Agenda of Finance and Performance Committee

1 Apologies

An apology from Cr PA Hulse has been received.

2 Declaration of Interest

Members are reminded of the need to be vigilant to stand aside from decision making when a conflict arises between their role as a member and any private or other external interest they might have.

3 Confirmation of Minutes

That the Finance and Performance Committee:

a) confirm the ordinary minutes of its meeting, held on Thursday, 22 May 2014, as a true and correct record.

4 Petitions

At the close of the agenda no requests to present petitions had been received.

5 Public Input

Standing Order 3.21 provides for Public Input. Applications to speak must be made to the Committee Secretary, in writing, no later than two (2) working days prior to the meeting and must include the subject matter. The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders. A maximum of thirty (30) minutes is allocated to the period for public input with five (5) minutes speaking time for each speaker.

At the close of the agenda no requests for public input had been received.

6 Local Board Input

Standing Order 3.22 provides for Local Board Input. The Chairperson (or nominee of that Chairperson) is entitled to speak for up to five (5) minutes during this time. The Chairperson of the Local Board (or nominee of that Chairperson) shall wherever practical, give two (2) days notice of their wish to speak. The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders.

This right is in addition to the right under Standing Order 3.9.14 to speak to matters on the agenda.

6.1 Sites proposed for divestment in Franklin - Andrew Baker, Franklin Local Board Chair

Purpose

Andrew Baker, Chair of Franklin Local Board wish to speak to the Committee regarding the properties at 172, 174, 180a, 180b and 180c Manukau Road, Pukekohe in relation to the Disposal Recommendation report.

Recommendation/s

That the Finance and Performance Committee:

a) Thank Andrew Baker, Franklin Local Board Chair for his presentation regarding the properties at 172, 174, 180a, 180b and 180c Manukau Road, Pukekohe in relation to the Disposal Recommendation report.

6.2 West Harbour Community House - Vanessa Neeson, Henderson-Massey Local Board Chair

Purpose

Vanessa Neeson, Henderson-Massey Local Board Chair wishes to speak to the Committee regarding the West Harbour Community House.

Recommendation/s

That the Finance and Performance Committee:

a) Thank Vanessa Neeson, Henderson-Massey Local Board Chair for her presentation regarding the West Harbour Community House.

7 Extraordinary Business

Section 46A(7) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

“An item that is not on the agenda for a meeting may be dealt with at that meeting if-

(a) The local authority by resolution so decides; and

(b) The presiding member explains at the meeting, at a time when it is open to the public,-

(i) The reason why the item is not on the agenda; and

(ii) The reason why the discussion of the item cannot be delayed until a subsequent meeting.”

Section 46A(7A) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

“Where an item is not on the agenda for a meeting,-

(a) That item may be discussed at that meeting if-

(i) That item is a minor matter relating to the general business of the local authority; and

(ii) the presiding member explains at the beginning of the meeting, at a time when it is open to the public, that the item will be discussed at the meeting; but

(b) no resolution, decision or recommendation may be made in respect of that item except to refer that item to a subsequent meeting of the local authority for further discussion.”

8 Notices of Motion

At the close of the agenda no requests for notices of motion had been received.

Finance and Performance Committee

19 June 2014

Disposal Recommendation Report

File No.: CP2014/12583

Purpose

1. This report seeks approval to sell 10 non-service council owned properties that Auckland Council Property Limited (“ACPL”) consider suitable for sale.

Executive summary

2. ACPL is required to identify properties from within council’s portfolio that may be suitable for potential sale to a combined value of $12.3 million by 30 June 2014. ACPL and Auckland Council Property Department (“ACPD”) work collaboratively on the comprehensive review process to identify such properties.

3. Capital receipts from the sale of the surplus properties will contribute to the LTP objective for asset sales of $470 million.

4. The 10 properties outlined in this report have a cumulative rating value of $2.7 million. These relate to the $12.3 target. These properties have been through the agreed consultative process including organisation wide internal officer consultation, local board and Iwi engagement. The feedback has been supportive of the proposed disposal of the sites.

5. A detailed overview of the rationalisation process undertaken for these properties is outlined in the Comments, Local Board Views and Implications, and Maori Impact Statement sections of this report. Site specific detail, including information and feedback gathered through the rationalisation process, is contained herein under the respective property attachment.

Recommendation/s

That the Finance and Performance Committee:

a) That subject to the satisfactory conclusion of any required statutory processes, the Finance and Performance Committee approves the disposal of the land at:

i. 14 Weza Lane, Kumeu comprised of an estate in fee simple, containing 2021m² more or less being Lot 1 DP 335101 contained in certificate of title 143689;

ii. 18 Weza Lane, Kumeu comprised of an estate in fee simple, containing 2969m² more or less being Lot 12 DP 69227 contained in certificate of title NA25B/622;

iii. 19 Weza Lane, Kumeu comprised of an estate in fee simple, containing 1.0001 hectares more or less being Lot 1 DP 330233 contained in certificate of title 124200;

iv. 68 Henwood Road, Mangere East comprised of an estate in fee simple, containing 1201m² more or less being Lot 1 Deposited Plan 53131 contained in certificate of title NA4B/421;

v. 906 Leigh Road, Big Omaha comprised of an estate in fee simple, containing 870m² (limited as to parcels) more or less being Part Allotment 31 Parish of Matakana contained in certificate of title CFR 39528;

vi. 172 Manukau Road, Pukekohe comprised of an estate in fee simple, containing 512m² more or less being Section 2, Survey Office Plan 440667 contained in certificate of title CFR 599298, subject to the completed Pukekohe Area Plan confirming that this site is no longer required for the Pukekohe Eastern Arterial;

vii. 174 Manukau Road, Pukekohe comprised of an estate in fee simple, containing 1569m² more or less being Section 8 Survey Office Plan 440667 contained in certificate of title CFR 599299, subject to the completed Pukekohe Area Plan confirming that this site is no longer required for the Pukekohe Eastern Arterial;

viii. 180A Manukau Road, Pukekohe comprised of an estate in fee simple, containing 2153m² more or less being Section 4 Survey Office Plan 440667 contained in certificate of title CFR 599301, subject to the completed Pukekohe Area Plan confirming that this site is no longer required for the Pukekohe Eastern Arterial;

ix. 180B Manukau Road, Pukekohe comprised of an estate in fee simple, containing 606m² more or less being Sections 6 and 9 Survey Office Plan 440667 contained in certificates of title CFR 599300 and CIR 610788, subject to the completed Pukekohe Area Plan confirming that this site is no longer required for the Pukekohe Eastern Arterial;

x. 180C (aka 182) Manukau Road, Pukekohe comprised of an estate in fee simple, containing 2172m² more or less being Section 11 Survey Office Plan 440667 contained in certificate of title CFR 599297, subject to the completed Pukekohe Area Plan confirming that this site is no longer required for the Pukekohe Eastern Arterial;

b) Final terms and conditions to be approved under the appropriate delegations.

Comments

6. ACPL and ACPD work collaboratively on a comprehensive review process to identify properties in the council portfolio that may be suitable to sell. Once identified as a potential sale candidate ACPL takes the property through a multi stage engagement process.

7. The first phase of the process involves engagement with all council departments and relevant CCOs. The engagement establishes whether a property is needed for a future funded project or whether it must be retained for some clear strategic purpose. This is determined by an Expression of Interest (“EOI”) process whereby officers can request that all or part of a property is retained. Alternatively officers may request that the property be encumbered or covenanted as part of the disposal process. If the EOI sets out a robust financial analysis and evidence based rationale to retain the properties, then the EOI is endorsed.

8. If however the reasoning is more subjective a thorough business case is required. An inter-disciplinary council and ACPL steering group comprised of senior managers, called the Property Review Steering Group (“PRSG”) meets on a monthly basis to assess the business cases. The PRSG provides an opportunity for properties to be considered in a cohesive and integrated manner by relevant council departments and CCOs.

9. The Heritage Unit is invited prior to the EOI process to flag any sites of particular archaeological merit that need to be assessed further. ACPL also engages with the Closed Landfills and Contaminated Land Response team prior to the EOI process commencing to ensure any possible contamination issues that may be associated with a property are identified.

10. The EOI process provides the Maori and Strategy Relations team the opportunity to flag any issue that is of particular relevance to Maori in connection with the potential disposal of a site.

11. Once a property has been cleared of any service requirements, ACPL then consults with Local Boards, Ward Councillors, Mana Whenua and the Independent Maori Statutory Board.

12. All sale recommendations must be approved by the ACPL Board before it makes the final recommendation to the Strategy and Finance Committee.

Consideration

Local board views and implications

13. Local Boards are informed of the commencement of the rationalisation process for specific properties. Following the close of the EOI period, relevant Local Boards are engaged with. ACPL attend a workshop with the relevant Local Board and provide information about properties being rationalised in their local board area. Local Boards may then request that ACPL prepare a report for their business meeting so that their views can be formalised.

14. If a Local Board wishes to retain a site, its’ views are considered by ACPL and if necessary referred to relevant council departments for consideration. The Local Board is asked to prepare a business case which sets out the clear service need that will be met by retaining the site, along with how the use will be funded.

15. ACPL and relevant council departments or CCOs work with Local Boards in preparing the business case. The business case is then considered by the PRSG. If the PRSG accepts the business case and funding is identified, the property is transferred back to the service portfolio. If the PRSG does not accept the business case, the business case is included in the report to the Finance & Performance Committee for a political decision.

16. The views of the relevant Local Board are contained in the respective property attachments.

Maori impact statement

17. The importance of effective communication and engagement with Maori on the subject of land is understood. ACPL has accordingly developed a robust form of engagement with Mana Whenua groups across the region. Each relevant mana whenua group is contacted independently by email based on a contact list which is regularly updated. Each group is provided general property details, including a property map, and requested to give feedback within 15 working days. Contacts are sent reminder notices a week out from the due date, and alerted of the passing of the due date in the week following if no feedback has been submitted. Confirmation of any interest expressed is sent in writing and recorded for inclusion in the disposal recommendation report. A feedback spreadsheet is provided to facilitate responses. Any requests for extensions of a due date are handled on a case by case basis.

18. ACPL’s engagement directs mana whenua to respond with any issues of particular cultural significance the group would like to formally express in relation to the subject properties. We also request express notes regarding any preferred outcomes that the group would like us to consider as part of any disposal process.

19. From discussions with our Maori and Strategy Relations team we are developing an understanding of what could amount to a ‘matter of significant cultural relevance’ to Iwi. We are also developing a range of reasonable outcomes that could be employed when such a matter of cultural significance is raised in relation to a potential disposal property. Possible outcomes could include commemoration or physical acknowledgment in the form of plaques or other mutually agreed means of recognition. In the event of any issues of particular cultural significance being raised, ACPL will work with the relevant council departments to assess the merits of any such requests and keeps the interested parties informed along the way.

20. Mana whenua groups are also invited to express potential commercial interest in any sites and are put in contact with ACPL’s Development team for preliminary discussions if appropriate to the property. This facilitates the groups’ early assessment of the merits of a development opportunity to their Iwi. In the event a property is approved for sale all groups are alerted of the decision, and all groups are alerted once a property comes on the market.

21. Lastly a report is presented to the Independent Maori Statutory Board ahead of presenting any recommendations to sell to the Finance and Performance Committee detailing how Maori have been engaged throughout the process.

Implementation

22. As part of the overall review process each property is also legally assessed to see if there are any impediments to sell or if there is a prescribed legal way in which it must be sold. The last stage of the process is triggered once a resolution to sell is obtained. This involves a robust ‘add value’ assessment as part of the development of the final sales strategy. There is specific attention applied to the possible suitability of the site for housing purposes.

Attachments

No.	Title	Page
a View	14, 18 and 19 Weza Lane, Kumeu property information	13
b View	68 Henwood Road, Mangere East property information	19
c View	906 Leigh Road, Big Omaha property information	23
d View	172, 174, 180A, 180B and 180C Manukau Road, Pukekohe property information	27
e View	Resolutions of Franklin Local Board regarding 172, 174, 180A, 180B and 180C Manukau Road, Pukekohe	33

Signatories

Authors	Letitia McColl, Senior Engagement Advisor, Portfolio Review, Auckland Council Property Limited
Authorisers	David Rankin, Chief Executive, Auckland Council Property Limited
Authorisers	Ian Wheeler, Manager Property, Auckland Council Property Department
Authorisers	Andrew McKenzie, Chief Financial Officer, Auckland Council

Finance and Performance Committee

19 June 2014

Better Performance Measures for LTP 2015-2025

File No.: CP2014/11502

Purpose

1. To provide an overview of the performance information review process and outline the process to finalise Long-term Plan (LTP) 2015-2025 performance information and targets.

2. To clarify the intended output of the review of performance measures and targets.

Executive summary

3. The Performance Measure workstream is initiating a council and CCO wide review of performance measures for the LTP 2015-2025.

4. The intended outcome of this in-depth review is that there will be a succinct set of community focused performance measures for each group of activities proposed for the draft LTP 2015-2025, which is aligned to the Auckland Plan.

5. The performance measures will have targets that will reflect the intended levels of service to be delivered by the council and CCOs and which will align with financial forecasts.

6. This work needs to be substantially completed (including political engagement) by the end of October 2014 to support publication of the draft LTP for public consultation in early 2015. Based on project milestones for the development of asset management plans and the LTP, we intend to complete a preliminary review for all measures by the end of June 2014.

Recommendation/s

That the Finance and Performance Committee:

a) note the proposed approach, scope, and engagement timelines

b) provide any further feedback on the proposed approach and scope.

Comments

7. The LTP 2012-2022 performance information was based on the amalgamation of multiple performance information sets. While there was substantial business engagement in developing these, in many instances processes were not in place to measure baselines and set quantitative targets. The subsequent annual planning processes were focused on incremental improvements in performance measures and more so the targets set.

8. The business now has a better knowledge of the costs and benefits of existing performance information which can be harnessed in this LTP 2015-2025 planning period. They will use this knowledge in reviewing levels of service and performance measures while aiming to ensure measures are comprehensive, of high quality, and will ultimately provide meaningful basis for accountability.

9. The workstream will develop guidelines and standards to assist managers to review existing measures in accordance with better practice. The team will also provide facilitation and support.

10. Through an in-depth review, the business will propose a succinct set of community focused performance measures for each group of activities, which is aligned to the Auckland Plan and allows accountability for the levels of service intended to be delivered by Council.

11. Those performance measures will have targets that will reflect the intended levels of service to be delivered by Council and will align with financial forecasts.

12. As part of this work we intend to review existing performance measures across Long-term Plan, SOIs and Business Plans to ensure they are comprehensive, of high quality, and will ultimately provide meaningful basis for accountability.

13. The sub-committees set out in Attachment B will be reviewing the performance measures developed by the business during July and August 2014 which relate to the Groups of Activities that their committees contribute to. These committees will be requested to provide feedback on the performance measures and the level at which they will be reported.

14. The Finance and Performance Committee will review the entire suite of measures and targets proposed for inclusion in the LTP 2015-2025 in October 2014. The committee will endorse the measures and targets for adoption by the Budget Committee on 5 November 2014.

Consideration

15. An example of how the results of the performance measure review will be tabled is in Attachment A.

Auckland Plan Alignment

16. In developing performance measures, we are ensuring alignment of activity levels of services with Auckland plan outcomes and targets which have been set.

17. The performance measures will be considered only for those levels of services that directly contribute to or enable an Auckland plan target to be met.

Local board views and implications

18. Local boards will be able to provide feedback on performance measures at local boards workshops and meetings between 14 July and 13 August 2014. Once the Finance and Performance committee have endorsed the performance measures, we will engage with local boards to determine their targets.

Maori impact statement

19. There are a number of existing Maori outcome related performance measures that also need to be reviewed. Te Waka Angamua and IMSB are part of the key stakeholders group for this work-stream and will provide feedback and support on that part of the review.

Implementation

20. The milestones and engagement timeline with the various committees is outlined in Attachment B.

Attachments

No.	Title	Page
a View	Level of Service Structure example	41
b View	Performance Measure workstream roadmap	43

Signatories

Authors

Tushar Shreyakar - Senior Advisor, Financial Planning, Policy and Budgeting

Authorisers

Matthew Walker - Manager Financial Plan Policy and Budgeting

Kevin Ramsay - Manager Finance, Auckland CFO

Andrew McKenzie - Chief Finance Officer

Finance and Performance Committee

19 June 2014

Performance Reporting in the 2014 annual report

File No.: CP2014/12487

Purpose

1. The purpose of this paper is to outline visual representation of non-financial performance measures in the 2014 Auckland Council group annual report.

Executive summary

2. Anecdotal feedback and communications advice strongly suggests that the number and style of the performance symbols in previous Auckland Council group annual reports is confusing and undermines the objective of clear performance reporting. Previous annual reports have included representation of performance status based on six levels or symbols of achievement. A four-symbol approach is proposed in order to align with best practice simplifying performance reporting and aiding readability of the annual report.

Recommendation/s

That the Finance and Performance Committee:

a) receive the report; and

b) adopt the four-symbol representation of status of non-financial performance measures included in the Auckland Council group annual report.

Comments

3. One of the key objectives of an annual report is to clearly communicate the performance of the organisation to key stakeholder groups. Non-financial performance is a critical part of the performance story, and particularly for large groups of residents and rate payers, who may not normally engage in technical reports of this nature. In order to make non-financial information more readable and engaging, status symbols are often used as a quick-reference indication of performance.

Anecdotal feedback and communications advice strongly suggests that the six-symbol approach has created confusion and undermines the objective of clear performance reporting.

For this year’s annual report, the opportunity has been taken to design new status symbols, which are cleaner to interpret and aid readability of the report.

In addition, it is recommended that a move to four status symbols is made in order to align with reporting best practice. The reduced number of categories helps to enhance the integrity of Council’s reporting. For instance, it is much easier to determine whether performance is on track, is improving, or needs closer attention.

The table below shows the performance status symbols and definitions.

Symbol	Status	Definition
	Achieving	Exceeding, meeting or within an agreed tolerance (to be determined). This category also includes where a baseline has been established.
	Progressing	Target not achieved, but improvement over last year.
	Improvement needed	Target not achieved and no improvement over last year.
	No result	Unable to measure.

By way of comparison, the categories used in the previous Auckland Council group annual reports are set out below, with updated symbols.

Symbol	Status	Definition
	Achieving	Meeting or exceeding target.
	Satisfactory	Within an agreed tolerance (to be determined).
	Progressing	Target not achieved, but improvement over last year.
	Improvement needed	Target not achieved and no improvement over last year.
	Baseline established	New measure this year with no defined target.
	No result	Unable to measure.

Consideration

Local board views and implications

4. Some performance measures are directly related to Local Boards. The status symbols will be applied consistently across these measures.

Maori impact statement

5. Some performance measures are directly related to Maori, Mana whenua or Maori groups. The status symbols will be applied consistently across these measures.

Implementation

6. As per normal Auckland Council group annual report process.

Attachments

There are no attachments for this report.

Signatories

Authors

Robert Nelson - Financial Controller

Authorisers

Kevin Ramsay - Manager Finance, Auckland CFO

Andrew McKenzie - Chief Finance Officer

Finance and Performance Committee

19 June 2014

Monthly budget update

File No.: CP2014/11497

Purpose

1. This report is provided on a monthly basis as required. It collates decisions required of the Finance and Performance Committee on changes to the budgets, and provides a financial context within which the decisions can be made.

Executive summary

2. Items discussed in this report do not relate to the 2013/2014 budget, but the 2014/2015 budget and beyond. The recommendations in this report will not affect the level of net borrowing or the group result of 2013/2014, nor will it impact on the rates requirement for 2014/2015. Any financial effects beyond 2014/2015 can be addressed by the Budget Committee as part of the Long-term Plan (LTP) 2015-2025 process.

Reallocation of West Harbour Community House budget

1. The Henderson-Massey Local Board has formally resolved to request to the Governing Body to reallocate capital funding from a future project to help ensure the full completion of a number of new build and retrofit community facility projects that are underway or impending. The request is detailed in the report to the board on 5 June 2014 (attachment A).

2. The board is requesting a total of $1,049,600 to be brought forward and reallocated from the West Harbour Community House budget, which is currently spread across 2016/2017 and 2017/2018.

3. The board is also requesting that the relevant council departments be directed to fund the additional operating expenditure associated with this reprioritisation, as opposed to funding these costs from the board’s discretionary budget.

4. When finalising the 2014/2015 budget on 8 May 2014, the Governing Body agreed that the Chief Executive undertake an immediate review of the capital programme with a target of reducing or deferring $300 million of rates funded capital expenditure in 2014/2015.

5. This was in response to advice from staff about the identification of $30 million of new budget cost pressures for 2015/2016, the first year of the next LTP. Scenario modelling has shown the lagged impact of changes in the capital programme on operating budgets means that even cutting $800 million of capital expenditure in that year would not be sufficient to achieve 4.9 per cent rates increase for that same year.

6. Undertaking this review allows the council time to pause and consider relative priorities, and to consider the pace of investment in the city that best balances affordability against progress in delivering on the Auckland Plan.

7. As such, it is recommended that the board utilises its existing budget to proceed with those projects which are substantially complete, but not enter into any further contractual commitments regarding the other community facility projects until the capital programme review has been completed in July.

Role of Auckland Council Property Limited in housing delivery

8. Auckland Council Property Limited (ACPL) is proposing changes to the management of the existing Strategic Development Fund (SDF), and establishment of a Development Budget (DB) to drive better commercial outcomes for the council. ACPL’s request is detailed in its report in attachment B.

9. It is noted that the outcomes of the current CCO review may affect the matters in consideration. However, it is the preference of ACPL that council decisions are sought at this time, and if approved, to allow ACPL to seize potential opportunities arising from the development market. Once the outcomes of the CCO review are finalised, these matters may need to be reviewed.

Strategic Development Fund

10. The LTP 2012-2022 provides for $96 million of capital expenditure from and $72 million of capital revenue into the SDF over the 10 years ending 2022. The fund is used to acquire development sites, on the basis that the expenditure, together with holding costs, is to be repaid within a two-year period. Application to the SDF must go through approval processes including ACPL board, Strategic Development Review Team, City Transformation Governance Group, and finally Finance and Performance Committee.

11. ACPL considers the approval processes cumbersome and too long in the Auckland development market where property purchase decisions often need to be made quickly as opportunities arise. To date, ACPL has made only one application to the SDF.

12. To improve the timing and to simplify the approval processes for SDF, ACPL recommends that the governance structure for the use of the SDF be changed to provide that approvals for individual project expenditure of

a) up to $15 million be delegated to the ACPL Board,

b) $15 million to $25 million be delegated to Auckland Council Chief Executive, Chief Finance Officer and the chair of the Finance and Performance Committee, and

c) more than $25 million remain with the Finance and Performance Committee

13. It is also proposed that the period for repayment into the SDF be extended from the current two years to four years for each project. This acknowledges the long lead and delivery times for development projects. All expenditure (both capital and operational, including accrued interest) is to be debt funded and repaid within four years. This is to mitigate any volatility impact on rates. ACPL proposes that the ability to re-phase the annual SDF budget be delegated to the Auckland Council Chief Finance Officer and the ACPL Board.

Development budget

14. An opportunity exists to work with the development community to increase the supply of housing in Auckland, with particular regard to affordable housing and improving the commercial return from the current service and non-service assets and projects.

15. ACPL is of the view that it requires operational funding to undertake investigatory work to ensure viability of projects. Similarly, capital funding is required to allow value-adding work to be completed for properties prior to sale. There is no such funding for ACPL at present.

16. ACPL is requesting the establishment of a $5 million annual development budget to cover investigatory activities and value-adding works on properties for sale. It is intended that this budget can be funded by debt initially and repaid through commercial returns. Ultimately, it is to be funded from sales proceeds from property disposal, and will be self-funding with additional returns achieved to offset the expenditure, resulting in no negative impact on rates requirements or material impact on council debt. Access to the budget will be subject to strict criteria set by the ACPL Board.

17. Council staff are of the view that there should be a clear expectation that the purpose of this development budget is to drive better commercial outcomes for the council, with any surplus going back to the council to reduce debt. Staff agree that reporting on both the SDF and the DB should be provided to the CCO Governance and Monitoring Committee as part of the regular quarterly reporting. It is also recommended that the proposed change in ACPL’s role and mandate be referred to the CCO Governance and Monitoring Committee for consideration, which has the delegated authority to make these decisions.

Recommendation/s

That the Finance and Performance Committee:

a) ask the Henderson-Massey Local Board

i) utilise its existing budget to proceed with those projects that are substantially complete, but

ii) not enter into any further contractual commitments regarding the other community facility projects with shortfalls until the capital programme review has been completed in July.

b) agree that the governance structure for the use of the Strategic Development Fund (SDF) be amended to provide that approvals for individual project expenditure of:

i) Up to $15 million be delegated to the Auckland Council Property Limited (ACPL) Board.

ii) $15 million to $25 million be delegated to Auckland Council Chief Executive, Chief Finance Officer and the Chair of the Finance and Performance Committee, and

iii) more than $25 million remain with the Finance and Performance Committee.

c) agree that the period for repayment into the SDF be extended from the current two years to four years for each project, reflecting the long lead and delivery times for development projects.

d) delegate the authority to re-phase the annual SDF budget to the Auckland Council Chief Finance Officer and the ACPL Board.

e) agree that a Development Budget (DB) of $5 million per annum be established to cover investigatory activities on development projects and value-adding works on properties prior to sale.

f) note that this budget is to be funded ultimately by sales proceeds from property disposal, and will be self-funding with additional returns achieved to offset the expenditure, resulting in no negative impact on rates requirements or material impact on council debt.

g) agree that reporting on both the SDF and DB will be provided to the CCO Governance and Monitoring Committee as part of the regular quarterly reporting.

h) note ACPL’s request to expand its development role and mandate, as follows:

i) To enable pro-active facilitation of housing and/or commercial development opportunities within Auckland Council’s and Auckland Transport’s existing service property portfolio, including opportunities to rationalise, amalgamate, co-locate and further intensify the use of properties.

ii) To provide more active capability for ACPL to hold development land on its (Council’s) balance sheet until a project is completed, particularly for projects in partnership with developers, generally on the basis of a minimum pre-agreed value for the land plus holding costs and a profit share, all payable on completion or in stages of a development with all such partnerships subject to the approval of the ACPL Board.

i) note ACPL’s request to amend its Statement of Intent to reflect the extra resources available to ACPL and the expected performance from those resources.

j) Refer h) and i) to the CCO Governance and Monitoring Committee for consideration, and

k) agree that the council’s budgets be updated to reflect the financial implications of the above decisions.

Comments

Background

18. The Finance and Performance Committee has delegated authority to approve changes to budgets during a financial year. Occasionally, it may be necessary for this committee of the whole to make urgent decisions on the budgets for future years, which would ordinarily be made by the Budget Committee as part of the annual/long-term planning processes.

19. Rates for 2013/2014 and 2014/2015 have been set with no provision made for accommodating new or additional expenditure items. Any new expenditure committed to will either require reprioritisation of existing budgets or increased borrowing. When considering requests, the impact on 2014/2015 and 2015/2016 operating expenditure also needs to be considered.

Reallocation of West Harbour Community House budget

20. The Henderson-Massey Local Board has formally resolved to request to the Governing Body to reallocate capital funding from a future project to help ensure the full completion of a number of new build and retrofit community facility projects that are underway or impending. The request is set out in detail in the attached report to the Henderson-Massey Local Board Meeting on 5 June 2014 (attachment A).

21. The board is requesting a total of $1,049,600 to be brought forward and reallocated from the West Harbour Community House budget, which is currently spread across 2016/2017 and 2017/2018, to support a number of other local projects outlined below.

Project	Total estimated cost to complete	Projected shortfall	Proposed reallocation amount
Glendene Community Hub	$794,354	$246,219	$246,219
West Harbour Community Hub	$836,107	$316,992	$316,992
Ranui Library streetscape	$356,494	$200,000	$100,000
Ranui Community House redevelopment*	$500,000	$300,000	$200,000
Te Atatu Community Centre fit-out	$400,344	$500,000	$186,389
Total			$1,049,600

*Note: very high-level estimate

22. The board is also requesting that the relevant council departments be directed to fund the additional operating expenditure associated with this bring-forward, as opposed to funding these costs from the board’s discretionary budget.

23. When finalising the 2014/2015 budget on 8 May 2014, the Governing Body agreed that the Chief Executive undertake an immediate review of the capital programme with a target of reducing or deferring $300 million of rates funded capital expenditure in 2014/2015.

24. This was in response to advice from staff about the identification of $30 million of new budget cost pressures for 2015/2016, the first year of the next LTP. Scenario modelling has shown the lagged impact of changes in the capital programme on operating budgets means that even cutting $800 million of capital expenditure in that year would not be sufficient to achieve 4.9 per cent rates increase for that same year.

25. Undertaking this review allows the council time to pause and consider relative priorities, and to consider the pace of investment in the city that best balances affordability against progress in delivering on the Auckland Plan.

26. As such, it is recommended that the board utilises its existing budget to proceed with those projects which are substantially complete, but not enter into any further contractual commitments regarding the other community facility projects until the capital programme review has been completed in July.

Role of Auckland Council Property Limited in housing delivery

27. Auckland Council Property Limited (ACPL), a council-controlled organization (CCO), is seeking approval to significantly expand its scope, scale and speed of its involvement in projects that increase the supply of housing and create value (e.g. increasing town centre regeneration and enabling combinations of service and non-service uses of council-owned properties.). More specifically, ACPL is proposing changes to the management of the existing strategic development fund (SDF), and establishment of a development budget (DB) to drive better commercial outcomes for the council.

28. It is noted that the outcomes of the current CCO review may affect the matters in consideration. However, it is the preference of ACPL that council decisions are sought at this time, and if approved, to allow ACPL to seize potential opportunities arising from the development market. Once the outcomes of the CCO review are finalised, these matters may need to be reviewed.

Strategic Development Fund

29. The LTP 2012-2022 provides for $96 million of capital expenditure from and $72 million of capital revenue into the SDF over the 10 years from 2012 to 2022.

$ million (inflated)	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22
Expenditure	0.5	6.9	5.4	13.2	18.1	21.3	14.3	14.7	15.2
Revenue	0.0	0.0	0.0	-7.7	-5.6	-13.9	-19.1	-22.6	-15.2
Net expenditure	0.5	6.9	5.4	5.5	12.4	7.4	-4.8	-7.9	0.0

30. The fund is used to acquire development sites, on the basis that the expenditure, together with holding costs, is to be repaid within a two-year period. Application to the SDF must go through approval processes including ACPL board, Strategic Development Review Team, City Transformation Governance Group, and finally Finance and Performance Committee.

31. ACPL considers the approval processes cumbersome and too long in the Auckland development market where property purchase decisions often need to be made quickly as opportunities arise. To date, ACPL has made only one application to the SDF.

32. To improve the timing and to simplify the approval processes for SDF, ACPL recommends that the governance structure for the use of the SDF be changed to provide that approvals for individual project expenditure of

a) up to $15 million be delegated to the ACPL Board,

b) $15 million to $25 million be delegated to Auckland Council Chief Executive, Chief Finance Officer and the chair of the Finance and Performance Committee, and

c) more than $25 million remain with the Finance and Performance Committee

33. It is also proposed that the period for repayment into the SDF be extended from the current two years to four years for each project. This acknowledges the long lead and delivery times for development projects. All expenditure (both capital and operational, including accrued interest) is to be debt funded and repaid within four years. This is to mitigate any volatility impact on rates. ACPL proposes that the ability to re-phase the annual SDF budget be delegated to the Auckland Council Chief Finance Officer and ACPL Board.

Development budget

34. An opportunity exists to work with the development community to increase the supply of housing in Auckland, with particular regard to affordable housing and improving the commercial return from the current service and non-service assets and projects.

35. ACPL is of the view that it requires operational funding to undertake investigatory work to ensure viability of projects. Similarly, capital funding is required to allow value-adding work to be completed for properties prior to sale. There is no such funding for ACPL at present.

36. ACPL is requesting the establishment of a $5 million annual development budget to cover investigatory activities and value-adding works on properties for sale. It is intended that this budget can be debt funded initially and repaid through commercial returns. Ultimately, it is to be funded from sales proceeds from property disposal, and will be self-funding with additional returns achieved to offset the expenditure, resulting in no negative impact on rates requirements or material impact on council debt. Access to the budget will be subject to strict criteria set by the ACPL Board.

37. Council staff are of the view that there should be a clear expectation that the purpose of this development budget is to drive better commercial outcomes for the council, with any surplus going back to the council to reduce debt. Staff agree that reporting on both the SDF and DB should be provided to the CCO Governance and Monitoring Committee as part of the regular quarterly reporting. It is also recommended that the proposed change in ACPL’s role and mandate be referred to the CCO Governance and Monitoring Committee for consideration.

Overall budget impact

38. Items discussed in this report do not relate to the 2013/2014 budget, but the 2014/2015 budget and beyond. The recommendations in this report will not affect the level of net borrowing or the group result of 2013/2014, nor will it impact on the rates requirement for 2014/2015. Any financial effect beyond 2014/2015 can be addressed by the Budget Committee as part of the LTP 2015-2025 process.

Consideration

Local board views and implications

Reallocation of West Harbour Community House budget

39. On 5 June, the Henderson-Massey Local Board has formally resolved to request to the governing body to reallocate capital funding from the West harbor Community House project to help ensure the full completion of a number of new build and retrofit community facility projects that are underway or impending.

Role of Auckland Council Property Limited in housing delivery

40. The role of ACPL in housing delivery is primarily a responsibility of the Governing Body. Local board views have not been sought.

Maori impact statement

41. Staff do not consider that decisions or budget adjustments set out in this report have a specific impact on Māori.

Implementation

42. Budgets will be amended in core financial systems and used for internal management reporting, regular reporting to councillors and financial control for the 2013/2014 financial year.

Attachments

No.	Title	Page
a View	Reallocation of West Harbour Community House budget	55
b View	Expanding Auckland Council Property Limited’s Role in Housing Delivery and Creating Value for Council	59

Signatories

Authors

Neil Huang - Senior Analyst - Evaluation

Authorisers

Ross Tucker - Team Leader Capital Planning

Matthew Walker - Manager Financial Plan Policy and Budgeting

Andrew McKenzie - Chief Finance Officer

Comments

10. In 2010 a budget for a West Harbour Community House of $1,049,600 (2014 inflated figure) was transferred from the legacy Waitakere City Council. In 2013 this budget was deferred to 2017/18 as there was no specific project identified, however significant population growth was predicted for the area which would require social infrastructure in the future.

Glendene and West Harbour School Community Hubs

11. In June 2010 the legacy Waitakere City Council resolved to allocate $1,320,000 for neighbourhood hubs in Kelston and Glendene. After amalgamation $1,239,000 was allocated to a capital project called Kelston Community Facility.. The Kelston Community Facility budget was subsequently reallocated between the Kelston Community Hub $ 556,759 and the Glendene Community Hub $682,241. Construction of the Kelston Community Hub was completed in 2012.

12. Also transferred on amalgamation was a budget for the West Harbour Community Hub of $384,695. Realising $384,695 would be insufficient to build a community hub the Henderson-Massey Local Board increased funding to the West Harbour Community Hub budget to $610,352 in its 2013/14 Local Board Agreement.

13. The Glendene Community Hub and the West Harbour School Hub have been progressed together as their design requirements were very similar and it was anticipated that there would be financial benefits from planning and constructing two facilities together. The tender process has resulted in a significant budget shortfall being identified for both projects (Glendene Hub $246,219 West Harbour Hub $316,992)

14. A workshop was held with the Henderson Massey Local Board on 20 May 2014 at which three options were discussed with the Board to fund these budget shortfalls.

i) Option 1 - Build both hubs and approve a further $500,000 by bringing forward budget set aside for the West Harbour Community House. This would mean that the proposed community house would not have sufficient budget to be built.

ii) Option 2 - Build the West Harbour Hub and retrofit the existing Glendene House. This option would leave the Glendene Hub as not being fit for purpose, would require significant renovation costs and reapplying for building consent.

iii) Option 3 - Construct one hub now and seek further funding for the second through the Long Term Plan process.

15. Option 1 was recommended and was generally supported by the local board. It would meet the expectations that have been established with both the Massey and Glendene communities through the process to develop these facilities. The facilities would be fit for purpose and comply with the conditions of both resource and building consents that have been obtained. The board has budget available for the development of a community house in West Harbour of $1,049,600. It would need to obtain the approval of the governing body to bring forward the required funding. There will be an impact on the boards budget but this option could be progressed within a time frame that exists for acceptance of the tenders received.

16. Option 2 would enable one of the hubs to be built and for construction to start immediately as the board already has budget available. It would see the refurbishment of the house currently on the Glendene site which is small and would not be fit for purpose. Another building consent application would be required and community expectations not met.

17. Option 3 is to construct one hub now and seek funding for the second through the Long -term Plan process. This will take time and the governing body is still likely to require the board to reprioritise an existing budget to fund this. The Glendene community may be disappointed at the delay in development of a facility and community needs for a facility and programmes would go unmet.

Ranui Library fit-out and streetscaping

18. The board are advocating for funding to complete the Ranui Library fit-out and streetscaping that would have been done if it were not for incidents (contaminated soil and exterior texturing problems) that caused the contingency budget to be used. Auckland Council library staff advise the cost of the library fit-out is between $170,000 and $200,000.

Ranui Community House redevelopment

19. When the Ranui Library moves out of the premises it shares with the Ranui Community House the community house is planning to redevelop the building to better meet the needs of the Ranui community. Auckland Council staff are currently completing a community needs analysis and the final configuration of the redevelopment will be determined by the results of this analysis. It should be noted that the Ranui community has been identified as having the highest level of deprivation in the recent Ministry of Social Development analysis and nearly 36 per cent of the population is aged under 20. It is likely the Community House redevelopment will improve facilities for children and young people in Ranui. It is recommended the Henderson-Massey Local Board allocates $200,000 to the redevelopment of the Ranui Community House.

Te Atatu Peninsula Community Centre fitout

20. The Te Atatu Peninsula Community Centre is scheduled to open in August 2014. The budget for the community centre build did not include provision for fitout of the centre once it was constructed. Auckland Council staff have provided an estimate of the fit out cost being$496,044.00.;

21. The board has identified that if the money can be reallocated that it would like to fund $186,389 of the fit out and support the Te Atatu Peninsula community to raise the balance.

Consideration

Local board views and implications

22. The Board was made aware of the budget shortfall at a workshop on 20 May 2014.

23. The options for addressing the identified shortfall for the facilities construction and fit-out were discussed with the board who indicated that they favoured option 1.

24. The Board is keen to build both hubs noting the lack of community facilities in both these areas and the high levels of need that exist for the programmes and services that will operate out of the hubs.

Maori impact statement

25. Maori living in both proposed hub areas will benefit from the services and programmes that would be developed from the constructed facilities.

Implementation

26. The tenders received for both hubs are being evaluated to check tender assumptions and look for areas of possible savings. These tenders remain open for negotiation for a period of sixty days until 30 June 2014. To avoid having to repeat the tender process a decision regarding the option to progress the development of these hubs is required and confirmation of the budgets available.

Finance and Performance Committee

19 June 2014

AC 0594 CCO Property_1

REPORT

To: Finance and Performance Committee

From: David Rankin, Chief Executive - ACPL

Date: 19 June 2014

EXPANDING AUCKLAND COUNCIL PROPERTY LIMITED’S ROLE IN HOUSING DELIVERY AND CREATING VALUE FOR COUNCIL

Purpose

1. The purpose of this report is to seek approval for the actions required to enable Auckland Council Property Limited (ACPL) to significantly expand the scope, scale and speed of its involvement in projects to increase the supply of housing in Auckland and create value for Council through increased town centre regeneration and enabling combinations of service and non-service uses of council-owned properties. The result of this expansion will be to reduce the burden on rates through surpluses generated and by creating new funding sources for existing planned capital works.

Executive Summary

2. Increasingly since its formation, ACPL’s Statement of Intent has been amended to increase the shareholder’s emphasis on ACPL leading housing development projects. These projects are in partnership with private and third sector parties and will improve the supply of housing in Auckland.

3. To date the model has produced results from using surplus Council property, however other possibilities exist. They include more proactive investigation into, and use of, all or part of Council service sites, more site aggregation activity by ACPL where there are market obstacles, and the acquisition of sites with private or third sector partners. These activities will enable development to occur and the exit of Council’s capital within a reasonable period of time.

4. This proposal details how ACPL could expand the scale of its operations, and move more quickly on housing projects to increase the supply of housing in Auckland. While not limited to the relatively affordable price segment to the market, there is an emphasis on this part of the market in ACPL’s focus and activities.

5. To assist Council to control its growing rates and debt ACPL can create value for Council by assisting to enable both service and non-service uses of Council property. Effectively this can provide a new funding source to assist with paying for planned renewal and new capital works by creating saleable assets and reducing the need to borrow, or by funding renewals or facilities through mixed redevelopment of a current service site such as Wilshire Village.

6. To achieve these objectives ACPL needs access to more resources including staff, contractors and specialist advisors, budgets for investigatory work, and a streamlined ability to acquire sites using the existing Strategic Development Fund budget in the Long Term Plan, the use of which needs to be made more flexible.

7. This report recommends the essential actions to enable ACPL to significantly expand the scope and scale of its housing involvement and other income generating activities and to progress opportunities more quickly.

Recommendations

8. That in order to expand the scale and decrease the time for delivery of housing projects and other income generating activities being led by ACPL, approval be given to the following enabling changes:

a) That the governance structure for use of the Strategic Development Fund budget be revised to provide that approvals for individual project expenditure of:

i. Up to $15 million be delegated to the ACPL Board.

ii. $15 million to $25 million be delegated to Council’s CEO, CFO and the Chair of the Finance and Performance Committee.

iii. More than $25 million remain with the Finance and Performance Committee, as currently,

b) That the repayment period for funds from the Strategic Development Fund budget be extended from the current two years to four years for each project. This acknowledges the long lead and delivery times for development projects.

c) All expenditure (both capital and operational, including accrued interest) is debt funded and re-paid within four years. This is to mitigate any volatility impact on rates.

d) The ability to re-phase the annual SDF budget be delegated to the Auckland Council Chief Financial Officer and ACPL Board.

e) That a Development Budget (DB) of $5 million per annum is established to cover investigatory development project activities and value-adding works on properties prior to sale.

f) That this budget to be funded from surplus property sales proceeds targets in ACPL’s SOI. Once set up, this will be self funding with additional returns achieved to offset the expenditure resulting in no negative impact on rates requirements or material impact on council debt.

g) All Development Budget expenditure (both operating and capital) is debt funded and will be repaid through additional returns

h) Access to the budget will be subject to strict criteria set by the ACPL Board.

i) Reporting on both the SDF and DB will be provided to the CCO Governance and Monitoring Committee on a quarterly basis as part of the regular Quarterly Report.

j) That ACPL’s development role and mandate be expanded:

i. To enable pro-active facilitation of housing and/or commercial development opportunities within Council’s and Auckland Transport’s existing service property portfolio’ including opportunities to rationalise, amalgamate, co-locate and further intensify the use of properties.

ii. To provide more active capability for ACPL to hold development land on its (Council’s) balance sheet until a project is completed, particularly for projects in partnership with developers, generally on the basis of a minimum pre-agreed value for the land plus holding costs and a profit share, all payable on completion or in stages of a development with all such partnerships subject to the approval of the ACPL Board.

k) That changes be made to ACPL’s SOI, as stated in this report, to reflect the extra resources available to ACPL and the expected performance from those resources.

Background

9. One of the central themes of Auckland Council’s vision and strategic direction is to increase the supply, choice, quality and affordability of housing. This is captured in ACPL’s Statement of Intent (‘SOI”) and is a key deliverable.

10. ACPL, via its Development Team, is Council’s primary vehicle to directly and proactively accelerate housing outcomes in Auckland. It has successfully progressed a number of housing projects to date and is now being asked how it can deliver an increased number of projects and housing outcomes, and how it can do so more quickly.

11. ACPL is also Council’s primary vehicle for delivering value from Council’s non-service property portfolio. ACPL, with the right resources, will be able to increase its ability to deliver value to the Council on both service and non-service properties. This would be through investigating and delivering on approved multi-uses for service properties, amalgamation of council-owned and privately owned sites to remove development blockages and by working in partnership with approved developers to provide housing, commercial and community outcomes on newly identified sites.

12. By working with approved developers on multi-uses for both council-owned and privately owned sites ACPL will be able to generate new funding sources for existing planned capital works or replacing (at least in part) what might otherwise have to be spent on renewal.

13. A number of constraints that prevent ACPL from achieving this objective have been identified and proposed solutions have been developed. The proposed solutions were outlined in a paper dated 15 April 2014 from ACPL’s Chief Executive to the Auckland Council Chief Executive. Having received support, the proposals were subsequently covered in the Budget Submission Report that was presented to the Budget Committee Workshop on 5 May 2014.

14. The proposals are now presented in this report for Finance and Performance Committee approval. However to set the scene we first describe ACPL’s housing and other developments role, the constraints arising from ACPL’s current mandate and funding regime, their implications and the proposed solutions.

How ACPL Facilitates Housing Development Outcomes

15. ACPL is potentially able to facilitate housing development outcomes through:

· The direct use of surplus Council land for housing projects.

· Increasing the scale and development potential of surplus Council land through purchasing adjacent sites.

· Identifying and actioning multi-use development opportunities, including Council service, housing and commercial uses for properties within the wider Council service property portfolio.

· Purchasing strategic sites and/or aggregating landholdings to create development sites; thereby essentially unblocking the market.

· Enhancing the development potential of sites through value-adding actions such as consenting or the provision of infrastructure.

· Partnering with private sector developers to facilitate housing and other development.

· Actively supporting and participating in good quality, innovative housing and mixed-use development projects that show the market what is possible.

16. The extent to which ACPL is currently able to undertake these activities is however significantly constrained. For that reason it has to date primarily focused on projects associated with surplus Council land.

Constraints and Missed Opportunities

17. ACPL’s ability to proactively deliver greater numbers of projects and to deliver them more quickly is constrained by:

· A lack of staff resources.

· A lack of funding, particularly operational.

· Cumbersome approval processes for funding acquisitions and value-adding opportunities.

· The lack of a sufficient mandate.

· Limitations as to the scope of its development role.

18. These constraints mean that ACPL:

· Has been unable to pro-actively identify and action housing development opportunities within the wider Council service portfolio.

· Is constrained in the number of housing and multi-use development sites it can acquire. This includes the acquisition of sites to facilitate development opportunities through the aggregation of landholdings.

· Has limited ability to add value to land in order to improve or speed up its development potential.

· Has limited ability to effectively partner with the development community.

The Resources Required to Expand ACPL’s Role

19. The resources required to significantly ramp up ACPL’s delivery of housing projects fall into three categories:

a) People – additional employees, contractors and specialists advisors.

b) Capital budgets - to acquire land and/or enhance development potential.

c) Operating budgets - for investigatory development expenditure that is operational rather than capital.

This report covers the latter two budget items.

Capital

20. Capital is required to enable the acquisition of development sites. One vehicle for this funding is Council’s Strategic Development Fund (“SDF”) budget. This is a budget that is available on the basis that the expenditure, together with holding costs (at Council’s cost of funds), is to be repaid within a 3 - 5 year period although the current Long Term Plan (“LTP”) is based on a two year repayment period. A lack of staff resources at ACPL to pursue opportunities, plus a cumbersome approval process means that to date ACPL has only made one application to the SDF.

Operational Budgets

21. ACPL does not retain any fund it generates for Council and a very small operating budget has significantly constrained its development activity. Operating budgets are particularly required to enable exploratory work to be undertaken prior to a potential project being confirmed. It is also important to realise that a proportion of the projects that need to be validly investigated as potential prospects, may never progress to the point of becoming a development project. To date, a very modest consultancy budget has been the only source of funding for this exploratory work on potential development projects.

Potential Funding Sources

22. Currently ACPL owns none of the property assets, as they are all held on Council’s balance sheet. This is appropriate as the development projects that ACPL is involved with are for the purposes of advancing broader Council urban regeneration goals. All sale proceeds are therefore recycled back into Council’s capital programme.

Capital Funding

23. As mentioned above, a potentially suitable framework is already in place to provide capital for site acquisitions through the operation of Council’s SDF. Council’s 2012/22 LTP provides for $96 million of expenditure from and $72 million of income into the SDF phased over the 10year period from 2012/13 to 2012/22. However this facility does not function well for ACPL’s development projects as the SDF approval processes are cumbersome and do not allow ACPL to take action on prospective sites in a timely enough manner for the market.

24. The following table represents the current budget for the SDF:

$million (inflated)
	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22
Expenditure	0.5	6.9	5.4	13.2	18.1	21.3	14.3	14.7	15.2
Revenue	0.0	0.0	0.0	-7.7	-5.6	-13.9	-19.1	-22.6	-15.2
Net expenditure	0.5	6.9	5.4	5.5	12.4	7.4	-4.8	-7.9	0.0

25. At the present time all applications to use the SDF require ACPL Board approval, Strategic Development Review Team approval, City Transformation Governance Group approval, then Finance and Performance Committee approval which potentially takes a considerable time.

26. This is simply too long in the Auckland development market where property purchase decisions often need to be made quickly as market opportunities arise. The current model does not empower the ACPL Board to deliver against its SOI to the degree that would be possible with change. ACPL therefore needs the ability to be much more responsive to land acquisition and value-adding opportunities.

27. In order to improve the timing and to simplify the SDF approval processes, it is recommended that the governance structure for use of the SDF budget be changed to provide that approvals for individual project expenditure of:

a) Up to $15 million be delegated to the ACPL Board.

b) $15 million to $25 million be delegated to Council’s CEO, CFO and the Chair of the Finance and Performance Committee.

c) More than $25 million remain with the Finance and Performance Committee, as currently.

28. To ensure that budget can be made available as required, the ability to rephase the amounts included in LTP for the SDF budget should be delegated to the Auckland Council Chief Financial Officer and ACPL Board and all interest costs of borrowing in relation to the SDF budget should be debt funded through the SDF and repaid as part of the project costs so that there is no impact on rates requirements.

29. The parameters would still ensure that approvals, including the capitalisation of holding costs, could only be granted within the LTP amounts so there was no impact on rates.

30. To further improve the usability of the fund, the LTP maximum repayment period for a project should be increased to four years to align more with likely reality with the ACPL Board having the ability to lengthen this period if required. Holding costs will continue to be repaid to the fund.

31. Large projects may initially utilise the SDF to, for example, purchase land but would then have their own budgets for expenditure, including holding costs and revenue once full details of the project were completed and approved. The costs originally taken from the SDF would be repaid from the approved project budget.

32. The adoption of these changes to delegations will considerably free up ACPL’s access to the SDF and thereby enable opportunities for additional projects to be accelerated, particularly in relation to housing.

Development Budget

33. As mentioned above, there is a clear requirement for ACPL to have access to operational funding for investigatory development project activity prior to projects reaching the point where they become a defined project. These investigations frequently extend over multiple years and there is simply no funding available for the preliminary work that needs to be undertaken to ensure the viability of a project. There is also a need for ACPL to have access to capital budgets/funding to allow value-adding work to be completed to properties prior to sale.

34. The annual funding requirement for these activities is estimated to be approximately $5 million.

35. It is proposed that this budget be sourced from the surplus property sale proceeds targets in ACPL’s SOI. Once set up, this would essentially be self-funding with returns achieved to offset the expenditure resulting in no negative impact on rates requirements or material impact on council debt.

36. Any unspent amount of the capital portion of the budget in one year should carry over to the following year, so that developments do not become artificially time-bound to a financial year.

37. Access to the Budget for Investigatory Work would be subject to strict criteria, with approval being delegated to ACPL’s CEO and CFO based on a quality business case.

ACPL’s Mandate

38. There are extensive opportunities to facilitate housing and multi-use development within Council’s existing service property portfolio. These include opportunities to rationalise, amalgamate, co-locate and further intensify the use of properties. However these opportunities are on the whole not being investigated and actioned both due to a lack of staff resource at ACPL and also the lack of an unequivocal mandate.

39. Measures to address the lack of staff resources are being addressed separately, but the mandate is equally important. We expect this will require:

· Explicit expansion, clarification and confirmation of ACPL’s role in its SOI.

· The acceptance of ACPL’s role and mandate by Council and Auckland Transport to pro-actively search out redevelopment opportunities in the broader service portfolio.

40. The SOI will need to confirm ACPL’s ability to proactively search out potential opportunities for housing developments on the total Council property portfolio including Auckland Transport’s property register. This will also need to be reflected in the other parties’ SOIs.

41. Closely linked to this are the processes to investigate and approve the outcomes, which will need to move faster than standard Council processes typically allow. This will require active co-operation, senior management instruction to clear away barriers and blockages wherever possible, and the simplification of processes to enable much quicker outcomes to be achieved.

42. While the bottom line is that the process will only be as fast as it weakest link, there is no valid reason why this cannot be achieved given an adequate mandate and co-operation between all three organisations.

Further Expansion of ACPL’s Housing Development Role

43. ACPL’s ability to deliver better housing outcomes will be additionally boosted if its partnership role with private developers is expanded.

44. In particular, the development community would find it very attractive if ACPL had more active capability to hold development land on its (Council’s) balance sheet until a project is completed. This would be on the basis of a minimum pre-agreed value for the land plus holding costs and a profit share, all payable on completion of or in stages of a development.

45. The required capital would be sourced from the SDF, with the associated holding costs being significantly lower than either the credit available to most market participants or the return required from shareholders for any equity held in property while development takes place. The answer to the question of why Council would advance these funds at more attractive rates than the market does, is because of the importance Council places on facilitating and increasing housing and other strategic community outcomes.

Identifying and Managing Risks

46. ACPL’s development risk profile is currently relatively low, with the risk primarily being limited to the land component of development projects. While we expect this remains the most appropriate position for ACPL on the risk continuum, there is no question that undertaking more projects, acquiring more sites, being involved in more site aggregations and more partnerships on a profit basis will affect ACPL’s risk profile which will continue to be managed through its Risk Management Policy and Processes. Continuing to limit ACPL’s risks primarily to the land component, including resource consents and infrastructure, is considered appropriate.

Changes to ACPL’s SOI

45. The following changes to ACPL’s SOI are recommended to reflect ACPL’s expanded role. This includes highlighting ACPL’s mandate to take a lead role in developments, increasing non-financial targets for housing and including financial information. The detailed changes in sections of the SOI are:

Areas of focus, clause 2.4 page 4

· New bullet point – “taking a lead in identifying and actioning multi-use development opportunities, including Council service, housing and commercial use for properties within the wider Council service portfolio” and

· “taking a lead role in increasing Auckland’s housing supply, in particular affordable housing;” and

· Add word lead to replace continued – “lead identification of surplus service and non-service assets for Council to approve for disposal/development”.

Performance targets 3.1, page 23:

· Increase number of business cases to be prepared for housing development projects with an affordable housing component from 5 to 7

· Increase number of joint ventures/agreements with third parties including community housing organisations from 3 to 5

· Increase number of business cases to be prepared for Council Housing for the Elderly from 2 to 3

Financial information changes, section 5 table 6 page 36:

· Inclusion of a new Table 6: Prospective Development Expenditure and

· New points 5.9 to 5.11 describing the expenditure that the new Development Budget and SDF will be used for and

· New point 5.12 detailing the reporting requirements for the budgets.

David Rankin

Chief Executive

Auckland Council Property Limited

Chairperson	Cr Penny Webster
Deputy Chairperson	Cr Ross Clow
Members	Cr Anae Arthur Anae	Cr Calum Penrose
	Cr Cameron Brewer	Cr Dick Quax
	Mayor Len Brown, JP	Cr Sharon Stewart, QSM
	Cr Dr Cathy Casey	Member David Taipari
	Cr Bill Cashmore	Member John Tamihere
	Cr Linda Cooper, JP	Cr Sir John Walker, KNZM, CBE
	Cr Chris Darby	Cr Wayne Walker
	Cr Alf Filipaina	Cr John Watson
	Cr Hon Christine Fletcher, QSO	Cr George Wood, CNZM
	Cr Penny Hulse
	Cr Denise Krum
	Cr Mike Lee

Year	FY15	FY16	FY17	FY18	FY19
OPEX Under/overspend	-11,703	-33961	-32,567	-18634	2675

Authors	Linda Smith - Senior Local Board Advisor (West)
Authorisers	Glenn Boyd - Relationship Manager Henderson-Massey, Waitakere Ranges, Whau