HILO — The projects are being built and soon the bill will come due.
A big bond sale last month by term-limited Hawaii County Mayor Billy Kenoi and the County Council will leave the next administration with a heck of a tab to pay.
The $235.8 million in bonds issued Feb. 18 brings the county’s net funded bond debt to $375.5 million, according to a report from Finance Director Deanna Sako.
The new bonds will drive up the county’s annual debt payments 19.4 percent. That means next year, $43.9 million has to come off the top to pay the principal and interest before the rest of the annual budget is computed. Similar amounts will be required every year until 2035.
It also means the next mayor will be restricted from borrowing in the early years of the new administration, or the county could reach the debt ceiling that could affect its bond ratings. A bond rating, just like a person’s credit rating, determines how much interest has to be paid on borrowing.
The bond float comes from County Council approval of several smaller bonds over the past few years. The largest, a $99.8 million issue, was approved by the council in June.
Two mayoral candidates who have experience with the county budget had differing views of the 11th-hour bond float.
Former Mayor Harry Kim called the amount “frighteningly huge.”
“It’s of concern,” Kim said. “Whoever steps into the office, the fiscal picture is right on your back.”
Former Kohala Councilman Pete Hoffmann, who worked on U.S. Army budgets for the Pentagon in the early 1980s, was more sanguine.
“What Kenoi has done to a certain degree is limit the flexibility of the next incoming mayor to have a bond float,” Hoffmann said Friday. “There’s not much wiggle room there. … Previous administrations have done that as well.”
Hoffmann said two factors go into his thinking about whether the latest move is a sound one.
“Are the projects the bonds are used for important — the council said they were,” he said. “Does the increase adversely affect our bond rating? … I have found that Deanna Sako and the boys in the finance department have done a remarkably good job in the past and will continue to do so in the future.”
The third mayoral candidate with county budget experience, Wally Lau, could not be reached for comment Thursday or Friday.
The Government Finance Officers Association recommends a ceiling of no more than 15 percent of expenditures go for repaying bond debt. Prior to the bond issue, the county’s debt service was 7.9 percent.
The county was able to get the work started without floating bonds by using short-term bank notes that are being repaid by the bond issue.
The new bond debt was originally forecast to be 13.8 percent of total expenditures. But Sako said an unusually low interest rate of 2.3 percent brought the ratio down to just 8.98 percent. In addition, she said Saturday, the bond float didn’t include all of the bonds previously approved by the council.
Some of the bonds refinanced at the 2.3 percent rate were from 2006 through 2008 and carried interest rates of 4 percent to 6 percent.
“It’s an amazing rate,” Sako said.
The bonds received a rating of “Aa2” from Moody’ s Investors Service and “AA-” from Standard& Poor’s Ratings Services. Those ratings are not the top prime ratings for the agencies, but signify very high grade/quality bonds, according to the ratings agencies.
Kenoi couldn’t be reached for comment, but Sako, responding Saturday to a message left with him, said the timing of the bond float was “coincidental.”
She said the administration has made a practice of using the short-term bond anticipation notes as the projects come online, so the county won’t have a big bond issue sitting unused in the bank. The bonds are then issued about every three years to pay back the short-term notes, she said.
Projects being paid for with this issue include the Waimea and Pahoa regional parks, as well as road work in various areas around the island, she said.
Kenoi has consistently touted the county’s spending on projects ranging from new parks to road improvements to sewer repairs. Not only are the new projects good for the community, they’ve also been good for the economy during the recent recession, Kenoi said.
“When people talk about the projects that Hawaii County did, it wasn’t just to build projects,” Kenoi told the Japanese Chamber of Commerce Wednesday, according to an online video by Big Island Video News. “At the time, construction, one of our largest employers, was struggling, so moving that public sector dollar into the private sector kept people working, kept our working families employed.”
The council, seeing projects and improvements specifically for their districts, have happily gone along.
