Ka Wai Ola - Office of Hawaiian Affairs, Volume 12, Number 7, 1 July 1995 — Recession vs. "soft landing" [ARTICLE+ILLUSTRATION]

Recession vs. "soft landing"

by Rowena N. Akana Trustee-at-large With State Budget Director Eiarl Anzai ealling for yet another round of budget cuts during the recent special session of the state

Legislature and a nation-wide eeonomie downtum predicted for the near fiiture, calls for fiseal restraint laid out in my May article on deficit spending of trust funds remain especially true today. When I pointed out that deficit spending could be devastating for the Office of Hawaiian Affairs, I was hopeful that, as we begin our new fiscal year on July 1 . we could

operate cautiously with our lean budget for fiscal year 1995-1996. Leading eeonomie indicators feU in May, marking the third monlh in a row that the index had slid. The job market is tightening as well. The U.S. Labor Department said 101,000 jobs were lost in May, making that

the second month in a row in whieh payrolls had declined. According to the June 5, 1995 issue of USA Today , mutual fund managers are "grappling with recession fears and wild stock market volatility." In light of the Office of Hawaiian Affairs'

status as a public institution, and especially as the early waming bells begin to sound regarding the economy as a whole, it is more important than ever to coordinate our investment policies with our spending poIicies. Indeed, some of our managers spoke to this theme at a meeting of the Budget, Finance and PoUcy Committee on Apiil 29.

ASHFIELD: "What I think would be very helpful would be to define the spending policy... You've got to relate the investment policy to the spending policy." INVESCO: "I think the real answer comes down to what the money is needed for and what the objective of the money is...The

spending policy is critical." DENIS WONG: "I think the first thing I'd do is probably to look at your inflows and outflows, what you really need from a budgetary standpoint." SCUDDER, STEVENS & CLARK: "I'd have to start with a plan, a cash flow plan for the organization." Although there is a lot of uncertainty about the economy in the near future, and many reasons to be cautious about our spending policy, one committee of the Office of Hawaiian Affairs is already looking at ways to trim its operating budget. At a June 7 meeting of the Health and Human Services Committee, chaired by Tmstee Billie Beamer, the eommittee unanimously passed a motion cutting back by 50 percent two programs previously funded with matcliing funds from the state. We need more of these kinds of proactive measures to weather the eeonomie turbulence that may lie ahead. As articulated by Tmstee Beamer at the April 29 Budget, Finance and Policy Committee meeting, the Board of Tmstees "should regularly communicate with

(our investment monitor) and our investment managers to let them know what our policies are...and how mueh we want to allocate for beneficiary spending versus long-term protection of our endowment." And yet, in spite of the warning signs of recession, and the need to be careful with how we spend our money, every cloud has a silver lining. The June 5 edition of USA Today also stated that the average stock growth fund gained 13.2 percent through June 1 of thif year. lndeed the market has been quite robust this year, posting a string of record highs. Our money managers are also participating in the bull market and their retums for the first quarter of 1995 by and large look prettf strong. Although analysts judging the future are divided between the bears and the bulls, optimists forecast a slowing of growth that does not lead to full-blown recession. Although the financial markets have given our money managers a rough go of it recently, the best part of the three-to-five year business cycle appears to be ahead of us.