Posted on: Thursday, December 20, 2001

Hawai'i turns negative in Moody's credit rating

By Dennis Walters
Bloomberg News Service

NEW YORK — Moody's Investors Service changed its outlook to "negative" on the credit ratings of 10 states, including Hawai'i, a possible precursor to downgrading, amid the worst drop in tax revenue in more than a decade and higher healthcare spending.

The outlook adjustments, from "stable," fall short of an alert that a credit rating review is imminent. Still, the negative trend shows that a slowing economy is hurting state finances across the United States.

"This is having a very dramatic impact" on tax collections, which have dropped in most states, said Raymond Murphy, a vice president at Moody's. "All the sources are conveying the same message," that overall state revenue hasn't dropped this much since a recession in the early 1990s.

States that depend on tourism, which declined after September's terrorist attacks, made Moody's "negative" list, including Nevada, and Florida. Others reliant on manufacturing, from Michigan's auto industry to Washington's planemakers, also received "negative" outlooks.

Massachusetts, North Carolina, Ohio, Virginia, and Indiana rounded out those that changed. California and New Jersey received "negative" outlooks from Moody's previously, and Maine dropped to "stable" from "positive" today.

Most states should be able to avoid downgrades with prompt spending cuts and revenue increases, said Moody's. Rating cuts lower the value of existing bonds and produce higher interest rates on future borrowing.

While the budget pinch may persist for as long as 18 months, there is a silver lining for states, Murphy said.

"Going into this recession, they're certainly in a much better position than they were" a decade ago, thanks to more cash reserves and monitoring of revenue and spending, Murphy said.