NCUA’s 2023 Staff Proposed Draft budget is 84 pages. It adds 25 new positions and an 80% increase in spending on the Merit technology system.
CUNA and NAFCU provided 8 and 9-page detailed suggestions for changes. Credit unions pay all NCUA’s expenses. The two trade associations critiques are an excellent starting point for readers who want to see the critical issues.
A Longer Term Spending Perspective
Two weeks ago I posted a blog called NCUA’s budget hearing and inflation that included a chart from the Bureau of Labor Statistics showing the 22 year cumulative price increases for many sectors of the economy. The largest was the 240% gain in hospital services followed by college tuition and fees at 180%.
Average hourly wages had increased 100% and overall inflation was 74.4% in this time frame.
In this 22 years the US population has grown by 50 million. Each of these economic sectors are serving many more customers with more products and more facilities than was the situation in 2020.
NCUA’s proposed 2023 budget would result in a 283% increase for this same period, higher than any other economic sector. Meanwhile number of NCUA insured credit unions has fallen from 10,316 to 4,853.
NCUA’s budget process is one sided. It details all spending request but provides no cost control or expenses reductions. An example is this excerpt from CUNA’s analysis of administrative costs: Specifically, the budgets for contracted services, administrative expenses, and rent, communications, and utilities are proposed to increase by 30.3%, 10.8% and 21.8%, respectively.
Without external oversight, the budget process becomes a PR exercise with scripted answers and no independent review. Board members readily give in to the inflation rationale.
NCUA’s budget grows inexorably faster than every other sector because there is no check and balance. The agency is answerable only to itself. Or as one board member frequently observes, “NCUA is a monopoly.”
Chairman Ed Callahan’s Last Congressional Hearing
For there to be accountability over NCUA’s spending, the process should be changed. The example of former NCUA Chairman Ed Callahan’s final Congressional testimony suggests a possible solution.
On April 24, 1985 Ed appeared before Chairman Boland’s subcommittee of the House’s powerful Committee on Appropriations. He presented the CLF’s 1986 appropriation request.
The following are excerpts from Chairman Callahan’s opening statement:
For fiscal year 1986 we are requesting a $600 million in new loans, the same number as the previous five years. The expense limitation $850,000 is the number as the current fiscal year and has been unchanged for the past four years. . .
We believe the lending limit is adequate to meet the needs of over 18,000 credit unions. . . Our agents, the 42 corporates, have reported minimal increases in loans even though loans outstanding at their member credit unions have increased 44% the past two years. . .
The CLF’s loan balances of $288.5 million represent a very slight increase since our fiscal year end. . .
Mr. Chairman, today the (CLF) system provides services to more credit unions at a lower cost and with fewer employees than at any other time in its history. Credit unions and we are proud of its success.
At the time of this hearing, NCUA insured 18,000 credit unions with six regional offices and a DC headquarters. Total employment was 600. The CLF’s bottom line of no increases in operating expenses for four consecutive years was the same outcome for both the NCUSIF and agency’s operating budgets.
In contrast, NCUA’s total spending has grown over 200% more than the economy’s total inflation for the past 22 years. The solution to NCUA’s open-ended spending is to make the entire NCUA budget subject to Congressional oversight and approval.
A Better Way: Put NCUA Spending “On Budget” for Congressional Review
All CLF spending was subject to Congressional oversight until the 2008/2009 crisis changed this annual approval process. Congress no longer reviews CLF lending or expenses. The CLF’s coverage has never been as comprehensive or meaningful since.
Currently the NCUA is seeking to extend the CARE Act provisions enlarging the CLF’s capabilities. This legislative request is an ideal opportunity to put the CLF back on budget along with the remainder of the Agency’s spending.
In the real economy, constraining costs is the first responsibility of leaders when facing unprecedented inflation and the prospect of an economic downturn. Personnel and other resources must be redirected to immediate priorities, rather than just adding staff for new initiatives.
Both efficiency and effectiveness concerns were raised in NAFCU and CUNA’s detailed budget responses. However, these comments come with no formal authority. NCUA routinely restates its positions, such as the need for consumer examiners or more specialists. Board members, with rare exceptions, just support each other’s spending priorities.
Putting the NCUA on-budget would open up the process to independent monitoring and public commentary. Congress would review and approve the spending as well as the underlying “themes” or policy justifications. As the NCUA’s taxpayers, credit unions would then have a meaningful way to comment on NCUA’s budgets and operating performance.
It worked for the CLF. It would be a better way for insuring accountability for NCUA’s performance today.