Tuesday, November 08, 2011


Smooth sailing for Hawaii harbor system revenue bonds as Fitch grants “A+” rating

by Larry Geller

Scheduled tariff increases, the first to be implemented since 1977, are among the contributing factors in Fitch’s assignment today of an A+ rating to Hawaii’s harbor system bonds. Fitch affirmed that the outlook for all the Hawaii Department of Transportation revenue bonds is stable.

The rating announcement notes that it was solicited or paid for by the State of Hawaii Department of Transportation.

The rating considered various factors, including the influence on debt service coverage of the general obligation interest payment requirements of roughly $3.3 million per year taken on as a result of the demise of the Hawaii Superferry project. Among the factors considered were the state’s strong economy, its natural monopoly in shipping, the strength of its capital plan, a conservative debt structure, and scheduled tariff increases.

The increases will be felt by Hawaii consumers as they consume.

Cargo rates will increase incrementally between 2010 and 2014 at rates starting at 20% and stepping down on an annual basis to 5%. The plan also includes 3% or CPI increases from 2015 onwards. Likewise, passenger fees will increase $0.50 per year through 2016. These prescribed increases provide considerable revenue flexibility to the harbor division going forward, and are intended to support the division's sizable modernization plan.

[MarketWatch, Fitch Affirms Hawaii Harbor System Rev Bonds at 'A+'; Outlook Stable, 11/8/2011]

A financial report makes very dry reading. We citizens can take away some important cautions from it by reading between the lines.

The state DOT as a monopoly

As a monopoly, the harbor system benefits from the lack of alternative means of transporting cargo to and throughout the state, as well as the state's limited commodity and manufacturing base, which results in an inelastic demand for imported goods.

As a monopoly, the state may favor bringing in food to growing it here.

As a monopoly, the state can impose tariffs on the 99% of us who need to buy that food, for the benefit of those who profit from our dependence.

As a monopoly, the DOT knows that we want our iPods, iPads and iPhones, and that all of that stuff has to be imported. It’s not that iWant, but that we live on island that realistically are not going to manufacture any of these goods.

The need for continuing price increases

The article describing the ratings referred to “management's ability to manage continued price increases” in the context of harbor improvements, but the impact of price increases falls upon every resident of the state.

It’s the nature of government to offload capital expenses into revenue bonds. For one thing, that takes them off the line-item budget we believe our legislature and administration wrestle over. The flip side of this for Hawaii is that the only way to support the debt service is to pay more at the supermarket.

These costs can’t be covered up as “the price of Paradise.” They are the price of monopolistic government practices and the preference given to development over domestic agriculture.

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