Sweden's Kommuninvest financing cooperative: proving that the best financing solutions are created together.

• Author: Holmberg, Anitha
• Position: Kommuninvest - Company Profile

Municipalities around the globe differ in many respects, but one thing most of them have in common is a desire to obtain the best possible financing terms so that public funds can be directed to the benefit of constituents, not to pay for high interest rate debt service requirements. Local governments have devised many creative ways to lower their borrowing costs. In Sweden, local governments found that they could obtain more cost-effective financing by working together. This article describes Kommuninvest, a triple-A-rated financing cooperative that saves several million Swedish kronor each year for participating governments.

LOCAL GOVERNMENT IN SWEDEN

In Sweden, 20 regional county councils and 290 municipalities share responsibility for providing services to local residents. Municipalities are responsible for social services, care of children and the elderly, public utilities (energy, water and sewage, refuse collection), primary and secondary education, road maintenance, housing development, rescue service, and environmental protection. County councils are responsible for hospitals, healthcare and preventive medicine, and public transportation. Municipalities and county councils have the right to make decisions in all local government issues without first presenting these before any central government body. The income tax is the primary source of revenue for Swedish local governments. Other sources of revenue include grants from the central government and charges for direct services such as water and sewer. The county councils and municipalities set the tax rates as part of the annual budget development process. The central government has a system to equalize taxing authority and structural cost differences among municipalities.

Kommuninvest was created as a reaction against the unreasonably high cost of financing key investments in the social structure at the local government level. All over the country elected officials and finance officers had become frustrated by the fact that interest payments were consuming an ever-greater share of the funds available for essential municipal services. By coordinating their borrowing requirements, Swedish municipalities found that they were able to obtain lower interest rates than those offered to any individual local government. Moreover, they found that the cooperative model kept overhead costs to a minimum.

Kommuninvest is a credit market company. Swedish municipalities and county councils are granted membership in the cooperative after passing a thorough analysis of their financial condition. Kommuninvest works as a municipal debt office, acting solely at the direct request of the members and always in the best interests of the municipal sector. From the very beginning, its prime objective has been to provide a source of cost-effective long-term financing for municipalities and county councils in Sweden. Kommuninvest also offers added value in the form of advisory and training services.

Kommuninvest commenced operations in 1986. Initially, participation was limited to municipalities in the County of Orebro. However, credit market developments and Kommuninvest's success in securing more favorable financing terms for its members generated a great deal of interest among municipalities and county councils in other parts of Sweden. After some restructuring work, municipalities and county councils outside Orebro were allowed to participate in Kommuninvest beginning in January 1993. Since that time, the...