By Jessica Tasman-Jones – stuff.co.nz – 30 November 2011:
The returning National Government is unwilling to commit to Auckland’s city rail link and the project should be put on the backburner before the expensive plans topple the council’s credit rating, two city councillors say.
The proposed 3.5km underground loop would include stations at Karangahape Rd, Aotea Square and Newton at a cost of $2.4 billion and, according to council, unlock the economic potential of the inner city and transform Auckland’s rail network.
But uncertainty about how the project will be funded, and a lack of support from the National-led Government, is putting Auckland Council at risk of a credit downgrade.
Earlier this month Standard & Poor’s put the council on a 90-day credit watch due to projected levels of debt needed to fund major transport infrastructure.
Councillors George Wood and Cameron Brewer say as a result the council needs to consider reprioritising the ambitious project which the Government is yet to commit funding for.
The council has indicated it expects the Government to contribute 50 per cent to costs but incumbent Transport Minister Steven Joyce has previously said he is not convinced by the council’s business case for the project.
The council is currently discussing budgets for the next 10 years as part of its long-term plan which will go out to public consultation in February.
But Cameron Brewer says by that time Standard & Poor’s will have made their credit rating decision Auckland ratepayers will have missed their chance to say whether they want to reprioritise transport spending to avoid a downgrade.
The credit rating agency has noted current proposals in the draft long-term plan put the council’s debt levels at 200 per cent of operating levels by 2015.
If downgraded the council’s long-term issuer credit rating would drop from ‘AA’ to ‘AA-‘ and result in an interest hike of around 10-15 basis points.
Brewer says this would cost the ratepayer “tens of millions” more in extra interest and add nearly one per cent to “already skyrocketing rates”.
But the council’s chief financial officer Andrew McKenzie has said it would still be one of the country’s most credit-worthy entities if there were a downgrade.
He says rates have been set at a “prudent” level.
Councillor Wood says the council needs to stick with plans to limit its debt.
“When you include the City Rail Link and the new electric trains, the council’s net debt goes from $3.3b currently to $8.1b in 2020/21,” Wood says.
“A debt blow-out and the fact that the City Rail Link’s funding methodology and modeling remains so woolly is what is giving Standard & Poor’s the jitters.”
Last week Mayor Len Brown said the credit downgrade threat would not affect his city rail link plans.