Kedgley Sue: Local Government Borrowing Bill — Second Reading 
Kedgley Sue: Local Government Borrowing Bill — Second Reading 
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SUE KEDGLEY (Green) 
: 
 The Green Party too will be supporting the Local Government Borrowing Bill but with a couple of misgivings. We agree with other speakers that it makes sense to set up the New Zealand Local Government Funding Agency which would enable it to become a large-scale borrower on behalf of local councils to borrow and to raise finance. Hopefully through amalgamating the borrowing the agency would get good credit rating terms and thereby lower interest rates and there would be savings. The projected savings do depend as the Minister of Local Government said on getting good credit ratings. The projected savings are from a Treasury regulatory impact statement and they are just that: they are projected in terms of reduced costs of capital. I wonder whether the Minister of Local Government could stop speaking right here; it is a little bit distracting. 
Hon Tau Henare 
: No you haven’t got much to say. 
SUE KEDGLEY 
: Thank you so much I say to Tau Henare. That is typical— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: I am on my feet. The member must be seated. I advise members to the right of the Speaker that it is a convention in this House that when you are sitting on the cross benches you do not interrupt because of the effect it has on the microphones. It is a courtesy to another member. 
SUE KEDGLEY 
: As I was saying we support the idea of the Local Government Funding Agency borrowing on behalf of councils. We are pleased to hear the Minister say that quite a number of councils—I think he mentioned 35 councils—will be signing up to this agency. We are pleased that it is a voluntary agency. There is no obligation to sign up so it is an opt-in. As previous speakers have said from our point of view we would far rather that councils funded infrastructure through borrowing long-term intergenerational borrowing rather than through privatising assets selling them off and public-private partnerships which this Government has supported over many years. 
We have already been told that more and more councils are borrowing particularly for large-scale infrastructure projects. It is unfortunate that councils are forced to fund public transport infrastructure projects. They have to contribute 50 percent to the funding of public transport infrastructure projects whereas State roads highways. and motorways are fully funded by the Government. So if we are to see a substantial investment in public transport in New Zealand which we strongly support then councils will have to raise funds. One of the ways of doing so is through the Local Government Funding Agency. It will enable councils to spread the intergenerational burden of funding those assets such as public transport. 
Others have not yet mentioned this but there are some risks involved in this venture. The participating authorities will be required to guarantee each others’ debts so they will be jointly liable for debt. If one of the councils were to default all would have to pay. We could say that it is pretty unlikely that a local council would default because it can always require ratepayers to fund its budget. However in the event of calamities such as earthquakes this becomes a realistic possibility especially when the Government—unfortunately this Government—will not agree to a Christchurch levy for example to contribute to the rebuilding of Christchurch. Thereby a considerable amount of the burden of rebuilding Christchurch will fall on Christchurch ratepayers. We can imagine—if God forbid such a scenario were ever to happen in the future—that there could be the prospect of a council defaulting. That would mean that all other participating authorities would be required to guarantee each other’s debts. I guess they go into this with their eyes open. 
All councils are supposed to fully consult if they join up to the Local Government Funding Agency. Through their financial statements they are supposed to make absolutely clear the liabilities they will incur in so doing. But I rather suspect that for many councils it will be all in the small print of a financial statement and that many people—many ratepayers—will not realise that their council has entered into substantial new liabilities through joining up to the Local Government Funding Agency. 
Another concern we have is that there will be a temptation particularly with the current pressures on councils once debt becomes more cost-effective—and it will do through this agency—for a council to borrow instead of increasing rates. So we could see more and more debt being incurred by councils and that we think would be a real risk. Already the projections are that local government debt will increase by two-thirds over the next 5 years to $10 billion but I would say there is a risk that this will increase and that more and more council funding of infrastructure will be by debt rather than by rates. It will be much more acceptable to not put up rates. I think that too is a risk. 
The other issue we are a bit concerned about is that the Auckland Council will now be able to borrow in foreign currency. It will get an exemption under the Local Government (Auckland Council) Act 2009 and it will be able to borrow in foreign currency. We need to remember that one of the main reasons for the Asian financial crisis of 1998 was that organisations and entities in Asia borrowed offshore to finance their domestic activities. When the exchange rates fell they were left insolvent and that precipitated the crisis. If we see the Auckland Council being encouraged to borrow offshore while our currency is strong we are a bit worried about what would happen if the currency falls. We think there are risks in encouraging the council to borrow in a foreign currency. 
Hon Craig Foss 
: They have to be hedged. 
SUE KEDGLEY 
: I know they have to be hedged but nevertheless there has been comment in this House today about the volatility of the sharemarket and of currencies at the moment. There are risks attendant to that and I think it is worth just pointing that out. 
In general we will support this bill because we see borrowing through this agency as a far preferable strategy than the privatisation of council assets or public-private partnerships. We note that certainly it was the intention of the Minister of Local Government who has been sitting here talking rather noisily in my ear for the entire speech to sell off as many local council assets as possible. It has been quite clear that he and the ACT Party wanted to privatise water assets. In fact it has put most of the $28 billion of the Auckland Council’s assets into council-owned companies. Obviously its intention is to try to get as much of that into private hands as possible. So that is clearly ACT’s strategy and that is why we believe that this provides some sort of alternative for local councils which are having to invest heavily in infrastructure particularly in things like public transport infrastructure. For this reason and with some misgivings we will support this bill.