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Headcount, salaries come under scrutiny in NCUA's 2018 budget proposal

Credit union trade groups applauded the National Credit Union Administration for many aspects of its proposed 2018 budget, although they said further spending cuts could and should be implemented.

The NCUA on Oct. 6 unveiled its proposed 2018 budget that calls for total spending of $321.0 million. It includes the 2018 operating budget at $298.2 million, a capital budget of $15.4 million and administrative expenses for the share insurance fund at $7.4 million.

Last year, the NCUA approved a final budget of $298.2 million for 2017 — although it ended up being about 2% less than that — and a preliminary budget of $312.1 million for 2018.

During a public budget briefing Oct. 18, CFO Rendell Jones said next year's budget would increase by a combined $3 million compared to 2017. The projected NCUA budget for 2019 is $331.4 million, a 3.2% increase over 2018 due primarily to investments in the capital budget, Jones said.

The regulator is also planning for a net workforce decrease of 42 full-time equivalents, or FTEs, in 2018. The NCUA projects 1,188 FTEs in 2018 and 1,174 by 2019. Pay and benefits compose about 74% of the agency's operating budget, Jones said.

Mike Schenk, vice president of economics and statistics for the Credit Union National Association, said the NCUA's total cost per employee continues to increase "substantially faster" than inflation and faster than increases for credit union employees. The NCUA proposal includes a 5.7% increase in salaries per FTEs while CUNA's staff compensation survey showed budgeted salary increases of 2.9% for credit union management and non-management employees. Schenk said over time it could produce significant differences in pay between the regulator and the regulated.

Schenk said aggregate spending is still too high but it is clear the agency is working on increasing efficiencies.

Cooperative Credit Union Association President Paul Gentile said he is encouraged by the headcount reduction, although he said the NCUA continues to push the idea that it is difficult to cut too many people when assets in the credit union system continue to increase. Gentile said he does not believe asset growth should go hand-in-hand with FTE increases. He said, for example, a credit union with a $20 million loan book that grows to $30 million after a merger would still follow the same procedures and processes and would be adding minimal risk. "The agency — like credit unions — should get economies of scale," he said. "As assets go up, you should be able to do more and not have to increase the number of examiners."

The NCUA's capital budget in 2013 was $1.4 million, had grown to $8.9 million by 2015 and is slated to be $21 million in 2019. "I think we'd all agree that's a healthy spend that the agency is doing there in capital expenditures," Gentile said. He wanted to know if those outlays would lead to fewer on-site exams. "Are these the things that are going to get us to the data that we need so we can start doing more virtual exams?" he said. Because personnel accounts for about 74% of the budget, it will be difficult to lower the total outlays if the NCUA is unable to reduce examiners in the field, Gentile said.

Jones said the 2018 budget reflects a commitment to efficiency and that the agency has made difficult trade-offs as it needs to continue investing to position itself with the ongoing changes in the financial sector. The NCUA has reduced its rate of budget growth for five years, and the proposed 2018 budget is less than 1% above 2017, Jones said.

The agency in July announced a restructuring plan that includes closing 40% of its regional offices, eliminating overlapping office functions and re-tooling its business model.

NCUA Chairman J. Mark McWatters, speaking at a conference earlier in the week, said the budget briefing in 2016 was not as helpful to the process as he would have hoped. He said creative, new ideas on budgeting were "not as forthcoming as I would have wished."

Money One FCU President and CEO Beverly Zook, speaking on behalf of the credit union and the National Association of Federally-Insured Credit Unions, said although the NCUA has begun to slow the rate of year-over-year budget growth 2018 would be the 10th year in a row the agency has approved a spending increase. "Every dollar spent by the agency is a dollar the credit unions are unable to put toward serving their members," she said.

The agency will accept written comments on the proposed 2018-2019 budget by email until 5 p.m. on Oct. 27.