Proposal to join the Local Government Funding Agency

Share on Facebook Share on Twitter Share on Linkedin Email this link

We are proposing to join the New Zealand Local Government Funding Agency (LGFA) scheme. Joining the LGFA will improve our financial resilience, provide cost savings and provide increased certainty around funding availability.

We currently have no external borrowing or debt. Historically, we have preferred to borrow internally, by lending from our reserves to fund certain activities.

However, the Long-term Plan 2021-31 consultation document and our draft financial strategy, proposes to change this from year 1. While the total level of borrowing (internal and external combined) would remain at similar levels, by borrowing externally we will reduce interest costs for reserves that are in deficit and it allows cashflow to be managed more efficiently as total borrowing is forecast to exceed the level of our financial assets.

Our draft financial strategy is proposing to borrow $25 million for the first five years, decreasing by $2 million per year from 2025-26 down to $15 million in 2030-31. We can borrow at more favourable interest rates as a participant in the LGFA.

The LGFA is a Council-Controlled Organisation (CCO) operating under the Local Government Act 2002 and the Local Government Borrowing Act 2011. The LGFA specialises in financing the New Zealand local government sector, the primary purpose being to provide more efficient funding costs and diversified funding sources for New Zealand local authorities. The LGFA was established to raise debt on behalf of local authorities on terms that are more favourable to them than if they raised the debt directly. They are able to loan funds to councils across New Zealand and they have an S&P Global Ratings long-term rating of AA+.

More information can be found on the LGFA website.

The proposal and submission form are below.

This consultation closes at 5pm Friday 16 July.

We are proposing to join the New Zealand Local Government Funding Agency (LGFA) scheme. Joining the LGFA will improve our financial resilience, provide cost savings and provide increased certainty around funding availability.

We currently have no external borrowing or debt. Historically, we have preferred to borrow internally, by lending from our reserves to fund certain activities.

However, the Long-term Plan 2021-31 consultation document and our draft financial strategy, proposes to change this from year 1. While the total level of borrowing (internal and external combined) would remain at similar levels, by borrowing externally we will reduce interest costs for reserves that are in deficit and it allows cashflow to be managed more efficiently as total borrowing is forecast to exceed the level of our financial assets.

Our draft financial strategy is proposing to borrow $25 million for the first five years, decreasing by $2 million per year from 2025-26 down to $15 million in 2030-31. We can borrow at more favourable interest rates as a participant in the LGFA.

The LGFA is a Council-Controlled Organisation (CCO) operating under the Local Government Act 2002 and the Local Government Borrowing Act 2011. The LGFA specialises in financing the New Zealand local government sector, the primary purpose being to provide more efficient funding costs and diversified funding sources for New Zealand local authorities. The LGFA was established to raise debt on behalf of local authorities on terms that are more favourable to them than if they raised the debt directly. They are able to loan funds to councils across New Zealand and they have an S&P Global Ratings long-term rating of AA+.

More information can be found on the LGFA website.

The proposal and submission form are below.

This consultation closes at 5pm Friday 16 July.

Consultation has concluded
  • The proposal

    Share on Facebook Share on Twitter Share on Linkedin Email this link
    CLOSED: This discussion has concluded.


    We considered three potential funding options and we prefer: Option 1 - to join the LGFA as a guaranteeing member.

    We are proposing this option because it provides:

    • stronger financial resilience
    • financial benefits of lower finance costs

    Stronger Financial Resilience

    Building financial resilience is a key element of our Financial Strategy. There are three key parts to financial resilience: insurance, liquid assets and debt capacity.

    When the unplanned happens and we need to respond quickly having debt capacity addresses the most immediate need, realising liquid assets may not be the best option and may take longer and certainly insurance pay-outs will take much longer. By joining the LGFA we will have access to up to $130 million of debt based on revenue levels in year one of the Long-term Plan 2021-31.

    Financial Benefits of Lower Finance Costs

    The LGFA has offered more finance at more flexible conditions and at lower costs than banks since it started a decade ago. They hold 80% of local government debt and have nearly 90% of local government as participants. We can borrow quickly, with higher limits and longer terms for less cost. Borrowing from the LGFA is about 0.8% cheaper than bank funding meaning we expect to save around $1.5 million over the 10 years of the LTP.

    The LGFA will cost us $13,000 each year, whether we use the funds or not. If we do borrow then LGFA finance have a proven track record of being the lowest as shown in their Annual Reports.


  • The options

    Share on Facebook Share on Twitter Share on Linkedin Email this link
    CLOSED: This discussion has concluded.


    Option 1

    Join the LGFA as a guaranteeing member (preferred)

    Under this option ORC can then borrow up to the maximum amount allowed under the borrowing covenant of 175% of revenue. Based on the LTP we could borrow up to $130 million in 2021-22, increasing to $220 million in 2030-31.

    We propose to borrow $25 million for the first five years with this decreasing by $2 million per annum from 2025-26, bringing borrowings down to $15 million in 2030-31.

    As a guaranteeing member, we will receive 0.1% lower interest rate than as a non-guaranteeing member.

    As a guaranteeing member, we will be subject to the joint and several guarantee where the debts of the LGFA are guaranteed by the members in proportion to each council’s individual rating base.

    Option 2

    Join the LGFA as a non-guaranteeing member

    We can borrow a maximum of $20 million as a non-guaranteeing member. As we are proposing to borrow more this amount this option is not preferred.

    If we joined as a non-guaranteeing member and then were required to borrow more than the $20 million maximum, we would need to carry out further community consultation at that time delaying the availability of funding until that process was complete. If funds were required quickly, for example in the wake of a natural disaster, we would not be able to carry out repair works until consultation and funding was approved.

    Funding under this option would be 0.1% higher, but we would not be subject to the joint and several guarantee.

    Option 3

    Do not join LGFA

    Under this option, long-term external debt could still be sourced from non-LGFA lenders or if not some level of short-term debt funding will still be required to manage cashflow requirements throughout the year.

    If we do not join the LGFA the other funding sources available are:

    • Bank lending
    • We issue bonds in our own name
    • We withdraw from long-term managed funds

    This option is not preferred for the following reasons:

    • Bank lending is more expensive than LGFA funding and unless adequate funding lines are maintained funding may not be immediately available.
    • Bond issuance by ORC is estimated to cost at least 30 basis points more than the LGFA and it’s likely we’ll need to obtain a credit rating which will add time and cost to the process.
    • Withdrawing from the managed fund is not recommended as this fund is currently earning greater returns than the borrowing rates offered by the LGFA. The managed fund is also intended to maintain a level of return to offset the general rates which will be diminished if these funds are used to fund internal debt.
  • Statutory considerations

    Share on Facebook Share on Twitter Share on Linkedin Email this link
    CLOSED: This discussion has concluded.


    Significance and Engagement Considerations

    Section 56 of the Local Government Act 2002 (LGA 2002) requires that before a local authority may establish or become a shareholder in a CCO organisation, the local authority must undertake consultation in accordance with section 82 of the LGA 2002. Although the We are not proposing to acquire shares in the LGFA, borrowing under the LGFA scheme will require it to acquire some capital issued by the LGFA that could, in some circumstances be converted into shares in the LGFA.