UPDATED 12/1/11 4 p.m.

Gov. Neil Abercrombie and budget director Kalbert Young on Thursday announced the largest bond sale in state history — $1.3 billion of general obligation bonds.

The governor said the sale, which was reported last week in a paragraph near the end of a Wall Street Journal story, shows investor confidence in the state’s fiscal health, something Abercrombie said his administration deserves credit for.

“We feel very, very strongly that when Standard & Poor’s says that our willingness to implement aggressive solutions is working and that the fiscal stability of the state has turned around in a year, I invite comparisons with Hawaii with any other state in the union at this stage compared to a year ago as to whether or not we’ve zoomed right to the top in terms of fiscal turnaround,” Abercrombie said at a press conference held at the Chamber of Commerce of Hawaii’s downtown office.

The sale included $800 million in new debt that will go toward capital projects already under way at schools and other public facilities. The state also refinanced $488 million worth of existing bond debt at a lower interest rate, which Young said will save taxpayers $59 million through fiscal 2017.

Back in the Black

Abercrombie said the sale allows the state to build up its reserves and pay down its debt. Counting the new bond debt, the state has a little less than $4 billion1 in outstanding debt.

The governor said the state has a $100 million cushion on the books as of today — a far cry from the projected two-year deficit of more than $1 billion the state faced about eight months ago.

“This is good news for taxpayers and businesses,” Young said. He likened the refinancing to a household essentially paying off a credit card debt and using the savings to pay down its long-term mortgage.

Young said the $800 million is in the range of what the state typically sells when it issues new bonds, but said the state’s management of the proceeds is counter to what other states are doing.

“We’re no longer kicking the can down the road,” he said. “We will be retiring debt that would’ve been due between 2015 and 2018. We’re paying it off earlier and still are saving $59 million.”

Abercrombie added: “Other states have borrowed money, they’re in debt, but they sell bonds to get operating money.”

‘Cooperative’ Markets

Young credited the “very cooperative” market for the state’s ability to secure low interest rates — the lowest in recent memory, and possibly in state history, he said. The bonds sold at a combined interest rate of 3.63 percent, and the state achieved 2.95 percent interest on its refinance.

He also credited efforts by the Abercrombie administration and the Legislature to meet face-to-face with investors.

The bond sale drummed up considerable interest from buyers, which helped give the state an upper hand on pricing, Young said. The state received $4.2 billion in orders, but could only fill the $1.3 billion.

National Perspective

Young presented a handout showing how Hawaii’s interest rates compare with other states and cities with similar or higher bond ratings than Hawaii. The chart below shows Hawaii fared better than Nevada, North Carolina and New York City, among others.

Rebuilding Reserves

As a result of the bond transaction, the state will be able to replenish the Hurricane Relief and Rainy Day funds, which were essentially drained to close out a $200 million deficit for the 2011 fiscal year. Young emphasized that the repayments will be made with cash, and not borrowed money from the sale.

Upon repayment, the Rainy Day fund will have a $70 million balance and the Hurricane Relief fund, $143 million, by fiscal 2013.


1. The amount does not include unfunded liabilities incurred by the Hawaii Employees’ Retirement System and the Hawaii Employer-Union Health Trust Fund.

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