Hawaii, an archipelago renowned for its breathtaking landscapes and vibrant tourism, is set to enter the bond market in early December 2023. The state aims to raise $750 million through the issuance of taxable general obligation bonds, maintaining a double-A rating, as confirmed by multiple credit rating agencies. This financial maneuver comes at a time of significant economic recovery challenges for Hawaii, particularly in the wake of last year’s devastating wildfires in Maui. As Fitch Ratings cautions, while the tourism sector is essential to the state’s economy, its recovery trajectory remains precarious.
The wildfires in August 2023 wrought havoc on Maui County, leaving behind an uncertain path to recovery. “The extent of the damage is still being assessed,” said Eric Kim, a senior director at Fitch, indicating that the repercussions could be enormous. Estimates suggest that recovery costs could spiral beyond $12 billion, with significant financial input from both federal support and private sector assistance. The state plans to allocate approximately $633 million to recovery efforts while earmarking nearly $900 million for litigation settlements. All these expenditures are intricately woven into Hawaii’s multi-year general fund financial strategy, indicating a blend of proactive fiscal management and forward-thinking governance that stakeholders will be closely monitoring.
Despite the challenges, credit rating agencies are maintaining a predominantly stable outlook for Hawaii. Moody’s affirmed Hawaii’s rating at Aa2, attributing it to robust financial health, sound governance, and the state’s strategic geographical allure. However, this positive assessment comes with caution as the state’s heavy reliance on tourism leaves it vulnerable to external shocks. Furthermore, S&P Global Ratings confirmed an AA-plus rating, highlighting the state’s proactive approaches to financial management as a cornerstone for its stability.
Such affirmations from major rating agencies are critical, especially as the state plans to issue a significant amount of general obligation bonds. The bonds are underpinned by the confidence in the state’s financial management systems, as evidenced by the involvement of prominent financial institutions, including Bank of America Securities serving as the senior manager in the bond sale. The expected timeline for managing investor interest, projected around December 3 for initial interest indications, reflects the structured approach Hawaii is taking to ensure a successful offering.
Tourism, a linchpin of Hawaii’s economic framework, has shown signs of recovery post-pandemic, with visitor spending reportedly exceeding 2019 levels as early as spring 2022. However, a more nuanced picture unfolds when examining the number of visitor arrivals. Despite the resurgence in domestic travel, the inflow of international tourists remains significantly below pre-pandemic levels. Following the wildfires, domestic travel has seen fluctuations; it briefly fell below 2019 figures but has shown signs of gradual recovery. Therefore, while visitor metrics paint a picture of optimism, the vulnerability to external disruptions persists, warranting cautious optimism.
Hawaii’s financial maneuvers come amid inherent long-term liabilities, particularly concerning debt and pension obligations, which are markedly higher than the national average for U.S. states. These long-term liabilities pose a challenge to fiscal stability, yet adjustments to retiree benefits and increased contributions have contributed positively to mitigating the rapid growth of these liabilities. Fitch analysts posit that Hawaii’s emphasis on prudent fiscal planning will be instrumental in bolstering its resilience against future economic volatility.
As Hawaii embarks on its $750 million bond issuance, the interplay of tourism recovery, financial management, and response to recent disasters will be pivotal. The state’s capacity to navigate through fiscal challenges will be closely regarded by investors and analysts alike. While Hawaii’s picturesque landscape continues to draw visitors, the underlying fiscal strategies will ultimately determine whether the state can maintain its economic stability and reputation in the bond market.