Dissent of Commissioner Scott D. O’Malia to the Fiscal Year 2011 Commission Spending Plan
June 15, 2011
I respectfully dissent from signing the fiscal year 2011 Commission Spending Plan allocating funding per the direction provided in Public Law 112-10, The Department of Defense and Full-Year Continuing Appropriations Act, 2011. The Commission's spending plan continues to concentrate resources on an ever-expanding staff hiring plan that is both fiscally unsustainable and detrimental to the Commission's already ailing technology programs. This spending plan proposes to hire 50 additional federal employees—12 of which will implement internal reorganization in support of new Dodd-Frank authorities—and an undisclosed number of contractors.1· Instead of complying with the explicit Congressional directive establishing a $37.2 million floor for technology spending, the proposal caps spending at this minimum level while completely ignoring clear statutory direction to prioritize such funding for higher priority information technology activities. I am mindful of the challenge of adjusting the budget priorities within the resources provided. However, in the face of the broad new statutory authority to oversee and monitor both the futures and derivatives markets, the Commission cannot afford delays in the development and deployment of automated surveillance tools, or in real-time trade monitoring, integration of trade data provided from the swap data repositories and the development of new risk analytics.
Statutory Direction Ignored and Investments Delayed
Not only has the Commission provided the minimum level of funding for technology, but it has failed to delineate "highest priority information technology" from basic operational responsibilities such as telephones, blackberry devices, laptops and printer toner, which are included in the overall technology account. The Commission's own fiscal year 2011 request provided for $53 million in technology funding, of which $18 million was set aside for Dodd-Frank Act implementation with the remaining $35 million budgeted for ongoing pre-Dodd-Frank Act mission critical functions. Rather than seizing the opportunity and support provided by Congress to invest in technology reserved for Dodd-Frank reforms, the Commission spending plan now proposes to invest just $5.4 million of the $18 million requested for Dodd-Frank.
Technology 2.0: The Budget that Should Have Been
Congress couldn't have been more clear about the direction the Commission should take in developing a technology-focused spending plan. Congress included statutory direction to provide a minimum level of funding and to be expended on the "highest priority information technology activities of the Commission.”2 Instead, the Commission failed on two counts to follow statutory direction regarding technology. First, the Commission ignored Congressional intent by capping its investment in technology at $37.2 million, which Congress clearly provided as a floor. Second, the Commission's spending plan doesn't distinguish between "highest priorities" and other investments, as directed in the statute. By failing to distinguish between priorities, it appears that the Commission has no priorities, which is abundantly clear in this spending plan.
For the past several years, the Commission has spent roughly $18 million annually to provide basic telecommunication, computing, and mobile connectivity to Commission staff in its technology account. Considering the challenges before the Commission, I certainly do not believe such funding constitutes “the highest priority information technology.” Instead, it should be added to $37 million provided in this plan for an overall technology spending level of $55 million. The Commission’s own FY’11 request totaled $53 million including critical investments in additional hardware, software, expanded analytical capabilities.
There are numerous and relevant technology needs the Commission could begin to address if it would allocate $55 million in technology funding. For example, the Commission must address upgrading its capabilities to establish a more sophisticated approach to overseeing swaps, options and futures markets, including electronically-filed forms that automatically populate our surveillance programs. In addition, the Commission must be prepared to integrate transaction data from swap data repositories, an essential element of monitoring for systemic risk and improving market transparency. As of yet, there is no technology strategy to serve this essential function. The Commission staff has also expressed a strong desire to expand oversight capabilities and is working to develop multiple automated surveillance and analytical tools, as well as the development of real-time market monitoring capabilities. Finally, there are critical investments in hardware and software, totaling $6 million that were requested as part of the FY’11 request, but are not funded in this spending plan and should be restored. This investment would represent a down payment on the investments that must be made if the Commission is going to perform any critical analysis of order book data, rather than transaction level data.
Budget Deficit Outlook Dictates Flexible Technology-Based Solutions
Despite overseeing a market associated with the hedging of commercial risk, this budget is long on new federal hires and has limited ability to adjust to potential downsizing that may be required cut the $1.6 trillion annual federal deficit. While the CFTC’s budget represents a rounding error in the federal budget, history plainly indicates the Commission should not expect large increases when many other important programs are being reduced. Therefore, I would strongly urge the Commission to hedge against hiring so many new employees and focus on a more flexible and scalable technology solution to leverage the federal workforce.
Office of Data and Technology
The Commission is preparing to establish several new offices and divisions that will not be effective until fiscal year 2012, but this budget begins the reorganization process. One important change in the Commission structure has been the establishment of a new Office of Data and Technology. I am hopeful that this office will encourage the development and execution of a more comprehensive technology strategy which will help the Commission to focus its budget on addressing the technology needs that have been ignored under the current organizational structure.
Additional document: FY 2011 Compiled Division Hiring Request Decisions
1 Attached is a list of proposed positions that the Commission expects to hire under this spending plan.
2 Section 1543 P.L. 112-10, "Provided further, That not less than $37,200,000 shall be for the highest priority
information technology activities of the Commission."
Last Updated: July 8, 2011