Modest budget bump likely to be approved today; beyond that, it's a tough sell
After the smoke clears from another budget shootout on Capitol Hill, the Securities and Exchange Commission will have dodged a bullet.
An omnibus spending bill that will avert a government shutdown — and is likely to be approved today by the House and Senate — includes a $136 million funding increase for the agency. That would boost the commission's budget to $1.3 billion but still would leave it $86 million short of the Obama administration's request.
Obtaining that funding bump won't be cause for celebration at the SEC offices. Agency officials have argued before Congress many times this year that the regulator needs a lot more money to fulfill its investor protection and market-monitoring responsibilities while coping with the avalanche of rule-making mandates from the Dodd-Frank financial reform law.
The SEC's larger budget was the outcome of a fight between Senate Democrats and House Republicans over how much support the agency deserves from Congress. A House appropriations bill this year held the SEC budget flat at about $1.2 billion, while a Senate appropriations measure included a $222 million increase.
“It has been fairly tough on Dodd-Frank and the SEC to find common ground,” Rep. Jo Ann Emerson, R-Mo., chairman of the House Appropriations Subcommittee on Financial Services and General Government, said this week. “We had a lot of push-back from the Senate as well as the White House.”
Democrats assert that the SEC needs to obtain the funding increases included in Dodd-Frank, which would nearly double the agency's budget by 2015. Republicans hold that the SEC shouldn't be rewarded with a bigger budget after failing to stop Bernie Madoff's and R. Allen Stanford's multibillion-dollar Ponzi schemes, and suffering other operational and rule-making setbacks.
Republicans are pushing the SEC to make reforms before it gets substantial budget increases.
“I would not give them an additional dime until … they make some of those changes,” Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets, told a conference on SEC reform hosted this week by the U.S. Chamber of Commerce.
Mr. Garrett said that the SEC must “rethink its organization, rethink its priorities.”
Speaking at the same event, Ms. Emerson said: “There's no guarantee under Dodd-Frank that the SEC will be leaner and meaner. Funding must be linked to reforms. Money alone cannot possibly solve the problems at this agency.”
In testimony before congressional committees this year, SEC officials, including Chairman Mary Schapiro, have touted operation reforms the agency has implemented over the last three years that have led to a record number of enforcement cases in fiscal year 2011.
Ms. Schapiro will continue to have to make that case in front of skeptical Republicans. If the party maintains its grip on the House and takes over the Senate in next year's election, her hunt for more money will become even more challenging.
Those Republicans are also going to resist the notion of letting the SEC impose a user fee to increase the number of investment adviser examinations it can perform. Approving user fees likely would be tantamount to raising the SEC budget in the view of many in the GOP.
“The commission must confront the brutal fact that it has insufficient resources and that Congress is unlikely to substantially increase its budget or provide the agency with self-funding authority,” states a Chamber of Commerce report on SEC reform.
That's bad news for opponents of a self-regulatory organization for advisers, who released a report Thursday asserting that an SRO would cost twice as much the user fee option. An SRO seems to have the most traction so far on Capitol Hill, with House Financial Services Committee Chairman Spencer Bachus, R-Ala., releasing a draft SRO bill in September.
When it submitted an adviser oversight report to Congress in January recommending the SRO or user fee options, the SEC was still hoping to get all the funding that Dodd-Frank would provide. Nonetheless, it said that it lacks the resources to perform adequate adviser oversight.
It doesn't look as if it will be getting a substantial budget boost anytime soon.
