Government considers local body bond bank

The Government is working with local body representatives to investigate setting up a "bond bank" to help councils finance up to $30 billion of planned infrastructure over the next decade, Finance Minister Bill English says.

The establishment of the so-called bond bank to reduce councils' cost of borrowing was one of the Jobs Summit Top Twenty initiatives. It was also recommended by the Financial Markets Development Task Force.

A study will look at whether combining councils' borrowing needs would result in lower interest rates and transaction costs. This arrangement is common overseas. The study will also investigate options for how such an organisation could be run.

"The Government recognises that councils face a big spike in costs over the next decade to provide adequate sewerage, water and roads. Some of this will be appropriately financed by debt," Mr English says.

"We are sympathetic to any arrangement that can lower the cost of local authority borrowing and we are keen to help councils work together to see if they can do this. Any arrangement that comes out of this process will be entirely voluntary."

A joint Government and Local Government New Zealand steering group set up to look at the proposal expects to receive the study in about a month. Decisions about whether such a vehicle is feasible, and if so how to operate it, will follow.

Lawrence Yule, President of Local Government New Zealand welcomed the scoping study. “We look forward to working with the Government on this initiative, which has the potential to significantly reduce the cost of borrowing for councils, with flow-on effects for ratepayers too.”

The study will be conducted by advisers Cameron Partners and Asia-Pacific Risk Management.