KEY POINTS:
Small investors will be able to put their spare money into local council loans under a future change to the Securities Act which also promises to trim millions off councils' interest bills.
Commerce Minister Lianne Dalziel says the Government will restore an exemption for local authorities to the
act's disclosure regime.
Local Government New Zealand president Basil Morrison said losing the exemption in 1998 resulted in the withdrawal of local authorities from the public debt securities market.
Councils were put off by costs of $100,000 to issue a prospectus and investment statement, signed off by the full council.
Since 1998, only the Auckland City Council issued debt securities to the public.
"The proposed change will make it easier for councils to raise funds from the public for major projects," said Mr Morrison.
"It will also take some of the pressure off rates by allowing us to better match our borrowing strategies with the life of our assets.
"Given the estimated $30.8 billion in capital works programme outlined in councils' 10-year plans, the ability to once again issue debt securities will save councils millions in interest costs."
At June 30, 2005, local authorities' debt amounted to about $3 billion compared with $62 billion in assets, and Local Government New Zealand says it is forecast to rise to $8.2 billion over the next 10 years.
Interest payments swallow about 7 per cent of rates income.
Auckland councils' finance executives yesterday were waiting to see the details of the proposed Securities (Local Authorities) Amendment Bill planned for later this year.
"We can cast our net wider and potentially catch smaller fish," said Rodney finance director Kevin Ramsay.
"It gives you access to a lot more people who might want to invest." North Shore chief financial officer Dale Lott said councils borrowed from the banks on the wholesale market and people who wanted to invest in council securities did so through the banks, who took their cut.
"Theoretically, there's a chance to get cheaper interest rates by going directly to the public."
Waitakere finance director Andrew Pollock said councils were a "rock solid" investment.
"People come to annual plan meetings and say they have spare money and would like to invest in the council but they can't."
An independent financial adviser to local authorities and companies said a number of councils were waiting to again give people in their communities a chance to invest in their own bond issues.
Stuart Henderson, of Asia Pacific Risk Management, said: "I'm delighted because once your mums and dads were able to invest in it and it was a good investment in terms of risk and return."
Auckland City Council funds manager Jason Isherwood said the extent of cost savings on debt issues would depend on the type of debt issues, the tenure of the issue and the level of interest rates at the time.
The appetite for local authority debt among investors was also a factor.
Borrowing power
* Councils' borrowing is governed by debt limits and security. There is no government guarantee.
* The council will produce an investment statement, with an accompanying certificate signed off by two councillors.
* Councils offer bonds to the retail market and financial institutions tender for them, with a public opportunity to also invest, without going through an institution.