Hi Chris

Please find our reponse to your request

Regards
Mark Butcher

-----Original Message-----
From: Chris McCashin <[FOI #28058 email]>
Sent: Thursday, August 15, 2024 8:50 AM
To: Office <[email address]>
Subject: Official Information request - Individual Shareholders, Debt Associated & Revenue

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Dear New Zealand Local Government Funding Agency Limited,

Please provide in excel format as follows

List of Current Shareholders
Annual Rates Revenue Only for the Shareholder 2020 - 2024 Total Debt Associated with that shareholder for those years

You previously provided me with the same information here

https://fyi.org.nz/request/25971-individ...

However I am wanting to include the 2024 financial year to date and the current numbers associated so please provide an additional column for the 2024 year to date.

Can you also tell me who holds / owns the Local Government Fund Debt - Blackrock? Vanguard?

Is it safe to say the ratepayer / shareholders who have paid billions in rates for hundreds of year don't actually own any community assets because they are riddled with debt?

Under the local government act NZ councils have several key fiscal obligations as follows

Prudent Financial Management
Councils must manage their revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.
Balanced Budget Requirement
Councils must ensure projected operating revenues are set at a level sufficient to meet projected operating expenses.
Debt Management
Councils must ensure debt is managed prudently and in a manner that promotes the current and future interests of the community.
Financial Reporting
Councils must prepare and adopt an annual report, which must include audited financial statements for the year.
Funding and Financial Policies
Councils must adopt funding and financial policies, including a revenue and financing policy, an investment policy, and a liability management policy.
Disclosure Statements
Councils must prepare and adopt a financial strategy and an infrastructure strategy as part of their long-term plans.
Borrowing Limits
Councils must set limits on rates, rates increases, and borrowing in their financial strategies.

How do councils get away with this? For example in 2023 Wellington City Council borrowed $579,000 per day!

This is financial arson - any director would be locked up for running a private company this way!

Please provide the numbers at the earliest convenience.

Yours faithfully,
Chris

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Hi Chris

 

Thanks for your follow up questions - we have replied below in blue.

 

Regards

Mark Butcher

 

 

-----Original Message-----
From: Chris McCashin <[FOI #28058 email]>
Sent: Thursday, August 22, 2024 1:08 PM
To: Enquiries <[email address]>
Subject: RE: Official Information request - Individual Shareholders, Debt
Associated & Revenue

 

Dear Mark / Enquiries

 

To add to this are you also able to provide the following

 

Loan Frequency: How frequently do councils borrow from LGFA? Are loans
issued on a monthly, weekly, or other basis and what the process is for
this? For example Wellington City Councils loans have gone up over $2.9m
dollars a day this financial year which are obviously loans & interest?
Are Wellington City Council coming to you every day asking for $3m dollars
and what are the forms / applications that are required to be completed?

 

Councils make a loan request according to their borrowing and cashflow
needs e.g. they decide on the amount, tenor and timing of borrowing. This
varies between councils. Some councils do not borrow on a frequent basis
e.g. in the year to June 2024,  seventy- two councils and CCOs out of the
eighty-two members borrowed from LGFA. There were 486 individual term
loans made during the year to June 2024 but this included both new
borrowing and refinancing of maturing loans.

A council formally notifies LGFA of a borrowing request in writing and
LGFA requires a signed term sheet and S118 Certificate from the council
prior to drawdown of the loan.

 

Due Diligence: What due diligence processes does LGFA undertake before
approving loans to councils? 

We undertake the following due diligence

o Annual compliance certificate which certifies that the council is
complaint with the LGFA financial covenants.  The calculations are
verified by LGFA.
o Meet with each council at least annually to discuss their annual
performance.
o Review annual plans and long-term plans to ensure councils are
compliant with LGFA financial covenants on a forward looking basis.
o Review councils 10-year financial strategies and 30-year
infrastructure strategies.
o Meet with councils as directed by the LGFA Board or management to
address any concerns with councils.
o Engage with other sector participants including DIA, OAG and Taituara
on sector issues.

 

Please provide details on the criteria and assessments conducted.

Council borrowers must comply with the financial covenants set out in the
Foundation Policies. They must attest to compliance on an annual basis (by
30 November each year based upon their June financial statements).

 

Impact on Credit Ratings: How does borrowing significant amounts, millions
of dollars per day, affect the credit ratings of councils? What measures
are in place to manage the associated risks especially when council
projects are largely unwanted but are able to be forced through due to
LGFA providing associated loans?

We can provide you with a copy of the S&P ratings methodology.

Also, it should be noted that LGFA does not get involved in the
decision-making process regarding specific projects. However

o Council projects are the decision for each council.  However, there is
regulation in respect of water and environmental standards which
council will need to comply with.
o Councils are required to consult with their communities on their plans
which provides people with the opportunity to provide feedback.  They
also have the opportunity to elect their council every 3 years.
o Councils cannot undertake major infrastructure projects unless they
have been consulted on and included in their long-term plans (which
need to be adopted by a council).
o Central Government has several steps by which they can intervene if
this is deemed appropriate.  For example, a Crown observer or
commissioners can be appointed.  Tauranga City Council is the most
recent example where the Government appointed commissioners.

 

Councils are not obliged to join LGFA and once a member, they are not
required to borrow from LGFA. Some councils and CCOs borrow from banks or
issue debt instruments in their own name. In this instance, if LGFA
decided not to lend to a council or CCO they could still access financing
from other sources.

 

Financial Covenants: What financial covenants must councils adhere to when
borrowing from LGFA, and how do these covenants influence their borrowing
capacity and credit ratings?

The financial covenants are set by LGFA (as approved by LGFA
shareholders).

For councils with a credit rating the Foundation Policy covenants apply
while unrated councils must comply with the Lending Policy covenants. Note
that for the FY ending June 2024 the Net Debt / Total Revenue covenant for
a rated council is <290% and for FY ending June 2025 it is <285%.

 

+------------------------------------------------------------------------+
|Financial covenant | Lending policy | Foundation policy |
| | covenants | covenants |
|------------------------+-----------------------+-----------------------|
|Net Debt / Total Revenue| <175% | <280% |
|------------------------+-----------------------+-----------------------|
|Net Interest / Total | <20% | <20% |
|Revenue | | |
|------------------------+-----------------------+-----------------------|
|Net Interest / Annual | <25% | <30% |
|Rates Income | | |
|------------------------+-----------------------+-----------------------|
|Liquidity  | >110% | >110% |
+------------------------------------------------------------------------+

 

All councils complied with the financial covenants e.g.

As at June 2023 (we do not have the FY ending June 2024 numbers yet) the
councils with a credit rating had a range of outcomes for

 

 

As at June 2023 the councils without a credit rating had a range of
outcomes for

 

 

External credit rating agencies have their own independent methodologies
for assessing council credit ratings.  These are criteria which are
applied to councils globally.

 

 

Compliance with Legislative Frameworks: As a council-controlled
organization (CCO), how does LGFA ensure compliance with the Local
Government Borrowing Act, the Financial Markets Conduct Act, and the
Public Finance Act?

From a governance perspective we have a board of directors of which 5 out
of the 6 directors are independent. The LGFA Shareholders Council oversees
the board on behalf of the thirty-one shareholders (Central government and
30 councils). We are advised by an external law firm as to our compliance
obligations as an issuer of debt securities, lender to councils and CCOs
and operating as a company and employer of staff. We have a Risk and
Compliance Manager who oversees our Risk Management Framework.  Audit NZ
appointed KPMG as our auditors and Trustees Executors Limited are the
trustee/supervisor on behalf of our bond holders. As our NZD bonds are
retail bonds listed on the NZX we are subject to the NZX listing rules
including continuous disclosure and subject to NZX Regulatory oversight.

 

What measures are in place to uphold fiscal responsibility in its
operations?

LGFA has an Audit and Risk Committee, independent external auditors, and
publish our Statement of Intent (SOI) annually. We provide audited annual
financial statements, unaudited interim financial statements and quarterly
updates.

 

National Security Concerns: Given the potential for large amounts of
leveraged debt, what strategies does LGFA implement to address national
security concerns?

There are no strategies in place.

 

How does LGFA manage the risks associated with significant borrowing by
councils, particularly in relation to liquidity and financial stability?

Councils are required to comply with the Local Government Act.  This
includes provisions to manage their finances prudently.

They must comply with financial covenants (both LGFA and their Treasury
Policy) and these include covenants that limit council gearing, interest
servicing covenants and a liquidity covenant.

Councils maintain adequate liquidity through a combination of holding
liquid financial assets and undrawn committed credit facilities.

Council budgets are important in that:

o Section 100 of the Local Government Act sets out the requirements for
councils to maintain a balanced budget.
o Councils are required to report on their balanced budget outcomes as
part of the disclosure of the financial benchmarks.  These are
disclosed in councils’ annual reports and long term plans.
o In respect of the Wellington City Council example, we would note that
rates are not the only source of income received by a council.  The
average balanced budget outcome of Wellington City Council over the
past 12 financial years is 101.7% (their operating income is 101.7% of
their operating expenses).  This means that Wellington has balanced
their operating budget over a long-time cycle.

Councils do borrow to invest in infrastructure and pay back the loan over
the life of the infrastructure asset (generally done through the
depreciation charge). 

 

Councils are also required to disclose financial performance in relation
to various benchmarks – see pages 130 -136 of the Wellington City Council
FY23 Annual Report as an example:

[1]Annual Report 2022/23 – Volume 2 (wellington.govt.nz)

 

Councils appears to have a never ending stream of money with no oversight
by you the CCO in terms of any due diligence and prudent lending and debt
levels.  As an example Wellington City Council get circa $500m in rates
but day to day spend $800m per annum.  At this rate they are also going to
be $2B in debt by the end of this year which is 18% of the value of the
assets they own. 

 

I appreciate your attention to this matter which appears to show the LGFA
are largely facilitating the financial arson by councils by writing daily
cheques.  Maybe you don't live in Wellington - but I could probably point
out $200m in savings of STUPID projects that have made the city a lot less
livable whilst we have sewerage in Days Bay and flooding down a main
arterial route.  And council still seem to want to burn down the golden
mile with another $70m for a project nobody actually wants.  Why are you
assisting with putting years and years amount of debt on the next
generations?

 

Stop loaning on waste / fraud and abuse.

 

Yours sincerely,

 

Chris McCashin

 

-----Original Message-----

 

Hi Chris

 

Please find our reponse to your request

 

Regards

Mark Butcher

 

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[2][FOI #28058 email]

 

Disclaimer: This message and any reply that you make will be published on
the internet. Our privacy and copyright policies:

[3]https://apc01.safelinks.protection.outlo...

 

If you find this service useful as an Official Information officer, please
ask your web manager to link to us from your organisation's OIA or LGOIMA
page.

 

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