Global ratings agency S&P Global's latest report on the ever-changing policies on water reform said the latest water service models would not alleviate the agency's negative outlook bias on some local governments. Photo: 123rf.com
Proposed local government water reforms will undoubtedly see some councils facing continued downward pressure on their credit ratings, which will end-up costing their ratepayers more.
Global ratings agency S&P Global's latest report on the ever-changing policies on water reform said the latest water service models known as "Local Water Done Well" would not alleviate the agency's negative outlook bias on some local governments.
S&P credit analyst Anthony Walker said the reforms promised flexibility but also created uncertainty, compared with the "Three Waters" proposal offered by the former Labour Government, which was a one-size-fits-all model.
Walker said the current proposal offered 68 councils a choice of six different options for water reform.
"The key message here is that this is not the silver bullet that some people thought," Walker said.
"It's not the reforms that are going to actually alleviate all the fiscal pressure that councils are going through.
"We still have quite a few councils on negative outlook, and this may not solve those issues. Some councils will be better off, many will be the same, and some councils will actually be worse off under these proposals."
Half of the options required councils to guarantee loans made to water entities through the Local Government Funding Agency. The arrangement would allow water entities to borrow money at cheaper interest rates than they could in their own names.
"That's all good for serviceability of the water entity. The issue though, from a council's credit rating perspective, is if something goes wrong with that water entity, and we've seen this around the world, that means that councils are on the hook," Walker said. "They can't back out."
"And while some officials might say, well, that's never going to happen, I've just mentioned, we have seen that happen around the world, and councils can get into a lot of financial stress when they're guaranteeing entities."
S&P would not be able to assess each council's risk profile until after they had selected an option.
At this stage, only Wellington-area councils had selected a water entity framework, to be established 1 July 2026.
"I don't believe this is the end of the reforms. We already know that at least one council has had their their water service plan sent back to them," Walker said, adding the government policy provided for reviews every year for the next five years, which could result in further reforms in five-to-ten years' time.
"I think the key here is just to educate the councils and the government on how S&P will be viewing each option, and so they're fully aware of what they're about to dive into."
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