88 01 March 2017
Finance and Performance Committee
10 February 2017
File: (17/196)
Report no: FPC2017/1/78
New Zealand Local Government Funding Agency 2016 Annual Report
Purpose of Report
1. Council is a shareholder in the Local Government Funding Agency (LGFA). The purpose of this report is to share with Councillors the performance of the LGFA in the financial year ending 30 June 2016.
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Recommendations That the Committee notes the Local Government Funding Agency 2016 Annual Report attached as Appendix 1 to the report. |
Background
2. In May 2011 Council decided to become a shareholder in LGFA and purchased $100,000 of shares. Council along with all other shareholders was also required to subscribe to an equal value of uncalled shares.
3. The overall objective of LGFA is to provide the local government sector with access to funding on much better terms than would otherwise be available in the financial markets.
4. Borrowing Councils are required to subscribe for LGFA Borrower Notes (subordinated convertible non-voting bonds), at 1.6% of the face value of each borrowing from LGFA. LGFA requires the Borrower Notes as equity as their balance sheet grows and this avoids the need to continually go back to shareholders for additional capital. Borrower Notes pay interest on maturity of the notes at LGFA’s cost of funds.
Discussion
5. LGFA had let $6.401 billion to 50 participating Councils at 30 June 2016. This is an increase of $1.422 billion from the previous year.
6. For the financial year ending 30 June 2016, the LGFA made a net operating profit of $9.5M (2015: $9.2M), and declared a dividend of $1.39M (2015: $1.61M).
7. Council had borrowed $79M from the LGFA as at 30 June 2016. This is an increase of $30M from the previous year. Borrowings include those on behalf of Council Controlled Organisations.
8. Council had $1.264M of LGFA Borrower Notes as at 30 June 2016 (2015: $0.784M).
9. Loans are only taken out with LGFA if they represent the best value for money after considering the terms and conditions from other lenders in the market place.
10. Council borrowings with LGFA have been in accordance with approved limits contained in Council’s Treasury Risk Management Policy.
Financial Considerations
11. Council received a dividend of $5,570 (2015: $6,430) from its $100,000 investment. This exceeds the interest that Council would generate or the cost of borrowing.
12. The main financial advantage of being a shareholder in LGFA is access to better borrowing terms and conditions.
Other Considerations
13. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it allows the Council to operate in a cost-effective manner.
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New Zealand Local Government Funding Agency Annual Report 30 June 2016 ) (Under Separate Cover) |
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Author: Brent Kibblewhite
Chief Financial Officer
Approved By: Tony Stallinger
Chief Executive