Report finds councils’ finances in good shape

A high level financial analysis, commissioned by Local Government New Zealand (LGNZ) has found that local councils across New Zealand are managing ratepayers’ money prudently.

A snapshot of local government’s financial health: a sector in good shape, prepared by the Local Government Funding Agency, 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.

LGNZ President Lawrence Yule welcomed the outcomes 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.

“It was an appropriate time to undertake a high level analysis to identify what councils are doing well and the areas where more attention might be required,” said Mr Yule.

“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.

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.

“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,” said Mr Yule.

“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.

The projected increase in sector debt is largely concentrated in the major metro councils who have to invest for growth. The total debt of the rural and provincial councils is forecast to increase by less than nine per cent over the next ten years, which is lower than the rate of inflation. Twenty four councils are forecast to have no net debt by June 2025 – compared to 20 councils which had no debt as of June this year.

LGFA Chief Executive Mark Butcher said, “Our analysis has shown that the debt currently held by councils, and their recently forecast debt, largely reflects the need to invest in core infrastructure.”

The LGFA has found that credit quality of the local government sector is strong in global terms. Currently 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.

“Credit quality and the framework that local authorities operate under is very strong, in particular its focus on balanced budgets, long term planning and transparency,” said Mr Butcher.