Ratepayers are set to save over $650,000 in the next financial year as a result of Tauranga City Council joining the Local Government Funding Agency back in 2012

Savings to ratepayers are estimated to be around $674,000 for 2015/16, while that figure is expected to reach over $800,000 the following financial year.

Figures suggest a raft of savings thanks to TCC's participation in the Local Government Funding Agency. Photo: File.

Treasurer Mohan De Mel says other savings from the LGFA's option to borrow longer-term and further reduce the city's funding risk are more difficult to quantify.

The savings grow progressively as the city council's debt profile grows. It refinances all debt through the LGFA.

Mohan was replying to a question from councillor John Robson when the funding authority's finances were discussed at the Finance and Revenue Committee meeting last week.

This week, Mohan was discussing the LGFA finances in its half-year report at the City Delivery Committee meeting.

It makes it the third time the LGFA has been discussed at separate city council committee meetings. The statement of intent went to the City Vision Committee, and the quarterly results were received by the Finance and Risk Committee.

City Development Committee chairman Kelvin Clout says the LGFA reports should be part of an impending council review of its committees' structure.

The funding authority is a CCO owned by 30 councils and the government, with TCC's ownership share currently at 7.46 per cent of paid up capital.

In the six months report received by the City Delivery Committee, LGFA chairman Craig Stobo says the agency produced income of $4.4m for the reporting period. This is ahead of plan because of the strong support from council borrowers, and cost containment by LGFA.

The result includes a reduction in LGFA base lending margins to council borrowers for shorter maturities.

The financial strength of the LGFA is reaffirmed by credit rating agency Standard and Poor's, which maintained its credit rating at AA+, while a second credit rating agency, Fitch, affirmed an AA+ rating but placed the LGFA on credit watch with a positive outlook.

LGFA's rating is the same as the NZ Government.

It has now issued over $4.5b of debt on behalf of its council members across six maturities from 2015 to 2023 and Is now the largest issuer of NZD securities after the NZ Government. Its bonds are amongst the largest and most liquid NZD debt instruments available for investors.

This has been achieved within three years of operation.

New Zealand's 'infrastructure deficit” is another factor supporting LGFA's development. Both central and local government recognised that infrastructure spending needs to increase significantly over the next decade to maintain New Zealand's international competitiveness.

To balance this cost between current and future generations, local government borrowing is expected to rise considerably. Having a more efficient funding vehicle on hand, however, minimises the cost of the additional borrowing.

The LGFA's profitability is strong, according to the agency's statement of intent. Despite cost increases, retained earnings are forecast to increase by approximately $29m after dividend payments for the three-year period of the statement of intent.

Lending to councils is forecast to increase to $6,970m by 30 June 2017, while dividend policy is unchanged and dividend payment is forecast at seven per cent annually for the three years ending 30 June 2018.