WIREDGOV

Councils could save vital school and highway projects by looking to a new market in municipal bonds, according to research from localism think tank NLGN. The new Capital Futures report, released yesterday, shows that bond issuances could in some circumstances prove the cheapest option for local authorities trying to promote growth in their areas.

Local government used to be able to borrow cheaply from the Public Works Loan Board, but a recent increase in PWLB rates means that it could now be more cost effective for councils to issue their own bonds. The recent GLA bond issue suggests that, in the right market conditions, this financing option could save councils up to 20 basis points on their borrowing costs, amounting to millions of pounds on a large bond issue.

Against the backdrop of a 22% cut in central government funding for local infrastructure, the research shows that an astonishing 84% of councils surveyed face a capital funding shortfall. This translates into crumbling schools, potholed roads and slower economic growth for many parts of the country.

Nearly two thirds of the councils surveyed for the new research say the PWLB rate rise will change the way they borrow, suggesting that bond issuances will come back onto the local agenda for the first time in 17 years.

Capital Futures was supported by a Taskforce made up of experts from across the local government finance sector.

Report author and Taskforce member Tom Symons said:

“Councils must explore a completely new landscape of financing options to survive this Spending Review. Issuing bonds on the capital markets could enable vital investments to be saved, assuming the right market conditions. As a result of central government cuts we need to see a much more ambitious approach from the sector if our infrastructure deficit is to be addressed”

Chair of the Taskforce Paul Woods (and Finance Director at Newcastle City Council), said:

“The responsibility for driving economic growth and responding to the demands of communities in an uncertain and difficult climate has fallen largely on councils. Councils have a vital role to play, and it is important that as a sector we optimistically grasp this time as a moment of opportunity.”