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 2015 budget performance of the Board and Reserve Banks, and on their 2016 budgets, budgeting processes, and trends in expenses and employment. This section also presents information on the costs of new currency.

System Budgets Overview

Tables 1 and 2 summarize the Federal Reserve Board of Governors' and Federal Reserve Banks' 2015 budgeted and actual and 2016 budgeted operating expenses and employment. ²

Table 1. Total operating expenses of the Federal Reserve System, net of receipts and claims for reimbursement, 2015-16
Millions of dollars, except as noted

Item	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Board	629.3	643.5	14.2	2.3	709.5	66.0	10.3
OIG	29.0	28.9	-0.1	-0.3	31.8	2.9	9.9
Reserve Banks 1	3,968.7	3,875.3	-93.4	-2.4	4,116.6	241.3	6.2
Currency	717.9	689.2	-28.7	-4.0	737.4	48.2	7.0
Total System operating expenses	5,344.9	5,236.9	-108.0	-2.0	5,595.3	358.3	6.8
Revenue from priced services	414.4	429.1	14.7	3.5	426.9	-2.2	-0.5
Claims for reimbursement 2	626.1	650.5	24.4	3.9	652.6	2.1	0.3
Other income 3	2.9	2.9	* *	0.5	2.5	-0.4	-13.8
Revenue and claims for reimbursement 4	1,043.4	1,082.5	39.1	3.7	1,082.0	-0.5	0.0
Total System operating expenses, net of revenue and claims for reimbursement	4,301.5	4,154.4	-147.1	-3.4	4,513.3	358.8	8.6

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

1. Excludes Reserve Bank capital outlays as well as assessments by the Board of Governors for costs related to currency and the operations of the Board of Governors and the Consumer Financial Protection Bureau (CFPB). Return to table

2. 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

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

4. 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 4, "Supervision and Regulation," for more information.)  Return to table

*Less than $50,000. Return to table

Table 2. Employment in the Federal Reserve System, 2015-16

Item	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Board 1	2,673	2,700	27	1.0	2,789	89	3.3
OIG1	125	125	0	0.0	130	5	4.0
Reserve Banks 2	19,295	18,986	-310	-1.6	19,424	438	2.3
Total System employment	22,093	21,811	-283	-1.3	22,343	532	2.4

Note: Employment numbers presented include authorized position counts for the Board and OIG 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 and includes outside agency help.

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

2. Includes employment of the Federal Reserve Information Technology (FRIT) support function and the Office of Employee Benefits (OEB). Return to table

2015 Budget Performance

In carrying out its responsibilities in 2015, the Federal Reserve System incurred $4.2 billion in net expenses. Total System operating expenses of $5,236.9 million were offset by $1,082.5 million in revenue from priced services, claims for reimbursement, and other income. Total 2015 System operating expenses were $108.0 million, or 2.0 percent, less than the amount budgeted for 2015.

2016 Operating Expense Budget

Budgeted 2016 operating expenses, net of revenue and reimbursements, are $358.8 million, or 8.6 percent, higher than 2015 actual expenses. The Reserve Bank budgets comprise almost three-quarters of the System budget (figure 1). Budgeted 2016 revenue from priced services and claims for reimbursements are expected to remain stable in 2016.

Trends in Expenses and Employment

From the actual 2006 level to the budgeted 2016 amount, the total expenses of the Federal Reserve System have increased an average of 4.6 percent per year (figure 2). Over the same period, nondefense discretionary spending by the federal government has increased an average of 1.3 percent per year (figure 3). Federal Reserve System employment declined from 2006 through 2010 because of continued efforts to reduce the size of the System's check service and efficiency improvements in cash and support functions. Staffing has subsequently increased because of requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and other responses to the financial crisis
(figure 4).

Growth in supervision expenses over the past 10 years has been driven by additional supervisory resources needed to respond to the financial crisis, to continue to implement expanded supervisory responsibilities mandated by the Dodd-Frank Act, and to maintain appropriate coverage following growth in the number of supervised state member banks. Expense growth in the monetary policy area during the financial crisis has been followed by a focus on enhancing financial stability monitoring and dedicating additional resources to regional economic research.

Federal Reserve Bank expenses in the cash area have increased as a result of a multiyear effort to modernize the cash-processing and inventory-tracking infrastructure. Expenses for services provided to the Treasury have grown to meet that agency's evolving needs, including the development of enhanced automated tools for the Treasury's collection and payment services, the addition of Treasury applications to the Treasury Web Application Infrastructure (TWAI), and other requested projects. These increases have been partially offset by substantial expense and staffing decreases related to efficiencies or to organizational changes in electronic check-processing, fiscal agency, cash, and support functions. They have also been partially offset by expense reductions resulting from the continued decline in paper check volume.

2016 Capital Budgets

The capital budgets for the Board and Reserve Banks total $69.8 million and $403.8 million, respectively. ³ As in previous years, the capital budgets in 2016 include funding for projects that support the strategic direction outlined by the Board 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.

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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) and Strategic Plan 2016-19 (www.federalreserve.gov/publications/gpra/files/2016-2019-gpra-strategic-plan.pdf). ⁴ The budget is structured by division, office, or special account.

The Board's budget process is as follows:

• At the start of the budget process, the chief operating officer (COO) and chief financial officer (CFO) meet with the Committee on Board Affairs (CBA) and recommend a specific growth target for the Board's operating budget. The recommendation is based on a growth projection that includes known changes in the Board's base budget (personnel expenses as well as goods and services), funding clearly defined in the strategic plan, and additional initiatives. The growth projection also incorporates the full-year impact of positions added during the prior year as well as proposed changes to the Board's compensation and benefit programs, along with historic spending trends in goods and services.
• Staff reviews initial budget requests submitted by divisions and offices, including proposed initiatives and potential savings, and works collaboratively with all divisions and offices to refine budget submissions and bring the proposed operating budget in line with the growth target.
• The COO and CFO subsequently meet with the Executive Committee, which comprises the directors of each division, and the CBA to further review and refine the budget submissions.
• Staff submits the proposed budget to the CBA for review.
• The administrative governor submits the budget to the full Board for review and final action.
• Expenses are monitored throughout the year. Variances are analyzed and reported. ⁵

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 2015 budgeted and actual expenditures and its 2016 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 2015 and 2016. 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, 2015-16
Millions of dollars, except as noted

Division, office, or special account	2015 budget 1	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Board Members	27.3	26.2	-1.1	-4.1	27.9	1.7	6.6
Secretary	10.0	10.1	0.1	1.0	10.6	0.4	4.3
Research and Statistics	66.2	67.2	1.0	1.5	72.4	5.2	7.7
International Finance	28.6	27.4	-1.2	-4.2	31.3	4.0	14.5
Monetary Affairs	34.0	34.2	0.2	0.5	37.9	3.7	10.8
Financial Stability Policy and Research	7.6	8.0	0.4	4.9	9.5	1.5	18.5
Banking Supervision and Regulation	122.4	128.8	6.4	5.2	139.6	10.8	8.4
Consumer and Community Affairs	27.3	27.5	0.2	0.7	31.8	4.3	15.7
Legal	25.9	25.7	-0.2	-0.8	28.7	3.1	11.9
Chief Operating Officer	14.0	11.9	-2.1	-14.7	15.9	4.0	33.7
Financial Management	11.1	11.4	0.3	2.4	12.2	0.8	6.6
Reserve Bank Operations and Payment Systems	39.6	40.9	1.3	3.4	41.2	0.3	0.7
Information Technology	94.8	95.4	0.6	0.6	102.5	7.1	7.4
IT income 2	-44.0	-44.2	-0.2	0.4	-45.0	-0.8	1.8
Management	114.0	111.9	-2.0	-1.8	121.6	9.6	8.6
Centrally-managed benefits 3	9.8	13.4	3.6	37.2	14.1	0.6	4.8
Special projects	14.7	13.4	-1.3	-8.9	17.0	3.6	27.1
Extraordinary items	26.0	34.2	8.2	31.5	40.3	6.1	17.9
Total, Board operations	629.3	643.5	14.2	2.3	709.5	66.0	10.3
Office of Inspector General	29.0	28.9	-0.1	-0.3	31.8	2.9	9.9

1. The 2015 budget figures do not reflect internal transfers among divisions and accounts during the year. Return to table

2. Previously, this special account was reported as "Data processing income."  Return to table

3. Previously, this special account was reported as "Residual retirement."  Return to table

Table 4. Operating expenses of the Board of Governors, by account classification, 2015-16
Millions of dollars, except as noted

Account classification	2015 budget 1	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Personnel services
Salaries	362.5	367.3	4.8	1.3	401.0	33.7	9.2
Retirement/Thrift plans 2	44.8	49.9	5.2	11.5	52.3	2.3	4.6
Employee insurance	31.3	31.1	-0.2	-0.5	39.4	8.3	26.8
Subtotal, personnel services	438.5	448.4	9.8	2.2	492.7	44.3	9.9
Goods and services
Postage and shipping	0.8	0.5	-0.3	-39.0	0.4	-0.1	-18.0
Travel	14.7	16.1	1.4	9.6	16.4	0.3	1.8
Telecommunications	6.8	7.1	0.4	5.2	7.2	0.1	0.9
Printing and binding	1.8	1.6	-0.2	-13.3	2.2	0.7	41.7
Publications	0.5	0.6	0.1	11.5	0.6	*	1.3
Stationery and supplies	1.5	1.5	* *	-0.4	1.4	-0.1	-3.9
Software	15.3	14.3	-1.0	-6.4	16.6	2.3	15.9
Furniture and equipment (F&E)	7.5	10.1	2.6	35.0	6.6	-3.6	-35.2
Rentals	22.9	23.2	0.3	1.4	27.0	3.8	16.4
News, data, and research 3	15.0	16.6	1.6	10.6	32.9	16.3	98.4
Utilities	2.9	3.0	0.1	3.9	3.3	0.4	12.1
Repairs and alterations building	2.9	1.7	-1.1	-39.7	2.2	0.5	29.2
Repairs and maintenance F&E	5.2	5.1	-0.1	-1.7	5.6	0.5	9.3
Contingency processing center (CPC) 4	1.3	1.3	-0.1	-4.7	0.0	-1.3	-100.0
Contractual professional services	51.6	49.3	-2.2	-4.3	53.6	4.2	8.6
Interest	*	*	*	-2.2	*	*	-49.1
Tuition/registration/memberships	4.6	4.4	-0.2	-4.1	3.1	-1.3	-28.7
Subsidies and contributions	0.8	0.8	*	-3.8	0.9	0.1	13.1
All other	7.7	4.5	-3.2	-41.4	3.3	-1.2	-26.5
Depreciation	36.9	40.2	3.3	9.0	40.3	0.1	0.3
IT user charge	40.8	43.7	2.9	7.1	44.7	1.0	2.3
IT income	-41.1	-44.2	-3.1	7.7	-45.0	-0.8	1.8
Income	-9.6	-6.3	3.3	-34.6	-6.5	-0.2	3.9
Subtotal, goods and services	190.8	195.2	4.4	2.3	216.9	21.7	11.1
Total, Board operations	629.3	643.5	14.2	2.3	709.5	66.0	10.3
Office of Inspector General
Personnel services	21.1	21.8	0.7	3.5	23.9	2.1	9.6
Goods and services	7.9	7.1	-0.8	-10.3	7.9	0.8	11.1
Total, OIG operations	29.0	28.9	-0.1	-0.3	31.8	2.9	9.9

1. The 2015 budget figures do not reflect internal transfers among divisions and accounts during the year. Return to table

2. Includes expenses related to Board participants in the Benefit Equalization Retirement Plan and Pension Enhancement Plan. Return to table

3. Account name changed from "books and subscriptions" to "news, data, and research." The 2016 budget for data, news, and research is significantly higher due to the Survey of Consumer Finances, which occurs every three years. Return to table

4. For the 2016 budget, this account has been combined with rentals. Return to table

*Less than $50,000. Return to table

Table 5. Positions authorized by the Board of Governors, by division, office, or special account, 2015-16

Division, office, or special account	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Board Members	118	120	2	1.7	121	1	0.8
Secretary	53	53	0	0.0	53	0	0.0
Research and Statistics	343	344	1	0.3	346	2	0.6
International Finance	150	150	0	0.0	152	2	1.3
Monetary Affairs	157	156	-1	-0.6	167	11	7.1
Financial Stability Policy and Research	42	42	0	0.0	50	8	19.0
Banking Supervision and Regulation	441	456	15	3.4	486	30	6.6
Consumer and Community Affairs	107	110	3	2.8	123	13	11.8
Legal	115	115	0	0.0	123	8	7.0
Chief Operating Officer	59	59	0	0.0	65	6	10.2
Financial Management	69	66	-3	-4.3	66	0	0.0
Reserve Bank Operations and Payment Systems	170	171	1	0.6	176	5	2.9
Information Technology	409	409	0	0.0	412	3	0.7
Management	440	449	9	2.0	449	0	0.0
Total, Board operations 1	2,673	2,700	27	1.0	2,789	89	3.3
Office of Inspector General	125	125	0	0.0	130	5	4.0

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

2015 Budget Performance

Board of Governors

Total expenses for Board operations were $643.5 million, which was $14.2 million, or 2.3 percent, more than the approved 2015 budget of $629.3 million. The Board's 2015 single-year capital spending was less than budgeted by $3.0 million, or 26.9 percent, and multiyear capital projects remained within their project budgets with actual spending in 2015 less than budgeted by $34.6 million, or 53.8 percent.

The 2015 operational overrun was primarily driven by overruns in personnel services and by significant timing-related adjustments and one-time accounting entries in goods and services. Personnel services were $9.8 million more than the 2015 budget primarily because of the ability of divisions to hire faster than projected, compensation adjustments, and additional benefit costs resulting from updated pension cost assumptions. Goods and services were $4.4 million more than the budget primarily because of a timing-related adjustment for furniture and equipment purchases that were planned in the prior year's budget and a one-time accounting entry associated with the ongoing building renovation project. In September 2015, the Board authorized the overexpenditure of the 2015 operating budget, excluding specific building-related accounting entries, by 1.5 percent.

Office of Inspector General

Total expenses for OIG operations were $28.9 million, which was $0.1 million, or 0.3 percent less than the approved 2015 operating budget. Personnel services were $0.7 million more than budgeted largely because hiring occurred earlier than anticipated. Goods and services were $0.8 million less than budgeted because of less-than-anticipated spending for tuition, contractual professional services, software, and travel. The OIG's single-year capital spending was less than budgeted by $19.0 thousand, or 11.9 percent, and multiyear capital projects remained within their project budgets.

2016 Operating Expense Budget

Board of Governors

The 2016 budget for Board operations is $709.5 million, which is $66.0 million, or 10.3 percent, higher than 2015 actual expenses. The operating budget includes amounts to fund the Board's ongoing operations and the triannual Survey of Consumer Finances and to support the six overarching pillars identified in the Board's 2016-19 strategic plan.

For 2016, authorized positions for Board operations total 2,789, an increase of 89 positions, or 3.3 percent, from 2015 actual levels. The positions are aligned with the strategic plan, and as in past years, positions were added in divisions that are focused on monetary policy, financial stability and supervisory mandates under the Dodd-Frank Act, and new regulatory responsibilities. Positions were also allocated to the support divisions to meet demands, such as legal work related to enforcement and litigation cases, technology projects to support the Board's enterprise data strategy, and other information technology work.

Office of Inspector General

The 2016 budget for the OIG operations is $31.8 million, which is $2.9 million, or 9.9 percent, higher than 2015 actual expenses. For 2016, authorized positions for the OIG total 130, an increase of 5 positions, or 4.0 percent, from 2015 actual levels. The additional funding and positions will assist the OIG in implementing the goals, objectives, and activities identified in the OIG's strategic plan, which includes delivering high-quality products and services that promote agency improvement, increasing employee engagement, cultivating leadership, fostering a skilled and knowledgeable workforce, optimizing external stakeholder engagement, and enhancing the capacity and improving the operational effectiveness of the OIG.

Risks in the 2016 Budget

The 2016 operating budget is built on the initial steps taken in 2014 and 2015 to better align budget requests with historic hiring trends and spending patterns, while ensuring the funding of the Board's highest priority needs. Meeting the approved growth targets required all divisions to make difficult choices and prioritize their greatest needs for 2016. During the budget process, many divisions noted the potential impact that reducing their budget requests would have on meeting workload demands. Staff from the Division of Financial Management will work closely with all divisions throughout the year to mitigate potential budget overruns by closely monitoring spending.

Several divisions have indicated they will need additional staff in the coming years beyond the positions approved in the 2016 budget. Continued increases in staffing will affect support functions and place additional demands on available office space. Developing a facilities master plan, as outlined in the new strategic plan, will be critical to meeting future space requirements. The Martin Building renovation will continue to be an area of focus, from both a budget and project management perspective, given the size, complexity, and strategic importance of the project. Other budget risks stem from uncertainty about the rising expenses associated with the Board's data needs and the infrastructure necessary to support effective data management.

2016 Capital Budgets

Table 6 summarizes the Board's and the OIG's budgeted and actual capital outlays for 2015 and 2016.

Table 6. Capital outlays of the Board of Governors, by capital type, 2015-16
Millions of dollars, except as noted

Item	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Board
Single-year capital outlays	11.1	8.1	-3.0	-26.9	9.0	0.8	10.2
Multiyear capital outlays	64.3	29.7	-34.6	-53.8	60.5	30.8	103.6
Total capital outlays	75.4	37.9	-37.6	-49.8	69.5	31.6	83.5
OIG
Single-year capital outlays	0.2	0.1	*	-11.9	0	-0.1	-100.0
Multiyear capital outlays	1.0	* *	-1.0	-101.3	0.3	0.3	n/a
Total capital outlays	1.2	0.1	-1.1	-89.3	0.3	0.2	128.1
Combined total capital outlays	76.6	38.0	-38.7	-50.4	69.8	31.8	83.7

Note: The amount reported for the multiyear capital budget represents the expected expenditure for the budget year.

*Less than $50,000. Return to table

n/a Not applicable.

Board of Governors

The Board's 2016 single-year capital budget totals $9.0 million, which represents a decrease of $2.2 million over the 2015 single-cycle capital budget. The budget provides funding for routine equipment purchases and life-cycle replacements, as well as new initiatives for technology and automation projects, such as network infrastructure upgrades.

The Board's multiyear capital budget totals $468.5 million, which includes 2016 expected cash outlays of $60.5 million. The proposed budget is largely a continuation of projects already in progress, including the Martin Building renovation and upgrades to the Eccles Building (the amounts for which are unchanged). New initiatives approved for the 2016 budget cycle include information technology projects supporting the statistics function, enhancing data analytical capabilities for banking regulation and supervision, automation projects supporting the Board's data strategy, and the build-out of additional leased space to accommodate position growth. One of the key projects during the 2012-15 strategic planning period was the relocation of the existing Data Center, which was completed at the end of 2015. In addition, the New York Avenue Building reconfiguration project will be completed in early 2016 and is expected to be within budget.

Office of Inspector General

The OIG's 2016 capital budget totals $0.3 million for multiyear capital outlays, which includes the continued build out of its San Francisco regional office.

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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 functional area, with attributable support and overhead charged to each area. 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.

The Reserve Bank budget process is as follows:

• Reserve Bank and Board governance bodies provide budget guidance for 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.
• 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' 2015 budgeted and actual expenses and 2016 budgeted expenses by Reserve Bank, functional area, and account classification. ⁶ In addition, table 10 shows the Reserve Banks' budgeted and actual employment for 2015 and budgeted employment for 2016.

Table 7. Operating expenses of the Federal Reserve Banks, by District, 2015-16
Millions of dollars, except as noted

District	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Boston	231.6	227.1	-4.5	-1.9	236.5	9.4	4.1
New York	938.3	918.5	-19.8	-2.1	969.2	50.7	5.5
Philadelphia	200.8	196.1	-4.7	-2.3	194.0	-2.1	-1.1
Cleveland	173.5	170.2	-3.3	-1.9	183.9	13.7	8.0
Richmond	359.7	360.2	0.6	0.2	352.3	-7.9	-2.2
Atlanta	323.0	314.0	-9.0	-2.8	335.8	21.8	7.0
Chicago	356.6	354.0	-2.6	-0.7	369.5	15.5	4.4
St. Louis	335.4	321.4	-14.0	-4.2	374.2	52.8	16.4
Minneapolis	214.5	199.4	-15.2	-7.1	214.1	14.7	7.4
Kansas City	255.3	245.0	-10.3	-4.0	277.3	32.4	13.2
Dallas	223.3	219.4	-3.9	-1.7	231.1	11.7	5.3
San Francisco	356.7	350.0	-6.7	-1.9	378.6	28.6	8.2
Total Reserve Bank operating expenses	3,968.7	3,875.3	-93.4	-2.4	4,116.6	241.3	6.2

Note: Includes expenses of the FRIT support function and the OEB and reflects all redistributions for support and allocation for overhead. Excludes Reserve Bank capital outlays as well as assessments by the Board of Governors for costs related to currency and the operations of the Board of Governors and the CFPB.

Table 8. Operating expenses of the Federal Reserve Banks, by operating area, 2015-16
Millions of dollars, except as noted

Operating area	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Monetary and economic policy	636.8	631.9	-4.9	-0.8	663.8	31.9	5.0
Services to the U.S. Treasury and other government agencies	579.9	550.5	-29.4	-5.1	605.6	55.1	10.0
Services to financial institutions and the public	1,073.6	1,050.9	-22.7	-2.1	1,112.3	61.4	5.8
Supervision and regulation	1,260.2	1,252.1	-8.0	-0.6	1,311.6	59.5	4.8
Fee-based services to financial institutions	418.2	389.9	-28.4	-6.8	423.3	33.4	8.6
Total Reserve Bank operating expenses 1	3,968.7	3,875.3	-93.4	-2.4	4,116.6	241.3	6.2

1. Operating expenses exclude pension costs, reimbursements, and operating expenses of the Board of Governors (see table 4). Return to table

Table 9. Operating expenses of the Federal Reserve Banks, by account classification, 2015-16
Millions of dollars, except as noted

Account classification	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Personnel 1	2,938.8	2,912.0	-26.8	-0.9	3,085.8	173.8	6.0
Building	326.6	327.5	0.8	0.3	329.2	1.8	0.5
Software costs	224.8	205.7	-19.1	-8.5	239.6	33.9	16.5
Equipment	195.8	181.8	-14.0	-7.1	187.6	5.7	3.2
Recoveries 2	-167.8	-182.7	-14.9	8.9	-172.0	10.7	-5.8
Expenses capitalized	-104.6	-97.0	7.6	-7.3	-106.2	-9.2	9.5
All other 3	555.1	528.0	27.1	-4.9	552.6	24.6	4.7
Total Reserve Bank operating expenses	3,968.7	3,875.3	-93.4	-2.4	4,116.6	241.3	6.2

1. Includes salaries, other personnel expense, and retirement and other employment benefit expenses. It does not include pension expenses related to all the participants in the Retirement Plan for Employees of the Federal Reserve System and the Reserve Bank participants in the Benefit Equalization Plan and the Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks. These expenses are recorded as a separate line item in the financial statements; see "Table 10. Income and expenses of the Federal Reserve Banks, by Bank" in section 11, "Statistical Tables."  Return to table

2. Includes tenant rent recoveries. Return to table

3. Includes fees, materials and supplies, travel, communications, and shipping. Return to table

Table 10. Employment at the Federal Reserve Banks, by District, and at FRIT and OEB, 2015-16

District	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Boston	1,109	1,083	-26	-2.3	1,130	47	4.4
New York	3,294	3,235	-59	-1.8	3,311	76	2.4
Philadelphia	921	895	-26	-2.8	892	-3	-0.3
Cleveland	990	964	-26	-2.6	1,010	46	4.8
Richmond	1,546	1,546	0	0.0	1,475	-71	-4.6
Atlanta	1,594	1,569	-25	-1.6	1,573	4	0.2
Chicago	1,529	1,508	-21	-1.4	1,551	43	2.9
St. Louis	1,246	1,242	-4	-0.3	1,356	115	9.2
Minneapolis	1,114	1,068	-46	-4.2	1,105	37	3.5
Kansas City	1,688	1,603	-85	-5.0	1,722	119	7.4
Dallas	1,267	1,245	-23	-1.8	1,280	35	2.8
San Francisco	1,700	1,695	-5	-0.3	1,695	0	0.0
Total, all Districts	17,998	17,652	-346	-1.9	18,101	449	2.5
Federal Reserve Information Technology (FRIT)	1,244	1,281	37	3.0	1,268	-14	-1.1
Office of Employee Benefits (OEB)	53	52	-1	-1.3	55	3	5.5
Total	19,295	18,986	-310	-1.6	19,424	438	2.3

2015 Budget Performance

Total 2015 operating expenses for the Reserve Banks were $3,875.3 million, which is $93.4 million, or 2.4 percent, less than the approved 2015 budget of $3,968.7 million. The actual average number of personnel (ANP) was less than the 2015 budget, largely because of changes in project plans, turnover, and hiring delays. The Reserve Banks' 2015 capital spending was less than budgeted by $127.1 million, or 28.0 percent, because of changes in timing and scope for numerous initiatives.

The 2015 budget underrun was primarily driven by program changes for several multiyear initiatives, including those related to the TWAI, the fiscal agent consolidation, Fedwire modernization, and the CashForward project. ⁷ Reserve Bank expenses were also lower as a result of continued efficiencies gained from the check server platform migration, the FedLine application conversion, and the implementation of the cash operations efficiency initiative. In addition, check services experienced greater volume declines than anticipated. Higher-than-expected recoveries for currency cross-shipping also contributed to the underrun.

Total 2015 actual employment for the Reserve Banks, FRIT, and OEB was 18,986 ANP, an underrun of 310 ANP, or 1.6 percent, from 2015 budgeted staffing levels. The underruns were primarily in Treasury, cash, and support services. In the Treasury function, resource reductions were in response to revised program plans and to accelerated attrition related to the fiscal agent consolidation. The cash resource reductions reflect the implementation of the evolving operations efficiency initiative. Support services and all other areas reflect turnover and hiring delays.

2016 Operating Expense Budget

The 2016 operating budgets of the Reserve Banks total $4,116.6 million, which is $241.3 million, or 6.2 percent, higher than 2015 actual expenses. The increase is primarily to fill staffing needs for supervision, Treasury, and monetary policy and for large development projects that support the cash and the priced services functions. The growth in supervision continues to be driven by expanded supervisory responsibilities, primarily for large financial institutions, and national supervision initiatives.

Budgeted expenses for services to the Treasury, which are fully reimbursable, are increasing primarily to support the full implementation of NavyCash ($10.6 million), the TWAI ($7.7 million), the myRA and Retail Securities Program Review initiatives ($6.0 million), the assumption of the Collections Information Repository ($5.3 million), and the expansion of the Financial Information Repository to accommodate the requirements of the Digital Accountability and Transparency Act (DATA) ($3.2 million). Additional growth budgeted in 2016 related to application development and technology modernization for several Treasury initiatives is partially offset by anticipated operational efficiencies.

In the monetary policy and public programs areas, several Reserve Banks are increasing their research, policy, and outreach staff positions. Expenses for open market operations are also projected to increase, largely for automation efforts and the projected increase in allocated costs for law enforcement. Increases in cash expenses are related to the implementation of the CashForward project, as well as the allocated law enforcement and facilities support. Priced services expenses are expected to increase for the ACH platform modernization project and investments in development efforts for Fedwire. Other increases include the System's continued investment in the Strategies for Improving the U.S. Payment System (SIPS) program. ⁸

Total 2016 budgeted employment for the Reserve Banks, FRIT, and OEB is 19,424 ANP, an increase of 438 ANP, or 2.3 percent, from 2015 actual employment levels. The increase is primarily driven by the Treasury, supervision, and the support and overhead functions. The Treasury authorized ANP increases related to the Reserve Banks' assumption of services formerly provided by commercial banks and updated requirements for ongoing projects. Supervision ANP is increasing as resources are added for expanded responsibilities and associated new supervisory programs for the largest supervisory portfolios and for national supervision initiatives. The support and overhead functions include additional ANP for information technology, facilities, internal audit, corporate planning, and the SIPS program.

Reserve Bank officer and staff personnel expenses for 2016 total $3,085.8 million, an increase of $173.8 million, or 6.0 percent, from 2015 actual 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 2016 Reserve Bank budgets include a 3.0 percent merit program for eligible officers, senior professionals, and staff totaling $56.7 million and a variable pay program totaling $184.4 million. Budgeted equity adjustments and promotions total $6.4 million for officers and senior professionals and $22.9 million for staff.

Risks in the 2016 Budget

The most-significant risks in the 2016 budget are related to personnel costs. Changes in benefit assumptions related to the discount rate and updated demographic information would affect the personnel expenses that are reflected in Reserve Bank budgets. Additionally, Banks are concerned about their ability to retain, hire, and replace staff, and some Banks may experience difficulty meeting schedules for hiring staff with specialized skills and experience, particularly in supervision and IT. The primary operating risks in supervision relate to the implementation of key supervisory responsibilities under the Dodd-Frank Act that still require final rulemaking and changing supervisory programs. Increased focus on cybersecurity and application modernization may affect IT spending decisions. The Treasury's fiscal agent consolidation effort will continue to affect projects in 2016 and over a longer-term planning horizon, as project decision requirements are refined.

2016 Capital Budgets

Table 11 shows the Reserve Banks' budgeted and actual capital outlays for 2015 and budgeted capital for 2016.

The 2016 capital budgets for the Reserve Banks, FRIT, and OEB total $403.8 million. The increase in the 2016 capital budget is $76.9 million, or 23.5 percent, more than the 2015 actual levels of $326.9 million, largely reflecting ongoing multiyear building and information technology projects. Initiatives in the 2016 capital budget support the ACH modernization efforts, security enhancements, and application upgrades and releases primarily for cash, supervision, Treasury and monetary policy. The BAC chair designated projects with an aggregate cost of $125.3 million in 2016 as strategic or sensitive, requiring additional review and approval by the Board's director of the Division of Reserve Bank Operations and Payments Systems. ⁹

Table 11. Capital outlays of the Federal Reserve Banks, by District, and of FRIT and OEB, 2015-16
Millions of dollars, except as noted

District	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
Boston	28.5	23.7	-4.8	-16.8	21.6	-2.1	-9.0
New York	115.9	72.5	-43.4	-37.5	81.1	8.7	12.0
Philadelphia	20.5	13.3	-7.2	-35.0	22.2	8.9	66.8
Cleveland	17.0	9.2	-7.8	-45.6	18.1	8.9	96.3
Richmond	15.2	10.1	-5.1	-33.3	15.6	5.5	54.1
Atlanta	16.1	8.3	-7.9	-48.8	33.8	25.6	309.0
Chicago	26.5	27.0	0.5	1.7	26.1	-0.9	-3.4
St. Louis	14.3	15.0	0.7	4.9	10.2	-4.8	-32.0
Minneapolis	4.7	2.2	-2.4	-52.1	4.4	2.1	95.5
Kansas City	25.8	21.4	-4.4	-17.0	29.7	8.3	38.7
Dallas	17.3	11.2	-6.1	-35.4	18.1	6.8	61.1
San Francisco	60.5	51.5	-9.0	-14.8	57.5	6.0	11.6
Total, all Districts	362.4	265.5	-96.8	-26.7	338.4	72.9	27.5
Federal Reserve Information Technology (FRIT)	91.1	60.5	-30.6	-33.6	65.4	4.9	8.0
Office of Employee Benefits (OEB)	0.6	0.9	0.3	55.7	* *	-0.9	-99.4
Total	454.0	326.9	-127.1	-28.0	403.8	76.9	23.5

*Less than $50,000. Return to table

Capital Expenditures Designated as Strategic or Sensitive

The expenditures designated as strategic or sensitive by the chair of the BAC include projects to migrate major applications off the mainframe, with budgeted 2016 expenditures of $18.4 million and total multiyear budgeted expenditures of $32.5 million for 2016 and future years. ¹⁰ Additionally, cash automation initiatives include $23.6 million for the CashForward project. Other expenditures include large-scale building projects to optimize office space, renovate conference center and cafeteria space, and upgrade mechanical and electrical infrastructure.

Other Capital Expenditures

Significant capital expenditures (expenditures exceeding $1 million) that are not designated strategic or sensitive include total multiyear budgeted expenditures of $305.0 million for 2016 and future years. The single-year component for budgeted 2016 expenditures is $166.8 million. Expenditures in this category include investments in analytical, technological, and operational tools for monetary policy, support for supervisory responsibilities, and IT support for Treasury initiatives. Building expenditures include office space renovations, security enhancements, and elevator upgrades.

Capital initiatives that are individually of lesser amounts (less than $1 million) are budgeted at $111.8 million for 2016 and include building expenditures, equipment and furniture replacements, and scheduled software and equipment upgrades.

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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 reimburses the BEP for all costs related to the production of currency. ¹¹ 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 Board's Division of Reserve Bank Operations and Payments Systems submits a fiscal year (FY) print order for currency to the director of the BEP.
• Each December, Board staff estimates expenses for the calendar-year 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. ¹²
• The BAC reviews the proposed currency budget.
• The BAC chair submits the proposed currency budget to the Board for final action.

2015 Budget Performance

The Board's total 2015 actual expenses for new currency were $689.2 million, which represents an underrun of $28.7 million, or 4.0 percent, from the 2015 budget. About half of the budget underrun is attributable to the BEP purchasing fewer currency readers for use by blind and visually-impaired individuals than budgeted. ¹³ The remainder of the budget underrun is primarily attributable to lower-than-projected costs for transporting new and fit notes, as well as lower printing costs resulting from lower-than-projected deliveries from the BEP of Federal Reserve notes. ¹⁴

2016 Budget

The 2016 new currency budget of $737.4 million is $48.2 million, or 7.0 percent, higher than 2015 actual expenditures (figure 5). Printing costs for Federal Reserve notes constitute about 90 percent of the currency budget. Expenses for currency transportation, the currency quality assurance (CQA) and counterfeit-deterrence programs, the new BEP facility, the currency reader program, other costs to reimburse the BEP, and the currency education program (CEP) make up the remaining 10.0 percent (table 12).

Table 12. Federal Reserve currency budget, 2015 and 2016
Thousands of dollars, except as noted

Item	2015 budget	2015 actual	Variance 2015 actual to 2015 budget		2016 budget	Variance 2016 budget to 2015 actual
			Amount	Percent		Amount	Percent
BEP-related expenses
Printing Federal Reserve notes	642,527	637,346	-5,180	-0.8	670,422	33,075	5.2
Currency reader	17,120	2,680	-14,440	-84.3	8,478	5,798	216.4
Other	3,674	3,922	248	6.8	4,232	310	7.9
New BEP facility	n/a	n/a	n/a	n/a	5,000	5,000	0.0
Board expenses
Currency transportation	29,235	23,357	-5,878	-20.1	26,400	3,043	13.0
Currency quality assurance and counterfeit deterrence	20,993	19,564	-1,429	-6.8	19,445	-119	-0.6
Currency education program	4,390	2,329	-2,061	-47.0	3,400	1,071	46.0
Total cost of new currency	717,939	689,199	-28,740	-4.0	737,377	48,179	7.0

BEP Bureau of Engraving and Printing.

n/a Not applicable.

Printing of Federal Reserve Notes

The currency budget includes $670.4 million in printing costs for 2016, which represents an increase of 4.3 percent from the 2015 budget and 5.2 percent from 2015 actual expenditures. The increase is primarily attributable to the BEP's inclusion of additional funding for 2016 research and development efforts associated with security and tactile feature development for the next-design family of notes.

Currency Reader Program

The 2016 currency reader budget is $8.5 million, which is approximately $5.8 million higher than 2015 actual expenditures and $8.6 million lower than the 2015 budget. The budget includes $6.5 million to purchase and distribute more than 130,000 currency readers to qualified blind or visually-impaired individuals at no cost to the user. The BEP expects to distribute more readers in 2016 than in 2015 because it plans to promote the reader program more. In addition, the budget includes $1.5 million to reimburse the Library of Congress for administering the program through the existing infrastructure of its book reader program, which is managed by the National Library Service.

Other Reimbursements to the Bureau of Engraving and Printing

The 2016 budget includes $4.2 million to reimburse the BEP for expenses incurred by its Destruction Standards and Compliance Division of the Office of Compliance (OC) and Mutilated Currency Division (MCD) of the Office of Financial Management. The OC develops standards for cancellation and destruction of unfit currency and for note accountability at the Reserve Banks, and reviews Reserve Banks' cash operations for compliance with its standards. As a public service, the MCD also processes claims for the redemption of damaged or mutilated currency.

The BEP's New Facility

The 2016 budget includes $5.0 million for estimated contractual expenses related to initial work for the BEP's new facility. In 2015, the BEP received approval from the Treasury to pursue a new building in the metropolitan Washington, D.C. area. The General Services Administration has considered and evaluated several sites, and in 2016 the BEP expects to select a site and begin design work.

Currency Transportation

The 2016 currency transportation budget is $26.4 million, which is nearly $3.0 million, or 13.0 percent, higher than 2015 expenditures. The budget includes the cost of shipping new currency from the BEP to Reserve Banks, of intra-System shipments of fit and unprocessed currency, and of returning currency pallets from the Reserve Banks to the BEP. More notes are projected to be shipped in 2016 than in 2015 because the 2016 budget includes nearly 11.0 percent more notes than the BEP delivered during 2015.

Currency Quality Assurance

The 2016 budget for the CQA program is $9.2 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 2016 budget for counterfeit-deterrence research is $10.2 million. The budget includes about $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 34 central banks. Additionally, the budget includes about $5.0 million to conduct security feature development activities, contract with national laboratories to perform adversarial analysis on security features under development at the BEP, conduct additional research on potential security features for the next-design family of notes, and conduct a perception study to assess how consumers use security features, with the study results used to inform the effective placement and design of security features in the next-design family of notes.

Currency Education Program

The 2016 CEP budget is $3.4 million. The CEP program 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 and key stakeholder groups. The major expense drivers for the 2016 budget are outreach to domestic and international businesses and retailers and developing and maintaining the uscurrency.gov educational website.

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References

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