October 18, 2002
President George W. Bush
The White House
Dear Mr. President,
As you know, all federal government agencies are currently operating under a Continuing Resolution that sets funding strictly at FY2002 levels. This situation creates very urgent problems for the Securities and Exchange Commission. Accordingly, I am writing to ask you to direct the Office of Management and Budget to work with Congressional appropriators to ensure that any further Continuing Resolutions will include funding sufficient to enable the Commission to begin to carry out its responsibilities under PL 107-204, the Sarbanes-Oxley Act.
The purpose of PL 107-204 is to assure the integrity of our capital markets and restore investor confidence. The role of the Securities and Exchange Commission is pivotal to achieving these goals, but the Commission's effectiveness will be seriously compromised unless it has additional budget resources, which the current Continuing Resolution does not provide. Acknowledging that the resources available to the Commission have not kept pace with the dramatic increase in recent years of investment activity, filings and enforcement cases, both the House and the Senate, acting independently, approved an authorization for FY2003 of $776 million. Subsequently the Senate Appropriations Committee approved $750 million for FY2003. These figures are significantly higher than the FY2002 levels at which the Continuing Resolution funds the Commission.
The increased appropriation would enable the SEC to meet three urgent challenges. One is to begin the hiring of at least 200 additional lawyers, accountants, examiners and other professional staff. It is widely acknowledged that the SEC has been understaffed for some time, and in addition to keeping pace with its existing responsibilities it must also meet the considerable additional requirements of the Sarbanes-Oxley Act. A second challenge is to address the serious deficiencies in the Commission's information technology systems, and to undertake security enhancements and recovery and mitigation activities in light of the September 11 attacks; it is unthinkable that its effectiveness should be undermined by outdated technology. The third is to implement a reasonable pay parity program, as authorized under the Investor and Capital Markets Fee Relief Act, Public Law 107-123. With pay scales roughly one-third lower than those at the other federal financial regulatory agencies, the SEC is at a serious disadvantage in attempting to attract and retain highly qualified accountants and attorneys; the high staff turnover rate results in unacceptable delays and inefficiencies in Commission procedures. The markets and the investing public will be better served if provision is made in a Continuing Resolution to allow the SEC to begin operating at higher funding levels now, rather than having to wait an indeterminate and perhaps prolonged period for the FY2003 appropriation.
In addition, the SEC is currently in the process of establishing the Public Company Accounting Oversight Board. Under the Sarbanes-Oxley Act, funding for the PCAOB's first year is to be "advanced" from the SEC's FY03 appropriation, on the understanding that the PCAOB will reimburse the Treasury once it establishes, and begins collecting, its statutory fees. The SEC estimates that funding for the PCAOB will be in the $25-$50 million range in the Board's first year. Certainly the Board will need funds to begin initial operations once it is named by the end of this month.
Given the decline in investor confidence, the volatility in the markets and the uncertain state of the economy, it is urgent that the SEC have budget resources adequate to carry out the responsibilities outlined above. I am hopeful that, until the FY2003 appropriation is enacted, the OMB and the congressional appropriators can work together to ensure that any further Continuing Resolutions include an adequate level of funding for the Commission.
I appreciate your commitment on this vital issue, and look forward to working with you to make the efficiency and transparency of our markets, once again, the envy of the world.
Paul S. Sarbanes
Return to Press Release.