Senate panel action on SEC funding prompts agency fears of budget cuts.

A debate on Capitol Hill over cOngressional funding of the Securities and Exchange Commission may be threatening the agency's oversight activities, including the commission's recent interest in the municipal bond business.

Staff members at the commission say the Senate Banking Committee last week rejected legislation that would have allowed the SEC to be self-funded by receiving its annual congressional appropriations from the fees it collects on registration statements for the sale of stocks and bonds.

What began as an argument over the best way to finance Wall Street's top cop may become a battle for the commission's survival," several SEC staff members also say.

Last week, a House and Senate conference committee provided the commission with a $125 million appropriation for fiscal 1995, less than half of what the agency had budgeted for, as a stop-gap measure until Congress decides on a long-term funding solution.

Kathryn Fulton, the SEC's-legislative affairs director, said that without the additional funding, the commission would be forced to undergo a massive retrenchment of its oversight responsibilities. "If they don't fix this problem soon, the agency is in trouble," Fulton said.

The problem, aside from the selffunding issue, involves a wh61e new set of responsilities the commission is scheduled to take on in fiscal 1995. As a result, the agency was counting on a $306 million budget for fiscal 1995. compared with its $269 million budget for fiscal 1994, which ends Sept. 30.

No one is doubting that the commission will receive more funding as the year goes on, possibly as much as the $306 million it has-requested. In fact, Fulton .said there seems to be a growing consensus on the Hill to address the commission's funding before the start of its new fiscal year. But without the certainty of receiving these funds, the agency will have to develop plans "to accommodate a worst case scenario," which would include significant staff reductions, Fulton said.

Such moves would likely affect the commission's regulation of the municipal bond market, including its enforcement activities and its oversight of self-regulatory organizations like the Municipal Securities Rulemaking Board.

Leading the opposition to the self-funding proposal are Sen. Phil Gramm, R-Tex, and Sen. Christopher Dodd, D-Conn, both powerful members of the Senate Banking Committee, which regulates the agency. Dodd is chairman of the committee's securities subcommittee; Gramm is the subcommittee's ranking Republican.

During fiscal 1994, the SEC generated $634 million in fees, but required a budget of only $269 million. Given the commission's proven-ability to generate more income than it uses, both Gramm and Dodd said self-funding would remove the SEC from congressional accountability.

Fulton of the commission said that accountability should not be an issue in opposing self-funding. Under the method advocated by the commission, Congress would still appropriate money, to the SEC even if the money came directly from the agency's fees, Fulton said.

"We are not asking to be put off budget," Fulton said. "We fully expect to be subject to the congressional appropriation and authorization processes." In addition, she said, Congress can hold the commission accountable through the confirmation of the agency's commissioners and its chairman.

Despite Opposition from the Senate, the commission has received support from the private sector, including the mutual fund industry. Testifying before Congress, Matthew P. Fink, president of the Investment Company Institute, said self-funding of the SEC would help secure "vigilant regulatory Oversight over mutual funds."

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