ALEXANDRIA, Va.-The NCUA took a `giant step' in the sunshine when the agency held its first ever open budget forum to educate the credit union community on its budget making process and take comments from the public. The board will make its final decision on the budget at its November 15 meeting. "What I would like to do each year is present information on the budget so you can challenge new or different items of the budget and I can try to justify them," NCUA Executive Director Len Skiles said. He said that while it was the agency's duty to set its budget, it was important to receive input from the stake holders. It was equally important for NCUA to explain how thorough the agency's budget process is, he said. "The event broke practices of the past and was a giant step toward ensuring credit unions have greater accountability from NCUA and more meaningful information about how their money is being spent by the agency. We hope this practice continues in the future," CUNA President and CEO Dan Mica commented. NAFCU President and CEO Fred Becker added that he was impressed the hearing did not become about the overhead transfer rate rather than the overall budget. "I was surprised that it didn't, quite frankly, but I am glad it did not," he said. NAFCU constituents, mainly federally chartered credit unions, pay less of an operating fee when the transfer rate is increased. Last year the NCUA raised the overhead transfer from its historic 50% to 66.72%. While both CUNA and NAFCU were pleased with the meeting, both suggested tweaking for next year. Becker suggested that while the meeting "takes us light years ahead of where we were," a little "discourse back and forth with us might have helped." Mica commented that the five minute time limit might not have been enough to make all the necessary points. Interested parties were also invited by NCUA to submit written testimony through November 7. Becker noted the usefulness of the open hearing so that the agency could learn from credit union representatives and vice versa. One thing Becker pointed out that NAFCU was very interested to find out was that NCUA bases the operating fee charged to credit unions based on the budget, while the transfer from the National Credit Union Share Insurance Fund (NCUSIF) was based on actual spending each month. Because the agency has spent under budget-6.45% over the past five years, according to Becker-federal credit unions are being over assessed on their operating fees. "Why aren't federal credit unions being billed on actuals also?" he questioned. The issue gets back to one of NAFCU's pet peeves about the agency budget-using budget to budget comparisons rather than budget to actual. Skiles explained in his presentation that all government agencies use budget to budget comparisons, because actual spending is not determined until the last dollar is spent at the end of the year and the budget. Becker's point also raises the issue of the setting of the overhead transfer rate. "I believe there is an awful lot of rhetoric surrounding this issue," Mica countered. If a group represents one side or the other of the overhead transfer rate issue, their argument is more politicized than equitable. "We don't have a constituency. We represent 90% of the credit union movement," he pointed out. "With the overhead transfer rate, the key there is what is insurance related and if those definitions are available to all." Mica said he feels the "honest statesmanship" present with the current NCUA Board is a good sign. "I believe the chairman and the board members are sincere in their statements that they want to make [the overhead transfer rate] as equitable as they can," he said. "I frankly did not believe that a few years ago." During his presentation, Skiles explained that NCUA's budget in detail to the attendees from the credit union community. The agency's budget is expected to increase by 4.6% over this year's budget, totaling $147 million, he said. This would account for one of the smallest increases in recent memory. For 2001, the budget increased just 4.2% over the previous year's. However, the bigger news is that in 2003, the agency expects the budget to decrease to $145 million, the first cut since 1985. NAFCU's Becker said that "your friendly budget hawk" will be watching over these numbers to ensure the reduction is an actual reduction in spending rather than just the projected budget numbers. Next year, NCUA will eliminate through attrition 33.5 full-time equivalent (FTE) positions, or 3.2%. In 2002, the agency expects to be down to 995 FTEs, below the 996 from 10 years prior, according to Skiles. This will bring the agency very close to meeting Dollar's goal of a 4% staff cut by year end 2003. "This is the first time in a long time, I believe, that FTE reductions will be coming across the board," said Skiles. Most of the increase in the budget each year is due to employee pay and benefit increases, spurred by the Federal Institution Reform, Recovery Enforcement Act (FIRREA) pay comparability requirements. "These things are part of our budget that we really have no control over," Skiles explained. Pay and benefits accounts for 75% of the agency's budget. The remainder of the budget goes toward travel (9%); rent, communications, and utilities (3%); administrative costs (9%); and contracted services (4%). Travel will account for $13.2 million of the agency budget, $1.3 million of which goes to pay for regional conferences held during the even numbered years. Historically, $14 million has been allotted to travel in regional conference years. Becker said that the information Skiles provided regarding the pay and benefits increases at the agency uncovered other issues for NAFCU. "That unmasked the true issue of controlling the FTEs," he indicated. While not addressing the FTEs of the other federal financial institution regulators, NCUA did point out several key pieces of data comparing the credit union regulator to that of the banks and thrifts. For example, NCUA spends $13,626 for each institution it regulates. In comparison, the Office of the Comptroller of the Currency (OCC) spends $185,119; the Federal Deposit Insurance Corp. (FDIC) spends $111,055; the Office of Thrift Supervision (OTS) spends $152,109; and the Federal Reserve Board spends $198,885 per institution regulated. Additionally, NCUA spends $240 in operating expenses per million in insured deposits, whereas the FDIC spends $336, according to Skiles. The NAFCU CEO said he was encouraged that the agency had stopped hiring new employees, but was concerned still that Skiles did not address the decline in FTEs at other federal financial institution regulatory agencies as their industries have shrunk. No NCUA budget hearing could be complete without discussion of the overhead transfer rate. According to data that NCUA provided, the difference between a 61% and a 66% overhead transfer rate would not amount to much difference in terms of dividend dollars. The difference for a $5 million credit union would amount to $110, while a credit union with $500 million in assets would still only receive an additional $11,000. Money is not everything, according to Mica who said the issue is "argued not only on dollars but on principle.For credit unions, every member dollar counts." He added that the process should be "open, transparent, and centering debate around what is and is not included." Becker agreed, "The more government in the sunshine, the better off we'll all be." Skiles said that all the comments given will be helpful in the agency's budget decision. [email protected]