WASHINGTON – Should NCUA be required to hold public hearings prior to approval of its final budget? That is the key question as the House Financial Services Committee prepares to consider a bill for markup on Tuesday.
The National Credit Union Administration Budget Transparency Act, or H.R. 2287, was introduced by Reps. Mick Mulvaney (R-S.C.) and Kyrsten Sinema (D-Ariz.). Depending on which side one listens to, the bill would either "bring transparency and accountability" to NCUA's budgeting process, or it will have "severe implications for the future safety and soundness of our nation's $1.1 trillion credit union system."
Those differing viewpoints were on display in letters addressed to Jeb Hensarling (R-Texas), chairman of the committee, and Maxine Waters (D-Calif.), ranking member. The letter arguing in favor of passing the proposed legislation was authored by Jim Nussle, president and CEO of CUNA, while Debbie Matz, chairman of NCUA, wrote to "express grave concerns about and opposition to" H.R. 2287.
The bill in question would direct the NCUA to establish a process by which the public, including members of the credit union community, may examine and comment on the agency's proposed annual budget prior to adoption.
According to CUNA, the legislation also would require members of the NCUA Board, who must vote to adopt the annual budget, to have "adequate opportunity" to review specific expenditures and overall methodology in order to make an "informed decision" as to whether the budget as proposed "accurately reflects the needs of the agency."
"This process would increase transparency and accountability at the agency, and engender public trust, thereby strengthening and supporting the agency's mission," Nussle wrote in his letter.
Nussle went on to note that in July, the Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing with Chairman Matz on the agency's budget process. During the hearing, Nussle said members of the subcommittee "repeatedly pointed to a lack of transparency, bloated budgets, and dissatisfactory explanations from NCUA as a reason that passage of H.R. 2287 is necessary."
Added Nussle: "Credit union member resources are used to fund nearly all of NCUA's budget. It is not too much to ask for the members of the NCUA Board to conduct an open hearing and provide stakeholders an opportunity to offer feedback to the agency."
CUNA also urged passage of H.R. 2205, the Data Security Act of 2015, which the trade group noted would put in place a national law instead of a "patchwork" of state and federal regulations covering data breaches.
Avoiding Regulatory Capture
Chairman Matz began her letter opposing H.R. 2287 by stating she "wholeheartedly" endorses transparency and accountability, but stated, "I firmly believe it is of utmost importance to avoid even the appearance of regulatory capture in the budget-making process."
"Not only would this legislation undermine NCUA's independence, it is also without precedent," Matz asserted. "No other financial institutions regulator is subjected to annual budget hearing requirements, and none of NCUA's counterparts conduct such hearings. As a result, this legislation would single NCUA out for differential treatment in the budget process."
Matz said NCUA's experience is when regulated entities participate in the development of the operational budget and have access to pre-decisional information, "the result is not always in the public interest or good public policy."
Matz recalled "cutting NCUA resources and costs" were the "consistent messages" delivered by trade associations to NCUA in public budget forms held for the 2002 through 2009 budgets. "Unfortunately," she wrote in her letter, "when the Great Recession hit, NCUA was insufficiently resourced to address the ballooning number of troubled credit unions."
"Many federally insured credit unions, including some with more than $1 billion in assets, teetered on the brink of failure because the NCUA budget and staffing levels had not kept appropriate pace with growth in the credit union system over time," Matz wrote. "The NCUA Board addressed these problematic issues and has since maintained the overall level of full-time employees over the 2012-2016 period, adhered to a congressional pay freeze for federal employees, and managed scarce resources even more efficiently."
'Deliberate' Process
NCUA's budget process is "deliberate," Matz continued. She said every year, the agency "painstakingly" evaluates required exam and supervision resource needs "credit union-by-credit union." Matz said exam hours recommended by staff are then reviewed and carefully evaluated by several layers of management, before "fully vetted" estimated budget requirements are provided for board review and consideration. The board then makes additional adjustments, as necessary, to meet the overarching goals of NCUA's multi-year Strategic Plan, she explained.
"Moreover, NCUA follows zero-based budgeting principles in setting its budget each year," Matz wrote. "Instead of carrying forward budget amounts for line items from the prior year and indexing them for inflation, every projected expense is carefully reviewed and fully justified. This rigorous, ground-up budgeting process ultimately produces an effective operation to support NCUA's mission to supervise and examine credit unions and protect the National Credit Union Share Insurance Fund."
Matz noted the NCUA board recently returned to its longstanding practice of approving a two-year budget. She said the agency's operating budget will be $290.9 million for 2016 and is proposed to be $302.9 million for 2017. The 2016 budget, she said, will reduce staffing levels by 21.7 full-time equivalents, with the reductions achieved through attrition.
"The Operating Budget increase of 4.1% is the lowest in nine years and will allow NCUA to achieve its statutory mission of protecting the National Credit Union Share Insurance Fund," she wrote. "Moreover, our budget is efficient, spending less than $230 per $1 million in system assets."
"This traditional two-year NCUA budget exceeds the intended transparency of H.R. 2287 because future budgets will now be publicly available on NCUA's website a full year before they become effective," Matz asserted. "The Board plans to continue its practice of holding a mid-year budget review, and the 2017 budget is scheduled to be reviewed at the Board's November 2016 open meeting."
According to Matz, "Our budget and budget process are also transparent. As the peer leader among financial institutions regulators, NCUA has a dedicated online Budget Resource Center. On this webpage, NCUA posts for public review more than 80 documents about the agency's budget. Included in these documents are over 800 lines outlining individual office budgets for such categories as pay and benefits, travel, and contracting, among others."
Matz noted audits of all funds under NCUA management are posted to its website annually. "This information provides a high level of disclosure and transparency of our budget and budget-making process," she stated.
