Councils across New Zealand have experienced credit rating downgrades due to escalating debt and operating costs.
On September 6, S&P Global Ratings downgraded Wellington City Council’s long-term issuer credit rating to ‘AA’ from ‘AA+’.
“We downgraded Wellington City because its financial outcomes are weaker than we previously expected,” S&P Global Ratings said in its report. “The Council’s additions to its capex program in its 2024–34 long-term plan will weigh on its fiscal performance over the next three years,” it added.
“The steep rise in debt in recent years and a weak fiscal outlook drive our lower assessment of Wellington City’s financial management,” S&P Global Ratings said.
“Nevertheless, we view this management to be strong in a global context.”
According to S&P, the increase in debt is attributed to the council’s focus on initiatives for seismic strengthening, asset renewal, and enhancements to community facilities.
Wellington’s council has recently come under fire from Prime Minister Christopher Luxon during a speech at the Local Government New Zealand (LGNZ). Luxon pointed to the $180 million cost of the Tākina convention centre, which he labelled a case of misaligned priorities. Luxon questioned the rationale behind such expenditures, particularly in light of the strain on the city’s water infrastructure.
Wellington City Mayor Tory Whanau defended the convention centre, saying that it was a strategic investment aimed at boosting the local economy. “This event alone will bring in a million dollars to boost our city,” she noted, highlighting the centre’s role in attracting events and revenue to the capital.
Meanwhile, S&P Global Ratings has also lowered its long-term issuer credit rating on Hamilton City Council to ‘A+’ from ‘AA-‘, with increasing debts for capital projects resulting in larger deficits.
“We believe Hamilton’s financial management has weakened, as seen in the fiscal outlook and recent outcomes. Its after-capital account deficit for fiscal 2024 was one of the largest in the world, and the council’s debt and interest costs are rising rapidly.”
While some council members adopt an “It’s not our fault—it’s tough for everyone” perspective, others argue that now is the time to hit the “red alert” button.
Hamilton City Council chief executive Lance Vervoort was not engaging in such actions, however.
“We saw it coming. It’s not a surprise to us. A number of councils have been on negative watch for a while now, and the thing I want to emphasise is that we still have a very high credit rating,” he said.
Hamilton Mayor Paula Southgate indicated that the initiative to improve the council’s rating has already begun, involving several budget cuts within this year’s long-term plan.
