Auckland’s assets frittered away — for what?
Now the dust has settled after this year’s Auckland Council budget, Aucklanders might do well to reflect on the fate that awaits the few income-producing assets of theirs that still remain.
The story of these assets in recent years has been a revealing one, the partial selldown of the airport shares being the latest but by far the most significant, advanced speedily and without an electoral mandate — as was previously the custom with mayors such as Len Brown, who stood on a public platform of not selling the airport shares nor the Ports of Auckland (POAL).
While the sale of the shares dominated this year’s budget, it’s worthwhile noting that, for the past four years, the Auckland Council has also been pursuing an ongoing asset sales programme amounting to a budgeted $454 million worth of property. While this programme has continued largely under the radar, it is the additional disposal of the substantive income-producing assets that provide the most accurate indicator as to what will happen next.
The best example of this was the sale of the $335m Diversified Assets Portfolio — the so-called “Rainy Day” fund — like the airport shares, “gifted” to the Super City by legacy councils. This investment portfolio would return ratepayers on average around 10 per cent per annum (18 per cent in good years).
Initially, councillors were told it was being sold in order to “manage the debt ratios within prudent limits”. By the following year, it was a different story; this time proceeds would be used “solely to fund public transport and stormwater infrastructure”.
What infrastructure it funded, if any, was never specified but the fund went and it went fast — all gone within 18 months.
By contrast, the council debt, which stood at $7.4 billion when the sell-down was announced, grew quickly to $11.9b in a few short years. That’s a $4.5b increase — the council track record for paying down debt is unfortunately not quite as impressive as the one for rapidly increasing it.
Next up in 2018, along with what little remained of this investment fund, was Auckland Council Investments Limited (ACIL), the council-controlled organisation that actually administered the fund. ACIL had directors who had considerable commercial and investment expertise. In their last years, ACIL posted record returns to ratepayers .
Their functions and assets, however, were once again speedily transferred to the Council Finance and Treasury group, but not before councillors were reassured “the merits of the disestablishment rely on the preservation of the commercial return from AIAL[Auckland International Airport Limited] and POAL”.
The preservation of that commercial return for AIAL didn’t last too long for, in November 2021, there was the first pitch by these self-same officials to sell off the airport shares in their entirety.
This proposal, however, was summarily dismissed by the mayor Phil Goff, a man not exactly averse to selling off public assets, but even he drew the line at the AIAL shares.
Goff emphatically, expeditiously dismissed this proposal, along with its proponents, on the basis that since there was no shortage of eager buyers, why consider getting rid of such a universally acclaimed, high-quality investment (whose shareholder returns had gone from $70 min 2011 to $2.471 bin 2019, an increase of $2.4b, made up of capital growth and dividends in just eight years)?
In 2023 we’re almost at the endgame, although with only the balance of the airport shares and the Ports of Auckland left (maybe a couple of golf courses thrown in and that’s it). Talk has already turned to the Ports of Auckland and the balance of the airport shares it would seem, destined to go the same way as the Diversified Assets Portfolio.
After that, there’s nothing left; job done in a little over a decade. To employ a historical analogy, the Barbarians will have sacked Rome and Aucklanders will have been relieved of all their incomeproducing assets.
At that point, and ironically enough in light of all the talk this year about selling assets to keep rates down, all that will remain are large year-on-year rates increases, for there will be no more returns from dividends, nor valuable assets left to sell. The “sellers” will have long since disappeared, along with their political minions.
What will remain is a generation of Aucklanders left wondering how on earth their predecessors were able to squander all these valuable assets bequeathed to them, so quickly and for so little effect.