Fran O'Sullivan: Cash in Auckland's attic

Local Government Minister Rodney Hide threw a spanner in Auckland's works when he suggested the new city council should focus on "core business".

It wasn't long before Labour's Rugby World Cup spokesman Trevor Mallard hit back saying if councils' abided by his "nonsense" it would undermine many economic development opportunities - including the plan to turn Queens Wharf into a cruise ship terminal - which would benefit cities and regions around New Zealand.

Mallard has a point. But Hide's suggestion deserves to be debated instead of being dismissed outright as a "power grab" orchestrated by central Government or business.

Over the decades various Auckland local authorities have invested a huge amount of ratepayers' cash to develop the regional infrastructure and lead investment in commercially oriented areas. But with a huge infrastructure deficit facing Auckland, it is now the right time to examine why local authorities continue to want outright ownership of assets once they mature, instead of realising them and reinvesting the proceeds to fund new investments.

In analysis produced by accounting firm Deloitte at the Herald's request, it is clear the two biggest authorities - the Auckland Regional Council (ARC) and Auckland City Council (ACC) - are sitting on a big pile of assets.

As the graphic (above) shows the new Auckland Council could potentially release more than $2 billion from the two existing major councils alone for reinvestment elsewhere if it takes a hard-nosed approach to the assets, which will be under its control.

Deloitte's Paul Callow says local Government authorities (including the incoming Auckland Council) need to ask:

Whether sitting on a big pile of assets (in ARC's case) is the "best way to deploy capital." Councils often argue they can get a dividend stream, but Callow points out in the case of ARC's prime asset - its 100 per cent ownership of Ports of Auckland - the owner is now having to pump in extra cash to address the company's balance sheet difficulties;

Where they have their capital tied up. Again in ARC's case it has at least $100 million tied up in railway rolling stock assets that could be sold to the private sector to manage under a sale and leaseback arrangement;

Whether it would be smarter to let the private sector get more involved. Again Callow notes local authorities may feel they "need to own" land - or in the case of Auckland City Council shares in Auckland International Airport - but councils can exert control over what is developed in their spaces through utilising good planning and regulation.

In the past city councils have (at times) neglected this responsibility. In central Auckland, parts of downtown adjoining the waterfront sport boring apartment blocks instead of architecturally brilliant buildings. We're stuck with that now - But what of the future?

Under their Long Term Council Community Plans (LTCCPs) the two existing major Auckland local authorities have each budgeted future capex commitments. Under ARC's LTCCP, total capital expenditure forecast for the next 10 years is $119.5 million funded by rates of $67.4 million and borrowings of $52.1 million. ACC's total capex forecast for the next 10 years is $3.5 billion.

Both councils are now driving a rapid redevelopment of the waterfront and major transport upgrades.

The Government has abandoned its predecessor's plan for a regional fuels tax that would have levied Auckland motorists to underpin the motorways development. Previous proposals to levy visitors - via a "bed tax" - to fund infrastructure to enhance the tourist experience have also gone nowhere.

But this doesn't mean it is inappropriate to raise questions over future funding. Callow - who is partner (corporate finance) at Deloitte suggests the new Auckland City Council focuses on the following issues:-

What to do with the assets portfolio it inherits and ask if it is invested in the right places;

Examine the capital commitments it will inherit and examine what is the best way to meet them;

Look at how to use more partnership arrangements with the private sector to release the pressure on capex.

Callow notes that private-public partnerships usually spread their costs over a 20-25 year period - often the life of a project - which reduces the upfront financial commitments. In the Auckland Council's case it will inherit arrangements under the various LTCCPs that are factored over much smaller timeframes.

Callow also suggests the council could examine new imposts - such as a congestion charge for the Auckland CBD, to reduce the pressure on the CBD and help induce more motorists to switch to public transport options.

"It's worked for London - why not here?"