You wouldn't credit it

Occasionally a commenter will make a point which not only has us nodding our heads in agreement at their wisdom, but which results in a round of forehead slapping and "Why didn't we think of that?!"

But a comment on our last post actually had Watchers slapping one another's foreheads. It's an obvious question, and one we'd overlooked. But it deserves to be asked, and answered:

It might be interesting for the council to join other local bodies in getting a Standard and Poor's credit rating about now ... to see what effect Mad Mickey's Big Spendup is having on Whanganui's credit worthiness. No doubt the news would not be good.

- Anonymous @ 11.25am, January 11

Christchurch City Council, for instance, not only has Standard and Poors assess its own credit rating - and thus financial performance - but also that of Christchurch City Holdings Ltd. It was recently reconfirmed as AA+.

Wanganui "does not have a recognised credit rating" as it admits in the LTCCP (pdf file, see p 76).

A credit rating isn't just about measuring performance (though that's obviously why we'd like to see the WDC's rating published) but assists in raising capital at lower rates of interest. A sturdy credit gives investors confidence, which means that they're more likely to lend to you at a lower rate since they have an independent assessment of risk and likely performance.

The Local Government Association of South Australia lists the benefits (pdf file,see p 12) of a credit rating as:

• Improved borrowing terms (Treasury estimates that councils pay .3% over the bb (base bond)rate because they use the local banks that they know and they are then captive markets and cannot shop around)
• Ability to tap a wider source of finance
• Financial discipline

They quote the cost of obtaining a corporate credit rating at AU$33,000 +GST - so around NZ$37,000 but that cost would probably be recouped in interest savings in the first few months.

So by not allowing Standard and Poors (or another respected agency) to rate them, the WDC are not only denying the Wanganui public a benchmark of their financial performance, but quite possibly subjecting ratepayers to higher interest on borrowings for, as Anonymous puts it so well, "Mad Mickey's Big Spendup" on swimming pools, carparks, libraries etc.

Ratepayers are perfectly entitled to demand that the Council subject itself to external scrutiny from Standard and Poors or a similar ratings agency. If you'd like to see just how Mickey is performing, contact the Council and tell them so. We'd love a copy of any response you may receive.

Meanwhile, to assist the finance gurus at Council to keep up with Mickey's ever-increasing expenditure demands whilst obfuscating the public about the city's level of indebtedness, we'd recommend the Official Calculator of the Zlotnian Space Program (pictured at right).

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