Hide Rodney: Local Government Borrowing Bill — Second Reading 
Hide Rodney: Local Government Borrowing Bill — Second Reading 
[Volume:675;Page:20980] 
Hon RODNEY HIDE (Minister of Local Government) 
: 
 I move  
That the Local Government Borrowing Bill be now read a second time 
. This bill is to facilitate the establishment and operation of a new company the New Zealand Local Government Funding Agency. The funding agency will issue local government bonds to investors and on-lend the funds raised to participating local authorities to meet their funding needs. This pooled approach will assist local authorities to borrow funds at lower interest rates than they can now achieve. Local Government New Zealand has estimated that the funding agency will save local government in the order of $25 million a year. The operation of the agency will also strengthen New Zealand’s capital markets by providing a new high-quality investment option. 
Unsurprisingly the bill has a high level of support across the local government sector. I have been advised that 35 local authorities have indicated that they intend to participate as shareholders in the funding agency and a further 14 have indicated that they will participate in the scheme as guaranteeing borrowers. There is strong support for the proposal and very little opposition to it. The Local Government and Environment Committee received only six submissions on the bill with five supporting it and one opposing it. 
Part 1 of the bill removes a number of regulatory impediments to the operation of the funding agency. Many provisions are designed to ensure that the agency obtains a high credit rating which will be crucial to the success of the agency. The bill specifically states that the Crown does not guarantee the obligations of the funding agency. However it gives the Minister of Finance the authority to lend money to the agency in exceptional circumstances. This authority expires after 10 years. 
Part 2 authorises the Auckland Council to borrow in foreign currencies. This overrides the provision in the Local Government Act 2002 that prohibits local authorities from borrowing in foreign currencies. To maintain a high credit rating the funding agency will not be able to lend disproportionately to one council. Therefore because of its significant borrowing requirements the Auckland Council will need to continue some borrowing outside the agency. Part 2 will effectively give the Auckland Council the same access to foreign currency markets as other councils will have indirectly through the funding agency. In its submission on the bill the Auckland Council confirmed its intention to fully hedge its foreign currency exposure in order to avoid any additional risk to ratepayers. It is intended that Part 1 and Part 2 will be divided into separate bills at the Committee of the whole House stage. 
The Local Government and Environment Committee has unanimously recommended that the bill be passed with technical amendments to two clauses. The first amendment is to clause 2 the commencement clause. The Regulations Review Committee raised an issue with the current open-ended commencement for Part 1. The select committee has proposed an alternative that would provide a specified commencement date for Part 1 while still allowing sufficient time for the funding agency to be incorporated before Part 1 comes into force. 
The second amendment is to clause 9. This clause overrides sections 62 and 63 of the Local Government Act 2002 to provide that while the funding agency is a council-controlled trading organisation—a CCTO—local authorities can guarantee the obligations of the agency or lend money to the agency on favourable terms. The recommended amendment clarifies that any transaction entered into under clause 9 would continue even if the agency ceased to be a council-controlled trading organisation. This will make it clear to potential investors that key transactions including guarantees cannot be overturned if the funding agency ceases to be a council-controlled trading organisation. 
I especially thank the Local Government and Environment Committee for its excellent work on this bill. I thank each of the members and the outstanding chair Mr Chris Auchinvole who has done an outstanding job in his chairmanship. I commend this bill to the House.