Hawaii's disasters are unlikely to pose a credit risk

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Strong cash reserves combined with support from the state and federal government should help Hawaii and its counties financially weather damage caused by a spring spate of natural disasters.

Massive rainfalls struck Kauai and Oahu in mid-April causing landslides that destroyed homes and damaged highways.

As the state began to recover from the devastation of those storms, Kilauea volcano erupted on Hawaii island, compelling Gov. David Ige to order evacuations and activate the National Guard on May 3. The eruption has opened 14 fissures spewing noxious gases and spilling lava across 104 acres, forcing the evacuation of more than 1700 people and causing the destruction of 36 structures, and 27 homes.

“It doesn’t take away from the tragedy from an individual standpoint, but looking at the bottom line, we don’t expect it to have a financial impact on either Hawaii County or the state,” said Stephen Walsh, a Fitch Ratings analyst.

Hawaii County governs the island of Hawaii, often called the Big Island.

S&P Global Ratings analyst Jenny Poree said the highly rated counties and the state government have demonstrated the ability to manage through natural disasters.

On Tuesday, President Donald Trump declared the islands impacted by the rains a major disaster, making the counties eligible for federal funding for damage caused by the severe storms, flooding, landslides and sinkholes on Kauai and Oahu, Hawaii Gov. David Ige said.

The declaration will provide much-needed funds to begin repairing and rebuilding Honolulu’s facilities, roads and streams that were damaged or destroyed by storm on April 30, Honolulu Mayor Kirk Caldwell said in a prepared statement.

Kuhio Highway experienced 12 landslides from the Kauai rainstorms causing $35 million in damage, according to Ige’s request for federal funding. Cost of damage to public property and storm repairs beyond those to the highway were estimated at $19.5 million.

The rains destroyed or caused major damage to 117 homes and flooding affected more than 532 homes on Kauai and Oahu islands, according to the governor's request.

The state has not yet requested federal funding from damage caused to Hawaii from the lava flows and noxious gases, because it is still in the process of assessing the damage and the volcanic eruptions have not ceased, said Cindy McMillan, a governor’s spokeswoman. The eruptions halted for a time Tuesday, but resumed Tuesday night, according to the U.S. Geological Survey’s website.

“We are currently reviewing the impact of the natural disasters with both counties (Kauai and Hawaii); and expect to release something in the near-term,” Poree said.

Hawaii County is rated AA-plus by Fitch, AA-minus by S&P and Aa2 by Moody's Investors Service. Kauai County has Fitch's AA rating, S&P's AA and Moody's Aa2 rating. Honolulu GOs are rated AA-plus by Fitch and Aa1 by Moody's. The state government's GOs are rated AA by Fitch, Aa1 by Moody's and AA-plus by S&P.

As with the California wildfires, S&P will talk to county officials about the impact on the assessed value of the damaged homes and whether they will take the properties off the tax roll until they are rebuilt. S&P expects it will take some time for officials to respond regarding the impact to assessed values, Poree said.

While S&P has a good idea of the number of structures and the acreage affected, analysts will want to understand the impact on taxable value, the essentiality of the infrastructure damaged and the ability of people to get from point A to B, Poree said.

Given that the Big Island has a population of less than 200,000 and the volcanic activity has occurred in a rural area – where only two subdivisions have been evacuated — Walsh said he didn’t expect the impact to assessed value to be significant.

In the past, S&P has found that the counties’ reserves and long-term planning have allowed them to recover faster than expected from a financial and tourism standpoint, she said.

Hawaii County has $97 million in reserves across all funds and Kauai also has strong cash balances, Poree said.

“Potential Federal Emergency Management Agency support coupled with the county’s strong liquidity mitigates our near-term credit concerns related to the lava and earthquake credit risks,” she said.

The natural disasters do not appear to have impacted tourism, one of the state’s major economic drivers.

Both Kona International Airport on Hawaii island’s west side, and Hilo International Airport on the east side about 40 miles north of the volcanic activity, are still open, McMillan said.

The initial earthquake that registered 6.9 on the Richter scale was felt at the Hilo airport, McMillan said.

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