Partial shift of loans proposed

Dave Tombs
Dave Tombs
The Dunedin City Council should consider a partial switch to the Local Government Funding Agency, because it could be millions of dollars better off if it did, an independent review has suggested.

The report by Bancorp New Zealand, released to the Otago Daily Times yesterday, pointed to $1.8million in ''implied savings'' if the council had switched to the LGFA in 2016.

It could also benefit by a further $3.84million in savings over the next decade, by using the LGFA to refinance existing debt and source new loans, the report found.

Bancorp recommended the council join the LGFA and use it as a source of funds for term loans beyond 12 months, where savings would be realised.

However, it also recommended the council continue with existing arrangements - using Dunedin City Treasury Ltd to source loans for the group - in other cases, where savings were greater and to diversify its risk.

That was considered ''much more important'' than the potential savings that could be realised, it said.

''The use of multiple funding sources demonstrates prudent funding risk management and the ongoing diversification of funding sources.''

Council finance and commercial general manager Dave Tombs stressed the estimated savings could not be considered ''in isolation'', as ''a myriad of factors'' determined the council's funding costs.

The savings were ''just noise'' in the big picture, given the size of council debt overall, and its existing arrangements demonstrating ''market best practice''.

The council would continue to operate a treasury model, based around its company, Dunedin City Treasury Ltd, sourcing funds for the rest of the group, Mr Tombs said.

But it was also seeking more information about joining the LGFA, as an addition to existing arrangements, including what any change would mean for council-owned companies wanting to borrow, he said.

The results of the Bancorp report were considered during the non-public part of a council meeting last month, when councillors voted to support the application to join the agency.

The Bancorp report was commissioned last July, shortly before former city councillor Hilary Calvert voiced concern about the council's earlier decision to overlook the LGFA.

The agency was established by the Government to source large-scale loans at lower cost for councils. The 58 member councils, include Auckland, Wellington and Christchurch and the Queenstown Lakes and Gore district councils.

DCC staff had rejected the idea in 2011 amid concerns about collective liability for each others' debts and a restriction preventing council-owned companies from borrowing from the LGFA.

The Bancorp report said the DCC's existing arrangements delivered ''strong risk-management outcomes'', but the LGFA would deliver lower borrowing costs and other advantages.

There were ''risks'' associated with joining the LGFA, by guaranteeing other councils' debts, but those were ''substantially mitigated'' by the agency's structure, processes and financing, it said.

The ability to lend directly to council-owned companies was also being addressed and was expected to be in place by July.

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