NCUA approves smaller budget, but will it stick?

The National Credit Union Administration board on Friday approved its 2021-2022 budgets, which showed reductions from the original spending plans the agency proposed last month.

As expected, the vote broke along party lines, with board member Todd Harper objecting to several components of the plan, while Chairman Rodney Hood and new board member Kyle Hauptman voted to approve the budget.

The final 2021 budget is more than $1.1 million lower than originally drafted, due in part to further reductions in travel expenses for the year ahead, said Eugene Schied, NCUA’s chief financial officer, reflecting lessons the agency learned from the pandemic regarding remote and off-site work.

Following criticism from industry groups that the agency was predicting business as usual after the pandemic and charges that NCUA ignores feedback on the budget, board members and staff went to great lengths during Friday’s meeting to outline revisions that cut costs and other changes made as a result of comment letters.

“This is the first decrease in the year-over-year budget since 2005 and I think it’s a bold statement about our commitment to controlling costs for the credit union system,” Hood said, adding that just as credit unions are tightening their budgets, “NCUA must do the same and lead by example.”

The budget also approved one additional consumer compliance officer for a position not to exceed one year. Harper has long pushed for the agency to do more with consumer protections, and Hood said early in the meeting that while the board had the votes to remove that position, “in the spirit of bipartisanship, it remains in the budget.”

Hauptman, a vocal critic of the Dodd-Frank Act, did not address the subject.

Harper, a Democrat who is widely expected to be elevated to chairman once President-elect Joe Biden is inaugurated, pushed back on multiple components of the plan.

“While there are some positive aspects of this proposal, for me this budget ultimately falls short on several fronts,” he said, repeating his concerns that the agency won’t truly have a sense of the pandemic’s impact until sometime next year when the effects of economic stimulus measures fade and “congressionally imposed forbearance programs expire.”

Harper aired similar worries during the public budget briefing earlier this month, and on Friday he emphasized what he sees as a need to surgically modify the policy governing examination schedules, including the possibility of examining some shops sooner than the 18-month cycle would normally dictate.

“We have identified high-risk institutions for which we currently have no plans to examine in 2021,” he said. “We know the risks are there, so we should plan to check in with these credit unions next year.” Harper also called for NCUA to examine all federally insured credit unions with assets of $500 million or more in 2021, regardless of charter type, out of an abundance of caution since a failure at one of those institutions could pose a higher risk to the National Credit Union Share Insurance Fund.

Because of concerns that more credit unions could face challenges or even liquidations in 2021, NCUA’s budget allows the agency to temporarily rehire retired examiners. However, Harper characterized that plan as “only an illusion,” and said he has heard many retired examiners aren’t planning to sign up for the program. Harper said the agency should hire contractors for short-term positions if too few retirees make themselves available, but added, “we are waiting too long to proceed with that option.”

Harper’s concerns regarding supervision and exams could be a focus area for him early in 2021 if he is appointed to the chairmanship, however, any measures brought before the board would likely face stiff resistance from Hood and Hauptman.

For his part, Hauptman was effectively thrown into the deep end of the pool in his first go-round on the board, taking part in back-to-back meetings covering nine items just a matter of days after he was sworn in. He voted in support of the budget, saying, “I concur with the sentiment that we can reduce travel expenses when we get back to so-called normal times,” and emphasized a desire for the agency to continue to find ways “to do more with less.”

The 2022 budget plan approved Friday also included a reduction of nearly $25 million in travel costs, a reclassification of the contracted services budget and more.

“We got a lot of comments about NCUA returning to a business-as-usual position after the pandemic, so we took a more careful look at our estimates for 2022,” said Schied.

He added, “The 2022 draft budget had largely assumed a return to normal travel, and in light of how we’ve performed in 2020 and the lessons we expect to take from that, we believe the travel expenses could be reduced.”

But Schied also reminded that all budgets rely on assumptions about what the future may hold, and agency staff expect to reassess and revise their approach to 2022 once a better picture emerges regarding how the industry fares in the year ahead.

In other actions, the agency unanimously approved a final rule amending NCUA regulations on operating fees paid by federal credit unions, including changes to how an institution’s total assets are calculated, amending the period used for calculating total assets and other minor changes.

All three board members also approved a final notice regarding the overhead transfer rate and methodologies for the agency’s operating fee schedule.