February 14, 2011

Obama's 2012 Budget Gives Big Boost to SEC, CFTC

Republicans are likely to rebuff spending boost for both agencies

President Barack Obama on Monday unveiled his $3.73 trillion budget for FY 2012, which includes significant cuts to federal spending and investments but provides substantial budget boosts to U.S. markets regulators—namely the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Under Obama’s FY 2012 budget, the SEC would get a 28% funding increase to $1.427 billion--a 27% boost over the current continuing resolution (CR) that the agency is operating under--while the CFTC would see an 82% boost to $308 million. The budget boost is designed to help the SEC and CFTC deal with the added duties they were given under the Dodd-Frank Act.

SEC Chairman Mary Schapiro (left) said in a statement after the budget was released that “these funds will provide the SEC with the resources needed to carry out both our longstanding core mission as well as our new responsibilities for derivatives, hedge fund advisers and credit rating agencies” under Dodd-Frank. By law, she continued, “the 2012 funding is entirely offset by transaction fees such that the SEC budget will not add to the deficit.”

Obama’s budget boost for both agencies is not likely to receive a warm welcome from Republicans who’ve vowed to defund the Dodd-Frank Act during the 112th Congress and to freeze non-military discretionary spending at Fiscal Year 2008 levels. House Budget Committee Chairman Paul Ryan, R-Wis., wasted little time in remarking that the President’s FY 2012 budget “spends too much, taxes too much, and borrows too much. …”

David Kotz, the SEC’s Inspector General (IG) told members of the House Appropriations Subcommittee on Financial Services and General Government at a Feb. 10 hearing that if the SEC’s budget is cut back to 2008 funding levels, the securities regulator would have to cut nearly 600 employees. The House is set to begin debate this week on legislation put forth by House Republicans on the FY 2011 budget; under that bill, the SEC would see a budget cut of $41 million below the current continuing resolution (CR) that the regulator is operating under.

While the hike under the President's FY 2012 budget is $93 million short of what was requested under Dodd-Frank ($1.5 billion), the boost would allow the SEC to add an additional 780 new staff, 468 of which would be hired to deal with implementing Dodd-Frank. In the SEC's enforcement division, 156 new employees could be added, 195 new staff members could be added in the regulator's Office of Compliance Inspections and Examinations (OCIE), 80 new employees could be added to the trading & markets division, and 31 staff members could join the Division of Investment Management. No doubt the SEC’s budget will also be addressed during the Senate Banking Committee’s Feb. 17 hearing on regulators’ implementation of Dodd-Frank, in which Schapiro is slated to testify.

Kotz went on to tell lawmakers that additional funding would also be needed if the SEC is to carry out the recommendations by his office to thwart another Bernie Madoff fiasco. After the SEC’s IG office found that the agency failed to respond appropriately to credible tips and complaints about Madoff, the SEC has now reformed its system for handling tips and complaints and instituted a new Tip, Compliant and Referral system, he said. “Additional funding will be required to ensure that the SEC has sufficient resources to implement many of the recommendations that have arisen, and will arise, out of our audits, reviews and investigations,” Kotz told lawmakers.

Obama’s budget also proposes to implement user fees on entities regulated by the CFTC to generate funds for the agency. But Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, said in a Feb. 14 statement that “The so-called user fees would be one more tax to drive up the cost of main street businesses who are trying to responsibly hedge their risk.” The user fees, “represent one more end-around to attempt to grow government even more, and done in this way, it would be outside the traditional congressional appropriations process--an off-budget accounting gimmick that will hide the true cost and scope of the federal government.”

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