Statecraft Podcast Summary: "How to Budget for the SEC"

Host: Santi Ruiz
Guest: Diego Ruiz
Release Date: January 23, 2025
Episode: How to Budget for the SEC

1. Introduction

In the second installment of a two-part series, Santi Ruiz welcomes his father, Diego Ruiz, to discuss his tenure as the Executive Director of the Securities and Exchange Commission (SEC). Building on their previous conversation about Diego's experiences in political campaigns and his time with California Representative Chris Cox, this episode delves into the intricacies of budgeting within the SEC.

2. Diego Ruiz's Background and Role at the SEC

Diego Ruiz revisits his career trajectory, highlighting his return to the federal executive branch in 2006 when Chris Cox was nominated as the SEC Chairman under President George W. Bush. At that time, Diego was employed by Univision, where he had amassed nearly a decade of experience managing various media properties.

Notable Quote:

"I end up joining forces again with Chris Cox when he gets nominated by President Bush 43 to be the Chairman of the securities and Exchange Commission."
– Diego Ruiz [00:50]

As Executive Director, Diego functioned as the SEC's Chief Operating Officer, overseeing essential back-office functions such as human resources, finance, budgeting, and maintaining relationships with congressional appropriators and the Office of Management and Budget (OMB).

3. Understanding the SEC's Financial Operations

Diego explains the unique financial structure of the SEC, an independent agency that, despite generating significant revenue through penalties, disgorgements, and fees from various financial entities, does not self-fund its operations. Unlike the Federal Reserve, which is self-sustaining through its open market operations, the SEC relies on annual appropriations from Congress to fund its activities.

Key Points:

• Revenue Streams: Fees from public companies, broker dealers, investment advisors, and penalties from enforcement actions.
• Disgorgement vs. Penalties: Disgorgement ensures violators return ill-gotten gains, while penalties serve as punitive measures for legal breaches.
• Funding Dependency: All revenue generated by the SEC is surrendered to the U.S. Treasury, necessitating congressional funding.

Notable Quote:

"It is not a self-funded agency in the way that, for instance, the Federal Reserve is. The Federal Reserve funds itself."
– Diego Ruiz [03:57]

4. Navigating the Budgeting Process with OMB and Congress

Diego outlines the collaborative budgeting process between the SEC, the OMB, and Congress. The agency's budget request is intrinsically tied to the President's overall budget, requiring negotiation and justification to secure necessary funds.

Key Points:

• Collaborative Negotiation: Utilizing the previous year's budget as a baseline, the SEC collaborates with OMB to determine its funding needs.
• Political Dynamics: Budget requests are influenced by the administration's priorities, with Republican administrations typically advocating for fiscal efficiency and conservative spending.
• Agency vs. President's Budget: By the time the budget reaches Congress, it represents the President's stance, not solely the agency's needs.

Notable Quote:

"The SEC turns that money over to Uncle Sam and then simultaneously has to go hat in hand to the Congress for its annual appropriation."
– Diego Ruiz [04:23]

5. The Challenges of Earmarked Funding

A significant portion of the discussion revolves around earmarked funds, using Senator Schumer's $100 million allocation for SEC enforcement post-2008 financial crisis as a case study. While such allocations can bolster specific divisions within the SEC, they introduce complexities in budget planning and long-term financial stability.

Key Points:

• Allocation Ambiguity: Determining the baseline for earmarked funds—whether they are in addition to the requested budget or a portion thereof.
• Sustainability Concerns: Ensuring that one-time or annual earmarks do not disrupt the agency's ability to maintain consistent operations in subsequent years.
• Operational Strain: Additional funds necessitate strategic allocation, often requiring the hiring of more personnel or investment in new technologies without guaranteed future support.

Notable Quote:

"The buyouts go off without a hitch. We close down the plant, we offer everyone buyouts. I think 85, 90% of the people took them."
– Diego Ruiz [17:03]

6. Diego's Transition to PepsiCo and Managing a Factory Closure

Shifting gears, Diego recounts his decade-long tenure at PepsiCo, where he managed both corporate regulatory issues and Latin America government affairs. A pivotal moment was orchestrating the closure of a major PepsiCo plant in Argentina amidst union resistance.

Key Points:

• Union Challenges: The Buenos Aires plant was plagued by a Trotskyist union faction that sought to seize control of production means, aligning with their ideological beliefs.
• Strategic Planning: Diego and his team meticulously planned the closure, offering generous buyouts and preparing for potential violent resistance.
• Execution and Aftermath: The closure led to a highly publicized eviction of squatters, involving significant police intervention and media coverage. However, the operation was deemed successful from a government affairs perspective, garnering official support and maintaining PepsiCo's reputation.

Notable Quote:

"We actually had multiple government officials up to and including President Macri, the president of the country, going on the air and defending PepsiCo by name."
– Diego Ruiz [31:28]

7. Implications of Supreme Court Decisions on Agency Operations

Returning to his SEC experience, Diego discusses recent Supreme Court rulings that redefine the balance of power between federal agencies and Congress. Decisions like the Loper Bright case and the West Virginia vs. EPA have curtailed agencies' autonomy, emphasizing the need for clear congressional authorization for regulatory actions.

Key Points:

• End of Chevron Deference: Agencies can no longer interpret ambiguous statutes without explicit congressional intent.
• Major Questions Doctrine: Limits agencies from making significant policy decisions without clear legislative backing.
• Future of Regulation: Anticipates a shift towards more restrained and carefully justified rulemaking by agencies to withstand judicial scrutiny.

Notable Quote:

"Gary Gensler did at the securities and Exchange Commission... he interpreted authority where I think most courts would say he didn't have it."
– Diego Ruiz [35:08]

8. Conclusion and Future Outlook

As the episode concludes, Diego speculates on the evolving landscape for independent agencies like the SEC amidst shifting political tides and judicial oversight. He emphasizes the necessity for agencies to adapt their regulatory approaches to align with clearer legislative mandates and anticipates continued political interplay influencing budgetary and operational decisions.

Notable Quote:

"What has happened up till now in a lot of agencies under Democratic administrations is they will adopt the rule they want and invite the lawsuit."
– Diego Ruiz [33:44]

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