Swain Paul: Securities (Local Authority Exemption) Amendment Bill — Third Reading 
Swain Paul: Securities (Local Authority Exemption) Amendment Bill — Third Reading 
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Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 I rise to speak in this third reading debate—[ 
Interruption 
] Oh Mr Roy welcomes me to the podium. 
Eric Roy 
: Absolutely. 
Hon PAUL SWAIN 
: That is great; thank you very much. I hope to enlighten the audience as to why I am speaking on this. The reality is that I was on the select committee for this legislation. 
Hon Georgina te Heuheu 
: The member probably knows something. 
Hon PAUL SWAIN 
: Oh thank you very much; I am obliged to the member for that. As a result I am hoping I do not let her down. This is a high expectation that she has now set upon me. 
This is good legislation. As a member mentioned before this is about trying to ensure that it will be easier for local authorities to issue debt securities. There have been some good contributions in the debate up until this moment particularly during the Committee stage. I thought that some of Richard Worth’s contributions were quite helpful. 
Most people—and it depends how old they are I suppose—and certainly I can remember when local authorities used to issue local authority bonds. There were hospital board bonds and other forms of arrangements whereby people could invest in their local community organisations like councils and hospitals. The councils and hospitals then used that money to fund pieces of important infrastructure. The rules were changed in the late 1990s in order I suppose to deal with some of the concerns that people had that maybe the regime was not robust enough. As a result lending arrangements were a bit looser than what would have normally been required of ordinary companies that were going out and looking for debt securities on the open market. It is probably fair to say that those arrangements were made at that time for good reason. But as a result and as local government people tell us it has now become very very difficult—virtually impossible—for local authorities to issue debt because of the huge compliance costs and because the authorities are a slightly different animal from the normal publicly listed company that would be required to follow the full Securities Act regime. 
It was also helpfully brought to our attention by the Minister of Commerce that as a result of the dialogue this excellent Labour-led Government introduced meetings between local government and the Prime Minister. As I recall meetings occurred every 6 months. I went to a few of them myself as a Cabinet Minister. 
Hon Darren Hughes 
: In the good old days. 
Hon PAUL SWAIN 
: “Bring them back.” some people would say. 
Hon Darren Hughes 
: I hear it a lot. 
Hon PAUL SWAIN 
: Yes; we hear it a lot. 
Those meetings were co-chaired by the Prime Minister and the head of Local Government New Zealand—Basil Morrison; a fine fellow—and issues were brought forward. I recall a number of very important things coming forward. For example a lot of the issues to do with some of the funding that now heads towards Auckland transport were addressed at that meeting and it led to a number of really important developments. 
As I understand it an issue that came forward at one of those meetings was the whole issue of local authorities being able to issue debt and it was pointed out just how difficult that was. This bill has come forward in order to address that issue of local authorities being able to issue debt. What does this mean? Essentially this means that before a local authority can issue debt it has to do a number of things. The first one is that it needs to issue an investment statement. It needs to be put forward to the public and two councillors are needed to sign it off. The reason the signatures of only two councillors are needed is that if the whole council had to sign it it would take only one councillor to object for the important piece of infrastructure investment to be funded by way of these debt securities to be stopped. That would mean a power of veto of only one which is hopeless in organisations such as councils. 
The problem with having only two councillors sign it is that if only those two councillors were to be held liable we would never get two councillors signing it. So the legislation now states that as a result of two councillors signing off the investment statement all the councillors are criminally liable for the accuracy of the content of that investment statement. A councillor could disagree with the proposal but all councillors would be required to make sure that the investment statement is accurate. If it is not accurate then all councillors are criminally liable. That means that there is a much greater opportunity for councils to have access to this kind of debt security arrangement. 
The issue of criminal liability was obviously really important to consider. I think it was Local Government New Zealand that came forward to the Commerce Committee and said that members of Parliament were applying rules on criminal liability that they do not apply to themselves. Ministers themselves are not criminally liable when the Government issues debt—for example Government bonds. Representatives of Local Government New Zealand said that if that convention applies to Ministers then why would Parliament not make councillors exempt from that criminal liability situation as well. To be fair it was a reasonable point. But in the end we decided to keep criminal liability for local authorities primarily because as far as central government is concerned the checks and balances are far greater. A lot more auditing is done in central government and a lot more Government department and agency eyes and hands are all over this type of situation when the Government gets into borrowing. The feeling was that given that there were more checks and balances and given that central government organisations are much bigger than local government organisations we should keep criminal liability for local authorities. 
The committee looked at the whole issue and thought that as we were making it easier for councils to get debt from the public—and remembering as a couple of speakers have said earlier that the reason for this legislation is to be able to fund long-term investment projects such as water sewerage upgrades transport and motorways and libraries—it is important that this vehicle be made available. Other speakers have mentioned the importance of having what they called intergenerational equity rather than trying to fund infrastructure straight up front—that is if we are to have a water pipe that is to be useful over 60 years then the generation of ratepayers at the end of the life of the water pipe should be contributing as well as the generation of ratepayers at the start of the life of the water pipe. It is not fair to have just the ratepayers at day one paying for it when ratepayers down the line will also benefit. The idea of debt security is about spreading out that risk and being able to spread out the benefit. 
Having done all that the select committee said that there should be some additional things to make sure that there are some firm rules and that Parliament could rest easy knowing that although we were relaxing some of the rules there was still some regulation around this situation. One example is that the local authority is required to refer to the most recent audited annual financial statements in the investment statement that is distributed when the council is issuing debt. It is a pretty obvious thing and I suppose that councils would probably do that but it is important to say it. 
Another important issue which was really interesting was that we wanted to make it quite clear that when local authorities are issuing debt this would not be Government-guaranteed. A lot of people would assume that because a council is issuing debt somehow the Government is guaranteeing it. This could give a false or misleading impression as a result. That aspect needs to be stated as well. We also said—and I think that the previous speaker Te Ururoa Flavell said this—that the financial investment statement distributed to investors and potential investors needs to made available on request and free of charge. We thought that that was an important issue to make sure that councils are not trying to ramp up the cost of doing this and are not putting off potential investors. 
The summary of it all is that this measure will be an important vehicle for local authorities to be able to raise debt to fund long-term infrastructure projects. Under the chairmanship of Gerry Brownlee I think that the committee did well. I thank all the members who have contributed in the House to this very important debate.