Why Hawaii Plummeted to Last in Conning’s State Credit Rankings

Most state governments are now in better financial health. The archipelago is not.


Illustration by II

While thousands of tourists sip Mai Tais on its beaches, the government of Hawaii might not feel as relaxed. The tropical state fell 11 spots to last place in an annual credit quality ranking by Conning, the $120 billion asset manager, in its annual State of the States report.

Overall, the credit quality of the 50 states has improved during recent years. They are generally in better shape now than they were before the Covid-19 pandemic and Conning upgraded its outlook for them from “declining” to “stable” in its 2023-2024 analysis and report released Tuesday. The municipal bond market was on a roller coaster in 2023, and Citigroup, a significant underwriter and trader, exited the $4 trillion market earlier this year, and muni defaults can happen (see: Detroit or Puerto Rico), but they are exceedingly rare. Still, asset managers and investors are always evaluating and comparing which municipal debt issuers to bet on.

“Despite growth rates that are expected to revert to pre-pandemic levels, state credit quality should remain stable with the potential for regional improvements. While the highest-ranked states were typically west of the Mississippi before the pandemic, this year we observed most positive changes occurring in the Northeast, Great Plains, and Great Lakes regions,” the Conning report said.

Florida (which ranked third in the 2024 report), Georgia (No. 24), Idaho (No. 12), Maine (No. 22), North Carolina (No. 8), and Tennessee (No. 14) have all been consistently climbing the rankings over the past 10 years. Some states, such as Utah and Colorado, have always been in the top quartile while others like Mississippi and Illinois have consistently ranked near the bottom.

For a variety of reasons, a small group has been falling in the rankings including Hawaii. The state is now last, in part after last year’s deadly fires.

GDP per capita adjusted for state size gives insight into a state’s efficient utilization of its population. States with large populations but lower relative productivity highlight untapped potential. Hawaii is in a unique scenario though. Its below-average real GDP growth of 2 percent didn’t hinder its rise in its GDP-per-capita rank — it was up 26 spots in this year’s Conning analysis — primarily due to a decrease in population.


“The wildfires in Maui during 2023 affected Hawaii’s economic growth in the latter half of the year due to business disruptions and a downturn in tourism. Additionally, the displacement of people and potential reluctance to migrate to Hawaii post-disaster could have significantly influenced its relatively small population,” the report explained.

Population shifts can have profound effects on municipalities. If their tax base shrinks, it can impact their debt issuance or ability to pay interest on existing bonds. Additionally, Hawaii witnessed minimal employment growth, resulting in a significant drop of 45 places in its job-growth ranking to 49. Job losses in the financial activities and trade, transportation, and utilities sectors, the last of which is among the largest employment sectors in Hawaii, were to blame. Without employment growth, a state’s capacity to accommodate further population expansion through the creation of new jobs and industries is hindered.

Those challenges are evident in other data as well. The Federal Housing Finance Agency’s Housing Price Index (HPI) is a barometer for a state’s economic health, so if the local economy is robust and residents perceive job stability, prices are likely to trend upward. Hawaii was the only state with an annual decline (states like Montana, Utah, Colorado, and Idaho also disappointed despite strong population growth).

Hawaii was also one of the 10 states (Hawaii, West Virginia, Mississippi, Wisconsin, Louisiana, Ohio, New Mexico, Kansas, Kentucky, and Alabama) with below-average personal income levels — three more states than there were in the previous report.

“The increase suggests a broader divergence between a state’s debt levels and personal income metrics across the nation. This situation is worrying because less economically advantaged states may struggle to manage a relatively high debt burden compared to more affluent states,” Conning said.