[Federal Register Volume 88, Number 210 (Wednesday, November 1, 2023)]
[Notices]
[Pages 75040-75076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24032]
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NATIONAL CREDIT UNION ADMINISTRATION
[NCUA-2023-0117]
The NCUA Staff Draft 2024-2025 Budget Justification
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice.
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SUMMARY: The NCUA's staff draft ``detailed business-type budget'' is
being made available for public review as required by federal statute.
The proposed resources will finance the agency's annual operations and
capital projects, both of which are necessary for the agency to
accomplish its mission of protecting the system of cooperative credit
and its member-owners through effective chartering, supervision,
regulation, and insurance. The briefing schedule and comment
instructions are included in the supplementary information section.
DATES: Requests to deliver an in-person statement at the November 16,
2023, budget briefing must be received on or before November 8, 2023.
Written statements and presentations for those scheduled to appear at
the budget briefing must be received on or before 9 a.m. Eastern,
November 13, 2023.
Written comments may be submitted by November 21, 2023.
ADDRESSES: You may submit comments by any of the following methods
(please send comments by one method only):
In-person presentation at public budget briefing: submit
requests to deliver a statement at the briefing to
[email protected] by November 8, 2023. Include your name, title,
affiliation, mailing address, email address, and telephone number. The
NCUA Board Secretary will inform you by November 9, 2023, if you have
been approved to make a presentation. In order to present at the public
meeting, you must submit a statement. Your statement must be submitted
to [email protected] by 9 a.m. Eastern, November 13, 2023. Your
presentation must be delivered in person at the public budget briefing.
[[Page 75041]]
You will be allotted five minutes during the budget briefing to deliver
your remarks.
Written comments without an in-person presentation: submit
written comments by November 21, 2023, through the Federal eRulemaking
Portal: https://www.regulations.gov. The docket number is NCUA-2023-
0117. Follow the instructions for submitting comments.
Copies of the NCUA Draft 2024-2025 Budget Justification
and associated materials are also available on the NCUA website at
https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
FOR FURTHER INFORMATION CONTACT: Eugene H. Schied, Chief Financial
Officer, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6571.
SUPPLEMENTARY INFORMATION: The following itemized list details the
sections in this Notice made available for public review:
I. The NCUA Budget in Brief
II. Introduction and Strategic Context
III. Key Themes of the Proposed 2024-2025 Budget
IV. Operating Budget
V. Capital Budget
VI. Share Insurance Fund Administrative Budget
VII. Financing the NCUA's Programs
VIII. Appendix A: Supplemental Budget Information
IX. Appendix B: Capital Projects
Section 212 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act amended 12 U.S.C. 1789(b)(1)(A) to require the NCUA
Board (Board) to ``on an annual basis and prior to the submission of
the detailed business-type budget make publicly available and publish
in the Federal Register a draft of the detailed business-type budget.''
Although 12 U.S.C. 1789(b)(1)(A) requires publication of a ``business-
type budget'' only for the agency operations arising under the Federal
Credit Union Act's subchapter on insurance activities, in the interest
of transparency the Board is providing the NCUA's entire staff draft
budget for 2024-2025 in this Notice.
The staff draft budget details the resources required to support
NCUA's mission. The staff draft budget includes personnel and dollar
estimates for three major budget components: (1) the Operating Budget;
(2) the Capital Budget; and (3) the Share Insurance Fund Administrative
Budget. The resources proposed in the staff draft budget are to carry
out the agency's operations in 2024 and 2025. This document is a draft,
staff-level budget proposal made available to the NCUA Board members
and the public for their consideration and comment. The NCUA Board
directed the NCUA Executive Director to develop the staff draft budget
under delegated authority. The staff draft budget may change based on
public comments, Board member decisions, and staff's ongoing
consideration of estimates and programs that impact the budget.
The NCUA Chief Financial Officer will present the staff draft
budget at a budget briefing open to the public and scheduled for
Thursday, November 16, 2023, at 2:00 p.m. Eastern at the NCUA
headquarters building, 1775 Duke Street, Alexandria, Virginia 22314.
Interested parties unable to attend in person may visit the agency's
homepage (https://www.ncua.gov/) to access the provided webcast link.
If you wish to participate in the briefing and deliver a statement,
you must email a request to by November 8, 2023. Your request must
include your name, title, affiliation, mailing address, email address,
and telephone number. Statements must be delivered in person at the
briefing. The NCUA will work to accommodate as many public statements
as possible at the November 16, 2023, budget briefing. The Board
Secretary will inform you if you have been approved to make a
presentation and you will be allotted five minutes during the budget
briefing to deliver your remarks. A written copy of your statement must
be delivered to the Board Secretary by email at by 9 a.m. Eastern,
November 13, 2023. In addition to delivering their remarks at the
budget briefing, registered presenters will be provided the opportunity
to ask questions of NCUA staff about the staff draft budget. The
initial round of questions will be limited to five minutes per
presenter, and one subsequent round of questions, limited to five
minutes per presenter, may be permitted by the Chairman if time allows.
Written comments on the staff draft budget will also be accepted by
November 21, 2023, through the Federal eRulemaking Portal: https://www.regulations.gov. The docket number is NCUA-2023-0117. Commenters
should follow the portal instructions for submitting comments.
All comments should provide specific, actionable recommendations
about the staff draft budget rather than general remarks. The NCUA
Board will review and consider any comments from the public prior to
approving the NCUA 2024-2025 budget.
By the National Credit Union Administration Board on October 26,
2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
I. The NCUA Budget in Brief
Proposed 2024 and 2025 Budgets
The National Credit Union Administration's (NCUA) 2022-2026
Strategic Plan sets forth the agency's goals and objectives that form
the basis for determining resource needs and allocations. The agency's
annual budgets provide the resources to execute the strategic plan, to
implement important initiatives, and to undertake the NCUA's major
programs: examination and supervision, insurance, credit union
development, consumer financial protection, and asset management.\1\
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\1\ Budget information presented in this document excludes
funding for the Central Liquidity Facility (CLF), which has its own
budget reviewed and decided upon separately by the CLF Board.
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[GRAPHIC] [TIFF OMITTED] TN01NO23.001
The NCUA's 2024-2025 staff draft budget justification includes
three separate budgets: the Operating Budget, the Capital Budget, and
the National Credit Union Share Insurance Fund (Share Insurance Fund)
Administrative Expenses Budget. Combined, these three budgets total
$394.5 million for 2024, which is $8.7 million lower than the $403.2
million 2024 funding level approved by the NCUA Board as part of the
two-year 2023-2024 budget.
Three significant factors, when combined, account for most of the
9.5 percent increase in the total budget between 2023 and 2024:
1. A proposed net increase of 11 new positions and incorporating
into the 2024 budget 17 existing positions currently unfunded in the
2023 budget.\2\ These positions will support critical areas necessary
to operate as an effective federal financial regulator capable of
addressing a range of emerging issues and increase the 2024 budget by
approximately $5.9 million compared to 2023.
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\2\ These positions are also known as ``overhire'' positions and
are funded by surplus pay and benefits budgets that result from
vacancies.
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2. An increase of $18.2 million for current employee compensation
in 2024 compared to 2023. This increase accounts for merit pay raises
for the NCUA's employees as required by the Collective Bargaining
Agreement and expected inflationary cost increases for employee
benefits.
3. An increase of $10.7 million in funding for contracted services
for 2024 compared to 2023. Most of the increase in the contracted
services category includes funding to address new and evolving
operational risks such as cybersecurity threats and for tools used to
identify and resolve credit union system risk concerns such as interest
rate risk, credit risk, and industry concentration risk. Growth in the
contracted services budget category also results from new operations
and maintenance costs associated with recent capital investments. Other
costs include price inflation for core agency business operation
systems such as accounting and payroll processing and various other
recurring support costs.
Recent economic trends, including higher inflation and competitive
labor markets, have also contributed to increased costs for the NCUA to
conduct its work without a significant degradation in agency
capabilities.
Proposed 2024 Operating Budget: $382.1 Million
The proposed 2024 Operating Budget increases approximately $38.0
million, or 11 percent, compared to the 2023 Board-approved Operating
Budget.
The following chart presents the major categories of spending
supported by the proposed 2024 Operating Budget.
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[GRAPHIC] [TIFF OMITTED] TN01NO23.002
As shown in the following chart, the relative size of the NCUA
budget (dotted line) has generally decreased when compared to balance
sheets at federally insured credit unions (FICU, solid line).
[GRAPHIC] [TIFF OMITTED] TN01NO23.003
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[GRAPHIC] [TIFF OMITTED] TN01NO23.004
* Percentage change is based upon exact amounts reflected in the
table, ``2024-2025 Proposed NCUA Operating Budget Summary''.
** Total staffing levels for 2024 and 2025 do not include five
positions funded by the CLF.
Total Staffing. The proposed 2024 Operating Budget includes 1,248
positions.\3\ This is a net increase of 28 positions (11 new positions
and 17 existing, unfunded positions being moved on budget) compared to
the 2023 levels approved by the Board. Details of the proposed
increases in positions are discussed later in this document.
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\3\ This document reflects NCUA staffing levels as positions in
order to simplify the presentation of current and proposed employee
levels. At times in the past, the NCUA reflected budgeted staffing
levels as full-time equivalents (FTEs), which is a presentation that
accounts for staffing vacancies, part-time schedules, and other
variability in employee levels.
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Despite significant credit union asset growth, total NCUA staffing
is still below the 2015 level, as shown in the following chart.
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[GRAPHIC] [TIFF OMITTED] TN01NO23.005
Note: NCUA staffing in this chart excludes positions funded by the
CLF.
The Operating Budget estimate for 2025 is $418.9 million and
includes 3 additional positions compared to the 2024 level.
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Proposed 2025 Operating Budget Summary
[GRAPHIC] [TIFF OMITTED] TN01NO23.006
* Percentage change is based upon exact amounts reflected in the
table, ``2024-2025 Proposed NCUA Operating Budget Summary.''
Proposed 2024 Capital Budget: $7.3 Million
The proposed 2024 Capital Budget is $4.0 million lower than the
2023 Board-approved budget.
The Capital Budget supports the NCUA's ongoing effort to modernize
its information technology infrastructure and applications. Funding in
the Capital Budget for upgrades to or replacement of obsolete
information technology systems is lower in 2024 than in 2023, as is the
2024 capital investment for continued enhancement of the Modern
Examination and Risk Identification Tool (MERIT) examination system.
Other information technology investments in the proposed 2024 Capital
Budget include funds to ensure that agency systems comply with evolving
cybersecurity requirements required of all federal agencies,
enhancements to agency information security, upgrades to old legacy
systems, and various hardware investments to refresh agency networks
and ensure staff have the tools necessary to achieve the agency's
mission.
The Capital Budget also includes $477,000 for NCUA facility
maintenance and improvements.
Proposed 2024 Share Insurance Fund Administrative Expenses: $5.1
Million
The proposed 2024 Share Insurance Fund Administrative Expenses
Budget is $0.2 million higher than the 2023 Board-approved budget. The
Share Insurance Fund Administrative Expenses Budget funds the tools and
technology used by the Office of National Examinations and Supervision
(ONES) to oversee credit union-run stress testing for the largest
credit unions, travel for state examiners attending NCUA-sponsored
training, audit support for the Share Insurance Fund's financial
statements, and certain insurance-related expenses for Asset Management
and Assistance Center (AMAC) operations.
II. Introduction and Strategic Context
History
For more than 100 years, credit unions have provided financial
services to their members. Credit unions are not-for-profit financial
cooperatives created to serve a membership with a common bond.
The Federal Credit Union Act will turn 90 years old in 2024.
President Franklin Roosevelt signed the Federal Credit Union Act into
law on June 26, 1934, in the midst of the Great Depression. The law's
goal was to make credit available to Americans and promote thrift
through a national system of nonprofit, cooperative credit unions.
The NCUA is the independent federal agency established in 1970 by
the U.S. Congress to regulate, charter, and supervise federal credit
unions. With the backing of the full faith and credit of the United
States, the NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of the account holders in all
federal credit unions and the vast
[[Page 75047]]
majority of state-chartered credit unions.
As of June 30, 2023, the NCUA is responsible for the regulation and
supervision of 4,686 federally insured credit unions, which have
approximately 137.7 million members and more than $2.2 trillion in
assets across all states and U.S. territories.\4\
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\4\ Source: The NCUA quarterly call report data, Q2 2023.
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Authority
Pursuant to the Federal Credit Union Act, authority for management
of the NCUA is vested in the NCUA Board. It is the Board's
responsibility to determine the resources necessary to carry out the
NCUA's responsibilities under the Act.\5\ The Board is authorized to
expend such funds and perform such other functions or acts as it deems
necessary or appropriate in accordance with the rules, regulations, or
policies it establishes.\6\
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\5\ See 12 U.S.C. 1752a(a).
\6\ See 12 U.S.C. 1766(i)(2).
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Upon determination of the budgeted annual expenses for the agency's
operations, the Board determines a fee schedule to assess federal
credit unions. The Board gives consideration to the ability of federal
credit unions to pay such a fee and the necessity of the expenses the
NCUA will incur in carrying out its responsibilities in connection with
federal credit unions.\7\ In December 2020, the Board approved a final
rule with changes to its regulation and methodology for determining the
operating fees due from federal credit unions.\8\ In July 2023, the
Board requested comments from the public about changes to the
methodology the Board uses to determine how it apportions operating
fees, specifically the exemption threshold below which federal credit
unions would not be required to pay the operating fee.\9\ The Board
will consider public comments received by the due date specified in the
Federal Register notice, and if the Board decides to revise the
methodology for computing the operating fee, such changes will be
reflected in future Board communications.
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\7\ See 12 U.S.C. 1755(a)-(b).
\8\ See https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
\9\ See https://www.regulations.gov/document/NCUA-2023-0072-0001.
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Pursuant to the law, fees collected are deposited in the agency's
Operating Fund at the Treasury of the United States, and those fees are
expended by the Board to defray the cost of carrying out the agency's
operations, including the examination and supervision of federal credit
unions.\10\ In accordance with its authority to use the Share Insurance
Fund to carry out its insurance-related responsibilities, the Board
approved an Overhead Transfer Rate methodology and authorized the
Office of the Chief Financial Officer to transfer resources from the
Share Insurance Fund to the Operating Fund to account for insurance-
related expenses.\11\
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\10\ See 12 U.S.C. 1755(d).
\11\ See 12 U.S.C. 1783(a).
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Mission, Goals, and Strategy
The proposed budget for 2024-2025 supports the agency's third year
implementing its 2022-2026 Strategic Plan. Throughout 2024 and 2025,
the NCUA will continue fulfilling its mission of ``protecting the
system of cooperative credit and its member-owners through effective
chartering, supervision, regulation, and insurance.'' The agency's
three strategic goals are:
1. Ensure a safe, sound, and viable system of cooperative credit
that protects consumers.
2. Improve the financial well-being of individuals and communities
through access to affordable and equitable financial products and
services.
3. Maximize organizational performance to enable mission success.
The NCUA's strategic plan is the foundation for the agency's
performance management and resource allocation processes. The annual
performance plan functions as the agency's operational plan for each
calendar year. It outlines the annual or short-term objectives,
strategies, and corresponding performance goals and activities that
contribute to the accomplishment of the agency's strategic goals. The
NCUA budget provides the resources necessary for the agency to
implement its strategic priorities and related programs and activities,
to identify key challenges facing the credit union industry, and to
leverage agency strengths to help credit unions address those
challenges.
Appendix A provides additional information about how the budget
aligns to the NCUA's strategic goals.
Federal Compliance Costs
As a federal agency, the NCUA is required to devote significant
resources to numerous activities required by federal law, regulations,
or, in some cases, Executive Orders. These requirements drive how many
of the agency's activities are implemented and the associated costs.
These compliance activities affect the level of resources needed in
areas such as information technology acquisitions and management, human
capital processes, financial management processes and reporting,
privacy compliance, and physical and cybersecurity programs.
Financial Management
Federal law, regulations, and government-wide guidance promulgated
by the Office of Management and Budget (OMB), the Government
Accountability Office (GAO), and the Department of the Treasury place
numerous requirements on federal agencies, including the NCUA,
regarding the management of public funds. Government-wide financial
management compliance requirements address topics such as financial
statement audits, improper payments, prompt payments, internal
controls, and procurement audits, enterprise risk management, strategic
planning, and public reporting of financial and other information.
Information Technology
There are numerous laws, regulations, and required guidance
concerning information technology used by the federal government. Many
of the requirements cover information technology security, such as the
Federal Information Security Modernization Act. Other requirements
cover records management, paperwork reduction, acquisition,
cybersecurity spending, accessible technology, and continuity.
Human Capital and Equal Opportunity
Like other federal agencies, the NCUA is subject to an array of
human capital-related laws, regulations, and other mandatory guidance
issued by the Office of Personnel Management (OPM), the Equal
Employment Opportunity Commission, and OMB. Human capital compliance
requirements include procedures related to hiring, management
engagement with public unions and collective bargaining, employee
discipline and removal procedures, required training for supervisors
and employees, employee work-life and benefits programs, equal
employment opportunity and required diversity and inclusion programs,
and storage and retention of human resource records. The NCUA is also
required by law to maintain comparability with other federal bank
regulatory agencies when setting and adjusting the total amount of
compensation and benefits for employees.
Security
The NCUA's security posture is driven by numerous legal and
regulatory requirements covering the full range of security functions.
The NCUA is
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required to comply with mandatory requirements for personnel security,
physical security, emergency management and continuity, communications
and information security, and insider threat standards. In addition to
meeting specific legislative mandates, as a federal agency the NCUA is
required to follow guidance from, but not limited to, the Office of the
Director of National Intelligence, the Department of Defense, OPM, and
the Federal Emergency Management Agency.
Audits and Program Oversight
The NCUA and its operations are subject to review by independent
auditors. Like any other U.S. employer, the NCUA may be audited by the
Internal Revenue Service for compliance with relevant tax laws and
regulations. Similarly, the NCUA is subject to audit for compliance
with government-wide requirements in areas like records management
(National Archives and Records Administration) and delegated personnel
authorities (OPM).
Other oversight audits include the NCUA's financial statement
audits, which must be conducted for all four of its funds on both an
operating (calendar year) and reporting year (federal fiscal year)
basis. In addition, to help ensure the agency's cybersecurity, the law
subjects the NCUA to annual audits of its information technology
systems and data management practices, as specified in the Federal
Information Security Modernization Act.
The Government Accountability Office and the NCUA Office of
Inspector General (OIG) are statutorily authorized to oversee and audit
the performance of NCUA's programs in order to identify and attempt to
prevent waste, fraud, and abuse of public resources. Further, and in
addition to programmatic audits that the OIG conducts each year, the
NCUA OIG formally reviews all material losses to the National Credit
Union Share Insurance Fund.
Other Compliance Activities
The NCUA also has other general compliance activities that cross
numerous offices and add to the NCUA's budget. For example, the NCUA is
also required to comply with the Privacy Act, the Freedom of
Information Act, the Government in the Sunshine Act, multiple laws and
regulations related to government ethics standards, and various
reporting, training, and other requirements set forth by the Federal
Credit Union Act and other statutes. Additionally, the Dodd-Frank Wall
Street Reform and Consumer Protection Act established requirements for
the NCUA to administer and periodically report on various diversity-
related matters at the agency and within the credit union system.
III. Key Themes of the Proposed 2024-2025 Budget
Overview
The proposed 2024-2025 budget includes funding for the NCUA to
increase staffing in critical areas necessary to operate as an
effective federal financial regulator capable of addressing emerging
issues and responding to changes in economic conditions that may impact
the credit union system.
The percentage of insured shares in credit unions with composite
CAMELS ratings 1 and 2 has been in decline since December 2021.\12\
Between the reporting periods of December 31, 2021, and June 30, 2023,
credit unions with composite CAMELS 3 ratings and insured shares
greater than $500 million increased from 15 to 42, and their collective
assets increased from $11.3 billion to $47.7 billion--an increase of
322%.
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\12\ NCUA's composite CAMELS rating consists of an assessment of
a credit union's Capital adequacy, Asset quality, Management,
Earnings, Liquidity risk, and Sensitivity to market risk. The CAMELS
rating system is designed to take into account and reflect all
significant financial, operational and management factors field
staff assess in their valuation of credit unions' performance and
risk profiles. CAMELS ratings range from 1 to 5, with 1 being the
best rating. Credit unions with a composite CAMELS rating of 3
exhibit some degree of supervisory concern in one or more
components. CAMELS 4 credit unions generally exhibit unsafe or
unsound practices, and CAMELS 5 institutions demonstrate extremely
unsafe or unsound practices and conditions. NCUA collectively refers
to CAMELS 4 and 5 credit unions as ``troubled credit unions.''
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The NCUA is seeing rising levels of interest rate and liquidity
risk within the system. There has been an increase in compliance and
fair lending concerns as well. There is also the potential for
increased credit risk, especially among families with increasingly
stressed household budgets and the post-pandemic uncertainties in the
commercial real estate market. These risks can play out in rising
delinquency rates for various loan types, including auto loans and
credit cards.
The NCUA must have the necessary resources to continue to monitor
credit union performance and mitigate risks through the examination
process, offsite monitoring, and tailored supervision, consistent with
its mission.
The NCUA employees are the agency's most valuable resource for
achieving its mission, and the agency is committed to a workforce with
integrity, accountability, transparency, inclusivity, and
proficiency.\13\ The agency will continue investing in its workforce
through training and development, ensuring employees have the skills
they need to do their work effectively.
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\13\ See https://ncua.gov/files/agenda-items/strategic-plan-20220317.pdf, page 6.
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The proposed 2024-2025 budget includes investments across a range
of agency priorities, including:
Ensuring robust cybersecurity in the credit union system
and at the agency.
Recalibrating examination and supervisory oversight over
credit unions with assets between $10 billion and $15 billion to
reflect risks.
Adding new regional specialist examiners dedicated to
areas of emerging complexity and risk within the credit union system
such as electronic payment systems, consumer compliance, and Bank
Secrecy Act (BSA) compliance.
Improving financial inclusion and access through the
NCUA's Advancing Communities through Credit, Education, Stability, and
Support initiative.
Providing program and staff resources to increase
assistance to small credit unions and credit unions designated as
minority depository institutions (MDIs).
Right-sizing the NCUA's examination of credit unions'
compliance with consumer financial protection laws and regulations.
Investing in information technology systems and
infrastructure to bolster the agency's supervisory capabilities.
The efficiency and effectiveness of the agency's workforce depends
upon the availability of modern analytical tools and the resiliency of
the NCUA's information technology systems. The NCUA is committed to
implementing its new technology responsibly and delivering secure,
reliable, and innovative solutions. The investments funded in the
NCUA's Capital Budget will provide the tools and technology the
workforce needs to achieve the NCUA mission.
Cybersecurity
The NCUA's cybersecurity program focuses on two main efforts:
supervision of credit union cybersecurity programs and protection of
the agency's systems, assets, data, and mission capabilities.
Cyberattacks continue to pose significant risks to all
organizations. Because of continued attacks on the nation's financial
sector and the broader national critical infrastructure, the NCUA
places credit union cybersecurity as a top enterprise and supervisory
priority.
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Supervision of Credit Union Cybersecurity
The NCUA engages in interagency cybersecurity preparedness as a
member of the Federal Financial Institutions Examination Council
(FFIEC) and of the Financial and Banking Information Infrastructure
Committee. The NCUA monitors cyber threats identified by federal and
non-federal sources and shares relevant information about them with the
credit union industry and financial sector partners.
The NCUA maintains a team within the Office of Examination and
Insurance dedicated to developing and maintaining supervisory policies,
procedures, and tools and examiner training for cybersecurity. The
regions and the Office of National Examinations and Supervision employ
30 highly trained regional information security specialists for
information security examinations and supervision of credit unions.
In 2023, the agency deployed an updated information security
examination program. All credit unions will periodically receive an
information security examination as part of the agency's new
Information Security Examination Program (ISEP). The ISEP uses a risk-
focused approach to examine credit unions' information security,
providing examiners flexibility to focus on areas of material current
or potential risk relevant to each credit union's unique business
model. The objectives of an information security examination include:
Evaluating management's ability to recognize, assess,
monitor, and manage information systems and technology-related risks.
Assessing whether the credit union has sufficient
expertise to adequately plan, direct, and manage information systems
and technology operations.
Determining whether the board of directors has adopted and
implemented adequate information systems and technology-related
policies and procedures.
Evaluating the adequacy of internal information systems
and technology controls and oversight to safeguard member information.
The NCUA built and maintains the Automated Cybersecurity Evaluation
Toolbox (ACET) to help credit unions voluntarily assess their level of
cybersecurity preparedness. The tool incorporates appropriate
cybersecurity standards and practices established for financial
institutions. The tool maps each of its declarative statements to the
practices found in the FFIEC Information Technology Examination
Handbook, regulatory guidance, and leading industry standards like the
National Institute of Standards and Technology's Cybersecurity
Framework. The ACET also provides a plain-language explanation and
references for each of the statements included within the assessment.
Enhanced and continuing examiner training related to information
security and evolving cyber risks is planned for 2024.
Protection of the Agency's Information and Systems
The NCUA's approach to agency cybersecurity is based on
requirements established by federal statute such as the Federal
Information Security Management and Federal Information Security
Modernization Acts, and government-wide policy such as the National
Institute of Standards and Technology's Cybersecurity Framework, and
Executive Order 14028, Improving the Nation's Cybersecurity. The
proposed 2024 budget includes over $20 million for the cost of
compliance with and implementation of these requirements, of which $4.3
million is budgeted for capital investments. It is important to note
that many government cybersecurity requirements are not necessarily
expected of non-governmental entities; however, as a federal agency the
NCUA is obligated to carry them out.
Examination Workforce
In 2021, a cross-agency working group at the NCUA conducted an
internal review to determine the appropriate level of specialist
positions required to ensure compliance with the Bank Secrecy Act (BSA)
and consumer financial protection laws and regulations. The review
evaluated staffing needs for three potential regional specialist groups
in the areas of electronic payment systems, consumer compliance, and
the BSA. Unlike other specialist areas where credit union asset size is
a reasonable basis for allocating supervisory resources, BSA and
consumer compliance risks are not necessarily concentrated in a
particular asset group.
The 2021 review recommended that the agency develop BSA and
consumer compliance specialist programs. The proposed 2024 budget
supports the second phase of this effort by adding 27 new regional
examination staff--including specialists and supervisory positions.
These specialist positions are offset by a reduction of general
examiner positions spread across each of the NCUA's three regions.
Starting in January 2023, federally insured credit unions with less
than $15 billion in total assets generally are supervised by the NCUA
regional office corresponding to their headquarters location, while
ONES continues supervising federally insured credit unions with $15
billion or more in total assets. Supervising regional large credit
unions with between $10 billion and $15 billion in assets requires
additional resources for the regions. Therefore, the proposed 2024
budget includes the equivalent of five additional examiner positions to
account for the enhanced examination and supervision needs for these
institutions related to size, scale, and scope.
Support for Small Credit Unions and Minority Depository Institutions
Small credit unions with less than $100 million in assets and MDIs
are uniquely positioned to improve financial inclusion by offering
their communities access to safe and affordable credit and other
services. The NCUA's Small Credit Union and MDI Support Program is
designed to support and preserve these credit unions. This program
provides dedicated resource hours for field staff to conduct this
important work, and the proposed 2024 budget continues to support this
important effort.
Program assistance focuses on identifying available resources,
providing training and guidance, and supporting credit union management
in their efforts to address operational matters. Additional benefits of
the program are expected to include:
Building greater awareness of the unique needs of small
credit unions and MDIs and their role serving underserved communities.
Expanding opportunities for these credit unions to receive
support through NCUA grants, training, and other initiatives.
Furthering partnerships with organizations and industry
mentors that can support small credit unions and MDIs.
Fair Lending and Consumer Financial Protection
Fair and equitable access to credit is vital to the credit union
system and members of credit unions. The NCUA uses onsite examinations,
supervision contacts, and data analysis to ensure credit unions comply
with consumer financial protection and fair lending laws and
regulations. The proposed 2024 budget includes 13 additional regional
consumer compliance specialists and an increase in examination time for
consumer
[[Page 75050]]
financial protection reviews equivalent to 11 examiners to increase the
agency's review of consumer financial protection and fair lending laws
and regulations, especially at institutions with greater consumer
impact or indications of potential violations.
Financial Inclusion
Credit unions are an important part of the financial services
industry and can play a key role in helping families achieve financial
freedom by building generational wealth, helping entrepreneurs to get
their small businesses off the ground, and helping to create jobs and
strengthen communities. The NCUA has a role to play in making sure that
credit unions can support overlooked or underserved areas.
The NCUA will build on the work done in 2023 to better understand
credit union challenges and opportunities in providing fair and
affordable financial products to minority, unbanked, and underbanked
households. The Innovation and Access and CURE teams plan to use this
information to help credit unions understand the challenges in
communities with limited financial services and to enhance and
facilitate the Small Credit Union and MDI Support program. The NCUA
will continue its active engagement with credit union industry leaders
and stakeholders to help new, small, low-income-designated, and MDI
credit unions to grow and prosper.
NCUA Organizational Changes
The staff draft budget proposes a new Office of the Executive
Secretary, which is a common function in many other federal agencies.
The new office will centralize responsibility for the NCUA's policy
review and decision-making processes, coordinate the clearance and
submission of all policy documents to the Chairman and the NCUA Board,
as appropriate, for review and approval, and facilitate discussions
between the NCUA's program offices to align appropriate policies, among
other things. Policy documents include regulations, recommendation
memos, action memos, briefing memos, responses to correspondence,
reports to Congress, and other policy documents. Appendix A includes a
separate table illustrating the budget for the proposed Office of the
Executive Secretary.
IV. Operating Budget
Overview
The NCUA Operating Budget provides the resources required for the
agency to conduct activities prescribed by the Federal Credit Union
Act. These mandates include: (1) chartering new federal credit unions;
(2) approving field of membership applications of federal credit
unions; (3) promulgating regulations and providing guidance; (4)
performing regulatory compliance and safety and soundness examinations;
(5) implementing and administering enforcement actions, such as
prohibition orders, orders to cease and desist, orders of
conservatorship and orders of liquidation; and (6) administering the
National Credit Union Share Insurance Fund. The NCUA must also
implement mandates required by other statutes including those related
to BSA compliance, consumer financial protection, and diversity,
equity, and inclusion.
Operating Budget Categories
There are five major expenditure categories in the Operating
Budget. This section explains how these expenditures support the NCUA's
operations and presents a transparent overview of the Operating Budget.
[GRAPHIC] [TIFF OMITTED] TN01NO23.007
Pay and Benefits
Pay and benefits increase by $26.2 million in 2024, or 9.8 percent
compared to 2023, for a total of $293.3 million. Pay and benefits costs
make up approximately 76.7 percent of the annual NCUA Operating Budget.
There are four primary drivers of increased costs in 2024 for the pay
and benefits category:
Merit and locality pay increases for the NCUA's employees
are paid in accordance with the agency's Collective Bargaining
Agreement (CBA) and its merit-based pay system.
Contributions for employee retirement to the Federal
Employee Retirement System (FERS), which are set by OPM based on
actuarial estimates and cannot be negotiated or changed by the NCUA.
The mandatory FERS contribution rate increases total NCUA benefits
costs by 4.9 percent in 2024 compared to 2023. OPM's current
assumptions for actuarial valuation of FERS remain unchanged in 2024
but remain a significant cost driver for the agency's pay and benefits
growth. Because the NCUA must contribute 18.4 percent of employee
salaries to the retirement fund in 2024, the estimated impact on the
NCUA budget is an increase of approximately $4.0 million in mandatory
payments.
Contributions for employee health insurance are also set
by OPM and
[[Page 75051]]
cannot be negotiated or changed by the NCUA. This mandatory
contribution increases total NCUA benefits costs by 2.1 percent in 2024
compared to 2023. The annual OPM estimate for the 2024 government share
of the Federal Employees Health Benefits Program (FEHBP) premiums is
expected to be released in October 2023, and the budget will be updated
if there is any material change to estimated FEHBP costs.
The employee salary and benefits category also includes
costs associated with other mandatory employer contributions such as
Social Security, Medicare, transportation subsidies, unemployment, and
workers' compensation. The limit on employee earnings subject to Social
Security taxes increased in 2024 and applies to all employers in the
United States. The projected additional employer Social Security
contributions that result from this increase account for approximately
3 percent of the total adjustment to employee salaries.
Attracting a well-qualified workforce requires the agency to pay
competitive salaries. In 2024, the NCUA's compensation levels will
continue to ``maintain comparability with other federal bank regulatory
agencies'' as required by the Federal Credit Union Act.\14\ More than
85 percent of the NCUA workforce has earned a bachelor's degree or
higher, compared to approximately 35 percent of the private-sector
workforce.
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\14\ The Federal Credit Union Act states that, ``In setting and
adjusting the total amount of compensation and benefits for
employees of the Board, the Board shall seek to maintain
comparability with other federal bank regulatory agencies.'' See 12
U.S.C. 1766(j)(2).
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The pay and benefits budget includes all employee pay raises for
2024, such as merit and locality increases consistent with the CBA in
place for 2023, and those for promotions, reassignments, and other
changes, as described below. Consistent with other federal pay systems,
the NCUA's compensation includes base pay and locality pay components.
The proposed 2024 Operating Budget supports a total agency staffing
level of 1,248 positions.\15\ This is a net increase of 28 positions,
or 2.3 percent, compared to the agency's 2023 staffing level. The net
increase includes 11 new positions and incorporates into the 2024
budget 17 existing positions currently unfunded in the 2023 budget. The
first-year cost of the 11 net new positions for 2024 is estimated to be
approximately $1.9 million. The cost for 2024 of the 17 existing
positions currently unfunded is estimated to be approximately $4.0
million.
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\15\ Does not include five positions assigned to the Central
Liquidity Facility.
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The proposed 2024-2025 budget includes funding for the NCUA to
increase permanent staffing in critical areas necessary to operate more
effectively and address emerging issues. The staffing levels proposed
for 2024 also reflect the resource requirements that support the NCUA's
continued efforts to ensure its examination processes keep pace with
the growing scale and complexity of the credit union system while the
agency enhances the efficiency and effectiveness of its supervisory
efforts.
The chart illustrates the NCUA's staffing levels in recent
years.\16\
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\16\ The 2024-2025 budget reflects NCUA staffing levels as
positions to simplify the presentation of current and proposed
employee levels. In past years, the NCUA reflected budgeted staffing
levels as full-time equivalents (FTEs), which is a presentation that
accounts for vacant positions, part-time work, and other variability
in employee levels. Although the actual number of persons employed
at the NCUA varies throughout the year, using the count of positions
is simpler.
[GRAPHIC] [TIFF OMITTED] TN01NO23.008
Note: Total NCUA staffing excludes positions funded by the CLF.
The proposed changes for the NCUA's 2024 staffing level include:
Adding 27 specialist examiner and specialist supervisor
positions to the NCUA regional staff, 20 of which the
[[Page 75052]]
NCUA Board approved as part of the 2023-2024 budget and an additional
seven related to enhanced consumer financial protection examinations.
The number of large, complex credit unions continues to increase
through mergers and membership growth, which necessitates a broader
array of experts in the field to support the examination and
supervision of these institutions.
Reducing the number of generalist examiners by a net of 22
positions across the NCUA's three regional offices. This adjustment
includes an increase to examination and supervision time that is the
equivalent of five examiner positions for the regional workload
associated with overseeing credit unions with between $10 billion and
$15 billion in assets.\17\
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\17\ Starting in January 2023, federally insured credit unions
with less than $15 billion in total assets generally are supervised
by the NCUA region corresponding to the location where they are
chartered, while the Office of National Examinations and Supervision
(ONES) continues supervising federally insured credit unions with
$15 billion or more in total assets.
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Creating a new Office of the Executive Secretary with two
dedicated staff positions authorized for 2024 and a third position for
2025. This office will centralize responsibility for coordinating the
review of documents, related decision-making processes, and the
clearance and submission of all documents to the NCUA Board members, as
appropriate.
Increasing the staff in the Office of the Ombudsman by one
position. The Office of the Ombudsman was created as a separate office
by the NCUA Board in the 2023 budget and an additional Associate
Ombudsman position was approved for 2024 in that document.
Adding two Deputy Director positions: one in the Office of
Business Innovation and one in the Office of the Chief Ethics Counsel.
Adding one new writer-editor position in the Office of
External Affairs and Communications.
Funding 17 positions previously unfunded but authorized
within the total NCUA staffing plan. These positions include: four in
the Office of National Examinations and Supervision, three in the
Office of Examination and Insurance, two in the Office of Business
Innovation, two in the Office of Credit Union Resources and Expansion,
two in the Office of Human Resources, one in the Office of the Chief
Financial Officer, one in the Office of the Chief Information Officer,
one in the Office of Consumer Financial Protection, and one in AMAC.
The proposed 2025 budget for pay and benefits is estimated at
$308.2 million, a $14.9 million increase from the 2024 level. Included
within this total is the full-year cost impact of new positions
proposed for 2024 (approximately $0.8 million), $0.2 million for three
new positions (one in the Office of the Executive Secretary, one in the
Office of General Counsel, and one in the Office of Continuity and
Security Management), the estimated merit and locality pay increases
consistent with the recent pay inflation (approximately $10.6 million),
and associated increases in benefits for all employees (approximately
$3.3 million).
Travel
The proposed travel budget decreases slightly by $5,000 in 2024
when compared to 2023, for a total of $22.0 million. The travel cost
category includes expenses for employees' airfare, lodging, meals, auto
rentals, reimbursements for privately owned vehicle usage, and other
travel-related expenses. These are necessary expenses for examiners'
onsite work in credit unions. Close to two-thirds of the NCUA's
workforce is comprised of field staff who spend part of their time
traveling to conduct the examination and supervision program. The NCUA
staff also travel for routine and specialized training and other work
assignments. In 2024, the NCUA expects its staff will participate in a
combination of in-person and virtual training to help control travel
expenses.
During the COVID-19 pandemic, the agency and its employees
transitioned to an offsite examination posture, developing new
procedures and processes to continue examination and supervisory work.
In 2024, the NCUA continues the process of conducting portions of
examinations offsite, which is expected to constrain the growth of
future travel budgets. Despite significant inflationary cost growth in
travel-related expenses such as hotel charges, airfares, and car
rentals, the 2024 budget for travel does not grow compared to the 2023
level, given a lower frequency of travel with more work being conducted
virtually compared to pre-pandemic levels.
The proposed 2025 budget for travel is estimated to be $23.9
million, or an 8.6 percent increase compared to the 2024 level. This
budget level reflects an expectation for modest travel-related cost
inflation and travel to support a national training conference planned
for 2025.
Rent, Communications, and Utilities
The proposed budget for rent, communications, and utilities
increases by $0.8 million in 2024, or 13 percent compared to 2023, for
a budget of $7.1 million. The 2024 increase is driven almost entirely
by the costs required to stand up new disaster recovery and continuity
of operations sites because the previous location for these required
functions will be decommissioned at the end of 2023.
Funding in this budget category pays for facilities costs,
telecommunications services, data storage, and information technology
network support. Telecommunications charges include leased data lines,
domestic and international voice lines (including mobile), and other
network charges. Telecommunications costs also include the circuits and
any associated usage fees for providing voice or data
telecommunications service between data centers, office locations, the
internet, and any customer, supplier, or partner.
The rent, communications, and utilities budget category also
finances the cost of the office utilities, meeting space rental for
offsite events, and postage expenses. Lease costs for the Southern and
Western Region office buildings are included in this category, and the
total for both of these leases is approximately $1.3 million in 2024.
The annual utility costs for the headquarters and regional offices are
estimated at $461,000 for 2024.
The proposed 2025 budget for the rent, communications, and
utilities category is $7.5 million, or a 5.6 percent increase compared
to 2024.
Administrative Expenses
Administrative expenses a proposed increase of $0.3 million in
2024, or 4.4 percent compared to 2023, for a budget of $7.6 million.
The increase to the administrative expenses budget category largely
results from inflationary cost increases for supplies, materials,
printing, and subscription expenses expected in 2024.
Recurring costs in the administrative expenses category include the
annual reimbursements to the FFIEC, employee relocation expenses,
recruitment and advertising expenses, shipping, printing,
subscriptions, examiner training and meeting supplies, office
furniture, and employee supplies and materials. As part of the FFIEC,
the NCUA shares in costs for certain joint actions and services that
affect the financial services industry. The proposed 2024 draft budget
includes an estimated increase of $340,000 to the FFIEC annual
reimbursement. Any revisions to this initial estimated budget will be
included in the NCUA's final 2024 budget.
[[Page 75053]]
Within administrative expenses, the proposed 2024 budget includes
$1.3 million for employee relocations, which is consistent with the
2023 funding levels. Relocation costs are paid by the NCUA to employees
who are competitively selected for a promotion or new job within the
agency in a different geographic area than where they live.
The proposed 2025 budget for administrative expenses is $7.7
million, or a 1.6 percent increase from the level proposed in the 2024
budget.
Contracted Services
The proposed budget for contracted services increases by $10.7
million in 2024, or 25.7 percent compared to 2023, for a total budget
of $52.1 million.\18\ This increase reflects a combination of
inflationary pressures on the cost of contracted services and
additional initiatives described in more detail later in this document.
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\18\ The total budget for Contracted Services in 2024 before
offsets of prior year unspent funds is estimated to be $70.1
million.
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Contracted services funding pays for products and services acquired
in the commercial marketplace and includes critical mission support
services such as information technology hardware and software support,
accounting and auditing services, and specialized subject matter
expertise. The majority of funding in the contracted services category
supports the NCUA's supervision framework, including tools used to
identify and address risk concerns such as interest rate risk, credit
risk, and industry concentration risk. Further, funding within
contracted services is used to address new and evolving operational
risks such as cybersecurity threats.
Acquiring specific expertise or services from contract providers is
often the most cost-effective way for the NCUA to accomplish its
mission. Such services include critical mission support such as
information technology equipment and software development, accounting
and auditing services, and specialized subject matter expertise that
enable staff to focus on executing core mission requirements.
Growth in the contracted services budget category results primarily
from new operations and maintenance costs associated with capital
investments. Other costs include core agency business operation systems
such as accounting and payroll processing, and various recurring costs,
as described in the following seven major categories:
Information Technology Operations and Maintenance (48.1
percent of contracted services)
[cir] Information technology network support services and help desk
support
[cir] Contractor program and web support and network and equipment
maintenance services
[cir] Administration of software products such as Microsoft Office,
SharePoint, and audio-visual services
Administrative Support and Other Services (16.7 percent of
contracted services)
[cir] Examination and supervision program support
[cir] Technical support for examination and cybersecurity training
programs
[cir] Equipment maintenance services
[cir] Legal services and other expert consulting support
[cir] Other administrative mission support services for the NCUA
central office
Information Technology Security (15.0 percent of
contracted services)
[cir] Enhanced secure data storage and operations
[cir] Information security programs
[cir] Security system assessment services
Accounting, Procurement, Payroll, and Human Resources
Systems (6.5 percent of contracted services)
[cir] Accounting and procurement systems and support
[cir] Human resources, payroll, and employee services
[cir] Equal employment opportunity and diversity programs
Training (5.3 percent of contracted services)
[cir] Technical and specialized training and professional
development for staff
Building Operations, Maintenance, and Security (4.8
percent of contracted services)
[cir] Headquarters facility operations and maintenance
[cir] Building security and continuity programs
[cir] Personnel security and administrative programs
Audit and Financial Management Support (3.5 percent of
contracted services)
[cir] Annual audit support services
[cir] Material loss reviews
[cir] Investigation support services
[cir] Financial management support services
In addition, the Office of the Chief Financial Officer projects
that the agency will have a smaller surplus at the end of 2023 than in
past years. Since 2021, the NCUA has used unspent budget amounts from
previous years to reduce its budget levels in the following year. Of
the total $10.7 million increase in contracted services for 2024,
approximately $5.0 million of the increase results from a lower surplus
projection than the amount assumed for 2023. The NCUA estimates that
the agency will end 2023 having underspent the Board-approved budgets
(current and prior years) by approximately $18.0 million. The proposed
2024 budget uses the $18.0 million projected surplus to offset the
costs of planned contracted services spending in 2024, reducing the
agency's overall 2024 budget by the same amount. Therefore, the total
planned amount for contracted services in 2024 is approximately $70.1
million, an increase of $5.5 million, or 8.4 percent compared to the
total 2023 spending level.
The following pie chart illustrates the breakout of the seven
categories for the total proposed 2024 contracted services budget of
$70.1 million, of which $18.0 million is funded from prior year
available balances.
[[Page 75054]]
[GRAPHIC] [TIFF OMITTED] TN01NO23.009
Note: Minor rounding differences may occur in totals.
Major programs within the contracted services category include:
Training requirements for the examiner workforce. The
NCUA's most important resource is its highly educated, experienced, and
skilled workforce. It is important that staff have the proper
knowledge, skills, and abilities to perform assigned duties and meet
emerging needs. Each year, examiners complete a wide range of training
classes to ensure their skills and industry knowledge are kept up to
date, including in core areas such as capital markets, consumer
compliance, and specialized lending. Major training deliverables for
2024 include examiner training development, including subject matter
expert conferences, and a planned leadership forum for all the NCUA's
executives and managers. The NCUA continues to control training costs
with a blended schedule of both in-person and virtual sessions.
Contracted service providers, in partnership with the NCUA subject
matter experts, will develop and design training classes for examiners
and continue the ongoing review of the NCUA's examiner course
curriculum. In addition, the NCUA partners with OPM to develop and
certify principal examiner assessments that reflect current regulations
and examination processes. The NCUA's Learning Management System will
continue to be updated to include a Career Resource Center.
Additionally, contracted service providers and central office staff
will continue providing organizational development, leadership
development programs, and teambuilding training.
Information security program. This NCUA program supports
ongoing efforts to strengthen the agency's cybersecurity and ensure its
compliance with the Federal Information Security Modernization Act and
other standards for federal agencies.
Agency financial management services, human resources
technology support, and payroll services. The NCUA contracts for these
back-office support services with the U.S. Department of
Transportation's Enterprise Service Center (DOT/ESC) and the General
Services Administration. The NCUA's human resource system, HR Links,
also adopted by other federal agencies, is a shared solution that
automates routine human resource tasks and improves time and attendance
functionality.
Audit. The NCUA's OIG contracts with an accounting firm to
conduct the annual audit of the agency's four permanent funds. The
results of these audits are posted annually on the NCUA website and are
included as part of the agency's Annual Report.
A significant share of the budget for contracted services finances
ongoing information technology infrastructure support for the agency.
The 2024 budget includes the fourth year of funding for operations and
maintenance of the MERIT system, which replaced the legacy Automated
Integrated Regulatory Examination System (AIRES) in 2021. Several of
the NCUA's other core information technology systems and processes also
require additional contract support in 2024, which results in increased
costs for contracted services, as described below.
Within the budget for the Office of Chief Information Officer, an
additional $3.5 million compared to the 2023 budget level is required
for:
Cybersecurity capabilities and implementing the provisions
of Executive Order 14028, Improving the Nation's Cybersecurity.
Information technology infrastructure services and
operations and maintenance labor support for the new MERIT system and
NCUA legacy systems.
Application tools that support the new MERIT system and
other mission critical and business applications.
Within the Office of Human Resources, the contracted services
budget increases by $1.3 million compared to the 2023 budget level,
primarily for additional resources to support the reasonable
accommodation needs and services for current and potential new
employees.
The Office of Minority and Women Inclusion's (OMWI) contract budget
increases by $258,000 compared to the 2023 budget level. In 2024, these
increased funds will support development of a survey administered by a
third-party for credit unions to self-assess their current diversity
and inclusion practices.
Within the Office of Business Innovation, the contracted services
budget increases by $208,078 compared
[[Page 75055]]
to the 2023 budget level. These funds will provide contract support for
the agency's information system security processes and fund a survey
administered by a third party about credit unions' examination
experiences.
The Asset Management Assistance Center's contracted services budget
increases by $149,000 compared to the 2023 budget level. These funds
will support the development of tools to automate various business
processes and connect AMAC data with systems.
Within the Office of General Counsel, the contracted services
budget increases by $65,000 compared to the 2023 budget level. The
increase will support market research in 2024 for an appropriate e-
Discovery solution to ensure the agency sufficiently meets its legal
obligations to respond to electronic discovery requests.
The proposed contracted services budget for 2025 is $71.6 million.
Excluding the $18.0 million carryover in 2024, this is a net increase
of $1.4 million, or approximately 2.0 percent.
V. Capital Budget
Overview
Annually, the NCUA carries out a rigorous review process to
identify the agency's needs for information technology, facility
improvements and repairs, and other multi-year capital investments. The
NCUA staff review the agency's inventory of information technology
systems, information technology hardware, and owned facilities and
equipment to determine what requires repair, major renovation, or
replacement. The staff then make recommendations for prioritized
investments to the NCUA Board.
The proposed 2024 Capital Budget is $7.3 million. The Capital
Budget funds the NCUA's long-term investments. The 2024 Capital Budget
provides $6.8 million for information technology development projects
and investments and $477,000 for central office building minor
construction and maintenance projects.
Information technology systems and hardware require significant
capital expenditures for modern organizations. The 2024 Capital
Budget's highest priorities include continuing investments to bolster
the NCUA's cybersecurity posture and enable the agency to comply with
Executive Order 14028 along with enhancements to the MERIT platform.
The budget also supports ongoing efforts to modernize the NCUA's
information technology infrastructure and applications through the
Information Technology Infrastructure, Platform and Security Refresh
project, and makes investments to improve the agency's management and
analysis of data through the Data Collection and Sharing Solution
project. Finally, the 2024 Capital Budget supports two multi-year
projects: one to develop a personnel security system in compliance with
the Trusted Workforce 2.0 directive from the Office of the Director of
National Intelligence and OPM and another to use technology to
streamline and automate NCUA processes for reviewing field of
membership and new charter requests from credit unions and organizing
groups.
Routine repairs and lifecycle-driven property renovations are also
necessary to properly maintain investments in the NCUA-owned
properties. Each year the NCUA assesses the physical condition of the
agency's properties to determine the need for essential repairs,
replacement of building systems that have reached the end of their
engineered lives, or renovations required to support changes in the
agency's organizational structure or address revisions to building
standards and codes. The 2024 Capital Budget includes funding for the
costs associated with routine repairs, maintenance, and lifecycle-
driven property renovations for the agency's Alexandria headquarters.
Following an assessment and recommendations presented to the Board, a
decision was made to sell the NCUA-owned office building in Austin.
Because the specific schedule for selling the building is still to be
determined, proceeds from this transaction are not factored into the
2024 budget.
[GRAPHIC] [TIFF OMITTED] TN01NO23.010
Detailed descriptions of all proposed 2024 capital projects,
including a discussion of how each project helps the agency achieve its
goals and objectives, are provided in Appendix B.
Summary of Capital Projects
Executive Order on Improving the Nation's Cybersecurity ($2.4 Million)
The purpose of this capital investment is to ensure the NCUA
complies with Executive Order 14028, Improving the Nation's
Cybersecurity. The project will ensure the NCUA achieves and maintains
various capabilities, including use of multi-factor authentication, a
zero-trust architecture, and cloud-based compute and storage resources.
Information Technology Infrastructure, Platform, and Security Refresh
($1.3 Million)
This capital project will replace outdated or end-of-life network
and platform hardware, as well as continue efforts to prepare the NCUA
for cloud computing adoption. This investment helps ensure business
continuity and efficient operations by improving system availability
and stability. Proposed projects for 2024 include refreshing hardware
and software, and the acquisition costs associated with the agency's
new disaster recovery site.
CURE Process Automation ($1.1 Million)
This capital investment supports the development of initial
requirements and scoping to design an external facing portal for credit
unions and organizing groups to submit their field of membership and
new charter requests.
[[Page 75056]]
Onboarding/Offboarding Solution and Personnel Security Case Management
System ($0.6 Million)
The purpose of this project is to develop a new personnel security
management system for NCUA in compliance with the Trusted Workforce 2.0
directive promulgated by the Office of the Director of National
Intelligence (ODNI) and OPM. This new system will centralize personnel
security case management and serve as a repository for agencywide
onboarding/offboarding actions.
Examination and Supervision Solution/MERIT Enhancements ($0.5 Million)
Investments in the MERIT platform in 2024 will enhance data
processing capacity, improve user efficiency and productivity, and
automate data import and error checking processes. Capital investments
will support MERIT improvements that will allow examiners to import
data from the Information Security Examination (ISE) Toolbox, provide a
centralized mechanism for regional and central office staff to track
and access credit union administrative action records, and automate the
process for state supervisory authority/credit union access requests.
Microsoft Power Platform ($0.5 Million)
This capital investment will support NCUA adoption of the Microsoft
Power Platform (MPP) line of business intelligence and process
automation tools. The budget funds the acquisition of professional
services to assist in developing a governance plan to monitor and
manage the usage of MPP tools across the NCUA while providing enhanced
internal agency customer support.
Data Collection and Sharing Solution ($0.2 Million)
This multi-year project will assist NCUA examination staff by
streamlining business process related to case, document, and content
management to improve efficiency and decrease data entry errors. During
2023, a prototype was developed that automated current business
workflows and streamlined data collection and sharing. The proposed
2024 Capital Budget supports pilot testing of the prototype among a
subset of offices, integrating lessons learned into refined business
requirements, drafting user guides and training materials, and
conducting training for end users.
NCUA Website Development ($0.1 Million)
This project provides for ongoing improvements to the NCUA's
websites, such as an improved user experience and general maintenance
needs. In addition, the NCUA will develop a gated content solution for
specific audiences to provide a level of privacy and security for
accessing information, such as conference materials, by requiring a
login and password similar to other remote and virtual conference
systems.
Headquarters Building Minor Construction and Maintenance Projects ($0.5
Million)
The proposed 2024 budget supports the NCUA's multi-year
headquarters building improvement plan that identifies projects that
can be completed incrementally, prioritizing the replacement of health
and safety infrastructure such as the fire suppression system. The
building is 30 years old, and many original components require
replacement. The ongoing multi-year approach recognizes the critical
building management and maintenance needs while reducing the potential
budgetary impact of such projects in a single budget year.
VI. Share Insurance Fund Administrative Expenses Budget
Overview
The Share Insurance Fund Administrative Expenses Budget funds
direct costs associated with authorized Share Insurance Fund
activities.\19\ Direct costs to the Share Insurance Fund include items
such as data subscriptions and technology tools for ONES' analysis of
large credit unions, travel for state examiners attending NCUA-
sponsored training, and audit support for the Share Insurance Fund's
financial statements. Beginning in 2023, the NCUA Board approved
certain insurance-related expenses for AMAC operations as part of the
Share Insurance Fund Administrative Budget.
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\19\ Direct costs do not include any costs that are shared with
the Operating Fund through the Overhead Transfer Rate, and with
payments available upon requisition by the Board, without fiscal
year limitation, for insurance under section 1787 of this title, and
for providing assistance and making expenditures under section 1788
of this title in connection with the liquidation or threatened
liquidation of insured credit unions as it may determine to be
proper.
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The Share Insurance Fund Administrative Expenses Budget also pays
for costs associated with the corporate resolution program and related
NCUA Guaranteed Notes (NGN) program. On June 14, 2021, the last
outstanding NGN Trust matured. Given the significantly reduced size of
the legacy asset portfolio in the corporate asset management estates,
the proposed 2024 budget for the corporate resolution program continues
to decrease compared to the 2023 funding levels.
Budget Requirements and Description
The proposed 2024 Share Insurance Fund Administrative Expenses
Budget is $5.1 million, which is $0.2 million, or 3.6 percent, higher
than 2023.
The proposed 2024 budget increase is primarily driven by an
increase in projected costs for contracts needed to support the
analysis of large credit unions, costs of AMAC activities, and
inflationary growth in the cost of audit support. The proposed 2024
Share Insurance Fund Administrative Expenses Budget includes:
$2.2 million for operating and maintenance costs of the
Asset and Liabilities Management system, which allows the NCUA to build
internal analytical capabilities to conduct supervisory stress testing
analyses and to perform other quantitative risk assessments of large
credit unions.
$0.3 million for certain insurance-related activities and
expenses of AMAC, such as consulting expenses necessary to avoid or
attempt to prevent a liquidation or conservatorship and staff travel
for consultation on complex or problem cases.
$1.0 million for state examiner travel to NCUA-sponsored
training classes and $0.2 million to ensure that state supervisory
authorities can securely and efficiently access NCUA applications and
the NCUA's MERIT system for state examination and supervision
activities. The 2023 budget included similar amounts for these
activities.
$0.9 million for financial reporting, including the annual
financial audit and for contractor support to ensure effective internal
controls for the fund.
$0.3 million for corporate resolution program legacy asset
waterfall models and $0.1 million for valuation analysis support and
data. These budget items decreased by 59.2 percent from 2022 to 2023.
As the remaining legacy assets are sold and the program comes to a
close, the associated budget continues to decrease and falls by 31.7
percent from 2023 to 2024.
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The proposed 2025 budget supports similar workload and resources
for the Share Insurance Fund, which at $4.7 million is $0.4 million
lower than the proposed 2024 level. With the anticipated wind-down of
the program in 2024 (subject to the status of ongoing litigation),
there is no corporate
[[Page 75058]]
resolution budget planned for 2025 at this time.
VII. Financing the NCUA's Programs
Overview
The NCUA incurs various expenses to achieve its statutory mission,
including those involved in examining and supervising federally insured
credit unions. The NCUA Board adopts an Operating Budget, a Capital
Budget, and a Share Insurance Fund Administrative Expenses Budget each
year to fund the majority of the costs to operate the agency.\20\ When
formulating the annual budget, the NCUA is mindful that its funding
comes from credit unions and strives to operate in an efficient,
effective, transparent, and fully accountable manner.
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\20\ Some costs are directly charged to the Share Insurance Fund
when appropriate to do so. For example, costs for training and
equipment provided to State Supervisory Authorities are directly
charged to the Share Insurance Fund.
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The Federal Credit Union Act authorizes two primary sources to fund
the Operating Budget:
1. Requisitions from the Share Insurance Fund ``for such
administrative and other expenses incurred in carrying out the purposes
of [Title II of the Act] as [the Board] may determine to be proper,''
\21\ and
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\21\ 12 U.S.C. 1783(a).
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2. ``[F]ees and assessments (including income earned on insurance
deposits) levied on insured credit unions under [the Act].'' \22\ Among
the fees levied under the Act are annual Operating Fees, which are
required for federal credit unions under 12 U.S.C. 1755 ``and may be
expended by the Board to defray the expenses incurred in carrying out
the provisions of [the Act,] including the examination and supervision
of [federal credit unions].''
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\22\ 12 U.S.C. 1766(j)(3). Other sources of income for the
Operating Budget have included interest income, funds from
publication sales, parking fee income, and rental income.
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Taken together, these authorities effectively require the Board to
determine which expenses are appropriately paid from each source while
giving the Board broad discretion in allocating expenses.
In 1972, the Government Accountability Office recommended the NCUA
adopt a method for allocating Operating Budget costs -- that is, the
portion of the NCUA's budget funded by requisitions from the Share
Insurance Fund and the portion covered by Operating Fees paid by
federal credit unions.\23\ The NCUA has since used an allocation
methodology known as the Overhead Transfer Rate (OTR) to determine how
much of the Operating Budget to fund with a requisition from the Share
Insurance Fund.
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\23\ https://www.gao.gov/products/b-1640314-31.
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The NCUA uses the OTR methodology to allocate agency expenses
between these two primary funding sources. Specifically, the OTR is the
formula the NCUA uses to allocate insurance-related expenses to the
Share Insurance Fund under Title II of the Act. Almost all other
operating expenses are funded through collecting annual Operating Fees
paid by federal credit unions.\24\
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\24\ Annual Operating Fees must ``be determined according to a
schedule, or schedules, or other method determined by the NCUA Board
to be appropriate, which gives due consideration to the expenses of
the [NCUA] in carrying out its responsibilities under the [Act] and
to the ability of [federal credit unions] to pay the fee.'' 12
U.S.C. 1755(b).
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Two statutory provisions directly limit the Board's discretion with
respect to Share Insurance Fund requisitions for the NCUA's Operating
Budget and, hence, the OTR. First, expenses funded from the Share
Insurance Fund must carry out the purposes of Title II of the Act,
which relate to share insurance.\25\ Second, the NCUA may not fund its
entire Operating Budget through charges to the Share Insurance
Fund.\26\
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\25\ 12 U.S.C. 1783(a).
\26\ The Act in 12 U.S.C. 1755(a) states, ``[i]n accordance with
rules prescribed by the Board, each [federal credit union] shall pay
to the [NCUA] an annual operating fee which may be composed of one
or more charges identified as to the function or functions for which
assessed.'' See also 12 U.S.C. 1766(j)(3).
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The NCUA conducts a comprehensive workload analysis annually. This
analysis estimates the amount of time necessary to conduct examinations
and supervise federally insured credit unions in order to carry out the
NCUA's dual mission as insurer and regulator. This analysis starts with
a field-level review of every federally insured credit union to
estimate the number of workload hours needed for the year. These
estimates are informed by the overall parameters of the NCUA's
examination program, as most recently updated by the Exam Flexibility
Initiative approved by the Board.\27\ The workload estimates are then
refined by regional managers and submitted to the NCUA headquarters for
the annual budget proposal. The OTR methodology accounts for the costs
of the NCUA, not the costs of state regulators. Therefore, there are no
calculations made for state examiner hours.
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\27\ The Exam Flexibility Initiative started with the January 1,
2017, examination cycle, and it allows for extended examination
cycles for eligible credit unions. Letters to Credit Unions 16-CU-
12, December 2016.
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Overhead Transfer Rate
There have not been any major changes to the parameters of the
examination program since the current OTR methodology went into
effect.\28\ The minor variations in the OTR since 2018 are the result
of routine, small fluctuations in the variables that affect the OTR,
including normal fluctuations in the workload budget from one calendar
year to the next.
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\28\ On November 16, 2017, the NCUA Board adopted a new
methodology for calculating the Overhead Transfer Rate starting with
the 2018 Overhead Transfer Rate. 82 FR 55644, November 22, 2017.
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The NCUA Board approved the current methodology for calculating the
OTR at its November 2017 open meeting.\29\ In 2020, the Board published
in the Federal Register a request for comment regarding the OTR
methodology but did not propose or adopt any changes to the current
methodology.\30\ The OTR is designed to cover the NCUA's costs of
examining and supervising the risk to the Share Insurance Fund posed by
all federally insured credit unions, as well as the costs of
administering the fund. The OTR represents the percentage of the
agency's operating budget paid for by a transfer from the Share
Insurance Fund. Federally insured credit unions are not billed for and
do not have to remit the OTR amount; instead, it is transferred
directly to the Operating Fund from the Share Insurance Fund. This
transfer, therefore, represents a cost to all federally insured credit
unions.
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\29\ 82 FR 55644 (Nov. 22, 2017).
\30\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
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Based on the Board-approved methodology and the proposed budget,
the OTR for 2024 is estimated to be 61.8 percent, 60 basis points lower
than for 2023.\31\ Thus, 61.8 percent of the total 2024 Operating
Budget is estimated to be paid out of the Share Insurance Fund. The
remaining 38.2 percent of the Operating Budget is estimated to be paid
for by Operating Fees collected from federal credit unions. The
explicit and implicit distribution of total Operating Budget costs for
federal credit unions and federally insured, state-chartered credit
unions (FISCUs) is outlined in the table below:
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\31\ https://www.federalregister.gov/documents/2020/12/28/2020-28487/overhead-transfer-rate-methodology-and-operating-fee-schedule-methodology.
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[[Page 75059]]
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To determine the funds transferred from the Share Insurance Fund to
the Operating Fund, the OTR is applied to actual expenses incurred each
month. Therefore, the rate calculated by the OTR formula is multiplied
by each month's actual operating expenditures and the product of that
calculation is transferred from the Share Insurance Fund to the
Operating Fund. This monthly reconciliation to actual operating
expenditures captures the variance between actual and budgeted amounts,
so when the NCUA's expenditures are less than budgeted, the amount
charged to the Share Insurance Fund is also less -- and those lower
expenditures benefit both federally chartered and federally insured,
state-chartered credit unions.
The primary driver of the change in the estimated 2024 OTR is a
decline in state credit union examination and supervision hours in the
proposed budget for 2024. This reduction in state examination and
supervision hours causes the weighted allocation of hours applied to
NCUA in Principle 2 of the OTR methodology of the calculation to also
decline.\32\ While the proposed 2024 Operating Budget increases from
2023, the slightly lower weighted allocation of hours results in a
nominal increase in insurance related costs and an overall decline in
the OTR.
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\32\ The NCUA does not charter state-chartered credit unions and
is not the prudential regulator for them. The NCUA's role with
respect to FISCUs is as insurer. Therefore, all examination and
supervision work and other agency costs attributable to insured
state-chartered credit unions is allocated as 100 percent insurance
related. FISCUs typically pay supervisory fees to their respective
State Supervisory Authority.
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The following chart illustrates the share of the proposed 2024
Operating Budget that would be paid by federal credit unions (69.2%)
and federally insured, state-chartered credit unions (30.8%).
[GRAPHIC] [TIFF OMITTED] TN01NO23.014
Operating Fee
The Board delegated authority to the Chief Financial Officer to
administer the methodology approved by the Board for calculating the
Operating Fee and to set the fee schedule as calculated per the
approved methodology. In 2020, the Board approved and published in the
Federal Register the current Operating Fee methodology, which forms the
basis for how the Operating Fee is calculated in this section.\33\
Consistent with its triennial schedule for regulatory reviews, the NCUA
requested public comment about the Operating Fee methodology in 2023.
In the request, the NCUA sought comment on increasing the asset
threshold that exempts smaller credit unions from paying an operating
fee from $1 million to $2 million. Additionally, the request for public
comment solicited feedback on the current three-tier operating fee
schedule and other specific suggestions that
[[Page 75060]]
would increase the equitable distribution of the Operating Fee.
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\33\ See https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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To determine the annual Operating Fee assessed on natural person
federal credit unions using the current methodology, the NCUA first
calculates the average of total assets reported in the preceding four
calendar quarters available at the time of the calculation, net of any
reported Paycheck Protection Program loans. Credit unions with assets
less than $1 million are not assessed an Operating Fee and their assets
are therefore excluded from this calculation. If the Board approves
increasing the threshold to exempt more credit unions from paying the
Operating Fee, the assets of those credit unions would be similarly
excluded.
Based on the Board-approved Operating Fee methodology, which is
summarized in the following tables, the share of the proposed 2024
budget funded by the Operating Fee is $140.7 million. This equates to
0.01288 percent of the actual average of natural person federal credit
union assets for the four calendar quarters ending on June 30, 2023.
The calculated Operating Fee rate for 2024, using the current $1
million exemption threshold, increases 19.59 percent compared to the
rate in 2023. If the exemption threshold were raised to $2 million, the
calculated Operating Fee rate for 2024 would increase 19.61 percent
compared to the rate in 2023, and a difference of two basis points
compared to the fee growth at the $1 million exemption level. Both of
these computations are shown in the table on the following page.
As part of the Board-approved Operating Fee methodology, the NCUA
can adjust the share of the budget funded by the Operating Fee based on
an analysis of the agency's future cash flow requirements compared to
past years' collections that were not spent as planned. Any projected
surplus cash from past years' fee collections not required to finance
agency operations can accordingly be used to lower the Operating Fee
share of the proposed budget. Because such cash surpluses result from
past years' Operating Fee collections, they do not offset the portion
of the budget funded by the OTR. As the final 2024-2025 budget is
prepared for consideration by the NCUA Board, the Chief Financial
Officer will evaluate the agency's cash position and make a
recommendation about any surplus cash that can be credited to the
operating fee.
To set the assessment scale for 2024, total growth in natural
person federal credit union assets is calculated as the change between
the average of the four most-current quarters (that is, the third and
fourth quarters of 2022 and the first two quarters of 2023) and the
previous four quarters (that is, the third and fourth quarters of 2021
and the first two quarters of 2022), which is calculated as 4.6
percent. Asset level dividing points are likewise increased by this
same growth rate in order to preserve the same relative relationship of
the scale to the applicable asset base.
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[GRAPHIC] [TIFF OMITTED] TN01NO23.015
Operating Fee Scale
To illustrate the rate for each asset tier for which Operating Fees
are charged, the tables below show the effect of the average 19.59
percent increase in the Operating Fee for natural person federal credit
unions, using the current $1 million exemption threshold. The tables
also show the effect of the average 19.61 percent increase in the
Operating Fee for natural person federal credit unions using the $2
million exemption threshold. The corporate federal credit union rate
scale remains unchanged from prior years.
[[Page 75061]]
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VIII. Appendix A: Supplemental Budget Information
Budget by Strategic Goal
The table below shows the combined total of the 2024 Operating and
Capital Budgets, organized by the NCUA's three current strategic goals.
[[Page 75062]]
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Note: Position totals do not include five positions funded by the
Central Liquidity Facility and minor rounding differences may occur in
totals.
Office Budget Summary
[GRAPHIC] [TIFF OMITTED] TN01NO23.018
[[Page 75063]]
Note: Minor rounding differences may occur in totals.
Office Budgets
[GRAPHIC] [TIFF OMITTED] TN01NO23.019
Note: Minor rounding differences may occur in totals.
[[Page 75064]]
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Note: Minor rounding differences may occur in totals.
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Note: Minor rounding differences may occur in totals.
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Note: Minor rounding differences may occur in totals.
[[Page 75067]]
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Note: Minor rounding differences may occur in totals.
[[Page 75068]]
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Note: Minor rounding differences may occur in totals.
[[Page 75069]]
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Note: Minor rounding differences may occur in totals.
[[Page 75070]]
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Note: Minor rounding differences may occur in totals.
[[Page 75071]]
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Note: Minor rounding differences may occur in totals.
[[Page 75072]]
IX. Appendix B: Capital Projects
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[FR Doc. 2023-24032 Filed 10-31-23; 8:45 am]
BILLING CODE 7535-01-C