Hawaii is gearing up to enter the financial markets with a significant offering of $750 million in taxable general obligation (GO) bonds, set for early December. Despite the optimistic outlook from various credit rating agencies, the road to economic recovery, particularly for the tourism industry—Hawaii’s economic backbone—remains uneven. The long-standing repercussions of the devastating wildfires that struck Maui in August 2023 are being felt across the state, as illustrated in a report by Fitch Ratings.
Hawaii’s economy heavily relies on tourism, which has shown signs of recovery post-pandemic, but not without setbacks. The wildfires exacerbated these challenges, leaving a cloud of uncertainty over the future of the state’s recovery. According to Eric Kim, a senior director within Fitch’s U.S. Public Finance group, recovery from the wildfires is ongoing, and initial cost assessments indicate that the bill could exceed a staggering $12 billion. The financial burden includes significant contributions to recovery efforts and litigation costs, with estimates around $633 million earmarked for recovery and nearly $900 million for potential settlements.
These figures highlight the precarious situation faced by Hawaii’s financial planners, raising questions about the state’s ability to manage its fiscal health amid such sweeping challenges. The multi-year financial framework developed by the state incorporates these expenses, signaling a proactive approach yet a considerable strain on resources.
In light of the current circumstances, credit agencies continue to affirm Hawaii’s fiscal reliability, with Fitch maintaining a solid AA rating and Moody’s reaffirming its Aa2 rating. The stability attributed by these ratings reflects Hawaii’s adherence to sound fiscal management and governance. Still, the heavy reliance on the tourism sector—which is susceptible to various external shocks—casts a shadow over these affirmations. The ongoing dependence on tourist expenditures renders the state vulnerable to fluctuations in visitor volume, a reality evidenced by the dip in arrivals post-wildfires.
S&P Global Ratings also confirmed a strong AA-plus rating for Hawaii, emphasizing proactive financial oversight. Market stakeholders show cautious optimism, as evidenced by anticipated interest in the upcoming bond sale. However, it is essential for potential investors to remain vigilant about Hawaii’s underlying economic vulnerabilities.
The upcoming bond issuance aims to finance not only new capital projects but also to reimburse the state for prior capital expenses, indicating a structured approach to managing fiscal responsibilities. With an existing GO debt of $8.7 billion as of July 2023, there is an inherent need for thoughtful debt management strategies to ensure long-term sustainability.
Additionally, the anticipated influx of around $3 billion in federal disaster relief funding presents an opportunity for the state to bolster its recovery efforts. Yet, out of this amount, only $1.3 billion has been spent so far, which underscores the potentially slow pacing of recovery initiatives.
Visitor spending has notably rebounded since the pandemic, surpassing pre-COVID levels by spring 2022. However, the total number of visitors arriving via air remains below pre-pandemic figures, particularly in the realm of international travel. While domestic visitation has shown resilience and even surpasses 2019 levels at times, it is crucial for Hawaii’s economic strategy to encompass plans for revitalizing international tourism.
Despite Hawaii’s current fiscal challenges, it is imperative to focus on the long-term fiscal health of the state. While long-term liabilities, encompassing debt and pension obligations, are above the median when compared to other states, adjustments to retiree benefits and increasing contributions are contributing to a gradual stabilization of these issues.
Furthermore, Hawaii’s debt profile is nuanced; unlike many states, its debt includes obligations related to public school enhancements, which are typically covered by local governments elsewhere. Therefore, a comprehensive approach to fiscal management that balances immediate recovery needs with long-term strategies is essential to navigate the months and years ahead effectively.
Hawaii’s financial situation embodies a mix of opportunity and risk. The state’s commitment to addressing its challenges through structured financial planning, robust bond offerings, and support from federal resources will be crucial in steering its recovery trajectory while maintaining fiscal resilience against ongoing threats.