Moody’s Investor Service recently downgraded the City and County of Honolulu, Hawaii’s general obligation rating to Aa2 (from Aa1) and assigned a Aa2 issuer rating. In addition, Moody’s revised its outlook to stable (from ratings under review).

So, what is the significance for the City and County of Honolulu, as well as for municipal bond investors? Below are some of the key points, as described in a press release by Moody’s, which includes Moody’s rating methodology, along with additional pertinent information.

Ratings Rationale

  • The Aa2 issuer rating reflects Honolulu’s very strong financial position and available cash, and the unusual level of financial flexibility.
  • Since most of Honolulu’s revenue is derived from property taxes, the pandemic had only a very modest effect on the City’s revenue stream resulting from a decline in commercial property values.
    • Honolulu has substantial flexibility to respond to economic declines, since tax rates are very low and can be adjusted by the City Council without voter approval.
  • Tourism is a key driver of the State’s economy, which contracted during the pandemic.
    • Recovery of international tourism to Hawaii faces headwinds from the strong US dollar and inflation.
    • However, Honolulu’s economy is significantly more diverse than other Hawaii counties and benefits from the large military presence.
  • A primary factor in the assignment of the Aa2 rating is Honolulu’s high leverage, which is significantly higher than similarly rated peers, and expected to remain elevated in the near term.
    • The debt burden has recently been rising due to bonds issued for construction of the rapid transit system.
    • Capital project costs are higher than other parts of the nation due to the need to import necessary materials and fuel, as well as due to higher costs for land and labor.

Rating Outlook

  • The stable outlook reflects the ongoing recovery from the effects of the pandemic.
  • The economy and tax base are expected to grow, although GDP growth will likely lag the national average.
  • Honolulu’s revenue is expected to grow through effective management of the tax rate, as well as assessment practices and strong fiscal management.
  • The rating outlook further reflects improved fiscal flexibility.
    • Honolulu plans to implement a 3% Oahu Transient Accommodations Tax (“TAT”) in fiscal 2022, which will nearly double the amount of TAT that had been received from the State prior to the pandemic.
    • Management has made significant progress in restructuring the administration of the rail project, and future operating subsidies for the project are expected to be manageable.
For additional information, please consult with your financial professional.


This information is general in nature and is not intended to provide investment, accounting, tax or legal advice. It is not intended to represent a recommendation or solicitation related to any particular investment, security or industry sector.

There are multiple independent credit rating agencies for municipal bonds, including Moody’s Investor Service, Standard & Poor’s, and Fitch. These agencies assign credit ratings, which generally range from AAA (highest) to D (lowest), to indicate the creditworthiness of municipal bonds.

Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. State-specific fund performance could be more volatile than that of funds with greater geographic diversification. Past performance does not guarantee future results.

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