Borrowing outlook downgraded

Photo: ODT files
Photo: ODT files
Rising credit risk for New Zealand councils amid Three Waters uncertainty has dampened the borrowing outlook for the Dunedin City Council (DCC).

The council was among 15 identified by S&P Global Ratings as having an outlook that had deteriorated from stable to negative, while four remained stable and six were already in negative territory.

Dunedin City Treasury, the city council’s financing arm, also had its outlook shift from stable to negative.

Both the council and its treasury still have an AA rating.

Dunedin Mayor Jules Radich was careful to point out there had not been a credit downgrade.

The change in outlook reflected significant challenges councils were facing, he said.

Mr Radich said councils needed certainty about Three Waters reform and a better funding model.

"We await the government’s new range of structural and financing tools with interest and anticipation," he said.

S&P had already pointed out last year that repealing Three Waters laws could downgrade the 25 councils it rated in New Zealand, "depending on what the government replaces [the laws] with".

"Rising infrastructure budgets and responsibilities are increasingly weighing on the finances of New Zealand's local government sector," the agency said this week.

"Further, policy uncertainty is elevated for the sector."

The situation threatened to undermine the sector’s strong credit ratings, S&P said.

A city council spokesman said the change in outlook was not unexpected and the council’s credit rating remained strong.

"This reflects our strong fiscal position and financial management, while the negative outlook reflects the uncertainty posed by Three Waters reform and the wider challenges facing local government funding."

There would not be an increase in borrowing costs through the New Zealand Local Government Funding Agency, as there had been no change in credit rating, the spokesman said.

The change in outlook could result in a small increase for any other debt raised, he said.

The Otago Daily Times asked councillors if they were worried about the shift in outlook.

Cr Sophie Barker said the council was navigating uncertain waters.

"The change of government has increased uncertainty about how councils are going to be able to afford to fund their water infrastructure spends," she said.

"We’re not alone and councils have been saying the infrastructure financing needs a rethink."

Cr Barker said the council still needed to deliver infrastructure to its communities.

It was unclear how the government would replace legislation it had repealed, she said.

Cr Steve Walker said he was worried about ongoing policy uncertainty emanating from central government.

"Without a much clearer indication of what exactly our financial responsibilities are, particularly related to key infrastructure and the revenue streams accruing from those including central government grants, we are caught in a continuing cycle of fiscal unpredictability."