Wagner Nicky: Local Government Borrowing Bill — First Reading 
Wagner Nicky: Local Government Borrowing Bill — First Reading 
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NICKY WAGNER (National) 
: 
 I rise to support the Local Government Borrowing Bill at its first reading. This bill is all about local councils coordinating their borrowing needs to obtain economies of scale so that local government borrowing can be more cost-effective. New Zealanders are very aware of the capital demands on local government and finding a more efficient cheaper way to manage borrowing will have benefits for ratepayers. Councils are keen to realise in the form of cheaper borrowing rates the benefit of the very low credit risk they are able to offer. However it has proved difficult for the numerous local authorities to coordinate effectively. The market for local authority debt is fragmented with over 80 issuers and several hundred—mainly small—issues of debt. Coordination will improve the overall market for local authorities make it more efficient for both users and investors and improve the New Zealand capital market generally. 
The bill facilitates the operation of the New Zealand Local Government Funding Agency and that funding agency will issue debt on behalf of all participating local authorities. The agency because it merely coordinates the councils and does what they could do individually will have the same regulatory environment as all local authorities. It will enable local authorities to combine their resources and purchasing power to achieve the necessary economies of scale and will provide for more cost-effective borrowing than is possible at present. The agency is expected to achieve a credit rating scale and specialisation that will yield significant savings for local authorities. 
The forecast borrowing needs of local authorities is large. Total borrowings could exceed $10 billion within 5 years from a current level of about $6 billion. It is estimated that through the Local Government Funding Agency reductions in cost could be between 50 and 70 basis points which would reduce the interest bill that local authorities pay by up to $25 million annually thus reducing the cost to local ratepayers. Spread across the country that may not appear to be a huge sum but the savings are equivalent to over 13 percent of the average annual rates increase observed in the past decade. Cheaper finance will benefit local authorities by enabling them to spend more on other priorities and less on servicing debt. It will also decrease the pressure for rate rises. 
Another benefit of the New Zealand Local Government Funding Agency is that it will develop a deeper and more liquid market in standardised local authority bonds. That will benefit both wholesale and retail investors. 
At least nine of the large local authorities are committed to supporting the agency. Together those local authorities represent 54 percent of the rate income of New Zealand local government in 2009. However a much wider group of local authorities are interested in the concept and have given it broad support. 
The bill also exempts the Auckland Council from the current prohibition on local authorities borrowing in foreign currencies. The Auckland Council is five times larger than any other council and has a borrowing programme of sufficient size to justify offshore placements and the freedom to borrow in foreign currencies. This bill will bring savings to Auckland. 
The bill has the ability to cut costs for local authorities and ratepayers. It is about doing business smarter and it is a real positive. I commend the bill to the House.