As Salima Padamsey pointed out a few months ago, the KCDC under Mr Dougherty has rapidly become the seventh largest borrower from the LGFA. That remains the case despite the increase of $15 million between 30 June and 31 August as mentioned in the previous post.
Although Auckland is a third of the total from the agency, it should be noted that the amount borrowed per capita there is less than half that of Kapiti.
The LGFA came into existence in December 2011. An article on the stuff website from two years ago about ‘snouts in the trough’ by the LGFA directors (in the last financial year the aggregate fees for the six directors were $348,000 and “personnel costs” for the six staff were $1,372,000) begins:
The local government ‘bond bank’ is quietly trying to increase the salaries of its directors, without directly informing the councils which own it.
Wellington councils, which are key shareholders of the organisation are furious they were not consulted on the “hefty” increases.
The New Zealand Local Government Funding Agency (LGFA) specialises in financing the New Zealand local government sector. It 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.
Shareholders of the organisation include the Government (20 per cent) and thirty New Zealand councils [the rest]. It is overseen by a board of directors and a shareholders council, which comprises of ten appointees from councils.
Hutt City Councillor Max Shierlaw believes the funding agency was being sneaky, trying to implement a hefty pay increase for directors.
The agency wants to increase director’s fees by 15 per cent over the next two years. The changes, backdated to July 1, would see the chairman take a $6000 a year increase to $84,000, and $90,000 from July 2016. Other directors would move from $44,200 to $51,000 per annum, while the chairman of the audit and risk committee would see an increase from $46,800 to $54,000 per annum.
A question that arises is who are the investors in the LGFA? The annual report does not specify who they are or where they are — the website contains information pdf’s for investors in English, German and Japanese. However, it appears that it borrows little in foreign currencies from this statement in its annual report:
“Market risk is the risk that changes in market prices will affect LGFA’s income or value of financial instruments. The most significant market risk which LGFA is exposed to is interest rate risk. LGFA has no significant exposure to foreign exchange risk.”
Nevertheless, in the Bruce Rogan interview (see earlier post) at 49 minutes he states that this business has the power to borrow from whoever it wishes in any part of the world it wishes:
“The LGFA has as its constituent members the local government organisations throughout the country. Each of those in order to become a member signs a deed that says that it will make good any loss that is sustained by any other local government entity. And it will [tax] its ratepayers to contribute whatever its share is to make up that loss by the agency. [Interviewer asks: ‘So it’s forced corporate fascist-socialism?’] It’s the absolute quintessential example of privatisation of benefit and socialisation of risk.”
In practice, however, the risk of default is small as the councils can simply up their rates by as much as they think the cash cow, oops, ratepayers, will bear.