Bangkok--9 Nov--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'AA' long-term rating to Hawaii's $800 million series 2011 DZ general obligation (GO) bonds. We also assigned a 'AA' rating to the state's estimated $467 million of GO refunding bonds issued in four series (2011 EA, EB, EC, and ED). At the same time we affirmed our 'AA' long-term rating and underlying rating (SPUR) on Hawaii's general obligation (GO) bonds and our 'AA-' long-term rating on the state's certificates of participation (COPs). The outlook on all ratings is stable.
"State revenue performance has begun to improve, and for the first three months of fiscal 2012, tax collections are outpacing the same period during the past two fiscal years," said Standard & Poor's credit analyst Gabriel Petek. "Tourism, which in large part determines the fate of state tax revenue trends, is also showing signs of modest growth," added Mr. Petek.
The 'AA-' COP rating reflects our view of Hawaii's:
- Annual appropriation risk,
- Covenant to budget and appropriate lease payments for the life of the certificates, and
- General credit characteristics.
The 'AA' GO rating reflects our view of:
- Governor Neil Abercrombie's willingness to implement aggressive solutions, totaling $1.32 billion, to balance the fiscal 2011-2013 biennial budget in light of a projected budget shortfall that had reached $1.25 billion for the biennium;
- The state's plans to recapitalize its nearly depleted emergency budget reserve (EBR) and hurricane relief fund (HRF);
- Strong liquidity, particularly when including pooled cash balances available to the general fund for temporary borrowing;
- Management's well-established, proactive budget monitoring practices, including frequent revenue forecast updates from the Council on Revenues (COR), which facilitate prompt identification of potential budget adjustments for budget alignment;
- The governor's executive authority to restrict all executive branch expenditures, such as by cutting spending midyear without legislative approval or by cutting or delaying education disbursements during the course of a fiscal year;
- Other strong constitutional protections, which require budget balance, that allow for tax increases with legislative approval and give GO bonds first-lien priority before all other disbursements; and
- Stabilization of and modest growth across a number of key economic indicators in the state that should help buoy its tax revenues going forward.
Partly offsetting the above strengths is our view of:
- The state's reliance on tourism from both U.S. and international visitors, including Japan, and declines in tourism-related metrics and revenues, construction spending, and other related economic activity, which have reduced general fund tax revenue growth rates and employment levels;
- A relatively high level of federal funding in the state budget, exposing the state's fiscal performance to revenue loss should the federal government enact significant federal deficit reduction; and
- The low-funded status of the state's retirement system, lack of funding of the state's other postemployment benefits (OPEB) liability, and overall debt ratios considered among the highest of all U.S. states.
RELATED CRITERIA AND RESEARCH
- USPF Criteria: State Ratings Methodology, Jan. 3, 2011
- USPF Criteria: Appropriation-Backed Obligations, June 13, 2007
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Gabriel Petek, San Francisco (1) 415-371-5042
John Sugden-Castillo, New York (1) 212-438-1678