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Becoming a member of an organisation that funds local governments is a “no-brainer”, an Otago regional councillor says.
The Otago Regional Council is set to join the Local Government Funding Agency, which will enable it to borrow money at a lower interest rate.
The decision was made during yesterday’s extra full-council meeting in a bid to use external debt to repay the council’s reserve, provide a cheaper source of funding and improve cash management.
The council’s draft long-term plan 2021-31 proposes externally borrowing $25million in the first five years of the plan, until June 2026, which would then reduce to $15million across the next five years, until June 2031.
The agency was established in 2011 by a group of New Zealand local authorities and the Crown and, as of May, had lent $11.9billion to local authorities and raised $13.5billion.
Of the 72 member councils to date, 67 are borrowers, 63 are guarantors and 30 are shareholders.
There are 78 local, regional and unitary councils in New Zealand.
A report from council staff to councillors yesterday said the council, currently, had no external debt.
It did, however, fund some activities — mainly flood and drainage and transport — through internal debt, provided by other council reserves.
In recent years, the council’s internal debt had increased and its general reserves were being used to fund increasing levels of both budgeted and unforeseen spending.
Using external debt would enable reserves to be repaid, provide a cheaper source of funding and improve cash management, staff said.
Councillors agreed, deciding to approve joining the agency as a guaranteeing borrower, subject to consultation.
Being a guarantor means the council will not be subject to the restriction of borrowing a maximum of $20million, and will also receive pricing that is 0.10% lower than non-guarantors.
Cr Gary Kelliher felt it was a good move forward for the council.
“I’m very much in support. It is a no-brainer,” he said.
Cr Hilary Calvert agreed and said joining the agency would give the council more flexibility, accountability and transparency.