City's general obligation bonds get 'AA' rating

Advertiser Staff

Fitch Ratings gave Honolulu's $250 million general obligation bonds a rating of "AA," the third highest given by the credit-rating company.

Fitch also affirmed the city's "AA" rating on $1.68 billion in outstanding bonds.

UBS Financial Services will sell the new bonds through negotiation around Tuesday.

Fitch said the city's outlook is stable and that its credit strength "rests in the sound fundamentals of its tourism-based economy, good financial operations and reserves, low debt burden, and strong fiscal management."

Fitch noted that the city has kept the reins on its spending, "resulting in prudent and above-average general fund balances."

The company said O'ahu's tourism base has adapted to a "shift to predominantly domestic-based visitors as well as reduced activity, while elements such as its role as the area's commercial center and state capital and a sizable military presence have added stability."

O'ahu's average hotel occupancy rose slightly to 71 percent in 2003, Fitch said. The increase is notable since it represents the first such gain with an average room-rate rise since 1998, the company said.

The real estate market has also recovered from losses following the Asian economic crises.

"Residential sales and prices continue to rise, and commercial construction was aided by a temporary tax abatement program," Fitch said. "Assessed value gains have been consistent and, most recently, sizable."

The general fund posted operating surpluses in five of the last six fiscal years, the company noted. For fiscal 2003, the fund balance rose to $72.8 million.

Fitch credited the fund balances primarily to low expenditure growth resulting from an organizational restructuring, privatization, and employee reductions.

While the credit raters said the city is enjoying a strong gain in its property tax base, it "will be challenged" by large increases in employee health and pension costs and other ongoing labor expenses.