Local Govt Funding Agency

Local Govt Funding Agency

The South Taranaki District Council is seeking public feedback on a proposal to join the newly established Local Government Funding Agency (LGFA).

Chief Executive, Craig Stevenson, says the Council is proposing to join the LGFA because it will enable significant savings to be made on the cost of its debt.

“The LGFA is being established by a group of Councils and Central Government so we can use our collective bargaining power to borrow money at lower interest margins than we would otherwise be able to do on our own,” says Mr Stevenson.

The Government will have a maximum shareholding of 20% with Councils holding the remaining shares. The LGFA will be recognised in legislation andwill be categorised as a Council Controlled Trading Organisation.

“Due to its size, economies of scale, higher credit rating and regulatory advantage we expect the LGFA will be able to borrow money at a low enough rate, lower than what a Council could negotiate on its own, for the LGFA Scheme to be attractive,” he says.

Mr Stevenson says the LGFA will also provide Councils with greater certainty of access to funding, and more favorable terms and conditions, including access to longer funding terms. All Councils will be able to borrow from the LGFA, but different benefits will apply depending on a Council’s level of participation.

“Financial modeling done by the Council indicates that interest savings of 0.5% may be available by joining the LGFA as a Principal Shareholding Local Authority (PSLA),” says Mr Stevenson. “The Council currently has borrowings of approximately $100 million which means savings could potentially be around $500,000 per annum. That is a considerable saving for our ratepayers,” he says.

In the proposal released for public consultation the Council is considering four options but has signaled that it prefers the option of joining the LGFA Scheme as a Principal Shareholding Local Authority (PSLA).

“To be a PSLA the Council is required to invest $100,000 capital in the LGFA and also to be a guarantor of the LGFA, says Mr Stevenson. “But we believe the savings made in getting cheaper loans will substantially outweigh the costs associated with joining the LGFA.”

To join up to the LGFA the Council needs to amend its Investment and Liability Management Policies, and is seeking feedback on that amendmentas part of the consultation.

Full and Summary copies of the Council’s proposal to join the LGFA can be found at any LibraryPlus centre or the Council’s administration building on Albion Street in Hawera, by phoning 0800 111 323, or by clicking on the links below:

Proposal to join the LGFA (Full copy)

Proposal to join the LGFA (Summary copy)

 Audit Opinion (web version)

The consultation period runs from 16 August to 16 September 2011 and a special hearing will be held on Friday 23 September for submitters. The Council will make its final decision by 5 October 2011.