JULY 1, 2010 – Fitch Ratings assigns an ‘AA-‘ rating to the following County of Hawaii (the county) general obligation (GO) bonds:
–Approximately $5 million GO bonds, 2010 series A; and
–Approximately $67 million taxable GO bonds, 2010 series B.
The bonds are expected to sell via negotiation on July 12, 2010.
In addition, Fitch affirms the following ratings:
–$322 million in outstanding GO bonds at ‘AA-‘.
The Rating Outlook Stable.
RATING RATIONALE:
–The county has maintained a sound financial position to date through the economic downturn through strong management actions including spending cuts and tax rate increases. Close budget management and early reduction of spending has resulted in only moderate use of fund balance to date.
–The tourism-led economy is cyclical although benefits from solid underpinnings. Economic diversification to other sectors such as education has helped moderate the recession; however, tourism activity is vulnerable to competition and provision of access by airlines and cruise lines beyond the county’s control.
–While Hawaii’s centralized state government structure limits the county’s service responsibilities and thereby its debt burden and operating expenditures, it also restricts local financial flexibility, particularly due to statewide labor negotiations.
–The county is proactively managing its OPEB liability by paying its actuarially required contribution since fiscal 2008.
KEY RATING DRIVERS:
–Ability to manage budget through the current economic downturn including maintaining financial reserves;
–Return to growth in the tourism industry.
SECURITY:
GO bonds are absolute and unconditional general obligations of the county, secured by the full faith and credit of the county, and the county has the power and is obligated to levy ad valorem taxes, without limitation as to rate or amount on all property subject to taxation.
CREDIT SUMMARY:
Hawaii County is the largest of the four Hawaiian counties in terms of land area and second largest after Oahu in terms of population. It is the southernmost of the Hawaiian Archipelago islands and has a population of about 143,000. The county continues to pursue economic diversification beyond tourism and benefits from the 4,000-student University of Hawaii campus and a large government presence; however, the sizeable and volatile tourism and retail trade sectors continue to provide the largest private sector employment opportunities. Tourism remained strong through 2007, but the number of visitors declined 19% in 2008 and another 7% in 2009. First quarter data for 2010 indicates modest increase of about 2.5% over the first quarter of 2009. Nonetheless, the county’s tourism activity is somewhat dependent on air carriers to provide transportation to and from the island, and air seats have been negatively affected by the bankruptcies of ATA and Aloha Airlines. Alaska Airlines is backfilling some but not all of these losses. The softness in the tourism economy and its importance to employment is reflected in the county’s high unemployment rate. After several years in the 3%-4% range, the unemployment rate increased to 5.6% in 2008 and to 9.5% for April 2010.
