Board of Governors of the Federal Reserve System

Federal Reserve System Budgets

The Federal Reserve Board of Governors and the Federal Reserve Banks prepare annual budgets as part of their efforts to ensure appropriate stewardship and accountability.¹ This section presents information on the 2020 budget performance of the Board and Reserve Banks and on their 2021 budgets, budgeting processes, and trends in expenses and employment. This section also presents information on the costs of new currency.

System Budgets Overview

Tables D.1 and D.2 summarize the Federal Reserve Board of Governors' and Federal Reserve Banks' 2020 budgeted, 2020 actual, and 2021 budgeted operating expenses and employment.²

Table D.1. Total operating expenses of the Federal Reserve System, net of receipts and claims for reimbursement, 2020–21

Table D.2. Employment in the Federal Reserve System, 2020–21

2020 Budget Performance

In carrying out its responsibilities in 2020, the Federal Reserve System incurred $5,255.4 million in net expenses. Total System operating expenses of $6,437.1 million were offset by $1,181.7 million in revenue from priced services, claims for reimbursement, and other income. Total 2020 System operating expenses were $67.1 million, or 1.3 percent, less than the amount budgeted for 2020.

2021 Operating Expense Budget

Budgeted 2021 System operating expenses of $5,877.9 million, net of revenue and reimbursements, are $622.5 million, or 11.8 percent, higher than 2020 actual expenses. The Reserve Bank budgets comprise almost three-quarters of the System budget (figure D.1). Budgeted 2021 revenue from priced services is 1.8 percent lower than 2020 actual revenue, primarily reflecting a continual decline in check volume, which recently has been hastened by the COVID-19 pandemic.³

Trends in Expenses and Employment

From the actual 2011 amount to the budgeted 2021 amount, the total operating expenses of the Federal Reserve System have increased an average of 4.9 percent annually (figure D.2). This rate is up 0.6 percent from the 10-year growth rate between 2010 and 2020, reflecting technology investments. The total rate of growth in Federal Reserve System expenses reflects the staffing increases in information technology (IT) to support large application development projects, information security efforts, end-user services, and the central computing environment. Supervision resource levels were augmented to meet requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and to support portfolio growth (figure D.3).

Growth in supervision expenses over the past 10 years has been driven by implementation of expanded responsibilities mandated by the Dodd-Frank Act, changes in the state member bank portfolio, building out the cybersecurity supervision program, and supporting other strategic national initiatives. However, supervision growth has moderated because of the Economic Growth, Regulatory Reform and Consumer Protection Act, and as supervisory conditions improved, efficiencies were found and resources were shifted toward higher-risk activities and emerging risks. In particular, resources were temporarily shifted from supervision to support the credit and liquidity facilities responding to the COVID-19 pandemic in 2020.

Expense growth in the monetary policy area during the financial crisis has been followed more recently by increased investment in financial stability monitoring, operational activities, and the dedication of additional resources to regional economic research.

Growth in fee-based services are primarily for investments in the payment infrastructure modernization efforts, including the FedNow ^SM Service initiative, and investments associated with multiyear technology initiatives to modernize processing platforms for Fedwire and automated clearinghouse (ACH).⁴

Expenses for services to financial institutions continue to increase as a result of the next-generation currency-processing program (NextGen).⁵ More recently, increased demand for cash and social distancing protocols related to the COVID-19 pandemic have resulted in higher cash operations personnel costs and other related expenses for essential on-site staff, such as hazard pay, rapid COVID-19 testing, and frequent and in-depth cleaning services. Growth in services to financial institutions and the public is also attributable to the addition of resources in support of the credit and liquidity facilities created in response to the COVID-19 pandemic.

Treasury services expenses have increased to meet expanding scope and evolving needs, including business and technology modernization of payment services, financing and securities services, and accounting and reporting services, as well as significant investment in infrastructure and technology services.

2021 Capital Budgets

The capital budgets for the Board and Reserve Banks total $180.8 million and $598.9 million, respectively.⁶ As in previous years, the 2021 capital budgets include funding for projects that support the strategic direction outlined by the Board, System leadership, and each Reserve Bank. These strategic goals emphasize investments that continue to improve operational efficiencies, enhance services to Bank customers, and ensure a safe and productive work environment. Additionally, because several programs experienced pandemic-related delays in 2020, Reserve Banks' 2021 capital investments account for "COVID catch-up" work (that is, planned 2020 projects that were delayed or deferred to 2021 as a result of the pandemic).

Board of Governors Budgets

Board of Governors

The Board's budget is based on the principles established by the Strategic Plan 2020–23 and provides funding to advance the plan's goals and objectives.⁷ This functional alignment helps ensure organizational resources are used to advance the Board's mission and provide a structure to fund strategic priorities over the four-year time horizon.

The Board's budget process is as follows:

• At the start of the budget process, the chief operating officer and chief financial officer meet with the Committee on Board Affairs (CBA) to recommend a specific growth target for the Board's operating budget. For 2021, the recommended growth target included known changes in the run-rate of the Board's continuing operations, projected increases to retirement and post-retirement benefits, and strategic priorities for 2021. After endorsement by the CBA, Division of Financial Management (DFM) staff communicates the target to the Executive Committee, which comprises the directors of each division.
• To manage growth across the Board, the CBA identifies specific growth rates for each functional area: Monetary Policy and Financial Stability, Supervision, Payment System and Reserve Bank Oversight, Public Engagement and Community Development, and Mission Enablement (Support and Overhead).
• To achieve the CBA's growth target, divisions allocate resources to their highest priorities and seek tradeoffs and efficiencies.
• DFM staff review initial budget requests submitted by divisions and work collaboratively with all divisions and functional areas to achieve the growth target.
• The chief operating officer and chief financial officer subsequently brief the CBA on the budget submissions. Once the budget is finalized, the administrative governor submits the budget to the full Board for review and final approval.
• DFM staff monitor expenses throughout the year. Quarterly financial forecasts provide insight into budgetary pressures. Staff analyze variances and reports the variances to senior management.

Tables D.3, D.4, and D.5 summarize the Board's 2020 budgeted and actual expenses and its 2021 budgeted expenses by operating area; division, office, or special account; and account classification, respectively. Table D.6 summarizes the Board's 2020 budgeted and actual authorized positions and its budgeted positions for 2021. Each table includes a line item for the Office of Inspector General (OIG), which is discussed later in this section.

Table D.3. Operating expenses of the Board of Governors, by operating area, 2020–21

Table D.4. Operating expenses of the Board of Governors, by division, office, or special account, 2020–21

Table D.5. Operating expenses of the Board of Governors, by account classification, 2020–21

Table D.6. Positions authorized by the Board of Governors, by division, office, or special account, 2020–21

2020 Budget Performance

Total expenses for Board operations were $811.0 million, which was $3.4 million, or 0.4 percent, lower than the approved 2020 budget of $814.4 million.

Personnel services expenses were $14.4 million, or 2.4 percent, higher than the approved budget, driven by higher accrued annual leave expenses as staff used less leave as a result of the COVID-19 pandemic. Goods and services expenses were $17.8 million, or 8.1 percent, lower than the approved budget as the COVID-19 pandemic resulted in less-than-planned travel and training activities and lower utilization of contractual professional services. The overrun in depreciation expenses is due to the write-off of a capital asset ahead of the planned renovation and the acceleration of IT hardware purchases.

The Board's 2020 single-year capital spending was less than budgeted by $2.3 million, or 11.8 percent. Multiyear capital projects remained within their overall project budgets; however, actual spending in 2020 was less than budgeted by $21.1 million, or 13.1 percent, due to delays in building improvement and automation projects. Table D.7 summarizes the Board's budgeted and actual capital expenditures for 2020 and 2021.

Table D.7. Capital expenditures of the Board of Governors, by capital type, 2020–21

2021 Operating Expense Budget

The 2021 budget for Board operations is $869.5 million, which is $58.5 million, or 7.2 percent, higher than 2020 actual expenses. Staff formulated the operating budget to advance the Board's strategic priorities, and it includes initiatives that support policy deliberations; promote safety, soundness, and stability of financial institutions; foster a safe, efficient, and accessible payment and settlement system; promote broader, ongoing engagement with the public; and optimize operations.

In addition, the 2021 budget includes employment growth expected to occur in 2021; funding for the Board's compensation and benefit programs; projected increases to centrally managed retirement and post-retirement benefits, which fluctuate with changes in actuarial assumptions and demographics; and ongoing facilities and automation projects.

Authorized positions for 2021 are 2,883, an increase of 4 over the 2020 authorized number, to replenish positions allocated to divisions from the centralized position pool.

2021 Capital Budgets

The Board's 2021 single-year capital budget totals $18.4 million, which is $1.5 million, or 8.6 percent, higher than 2020 actual capital expenditures. The increase reflects routine lifecycle replacements of equipment and building components.

The Board's multiyear capital budget is driven by facilities projects. Expected capital expenditures in 2021 total $162.3 million and reflect the Board's commitment to provide a secure, modern environment that meets the needs of the workforce and leverages opportunities to increase collaboration, efficiency, productivity, and sustainability. Table D.7 summarizes the Board's budgeted and actual capital expenditures for 2020 and 2021.

Office of Inspector General

The budget for the Board's OIG is grounded in the goals established in its strategic plan.⁸ The goals are to deliver results that promote agency excellence; promote a diverse, skilled, and engaged workforce and foster an inclusive, collaborative environment; optimize external stakeholder engagement; and advance organizational effectiveness and model a culture of continuous improvement.

In keeping with its statutory independence, the OIG prepares its proposed budget apart from the Board's budget. The OIG presents its budget directly to the Board for approval.

2020 Budget Performance

Expenses for OIG operations, excluding operating income, were $45.6 million, which was $0.9 million, or 2.0 percent, lower than the approved 2020 budget of $46.6 million. Personnel services expenses exceeded the approved budget amount by $0.5 million, or 1.6 percent, driven by higher accrued annual leave expenses as staff used less leave as a result of the COVID-19 pandemic.

Goods and services expenses were $1.4 million, or 7.7 percent, lower than the approved budget amount, driven by the effect of the COVID-19 pandemic on travel and training activities. Operating income was $4.0 million, or 22.9 percent, lower than the approved budget amount, because the office conducted less work related to the Consumer Financial Protection Bureau than planned. Including operating income, total expenses for OIG operations were $32.0 million in 2020. The OIG's single-year capital spending was $0.2 million, or 23.7 percent, lower than the approved budget amount.

2021 Operating Expense Budget

The 2021 budget for OIG operations, excluding operating income, is $50.1 million, which is $4.5 million, or 9.8 percent, higher than 2020 actual expenses. This increase is driven by expected employment growth in 2021, funding for the Board's compensation and benefit programs, and escalations for goods and services. Employment growth is expected to cause accompanying increases in support and overhead expenses. Including operating income, the 2021 budget for OIG operations is $35.1 million.

The OIG has 140 authorized positions for 2021, an increase of 6 over the authorized number for 2020. The increase in authorized positions is driven by anticipated oversight work associated with the Board's COVID-19 pandemic response and the continually increasing importance of and risk associated with cybersecurity and information technology operations.

2021 Capital Budget

The OIG's 2021 single-year capital budget totals $0.1 million, which is $0.5 million, or 88.1 percent, lower than 2020 actual capital expenditures. The decrease is driven by fewer anticipated equipment replacements as well as the completion of a software enhancement project in 2020. Table D.7 summarizes the OIG's budgeted and actual capital expenditures for 2020 and 2021.

Federal Reserve Banks Budgets

Each Reserve Bank establishes operating goals for the coming year that are aligned with the System's key strategic objectives, devises strategies for attaining those goals, estimates required resources, and monitors results. The Reserve Banks structure their budgets around specific functional areas reflecting the core responsibilities of the Federal Reserve:

• contributing to the formulation of monetary policy and enhancing monetary policy implementation to become more effective, flexible, and resilient, including through public communication, outreach, and economic education
• promoting financial stability through effective monitoring, analysis, and policy development
• promoting safety and soundness of financial institutions through effective supervision
• leading efforts to enhance the security, resiliency, functionality, and efficiency of services provided to financial institutions and the public

The Reserve Bank budget process is as follows:

• The Conference of Presidents, operating through its Committee on Spending Stewardship, defines, in close consultation with the Board's Committee on Federal Reserve Bank Affairs (BAC), key strategic objectives for the System. Considering longer-term environmental trends and historical growth rates of expense, these governance bodies articulate an aggregate System-level growth expectation for a multiyear period.
• The Reserve Banks develop budgets that reflect this direction, through framing and making appropriate trade-offs, and senior leadership in the Reserve Banks reviews the budgets for alignment with Reserve Bank and System priorities.
• The Reserve Banks submit for Board review preliminary budget information, including documentation to support the budget request.
• Board staff analyzes the Banks' budgets, both individually and in the context of System initiatives.
• Expenses associated with services provided to the Treasury require authorization from the Bureau of the Fiscal Service.
• The BAC reviews the Bank budgets.
• The Reserve Banks make any needed changes, and the BAC chair submits the revised budgets to Board members for review and final action.
• Throughout the year, Reserve Bank and Board staffs monitor actual performance and compare it with approved budgets and forecasts.

In addition to the budget approval process, the Reserve Banks must submit proposals for certain capital expenditures to the Board for further review and approval.

Tables D.8, D.9, and D.10 summarize the Reserve Banks' 2020 budgeted and actual expenses and 2021 budgeted expenses by Reserve Bank, functional area, and account classification.⁹ Table D.11 shows the Reserve Banks' budgeted and actual employment for 2020 and budgeted employment for 2021. In addition, table D.12 shows the Reserve Banks' budgeted and actual capital expenditures for 2020 and budgeted capital for 2021.

Table D.8. Operating expenses of the Federal Reserve Banks, by District, 2020–21

Table D.9. Operating expenses of the Federal Reserve Banks, by operating area, 2020–21

Table D.10. Operating expenses of the Federal Reserve Banks, by account classification, 2020–21

Table D.11. Employment at the Federal Reserve Banks, by District, and at FRIT and OEB, 2020–21

Table D.12. Capital expenditures of the Federal Reserve Banks, by District, and of FRIT and OEB, 2020–21

2020 Budget Performance

Total 2020 operating expenses for the Reserve Banks were $4,763.0 million, which is $8.2 million, or 0.2 percent, less than the approved 2020 budget of $4,771.2 million. The actual average number of personnel (ANP) was 20,128, an overrun of 230 ANP, or 1.2 percent, from 2020 budgeted staffing levels. The COVID-19 pandemic resulted in significantly less than budgeted expenses in travel and meetings. These underruns were largely offset by resources for the liquidity and lending facilities, the unexpected costs to support the continued operation of the Federal Reserve Banks during the COVID-19 pandemic, and investments to support the Federal Reserve's commitment to modernize the nation's payment system and establish a safe and efficient foundation for the future via the FedNow Service initiative.

The Reserve Banks' 2020 capital expenditures were less than budgeted by $219.0 million, or 41.3 percent, primarily driven by plan changes because of the COVID-19 pandemic, including timing and scope for building-related initiatives.

2021 Operating Expense Budget

The 2021 operating budgets of the Reserve Banks total $5,029.8 million, which is $266.8 million, or 5.6 percent, higher than 2020 actual expenses.¹⁰ Growth in monetary policy reflects increased resources dedicated to regional economic research, including studies on inflation and low- and moderate-income communities. Treasury expenses are increasing primarily to accommodate new applications, the modernization of existing applications, and the migration of applications into the Federal Reserve environment, as well as investments to infrastructure platforms, including the Treasury Web Applications Infrastructure (TWAI) platform and a secure cloud platform for Treasury applications. Additionally, increases in cash expenses are driven by the second phase of NextGen. Supervision growth has moderated because of more-efficient oversight focusing on areas of risk and allocating resources to the highest priorities. Increases in fee-based services reflect investments in FedNow Service.

Total 2021 budgeted employment for the Reserve Banks, Federal Reserve Information Technology (FRIT), and the Office of Employee Benefits (OEB) is 20,652 ANP, an increase of 524 ANP, or 2.6 percent, from 2020 actual employment levels. A key driver of this resource increase is support for the FedNow Service. Other primary sources of growth are the national support functions, in which additional resources are planned to support System strategic initiatives in procurement, finance, and human resource management; further centralize support functions to realize economies of scale; and enhance product offerings and ensure the security and resiliency of the FedLine Solutions.¹¹ Further contributing to the growth are resources to support ongoing currency operations and the NextGen program as well as community development initiatives, regional economic research, and outreach initiatives.

Reserve Bank officer and staff personnel expenses for 2021 total $2,964.1 million, an increase of $168.4 million, or 6.0 percent, from 2020 actual expenses. The increase reflects expenses associated with additional staff and budgeted salary administration adjustments.¹²

The 2021 Reserve Bank budgets include a salary administration program for eligible officers, senior professionals, and staff totaling $110.6 million and a variable pay program totaling $242.0 million.

2021 Capital Budgets

The 2021 capital budgets for the Reserve Banks, FRIT, and OEB total $598.9 million.¹³ The increase in the 2021 capital budget is $287.0 million, or 92.0 percent, greater than the 2020 actual levels of $311.9 million, largely reflecting ongoing multiyear IT and building strategic initiatives, some of which were paused in 2020 because of the COVID-19 pandemic. Initiatives in the 2021 capital budget support major workspace renovations, address aging building infrastructure in several Reserve Banks, improve IT infrastructure, and provide application upgrades and releases.

Capital Expenditures Designated for Conditional Approval

The BAC chair designated projects with an aggregate cost of $114.6 million in 2021 for conditional approval, requiring additional review and approval by the director of the Board's Division of Reserve Bank Operations and Payment Systems before the funds are committed.¹⁴ The expenditures designated for conditional approval by the chair of the BAC include large-scale building projects to renovate office space and update building infrastructure. Technology projects include support for services performed on behalf of the Treasury, investments for FedNow Service, and NextGen.

Other Capital Expenditures

Significant capital expenditures (typically expenditures exceeding $1 million) that are not designated for conditional approval include total multiyear budgeted expenditures of $948.1 million for 2021 and future years, of which the single-year 2021 budgeted expenditures are $381.1 million. This category includes building expenditures for office space renovations, mechanical and electrical infrastructure upgrades, building automation, and security enhancements. IT projects include ongoing infrastructure investments; initiatives that enable better access to data and enhance cybersecurity and cyberresiliency; and applications to support fee-based services, supervision, cash, and open market operations.

Capital initiatives that are individually less than $1 million are budgeted at an aggregate amount of $103.2 million for 2021 and include building maintenance expenditures, scheduled software and equipment upgrades, and equipment and furniture replacements.

Currency Budget

The currency budget provides funds to reimburse the Treasury's Bureau of Engraving and Printing (BEP) for expenses related to the production of banknotes, and the Board's activities related to its role as issuing authority of the nation's currency in the form of Federal Reserve notes.¹⁵ As issuing authority, the Board works closely with its strategic partners, such as the Reserve Banks, the Department of the Treasury, the BEP, and the U.S. Secret Service to help maintain the integrity of and public confidence in our nation's currency.

The Board works to ensure that the notes meet quality standards from production through destruction, monitors counterfeiting risks and threats for each denomination, contributes to the development of security features and new design concepts, and conducts adversarial analysis to ensure the security features and designs are robust against counterfeiting. The budget includes activities that support its issuing authority role, the cost of shipping new currency from the BEP to Reserve Banks and fit currency between Reserve Banks, and funds the Currency Education Program (CEP). The CEP aims to protect and maintain confidence in U.S. currency worldwide, working closely with other agencies and departments of the U.S. government, to provide information and conduct outreach through a variety of channels.

The annual currency budget process is as follows:

• Each year, under authority delegated by the Board, the director of the Division of Reserve Bank Operations and Payment Systems submits a fiscal year print order for notes to the director of the BEP.¹⁶
• The BEP forecasts expenses for the calendar-year currency budget, including fixed and variable costs for printing Federal Reserve notes, facility costs, and support costs. Board staff develop budgets for Board expenses in relation to strategic guidance set by Cash leadership.
• The BAC reviews the proposed currency budget.
• The BAC chair submits the proposed currency budget to Board members for review and final action.

2020 Budget Performance

The Board's 2020 actual operating expenses for new currency were $831.1 million, $46.1 million, or 5.3 percent, below the budgeted amount for 2020. The budget underrun is primarily attributable to the postponement of facility reimbursements to the BEP.

The cost underrun is partially offset by a cost overrun in variable production and transportation costs due to the COVID-19 pandemic-related demand for currency. The 2020 banknote development underrun is primarily the result of a contract termination for design services, delays for several projects that were initially affected by the COVID-19 pandemic, and new contracts that took longer to procure than anticipated.

2021 Budget

Table D.13 summarizes the 2021 currency operating budget of $1,095.8 million.¹⁷ The proposed 2021 operating budget represents an increase of $264.8 million, or 31.9 percent, from 2020 actual expenses. BEP costs associated with the printing of Federal Reserve notes are 94.0 percent of the operating budget. Board expenses for currency transportation, banknote development, and currency education comprise the remaining 6.0 percent of the operating budget.

Table D.13. Federal Reserve currency budget, 2020–21

BEP Costs

The proposed 2021 budget to fund the BEP expenses associated with the printing of Federal Reserve notes is $1,030.0 million, which is $246.6 million, or 31.5 percent, greater than 2020 actual expenses. The primary driver of this increase is higher printing costs due to the continued demand for currency from the COVID-19 pandemic.

The proposed budget for fixed printing costs is $518.6 million, which is $42.8 million, or 9.0 percent, greater than 2020 actual expenses. The increase is primarily attributable to pandemic-related expenses, including additional healthcare staff, disinfection services, and information technology support. Pay increases and increased staffing to fill vacancies also contribute to the growth.

Variable costs are increasing because of the higher volume print order and denominational mix, which is skewed to the higher-denomination notes that are more expensive to produce. The budgeted 2021 calendar year note deliveries are increasing 31.9 percent from the 2020 actual deliveries. The corresponding 2021 budget for variable printing costs is 51.0 percent higher than the 2020 actual costs, including an increase of about $24.0 million for new paper contracts.

The increase in BEP facility reimbursements represent the Board's plan to resume reimbursement of the new BEP building project in Washington, D.C. The total cost of the new facility and production machinery in Washington, D.C., is estimated to be $1.4 billion over the life of the project, which began in 2019 and is expected to be completed in 2030. This project is in the development stage, and the Board expects to reimburse the BEP $49.6 million for design and site demolition costs in 2021.

Board Costs

Board costs are estimated to be $65.8 million, or 38.1 percent, more than 2020 actual expenses. The increase is primarily driven by currency transportation costs due to the higher volume of notes to ship, higher denomination allocation, and alternate transportation methods for business continuity purposes.¹⁸

The Banknote development budget increases include contract services to develop prototype equipment to assess quality at the BEP. The Board will also conduct market research to identify trends in the market for equipment that accepts and dispenses banknotes. Contract resources will support financial management and construction oversight for reimbursements of the new Washington D.C. currency production facility. The budget includes funding for the Counterfeit Currency Processing Facility (CCPF) initiative to support counterfeit deterrent activities to develop prototype technology to identify, analyze, and classify suspect counterfeit notes.

In 2021, Currency education will broaden its domestic and international outreach to businesses and consumers, create digital content that supports both classroom and remote learning options, and maintain the uscurrency.gov educational website. Increases include both contract and personnel expenses, including one additional authorized position from the 2020 budget.

The Banknote development and Currency education budget categories also include increases of $1.2 million and $1.0 million, respectively, for support and overhead costs, which have been transferred to these programs from the Board's budget based on authorized positions.¹⁹

2021 Capital Budget

In 2018, the Board approved a $3.2 million multicycle capital budget, of which, $0.2 million is budgeted in 2021 for information technology development in support of the CCPF initiative.

Footnotes