Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on S&P Global Ratings downgrading the credit ratings of 18 councils
Transcript
- 0:09Speaker 1: You're listening to a podcast from News Talks B Follow
- 0:12Speaker 1: this and our wide range of podcasts now on iHeartRadio.
- 0:16Speaker 2: Eighteen councils and three council controlled organizations have just had
- 0:20Speaker 2: their credit ratings downgraded by S and P Global Ratings.
- 0:24Speaker 2: The credit rating agency worried councils aren't receiving enough revenue
- 0:28Speaker 2: to cover rising costs. A trainee is The Herald's Wellington
- 0:31Speaker 2: business editor. She's with us now, good evening evening. Rang
- 0:35Speaker 2: to know this is not good news. What's what's changed?
- 0:38Speaker 2: Why the downgrade?
- 0:39Speaker 3: Now, yeah it is, It is bad news. Basically, council's
- 0:44Speaker 3: debt is really high. That the pressures on council to
- 0:48Speaker 3: invest in infrastructure after years of councils underinvesting, is really
- 0:53Speaker 3: catching up with them. The issue is that their ratings
- 0:57Speaker 3: base isn't necessarily as increasing as much as the cost Now.
- 1:02Speaker 3: Of course, you know, different councils are increasing rates by
- 1:05Speaker 3: varying amounts, and here in Wellington the rates rises are
- 1:10Speaker 3: pretty bad. Councils are under pressure to not increase rates
- 1:14Speaker 3: too much, but those costs are really coming to any head.
- 1:18Speaker 3: So that is something that the ratings agency is weary
- 1:22Speaker 3: of It is also worried about the fact the government
- 1:26Speaker 3: is not actually giving councils as much money as before
- 1:29Speaker 3: the availability of grants from the Crown has decreased, and
- 1:34Speaker 3: there's also a bit of uncertainty around government policy when
- 1:38Speaker 3: it comes to local governments. So that's another problem that
- 1:41Speaker 3: that s and p raised. Now, credit rating agencies don't
- 1:44Speaker 3: just come out of the blue and downgrade ratings. It's
- 1:47Speaker 3: quite a big deal. SMP has been warning of this
- 1:51Speaker 3: for at least the past year.
- 1:53Speaker 2: Yeah, and some have been downgraded in the past as well,
- 1:56Speaker 2: haven't they Which councils haven't had their ratings changed.
- 2:01Speaker 3: So Auckland Council that is a big one and that's
- 2:05Speaker 3: a positive. Also Bay have Plenty Regional Council, Western Bay
- 2:09Speaker 3: of Plenty District Council. Those are just some of them.
- 2:13Speaker 3: The problem now when these credit ratings are downgraded is
- 2:18Speaker 3: that it costs councils more to borrow money. Now, that
- 2:22Speaker 3: is an issue given the amount that council's need to
- 2:24Speaker 3: borrow for infrastructure here in Wellington, the pipes, the water,
- 2:28Speaker 3: that's all an issue. I talked earlier today to the
- 2:32Speaker 3: head of the Local Government funding agency. That's an agency
- 2:36Speaker 3: that's set up that borrows money, issues debt to markets,
- 2:40Speaker 3: it borrows money and then it lends money to councils.
- 2:44Speaker 3: And Mark Butcher, the head of that agency, he said
- 2:47Speaker 3: that when council's credit ratings are downgraded and notch, that
- 2:52Speaker 3: adds five basis points to their to their borrowing costs.
- 2:56Speaker 3: So if you're if you're Wellington Council and you currently
- 2:59Speaker 3: borrow for I'm just making the number up, but you
- 3:01Speaker 3: borrow for five percent from the Local Government Funding Agency.
- 3:05Speaker 3: If your credit rating is downgraded, that that interest rate
- 3:08Speaker 3: then goes up to five point zero five percent, So
- 3:13Speaker 3: that that is the impact. You know, credit rating goes down,
- 3:17Speaker 3: costs to councils and to rate payers goes up.
- 3:20Speaker 2: And is Wellington one of the ones that's been downgraded?
- 3:24Speaker 3: Yeah, yeah, Wellington. Wellington has been downgraded now out there and.
- 3:27Speaker 2: They haven't applied and they didn't apply for their city
- 3:30Speaker 2: deal on times because that presumably would help with financing. Right.
- 3:36Speaker 3: Look, I'm not too sure. The way that this is
- 3:40Speaker 3: set up is actually quite good with the Local Government
- 3:43Speaker 3: Funding Agency. So rather than having councils go out there
- 3:46Speaker 3: and try to get money themselves, they do it through
- 3:50Speaker 3: the LGFA. Now S and P also gives the LGFA,
- 3:54Speaker 3: the Local Government Funding Agency, a credit rating, and just
- 3:58Speaker 3: yesterday it affirmed that rating, so the lgfa's credit rating
- 4:01Speaker 3: has stayed the same. That sort of softens the impact
- 4:05Speaker 3: of these councils having their ratings down because it means
- 4:10Speaker 3: that the Local Government Funding Agency can keep borrowing money
- 4:14Speaker 3: from you know, around New Zealand around the world at
- 4:17Speaker 3: the same sort of rate that it currently does, and
- 4:20Speaker 3: then it on lends that money to counsels for a
- 4:23Speaker 3: bit more so that does create a bit of a buffer,
- 4:27Speaker 3: and it means that at least the institution that is
- 4:30Speaker 3: organizing the borrowing of money and then on lending it
- 4:34Speaker 3: that that is in good Nick and S and P
- 4:37Speaker 3: is happy with the governance of that, the way that's
- 4:40Speaker 3: set up, the amount of capital it has, its diversification,
- 4:44Speaker 3: all that sort of thing. So there is a bit
- 4:46Speaker 3: of a silver lining in this scenario.
- 4:48Speaker 2: Fascinating stuff to I thank you very much for running
- 4:51Speaker 2: us through it. To agyp Training, Insied Herald's Wellington Business editor.
- 4:54Speaker 1: For more from News Talks b listen live on air
- 4:57Speaker 1: or online and keep our shows with you wherever you go.
- 5:00Speaker 1: With our podcasts on iHeartRadio.