Firm downgrades city’s bonds for first time since 1999, citing rail debt

The bond rating agency Moody's blamed the state's largest ever public works project, the financiall troubled rail project for increasing the city's debt.
Published: Mar. 2, 2023 at 8:25 PM HST|Updated: Mar. 3, 2023 at 10:54 AM HST
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HONOLULU (HawaiiNewsNow) -For the first time in more than two decades, Honolulu’s municipal bond rating has been downgraded.

Moody’s Investor Service lowered the rating of Honolulu general obligation bonds from a level known as Aa1 to Aa2. While the rating agency says the city continues to enjoy a “strong financial position,” it also express concern by the increase in city debt due to the financially troubled rail project.

“The debt burden has recently been rising due to (general obligation) bonds issued for construction of the rapid transit system,” Moody’s said.

Of the city’s $4.2 billion in bond debt, the city has issued about $1 billion in bonds to help complete the rail project.

Critics worry that the rail project will add even more to the city’s debt load.

“This is a project that essentially requires too much,” said rail critic Panos Prevedouros.

“This project has reached the point of being so questionable that bankers don’t want to get associated with it.”

Despite the downgrade, the city said its finances are healthy and that it’s taking steps to reduce debt.

“We’re kind of baffled by the downgrade. Disappointed. But we know what we have to do going forward to get back to where we were,” said Andrew Kawano, director for the city Department of Budget and Fiscal Services.

The economy is still booming, city property tax revenues are strong and the rail project’s recovery plan has gotten federal approval.

The city said it’s not clear if it will have to pay a higher interest rate on its bonds due to the downgrade because other rating agencies have not downgraded the city’s bonds.

“I think where we are today — compared to last year — in financially and fiscally much better shape,” said Kawano.

The last time the city’s bonds were downgraded — in 1999 — Jeremy Harris was Honolulu’s mayor. The cause of the downgrade was a tourism slump brought on by the Asian economic crisis.

The city’s bond rating has remained intact throughout many of the economic shocks that have hit Hawaii over the years such as the COVID pandemic, the dot-com bubble bust of 2000 and the Great Recession of 2008.

During the Great Recession, the city’s bond rating actually increased to the current Aa1 under Mayor Mufi Hannemann’s administration.