Dalziel Lianne: Securities (Local Authority Exemption) Amendment Bill — Second Reading 
Dalziel Lianne: Securities (Local Authority Exemption) Amendment Bill — Second Reading 
[Volume:646;Page:15084] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Securities (Local Authority Exemption) Amendment Bill be now read a second time 
. This bill provides for the inclusion of a local authorities’ exemption in section 5 of the Securities Act 1978. The exemption allows local authorities to meet reduced disclosure requirements when offering debt securities to the public. Although they will still have to produce an investment statement containing certain product and provider information they will be exempt from producing a full prospectus signed by all councillors of the local authority as they have had to do for a number of years. 
The disclosure requirement under the Local Government Act is in many cases a double-up of disclosure requirements under the Securities Act. This places unnecessary compliance costs on local authorities. The bill intends to reduce these costs without greatly affecting the benefits that disclosure provides to investors. The exemption means that in order to ensure investors receive full accurate and timely disclosure information more reliance will be placed on the information disclosure requirements under the Local Government Act. This reliance caused some concern for the Commerce Committee. Members felt that although initial disclosure information was addressed by the exemption the provision of ongoing and continuous disclosure was not. As a consequence clause 5 inserts an additional subsection (3B) in section 5(1) of the principal Act to address those concerns. 
This subsection deals with a local authority making information available to the public about its financial position. It requires that a local authority offering a debt security must provide financial statements to potential investors on request and free of charge. Also its investment statement must refer to its most recent audited annual financial statements and to interim financial statements where the date of allotment of the debt securities is more that 9 months after the last balance date. 
The subsection also requires that a local authority must include in its investment statement that the debt securities being offered are not guaranteed by the Crown unless of course they are being guaranteed under the Public Finance Act 1989. This would normally appear in the prospectus but without a prospectus it must go in the investment statement. 
Access to this information allows investors to make informed decisions on the potential risks and returns of their investment choices. I am confident that this additional change will alleviate any concerns about the disclosure requirements of the Local Government Act and will also address the Green Party’s desire to see more detail in the investment statement and for other documents to be clearly identified. 
The addition of subsections (3C) and (3D) in section 5(1) are technical requirements supporting the subsection (3B) amendment. Together these amendments should reassure the National Party that the bill does not create different standards of reporting for issuers of securities to the public depending on the model of the governing body. What they do is ensure that there is no reduction in the financial reporting stringency required of local authorities compared with companies. 
Further this bill is strongly supported by the conclusions in David Shand’s report which is an independent inquiry into local government rates published around the time of the first reading of this bill. One of the key recommendations made in the report is that in order to spread costs over generations councils should make greater use of borrowing for long-term capital projects specifically its dates. The report states: “There are very good reasons for local authorities to make greater use of debt to finance long-life investments. Doing so may advance the date at which the infrastructure can be provided and spreads the capital cost more equitably across the generations that benefit from that service. Moreover central and local authorities are generally low risk debtors so they enjoy low interest rates in debt markets.” 
Interestingly the comment made by Sir Basil Morrison president of Local Government New Zealand that “… the ability to once again issue debt securities will save councils millions of dollars in interest costs.” was reinforced by submissions during the select committee process. These highlighted that by providing another avenue for accessing capital the bill will lead to more competitive pricing for local authorities’ debt and consequently create more accurate pricing in the market for debt products. 
Another area of concern for the committee was the issue of criminal liability. Some submitters considered that elected members of local authorities should be exempt from criminal liability for breaches of the Securities Act as Ministers of the Crown are. However this was rejected by the committee as councillors and Ministers of the Crown have different obligations regarding accountability. In comparison to local authorities the Crown has to fulfil significantly more reporting and accountability requirements and faces many more checks and balances. It is my firm belief that retaining the burden of liability will further ensure the robustness and transparency of the process undertaken by local authorities when issuing debt securities to the public. 
I welcome the availability of local authorities’ debt securities on the retail market. It will provide a valuable source of alternative funding for infrastructure assets. It will also provide investors with options to expand their investment portfolios which is a positive move for the investment market. I am confident that this bill including the changes made to provide for the availability of current financial information will achieve the objectives of the disclosure regime of the Securities Act as well as those of the Local Government Act. 
Finally I would like to thank members of the Commerce Committee for their work on considering this bill. They did a very good job. I would also like to acknowledge the contributions of those who provided submissions on the bill. I commend the bill to the House.