Council to join Funding Agency
Wednesday, October 12, 2011
The South Taranaki District Council decided to join the newly established Local Government Funding Agency (LGFA) as a Principal Shareholding Local Authority (PSLA)at today’s Council meeting.
Chief Executive, Craig Stevenson, says the Council decided to join the LGFA because it will enable significant savings to be made on the cost of borrowing money and servicing 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.
“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.”
Currently 49 local authorities have indicated they intend to participate in the LGFA as borrowers and/or guarantors and around 35 have indicated they wish to participate as shareholders.
The Local Government Borrowing Bill passed its third reading in Parliament on Wednesday 14 September 2011.