Samantha: Hello, this is Samantha Shares.
This episode covers N C U A's approval of its 2025 and 2026 Budget.
The following is an audio version of that action, in their own words.
This podcast is educational and is not legal advice.
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And now the Budget approval.
The second and last item on our agenda is the NCUA's budgets for 2025 and 2026.
Staff presenting this item are Eugene Sheed Chief Financial Officer, and Melissa
Loudon, Deputy Chief Financial Officer.
Joining Eugene and Melissa to answer questions is Jim Holm,
Supervisory Budget Analyst, Office of the Chief Financial Officer.
Good morning to all three of you.
Please begin when you are ready.
Good morning Chairman Harper, Vice Chairman Hoffman, and Board Member Otsuka.
We are here to present the final recommendation for the 2025 2026
Operating Capital and Share Insurance Fund Administrative Expense Budgets.
The staff draft budget justification posted on the NCUA's website on October
30th and an identical version was published in the Federal Register on
November 4th, 2024 for public comment.
The NCOA conducted additional analysis of the budget and considered the
public comments that we received.
The recommended final budget includes various adjustments as a result.
The net impact of these adjustments in comparison to
the staff draft are as follows.
First lower, it lowered the recommended 2025 operating budget.
37 million and six positions.
Second, we've lowered the recommended 2025 capital budget by 0.
8 million.
And finally there's a small increase proposed in the final 2025 share
insurance fund administrative expense budget of 172, 000.
The recommended 2025 combined final budgets total 395.
4 million and 1, 255 positions.
This is 37.
7 million and six positions lower than the draft budget.
The recommended 2026 combined budget is 419.
5 million and 1, 263 positions.
This is 49 million in nine positions lower than proposed in the draft budget.
Even though the board adopts it to your budget for planning purposes, it
is the practice to revisit each year's budget before that budget year begins.
Attachment one to the staff to the board action memorandum includes
the summary budget tables for the operating capital and share insurance
fund, administrative expense budgets.
Detailed budgetary tables for each office in the NCOA, an updated chart
showing the distribution of the budget between amounts paid by federal and
federally insured state chartered credit unions, an updated worksheet showing
the operating fee rates that will be charged to the federal credit unions.
Changes to the staff draft budget.
The recommended 2025 combined funding level is approximately 2.
5 percent higher than the Then the board approved 2024 budget,
which is down from the 12.
2 percent increase that was reflected in the staff draft staffing in 2025
will be reduced by six positions.
Net as compared to the staff draft for the operating budget, specific
changes to the staff draft that in the final budget before you today include.
An additional 7 million in expected surplus now projected for the end of 2024
for a total of 12 million in carryover funding for the operating budget that
will be used to offset 2025 requirements.
An additional 70.
5 million in total budgetary resources has been identified, of which 27 million
is An unallocated cash from prior year collections of the operating fee
and $43.5 million is the associated overhead transfer rate that will result
from spending the unallocated cash.
This combined amount has been used to lower the overall level of the
operating budget by $28.2 million for 2025 and $42.3 million for 2026.
The budget for agency travel expenses was increased $1.1
million in the final proposal.
for 2025 and 2.
4 million for 2026, reflecting expectations for certain remote
staff to increase in office work.
The budget for contracted services was reduced 1.
2 million to reflect savings from postponing until 2026
contracting updates for information technology support services.
The recommended final budget eliminates two new positions and related funding
that was requested to establish a new office of the executive secretary.
One new position proposed for the office of the ombudsman was eliminated.
Two new positions proposed for the office of external affairs and
communications were eliminated.
One new executive position has been added to the office of the executive director in
a previously authorized executive position in the same office has been upgraded.
And reductions totaling 0.
9 million net were made to several offices lowering the proposed budget
for things such as the student loan repayment program the agency's proposed
year round intern program, and eliminating travel for a proposed training forum.
Some additional adjustments were made to funding levels from the staff draft
for corrections as well as to reflect updated information that was not available
at the time the draft was published.
For the capital budget, the recommended final 2025 capital
budget is approximately 0.
8 million lower than the staff draft.
After reviewing the status of capital projects that this we identified
balances from completed capital projects that are being used to offset
the 2025 requirements for the share insurance fund administrative budget.
The final recommended budget for 2025 and 2026 is higher than the staff draft.
As I mentioned by 172, 000 in both years due to a reestimate of travel
expenses for state supervisory authority.
Examiners attending NCOA sponsored training.
Turning now to comments that we received from the public, as
required by the Act, the NCOA held a public briefing on November 22,
2024 to discuss the draft budget.
At that meeting, representatives from four different associations
presented their views on the draft.
The NCOA also received written statements from 14 organizations
or individuals that did not make presentations at the budget meeting.
In all, 18 written submissions are posted on regulations.
gov's website.
Many of the general comments received from the public related to operations
and programming matters rather than specific budgetary matters.
The agency will provide these comments directly to the appropriate
NCOA senior executives responsible for those relevant programs.
Nine commenters expressed concern about the 12.
2 percent annual growth rate in the 2025 draft budget.
As I've stated, the recommended 2025 combined final budget is 37.
7 million lower than the staff draft.
This is a 2.
5 percent annual growth rate, which is 9.
7 percent lower than the draft and approximately 9.
8 percent lower than the 12.
3 percent increase that was approved by the board for 2025 as
a part of the 2024 2025 budget.
The changes, as I've already mentioned, were largely driven by reductions
in positions that were proposed in the draft budget, as well as the
additional surplus funds and unspent cash that had been identified,
which offset 2025 funding needs.
Seven commenters remarked on the staff draft budget's increase for the Office
of Consumer Financial Protection.
Five of the commenters opposed the increase, while two of the
commenters supported the addition.
The additional positions add, added in the staff draft.
I support N C's responsibility to ensure a safe, sound viable
system of cooperative credit that protects con credit union members.
While the consumer Financial Protection Bureau examines federally insured credit
unions with assets more than $10 billion, the CFPB is not the only federal regulator
responsible for administering federal consumer financial protection laws.
The NCOA is responsible for consumer financial protection for credit unions
with less than $10 billion in assets.
Which represents over 99 percent of the federal credit unions.
One of the commenters also raised concern that the budget for the
additional financial protection staff Would be unfairly paid by state
chartered credit unions through the OTR.
The OTR methodology does not include the cost of OCFP's consumer financial
protection activities and personnel As insurance related except for the
consumer assistance center, which fields calls related to insured credit unions
Including at times calls related to share insurance Five commenters were
concerned about the overall increase in the ncaa staffing level In the staff
draft budget specifically commenters expressed concern about the additional
administrative staff The recommended final budget reduces the number of
new staff in by six positions net.
Three commenters noted that although the staff draft budget generally does a
good job describing costs of proposals and initiatives and programs, that
more information could be provided to explain the benefit of such
investments to the credit union system.
In future budgets, the NCA will work to make clear any obligation
the agency must satisfy driving initiatives and programs or any benefits
that they are intended to provide.
One commenter expressed support for the examination cycle time revisions
included in the staff draft budget, which would generally extend the
time between examinations for very well managed credit unions.
The exam cycle revisions and related resource levels presented in the
final budget are the same as those presented in the draft budget and
are detailed in attachment two to the board action memorandum.
Three commenters noted the importance for support to small and minority
depository institutions and that the NCOA should continue and deepen this work.
The final budget maintains resources.
That were in the staff draft budget for this purpose and finally two letters
express concern about the operating fee and the burden that it has on credit
unions based on the staff draft, the operating fee would have increased by 9.
02%.
However, based on the revised lower budget, the operating fee
for 2025 will now decrease by 1.
17%.
The board action memorandum includes additional discussion
on the budget feedback.
We received during the comment period.
Melissa will now present on the overhead transfer rate and
the financing of the budget.
Thank you, Eugene.
In December 2023, the NCUA board requested comment on the OTR
methodology and provided additional detail and transparency to the
public on the OTR calculation.
NCOA received comments from four trade groups.
The comments centered on the transparency and clarification provided in the notice,
the method of requesting comments on the OTR, whether the NCOA has legal authority
in using the share insurance fund to fund the operating budget, and whether the
allocation used in the OTR calculation for third party vendors and QSOs should
be attributed to safety and soundness.
Commenters also favored the current process NCOA uses to request comment
on the OTR every three years and emphasized the need to retain
the comment period associated with the annual budget briefing.
The NCOA did not identify any need to update the OTR methodology at that time,
but the agency remains committed to requesting comment from the public on
the OTR methodology every three years.
Next, I will discuss how the NCOA's programs are financed.
The NCOA expenses are funded primarily through annual operating
fees paid by federal credit unions and monthly transfers from the
share insurance fund using the OTR.
The approved methodologies for calculating the OTR and the operating fees are
applied to determine the amount of the budget that will be financed by each.
The staff draft includes a discussion of these methodologies
on pages 36 through 42.
The final 2025 OTR is 61.
7%, the same level as the staff draft and the 2024 OTR.
The residual 38.
3 percent of the 2025 budget will be collected through the Operating
Fee Bill to Federal Credit Unions.
Consumer Federal Credit Unions with assets equal to or less than 2.
08 million will not be assessed an Operating Fee in 2025 pursuant
to the approved Operating Fee Schedule methodology.
For consumer federal credit unions with assets greater than 2.
08 million, the NCUA establishes a three tiered scale to compute
the operating fee charged.
The specific steps used to determine the operating fee and the scale
for rates charged to different asset sized federal credit unions
1 of the Board Action Memorandum.
The operating fee charged to federal credit unions in 2025
will decrease approximately 1.
17 percent compared to 2024, which is a 10.
19 percentage point reduction from the estimate provided in the staff draft.
There are two reasons for the change to the operating fee amount from
the estimate, estimate reflected in the staff draft budget.
First, the operating and capital budgets were reduced by approximately 37.
8 million compared to the amounts that were presented in the staff draft.
Second, the updated fee is based on average credit union assets presented
in the four quarters call reports ending September 30, 2024, rather
than the estimated asset growth Used for the staff draft budget.
This concludes our presentation, and we're happy to answer your questions.
Thank you, Eugene.
Thank you, Melissa.
Thank you, Jim.
And thank you to the teams and the office of the Chief Financial Officer,
as well as the office of the executive director for developing and finalizing
the budgets for the NCUA in 2025 and 2026.
Moreover, my heartfelt thanks to Vice Chairman Hauptmann, Board
Member Otsuka, Sarah Bang, Renita Marcellin, and Catherine Galicia.
The level of collaboration and consensus reaching efforts amongst the three board
offices was instrumental in arriving at the budget agreement before us today.
I appreciate the many hours spent by all, including much
time over this last weekend.
Also, thank you to the many stakeholders who participated in this year's
budget briefing and those who provided written comments on the draft budget.
Your feedback was helpful to the agency and analyzing where to pair
costs and established priorities.
As Eugene noted in his presentation, recommended 2025 combined final budget.
Of the operating capital and share insurance fund.
Administrative expense budgets is 395.
4 million and 1255 positions.
This final budget is nearly 38 million dollars and 6 positions
lower than the 2025 staff draft budget proposed in October.
The 2026 combined budget is 419.
5 million and 1, 263 positions.
This budgeted amount is 49 million and 9 positions lower
than the 2026 staff draft budget.
As noted in the presentation, the year over year increase in
the 2025 budget is now just 2.
5%.
That's nearly 10 percentage points lower than initially proposed.
And the 2026 budget has dropped as well.
Whereas staff once projected an annual increase of 8.
2%, the final 2026 budget is now projected to increase 6.
1%.
Even with the sizable downward adjustments in spending and staffing, the 2025 and
2026 budgets still prudently invest in the areas of cyber security and
fraud detection and credit unions.
The budgets also provide for new staff positions in the areas of
consumer financial protection.
Artificial intelligence, examiner training, as well as
climate related financial risk.
On that note, I appreciate my board colleagues working with me to add
this new position to our Office of Examination and Insurance.
This position will develop a toolkit for credit unions to
monitor, measure, and mitigate their climate related financial risks.
It will also aid in updates to the NCOA's 2006 Disaster Preparedness Guidelines
to reflect the lessons learned from hurricanes like Helene and Milton.
And it will support the creation of training for examiners to help
them better understand the lending risks found with solar panels for
homes and electronic vehicles.
Many industry stakeholders commented that the NCOA's operating fees have been
unreasonably burdened on credit unions.
Whereas the staff draft budget projected an operating fee increase
of approximately 9 percent in 2025, this final budget actually decreases
the operating fee by nearly 1.
2%.
What's more, the NCOA's operating expenses account for less than
1 percent of total credit union administrative expenses regardless
of credit union assets, asset size.
Some stakeholders critical of the NCUA have also asserted that
the agency's budget is growing faster than the rate of inflation.
NCUA's economists have examined this issue and found that the NCUA's 2025 budget,
when compared to the 2020 16 budget, has grown by approximately that rate
of inflation over that period of time.
The agency is not inflating its budgets for its own purposes.
The NCUA is simply adjusting its budget to reflect the real
world cost of its operations.
and priorities as an agency of the federal government.
The NCOA has a proven track record of managing the resources entrusted
to it prudently, and the agency will continue to do so now and in the future.
In closing, give and take is an essential part of any organization's
policymaking and budgeting processes, and the budget before us
reflects that principle in action.
This funding plan demonstrates that the NCUA's strong, demonstrates the
NCUA's strong financial stewardship, and it will allow the agency to
effectively execute its safety and soundness, consumer financial
protection, Thank you and other statutory responsibilities over the next two years.
As such, I will support this NCOA 2025 and 2026 budget agreement.
With that, I look forward to a productive 2025.
That concludes my remarks.
I now recognize Vice Chairman.
Thank you, sir.
And thank you, everyone.
This budget looks significantly different than where we started.
We went from a proposed 12.
2 percent staff draft budget to 2.
5 percent today.
That's excellent news.
These adjustments reflect hard work from our staff, thoughtful input from the
stakeholders the chairman mentioned, and good faith discussions among the board.
I want to thank Chairman Harper for fostering an environment of
open and constructive communication amongst the board offices.
I don't think anybody had an agenda.
that was unrelated that can bog these things down.
Nobody was trying to stick it to anybody.
Nobody was trying to pull one over on somebody.
And I think that's how you get good results.
I want to thank those who provided comments, 18 formal comments and
then we had the budget hearing that provided some very productive exchanges.
I believe these efforts benefited all parties.
My view on the budget has been consistent.
The dramatic increase we saw in the staff draft budget is the result
of our process and of human nature.
Not anything unique to N.
C.
U.
A.
Government budgets are most often written by those receiving the
funds, not by those funding them.
In addition, there's little downside for any department head that
asked for more and more resources.
Naturally, those receiving the cash see their request is more
reasonable than those paying the bill.
If you compare the initial 12 12.
2 percent budget to the inflation rate of 2.
7 percent and the projected asset growth in credit unions of 4.
2%.
You can see why credit unions thought the original budget was out of step.
I have and will approach the budget with a focus on the process.
Nearly 75 percent of our budget is put towards compensation and benefits.
That's a large compounding expense.
And CUA's process seems to inherently need to lead to more
requests for more and more staff.
When we asked our 23 offices in June what they needed to be most
effective, out of 23 offices, not a single one requested fewer staff.
That said, I want to thank the offices that achieved their missions without the
addition of new positions or overhires.
It can be difficult to show budgetary restraint in the
absence of market pressures, like those faced by credit unions.
So I appreciate the restraint it took for the offices that
did not request new staff.
Let me be clear, this agency's greatest assets are its dedicated people.
It's certainly a useful exercise to solicit staff
from our staff on their needs.
But like credit unions and private businesses, we must balance those
needs against income projections, priorities, and fiscal constraints.
We owe it to America's credit unions and their members to ensure our priorities
align with the difficult decisions that they have to make every day.
The initial staff budget also included the creation of a new office of the executive
secretary and two additional positions.
That would have increased our number of departments from 23 to 24.
I'm pleased to note that office is not in this budget today.
One way to look at what we've accomplished is that a 100 million credit union as
an example, 100 million credit union will get a bill that's about 200 lower
than the bill they paid this year, not lower than inflation, not lower than
insured asset growth, numerically lower.
I guess that there are other insurance costs like property and casualty insurance
will not be going down next year.
So in closing, I want to thank the staff management, my fellow board members
for their willingness to work together.
I'm grateful to stakeholders who took the time to digest that
initial budget and offer ideas.
So thank you to you all.
Just one question.
I mentioned the bills which holding insured shares constant
would be lower than last year if you had the exact same amount.
When did they get the bill?
Remind us of that.
Sure.
The operating fee invoices will be sent as part of the cycle one billing process.
They go out March 2025 and due back April 2025.
That concludes my remarks.
Thank you.
Board member Otsuka, you're now recognized.
Thank you, chair.
Harper.
Thank you to the staff.
Thank you guys for your presentation and more importantly, for seeing
us through the budget process.
I know every year we do this in your office.
Embarks on this exercise.
I know it's not easy, so thank you.
Also wanna thank the office of the executive director, chairman's office,
the Vice Chairman's office and all the staff that have collaborated
to work on this, really appreciate everyone's work in collaboration and
getting us to this final product.
So thank you to my fellow board members.
Also wanna echo, my colleagues, thank you to the public commenters and
stakeholders who provided feedback and were engaged in this process.
I think I think that process is helpful for us.
And it's also helpful to understand where the public's priorities are.
The final budget for 2025 and 2026 represents investments in
our agency's mission, workforce, infrastructure, and ultimately
our system of cooperative credit.
That is.
The whole point here, the additional investment in our staff who are there
to carry out this important mission and technological investments into
examine chartering software and other infrastructure will help the N.
C.
U.
A.
Better protect the share insurance fund and credit union members.
For example, the new positions requested by ones are office that examines the
largest and most complex credit unions.
will allow us to better support credit unions in the 5 to 10 billion range as
they prepare for more robust examinations.
Ensuring credit unions this size are safe and sound is paramount to the
health of the share insurance fund and the entire system of cooperative credit.
At the public budget meeting earlier this year, I mentioned the work
we need to do to further build out our consumer compliance program.
The additional staff in the Office of Consumer Financial Protection
is a step in that direction.
And as I have said and will continue to say, the NCUA cannot do its job
as a safety and soundness regulator if we overlook consumer compliance.
They are interrelated.
As Eugene has pointed out in his presentation, we have managed to
make investments and fund much needed expenditure, expenditures,
excuse me, while still lowering.
This is still requiring a lower percentage in fees from credit unions.
Credit unions of all sizes, assuming their growth remains stable and they
stay in the same category, will pay a lower operating fee to the NCUA
next year than they did in 2024.
This is the direct result of our prudent spending in prior years
and the surplus we can now use to lower our overall budget cost.
So this lower operating fee is a win for credit unions.
It is important that the N.
C.
U.
A.
Is a good steward of the funds we received to protect the credit union system
and ensure share accounts that deposit insurance part is really important to
the Americans out there who put their money in credit unions, and the N.
C.
U.
A.
Can only do its job as a strong, effective and independent.
Really?
and independent regulator.
If we make the necessary investments in our infrastructure and our
staff to carry out that mission.
I think that this budget strikes the right balance and I plan to support it.
And thank you again to my colleagues for their collaboration.
Thank you to the staff and thank you to the public stakeholders.
Thank you so much.
Board member Otsuka, Vice Chairman Hoffman.
Is there a motion?
I move that the board approved the entry of 2025 2026 budget as attached
to the board action memorandum.
Is there a second to the motion?
Second.
There is a sufficient second.
All those in favor say aye.
Aye.
All those opposed say nay.
The ayes have it and let the record show that the motion passes three to zero.
Samantha: This concludes the budget approval
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.