In Washington, 'Austerity' Is a 67% Budget Increase

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It is lamentation season for the few financial regulatory agencies that do not have carte-blanche authority to set their own budgets. The annual ritual should include a mandatory listen to the Rolling Stones: "You can't always get what you want, but if you try sometime, you just might find, you get what you need." Adding to the existing list of questionable interpretations of the song, financial regulators should hear a comforting message in those lyrics: you may not get the budget you ask for, but-with a little more effort on your part to spend carefully-you might just find that the budget you get is big enough to do your job.

Most federal agencies have to ask Congress for the permission to spend money. Certain financial regulators, like the Securities and Exchange Commission and the Commodity Futures Trading Commission, fall in this category. Congress has been quite generous with the SEC and CFTC. The SEC saw its budget leap from around $900 million in fiscal year 2005 to approximately $1.5 billion in 2015. Congress allotted the CFTC $250 million for fiscal year 2015, compared to $93.6 million in 2005.

CFTC funding has not grown as much as the agency would have liked; the agency asked for $280 million last year and wants $322 million this year. Perhaps Congress held back in response to the CFTC's questionable decisions about how to spend the money it has. Last month, CFTC Commissioner Christopher Giancarlo released an 80-page white paper in which he detailed a series of mistakes by his agency in implementing Dodd-Frank's swaps trading mandate. As Commissioner Giancarlo explains, "countless hours of Commission resources" have been wasted trying to avoid the bad effects of "loudly trumpeted agency rules that work only on paper as academic exercises"-themselves the product of many hours of CFTC time. Commissioner Giancarlo's example of misplaced resources is representative of deeper problems at the agency.

Regardless of how much their budgets grow, the SEC and CFTC frequently get in a huff that they have to ask for money at all. In a joint opinion piece in 2013, for example, Brooksley Born and William Donaldson, who formerly chaired the CFTC and SEC, respectively, wrote that their former agencies were unfairly disadvantaged as compared to their financial regulatory sister agencies that "do not have to rely on an unpredictable congressional appropriations process for their budgets." The president's 2016 budget strikes a similar note in calling for user-fee, rather than appropriated, funding of the CFTC and defending "the funding independence of the other financial regulators, including the Consumer Financial Protection Bureau."

The Bureau does not make a particularly strong case for the benefits of self-appropriation. Able to draw the funds it needs from the Federal Reserve, the Bureau spends liberally-its budget projections for 2016 include salary and benefits of more than $190,000 per employee. Staffers paid that much apparently need nice offices. A recent inspector general report warned that, even with estimates for fixing up the Bureau's headquarters "as high as $145 million"-an estimate that omits "costs for architectural and engineering services, rent for swing space, costs associated with moving, and additional renovation-related expenses"-the Bureau will incur additional costs to house the employees that will not fit in the renovated space.

One hopes that the Bureau's well-paid employees working in spiffy offices are spending their time wisely. But, here too, the Bureau falls short. Take, for instance, the Bureau's recent foray into higher education regulation. In a settlement announced earlier this month, the CFPB agreed not to pursue the new owners of a set of colleges for the alleged transgressions of the prior owners. The agreement included principal reductions on existing student loans and a promise not to make any new student loans for seven years. The new owners also agreed to adhere for at least three years to certain "conduct provisions," set forth in a related Department of Education agreement. These provisions include requirements to make specific public disclosures, such as post-graduation job placement, completion rates, and faculty qualifications. Are the CFPB's priorities right if it is spending its resources regulating the marketing materials of colleges that will not even be making student loans?

As financial regulators' staffs, budgets, missions, and ambitions grow, congressional eyes on how they are spending their resources only become more important. All financial regulators-not just the SEC and CFTC-could benefit from a budget scouring by Congress. Facing tough questions from Congress about spending decisions is unlikely to be much fun. And, after all the questions are answered, agencies are unlikely to get all the money they want, but they just might find that they get the budgets they need.

Hester Peirce is a senior research fellow with the Mercatus Center at George Mason University, and program director for its Financial Markets Working Group. Vera Soliman is a research assistant at Mercatus.  

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