NEW YORK - Moody's Investors Service said it has assigned a Aa2 rating to the state of Hawaii's $312 million general obligation bonds of 2010, taxable series DX (Build America Bonds - direct pay) and $225 million general obligation refunding bonds of 2010, series DY, and revised the outlook on the state's rating to negative from stable and affirmed the outstanding Aa2 rating on approximately $4.7 billion outstanding general obligation bonds.
The Aa2 rating incorporates the state's historical fiscal conservatism; actions to address significantly lower revenue growth; a tourism-based economy that experiences volatility tied to national and international economies; and a high debt burden.
As a heavily tourism dependent state, Hawaii's economy has been hurt by reduced travel due to the national and international recession.
Consecutive downward revenue revisions in fiscal 2009 and continuing in fiscal 2010, beyond those already anticipated by the state, have resulted in further draws on already reduced reserves to achieve budget balance.
Late last spring, the state closed a sizeable combined budget gap of $2.7 billion covering fiscal years 2009 through 2011. In addition, a correction to conveyance and general excise tax collections over the past two years resulted in very modest combined available reserves of less than 1% for fiscal year 2009.
Based on the current revenue forecast, Hawaii now faces another large budget gap of $1.2 billion for the biennium, representing 12% of revenues.
With reduced time to achieve ongoing savings in the current fiscal year (2010), the state will likely increase its use of one-time budget solutions to balance the budget and maintain liquidity.
As in most other states, federal stimulus funds are providing significant funding flexibility and Hawaii has also taken steps to reduce ongoing spending and increase recurring revenues.
The negative outlook reflects Hawaii's vulnerability to further downward revenue revisions given the uncertainty surrounding the timing and strength of the economic recovery and its impact on the state's vital tourism sector; tighter liquidity reflected in a fiscal 2009 retirement payment deferral and a proposed delay in fiscal 2010 income tax refunds; additional debt restructurings for budget relief; modest ending balances projected over the near term forecast horizon; and out-year structural gaps due to one-time solutions already incorporated in the enacted budget. Future credit reviews will focus on the state's revenue performance and success in achieving targeted spending reductions to balance the budget.
Hawaii plans to sell the current offerings the week of February 8. Proceeds of the refunding series will be used to refund outstanding bonds for significant upfront savings ($16 million in fiscal 2010 and $72 million in fiscal 2011), with negative savings in the out-years through 2020.
The state has used similar refundings for one-time budget relief recently, contributing to structural budget imbalance beyond the current biennium. Proceeds of the new money series, which are being issued as taxable Build America Bonds - Direct Pay, will be used for various statewide projects.
