NCUA budget divides board members over crisis preparations

The National Credit Union Administration’s proposed 2021 budget came under scrutiny during a public briefing Wednesday, but it appears unlikely any significant revisions will be made before the NCUA board meets on Dec. 17 for a meeting that could include a vote on the proposal.

As expected, the meeting highlighted a clash between NCUA Chairman Rodney Hood, a Republican, and board member Todd Harper, a Democrat, who indicated during the agency’s November board meeting that he would not support the budget as written. Former board member Mark McWatters, also a Republican, offered a similar response and was subsequently forced out, reducing the agency to two sitting board members. Within a half-hour of the Wednesday’s meeting, however, Kyle Hauptman received Senate confirmation to fill McWatters’s seat. He is expected to vote along with Hood in favor of the budget.

The proposed 2021 budget is notable for the fact that a surplus from 2020 travel funds will carry over to next year, resulting in a nearly 25% reduction in the agency’s travel budget, along with a 0.1% drop in the operating budget.

During Wednesday’s meeting, however, Harper suggested that without the surplus funds, the budget would have seen at 2.5% increase.

“I could certainly see that as a way to characterize the 2021 budget,” replied Eugene Schied, NCUA’s chief financial officer.

“The fact that less travel is projected for next year lowers artificially what the travel costs will be as opposed to a ‘normal year,’ and we’ve demonstrated that we can perform well in a remote posture, so that makes the budget look lower than it otherwise would,” Schied said elsewhere in the meeting.

Harper’s bigger concern, however, was that the agency is not preparing adequately for the economic crisis’s impact in the year ahead. Credit unions with a higher risk profile are likely to need closer supervision next year, he said. “Why, therefore, have we not engaged in a comprehensive discussion about the exam program to address this reality?”

He noted that in previous crises the agency took a variety of precautionary measures it has not taken this time around, including reverting to a 12-month examination cycle and staffing up with additional examiners. The agency also spends less per million in system assets now than it did at the time of the last crisis, when “inadequate spending … left NCUA flat-footed and ill-prepared," Harper said.

If other federal banking regulators increase their resources in preparation for a difficult year, NCUA could appear “penny wise and pound foolish” if it doesn’t follow suit, particularly if the economic impact hits the credit union system particularly hard, Harper added.

The budget proposal also includes five new full-time staffers at the agency, along with the potential for eight additional employees, termed “overhires,” who are not included in those line items. Harper and others participating in the hearing called for additional transparency regarding those positions.

“We know the duties to be performed [by the five new FTEs] but we know really little about the need for those duties to be performed,” said Mike Schenk, chief economist at the Credit Union National Association.

Similarly, he added, the budget takes office renovations into account but little is known about what considerations the agency has made regarding the future of remote work and what impact that might have on the need for renovations.

Schenk added that CUNA maintains “real concerns about any obvious expansion in consumer-protection activities,” an area Harper pushed for in last year’s budget proposal and which could be a focus area for him if he is elevated to chairman once President-elect Joe Biden takes office.

CUNA’s member credit unions, said Schenk, believe additional consumer-protection measures are “simply not warranted” and the agency has provided “no evidence to show this is a risk area warranting an increase in expenditures or agency resources.”

Hood echoed those concerns, noting that because the agency is funded by the institutions it oversees, “we as an agency should take great care when direction the agency’s limited resources to open-ended new commitments.”

He added that if CUs were fully exempted from the Consumer Financial Protection Bureau’s oversight and rulemaking, he would be willing to create a CFPB-like program at NCUA.

While some industry groups have praised NCUA for reducing next year’s budget through the use of surplus funds, Curt Long, chief economist at the National Association of Federally-Insured Credit Unions, noted that proposed spending increases for 2022 “signify the agency is headed in the wrong direction.”

That proposal shows an 8.3% increase over planned spending for 2021 and a 44% increase compared to a decade prior, despite the industry contracting by 31% in that same period.

NCUA will take comments on the proposal through Dec. 11, but it’s unclear the extent to which any feedback might measurably impact the budget process.

“Now that a number [of public budget briefings] have been held in consecutive years, it is fair to ask what recommendations have been heeded from one year’s briefing to the next year’s budget,” Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, wrote in prepared remarks. “While I believe that NCUA is genuine in gathering perspectives to improve its budgeting process, I cannot say that I can identify the suggestions that have been taken up over the last few years.”