Councils consider new funding agency

Wellington City Council is the latest local body to consider the merits of joining the Local Government Funding Agency.

Wellington Mayor Celia Wade-Brown said if the council joined the agency, it would have another way of funding debt and lowering borrowing costs.

“One of the lessons of the global financial crisis is the importance of ongoing access to funding, even when money markets are under pressure. The LGFA would increase our options for access to secure long-term funding.”

However, to become a shareholder in the agency, the council would have to make an initial capital investment of up to $2.3 million.

The council estimated that it would make annual savings of between $370,000 and $740,000 by 2019 if it joined the agency, Ms Wade-Brown said, by which time the council’s investment would have also been recovered in full.

“We would receive a return on our investment – it is projected to cover the cost of the council’s capital investment in the LGFA.”

The agency, which would operate as a large-borrower that would then re-lend to councils, was initially mooted at the 2009 Job Summit as an opportunity for local government borrowers to make significant savings.

A steering group, made up of central and local government representatives, has since worked towards its establishment.

Eugene Bowen, chief executive of Local Government New Zealand, said the agency would enable a co-operative approach to borrowing.

It was expected that it would achieve a lower interest rate and have better liquidity due to its structure and because it will amalgamate the borrowing demands of many councils, Mr Bowen said.

“Councils can choose to participate as shareholders and/or borrowers. I believe the LGFA is the most important financial initiative affecting councils in recent years.”

Other than the Wellington City Council, other councils considering joining the LGFA are Whangarei District Council, Auckland Council, Hamilton City Council, Tauranga City Council, Western Bay of Plenty District Council, Greater Wellington Regional Council, Tasman District Council and Christchurch City Council.

Capital markets specialist Craig Stobo was last month appointed chair of the agency's establishment board.

A bill that would enable the creation of the LGFA, sponsored by Finance Minister Bill English and Local Government Minister Rodney Hyde, has been referred to select committee for report back by August 1.