Obama’s budget proposal, sent to Congress today, sets the stage for months of political fights with Republicans who have pushed for spending cuts. The proposal for fiscal 2012 comes with the budget for the current fiscal year -- including $169 million for the CFTC -- caught in a congressional stalemate.
The user fees, which require congressional approval, would raise $117 million in the 2012 fiscal year and $588 million through 2016, according to the budget plan. They would be assessed on “the regulated community” to pay for the CFTC’s non-enforcement activities. A legislative proposal will be presented this year, the Obama administration said.
“The rapid expansion in CFTC’s authorities and oversight has required unprecedented growth in the agency’s resources,” the Obama administration said in the budget. User fees would represent an alternative source of funds for the CFTC, which is now funded through congressional spending bills.
The Dodd-Frank Act requires the CFTC and the Securities and Exchange Commission to write rules for the derivatives market after unregulated trades helped fuel the 2008 credit crisis. The regulatory law enacted last year gave the CFTC authority to oversee swap dealers and other large users of the derivatives.
Derivatives, including swaps, are financial transactions tied to currencies, stocks, bonds or an event, such as the default of a company.
CFTC Chairman Gary Gensler told lawmakers at a Feb. 10 hearing that the agency’s budget isn’t big enough to pay for enforcement of the new rules.
“Without adequate funding of our financial market regulatory apparatus, the new legislation won’t mean much in the real world,” CFTC Commissioner Bart Chilton, a Democrat, said today in a statement. “We will once again be vulnerable to the conditions that created the recent economic chaos.”
Congressional Republicans, who took control of the House and narrowed the Democrats’ majority in the Senate in November elections, proposed cutting the CFTC’s budget by $56.8 million for the current fiscal year as part of a plan to slash spending.
The Republicans may face a tougher time opposing the fee proposal than a request for additional congressional spending, said Douglas J. Elliott, an economic studies fellow at the Washington-based Brookings Institution.
“Even if you view it as a tax, it’s not a tax on citizens directly. It’s a tax on the financial industry, which isn’t all that popular now,” Elliott, a former managing director at JPMorgan Chase & Co., said today in an interview.
Representative Scott Garrett, the New Jersey Republican who leads a House Financial Services subcommittee that oversees the SEC, called the fees “an off-budget accounting gimmick” that would “drive up the cost of main street businesses who are trying to responsibly hedge their risk.”
CFTC Commissioner Scott O’Malia, one of two Republicans on the five-member panel, opposed the user fees, which he said represented, “a transaction tax.”
The fee proposal may also face opposition from financial- industry lobbyists, including the Futures Industry Association which has opposed similar proposals in the past.
“The imposition of user fees would significantly reduce the efficiency of the regulated futures market and greatly increase the cost of hedging financial and commodity price risk,” FIA President John M. Damgard said in a statement today.
Not the Best Time
Now may not be the best time to add a new fee on the market, said Kenneth M. Bentsen Jr., executive vice president at the Securities Industry and Financial Markets Association.
“We’re a little concerned given that the industry and market participants are already going to have to absorb additional costs related to the new rules under Dodd-Frank,” Bentsen said in a telephone interview.
The Obama administration is seeking an 82 percent budget increase for the CFTC, which includes money to hire 378 new employees. The CFTC, which now has about 700 employees, should have a post-Dodd-Frank “steady state level” of funding of $340 million and a staff of 1,140 employees, the administration said.
The 2012 budget request would increase to 250 from 139 the number of employees who work in the CFTC’s division of market oversight, according to the agency’s budget and performance estimate for 2012 that was sent to congressional leaders today.
The commission would also increase to 235 from 167 the number of full-time employees who work in the CFTC’s enforcement unit. The agency’s enforcement powers will be compromised and degraded without the additional employees, the CFTC said.
“The enforcement program will need to be more selective in the matters it investigates, potentially leaving serious wrongdoing unaddressed,” the CFTC said in the budget estimate.
O’Malia said the commission should invest in technology before looking to hire additional employees.
“In this budget deficit environment, I do not believe the commission will be able to sustain this level of funding,” he said in a written dissent from the budget request.