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Bernard & Jarrod: A new way to fund councils

WATCH: Bernard Hickey talks with Kiwibank chief economist Jarrod Kerr about a proposal for a new centralised fund-raising vehicle for councils that would allow them to fund much-needed new infrastructure.

To kick off Bernard spoke with Jarrod about the sharp falls in production and fuel demand in the United States through the rolling series of increasingly restrictive Covid-19 lockdowns, and how that will put enormous pressure on the global economy.

They then spoke with Newsroom reporter Dileepa Fonseka about a proposal for a second Local Government Funding Agency with a mandate to borrow for a range of special purpose vehicle projects arranged with councils to build infrastructure for housing.

Currently, councils are restricted by debt-to-revenue covenants that mean they can't borrow to help fund infrastructure being done in tandem with the central Government.

The huge need for centrally funded infrastructure projects in the wake of 'The Great Lockdown' is even more intense. The ability of the Reserve Bank to effectively create money to invest in these bonds linked to the special purpose vehicles also creates an opportunity to solve the funding issue.

Dileepa talked about how Tauranga Council, for example, has seen its borrowing capacity halved by a slump in rates and other revenues, meaning there is an immediate need for Councils to access new sources of funding.

Jarrod agreed that there was an opportunity for Reserve Bank quantitative easing to buy LGFA-type bonds to fund council borrowing for the smaller infrastructure projects connected to the big Government-funded ones.

He argued this investment and retraining of workers could be the one-off boost to productivity needed to underwrite the recovery and provide the earning capacity to service higher debt.

This is part of a daily 'Bernard and Jarrod Zoom out for Lunch' webinar series during the lockdown. 

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