NCUA Public Budget Briefing is this Wednesday. Here are my 5 Takeaways:


 

This Tuesday December 2, at 10:00AM NCUA agency staff will present their proposed budget to the NCUA Board and the public as required by law. I was closely involved in the first ever public Budget Briefing when Chairman Dennis Dollar launched these public events 20 years ago and again when they were brought back to life by Chairman Rick Metsger in 2016. I can attest to the fact that the Board is looking for substantive public comment to help them reach their final decisions later in the year. This will be the first NCUA budget I have not had some role in since 1997 – and I am eagerly looking forward to the staff presentations, NCUA Board questions, public and trade group comments.


Take-Away 1: This year’s Operating Budget declines slightly due to reduced travel because of COVID-19. 2022’s budget will be vastly different.


As a result of reduced/eliminated travel, the proposed Operating Budget actually goes down $316,000 or -0.1%. Travel is the second largest line item in the agency’s budget after salaries. The public budget document states: “had the travel budget for 2021 included this $12 million, the Operating Budget would have increased by approximately 3.7 percent.” The broader question and unknown is what this means for future budgets and the National Credit Union Share Insurance Fund. Click here for the link to view the draft staff budget – all 108 pages:


https://www.ncua.gov/files/publications/budget/budget-justification-proposed-2020-2021.pdf


Take-Away 2: This will be the first public NCUA Board gathering since the departure of NCUA Board Member J. Mark McWatters.


McWatters left an indelible mark on the agency during his six years at the helm. The industry and the agency benefitted from his expertise, leadership and sound reasoning. That included his thoughtful review, assessment and action on agency budgets. He always reminded staff at NCUA that we were spending other people’s money. He was a pleasure to work for when I was at the agency.


I anticipate both Chairman Rodney Hood and Board Member Todd Harper will have clear thoughts on what direction they plan to lead NCUA. Watch for the questions they ask staff during the presentation for clues. I anticipate Chairman Hood statements to be consistent with furthering his current initiatives already implemented at the agency. Specifically, his staunch support of Financial Inclusion will likely be highlighted. I expect “soon to be” Chairman Harper will likely provide comment on his desire for a more robust emphasis on consumer compliance issues as well as safety and soundness in general and relative to the impact of COVID-19.


Take-Away 3: The timing of Trump nominee Kyle Hauptman’s arrival impacts the budget process.


When does Kyle Hauptman arrive and is it in time for a budget vote later in December?


As they say, timing is everything. Should Hauptman arrive in time to vote on the budget expect to see Hood’s initiatives move through as one of his last moves as Chairman. For Hauptman that would be a bit like drinking from a fire hose on day one. If Hauptman is delayed until after year end the budget process will be at a “fork in the road”. Will Hood and Harper reach agreement via negotiations between their offices?


During my time as Executive Director at NCUA there were three combinations of bipartisan two member NCUA Boards:

· Chairman Debbie Matz and Board Member Mike Fryzel

· Chairman Rick Metsger and Board Member Mark McWatters

· Chairman Mark McWatters and Board Member Rick Metsger


I had a front row seat and worked closely with each of these Boards. I was very impressed by the bipartisan approach and collaborative nature demonstrated by each of these Board combinations.


One constant presence during all three of the above combinations:


Chief of Staff Sarah Vega, who served Chairman Fryzel and Chairman McWatters and NCUA for 12 plus years. Vega departed along with McWatters and will be equally missed. Her mantra of “do the right things for the right reasons” impacted many big decisions over the last twelve years.


How will the new two member Board combination of Chairman Hood and Board Member Harper approach the Budget Briefing?


This will provide the first glimpse of what the future holds.


In the event the NCUA Board does not vote on a budget by year end what happens?


For the past several years the Board has approved a two-year budget. If the Board does not approve a new budget by year end, the second-year budget previously approved could be used to start 2021.


While not optimal, it does provide a safety net for the continued operations of NCUA to achieve its mission while waiting for the NCUA Board to act.


Take-Away 4: NCUA’s Capital Budget request is a 24.8% decrease.


Based on the draft, the reduced Capital Budget is due to a substantially lesser cost for the MERIT Exam program in 2021 vs 2020, and the planned rollout of MERIT in 2021 – which creates an accounting change. The costs move from the Capital Budget to the Operating Budget as ongoing maintenance costs replace development costs.


Take-Away 5: COVID-19 is impacting everything, including this AND future NCUA budgets.


What will the long-term financial impact of COVID-19 be and what does that mean for this and future NCUA budgets?


Credit unions, NCUA, the US and the world continue to grapple with COVID-19. What will the economic impact be on credit unions and how might that impact the NCUA Budgets that follow this one? With many COVID-19 unknowns, this budget had to have been a challenge for the staff and the Board. Listen closely to the public statements at the table from staff and the Board on their thoughts on COVID-19 and the budget. Also, I recommend you consider signing up for NCUA’s upcoming Webinar: NCUA’s COVID-19 Response Update which happens a day after the Budget Briefing. I will have more to follow on that topic…