1 00:00:00,320 --> 00:00:03,720 Speaker 1: Eighteen councils and three council controlled organizations have just had 2 00:00:03,760 --> 00:00:07,480 Speaker 1: their credit ratings downgraded by S and P Global Ratings. 3 00:00:07,760 --> 00:00:11,520 Speaker 1: The credit rating agency worried councils aren't receiving enough revenue 4 00:00:11,520 --> 00:00:14,480 Speaker 1: to cover rising costs. A trainee is The Herald's Wellington 5 00:00:14,520 --> 00:00:18,599 Speaker 1: Business editortions with us now good evening evening rang to 6 00:00:18,680 --> 00:00:22,880 Speaker 1: know this is not good news. What's changed? Why the downgrade? Now? 7 00:00:23,720 --> 00:00:28,400 Speaker 2: Yeah it is. It is bad news. Basically, council's debt 8 00:00:28,960 --> 00:00:32,360 Speaker 2: is really high. That the pressures on council to invest 9 00:00:32,400 --> 00:00:37,720 Speaker 2: in infrastructure after years of councils underinvesting, is really catching 10 00:00:37,800 --> 00:00:40,840 Speaker 2: up with them. The issue is that their ratings base 11 00:00:42,040 --> 00:00:45,800 Speaker 2: isn't necessarily as increasing as much as the cost Now. 12 00:00:45,880 --> 00:00:49,120 Speaker 2: Of course, you know, different councils are increasing rates by 13 00:00:49,240 --> 00:00:53,840 Speaker 2: varying amounts, and here in Wellington the rates rises are 14 00:00:53,880 --> 00:00:57,560 Speaker 2: pretty bad. Councils are under pressure to not increase rates 15 00:00:57,600 --> 00:01:01,520 Speaker 2: too much, but those costs are are really coming to 16 00:01:01,560 --> 00:01:04,839 Speaker 2: any head. So that is something that that the ratings 17 00:01:04,920 --> 00:01:08,679 Speaker 2: agency is weary of. It is also worried about the 18 00:01:08,720 --> 00:01:11,360 Speaker 2: fact the government is not actually giving councils as much 19 00:01:11,400 --> 00:01:15,880 Speaker 2: money as before. The availability of grants from the Crown 20 00:01:16,319 --> 00:01:20,600 Speaker 2: has decreased and there's also a bit of uncertainty around 21 00:01:20,600 --> 00:01:24,119 Speaker 2: government policy when it comes to local government. So that's 22 00:01:24,160 --> 00:01:27,280 Speaker 2: another problem that s and p raised. Now, credit rating 23 00:01:27,319 --> 00:01:30,959 Speaker 2: agencies don't just come out of the blue and downgrade ratings. 24 00:01:31,000 --> 00:01:33,920 Speaker 2: It's quite a big deal. SMP has been warning of 25 00:01:34,000 --> 00:01:36,200 Speaker 2: this for at least the past year. 26 00:01:36,640 --> 00:01:39,720 Speaker 1: Yeah, and that some have been downgraded in the past 27 00:01:39,760 --> 00:01:44,120 Speaker 1: as well, haven't they Which councils haven't had their ratings changed. 28 00:01:44,720 --> 00:01:48,640 Speaker 2: So Auckland Council that is a big one and that's 29 00:01:48,680 --> 00:01:52,640 Speaker 2: a positive. Also Bay of Plenty Regional Council, Western Bay 30 00:01:52,680 --> 00:01:56,480 Speaker 2: of Plenty District Council. Those are just some of them. 31 00:01:57,160 --> 00:02:01,800 Speaker 2: The problem now when these credit raisings are downgraded is 32 00:02:01,840 --> 00:02:05,400 Speaker 2: that it costs counsels more to borrow money. Now that 33 00:02:05,520 --> 00:02:07,720 Speaker 2: is an issue given the amount that council's need to 34 00:02:07,760 --> 00:02:11,280 Speaker 2: borrow for infrastructure here in Wellington, the pipes, the water. 35 00:02:11,360 --> 00:02:15,880 Speaker 2: That's all an issue. I talked earlier today to the 36 00:02:15,919 --> 00:02:20,200 Speaker 2: head of the Local Government Funding Agency. That's an agency 37 00:02:20,200 --> 00:02:23,800 Speaker 2: that's set up that borrows money, issues debt to markets, 38 00:02:24,080 --> 00:02:26,800 Speaker 2: It borrows money and then it lends money to councils 39 00:02:27,320 --> 00:02:31,000 Speaker 2: and Mark Butcher, the head of that agency. He said 40 00:02:31,080 --> 00:02:35,280 Speaker 2: that when councils credit ratings are downgraded and notch, that 41 00:02:35,440 --> 00:02:39,040 Speaker 2: adds five basis points to their to their borrowing costs. 42 00:02:39,480 --> 00:02:42,960 Speaker 2: So if you're if you're Wellington Council and you currently 43 00:02:43,000 --> 00:02:44,760 Speaker 2: borrow for I'm just making the number up, but you 44 00:02:44,800 --> 00:02:48,440 Speaker 2: borrow for five percent from the Local Government Funding Agency. 45 00:02:48,800 --> 00:02:52,200 Speaker 2: If your credit rating is downgraded, that that interest rate 46 00:02:52,240 --> 00:02:56,440 Speaker 2: then goes up to five point zero five percent. So 47 00:02:56,440 --> 00:02:59,120 Speaker 2: so that is that is the impact. You know, credit 48 00:02:59,240 --> 00:03:03,320 Speaker 2: rating goes down, cost to councils and to rate payers 49 00:03:03,480 --> 00:03:03,920 Speaker 2: goes up. 50 00:03:04,080 --> 00:03:07,079 Speaker 1: And is Wellington one of the ones that's been downgraded? 51 00:03:07,880 --> 00:03:11,120 Speaker 2: Yeah, yeah, Wellington. Wellington has been downgraded now out then. 52 00:03:11,160 --> 00:03:13,320 Speaker 1: And they haven't applied and they didn't apply for their 53 00:03:13,360 --> 00:03:17,600 Speaker 1: city deal on times because that presumably would help with financing. 54 00:03:17,680 --> 00:03:23,560 Speaker 2: Right, Look, I'm not too sure. The way that this 55 00:03:23,680 --> 00:03:26,160 Speaker 2: is set up is actually quite good with the Local 56 00:03:26,200 --> 00:03:29,320 Speaker 2: Government Funding Agency, So rather than having councils go out 57 00:03:29,320 --> 00:03:33,120 Speaker 2: there and try to get money themselves, they do it 58 00:03:33,200 --> 00:03:38,280 Speaker 2: through the LGFA. Now SMP also gives the LGFA, the 59 00:03:38,320 --> 00:03:42,000 Speaker 2: Local Government Funding Agency, a credit rating and just yesterday 60 00:03:42,040 --> 00:03:45,280 Speaker 2: it affirmed that rating, So the lgfa's credit rating has 61 00:03:45,320 --> 00:03:48,520 Speaker 2: stayed the same. That sort of softens the impact of 62 00:03:48,680 --> 00:03:53,680 Speaker 2: these councils having their ratings downgraded because it means that 63 00:03:53,800 --> 00:03:58,280 Speaker 2: the local government funding agency can keep borrowing money from 64 00:03:58,360 --> 00:04:00,560 Speaker 2: you know, around New Zealand around the world at the 65 00:04:00,600 --> 00:04:03,880 Speaker 2: same sort of rate that it currently does, and then 66 00:04:03,920 --> 00:04:06,960 Speaker 2: it on lends that money to counsels for a bit 67 00:04:07,000 --> 00:04:10,160 Speaker 2: more So that does create a bit of a buffer, 68 00:04:11,080 --> 00:04:13,320 Speaker 2: and it means that at least the institution that is 69 00:04:13,480 --> 00:04:16,960 Speaker 2: organizing the borrowing of money and then on lending it 70 00:04:18,080 --> 00:04:20,640 Speaker 2: that is in good nick and s and P is 71 00:04:20,640 --> 00:04:23,880 Speaker 2: happy with the governance of that the way that's set up, 72 00:04:23,880 --> 00:04:27,760 Speaker 2: the amount of capital it has, its diversification, all that 73 00:04:27,800 --> 00:04:29,919 Speaker 2: sort of thing. So there is a bit of a 74 00:04:29,960 --> 00:04:31,880 Speaker 2: silver lining in this scenario. 75 00:04:32,000 --> 00:04:34,320 Speaker 1: Fascinating stuff to I thank you very much for running 76 00:04:34,360 --> 00:04:37,559 Speaker 1: us through it. To agypt training Inted Herald's Wellington Business editor. 77 00:04:38,240 --> 00:04:41,400 Speaker 1: For more from Heather Duplessy Allen Drive listen live to 78 00:04:41,480 --> 00:04:44,520 Speaker 1: news Talks. It'd be from four pm weekdays, or follow 79 00:04:44,560 --> 00:04:46,279 Speaker 1: the podcast on iHeartRadio.