief programs, more households will come under financial stress next year,” said Harper. “And, that stress can lead to credit defaults at credit unions. To best protect the system and the Share Insurance Fund, the recommended budget maintains the current exam program, which allows for extended exams at well-run credit unions with less than $1 billion in assets. Maintaining at least the current exam policy was critical to gain my support for the final budget.”
Hauptman: A ‘Step in the Right Direction’
Hauptman reminded that during last week’s budget briefing, “I said the draft budget is just that, a draft and I expected it to evolve before it was voted on. One of my biggest concerns was headcount. The proposed number of 48 new FTEs represented more than $66 million over ten years – and that was without factoring in pay raises and inflation.”
Also reminding that he often observes that every dollar the NCUA takes is the money that belongs to CU members, he said “the cost isn’t just that one dollar. The cost is also the future earnings that dollar could have earned if it stayed at a credit union helping a member. So, it is in the spirit we should approach our budget process.”
Hauptman called the reduction of any government budget is “remarkable.”
“The revised budget places more emphasis on assisting small credit unions,” said Hauptman. “I think we all agree this is needed. As we emerge from the pandemic, smaller institutions with fewer resources will benefit from immediate and effective support. No matter how well-intentioned, home office staff in Alexandria aren’t always equipped with the intimate knowledge needed to act quickly to assist a particular credit union. The people closest to the challenges – field examiners – are. But that takes resources, and I am grateful for the addition of 3,000 examiner hours dedicated to working with small credit unions. I’m especially pleased because this strategy allows us to track our effectiveness.”
Hauptman said he supports Board Member Rodney Hood’s call to return excess funds in the Operating Budget back to the credit unions.
“We all appreciate the effort to conserve budget dollars, but we should work toward a consistent method for returning excess funds when they reach certain levels,” said Hauptman. “Returning $15 million of the excess cash to offset the operating budget is a step in the right direction.”
Hood: ‘Not Perfect,’ But ‘Sensible’ Changes
While saying the “budget is not perfect” and is “not the budget I would put forth if it was only up to me,” Hood said he is pleased the budget reduces spending year over year when you look at all three budget accounts “holistically with the travel carryover from 2021.”
He further called the changes in NCUA’s headcount year over year “sensible.”
In returning the $15 million from the Operating Budget, Hood said he is interested in exploring procedures for the board to consider so as not to find itself in a similar situation in the future.
Hood also repeated points he raised during the budget briefing, noting the ongoing reduction in the number of credit unions has been accompanied by an ongoing increase in NCUA’s spending.
“While credit unions have become more complex, I believe more should be done to respond to the changing nature of the credit union industry, which should be reflected in NCUA’s budget,” he said, adding that moving forward he would like to see improvements in the timing of the budget.
NASCUS Response
“NASCUS commends the NCUA board for its thoughtful and unprecedented consideration of stakeholder feedback in finalizing the agency’s 2022 budget. NASCUS appreciates the downward adjustment of the 2022 proposed overhead transfer rate (OTR) from 63.4% to 62.7% on behalf of state credit union regulators and credit unions," said NASCUS President and CEO Lucy Ito. "We also appreciate the Board and the hardworking staff at the NCUA for their commitment to providing more detailed explanations of new staff positions, clarifications concerning budget justification related to state examiner equipment expenses, as well as the payment of state credit unions’ supervisory fees to their respective state regulators.
"While NASCUS and the State System remain concerned about the underlying structural issues that dictate the calculation of the OTR and the federal credit union operating fee, we look forward to a continued and open dialogue with our NCUA partners on how, together, we can assure both the safety and soundness of credit unions and the ongoing vitality of the dual charter credit union framework," Ito added.