S&P revises outlook
on city bonds from
‘stable’ to ‘negative’

But the rating agency keeps its
AA rating on existing
Honolulu bonds

By Russ Lynch
Star-Bulletin

The Standard & Poor's rating service today reaffirmed its AA rating for the City & County of Honolulu's existing $1.4 billion in general obligation bonds. But the service changed its outlook to "negative" from "stable."

"The outlook revision is based on weakened expected financial reserves brought on by the lingering recession, particularly from declining property values," S&P said in its report.

The city is in a good financial position but faces near-term challenges, the report said. Its debt is "high but manageable" and the city is under continued economic pressure because of the condition of the state's economy, S&P said.

Bond ratings affect what municipalities have to pay in interest costs when they raise money. A negative outlook does not affect the interest paid on bonds but is S&P's way to alert investors of possible trouble ahead.

Ray Amemiya, city finance director, said the negative outlook was due to the condition of the state as a whole. And he noted that the city's rating is higher than the A-plus rating S&P gives state bonds.

"We find that their reaffirmation of a double-A rating is significant," Amemiya said.

He said S&P took note of the Harris administration's steps toward fiscal improvement and its plans for change.

"Clearly they endorsed some of the things that we're doing, like our reorganization, our right-sizing," Amemiya said. "They realize that our economy is stagnant and that is why they put us in a negative outlook," he said.

The city won't be issuing bonds until it gets into financing its planned sports complex in the summer, he said.

In its report, S&P described the city's plans to eliminate the $75 million budget deficit that was expected for 1998-99. Those plans include layoffs, not filling 150 positions and cutting the administration to 17 departments from 26.

"Standard & Poor's expects Honolulu to reorganize its finances in (fiscal) 1999 to ensure that ongoing expenditures are supported by ongoing revenues and that the city will be able to rebuild balances going forward," the report said.