(NEW YORK) — While known for its stunning beaches and beautiful flora, Hawaii’s economy has seen sunnier days. The state’s bonds were downgraded by credit agency Moody’s Investors Service, though they’re still at least a notch above troubled New Jersey, California and Illinois in terms of fiscal stability.
Hawaii’s outstanding general obligation bonds were downgraded from Aa1 to Aa2 because of the state’s “strained financial operations,” the credit rating agency said. That will make borrowing more expensive for Hawaii, which already has $5.1 billion in outstanding debt.
The Aa2 designation is one out of 10 possible ratings and two steps away from the best possible rating of AAA, but it still sheds light on an economy some say could be too closely entwined with tourism.
“It’s always been a premier tourist destination — a lot of international tourism, not just U.S. domestic, but this recession was so severe and hit globally and domestically so it really affected them,” Nicole Johnson, senior analyst with Moody’s public finance group, said.
Alan Schankel, director of fixed income research with Janney Capital Markets, said Hawaii is more reliant on tourism than most states, if not all states, and increasing airlines fares also create a barrier for tourists. “You can’t just jump in a car and go to Hawaii,” he said.
However, Johnson, who wrote Moody’s latest report and gave the state a “stable” outlook, said Hawaii will remain a “premier” tourism destination.
“Their forecast is there will be a temporary drop in Japanese tourists but they expect that to come back,” she said. “It has remained very popular with West Coast travelers because it’s not so far, and in fact some of them have homes there.”
Mike McCartney, CEO of the Hawaii Tourism Authority, said while the recovery progress has been slowed by the tragedy in Japan, the state is doing better than projected. There was a 23.3-percent decrease in visitors from Japan in April compared to last year, not as bad as the 45-percent decrease that was expected.
For the first quarter of this year, visitor spending was up 16.9 percent compared to the same period last year, adding $3.1 billion for Hawaii’s economy. The latest tally shows that the total number of visitors who arrived in March 2011 rose to 633,365 — up 4.2 percent from a year ago. The Tourism Authority has not yet released April’s figures.
However, the Hawaiian government has “already taken actions” to fix their fiscal problems and will deplete their “rainy day fund” that’s designated for emergencies, by the end of this year, according to Johnson.
“So it doesn’t give them a lot of flexibility, and they probably won’t rebuild it for a couple of years,” she said. “But if revenues begin to turn around, they are projected to stabilize.”
Copyright 2011 ABC News Radio