By Prudintis (a Hamilton City Ratepayer)
Councils in NZ use International Rating Agencies to independently assess their performance against their peers and the general economy.
Hamilton elected to undertake annual rating around 10 years ago and now use Standard & Poor’s (S&P).
The city initially gained an AA- Stable outlook which it successfully retained until September 2023 when the agency downgraded council to AA- Negative Outlook.
“Hamilton City Council’s fiscal metrics are underperforming our previous expectations. Operating surpluses are roughly half of our previous forecasts because inflation, interest rates, and other costs are outstripping revenue growth.
The council is delivering a large capital expenditure program that is resulting in substantial after-capital account deficits and rapidly rising debt. Its debt is among the highest in the world for ‘AA-‘-rated local peers.”
S & P Global Ratings, 25 September 2023, Hamilton City Council Outlook Revised To Negative On Weakening Fiscal Metrics; ‘AA-/A-1+’ Ratings Affirmed
This downgrade was rather glossed over in the Council’s media release, and then again by the Chair of the Finance Committee in her report dated 31 October 2023. (See Page 12 of the Finance Committee’s 31 October Agenda).
The Chair’s report stated that the Council being placed on “negative watch” was due to “financial challenges ahead” and “unprecedented financial challenges” associated with its Long Term Plan (LTP). While the Council’s media release considered the smaller rates increases during COVID-19 and inflation as reasons. Neither commented on the large operating deficit reported to 30 June 2023 (nearly $30 million, see page 167 of the 2022-2023 Annual Report), and the huge 46% increase in city debt from $593 million (See page 44 of the Finance Committee’s 23 August 2022 Agenda) to $866 million (See page 32 Finance Committee’s 31 October Agenda ) in the 15-month period to October 2023.
Rating agencies analyse a lot of data including external factors referred to above, but also include internal operations such as setting and managing operating budgets, managing city debt, quality and experience of management and councillors, etc.
Clearly Hamilton City Council hit a number of touch points for S&P to justify after a rating outlook downgrade.
Councillors now need to take a serious look and show self-discipline at the draft LTP budget, assess where the priorities really are, what residents want to pay for, then reset the budget with a rate that satisfies this.
It’s time to remove the “nice to haves”, the accelerated investment in the “20-minute city” and focus on the core needs of a growing city for the next 10 years.
S&P in this year’s financial rating assessment will focus on what council does in the next few months, and if progress is not made continuing downgrades will be on the cards.
Further downgrades will have significant financial consequences for the city.
I am unsure from the Finance Chair’s report if most Councillors have any financial awareness of the rating outlook downgrade or what they need to do to fix it. Are they even aware of the dire financial consequences for ratepayers if they don’t?
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