A snapshot of local government’s financial health: a sector in good shape, prepared by the Local Government Funding Agency (LGFA), reported that councils’ finances are in good shape, with debt levels that fall below those estimated in 2012 long-term plans.
Credit ratings also continue to be strong, with more councils now rated by accredited rating agencies.
The LGFA began issuing bonds to raise funds for local authorities in February 2012, having been established to reduce council borrowing costs by at least 30 basis points.
After central government, it is the most economical borrower and currently has about $5.56 billion of bonds on issue at maturities ranging from December 2017 to April 2027. There are 46 councils that participate in its programmes, including 30 shareholding councils.
Local Government New Zealand President Lawrence Yule welcomed the findings of the research into the sector’s financial health, commissioned following the recent release of councils’ annual reports and publication of 2015-25 long-term plans.
“The LGFA has concluded that local government’s finances are in good shape. Our councils have shown themselves to be strong and conservative financial managers,” said Mr Yule.
New Zealand councils’ ratings currently range from ‘AA’ to ‘A+’ which suggests a very strong to strong capacity to meet financial commitments.
Domestic councils tend to rate highly in credit ratings compared to their global peers because of the close relationship between the two-tiered central and local government and the institutional framework the sector operates under.
Auckland Council retains strong rating
Standard & Poor’s earlier this month reaffirmed Auckland Council’s 'AA' long-term and 'A-1+' short-term issuer credit ratings.
Auckland Council Group Chief Financial Officer Sue Tindal says the rating, as well as the LGFA research, reflects the work the council is doing to position for Auckland’s growth.
“We are particularly pleased the LGFA has recognised the challenges to Auckland Council presented by the rapid growth of the region,” said Ms Tindal, Auckland Council’s Chief Financial Officer.
“In the last year alone, 45,000 more people decided to call Auckland home.
"We have been working hard to ensure our finances are in good shape. Our financial strategy sets limits on the council’s borrowing to maintain debt at a sustainable level. While total group debt is projected to reach $11.6 billion by 2025, it will still remain at a prudent level compared with our annual income of $5.4 billion by 2025.”
Mr Yule said the sound financial platform established by councils is vital as local government faces a number of future challenges, such as funding asset renewals and meeting new demands for infrastructure.
“This will require good information about the state of our assets and alignment between councils’ infrastructure and financial strategies. This complements the work we’re doing on a potential Local Government Risk Agency and the 3 Waters project to better understand our asset bases and future infrastructure needs,” said Mr Yule.
The report found that while local government has increasing debt levels, these are acceptable given the increasing demands for infrastructure investment and the debt servicing ability of local government.
Article supplied with thanks to Local Government New Zealand. Specific references to Auckland Council added by the council.