By: TRUSTEE ROWENA AKANA
Source: February 2009 Ka Wai Ola o OHA Column
`Ano`ai kakou… On January 6th, OHA’s administration briefed the State House and Senate’s money committees about OHA’s budget and funding needs for fiscal years 2010 and 2011. After listening to the questions that the legislators asked our administrator, I couldn’t help but feel like I’ve heard them all before.
Back in August of 2008, I wrote about my concerns regarding the health of OHA’s portfolio and our out-of-control spending. At the time, our Native Hawaiian Trust Fund portfolio had lost 10% of its value (approximately $39 million) and national consumer and prognostic indicators were saying that investors should have at least 20% of their investments in cash that can be liquidated and moved quickly. Unfortunately OHA had less than 10% or $25 million of its portfolio in cash at the time.
I also wrote that according to a June 2008 report from one of our money managers, global equity markets had fallen by more than 8%, with US and European equity markets returning -8.4% and -11.7% respectively. As of July 9, 2008, the estimated preliminary return for their share of OHA’s portfolio in the month of June was –4.95% compared to benchmark performance of –4.48%.
They also stated that the growth outlook for the US economy remains weak, as increased unemployment, a weak dollar, and further pressure on the financial markets contribute to expectations of higher inflation over the next year, with expectations beyond that more restrained. In other words, we were warned. Given all of the bad news, it was more important than ever to bring our spending under control.
On October 16, 2008, right before the November election, the board approved a $40,682,161 budget for Fiscal Year 2010 and a $39, 675,268 budget for Fiscal Year 2011, with no reductions. The board also supported an increase in spending all the way through 2012. In other words, these realigned budgets are being approved using money that we have yet to receive and probably will not receive given that our spending policy is tied to our three-year return on investments. Since that time, our Native Hawaiian Trust Fund has fallen from $430 million to $312 million. It is very difficult to defend and justify a budget that has expanded by over $20 million over the past six years to the legislature or anyone else.
At present, our budget is approximately $41 million. Add to that all of the recent budget realignments and commitments made well into the future and the budget will probably climb to well over $50 million a year.
It appears that the whole world is caught up or affected in some negative way by America’s recession. Economists say this recession will probably last through 2010. That said, I found it embarrassing to sit through OHA’s budget briefing to the state legislature and listen to Senators and Representatives ask why OHA had not made any cuts to its budget.
Here are some of the suggestions and questions asked of us:
- Are you willing to cut salaries if necessary?
- Will you be able to make the necessary reductions to your budget if needed?
- Where are OHA’s priorities for spending?
- How much of OHA’s budget is committed to housing and health?
- What did the Administrator mean when he said that he had spent the last seven years cleaning up OHA programs?
- How much was being spent on Kau Inoa registrations and OHA’s Washington D.C. office?
There were many more questions but I have not included them because of space limitations.
In this New Year of 2009, I still have great hopes that our board will come together and do what is best for our beneficiaries despite the fact that we may all differ in our opinion as to what must be done and how. This can only occur if ALL of us look at the reality of the situation that confronts us. We cannot, in this economy, continue to spend the way we have in past years. We must also convey this message to our beneficiaries.
When one of our money managers late last year cautioned us about the stock market volatility, they suggested that we should consider reducing our spending policy from 5% to 3% during these uncertain times, until things get better. I think it’s obvious that the time has come for us to take the advice of the professionals that we hired and “bite the bullet.”
It is understandable that the legislature is critical of OHA’s lack of spending restraint. They basically as much as told us that, if you haven’t made any sacrifices and we have, why should we give you any more money? At least that was my impression of their message to us. Criticism like, “You obviously have enough to get by” only makes us appear arrogant.
Neither the legislature nor anyone else should have to tell us that belt tightening is necessary. This is the responsibility of our board. It is important to note that OHA pointed out to the legislature that the $3 million that we receive from the state helps to serve the less than 50% Hawaiian beneficiaries that we are also mandated to serve. Aloha Ke Akua.