OTR 2021 increase a sign for agency to reconsider expense allocation, Ito says
(Dec. 23, 2020) A 2021 budget of $341.4 million – with an overhead transfer rate (OTR) of 62.3% — was approved by the NCUA Board on a split vote of 2-1 at its meeting late last week, with barely two weeks to go until that budget takes effect for the new year.
The agency’s budget for next year is down about 1.7% from the 2020 budget, but the OTR went up by 100 basis points. Board Chairman Rodney Hood and (now) Vice Chairman Kyle Hauptman voted for the 2021 budget; Member Todd Harper against it.
The OTR represents money that is transferred from the National Credit Union Share Insurance Fund (NCUSIF) to the operating budget of the agency to cover “insurance-related” expenses of the agency. The remainder of the operating budget is covered by the operating fee paid by federal credit unions, resulting in a split of 62.3% (from the OTR) and 37.7%, respectively.
NASCUS President and CEO Lucy Ito said the OTR increase for next year is a sign of the need for NCUA to reconsider how it allocates expenses.
In a press statement following last Friday’s board meeting, Ito said what appears counterintuitive to the state system in the 2021 NCUA budget is that the projected increase in workload for state exams is not matched with an at least equal if not greater increase in workload for federal credit union exams. She noted that assets between state and federal CUs are approximately equal, yet FCUs outnumber FISCUs by more than 1,000 (3,213 FCUs versus 1,920 FISCUs as of the end of the 2020 third quarter).
Further, she said, the 1-point OTR increase will essentially mean there will be $3.3 million less to cover losses by the National Credit Union Share Insurance Fund should those materialize as the result of an economic downturn due to the financial impact of the coronavirus pandemic
“NASCUS will continue to work with NCUA to allocate expenses to the OTR in a way that safeguards balance and equity, and that ensures that the insurance fund has the resources necessary to protect the savings of credit union members,” she said.
Along those lines, she added, NASCUS welcomes the formation of an OTR working group comprised of NCUA, state regulators, and NASCUS to assure transparency in and reasonableness of cost allocation assumptions to foster equity between federal and state credit unions.
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Notice: Overhead transfer rate