LOS ANGELES — Maui County, Hawaii received two ratings affirmations Friday ahead of a general obligation bond sale.
Fitch Ratings affirmed the county at AA-plus and Moody's at Aa1. Outlooks remain stable.
The county plans to sell $75.5 million of GO bonds competitively on June 26, according to Fitch.
Proceeds will reimburse the county for prior capital expenditures, fund a portion of additional one-time projects and refund certain maturities of previously issued debt for debt service savings, according to Moody's.
The affirmation applies to $279 million of debt, including the new sale, according to Moody's.
The bonds are secured by the full faith and credit of the county and an unlimited property tax levied on all taxable property within its jurisdiction.
Moody's said its Aa1 rating primarily reflects the county's sizeable property tax base, which experienced a nearly 9% increase going into fiscal 2015; a local economy with high exposure to the tourism industry that continues to recover albeit somewhat slower than previously anticipated; a stable fiscal profile and strong management team; and a moderate direct debt burden composed entirely of fixed rate debt.
"The rating also recognizes the county's long-term pension funding challenges, which we view as significant but manageable given a solid level of financial flexibility," Moody's analysts wrote.
The stable rating outlook reflects Moody's expectations that, "although all Hawaii counties will continue to be pressured from elevated benefit-related costs passed down from the state, Maui will prudently utilize its substantial financial flexibility to address these challenges over time."
Sustained long-term economic growth and diversification, resolution of funding OPEB and pension liabilities, and long-term improvement in wealth measures could make the rating go up, Moody's said.
Fitch cited a turnaround in the county's tax base as assessed values returned to growth in fiscal 2014 and 2015 following a substantial decline during the downturn, but remain well below pre-recession peaks.
The six-year capital improvement plan is sizeable at $1 billion and reflects the broad responsibilities of county government in Hawaii, according to Fitch. Much of the plan focuses on water, sewer, and road projects financed through non-general fund sources.
"Approximately 44% of appropriations for 2015 are funded from state loans and GO bonds, with the balance from pay-go revenue sources. No further debt issuances are anticipated before 2016," Fitch analysts said.
The county is a participant in the state-sponsored employee retirement system and will likely face ongoing contribution rate increases to address a low funding ratio. The state plan reported a 60% funded ratio as of 2013 assuming an investment return rate of 7.75%, while Fitch estimates the funded ratio at just 55.4% assuming 7% returns. Contribution rates are set by statute and total contributions in recent years have fallen short of amounts required to amortize actuarially determined liabilities, Fitch said.
The county's reported unfunded liability for OPEBs is substantial at $344.6 million as of 2011 equal to 1.1% of market value, Fitch said, but is expected to decline substantially following the planned transfer of $110 million in reserves to a state-managed irrevocable trust in 2014 and 2015, according to the rating agency.
