Hawaii recorded strong preliminary tourism figures for May despite destructive volcanic activity on the Big Island, suggesting the state will be able to ride out the resultant financial shocks.
That was the view of Moody's Investors Service in a report issued Thursday. Its analysts deemed a June 28 economic report from the state on tourism to be a credit positive.
The results of the state report were considered particularly good news for Hawaii County, home of the Kilauea volcano that has spread lava through neighborhoods on the Big Island’s southeast side near Hawaii Volcanoes National Park. The tourism figures suggest the effect on the county’s financial health from the volcanic eruption at Kilauea will be manageable, Moody’s analysts William Oh and Dan Steed wrote.
Kilauea, one of two active volcanoes in the park, has been erupting since May 3 when a 6.9 magnitude earthquake struck opening a rift that spewed ash and gas and fragments tens of centimeters in size in the area immediately surrounding the vent at Kilauea Caldera, according the U.S. Geological Survey. The volcanic activity has resulted in the destruction of 657 homes, Moody’s analysts wrote.
Though the national park remains mostly closed, the Hilo and Kona airports, the island’s seaports and major hotels and resorts remain open, Moody’s analysts wrote.
In May, Moody’s analysts said total visitors flying to the state increased by 8% compared to the same period in 2017 to 796,178 visitors.
Flights increased to Honolulu by 6.4%, to Kauai by 7.8% and to Maui by 7.7%. The Big Island experienced a modest visitor number decline of 1.6%.
Total tourism expenditures across the state increased to $1.4 billion from $1.3 billion the previous year, according to the state figures.
Visitors flying to the Big Island stayed longer and spent $1,318 more than last year, said Moody’s, which indicates any negative economic effect from the volcano has been limited to date. The island's government, Hawaii County, carries Moody's Aa2 rating.
S&P Global analysts in mid-June raised concerns over the potential long-term impact due to the duration of the natural disaster. Like Moody’s, so far S&P has not cited ratings concerns about the eruption's impact, noting the small area impacted and federal and state aid. S&P rates Hawaii County AA-minus.
But S&P warned that there could be what analysts called “duration stress” on the ratings.
“At the moment there are no signs of the eruption subsiding, as lava continues to flow into residential areas, with two neighborhoods — Kapoho Beach and Vacationland — newly effected,” S&P analysts wrote. “The flows have resulted in the destruction of hundreds of residential homes — and the lava flow has also completely filled Kapoho Bay, a popular tourism destination for travelers and locals alike.”
Volcanic explosions have been ongoing since May causing earthquakes of varying strength with one to two days of respite between eruptions since the volcano awakened, according to a recent USGS update.
The longer the eruption lasts, S&P analysts said, the greater the potential strain the county is likely to experience in both tourism and revenue and the greater the chance that the county's credit profile may be negatively pressured.
By mid-June, the current Kilauea eruption had already lasted longer than other types of major disasters recently experienced by municipal issuers. For comparison, the recent Tubbs Fire in California was the most destructive wildfire in the state's history and lasted 23 days, S&P analysts said.
“Although the magnitude of the damage experienced during natural disasters is the primary driver in determining the potential financial effect and the costs of recovery, we believe the length of a natural disaster also plays a significant part in estimating the financial burden a municipality may face, in particular for those municipalities that are more dependent on tourism revenue,” S&P analysts said.
Hawaii County officials have estimated $372 million in private property has been damaged resulting in the potential $5 million loss in property tax collections, Moody’s said. The cost of responding to the eruption was about $3 million in May with an additional $2 million expected moving forward, according to the rating agency.
The county expects the costs to be manageable as the damaged property represents just 1.2% of the county’s 2018 full value of $28.7 billion and the lost property tax revenue represents a similar portion of the county’s 2016 operating revenue of $400 million, Moody’s said. The county approved a 0.25% general excise tax that takes effect Jan. 1 that will generate $10 million for the rest of the year to cover costs. The county also has received $12 million from the state and expects additional reimbursement from the federal government.
Hawaii County is rated AA-plus by Fitch Ratings.