Column: Honolulu’s financial status is sound

Those who claim that the city’s finances are in dire straits due to rail are inaccurate and simply not basing their statements on facts. As a former banker, this is very troubling to me because Honolulu’s financial health is excellent.

The city recently received Moody’s and Fitch ratings of “Aa1” and “AA+” respectively, which are just one notch below the highest achievable rating of “AAA.” This is very significant because ratings agencies do exhaustive analyses of every aspect of a municipality’s finances and include large infrastructure projects such as rail.

According to Moody’s, “the City and County’s management team has delivered long-term structural balance reflective in both the tools available to management as well as the decisions and actions undertaken by them.”

Fitch said “the City and County has used the current economic expansion to position itself well for the next downturn given the growth in unrestricted reserves since the last recession.”

Regarding rail, Moody’s goes on to say that the city’s direct support for rail “appears manageable,” as it is limited to $214 million out of the total $9.1 billion construction costs (including financing). Fitch somewhat follows Moody’s analysis citing the city’s “modest equity contribution funded by General Obligation bonds to be repaid from local real property tax revenues.”

Because of the dedicated funding source from the 0.05% county surcharge on the general excise tax, the $1.55 billion from the federal government and 1% increase in the transient accommodations tax all dedicated to rail construction, Fitch concludes that the city’s “exposure to cost overruns has thus far been manageable.”

This does not mean that the city should not be concerned regarding the anticipated construction costs of the last 4.16 miles of the 20-mile system or the full operating and maintenance subsidy in 2026. Until unknown costs become known, this concern will remain. But we believe it will be manageable given the city’s long history of prudent fiscal management practices.

Part of this fiscal prudence is a go-slow approach on the Neal S. Blaisdell Center redevelopment. Older than the Aloha Stadium, the Blaisdell is showing her age and something needs to be done.

But the projected cost of $770 million to redevelop the entire Blaisdell Center at one time is just too much for right now. It does not mean that we abandon the redevelopment of Blaisdell. That would be an abandonment of a long-held commitment to the people of Hawaii to provide a vibrant and affordable center for all types of engagements, from symphonies and sporting events to trade exhibitions and high school graduations. Therefore, we have placed $45 million in our fiscal year 2021 budget to start the build-out of Blaisdell in phases. By phasing, we can manage the cost in relation to other major fiscal responsibilities and to the city’s financial situation overall.

In addition, fiscal prudence is evidenced by the fact that the city’s fiscal stability fund, aka “Rainy Day Savings,” has grown from a balance of $30 million in 2012 to today’s $120 million. Another example is that through strategically “laddering” maturities on investments, portfolio income has consistently grown from $6.4 million in 2016, to $55.6 million in 2019.

We realize that the economy cannot continue its positive trend forever, and we are already seeing signs of a leveling off of the local real estate market. This will create challenges as the added costs of operating and maintaining the rail system will be upon us in the coming years.

But as it has done during other downturns, Honolulu will face leaner times with the resolve of a fiscally conservative and well-managed city.

City Managing Director Roy K. Amemiya has 30 years of banking experience and is a former city budget director.