Request for Comment Regarding National Credit Union Administration Operating Fee Schedule Methodology, 4674-4679 [2016-01623]

Download as PDF 4674 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices account several issues, including the Administration’s current work in Open Government, developments in regulatory policy and international trade, and changes in technology. Howard Shelanski, Administrator, Office of Information and Regulatory Affairs. [FR Doc. 2016–01606 Filed 1–26–16; 8:45 am] BILLING CODE P NATIONAL AERONAUTICS AND SPACE ADMINISTRATION [Notice: (16–003)] NASA Advisory Council; Science Committee; Ad Hoc Task Force on Big Data; Meeting National Aeronautics and Space Administration. ACTION: Notice of meeting. AGENCY: In accordance with the Federal Advisory Committee Act, Public Law 92–463, as amended, the National Aeronautics and Space Administration (NASA) announces a meeting of the Ad Hoc Task Force on Big Data. This task force reports to the NASA Advisory Council’s Science Committee. The meeting will be held for the purpose of soliciting and discussing, from the scientific community and other persons, scientific and technical information relevant to big data. DATES Tuesday, February 16, 2016, 8:00 a.m. to 5:00 p.m., Local Time. ADDRESS: NASA Headquarters, Glennan Conference Center, Room 1Q39, 300 E Street SW., Washington, DC 20546. FOR FURTHER INFORMATION CONTACT: Ms. Ann Delo, Science Mission Directorate, NASA Headquarters, Washington, DC 20546, (202) 358–0750, fax (202) 358– 2779, or ann.b.delo@nasa.gov. SUPPLEMENTARY INFORMATION: The meeting will be open to the public up to the capacity of the room. The meeting will also be available telephonically and by WebEx. You must use a touch tone phone to participate in this meeting. Any interested person may call the USA toll free conference call number 1–800– 988–9663, passcode 4718658, to participate in this meeting by telephone. A toll number also is available, 1–517– 308–9427 passcode 4718658. The WebEx link is https://nasa.webex.com/; the meeting number is 999 765 122 and the password is BigD@T@16. The agenda for the meeting includes the following topics: —NASA’s science data cyberinfrastructure asabaliauskas on DSK5VPTVN1PROD with NOTICES SUMMARY: VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 —Access to NASA science mission data repositories —Big data best practices in government, academia and industry —Federal big data initiatives Attendees will be required to sign a register and comply with NASA Headquarters security requirements, including the presentation of a valid picture ID before receiving access to NASA Headquarters. Due to the Real ID Act, any attendees with drivers licenses issued from non-compliant states must present a second form of ID. 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[FR Doc. 2016–01514 Filed 1–26–16; 8:45 am] BILLING CODE 7510–13–P NATIONAL CREDIT UNION ADMINISTRATION Request for Comment Regarding National Credit Union Administration Operating Fee Schedule Methodology National Credit Union Administration (NCUA). ACTION: Request for comment. AGENCY: PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 The NCUA Operating Budget has two primary funding mechanisms: (1) An Overhead Transfer, which is funded by federal credit unions (FCUs) and federally insured state-chartered credit unions (FISCUs); and (2) annual Operating Fees, which are charged only to FCUs. In a voluntary effort to invite input from stakeholders representing federal and state-chartered credit unions, the NCUA Board (Board) is simultaneously requesting comments on the methodologies for both funding mechanisms in separate notices in the Federal Register. This request for comments focuses on the methodology NCUA uses to determine the aggregate amount of Operating Fees charged to federal credit unions, including the fee schedule that allocates the Operating Fees at different rates among FCUs according to various asset thresholds. While the NCUA Board is interested in all comments from the public and stakeholders, commenters are also asked to consider the following questions when responding: (1) Are the asset determination thresholds reasonable; and (2) is the method for forecasting projected asset growth for the credit union system reasonable? Responding to these questions will provide valuable insight to the NCUA Board with respect to how the Operating Fee is administered. To be most instructive to the Board, commenters are encouraged to provide the specific basis for their comments and recommendations, as well as documentation to support their proposed adjustments or alternatives. DATES: Comments must be received on or before April 26, 2016 to be assured of consideration. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • NCUA Web site: http:// www.ncua.gov. Please follow the instructions for submitting comments under the ‘‘Board Comments’’ section of the NCUA Web site. • Email: Address to boardcomments@ ncua.gov. Include ‘‘[Your name]— Comments on Operating Fee Schedule Methodology’’ in the email subject line. • Fax: (703) 518–6319. Include your name and the following subject line: ‘‘Comments on Operating Fee Schedule.’’ • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: You can view all public comments on NCUA’s Web site SUMMARY: E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices at http://www.ncua.gov/about/pages/ board-comments.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments at NCUA’s headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518–6570 or send an email to OCFOComments@ncua.gov. FOR FURTHER INFORMATION CONTACT: Rendell Jones, Chief Financial Officer, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314–3428 or telephone: (703) 518– 6570. Authority: 12 U.S.C. 1755. SUPPLEMENTARY INFORMATION: asabaliauskas on DSK5VPTVN1PROD with NOTICES I. Legal Background II. Historical Practice in Assessing the Operating Fee III. Methodology for Determining the Aggregate Operating Fee Amount IV. Methodology for Determining the Operating Fee Schedule I. Legal Background NCUA charters, regulates and insures deposits in federal credit unions (FCUs) and insures deposits in state-chartered credit unions that have their shares insured through the National Credit Union Share Insurance Fund (Share Insurance Fund). To cover expenses related to its statutory mission, the Board adopts an Operating Budget in the fall of each year (Operating Budget). The Federal Credit Union Act (FCU 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 FCU Act] as [the Board] may determine to be proper’’; 1 and (2) ‘‘fees and assessments (including income earned on insurance deposits) levied on insured credit unions under [the FCU Act].’’ 2 The latter of fees are referred to herein as annual Operating Fees, which ‘‘may be expended by the Board to defray the expenses incurred in carrying out the provisions of [the FCU Act,] including the examination and supervision of [FCUs].’’ 3 With regard to the Operating Fee, the FCU Act requires each FCU to, ‘‘in accordance with rules prescribed by the 1 12 U.S.C. 1783(a). U.S.C. 1766(j)(3). Other sources of income for the Operating Budget include interest income, funds from publication sales, parking fee income, and rental income. 3 12 U.S.C. 1755(d). 2 12 VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 Board, . . . pay to the [NCUA] an annual operating fee which may be composed of one or more charges identified as to the function or functions for which assessed.’’ 4 The fee must ‘‘be determined according to a schedule, or schedules, or other method determined by the Board to be appropriate, which gives due consideration to the expenses of the [NCUA] in carrying out its responsibilities under the [FCU Act] and to the ability of [FCUs] to pay the fee.’’ 5 The statute requires the Board to, among other things, ‘‘determine the periods for which the fee shall be assessed and the date or dates for the payment of the fee or increments thereof.’’ 6 Accordingly, the FCU Act imposes three requirements on the Board in connection with assessing an Operating Fee on FCUs: (1) The fee must be assessed according to a schedule or schedules, or other method that the Board determines to be appropriate, which gives due consideration to NCUA’s responsibilities in carrying out the FCU Act and the ability of FCUs to pay the fee; (2) the Board must determine the period for which the fee will be assessed and the due date for payment; and (3) the Board must deposit collected fees into the Treasury to defray the Board’s expenses in carrying out the FCU Act. The Operating Fee methodology that this document describes meets all three legal requirements. First, the Board is assessing the Operating Fee under a schedule presented later in this document. The schedule sets forth assessment rates for FCUs based on asset size and takes account of NCUA’s responsibilities in carrying out the FCU Act as well as the ability of FCUs to pay. Specifically, the schedule reflects consideration of NCUA’s expenses in various areas of responsibility under the FCU Act and is scaled by asset size to account for the ability to pay. Second, this document specifies the applicable time period for the assessment, 2016, and notes that a later publication will update the due date. Third, NCUA will deposit collected fees in the United States Treasury, and the collected fees will fund some of NCUA’s expenses in carrying out its responsibilities under the FCU Act. II. Historical Practice in Assessing the Operating Fee NCUA has a regulation that governs Operating Fee processes.7 The regulation establishes (i) the basis for charging Operating Fees (i.e., total assets), (ii) a notice process, (iii) rules for new charters, conversions, mergers, and liquidations, and (iv) administrative fees and interest for late payment, among other principles and processes.8 Certain aspects of and adjustments to the Operating Fee process, such as the asset tier of FCUs that are exempt from Operating Fees and the multipliers that are used to determine fees applicable to higher asset tiers, are usually not published in the Federal Register. Instead, the Board traditionally set the Operating Fee during an open meeting each November, after determining the Operating Budget and Overhead Transfer at the same open meeting. At an open meeting in November 2015, the Board delegated authority to the Chief Financial Officer to administer the Board-approved Operating Fee methodology, and to set the Operating Fees as calculated per the approved methodology each annual budget cycle beginning with 2016.9 Although it is not required to do so under the Administrative Procedure Act, the Board now chooses to specifically solicit public comments on the methodology and process NCUA uses for the fee schedule through this Federal Register publication, as it has done on occasion in the past. The Board adopted the current Operating Fee methodology in 1979, after Congress passed the Financial Institutions Regulatory and Interest Rate Control Act of 1978.10 This legislation permitted the Board to consolidate previously separate chartering, supervision, and examination fees into a single Operating Fee, charged ‘‘in accordance with schedules, and for time periods, as determined by the Board, in an amount necessary to offset the expenses of the Administration at a rate consistent with a credit union’s ability to pay.’’ 11 In combination with a proposed change to NCUA Regulation 12 CFR 701.6 in 1979, the Board proposed an initial fee schedule in the Federal Register, including rates for 12 asset tiers.12 It later published a final rule in the Federal Register, which also included a finalized fee schedule for 1979.13 On three additional occasions, the Board has requested comments on potential changes to the Operating Fee schedule through a Federal Register notice, independent of any changes to 12 CFR 701.6. First, in 1990, the Board 8 Id. 4 12 U.S.C. 1755(a). 5 12 U.S.C. 1755(b). 6 Id. 7 12 CFR 701.6. PO 00000 Frm 00068 Fmt 4703 10 44 FR 11786 (Mar. 2, 1979). 11 Id. 12 Id. 13 44 Sfmt 4703 4675 E:\FR\FM\27JAN1.SGM at 11787. FR 27379 (May 10, 1979). 27JAN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES 4676 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices provided notice to the public that it was considering consolidating the Operating Fee schedule from 14 asset tiers to two asset tiers, retaining an exemption for FCUs under $50,000 in assets and implementing a $100 minimum fee.14 The Board provided a 60-day comment period.15 In 1990, the Board determined that current 14 asset tier Operating Fee scale was sharply regressive. In looking at the issue of fairness, the Board concluded the previous scale was no longer based fairly on the ability to pay, as evidenced by the rate for the smallest credit unions being $2.41 per $1,000 in assets, compared to $0.07 per $1,000 in assets for the largest credit unions, so that the burden on smaller credit unions had become significantly greater than on larger credit unions. In 1989, the Operating Fee was an average of 3.96 percent of expenses for credit unions in the lowest asset bracket, compared to 0.23 percent of expenses for the largest credit union. While a single rate was initially considered to be potentially more equitable, the fees from a single rate would have more than tripled for the largest credit unions. In 1990, the Board instead adopted a final twobracket, two-rate structure proposal as the most feasible solution. In general, larger federal credit unions pay a higher dollar Operating Fee, but based on a lower (regressive) rate. The Board considered this regressive rate approach to be the fairest method of balancing the competing concepts and views of larger federal credit unions’ higher dollar fees paid as subsidizing smaller federal credit unions, and larger federal credit unions not receiving proportionally more service from NCUA for the fees they pay. The Board-adopted proposal in 1990 exempted credit unions with assets under $50,000, set a minimum fee of $100, established two brackets with $250 million in assets as the dividing line between the two, and allowed the dividing points to be changed based on projected asset growth. The proposed fee structure did even out the effect on credit unions. For credit unions between $250,000 and $1 million in assets, the fee was 0.58 percent of expenses, down from 3.00 percent, and for credit unions over $1 billion in assets, the fee was 0.33 percent of expenses, up from 0.25 percent. In restructuring the scale in 1990, the Board also established a policy that the asset level dividing points between the brackets be adjusted annually or ‘‘indexed’’ in accordance with the projected asset growth of federal credit 14 55 FR 29857 (July 23, 1990). 15 Id. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 unions. This indexing was made in order to preserve the same relative relationship of the scale to the asset base to which it is applied. Two years later, the Board adopted a new third bracket at its open Board meeting in late 1992 that applied to assets exceeding $1 billion. The Board made this change in the interest of fairness to all credit unions. At that time, there were four federal credit unions with assets over $1 billion. The current approach to the fee schedule for natural-person FCUs continues to use three asset tiers. Second, also in 1992, the Board requested comments on a plan to limit Operating Fees to the first $1 million of each FCU’s assets.16 The Board provided a 30-day comment period.17 It later extended the comment period by an additional 20 days.18 Third, in 1995, the Board requested comments on a plan to restructure the Operating Fee schedule for naturalperson FCUs, to exempt FCUs with assets of $500,000 or less.19 It also requested comments on imposing a minimum fee of $100 on all naturalperson FCUs with assets over $500,000 but less than or equal to $750,000.20 The Board provided a 30-day comment period.21 The Board did not publish a response to the comments in the Federal Register in any of the cases referenced above. Instead, it adopted changes at open Board meetings. At its open meeting on November 12, 1992, for example, rather than eliminating fees for FCUs with assets under $1 million as proposed in the Federal Register, the Board adopted a third rate of 0.0003 for that asset tier.22 At its open meeting on November 16, 1995, after a discussion of the comments received, the Board adopted changes as proposed in the Federal Register, exempting FCUs under $500,000 in assets and imposing a $100 fee on FCUs with between $500,000 and $750,000 in assets.23 In general, since 1995, the Board has not used Federal Register notices in connection with the annual adjustments to the asset tiers and rates of the Operating Fee schedule. In the past, the Board has opted to adopt such changes 16 57 FR 34152 (Aug. 3, 1992). 17 Id. 18 57 19 60 FR 38329 (Aug. 24, 1992). FR 32925 (June 26, 1995). 20 Id. 21 Id. 22 Board Action Memorandum on Operating Fee Assessment for Fiscal Year 1993 (Nov. 12, 1992). 23 Minutes of Board Meeting, National Credit Union Administration, p. 2 (Nov. 16, 1995); Board Action Memorandum on Fiscal Years 1995 and 1996 Budget (Nov. 16, 1995). PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 at open meetings. As recently as 2012, for example, the Board increased the asset threshold used to exempt FCUs from Operating Fees from $500,000 to $1 million at an open meeting without requesting advance comment in the Federal Register.24 While the Board has varied its practice with respect to fee schedule changes, it has done so within the FCU Act’s broad directive that the fee schedule should be as ‘‘determined by the Board to be appropriate,’’ subject to its consideration of its expenses and the ability of FCUs to pay.25 In addition, NCUA’s existing regulation on Operating Fee processes includes a standing invitation for written comments from FCUs on existing fee schedules.26 III. Methodology for Determining the Aggregate Operating Fee Amount The Board adopts an Operating Budget in the fall of each year. The Operating Budget provides the resources required to execute the goals and objectives as outlined in NCUA’s strategic plan. NCUA develops its Operating Budget using zero-based budgeting techniques, which ensure each activity is properly justified before the Board considers it for funding.27 As discussed above, two primary sources fund the Operating Budget: (1) The Overhead Transfer Rate (OTR); and (2) FCU Operating Fees. The following summarizes the various adjustments to arrive at the FCU Operating Fee and is illustrated below in Table 1. Adjustments to the Budget. When calculating the aggregate annual Operating Fee requirements, the Board first subtracts amounts transferred for operational expenses from the Share Insurance Fund through the Overhead Transfer Rate and other expected income amounts from the operating budget for that year. Overhead Transfer Rate: The FCU Act authorizes NCUA to expend funds from the Share Insurance Fund for administrative and other expenses related to federal share insurance.28 An Overhead Transfer from the Share Insurance Fund covers the expenses associated with insurance-related functions of NCUA’s operations. The Overhead Transfer is one of the funding sources for the budget, but the Overhead Transfer Rate does not affect the amount 24 Board Action Memorandum on 2013 Operating Fee (Nov. 15, 2012). 25 12 U.S.C. 1755(b). 26 12 CFR 701.6(c). 27 Additional information on the NCUA budget may be found at the following Web address: http://www.ncua.gov/About/Pages/budget-strategicplanning/supplementary-materials.aspx. 28 12 U.S.C. 1783(a). E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices of the budget. The Board approves the budget separately and without regard to the Overhead Transfer Rate. The Overhead Transfer Rate is applied to actual expenses incurred each month.29 Other Income: Other income reduces the required Operating Fees by providing an additional source of funds to cover regulatory (i.e., non-insurance) related aspects of operating NCUA. Other income is projected based on the latest financial statements and includes interest income and miscellaneous revenues. Interest income includes interest on investments of annual Operating Fees not needed for current operations. Such investments may be made only in interest-bearing securities of the United States, with maturities requested by the Board, bearing interest at rates determined by the Secretary of the Treasury.30 Other income includes miscellaneous revenues, such as proceeds from publication sales, parking fee income, and rental income. Publication sales include proceeds from the sale of printed publications and brochures. NCUA leases office space to commercial tenants in its Central Office building and recognizes rental income in accordance with generally accepted accounting principles (GAAP). NCUA’s Central Office has a parking garage and NCUA collects income on parking fees, which are divided among the complex owners according to the percentage of parking garage space owned by each. Adjustments for cash and non-cash needs. The balance remaining after removing the Overhead Transfer amount and other expected income is then adjusted for cash and non-cash needs. Cash needs include additions for capital acquisitions and the payment of the note payable for the NCUA Central Office building on King Street. Non-cash needs include deductions for accrued annual leave and depreciation. Additional deductions or additions to cash needs are necessary to maintain a sufficient cash reserve to continue NCUA’s operations. Operating Fund Mid-Session adjustments may also result in changes to cash needs, normally in the form of a reduction. Sufficient Cash Reserves: NCUA’s policy for the Operating Fund is to maintain cash reserves of at least one month for contingencies.31 Cash requirements are projected to last approximately 15 months from the end of the current budget year, until the subsequent Operating Fee collections are received from FCUs. NCUA sends an annual Letter to FCUs that establishes the Operating Fees for the coming year.32 It then provides invoices that require payment by April 15. Accrued Annual Leave: Accrued annual leave is the change in the economic value of earned, but unpaid annual leave for current NCUA employees. It is a non-cash expense under GAAP and therefore is excluded when determining the required Operating Fees. NCUA uses historical data to determine the annual amount of accrued annual leave. Depreciation: Capital acquisitions are investments in assets including information technology software and building improvement projects. Depreciation is a reduction in the value of an asset with the passage of time. For 4677 NCUA’s Operating Budget, depreciation expenses are included for assets such as NCUA’s Central Office building, furniture and equipment, and leasehold improvements. The Share Insurance Fund covers a percentage of the depreciation expenses based on the OTR. The cash needs of all budgeted capital acquisitions are added to the FCU Operating Fee requirements. Repayment of NCUA Central Office on King Street, Note Payable. In 1992, the Operating Fund entered into a commitment to borrow up to $42.0 million in a 30-year secured term note with the Share Insurance Fund to fund the costs of constructing NCUA’s Central Office in 1993. Since the Operating Fund borrowed monies from the Share Insurance Fund, the annual scheduled principal payments are excluded from the OTR and Overhead Transfer amount. The annual scheduled principal payments are treated as a cash need and applied as an increase to Operating Fee requirements. Operating Fee Requirements. The amount remaining after adjustments for all cash and non-cash needs is the total budgeted Operating Fee requirements. The total budgeted Operating Fee requirements (i.e., line 11 below) represents Operating Fees for both natural-person and corporate FCUs. The natural-person FCU Operating Fees required (i.e. line 13 below) is determined by deducting the corporate FCU Operating Fees (i.e. line 12 below) from the total budgeted Operating Fee requirements (i.e., line 11 below). TABLE 1—OPERATING FEE CALCULATION FACTORS AND EXPLANATION Natural-person Federal Credit Union operating fee calculation factors and explanation Calculation formula 1 .............................................................................................................. Proposed Annual Operating Fund Budget amount determines the baseline fee requirement. Overhead Transfer Rate calculated from the examiner time survey results, determines the amount of the budget to be reimbursed by the Share Insurance Fund. This amount is subtracted from the proposed budget amount. Interest Income projected for the year is estimated based on the latest financial statements, and is subtracted from the budget. Miscellaneous (rents, publication fees, FOIA fees) is estimated based on the latest financial statements, and is subtracted from the budget. 2 .............................................................................................................. 3 .............................................................................................................. asabaliauskas on DSK5VPTVN1PROD with NOTICES 4 .............................................................................................................. 5 .............................................................................................................. 6 .............................................................................................................. 29 In November 2015, the Board delegated authority to the Director of the Office of Examination and Insurance to administer the methodology approved by the Board for calculating the Overhead Transfer Rate, and set the rate as calculated per the approved methodology and VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 Net Adjustment to Budget .......................................... Reduction of any Operating Fund Mid-Session return adjustment. validated by the Chief Financial Officer each budget cycle, beginning with the rate for 2016. Board Action Memorandum on Overhead Transfer Rate Delegation (Nov. 19, 2015), https://www.ncua.gov/ About/Documents/Agenda%20Items/ AG20151119Item5a.pdf. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 30 12 OTR% × ¥ 1. Sum lines 1–4. reduce cash collections. U.S.C. 1755(e)(2). Operating Fee BAM. 32 https://www.ncua.gov/Resources/Documents/ LFCU2015-01.pdf. 31 2016 E:\FR\FM\27JAN1.SGM 27JAN1 4678 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices TABLE 1—OPERATING FEE CALCULATION FACTORS AND EXPLANATION—Continued Natural-person Federal Credit Union operating fee calculation factors and explanation Calculation formula 7 .............................................................................................................. Reduction of Accrued Annual Leave (based on historical annual amounts). Depreciation (e.g. building, leasehold, and equipment estimate). New investment projects requested in capital budget 8 .............................................................................................................. 9 .............................................................................................................. reduce cash collections. reduce cash collections. increase cash collections. increase cash collections. 10 ............................................................................................................ Annual payment of King Street Note Payable (scheduled principal payments). 11 ............................................................................................................ 12 ............................................................................................................ Budgeted Operating Fee/Capital Requirements ........ Corporate federal credit union fees are collected and subtracted from natural-person credit union fee requirement (based on corporate credit union scale). Sum lines 5–10. 13 ............................................................................................................ Natural-Person Federal Credit Union Operating Fees Required. Estimated Fee collections for end of year (December 31). This projection uses the current Operating Fee scale with estimated asset growth from an internal NCUA economic forecasting models. Based on the June 30 assets, the year-end assets are projected using the estimated asset growth to calculate fee collection estimates for the following year. The Operating Fee assessment is applied against the year-end credit union asset value. Sum lines 11–12. 15 ............................................................................................................ Difference between estimated Operating Fee collections and projected collections based on estimated asset growth. Difference between lines 13 and 14. 16 ............................................................................................................ Average Rate Adjustment Indicated .......................... Line 15 divided by 14. 14 ............................................................................................................ IV. Methodology for Determining the Operating Fee Schedule The corporate credit union fee schedule was established in 1979 and has changed little over the years. In fact, for many years, the Operating Fee scale remained virtually unchanged. The main driver for no change is the concept that corporate FCUs hold assets of natural-person credit unions, which are already assessed under the naturalperson Operating Fees. Assessing corporate FCUs at the same rate would, effectively, assess the same assets twice. Corporate FCUs return a large portion of their earnings to natural-person FCUs in the form of lower fees and higher dividends. Raising Operating Fee assessments for corporate FCUs would result in higher expenses for corporate FCUs. Corporate FCUs would need to pass the higher expenses to naturalperson FCUs in the form of higher fees and lower investment yields. The corporate credit union fee schedule is a method of charging corporate FCUs a supervisory fee to defray costs. Table 2 below outlines the 2016 corporate FCU Operating Fee schedule: TABLE 2—CORPORATE FEDERAL CREDIT UNION OPERATING FEE SCHEDULE If total assets are over But not over $50,000,000 .................................... $100,000,000 .................................. $100,000,000 ................................. No limit ........................................... asabaliauskas on DSK5VPTVN1PROD with NOTICES As stated above, the Board delegated authority to the Chief Financial Officer to administer the methodology approved by the Board for calculating the Operating Fees and to set the fee The Operating Fee assessment is: $10,593.90 plus 0.0001987 of the total assets over $50,000,000. $20,528.90 plus 0.0000123 of the total assets over $100,000,000. schedule as calculated per the approved methodology beginning in 2016. After determining the Operating Fee requirements for natural-person FCUs (i.e., line 13 above), the Chief Financial Officer creates the natural-person FCU Operating Fee schedule for the upcoming year. Table 3 below outlines the 2016 Operating Fee schedule for natural-person FCUs. TABLE 3—NATURAL-PERSON FEDERAL CREDIT UNION OPERATING FEE SCHEDULE If total assets are more than $1,000,000, the Operating Fee assessment is: Assessment rates ........................................................................................ 0.00018198 .................................................................................................... 0.00005304 .................................................................................................... VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 PO 00000 Frm 00071 Fmt 4703 Asset tiers. on the first ........... on the next .......... Sfmt 4703 $1,275,170,573 ............... 2,583,476,422 ................. E:\FR\FM\27JAN1.SGM 27JAN1 of assets, plus. of assets, plus. Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 4679 TABLE 3—NATURAL-PERSON FEDERAL CREDIT UNION OPERATING FEE SCHEDULE—Continued asabaliauskas on DSK5VPTVN1PROD with NOTICES 0.00001771 .................................................................................................... A different assessment rate is applied to each tier. FCUs with $1 million or less in assets pay no Operating Fee. There are two primary steps used to determine the adjustments to the Operating Fee schedule for the upcoming year. They are: (1) Updating the prior year asset tiers using the projected asset growth rate; and (2) updating the prior year assessment rates for each asset tier by determining the average assessment rate adjustment. Updating prior year asset levels. The first step in determining the new Operating Fee schedule is to increase each asset tier from the prior year by the projected asset growth rate. Assets are indexed annually to preserve the same relative relationship of the scale to the applicable asset base. The projected asset growth rate is a forecast of FCU asset growth rates for a year. NCUA’s Office of Chief Economist (OCE) uses three different methods to forecast asset growth and combines them to generate an overall asset growth rate forecast. Forecasting Method #1: Uses Call Report data for the first half of the year to predict full-year asset growth. This is done by first calculating the ratio of first-half asset growth to full-year asset growth. The percentage of full-year growth accounted for by first-half asset growth varies from year to year but, on average, nearly 80 percent of the asset growth for FCUs occurs in the first half of the year. Using the growth rate in the first half of the year, OCE projects the full-year growth rate. Forecasting Method #2: Uses Call Report data to determine the most recent four-quarter growth rate and sets this rate to the full-year asset growth rate. This approach is based on the idea that an FCU is likely to establish and maintain a relatively constant growth rate over a short period, after accounting for variations in the growth rate that is attributable to seasonal fluctuations. This implies that a good forecast of fullyear asset growth is the most recently available four-quarter asset growth. Forecasting Method #3: Uses a time series statistical model. Using quarterly Call Report data, OCE predicts future four-quarter asset growth using the fourquarter growth in assets for the period ending two quarters earlier (that is, fourquarter asset growth lagged two quarters). Combined Forecast: In general, forecasting literature shows that combining forecasts from different VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 on assets over ..... approaches can improve forecast accuracy and decrease the likelihood of forecast errors. Using the root mean squared error statistic to calculate the accuracy of the individual approaches and combined forecast approaches, OCE has found that the combined forecast approach is better at predicting the final asset growth rate than any of the individual approaches. OCE therefore averages the forecasts from the three approaches to maximize accuracy. Updating the prior year’s assessment rates. After updating the prior year asset tiers, the next step is to project Operating Fees using the updated asset tiers and the prior year assessment rates charged to each tier. The percentage difference between the projected Operating Fees (i.e., line 14 above) and the required Operating Fees (i.e., line 13 above) is the average rate adjustment (i.e., line 16 above). The average rate adjustment (i.e., line 16 above) is used to amend the prior year’s assessment rates for each asset tier either upwards or downwards. If the projected amount of Operating Fees is less than the required amount, then the assessment rates for each asset tier are adjusted upwards. If the projected amount is more than the required amount, then the assessment rates for each asset tier are adjusted downwards. The resulting new Operating Fee schedule and due date are communicated via a Letter to Federal Credit Unions and posted to www.NCUA.gov at least 30 days in advance of the due date. No later than March of each year, natural-person FCUs with assets greater than $1 million will receive an invoice for their Operating Fee. Operating Fees are based on actual assets reported as of December 31 of the previous year. NCUA combines the annual Operating Fee and capitalization deposit adjustment into a single invoice normally due in April. As required by the FCU Act, NCUA will deposit the collected fees in the United States Treasury. By the National Credit Union Administration Board on January 21, 2016. Gerard Poliquin, Secretary of the Board. [FR Doc. 2016–01623 Filed 1–26–16; 8:45 am] BILLING CODE 7535–01–P PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 3,858,646,995. NATIONAL CREDIT UNION ADMINISTRATION Request for Comment Regarding National Credit Union Administration Draft 2017–2021 Strategic Plan National Credit Union Administration (NCUA). ACTION: Notice and request for comment. AGENCY: The NCUA Board (Board) is requesting comment on its 2017–2021 Draft Strategic Plan. The NCUA Draft Strategic Plan 2017–2021 summarizes our analysis of the internal and external environment impacting NCUA; evaluates NCUA programs and risks; and provides goals and objectives for the next five years. While the Board welcomes all comments from the public and stakeholders, it specifically invites comments and input on the proposed goals and objectives of the strategic plan. DATES: Comments must be received on or before March 28, 2016 to be assured of consideration. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • NCUA Web site: https:// www.ncua.gov/about/pages/boardcomments.aspx. Follow the instructions for submitting comments. • Email: Address to boardcomments@ ncua.gov. Include ‘‘[Your name]— Comments on NCUA 2017–2021 Draft Strategic Plan’’ in the email subject line. • Fax: (703) 518–6319. Include your name and the following subject line: ‘‘Comments on NCUA 2017–2021 Draft Strategic Plan.’’ • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: You can view all public comments on NCUA’s Web site at https://www.ncua.gov/about/pages/ board-comments.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments at NCUA’s headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, SUMMARY: E:\FR\FM\27JAN1.SGM 27JAN1

Agencies

[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4674-4679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01623]


=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION


Request for Comment Regarding National Credit Union 
Administration Operating Fee Schedule Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Request for comment.

-----------------------------------------------------------------------

SUMMARY: The NCUA Operating Budget has two primary funding mechanisms: 
(1) An Overhead Transfer, which is funded by federal credit unions 
(FCUs) and federally insured state-chartered credit unions (FISCUs); 
and (2) annual Operating Fees, which are charged only to FCUs. In a 
voluntary effort to invite input from stakeholders representing federal 
and state-chartered credit unions, the NCUA Board (Board) is 
simultaneously requesting comments on the methodologies for both 
funding mechanisms in separate notices in the Federal Register.
    This request for comments focuses on the methodology NCUA uses to 
determine the aggregate amount of Operating Fees charged to federal 
credit unions, including the fee schedule that allocates the Operating 
Fees at different rates among FCUs according to various asset 
thresholds. While the NCUA Board is interested in all comments from the 
public and stakeholders, commenters are also asked to consider the 
following questions when responding: (1) Are the asset determination 
thresholds reasonable; and (2) is the method for forecasting projected 
asset growth for the credit union system reasonable? Responding to 
these questions will provide valuable insight to the NCUA Board with 
respect to how the Operating Fee is administered. To be most 
instructive to the Board, commenters are encouraged to provide the 
specific basis for their comments and recommendations, as well as 
documentation to support their proposed adjustments or alternatives.

DATES: Comments must be received on or before April 26, 2016 to be 
assured of consideration.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     NCUA Web site: http://www.ncua.gov. Please follow the 
instructions for submitting comments under the ``Board Comments'' 
section of the NCUA Web site.
     Email: Address to boardcomments@ncua.gov. Include ``[Your 
name]--Comments on Operating Fee Schedule Methodology'' in the email 
subject line.
     Fax: (703) 518-6319. Include your name and the following 
subject line: ``Comments on Operating Fee Schedule.''
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You can view all public comments on NCUA's Web 
site

[[Page 4675]]

at http://www.ncua.gov/about/pages/board-comments.aspx as submitted, 
except for those we cannot post for technical reasons. NCUA will not 
edit or remove any identifying or contact information from the public 
comments submitted. You may inspect paper copies of comments at NCUA's 
headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6570 or send an email to OCFOComments@ncua.gov.

FOR FURTHER INFORMATION CONTACT: Rendell Jones, Chief Financial 
Officer, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6570.

    Authority: 12 U.S.C. 1755.


SUPPLEMENTARY INFORMATION:

I. Legal Background
II. Historical Practice in Assessing the Operating Fee
III. Methodology for Determining the Aggregate Operating Fee Amount
IV. Methodology for Determining the Operating Fee Schedule

I. Legal Background

    NCUA charters, regulates and insures deposits in federal credit 
unions (FCUs) and insures deposits in state-chartered credit unions 
that have their shares insured through the National Credit Union Share 
Insurance Fund (Share Insurance Fund). To cover expenses related to its 
statutory mission, the Board adopts an Operating Budget in the fall of 
each year (Operating Budget). The Federal Credit Union Act (FCU 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 FCU Act] as [the Board] may determine to be proper''; \1\ and 
(2) ``fees and assessments (including income earned on insurance 
deposits) levied on insured credit unions under [the FCU Act].'' \2\ 
The latter of fees are referred to herein as annual Operating Fees, 
which ``may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the FCU Act,] including the examination 
and supervision of [FCUs].'' \3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 1783(a).
    \2\ 12 U.S.C. 1766(j)(3). Other sources of income for the 
Operating Budget include interest income, funds from publication 
sales, parking fee income, and rental income.
    \3\ 12 U.S.C. 1755(d).
---------------------------------------------------------------------------

    With regard to the Operating Fee, the FCU Act requires each FCU to, 
``in accordance with rules prescribed by the Board, . . . pay to the 
[NCUA] an annual operating fee which may be composed of one or more 
charges identified as to the function or functions for which 
assessed.'' \4\ The fee must ``be determined according to a schedule, 
or schedules, or other method determined by the Board to be 
appropriate, which gives due consideration to the expenses of the 
[NCUA] in carrying out its responsibilities under the [FCU Act] and to 
the ability of [FCUs] to pay the fee.'' \5\ The statute requires the 
Board to, among other things, ``determine the periods for which the fee 
shall be assessed and the date or dates for the payment of the fee or 
increments thereof.'' \6\
---------------------------------------------------------------------------

    \4\ 12 U.S.C. 1755(a).
    \5\ 12 U.S.C. 1755(b).
    \6\ Id.
---------------------------------------------------------------------------

    Accordingly, the FCU Act imposes three requirements on the Board in 
connection with assessing an Operating Fee on FCUs: (1) The fee must be 
assessed according to a schedule or schedules, or other method that the 
Board determines to be appropriate, which gives due consideration to 
NCUA's responsibilities in carrying out the FCU Act and the ability of 
FCUs to pay the fee; (2) the Board must determine the period for which 
the fee will be assessed and the due date for payment; and (3) the 
Board must deposit collected fees into the Treasury to defray the 
Board's expenses in carrying out the FCU Act.
    The Operating Fee methodology that this document describes meets 
all three legal requirements. First, the Board is assessing the 
Operating Fee under a schedule presented later in this document. The 
schedule sets forth assessment rates for FCUs based on asset size and 
takes account of NCUA's responsibilities in carrying out the FCU Act as 
well as the ability of FCUs to pay. Specifically, the schedule reflects 
consideration of NCUA's expenses in various areas of responsibility 
under the FCU Act and is scaled by asset size to account for the 
ability to pay. Second, this document specifies the applicable time 
period for the assessment, 2016, and notes that a later publication 
will update the due date. Third, NCUA will deposit collected fees in 
the United States Treasury, and the collected fees will fund some of 
NCUA's expenses in carrying out its responsibilities under the FCU Act.

II. Historical Practice in Assessing the Operating Fee

    NCUA has a regulation that governs Operating Fee processes.\7\ The 
regulation establishes (i) the basis for charging Operating Fees (i.e., 
total assets), (ii) a notice process, (iii) rules for new charters, 
conversions, mergers, and liquidations, and (iv) administrative fees 
and interest for late payment, among other principles and processes.\8\ 
Certain aspects of and adjustments to the Operating Fee process, such 
as the asset tier of FCUs that are exempt from Operating Fees and the 
multipliers that are used to determine fees applicable to higher asset 
tiers, are usually not published in the Federal Register. Instead, the 
Board traditionally set the Operating Fee during an open meeting each 
November, after determining the Operating Budget and Overhead Transfer 
at the same open meeting. At an open meeting in November 2015, the 
Board delegated authority to the Chief Financial Officer to administer 
the Board-approved Operating Fee methodology, and to set the Operating 
Fees as calculated per the approved methodology each annual budget 
cycle beginning with 2016.\9\
---------------------------------------------------------------------------

    \7\ 12 CFR 701.6.
    \8\ Id.
---------------------------------------------------------------------------

    Although it is not required to do so under the Administrative 
Procedure Act, the Board now chooses to specifically solicit public 
comments on the methodology and process NCUA uses for the fee schedule 
through this Federal Register publication, as it has done on occasion 
in the past.
    The Board adopted the current Operating Fee methodology in 1979, 
after Congress passed the Financial Institutions Regulatory and 
Interest Rate Control Act of 1978.\10\ This legislation permitted the 
Board to consolidate previously separate chartering, supervision, and 
examination fees into a single Operating Fee, charged ``in accordance 
with schedules, and for time periods, as determined by the Board, in an 
amount necessary to offset the expenses of the Administration at a rate 
consistent with a credit union's ability to pay.'' \11\ In combination 
with a proposed change to NCUA Regulation 12 CFR 701.6 in 1979, the 
Board proposed an initial fee schedule in the Federal Register, 
including rates for 12 asset tiers.\12\ It later published a final rule 
in the Federal Register, which also included a finalized fee schedule 
for 1979.\13\
---------------------------------------------------------------------------

    \10\ 44 FR 11786 (Mar. 2, 1979).
    \11\ Id.
    \12\ Id. at 11787.
    \13\ 44 FR 27379 (May 10, 1979).
---------------------------------------------------------------------------

    On three additional occasions, the Board has requested comments on 
potential changes to the Operating Fee schedule through a Federal 
Register notice, independent of any changes to 12 CFR 701.6. First, in 
1990, the Board

[[Page 4676]]

provided notice to the public that it was considering consolidating the 
Operating Fee schedule from 14 asset tiers to two asset tiers, 
retaining an exemption for FCUs under $50,000 in assets and 
implementing a $100 minimum fee.\14\ The Board provided a 60-day 
comment period.\15\
---------------------------------------------------------------------------

    \14\ 55 FR 29857 (July 23, 1990).
    \15\ Id.
---------------------------------------------------------------------------

    In 1990, the Board determined that current 14 asset tier Operating 
Fee scale was sharply regressive. In looking at the issue of fairness, 
the Board concluded the previous scale was no longer based fairly on 
the ability to pay, as evidenced by the rate for the smallest credit 
unions being $2.41 per $1,000 in assets, compared to $0.07 per $1,000 
in assets for the largest credit unions, so that the burden on smaller 
credit unions had become significantly greater than on larger credit 
unions. In 1989, the Operating Fee was an average of 3.96 percent of 
expenses for credit unions in the lowest asset bracket, compared to 
0.23 percent of expenses for the largest credit union. While a single 
rate was initially considered to be potentially more equitable, the 
fees from a single rate would have more than tripled for the largest 
credit unions. In 1990, the Board instead adopted a final two-bracket, 
two-rate structure proposal as the most feasible solution. In general, 
larger federal credit unions pay a higher dollar Operating Fee, but 
based on a lower (regressive) rate. The Board considered this 
regressive rate approach to be the fairest method of balancing the 
competing concepts and views of larger federal credit unions' higher 
dollar fees paid as subsidizing smaller federal credit unions, and 
larger federal credit unions not receiving proportionally more service 
from NCUA for the fees they pay. The Board-adopted proposal in 1990 
exempted credit unions with assets under $50,000, set a minimum fee of 
$100, established two brackets with $250 million in assets as the 
dividing line between the two, and allowed the dividing points to be 
changed based on projected asset growth. The proposed fee structure did 
even out the effect on credit unions. For credit unions between 
$250,000 and $1 million in assets, the fee was 0.58 percent of 
expenses, down from 3.00 percent, and for credit unions over $1 billion 
in assets, the fee was 0.33 percent of expenses, up from 0.25 percent.
    In restructuring the scale in 1990, the Board also established a 
policy that the asset level dividing points between the brackets be 
adjusted annually or ``indexed'' in accordance with the projected asset 
growth of federal credit unions. This indexing was made in order to 
preserve the same relative relationship of the scale to the asset base 
to which it is applied.
    Two years later, the Board adopted a new third bracket at its open 
Board meeting in late 1992 that applied to assets exceeding $1 billion. 
The Board made this change in the interest of fairness to all credit 
unions. At that time, there were four federal credit unions with assets 
over $1 billion. The current approach to the fee schedule for natural-
person FCUs continues to use three asset tiers.
    Second, also in 1992, the Board requested comments on a plan to 
limit Operating Fees to the first $1 million of each FCU's assets.\16\ 
The Board provided a 30-day comment period.\17\ It later extended the 
comment period by an additional 20 days.\18\
---------------------------------------------------------------------------

    \16\ 57 FR 34152 (Aug. 3, 1992).
    \17\ Id.
    \18\ 57 FR 38329 (Aug. 24, 1992).
---------------------------------------------------------------------------

    Third, in 1995, the Board requested comments on a plan to 
restructure the Operating Fee schedule for natural-person FCUs, to 
exempt FCUs with assets of $500,000 or less.\19\ It also requested 
comments on imposing a minimum fee of $100 on all natural-person FCUs 
with assets over $500,000 but less than or equal to $750,000.\20\ The 
Board provided a 30-day comment period.\21\
---------------------------------------------------------------------------

    \19\ 60 FR 32925 (June 26, 1995).
    \20\ Id.
    \21\ Id.
---------------------------------------------------------------------------

    The Board did not publish a response to the comments in the Federal 
Register in any of the cases referenced above. Instead, it adopted 
changes at open Board meetings. At its open meeting on November 12, 
1992, for example, rather than eliminating fees for FCUs with assets 
under $1 million as proposed in the Federal Register, the Board adopted 
a third rate of 0.0003 for that asset tier.\22\ At its open meeting on 
November 16, 1995, after a discussion of the comments received, the 
Board adopted changes as proposed in the Federal Register, exempting 
FCUs under $500,000 in assets and imposing a $100 fee on FCUs with 
between $500,000 and $750,000 in assets.\23\
---------------------------------------------------------------------------

    \22\ Board Action Memorandum on Operating Fee Assessment for 
Fiscal Year 1993 (Nov. 12, 1992).
    \23\ Minutes of Board Meeting, National Credit Union 
Administration, p. 2 (Nov. 16, 1995); Board Action Memorandum on 
Fiscal Years 1995 and 1996 Budget (Nov. 16, 1995).
---------------------------------------------------------------------------

    In general, since 1995, the Board has not used Federal Register 
notices in connection with the annual adjustments to the asset tiers 
and rates of the Operating Fee schedule. In the past, the Board has 
opted to adopt such changes at open meetings. As recently as 2012, for 
example, the Board increased the asset threshold used to exempt FCUs 
from Operating Fees from $500,000 to $1 million at an open meeting 
without requesting advance comment in the Federal Register.\24\ While 
the Board has varied its practice with respect to fee schedule changes, 
it has done so within the FCU Act's broad directive that the fee 
schedule should be as ``determined by the Board to be appropriate,'' 
subject to its consideration of its expenses and the ability of FCUs to 
pay.\25\ In addition, NCUA's existing regulation on Operating Fee 
processes includes a standing invitation for written comments from FCUs 
on existing fee schedules.\26\
---------------------------------------------------------------------------

    \24\ Board Action Memorandum on 2013 Operating Fee (Nov. 15, 
2012).
    \25\ 12 U.S.C. 1755(b).
    \26\ 12 CFR 701.6(c).
---------------------------------------------------------------------------

III. Methodology for Determining the Aggregate Operating Fee Amount

    The Board adopts an Operating Budget in the fall of each year. The 
Operating Budget provides the resources required to execute the goals 
and objectives as outlined in NCUA's strategic plan. NCUA develops its 
Operating Budget using zero-based budgeting techniques, which ensure 
each activity is properly justified before the Board considers it for 
funding.\27\ As discussed above, two primary sources fund the Operating 
Budget: (1) The Overhead Transfer Rate (OTR); and (2) FCU Operating 
Fees. The following summarizes the various adjustments to arrive at the 
FCU Operating Fee and is illustrated below in Table 1.
---------------------------------------------------------------------------

    \27\ Additional information on the NCUA budget may be found at 
the following Web address: http://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
---------------------------------------------------------------------------

    Adjustments to the Budget. When calculating the aggregate annual 
Operating Fee requirements, the Board first subtracts amounts 
transferred for operational expenses from the Share Insurance Fund 
through the Overhead Transfer Rate and other expected income amounts 
from the operating budget for that year.
    Overhead Transfer Rate: The FCU Act authorizes NCUA to expend funds 
from the Share Insurance Fund for administrative and other expenses 
related to federal share insurance.\28\ An Overhead Transfer from the 
Share Insurance Fund covers the expenses associated with insurance-
related functions of NCUA's operations. The Overhead Transfer is one of 
the funding sources for the budget, but the Overhead Transfer Rate does 
not affect the amount

[[Page 4677]]

of the budget. The Board approves the budget separately and without 
regard to the Overhead Transfer Rate. The Overhead Transfer Rate is 
applied to actual expenses incurred each month.\29\
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 1783(a).
    \29\ In November 2015, the Board delegated authority to the 
Director of the Office of Examination and Insurance to administer 
the methodology approved by the Board for calculating the Overhead 
Transfer Rate, and set the rate as calculated per the approved 
methodology and validated by the Chief Financial Officer each budget 
cycle, beginning with the rate for 2016. Board Action Memorandum on 
Overhead Transfer Rate Delegation (Nov. 19, 2015), https://www.ncua.gov/About/Documents/Agenda%20Items/AG20151119Item5a.pdf.
---------------------------------------------------------------------------

    Other Income: Other income reduces the required Operating Fees by 
providing an additional source of funds to cover regulatory (i.e., non-
insurance) related aspects of operating NCUA. Other income is projected 
based on the latest financial statements and includes interest income 
and miscellaneous revenues. Interest income includes interest on 
investments of annual Operating Fees not needed for current operations. 
Such investments may be made only in interest-bearing securities of the 
United States, with maturities requested by the Board, bearing interest 
at rates determined by the Secretary of the Treasury.\30\ Other income 
includes miscellaneous revenues, such as proceeds from publication 
sales, parking fee income, and rental income. Publication sales include 
proceeds from the sale of printed publications and brochures. NCUA 
leases office space to commercial tenants in its Central Office 
building and recognizes rental income in accordance with generally 
accepted accounting principles (GAAP). NCUA's Central Office has a 
parking garage and NCUA collects income on parking fees, which are 
divided among the complex owners according to the percentage of parking 
garage space owned by each.
---------------------------------------------------------------------------

    \30\ 12 U.S.C. 1755(e)(2).
---------------------------------------------------------------------------

    Adjustments for cash and non-cash needs. The balance remaining 
after removing the Overhead Transfer amount and other expected income 
is then adjusted for cash and non-cash needs. Cash needs include 
additions for capital acquisitions and the payment of the note payable 
for the NCUA Central Office building on King Street. Non-cash needs 
include deductions for accrued annual leave and depreciation. 
Additional deductions or additions to cash needs are necessary to 
maintain a sufficient cash reserve to continue NCUA's operations. 
Operating Fund Mid-Session adjustments may also result in changes to 
cash needs, normally in the form of a reduction.
    Sufficient Cash Reserves: NCUA's policy for the Operating Fund is 
to maintain cash reserves of at least one month for contingencies.\31\ 
Cash requirements are projected to last approximately 15 months from 
the end of the current budget year, until the subsequent Operating Fee 
collections are received from FCUs. NCUA sends an annual Letter to FCUs 
that establishes the Operating Fees for the coming year.\32\ It then 
provides invoices that require payment by April 15.
---------------------------------------------------------------------------

    \31\ 2016 Operating Fee BAM.
    \32\ https://www.ncua.gov/Resources/Documents/LFCU2015-01.pdf.
---------------------------------------------------------------------------

    Accrued Annual Leave: Accrued annual leave is the change in the 
economic value of earned, but unpaid annual leave for current NCUA 
employees. It is a non-cash expense under GAAP and therefore is 
excluded when determining the required Operating Fees. NCUA uses 
historical data to determine the annual amount of accrued annual leave.
    Depreciation: Capital acquisitions are investments in assets 
including information technology software and building improvement 
projects. Depreciation is a reduction in the value of an asset with the 
passage of time. For NCUA's Operating Budget, depreciation expenses are 
included for assets such as NCUA's Central Office building, furniture 
and equipment, and leasehold improvements. The Share Insurance Fund 
covers a percentage of the depreciation expenses based on the OTR. The 
cash needs of all budgeted capital acquisitions are added to the FCU 
Operating Fee requirements.
    Repayment of NCUA Central Office on King Street, Note Payable. In 
1992, the Operating Fund entered into a commitment to borrow up to 
$42.0 million in a 30-year secured term note with the Share Insurance 
Fund to fund the costs of constructing NCUA's Central Office in 1993. 
Since the Operating Fund borrowed monies from the Share Insurance Fund, 
the annual scheduled principal payments are excluded from the OTR and 
Overhead Transfer amount. The annual scheduled principal payments are 
treated as a cash need and applied as an increase to Operating Fee 
requirements.
    Operating Fee Requirements. The amount remaining after adjustments 
for all cash and non-cash needs is the total budgeted Operating Fee 
requirements. The total budgeted Operating Fee requirements (i.e., line 
11 below) represents Operating Fees for both natural-person and 
corporate FCUs. The natural-person FCU Operating Fees required (i.e. 
line 13 below) is determined by deducting the corporate FCU Operating 
Fees (i.e. line 12 below) from the total budgeted Operating Fee 
requirements (i.e., line 11 below).

       Table 1--Operating Fee Calculation Factors and Explanation
------------------------------------------------------------------------
  Natural-person Federal Credit
 Union operating fee calculation      Calculation
     factors and explanation            formula
-----------------------------------------------------
1...............................  Proposed Annual     ..................
                                   Operating Fund
                                   Budget amount
                                   determines the
                                   baseline fee
                                   requirement.
2...............................  Overhead Transfer   OTR% x - 1.
                                   Rate calculated
                                   from the examiner
                                   time survey
                                   results,
                                   determines the
                                   amount of the
                                   budget to be
                                   reimbursed by the
                                   Share Insurance
                                   Fund. This amount
                                   is subtracted
                                   from the proposed
                                   budget amount.
3...............................  Interest Income     ..................
                                   projected for the
                                   year is estimated
                                   based on the
                                   latest financial
                                   statements, and
                                   is subtracted
                                   from the budget.
4...............................  Miscellaneous       ..................
                                   (rents,
                                   publication fees,
                                   FOIA fees) is
                                   estimated based
                                   on the latest
                                   financial
                                   statements, and
                                   is subtracted
                                   from the budget.
------------------------------------------------------------------------
5...............................  Net Adjustment to   Sum lines 1-4.
                                   Budget.
6...............................  Reduction of any    reduce cash
                                   Operating Fund      collections.
                                   Mid-Session
                                   return adjustment.

[[Page 4678]]

 
7...............................  Reduction of        reduce cash
                                   Accrued Annual      collections.
                                   Leave (based on
                                   historical annual
                                   amounts).
8...............................  Depreciation (e.g.  reduce cash
                                   building,           collections.
                                   leasehold, and
                                   equipment
                                   estimate).
9...............................  New investment      increase cash
                                   projects            collections.
                                   requested in
                                   capital budget.
10..............................  Annual payment of   increase cash
                                   King Street Note    collections.
                                   Payable
                                   (scheduled
                                   principal
                                   payments).
------------------------------------------------------------------------
11..............................  Budgeted Operating  Sum lines 5-10.
                                   Fee/Capital
                                   Requirements.
12..............................  Corporate federal   ..................
                                   credit union fees
                                   are collected and
                                   subtracted from
                                   natural-person
                                   credit union fee
                                   requirement
                                   (based on
                                   corporate credit
                                   union scale).
------------------------------------------------------------------------
13..............................  Natural-Person      Sum lines 11-12.
                                   Federal Credit
                                   Union Operating
                                   Fees Required.
14..............................  Estimated Fee
                                   collections for
                                   end of year
                                   (December 31).
                                   This projection
                                   uses the current
                                   Operating Fee
                                   scale with
                                   estimated asset
                                   growth from an
                                   internal NCUA
                                   economic
                                   forecasting
                                   models. Based on
                                   the June 30
                                   assets, the year-
                                   end assets are
                                   projected using
                                   the estimated
                                   asset growth to
                                   calculate fee
                                   collection
                                   estimates for the
                                   following year.
                                   The Operating Fee
                                   assessment is
                                   applied against
                                   the year-end
                                   credit union
                                   asset value.
------------------------------------------------------------------------
15..............................  Difference between  Difference between
                                   estimated           lines 13 and 14.
                                   Operating Fee
                                   collections and
                                   projected
                                   collections based
                                   on estimated
                                   asset growth.
========================================================================
16..............................  Average Rate        Line 15 divided by
                                   Adjustment          14.
                                   Indicated.
------------------------------------------------------------------------

IV. Methodology for Determining the Operating Fee Schedule

    The corporate credit union fee schedule was established in 1979 and 
has changed little over the years. In fact, for many years, the 
Operating Fee scale remained virtually unchanged. The main driver for 
no change is the concept that corporate FCUs hold assets of natural-
person credit unions, which are already assessed under the natural-
person Operating Fees. Assessing corporate FCUs at the same rate would, 
effectively, assess the same assets twice. Corporate FCUs return a 
large portion of their earnings to natural-person FCUs in the form of 
lower fees and higher dividends. Raising Operating Fee assessments for 
corporate FCUs would result in higher expenses for corporate FCUs. 
Corporate FCUs would need to pass the higher expenses to natural-person 
FCUs in the form of higher fees and lower investment yields. The 
corporate credit union fee schedule is a method of charging corporate 
FCUs a supervisory fee to defray costs. Table 2 below outlines the 2016 
corporate FCU Operating Fee schedule:

     Table 2--Corporate Federal Credit Union Operating Fee Schedule
------------------------------------------------------------------------
                                                     The Operating Fee
   If total assets are over        But not over        assessment is:
------------------------------------------------------------------------
$50,000,000...................  $100,000,000.....  $10,593.90 plus
                                                    0.0001987 of the
                                                    total assets over
                                                    $50,000,000.
$100,000,000..................  No limit.........  $20,528.90 plus
                                                    0.0000123 of the
                                                    total assets over
                                                    $100,000,000.
------------------------------------------------------------------------

    As stated above, the Board delegated authority to the Chief 
Financial Officer to administer the methodology approved by the Board 
for calculating the Operating Fees and to set the fee schedule as 
calculated per the approved methodology beginning in 2016. After 
determining the Operating Fee requirements for natural-person FCUs 
(i.e., line 13 above), the Chief Financial Officer creates the natural-
person FCU Operating Fee schedule for the upcoming year. Table 3 below 
outlines the 2016 Operating Fee schedule for natural-person FCUs.

                       Table 3--Natural-Person Federal Credit Union Operating Fee Schedule
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
       If total assets are more than $1,000,000, the Operating Fee assessment is:
----------------------------------------------------------------------------------------------------------------
Assessment rates.....................                           Asset tiers............
----------------------------------------------------------------------------------------------------------------
0.00018198...........................  on the first...........  $1,275,170,573.........  of assets, plus.
0.00005304...........................  on the next............  2,583,476,422..........  of assets, plus.

[[Page 4679]]

 
0.00001771...........................  on assets over.........  3,858,646,995..........
----------------------------------------------------------------------------------------------------------------

    A different assessment rate is applied to each tier. FCUs with $1 
million or less in assets pay no Operating Fee.
    There are two primary steps used to determine the adjustments to 
the Operating Fee schedule for the upcoming year. They are: (1) 
Updating the prior year asset tiers using the projected asset growth 
rate; and (2) updating the prior year assessment rates for each asset 
tier by determining the average assessment rate adjustment.
    Updating prior year asset levels. The first step in determining the 
new Operating Fee schedule is to increase each asset tier from the 
prior year by the projected asset growth rate. Assets are indexed 
annually to preserve the same relative relationship of the scale to the 
applicable asset base.
    The projected asset growth rate is a forecast of FCU asset growth 
rates for a year. NCUA's Office of Chief Economist (OCE) uses three 
different methods to forecast asset growth and combines them to 
generate an overall asset growth rate forecast.
    Forecasting Method #1: Uses Call Report data for the first half of 
the year to predict full-year asset growth. This is done by first 
calculating the ratio of first-half asset growth to full-year asset 
growth. The percentage of full-year growth accounted for by first-half 
asset growth varies from year to year but, on average, nearly 80 
percent of the asset growth for FCUs occurs in the first half of the 
year. Using the growth rate in the first half of the year, OCE projects 
the full-year growth rate.
    Forecasting Method #2: Uses Call Report data to determine the most 
recent four-quarter growth rate and sets this rate to the full-year 
asset growth rate. This approach is based on the idea that an FCU is 
likely to establish and maintain a relatively constant growth rate over 
a short period, after accounting for variations in the growth rate that 
is attributable to seasonal fluctuations. This implies that a good 
forecast of full-year asset growth is the most recently available four-
quarter asset growth.
    Forecasting Method #3: Uses a time series statistical model. Using 
quarterly Call Report data, OCE predicts future four-quarter asset 
growth using the four-quarter growth in assets for the period ending 
two quarters earlier (that is, four-quarter asset growth lagged two 
quarters).
    Combined Forecast: In general, forecasting literature shows that 
combining forecasts from different approaches can improve forecast 
accuracy and decrease the likelihood of forecast errors. Using the root 
mean squared error statistic to calculate the accuracy of the 
individual approaches and combined forecast approaches, OCE has found 
that the combined forecast approach is better at predicting the final 
asset growth rate than any of the individual approaches. OCE therefore 
averages the forecasts from the three approaches to maximize accuracy.
    Updating the prior year's assessment rates. After updating the 
prior year asset tiers, the next step is to project Operating Fees 
using the updated asset tiers and the prior year assessment rates 
charged to each tier. The percentage difference between the projected 
Operating Fees (i.e., line 14 above) and the required Operating Fees 
(i.e., line 13 above) is the average rate adjustment (i.e., line 16 
above).
    The average rate adjustment (i.e., line 16 above) is used to amend 
the prior year's assessment rates for each asset tier either upwards or 
downwards. If the projected amount of Operating Fees is less than the 
required amount, then the assessment rates for each asset tier are 
adjusted upwards. If the projected amount is more than the required 
amount, then the assessment rates for each asset tier are adjusted 
downwards.
    The resulting new Operating Fee schedule and due date are 
communicated via a Letter to Federal Credit Unions and posted to 
www.NCUA.gov at least 30 days in advance of the due date. No later than 
March of each year, natural-person FCUs with assets greater than $1 
million will receive an invoice for their Operating Fee. Operating Fees 
are based on actual assets reported as of December 31 of the previous 
year. NCUA combines the annual Operating Fee and capitalization deposit 
adjustment into a single invoice normally due in April. As required by 
the FCU Act, NCUA will deposit the collected fees in the United States 
Treasury.

    By the National Credit Union Administration Board on January 21, 
2016.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2016-01623 Filed 1-26-16; 8:45 am]
BILLING CODE 7535-01-P