High Stakes Budget Battle for Financial Regulators and Dodd-Frank Proponents

In an abrupt and somewhat anti-climactic fashion, House and Senate Congressional leadership temporarily averted the first government-wide shutdown since 1996 this week, agreeing to a two-week extension of a Continuing Resolution (CR) that will fund government operations through March 18.

With recent public polls showing that neither Democrats nor Republicans would benefit from a protracted budget stalemate, the White House is now ramping up its engagement, as Vice President Joe Biden and Congressional leaders are in the middle of behind-the-scenes negotiations to hammer out a long-term agreement to fund government operations for the remaining seven months of Fiscal Year 2011.

The recent budget deal and the White House’s active engagement may provide relief to some of the roughly 2 million civilian employees on Uncle Sam’s payroll, but don’t tell that to the folks at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Despite substantial new regulatory responsibilities granted to the agencies under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), both the SEC and CFTC budgets for FY11 and FY12 are under attack.

In February, House Republicans passed an FY11 spending bill that would slash a whopping $56.8 million from the CFTC's current funding levels of $168.8 million; and $25 million from the SEC’s $1.1 billion levels. Aiming to significantly cut federal expenditures and slow down the implementation of Dodd-Frank, GOP lawmakers view these cuts as the best of both worlds.

During Congressional testimony in February, CFTC Chairman Gary Gensler and SEC Chairwoman Mary Shapiro warned that even current funding—FY10 levels due to the passage of CRs—is already forcing their agencies to limit hiring, travel and technology improvements. Both Gensler and Shapiro then testified that the GOP-proposed cuts may even compromise the function of day-to-day operations, let alone the implementation of Dodd-Frank.

As a likely attempt at preempting the FY11 budget discussions, SEC Chairwoman Mary Shapiro is slated to testify in front of the Senate Banking, Housing and Urban Affairs Committee on Thursday to discuss the FY12 budget. President Obama’s FY12 budget proposal calls for the CFTC budget to nearly double from $168 million to $308 million; and the SEC budget to increase from $1.1 billion to $1.4 billion.

The White House and Congressional Democrats are bound to fight proposed cuts to the financial regulators’ coffers tooth and nail. But even if they succeed, Republicans in both the House and Senate will be eager to leverage the power of the purse to influence the regulators’ rules, enforcement actions, and Dodd-Frank implementation efforts moving forward.

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