Fitch Ratings assigns an 'AA' rating to the State of
Hawaii's $350 million general obligation (GO) bonds, series DI. The
bonds are expected March 8 through negotiation with a syndicate led by
Citigroup and will be due March 1, 2010-2026. Fitch also upgrades the
rating on Hawaii's approximately $4.1 billion outstanding GO bonds to
'AA' from 'AA-'.
The upgrade to 'AA' is based on the increasing strength of Hawaii's economy, which has led to stellar revenue growth and very large fund balances. Financial operations have been maintained soundly, even under stressful periods, and budgetary procedures are conservative. Hawaii has a highly developed tourist economy, with extensive infrastructure and all-season attraction, supplemented by the growing presence of second homes and time shares. While the events of Sept. 11 had a sudden and severe impact on this airline-dependent state, tourism growth has resumed and has now exceeded its previous peak. The large military presence continues to be an important factor, and surging employment growth in professional and medical services has added a measure of diversification.
Hawaii's tourist industry relies heavily on California and Japan, although growth is strong from other countries. The sector is now robust following a weak period in the early to mid 1990s caused by recessions in Japan and California, a sharp drop in tourism after the events of Sept. 11, 2001, and a flat period in 2002-2003. Strong growth began in 2004 and continued in 2005, with total visitation up 8.5% and 6.5%, respectively, with both international and domestic visitation up solidly. The hotel occupancy rate rose to 81% in 2005, the highest since 1990. While tourism remains dominant, the share of total employment in direct leisure and hospitality has actually dropped slightly, largely due to growth in service sector shares, which are approaching U.S. levels.
Total employment rose 2.5% in 2004, and December 2005 was up 2.8% over one year ago, with professional services up 4.4% and leisure up 2.5%. Personal income has outpaced the nation for the past three years, and per capita personal income now stands at $32,606, nearly 99% of the U.S. Unemployment fell to 2.7% in December, indicating a tight labor market that may constrain future growth.
Financial balances have improved and have been retained following a difficult period in fiscal 2001-2003 when revenues fell short and balances were reduced. Tax revenues recovered to grow 8.3% in fiscal 2004, which ended with a $185 million balance. Strong tax growth -- including both the general excise and income taxes -- was 16% in fiscal 2005, which led to a $486 million balance. To date, fiscal 2006 revenues are up 12.2%, well ahead of the projected 8% growth, which was projected to yield a $574 million closing balance (or 12% of revenues). Through January, the general excise tax is up 13.5% and the income tax nearly 7%. The budget reserve, still comparatively small, is expected to hold $55 million at year-end and the governor has proposed a one-time transfer from surplus, which would double the balance to around 2.5% of projected revenues. The governor has also proposed $286 million in income tax cuts, some of which would be one time.
Hawaii's government is highly centralized, and the state is responsible for many functions, such as education, normally handled at the local level. As a result of this structure, debt is and will remain high although it is scheduled for prompt retirement, with over 70% of bonds due in 10 years. Including this issue, tax-supported debt is equal to $3,689 per capita and 12.3% of personal income. While high, it is well below the 1975 level of 19%. Debt is strongly secured, with general obligation principal and interest representing a first charge on the general fund. Funding levels of Hawaii's pension system have declined from 95% in 2000 to less than 69% as of June 30, 2005, with the unfunded liability now exceeding $4 billion.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
The upgrade to 'AA' is based on the increasing strength of Hawaii's economy, which has led to stellar revenue growth and very large fund balances. Financial operations have been maintained soundly, even under stressful periods, and budgetary procedures are conservative. Hawaii has a highly developed tourist economy, with extensive infrastructure and all-season attraction, supplemented by the growing presence of second homes and time shares. While the events of Sept. 11 had a sudden and severe impact on this airline-dependent state, tourism growth has resumed and has now exceeded its previous peak. The large military presence continues to be an important factor, and surging employment growth in professional and medical services has added a measure of diversification.
Hawaii's tourist industry relies heavily on California and Japan, although growth is strong from other countries. The sector is now robust following a weak period in the early to mid 1990s caused by recessions in Japan and California, a sharp drop in tourism after the events of Sept. 11, 2001, and a flat period in 2002-2003. Strong growth began in 2004 and continued in 2005, with total visitation up 8.5% and 6.5%, respectively, with both international and domestic visitation up solidly. The hotel occupancy rate rose to 81% in 2005, the highest since 1990. While tourism remains dominant, the share of total employment in direct leisure and hospitality has actually dropped slightly, largely due to growth in service sector shares, which are approaching U.S. levels.
Total employment rose 2.5% in 2004, and December 2005 was up 2.8% over one year ago, with professional services up 4.4% and leisure up 2.5%. Personal income has outpaced the nation for the past three years, and per capita personal income now stands at $32,606, nearly 99% of the U.S. Unemployment fell to 2.7% in December, indicating a tight labor market that may constrain future growth.
Financial balances have improved and have been retained following a difficult period in fiscal 2001-2003 when revenues fell short and balances were reduced. Tax revenues recovered to grow 8.3% in fiscal 2004, which ended with a $185 million balance. Strong tax growth -- including both the general excise and income taxes -- was 16% in fiscal 2005, which led to a $486 million balance. To date, fiscal 2006 revenues are up 12.2%, well ahead of the projected 8% growth, which was projected to yield a $574 million closing balance (or 12% of revenues). Through January, the general excise tax is up 13.5% and the income tax nearly 7%. The budget reserve, still comparatively small, is expected to hold $55 million at year-end and the governor has proposed a one-time transfer from surplus, which would double the balance to around 2.5% of projected revenues. The governor has also proposed $286 million in income tax cuts, some of which would be one time.
Hawaii's government is highly centralized, and the state is responsible for many functions, such as education, normally handled at the local level. As a result of this structure, debt is and will remain high although it is scheduled for prompt retirement, with over 70% of bonds due in 10 years. Including this issue, tax-supported debt is equal to $3,689 per capita and 12.3% of personal income. While high, it is well below the 1975 level of 19%. Debt is strongly secured, with general obligation principal and interest representing a first charge on the general fund. Funding levels of Hawaii's pension system have declined from 95% in 2000 to less than 69% as of June 30, 2005, with the unfunded liability now exceeding $4 billion.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.