LOS ANGELES — Hawaii received an improved outlook from Moody’s Investors Service ahead of plans to price $747 million in general obligation bonds.
Moody’s affirmed the state’s Aa2 GO bond rating and revised the outlook to positive from stable Tuesday citing the state’s restoration of reserves and its proactive measures to improve the funding of its pension and other post-employment benefits liabilities.
“The state has very strong governance practices – among the best in the country,” said Ken Kurtz, a Moody’s analyst. “Those include multi-year financial planning, consensus forecasting, and that the governor has the ability to cut spending mid-year if needed.”
Moody’s outlook revision was based on what the past administration accomplished and the commitment from Governor David Ige, Finance Director Wesley Machida, and lawmakers to reduce the state’s pension and OPEB liabilities, Kurtz said.
“We are very pleased with the change from stable to positive,” Machida said. “It is a reflection of a lot of hard work from a number of different people, which includes the current governor.”
Fitch Ratings and Standard & Poor’s both affirmed their AA ratings.
The fixed-rate serial GO bonds were scheduled for retail orders Wednesday followed by institutional pricing Thursday.
They are being issued as follows: two new money tranches, a $190 million 2015ET Series and a $35 million 2015EU Series green bond; a combined total of $497 million refunding series EV, EW, EX, EY, and EZ; and $25 million series 2015 FA taxable GO bonds.
The retail sale is planned for Wednesday with institutional pricing to follow on Thursday.
Bank of America Merrill Lynch is book-runner of the 10-member syndicate. Citi and Morgan Stanley are senior managers. Goldman Sachs and RBC are co-managers. Kutak Rock LLP is bond counsel.
The state hopes to save $50 million on the refunding, Machida said.
Proceeds from the ET and FA series bonds will fund state public improvement projects. Money from the EU series will pay for open space at Turtle Bay and a conservation easement.
The state also plans a spring bond sale in the $300 million to $500 million range, of which the majority will be new money, Machida said.
Hawaii lawmakers passed legislation in May 2011 that reduced employee benefits by limiting spiking, partly through the exclusion of overtime in estimating employee annual pension payouts based on current salary. The state also has been working to prefund other post-employment benefits.
But the state’s pension liabilities are above average. Moody’s 2013 adjusted net pension liability for Hawaii was 125.8% of state governmental revenues, the tenth highest of the 50 states and more than twice times the median of 60.3%.
Estimates released by the state’s retirement board in December 2014 put the state on track to be fully funded by 2040, but it may take longer because the board voted in September 2014 to lower the assumed rate of return from 7.75% to a more conservative 7.5% by 2017.
Hawaii’s OPEB obligation was $11.2 billion as of July 1, 2013, of which the state’s portion is $8.5 billion, Moody’s said. The state began prefunding OPEB liabilities in 2013, moving away from a pay-go system, with the aim of reaching 100% of its actuarially required prefunding by 2019. But Ige has a proposal before the legislature to speed that up in the hope of prefunding OPEB entirely by fiscal 2017 or 2018, Machida said. The proposal will be heard by the legislature when session resumes in 2016.
