Council votes to change its borrowing status with agency

The Clutha District Council votes to become a Local Government Funding Agency guaranteeing...
The Clutha District Council votes to become a Local Government Funding Agency guaranteeing borrower at its meeting in Balclutha on Thursday. PHOTO: RICHARD DAVISON
The Clutha District Council has voted to change its borrower status with the Local Government Funding Agency (LGFA).

On Thursday, councillors voted for the council to become a guaranteeing member of the funding scheme, having previously opted for non-guaranteeing status at a meeting in December 2018.

The LGFA was set up in 2012 to enable local authorities to borrow at lower-than-normal interest rates, and comprises 65 councils.

Of those, 53 are guarantors and 12 are non-guarantors.

Total lending to the sector by the agency stood at $10.6billion as at December 16.

Agency regulations oblige councils borrowing more than $20million to become guarantors.

During Thursday’s meeting, council chief executive Steve Hill said Clutha’s spending on infrastructure projects was likely to exceed $26million by 2022.

Although the council had investments of about $28million at present, the lower rate of borrowing through LGFA relative to the interest projected on those investments meant external borrowing was more cost effective.

Agency guarantors also received a preferential interest rate drop of 0.1%, making guarantor status more attractive.

Councillors reacted cautiously to the proposal, and questioned LGFA chief executive Mark Butcher, who presented to the meeting.

Concerns were raised by Mayor Bryan Cadogan and others regarding increased exposure to risk and liability in becoming a guarantor.

Mr Butcher moved to reassure the council, saying a "natural disaster" was the only significant risk posed to members, given the regulatory framework surrounding the agency and its activities.

Members could also revert to non-guaranteeing status in future, but only at the maturation of the longest-term bond at the time of joining (at present, 2033).

Councillors John Herbert, Bruce Vollweiler, Alison Ludemann and Gaynor Finch all spoke in favour of the change.

Cr Herbert said initially he had been happy for the council to remain as a non-guarantor, but had changed his mind.

"If we want to keep our capital works programme going as planned, we’re going to become a guarantor."

Cr Finch said many ratepayers believed the council already borrowed externally.

"I think it will astonish many that this is our first step into borrowing. It’s one I support."

Cr Carol Sutherland lodged the only vote against the motion.

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