NCUA Drops Office-by-Office Detail From Its 2027 Budget

Do you want to maximize your success with NCUA? Join Mark Trichle as he shares with you the Insiders view on passing your exam with flying colors. The With Flying Colors podcast is sponsored by Credit Union Exam Solutions by Mark Trichle. If you would like to work directly with the Credit Union Exam Solutions team and receive support to optimize your results with NCUA so you save time and money, visit us at marktrichle.com to find out more. Hey everyone, this is Mark Trichle with another episode of With Flying Colors. Today I'm going to be chatting about NCUA's 2027-2028 draft budget. You're going to hear me call it 2027. It's a two-year budget so that in the event that NCUA doesn't have a full board or can't get a vote that they can still operate while they're trying to figure it out. So I'm going to ignore the 2028 references to the best of ability just to keep it simple. So 2027 budget. What is it? What's changed and what's missing? So the headline numbers in NCUA's budget is just over 325 million, an increase of 2.9 percent from last year, 972 FKEs, what's an FTE, a full-time equivalent, that's up five from last year, but they are down 23 percent due to their buyouts from the peak of 1,255 in the 2025 budget. The overhead transfer rate. What is it? 62 percent. Who does it apply to? State Charters and NASCAS. That's something that NASCAS will comment on that keep NCUA's feet to the fire relative to that and it essentially is how much money gets assigned to the budgets of NCUA's related to insurance work and their four state chargers as part of that. The operating fee is down 49 basis points. That looks to me like the number where they said, "Hey, we want it to go down a little bit. How can we get there?" And 49 basis points is better than 50 because it doesn't seem like it was made up. I'm joking a little bit there, but they had a huge operating fee decrease last year because of the reorg and the buyouts, et cetera, et cetera. So to have a slate drop there, that's a good thing. So the budget is up 9.2 million from the 2026 approved amount and essentially that's pay. NCUA's paid. It's staff. It's required to have comparability with other banking agencies and regulators and they have a contract with the union and they have to live up to that. And then when they pay the union X based on that, they typically pay non-union similarly. As I mentioned, 49 basis points, reduction in the operating fee. It's a staff draft only. Which it used to be a, it's driven by the board. Maybe not this year because Cruz is so new and I'll get into that a little bit. But calling it a staff draft is funny because the board chair at least approves what goes out and what will be in it and staff does have a lot tied to it. A lot of effort tied to it. Used to be my Super Bowl. Took a big chunk of my timing from August through the end of the year when I was the executive director. They'll probably make a few tweaks. They tend to now build a little bit more in saying, hey, we listen so we can cut this in this for a better narrative. So we'll watch for that and see what falls out based on the comments that come in. So why the budget jumped, why the operating budget jumps 8.2%. We've got contracted services up. And by the way, the operating budget increases more than the other budgets. So if it's why this was different than the other number, right? So paying benefits is up, contracted services are up, travels down a little bit, rent and communication utilities up a little bit and admin up a little bit. Who pays for it? 70% goes to federal credit unions via the operating fee and their share of the overhead transfer rate. 29.6%, 30% for rounding this paid for state charters, which would be insurance-related cost tied to the insurance function of doing exams at state chartered credit unions. The RERB, what's going on relative to the RERB? The target date is now December 20, 27. The goal is to prioritize statutory authorities and the most critical work to reduce and consolidate business units with like functions, possibly ones going away or ones going back to the regions in some instances and ones if you're what what that acronym is, it's the Office of National Exam and Supervision, essentially every credit union over 15 billion and all corporate credit unions report to the Office of National Exam and in Supervision. Goal is to achieve a higher supervisor to employee ratio. What does that mean for every supervisory examiner in the field who supervises the examiners as a credit union, there will be more staff that report to them and they'll be leaner at the super advisory level. Then they're going to use technology to increase staff efficiency. The Office budget reflects the current structure while insu-a transitions to a new one. The Office of the Chief Economist, it points out has already been rolled into the Office of Examination of a Churitz. There was $16 million in a fund for reorganizing, they only spend about a million dollars of that. $4.3 of that is going to be earmarked for AI or what they're not calling SI and I'll get into that. There's no reorganization money in the 2027 budget and no office is specifically named as consolidation, although they refer to the fact that they may be doing. The one's office, the draft doesn't say what's happening, so one's budget has gone down to 1.2%, while the large credit union analytic tool, which is paid for out of the insurance fund, is going up 7.2% and that relates mostly to the stress testing that they are committed to doing under their regulations. They lost a lot of the staff that handles that, so it's probably inflation in the tools that they're using and maybe getting a few more tools so they can do it without raising their FTEs and still meet their requirements per their regulation. FTEs, the last year's draft, showed FTEs going from 57 to 34, of course I'm going to get into the fact that this year's doesn't talk about how many FTEs they have and there may be a couple of reasons for that. So AI arrives in the budget and AI is superintelligence and $4.3 million is earmarked from the 2020 reorganization as I mentioned earmarked for superintelligence or artificial intelligence. The president's new term for AI in executive order 1, 4, 4, 3, 4 is SI, but in short is, I think appropriately calling it SI/AI, what's it for, supervision, analytics and again this is according to the document, fraud detection, operational efficiency. Some of the new five positions will go into AI, some meaning more than zero and less than five, and is paired with a zero trust cybersecurity push that the agency is going to be having and you can expect cybersecurity just as a cost more of your budget every year to cost more of in CUAs budget. Questions the draft doesn't answer, will examineries use AI and credit union data in exam? What governance and moral risk controls apply to in CUAs use of it? How will results be explained to credit unions and which vendors and where does will in CUA contract with and where does the data go? Why SI a September executive order? Executive order 1, 4, 4, 3, 4 inaugurating the era of superintelligence. It renames it, agencies, shall use superintelligence and SI in place of artificial intelligence and AI in correspondence, websites, reports and policy documents. When it's to the maximum extent permitted by law, non statutory documents only, no need to change past regulations, contracts or grants, is regarding the definition of superintelligent means exactly what the law already calls AI. Next steps, the science advisor will propose a statutory definition within 60 days, those 60 days, would be the end of November roughly. It's a name, it's not a mandate, you would have changed the label. It doesn't require agencies to buy or use anything. What it means for insuase draft, SI/AI is a new federal vocabulary for insuase, even though they're only supposed to say SI. This is the artist formerly known as Prince. Remember when Prince, the purple rain guy from Minnesota, big fan saw him once back in the day, changed his name to a signal and that's a symbol. That symbol was known as Taff Cap, if you read it, the artist formerly known as Prince. Similarly to the executive director, two before me, wanted to reduce insuase pay or growth of the salaries and came up with the lump sum where they got, if you hit a cap, you got half your money in lump sum and you got the other portion in a merit increase. Lump sum became a four letter word, so he wanted to call it paid policy and then he started briefing the insuase board and looked at him like he had three heads, what's the paid policy and I had to say it's like the artist formerly known as Prince. He used to be a lump, now it's paid policy because we don't want to say lump. So Trump doesn't want to say AI, probably because artificial sounds bad and super sounds good. What's in the name, right? Shakespeare who said that anyway, I digress. So new initiatives and new money, new laws, the genius act, stable coin issuers, and the 21st century road to housing act drives some potential rulemaking and potentially a new position. And when I say new position, that would probably be in the stable coin side. My word's not insuase deregulation project, year two turns to more complex regulations with broader policy and operational implications. What does that mean? I've said a lot of their deregulations was happy to glad there were some good things out there and they've made some changes recently on the incident. powers on how your bond works, your fidelity bond, et cetera, they're saying they're going to go into the more complex rig. So what would that be? The commercial loan rule, risk-based capital, time will tell, but that's a positive if they go there because that could actually lead to a lesser regulatory footprint for you and your credit union. Chartering a new charter system 300K to fully digitize chartering workflows, cybersecurity. I mentioned the $4.7 million, that includes a $3 million firewall refresh, the largest single capital item. Systems changes, the CDRLF grant system, 605K set aside for eDiscovery 300K, conferencing 750K and board priorities 500K. That one I'm be curious about. Liquidation, AMAC liquidation, tracking $206,000 and anything that an AMAC is a share insurance fund cost and it'll get charged directly to the fund, not tied to the budget. Material loss reviews, I've talked a lot about checks in the area of federal credit union. That's going to be a large material loss review. If they have any other things that come out of the woodwork, the draft says that material loss reviews, it appears only once, it's a bullet in the contracted services, category audit and financial management support. That category is 4.4% of contracts, about 3.2 million gross. That includes shares with audits, investigations and financial management for the inspector general. The inspector general budget does go up from 4.1 to 4.8. My guess is that is going to be contracting potentially tied to these material loss reviews that they may not have the staff for. So what's missing? The draft went from a high of 109 pages to 26 and what went and when did it go? So the draft budget keeps getting shorter in 2017. This is when we knew the law was going to be put in place. The budget draft was 53 pages, then the law went in place. 8, 2018, it was 98 pages. In 2019 it increased another 4 pages to 102 and 2020 increased another 6 pages to 108. That's when I left. That was the last budget I was involved with at NCAA. I retired and became doing what I'm doing now in June of 2020. The 2021 draft, the first one after me had one more page at 109 and then the slide of pages and theoretically the slide of transparency went in the opposite direction. 2022 it went down 11 pages to 98, 2023 it went down 14 pages to 84. In 2024 it went down another 20 pages to 64, 2025 it actually went the other direction went up 8 pages to 72. Next year it fell in half from 72 to 35 so what's that in reduction of 37 pages? And this year it went down another 9 pages to 26 pages. So since it's peak in 2021 at 109 pages it's down to 26 pages and that's a drop in pages of 76%. So 76% less transparent, at least 76% less words and verbiage and numbers, right? So if you use a proxy, if you use volume as a word for transparency they are less, less transparent. And what was the reason for the regulation being put or the act being changed by Congress? It was so that it was more transparent. So you could argue that that is not being done. I would argue that some of the changes make sense and there was a lot of superfluous stuff here that got added over time but they did take away one thing that I think they'll be putting back soon and they may have had good reasons for it but it's glaring that it's gone. So specifically what disappeared and went in 2019, fact sheets including the budget and financial transparency, fact sheet left, the budget 2023, individual board member office budgets disappeared and economic outlook and other risk factors that was probably driven by one board member who had something in their budget who didn't want it to be shown so they put them all into one. 2024, the organizational charts, the enterprise risk management and financial stewardship, budget trends and staffing section went away. They may have gone elsewhere and may have not been needed here or it may have been an attempt to have less transparency. You decide 2025, the agency history and federal compliance costs went away. The agency history can be found elsewhere. This was probably a good change. Why did it need to be here? It was redundant. The federal compliance costs. My recollection is that tied to the Mark McWaters area, the era where we wanted to show that these things we had to do and these costs we couldn't control and were mandated by other federal agencies and they've done away with that 2026 missions and gold, budget by strategic goal, project by project capital profiles all went away, probably went somewhere else but also probably not in totality, so a little bit less transparency. And then here in red, if you're watching on YouTube, 2027, what's gone away, positions by office, per office line items for pay, travel, rent, admin and contracts. I believe this will be a focal point of what the Trade Association's America's Credit Union is DCUC and NASCAS and usually the Go West loves to come and show that they're relevant here at these things and they'll probably comment about it too. And what's missing? So last year, for example, the office detail, last year for the Office of Examination for Example, it would show there were 50 positions, salaries of 11 million, benefits of between 24 and 5 million, travel of 400K, rent of 24K, admin of 46K, contracted services of just about a million for a total of 17.4 million. This year, all it says is the budget is 20.2 million. There's no positions, no pay, no travel or contract split. And I, how was it, how did they absorb the office of the chief economist, how many people? You can't really tell. So that's substantial. Why did they do it? Couple of ideas. This is new. He stepped in when all of this would be putting in play. He probably doesn't know enough to what he might want to put into what office. He knows they're going to do a re-organ 2027 and he probably wants to hear what you say. And he probably wants to hear what Stemp says at the budget. So last half fall, he didn't want to commit to something here that he wasn't comfortable committed to. And that's a positive. So maybe this detail will come out. It probably will, but that might be the reason and they might state it at the hearing then it's a reason. That's a good reason. And they might not have it. NCUA in 2025 announced to their staff that ones was going away that that cure was things were moving in and out of cure and things were going to the regions. And then they didn't do it. They did some of it, but they didn't do a lot of it. Why didn't they do it? Perhaps help and got cold feet and didn't want to do it. Perhaps it was the union exercising their rights. Perhaps it was both of those things, but a one member board making all of these final changes. Probably, it's not something if I was a one board member that I would want to do. I would want to have an accomplice in that vote because there's still jury is still out on whether a quorum is one and whether or not they need to to act, whether that'll ever be resolved. I don't know, but the best way to resolve it would be to get another board member in. And of course, there's the whole Otska Harper lawsuit situation and how will that play out? I have heard there's no. The administration's got a lot more priorities than who's going to sit on the insuay board. But that also plays into it. And of course, if you tell the staff that the officers are going away and then you put FTEs in and then you don't do it, that's one thing. And I believe it's possible that they know what they think they might be doing. But why say it's going to be 45 FTEs this year instead of 50 and then have a change because that staff looks that as telegraphing where it's going and it does telegraph it. So don't put the detail in. That would be another good reason for dropping this out. And again, this is, I've not talked to anybody at insuay about this. This is me having the done the budget for eight years as the executive director, three years of the deputy executive director of why I think this might be happening. The good reasons for why it might be happening. The bad reason is they decided to not be as transparent and I don't think that's it. So why Congress required it in the first place in 2008 public budget hearing stopped. They were put in place by then chairman, then installer, Debbie, man, stopped it in 2015. Mulvaney, the Mulvaney and Citadel Bill at a July hearing. Mulvaney presses for lighting and data and protest the OTR red actions. Don't get me into red actions and sewage racks far more than they legally should. They've got a lot of dead links and a lot of their web pages. I make vague references to that here. Frequently it's something I'm going to my agenda to talk to insuay about down the road. But that's what put it in play in 2016. A house report said that the bill will increase transparency and accountability. Yet the pages are declining. 2018 it becomes law that they have to publish the draft hold hearings and answer comments. And insuay once said office by office detail is a transparency win. So if I was a trade association, I would say just this, that in its budget and financial transparency fact sheet 2017 and 2018, insuay said at stakeholders request insuay began publishing a separate budget for every office broken out by category instead of one agency wide total. The 2027 draft goes back to totals only. So I believe that'll be a big focus of what is said by the associations. Does the law actually say on this the board shall on an annual basis and prior to the submission of the detailed business type budget required in paragraph two, make publicly available and publish in the federal register a draft of the detailed business type budget and hold a public hearing with public notice providing of the hearing during with the public may submit comments on the draft of the detailed business type, and prepare annually and submit a detailed business type budget as provided for wholly-owned government corporations, which shall address any comments submitted by the public under paragraph 1(b). So they will publish a draft, they will hold a hearing, and they will answer comments. So make your comments or ask to speak. Credit unions have occasionally spoke, and that would be a good thing. What are the fair common points? Some of the changes are legitimate, the stabilization fund closed in 2017. Of course, you don't need that anymore. History and org charts are just background. And there was one year that it went up 2025 and it went up eight pages, and this information may live elsewhere and it may live not. But anyway, it's gone down quite a bit, 76%, which is less transparent. I think in the future it will go back up, and again, pages aren't proof, but that's a pretty substantial drop. So what to watch for, what to ask for, file a comment, the law requires that they address it at the hearing, what's going on with the reorganization, ones, what's happening there, a lot of interest there in my clients and in conversations that I have, and AI, SI, how will, and so I use those tools and what will the governance be so that it's done in a safe and sound matter that will not expose your data. And in December, what's going to happen? Where does this budget land? What happens in November when they do the hearing? I don't have the date in front of me. I didn't write that down, but that's always interesting. I always enjoy what is said there by the trades, what is said by NCOA and NCOA staff. And there might be a little bit more reveal there. I will do a follow-up podcast, possibly with some guests at that juncture. But this is my first take. As always, I want to thank you for listening. I've got a little bit of a cold, hopefully that didn't come through to who here too much or what's going on here, but it is definitely cold season recording this here at the end of October. This will go live on Monday, just before the election. Make sure you get out and vote. Thank you for watching. I hope you'll do that again soon. If you don't subscribe, please do. If you like this, please share it with somebody else. Please comment on our LinkedIn posts that helps the algorithms. And please give us some feedback if you like this podcast, rate us on iTunes, Apple podcasts, et cetera, et cetera. Thank you so much. We've got some exciting podcasts coming up, and this is Mark Trichle, signing off with Flying Colors. [Music]