A report into the the financial sustainability of New Zealand’s councils has found that local government finances are in “good shape”, with “acceptable” levels of debt.
Commissioned by Local Government New Zealand (LGNZ), the report by the Local Government Funding Agency (LGFA) provides a high level financial analysis of the sector, following the recent release of councils’ annual reports and publication of 2015-25 long-term plans (LTPs).
LGFA is a council-controlled organisation, operating under the Local Government Act 2002. LGFA specialises in financing the New Zealand local government sector, the primary purpose being to provide more efficient funding costs and diversified funding sources for New Zealand local authorities.
The report recognised that, while the gross debt of the New Zealand local government sector has nearly trebled during the past six years, growth in debt is primarily forecast by those councils experiencing significant population growth and a subsequent need to invest in infrastructure to meet the demands of that growth.
In Christchurch, growing levels of debt are largely to replace assets that were damaged in the devastating 2011 earthquakes.
The authors state: “In our opinion, both the debt currently held by councils and their recently forecast debt largely reflects the need to invest in core infrastructure rather than borrowing for operating purposes.”
Some key findings from the report:
• By 2025 Auckland Council is forecast to have 57.8% of total sector debt while Christchurch City Council will have 10.4%. The share of debt held by the other 76 councils will be 31.8 percent of the total;
• The total debt of the rural and provincial councils is forecast to increase by less than 9% over the ten year period, which is lower than the rate of inflation;
• Twenty-four councils are forecast to have no net debt at June 2025 (defined as gross debt less liquid financial assets). This compares to twenty councils with no net debt as at June 2015;
• While gross debt is forecast to increase by $5.92 billion over the next ten years, assets are forecast to increase by $48.12 billion with capital expenditure averaging $4.45 billion for each of the next ten years;
• The total debt of the sector in each year of the 2015-2025 LTPs is lower than each comparable year in the 2012-2022 LTPs (after making an adjustment for Christchurch which did not produce a 2012-2022 LTP).
The report also states that councils in NZ have a strong credit rating. Twenty of New Zealand’s councils have a Standard and Poor’s credit rating and two have Fitch ratings, most of which are AA ratings. All ratings remain stable to positive showing an upward trend in credit ratings, and no councils had their credit rating downgraded between 2013 and 2015.
LGNZ President Lawrence Yule says 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.
“At the same time it must adapt to demographic change, including population ageing, and address unique issues such as earthquake strengthening, extreme weather events and sea level rise,” he says.