OTR reduced to 67.7%; first reduction since 2013
Nov. 17, 2016 -- An overhead transfer rate of 67.7% for 2017 was adopted by the NCUA Board as part of the revised budget for next year that it approved Thursday, a reduction in the rate from last year but – as NASCUS President and CEO Lucy Ito pointed out -- further reduction is needed.
“We’re pleased, of course, that the OTR has been reduced – but, of course, we believe that it must be further lowered. This has never been about a number: it’s about equity and fairness, and most importantly the legal question as to how Congress intended the agency to allocate funding,” she said in a statement.
The OTR represents the percentage of funds that are transferred from the National Credit Union Share Insurance Fund to the operating fund of the NCUA to cover “insurance-related expenses” borne by the agency. In 2016, 73.1% of NCUA’s operating fund was “transferred” from the share insurance fund; in 2017, the transfer will be 67.7%.
According to a staff summary about the OTR, the “primary driver” of the reduction is the “reduction of state examination hours and the reassignment of 20,000 of these hours to compliance and training activities,” the memo states. “This also results in more reliance on SSA examinations and supervision, which increased the SSA imputed value by $10.2 million.”
During a briefing about the OTR for Chairman Rick Metsger and Board Member J. Mark McWatters (as part of the regular NCUA Board meeting), staff shared a memo showing the decrease for 2017 is the first since 2013, and the lowest since then, when the OTR for that year was set at 59.1%. For 2014 and on, new definitions of what were considered expenses due to “insurance-related activities” were adopted and put into effect by the agency, which resulted in a jump in the OTR from 59.1% in 2013 to 69.2% in 2014.
Additionally, staff told the board that it is still analyzing input received during the comment period this past spring on the OTR methodology. (The Board last January asked for comments over 90 days about the methodology for determining the OTR. During that time, the agency received 40 comment letters from NASCUS, state regulators, national credit union trade organizations, state credit union leagues, and credit unions, staff reported.)
“Because this issue is complex, sensitive, and has significant implications for how the agency’s budget is funded and because it has a potential effect on state regulators, NCUA staff have been thoroughly, thoughtfully, and comprehensively approaching this matter,” staff reported to the board in a memo. It added that the staff plans to deliver an analysis of issues raised (many of them by NASCUS) in the comments received, and any recommended changes, to the Board by the end of January 2017.
Board Chairman Rick Metsger said during the briefing that, from his first week at the agency in 2013, he has been hearing about the OTR. “From an agency standpoint, we are agnostic,” Metsger said. “We just need to make sure it is fair and equitable. That may be wishful thinking; if we have any goal at all, can we finally settle the OTR?” The chairman added that “if we can come up with a plan that is understandable, with the hope of reaching an understanding that (the plan) is fair and equitable, that would be a great win. We are moving forward, and making our best effort to resolve what has been a nagging issue for a quarter century.”
Board Member McWatters echoed Metsger, and noted that NCUA’s efforts are not geared at a number. “The point is transparency, understandability, fairness. Hopefully, we can do that,” he said.
NASCUS’ Ito acknowledged that the association has been pursuing this issue for nearly the entire quarter century Metsger noted. “We have been working on this issue for many years, and we await eagerly the staff report in January,” she said. “It’s a very hopeful sign to the state system that the NCUA Board is taking a close look at the comments submitted earlier this year on the methodology, and that the agency is looking for fairness and transparency going forward, as both Chairman Metsger and Board Member McWatters said. Our sincere thanks to both of them.”
However, the NASCUS leader again voiced the association’s concern with the board’s delegation to the staff (via the office of Examination and Insurance) of setting the OTR. “Again, we urge the agency to rescind its delegation to staff of setting the OTR; this is something that must rest with the board,” she said.