Hawaii's debt load heaviest in U.S.
The data on government debt is skewed because the state shoulders the public school system
Hawaii, which boasts the lowest unemployment rate in the country, also is first nationally in an undesirable category: tax-supported debt as a percentage of personal income.
But the annual report yesterday from Moody's Investors Service is misleading because Hawaii is the only state that must shoulder the burden for all of its public schools as well as its university system, according to Georgina Kawamura, director of the state Department of Budget and Finance.
The Aloha State had a debt level of 12.1 percent of personal income in 2004 -- the latest figures available -- for tax-supported borrowing, according to the Moody's report.
Hawaii also ranked second in the United States for the highest per-capita tax-supported debt, at $3,905 for every resident. Only Massachusetts ranked higher, at $4,128. The debt excludes bonds backed by revenue for highway equipment and legal settlements paid by tobacco companies.
Kawamura acknowledged the numbers in the report are accurate, but said that "it's not an apples-to-apples comparison."
"When we speak to all the rating agencies, the fact that we have a highly centralized system in respect to debt is recognized, so we do get favorable ratings," she said.
Moody's upgraded Hawaii's debt rating last year to Aa2 from Aa3 and maintained the rating this year at Aa2, citing the state's sound financial position. "Hawaii's economy exhibits positive trends, with employment gains in most sectors, a strong housing market and healthy growth in tourism-related travel," Moody's said in maintaining the rating.
Kawamura said all other states' education debt is handled by local school districts, not the state. She also said that prisons and jails in many other states are run by counties and cities, whereas in Hawaii they are run by the state.
"That's why it's important when you have an individual state rating process, that Moody's ... looks at our individual state's ability to manage the debt and our ability to pay compared with tax revenues and all of those things involved in the rating process."
Even so, state Tax Director Kurt Kawafuchi said Hawaii has too high of a tax burden and needs to return a significant portion of its fiscal 2006 $600 million surplus to its residents.
"(The Moody's report) reinforces why we need tax relief," Kawafuchi said. "With $3 a gallon and the high price of housing, we really should give financial relief to the struggling people of Hawaii and the poor."
In two other categories in the Moody's report, Hawaii was 18th in net tax-supported debt, at just under $5 billion, and 21st in gross tax-supported debt, at $6.6 billion. The gross debt includes nearly every type of debt sold with state backing.
Low interest rates have allowed states to continue to finance capital projects at a comparatively low cost, Moody's said.
"During the recent past period of fiscal stress, many states could not afford a pay-as-you-go approach and increased debt issuances to fund projects and to balance their budgets," the report said.
Moody's said that revenue recovered notably in most states during the past year, easing the fiscal strain and allowing states to begin rebuilding budget reserves and to improve fiscal year-end balances.
Bloomberg News contributed to this story.