GAO Study Urges Fed to Trim Expenses
The Federal Reserve should practice what it preaches and tighten its own belt by cutting expenses and possibly shutting offices, a General Accounting Office draft study says.
The Fed could start by turning back to the Treasury about $3.7 billion in funds it has set aside to cover losses that will probably never occur, said two Democratic senators who asked the GAO to take a hard look at the Fed’s expenses.
Sens. Byron Dorgan (D-N.D.) and Harry Reid (D-Nev.) said the billions held in a so-called surplus account are one example of costly and inefficient Fed policies uncovered in a first-of-its-kind GAO study of the central bank.
“The money should be returned to taxpayers,” Dorgan said at a news conference Monday.
The Fed is “spending more money, hiring more people and growing all the while that it’s counseling the rest of the government to shrink,” Dorgan said.
The criticism came on the eve of the Senate Banking Committee’s confirmation hearing for the renomination of Fed Reserve Board Chairman Alan Greenspan.
Greenspan, who has urged Congress to eliminate the budget deficit, was nominated by President Clinton for a third four-year term as head of the central bank. The nomination must be confirmed by the Senate.
Fed spokesman Joe Coyne said the Fed has until April 12 to comment on the report.
The draft said the Fed’s expenses jumped to $2 billion in 1994 from $1.36 billion in 1988, a nearly 50% increase that was twice the rate of inflation and three times the growth rate of overall federal discretionary spending.
The GAO took special aim at the Fed’s personnel compensation, particularly its employee leave policies and savings plans, which it said are generous compared with other regulatory agencies. From 1988 to 1994, salaries rose 53% to $1.3 billion. The Fed has 25,000 employees.
The report urged the Fed to become more cost-conscious and take steps that have become common in corporate America, including merging or closing offices, cutting benefits, spinning off some services to a private company and keeping a closer eye on spending.
