Financing infrastructure post bust

The Government’s appetite to sell state and local assets is growing faster than China’s economy in the boom years. The CCO structure in Auckland is reminiscent of the establishment of SOEs, which readied them for quick sale to mediocre bidders.

Throughout NZ local authorities are struggling to fund their infrastructure needs, and for some time PPPs and privatisation has been the only option for many councils. There is some hope in store for Local Governments.

Way back in 2008 Labour set up the Capital Markets Development Taskforce, which reported back to the Government in late 2009. They floated the concept of a local government bond bank.

Finally, two years after the the taskforce reported back, Parliament is due to debate the Local Government Borrowing Bill. The bill, if supported will establish the New Zealand Local Government Funding Agency. The Funding Agency will issue debt on behalf of all participating local authorities. If there is adequate support from participating councils, the Funding Agency would be expected to acheive the credit rating, scale and specialisation to yeild significant savings for the local authorities.

The Wellington City Council recently supported the concept, and agreed to initial funding of more than $1 million.

The Funding Agency will aid the growth of a liquid market in standardised local authority bonds, which will benefit retail and wholesale investors and be positive for NZ capital markets.

The Funding Agency is a win-win for local government and Kiwis looking for a new and safe way to save in this post finance company era. The only rationale I can find for the Government delaying this legislation for so long is that the Funding Agency will give communities a real stake in their local government again.

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