WASHINGTON, June 12 The U.S. derivatives regulator is paying millions of dollars for office space in a regional office that is sitting largely vacant, in a waste of taxpayer money, according to a report by the regulator's internal watchdog.
The report by Commodity Futures Trading Commission Inspector General Roy Lavik found that of the $5.3 million the regulator is paying over 10 years for leasing its Kansas City, Missouri, office, about $3.6 million is paying for unoccupied space.
The report, dated June 4 and seen by Reuters on Thursday, estimates only one-third of the space is currently being used.
While $3.6 million represents a tiny fraction of the federal government's total budget, it is more significant for the CFTC, which in fiscal 2014 was given a budget of $215 million.
"Underutilized space in Kansas City is an expense that should not be maintained," Lavik wrote. "We recommend that the CFTC take immediate steps to dispose of underutilized property in Kansas City ... and initiate a review of underutilized space in the other regional offices and at headquarters."
In a written response to the report, CFTC management acknowledged that some of the office space is not being used.
However, the management said, it would be unwise to completely get rid of the excess space because the agency could still get a requested budget boost from Congress that would require more office space to house new hires.
"We have to plan and remain postured for the possibility of fully utilizing some, if not all of the excess capacity in which we are contractually obligated into the foreseeable future," wrote CFTC Executive Director Anthony Thompson in a May 14 reply.
Lavik said he felt this response represents an instance of "hope trumping experience."
However, Lavik said the CFTC has since taken positive steps and started talks with the landlord over ways to reduce the unused space.
A CFTC spokesman confirmed that talks with the landlord are continuing.
The report could hinder the agency in its efforts to persuade Republicans in Congress to boost its budget.
The 2010 Dodd-Frank Wall Street reform law gave the CFTC expansive new powers to police the massive over-the-counter derivatives market.
But Republicans have refused to approve large budget requests by the agency and the administration, partly because they have felt the CFTC's new rules have been overly aggressive and costly, and also due to broader concerns about federal spending.
"The CFTC should follow the inspector general's recommendations," Iowa Republican Senator Charles Grassley said in a statement Thursday.
"It's hard to see any reason to waste taxpayer money on vacant office space."
This is not the first time a financial markets regulator has come under fire for its leasing decisions and spending.
The Securities and Exchange Commission, which like the CFTC also leases office space, got into hot water in 2011 after its internal watchdog found the SEC made numerous errors securing an additional 900,000 square feet of space at the "Constitution Center" building in Washington.
The SEC also thought it needed the extra space to implement its Dodd-Frank responsibilities but was forced to renege on the deal after Congress failed to give it the extra funding.
Although the SEC has independent authority to make leasing decisions, the Constitution Center episode led the agency to hand leasing decisions over to the General Services Administration. (Reporting by Sarah N. Lynch)