Hawaii, the third-most indebted U.S. state, had the outlook on $4.7 billion of general-obligation bonds lowered by Moody’s Investors Service because it’s depleting budget reserves as declining tourism reduces revenue.

The state closed a $2.7 billion deficit for fiscal 2009 through 2011 partially with reserves and faces another $1.2 billion gap as tax collections fall, Moody’s said today in changing its outlook to negative from stable.
Reserves that equaled 8 percent of general revenue at the end of fiscal 2008 will be 2.4 percent when fiscal 2010 ends June 30, it said.
“Strong reserve levels are important for Hawaii given the state’s heightened vulnerability to national and international shifts in its essential tourism-based economy,” New York-based analysts Nicole Johnson and Nicholas Samuels said in a report.
The U.S. recession curbed travel to Hawaii, causing the number of visitors to fall 10.6 percent in 2008 and 4.5 percent in 2009, Moody’s said, citing state figures that call for 2 percent growth this year. Tourism accounts for about 17 percent of non-farm jobs in Hawaii, nearly twice the national average.
Revenue is forecast to decline 2.5 percent in fiscal 2010 before a 7.6 percent gain in fiscal 2011, Moody’s said. “Tax revenues are not expected to recover to the 2008 pre-recession peak until fiscal 2012,” the ratings company said.
Moody’s assigned its Aa2 rating, the third-highest, to $537 million of general obligation bonds being sold next week in two series including taxable Build America Bonds. Some proceeds will be used to refund debt outstanding to save $88 million of interest cost over the next two fiscal years, Moody’s said.
Gov. Linda Lingle has proposed $284 million of cost reductions for fiscal 2010 and $600 million next year, Moody’s said. The state shifted a $130 million pension payment to 2010 from 2009 and proposed delaying tax refunds until 2011 to conserve cash, it said.
Hawaii’s 2009 debt per capita of $3,675 is the third-highest among the 50 states and more than four times the $865 median, Moody’s said.