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The Honolulu Advertiser
Posted on: Wednesday, August 28, 2002

Moody's upgrades outlook for state

Bloomberg News Service

Hawai'i's slow but continual recovery from a slump in tourism after the Sept. 11 terrorist attacks means the credit rating on its $3.4 billion of bonds won't be lowered.

Moody's Investors Service had assigned a "negative" outlook to Hawai'i's Aa3 credit rating in the aftermath of the attacks and their economic impact late last year.

Yesterday, in a positive sign for the state's economic and long-term borrowing outlook, Moody's changed its outlook to "stable."

Moody's upgrade follows a similar move in February when Hawai'i sidestepped a lower credit rating on its general obligation bonds from Standard & Poor's. At the time, S&P said that while the attacks "had an immediate and dramatic impact" on Hawai'i's tourism, the state's overall visitor tally in 2001 ended "only" 9.1 percent lower than the record-setting 6.9 million the year before.

That factor and the state's spending cuts to protect its cash reserves provided enough stability to avoid a downgrade, S&P said. The credit-rating company had said in October that it might lower the "AA-" grade on Hawai'i's bonds.

The state's dependence on air travel for visitors meant that the negative effect of the attacks on Hawai'i "dwarfed those of all other states," Moody's said in a statement.

Other states that depend on tourism, including Nevada and Florida, went on Moody's "negative" list late last year. And states reliant on manufacturing also received "negative" outlooks.

Tourism accounts for about one-quarter of Hawai'i's economic activity. The state's tax collections in the fiscal year ended June 30 fell 3.5 percent below the previous year, Moody's said.

But the state cut spending and tapped cash reserves to cover the shortfall, and tourist arrivals have rebounded, Moody's said.

Hawai'i's unemployment rate, at 4.3 percent before the attacks, peaked at 5.7 percent in November but returned to 4.3 percent last month.