The NCUA Staff Draft 2022-2023 Budget Justification

AGENCY:

National Credit Union Administration (NCUA).

ACTION:

Notice.

SUMMARY:

The NCUA's 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. The briefing schedule and comment instructions are included in the SUPPLEMENTARY INFORMATION section.

DATES:

Requests to deliver a statement at the budget briefing must be received on or before November 30, 2021. Written statements and presentations for those scheduled to appear at the budget briefing must be received on or before 5 p.m. Eastern, December 3, 2021.

Written comments without public presentation at the budget briefing may be submitted by December 9, 2021.

ADDRESSES:

You may submit comments by any of the following methods ( Please send comments by one method only ):

• Presentation at public budget briefing: Submit requests to deliver a statement at the briefing to BudgetBriefing@ncua.gov by November 30, 2021. Include your name, title, affiliation, mailing address, email address, and telephone number. Copies of your presentation must be submitted to the same email address by 5 p.m. Eastern, December 3, 2021.

• Written comments: Submit comments by December 9, 2021, through the Federal eRulemaking Portal: http://www.regulations.gov. The docket number is NCUA-2021-0149. Follow the instructions for submitting comments.

• Copies of the NCUA Draft 2022-2023 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 documents attached to this notice and made available for public review:

I. The NCUA Budget in Brief

II. Introduction and Strategic Context

III. Forecast and Enterprise Challenges

IV. Key Themes of the 2022-2023 Budget

V. Operating Budget

VI. Capital Budget

VII. Share Insurance Fund Administrative Budget

VIII. Financing the NCUA Programs

IX. Appendix A: Supplemental Budget Information

X. 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 “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 agency's entire staff draft 2022-2023 Budget Justification (draft budget) in this Notice.

The draft budget details the resources required to support NCUA's mission. The 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 draft budget will be used to carry out the agency's annual operations.

The NCUA staff will present its draft budget to the Board at a budget briefing open to the public and scheduled for Wednesday, December 8, 2021 at 2:00 p.m. Eastern. Due to the COVID-19 pandemic, the budget briefing will be open to the public via live webcast only. Visit the agency's homepage ( 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 BudgetBriefing@ncua.gov by November 30, 2021. Your request must include your name, title, affiliation, mailing address, email address, and telephone number. The NCUA will work to accommodate as many public statements as possible at the December 7, 2021 budget briefing. The Board Secretary will inform you if you have been approved to make a presentation and how much time you will be allotted. A written copy of your presentation must be delivered to the Board Secretary via email at BudgetBriefing@ncua.gov by 5 p.m. Eastern, December 3, 2021.

Written comments on the draft budget will also be accepted by December 9, 2021, through the Federal eRulemaking Portal: http://www.regulations.gov. The docket number is NCUA-2021-0149. Commenters should follow the portal instructions for submitting comments.

All comments should provide specific, actionable recommendations rather than general remarks. The Board will review and consider any comments from the public prior to approving the budget.

I. The NCUA Budget in Brief

Proposed 2022 and 2023 Budgets

The National Credit Union Administration's (NCUA) 2018-2022 Strategic Plan sets forth the agency's goals and objectives that form the basis for determining resource needs and allocations. The annual budget provides 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.

The NCUA's 2022-2023 budget justification includes three separate budgets: The Operating Budget, the Capital Budget, and the National Credit Union Share Insurance Fund Administrative Budget. Combined, these three budgets total $345.3 million for 2022, which is 0.5 percent more than the initial 2022 funding level approved by the NCUA Board as part of the two-year 2021-2022 budget, and 1.2 percent higher than the comparable level funded by the Board for 2021.

Four significant factors, when combined, result in the 1.2 percent budget growth between 2021 and 2022:

1. A proposed 48 FTE net increase in permanent agency staffing compared to 2021, which will support critical areas necessary to operate as an effective federal financial regulator capable of addressing emerging issues.

2. A proposed increase of $8.6 million in travel funding for 2022 compared to 2021. Although the agency expects pandemic-related considerations will result in continued remote and offsite examinations during the first quarter of 2022, the draft budget assumes that onsite examinations and related travel will resume in the spring of 2022. The agency anticipates that travel in 2022 will occur at a lower level than in previous years due to lessons learned during the pandemic about remote work.

3. A proposed reduction to the Capital Budget of $5.8 million in 2022 compared to 2021, mainly driven by the completion of the latest phase of the Modern Examination and Risk Identification Tool (MERIT) project. In 2021, all NCUA examiners were trained to use the new MERIT system. MERIT was fully deployed to all NCUA examiners in the fall of 2021. In 2022, capital investments in Examination and Supervision Solution and Infrastructure Hosting (ESS&IH) will allow the NCUA to address rollout issues reported by the broader user base and continue to enhance MERIT and the ESS suite of applications based on user feedback.

4. A proposed decrease of $1.7 million to the Share Insurance Fund (SIF) Administrative Expenses Budget, which results from the wind down of the NCUA Guaranteed Notes (NGN) program in 2022.

Staffing levels for 2021 and 2022 reflect the agency's current staffing requirements and proposed staffing enhancements related to agency programs and initiatives.

Operating Budget

The proposed 2022 Operating Budget is $326.0 million. Staffing levels are requested to increase by a net 48 FTEs compared to the 2021 Board-approved budget.

The 2022 Operating Budget increases approximately $11.4 million, or 3.6 percent, compared to the 2021 Board-approved budget. The Operating Budget estimate for 2023 is $369.3 million and includes eight additional FTEs compared to the 2022 proposed level.

The following chart presents the major categories of spending supported by the 2022 budget, while specific adjustments to the 2021 Board-approved budget are discussed in further detail below:

Note: Minor rounding differences may occur in totals.

Total Staffing. The Operating Budget funds 1,242 FTEs in 2022, while five additional FTEs are funded by the CLF, resulting in a net increase of 48 FTEs compared to the 2021 levels approved by the Board. Additional staff have been added to several offices as discussed later in this document. Since 2018 and despite significant credit union asset growth, total NCUA staffing has remained within a relatively narrow range, as shown in the chart below.

Note: Total NCUA staffing includes five FTEs funded by the Central Liquidity Facility in 2022.

Pay and Benefits. Pay and benefits increase by $16.7 million in 2022, or 6.9 percent, for a budget of $257.5 million. The increase is mainly due to the proposed staffing of critical areas necessary to operate as an effective federal financial regulator capable of addressing emerging issues. The 2022 budget recommends 48 new FTEs, which includes 29 new regional FTEs to support expanded examination criteria for federal credit unions, three new regional FTEs to support expanded specialist examiners, five new FTEs for the Office of Consumer and Financial Protection (OCFP) positions to support fair lending and financial education and literacy programs, two new FTEs for the Office of Credit Union Resource Expansion (CURE) positions to support a new small credit union program initiative, and making permanent eight FTEs that are currently filled within the total NCUA staffing plan. These increases are offset by a reduction of one FTE in the Office of Examination and Insurance (E&I) and a reduction of five other FTEs by concluding the NGN program.

The remaining increase in pay and benefits—nearly $2.3 million—is the result of the Office of Personnel Management (OPM) increasing the mandatory employer contribution for the Federal Employee Retirement System (FERS). Required FERS payments to OPM increase from 17.3 percent of covered employees' salaries to 18.4 percent, a change of 110 basis points. Nearly all NCUA employees are covered by FERS, which includes a defined benefit pension funded by both employee and employer contributions.

Travel. The travel budget increases by $8.5 million in 2022, or 69.7 percent, for a budget of $20.8 million. The large increase in travel does not represent a typical annual travel adjustment because the 2021 budget was unusually low due to restricted travel during the pandemic. The 2022 requested budget assumes that pandemic-related travel reductions will continue through the first quarter of 2022 and will resume to near pre-pandemic levels later in the year. Additionally, the NCUA plans to hold more internal and external meeting events in 2022 than in the pandemic-restricted environment of 2021. A leadership and training conference is planned for the NCUA senior leaders and managers to support professional development and employee engagement. The NCUA also plans to host three outreach roundtables to support stakeholder discussions about issues affecting the credit union system.

The NCUA continues working to contain travel costs by expanding offsite examination work and using technology-driven training. In future budgets, the NCUA will determine how such adjustments to its examination approach will help mitigate growth in travel costs.

Rent, Communications, and Utilities. The budget for rent, communications, and utilities decreases by $2.0 million in 2022, or 28.2 percent, for a budget of $5.2 million. This funding pays for space-related costs, telecommunications services, data capacity contracts, and information technology network support. The decrease in 2022 is primarily due to the agency's transition to the General Services Administration (GSA)-managed Enterprise Infrastructure Solutions (EIS). EIS is the federal government's contract for enterprise telecommunications and networking solutions. By transitioning to EIS, the NCUA's annual telecommunications costs will decrease by approximately $2.2 million, as well as benefit from the comprehensive solution EIS provides to address all aspects of federal agency IT telecommunications and infrastructure requirements.

Administrative Expenses. Admin­is­trative expenses decrease by $0.2 million in 2022, or 4.0 percent, for a budget of $5.8 million. The decrease to the administrative expenses budget category largely results from lower costs for the NCUA's share of the Federal Financial Institutions Examination Council (FFIEC) costs and lower supplies, materials, and subscription costs from the ongoing use of telework in 2022.

Contracted Services. Contracted services expenses decrease by $11.6 million in 2022, or 23.9 percent, for a total budget of $36.7 million. However, $23.0 million of unspent budget amounts from prior years will be used to pay for 2022 Contracted Services expenses. Therefore, the total cost of all contracted services in 2022 is estimated to be $59.7 million, an increase of $11.4 million compared to the 2021 budget.

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 robust supervision framework and includes funding for tools used to identify and resolve risk concerns such as interest rate risk, credit risk, and industry concentration risk. Further, it addresses new and evolving operational risks such as cybersecurity threats.

Capital Budget

The proposed 2022 Capital Budget is $13.1 million.

The 2022 Capital Budget is $5.8 million less than the preliminary 2022 funding level approved by the Board in December 2020, and $5.8 million less than the 2021 Board-approved budget.

The Capital Budget fully supports the NCUA's effort to modernize its IT infrastructure and applications. The 2022 budget for capital projects decreases largely because of the deployment of MERIT, the replacement for the legacy Automated Integrated Regulatory Examination System (AIRES). Capital funding for MERIT in 2022 will fund bug fixes and other modest system enhancements. Other IT investments funded in the 2022 Capital Budget include the planned deployment of new laptops on the Windows 11 platform, ongoing enhancements and upgrades to decades-old legacy systems, network servers, and systems to ensure the agency's cybersecurity posture complies with Executive Order 14208, and various hardware investments to refresh agency networks and ensure staff have the tools necessary to achieve the agency's mission. The 2022 budget includes $3.3 million for IT software development projects that will continue replacement of the NCUA's decades-old and obsolete information technology systems, and $8.3 million in other IT investments for 2022. The NCUA's facilities require $1.5 million in capital investments.

Share Insurance Fund Administrative Expenses

The proposed 2022 Share Insurance Fund Administrative budget is $6.2 million.

The 2022 Share Insurance Fund Administrative Budget is $1.5 million less than the preliminary 2022 funding level approved by the Board in December 2020, and $1.7 million less than the 2021 Board-approved budget. The decrease in the Share Insurance Fund Administrative Budget is primarily driven by the completion of the NGN program, which is expected to substantially conclude in 2022. The remaining costs are attributed to the costs associated with 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.

2022 Operating Budget—Use of Surplus Funds

Various public health restrictions instituted in response to the COVID-19 pandemic resulted in much lower-than-planned spending on employee travel in 2021, as the agency continued remote and offsite examinations and work. The NCUA currently estimates that the agency will end 2021 having under-spent the Board-approved budget by approximately $15.0 million, mostly due to a reduction in travel and other operating expenses. Approximately $14.0 million in surplus budget from 2020 is also projected to remain available at the end of the year.

The NCUA's response to the coronavirus pandemic led to a number of unplanned and unbudgeted expenses, particularly for new requirements for cybersecurity, employee relocations, human capital support, and executive briefings and analysis support. In September 2021, the NCUA Board reallocated $4.0 million of the projected surplus for the following purposes:

• Cybersecurity Support : $906,780 was approved to implement cybersecurity requirements in 2021 for the NCUA's systems, services, and information holdings.

• Employee Relocations: $939,686 was approved for expected employee relocation costs in 2021.

• Human Capital Analytical Support: $550,000 was approved for analysis of the NCUA's compensation plans and for support analytic and consultative work about the NCUA's diversity, equity, and inclusion programs and practices.

• Executive Briefings and Analysis: $40,000 was approved for new executive briefings and analysis support.

• Employees' accrued leave payout: $1.6 million was approved for payout of employees' accrued leave in 2021.

Of the remaining surplus balances, the 2022 budget proposes using $23.0 million to offset the costs of planned contract services spending, reducing the agency's overall budget by that amount.

Budget Trends

As shown in the chart below, the relative size of the NCUA budget (dotted line) continues to decline when compared to balance sheets at federally insured credit unions (solid line).

This trend illustrates the greater operating efficiencies the NCUA has attained in the last several years relative to the size of the credit union system. Additionally, the NCUA has improved its operating efficiencies more aggressively than other financial industry regulators (dotted line compared to dashed line).

Federal Compliance Cost

As a federal agency, the NCUA is required to devote significant resources to numerous compliance activities required by federal law, regulations, or, in some cases, Executive Orders. These requirements dictate 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 cyber security 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 include: 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 (IT)

There are numerous laws, regulations, and required guidance concerning information technology used by the federal government. Many of the requirements cover IT security, such as the Federal Information Security Management Act. Other requirements cover records management, paperwork reduction, information technology acquisition, cybersecurity spending, and 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 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 employee salaries.

Security

The NCUA's security posture is driven by numerous legal and regulatory requirements covering the full range of security functions. The NCUA is required to comply with mandatory requirements for personnel security; physical security; emergency management and continuity; communications and information security; and insider threat activities. 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.

General Compliance Activities

The NCUA also has other general compliance activities that cut across numerous offices. For example, the NCUA expends resources complying with the Privacy Act; Government in the Sunshine Act; multiple laws and regulations related to government ethics standards; and various reporting and other requirements set forth by the Federal Credit Union Act and other statutes.

Federal retirement costs are an example of mandatory payments to other federal agencies. As discussed earlier in this document, the cost of mandatory contributions to OPM for most NCUA employees' retirement system will increase from 17.3 to 18.4 percent of their salaries, based on the OPM Board of Actuaries of the Civil Service Retirement System recommendations. The budget impact of these additional retirement costs in 2022 is an increase of approximately $3.4 million over 2021.

II. Introduction and Strategic Context

History

For more than 100 years, credit unions have provided financial services to their members in the United States. Credit unions are unique depository institutions created not for profit, but to serve their members as credit cooperatives.

President Franklin Roosevelt signed the Federal Credit Union Act into law in 1934 during the Great Depression, enabling credit unions to be organized throughout the United States under charters approved by the federal government. The law's goal was to make credit available to Americans and promote thrift through a national system of nonprofit, cooperative credit unions. In the years since the passage of the Federal Credit Union Act, credit unions have evolved and are larger and more complex today than those first institutions. But, credit unions continue to provide needed financial services to millions of Americans.

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 majority of state-chartered credit unions. No credit union member has ever lost a penny of deposits insured by the Share Insurance Fund.

As of June 2021, the NCUA is responsible for the regulation and supervision of 5,029 federally insured credit unions, which have approximately 127.2 million members and nearly $2 trillion in assets across all states and U.S. territories.

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. 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.

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. In December 2020, the Board approved a final rule with changes to its regulation and methodology for determining the fees due from federal credit unions.

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. 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.

Mission, Goals, and Strategy

The NCUA's 2022-2026 Strategic Plan is currently under development. The NCUA budget provides the resources necessary for the NCUA to address the agency's strategic priorities and related programs, to identify key challenges facing the credit union industry, and to leverage agency strengths to help credit unions address those challenges.

Organization, Major Agency Programs, and Workforce

The NCUA operates its headquarters in Alexandria, Virginia, to administer and oversee its major programs and support functions; its AMAC in Austin, Texas, to liquidate credit unions and recover assets; and three regional offices to carry out the agency's supervision and examination program. Reporting to these regional offices, the NCUA has credit union examiners responsible for a portfolio of credit unions covering all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands.

The following organizational chart reflects the agency's current structure, and the map shows each region's geographical alignment:

The NCUA's regional offices carry out the agency's examination program. The NCUA uses an extended examination cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion. Additionally, the NCUA's examiners perform streamlined examination procedures for financially and operationally sound credit unions with assets less than $50 million.

In addition, the ONES examines corporate credit unions and large consumer credit unions with assets over $10 billion. Consumer credit unions fall within ONES' purview based on assets reported on the first quarter call report for the preceding year. In April 2020, the NCUA Board provided regulatory relief to credit unions meeting certain asset thresholds, which were effective through year-end 2020. This asset threshold relief was subsequently extended through year-end 2021. The relief allows credit unions to use assets reported on their March 31, 2020, call report to determine applicability of certain regulations. As a result of this relief, no new large credit unions will enter ONES in 2022. ONES will continue to examine and supervise 11 consumer credit unions with 23.5 million members, accounting for $369.5 billion in credit union assets. The next effective measurement period, which will use actual assets reported, is the March 31, 2022, call report. ONES anticipates at least nine credit unions will meet or exceed the $10 billion threshold, and under existing regulations will fall within the supervisory purview of ONES beginning January 1, 2023. The staff draft budget proposes the resources necessary for examiners in the NCUA regions, in conjunction with ONES, to continue to supervise credit unions with reported assets between $10 billion and $15 billion in 2022. Any formal change to the $10 billion threshold for a consumer credit union to be supervised by ONES must be approved by the NCUA Board.

In 2022 and 2023, the agency's workforce will undertake tasks in all of the NCUA's major programs:

Supervision: The supervision program contributes to the safety and soundness of the credit union system, thereby protecting the interests of all credit union stakeholders. The NCUA's supervision is driven by identifying and resolving risk in seven primary areas:

• Interest rate risk,
• liquidity risk,
• credit risk, including asset concentration risk,
• reputation risk,
• transaction risk,
• compliance risk, and,
• strategic risk, including operational risks such as cybersecurity and fraud.

The NCUA supervises federally insured credit unions through examinations by enforcing regulations, taking administrative actions, and conserving or liquidating severely troubled institutions as needed to manage risk.

Insurance: The NCUA manages the Share Insurance Fund, which provides insurance up to at least $250,000 per individual depositor for funds held at federally insured credit unions. The Share Insurance Fund is capitalized by credit unions and through retained earnings. The equity ratio is the overall capitalization of the insurance fund to protect against unexpected losses from the failure of credit unions. The Normal Operating Level (NOL) is the desired equity level for the Share Insurance Fund. Pursuant to the Federal Credit Union Act, the NCUA Board sets the NOL between 1.20 percent and 1.50 percent.

Credit Union Development: Through chartering and field of membership services, training, and resource assistance, the NCUA supports development of small, minority, newly chartered, and low-income designated credit unions. One source of assistance is the Community Development Revolving Loan Fund, which provides loans and technical assistance grants to credit unions serving low-income members. This support results in improved access to financial services, an opportunity for increased member savings, and improved employment opportunities in low-income communities.

The NCUA charters new federal credit unions, as well as approves modifications to existing federal charters and their fields of membership.

Consumer Financial Protection: The NCUA protects consumers through supervision and enforcement of federal consumer financial protection laws, regulations, and requirements. The NCUA also develops financial literacy tools and information for consumers and promotes financial education programs for credit unions to assist members in making more informed financial decisions.

NCUA's consumer financial protection mission goes hand-in-hand with the agency's safety and soundness mission. The agency strives to achieve a proper balance between the oversight needed to ensure consumers are protected and credit unions' ability to provide service to their member-owners. In addition, the NCUA's Consumer Assistance Center provides an avenue through which credit union members can report and resolve concerns they may have about the products and services they have received from their credit unions.

When it comes to working with credit unions, the NCUA's goal is to facilitate their safe and sound operation while ensuring they fully comply with applicable laws, including consumer financial protection and fair lending laws. Toward that end, the agency emphasizes a compliance approach over an enforcement approach. We strive to detect and resolve problems and violations in credit unions through supervision and examination procedures before they become insurmountable.

Asset Management: The NCUA conducts liquidations of failed credit unions and performs management and recovery of assets through the AMAC. This office manages and resolves assets acquired from liquidated credit unions. The AMAC provides specialized resources to the NCUA regional offices with reviews of large, complex loan portfolios and actual or potential bond claims. It also participates in the operational phases of conservatorships and records reconstruction. The AMAC seeks to minimize credit union failure costs to the Share Insurance Fund.

ACCESS (Advancing Communities through Credit, Education, Stability, and Support): The ACCESS Initiative is intended to foster financial inclusion and address the financial disparities experienced by minority, underserved, and unbanked populations. Through ACCESS, the NCUA provides resources to assist credit unions with their outreach strategies. Resources include educational webinars and the identification of grants and other financial resources to support the development and implementation of financial products and services to assist members experiencing financial hardship. The NCUA will also evaluate ways to refresh and modernize regulations, policies, and programs in support of greater financial inclusion within the credit union system.

Cross-Agency Collaboration: The NCUA also performs stakeholder outreach and is involved in numerous cross-agency initiatives. The NCUA conducts stakeholder outreach to clearly understand the needs of the credit union system. The NCUA seeks input from all of its stakeholders, including the Administration, Congress, State Supervisory Authorities, credit union members, credit unions, and their associations.

The NCUA collaborates with the other financial regulatory agencies through several financial councils. Significant councils include the Financial Stability Oversight Council, the FFIEC, and the Financial and Banking Information Infrastructure Committee. These councils and their many associated taskforces and working groups contribute to the success of the NCUA's mission by providing the agency with access to critical financial and market information and opportunities to share information on critical issues and threats to the nation's financial infrastructure, among other benefits.

Budget Process—Strategy to Budget

The NCUA's budget process starts with a review of the agency's strategic framework, including its goals and objectives. The strategic framework sets the agency's direction and guides resource requests, ensuring the agency's resources and workforce are allocated and aligned to agency priorities and initiatives.

Each regional and central office director at the NCUA develops an initial budget request identifying the resources necessary for their office to support the NCUA's mission, goals, and objectives. These budgets are developed to ensure each office's requirements are individually justified and remain consistent with the agency's overall strategic framework.

One of the primary inputs in the development process is a comprehensive workload analysis that 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 budget year. The workload estimates are then refined by regional managers and further reviewed by NCUA executive leadership for the annual budget proposal. The workload analysis accounts for the efforts of over 66 percent of the NCUA workforce and is the foundation for the budgets of the regional offices and ONES.

In addition to the workload analysis, from which central office budget staff derive related personnel and travel cost estimates, each NCUA office submits estimates for fixed and recurring expenses, such as rental payments for leased property, operations and maintenance for owned facilities or equipment, supplies, telecommunications services, major capital investments, and other administrative and contracted services costs.

Because information technology investments impact all offices within the agency, the NCUA has established an Information Technology Prioritization Council (ITPC). The ITPC meets several times each year to consider, analyze, and prioritize major information technology investments to ensure they are aligned with the NCUA's strategic framework. These focused reviews result in a mutually agreed-upon budget recommendation to support the NCUA's top short-term and long-term information technology needs and investment priorities.

Once compiled for the entire agency, all office budget submissions undergo thorough reviews by the responsible regional and central office directors, the Chief Financial Officer, and the NCUA's executive leadership. Through a series of presentations and briefings by the relevant office executives, the NCUA Executive Director formulates an agency-wide budget recommendation for consideration by the Board.

The NCUA Board has an ongoing commitment to transparency around the agency's finances and budgeting processes. As such, the Office of the Chief Financial Officer has made draft budgets available for public comment via the agency's website and solicited public comments before presenting final budget recommendations for the Board's approval. Furthermore, Section 212 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-174, enacted May 24, 2018, requires that the NCUA “make publicly available and publish in the Federal Register a draft of the detailed business-type budget.” To fulfill this requirement, the Board delegated to the Executive Director the authority to publish the draft budget before submitting it for Board approval. This draft budget will appear in the Federal Register for public comment.

This 2022-2023 budget justification document includes comparisons to the Board approved 2021-2022 budget and includes a summary description of the major spending items in each budget category to provide transparency and promote understanding of the use of budgeted resources. Estimates are provided by major budget category, office, and cost element.

The NCUA also posts supporting documentation for its budget request on the NCUA website to assist the public in understanding its budget development process. The budget request for 2022 represents the NCUA's projections of operating and capital costs for the year and is subject to approval by the Board.

Commitment to Financial Stewardship

The NCUA funds its activities through operating fees levied on all federal credit unions and through reimbursements from the Share Insurance Fund, which is funded by both federal credit unions and federally insured state-chartered credit unions. The Overhead Transfer Rate (OTR) calculation determines the annual amount that the Share Insurance Fund reimburses the Operating Fund to pay for the NCUA's insurance-related activities. At the end of each calendar year, the NCUA's financial transactions are subject to audit in accordance with Generally Accepted Government Auditing Standards.

The Board and the agency are committed to providing sound financial stewardship. In recent years, the NCUA Chief Financial Officer, with support and direction from the Executive Director and Board, has worked to improve the NCUA's financial management, financial reporting, and budget processes.

The NCUA is the only Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) agency that publishes a detailed draft budget in the Federal Register and solicits public comments on it at a meeting with its Board and other agency leadership. The NCUA's 2022-2023 budget justification conforms with federal budgetary concepts, which increases transparency of the agency's planned financial activity. The NCUA first revised its financial presentations for such consistency in its 2018-2019 budget.

The NCUA works diligently to maintain strong internal controls for financial transactions, in accordance with sound financial management policies and practices. Based on the results of the NCUA's assessments conducted through the course of 2020, the agency provided an unmodified Statement of Assurance (signed February 16, 2021) that its management had established and maintained effective controls to achieve the objectives of the Federal Managers Financial Integrity Act (FMFIA) and OMB Circular A-123. Specifically, the NCUA supports the internal control objectives of reporting, operations, and compliance, as well as its integration with overarching risk management activities. Within the Office of the Chief Financial Officer, the Internal Controls Assessment Team (ICAT) continues to mature the agency-wide internal control program, strengthen the overall system of internal controls, promote the importance of identifying risk, and ensure the agency has identified appropriate responses to mitigate identified risks. The agency's internal controls are designed and operated in accordance with the requirements of the Government Accountability Office's Standards for Internal Controls in the Federal Government (Green Book).

Enterprise Risk Management

The NCUA uses an Enterprise Risk Management (ERM) program to evaluate various factors arising from its operations and activities (both internal to the agency and external in the industry) that can impact the agency's performance relative to its mission, vision, and performance outcomes. Agency priority risks include both internal considerations, such as the agency's control framework, information security posture, and external factors such as credit union diversification risk. All of these risks can materially impact the agency's ability to achieve its mission.

The NCUA's ERM Council provides oversight of the agency's enterprise risk management activities. Through the ERM program, established in 2015, the agency is identifying, analyzing, and managing risks that could affect the achievement of its strategic objectives.

Overall, the NCUA's ERM program promotes effective awareness and management of risks, which, when combined with robust measurement and communication, are central to cost-effective decision-making and risk optimization within the agency. This holistic evaluation of how the agency pursues its goals and objectives is guided by the agency's appetite for risk and considers resource availability or limitations. In addition, the agency's risk appetite helps the NCUA's employees align risks with opportunities when making decisions and allocating resources to achieve the agency's strategic goals and objectives.

The NCUA first adopted its enterprise risk appetite statement in the 2018-2022 Strategic Plan. The enterprise risk appetite statement is part of the NCUA's overall management approach.

The NCUA recognizes that risk is unavoidable and sometimes inherent in carrying out the agency's mandate. The NCUA is positioned to accept greater risks in some areas than in others; however, the risk appetite establishes boundaries for the agency and its programs. Collaboration across programs and functions is a fundamental part of ensuring the agency stays within its risk appetite boundaries, and the NCUA will identify, assess, prioritize, respond to, and monitor risks to an acceptable level.

III. Forecast and Enterprise Challenges

Economic Outlook

The economic environment is a key determinant of credit union performance. Last year was one of the most challenging for the economy in U.S. history. The global pandemic and measures taken to combat the spread of COVID-19 plunged the U.S. economy into recession at the start of 2020. More than 22 million nonfarm payroll jobs were lost, and the unemployment rate increased to an 80-year high of 14.8 percent.

The federal government responded quickly, establishing loan programs for affected businesses and providing financial relief to households in the form of stimulus payments and enhanced benefit payments to unemployed workers. Federal Reserve policymakers cut short-term interest rates, increased the Federal Reserve's asset holdings, and established a number of lending programs to support the flow of credit to households, businesses, and state and local governments. Interest rates across the maturity spectrum fell to historically low levels.

Economic activity picked up considerably in mid-2020, in response to these policy measures and the relaxation of restrictions on business and consumer activity put in place by state and local governments in the early days of the pandemic. The availability of a COVID-19 vaccine also provided significant support for economic activity. By the spring of 2021 the economy had returned to its pre-recession level of output. As of September 2021, just over 17 million jobs had been added back to nonfarm payrolls, and the unemployment rate had declined to 4.8 percent.

Credit union performance over the past year has been influenced by the pandemic and associated recession, but credit unions in the aggregate turned in a solid performance. Federally insured credit unions added 4.9 million members over the year, boosting credit union membership to 127.2 million in the second quarter of 2021. Credit union assets rose by 13.0 percent to $1.98 trillion. Total loans outstanding at federally insured credit unions increased 5.0 percent to $1.19 trillion, and the system-wide delinquency rate declined 12 basis points to a modest 46 basis points. Credit union shares and deposits increased by 15.0 percent over the year to $1.71 trillion in the second quarter of 2021, reflecting the boost to income from federal emergency relief payments to individuals and the sharp, economy-wide increase in personal savings.

The credit union system's net worth increased by 9.9 percent over the year to $201.1 billion in the second quarter of 2021. The jump in assets led to a drop in the credit union system's composite net worth ratio. However, at a composite net worth ratio of 10.17 percent, the credit union system remains very well-capitalized. The overall liquidity position of credit unions improved. Cash and short-term investments as a percentage of assets rose from 17.6 percent in the second quarter of 2020 to 18.5 percent in the second quarter of 2021, reflecting a 19 percent increase in cash and short-term investments.

The near-term outlook for the U.S. economy and credit unions is generally favorable. A consensus of forecasters projects strong growth, falling unemployment, and low interest rates over the next year. Real Gross Domestic Product (GDP) is projected to grow 3.5 percent over the four quarters of 2022 following a strong 5.5 percent increase during 2021. Robust growth will continue to spur job creation, driving the unemployment rate down to 4 percent by the fourth quarter of 2022.

Inflation climbed sharply in 2021, reflecting the combination of strong demand as the economy rebounds and COVID-related supply-chain dislocations that have curtailed production and distribution and contributed to shortages of some products. Consumer price inflation was 5.4 percent over the year ending in September 2021, up sharply from levels closer to 1.75 percent during the last period of economic expansion from mid-2009 through 2019. The consensus view is that recent high inflation readings are temporary, and price pressures will ease as supply bottlenecks are resolved. Forecasters expect price growth to retreat to around 2.25 percent by mid-2022 and hold there over the next several years. These forecasts are consistent with the Federal Reserve's stated objective for inflation to “moderately exceed 2 percent for some time” so that inflation over time averages 2 percent.

The most recent projections prepared by Federal Reserve policymakers, published in late September 2021, indicate inflation is expected to ease in 2022 and that the Federal Reserve is likely to hold off on raising the federal funds target rate until late next year. The median policymaker forecast shows the Federal Reserve's short-term policy rate rising slightly from its current range of 0 to 0.25 percent to 0.3 percent in the fourth quarter of 2022 and reaching 1.0 percent in late 2023. Analysts expect other short-term interest rates, which largely determine credit union interest payments, will remain close to their current historically low levels through the end of 2022 and move modestly higher in 2023. Longer-term rates, which largely determine the interest payments received by credit unions, are expected to edge higher as the economy strengthens.

Improving economic conditions should benefit credit unions. Strong growth and rising employment will boost household income, spending, and loan demand. Lower unemployment will bolster credit quality. Rising longer-term interest rates imply higher loan rates, and relatively low short-term interest rates will keep deposit rates in check.

Despite the favorable near-term outlook, credit unions may still face a difficult environment in the upcoming budget year. The end of forbearance programs, moratoria on evictions and foreclosures, and other COVID-related support will lead to financial stress for many households, particularly those at the bottom of the income distribution that were hit hardest by the recession. Credit union delinquency rates could begin to rise. The low interest rate environment may also pose a challenge, especially for credit unions that rely primarily on investment income.

There are also risks on the horizon that could hinder the economic recovery, affecting credit union performance. For example, the emergence of a new COVID-19 variant could exacerbate existing economic dislocations or trigger new dislocations, delaying the economy's return to more normal performance. If economic conditions weaken, the labor market recovery could stall. Under these circumstances, interest rates could remain low for an extended period of time. Alternatively, higher-than-expected inflation for a prolonged period could spur Federal Reserve policymakers to remove monetary policy accommodation earlier and more aggressively than expected, causing short-term interest rates to rise sooner than anticipated. Tighter credit conditions typically constrain consumer and business borrowing and spending and cause economic growth to slow. If short-term interest rates rise more than long-term interest rates, the yield curve will flatten, putting downward pressure on credit union net interest margins. The NCUA, like credit unions, will need to remain flexible and prepare for a variety of economic outcomes that could affect credit union performance and agency resource requirements.

Other Risk Factors and Trends

In addition to the risks associated with movements and trends in the general economy, the NCUA and credit unions will need to address increasing exposure to the risks associated with a variety of technological and structural changes. Increased concentration of loan portfolios, development of alternative loan and deposit products, technology-driven changes in the financial landscape, continued industry consolidation, and ongoing demographic changes will continue to shape the environment facing credit unions. The physical effects of climate change along with efforts to address climate change and transition to a low-carbon economy pose significant risks to the U.S. economy and the U.S. financial system.

Cybersecurity: Credit unions' use of technology exposes the credit union system to emerging cyber-enabled risk and threats. The prevalence of ransomware, malware, social engineering, business email compromise attacks, and other forms of cyber intrusion create ongoing challenges at credit unions of all sizes and will require ongoing efforts for rapid detection, protection, response, and recovery. These trends are likely to continue, and even accelerate, in the foreseeable future.

Lending trends: Increasing concentrations in select loan types and the introduction of new types of lending by credit unions emphasize the need for long-term risk diversification and effective risk management tools and practices, along with expertise to properly manage concentrations of risk.

Financial Landscape and Technology: Financial products that mimic deposit and loan accounts, such as mobile payment systems, pre-paid shopping cards, and peer-to-peer lending platforms, pose a competitive challenge to credit unions and banks alike. The increasing popularity and adoption of these products and services could lead to a reduction in financial intermediation. Credit unions also face a range of challenges from financial technology (fintech) companies in the areas of lending and the provision of other services. For example, underwriting and lending may be automated at a cost below levels associated with more traditional financial institutions, but may not be subject to the same safeguards that credit unions and other traditional financial institutions face. The emergence and increasing importance of digital currencies may pose both risks and opportunities for credit unions. Technological changes outside the financial sector may also lead to changes in consumer behavior that indirectly affect credit unions. COVID-19 is accelerating many of these trends, resulting in a profound reshaping of consumer behaviors.

Membership trends: While overall credit union membership continues to grow, more than half (55 percent) of federally insured credit unions had fewer members at the end of the second quarter of 2021 than a year earlier. Demographic changes are likely to lead to further declines in membership at some credit unions. All credit unions need to consider whether their product mix is consistent with their members' needs and demographic profile.

Fraud: There is increased opportunity for fraud due to challenges caused by the COVID-19 pandemic. These frauds could create additional risks to credit unions or the Share Insurance Fund.

Smaller credit unions' challenges and industry consolidation: Small credit unions face challenges to their long-term viability for a variety of reasons, including weak earnings, declining membership, high loan delinquencies, and elevated non-interest expenses. These challenges have contributed to the steady downward trend in the number of small, federally insured credit unions in operation. As of June 30, 2021, there were 2,582 small federally insured credit unions holding less than $50 million in assets −29 percent less than five years earlier. Over the same period the number of federally insured credit unions with assets of at least $500 million rose 38 percent to 680. These 680 credit unions account for 79 percent of credit union members and 83 percent of credit union assets. If current consolidation trends persist, there will be fewer credit unions in operation in future years, and those that remain will be considerably larger and more complex. Large credit unions tend to offer more complex products and services. Consolidation means the risks posed by individual institutions will become more significant to the Share Insurance Fund.

Climate-related financial risks: On October 21, 2021, the Financial Stability Oversight Council (FSOC), of which NCUA is a member agency, released its Report on Climate-Related Financial Risk. The report finds that “climate change is an emerging threat to the financial stability of the United States,” and that the number—and cost—of extreme weather and climate-related disaster events is increasing. Each year, natural disasters like hurricanes, wildfires, droughts, and floods impose a substantial financial toll on households and businesses alike. Economic and financial disruptions, and uncertainties arising from both the physical effects of climate change and efforts to transition away from carbon-intensive energy sources and industrial processes, could affect credit unions across many dimensions. For instance, disruptions in economic activity caused by climate-related weather events ( e.g., flooding or wildfires) may affect household income and the ability to stay current on household financial obligations in affected areas. The property damage associated with such events could affect the value of homes and any associated mortgages. The collateral value of motor vehicles may also be affected as consumers transition away from fossil fuels towards electric and hybrid automobiles. Finally, a credit union's field of membership is often tied to a specific industry, like oil refining or agriculture. The movement to renewable energy and changing weather patterns will likely impact many of these industries in the years ahead.

Credit unions will need to consider climate-related financial risks and how they could affect their membership and institutional performance. Measuring, monitoring, and mitigating climate-related financial risks presents a number of complex conceptual and practical challenges not only for credit unions but also for the NCUA. The NCUA Board will determine the appropriateness of adapting its risk monitoring framework to account for climate-related threats to financial stability, the credit union system, and the Share Insurance Fund. In 2021, the NCUA convened an internal Climate Financial Risk Working Group composed of experts from across the agency to develop in-house expertise on climate-related financial risks and evaluate whether existing regulatory tools, policies, and examination procedures are sufficient for capturing and addressing these risks.

IV. Key Themes of the 2022-2023 Budget

Overview

The staff draft 2022-2023 budget supports the agency's priorities and goals. The resources and initiatives proposed in the budget support the NCUA's mission to maintain a safe and sound credit union system.

The draft budget includes funding for the NCUA to increase permanent 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 NCUA employees are the agency's most valuable resource for achieving its mission, and the agency is committed to a workplace and a workforce with integrity, accountability, transparency, inclusivity, and proficiency. The agency will continue investing in its workforce through training and development, ensuring employees have the skills they need to do their work effectively.

The draft 2022-2023 budget proposes investments across a range of agency priorities, including:

• Additional examiner staff in the NCUA's three regions, which will enable the NCUA to address the growing complexity within the credit union system and increase annual examinations for certain credit unions;
• New program and staff resources to provide greater assistance to small credit unions;
• Additional staff dedicated to fair lending;
• Resources for the NCUA's ACCESS initiative, which is focused on improving financial inclusion;

• Expanded and ongoing efforts to ensure robust cybersecurity in the credit union system and at the agency;

• Increased offsite examination work and use of data analytics through the Virtual Examination project; and,
• Critical investments in new information technology systems and infrastructure, including enhancements to the agency's data reporting services and MERIT.

The efficiency and effectiveness of the agency's workforce is dependent upon the resiliency of the NCUA's information technology systems and the availability of modern analytical tools. 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.

The COVID-19 pandemic also remains a consideration for the agency's priorities and budgets for 2022 and 2023. The effects of the pandemic impact the draft budget by reducing planned travel expenses due to the shift to more remote and offsite examination and other work and by increasing information technology expenses required to support this offsite and remote work.

Examination Outlook and Virtual Examinations

Plans for the NCUA's 2022 examination program priorities are in place to incorporate updates related to regulatory considerations and revisions to some of the exam program components. The priorities for the 2022 examination program will include information security, payment systems, credit risk, the Allowance for Loan and Lease Losses account, Bank Secrecy Act (BSA) and Anti-Money Laundering (AML), internal controls, and consumer protections. The draft budget includes resources to increase the NCUA's cadre of highly-trained specialist examiners and to expand requirements for annual examinations for certain credit unions that had previously been on an extended examination cycle.

Cyberattacks pose significant risks to the financial system. 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 supervisory priority and enterprise risk objective.

To meet these challenges, the NCUA engages in interagency cybersecurity preparedness as members of the Federal Financial Institutions Examination Council and 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.

In 2021 the NCUA piloted a new information security examination program. The NCUA established a working group of regional and headquarters staff to review and incorporate changes into the program to be scalable to the institution's complexity and size. The NCUA plans to provide examiner training and testing of the program for the first six months of 2022 and deploy the improved program no later than the end of the third quarter 2022.

In November 2017, the NCUA Board approved funding to explore methods to conduct more examination work offsite—referred to as the Virtual Examination project. Staff is identifying new and emerging data sources and methods to access the data, exploring advancements in analytical techniques, and considering how other technologies can be harnessed to automate or streamline various aspects of the examination process. Since March 2020, the NCUA staff has conducted the majority of its examination work while fully offsite, with only a few exceptions for the most problematic and challenging cases. The Virtual Examination project team plans to build upon this work by integrating lessons learned during the pandemic.

Effective virtual examinations will lead to greater use of standardized interaction protocols, advanced analytical capabilities, and better-informed subject matter experts. This should result in more consistent and accurate supervisory determinations, provide greater clarity and consistency with respect to how the agency conducts supervisory oversight, and reduce coordination challenges between agency and credit union staff. A full transformation involves iterative and incremental steps over several years.

Support for Small Credit Unions

Small credit unions with less than $100 million in assets are in a unique position to improve financial inclusion by offering their communities access to credit and other services. The draft budget proposes new staff and resources for the NCUA to improve the support provided to small credit unions. Such support includes efforts to better tailor regulations and supervision to the needs of small credit unions, staff training about the unique needs of small credit unions and their role serving underserved communities, expanding opportunities for small credit unions to receive support through NCUA grants, training, and other initiatives, and fostering partnerships with external organizations that can support small credit unions.

Fair Lending

The NCUA uses onsite examinations, supervision contacts, and data analysis to ensure credit unions comply with fair lending laws and regulations. The draft budget proposes staff resources to enhance the NCUA's fair lending programs and increase fair lending examinations by 50 percent and fair lending supervision contacts by 25 percent. Consumer financial protection and fair and equitable access to credit is vital to members of credit unions. These additional resources will enable the NCUA to strengthen its consumer financial protection program.

ACCESS and Financial Inclusion

At its heart, financial inclusion means expanding access to safe and affordable financial services for unbanked and underserved people and communities. The financial services industry—of which credit unions are an important part—plays 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's ACCESS initiative—Advancing Communities through Credit, Education, Stability, and Support—began by reviewing NCUA regulations, processes, and procedures to expand opportunities for greater access to savings, credit, and other financial services provided by credit unions. The five initial ACCESS focus areas are:

• Chartering new credit unions;
• Field of membership;
• Low-income designation;
• Minority depository institution (MDI) preservation; and
• Consumer engagement and outreach.

For 2022, the NCUA's ACCESS initiative will build on the work done in 2021 and begin to actively engage credit union industry leaders and stakeholders to identify additional ways to help new, small, low-income designated and MDI credit unions to grow and prosper. The ACCESS initiative will also be focused on ways credit unions can help close the wealth gap, better address the financial needs of communities of color, and better appeal to the unserved and underserved.

NCUA Cybersecurity

The NCUA's approach to agency cybersecurity is founded on the National Institute of Standards and Technology's (NIST) Cybersecurity Framework (CSF), which guides and constrains how network boundaries, mobile and fixed end points ( e.g., an iPhone or computer), and data are provisioned, managed and protected. The CSF requirements are reinforced by Executive Order 14208: Improving the Nation's Cybersecurity. The draft budget bolsters the NCUA's to-date cybersecurity efforts and enables the agency to align its efforts with the requirements of the Executive Order. To effectively manage cybersecurity risk to systems, assets, data, and mission capabilities, and to prioritize efforts consistent with the NCUA's risk management strategy and business needs, the budget invests in resources and technologies to enhance several of the NCUA's CSF functional areas.

The draft budget will strengthen the NCUA's “Identify” functional area by making investments in asset management, governance, and risk assessment. The draft budget will strengthen the NCUA's “Protect” functional area by making investments in enterprise protection capabilities, automated patch management, and enterprise comply-to-connect capabilities, and by incorporating cloud-native capabilities into defensive network operations. These investments will help the NCUA further develop and implement appropriate safeguards for critical information technology infrastructure services and strengthen NCUA capabilities to limit or contain the impact of potential cybersecurity events. The draft budget will strengthen the NCUA's “Detect” functional area by making investments in cybersecurity situational awareness through “big data” analytics. Investments in both human and technology resources will help the NCUA enhance existing processes and ability to identify cybersecurity events.

Regulatory Improvements

The NCUA has undertaken a series of regulatory improvements in recent years and will continue to update and improve regulations to maintain a modern and effective regulatory framework. The NCUA website includes additional detailed information about all proposed and final rules for the past several years at: https://www.ncua.gov/regulation-supervision/rules-regulations/proposed-pending-recently-final-regulations/.

The NCUA's Annual Report includes the results of the regulatory reviews the agency completes on a yearly basis. The NCUA's current performance target for regulatory review is to review one-third of the agency's regulations on an annual basis.

V. Operating Budget

Overview

The NCUA Operating Budget is the annual plan for resources required for the agency to conduct activities prescribed by the Federal Credit Union Act of 1934. These activities 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.

Staffing

The staffing levels proposed for 2022 reflect the resource requirements that support the NCUA's continued efforts to improve the examination process and enhance the efficiency and effectiveness of the supervisory process. The 2022-2023 budget includes funding for the NCUA to increase permanent staffing in critical areas necessary to operate as an effective federal financial regulator capable of addressing emerging issues.

The 2022 budget supports a total agency staffing level of 1,247 full-time equivalents. This is an increase of 48 FTEs compared to the agency's revised 2021 staffing level of 1,199. The 2021 budget, approved by the NCUA Board on December 18, 2020, funded a staffing level of 1,192 FTEs. On September 23, 2021, the NCUA Board approved seven additional FTEs. The additional Board-approved FTEs for 2021 included: Three positions for the Office of Ethics Counsel (Ethics Attorney, Ethics Specialist, and Staff Assistant), two positions for the Chief Information Officer (Cybersecurity Operations and Service Delivery Manager), one new Cybersecurity Advisory and Coordinator position in the Office of the Executive Director, and one new Special Assistant position in the Office of the Board Secretary.

The proposed changes for the 2022 staffing level include:

• Increasing by 29 FTEs the NCUA's regional staff of examiners and supervisory examiners to support more frequent examinations for certain federal credit unions;
• Increasing by three FTEs the NCUA's regional staff to expand the agency's cadre of specialist examiners;
• Increasing by five FTEs the Office of Consumer and Financial Protection to increase the number of fair lending examinations and reviews and to strengthen the agency's efforts to promote financial inclusion and outreach;
• Increasing by two FTEs the Office of Credit Union Resources and Expansion to initiate a new program that supports small credit unions;
• Adding seven new FTEs in various other NCUA headquarters offices;
• Making permanent eight FTEs that are currently filled within the total NCUA staffing plan;
• Reducing by five FTEs the Office of the Chief Financial Officer and the Office of Examination and Insurance (E&I) by concluding the NGN program; and
• Reducing by one FTE the Office of E&I by reorganizing responsibilities within the office.

The new 2022 FTEs are described in greater detail below, while the chart illustrates the NCUA's staffing levels in recent years.

Request for New Staff in 2022: +46 FTEs

The staff draft budget includes funding for 46 new FTEs in 2022, as detailed below:

Regional Credit Union Examiners +29 FTEs

The COVID-19 pandemic has resulted in challenging economic conditions that may take years to resolve fully. While federal policy and spending have managed to blunt the most severe economic effects of the pandemic, future economic conditions may change rapidly, particularly in communities of modest means that are served by credit unions. Therefore, it is prudent to expand the criteria for credit unions that meet the requirements for an annual examination to include (1) credit unions with assets between $500 million and $1 billion that have otherwise previously qualified for an extended examination cycle based on the current Exam Flexibility Initiative criteria, and (2) credit unions with assets more than $250 million and evaluated as facing a higher risk of business or economic challenges. This expansion of the annual examination requirement necessitates an increase in the examination workforce by 29 FTEs.

Regional Specialist Examiners +3 FTEs

The NCUA last evaluated its needs for specialist examiners in 2018. Since that time the number of credit unions with more than $100 million in assets has grown and the complexity of and risks to financial services' information and payments systems has also increased. In response to these dynamics within the credit union system, the NCUA conducted an analysis of its needs for specialist examiners. Three disciplines in particular are in need of additional specialists: Regional electronic payments specialists (REPSs), regional information systems officers (RISOs), and regional lending specialists (RLSs). The NCUA expects to establish 11 new REPSs, 8 new RISOs, and 4 new RLSs in its three regions. Specialist Examiners contribute to conducting examination and supervision work, but at a lower level than examiners. Therefore, the repurposing of existing authorized positions necessitates a net increase of three examiner FTEs to account for the reduction in productive time.

Small Credit Union Program Officers +2 FTEs

The NCUA, as administrator of the Federal Credit Union Act, assists credit unions with their mission and purpose of promoting thrift among their members and creating a source of credit for provident or productive purposes. Small credit unions with less than $100 million in assets are in a unique position to improve financial inclusion by offering credit and other services to their communities. These two new positions in CURE will be responsible for identifying and developing additional programs to address the needs of small credit unions. Such support could include efforts to recognize the differences between small and large credit unions in regulations, policies, and guidance; developing training for examination staff about the unique needs of small credit unions and their role serving underserved communities; promoting opportunities for small credit unions to receive support through NCUA grants, training, and other initiatives; and developing partnerships with external organizations that can support small credit unions.

Fair Lending Analysts +3 FTEs

Three new positions within OCFP will enhance the NCUA's fair lending function by increasing fair lending examinations by 50 percent (from 30 to 45 annually) and fair lending supervision contacts by 25 percent (from 40 to 50 annually). The additional staff will focus on serving as Examiner-In-Charge for and performing fair lending examinations and supervision contacts, and recommending corrective action when required. These analysts will also serve as technical advisors and function as a regional resource for fair lending and other consumer financial protection laws and regulations affecting credit unions. Additionally, the analysts will participate on FFIEC subcommittees as well as other interagency and internal working groups.

Fair Lending Supervisor +1 FTE

The expansion of NCUA's fair lending work will require a full-time supervisor to oversee the added examination workload and ensure a more equitably balanced supervisor-to-staff ratio within OCFP. Adding an additional supervisor to oversee workload focused primarily on conducting examinations will also help foster a more independent quality control process. The new supervisor will provide leadership and direction to staff responsible for developing, monitoring, evaluating, and maintaining NCUA's fair lending program.

Financial Inclusion and Outreach Analyst +1 FTE

This new position within OCFP will be responsible for developing, coordinating, and implementing the NCUA's strategic stakeholder relationships related to community affairs, economic inclusion, and financial education and literacy activities. The new analyst's portfolio will include consumer financial inclusion/literacy issues that will require stakeholder engagement and coordination ( e.g., Elder Financial Abuse, Cybersecurity, FinTech and Financial Literacy, Financial Counseling/Education, Young Savings and Financial Education Programs, Underserved Outreach/Economic Inclusion). This analyst will work with NCUA's other financial literacy staff to bring together the appropriate parties, resources, and information in order to advance NCUA's financial literacy and consumer financial protection policy priorities. Such efforts will include hosting annual consumer financial protection forums, hosting regional consumer financial protection summits, holding meetings with external groups and regional and central office stakeholders, creating memorandums of understanding (MOUs) or formal collaborations, hosting webinars or training workshops, and creating industry or supervisory guidance to support the financial education and inclusion needs of credit unions, their member-owners, and the communities served.

Associate Director, Office of Examination and Insurance +1 FTE

This new position within E&I will provide executive leadership and oversight for development of the agency's examination and supervision programs. Additionally, this position will oversee policy and rulemaking functions that help ensure the safety and soundness of the credit union system and help manage expanded workload while ensuring timely delivery of agency initiatives.

System Specialist, Office of Examination and Insurance +1 FTE

This new position within E&I will manage the continuing operations and maintenance of the new MERIT system as well as other software updates planned for ongoing maintenance in 2022. Systems-related workload has generally grown within the E&I Systems Division because of tasks required to comply with increasing levels of security and administrative requirements.

Bank Secrecy Officer, Office of Examination and Insurance +1 FTE

This new position within E&I will support the growing requirements related to Bank Secrecy Act (BSA) policy, guidance, and interagency and law enforcement engagement. BSA has received increased focus and reform and efficiency improvements, and interagency initiatives have increased materially over the last two years. The workload is expected to increase as fintech, digital currency, distributed payments, and the broad range of new requirements associated with the Anti-Money Laundering Act and the Corporate Transparency Act of 2020 are developed and implemented. The NCUA, like the other financial service agencies, has an active role to play in virtually all of the new requirements, including staffing and supporting two new subcommittees of the BSA Advisory Group focusing on privacy, security, and innovation.

Division Director, Human Capital Systems and Planning +1 FTE

This new position within the Office of Human Resources will manage human capital, strategic workforce and succession planning, data analytics, workforce management prioritization, human capital systems administration, reporting, and compensation analysis. This role is essential for the day-to-day management of the Division's functions and the continuing human capital data analysis and planning needed to recruit, hire, and retain a high-performing workforce.

Senior Website Administrator, Office of External Affairs and Communications +1 FTE

This new position within the Office of External Affairs and Communications (OEAC) will supplement the existing website Administrator. Currently, the agency has one federal employee overseeing and managing the NCUA website and Section 508 compliance requirements, supported by contract staff. Demand for website support and Section 508 compliance continues to increase; new compliance requests are 25 percent higher in 2021 than 2019. The growing workload also includes compliance testing as part of the development of new systems under the Enterprise Solution Modernization program and as part of the new emphasis for NCUA online/virtual training.

Speechwriter, Office of External Affairs and Communications +1 FTE

This new position within OEAC will manage the increasing demand for external communications. The new speechwriter position would work side-by-side with OEAC's current Writer/Editor. Prior to 2019, the number of speaking events was limited to a few dozen per year. However, starting in 2019, the tempo of Board and Chairman remarks increased—setting a new standard for communications.

Asset Management and Assistance Center (AMAC) President +1 FTE

The NCUA requires a dedicated AMAC President position to provide leadership and serve as the key advisor to the NCUA Board on AMAC matters, including liquidation payouts, managing assets acquired from liquidations, and managing recoveries for the National Credit Union Share Insurance Fund (NCUSIF). This position is necessary to separate oversight of AMAC's activities from those of the Southern Region and provide dedicated leadership over AMAC operations. This role will also oversee AMAC's responsibility for providing assistance and advice pertaining to conservatorships, real estate and consumer loans, appraisals, bond claim analysis, and reconstructing accounting records.

Additional Adjustments to Authorized Staffing: +2 FTEs (NET)

In addition to the new positions proposed for 2022, the budget also includes resources to make permanent the following adjustments to the agency's staffing and within the overall 2021 Board-authorized staffing levels:

• Office of National Examinations and Supervision: Five FTEs to support the supervision of large consumer credit unions: One national supervision technician, one national lending specialist, one national supervision analyst, one financial data analyst, and one national information systems officer.

• Office of Business Innovation: One special assistant to support the growing systems requirements, analytics development expansion, and implementation and execution of a business intelligence capability plan.

• Office of General Counsel: One labor relations attorney to manage growing workload requirements.

• Office of the Executive Director: One ACCESS coordinator position will serve as a Program Officer and technical authority for NCUA's Advancing Communities through Credit, Education, Stability and Support programs. This position will be responsible for development and implementation of policies, strategies, and programs to support the goals and objectives of ACCESS, and will serve as a point of contact between the public and NCUA Regions and Offices to address questions or resolve issues regarding financial equity and inclusion.

• NCUA Guaranteed Notes Program: Reduction of five positions that supported the NGN program, which will be concluded in 2022.

• Office of Examinations and Insurance: Reduction of one supervisory position by reorganizing responsibilities within the office.

Like any government agency, the NCUA manages its changing workload within its overall authorized budgetary and staff resource levels. The NCUA Board has delegated to the Executive Director the authority to adjust staffing within total allocated resources to best respond to changing agency priorities and trends within the credit union system. The Executive Director must maintain total NCUA staffing at or below the resource levels approved within the budget, and promptly inform the Board of any significant changes to the agency's staffing allocations within the approved resource totals.

Special Surge Workforce

In 2021, the NCUA Board provided temporary COVID-19 hiring authority to respond to uncertainties in the credit union system. This authority continues through 2022 and provides the NCUA the ability to hire and retain for a term appointment, without a reduction to their federal annuity, up to 30 individuals who have retired from federal service into a position classified in the Credit Union Examiner 0580 occupational series. This authority allows the NCUA to add staff who are already trained and have experience examining depository financial institutions so as to be better prepared to respond to any elevated levels of problem institutions that occur in 2022. These positions are two-year, not-to-exceed appointments, meaning that any employees hired under this program can serve a maximum of two years, and the appointments can be ended prior to the end of the two-year term if they are no longer needed. These positions are funded in 2022 by using unspent 2020 Operating Budget funds not otherwise made available to offset the costs of 2022 agency operations, which is anticipated to be sufficient to fund the positions in 2022.

Budget Category Descriptions and Major Changes

There are five major expenditure categories in the NCUA budget. This section explains how these expenditures support the NCUA's operations and presents a transparent overview of the Operating Budget.

Actual expenses for the Operating Fund are reported monthly in the Operating Fund Financial Highlights posted on the NCUA website. Share Insurance Fund Financial Reports and Statements, which are also posted to the NCUA website, detail reimbursements made to the Operating Fund for NCUA expenses.

Salaries and Benefits

The budget includes $257.5 million for employee salaries and benefits in 2022. This change is a $16.7 million, or 6.9 percent, increase from the 2021 Board-approved budget. Salaries and benefits costs make up 79 percent of the annual NCUA budget. There are two primary drivers of increased costs in 2022 for the Salaries and Benefits category:

Merit and locality pay increases for the NCUA's employees are paid in accordance with the agency's current Collective Bargaining Agreement (CBA) and its merit-based pay system. Salaries are estimated to increase 3.6 percent in aggregate compared to 2021.

Contributions for employee retirement to the Federal Employee Retirement System, which are set by the Office of Personnel Management and cannot be negotiated or changed by the NCUA. Driven largely by the mandatory FERS rate adjustment, total NCUA benefits costs increase 8.4 percent in 2022 compared to 2021.

In 2022, the NCUA's compensation levels will continue to “maintain comparability with other federal bank regulatory agencies,” as required by the Federal Credit Union Act. The Salaries and Benefits category of the budget includes all employee pay raises for 2022, such as merit and locality increases, 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 NCUA staff will be eligible to receive an average merit-based increase of 3.0 percent, and an additional locality adjustment ranging from 1.0 percent to 3.0 percent, depending on the geographic location.

The first-year cost of the 48 new positions added in 2022 is estimated to be $4.0 million. Specific increases to individual offices' salaries and benefits budgets will vary based on current pay levels, position changes, and promotions.

Personnel compensation at the NCUA varies among every office and region depending on work experience, skills, years of service, supervisory or non-supervisory responsibilities, and geographic locations. In general, 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. This high level of educational achievement ensures the NCUA workforce is able to fulfill its mission effectively and efficiently, and attracting a well-qualified workforce requires the agency to pay employees competitive salaries.

Individual employee compensation varies based on the location where the employee is stationed. The federal government sets locality pay standards, which are managed by the President's Pay Agent—a council established to make recommendations on federal pay. The council uses data from the Occupational Employment Statistics program, collected by the Bureau of Labor Statistics, to compare salaries in over 30 metropolitan areas and establishes recommendations for equitable adjustments to employee salaries to account for differences between localities.

The Office of Personnel Management's economic assumptions for actuarial valuation of the FERS have increased significantly for 2022. All federal agencies are expected to contribute 18.4 percent of FERS employees' salaries to the OPM retirement system, an increase of 110 basis points compared to the 2021 level of 17.3 percent. This mandatary contribution is prescribed in the OPM Benefits Administration Letter, dated May 2021. The estimated impact on the NCUA budget is an increase of approximately $3.4 million in mandatory payments to OPM, or approximately 21 percent of the salary and benefits growth compared to 2021 levels.

The average health insurance costs for the Federal Employees Health Benefits (FEHBP) program for 2022 are consistent with historical actual expenses and the OPM estimate that the government share of FEHBP premiums will increase 1.9 percent in 2022. 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.

In past years, the NCUA adjusted its budget downward by an expected vacancy rate for positions that are not filled during the year because of a time lag between employee separations and hiring new staff. Since 2018, the NCUA has lowered its vacancy rate and continues to closely monitor the hiring and attrition trends within its workforce. In anticipation of the need for a full complement of staff in 2022, and because of ongoing efforts to accelerate the agency's hiring cycle time, the proposed 2022 budget does not include a vacancy adjustment.

The 2023 budget request for salaries and benefits is estimated at $273.6 million, a $16.1 million increase from the 2022 level. Included within this total is the full-year cost impact of new positions proposed for 2022 (approximately $4.0 million), $564,000 for eight additional positions expected for 2023, merit and locality pay increases consistent with the CBA and promotions (approximately $8.2 million), and associated increases in benefits for all employees (approximately $3.4 million). The 2023 budget also includes an inflationary adjustment given the potential for a new labor contract with the NCUA employees' union that is currently under negotiation.

Travel

The 2022 budget includes $20.8 million for travel. This change is a 69.7 percent increase to the 2021 Board-approved budget.

There are three primary reasons for the significant travel budget increase compared to the 2021 levels. First, the 2021 travel budget of $12.3 million was unusually low compared to historic levels because of pandemic-related travel restrictions. Therefore, comparisons between 2021 and 2022 travel levels are not representative of typical annual travel adjustments. Second, the NCUA expects that although pandemic-related travel reductions will likely continue through the first quarter of 2022, travel will approach pre-pandemic levels for the remainder of the upcoming year. And third, the NCUA plans an expanded schedule of internal and external meeting events in 2022. A leadership and training conference is planned for senior leaders and managers to support professional development and employee engagement. The NCUA also expects to host three outreach roundtables to support stakeholder discussions on credit union industry issues.

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 a significant part of their year traveling to conduct the examination and supervision program. During the COVID-19 pandemic, the agency and its employees successfully transitioned to an offsite examination posture, developing new procedures and processes to continue examination and supervisory work. In 2022, the NCUA will continue evaluating how it can conduct portions of its examinations remotely and offsite, which should help constrain the growth of future travel budgets.

The NCUA staff also travel for routine and specialized training. In 2021, the NCUA had planned to conduct a series of training events to support the nationwide rollout of MERIT; however, these training events were changed to virtual events in 2021 due to pandemic-related restrictions. In 2022, the NCUA expects the majority of its staff to return to in-person training starting in the second quarter of the year. As appropriate, agency personnel will continue to utilize more virtual training options to help reduce travel expenses.

The 2023 budget request for travel is estimated to be $24.4 million, or a 17.5 percent increase compared to the 2022 level. This increase reflects the return to a full-year of travel spending without pandemic-related restrictions and supports travel for a national training conference for all employees.

Rent, Communications, and Utilities

The 2022 budget includes $5.2 million for rent, communications, and utilities. This is a $2.0 million decrease, or 28.2 percent less than the 2021 Board-approved budget. The Rent, Communications, and Utilities budget funds the agency's telecommunications and information technology network expenses and facility rental costs.

Telecommunication charges include leased data lines, domestic and international voice (including mobile), and other network charges. Telecommunication 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 2022 budget includes funding to support procurement of additional circuits and express routers for Microsoft365 implementation, the agency's data connectivity at NCUA disaster recovery sites, and transition to the GSA-managed Enterprise Infrastructure Solutions. EIS is the federal government's contract for enterprise telecommunications and networking solutions. By transitioning to EIS, the NCUA will benefit from the comprehensive solution EIS provides to address all aspects of federal agency IT, telecommunications, and infrastructure requirements. This new acquisition strategy with a new vendor reduced the agency's annual telecommunications by approximately $2.2 million, accounting for most of the Rent, Communications, and Utilities budget decrease compared to 2021. Other cost reductions were attributed to a new award for Federal Relay Services, saving $170,000.

Office building leases, meeting space rentals, office utilities, and postage expenses are also included in this budget category. Facility costs are approximately $720,000 in 2022 for office space rental for the Western Region, insurance, and ancillary costs for the NCUA Central Office. The annual utility costs for the Central Office and regional offices are estimated at $453,000.

The 2022 budget also includes $686,000 for event rental costs for examiner meetings, a leadership conference, three roundtable events, and credit union examiner training events.

The 2023 budget request for the Rent, Communications, and Utilities category is estimated to be $5.4 million, or a 4.0 percent increase compared to 2022. The $200,000 increase is primarily associated with audio-visual and telecommunication expenses for the planned NCUA national training conference.

Administrative Expenses

The 2022 budget includes $5.8 million for administrative expenses. This is a decrease of $241,000, or 4.0 percent, compared to the 2021 Board-approved budget. Recurring costs in the Administrative Expenses category include the annual reimbursement to the Federal Financial Institutions Examination Council, 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 joint actions and services that affect the financial services industry. The FFIEC costs are estimated to be $82,000 lower in 2022 than 2021 for a total NCUA cost sharing payment of $1.3 million.

The ongoing use of telework in 2022 is expect to lower supplies, materials, and subscription costs for an estimated savings of $294,000 compared with the 2021 budget.

The 2022 budget includes $1.0 million for employee relocations, an increase of $250,000 compared to the 2021 budget. 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 2023 budget request for Administrative Services is estimated to be $6.0 million, or a 3.9 percent increase to support administrative expenses for the planned NCUA national training conference.

Contracted Services

The 2022 budget includes $36.7 million for contracted services. This is a $11.6 million decrease, or 23.9 percent, compared to the 2021 Board-approved budget. However, $23.0 million of unspent budget amounts from prior years will be used to pay for 2022 contracted services expenses. Therefore, the total planned budget for contracted services in 2022 is approximately $59.7 million.

The Contracted Services budget category includes the agency's costs incurred when products and services are acquired in the commercial marketplace. Acquiring specific expertise or services from contract providers is often the most cost-effective approach to fulfill the NCUA's 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 core mission execution.

The majority of funding in the Contracted Services category supports the NCUA's robust supervision framework and includes funding for tools used to identify and resolve risk concerns such as interest rate risk, credit risk, and industry concentration risk, as well as by addressing new and evolving operational risks such as cybersecurity threats. Growth in the contracted services budget category results primarily from new operations and maintenance costs associated with capital investments, such as the Examination and Supervision Solution system, which is commonly known as MERIT. 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 (54.4 percent of contracted services)

○ IT network support services and help desk support

○ Contractor program and web support and network and equipment maintenance services

○ Administration of software products such as Microsoft Office, Share Point, and audio visual services

• Administrative Support and Other Services (12.9 percent of contracted services)

○ Examination and Supervision program support

○ Technical support for examination and cybersecurity training programs

○ Equipment maintenance services

○ Legal services and other expert consulting support

○ Other administrative mission support services for the NCUA central office

• Accounting, Procurement, Payroll, and Human Resources Systems (5.5 percent of contracted services)

○ Accounting and procurement systems and support

○ Human resources, payroll, and employee services

○ Equal employment opportunity and diversity programs

• Building Operations, Maintenance, and Security (7.0 percent of contracted services)

○ Central office facility operations and maintenance

○ Building security and continuity programs

○ Personnel security and administrative programs

• Information Technology Security (9.9 percent of contracted services)

○ Enhanced secure data storage and operations

○ Information security programs

○ Security system assessment services

• Training (6.9 percent of contracted services)

○ Examiner staff, technical and specialized training and development

○ Senior executive and mission support staff professional development

• Audit and Financial Management Support (3.4 percent of contracted services)

○ Annual audit support services

○ Material loss reviews

○ Investigation support services

○ Financial management support services

The following pie chart illustrates the breakout of the seven categories for the total 2022 Contracted Services budget of $59.7 million, with $36.7 million funded from 2022, and $23.0 million funded from prior year available balances.

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 2022 include classes offered by the Federal Financial Institutions Examination Council, updated examiner classes, and subject matter expert training sessions for the NCUA examiners. All examiner courses will be updated to reflect changes from the AIRES to MERIT systems.

Contracted service providers, in partnership with the NCUA subject matter experts, will develop and design training classes for examiners and continue work on the triennial review of the NCUA's Subject Matter Examiner (SME) course curriculum. The NCUA's new Talent Management System will continue to be updated to refine the current online courses. Additionally, contracted service providers and central office staff will continue conducting organizational development, leadership, 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 System Management Act.

• 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 Office of Inspector General 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 also included as part of the agency's Annual Report.

A significant share of the budget for the Contracted Services category finances ongoing information technology infrastructure support for the agency. The 2022 budget includes the second year of funding for operations and maintenance of the MERIT system, which replaced the legacy AIRES examination system in 2021. Several other of the NCUA's core information technology systems and processes also require additional contract support in 2022, which results in increased budgets in the Contracted Services category, as described below.

Within the budget for the Office of Chief Information Officer (OCIO), an additional $10.9 million compared to the 2021 budget level is required for:

• Information technology infrastructure operations and maintenance labor support for MERIT and other NCUA legacy systems;
• Application tools that support the new MERIT system and other mission critical and business applications; and

• Enhanced cybersecurity operations to support the implementation of the Executive Order on Improving the Nation's Cybersecurity.

Within the Office of Human Resources, contracted services increase by $335,000 compared to the 2021 budget level, primarily for program support for human resource capital and workforce programs, projects, training support, and management systems.

Within the Office of Credit Union Resources and Expansion, contracted services increase by $450,000 compared to the 2021 budget level. Of this amount, $350,000 will support a new initiative to support small credit unions, while $100,000 will be used to support the NCUA's grants program and other activities that cultivate small, minority-designated, and low-income-designated credit unions.

The Office of Minority Women and Inclusion's (OMWI) contract budget increases by $223,000 compared to the 2021 budget level. This increase will help OMWI achieve the goals established in the agency's Diversity and Inclusion Strategic Plan to promote diversity and inclusion within the agency and the credit union industry and ensure equal opportunity in accordance with the mandates of Section 342 of the Dodd-Frank Act. OMWI expects to host an in-person Diversity Equity and Inclusion Summit in 2022 to bring together credit union professionals to: Promote the value of diversity, equity, and inclusion for credit unions; share best diversity, equity, and inclusion practices; and develop solutions to industry-specific challenges in this arena. Additionally, OMWI expects to automate a critical internal business process to ensure the agency can respond efficiently to federally mandated Equal Employment Opportunity Commission management directives.

Within the Office of the Chief Financial Officer, 2022 contracted service reductions of $369,000 compared to the 2021 budget level are associated with decreased operational costs for administrative and logistical support ( e.g., mail, distribution, copying) and reductions of one-time 2021 contract items. In addition, parking expenses for Central Office staff are reduced in anticipation of an increase in employee telework.

Contracted services spending for 2023 is estimated at $59.9 million, roughly the same as 2022. Because unspent prior-year budgets are not expected to be available again in 2023, the Contracted Services budget increases by $23.0 million between 2022 and 2023.

VI. Capital Budget

Overview

Annually, the NCUA carries out a rigorous review process to identify the agency's needs for information technology (IT), facility improvements and repairs, and other multi-year capital investments. The NCUA staff review the agency's inventory of owned facilities, equipment, IT systems, and IT hardware to determine what requires repair, major renovation, or replacement. The staff then make recommendations for prioritized investments to the NCUA Board.

IT systems and hardware require significant capital expenditures for modern organizations. The 2022 budget continues the NCUA's multi-year investment in current and replacement IT systems. The budget fully supports the NCUA's effort to modernize its IT infrastructure and applications, including the first full year for field staff to use MERIT, which is the NCUA's Examination and Supervision Solution (ESS) project that replaces the legacy Automated Integrated Regulatory Examination System. Other IT investments include the deployment of new laptops on the Windows 11 platform, ongoing enhancements and upgrades to decades-old legacy systems, network servers, and systems to ensure the agency's cybersecurity posture complies with Executive Order 14208, and various hardware investments to refresh agency networks and ensure staff have the tools necessary to maintain and increase their productivity.

Routine repairs and lifecycle-driven property renovations are also necessary to properly maintain investments in the NCUA-owned properties. The NCUA Facilities Manager assesses 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 NCUA's staff draft 2022 capital budget is $13.1 million. The capital budget funds the NCUA's long-term investments. The 2022 capital budget provides $3.3 million for IT software development projects and $8.3 million in other IT investments for 2022. The NCUA facilities require $1.5 million in capital investments.

Detailed descriptions of all 2022 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

Examination and Supervision Solution and Infrastructure Hosting ($0.9 Million)

The purpose of the Examination and Supervision Solution and Infrastructure Hosting (ESS&IH) project is to deliver a new, flexible, technical foundation to enable current and future NCUA business process modernization initiatives. ESS&IH replaces the NCUA's legacy examination system, AIRES, with the new MERIT system. In 2021, all NCUA examiners were trained to use the new MERIT system. MERIT was fully deployed to all NCUA examiners in the fall of 2021. In 2022, capital investments in ESS&IH will allow the NCUA to address system bugs reported by the broader user base, continue to enhance MERIT and the ESS suite of applications based on user feedback, and bring additional NCUA applications onto NCUA Connect to leverage this new enterprise service to meet multi-factor authentication security requirements.

Data Reporting Solution (DRS) ($0.7 Million)

The purpose of this project is to support the NCUA's Enterprise Solution Modernization (ESM) program. The DRS is part of the overarching Enterprise System Modernization (ESM) program, and focused on implementing a business intelligence (BI) solution for enhanced data access, integrity, analytics and reporting. DRS will provide a modern self-service BI tool for the enterprise, as well as access to data to enable staff to efficiently and effectively utilize the tool. DRS leverages other key modernization initiatives: The Enterprise Central Data Repository (ECDR), the new enterprise data integration point and platform to support data and analytic initiatives, as well as expanded examination data in MERIT.

Enterprise Data Program ($0.4 Million)

The purpose of this project is the centralization, organization, and storage of the NCUA's data. The primary goal is to enable the NCUA to manage enterprise data as a strategic asset through its full lifecycle (create/collect, manage/move, consume, dispose). For 2022, the Enterprise Data Program (EDP) capital funds will be used to improve the agency's effectiveness by maturing data management practices. This will help ensure the use of high-quality data in operations, reporting, and analytics. This is a highly collaborative effort to facilitate alignment across offices and will make data-related work more effective and efficient.

NCUA Website Development ($0.1 Million)

This project provides ongoing improvements to the website, such as an improved user experience, and supports the ongoing maintenance needs of the agency's public websites: NCUA.gov and MyCreditUnion.gov .

Significant Regulatory Changes ($1.0 Million)

These funds will allow for applications and databases to be updated to accommodate any regulatory changes going into effect in 2022, which can impact multiple legacy systems. These changes can be significant, requiring additional time and resources to ensure affected systems are updated before final regulations become effective. Examples of Board-approved initiatives from 2021 include: Adding the sensitivity or “S” component rating to the existing CAMEL system and approval of the Current Expected Credit Losses (CECL) Phase-in Final Rule in June of 2021.

Credit Union Locator and Research a Credit Union Updates ($0.2 Million)

The current CU Locator and Research a Credit Union websites are public-facing websites that can be accessed through NCUA.gov . Both websites are used externally by credit unions, credit union members, and the public. These websites are not currently optimized for use on mobile devices, nor Section 508 compliant. This investment will update both CU Locator and Research a Credit Union websites to make them responsive for mobile devices ( e.g., automatically resize to the screen size of a phone or tablet), Section 508 compliant, and add functionalities based upon requirements gathered.

Enterprise Laptop Refresh ($5.0 Million)

The agency's current laptops are more than four years old and in need of replacement. This capital investment will fund (1) the selection of new, standard laptop configurations, (2) testing the new laptops and operating system with the NCUA's existing business and productivity applications, network, and peripherals ( e.g., keyboards, printers and scanners), (3) device acquisition, and (4) the deployment of the new devices to all NCUA employees and contractors.

Information Technology Infrastructure, Platform and Security Refresh ($1.6 Million)

The purpose of the Information Technology (IT) Infrastructure, Platform and Security Refresh project is to replace outdated or end-of-life network and platform hardware, as well as to prepare the NCUA for cloud computing adoption. This investment helps ensure business continuity and efficient operations by improving system availability and stability.

Hybrid Work Environment Updates ($0.3 Million)

The NCUA's current inventory of Voice over Internet Protocol (VoIP) desk and speaker phones are end-of-life and will be replaced in 2022. This investment will provide Microsoft Teams-compatible VoIP speaker phones. This project will also integrate the reservation system for the conference rooms into the NCUA's M365 service platform.

Executive Order on Improving the Nation's Cybersecurity ($1.4 Million)

This investment will ensure the NCUA complies with Executive Order 14208, Improving the Nation's Cybersecurity. The project funds will enable the NCUA to accelerate (1) implementation of Multi-Factor Authentication (MFA) for all NCUA applications, (2) use of a zero-trust architecture for the NCUA's infrastructure and applications, and (3) transition of computing and storage resources from on-premise to a cloud service provider.

Central Office Heating, Ventilation, and Air Conditioning (HVAC) System Replacement ($1.5 Million)

The NCUA central office HVAC system replacement project will replace all HVAC systems in the headquarters building, including cooling towers, air handlers, boilers, and all other HVAC components. The current HVAC system is original to the facility—it is 29 years old, obsolete, and some component parts are no longer available. HVAC systems are the biggest users of electricity in a facility, and the anticipated life span of major system components is approximately 20 to 25 years. The current system is at the end of its useful life, and it is not working efficiently. In recent years, the maintenance and operating costs have increased considerably and system components are failing more frequently, which are clear signs of decreased reliability.

VII. Share Insurance Fund Administrative Budget

Overview

The Share Insurance Fund Administrative Budget funds direct costs associated with authorized Share Insurance Fund activities. 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 2022 the Share Insurance Fund Administrative Budget will also include certain insurance-related expenses for AMAC operations.

The Share Insurance Fund Administrative Budget also pays for costs associated with the Corporate System Resolution Program and related NGN program. On June 14, 2021, the last outstanding NGN Trust matured. Most of the remaining Corporate System Resolution Program assets held by the NCUA will be sold in 2022. The budget for the NGN program therefore decreases in 2022 compared to the 2021 NGN funding levels.

Budget Requirements and Description

The 2022 Share Insurance Fund Administrative budget is estimated to be $6.2 million, which is $1.7 million, or 21.7 percent, less than 2021.

The 2022 budget decrease is primarily driven by phase out of the NGN program. Therefore the expenses required to maintain the program decrease compared to 2021.

The 2023 requested budget supports similar workload and resources for Share Insurance Fund direct expenses, which are expected to remain the same as 2022 at $4.8 million, and includes no NGN related costs.

Share Insurance Fund Direct Expenses

Direct expenses to the Share Insurance Fund are estimated to be $4.8 million in 2022, an increase of $0.3 million, or 7.4 percent, compared to the 2021 budget level.

Direct charges to the Share Insurance Fund include $2 million for operating and maintenance costs of the Asset and Liabilities Management system (ALM), 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.

In 2022 the Share Insurance Fund will begin paying for certain insurance-related activities and expenses of AMAC. The Share Insurance Fund budget includes $0.4 million for these AMAC activities, such as consulting expenses necessary to prevent or attempt to prevent a liquidation or conservatorship, staff travel for consultation on complex or problem cases, and an initial review of the successes and challenges of the Corporate System Resolution Program.

The 2022 budget also includes funds related to the supervisory responsibilities that the NCUA shares with State Supervisory Authorities (SSAs). The Share Insurance Fund Administrative Budget includes $1.2 million for state examiner travel to NCUA-sponsored training classes, and $0.2 million to ensure that SSAs can use the full functionality of the recently deployed MERIT examination system. The 2021 budget included similar amounts for these activities.

Finally, the Share Insurance Fund Administrative Budget includes $0.9 million for the related annual financial audit and for contractor support to ensure effective internal controls for the fund.

NGN Program

In 2017 the Board voted to close the Temporary Corporate Credit Union Stabilization Fund. Since 2018 the Share Insurance Fund has funded the NGN program and related administrative costs to include employee pay, benefits, travel, and contract support required to support the program.

The NGN program will substantially conclude in 2022, and the 2022 budget for this program decreases as a result. The NGN budget falls in 2022 by almost 60 percent, to $1.5 million from $3.5 million in 2021. The largest expenses remaining in this budget include $0.5 million for employee compensation and $0.6 million for third-party valuation services required for the remaining legacy assets. The five positions associated with the NGN program will be eliminated.

Because the NGN program will wind down in 2022, there will be no NGN budget in 2023.

VIII. Financing the NCUA 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 Budget each year to fund the vast majority of the costs of operating the agency. When formulating the annual budget, the NCUA is mindful that its operating funding comes from credit unions. The agency strives to ensure the agency operates in an efficient, effective, transparent, and fully accountable manner.

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”; and

2. “fees and assessments (including income earned on insurance deposits) levied on insured credit unions under [the Act].”

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].”

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. 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.

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.

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. Second, the NCUA may not fund its entire Operating Budget through charges to the Share Insurance Fund. The NCUA has not imposed additional policy or regulatory limitations on its discretion for determining the OTR.

Overhead Transfer Rate (OTR)

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 current 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. 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.

There have not been any major changes to the parameters of the examination program since the current OTR methodology went into effect. 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.

The NCUA Board approved the current methodology for calculating the OTR at its November 2017 open meeting. 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. 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.

The OTR formula uses the following underlying principles to allocate agency operating costs:

1. Time spent examining and supervising federal credit unions is allocated as 50 percent insurance related.

2. All time and costs the NCUA spends supervising or evaluating the risks posed by federally insured, state-chartered credit unions or other entities that the NCUA does not charter or regulate (for example, third-party vendors and Credit Union Service Organizations (CUSOs)) are allocated as 100 percent insurance related.

3. Time and costs related to the NCUA's role as charterer and enforcer of consumer protection and other non-insurance based laws governing the operation of credit unions (like field of membership requirements) are allocated as 0 percent insurance related.

4. Time and costs related to the NCUA's role in administering federal share insurance and the Share Insurance Fund are allocated as 100 percent insurance related.

These four principles are applied to the activities and costs of the agency to determine the portion of the agency's budget that is funded by the Share Insurance Fund. Based on the Board-approved methodology and the proposed staff draft budget, the OTR for 2022 is 110 basis points (1.1 percent) higher than 2021, and estimated to be 63.4 percent. Thus, 63.4 percent of the total Operating Budget is estimated to be paid out of the Share Insurance Fund. The remaining 36.6 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 is outlined in the table below:

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 state chartered credit unions.

The use of insured shares in calculating the OTR was eliminated from the OTR methodology adopted by the Board in 2017. However, insured shares are used for informational purposes to reflect the fundamental economics with respect to how the implicit costs of the OTR are borne by federal and state-chartered credit unions. Use of insured shares is consistent with the mutual nature of the Share Insurance Fund and part of the statutory scheme related to Share Insurance Fund deposits, premiums, and dividends. The number, size, and health of federal and state credit unions affects the NCUA's workload budget, which in turn is one of the variables in the OTR methodology.

The primary driver of the increase in the estimated 2022 OTR is the proposed increase in examination and supervision time for federally insured credit unions that results from proposals in the staff draft budget to conduct annual examinations for certain credit unions, and other program obligations associated with examination scheduling and scope requirements. Normal fluctuations in the workload budget from one calendar year to the next are also variables that influence the change in the calculated OTR compared to previous years. Workload budget variables include, but are not limited to, changes in CAMEL ratings, the number and size of credit unions that meet the annual exam and extended exam eligibility criteria, credit unions with emerging risk indicators, variations in individual state regulator programs, one-time events ( e.g., the implementation of the new MERIT examination system, COVID-19 pandemic economic impacts) and fluctuations in the timing of examinations related to a particular calendar year.

CUSOs are at times subject to review during the examination of a federally insured credit union. The OTR methodology captures CUSO-related time within the scope of the examination and supervision of federally insured credit unions under Principle 1 for federal credit unions and Principle 2 for federally insured state-chartered credit unions. The time designated for separate, standalone reviews of CUSOs and third-party vendors is accounted for separately in the NCUA's workload budget and is covered by Principle 2 only. The standalone review of CUSOs and third-party vendors is to identify and address risk to federally insured credit unions.

The following chart illustrates the share of the Operating Budget paid by federal credit unions (FCUs, 68.3%) and federally insured, state-chartered credit unions (FISCUs, 31.7%).

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 several changes to the Operating Fee methodology, which form the basis for how the Operating Fee is calculated in this section.

To determine the annual Operating Fee assessed on federal credit unions, the NCUA first calculates the average of total assets reported in the preceding year's fourth quarter and the first three quarters of the current year, net of any reported Paycheck Protection Program (PPP) loans. Credit unions with assets less than $1 million are not assessed an Operating Fee and their assets are therefore excluded from this calculation.

Based on the Board-approved Operating Fee methodology, which is summarized in the following tables, the share of the 2022 budget funded by the Operating Fee is $123.6 million. This equates to 0.0128 percent of the estimated actual average of federal credit union assets for the four quarters ending on September 30, 2021. The overall decrease for the Operating Fee would be 11.2 percent less than 2021, as shown on the table on page 59.

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 forward 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 Overhead Transfer Rate.

To set the assessment scale for 2022, total growth in federal credit union assets is calculated as the change between the average of the four most-current quarters ( i.e., the fourth quarter of 2020 and the first three quarters of 2021) and the previous four quarters ( i.e., the fourth quarter of 2019 and the first three quarters of 2020), which is estimated to be 14.3 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.

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 11.2 percent decrease in the Operating Fee for natural person federal credit unions. The corporate federal credit union rate scale remains unchanged from prior years.

IX. Appendix A: Supplemental Budget Information

X. Appendix B: Capital Projects