While known for its stunning beaches and beautiful flora, Hawaii's economy has seen sunnier days. The state's bonds were downgraded by credit agency Moody's Investors Service, though they're still at least a notch above troubled New Jersey, California and Illinois in terms of fiscal stability.
Hawaii's outstanding general obligation bonds were downgraded from Aa1 to Aa2 because of the state's "strained financial operations," the credit-rating agency said. That will make borrowing more expensive for Hawaii, which already has $5.1 billion in outstanding debt.
The Aa2 designation is one out of 10 possible ratings and two steps away from the best possible rating of AAA, but it still sheds light on an economy some say could be too closely entwined with tourism.
"It's always been a premier tourist destination – a lot of international tourism not just U.S. domestic, but this recession was so severe and hit globally and domestically so it really affected them," Nicole Johnson, senior analyst with Moody's public finance group, said.
Alan Schankel, director of fixed income research with Janney Capital Markets, said Hawaii is more reliant on tourism than most states if not all states.
"The double whammy of the Japanese quake and nuclear issues has Japanese visitors coming less and the other problem is energy prices," he said.
Schankel said increasing airlines fares also create a barrier for tourists. "You can't just jump in a car and go to Hawaii," he said.
However, Johnson, who wrote Moody's latest report and gave the state a "stable" outlook, said Hawaii will remain a "premier" tourism destination.
"Their forecast is there will be a temporary drop in Japanese tourists but they expect that to come back," she said. "It has remained very popular with west coast travelers because it's not so far, and in fact some of them have homes there."
Mike McCartney, CEO of the Hawai'i Tourism Authority, said while the recovery progress has been slowed by the tragedy in Japan, the state is doing better than projected. There was a 23.3 percent decrease in visitors from Japan in April compared to last year, not as bad as the 45 percent decrease that was expected.
For the first quarter of this year, visitor spending was up 16.9 percent compared to the same period last year, adding $3.1 billion for Hawaii's economy. The latest tally shows that the total number of visitors who arrived in March 2011 rose to 633,365 – up 4.2 percent from a year ago. The Tourism Authority has not yet released April's figures.
"Tourism continues to be in recovery mode following the economic recession," he told ABC News.
McCartney also said the tourism group is broadening its market for meetings and conventions so the state is viewed as a destination for both leisure and business travel.
Moody's last changed Hawaii's rating in May 2005, when it increased to Aa2 from Aa3. In April 2010, Moody's recalibrated every state to its global scale from a municipal scale, thereby changing Hawaii's rating to Aa1 from Aa2.
Ten other states plus the District of Columbia have the Aa2 rating: Connecticut, Louisiana, Maine, Michigan, Mississippi, Nevada, New York, Oklahoma, Rhode Island and Wisconsin.
The state with the lowest rating is Illinois, which has a rating of A1 and a negative outlook. California also has a rating of A1, but with a stable outlook. New Jersey is third-worst with an Aa3 rating.
There are 13 states with the highest possible rating of Aaa: Alaska, Delaware, Georgia, Maryland, Missouri, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Utah, Vermont, and Virginia.
Moody's reports that Hawaii's state revenues have fallen over the last several years and tourism has suffered in part by the natural disasters in Japan and higher petroleum prices.