Nash Stuart: Local Government Borrowing Bill — In Committee 
Nash Stuart: Local Government Borrowing Bill — In Committee 
[Volume:675;Page:21169] 
STUART NASH (Labour) 
: 
 I will take a short call. I have some ever so slight concerns with regard to the funding agency being exempt from Part 5D of the Reserve Bank of New Zealand Act. My concerns are based on this: Part 5D of the Act sets out a whole lot of requirements that financial institutions must take into account: things like for example capital ratios credit ratings—which the Minister has talked about and the agency will have to have some sort of credit rating because no one will invest in it if it does not have a credit rating—liquidity ratios minimum capital requirements and limits on related party exposures. Maybe the limited party exposure provision is the reason why the agency is exempt. One of the major things that I think is important about Part 5(D) of the Reserve Bank of New Zealand Act is that it requires financial institutions to have a risk management strategy. I know that that is part of good financial management anyway and I am assuming that any sort of funding agency will have a risk management strategy in place but this part actually takes that off the table and does not make it a requirement. 
The other thing I would like to know—and obviously this agency is not Government-backed but backed by local authorities—is what the risk is of a local authority not being able to service that debt. How will it be passed on to the rest of the local authorities? I mentioned the Hastings District Council before. It has about $65 million worth of debt; I am not saying it has any liquidity problems at all. But what happens if one of these local authorities cannot meet its obligations? Does that mean that the rest of the local authorities will actually have to pick up that and carry that risk? When I read this bill I initially thought that this would be low risk but low return and that is fine. As Pete Hodgson talked about and as I mentioned before we need depth in our capital markets. But when I look at the bill I think that maybe the risk is not as low as I initially thought—firstly because of the exemption of Part 5D and secondly because some of these councils have quite a bit of debt. How will that be apportioned? How will that be allocated? 
Another thing I will talk about—Pete Hodgson mentioned this and I talked about it when I first spoke on this bill—is the ability of New Zealanders to invest through the bond market in infrastructure assets. Pete Hodgson talked about the university sector for example. I worked at the Auckland University of Technology as its director of strategic development. Pete Hodgson talked about this institution having quite a high debt level. When I was there we talked about how great it would be if we could actually issue bonds. We cannot do that under law. In fact no Government agencies can issue bonds under law at the moment but I think maybe that this bill is the start of this whole market being opened up and the depth it could possibly provide is fantastic. It is fantastic. I think Canterbury’s bond offer—the Westpac one—fell over did it not? Well having this sort of bill in place could provide so many more options for investors to invest in key infrastructure assets without their having to go to the sharemarket and without our having to sell our State-owned assets. This is a good idea but I would like the Minister just to comment on it in relation to the liability carried by that fund for those that default. This basically relates to clause 10 “Additional requirements to be specified in local authority’s financial strategy”. 
The other thing I was a little bit mystified about—members could correct me because I did not sit on the select committee; it is a pretty easy question—is clause 9 “Exemption from prohibitions and restrictions applying to council-controlled trading organisations”. Clause 9(1) states: “This section applies only if the Funding Agency is also a council-controlled trading organisation.” Does that mean there is a possibility that this funding agency will be a council-controlled funding agency or not? There is a little bit of confusion here. I read the bill and I think there will be only one funding agency. Is there a possibility that there will be another funding agency? Will there be two: one that manages Auckland bond issues and one that does the rest of the country’s bond issues? I am not too sure. Perhaps the Minister can just clarify that for me. Clause 9(2) states: “a local authority may give a guarantee an indemnity or a security in respect of the performance of any obligation by the Funding Agency.” I would have thought that this would not apply just to a council-controlled agency; I would have thought that if any council or local authority is raising money through a bond issue then it will have to provide some sort of security. Again I wonder whether this exemption from—