Standard & Poor Global Ratings, judge of the credit worthiness of many NZ local councils, including our major cities, has downgraded its outlook on 15 of them, including Hastings District Council.

Here’s their analysis.

“Rising infrastructure budgets and responsibilities are increasingly weighing on the finances of New Zealand local governments. Council revenues and central government grants are not rising enough to adequately cover this additional spending. This is leading to widening revenue and expenditure mismatches, with large cash deficits and rising debt levels compared with similar subnational government systems in other countries.

“The New Zealand local council sector’s debt levels have continued to rise since the start of the pandemic as councils grapple with greater infrastructure needs; persistent inflation in operating and capital budgets; rising environmental, water, and building standards; and sometimes political resistance to large rate hikes. Further, 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. 

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

The agency further commented on ‘’3 Waters’: “Labour’s reforms, if implemented, could have alleviated a significant portion of sector debt.” And on the Government’s pending plan – Local Water Done Well: “The final design of Local Water Done Well will be vital for addressing the rising revenue and expenditure mismatches in the sector.”

Hastings is now rated AA-, with a Negative outlook looking forward. That means HDC could be facing higher interest costs on its debt.

S&P offered both ‘Upside’ and ‘Downside’ scenarios for Hastings.

Downside:

“We could lower our ratings on Hastings if the New Zealand local government sector’s overall commitment to strong finances continues to deteriorate, as indicated by large sectorwide cash deficits and further growth in the sector’s already-elevated debt burden. This could result from inadequate revenue growth to fund capital expenditure, or changes in central government policy that undermine the financial outcomes of the sector.

“We could also lower our ratings on Hastings if we believe the deficits are likely to structurally exceed 25% of total revenues. This could occur if Hastings adds to, or accelerates, its capital spending beyond our expectations. Downward pressure could also occur if Hastings’ liquidity coverage weakens on an ongoing basis.”

Upside:

“We could revise our rating outlook on Hastings to stable if the New Zealand local government sector’s overall commitment to strong finances improves.

We could also revise our rating outlook on Hastings to stable if new funding arrangements with the New Zealand central (Crown) government leave a minimal burden on the council’s financial metrics. Such funding arrangements could result in deficits, debt levels, and liquidity coverage substantially outperforming our forecasts.”

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