It all sounded so good. So promising.

From the wreckage of the economic crisis and the Madoff case, the screaming need for more and better resources at the SEC had become apparent. Reports from the Government Accountability Office and the SEC’s Inspector General’s office flagged huge deficiencies in the SEC’s basic resources. The GAO report showed the dramatic impact a hiring freeze had on the SEC between 2004 and 2008, and concluded that as a result of its dwindling personnel numbers and surging workload, the SEC simply could not pursue, maintain, or efficiently resolve certain worthwhile cases. It also revealed the severe disadvantages the enforcement staff faced in its litigation and investigations due to little or no administrative or paralegal support and outdated technology. The IG similarly called for improved or new training, resources, working groups, and more to remedy failings in the Enforcement Division.

Congress responded, or at least promised to respond. An initial plea from Chairman Mary Schapiro for an additional $200 million in the SEC’s 2011 budget seemed to be well-received by key Congressmen. Most recently, the House passed the Investor Protection Act that would go even further and increase the SEC’s budget from $1.12 billion today to $2.25 billion by 2015—doubling it in just five years.

In last night’s State of the Union address, however, President Obama stated that:

Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will.

It is not completely clear that this applies to the SEC, but it sure would appear so. Other reports have confirmed, for instance, that this freeze would likely apply to law-enforcement initiatives at the Justice Department. We will know soon enough, as the White House is scheduled to release its proposed 2011 budget on February 1. For the moment, however, it looks like the SEC’s window to secure the increased budget that appeared to be within its grasp could have just slammed shut.