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. This section presents information on the 2013 budget performance of the Board and Reserve Banks, as well as their 2014 budgets, budgeting processes, and trends in expenses and employment. This section also presents information on the costs of new currency.

Before 2013, information about the budgeted expenses of the Board and Reserve Banks was presented in a separate report titled Annual Report: Budget Review. Copies of that report are available at www.federalreserve.gov/publications/budget-review/default.htm.

System Budgets Overview

Tables 1 and 2 summarize the Federal Reserve Board of Governors' and Federal Reserve Banks' 2013 budgeted and actual and 2014 budgeted operating expenses and employment.

Table 1. Total operating expenses of the Federal Reserve System, net of receipts and claims for reimbursement, 2013-14
Millions of dollars

Item	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Board	586.9	553.7	-33.2	-5.7	611.1	57.4	10.4
Reserve Banks 1	3,688.2	3,591.6	-96.6	-2.6	3,795.7	204.1	5.7
Currency	797.6	705.0	-92.6	-11.6	826.7	121.7	17.3
Total System operating expenses 2	5,072.7	4,850.3	-222.4	-4.4	5,233.5	383.2	7.9
Revenue from priced services	423.9	441.3	17.4	4.1	423.6	-17.8	-4.0
Claims for reimbursement 3	539.4	530.1	-9.4	-1.7	569.1	39.1	7.4
Other income 4	2.2	2.2	0.0	2.0	2.7	0.5	21.4
Revenue and claims for reimbursement 5	965.5	973.6	8.1	0.8	995.4	21.8	2.2
Total System operating expenses, net of revenue and claims for reimbursement	4,107.2	3,876.7	-230.5	-5.6	4,238.1	361.4	9.3

Note: Here and in subsequent tables, components may not sum to totals and may not yield percentages shown because of rounding.

1. Excludes assessments for the Board of Governors' operating expenses. Return to table

2. Includes total operating expenses of the Office of Inspector General (OIG), the Federal Reserve Information Technology (FRIT) support function, and the System's Office of Employee Benefits (OEB). Excludes operating expenses of the Consumer Financial Protection Bureau (CFPB). Return to table

3. Reimbursable claims include the expenses of fiscal agency and depository services provided to the U.S. Treasury, other government agencies, and other fiscal principals. Return to table

4. Fees that depository institutions pay for the settlement component of the Fedwire Securities Service transactions for Treasury securities transfers. Return to table

5. Excludes annual assessments for the supervision of large financial companies pursuant to Regulation TT, which are not recognized as revenue or used to fund Board expenses. (See section 3 ("Supervision and Regulation") of this annual report for more information.)  Return to table

Table 2. Employment in the Federal Reserve System, 2013-14

Item	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Board 1	2,655	2,648	-7	-0.3	2,740	92	3.5
Reserve Banks 2	18,656	18,744	88	0.5	18,979	236	1.3
Total System employment	21,311	21,392	81	0.4	21,719	328	1.5

Note: Employment numbers presented include authorized position counts for the Board and average number of personnel (ANP) for the Reserve Banks. ANP is the average number of employees expressed in terms of full-time positions for the period.

1. Budget represents authorized position count at the beginning of the year and actual represents authorized position count at year-end. The Board total also includes authorized position count for the OIG. In January, the Board approved an increase of 11 authorized positions to support the Board's oversight responsibilities related to financial market utilities as well as a technical editor to work on increased reporting requirements related to the Dodd-Frank Act. Return to table

2. Includes employment of the FRIT support function and the OEB. Return to table

2013 Budget Performance

In carrying out its responsibilities in 2013, the Federal Reserve System incurred $3.9 billion in net expenses. Total spending of $4,850.3 million was offset by $973.6 million in revenue from priced services, claims for reimbursement, and other income. Total 2013 expenses were $222.4 million, or 4.4 percent, less than the amount budgeted for 2013.

Substantially all employees of the Board and Reserve Banks participate in the defined benefit retirement plan for employees of the Federal Reserve System (System Plan). The Federal Reserve Bank of New York recognizes the costs associated with the System Plan. In addition, employees at certain compensation levels participate in the Benefit Equalization Retirement Plan, certain Reserve Bank officers participate in the Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks (SERP), and Board officers participate in the Pension Enhancement Plan.

Expenses related to Board participants in the Benefit Equalization Retirement Plan and Pension Enhancement Plan are included in the Board's budget and are reflected in table 1. Expenses related to System participants in the System Plan and the Reserve Bank participants in the Benefit Equalization Plan and SERP are not included in the Reserve Bank budgets and, as a result, are not reflected in table 1. The 2013 actual retirement plan expenses recorded by the Board and the Reserve Banks were $5.2 million and $616.5 million, respectively.

2014 Operating Expense Budget

Budgeted 2014 operating expenses, net of revenue and reimbursements, are $361.4 million, or 9.3 percent, higher than 2013 actual expenses. The Reserve Bank budgets comprise almost three-quarters of the System budget (figure 1). Budgeted 2014 revenue from priced services is 4.0 percent lower than 2013 revenue, primarily because of continued declines in check volume as customers shift to other payment methods. Claims for reimbursements are expected to increase 7.4 percent in 2014, reflecting increased activity in new or expanded Treasury services.

Trends in Expenses and Employment

From the actual 2005 level to the budgeted 2014 amount, the total expenses of the Federal Reserve System have increased an average of 5.0 percent per year (figure 2). Over the same period, nondefense discretionary spending by the federal government has increased an average of 3.1 percent per year (figure 3). Over the 2005-14 period, Federal Reserve System employment declined through 2010 and subsequently increased due to requirements of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and responses to the financial crisis (figure 4).

Operating expenses include additional resources and staffing needed to respond to the financial crisis and to implement requirements under the Dodd-Frank Act. More recently, growth in the number of supervised state member banks resulted in increased resource demands. Expenses in the cash area have increased as a result of the multiyear cash-processing modernization project. Expenses for services provided to Treasury have grown to meet that agency's evolving needs, including the automation of collection and payment services and continuing initiatives such as the Do Not Pay project, the Internet Channel, and other projects. These increases have been partially offset by substantial expense and staffing decreases related to the continued decline of paper check volume and efficiencies associated with the electronic check-processing function, cash operations, and support functions.

2014 Capital Budgets

The capital budgets for the Board and Reserve Banks total $133.0 million and $475.4 million, respectively.¹ As in previous years, the 2014 capital budgets include funding for projects that support the strategic direction outlined by the Board and each Reserve Bank. These strategic goals focus on investments that continue to improve operational efficiencies, enhance services to Bank customers, and ensure a safe and productive work environment.

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Board of Governors Budgets

The Board's budget is grounded in the direction
set by its Strategic Framework 2012-15 (www.federalreserve.gov/publications/gpra/files/2012-2015-strategic-framework.pdf).² The budget is structured by division, office, or special account.

The Board's budget process is as follows:

• The Board establishes a base budget to support current operations.
• Each division identifies new initiatives and offsetting savings required to achieve its objectives for the next budget cycle.
• The chief operating officer, the chief financial officer, and the executive committee of the Board evaluate each new initiative and proposed savings in the context of the Board's strategic framework.
• New initiatives that do not correspond to the themes set forth in the strategic framework require savings offsets.
• Staff submits the proposed budget to the Committee on Board Affairs (CBA) for review.
• The administrative governor of the CBA submits the budget to the full Board for review and final action.
• Expenses are monitored throughout the year. Variances are analyzed and reported.

The Board's Office of Inspector General (OIG), in keeping with its statutory independence, prepares its proposed budget apart from the Board's budget. The OIG presents its budget directly to the Board for approval; thus, information on the OIG's budget is also provided in the discussion that follows.

Tables 3 and 4 summarize the Board's 2013 budgeted and actual expenditures, as well as its 2014 budgeted expenditures by division, office, or special account and by account classification, respectively.Table 5 summarizes the Board's budgeted and actual authorized position count for 2013 and 2014. Each table also includes a line item for the OIG.

Table 3. Operating expenses of the Board of Governors, by division, office, or special account, 2013-14
Millions of dollars

Division, office, or special account	2013 budget 1	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Board Members	26.9	25.4	-1.5	-5.7	26.5	1.1	4.4
Secretary	9.4	9.2	-0.2	-1.8	9.7	0.4	4.6
Research and Statistics	64.3	59.3	-5.0	-7.8	61.7	2.4	4.1
International Finance	25.1	23.8	-1.3	-5.2	27.0	3.2	13.6
Monetary Affairs	30.9	29.5	-1.4	-4.4	32.3	2.7	9.2
Office of Financial Stability Policy and Research	4.9	5.2	0.3	5.5	7.0	1.8	35.2
Bank Supervision and Regulation	102.6	99.2	-3.4	-3.4	106.5	7.3	7.4
Consumer and Community Affairs	24.1	22.7	-1.4	-5.8	24.5	1.8	8.1
Legal	22.7	20.9	-1.9	-8.1	24.3	3.4	16.4
Chief Operating Officer	3.0	4.2	1.2	40.7	10.2	6.0	141.0
Financial Management	9.5	9.3	-0.2	-2.2	10.3	1.0	10.3
Reserve Bank Operations and Payment Systems	33.9	33.8	-0.1	-0.4	34.7	1.0	2.8
Information Technology	81.6	79.6	-2.0	-2.4	93.5	13.8	17.4
Management	110.8	105.8	-5.0	-4.5	111.7	5.9	5.5
Data processing income	-36.5	-37.0	-0.5	1.4	-36.7	0.3	-0.7
Residual retirement	14.7	9.2	-5.5	-37.4	9.9	0.7	7.3
Special projects	17.9	13.5	-4.4	-24.5	13.6	0.1	0.9
Savings and reallocations	-1.9	0.0	1.9	-100.0	0.0	0.0	0.0
Extraordinary items	16.0	14.4	-1.6	-10.3	17.8	3.4	24.0
Total, Board operations	559.9	527.9	-32.0	-5.7	584.2	56.3	10.7
Office of Inspector General	26.9	25.8	-1.1	-4.1	26.9	1.1	4.3

1. 2013 budget figures do not reflect internal transfers between divisions during the year. Return to table

Table 4. Operating expenses of the Board of Governors, by account classification, 2013-14
Millions of dollars

Account classification	2013 budget 1	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Personnel services
Salaries	314.3	307.2	-7.1	-2.3	328.0	20.8	6.8
Retirement/thrift plans	43.3	40.2	-3.1	-7.1	42.2	2.0	4.9
Employee insurance	28.9	26.3	-2.6	-9.0	28.6	2.3	8.6
Subtotal, personnel services	386.5	373.7	-12.8	-3.3	398.7	25.0	6.7
Goods and services
Postage and shipping	0.7	0.3	-0.4	-62.9	0.5	0.3	107.7
Travel	14.2	13.7	-0.5	-3.2	15.1	1.4	9.8
Telecommunications	7.4	6.0	-1.5	-19.6	7.9	2.0	32.9
Printing and binding	2.4	1.5	-1.0	-39.6	2.2	0.7	49.0
Publications	0.6	0.5	-0.2	-25.0	0.6	0.2	42.2
Stationery and supplies	1.6	1.4	-0.2	-15.0	2.3	1.0	70.6
Software	12.1	11.4	-0.7	-5.7	17.1	5.7	49.9
Furniture and equipment	9.7	7.7	-2.0	-20.2	14.3	6.5	84.4
Rentals	12.8	12.4	-0.4	-3.0	16.2	3.7	30.1
Books and subscriptions	1.1	1.0	-0.1	-8.2	1.3	0.3	28.7
Utilities	3.9	3.3	-0.6	-14.9	3.6	0.3	8.7
Repairs and alterations bldg.	3.0	2.5	-0.6	-18.3	3.0	0.6	22.4
Repairs and maintenance F&E	2.9	3.4	0.5	17.2	3.3	-0.1	-3.2
Contingency processing center	1.3	1.3	0.0	-3.1	1.3	0.1	5.6
Contractual professional services	71.8	62.2	-9.6	-13.3	64.5	2.2	3.6
Interest expense	* *	*	0.0	0.0	*	*	-50.0
Tuition	4.9	3.9	-1.0	-20.2	5.1	1.2	29.9
Subsidies and contributions	0.8	0.7	-0.1	-10.0	0.8	0.1	9.7
Depreciation amortization	24.1	23.8	-0.4	-1.5	27.7	4.0	16.7
All other 2	-1.8	-2.6	-0.8	44.4	-1.3	1.3	-50.0
Subtotal, goods and services	173.5	154.2	-19.3	-11.1	185.5	31.2	20.2
Total, Board operations	559.9	527.9	-32.0	-5.7	584.2	56.3	10.7
Office of Inspector General
Personnel services	16.9	19.0	2.0	12.1	18.3	-0.7	-3.8
Goods and services	10.0	6.9	-3.1	-31.2	8.7	1.8	26.0
Total, OIG operations	26.9	25.8	-1.1	-4.1	26.9	1.1	4.3

1. 2013 budget figures do not reflect internal transfers between divisions during the year. Return to table

2. All other includes, among other items, income from outside agencies for data processing services, rental income, and transportation subsidy benefits for employees. Return to table

* Less than $500 thousand.

Table 5. Positions authorized by the Board of Governors, by division, office, or special account

Division, office, or special account	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget 1	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Board Members	115	116	1	0.9	117	1	0.9
Secretary	53	53	0	0.0	53	0	0.0
Research and Statistics	353	327	-26	-7.4	336	9	2.8
International Finance	136	136	0	0.0	145	9	6.6
Monetary Affairs	144	141	-3	-2.1	151	10	7.1
Office of Financial Stability Policy and Research	34	34	0	0.0	37	3	8.8
Bank Supervision and Regulation	412	412	0	0.0	423	11	2.7
Consumer and Community Affairs	103	103	0	0.0	103	0	0.0
Legal	105	105	0	0.0	110	5	4.8
Chief Operating Officer	16	42	26	162.5	59	17	40.5
Financial Management	67	69	2	3.0	69	0	0.0
Reserve Bank Operations and Payment Systems	156	156	0	0.0	168	12	7.7
Information Technology	397	399	2	0.5	409	10	2.5
Management	449	440	-9	-2.0	440	0	0.0
Total, Board operations 2	2,540	2,533	-7	-0.3	2,620	87	3.4
Office of Inspector General	115	115	0	0.0	120	5	4.3

1. In January, the Board approved an increase of 11 authorized positions to support the Board's oversight responsibilities related to financial market utilities as well as a technical editor to work on increased reporting requirements related to the Dodd-Frank Act. Return to table

2. Budget represents authorized position count at the beginning of the year and actual represents authorized position count at year-end. Return to table

2013 Budget Performance

Board of Governors

Total expenses for Board operations were $527.9 million, which is $32.0 million, or 5.7 percent, less than the approved 2013 budget of $559.9 million. The Board's 2013 single-year capital spending was also less than budgeted by $0.45 million, or 4.1 percent, and all multiyear capital projects remained within their total project budgets.

The 2013 underrun is primarily driven by lower-than-planned personnel and contractual professional services expenses. Personnel services were $12.8 million less than the operating plan because divisions and offices took longer than expected to fill vacancies and the actuarial assumptions, demographics, and discount rates for the Board's non-qualified retirement plans changed. Contractual professional services were $9.6 million less than budgeted because divisions and offices engaged fewer consultants than expected for projects related to automation, organizational skills, and executive searches.

Office of Inspector General

Total expenses for OIG operations were $25.8 million, or $1.1 million less than the approved operating budget. Personnel services were $2.0 million more than budgeted, largely because hiring was earlier than anticipated. Goods and services were $3.1 million less than budgeted.

2014 Operating Expense Budget

Board of Governors

The 2014 budget for Board operations is $584.2 million, which is $56.3 million, or 10.7 percent, higher than 2013 actual expenses. The operating budget includes amounts to fund the Board's ongoing operations and to support the strategic themes identified in the Board's Strategic Framework 2012-15. This is the second budget since the Board approved the framework in June 2012.

For 2014, authorized positions for Board operations total 2,620, an increase of 87 positions, or 3.4 percent, from 2013. The positions are aligned with the strategic framework themes and will primarily support the Board's financial stability and supervisory mandate under the Dodd-Frank Act and implementation of a data governance program. The 2014 Board budget reflects a merit increase of 3.0 percent for staff.

Office of Inspector General

The 2014 budget for OIG operations is $26.9 million, which is $1.1 million, or 4.3 percent, higher than 2013 actual expenses. This includes an increase of 5 positions, for a total of 120 positions. A reduction to the 2014 goods and services budget offsets the personnel cost associated with these additional positions.

Risks in the 2014 Budget

When the Board approved the strategic framework, the governors considered the resources necessary to implement the strategic themes, as well as budgetary growth targets to manage costs. The 2014 budget aligns with the guidelines contained in the framework and places the Board on a trajectory to meet the cost-reduction targets described in the framework.

The 2014 budget remains largely consistent with risks identified in previous years. In particular, the Board's ability to attract, retain, and engage qualified staff and continue to meet the demands of the increased work requirements remains a top priority.

Over the next few years, significant investments in the Board data environment will be required. As part of the framework, the Board approved its two largest capital projects in recent years--the renovation of the Martin Building and the relocation of the data center (discussed further under "2014 Capital Budget"). Although the Board has retained consultants to assist in these efforts and has capable staff who have experience dealing with complex projects, both initiatives continue to require careful monitoring given the size of their budgets, the initiatives' critical importance, and the continued public focus on Board operations. Past budget cycles have included purchases for additional data in support of supervisory activities and additional infrastructure investments (separate from costs already budgeted for the data center relocation). As noted in the framework, establishing an infrastructure to share data and improve opportunities for data integration is necessary to expand the Board's research and analytical capabilities and provide staff with the new tools necessary to obtain, interpret, and analyze large volumes of data required by the new supervisory tools. As the initiatives put forward as part of the 2014 budget process indicate, funding the new infrastructure will place upward pressure on the operating budget.

2014 Capital Budget

Table 6 summarizes the Board's and the OIG's budgeted and actual capital outlays for 2013 and 2014.

Table 6. Capital Outlays of the Board of Governors, by capital type, 2013-14
Millions of dollars

Item	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget 1	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Single-year capital outlays	11.1	10.5	-0.6	-5.4	5.1	-5.4	-51.4
Multiyear capital outlays	56.5	19.0	-37.5	-66.4	127.9	108.9	573.2
Total capital outlays 2	67.6	29.5	-38.1	-56.4	133.0	103.5	350.8

1. In January, the Board approved additional capital funding of $0.62 million in the Board's single-year capital budget and $13.72 million in the Board's multiyear capital budget for initiatives not included in the approved 2014 budget. Return to table

2. Capital, as shown in this report, includes the Board and OIG capital budgets and expenditures. The amount reported for multiyear capital outlays budget and actual represents the expected expenditure and amount spent for the budgeted year. Return to table

Board of Governors

The Board's 2014 capital budget totals $5.1 million for single-year capital and $127.9 million for multiyear capital projects. The budget increase for multiyear capital projects over 2013 actuals is primarily due to the data center relocation and Martin Building renovation. Efforts are currently under way to relocate the Board's data center to space identified within a branch of the Federal Reserve Bank of Richmond. The expected cost over the life of the project is $83.4 million, which includes funding for space build-out along with software and hardware acquisitions needed to support a network infrastructure that can handle the increase in demand for data. Total expected cost for the Martin Building renovation over the life of the project--which will overhaul the building's infrastructure as well as provide additional space for meetings and conferences--is $244.0 million.

Office of Inspector General

The 2014 OIG capital budget totals $0.07 million for single-year capital and $3.2 million for the life of the multiyear capital projects. The increase of $1.0 million in multiyear capital projects over 2013 actuals is due to build out for the regional offices.

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Federal Reserve Banks Budgets

Each Reserve Bank establishes major operating goals for the coming year, devises strategies for attaining those goals, estimates required resources, and monitors results. The Reserve Banks' budgets are structured by operational area, with attributable support and overhead charged to each area. In addition to the budget approval process, the Reserve Banks must submit proposals for major capital acquisitions and capitalized projects to the Board for further review and approval.

The Reserve Bank budget process is as follows:

• Reserve Banks receive budget guidance regarding major functional areas for the upcoming budget year.
• The Reserve Banks develop budgets that incorporate this guidance, which are reviewed by senior leadership in the Reserve Banks for alignment with Reserve Bank and System priorities.
• The Reserve Banks submit preliminary budget information to the Board for review, including documentation to support the budget request.
• Board staff analyzes the Banks' budgets, both individually and in the context of System initiatives and other Banks' plans.
• The Board's Committee on Federal Reserve Bank Affairs (BAC) reviews the Bank budgets.
• The Reserve Banks make any requested or 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.

Tables 7, 8, and 9 summarize the Reserve Banks' 2013 budgeted and actual expenses, 2014 budgeted expenses, and 2013 and 2014 employment by Reserve Bank, operating area, and account classification, respectively.³ In addition, table 10 shows the Reserve Banks' budgeted and actual employment for 2013 and 2014.

Table 7. Operating expenses of the Federal Reserve Banks, by district, 2013-14
Millions of dollars

District	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Boston	207.2	198.7	-8.5	-4.1	220.1	21.4	10.8
New York	896.8	883.1	-13.7	-1.5	908.9	25.8	2.9
Philadelphia	199.0	194.8	-4.2	-2.1	202.6	7.9	4.0
Cleveland	158.4	155.6	-2.8	-1.8	176.2	20.6	13.3
Richmond	372.7	359.9	-12.8	-3.4	361.0	1.0	0.3
Atlanta	318.7	307.3	-11.4	-3.6	319.0	11.7	3.8
Chicago	326.1	319.8	-6.4	-1.9	340.7	20.9	6.5
St. Louis	258.0	253.4	-4.6	-1.8	285.8	32.4	12.8
Minneapolis	189.6	181.0	-8.6	-4.5	199.8	18.8	10.4
Kansas City	214.5	207.1	-7.5	-3.5	222.4	15.3	7.4
Dallas	214.5	207.5	-7.0	-3.3	212.2	4.8	2.3
San Francisco	332.8	323.4	-9.3	-2.8	347.0	23.5	7.3
Total Reserve Bank operating expenses	3,688.2	3,591.6	-96.6	-2.6	3,795.7	204.1	5.7

Note: Includes expenses budgeted by the FRIT support function and the OEB, and reflects all redistributions for support and allocation for overhead. Excludes capital outlays and assessments for Board expenses, currency costs, and expenses of the CFPB.

Table 8. Operating expenses of the Federal Reserve Banks, by operating area, 2013-14
Millions of dollars

Operating area	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Monetary and economic policy	602.3	596.5	-5.9	-1.0	614.1	17.6	3.0
Services to the U.S. Treasury and other government agencies	522.7	500.5	-22.2	-4.2	550.2	49.6	9.9
Services to financial institutions and the public	1,033.1	1,003.4	-29.7	-2.9	1,048.5	45.2	4.5
Supervision and regulation	1,146.3	1,118.8	-27.5	-2.4	1,189.4	70.6	6.3
Fee-based services to financial institutions 1	383.8	372.4	-11.3	-3.0	393.4	21.0	5.6
Total Reserve Bank operating expenses	3,688.2	3,591.6	-96.6	-2.6	3,795.7	204.1	5.7

1. Operating expenses for fee-based services to financial institutions exclude pension costs, Board-related expenses, and reimbursements for certain non-priced services. Return to table

Table 9. Operating expenses of the Federal Reserve Banks, by account classification, 2013-14
Millions of dollars

Account classification	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Personnel 1	2,681.8	2,672.0	-9.8	-0.4	2,787.4	115.4	4.3
Building	319.9	315.5	-4.4	-1.4	320.3	4.8	1.5
Equipment	193.1	169.1	-24.1	-12.5	197.3	28.3	16.7
Software Costs	188.6	183.1	-5.5	-2.9	211.9	28.8	15.7
Travel	95.6	88.1	-7.5	-7.8	96.2	8.1	9.1
Materials and Supplies	71.7	66.6	-5.0	-7.0	70.1	3.5	5.2
Communications	48.5	47.5	-1.0	-2.0	49.2	1.7	3.7
Shipping	16.1	14.5	-1.6	-9.7	15.5	1.0	6.8
All other 2	72.8	35.1	-37.8	-51.9	47.6	12.6	35.9
Total Reserve Bank operating expenses	3,688.2	3,591.6	-96.6	-2.6	3,795.7	204.1	5.7

1. Personnel expense includes salaries, other personnel expense, and retirement and other employment benefit expenses. Return to table

2. Includes outside fees, recoveries, and the transfer of expenses for capitalizable software development efforts. Return to table

Table 10. Employment at the Federal Reserve Banks, by District, and at FRIT and OEB, 2013-14

District	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Boston	1,080	1,037	-42	-3.9	1,097	59	5.7
New York	3,326	3,277	-49	-1.5	3,247	-30	-0.9
Philadelphia	944	915	-30	-3.1	946	31	3.3
Cleveland	908	931	23	2.5	968	37	4.0
Richmond	1,541	1,549	8	0.5	1,586	37	2.4
Atlanta	1,630	1,623	-7	-0.4	1,627	5	0.3
Chicago	1,490	1,483	-7	-0.5	1,512	28	1.9
St. Louis	1,066	1,086	20	1.9	1,145	59	5.4
Minneapolis	1,147	1,131	-16	-1.4	1,133	3	0.3
Kansas City	1,430	1,443	13	0.9	1,512	69	4.8
Dallas	1,239	1,301	63	5.1	1,217	-84	-6.4
San Francisco	1,599	1,646	47	2.9	1,671	25	1.5
Total, all Districts	17,400	17,422	22	0.1	17,662	240	1.4
Federal Reserve Information Technology (FRIT)	1,202	1,272	70	5.8	1,265	-7	-0.5
Office of Employee Benefits (OEB)	53	50	-3	-6.1	52	2	4.5
Total	18,656	18,744	88	0.5	18,979	236	1.3

2013 Budget Performance

Total 2013 operating expenses for the Reserve Banks were $3,591.6 million, which is $96.6 million, or 2.6 percent, less than the approved 2013 budget of $3,688.2 million, while the average number of personnel (ANP) increased by 88, largely because of application development work.

The 2013 budget underrun is primarily driven by lower-than-planned expenses for services to financial institutions and the public, supervision, Treasury services, and fee-based services to financial institutions (priced services). Expenses related to the CashForward initiative, which are a component of the expenses for services to financial institutions and the public, were $17.8 million lower than budget.⁴ In the supervision function, efficiency initiatives and delays in hiring new staff led to lower overall expenses (-$27.5 million). The underrun in Treasury services is due to program changes primarily for the Do Not Pay program (-$5.1 million), volume reductions in Treasury Retail Securities (-$5.3 million), and the timing of other initiatives.⁵ Priced services expenses reflect continued check volume declines.

Total 2013 actual employment of 18,744 ANP represents an increase of 88 ANP, or 0.5 percent, from 2013 budgeted levels of 18,656 ANP. The higher-than-budgeted ANP reflects increased application development support primarily for updates to cash technology and supervision projects. Additional information technology (IT) ANP growth was the result of higher-than-anticipated server and storage demand and an increase in network services support. Treasury's Go Direct initiative added temporary staff to manage higher call volumes related to the March 1, 2013, deadline to have all federal benefit payments issued electronically. Partially offsetting these increases are hiring delays in the supervision and monetary policy functions and for the Treasury's Invoice Processing Platform (IPP).⁶ Other refinements include reductions in savings bond operations due to lower-than-expected volumes.

2014 Operating Expense Budget

The 2014 operating budgets of the Reserve Banks total $3,795.7 million, which is $204.1 million, or 5.7 percent, higher than 2013 actual expenses. The largest increase is in the supervision function, which is adding resources to support expanded supervisory responsibilities for large financial institutions and continued state member bank growth. The supervision function also is adding additional ANP to improve its analytical capabilities.

Budgeted expenses for services to the Treasury, which are fully reimbursable, are increasing to meet greater demand from the Treasury and because of the amortization of capitalized software projects. Expenses are expected to grow significantly because of Treasury's efforts to modernize its revenue collection and payment management methods, including the Internet Channel (Pay.gov), IPP, and the Post Payment System (PPS) ($13.1 million).⁷ The budget includes $11.2 million for the new eCommerce initiative for payments to government agencies. Treasury Web Application Infrastructure (TWAI) expenses will also increase as the number of applications hosted in the infrastructure expands ($11.0 million). In addition, the Reserve Banks will provide increased support for the Do Not Pay ($5.6 million) and the Government-wide Treasury Account Symbol Adjusted Trial Balance System (GTAS) ($2.2 million) programs.⁸

Increases in services to financial institutions and the public include continuing development work on the CashForward projects, cash-processing machine upgrades, and increased video surveillance support. Priced services increases are driven by the Fedwire, FedACH, and FedLine modernization programs and enhancements.⁹ Several Banks are increasing analytical capabilities and enhancing resiliency in their monetary policy functions by adding ANP and investing in IT solutions. Partially offsetting these increases is reduced check operations expense resulting from the 2013 completion and implementation of the new check processing platform.

Total 2014 budgeted employment for the Reserve Banks, Federal Reserve Information Technology (FRIT), and the Office of Employee Benefits (OEB) is 18,979 ANP, an increase of 236 ANP, or 1.3 percent, from 2013 employment levels that is primarily driven by supervision and IT. The supervision function is adding 109 ANP due to expanding responsibilities and growth in the number and size of institutions supervised. IT ANP is increasing by 204 for large development projects and information security initiatives. These staff increases are partially offset by a decrease of temporary staff hired in 2013 for Go Direct and by efficiencies found in support areas.

Budgeted Reserve Bank personnel expenses for 2014 total $2,787.4 million, an increase of $115.4 million, or 4.3 percent, over 2013 expenses. The increase reflects expenses associated with additional staff and budgeted salary adjustments, including merit increases, equity adjustments, promotions, and funding for variable pay. The 2014 Reserve Bank budgets reflect merit increases of 3.0 percent, totaling $48.8 million for officers, senior professionals, and staff.¹⁰ Equity adjustments and promotions total $10.0 million for officers and senior professionals and $19.1 million for staff. Funding for variable pay programs for officers, senior professionals, and staff totals $156.9 million.

Risks in the 2014 Budget

Risks to the budget remain largely consistent with those identified last year. In particular, the most significant risks in the 2014 budget are related to staffing. Banks are concerned about their ability to hire and retain staff, particularly in locations where the employment market is improving. A number of Reserve Banks have aggressive hiring plans, and some Banks may experience difficulty meeting schedules for hiring staff with specialized skills and experience, particularly in supervision and IT. The primary risks in the supervision function relate to changes that may be needed in supervisory programs to implement key Federal Reserve responsibilities under the Dodd-Frank Act where the final rules have not yet been adopted. The Treasury continues to refine its future vision for collections, payments, and cash management systems, including those provided by the Reserve Banks. The effect on Treasury-directed Reserve Bank initiatives is currently unknown.

2014 Capital Budget

Table 11 shows the Reserve Banks' budgeted and actual capital outlays for 2013 and 2014.

The 2014 capital budgets submitted by the Reserve Banks, FRIT, and OEB total $475.4 million. The increase in the 2014 capital budget is $170.6 million, or 56.0 percent, above the 2013 actual levels, largely reflecting capital shifts for ongoing multiyear programs from 2013 to 2014. The few major new initiatives in the 2014 capital budget support monetary policy functions, optimize work space, and accommodate an increasing demand for video conferencing.

In support of the Reserve Bank strategies, the 2014 budgets include three categories of capital initiatives: Reserve Bank automation/IT projects, building and infrastructure, and Treasury initiatives.

Table 11. Capital Outlays of the Federal Reserve Banks, by District, and of FRIT and OEB, 2013-14
Millions of dollars

District	2013 budget	2013 actual	Variance 2013 budget to 2013 actual		2014 budget	Variance 2014 budget to 2013 actual
			Amount	Percent		Amount	Percent
Boston	49.7	28.1	-21.6	-43.4	41.9	13.8	49.1
New York	122.5	72.8	-49.7	-40.6	115.0	42.2	57.9
Philadelphia	18.8	11.9	-6.9	-36.9	21.2	9.3	78.6
Cleveland	15.6	9.3	-6.3	-40.6	22.0	12.7	137.4
Richmond	32.1	19.1	-13.0	-40.5	15.7	-3.4	-17.7
Atlanta	21.9	10.9	-11.0	-50.4	16.7	5.9	54.0
Chicago	49.9	22.0	-27.9	-56.0	38.1	16.2	73.7
St. Louis	8.2	10.7	2.5	30.6	13.5	2.8	26.3
Minneapolis	15.6	17.4	1.8	11.4	13.5	-3.9	-22.2
Kansas City	8.5	10.9	2.4	27.7	15.6	4.7	43.7
Dallas	15.5	7.1	-8.4	-54.0	18.1	11.0	153.6
San Francisco	53.1	33.3	-19.8	-37.4	65.1	31.8	95.7
Total, all Districts	411.4	253.3	-158.1	-38.4	396.5	143.2	56.5
Federal Reserve Information Technology (FRIT)	80.5	51.4	-29.1	-36.1	78.4	27.0	52.5
Office of Employee Benefits (OEB)	0.2	0.0	-0.2	-100.0	0.5	0.5	0.0
Total	492.1	304.8	-187.4	-38.1	475.4	170.6	56.0

Automation/IT

The Reserve Banks, FRIT, and OEB included $225.5 million in funding for major IT initiatives and Reserve Bank automation projects. Multiyear projects currently under way to migrate major applications off the mainframe account for $33.5 million of the 2014 capital budget.¹¹ The Reserve Bank consolidated network project and increased demand for storage capacity account for an additional $67.6 million. Cash services automation initiatives include $37.9 million for the CashForward project and $9.6 million for cash sensor upgrades. Other automation initiatives include development of analytical and operational tools supporting monetary policy, data security projects, and scheduled software and equipment upgrades.

Building and Infrastructure

Building and infrastructure projects account for $190.8 million of the proposed capital budget. Renovations to achieve more-efficient use of existing building space are proposed for the Federal Reserve Banks of New York, Cleveland, and Richmond. The Federal Reserve Banks of Boston and San Francisco will undertake space-renovation programs. The Federal Reserve Bank of Chicago continues its building security project, and the Federal Reserve Bank of Boston will modernize its elevators. The remaining outlays in this category fund programs necessary to maintain the safety and soundness of the Reserve Bank facilities.

Treasury

The capital budgets also include $59.1 million for Treasury initiatives, including support for TWAI, PPS, IPP, Treasury Retail Electronic Services, and the Internet Channel.

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Currency Budget

Board staff monitors payments of currency to and receipts of currency from circulation and the number of unfit notes destroyed at the Reserve Banks. Staff estimates the number of notes the Board will order from the Bureau of Engraving and Printing (BEP) to meet demand based on monthly monitoring, forecasts of growth rates for payments of currency to circulation and receipts of currency from circulation, operational factors, and other policy considerations. The Board of Governors reimburses the BEP for all costs related to the production of currency.¹² Historically, more than 90 percent of the notes that the Board orders each year replace unfit currency that Reserve Banks receive from circulation.

The annual currency budget process is as follows:

• Each August, based on Board staff's assessment of currency demand, the director of the Division of Reserve Bank Operations and Payment Systems submits a fiscal year (FY) print order for currency to the director of the BEP.
• Each December, Board staff estimates expenses for the currency budget, including printing expenses (based on estimated production costs provided by the BEP); certain other BEP costs; and expenses for the currency education program, currency transportation, and counterfeit-deterrence research.
• The BAC reviews the proposed currency budget.
• The BAC chair submits the proposed currency budget to the Board for final action.

2013 Budget Performance

The Board's total 2013 actual expenses for new currency were $705.0 million, which represents a decrease of $92.6 million, or 11.6 percent, from the 2013 budget. The decrease is primarily due to lower-than-budgeted expenses for printing new notes and transporting new and fit notes, and for the currency education program. Because of uncertainty about whether the Board would issue the new-design $100 note in 2013, approximately 1.5 billion series-1996 (old-design) $100 notes were included in the budget to ensure that Reserve Banks would have sufficient quantities to meet demand during FY 2013.¹³ By April, it was clear that the BEP could produce the quantity of new-design $100 notes the Board needed to begin issuing them in 2013, which it did starting on October 8. Because the full quantity of old-design $100 notes in the FY 2013 print order was no longer needed, the Board reduced its order for old-design $100 notes by approximately 1.0 billion notes, reducing estimated expenses by nearly $26.3 million. The remainder of the budget underrun is attributable primarily to the production of fewer notes in the fourth quarter than estimated in the 2013 budget.¹⁴

2014 Budget

The 2014 new currency budget of $826.7 million is 17.3 percent higher than 2013 expenditures (figure 5). Printing costs for Federal Reserve notes make up about 90 percent of the new currency budget. Expenses for currency transportation, the currency reader program, the currency quality assurance (CQA) program and counterfeit-deterrence research, and the currency education program (CEP) constitute the remaining 10 percent (table 12).

Table 12. Federal Reserve budget for new currency, 2013 and 2014
Thousands of dollars, except as noted

Item	2013 actual	2014 budgeted	Variance 2014 budget to 2013 actual
			Amount	Percent
BEP-related expenses
Printing Federal Reserve notes	660,958	745,387	84,429	12.8
Currency reader	0	19,384	19,384	...
Other	3,081	3,225	144	4.7
Board expenses
Currency transportation	20,732	33,222	12,490	60.2
Currency quality assurance and counterfeit deterrence	16,678	21,091	4,413	26.5
Currency education program	3,581	4,357	776	21.7
Total cost of new currency	705,030	826,666	121,636	17.3

... Not applicable.

BEP Bureau of Engraving and Printing.

Printing of Federal Reserve Notes

The 2014 currency budget includes $745.4 million to reimburse the BEP for expenses related to printing new currency. The budget reflects the variable costs to produce approximately 6.1 billion notes, as well as fixed costs at the BEP attributable to expenses associated with depreciation of a new information technology platform, payments to other government agencies, and staffing to support the CQA program. The average cost per thousand notes remained largely unchanged from 2013 to 2014.

Currency Reader Program

The 2014 budget also includes $19.4 million to fund the first year of a multiyear program to distribute currency readers to qualified individuals who are blind or visually impaired at no cost to the user. The BEP will implement a currency reader program to comply with a court order requiring the Treasury Department to provide meaningful access to individuals who are blind or visually impaired in denominating U.S. currency. During 2014, the BEP expects to award a contract to procure currency readers and to distribute the readers by mid-2014 through an interagency agreement with the Library of Congress' book reader program, which is managed by the National Library Service.

Other Reimbursements to the Bureau of Engraving and Printing

The 2014 budget includes $3.2 million to reimburse the BEP for expenses incurred by its Destruction Standards and Compliance Division of the Office of Compliance and Mutilated Currency Division of the Office of Financial Management. The Office of Compliance develops Reserve Bank standards for cancellation and destruction of unfit currency and for note accountability, and reviews Reserve Banks' cash operations for compliance with its standards. As a public service, the Mutilated Currency Division processes claims for the redemption of damaged or mutilated currency.

Currency Transportation

The 2014 currency transportation budget is $33.2 million. This amount includes the costs of shipping new currency from the BEP to Reserve Banks, intra-System shipments of fit and unprocessed currency, and returning currency pallets from Reserve Banks to the BEP. The Board estimates that the number of notes transported in 2014 will be approximately the same as in 2013. The budget increase is primarily attributable to a planned 6.0 percent increase in contracted rates with armored carriers to transport currency.

Currency Quality Assurance

The 2014 budget for the CQA program is $13.9 million. The budget will allow the CQA consultants to continue facilitating the implementation of the new quality system at the BEP; support the research, technology, and product development required for the next design family of Federal Reserve notes; and continue providing temporary resources to the BEP to sustain critical programs that have been implemented for the quality system.

Counterfeit Deterrence

The 2014 budget for counterfeit-deterrence research is $7.2 million. The budget includes $5.1 million for membership in the Central Bank Counterfeit Deterrence Group (CBCDG). The CBCDG operates under the auspices of the G-10 central bank governors to combat digital counterfeiting and includes
33 central banks.

Currency Education Program

The 2014 CEP budget is $4.4 million. The CEP is designed to protect and maintain confidence in U.S. currency worldwide by providing information on all circulating designs of Federal Reserve notes to the global public. The program works to ensure that users of U.S. currency know what genuine Federal Reserve notes look like, are aware of the security features in each denomination, and know how to usethose security features to distinguish between genuine and counterfeit notes.

The 2014 budget reflects continued activity associated with educating the global public about the new-design $100 note. This includes work that was postponed because of the shutdown of the U.S. government in October 2013. Spending for 2014 is expected to decrease after the second quarter of 2014 because educational efforts will shift to post-issuance levels. Major expense drivers for the 2014 budget include the fulfillment of educational materials in more than 20 languages, international outreach to businesses and retailers in more than 25 countries, and hosting and developing the NewMoney.gov educational website.

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References

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