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Friday, March 27, 2015
PKF Report: "OHA Will Run Out of Funds"
By Andrew Walden @ 12:24 AM :: 5465 Views :: OHA

by Andrew Walden

A PKF Pacific PowerPoint presentation marked 'confidential' and delivered to the OHA Trustees' Asset and Resource Management Committee in an "illegal" executive session January 13, 2015 has been leaked to Hawai'i Free Press. 

In one graph (pg 11) PKF accountants show Trustees have been drawing down the OHA Trust Fund by amounts ranging from $5M to $30M per year every year since 2005.  Another graph (pg 9) demonstrates how current spending levels will cut the OHA Trust Fund in half in coming years.  Page 8 appears to be missing from the Power Point. 

We covered Trustees' debate on the report in a March 15 article and are still seeking the report itself. 

PDF: PowerPoint Presentation (30 pgs)

Highlights of Report (bullet points from pgs 9-14)

Financial Analysis

Spending has been consistently on the rise as the organization grows and is not sustainable in the current path.

This does not mean OHA needs to excessively curb spending, but OHA will have to consider the short and long term effects of its spending decisions.

Based on the current value of the portfolio as adjusted for inflation and calculating a 7% trending increase of operating expenses, OHA will reach a nexus at which OHA will run out of funds.

Earnings have been good in the last years, but investment consultants advise that maintaining earning levels will be difficult in a volatile market.

OHA may have to reconsider their risk profile or their ability to incur any negative consequences or take action to mitigate the consequences

Source of revenue rely heavily in investments that are tied to the global economy

Fiscal discipline is not exercised as spending has not complied to the intent of the spending policy and has dipped into the fiscal reserve.

The fiscal reserve should only be used for an emergency.

There is high volatility in both revenue and net profits.

As revenue fluctuates based on market dynamics, expenses are constantly increasing.

Investment in the Trust Fund

Investment in the trust fund today will bring about income to OHA on a future date:

  • Opportunity #1- Eliminate Reserve Fund Spending- spending the $3M reserve on an annual basis
  • Opportunity #2- Reduce spending by 1% or increase return goal by 1%
  • Opportunity #3- Refinancing DHHL Debt Service - DHHL loan that is being taken out directly; annually at a cost of $3M or $90M over 30 years

Analysis Conclusion

OHA has money, but not enough to meet the growing needs of its people. OHA needs to determine what is required now to succeed in the future in a sustainable way.

OHA needs to institute fiscal discipline to reduce financial volatility. This would mean creating and maintaining budget and eliminate impulsive funding.

OHA must consider the possibility of reduced earnings and should look to reduce its risks of loss of revenue. It must find a way to maximize its earnings over time--inter-generational equity.

---30---

PDF: Power Point Presentation

Background: Illegal Debate--Secret Report: OHA Trustees to Cut Funding for Hawaiian Charter Schools?

Where is the Money Going?  Full Text: Hawaiian Roll Commission Releases Financial Records

 

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