Hamilton City Council’s Credit Downgrade Not a Surprise

By Rob Pascoe - Chartered Accountant, Former Hamilton City Councillor and Hamilton Ratepayer.

Originally published on Citywatch: Hamilton City Council’s Credit Downgrade Not a Surprise

Some might question why I wrote a scathing attack on the actions of Hamilton City Councillors in failing to address in some form or another fiscal prudence needed to get the city out of its current and ongoing financial woes.

Water reform will add to this and it seems thus far the councillors have absolutely no idea on how the funding and finances of a water company will work.

While many have the best interests of the city at heart, they still fail to understand the finances and the fiscal prudence needed when considering their decisions alongside the local government act and other statutes, and indeed good business practice. Many are driven by their own political ideology, and this is OK if and when the city can afford the “nice to haves”.

I was particularly annoyed to read of the downgrade in the city’s financial rating by independent credit rating agency Standard & Poor’s (S&P). They are international experts and would consider each and every reason why the city could no longer maintain the rating it had held for more than a decade. They would not have issued a downgrade without due consideration, process, and good reasons.

What concerns me is the city was put on watch 12 months ago by S & P when its rating changed from AA- stable to AA-negative. This was previously reported in CityWatchNZ. This should then have sent a strong message to the elected councillorsto immediately make the changes to avoid the credit downgrade.

Whether ignored, or in arrogance, or incompetence elected members continuedtheir merry way leaving the rating agency with no option but to downgrade thecouncil.

The reasons given in press statements by the mayor and chair of finance, while valid, are only a small part of the cause. This is a further concern because the major reasons were either ignored or still remain unknown to elected members.

In my experience a return to the higher rating will be difficult to achieve. It was not possible to achieve an upgrade in my 9 years on Council despite showing in some years fiscal prudence and good governance. So, we can expect some years of the lower rating particularly when water reform costs are added.

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