Move to alter LGFA debt covenants to provide more choices for councils welcomed
6 May 2020
LGFA to lift the quantum of its debt covenants to provide more choices and capacity for member councils to raise more debt.
A proposal by the Local Government Funding Agency (LGFA) to lift the quantum of its debt covenants to provide more choices and capacity for member councils to raise more debt, should they choose to do so, is welcomed by LGNZ who say that it will give councils and ratepayers more options for boosting the economic recovery of their regions.
The proposal would allow rated councils with a long-term credit rating of 'A' equivalent or higher to reach a net debt to revenue ratio of 300% by 2022, which would then reduce over time to 280% by 30 June 2026.
This proposal would give councils greater headroom to co-invest in ‘shovel-ready’ projects with the Government and Crown Infrastructure Partners, as well as assist ratepayers and business owners with greater flexibility around rates.
“Even before COVID there was a lot of discussion about raising debt caps. In many cases growth councils in particular have the ability to service more debt, that can be used to develop vital infrastructure needed to tackle our housing and transport challenges,” commented LGNZ President Dave Cull.
“Councils primarily invest in long-term infrastructure, and borrowing through the LGFA has never been cheaper, so we welcome these proposed changes.”
“This is not to say rated LGFA member councils will immediately go and take on more debt – it’s for each rated council to decide on, considering that more capital expenditure will result generally in greater opex costs.”
“As we and others have pointed out, the funding and financing framework for local government is flawed because although councils own about half of the infrastructure in New Zealand, they only receive 10 per cent of all taxation revenue to support that infrastructure.”
“So while we welcome the proposal of the LGFA because we’re in exceptional times, the long-term solution to the deeper issue is to broaden local government’s revenue base and so address the funding imbalance between local and central government.”