Board of Governors of the Federal Reserve System

Federal Reserve System Budgets

The Federal Reserve Board of Governors and the Federal Reserve Banks prepare annual budgets as part of their efforts to ensure appropriate stewardship and accountability.¹ This section presents information on the 2019 budget performance of the Board and Reserve Banks and on their 2020 budgets, budgeting processes, and trends in expenses and employment. This section also presents information on the costs of new currency.

System Budgets Overview

Tables 1 and 2 summarize the Federal Reserve Board of Governors' and Federal Reserve Banks' 2019 budgeted, 2019 actual, and 2020 budgeted operating expenses and employment.²

Table 1. Total operating expenses of the Federal Reserve System, net of receipts and claims for reimbursement, 2019–20

Table 2. Employment in the Federal Reserve System, 2019–20

2019 Budget Performance

In carrying out its responsibilities in 2019, the Federal Reserve System incurred $5,027.7 million in net expenses. Total System operating expenses of $6,203.7 million were offset by $1,176.0 million in revenue from priced services, claims for reimbursement, and other income. Total 2019 System operating expenses were $178.4 million, or 3.4 percent, less than the amount budgeted for 2019.

2020 Operating Expense Budget

Budgeted 2020 System operating expenses of $5,322.4 million, net of revenue and reimbursements, are $294.7 million, or 5.9 percent, higher than 2019 actual expenses. The Reserve Bank budgets comprise almost three-quarters of the System budget (figure 1). Budgeted 2020 revenue from priced services is 0.05 percent lower than 2019 actual revenue, reflecting a continual decline in check volume, offset by steadily increasing automated clearinghouse (ACH) volume.

Trends in Expenses and Employment

From the actual 2010 amount to the budgeted 2020 amount, the total operating expenses of the Federal Reserve System have increased an average of 4.3 percent annually (figure 2). This rate is down 0.3 percent from the previous 10-year growth rate, as some expenses began to moderate following the increases from the financial crisis, offset by technology investments. The total rate of growth in Federal Reserve System expenses reflects the staffing increases in information technology (IT) to support large application development projects, information security efforts, end-user services, and the central computing environment. Supervision resource levels were augmented to meet requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and to support portfolio growth (figure 3).

Growth in supervision expenses over the past 10 years has been driven by implementation of expanded responsibilities mandated by the Dodd-Frank Act, changes in the state member bank portfolio, building out the cybersecurity supervision program, and supporting other strategic national initiatives. However, supervision growth has moderated because of the Economic Growth, Regulatory Reform and Consumer Protection Act, and as supervisory conditions improved, efficiencies were found and resources were shifted toward higher-risk activities and emerging risks. Expense growth in the monetary policy area during the financial crisis has been followed more recently by increased investment in financial stability monitoring and the dedication of additional resources to regional economic research.

Federal Reserve Bank expenses in the cash function continue to increase as a result of a multiyear investment program to modernize the cash-processing and inventory-tracking infrastructure. These increases have been offset partially by lower expenses associated with efficiency improvements in cash operations. Treasury services expenses have increased to meet expanding scope and evolving needs, including the modernization of the Treasury's collection and payment services, the addition of Treasury applications to the Federal Reserve Treasury infrastructure portfolio, and other projects requested by the Treasury.

2020 Capital Budgets

The capital budgets for the Board and Reserve Banks total $180.8 million and $530.9 million, respectively.³ As in previous years, the 2020 capital budgets include funding for projects that support the strategic direction outlined by the Board, System leadership, and each Reserve Bank. These strategic goals emphasize investments that continue to improve operational efficiencies, enhance services to Bank customers, and ensure a safe and productive work environment.

Board of Governors Budgets

Board of Governors

The Board's budget is based on the principles established by the Strategic Plan 2020–23 and provides funding to advance the Plan's goals and objectives.⁴ This functional alignment helps ensure that organizational resources are used to advance the Board's mission and to provide a structure to fund strategic priorities over the four-year time horizon.

The Board's budget process is as follows:

• At the start of the budget process, the chief operating officer and chief financial officer meet with the Committee on Board Affairs (CBA) to recommend a specific growth target for the Board's operating budget. For 2020, the recommended growth target included known changes in the run-rate of the Board's ongoing operations, projected increases to retirement and insurance benefits, and strategic priorities for 2020. After endorsement by the CBA, Division of Financial Management (DFM) staff communicates the target to the Executive Committee, which comprises the directors of each division.
• To manage growth across the Board, the CBA identifies specific growth rates for each functional area: Monetary Policy and Financial Stability, Supervision, Payment System and Reserve Bank Oversight, Public Engagement and Community Development, and Mission Enablement (Support and Overhead).
• To achieve the CBA's growth target, divisions allocate resources to their highest priorities and seek tradeoffs and efficiencies.
• DFM staff reviews initial budget requests submitted by divisions and works collaboratively with all divisions and functional areas to achieve the growth target.
• The chief operating officer and chief financial officer subsequently brief the CBA on the budget submissions. Once the budget is finalized, the administrative governor submits the budget to the full Board for review and final approval.
• DFM staff monitor expenses throughout the year. Quarterly financial forecasts provide insight into budgetary pressures. Staff analyzes variances and reports the variances to senior management.

Tables 3, 4, and 5 summarize the Board's 2019 budgeted and actual expenses and its 2020 budgeted expenses by operating area; division, office, or special account; and account classification, respectively. Table 6 summarizes the Board's 2019 budgeted and actual authorized positions and its budgeted positions for 2020. Each table includes a line item for the Office of Inspector General (OIG), which is discussed later in this section.

Table 3. Operating expenses of the Board of Governors, by operating area, 2019–20

Table 4. Operating expenses of the Board of Governors, by division, office, or special account, 2019–20

Table 5. Operating expenses of the Board of Governors, by account classification, 2019–20

Table 6. Positions authorized by the Board of Governors, by division, office, or special account, 2019–20

2019 Budget Performance

Total expenses for Board operations were $788.5 million, which was $5.2 million, or 0.7 percent, less than the approved 2019 budget of $793.6 million.

Personnel services expenses were $5.0 million, or 0.9 percent, less than the budget primarily because of lower employment levels, which caused higher-than-budgeted vacancy rates. Goods and services expenses were $0.1 million, or 0.1 percent, less than the budget primarily because of lower use of contractual professional services and data. The underrun was offset partially by an overrun in depreciation expenses due to the acceleration of the depreciation schedule for facilities assets.

The Board's 2019 single-year capital spending was less than budgeted by $2.8 million, or 14.4 percent. Multiyear capital projects remained within their overall project budgets; however, actual spending in 2019 was less than budgeted by $37.8 million, or 22.8 percent, due to delays in building improvement projects. Table 7 summarizes the Board's budgeted and actual capital expenditures for 2019 and 2020.

2020 Operating Expense Budget

The 2020 budget for Board operations is $814.4 million, which is $25.9 million, or 3.3 percent, higher than 2019 actual expenses. Staff formulated the operating budget to advance the Board's strategic priorities, which include initiatives that support policy deliberations; promote safety, soundness, and stability of financial institutions; foster safe, efficient, and accessible payment and settlement systems; promote broader, ongoing engagement with the public; and optimize operations.

In addition, the 2020 budget includes employment growth expected to occur in 2020; funding for the Board's compensation and benefit programs; and projected increases to centrally managed retirement and postretirement benefits, which fluctuate with changes in actuarial assumptions and demographics.

Risks in the 2020 Budget

The budget process required all divisions to make tradeoffs and prioritize resources to fund mission-critical activities. DFM staff incorporated centralized adjustments into the budget to reflect historical under-execution.

DFM staff will monitor spending and work closely with all divisions throughout the year to mitigate potential budget overruns.

2020 Capital Budgets

The Board's 2020 single-year capital budget totals $19.2 million, which is $2.5 million higher than 2019 actual capital expenditures. The increase reflects continued investments in data center infrastructure purchases and routine life-cycle replacements of equipment and building components.

The Board's multiyear capital budget is driven by facilities projects. Expected capital expenditures in 2020 total $160.8 million and reflect the Board's commitment to provide a secure, modern environment that meets the needs of the workforce and takes advantage of opportunities to increase collaboration, efficiency, productivity, and sustainability. Table 7 summarizes the Board's budgeted and actual capital expenditures for 2019 and 2020.

Table 7. Capital expenditures of the Board of Governors, by capital type, 2019–20

Office of Inspector General

The budget for the Board's OIG is grounded in the goals established in its strategic plan.⁵ The goals are to deliver results that promote agency excellence; promote a diverse, skilled, and engaged workforce and foster an inclusive and collaborative environment; optimize external stakeholder engagement; and advance organizational effectiveness and model a culture of continuous improvement.

In keeping with its statutory independence, the OIG prepares its proposed budget apart from the Board's budget. The OIG presents its budget directly to the Board for approval.

2019 Budget Performance

Total expenses for OIG operations were $35.1 million, which was $0.3 million, or 0.8 percent, less than the approved 2019 budget of $35.4 million. Personnel services expenses exceeded the budget by less than $0.1 million, or 0.1 percent; this over-expenditure was driven by the correction of an error related to contributions to a special retirement plan and was offset mostly by higher-than-budgeted vacancy rates. Goods and services expenses were $0.3 million, or 3.8 percent, less than the budget. The OIG's single-year capital spending was less than budgeted by $0.1 million, or 28.0 percent.

2020 Operating Expense Budget

The 2020 budget for OIG operations is $28.9 million, which is $6.2 million, or 17.7 percent, less than 2019 actual expenses because of one-time adjustments, including a net zero transfer of support and overhead costs from the Board's operating budget to the OIG's operating budget and earned income from the Consumer Financial Protection Bureau. The 2020 budget also includes employment growth expected to occur in 2020, funding for the Board's compensation and benefit programs, and escalations for goods and services.

2020 Capital Budget

The OIG's 2020 single-year capital budget totals $0.8 million, which is $0.6 million higher than 2019 actual capital expenditures. The increase is driven by vehicle and equipment replacements as well as a software enhancement project. Table 7 summarizes the OIG's budgeted and actual capital expenditures for 2019 and 2020.

Federal Reserve Banks Budgets

Each Reserve Bank establishes major operating goals for the coming year that are aligned with the System's key strategic objectives, devises strategies for attaining those goals, estimates required resources, and monitors results. The Reserve Banks structure their budgets around specific functional areas reflecting the core responsibilities of the Federal Reserve:

• contributing to the formulation of monetary policy and enhancing monetary policy implementation to become more effective, flexible, and resilient, including through public communication, outreach, and economic education
• promoting financial stability through effective monitoring, analysis, and policy development
• promoting safety and soundness of financial institutions through effective supervision

The Reserve Bank budget process is as follows:

• The Conference of Presidents, operating through its Committee on Spend Stewardship, defines, in close consultation with the Board's Committee on Federal Reserve Bank Affairs (BAC), key strategic objectives for the System. Considering longer-term environmental trends and historical growth rates of expense, these governance bodies articulate an aggregate System-level growth expectation for a multiyear period.
• The Reserve Banks develop budgets that reflect this direction, importantly through framing and making appropriate tradeoffs, and senior leadership in the Reserve Banks reviews the budgets for alignment with Reserve Bank and System priorities.
• The Reserve Banks submit for Board review preliminary budget information, including documentation to support the budget request.
• Board staff analyzes the Banks' budgets, both individually and in the context of System initiatives.
• The BAC reviews the Bank budgets.
• The Reserve Banks make any needed changes, and the BAC chair submits the revised budgets to Board members for review and final action.
• Throughout the year, Reserve Bank and Board staffs monitor actual performance and compare it with approved budgets and forecasts.

In addition to the budget approval process, the Reserve Banks must submit proposals for certain capital expenditures to the Board for further review and approval.

Tables 8, 9, and 10 summarize the Reserve Banks' 2019 budgeted and actual expenses and 2020 budgeted expenses by Reserve Bank, functional area, and account classification.⁶ Table 11 shows the Reserve Banks' budgeted and actual employment for 2019 and budgeted employment for 2020. In addition, table 12 shows the Reserve Banks' budgeted and actual capital expenditures for 2019 and budgeted capital for 2020.

Table 8. Operating expenses of the Federal Reserve Banks, by District, 2019–20

Table 9. Operating expenses of the Federal Reserve Banks, by operating area, 2019–20

Table 10. Operating expenses of the Federal Reserve Banks, by account classification, 2019–20

Table 11. Employment at the Federal Reserve Banks, by District, and at FRIT and OEB, 2019–20

Table 12. Capital expenditures of the Federal Reserve Banks, by District, and of FRIT and OEB, 2019–20

2019 Budget Performance

Total 2019 operating expenses for the Reserve Banks were $4,543.1 million, which is $30.6 million, or 0.7 percent, less than the approved 2019 budget of $4,573.8 million. The actual average number of personnel (ANP) was 19,754, an underrun of 102 ANP, or 0.5 percent, from 2019 budgeted staffing levels, largely because of greater-than-anticipated lag in filling open positions in the Treasury and IT functions. The Reserve Banks' 2019 capital expenditures were less than budgeted by $153.2 million, or 31.7 percent, primarily due to plan changes, including timing and scope for numerous building-related initiatives.

Revised project plans, benefits assumptions, and less-than-planned personnel expenses driven by delays in hiring contributed to the 2019 operating expense budget underrun, and improving forecasting to avoid such outcomes in the future remains a focus for the System and its leadership. The underrun is offset partially by resources attributable to the extension of the ACH modernization program into 2020 and investments in support of FedNow Service.⁷

2020 Operating Expense Budget

The 2020 operating budgets of the Reserve Banks total $4,771.2 million, which is $228.1 million, or 5.0 percent, higher than 2019 actual expenses.⁸ Supervision growth has moderated with a shift from implementing significant regulatory reforms of the post-crisis era to providing more-efficient oversight by focusing on areas of risk and allocating resources to the highest priorities. Treasury expenses are increasing primarily to support new and ongoing technology development, including Transforming Tax Collections (T2C), Pay.gov, Do Not Pay (DNP) analytics, and Treasury Retail Investment Manager (TRIM) initiatives.⁹ Additionally, increases in cash expenses are driven by the first phase of the next-generation currency-processing program (NextGen).¹⁰ Growth in monetary policy reflects increased resources dedicated to regional economic research, including new studies on inflation and low- and moderate-income communities.

Total 2020 budgeted employment for the Reserve Banks, Federal Reserve Information Technology (FRIT), and the Office of Employee Benefits (OEB) is 19,898 ANP, an increase of 144 ANP, or 0.7 percent, from 2019 actual employment levels. In national support functions, additional resources are planned to enhance product offerings and ensure the security and resiliency of the FedLine Solutions, as well as to support System strategic initiatives in procurement, finance, and human resource management.¹¹ In IT, resource additions will support application development projects and information security initiatives for Treasury, and will develop cloud computing foundational services and infrastructure for the System.

Further contributing to the growth are resources to support community development initiatives, regional economic research and outreach initiatives, FedNow Service, and the NextGen program. Increases are offset by reductions in the check function in recognition of operational efficiencies; in ACH following the planned implementation of the multiyear ACH Modernization initiative; and in supervision related to efficiency efforts, changes in supervisory responsibilities, and legislative changes.¹²

Reserve Bank officer and staff personnel expenses for 2020 total $2,742.9 million, an increase of $116.4 million, or 4.4 percent, from 2019 actual expenses. The increase reflects expenses associated with additional staff and budgeted salary administration adjustments.¹³

The 2020 Reserve Bank budgets include a salary administration program for eligible officers, senior professionals, and staff totaling $103.6 million and a variable pay program totaling $225.2 million.

2020 Capital Budgets

The 2020 capital budgets for the Reserve Banks, FRIT, and OEB total $530.9 million.¹⁴ The increase in the 2020 capital budget is $200.8 million, or 60.8 percent, greater than the 2019 actual levels of $330.1 million, largely because of ongoing multiyear building and information technology strategic initiatives. Initiatives in the 2020 capital budget support major workspace renovations, address aging building infrastructure in several Reserve Banks, improve IT infrastructure, and provide application upgrades and releases.

Capital Expenditures Designated for Conditional Approval

The BAC chair designated projects with an aggregate cost of $42.2 million in 2020 for conditional approval, requiring additional review and approval by the Board's director of the Division of Reserve Bank Operations and Payment Systems before the funds are committed.¹⁵ The expenditures designated for conditional approval by the chair of the BAC include large-scale building projects to renovate office space and update building infrastructure. Technology projects include support for services performed on behalf of the Treasury, upgrades to existing cash services' applications, and Fedwire and FedLine initiatives.¹⁶

Other Capital Expenditures

Significant capital expenditures (typically expenditures exceeding $1 million) that are not designated for conditional approval include total multiyear budgeted expenditures of $798.9 million for 2020 and future years, of which the single-year 2020 budgeted expenditures are $391.3 million. This category includes building expenditures for office space renovations, mechanical and electrical infrastructure upgrades, building automation, and security enhancements. IT projects include ongoing infrastructure investments; initiatives that enable better access to data and enhance cybersecurity and cyberresiliency; and applications to support fee-based services, supervision, cash, and open market operations.

Capital initiatives that are individually less than $1 million are budgeted at an aggregate amount of $97.5 million for 2020 and include building maintenance expenditures, scheduled software and equipment upgrades, and equipment and furniture replacements.

Currency Budget

The currency budget provides funds to reimburse the Treasury's Bureau of Engraving and Printing (BEP) for expenses related to the production of banknotes, and the Board's activities related to its role as issuing authority of the nation's currency in the form of Federal Reserve notes.¹⁷ As issuing authority, the Board works closely with its strategic partners, such as the Reserve Banks, the Department of the Treasury, the BEP, and the U.S. Secret Service to help maintain the integrity of and public confidence in our nation's currency.

The Board works to ensure that the notes meet quality standards from production through destruction, monitors counterfeiting risks and threats for each denomination, contributes to the development of security features and new design concepts, and conducts adversarial analysis to ensure the security features and designs are robust against counterfeiting. The budget includes activities that support its issuing authority role, the cost of shipping new currency from the BEP to Reserve Banks and fit currency between Reserve Banks, and funds the Currency Education Program (CEP). The CEP aims to protect and maintain confidence in U.S. currency worldwide, working closely with other agencies and departments of the U.S. government, to provide information and conduct outreach through a variety of channels.

The annual currency budget process is as follows:

1. Each year, under authority delegated by the Board, the director of the Division of Reserve Bank Operations and Payment Systems submits a fiscal year print order for notes to the director of the BEP.¹⁸
2. The BEP forecasts expenses for the calendar-year currency budget, including fixed and variable costs for printing Federal Reserve notes, facility costs, and support costs. Board staff develop budgets for Board expenses in relation to strategic guidance set by Cash leadership.
3. The BAC reviews the proposed currency budget.
4. The BAC chair submits the proposed currency budget to Board members for review and final action.

2019 Budget Performance

The Board's 2019 actual operating expenses for new currency were $837.1 million, $118.7 million, or 12.4 percent, below the budgeted amount for 2019. The budget underrun is attributable primarily to a delay in design work for a new production facility in the Washington, D.C., area, and lower variable printing expenses because of the revised print order.¹⁹

Currency transportation expenses were lower than budgeted primarily because the print order was reduced at midyear, resulting in fewer currency shipments than originally planned. The 2019 research and development budget underrun is primarily the result of the design consulting work ramping up more slowly than planned and fewer requirements for Board IT support of (externally developed) prototype equipment that would be used for an inspection system for notes, sheets, and plates, as well as a counterfeit analysis tool.

2020 Budget

Table 13 summarizes the 2020 currency operating budget of $877.2 million.²⁰ The proposed 2020 operating budget represents an increase of $40.1 million, or 4.8 percent, from 2019 actual expenses. BEP costs associated with the printing of Federal Reserve notes are 94.4 percent of the operating budget. Board expenses for currency transportation, research and development, annual contributions and management support, currency education, and depreciation comprise the remaining 5.6 percent of the operating budget.

Table 13. Federal Reserve currency budget, 2019–20

BEP costs include $90.0 million to fund two facility improvement projects: an expansion of the Fort Worth, Texas, facility and new design and engineering studies in support of a new facility to replace the BEP's existing Washington, D.C., facility.²¹

BEP Costs

The proposed 2020 budget to fund the BEP expenses associated with the printing of Federal Reserve notes is $827.7 million, which is $31.8 million, or 4.0 percent, greater than 2019 actual expenses. The primary driver of this increase is higher fixed costs to fund capital investments and research and development projects.

The proposed budget for fixed printing costs is $499.8 million, which is $97.9 million, or 24.4 percent, greater than 2019 actual expenses. The increase is attributed to investments in manufacturing equipment, information technology projects, and physical security upgrades. Additional increases are for research and development efforts to support the design and security of the next family of notes.

Fixed cost increases are offset partially by a reduction in variable costs associated with the Board's lower FY2020 print order and BEP facility reimbursements. While total variable costs are expected to decrease this year, the BEP estimates an increase in cost for paper, ink, direct labor, and other variable manufacturing expenses. The decrease associated with the Ft. Worth facility expansion reflects the final year of the total $220.0 million multiyear project.

Board Costs

Board costs are estimated to be $49.5 million, or 20.1 percent, more than 2019 actual expenses. The primary drivers of the 2020 budget increase are due to research and development and annual contributions and management consultations to assist in implementing all phases of the Cash strategic plan.

In 2020, Board staff will continue to work with contract staff to develop prototype equipment that would assess quality at the BEP by performing plate, sheet, and note inspection. The Board will continue to contract services to develop security features for possible inclusion in the next family of notes.

Board staff will conduct market research on and expand outreach to banknote equipment manufacturers to identify trends in the market for equipment that accepts and dispenses banknotes. Contract resources are included to perform financial analysis supporting Board oversight of reimbursements to Treasury in support of the new D.C. currency production facility.

To support counterfeit deterrence activities, funds are included for the Counterfeit Currency Processing Facility (CCPF) initiative. The 2020 increase supports development of prototype technology to identify, analyze, and classify suspect counterfeit notes.

The 2020 currency budget includes $3.2 million for personnel services, travel, and training costs for 15 ANP, or 18 positions.²²

2020 Capital Budget

In 2019, the Board approved a $3.2 million multicycle capital budget for information technology equipment in support of counterfeit inspection technology. As the program is in the developmental stage, no additional capital funds have been budgeted.

Footnotes