Table 1
Currency Budget
(calendar year)

	2014 Budget (thousands)	2014 Estimate (thousands)	Percent Change 2014E/2014B	2015 Budget (thousands)	Percent Change
					2015B/2014B	2015B/2014E
Print volume (number of notes)	7,845,067	6,877,560	-12.3	7,248,952	-7.6	5.4
BEP Expenses	$767,996	$663,161	-13.7	$663,321	-13.6	0.0
Printing Federal Reserve notes	$745,387	$657,348	-11.8	$642,527	-13.8	-2.3
Currency reader	$19,384	$2,375	-87.7	$17,120	-11.7	620.8
Other	$3,225	$3,438	6.6	$3,674	13.9	6.9
Board Expenses	$58,670	$49,109	-16.3	$54,618	-6.9	11.2
Currency transportation	$33,222	$27,257	-18.0	$29,235	-12.0	7.3
Quality assurance and counterfeit deterrence	$21,091	$18,395	-12.8	$20,993	-0.5	14.1
Currency education	$4,357	$3,457	-20.6	$4,390	0.8	27.0
Total expenses	$826,665	$712,270	-13.8	$717,939	-13.2	0.8

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2014 Currency Expenses

Staff estimates that total currency expenses will be $712.3 million in 2014, which is approximately $114.4 million, or 13.8 percent, below the 2014 budgeted amount. The budget underrun is primarily attributable to lower printing costs resulting from a smaller order for Federal Reserve notes, as well as lower-than-projected costs for the currency reader program and transporting new and fit notes. These factors are discussed in more detail below.

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2014 Printing and Transportation Expenses

Estimated expenses for printing Federal Reserve notes in CY 2014 are $657.3 million, which is $88.0 million, or 11.8 percent, lower than the budgeted amount. This budget underrun reflects a reduction of 1.8 billion $100 notes to the FY 2014 order, as approved on July 23 by the RBOPS director.¹  The 2014 budget included costs to print nearly 2.2 billion $100 notes because our issuance plan for the new-design $100 note was based on an aggressive replacement rate of the over nine billion $100 notes in circulation. We planned for high demand for the new $100 note to avoid the risk of stock-outs and potential concerns in domestic and international markets that we would not be able to meet demand. We based the initial FY 2014 order for $100 notes on payments that exceeded the all-time high gross payments in 2012 by 40 percent. Although actual demand in 2014 has been above the 2012 level by about four percent, it is far less than the worst-case demand scenario upon which we based our order. As a result, we decreased our FY 2014 print order for new $100 notes, which resulted in a $116.4 million reduction in budgeted variable printing costs. Some of this reduction was offset, however, by higher-than-budgeted production of lower denomination ($1, $5, $10 and $20) notes during the fourth quarter.² 

Consistent with ordering fewer $100 notes than budgeted, we also shipped fewer notes than we included in the 2014 budget. Currency transportation expenses are estimated to be $6.0 million, or 18.0 percent, lower than the budgeted amount of $33.2 million.

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2014 Currency Reader Program Expenses

Estimated CY 2014 expenses for the currency reader program are $2.4 million, which is $17.0 million, or 87.7 percent, lower than the budgeted amount because of lower than anticipated reader orders and a lower cost per reader. When we prepared the 2014 budget, the BEP estimated that it would procure and distribute 120,000 readers in 2014 at a cost of $150 per reader. The BEP currently estimates that it will procure about 22,000 readers at a cost of about $60 per reader.

The BEP implemented the currency reader program in 2014 to comply with a court order that required the Treasury Department to provide meaningful access to individuals who are blind or visually impaired in denominating U.S. currency. During 2014, the BEP awarded a contract to procure currency readers, established an interagency agreement with the Library of Congress to administer the program, established a call center, printed educational materials in braille, and distributed readers to a limited group of individuals.

2014 Currency Quality Assurance and Counterfeit-Deterrence Expenses

Estimated CY 2014 expenses for the CQA and counterfeit deterrence programs are $18.4 million, which is $2.7 million, or 12.8 percent, lower than the budgeted amount primarily because some work related to the CQA program and security feature development that we expected to occur in 2014 will occur in 2015 instead.

Although building a quality assurance system at the BEP is taking longer than we expected, there is evidence that a culture of quality is beginning to emerge. In 2014, with the support of the CQA program, the BEP implemented a new organizational structure that better reflects a commitment to quality. Specifically, the BEP assigned one executive to be responsible for manufacturing at both of its printing facilities (formerly, the BEP had two executives, one for each facility), formed a new executive position responsible for product and technology development, and established an office of quality with a newly approved executive position over the office.

In addition, the BEP has hired and trained staff to assume several key responsibilities that had previously been performed by the CQA consultants, although the consultants continue to be involved in many areas at the BEP. For example, during 2014, BEP staff assumed management of the portfolio and program management office that the CQA consultants established in 2013. Additionally, the BEP installed and began using sorting equipment that culls good notes from rejected half sheets, which is a process known as single note inspection (SNI), so that overall spoilage rates and printing costs decline.³  The BEP is currently using SNI equipment to process nearly 375 million $100 notes that we refused to accept because of quality concerns. The CQA program is also using the SNI equipment to track quality improvements over time; the data indicate that the quality of notes produced more recently is higher and more consistent. Although there is still a significant amount of change needed at the BEP to embrace a quality system, there is evidence that quality assurance is beginning to take root.

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2014 Currency Education Program Expenses

Estimated CY 2014 expenses for the CEP are $3.5 million, which is $0.9 million, or 20.6 percent, lower than the budgeted amount. The budget underrun is largely attributable to a delay in implementing an international outreach strategy, which shifted some planned expenditures from 2014 to 2015.

In 2014, the CEP continued to inform domestic and international stakeholders about the redesigned $100 note. It also expanded its education and communication efforts to include all circulating designs and denominations of Federal Reserve notes. This work necessitated a major redesign of the NewMoney.gov educational website, which is expected to be complete in the first quarter of 2015.

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2015 Currency Budget

The proposed 2015 currency budget is $717.9 million, which is $108.7 million, or 13.2 percent, lower than the 2014 budget, and 0.8 percent higher than 2014 estimated expenses.⁴  The budgeted printing costs in 2015 are lower than the 2014 estimate and budget, reflecting lower fixed costs at the BEP. The delays in the currency reader program shifted costs from 2014 into 2015, which offset the printing cost reductions and made the 2015 budget slightly higher than the 2014 estimate.

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2015 Printing Budget

The currency budget includes $642.5 million in printing costs for CY 2015, which represents a decrease of 13.8 percent from the 2014 budget and 2.3 percent from 2014 estimated expenses. The printing budget includes $373.7 million (58 percent) in fixed costs and $268.8 million (42 percent) in variable costs.⁵ 

Fixed Costs: Fixed costs, which include capital, prepress and engraving, fixed manufacturing overhead and support, research and development, and general and administrative staff, are budgeted to decrease $57.4 million, or 13.3 percent, from 2014 estimated expenses, primarily because the BEP reduced the amount it will maintain in its working capital account. RBOPS staff reviewed the BEP’s billing and budget planning programs earlier this year and the CQA program also focused on BEP finances. Both efforts identified that the working capital fund is typically far in excess of the BEP’s monthly expenses and obligations. The BEP agreed to reduce the amount of the working capital fund by $40 million to $90 million, to better align it with the BEP’s expected expenses and obligations. For budget planning purposes, the BEP also provided us with a three-year working capital plan that includes nearly $80 million for anticipated 2015 capital investments. We will work with the BEP to review projects that exceed $1 million, which require consultation with the RBOPS director before funds are committed, as agreed to in memorandum of understanding between the Board and the Treasury.

Variable Costs: Variable costs, which include paper, ink, direct labor, and other variable manufacturing costs, are budgeted to increase by $42.6 million, or 18.8 percent, from 2014 estimated expenses because the 2015 budget includes nearly one billion more $100 notes than the 2014 estimate.⁶  We have, however, budgeted $3.2 million in production savings as a result of new production processes and CQA program initiatives that are designed to reduce spoilage. The BEP will print the same quantity of notes using fewer raw materials and less pressmen overtime because it will lower $20 note spoilage through SNI processing in mid-2015. In addition, the BEP will increase $1 note throughput because it has begun using larger format sheets, which increase the notes per sheet by more than 50 percent from 32 notes per sheet to 50 notes per sheet. Additionally, we expect that future budgets will reflect lower variable costs as the SNI equipment is used to reclaim good notes for other denominations and BEP expands 50 note sheet production to additional denominations.

Table 2
BEP Printing Costs^a 

Note type	2014 estimated variable unit costs (per thousand notes)	2015 budgeted variable unit costs (per thousand notes)	2014 estimated total unit costs b  (per thousand notes)	2015 budgeted total unit costs b (per thousand notes)
$1, $2a	$18.98	$18.33	$54.09	$48.62
Series-2004 $5	$35.38	$35.80	$101.37	$104.97
Series-2004 $10	$33.99	$34.77	$91.81	$100.79
Series-2004 $20, $50	$37.69	$38.16	$102.07	$100.54
Series-2004 $100	$66.35	$68.25	$130.89	$133.12
Average cost per thousand notesc	$32.89	$37.08	$95.58	$88.64
a. $1 and $2 notes do not include the security features that are in the series 2004 design notes; series 2004 $5 notes include two watermarks and additional security features; and series 2004 $10, $20, and $50 notes include watermarks, additional security features, and a new color-shifting ink. The series 2004 $100 note includes a watermark, a 3D security ribbon, a new color-shifting feature (“the Bell in the Inkwell”), additional security features, and a new color-shifting ink. This higher level of security for the series 2004 $100 note has significantly increased the cost for both paper and ink. Return to table. b. The total costs per thousand notes are fixed costs divided by the number of notes in the Board’s order, plus variable costs per thousand notes. Return to table. c. The average cost per thousand notes for 2015 is budgeted costs divided by the number of notes included in the CY 2015 budget. For 2014, the average cost per thousand notes is estimated costs divided by the number of notes included in the CY 2014 estimate. Return to table.

The BEP provided us with estimates of 2015 printing costs, as shown in table 2, which reflect the number of notes in our order and the cost savings initiatives discussed above. Variable costs are determined primarily by the cost of paper, therefore, the average variable cost per thousand notes increased from $32.89 in 2014 to $37.08 in 2015 because the share of more-expensive $100 notes increased from eight percent in the CY 2014 estimate to 21 percent in the CY 2015 budget. Variable costs by denomination, however, remained largely unchanged from 2014 to 2015 and range from $18.33 per thousand notes for $1 notes to $68.25 per thousand notes for $100 notes. The total projected cost per thousand notes declined from $95.58 in 2014 to $88.64 in 2015 primarily because of the adjustment to the BEP’s working capital target and other reductions in its budget for capital expenses in 2015.

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Footnotes