New agency to trim local body borrowing costs

A Bill setting up a new local government funding agency is expected to be introduced to Parliament shortly, according to Finance Minister Bill English and Local Government Minister Rodney Hide.

“The agency will lower the overall cost of borrowing for all councils by allowing a co-operative approach to raising finance,” Mr Hide said. “It is estimated the agency could save local authorities collectively around $25 million a year.”

The New Zealand Local Government Funding Agency – an idea from the Jobs Summit two years ago - will operate as a large scale borrower that will then re-lend to councils. The New Zealand Debt Management Office will be contracted by the new agency to manage the borrowing programme.

Councils will not have to go through the agency to borrow money - they can choose to participate or continue raising money independently.

The new large-scale lender to local authorities would help the development of New Zealand’s capital markets, Mr English says.

“The NZLGFA’s structure and its ability to amalgamate the borrowing needs of many councils mean it should get a lower interest rate and have better liquidity than councils borrowing on their own,” he said.

The Government announced in Budget 2010 that it would provide $5 million towards establishing the agency. Another $20 million will come from councils.

The agency’s success rests on it getting a high credit rating, which in turn rests on resolving two key issues: settling some legislative and regulatory issues and the support of councils.

“The bill deals with the first of these matters. The rest sits with councils,” Mr English and Mr Hide said.