If Local Government New Zealand president Stuart Crosby was in Wayne Brown’s job, he knows what he’d do about Auckland Council’s shareholding in the city’s airport.
“I would probably sell. With the current financial situation Auckland finds itself in, it needs to be considered. Having significant issues as Auckland is, the bigger you are, the bigger the issue, financially you need to objectively look at all your options.
“They are going through the right process of looking at that issue… engaging with the community and crunch time will be very shortly,” he says.
Auckland Council is facing a budget hole of $375 million, and one of the options on the table is a complete or partial sell-down of the council’s 18 percent stake in the airport.
That could raise close to $2 billion.
But why do councils have these types of investments on their books?
Crosby says, as an example, the investment arm of Bay of Plenty Regional Council – where he’s a councillor – owns just over half of the Port of Tauranga.
“That’s built up to nearly $3 billion, which currently provides a dividend of over $42 million, so quite significant. That equates to an average investment, or saving of rates to each ratepayer in the whole Bay of Plenty, at the moment it’s valued at about $325 per ratepayer.”
Many councils, not just Auckland, are struggling with how to balance their budgets.
“My personal view is the current funding arrangements for councils are not sustainable moving forward,” Crosby says.
Funding levers available to councils include things like rates, user charges, grants and subsidies, contributions from developers to help pay for infrastructure, debt, reserves built up over time, as well as investment income.
“In essence, the levers we’ve had haven’t changed for over 100 years and yet we’ve been asked to do more and more.”
Newsroom’s South Island correspondent David Williams says Christchurch City Council is also considering its options when it comes to selling down some of its assets, which include stakes in the electricity distributor Orion, Christchurch Airport and Lyttelton Port.
“The argument for selling them is money, the argument for keeping them is money. So yes, you can sell a large wedge of your asset … but the other way of looking at it is, if these companies perform well and continue to perform well they’re going to make a lot of money,” Williams says.
“There is a lot of debt and there are discussions being had similarly to Auckland: how are we going to reduce that debt? How can we keep rates affordable? How are we going to do that?
“Hence the discussion about, do we need to sell some of these assets? According to a consulting firm, they think we should.”
Williams says Auckland Council – and Aucklanders – are facing a hard decision.
“I guess really now it’s up to the people of Auckland to say one way or the other – if they don’t like the idea, of these shares being sold, they probably need to speak up. But also if they like the idea, if they think it makes financial sense, they should speak up too.”
Auckland Council is due to finalise its budget next month.
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