A new Local Government Funding Agency (LGFA) is about to be formed in New Zealand

New Zealand is now in the process of forming a new local government funding agency. An Information Memorandum states the aim of the new agency as …”to consolidate a large proportion of the borrowings of the local authority sector to provide another long term debt funding alternative, and to achieve significant interest cost savings to participating local authorities.” It continues, ”One lesson learnt from the global financial crises was the importance of having access to a wide range of long term debt providers.

Mark Butcher, CFA and Treasurer, 
Auckland Council, describes the recent developments of this exciting project in a mail-conversation with me:

”An important milestone in the development of the LGFA was achieved last night (Sept 6, 2011) with the second reading of the proposed legislation in Parliament. The passing of the legislation will allow the establishment and incorporation of the LGFA and the third and final reading should occur within the next week. As a result the LGFA will be incorporated by November and hopefully undertaking it’s first issuance by the end of this year.

As you can see with the attached presentation, the LGFA is modelled very closely on the Kommuninvest example.

The key features of the LGFA that are different from the examples in the Northern hemisphere are

  • The New Zealand Government will become a 20% shareholder – the remaining 80% will be held by local authorities (initially 9 but expected to increase to 35 by next year)
  • The outsourcing of all operational aspects to the Debt Management Office (DMO) of the New Zealand Treasury
  • The provision of liquidity standby lines from the New Zealand Treasury
  • An expectation that the LGFA will achieve a comparable credit rating to that of the New Zealand Government (AAA domestic and AA+ foreign currency)
  • Expectations of widespread support from the Local Authority sector in New Zealand – currently there are 75 Local Authorities, of which 49 are expected to become borrowers/ guarantors and we expect 35 to become shareholders. The balance of the local authorities in New Zealand have either no debt or a very small debt requirement
  • Expectations are for the LGFA to deliver benefits of up to 0.40% p.a to the sector through lower borrowing costs – the sector is currently $6 billion in size and expected to grow to $11 billion within 6 years”

It is encouraging to see the LGFA-idea spreading and I wish the New Zealand local authorities all the best in their efforts to get more cost-efficient funding for local investments.

Lars M Andersson

Some facts about New Zealand:

Population: close to 4,5 million

New Zealand is divided into 13 cities, 53 districts, 11 non-unitary regions and 5 unitary regions (these combine the regional and the territorial authority level in one).

The largest city by population is Auckland (1,4 m) followed by Christchurch and Wellington (both around 400 000).



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