NEW YORK - Moody's Investors Service said it has downgraded the rating on the state of Hawaii's outstanding general obligation bonds to Aa2 from Aa1, affecting approximately $5.1 billion in outstanding debt.
Concurrently, Moody's has downgraded the rating on the state's 2009 certificates of participation to Aa3 from Aa2 (approximately $40 million outstanding) and the state's 2006 certificates of participation to A1 from Aa3 (approximately $24 million outstanding).
The downgrade incorporates Hawaii's strained financial operations following the recession-driven revenue fall-off over the last several years; near depletion of reserves planned for the end of fiscal 2011; GAAP negative available balances representing consecutive years of balance sheet deterioration as one-time solutions were used to resolve recent budget shortfalls; pension funded ratios that are low relative to other states and are projected to decline near-term; high debt ratios, in part reflecting debt issues for K-12 school capital projects; and growing expenses for other post employment benefits (OPEB).
The state's vital tourism industry is showing signs of improvement although related revenue growth projections were lowered in a March 2011 special forecast to factor in the natural disasters in Japan, higher petroleum prices, and the full impact from the state's decision to delay paying fiscal 2010 tax refunds until fiscal 2011. Hawaii's audited financial results have been late since fiscal 2007, a weak trend that detracts from the state's other relatively strong governance practices such as multi-year financial planning and quarterly binding consensus revenue forecasting.
The 2009 certificates of participation are rated one notch below the state's general obligation rating, reflecting the subject-to-appropriation nature of the obligation. The two-notch distinction between the general obligation rating and the 2006 certificates of participation incorporates the appropriation risk as well as the more limited essentiality of the project financed, a new office building for the Department of Hawaiian Homelands' headquarters.
