Dalziel Lianne: Securities (Local Authority Exemption) Amendment Bill — First Reading 
Dalziel Lianne: Securities (Local Authority Exemption) Amendment Bill — First Reading 
[Volume:642;Page:11799] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Securities (Local Authority Exemption) Amendment Bill be now read a first time. 
 I intend that this bill be referred to the Commerce Committee at the appropriate time. The bill provides for the inclusion of an exemption for local authorities from section 5 of the Securities Act 1978. The exemption will again allow local authorities to meet reduced disclosure requirements when offering debt securities to the public. Local authorities will have to produce an investment statement with a certificate of compliance signed by two councillors rather than an investment statement and a prospectus signed off by all councillors of the local authority. Regulation 17 of the Securities Regulations provides assurance that the information disclosed in an investment statement is an adequate and accurate account of the specific issue on offer. However full accountability for the funding decision and associated process involved with making an offer to the public rests with the local authority as a whole. A similar disclosure exemption for local authorities was repealed in 1996 with effect from 1998—who was in Government then? I cannot remember—in order to make local authorities subject to the same obligations as companies and other corporate entities. 
This theoretical level playing field did not take into account differences in the respective legal frameworks of the organisations and that had the effect of seeing local authorities withdraw from the public debt securities market. Only one local authority—Auckland City Council—has issued debt securities to the public since that time. That has occurred because the costs associated with preparing a prospectus can be disproportionate to the amount being sought and therefore prohibitive and because the signature and liabilities provisions do not suit the legal framework of a local authority where an elected member is not liable at law for decisions and actions he or she does not support. 
The principle of collective responsibility under which company directors tend to operate simply does not exist within local government. Nor did the theoretical level playing field approach take into account the significant differences in the reporting regimes of local authorities and corporate entities. Consideration of the level of disclosure that local authorities currently operate under with regard to their finances plans and prospects shows that the issuer-related information required in the prospectus is readily available in the public arena. The reality is that the status quo imposes unnecessary compliance costs on local government—I am sure the Opposition will want to remove unnecessary compliance costs on local government—and effectively prevents it from capital raising in a cost-effective manner. 
The broad policy objective of the Securities Act is to promote investor confidence in the capital markets. The information disclosure regime in the Act seeks to achieve that policy objective by ensuring that investors receive from issuers full accurate and timely disclosure of information material to their investment decisions. The disclosure should include information covering the specific securities product being offered the current position and future prospects of the provider and relevant information relating to the industry involved. This allows investors to make an informed decision on the potential risks and returns of their investment choices and to take responsibility for their investment decisions. 
I recognise that the disclosure regime imposes costs on issuers. I want to ensure that these costs are imposed only if they are outweighed by the benefits the disclosure regime provides to investors. The significant disclosure currently required under the Local Government Act means that concurrent compliance with the full disclosure regime of the Securities Act produces duplication of information and added costs. Local authorities through their statutory obligations under the Local Government Act effectively operate in a manner that achieves the policy objectives of the Securities Act as stated above. They are public bodies that cannot be wound up for default and have a discretionary power to support their financial commitments through a rates-as-security provision. An issuing authority has the discretionary power to charge a rate or rates revenue as security for an issue of securities to the public or to allow market forces to determine the risk premium applicable to the particular offer. The availability of local authorities debt securities on the retail market will provide a viable alternative for funding infrastructure assets and for investors to diversify their portfolios—a pretty compelling reason I would think at this moment in time. 
Local authority long-term plans show that local authorities are undertaking some $30.8 billion in capital works—network or community infrastructure—in the 10 years to June 2016 and that due to potential front-loading 50 percent of this amount could be required by 2009. Infrastructure assets which are the primary recipient of local authorities funding are long-term investments and borrowing helps spread the cost over the life of the asset. Financial decisions by local authorities raise important issues of equity including intergenerational equity and affordability. This is particularly the case when they are making funding decisions. This bill will provide a further dimension to those funding decisions. It will reduce compliance costs by easing the process for local authorities to offer securities to the public while expanding and diversifying the investment options available to retail investors. 
Local Government New Zealand welcomed the announcement of the Government’s intention to introduce this bill. Its president Basil Morrison said: “We are pleased that the proposed change will make it easier for councils to raise some funds from the public for major projects and will hopefully take some of the pressure off rates by allowing us to better match our borrowing strategies with the life of our assets.” He went on to say: “Given the size of the capital works programme outlined in councils’ 10-year financial plans the ability to once again issue debt securities will save councils millions of dollars in interest costs.” 
The bill clearly has the support of the local government sector. I am very pleased that it is also supported by a number of parties in this House. I commend the bill to the House.