KEY POINTS:
Local authorities now have more funding options, and ratepayers have the chance to participate in projects other than just by paying for them.
The Securities Amendment legislation has now been passed with some changes to improve disclosure to investors.
The principles have not changed, and the practical option
now exists for local authorities to raise money from retail investors. While they must state that the investments are not government-guaranteed, and make financial statements more readily available, not much else has changed.
In the past 10 years, only Auckland City has gone to retail investors, and then only once.
Regional fuel taxes have survived the parliamentary process and are another option for road and public transport funding. In the course of that process, the total potential tax was reduced from 10c to 2c per litre for 2009 and 5c for 2010.
The Auckland Regional Council has stated an intention to have a 1c per litre fuel tax as soon as possible. There is a significant public consultation process required.
If that takes it past the election, and there is a change of government, an interesting situation develops. Regional fuel taxes require Cabinet approval and an Order in Council.
Will a National-led Government allow regional fuel taxes when the National Party in Opposition voted against them?
Within the eventual maximum of 10c per litre, the ministers of finance and transport can substitute or add projects that they identify as regional priorities for Auckland.
More ministerial control over regional fuel tax proposals for Auckland than for other regions might well be justified, but when it comes to the restored borrowing powers, local authorities will be constrained only by their appetite for borrowing and their financial credibility in the eyes of lenders.
Only two councillors have to sign the investment statement.
This means that while the council must still resolve by majority to issue the debt, one dissenting councillor cannot veto the exercise.
So why borrow from the public, with all that extra administration, when it is possible to borrow in bulk from banks?
Intergenerational funding is not practical through banks. They are encouraged to lend to local authorities because of their prudential rules and the backing of the rating base, but their lending does not match the life of the asset, nor other funding sources such as tolling which is typically in a 30- to 35-year time frame.
Mum and Dad don't want to invest for 30 years either; but local authority stock can be listed on the NZX and traded easily.
Since Christmas, the market capitalisation of the NZX has bombed from around $70 billion to $55 billion.
This makes the potential $30 billion of local authority debt attractive to the NZX, as well as to those small investors who have survived the many finance company collapses and don't want to go back to that sector.
With the ARC alone talking of a need to raise $600 to $800 million in the next six years there should be plenty of opportunities for investors. The major banks have all had successful bonds issues at retail level.
Auckland City appears ready to re-enter the market; though its submission to Parliament that it needs debt for "the flexibility to make bold decisions in the future" might cause Brian Rudman and some of the Herald's other commentators to shudder.
At the other end of the scale, Rodney District Council's Penlink may have a better chance if it can add regional fuel tax and retail debt to the cocktail of tolls, rates, Crown subsidy, and private sector funding already potentially available.
The irony of the fact that the local authority exemption was lost 10 years ago towards the end of the last National Government and is being restored at the end of this Parliament was not lost on the politicians; but the law passed anyway.
It is now up to local government to use their funding options.
And if they don't then their ratepayers should be asking why.
* David Cochrane, partner, and Siobhan Hale, principal, practise public law at law firm Chapman Tripp. The views expressed are their own and not necessarily those of the firm or its clients.
