Hawaii $300M GO Bonds Rated `AA-` by Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--Sept. 10, 1999--

The State of Hawaii's $300,000,000 general obligation bonds of 1999, series CT, expected for negotiation Sept. 13 through a syndicate managed by Salomon Smith Barney, are rated `AA-` by Fitch IBCA. Bonds will be due Sept. 1, 2003-19; optional call dates and price are not yet determined. Hawaii's outstanding $3.2 billion general obligation bonds are affirmed at `AA-`.

The rating reflects the strong debt security, representing a first charge on the general fund held by general obligation principal and interest. Financial operations, while under stress, have been maintained soundly, and budgetary procedures are conservative. Hawaii has a highly developed tourist economy, with extensive infrastructure and non-seasonal attraction, supplemented by a significant military presence and agriculture, primarily specialty products. In 1998, 6.7 million tourists visited the islands, with about 55% from the U.S. mainland, largely California, and about 30% were from Japan. Recent recessions in California and persistently in Japan have weakened the state's economy and dampened tax collections. Still, 1998 visitor arrivals were only about 3.4% below the 1990 peak and were 10% above the 1993 low. The state is allocating additional funding to tourist promotion and current data for the first quarter of 1999 indicate some strengthening of arrivals from the mainland although recovery in Asia still lies in the future. On a preliminary basis in 1998 state personal income per capita of $26,137 fell to just below the U.S. average and the state now ranks 17th by this measure.

In addition to the weakness in tourist arrivals, expenditures by Asian visitors have declined, and this has affected the growth of the general excise tax, the major revenue source. Revenues have been quite flat over the past five years and there have been intermittent operating deficits. The general fund balance has been reduced from its earlier peak, but at $189 million at the end of fiscal 1999 is equal to 5.8% of revenues and is expected to remain at approximately this level at the end of fiscal 2000.

Hawaii's government is highly centralized, with its four counties the only other governmental units, and the state is responsible for many functions, such as education, that are financed in whole or in part by local units elsewhere. As a result of this structure, as well as the sustained growth in the population and economy, debt is relatively high. Including this issue, debt is equal to 11.8% of personal income. This ratio which essentially reflects all commitments to which the state has extended its credit, is not significantly different from the figure in 1989 and is well below the 19% registered in 1975. The state has a debt limit; debt service cannot exceed 18.5% of a three-year revenue average and the current ratio is 13%.