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Finance and
Performance Committee
16 July 2020
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Emergency Budget 2020/2021 - Asset
Recycling
File No.: CP2020/09338
Te take mō te
pūrongo
Purpose of the report
1. To consider a principled approach to asset recycling decisions and
to progress approvals in relation to several properties with decisions to be
recommended to the Governing Body.
Whakarāpopototanga matua
Executive summary
2. Asset recycling is an important lever for the council allowing
capital to be invested in the most strategically important activities. The
Emergency Budget (if adopted as consulted) includes at least $224m proceeds to
be realised from asset recycling in FY21/22. This is an increase of at
least $200m from the 10-year budget and will be achieved from 2 focus areas
– property rationalisation and alternative commercial arrangements.
3. The Finance and Performance Committee is accountable for achieving
the budget with the Group Chief Financial Officer responsible for implementing
decisions made. To support effective decision making the following
principles have been developed:
i) Effective governance
and decision-making
ii) Alternative
use considered
iii) Value
for money
iv) Transparency
v) Efficient
and effective processes
vi) Statutory
obligations
4. Implementation of the principles will include guidance around the
use of valuations, improved reporting, earlier engagement with local boards and
stakeholders and the Audit and Risk Committee to review the effectiveness of
controls.
5. A property rationalisation pipeline of properties with no current or
future funded service use was included in the Emergency Budget consultation
document. Approval for disposing of properties, subject to the
satisfactory conclusion of any statutory processes will be made by the Finance
and Performance Committee. Such approval is sought for disposal of the
properties in Schedule A.
6. Opportunities exist to change the commercial arrangements that
council has in place which may include restructuring existing lease
arrangements, receive lease payments in advance or grant a concession to use a
council asset.
7. The sale of car park concessions is the largest opportunity and was
originally considered as part of the additional funding requirement for City
Rail Link. Auckland Transport will develop a business case to be
considered at a future Finance and Performance Committee meeting.
8. Further opportunities together with progress reporting will be
provided to the Finance and Performance Committee.
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Ngā tūtohunga
Recommendation/s
That the Finance and
Performance Committee:
a) approve
the principles set out in paragraph 15 supporting the implementation of the
asset recycling budget.
b) request
that the Audit and Risk Committee review the property rationalisation process
and make any recommendations for improvement.
c) recommend
that Governing Body approve subject to the satisfactory conclusion of any
required statutory processes the disposal of the properties detailed in
Schedule A with the final terms and conditions to be approved under the
appropriate delegations.
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Horopaki
Context
9. Asset
recycling is an important lever for the council allowing capital to be invested
in the most strategically important activities.
10. The
10-year budget has financial targets from asset recycling (excluding asset
sales linked directly to specific projects and programmes such as the unlock
and transform programme).
11. A
key consideration for asset recycling is the opportunity cost of holding an
asset which is not providing a service or generating an appropriate financial
return against the opportunity of investing in new assets which deliver council
services.
12. The
Emergency Budget (if adopted as consulted) includes at
least $224m proceeds to be realised from asset recycling in FY21/22. This
is an increase of at least $200m from the 10-year budget and will be achieved
from 2 focus areas.
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Focus area
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Low ($m)
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High ($m)
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Property rationalisation pipeline
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100
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150
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Alternative commercial arrangements (leasing,
sale of lease interests) including carparks
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100
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200
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Total
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200
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350
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13. The context of developing the Emergency
Budget is important. The 10-year budget had a budget of $24m from asset
sales for FY20/21 and a pipeline existed to achieve that. The increased
budget has required staff across the council group to rapidly develop a
pipeline of asset recycling opportunities with further investigation now
required on some of these. Not all opportunities will be realised and in
order to meet the budget the overall pipeline must be greater than the budget.
Tātaritanga me ngā
tohutohu
Analysis and advice
14. The
Governing Body (delegated to Finance and Performance Committee) is accountable
for the asset recycling budget. The Group Chief Financial Officer
supported by council and CCO staff is responsible for implementing decisions
made by the Finance and Performance Committee to achieve the asset recycling
budget.
15. To
support the execution and achievement of the budget principles have been
developed to assist elected members and staff.
Principles to support the implementation of the asset recycling
budget
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Principle
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Explanation
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1
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Effective governance and decision-making
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The Governing Body (delegated to Finance and Performance Committee)
after considering the views and preferences of local boards approves any
property for disposal.
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2
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Alternative use
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Consideration will be given as to whether a property
has any alternative funded future use prior to any disposal.
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3
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Value for money
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Council will ensure effective stewardship of
public funds and resources.
Properties may not be disposed of for less
than 90% of the valuation without approval of the Finance and Performance
Committee.
An investment approach will be adopted where
income, total cost of ownership and cost of capital should be considered.
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4
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Transparency
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Regular reporting (on public agenda) to
Finance and Performance Committee including progress of approved
opportunities and potential new opportunities.
Decision making in public meetings unless
that would disadvantage the councils legal, commercial or negotiation
position.
Early identification of future opportunities
with engagement with ward councillors, local boards and community.
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5
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Efficient and effective processes
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Processes will be fit-for-purpose –
value-adding, support better informed decision making and not add unnecessary
cost or time.
Elected members and staff will invest
sufficient time to support the processes.
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6
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Statutory obligations
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Council will meet its statutory obligations.
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Applying the principles to valuations
16. Most
properties are sold by a contestable market process. This is one where a
willing buyer ultimately determines the value of the property. Some
properties are sold by a non-contestable process. Most commonly this is
where there are aligned strategic objectives e.g. Kainga Ora or iwi, an
adjoining owner is the only potential buyer or council is meeting obligations
under the Public Works Act.
17. Valuations
will be obtained as follows:
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Sale approach
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Minimum valuation(s) requirements
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Additional requirements
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Open market process
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1 registered valuation
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Where high
value property or high levels of public interest, additional valuations may
be obtained
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Closed market process
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2 registered valuations
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18. To
protect councils legal and commercial interests confidentiality of valuations
need to be maintained until the completion of the sale process. Should a
sale not be able to proceed within 90% of the valuation additional guidance
will be sought from the Finance and Performance Committee.
Applying the principles to transparency
19. Regular
reports will be provided to the Finance and Performance Committee providing an
update on the pipeline and status of the budget. This may include the
following:
a. Status
update for each property
b. Potential
additions to the pipeline and properties which following investigation should
be removed
c. Risks
and management approach
d. Financial
– progress against budget
Applying the principles to efficient and effective processes
20. An
efficient and effective process must also have effective controls. To
provide confidence that the processes have effective controls the Audit and
Risk Committee will review the asset recycling process and make any
recommendations for improvement.
Focus area – property rationalisation
21. The
most common asset recycling is the property rationalisation process managed by
Panuku. Panuku operate across the Group identifying property (land and
buildings) which do not have a current or future service use and could be
candidates for rationalisation. This includes identifying properties in
the council portfolio that are no longer required for future services (or
public work) purposes and may be suitable for sale, and development if appropriate.
22. The
property rationalisation process is well developed. Once a property has
been identified as no longer required for current public work purposes, Panuku
engages with the council and its CCOs to establish whether the property must be
retained for a strategic purpose or is required for a future funded public
work. The rationalisation process also includes engagement with ward
councilors, local boards and mana whenua.
23. A
future pipeline of opportunities has been developed and was included in the
Emergency Budget consultation document. These properties will be
considered by the Finance and Performance Committee over the next few
months. Some new properties may be added to the pipeline and some after
further investigation may no longer candidates for disposal.
24. The
first group of properties to be considered are attached as Schedule A.
All these properties were identified as potential disposals in the consultation
document and none of these properties are deemed significant under Auckland Council’s
Significance and Engagement Policy.
25. The
properties in Schedule A are considered surplus. There are 48 properties
which have a total capital value (rating value) of $34.5m.
26. The
properties in Schedule A have been identified as having many of the following
characteristics:
· no
current or future funded service use
· no
alternative use identified
· low
community interest
· supported
by local board
27. The
other properties in the consultation document are schedule B. Schedule B includes
35 properties with a total capital value of $53.8m. These properties have
not yet been declared surplus by Auckland Council and will be considered at
future Finance and Performance Committee meetings. Should these
properties be deemed surplus to Auckland Council’s requirements, it will
comply with its statutory obligations relating to each property.
Focus area - alternative commercial arrangements
28. Opportunities exist to change the commercial
arrangements that council has in place. Council may be able to
restructure existing lease arrangements or receive lease payments in
advance. Further work is required to assess these opportunities.
29. Sale and leaseback are an opportunity, but care
is needed. For example, the sale and leaseback of office accommodation
would provide a new source of funds, but the lease is considered as debt and
doesn’t help the debt to revenue ratio.
30. Sale of car park
concessions is the current opportunity to be considered.
Carparks
31. As part of the additional funding commitment for the City Rail Link
project $50 million was identified as proceeds from the sale of carpark
concessions scheduled for FY23/24. The Governing Body resolution
approving this included a range of items that should be considered as
part of strategies to assess future off-street parking requirements for
Auckland.
32. A review of
the car park strategy is currently underway, and initial work has identified
that the strategy is basically sound in relation to the city centre. A
key objective of the strategy is “supporting economic development in the
city centre”.
33. Initial
work has also identified that future developments within the city centre, such
as the A4E (Auckland for Everyone) project, are likely to remove between a
third and a half of on-street parking capacity. This
will increase the importance of the parking buildings as a future source of
short stay parking to support economic and cultural activity within the city
centre.
34. The
commercial opportunities are envisaged to be the sale of a carpark concession
for
a) Civic
car park
b) Victoria
Street carpark
c) Fanshawe
Street carpark
35. The
Downtown carpark is not proposed to be included at this time under a
concessionary arrangement. This is a prime development
site but has several issues and complications which need to be considered to
maximise the value. Strategically the Downtown site is also seen as part
of a broader solution to providing access to the city centre which could
potentially be incorporated within a development opportunity.
36. A sale of the carpark concession does not result in any
change of ownership and effectively is council receiving a lump sum prepayment
of future income streams.
37. Auckland
Transport are developing a business case to be considered at a future Finance
and Performance Committee meeting.
Public consultation views on asset recycling
38. Feedback was received on asset recycling as part of the Emergency
Budget:
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Description
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Number
supporting
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Number
opposing
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General submissions
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175
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186
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Submission on
an identified property
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1
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20
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39. Some feedback received supported the sale of identified properties:
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Property
address
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Number
supporting
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3 Victoria Road
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1
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40. Some feedback did not support the sale of identified properties:
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Property
address
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Number
opposing
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1/328 Lake Road
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1
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2 The Strand
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1
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20 Hopetoun St
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1
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300 West Coast
Road
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1
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34 Moore Street
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1
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Whangaparaoa
Road / Brightside Road
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7
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9 Fortyfoot
Lane
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1
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Tauākī whakaaweawe
āhuarangi
Climate impact statement
41. Recommendations in this report have a neutral
climate impact. Cash receipts from asset recycling allow council to
respond to climate impacts.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
42. Asset
recycling takes a group approach. Council and CCO’s all identify
potential opportunities and prior to any disposal checks are made that council
or a CCO do not have an alternative use.
43. Implementing
the resolutions in this report will require input from council, Auckland
Transport and Panuku.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
44. Local
boards have provided mixed feedback on asset recycling with some boards
supporting, some conditionally supporting and some opposing. Some
opposition is on specific properties some is on all opportunities. This
feedback has been provided via Local Board feedback resolutions, or to staff
from ward councillors.
45. Local
boards have also asked for greater communication and early engagement which has
been incorporated in the principles.
46. For
Schedule A properties local boards support or do not disagree to these
disposals (whether in relation to that specific property or to all disposals).
The only exceptions are the below:
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Board
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Property
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Comment
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Howick
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34
Moore Street
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Building
has been vacant for over 10 years and has structural and weathertightness
issues.
Local
board want to retain for community use.
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Howick
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28
Simon Owen Place
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483m2
triangular shaped reserve with overland flow path. Not required for
open space network. Adjacent to a school which is interested to
purchase.
Local
board to not support the sale.
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Kaipatiki
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105
Stott Road
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Landlocked
site – only residents of adjoining houses can access. Reserve
status revoked by North Shore City Council in 1998 to prepare for sale.
Local
board do not support the disposal.
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Kaipatiki
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107
Lynn Road
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71m2
narrow access strip to reserve. Land is steep and does not provide appropriate
access and can only be sold to adjoining owner.
Local
board do not support the disposal.
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47. Local board views and preferences on other identified properties
will be included when these are considered by the Finance and Performance
Committee.
Tauākī whakaaweawe
Māori
Māori impact statement
48. Māori
have an active and specific role in Auckland, including kaitiakitanga
(guardianship) of our land and marine resources. Land has a specific role
in protecting, enabling and building Māori social and cultural capital.
Local marae, kohanga reo, and other Māori entities offer spiritual,
cultural, as well as a range of social, educational, health and justice
services for the community.
49. The
importance of effective communication and engagement with Māori about land
is understood. The process to date undertaken by Panuku is engagement
with mana whenua groups across the region. Each relevant mana whenua group is
contacted independently regarding council-owned land subject to rationalisation
and requested to give feedback. This provides mana whenua the opportunity to
respond with any issues of cultural significance the group would like to
formally express in relation to the subject properties.
50. Mana
Whenua consultation as above has not yet been completed for all Schedule A
properties. Should Mana Whenua raise any issues of cultural significance
these will be referred to the Finance and Performance Committee.
51. Mana whenua groups are also invited to express potential commercial
interest in the subject sites. In the event the sites are approved for
sale, all groups will be alerted of the decision, and all groups are alerted
once a property comes on the market.
Ngā ritenga
ā-pūtea
Financial implications
52. Capital
receipts from the sale of properties not required by Auckland Council
contribute to the Emergency and 10-year Budgets by providing the Council with
an efficient use of capital and prioritisation of funds to achieve its
activities and projects.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
53. The
properties in this report are not required for a council service use. The
following are potential risks of retaining the properties:
· Increased
current and future maintenance costs
· The
opportunity cost of not being able to invest in strategically important
activities
· Economic
downturn making it more difficult to attract potential purchasers at the
optimum price.
54. There may be
a perceived risk that disposing of these properties means that they will not be
available for future council group use if required and further purchases may be
necessary. This risk is considered low because we have carefully
confirmed throughout the group that these properties are not required now or in
the future for a council service use.
Ngā koringa ā-muri
Next steps
55. Should
the Finance and Performance Committee approve the proposed disposals, the
following will be completed (in accordance with the principles)
a) Completion
of consultation with mana whenua groups
b) Completion
of any statutory obligations
c) Prepare
property for sale and complete sales process
56. The Finance and Performance Committee will receive regular reporting
on progress.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇩
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Schedule A
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21
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b⇩
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Schedule B
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31
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Ngā kaihaina
Signatories
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Author
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Ross Chirnside, Programme Lead - VfM
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Authoriser
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Kevin Ramsay - Acting Group Chief Financial Officer
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