In its annual review of the Council’s creditworthiness, S&P says the Council is expected to incur large deficits over the next few years as it increases capital expenditure while COVID-19 drags on council revenue growth – but that its financial outlook is positive.
It says debt will increase, but not materially weaken, the Council’s balance sheet.
Mayor Andy Foster, in welcoming the AA/A-1+ credit, says the Council’s finances are in good hands.
“I’d like to pay tribute to the extremely hard work that the Chief Executive, Barbara McKerrow, and her team have put into the fiscal response to COVID in the past few months. The coming years will be financially very challenging at both governance and management levels and we will need to continue to be very tightly focused on sound financial and asset management.”
Ms McKerrow added: “We’re acutely aware the Council and the community are facing big financial challenges, partly due to COVID but also due to the major capital investments we’re dealing with in the next few years. The Standard and Poor’s rating is a great vote of confidence in our fiscal performance.”
S&P says New Zealand’s institutional settings and Wellington’s wealthy economic profile continue to support the Council’s rating.
Other commentary from S&P
We continue to cap our rating on Wellington at the level of our long-term foreign currency rating on New Zealand (AA/Positive/A-1+) because we believe the Council could not withstand a default scenario better than the sovereign could, and that the council's credit metrics would deteriorate in line with those of the sovereign in the event of a distress scenario.
The institutional framework within which New Zealand councils operate is a key strength supporting Wellington's credit profile. The New Zealand local government system promotes a strong management culture, fiscal discipline, and high levels of financial disclosure among local councils. The framework is supportive of councils' rate-collection abilities. This system allows Wellington to support higher debt levels than some of its international peers can tolerate at the current rating.
Wellington prepares a long-term plan every three years and annual plan each year, setting an important forward-looking approach to prudent financial management. This sets an important baseline for the council's operating and capital expenditure requirements as well as its funding strategy. Debt and liquidity policies are prudent, with no issuance of foreign-currency and interest exposure being mostly hedged.
We expect the council to incur large after-capital account deficits to narrow to about 12% of total revenues during 2021-2023, and average about 14% between 2019-2023. This reflects the council ramping up its capital spending while its operating revenues suffer from the COVID-19 pandemic.
We forecast capital expenditure to average more than NZ$230 million per year between 2021 and 2023, up from NZ$130 million in 2013 to 2017. Capital expenditure will focus on water, stormwater, wastewater, and transport networks as well as multiyear projects to earthquake-strengthen the Town Hall, St James Theatre, and the city's new Convention and Exhibition Centre. Capital revenues from the Crown will somewhat support Wellington's financial outcomes over the next few years.