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Finance and
Performance Committee
13 February
2019
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Transfer
of legal ownership of properties within the council group
File No.: CP2019/00575
Te take mō te
pūrongo
Purpose of the report
1. To agree the scope of a possible land transfer from Panuku
Development Auckland Limited (Panuku) to the Council Entity to be consulted on
alongside the Annual Budget 2019/2020.
Whakarāpopototanga matua
Executive summary
2. Panuku
Development Auckland (Panuku) own and manage some of the city
centre waterfront property - land, buildings and any associated water rights
relating to city centre waterfront public space, development sites and marinas.
These properties are currently valued at around $800 million and this
waterfront land is identified as a strategic asset by the council.
3. The
Council Entity (Auckland Council’s parent entity) typically has legal
ownership of property and council’s controlled organisations are given
appropriate delegations to undertake activities on behalf of council on this
land. There are some exceptions to this (for example, the Art Gallery and Zoo)
where a different ownership structure is considered more appropriate.
4. In
the next 10 to 20 years, once the development on the waterfront sites is
complete, the legal ownership of these properties would have likely transferred
back to the Council Entity. To facilitate Panuku moving on to new development
areas and to reflect the council’s on-going role in managing open space
and roads, this approach is consistent with the model for development agencies
such as those in the UK and Australia.
5. However,
if the transfer of waterfront properties happens after 1 July 2019 it will have
a significant impact on rates and debt due to tax law changes. When the tax law
changes come into effect, transferring waterfront assets from a
council-controlled organisation (CCO) to the Council Entity for no cost will be
considered taxable income. The resulting tax liability from a transfer of
waterfront land in the future could be about $220 million (depending on the
exact make-up and their value at the time the properties transferred).
6. The
council’s tax advisors are working with Inland Revenue to obtain a
binding ruling to provide certainty about the tax treatment of our proposal.
7. Previous reports to the committee have noted that not transferring
waterfront assets before
1 July 2019 may potentially limit the council’s flexibility for
waterfront land ownership options in the future.
8. A proposal to transfer ownership or control of a strategic asset
from a council-controlled organisation to the Council Entity, or from the
Council Entity in the future, requires an amendment to the relevant 10-year
Budget and a special consultative procedure with a formal long-term plan
consultation document.
9. In
December 2018, the Finance and Performance Committee agreed to approve the preparation of consultation
material to publicly consult on whether the legal ownership of some or all of
the land held by Panuku Development Auckland Limited should be transferred to
Auckland Council. The committee also agreed that the consultation material be
brought back to the Finance and Performance Committee in February with the
Annual Budget consultation document for a final decision on whether to publicly
consult on any proposal.
10. Two
consultation documents have been drafted. The proposal in consultation document
A is for a partial transfer – transferring completed and future
development assets only to the Council Entity, while working waterfront assets
remain in Panuku ownership for the foreseeable future. The proposal in
consultation document B is for a full transfer of waterfront assets from Panuku
to the Council Entity. Under both proposals Panuku would be given appropriate
delegations to manage and develop the properties on behalf of the council.
11. The
working waterfront assets, and Westhaven marina in particular, require ongoing
management and are different in nature to the development assets. There is no
clearly defined end date to the involvement of Panuku in the working waterfront
assets.
12. The
transfer of waterfront properties will simply change the ownership structures
to be consistent with the other activities done by Panuku in its other
development areas, in which the council already has the legal ownership of the
assets.
13. Staff
recommend that the committee agree to publicly consult on consultation document
B – full transfer, noting that this option does not preclude a decision
to be made by council for a partial transfer of waterfront land assets or no
transfer of waterfront land assets following consultation. If the committee
decides to consult on the partial transfer, the committee would be precluded
from deciding to transfer all the waterfront assets following consultation.
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Ngā tūtohunga
Recommendation/s
That the Finance and Performance
Committee:
a) agree to recommend to the Governing Body to consult on the full
transfer of waterfront assets currently owned by Panuku Development Auckland
to the Council Entity
b) note that the proposed consultation document on the full transfer
of waterfront assets currently owned by Panuku development Auckland to the
Council Entity includes information on the alternative options considered and
does not preclude a decision on these options following consultation.
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Horopaki
Context
14. Panuku is
the sole entity within the council group responsible for urban redevelopment
leveraging council-owned property, managing redevelopment and property
transactions on behalf of Auckland Council. Panuku own
and manage some of the city centre waterfront property - land, buildings and
any associated water rights relating to city centre waterfront public space,
development sites and marinas. These properties are currently valued at around
$800 million.
15. To
assist the redevelopment, Auckland Waterfront Development Agency, the
predecessor to Panuku, was given legal ownership of the waterfront properties
at the time of amalgamation. In the next 10 to 20 years, once the development
is complete, this legal ownership would likely have transferred to the council
entity to facilitate Panuku moving on to new development areas, while the
Council Entity would maintain the newly developed public assets.
16. New
Zealand’s tax law is changing. From July 2019, transferring assets from a
council-controlled organisation (CCO) to the Council Entity for no cost would
be considered taxable income. A transfer of waterfront land properties after 1
July 2019 is likely to have a significant impact on rates and debt. Depending
on the exact make-up of the properties to be transferred this could cost the
council approximately $220 million.
17. A
report to the Finance and Performance Committee in November 2018 provided
advice on issues relating to the ownership of waterfront assets and the
potential for tax law changes to potentially limit the council’s
flexibility for waterfront land ownership options in the future.
18. A
proposal to transfer ownership or control of a strategic asset from a
council-controlled organisation to the Council Entity, or from the Council
Entity in the future, requires an amendment to the relevant 10-year Budget and
a special consultative procedure with a formal long-term plan consultation
document.
19. As
the council is preparing to consult on its Annual Budget 2019/2020, the Local
Government Act 2002 states that the council should combine any amendment to the
10-year Budget into the same consultation document. The consultation material
must include an audit opinion, and there is a very tight timeframe to complete
the audit work required.
20. In
December 2018, the Finance and Performance Committee agreed to approve the preparation of consultation
material to publicly consult on whether the legal ownership of some or all of
the land held by Panuku should be transferred to Auckland Council (Council Entity).
The committee also agreed that the consultation material be brought back to the
Finance and Performance Committee in February with the Annual Budget
consultation document, for a final decision on whether to publicly consult on
any proposal.
21. The Panuku board expressed a desire to talk to elected members and a
workshop was held on 31 January 2019. The Board is supportive of the need to
consider land transfers now, noting it will require some work by Panuku and
council staff to manage any transfers. The board stressed the importance of
making it clear that Panuku has an ongoing role in managing and developing the
waterfront and that the appropriate delegations are put in place at the time of
any transfer of property ownership.
22. The
Panuku board have noted that they consider their role for the working
waterfront properties to be different to the development role for the rest of
their business and that there is therefore a case for Panuku to retain legal
ownership of the working waterfront assets, such as the Westhaven marina as
well as other berths and marine activities situated on the Western edge of
Wynyard Point.
Tātaritanga me ngā
tohutohu
Analysis and advice
The role of Panuku in Auckland’s waterfront development
23. Panuku’s
role in the waterfront is defined in its constitution: “To continue to
lead the development of the Auckland waterfront in a way that is consistent
with the Waterfront Plan 2012, and which balances commercial and public good
objectives, including high quality urban design”.
24. Panuku’s operating model is not premised on owning the land
which it is redeveloping on behalf of Auckland Council. A large part of the
operations of Panuku are in the transform and unlock locations, where the
assets are legally owned by the council. In these sites, Panuku requires
appropriate delegations from the council to undertake its role. In the
transform and unlock locations, these are given when a high-level project plan
is approved by the Planning Committee.
25. Similarly, Panuku does not need to own land to fund its operations
as it receives operating and capital funding from the council.
26. The
council typically has legal ownership of property and council-controlled
organisations are given appropriate delegations to undertake activities on
behalf of the council on this land (for example Auckland Council owns the
transport network and Auckland Transport manages and develops this network).
There are some exceptions to this (for example, the Art Gallery and Zoo where a
different ownership structure is considered more appropriate). The proposal to
transfer all or part of the ownership of city centre waterfront property from
Panuku to the Council Entity will consolidate council property.
27. Panuku
will continue to lead the development of the city centre waterfront and would
be given new delegations to develop and manage the waterfront properties such
that its operations will remain unaffected.
Waterfront properties for consideration
28. The
waterfront properties currently legally owned by Panuku can be broken down into
three categories:
1. Completed development
properties (projected at $191 million as at date of transfer)
These properties are generally either freehold land interests on commercial
sites (e.g. hotels or apartment buildings) or completed public space assets.
For these properties, there are very limited opportunities for Panuku to add
further value. This category also includes Queens Wharf, as the current phase
of the development of the public realm work is complete.
2. Future development properties (projected at $269 million as at date
of transfer)
These are under-utilised properties that are intended to be redeveloped in
partnership with the private sector to produce high-quality commercial and
public space assets, in line with the agreed Waterfront Plan. Panuku have a key
role to play in driving this transformation and the works are mostly expected
to be completed in the next 10 to 20 years.
This role is very similar to the
transformative role Panuku is currently playing in other parts of Auckland,
such as Manukau, Avondale and Onehunga, where it does not have legal ownership
of the assets. In those areas, legal ownership rests directly with the Council
Entity and Panuku is given a clear mandate and full delegation to carry out its
redevelopment activities.
3. Working waterfront properties (projected at $339 million as at date of
transfer)
Panuku also owns a range of properties
associated with marina operations. These properties are located in the western
part of the city centre waterfront. This includes ownership interests in
Westhaven Marina as well as other berths and marine activities situated on the
Western edge of Wynyard Point.
Alongside its activities to reinvigorate
and expand these commercial marina activities, Panuku has been developing
high-quality public space assets close by. This is a key element of the
council’s long-term strategic plan for the city centre which envisages a
working waterfront in which marine industry activities add flavour and
character to public recreation and hospitality activities, rather than compete
with them. There is a close connection between these commercial properties
(which generate a return on public investment) and the public space assets
(which require ongoing public funding).
29. A
full list of properties proposed to be transferred can be found in section two
of the Supporting Information.
Options considered
30. There are four options that have been considered in determining
where ownership of the waterfront assets should reside. These are:
1. status
quo – no transfer
2. partial transfer - transferring the completed development properties
only with Panuku retaining the working waterfront assets and future development
properties
3. partial transfer – transferring completed and future
development properties only, while leaving the working waterfront assets in
Panuku ownership
4. full transfer of all waterfront properties from Panuku ownership to
the Council Entity
31. These options are depicted in Figure 1.
32. Under all options, the land assets will
remain in public ownership. Under options 2, 3 and 4 there is no impact on council rates or debt as a result of proposed
transfers. If these assets were transferred after 1 July 2019 there may be a
financial impact on the council.
Figure 1:
Waterfront assets for consideration
33. The
options have been assessed in terms of their advantages and
disadvantages. Table 1 summarises this analysis. Staff recommend that the
council consults on full transfer of the waterfront land assets to the Council
Entity, with appropriate delegations to Panuku, to lead the planning and
delivery at the waterfront (Option 4). This option does not preclude Options 2
or 3 being adopted following consultation. If the committee, however, chooses
to consult on the partial transfer of assets, the council will be precluded
from deciding on Option 4 – full transfer following consultation.
Table 1: Analysis
of land asset transfer options
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Option
1:
Status quo
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Options
2 and 3:
Partial
transfers
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Option
4:
Full
transfer
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Overview
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Panuku retains ownership
of the properties, and the council continues to operate as it does currently.
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Panuku transfers the
ownership
of the completed only or
completed and future waterfront property developments to direct the Council
Entity ownership, while leaving either the working waterfront assets or
working waterfront and future developments in Panuku ownership.
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Panuku transfers the
ownership of completed and future waterfront development property and the
working waterfront property to the Council Entity.
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Advantages
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No
transaction costs in the immediate future.
Panuku’s
day to day operations in their waterfront activities would not be changed.
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Would be a
marginally simpler transaction to implement than
full transfer, although would require mostly the same legal procedures.
Would
mitigate some of the potential future liabilities to the council.
Would
consolidate some of the strategic land ownership and decision making in the
Council Entity.
Would reduce
some duplication in governance for approvals.
May provide
Panuku greater freedom and flexibility to implement its strategic plans for
the working waterfront.
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Facilitates an orderly
transition from development to ongoing maintenance activities without the
need for a transfer in the future.
Is
consistent with the way Panuku operates in other development locations.
Will
reduce duplication in governance for approvals.
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Disadvantages
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If future transformed assets remain with Panuku indefinitely, then developed
waterfront assets will have a different ownership arrangement to properties
relating to the other development activities undertaken by Panuku (e.g.
Manukau, Avondale, Onehunga, etc).
Once
development of the waterfront is complete, Panuku would be left with
ownership of public assets such as parks which are used for activities that
are outside of their core business.
May have
possible tax implications that would significantly impact the council’s
rates and debt.
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Panuku’s
urban development mandate could be confused with marina operating activity.
Any proposed
transfer of the waterfront properties in the future would need to consider
potential impact on the council’s rates and debt.
No single
entity owning waterfront spaces – potential for misalignment
Future public
space assets would need to be maintained by the council and Auckland
Transport while these entities do not have legal ownership.
Panuku risk
losing momentum and leadership over the waterfront development and may impact
their reputation in the market – this would be mitigated by giving
Panuku appropriate delegations.
May have
possible tax implications that would significantly impact the council’s
rates and debt.
Transaction
costs of approximately $300,000 to $500,000.
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Panuku risk
losing momentum and leadership over the waterfront development and may impact
their reputation in the market – this will be mitigated by giving
Panuku appropriate delegations.
Transaction
costs of approximately $300,000 to $500,000.
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34. It is noted that Westhaven Marina was originally purchased by
Auckland City Council so that the marina would remain in public ownership.
Ownership by either the Council Entity or Panuku would give effect to this
original intention.
35. The
working waterfront assets, and Westhaven marina in particular, require ongoing
management, and are different in nature to the development assets. There is no
clearly defined end date to Panuku’s involvement in the working
waterfront assets.
Consultation documents
36. Due
to timing constraints, two draft consultation documents have been developed for
the committee to consider where ownership of the city centre waterfront assets
should reside. The committee workshopped these documents on 7 February
2019. These documents reflect options 3 and 4. Consultation document –
partial transfer, is consistent with Option 3 and the interests expressed by
the Panuku board. Consultation document – full transfer, is consistent
with Option 4 – full transfer.
37. Both
consultation documents include an assessment of other options considered.
38. On
a purely financial basis, transferring all the Waterfront assets to the Council
Entity would maximise the council’s options in the future. However, there
are other issues to consider, such as any potential impact on the operations of
Panuku, and perception of Panuku’s role in the development marketplace.
39. From
a consultation perspective, staff recommend consulting on transferring all of
the waterfront assets to the Council Entity. This would not preclude the
council from deciding to transfer only some (or none) of the assets once
consultation is complete. In effect, it keeps the council’s
decision-making ability open.
40. The consultation item agreed to will be reflected in the
consultation document tabled in the following item.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
41. Panuku
staff and board have been engaged in the development of these options.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
42. If the
committee decides to consult on the transfer of ownership of waterfront land to
the Council Entity, staff will seek the views of all local boards.
Tauākī whakaaweawe
Māori
Māori impact statement
43. Auckland’s
waterfront land is significant to mana whenua. If the committee decides to
consult on the proposal, staff will engage with mana whenua. There is the
potential to maximise engagement with mana whenua through combining public
consultation on the Auckland Water Strategy discussion document, the Annual
Budget 2019/2020 and a proposal for the transfer of waterfront land.
Ngā ritenga
ā-pūtea
Financial implications
44. The
budget approved for consultation is part of the Annual Budget consultation budget.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
45. Because
of the tight timeframes for the statutory requirements, any delay in making a
decision on the material to be consulted on will mean that staff are not able
to complete the necessary work in time.
46. A
decision to not consult will limit future options for waterfront land and may
have future financial implications for the council. The options identified and
analysed discuss this risk, and option 4 provides the least risk.
47. The
council’s tax advisors are working with Inland Revenue to obtain a
binding ruling to provide certainty about the tax treatment of our proposal
before any transfers were to take place.
Ngā koringa ā-muri
Next steps
48. Following
decisions today, all consultation material will be finalised for print and
distributed to libraries, service centres, local board offices and made
available online in time for the start of the consultation process on 17
February 2019.
49. The
key dates and steps are outlined in the report to this committee titled
‘Adoption of consultation material: Annual Budget 2019/2020.
Ngā tāpirihanga
Attachments
There are no attachments for this report.
Ngā kaihaina
Signatories
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Authors
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Alastair Cameron - Manager - CCO Governance & External
Partnerships
Claire Gomas - Principal Advisor
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Authorisers
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Phil Wilson - Governance Director
Matthew Walker - Group Chief Financial Officer
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