fiscal year 2018 and 2019 the office of hawaiian affairs ... · chief executive officer (ka...

The Office of Hawaiian Affairs March 2017

Fiscal Year 2018 and 2019 Preliminary Biennium Budget

For Community Input

The Office of Hawaiian Affairs March 2017

Table of Contents

2

02 Structure Pages 4 - 6

03 Budget Process Page 7

04 Funding Pages 8 - 14

05 Operating Budget Pages 15 - 29

01 Purpose Page 3

Purpose

3

The purpose of this document is to explain more about OHA and OHA”s strategic budget. OHA acknowledge its commitment to communities and beneficiaries and provides this explanation of OHA’s preliminary biennium budget for FY18 and FY19. This is part of OHA’s community input phase and hope that this will allow greater accessibility and level of information to the beneficiaries. Comments and questions are important and OHA welcomes them. This will provide an assessment of community input and may provide revisions to the budget. Please send your questions and comments to [email protected] or visit www.oha.org for more information.

The Office of Hawaiian Affairs The Office of Hawaiian Affairs is a public agency with a high degree of autonomy. OHA is responsible for improving the well-being of Native Hawaiians. OHA is governed by a Board of Trustees made up of nine (9) members who are elected statewide to serve four-year terms setting policy for the agency. OHA is administered by a Chief Executive Officer (Ka Pouhana) who is appointed by the Board of Trustees to oversee a staff of more than 170 employees. OHA grew out of organized efforts in the 1970s to right past wrongs suffered by Native Hawaiians for over 100 years. Hawaiian’s newfound activism brought their plight to the consciousness of the general public, leading grassroots leaders to propose, at that time, that income from land taken from the illegal overthrow of the

Hawaiian Kingdom be used to benefit Hawaiians. After voters of all backgrounds agreed, OHA was born in 1978. OHA enhances Hawaiian well-being by collaborating with various organizations to strengthen our community’s resources. We have collaborated in advocating on Hawaiian issues. By providing resources, advocating for Native Hawaiians, and facilitating collaboration, OHA is fulfilling its vision to raise a beloved nation.

Structure

4

The Office of Hawaiian Affairs is a public agency with a high degree of autonomy. OHA is responsible for improving the well-being of Native Hawaiians. OHA is governed by a Board of Trustees made up of nine (9) members who are elected statewide to serve four-year terms setting policy for the agency. OHA is administered by a Chief Executive Officer (Ka Pouhana) who is appointed by the Board of Trustees to oversee a staff of about 170 employees. Board of Trustees Four of the nine positions on the Board are designated as at-large seats representing the state as whole, while the five other trustees represent each of the following districts: Hawai’i Island, Maui, Moloka’i and Lana’i, O’ahu, and Kaua’i and Ni’ihau.

While there are residency requirements for candidates seeking the district seats, all voters statewide are permitted to vote in each of the OHA races. Trustees are elected to their seats for four-year terms, and there is no limit on the number of terms a trustees may serve. BOT is responsible for setting OHA policy and managing the agency’s trust. The Board meets regularly at the agency’s headquarters in Honolulu, and at least once annually on each of the major islands. Each of the trustees sits on the Board’s two standing committees: Committee on Resource Management (RM) and the Committee on Beneficiary Advocacy and Empowerment (BAE).

The RM Committee recommends policies for the management of the agency’s investment portfolio and other OHA fiscal and budgetary matters, in addition to policies relating to land use, native rights and natural and cultural resources. In addition, it develops policies and guidelines for OHA’s land acquisitions, dispositions, development and management. The BAE Committee focuses on the agency’s legislative and advocacy efforts, as well as OHA programs that address issues relating to health, human services, education, housing, land use, environment and natural resources. The RM and BAE Committees convene regularly and approve actions and recommendations that are forwarded to the full Board for consideration and final approval.

Structure

5

Executive Team Seven executives make up the senior administration leadership at the Office of Hawaiian Affairs. OHA’s executive team provides the authority and credibility needed to guide the strategic direction of the organization. This team is led by a Chief Executive Officer (CEO), who is appointed by the Board of Trustees. The CEO selects all of the other members of the executive team, which is anchored by the Chief Operating Officer (COO). The five other members of the executive team report directly to the COO. Together, OHA executives all work as a team to bring the right combination of skills and experience to implement policies, performing various functions of the operation, and helping the organization achieve its goals.

OHA’s Administration consists of five divisions or Paia. They are: Advocacy; Research; Community Engagement; Resource Management – Financial Assets; and Resource Management – Land Assets. The following chart is the organization of the Office of Hawaiian Affairs.

BOT

CEO

Corporation Counsel COO

Human Resources

Advocacy Research Community Engagement

RM- Land

RM-Financial

Structure

6

2010 – 2018 Strategic Plan The following pyramid shows OHA’s six key strategic priorities in: culture; land and water; governance; economic self-sufficiency; education; and health. In addition to these strategic priorities, Administration believes the proposed budget reflects OHA’s commitment to 4 strategic roles: •  Advocate: to change laws,

policies, and practices •  Researcher: to compile and

gather data to identify gaps and important issues

•  Asset Manager: to maximize and

preserve our limited resources •  Community Engager: to connect

OHA with Native Hawaiian communities and the general public

Budget Process

7

The development of OHA’s strategic budget begins with the strategic planning process. It is a 6-month process and commitment by OHA’s Administration and BOT to vet the requests. In December 2016, OHA programs were tasked with the development of their FY 2018 and FY2019 Strategic Work Plans. The Executive Team then identified large commitments and priority projects. The next step is the community sharing period. This step will help to inform Administration’s submission of the final Biennium budget to the Board of Trustees for approval in May 2017. The following graph explains OHA’s budget process.

Program Work Plans

Execu8ve Team

Community Sharing

Board of Trustees

Funding

8

OHA’s core operating budget is dependent upon four major sources of funding. The four are: a percentage of investment portfolio; public land trust allotments; Kaka‘ako Makai revenues; and requested of State of Hawai‘i general fund. Investment Portfolio The largest source of funding is OHA’s ability to spend 5% of its investment portfolio, pursuant to its Spending Policy, which allows for a maximum 5% allocation of funding based upon a 20-quarter rolling average market value. For FY17, the 5% spending amounts to $17.6 million. For FY18, the 5% spending increases slightly to $17.4 million.

47% FY 18/19 $75.1MM

Funding

9

Public Land Trust Revenues This is the second largest source of funding OHA is entitled to currently set by state law at $15.1 million annually.

40%

Funding

10

Kaka’ako Makai Revenues The third source of funding, albeit a small percentage of OHA’s total core operating budget, reflects a commitment by OHA’s Board of Trustees to ensure maximum funding for continuing program support. In 2012, OHA officially took title of 30 acres of prime real estate in Kaka’ako Makai. Annually, these parcels are expected to generate more than $4 million in revenue to OHA. OHA’s Board of Trustees authorized 10% of revenues generated from these parcels to help support OHA’s grants program. The estimated amount is approximately $434 thousand in FY18 and $441 thousand in FY19.

1%

Funding

11

State of Hawai’i General Funds The fourth source of funding is provided through the State of Hawai’i General Funds. OHA fulfills its fiduciary responsibilities to beneficiaries by advocating at the state legislature each year for general fund appropriations. On average, OHA receives $3 million in general fund appropriations. In continuing its advocacy efforts, OHA has consistently sought increases to its request and has increased is appropriations by $500,000 per year since FY10. For FY18 and FY 19, OHA is requesting for an annual funding of $4.5 million. This would be an increase of $1.5 million. A small portion of the increase is in OHA’s health, housing, and income improvement, with

12%

Remaining increase to help address part of the increase in personnel fringe benefit rate from the current biennium.

Funding

12

Decrease in Spending Potential OHA is at a critical junction in its financial history. OHA is faced with balancing an increase of beneficiary needs while experiencing a decrease in spending potential. The primary reason for the decrease is the decrease in the average market value of OHA’s invest portfolio. In FY09, the average market value remained close to its peak at $400 million. When the 5% spending limit based on the Spending Policy, the allocation of funding to the core operating budget totaled $20 million. Nine years later, the average market value decreased by $50 million to $350 million, resulting in a $2.5 million decrease in the allocation of funding for the core operating budget down to $17.6 million.

$400 MM

FY09

FY18

$20 MM

$351 MM

$17.6 MM

Average Market Value 5% Spending Limitation

Funding

13

Key Constraints The Executive Team is now tasked with balancing the budget based upon the following constraints. •  First, the total requests received

exceeds the budget limit by $16 million.

•  Second, the identification of large commitments, including matching fund commitments for the receipt of State of Hawai’i general fund appropriations.

•  Third, Administration’s identification of priority projects in support of OHA’s Strategic Plan and other Board of Trustees commitments.

•  And lastly, the increase in fringe benefits from approximately 37% in prior biennium to 60% in the current biennium and inflation, about 2%.

Funding

14

Spending Priorities Two years ago, during the development of OHA’s current FY16-17 budget, the focus remained on two primary spending priorities. Those two primary spending priorities were: ensuring inter-generational equity and practicing fiscal sustainability. •  Ensuring inter-generational equity

will ensure sufficient resources amongst present and future generations of beneficiaries.

•  Practicing fiscal sustainability is the extent to which spending patterns do not undermine OHA’s capacity to achieve OHA’s mission, vision, and Strategic Plan.

Since then, OHA’s BOT and Administration worked to move forward in the development of a fiscal sustainability plan with an outside consultant.

OHA is continuing its efforts to move forward with the implementation of the fiscal sustainability plan. This plan will provide OHA with a framework and with stronger policies and guidelines to help ensure that the fiscal decisions are made with comprehensive understanding of both the short and long term impact of beneficiaries.

Ensuring inter-generational equity

Practicing fiscal sustainability

Core Budget

71%

Fiscal Reserve

6%

Properties 13%

Special Programs

10%

Total Operating Budget

15

OHA’s total operating budget consists of core and non-core budget items. The core operating budget is the focus of this presentation, as the non-core operating budget items are those that have their own designated funding. These sources include either a separate revenue sources, such as commercial properties, special programs or federal programs, which is primarily made up of federal grants received. Fiscal reserve is an exception as it is funded through the Native Hawaiian Trust Fund Investment portfolio. However, the usage under fiscal reserve is authorized by the BOT during the specific fiscal year as it is intended to be utilized for certain situations such as budget stabilization, unpredicted one-time payments, or capital acquisition.

FY 18/19 $105.1MM

Non-Core Budget 29%

Non-core budget data presented are based on FY16.

Historical Operating Budget

16

As shown in the figure above, the Core Operating Budget has remained fairly consistent ranging between $35-37 million and the increase to $37 million in FY18/19 is primarily related to increases in the General Fund request of approximately $1.5 million per year from prior biennium.

$- $5

$10 $15 $20 $25 $30 $35 $40

2012 2013 2014 2015 2016 2017 2018 2019

Millio

ns

Core Budgget Non-Core Budget

Since 2012,the non-core budget has increased from $5.6 million to as high as $14.8 million. Increases are primarily related increased revenues and expenses in our commercial properties or federal. Again, commercial properties budgets are based on its own revenues and thus self-sustaining.

Budget data presented are preliminary and subject to change.

Core Operating Budget

Personnel 41%

Grants 26%

Contracts 16%

Overhead 8%

Program 4%

Travel 1%

Debt Service 2%

Equipment 2% FY18: $37.6MM

FY19: $37.5MM

17

OHA allocates 41% of its core operating budget to personnel, 26% to its grants program, 16% to contracts, and 8% to overhead costs. The smaller categories include 4% for programs, and 1% to 2% each for equipment, debt service, and travel categories. Next few slides will provide a more detailed breakdown of each category, with the exception of debt service category. Debt service relates to the principal and interest payment on Line of Credit outstanding balance.

FY 18/19 $75.1MM


Personnel

18

OHA allocates approximately $15.5 million a year of the biennium budget in support of 167 employees under the core budget; constituting 41% of the core operating budget. This core budget does not include 12 employees of whose positions are either funded by commercial properties or federal grants, which is primarily made up of federal grants received or unfunded positions. OHA’s 167 full time employees from core budget will remain consistent in number from the FY16/17 biennium. However, the overall personnel budget at full capacity will increase by more than $2M due to increase in the fringe rate from 37% to 60%. OHA is requesting a part of this increase be contributed by the State of Hawai‘i in OHA’s General Fund request. Reserves include vacation payout, employee incentive program and workers compensation payments.

Salaries 66%

Fringe 32%

FY 18/19 $30.9MM

Reserves 1%

Student Help 1%


FY18: $15.4MM FY19: $15.5MM

Advocacy 17%

BOT 17%

Executive 11% Financial

Assets 19%

Community Engagement

17%

Research 11%

Land Assets 7%

Personnel

19

Of OHA’s 167 employees, 130 are staff members (78% of employees); 21 are managers (12.6%); 9 are Trustees (5.4%); and 7 are executives (4.2%).The figure below represent an average ratio of 1 manager for every 6.2 staff.

Of OHA’s 167 employees under the core budget : 29 are within the Board of Trustees Office; 18 in the Executive Office; 31 in Financial Assets; 31 in Community Engagement; 18 in Research; 12 in Land Assets; 28 in Advocacy.

Managers: 21 (12.6%)

Staff: 130 (78%)

Full Time Employees 167


Trustees: 9 (5.4%)

Executives: 7 (4.2%)

Personnel Salaries

20

Of the $29.9 million allotted for personnel salaries; 69% is allocated to support staff member salaries; 17% to support manager salaries, 9% support executive salaries, and 5% to support BOT salaries.

Staff 69%

Managers 17%

Executive 9%

Trustees 5%

FY 18/19 $29.9MM


Grants

21

OHA allocates $19.55 million over the biennium budget to various grant programs, which constitutes 26% of the core operating budget. Of this budget: 10% is allocated for initiatives aimed at preserving culture, land, and water; 31% to a long-term commitment in ensuring affordable housing opportunities on DHHL homestead development; 20% towards health and economic self-sufficiency programs. Two percent (2%) is allocated to Ahahui events that are free and open to the public, and 28% for education to improve reading and math test scores in DOE and charter schools; and higher education scholarships. OHA also allocates 6% to leveraged opportunities, 2% to program sponsorships and 1% to Executive sponsorships to support any of OHA’s 6 strategic priorities.

DHHL 31%

Health, Housing &

Income 20%

Education 28%

Culture, Land & Water

10%

Leveraged Opportunities

6%

FY 18/19 $19.19MM*

Ahahui Event Sponsorships

2%

Programs Sponsorships 2%

Executive Sponsorships 1%

*Pending availability of funding Budget data presented are preliminary and subject to change.

FY18: $9.8MM FY19: $9.8MM

Grants

22

Through the $19.55 million provided, OHA’s grant program estimates to impact more than 12,000 beneficiaries. 1,588 will benefit from economic self-sufficiency programs which include career broadening opportunities and down-payment assistance for home-owners and security deposit assistance for renters. 607 will benefit from health initiatives aimed at battling obesity. More than 10,000 beneficiaries will benefit from OHA’s contribution to charter school programs as well as education initiatives to improve reading and math test scores and higher-education initiates such as college scholarships. Additionally, potentially thousands more will benefit from programs aimed at perpetuating Hawaiian culture and practicing pae ‘aina sustainability, and OHA sponsored beneficiary events.

Housing & Income 1,588

Health 607

Education 10,000

FY 18/19 12,195 Beneficiaries*

*Pending availability of funding Budget data presented are preliminary and subject to change.

Contracts

23

Contracts constitute 16% of OHA’s core operating Budget and is comprised of two main areas: services on a fee basis and legal services. Service on fee includes contracts from many areas of expertise to help support our strategic priorities. It also includes OHA’s legal and social services provisos, who provide services directly to the beneficiaries, not to OHA. Legal services are comprised of various litigation and consulting needs that arise in the ordinary course of business. Services on a

Fee Basis 78%

Legal Services

22%

FY 18/19 $11.6MM


FY18: $5.93MM FY19: $5.66MM

Services on Fee Basis Contracts

24

Through a State Proviso, 32% is allocated to legal and social services. Legal services provisos provide beneficiary legal representation for the assertion and defense of quiet title actions; assistance with ahupaa and kuleana tenant rights; and preservation of Native Hawaiian land trust entitlements. The remaining is allotted for social services, including referral services and case management, to at-risk beneficiaries to immediately address unexpected crises. The 19% allocated for Resource Management includes funding for public water initiatives; access to Papahanaumokuakea: and state advocacy; services related to Kukaniloko; and, additionally, IT database contracts.

Other Program

22%

Resource Management

19%

Legal & Social Beneficiary

Services 32%

Legal Services

22%

FY 18/19 $11.6MM

BOT/Executive 5%


Legal Services Contracts

25

Litigation 5%

Consulting 14%

Board Council 3%

FY 18/19 $11.6MM


Fourteen percent (14%) of the contract budget is allotted for legal consultants who provide OHA with non-litigation legal advice in a particular are of law. Five percent is allotted for litigation in which services are rendered in either defending OHA and/or Trustees or as a plaintiff if the Board of Trustees so desires. The remaining 3% is allotted for council to the Board of Trustees in which legal advice is rendered regarding Trustee duties, privileges, immunities and liabilities.

Overhead

26

OHA allocates approximately $3 million annually to operating costs or 8% of the core biennium budget. Of these amounts, office leases account for 59%, which support 7 offices across the State of Hawai’i and 1 office in Washington, D.C. Utilities make up the other 11%. Fifteen percent (15%) is insurance premiums for liability insurance, workers compensation, board and officers insurance and other related coverages. Additionally 6% is allotted for office and other supplies; 4% for telephone and internet service; and 6% is made up by leasehold improvements, and parking validations for stakeholders and beneficiaries.

Office Leases, Common Area Maintenance

& Utilities 59% Utilities

11%

Insurance 15%

Other 6%

Supplies 6%

FY 18/19 $6.04MM

Communications 4%


FY18: $3.00MM FY19: $3.04MM

Program

27

The next budget category is in Programs, to which OHA allocates approximately $1.6 to 1.7 million annually to operating costs or 5% of the core biennium budget. These are costs directly related to programs such as mail, printing, advertising, seminars, conferences organized by OHA, and trustee allowances. Other expenses includes costs related to mokapu burial efforts, OHA staff meetings, worksite, name plates, leis, etc.

Mailings/ Shipping,

18%

Printing 11%

Advertising 8%

Trustee Allowance

12%

Non-OHA Conferences

5%

Dues 5%

Other 13%

OHA Conferences

16%

FY 18/19 $3.32MM

Subscriptions 4% Honorariums

4%

Conference Fees 6%


FY18: $1.60MM FY19: $1.72MM

Equipment

28

OHA allocates $1.63 million or 2% of the core biennium budget to equipment; including for repair & maintenance, software & equipment, and a smaller portion allocated to furniture and fixtures. Repair & maintenance includes various upkeep work performed on OHA’s facilities and legacy properties. Some of the larger budget items include vegetation maintenance and arborist/tree trimming services for Kukaniloko legacy property and janitorial service for all offices. Software & equipment include IT software, hardware, licenses, subscriptions, etc. Larger expenses include Oracle license renewal and workstation and laptop replacement cycle, and Hawaiian Registry Program ID machine. Furniture & fixtures include miscellaneous facilities needs that arise during normal course of operation.

Repair & Maintenance

65%

Furniture & Fixtures

5%

Software & Equipment

30%


FY 18/19 $1.63MM

FY18: $900K FY19: $726K

Travel

29

Lastly, travel budget category makes up just a little more than 1% of the core operating budget. BOT, Executive Team, and Community Engagement paia have larger travel budget due to the various board and sub-committee meetings that are held throughout the year across the State. This include travel for neighbor Island Trustees to attend meetings on Oahu and conversely for Oahu and At-Large Trustees to travel for outer Island meetings. Also, BOT and Executives are also often asked to participate in various community meetings regarding Native Hawaiian topics or issues. Less frequent are the Out-of-State travels, which are primarily related to due diligence meetings or investment conferences, as well as the annual Lei Draping ceremony held at Washington DC.

Trustees 45%

Executive 13%

Advocacy 18%

Research 4%

Financial Assest

7%

FY 18/19 $936K


9%

Land Asset 3%

SPRI 1%


FY18: $443K FY19: $493K

Mahalo!

30

Please send your questions and comments to [email protected] or visit www.oha.org for more information.


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