Submission on Christchurch City Council

2020-2021 Annual Plan

09.04.2020

 

This is only the introduction and the conclusion. Read the full submission here (pdf)

​

We have major concern about the enormous sum of ratepayers’ money that is being wasted annually in interest payments on the council’s debt.

The plan’s financial pages show estimated council debt of $2.2 billion.

They also show estimated interest on council borrowings of $89 million in the coming year, yet the community will have not one additional facility or service improvement to show for that expenditure.

The council’s capital works programme is outlined in the plan at $512 million, roughly 17% of which could be paid for out of revenue if the council was not paying interest.

The council, through its membership of the Local Government Funding Agency, and the Local Government Association, should be pushing for much better funding arrangements for capital works.

Instead, for instance, of the Local Government Funding Agency issuing bonds that are bought by the privately owned commercial banks and other investors at between 3% and 4% interest, the Agency should be seeking purchase of those bonds by the Government owned Reserve Bank at zero interest.

After all, the commercial banks create new money with which to purchase those bonds or make loans and the Reserve Bank can do the same. The difference is of course the massive saving in interest charges, and that the profit (if any) of the Reserve Bank would go back to the Government.

There would be no need for additional legislation to allow this proposal to proceed.

The Public Finance Act (1989) permits the borrowing of funds from the Reserve Bank of NZ on terms favourable to the public interest.

In fact, following the 2008 Wall Street crisis the RBNZ offered the major banks a five billion dollar credit facility to see them through their liquidity crisis. If the Reserve Bank can prop up the overseas owned banks then similar credits can and should be made for local government infrastructure projects.

In the face of the Covid 19 crisis the Reserve Bank has created $60 billion dollars to purchase government and local body bonds back from the banks and other investors that hold them in order to ensure there is enough ‘liquidity’ (read money) in the financial system. The Bank could instead purchase newly issued bonds directly, rather than investors ‘clipping the ticket’ along the way.

Instead of millions of dollars per year being wasted on interest, Christchurch ratepayers would pay the construction cost of projects only, rather construction plus interest, because the cost of interest would be zero. Additionally the risks associated with hedging and derivatives would be removed.

What I am suggesting would be a win-win situation. It’s been done before, right here in our own country. It’s just that we have granted private companies a licence under legislation to create new money (credit) for their own profit, and at our cost, and allowed them to take a strangle hold on the process.

The privately owned overseas banking companies that currently create the new money for councils to borrow, would be less happy of course. But that is not something that the council should be concerned about.

 “The NZ banks' combined net profits after tax last year were approximately $6 billion dollars, much of which went out of the country to overseas shareholders. I have no problem with the banks charging commercial rates to commercial entities.  However, charging such rates to non-commercial local bodies for essential public works is an anachronism and need not continue.

​

Conclusion

We realise also that your Council alone would have little success in demanding a reform of this system when policy is made by Government. However, as long as local bodies meekly accept this iniquitous situation, it will persist.

We would like to see the plan contain a commitment from council to work with the Local Government Funding Agency, the Local Government Association, and other local bodies to get the proposal for Reserve Bank funding at very low rates of interest for local body capital works adopted by Government.