Reduced borrowing costs could save council $10million a year

Savings to Auckland Council of up to $10 million a year in borrowing costs would result from the passing of the Local Government Borrowing Bill, members of the Future Vision Committee heard today.

The bill would allow a New Zealand Local Government Funding Agency (LGFA) to issue debt in New Zealand and offshore markets on behalf of local authorities and permit Auckland Council to borrow directly in foreign currencies.

Savings would mainly come from reduced interest costs and could be used to either finance other council projects or reduce pressure on rates.

The committee agreed to support the bill without amendment. The legislation is expected to pass by October 2011.

The council’s Strategy and Finance Committee has recommended that necessary changes to the council’s treasury management policy, allowing it to take advantage of the bill’s proposals, be adopted at the full Governing Body meeting on 28 June.

“To borrow in foreign currencies is important because Auckland Council’s size means not all our borrowings can be met through New Zealand debt issues or through the LGFA,” said Mayor Len Brown, chair of the Future Vision Committee.






He added: “It’s about having a range of options. We have some $800m worth of mum and dad investors and it’s important we continue to offer these opportunities but we’re also responsible to mum and dad ratepayers who expect us to be fiscally prudent in getting the best arrangements for our borrowings.”

The new council has inherited about $2.8 billion of debt. Due to the level of infrastructure needed in the region this is forecast to increase to about $4.5 billion at group level including Watercare by 2017, the Mayor said.

The council currently has over 11,000 investors in domestic debt issued to retail and institutional investors but this market is limited and pricing can be expensive.

Offshore investors are willing to lend to the New Zealand council sector but prefer not to lend in New Zealand currency.

“The council remains committed to funding in domestic capital markets and will utilise the LGFA scheme but also needs access to foreign currency borrowing,” the council says in its submission to the bill.