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Expenditure
Control and Procurement Committee
21 March 2023
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Asset Optimisation
File No.: CP2023/01916
Te
take mō te pūrongo
Purpose of the report
1. To
provide an update on the status of the asset recycling programme.
2. To
agree an asset ownership framework and approach to asset assessment to inform
the next long-term plan.
Whakarāpopototanga matua
Executive summary
3. Asset recycling is an important lever for the council allowing
capital to be invested in the most strategically important activities. Auckland
Council started the asset recycling programme in 2020/2021 adopting a
multi-year programme as part of the Recovery Budget 2021/2031.
4. The
programme identified a pipeline of potential opportunities, but due to a number
of challenges including market conditions, inconsistent processes and the
decentralisation of asset management, the programme has not met the budgeted
target in the past two years. The pipeline of opportunity remains strong,
and the total budget is still forecast to be achieved but the timing will be
different.
5. Annual
Budget Mayoral Proposal 2023/2024 set asset optimisation as one of the focuses
to cover council’s financial gap. It asked council to optimise revenue on
existing assets that are currently in use and have control over and sell
non-service assets that are performing poorly or underutilised. To conduct a
strategic assessment of council’s asset ownership, council developed an
asset ownership framework to standardise the early stage of the asset recycling
process.
6. Staff
propose use of the asset ownership framework to assess current asset ownership
and the development of a multi-year asset optimisation programme to inform the
next long-term plan.
Ngā tūtohunga
Recommendation/s
That the Expenditure Control and
Procurement Committee:
a) tuhi ā-taipitopito / note an update on the current asset
recycling programme will be provided in the confidential section of the agenda
b) whakaae / approve the asset ownership framework
c) whakaae / agree the approach of using the framework to assess
asset ownership and the development of a multi-year asset optimisation
programme to inform the next long-term plan.
Horopaki
Context
Asset ownership
7. 
Auckland
Council Group owns an extensive operational and investment asset portfolio
which is made up of land and property. The total value of the assets is $70.4
billion (see Figure 1).
Figure 1 Asset portfolio
financial overview
8. The
opportunity is in the $10.7 billion operational and investment assets which are
allocated across the council and council-controlled organisations (CCOs) with
Auckland Council being the largest asset owner, followed by Auckland Transport,
and Tātaki Auckland Unlimited (see Figure 2).
Figure 2 Operational &
investment property ownership
Asset recycling programme
9. The
asset recycling programme is an important lever for the council to release
capital from poorly performing and/or non-service assets to allow greater
investment in strategically aligned activities. The programme started in
2020/2021.
10. A multi-year
programme was established as part of the 2021/2031 Recovery Budget. The
recovery budget sets up a target of $430 million, 4 per cent of the operational
building and land asset value, for the programme to achieve by June 2027.
11. There is a
strong pipeline of opportunities identified as part of the programme. Selling
of some assets in this year will have a significant impact on the success of
the programme.
12. Annual Budget
2023/2024 Mayoral Proposal proposed to sell assets where the council has little
control on future returns, and to increase returns from those assets that
council has control over. The proposal asked the council to provide a strategic
assessment of council’s asset ownership as council should only own assets
which are directly used (or planned to be used) for the delivery of council
services. It also stated that council should sell non-service assets that are
performing poorly or underutilised.
13. The council
is proposing an asset ownership framework to support future work of this
programme.
Tātaritanga me ngā
tohutohu
Analysis and advice
Asset ownership framework
14. The 2023/2024
Mayoral Annual Budget Proposal provided council with the mandate to work with
the council group to centralise asset optimisation. Currently, each asset
management group has their own process, systems to assess around buying,
selling, and management of the asset. The council group does not currently have
a consistent approach on assessing assets.
15. Elected
members do not have a holistic overview of the council balance sheet and how
asset ownership decisions are made. The current approach provides elected
members a single window to view asset changes and opportunities from one of the
asset management departments. This has led to the elected members needing to
make decisions on a case-by-case basis.
16. With the
Mayoral Proposal making asset optimisation a focus for 2023/2024, there is a
need to establish an asset ownership decision framework that is applicable to
all assets (see Figure 3). This will support the council to develop a
multi-year optimisation programme.
17. The framework
is developed based on the principles which have been agreed by the previous
Finance and Performance Committee in 2021 (resolution number FIN/2021/120),
which includes:
· effective
governance and decision-making
· alternative
use
· value
for money
· transparency
· efficient
and effective process
· statutory
obligations.
18. As
council’s core business is to ensure the delivery of certain key services
and outcomes, the framework considers that it owns and controls certain assets
to facilitate this and does not own assets for purely financial returns.
19.
When considering whether council should own an asset, a rigorous process of
testing the strategic imperative for ownership/control is required. The
framework determines whether council has a strategic imperative for council and
whether it should own an asset or can achieve its objectives without ownership.
The asset ownership framework is set out in Figure 3.
Figure 3 Asset ownership framework
20. The framework
is made up of four key questions with principles to support each question.
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Key question
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Explanation
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“Does council
need ownership of the asset to ensure sustainable service delivery?”
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Council should be able to
clearly define its specific ownership/control imperatives for each asset and
assess their materiality.
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“Does council
need to be involved in asset ownership to ensure sustainable service
delivery?”
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There are three
considerations which are: market entering barriers, community impact, and
market failure (see Figure 3).
If council cannot meet the
three considerations which are included in the framework or the
considerations don’t exist, council can achieve its ownership/control
imperatives without ownership of the asset.
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“Can council meet
asset ownership requirements through regulation or other policy tools to
ensure sustainable service delivery?”
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In some cases, council
minimise risks through its other regulatory functions. In other cases, these
risks may be mitigated through government regulations.
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“Can council
lease and/or partner in the asset ownership to ensure sustainable service
delivery?”
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Equity partnering with
other investors may be possible while still ensuring council’s
ownership/control imperatives are met. There are investors who specialise in
being long-term investors with local government that may introduce
capabilities and capital that augment existing business plans and add values.
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21. By answering
these questions, the council will act to either keep the asset or start the
asset recycling assessment process to further analyse the best approach to
optimise the asset’s value.
22. Auckland
Council followed the overarching principle which is to ensure the
council’s purpose is to deliver services and outcomes and aligns to the
service prioritisation framework which was adopted by the Governing Body in
2022 and re-introduced to the Expenditure Control and Procurement Committee in
February 2023. When a council-operated service is utilising a council-owned
asset, it is recommended to use both frameworks to assess if council should
continue the service, and if the council should keep the asset. A few scenarios
are demonstrated below (see Figure 4).
Figure 4 Scenario analysis
23. Auckland
Council aims to use this framework to conduct an assessment
for all council group assets starting with non-service assets. The framework
will help to provide a consistent approach to reviewing council assets,
reduce the number of approvers in the process, involve relevant stakeholders at
the right time, and improve efficiency of the programme. This framework ensures
elected members are provided a more holistic view of the assets to review and
make decisions more efficiently. In the long term, this framework enables the
council to achieve a more efficient balance sheet and use of capital, which
will help to inform the next long-term plan.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
24. The work
programme has a neutral climate impact. It is uncertain what the potential
future use of the assets will be. Therefore, the programme would analyse carbon
emissions on a case-by-case basis. Sale of the properties could lead to land
use changes. The council acknowledges that any form of construction and
development can increase carbon emissions.
25. At the same
time, the asset recycling programme provides funding for council to respond to
climate impacts.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
26. Asset
recycling takes a group approach. Council and CCOs all identify potential
opportunities, and, prior to any disposal, checks are made that council and the
CCOs do not have an alternative use. It is also mentioned in the Mayoral
Proposal that CCOs should support the council to underpin its property
ownership decisions.
27. Future
implementation of some solutions will require joint input from the council and
the CCOs.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
28. Local boards
provided feedback on the asset recycling work programme during the Recovery
Budget 2021-2031. Some local boards support asset recycling as a lever and some
do not.
29. Auckland
Council has not sought input from local boards in respect of the asset
recycling update, but input is sought as each opportunity progresses.
Tauākī whakaaweawe
Māori
Māori impact statement
30. 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.
31. The
importance of effective communication and engagement with Māori about land
is understood. Eke Panuku has implemented a process to engage 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.
Ngā ritenga
ā-pūtea
Financial implications
32. Capital
receipts from asset recycling contribute to the Recovery Budget 2021-2031 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
33. There is a
risk that the council may identify the need for a disposed asset in the future.
This risk is considered low because the council will follow the asset ownership
framework to carefully consider the needs for each asset. This provides
confidence to the council that the assets are not required now nor in the
future.
34. There is a
risk over the short term that the slowdown in the property market delays the
timing of some asset sales. The council will ensure the relevant stakeholders
are involved in the asset recycling process to ensure transparency of the
process and the asset’s value for money.
Ngā koringa ā-muri
Next steps
35. Auckland
Council will continue to review assets via the asset ownership framework.
36. Auckland
Council will update the Expenditure Control and Procurement Committee on the
upcoming asset recycling opportunities.
37. Auckland
Council will also seek decision-making on asset recycling opportunities through
Governing Body or the appropriate committee.
Ngā tāpirihanga
Attachments
There are no attachments for
this report.
Ngā kaihaina
Signatories
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Author
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Wendy Lawry - Senior Project Manager
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Authorisers
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Ross Chirnside - General Manager Value For Money
Peter Gudsell - Group Chief Financial Officer
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