A proposal by the Local Government Funding Agency (LGFA) to lift the quantum of its debt covenants to provide more
choices and capacity for member councils to raise more debt, should they choose to do so, is welcomed by LGNZ who say
that it will give councils and ratepayers more options for boosting the economic recovery of their regions.
The proposal would allow rated councils with a long-term credit rating of 'A' equivalent or higher to reach a net debt to revenue
ratio of 300% by 2022, which would then reduce over time to 280% by 30 June 2026.
This proposal would give councils greater headroom to co-invest in ‘shovel-ready’ projects with the Government and Crown
Infrastructure Partners, as well as assist ratepayers and business owners with greater flexibility around rates.
“Even before COVID there was a lot of discussion about raising debt caps. In many cases growth councils in particular
have the ability to service more debt, that can be used to develop vital infrastructure needed to tackle our housing and
transport challenges,” commented LGNZ President Dave Cull.
“Councils primarily invest in long-term infrastructure, and borrowing through the LGFA has never been cheaper, so we
welcome these proposed changes.”
“This is not to say rated LGFA member councils will immediately go and take on more debt – it’s for each rated council
to decide on, considering that more capital expenditure will result generally in greater opex costs.”
“As we and others have pointed out, the funding and financing framework for local government is flawed because although
councils own about half of the infrastructure in New Zealand, they only receive 10 per cent of all taxation revenue to
support that infrastructure.”
“So while we welcome the proposal of the LGFA because we’re in exceptional times, the long-term solution to the deeper
issue is to broaden local government’s revenue base and so address the funding imbalance between local and central
government.”