Falling Grades

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BY MALIA HILL – The politicians can try to paint whatever picture they would like about the depth of Hawaii’s budget crisis, but there are some inescapable signs that we need to worry.  Like the fact that Moody’s just downgraded Hawaii’s General Obligation Bond Rating.  From Hawaii Reporter:

Hawaii’s “strained” state financial operations, the depletion of its reserves in fiscal year 2011, and covering budget shortfalls with one-time solutions — these are the factors that Moody’s Investors Services cited in downgrading the general obligation bond rating for an estimated $5.1 billion in debt.

Moody’s announced the downgrade Tuesday in a report on Hawaii’s financial condition, legislative action from this past session including tax increases and special fund raids, and the state’s financial obligations and debt.

Hawaii’s unfunded pension ratios, high debt ratio and growing expense for unemployment benefits were also used to justify the downgrade to Aa2 from Aa1. The state’s 2009 certificates of participation also were downgraded to Aa3 from Aa2 (approximately $40 million outstanding) and to A1 from Aa3 (approximately $24 million outstanding) on the state’s 2006 certificates of participation.

What does this mean for Hawaii’s taxpayers?  Nothing good.  Borrowing on such bonds is the way that the state funds infrastructure projects, like highway repairs.  The downgrade means higher interest on the bonds, which will come from our pockets.  And all of this is brought to us by the waste and lack of accountability that we at Grassroot have been trying to bring attention to:


Moody’s also cited the state government for its reporting delays. They point out that audited financial reports have been late since 2007, noting this is “a weak trend that detracts from the state’s other relatively strong governance practices, such as multi-year financial planning and quarterly binding consensus revenue forecasting.”

Moody’s points to Hawaii’s spending and special fund raids as contributing factors for its “large operating deficit” including $539 million (10 percent of operating revenues) in fiscal 2012 and $498 million (8.6 percent) in fiscal 2013 and a 4 percent gap for the current fiscal year.

Boy, it’s tough to be right so often.  And not just on the special fund raids, but on the lackluster attempts to address the problem:

Moody’s points out that a number of the legislative actions offer only one-time or temporary solutions to covering budget shortfalls created by the spending, including the “suspension of general excise tax exemptions, temporary limitations on itemized deductions and delays in the increase of the standard deduction and personal exemption.”

Plans to increase the rental car surcharge and cap the counties’ share of the transient accommodations taxes are also just temporary solutions, unless they are made permanent, Moody’s said.

Of course, it’s never too late to start to fix things, and even Moody’s held out the hope that a renewed tourist industry and proactive measures to address the pension system could stabilize (and even improve our rating).  So let’s get on with it.