On the FY 2018 Funding Request for CFTC and SEC

6/27/2017

U.S. Senate Subcommittee on Financial Services

Chairman Capito, Ranking Member Coons and members of the Subcommittee on Financial Services and General Government Appropriations, thank you for the opportunity to present this statement on behalf of the National Treasury Employees Union (NTEU). Our union is proud to represent the bargaining unit staff at the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

The employees of the CFTC and the SEC are among the most professional, hard working and dedicated of any in the public or private sector. The rapidly changing practices in the financial markets as well as new forms of fraud and wrongdoing mean that these two agencies must continue to recruit and retain employees with the highest level of skills. Commitment to this goal will mean that fraud will be reduced and investors, savers, retirees, end users and others who participate in the market will not be victimized by those who would do them financial harm.

Commodity Futures Trading Commission

NTEU supports CFTC’s request for $281.5 in funding for Fiscal Year 2018. This request is extremely modest and in fact with the increased duties the CFTC has been given in recent years, resources above this amount would be entirely appropriate. Funding at least at this level is critically important to allow the employees of the CFTC to perform their work in an effective and professional manner. Every day, the duties of the CFTC to protect consumers in the marketplace grow more complex. Having a vigorous free market require that the “cops” detailed to that “beat” have the resources necessary to police the ever growing marketplace and the advancing technological developments that enable both market expansion and market fraud.

Further, to the benefit of American families and businesses, the CFTC has returned billions of dollars to cheated investors, in fact more than its entire appropriation. Congress should not be penny wise and pound foolish when it comes to protecting the investments of American consumers, only to see the victimized lose retirement investments or life time savings.

NTEU is seeking parity in pay and benefits with other financial regulatory agencies, particularly the SEC. There are many incidents of some of the brightest and most skilled CFTC employees leaving CFTC for positions at the SEC or elsewhere in federal service because of better pay and benefits. Not only does CFTC lose these superior employees but morale problems develop for those employees remaining at CFTC.

Even with the agency’s request of $281.5 million, CFTC will still not fully have the resources it needs to perform its mission. However, we believe that this amount can be workable along with certain flexibilities and initiatives. Congress has imposed a fence of $50 million within CFTC’s budget for IT. This has not been requested by the agency nor by the previous Administration. Yet it represents 20% of CFTC’s appropriation and denies the agency the flexibility it needs to follow its mission under very limited funding. Congress should give CFTC more flexibility with its limited appropriation. Further, CFTC can benefit from the following workplace reforms:

Increased telework: many agencies allow employees two or more days of telework per week, which increases productivity, efficiency, and staff retention as well as cost savings for the Agency. With increased telework, CFTC could promote office sharing and reduce rented office space. In addition, one additional telework day per week could save up to an estimated $300,000 per year in transit subsidies.
Insourcing: CFTC currently has just under 700 full-time equivalent employees and 400-600 contractors. Contracting companies charge overhead costs while contract employees lack the accountability, expertise, and institutional knowledge of CFTC employees. Moving these contractor responsibilities in-house would translate into improved productivity, better work product, and savings in overhead costs.
Restructuring: in some sections or divisions, supervisors are responsible for very small numbers of employees (e.g., one supervisor for three employees). This creates inefficiencies both in reporting and in cross-unit coordination. Reducing the number of administrative units and the layers of supervision would improve efficiency at the CFTC.
Additional flexible work schedules: increased flexibility in work schedules (such as a 4/10 schedule) would increase productivity and staff retention as well as reduce the amount the Agency spends on transit subsidies.

Securities and Exchange Commission

American investors benefit from the highly skilled employees at SEC and NTEU is pleased to be a part of the successful efforts to make the SEC a workplace that attracts the best and brightest of their field. Over the past five years NTEU has worked with SEC management to improve employee engagement. In the most recent Federal Employee Viewpoint Survey (FEVS), the results were increasingly positive for SEC. The Partnership for Public Service also recognized SEC as the “most improved” of any mid-sized agency. These positive results reflect the culmination of a persistent, multi-year effort by NTEU and the SEC management in working together to create an environment that engages employees and supports their commitment to excellence on behalf of America’s investors and our markets. There must be no backtracking in this excellence.

Therefore, NTEU believes that at least a modest increase in funding is required. The Administration has proposed an appropriation of $1.602 billion for SEC. NTEU believes that a minimum of $1.781 billion is needed for the Commission to perform its important duties in protecting investors and maintaining market fairness. This figure matches the previous Administration’s FY17 request. Recent funding improvements at SEC have just begun to provide the staffing level needed for the additional duties created under the Dodd-Frank Act. But the continued growth of the regulated market demands that the SEC receive increased staffing just to stay even. $1.781 billion will allow SEC to hire an additional 250 FTEs.

I would remind the subcommittee that SEC funding is deficit neutral. While the appropriations process allows this subcommittee to give important oversight to the SEC, the agency is not funded by tax revenue, rather it is fully funded by fees paid by the industry which are adjusted to cause no negative impact on the federal budget deficit. Moreover, in these difficult financial times, in FY15, SEC distributed over $4 billion (more than twice its budget) to cheated investors through disgorgement or contributed to the general fund through civil penalties. None of these monies are retained by SEC.

The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Securities and Exchange Commission Reserve Fund. The Reserve Fund is a separate fund in the Treasury from which the Commission may obligate amounts determined necessary to carry out SEC functions. The Reserve Fund is funded by deposits from registration fees collected by the Commission. The 2018 Budget proposes to eliminate the Reserve Fund in 2019. Registration fees currently deposited in the Reserve Fund would be redirected to the General Fund of the Treasury. NTEU strongly opposes this proposal. First, it would deny SEC needed resources towards it mission. Second, it is contrary to the principles of the Investor and Capital Markets Fee Relief Act that fees paid to the SEC should be used for SEC purposes and not diverted to general revenue. To do so is to impose a hidden tax on registrants.

NTEU is concerned about the use of government contractors performing sensitive work at SEC. The Office of Credit Ratings (OCR) is using contractors as part of their examination teams. The Office of Compliance Inspections and Examinations (OCIE) is using contractors to perform asset verification and net capital analysis, as well as to conduct examinations. These inherently governmental functions are being assigned to contractors who have insufficient training and are not covered by the same ethical standards or conflict of interest rules as SEC employees. These are short-term employees who work for outside companies and whose employment can be terminated at any time for any reason. On the other hand, SEC permanent employees are covered by a whole host of important conflict of interest and ethical rules. The differing standards for SEC contractors and employees leave a gaping hole in the SEC's ethical regime. We are pleased that there have been some indications that Chairman Clayton does not plan on increasing the number of contractors.

The eleven SEC field offices serve a very important role in discovering fraud and deceit in local communities across the nation. NTEU is disturbed by a provision in HR 10 that could close some of these field offices. NTEU found that the evidence is SEC would actually benefit from an increased number of field offices, specifically in the Midwest, southwest, northwest and mid-Atlantic areas. Not only could this be economical due to more moderate office space costs in these places, but NTEU members at SEC strongly believe that geographical proximity of SEC staff to situations of fraud and wrongdoing has a strong impact on enforcement and discovery. SEC should give serious consideration to the opening of new field offices in parts of the country that are underserved or suffer from investment fraud above the norm. We would welcome language in the appropriations bill that would prevent closure of any of the eleven field offices.

The core of SEC’s work is in enforcement and examination. This is where the bad actors are caught and punished and the innocent protected. NTEU would support an additional 131 FTEs in the Division of Enforcement. No less than this should be funded.

Limitations on employee investigatory travel budgets also harm the ability of SEC front line employees to do their job in an effective and professional manner. Employees at the SEC believe the importance of this work will become increasingly critical in the near future. For example, because of low returns in the bond market in which many people have their post retirement savings concentrated, retirees are increasingly looking for new investments promising higher returns. While some senior citizens may find the higher yielding investments they are seeking, others will become victims of fraud and Ponzi schemes. Without proper SEC staff in numbers, quality, training and mobility, we will see an increasing number of seniors at risk of being cheated out of their retirement savings and investments. Seniors should not lose their retirement savings to unscrupulous advisors because of an understaffed or weak SEC.

Like the CFTC, even with NTEU’s recommended funding, SEC will still not fully have the resources it needs to perform its mission. Again, we believe that this amount can be workable along with certain flexibilities and initiatives. Congress should not impose any funding inflexibilities on SEC and management should implement cost saving workplace efficiencies such as a more robust telework program, which increase morale and saves on leasing costs.

NTEU appreciates the opportunity to present our views to the subcommittee and hopes to continue to work with the Chair and the members of the subcommittee on funding for these two agencies as well as other matters under the subcommittee’s jurisdiction. Thank you.