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LGNZ optimistic new govt understands needs for broader funding options

Thursday 7th December 2017

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Local Government New Zealand is lobbying the new government for more funding options for councils as a lack of options is holding back community development.

"We are overwhelmingly reliant on property rates to fund growth infrastructure for new residents and visitors and it is just not sustainable at the moment. We need access to diverse funding tools with some urgency," LGNZ president David Cull said at a quarterly briefing in Wellington. 

Cull said councils nationwide are facing "considerable bills" to renew things such as wastewater plants and other infrastructure, in particular as the population continues to rise. New Zealand has faced record levels of immigration in recent years and councils "simply don't have the mechanisms to raise the debt they need or a sufficient rating base to pay for it," he said. 

Growth councils including Hamilton, Tauranga, Auckland and Queenstown are particularly challenged as their debt levels are constrained and mayors have called for additional funding mechanisms, he said.

"Hamilton is staring down the barrel of a 16 percent rate rise because of some of these challenges," he said, adding the problem is not just restricted to those councils. 

The new government, however, is reviewing local government costs and revenue "so at least they have acknowledged there is a need to examine this," he said. "We are looking forward to working with the government to develop new tools," he added. 

Regarding what types of mechanisms LGNZ would be keen on, Cull said local bodies are "very grateful" for things such as the tourism fund and a number of regional developments, but was "agnostic about what kind of funding it might be." 

All options "are up for grabs, but they need to be appropriate," he said.

Cull underscored any funding mechanism needs to be sustainable and ideally needs to "incentivise both the people we are taking the funding from and the council who is on the receiving end."

Water was a case in point following yesterday's series of recommendations on New Zealand's inadequate drinking water systems, with the report failing to address the issue of cost of the significant infrastructure that will be required for things like the universal treatment of water, he said. 

The report recommended an independent regulatory body, however, Cull said LGNZ favours a co-regulatory body.

"Local government owns the assets which are worth millions and therefore should have a part," he said. Any government decision around aggregating water bodies needs to be made in conjunction with the communities, given they own the assets, he said. 

Separately, the briefing included an update from the Local Government Funding Authority, which sells bonds on behalf of local authorities. In the year ended Sept. 30, the LGFA accounted for 95 percent of all council borrowing. Total LGFA lending to the sector stood at $8.3 billion as at Nov. 30, up $201 million from September. 

Of that, $294.7 million was short-term lending to 20 councils and $7.91 billion was long-term borrowing by 52 councils, it said. A significant portion of the lending is to councils refinancing other debt on better terms or pre-funding December 2017 loan maturities, said LGFA chair Craig Stobo. 

Overseas investors in LGFA bonds rose 4.8 percentage points in the past three months to 35.9 percent, just below banks an unchanged 35.6 percent holding and domestic institutional investors at 25.2 percent, down 5.5 percentage points.

Stobo said the offshore interest has increased steadily as investors who have invested in government bonds have seen yields decline and are looking for improved margins.

"We have offered them an opportunity to switch out of New Zealand government bonds into LGFA bonds with the same maturities, same coupons but a slightly higher yield." 


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