Standard & Poor's likes how our rated councils manage their financials, reckons they can tolerate more debt than 'international peers'

As part of a ratings review, Standard & Poor's has reviewed New Zealand councils financial operating performance between 2009 and 2012 and found "generally strong financial management".

Rated councils have responded to the softer economic outlook during the period with more conservative forecasting, S&P found, and they cut back on capital expenditure plans.

S&P has credit ratings on 15 New Zealand local and regional governments at high investment-grade, ranging from 'AA' to 'A+'.

Only Christchurch and Dunedin have a 'negative' outlook on their current rating, the rest are 'stable'.

S&P says New Zealand's institutional framework is "extremely robust" and this encourages strong financial management. Because of this S&P thinks New Zealand councils can tolerate more debt than some international peers.

Council rates revenues from 2010-2012 did not rise as much as they forecast in 2009 because of slower population growth. As a result, the councils have cut their forecast operating and after-capital account balances in their 2012-2022 Long-Term Plans. Global uncertainty has taken a toll on economic growth over the past three years and depressed several councils' investment income, the S&P review shows.

The performance of Auckland Council dominates the review and now represents more than 30% of the sector. It too delivered results lower than the 2009 forecasts of the eight councils that were combined into the 'SuperCity'.

Auckland Council's adjusted cash operating surpluses as a percentage of adjusted operating revenues averaged 12% over 2010-2012, down from those 2009 forecasts of 15%.

Likewise, its 2012 Long Term Plan forecasts now expect surpluses to average 17%, down from 21% in 2009.

To address this weaker revenue growth, Auckland Council expects to spend less in its adjusted cash operating expenditure, by about 7% per year in its 2012 LTP forecasts, relative to the 2009 forecasts over the same time period, says S&P.

Auckland Council capital programmes were under spent during the transition phase as well.

Under spending on capital projects is an issue across all councils surveyed, and the ratings agency expects that trend to continue. However, if councils achieve their entire capital-expenditure programmes as budgeted each year, it is likely to increase their debt levels, S&P says.

The reports concluded that "despite New Zealand councils' expectations of weaker revenue growth, we consider the rated New Zealand councils as being able to maintain their credit quality, largely because of the country's strong institutional framework and councils’ generally strong financial management."

Not all councils are performing so admirably.

Unrated Kaipara District Council has fallen on hard times and is under management by Government-appointed commissioners. And now Westland District Council is suffering from similar issues with local ratepayers protesting high debt and sharp rates hikes.