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The current environment of Hawaii municipal bonds

According to MSRB, the Municipal Securities Rule-making Board, there are 48 issuers of municipal bonds within the state of Hawaii. Within the United States, there are over 80,000 issuers making up a cumulative municipal bond market of approximately $3.7 trillion. Let’s take a look at a few Hawaii issuers as reported in their most recent annual report.

The State of Hawaii


  • Tourism, construction, tax revenues, and unemployment were mostly positive.

  • Key indicator increases: visitor arrivals & expenditures, wage & salary jobs, personal income, government contracts awarded, private building permits.

  • Civilian unemployment rate at 3.9% compared with 4.5% in 2014. Job increases seen in retail, health care, professional & business services, and food establishments. Decreases seen in government and accommodation.

  • The general fund tax revenue fund increased 10.8% year over year, mostly due to personal income tax revenue increases. Personal income increased 4.4% and expected to increase 3.0% for 2016.

  • Visitors year over year change- total arrivals up 4.3%, visitor days up 3.8%, and spending up 2.7%. Hotel occupancy average 79%. The forecasts for 2016 are growth rates of 1.7%, 1.8%, and 3.5%. Note, spending is the only metric expected to increase.

  • Construction- added 1,100 jobs, or 3.5% increase from 2014. It is noted that the job growth rate from 2002 to 2007 was 8% per year.

  • Liabilities:

  • Increased notably by $5 billion to a total of $18.6 billion due to adoption of Statement Nos. 68 & 71 which require the reporting of the net pension liability. Net pension liability was $4.04 billion.

  • General obligation bonds- total issuance of approximately $1 billion. Issued $199 million in taxable general obligation bonds to finance capital projects.

  • Revenue bonds- total issuance of $313 million for refunding of previous bonds, environmentally beneficial projects, and capital projects.

  • Outstanding bonds

  • Total= $8.4 billion

  • General obligation= $6.5 billion with ratings from Moody’s (Aa2), S&P (AA), and Fitch (AA).

  • Revenue bonds= $1.9 billion

  • It is noted that the State Constitution limits the amount of general obligation bonds that may be issued. As of June 30, 2015, the legal debt margin was $470.6 million.

  • Revenue summary:

  • 57% from taxes, 28% from grants, contributions & federal aid, 15% from charges for various goods and services.

  • Total revenues were up 6.07%

  • Expense summary

  • 30% for welfare, 26% for lower education, 8% for health care, 7% for higher education.

  • Total expenses were up 2.5%

  • Notes from the MD&A (Management discussion & analysis)

  • Unemployment is well-below the national average.

  • The Council of Revenues revised the General Fund tax growth rate from 2.7% to 6.0%. For 2017, expect a rate of 5.5%.

  • GE tax, the largest source of tax revenue at 49%, increased 4.9%

  • The State remains optimistic about the recovery of Hawaii’s economy but remains cautious in the face of uncertainty. As such, the Governor has imposed a 10% spending restriction on discretionary spending of general funds for all departments and branches.

Hawaii County


  • Unemployment declined from 6% to 5%, and from the high in 2011 of 11%.

  • Construction is mixed as the number of building permits are improving, however, the number of construction jobs are declining. Permits were up 56% year-over-year ending June 2015.

  • New construction projects: Kona airport, airport fire station, Naniloa property

  • An increase of $12.7 million in property tax revenues

  • Substantial increase in employment costs due to union pay increases and fringe benefits

  • Net position of $437 million, which is a decrease of $334 million

Hawaii Pacific Health (Source: &

  • Net assets increased from $570 million to $708 million in 2015, a 24% increase.

  • Currently carries an A1 rating from Moody’s which was recently upgraded in February 2016.

  • Current debt outstanding is $355 million and the rating outlook from Moody’s is stable.

  • Strengths- strong operating performance, improvement of balance sheet & debt measures.

  • The board approved a change of the pension plan from a noncontributory defined benefit plan to a cash balance defined benefit pension plan effective January 2016. Accrued benefit will be credited under the new plan at a rate of 3.5% per year. This resulted in a plan credit for prior service of $98 million. As such, the end of year pension obligation went down from 2014.

  • Unrestricted revenue was $1.2 billion, up slightly from 2014. Net income, $113 million, down from 2014 as salary & benefits expense went up notably.

  • Net income divided by interest expense= 9.05x

  • The pension plan is underfunded by $122 million when the plan assets are compared to the projected benefit obligation.

  • Challenges- material competition on Oahu, a challenging payer mix, and a consolidated payer market.

  • The bonds are secured by the gross receipts of Kapiolani Medical Center, Pali Momi, Straub, Wilcox Memorial, and Hawaii Pacific Health

Cory Nakamura CFA, CFP®

Chief Investment Strategist and Financial Advisor

CFA Charterholder



Mosaic Pacific Investment Advisors, LLC is a Registered Investment Advisor in the state of Hawaii. This information is provided for general education and is not considered to be investment advice. Please contact your advisor for specific advice concerning your financial situation. Any rates or projections noted herein are for illustration purposes only and does not reflect current interest rates nor is a forecast of future returns or interest rates. Transactions requiring tax consideration should be reviewed carefully with your accountant or tax advisor. If you would like more information on our firm our ADV Part 2A (Brochure) is always available to you at no cost.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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