How come I became engaged in questions concerning local finance? Let us turn the clock back to 1975. After graduating from university I got a job in a small local authority in Sweden as the head of finance. My responsibility was, besides budgeting, accounting, reporting, also to keep contact with local private companies, deal with questions of municipal housing and, of course, the debt management. A broad field of responsibilities in a small municipality, and a perfect occasion to learn the nuts and bolts of local public administration.
After some years I moved to a regional centre to become the finance director there. This was at the time (the early 1980s) when the money market evolved rapidly in Sweden. I used this market to invest the city’s liquidity surplus and from time to time borrow short term. But of course for all cities with investment programmes long-term borrowing is the main interest. I struggled to negotiate reasonable interest rate, but I soon found out that the banks were not really interested in competing with each other. It dawned on me that I was in front of something akin to an oligopoly, where all banks offered a similarly high interest rates. The high rates did not at all reflect on the good creditworthiness of Swedish local authorities.
One morning in January 1986, while commuting by train, I started to write a business plan outlining how local authorities could take the matter into their own hands. The idea was a cooperation scheme where local government would pool their borrowing through a vehicle of their own. It took maybe three weeks to complete a draft of the plan, writing every morning and evening on the train. It was one day finally ready to be presented to the local politicians. Within a year after this moment the agency of Kommuninvest was created. I was appointed to be its first CEO and remained in this position for fifteen years, until 2001.
The agency was established as a regional entity owned by the local authorities in the region of Örebro, located in the middle of the country, west of the capital Stockholm. We did not have to wait long until local governments from other parts of Sweden knocked on our door and asked to join, but the real expansion of the activities of the agency came in 1992 when Sweden was hit by a financial crisis. This crisis led most local authorities to substantial problems financing their investments, but the authorities in Kommuninvest could use their collective power. It was decided, at this point, to rearrange Kommuninvest into a national agency were all Swedish local authorities could seek membership if they met the criteria of creditworthiness.
This short narrative might suggest that the step from idea to reality was easy. The reality was far from it. Several obstacles had to be negotiated during the build-up phase. As expected, the banks fought us with every weapon they could find. The agency was, after all, risking destroying their lucrative municipal loan market. Later on we got to know that the banks even held meetings where they all were present and the agenda was: how can we put an end to the new agency?
Another problem was the bewilderment of the civil servants at the finance supervisory authority and the Swedish Ministry of Finance. They had never heard of anything like this, and it disturbed their notions of how things ‘were normally done’. My suspicions is also that the initial hostility from the civil servants also arouse from the preconceived notion that local authorities could not be trusted with anything as serious as this. It took us three years and lots of hard work and negotiations to get the legal status we needed to work properly. This decision was taken by the Minister of Finance against the advice of several senior civil servants.
The final challenge, and this was the most fun part, was to put together all the different routines, develop the organisation, recruit members, present the agency to investors and so on. In other words, we had to develop all things that are necessary to get the agency to work in an efficient way. After a few years we found out that similar agencies existed for a long time in Norway and Denmark, and we started to cooperate to learn from each other. When the Finnish agency that was created in 1990 they also joined this cooperation.
Today, Kommuninvest is the market leader for municipal credits in Sweden. More than 90 percent of all regional and local authorities are members of the agency. Total lending has, in the last interim report (June 2016) reached 269 billion Swedish kronor corresponding to 41 billion US-dollars. Kommuninvest’s funding is carried out worldwide, backed with AAA credit ratings from both S&P and Moody’s.
During my time as the CEO of Kommuninvest I was often invited to give speeches at locations in many parts of the world. After I left the agency I have continued to work with questions related to local authority finance and management both in Sweden and internationally. I have been advising both central and local government in a number of countries and it seems like there now is a massive interest for financial cooperation between local authorities in many countries.
Lars M. Andersson
Member of the Supervisory Board and President of the Strategy Committee of Agence France Locale and member of the Board of the Fond mondial pour le développement des villes (FMDV) and a global advisor for several governments and institutions