State Budget and its impact on the Legislative Session

Days 10 through 12 of the session are now in the books.  On Wednesday, the legislature passed SR 712 that outlined a new adjournment and meeting schedule for the legislative session through crossover day.  Changes were made to the calendar for the session as the House needed more time to work on the state budget.  Now, the legislature will be adjourned until February 18, 2020 in order to have time to work on the budget.  The one constitutional mandate for each legislative session is balancing the state budget.  Given the budget deficit of $300 million, the legislature is hard at work to determine where cuts are needed for all state agencies.  The Governor has provided a proposed amended budget for 2020 and state agencies have been called before the legislature to explain the impact to each of their departments directly. 

On Wednesday, the Department of Banking & Finance (Department) presented their budget to the Appropriations General Government Subcommittee.  In an effort to illustrate how the state budget impacts a department that is important to our industry, I want to outline the comments made during the meeting by Commissioner Kevin Hagler.  The Department’s revenues total $23 million while their budget is $13 million, which means the Department contributes $10 million in revenues to the State of Georgia as they do not have a designated fund for their revenues.  The Department is funded 100% by state funds and they do not take any federal funds.  Governor Brian Kemp has asked state departments to cut 4% for the current fiscal year (July 1st-June 30, 2020) and 6% for the 2021 fiscal year (July 1st-June 30, 2021).  85% of the Department’s budget is related to personnel costs so there are no easy cuts for them to make.  The current headcount for Department employees is 108 positions, but the cuts will result in a headcount of 102 positions.  The Supervision Division (insured institutions-banks, credit unions, holding companies) will feel the most impact as four of the positions will come from their headcounts.  There is one vacant position that will be eliminated and three retirements and those positions will not be replaced.  The Department had a Chief Information Officer position that was vacated a year ago and they will not replace that position either.  One employee in support services will be a reduction in force.  With all of these changes, the Department had to reallocate the funds that are in their budget.  For the 2020 amended budget, the training budget will also be cut. 
 
For the 2021 budget, the Supervision Division will cut another position that will result from a retirement.  Funds for real estate will be reduced as the Department has made a decision to close the Loganville field office.  Those employees will either work from home or be provided a landing spot at the main office of the Department.  While examiners are typically on-site at institutions for the majority of the time, the trend in the regulatory industry has been one of moving to reviewing bank information remotely and electronically, which would actually result in the examiners being in the office more often.  This makes the decision to close the Loganville office that much tougher.  Telephone and internet charges will be reduced in the 2020 budget as a result of the office closure.  One of the other major changes for the 2021 budget would include moving the Georgia Industrial Loan Act (GILA) from the Office of the Insurance Commissioner to the Department.  The budget for the GILA transfer would result in an increase of funds to th Department of $487,000.  Commissioner Hagler indicated that this transfer is a result of an audit that noted that efficiencies could be realized by moving GILA to the Department.  The Department currently licenses 18,000 entities through their non-depository division through the Nationwide Multistate Licensing System & Registry (NMLS).  The Department would use NMLS to license the GILA licensees and would likely license the main office instead of all branch offices of GILA companies.  In addition, Commissioner Hagler would like to transition to risk focused examinations of GILA licensees instead of the requirement to perform an examination annually.  This is consistent with how the Department regulates the other non-depository licensees.  The Department is working with legislative counsel on a bill that would move GILA to the Department.  The Department will continue with business as usual until the legislation is passed.  The expected transition date is July 1st.  
 
Commissioner Hagler was asked whether or not the Department would continue to provide $10 million in excess funds to the State in 2021.  He indicated that the BB&T and SunTrust merger would result in a loss of fees totaling $6 million.  Therefore, it is expected that the Department will still be accretive to the State Budget by $4 million.  Commissioner Hagler was asked clarifying questions by several legislators as to whether the reductions in force were an elimination of vacant positions or an actual reduction in working employees.  Hagler clarified that the reductions are a reduction of working employees (retirements or reduction in force not being replaced) and would result in a actual reduction in head count.

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