Lower borrowing costs for councils

Minister of Local Government Rodney Hide today announced the Government has advanced a further $500,000 of the Crown’s $5 million contribution towards establishing the Local Government Funding Agency (LGFA).

The Agency will be set up under the Local Government Borrowing Act which received Royal assent on 19 September and which deals with the regulatory and tax implications for setting up the Agency.

The Government’s initial advance of $450,000 funded work by the LGFA Steering Group to develop the scheme and recruit the Establishment Board Chair, Craig Stobo. Mr Stobo and the Steering Group have recently identified Paul Anderson, Mark Butcher, John Avery, Philip Cory-Wright and Abby Foote as board members who will be formally appointed on establishment of the LGFA.

The further advance will enable the Steering Group and Mr Stobo to finalise the Agency’s constitution and internal policies and take the necessary steps to register the new company.

“The passing of the Local Government Borrowing Act, and the actions taken to implement the LGFA were good examples of central and local government working together,” Mr Hide said.

“The LGFA will operate as a large scale borrower which will then re-lend to councils. At this stage I understand around 50 councils have indicated they will take part in the scheme as shareholders or borrowers. This should help achieve cost savings for councils that will ultimately benefit ratepayers.

“The LGFA offers potential to lower the overall cost of borrowing for all councils and help development of the New Zealand capital market.

“Because the Agency can amalgamate council borrowing it should get a lower interest rate and have better liquidity than councils borrowing independently. It’s estimated the Agency could save local authorities around $25 million collectively a year.

“The Government’s $5 million contribution to the establishment costs will give it a 20% shareholding. The remaining $20 million will need to come from councils,” Mr Hide said.