S&P revises credit rating outlook for Wellington, Dunedin, New Plymouth councils

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Wellington Water workers carry out repairs at the corner of Johnson Street and Customhouse Quay.
Photo: RNZ / Krystal Gibbens

The credit ratings of a large number of councils are under threat of a downgrade because of deteriorating finances, rising debt, and policy uncertainty.

S&P Global Ratings has revised the outlook for 15 councils and two council controlled organisations from “stable” to “negative” and said the overall financial trend is weakening.

Among those having their outlooks downgraded were the Greater Wellington Regional Council, and councils in Dunedin, New Plymouth, Whanganui, Upper Hutt , Tasman and Nelson.

The outlook revision is not a rating downgrade. Most local councils and their associated commercial organisations are rated AA, which are underpinned by the country’s national top tier AA+ rating.

“Rising infrastructure budgets and responsibilities are exerting pressure on the finances of New Zealand’s local governments. Revenues and central government grants are not rising enough to cover this additional spending,” credit analyst Anthony Walker said.

“This is leading to widening revenue and expenditure mismatches, as seen in large deficits and rising debt compared with similar systems.”

S&P said the outlook for council finances was further dimmed by uncertainty about the future direction of policies on key issues.

“Policy uncertainty is elevated given the weakening of financial outcomes and a shift in political support for key reforms – particularly related to water services and infrastructure – that were partly designed to alleviate financial pressures on the sector,” the report said.

“If the trend continues, it could undermine the strong credit quality of the sector.”

Local Government Minister Simeon Brown told Nine to Noon on Tuesday the government was working “at pace” to make changes to local government financial structures.

The Auckland and Christchurch City Councils retained their stable outlooks, as did Tauranga and Whangārei.

The outlook downgrade does not affect councils’ ability to borrow, but a ratings downgrade might make access to loans more difficult and more expensive.