honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Thursday, June 4, 2009

State ready to sell $616M of bonds


BY Greg Wiles
Advertiser Staff Writer

The state hopes to issue more than a half billion dollars of bonds next week with some of the proceeds going to fund building projects in Gov. Linda Lingle's construction stimulus plan.

The state expects to sell $616 million of bonds in a negotiated deal on June 10, with $400 million going to fund capital improvement projects.

Another $216 million goes to refund bonds sold at higher interest rates. Bond ratings agencies maintained a high rating for the state's debt, though one downgraded its outlook.

The new general obligation bonds are the first issued by the state this year and are expected to attract a good amount of interest by individual investors who are seeking less risky investments, said Scott Kami, administrator of the state Financial Services Division. The interest income from the bonds is exempt from state tax.

"We usually have a one-day retail order period," Kami said. "Because there's more interest from the retail market, we want to give the retail folks an additional day to purchase the bonds."

That will take place tomorrow and Monday, with orders being taken from institutional investors on Tuesday, he said.

Fitch and Standard & Poor's have rated Hawai'i's debt at AA, citing the state's sound budget practices. But Fitch revised downward its rating outlook to negative from stable, meaning it could lower its rating for the bonds in the future.

Lower bond ratings mean higher bond costs. Fitch noted the negative outlook reflects continued tax revenue weakening has nearly depleted large balances built up in recent years.

"Fitch's view that expected thin reserve levels limit the state's financial flexibility should further revenue weakening persist amid the global recession," the ratings agency said in a report.

"Hawai'i has a highly developed tourist economy which has experienced a contraction in tourist arrivals, and the sector's outsized presence and volatility is an exposure to the state's overall financial position."

S&P also noted state government's financial woes, though, did not downgrade its outlook on the debt. Kami said Moody's, another ratings agency, also did not change its outlook.

"Declines in tourism-related metrics and revenues, construction spending, and other related economic activity have led to lower general fund tax revenue growth rates, but management has been willing to implement aggressive solutions to mitigate the effects," S&P analysts wrote in a note.

Some of the money raised by the general obligation bond sale will go to fund Lingle's plan to fast-track government construction projects to stimulate the local economy.

That program has gotten off to a slower-than-hoped start given work needed to streamline steps involved in getting projects from appropriation to shovel in the ground.

Kami said the state is authorized to issue another $210 million in new bonds this year if the funding is needed.

During the 2010 fiscal year it is authorized to issue $420 million of bonds, with the amount rising to $550 million in fiscal 2011.

In fiscal 2012 and 2013, there is authorization for $670 million each year.

Kami said he doesn't know if the state will issue more bonds this calendar year because several variables are involved, including now fast it spends down the amount being raised in the upcoming sale.