Annual Report Budget Review 2013
Federal Reserve Bank Budgets
The 2013 operating budgets of the 12 Reserve Banks total $3,688.2 million. The 2013 budget is $226.1 million, or 6.5 percent, above 2012 actual expenses. The growth continues to be driven by increases in central bank functions, primarily in supervision, for portfolio growth, workload demand, national initiatives to improve the function's analytical capabilities, and ongoing support of the Dodd-Frank Act. In addition, the cash function expenses are increasing due to the CashForward automation project, and the monetary policy function is expanding to meet evolving policy and financial stability responsibilities.9 In Treasury services, expenses are rising due to increased demand from the Treasury. These increases are partially offset by decreases in priced services as a result of continued declines in check volume and improved operational efficiencies in check processing.
Budgeted net expenses for 2013, after revenue and reimbursements, are expected to increase by $219.1 million, or 8.8 percent, over actual 2012 net expenses (table 6). Approximately 26 percent of Reserve Bank expenses in the 2013 budget are offset by either priced service revenues (11.5 percent) or reimbursable claims for services provided to the Treasury and other agencies (14.6 percent).10 Budgeted 2013 priced services revenue is 5.8 percent lower than the 2012 actual level, reflecting continued declines in check volume as customers shift to other payment methods. Reimbursable claims are expected to increase 6.5 percent in 2013, reflecting increased activity on new or expanded Treasury projects.
Table 6. Operating expenses of the Federal Reserve Banks, net of receipts and claims for reimbursement, 2012 and 2013
Millions of dollars, except as noted| Item | 2012 (actual) | 2013 (budgeted) | Change | |
|---|---|---|---|---|
| Amount | Percent | |||
| Total operating expenses | 3,462.1 | 3,688.2 | 226.1 | 6.5 |
| Less | ||||
| Revenue from priced services | 449.8 | 423.9 | -25.9 | -5.8 |
| Claims for reimbursement 1 | 506.4 | 539.4 | 33.0 | 6.5 |
| Other income | 2.2 | 2.2 | -0.1 | -2.6 |
| Equals | ||||
| Net expenses | 2,503.6 | 2,722.7 | 219.1 | 8.8 |
Note: Excludes capital outlays. Includes expenses budgeted by the Federal Reserve Information Technology and Office of Employee Benefits. Expenses from these entities have been charged to the Reserve Banks, as appropriate, and included in their budgets. Components may not sum to totals and may not yield percentages shown because of rounding. Operating expenses reflect redistributions for support costs and allocation of overhead costs.
1. Costs of fiscal agency and depository services provided to the U.S. Treasury, other government agencies, and other fiscal principals. Return to table
Total 2013 projected employment for the Reserve Banks, FRIT, and OEB is 18,656 ANP, an increase of 356 ANP, or 1.9 percent, from the 2012 actual staff level (table 7). Staffing levels in 2013 are projected to increase, primarily driven by supervision and information technology (IT). The supervision function is increasing as resources are added to support portfolio growth, expanded supervisory responsibilities resulting from the implementation of the Dodd-Frank Act, and initiatives to improve the function's analytical capabilities and infrastructure. IT is also a significant driver of increased staffing in order to transition to a consolidated IT services delivery model and to support information security efforts. These increases are offset by a significant decline in check staff with the consolidation of check processing, the implementation of a more efficient check processing platform, and continued volume declines.
From 2003 to 2010, total staffing levels consistently decreased, primarily as a result of the multiyear restructuring efforts in the check-processing function. During this period, staffing reached its lowest level of 17,459 ANP in 2010. Subsequent staffing increases have been primarily driven by two factors: First have been additions--mainly in supervision--spurred initially by the need to address the financial crisis; then beginning in 2011, to implement the Dodd-Frank Act; and most recently, to accommodate portfolio growth. Second has been growth in IT and in monetary policy.
Table 7. Employment at the Federal Reserve Banks, FRIT, and OEB, 2012 and 2013
Average number of personnel, except as noted
| Item | 2012 (actual) | 2013 (budgeted) | Change | |
|---|---|---|---|---|
| Amount | Percent | |||
| Reserve Banks | 17,056 | 17,400 | 344 | 2.0 |
| Federal Reserve Information Technology (FRIT) | 1,196 | 1,202 | 6 | 0.5 |
| Office of Employee Benefits (OEB) | 48 | 53 | 5 | 11.1 |
| Total | 18,300 | 18,656 | 356 | 1.9 |
Note: Components may not sum to totals and may not yield percentages shown because of rounding. See text note 6 for definition of average number of personnel.
2012 Budget Performance
Total 2012 actual expenses were $3,462.1 million, which represents an increase of $16.0 million, or 0.5 percent, from the approved 2012 budget of $3,446.1 million.11 Total 2012 actual staffing was 18,300 ANP, an increase of 198 ANP from 2012 budgeted levels of 18,102 ANP.
The 2012 budget overrun is primarily driven by supervision due to accelerated hiring to meet the responsibilities of the Dodd-Frank Act, additional resources required to support portfolio growth and increased workload, and the initiative to implement a new supervisory framework ($24.0 million).
The overrun in monetary policy is driven by increased support cost charges related to IT services, protection, and facilities. Offsetting these increases are lower personnel expenses resulting from hiring delays for staff with specialized skills ($11.1 million).
Treasury services are slightly over budget due to the Treasury's request to expand several existing programs, such as Government-Wide Accounting and Do Not Pay, and to support new programs such as the Post Payment System ($2.6 million).12 These increases are partially offset by the completion of the Treasury Collateral Management and Monitoring application development project, decline in call volume associated with the Go Direct initiative, and shift in the timing of other initiatives.13
Partially offsetting the overrun are decreased expenses in priced services driven by the continued decrease in check operations (-$8.7 million). Additionally, expenses for services to financial institutions and the public (other than priced services) are under budget primarily due to the refinement of project costs and timing for the CashForward program and lower-than-expected public programs costs resulting from shifts in project timing and use of support services (-$8.2 million).
The overrun in total staffing of 198 ANP, as compared to the budget, reflects staff additions in IT due to an increase in business-line IT projects, support of information security enhancements, and the Reserve Banks' server-consolidation initiative (217 ANP). Additions in priced services are related to greater-than-projected resource requirements necessary for the electronic Check 21 environment and for the FedACH Technology Transition project (36 ANP). The overrun in supervision is due to accelerated staffing to support Dodd-Frank Act responsibilities, portfolio growth, increased workload demand, and the implementation of a new supervisory framework (36 ANP). Offsetting these overruns are decreases in the Treasury services function due to changes in the scope, timing, and alignment of projects (34 ANP) and in cash due to operational efficiencies (24 ANP).
Initiatives Affecting the 2013 Budgets
In this Section:
For 2013, the Reserve Banks' budgets reflect growth of $226.1 million, or 6.5 percent, compared to the 2012 actual in several initiatives, primarily in supervision and monetary policy to address resource needs, and in Treasury services and cash operations to fund modernization efforts. A majority of the growth is driven by costs associated with the projected staff increases to support these initiatives. The growth is slightly offset by reductions in check operations.
Central Bank Services
In the central bank services area, which includes supervision, services to financial institutions and the public (other than priced services), and monetary policy, expenses are increasing $184.4 million, or 7.1 percent, compared to 2012 actual expenses. The staffing level is increasing 253 ANP, or 3.3 percent.
The largest portion of the increase is in the supervision function, which is increasing $89.7 million, or 8.5 percent, with a corresponding projected staffing growth of 179 ANP. This expansion is in response to portfolio growth and expenses in support of infrastructure needs in a growing business function, as well as ongoing support of the Dodd-Frank Act. The expenses of the cash function are increasing $46.3 million, or 8.7 percent, and 23 ANP, driven primarily by continued work on the CashForward project as it enters a major development phase. Slightly offsetting the projected growth are lower cash operation expenses due to continued operational efficiencies.
The total 2013 budget for monetary policy is increasing $39.1 million, or 6.9 percent. Staffing is increasing 37 ANP as several Reserve Banks add resources to meet policy and research demands, as well as to meet expanded responsibilities related to financial stability. Also adding to the expense increase are investments in data and data analytical tools to support policy and research demands.
The increases in central bank services expenses are being partially offset by a decrease of $4.5 million, or 5.3 percent, in expenses related to the loans to depository institutions and others function--primarily at the Federal Reserve Bank of New York--as a result of staffing reductions of 19 ANP and lower professional service fees following the ongoing wind down of the financial stability liquidity facilities created in response to the financial crisis.14
Treasury-Related Functions
The budgeted expenses for services to the Treasury, which are fully reimbursable, are increasing $45.4 million, or 9.5 percent, as a result of large growth in work on several Treasury projects. These include the continuation of the Do Not Pay project, the accelerated and expanded Invoice Processing Platform, and the new Payment Information Repository and Financial Information Repository projects.15 Overall staffing for the Treasury function is budgeted to increase by 38 ANP in support of these initiatives.
Priced Services
Total priced services expenses are declining $3.7 million, or 1.0 percent, from 2012 actual expenses. The major driver is check operation costs, which are decreasing $20.8 million, or 12.7 percent. This decline reflects lower costs associated with the consolidation of check operations to the Federal Reserve Bank of Atlanta and efficiencies from the implementation of the check processing platform modernization initiative. Check staffing levels have a corresponding decrease of 119 ANP, or 24.4 percent, in the 2013 budget. Partially offsetting this decrease is an increase of $10.9 million, or 9.5 percent, for the Fedwire funds and securities services, primarily due to work for the Fedwire Modernization program.16 Full cost recovery is projected in the aggregate for the priced services in 2013.
Support Services
Support costs are increasing $44.2 million, or 4.1 percent, and 78 ANP. The expense increases are driven primarily by IT ($11.7 million), law enforcement ($8.4 million), and facilities ($7.5 million). IT costs are increasing mainly as a result of application development in support of cash, Treasury, and priced services projects at the Reserve Banks. The increases in law enforcement and facilities are primarily driven by infrastructure improvements and accommodations for staff growth, respectively.
2013 Personnel Expenses
Budgeted Reserve Bank officer and staff salaries and other personnel expenses for 2013 total $2,040.6 million, an increase of $145.1 million, or 7.7 percent, over 2012 actual expenses. The increase reflects costs associated with additional staff and budgeted salary administration, including merit increases, equity adjustments, promotions, and funding for variable pay.
Congress enacted legislation prohibiting statutory pay adjustments for most federal civilian employees beginning in January 2011, and in 2012, extended the freeze through March 27, 2013. Although not required to do so under the legislation, the Reserve Banks complied with the spirit of the civilian federal government salary freeze enacted by Congress and interpreted in subsequent Office of Personnel Management guidance, which permits increases for staff (but not officers) under performance-based compensation systems such as those used by the Reserve Banks. The 2013 Reserve Bank budgets reflect a 3.0 percent merit program, effective January 1 for eligible staff and April 1 for eligible officers and senior professionals ($44.6 million).
The 2013 budgets also include funding for equity adjustments, promotions, and variable pay. Equity adjustments and promotions total $7.3 million for officers and senior professionals and $18.7 million for staff. Funding for variable pay programs for officers and staff totals $147.1 million, with incremental funding used to address targeted needs in certain areas.17
Risks in the 2013 Budgets
The most significant risks in the 2013 budget are related to staffing. Reserve Banks have identified the attraction and retention of qualified staff as potentially challenging, particularly in locations where the employment market is improving. Most 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.
An additional area of budgetary risk involves large-scale automation programs, which are subject to changes in schedules that could cause significant expense variances in 2013. Treasury requests for additional work could also occur. Moreover, the Federal Reserve Bank of New York will be incurring costs in 2013 related to Treasury's planned issuance of floating-rate notes.
2013 Capital Budgets
The 2013 capital budgets submitted by the Reserve Banks, FRIT, and OEB total $492.1 million, a $5.3 million--or 1.1 percent--decrease from the 2012 actual levels.18 The capital budgets include funding for projects to support strategies that improve operational efficiencies, enhance services to Bank customers, and ensure a safe and productive work environment. In support of these strategies, the 2013 budgets include three categories of capital initiatives: Reserve Bank automation projects, building and infrastructure, and Treasury initiatives.
The Reserve Banks and FRIT included $236.4 million in funding for major IT initiatives and Reserve Bank automation projects. Multiyear projects currently underway to migrate major applications off the mainframe represent $43.7 million of the 2013 capital budget.19 Cash services initiatives represent $79.3 million of the total capital budgets, including $36.3 million for the CashForward project and $21.4 million for cash sensor upgrades. The Reserve Bank server-consolidation effort and related network services account for an additional $9.2 million. The remaining budgets will fund other initiatives, such as data security, scheduled software and equipment upgrades, as well as telecommunications and LAN equipment for renovated or expanded office space.
Building and infrastructure projects represent $207.8 million of the proposed capital budgets. Over half of the total building capital is related to projects in the Federal Reserve Banks of Boston, New York, Chicago, and San Francisco, including new initiatives in Chicago to increase security and in Boston for reclamation of tenant space for the Bank's use. Other significant projects include the acquisition of emergency generators and uninterruptible power supply equipment at several Banks. The remaining outlays in this category will fund other building renovation and refurbishment projects and various facility improvement projects.
The capital budgets also include $47.9 million for reimbursable Treasury initiatives, including support of Treasury Web Application Infrastructure, Treasury E-Services, Government-Wide Accounting, Post Payment System, and various other projects.
References
9. CashForward is a cash automation platform that will replace legacy software applications, automate business processes, and employ technologies to meet current and future needs for the cash function. Return to text
10. Reimbursable claims include the costs of fiscal agency and depository services provided to the U.S. Treasury, other government agencies, and other fiscal principals to whom actual costs are billed and reimbursed by those entities. Return to text
11. The final 2012 budget of $3,441.3 million was approved by the Board in December 2011. In May 2012, the Board approved an additional $4.8 million for employee equity adjustments. Return to text
12. The Government-Wide Accounting program will streamline and modernize the federal government's central accounting and reporting systems to enable better financial management across the government. The Do Not Pay program was established to reduce the number of improper payments made through major programs administered by the federal government. The Post Payment System will streamline post-payment processes and eliminate redundant functionality by consolidating several existing applications into a single, centralized system. Return to text
13. The Treasury Collateral Management and Monitoring application monitors collateral for the three Treasury Fiscal Service collateral programs: Payment of Federal Taxes and the Treasury Tax and Loan Program, Depositories and Financial Agents of the Federal Government, and the Acceptance of Bonds Secured by Government Obligations in Lieu of Bonds with Sureties. Go Direct supports Treasury's all-electronic initiative requiring that all federal benefit payments be issued electronically by March 1, 2013. Return to text
14. Although most of the liquidity programs have ended, the Federal Reserve Bank of New York continues to incur costs for several liquidity programs, including Maiden Lane, Maiden Lane II, Maiden Lane III, and Term Asset-Backed Securities Loan Facility. Return to text
15. The Invoice Processing Platform is a secure, web-based system that manages the government's invoicing processes. The Payment Information Repository is a central repository for all federal payment transaction data and will be used by Treasury and federal agencies. The Financial Information Repository is a platform that will consolidate federal government financial information from its various business lines and provide summarized, aggregated, and detailed financial information. Return to text
16. The Fedwire Modernization initiative is a large-scale, multiyear IT project, the goal of which is to transition the applications that support the Fedwire Funds and Fedwire Securities businesses from the legacy mainframe environment to a distributed platform. Return to text
17. The 2013 Reserve Bank salary administration budgets reflect no merit or equity funding for officers and senior professionals (and no base-salary changes for presidents) during the first quarter of the year. The Reserve Banks are not authorized to distribute the budgeted 2013 officer merit and equity funds until approved to do so by the chair of the Board's Committee on Federal Reserve Bank Affairs. Return to text
18. The 2012 actual capital outlays were $93.3 million over the 2012 budget, primarily due to the Federal Reserve Bank of New York's unbudgeted purchase of the 33 Maiden Lane building in February 2012. Return to text
19. The Reserve Bank migration strategy involves moving a majority of applications from the mainframe to alternate processing environments. Projects included in the 2013 budget include the migration of the Fedwire, FedACH, accounting, and statistics/reserves systems. Return to text
