16 March 2011

A proposed new local government funding agency could save local authorities around $25 million a year.

A Bill to enable the establishment of the New Zealand Local Government Funding Agency (LGFA) is due to be introduced to Parliament shortly.

The LGFA will operate as a large-scale borrower which will then re-lend to councils. Eugene Bowen, chief executive of Local Government New Zealand and chair of the LGFA steering group says the agency will enable a co-operative approach to borrowing.

“We are optimistic this initiative will receive sector-wide support. A series of briefings have been, and are being held, for council chief financial officers, chief executives and mayors.

“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.”

It is expected that the LGFA will achieve a lower interest rate and have better liquidity due of the agency’s structure and because it will amalgamate the borrowing demands of many councils.

To help with the establishment of the agency the Government has already allocated $5 million for investment. A further $20 million of establishment capital will come from councils.

Mr Bowen says he is pleased with the current level of support for the agency from councils, with many already signed up.

“As of now seven of the nine councils who have funded the development of the LGFA have voted to include LGFA shareholding in their next annual plan,” said Mr Bowen.

For the agency to be successful some legislative and regulatory issues need to be settled and there needs to be support from councils. By achieving these two things the agency will be in a strong position to achieve a high credit rating.

ENDS

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