Twyford Phil: Local Government Borrowing Bill — In Committee 
Twyford Phil: Local Government Borrowing Bill — In Committee 
[Volume:675;Page:21172] 
PHIL TWYFORD (Labour) 
: 
 I thank the Minister of Local Government for making that very interesting point about the extra discipline that will be brought to bear on smaller councils that seek to borrow funds through the new agency. One of the reasons that I think this bill is so worthy of support is that it is another way that small councils—particularly rural and provincial councils which have been really struggling with the demands of investing in their local infrastructure—can by tapping into the collective get the critical mass and the ability to make those investments. It is not unlike the approach to shared services that some councils have been successfully taking. It gives those smaller councils a pathway that avoids some of the difficulties associated with amalgamation. There is no doubt that a lot of those smaller rural councils are facing considerable pressure to amalgamate. As we know and as we have debated many times in this House bigger is not always better and there are real downsides in terms of representation—in terms of local voice and governance—particularly when smaller and dispersed communities are forced into bigger governance units. That I suppose is one of the big dilemmas in the local government sector today. The Local Government Borrowing Bill actually offers those councils one way out of that dilemma. 
I really appreciated the discussion earlier from Stuart Nash Iain Lees-Galloway and the Minister around clause 7 in Part 1 and the implications of Part 5D of the Reserve Bank of New Zealand Act not applying to the funding agency. I appreciated the Minister’s explanation of that. I suppose the underlying principle of this bill is that it is appropriate to treat the Local Government Funding Agency as if it were a local authority. That is the basis on which it is exempted from Part 5D. When Part 5D was put into the Reserve Bank of New Zealand Act originally local authorities were exempted from it. Clause 7 simply makes this bill consistent with that principle. 
I think it is worth noting the reasons why it is logical to treat the funding agency as if it were a local authority. There are a number of reasons and Local Government New Zealand summarised them quite nicely in its submission to the Local Government and Environment Committee. The agency’s function is to borrow money and lend that to local authorities. It is therefore merely a vehicle for local authorities to borrow collectively. The credit risk faced by lenders is of a similar nature to the credit risk that is faced by lenders to local authorities because the agency’s debtors will be local authorities themselves. The money that is being borrowed will be applied to exactly the same purposes as money borrowed directly by local authorities. To the extent that any funds are passed on to any entity that is not a local authority—that is in the form of dividends—that entity will be the Crown because the Crown is the only shareholder of the agency that is not a local authority. The Crown of course is also exempt from Part 5D of the Reserve Bank of New Zealand Act. 
The other related issue is the question of clause 9 which exempts the agency from prohibitions and restrictions that apply to council-controlled trading organisations. We heard at the select committee that it is arguable that the funding agency will fall within the definition of a council-controlled trading organisation under the Local Government Act 2002. If it does there are a couple of consequences. Firstly section 62 of the Local Government Act will apply to it which prohibits local authorities from guaranteeing the agency’s debt and secondly section 63 of the Local Government Act may prevent local authorities from lending subordinated debt to the funding agency. Clause 9 eliminates the risk that either—