Transcript of 'Long-term Plan 2024-2034 Online Information Webinar (2)'

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[Video: Auckland Council’s Long-term Plan 2024-2034 logo appears with an image of Toby Shephard in the top-right corner.]

[Speaking: Toby Shephard]

You're just joining us? Welcome. We'll get started shortly. Kia Ora. Good evening, everybody, Tēnā Koutou and welcome.

My name is Toby Shephard. I'm a manager here at Auckland Council and I'll be facilitating this evening.

Thank you for joining us tonight for our information session on Auckland Council's Long-term Plan 2024-2034. The purpose of this session is for those of you who are joining to learn some more about the council's proposals for the 2024-2034 long-term plan.

A reminder that the consultation is running from the 28 February to 28 March and further information including the feedback form can be found at akhaveyoursay.nz/ourplan.

Tonight, the purpose is to ask questions and you can do that via the chat function here on the Zoom call and hear from staff across the Auckland Council Group, answer those questions.

Tonight, we're not asking for you to provide your feedback. To do that you can go to our website or come to a drop-in session. You can find sessions in your area online. Tonight's session will provide an overview of our proposal for the budget, but it is specifically about the proposal for an Auckland Future Fund. More on this in a minute.

The long-term plan consultation seeks your input into how the council should work to improve the daily lives of Aucklanders. It's about how we should do that work and how it should be paid for. Our proposal for the long-term plan would strengthen Auckland's physical and financial resilience while tackling some of our big budget challenges.

We've organised the LTP around seven areas of investment, transport, water, community, the built environment, natural environment, economic and cultural development and how the council manages the organisation and supports its elected members.

For the first time, the council has created options. So, we have a central proposal and a do more and pay more and a do less and pay less option and we want your feedback on each of those areas for each of those options, and that'll help the councillors in their decision-making.

In addition to the central proposal there are the pay more get more and the pay less get less proposals.

We want to hear what you think about our proposals for our transport plan, options for creating an Auckland Future Fund, the investment fund that we're here tonight to find more information about, options for the waterfront properties, options for North Harbour Stadium, changes to other rates, fees and charges, and our local board priorities.

So, as I say, the focus for this evening is on the proposed Auckland Future Fund. First, just a few housekeeping notes on tonight and some Zoom etiquette.

The session is being recorded and it'll be made available on akhaveyoursay.nz/ourplan in the next few days. All the members of the audience have their cameras and microphones disabled. We have staff on hand to answer any questions that you put inside the chat function for us. And if you can do your best to think about the time constraint that we have here and really focus your question, it'll make it easier for us to understand exactly what you're asking and help us answer it. And of course, any comments or questions that are disrespectful or off topic, they'll be dismissed.

Joining the discussion tonight, we have the Deputy Mayor, Councillor Desley Simpson. Welcome, and welcome to our other elected members on the call. We have some councillors and local board members who are joining us online to listen to the discussion to hear what types of questions the public are asking.

Welcome to you all and thank you for joining tonight. We also have Nicola Mills, she's the council's Group Chief Financial Officer.

We have Ross Tucker, the General Manager for Financial Strategy and Planning. We have Michael Burns, our Head of Financial Strategy. And we have Alastair Cameron, who's the Manager of our Council Controlled Organisations and External Partnerships team.

Tonight's session will take about 90 minutes and the format is a presentation from Michael about the long-term plan and it's followed by a Q&A where you'll have the opportunity to ask questions using that chat function.

If you can again remember to keep those questions short and succinct. That will help us answer your specific query and help us get the most out of the time that we have together tonight. If we don't get to all the questions in the session, the team will take them away. And anything that isn't answered tonight, we will do our best to get a response to those as well and then we'll be able to publish the response to those questions along with the recording from tonight's session on the AK Have Your Say website in the next few days.

So welcome again and now to kick us off for the evening, we have a message from Mayor Wayne Brown. Over to you, Mr Mayor.

[Video: video appears of Auckland Mayor Wayne Brown in front of a view of the Auckland City harbour.]

[Speaking: Mayor Wayne Brown]

Kia ora tātou.

Auckland faces some big challenges over the next decade. The Auckland anniversary floods and Cyclone Gabrielle caused damage across the region. One year on, the impact for our communities continues. As a city, we will still be recovering from this in years to come.

These devastating events have shown that we must strengthen the financial and physical resilience of our region. If we want to reduce the impact of future shocks for Auckland households and businesses, we need to think seriously about reducing the city's exposure to risk. We shouldn't just be relying on the ratepayers to cover the cost of disasters.

The long-term plan provides an opportunity for us to rethink the way we do things and reassess what matters most to Aucklanders in the wake of unprecedented events.

Many Auckland householders are really feeling the pinch in this cost-of-living crisis. We're talking about big cost increases year after year, with the result that more people are struggling to pay their mortgages and meet their living expenses and taking on more debt to bridge the gap.

Local government is not immune to these pressures. In the past, Auckland Council has relied on debt to bridge funding gaps, and committed to government megaprojects while underfunding the renewal of core assets like roads, pipes and community buildings.

The removal of Auckland's regional fuel tax will leave an estimated shortfall of $1.2 billion in transport funding. The full impact of the government's water reform is yet to come and there are several hefty, unavoidable bills ahead, including the City Rail Link and the ongoing storm recovery.

Nevertheless, I'm determined to put Auckland Council in a better financial position. As we develop the long-term plan, we have to focus on areas where we will have the most impact. We need to get back to basics, get things done better, faster and cheaper and finish what we've already started.

My priorities remain the same: fix Auckland's infrastructure, stop wasting money, get Auckland moving, take back control of council organisations and make the most of our harbours and environment.

Auckland ratepayers deserve better value for money from the public services and activities and more competitive returns from public investments which will help keep rates as low as possible. We all have difficult decisions to make.

In the past, council staff have led development with a long-term plan, but this year the process was led by our councillors, local board chairs and members of the independent Māori Statutory board along with myself. We're doing things a bit differently.

Our core proposal has gone to public consultation with options to do less or do more, with the understanding that doing more will cost more for Auckland ratepayers.

I want to thank you in advance for having your say on Auckland's Long-term Plan. We'll listen to what matters most to Aucklanders. The decisions we make today will shape our city over the next decade. So let's fix Auckland.

Tēna koutou, tēna koutou katoa.

[Video: an illustrated Auckland Future Fund background appears, with Toby Shephard in the top-right corner of the screen. The text on the screen says: Making changes to our largest investments could improve the council’s physical and financial resilience.]

[Speaking: Toby Shephard]

Thank you, Mr. Mayor. Deputy Mayor Desley Simpson, do you have any initial comments following on from what the mayor has just shared with us?

[Video: Deputy Mayor Desley Simpson, appears in the top-right corner of the screen.]

[Speaking: Deputy Mayor Desley Simpson]

Thanks, Toby.

Look, I think tonight's webinar on the Auckland Future Fund is a very, very key and important part of the proposal for discussion around the LTP. It's an approach we've never used before, so it's new to the council and a new idea. I'm here to listen, I'm here to listen to the questions that people are asking and I'm here to make sure that the discussion remains respectful. So back over to you. Thank you very much.

[Video: Toby Shephard appears in the top-right corner of the screen.]

[Speaking: Toby Shephard]

Kia ora Desley, Thank you.

So, as discussed, the particular focus for tonight's session is the proposed Auckland Future Fund. That proposal creates a new managed investment fund.

The proposed Auckland Future Fund would diversify revenue sources and could reduce the extent to which the council relies on rates to fund our plans. The proposal is to transfer all of the council's remaining shares in the Auckland International Airport Limited into the fund and the Auckland Future Fund manager would be enabled to decide to sell any or all of those shares.

The objectives for the proposed Auckland Future Fund would include diversification and that means spreading the fund across a range of investments to diversify risk. It is almost certain that most of the remaining AIAL, the Auckland International Airport Limited shares or potentially all, would be sold over time.

The council is proposing splitting the land and operations at the Ports of Auckland in addition to this, and that proposal is to lease the Port of Auckland operations and use the funds from the lease to help create the Auckland Future Fund. In this proposal, the port land and wharves would be retained in Council Group ownership.

An important point to note is that the LTP also proposes separately to the proposal to lease the port operations a plan to make the most of our waterfront.

The proposal is to stop the port operations on Captain Cook and Marsden wharves. These are the western wharfs currently being used for cars and some bulk storage. And these wharves would then be used for something else. And this could include the creation of new public amenities such as new open spaces and or new residential or commercial development. So that's the fund in a nutshell.

We will now have Michael Burns, the Head of Financial Strategy to present a more detailed information pack about the proposed Auckland Future Fund.

So just a reminder while we listen to Michael's presentation that you can pop your questions using the Q and A function in the Zoom call. Thanks very much. And here is Michael.

[Video: Michael Burns appears in the top-right corner of the screen.]

[Speaking: Michael Burns]

Kia ora koutou.

So, Auckland Council owns two significant financial investments on behalf of the people of Auckland and like any good stewards of public assets, we need to review these from time to time to ensure that the public are getting best value for them.

So, this part of our long-term plan consultation looks at some options to make changes to these investments and whether they could result in improvements to the council's physical and financial resilience. So go to the next slide, please.

[Video slide: the text on the screen says: Major investments - Auckland Council currently owns just over 11 per cent of Auckland International Airport Limited (AIAL). ]

The council also owns 100 per cent of Port of Auckland Limited (POAL), which owns and operates Auckland's commercial freight and cruise ship harbour facilities.

Recent years have seen significant fluctuations in the returns from these two investments due to a range of commercial factors and the impact of the COVID-19 pandemic.

These investments are important components of the council’s financial strategy, and it is crucial to assess whether they can be leveraged for greater cash returns to fund council operations, reduce risk and better long-term financial sustainability.]

[Speaking: Michael Burns]

So, the two major investments we're talking about here are the council's shareholding in the airport and the ownership of the Ports of Auckland Limited. So, the airport company owns and operates Auckland International Airport and some surrounding developments.

Following the sale last year of part of its shareholding, the council now owns around 11 per cent of all shares in AIAL. These shares are publicly listed, and my phone tells me that they are worth, around $8.26 at the moment, and that means the council's holding is worth between $1.3 and $1.4 billion. Port of Auckland is the company that owns and operates the port in Auckland's downtown.

So, in recent years these investments have been impacted by both commercial conditions and also major factors that have impacted the rest of the council. The operations of both were hit significantly by COVID and also the airport was also impacted by last year's weather events.

Sorry, next slide, please.

[Video: a new slide appears on the screen. The text on slide says:
Objectives of a proposal:

  1. Protecting the value of the council's intergenerational assets.
  2. Provide self-insurance/resilience.
  3. Enhance cash returns.
  4. Deliver diversification.
  5. Improve flexibility.
  6. Strategic outcomes.]

[Speaking: Michael Burns]

So, when we're looking at these investments and trying to think about whether they're delivering the best value and looking at different options for what we could do, what we've done is we've looked at what our objectives of any proposal would be.

So, in this case, we've looked firstly to - how do we protect the value of the council's intergenerational assets?

So, in this proposal we look at - can we at least maintain the real asset value over the long-term? We look at, could the proposal provide an ability for the council to improve its physical resilience? So that could include using the fund to provide some level of self-insurance that could support our ability to respond better to shocks or natural events.

Could we also use it to enable us to fund more expenditure in response to climate change or could it provide liquidity in the event of some kind of major financial disruption?

Thirdly, we're looking at - could a change to the investments enhance the cash returns received by the council?

So, these investments currently deliver cash returns to the council that help fund our operations. Any improvements to these returns could fund these, provide more funding towards these, and reduce the council's need and reliance on rates.

Next, we look at delivering diversification. So, the current investments are both focused on transport infrastructure in the same city, which is also the same city where the council's own infrastructure risks sit. So, the question is, by spreading investments over a range of assets, both in terms of where they are and what they are, could we reduce the risk of them losing value?

Improving flexibility. So, could changing the structure of our investments enable the council to rebalance investments over time to reflect changing community needs or investment objectives?

And finally, how would any proposal impact the council's overall strategic outcomes? So the consultation document looks at both stated and inferred strategic objectives of both the port and the airport investments and how they might be impacted by the proposals.

Next slide, please.

[Video: new slide appears. The text on the slide says: Key decisions:

  1. Do we establish a regional wealth fund (the Auckland Future Fund) to manage our financial investments?
  2. Do we transfer our AIAL shareholding into the fund?
  3. Do we change the way the port is run by leasing the operations, while maintaining ownership of the land and wharves? If so, do we invest the proceeds in the fund?]

So, this slide is at the core of what this proposal is. There are three key questions that we're really asking Aucklanders and those key decisions feed into the options we're looking at. So firstly, do we establish a regional wealth fund, which we'd call the Auckland Future Fund, and have that in place to manage the financial investments.

So, the proposal is to establish this regional wealth fund. It would be managed by a professional fund manager under a clear set of rules, objectives and policies. These rules would apply to both how the fund was run, what returns are targeted, levels of risk, any limits on what it is invested into, and also rules around what the fund could be used for.

The fund would pay an annual distribution to the council, as we talked about earlier, which would help fund our operations and reduce the need for rates. It's also proposed that a portion of the fund, we're saying at a minimum around a billion dollars, would be set aside to provide a level of self-insurance for the council.

As you've seen for yourself, no doubt, insurance costs are going up and, in some places, and for some assets, insurance is getting harder and harder to obtain. So, the council is looking at how we could reduce our reliance on external insurance markets and have some self-insurance through this fund to provide savings, both now and savings into the future.

So, the second question is around the airport shareholding. Do we transfer our airport shareholding into the fund? So, this issue was canvassed in depth through last year's annual budget, where the council decided to sell some of the shares it had and pay down council debt. Much of the strategic and financial assessment that's included in the consultation document is based on that material produced last year.

But, of course, we've updated our financial assessment and that shows or suggests that significantly better financial returns could be achieved from a diversified fund than are currently forecast to be delivered by the Auckland Airport shares.

So, if the shares were transferred into the fund, then the investment manager would assess whether these shares are held or sold. But as Toby's mentioned, given the fund would be focused on investment diversification, it's almost certain that most, if not all, of these shares would be sold.

And then the third question is, do we change the way the port is run by leasing its operations while maintaining ownership? And if so, do we invest those proceeds in the fund?

So firstly, there is no proposal for the ownership of the land and wharves under the Port of Auckland, not to stay with the Auckland Council Group. This proposal is around the operations on the port, the commercial freight and the cruise ship operations. So, what we are proposing is to grant someone else a lease that would allow them to run the operations of the port for a certain period of time.

Our indications from the market are that something around 35 years provides a balance between what could be acceptable to the market while also not committing the council too far into the future.

The proposal is that the lessee would pay the council upfront for these rights to operate the port and we expect, obviously this would be based on market process, but we expect this to be between $2 billion and $3 billion and that these funds would then be invested into the future fund.

So given this arrangement would be in the form of a lease, the council could use the terms of that lease to ensure the operations continue in the public interest so we can build things into the terms of the lease to say 'the council requires this in terms of environmental outcomes, employment outcomes', or similar requirements'

So those are the three key questions that we're looking for the feedback from Aucklanders on.

If we go to the next slide, please.

[Video: new slide appears on the screen. The text on the slide says: Our proposed option: Option 1 : Auckland Future Fund with AIAL shares and Port lease proceeds:

• a regional wealth fund that is professionally managed in line with investment objectives and policies set by the council.

• could improve the council’s long-term financial resilience by making provision, and self-insuring, for some of the risks posed by climate change and other major environmental and economic challenges.

Transferring the council’s remaining AIAL shareholding into the fund - as the council’s objectives involve diversifying risk, it is almost certain that most, if not all, of the AIAL shares would be sold over time.

Granting an operating lease of around 35 years to an external party to operate the port:

• The council would receive an upfront payment for this lease, which would be invested into the fund.

• All port land and wharves would remain in council group ownership and at the end of the lease the port operations would transfer back to the Council Group.]

[Speaking: Michael Burns]

So, what we've done is we've looked at combinations of these three questions and what they form up in terms of options for Auckland. And the first option is our proposed option and is effectively what we call a full future fund option. So, under this option, the fund is created, the airport shareholding is transferred into that fund and a lease is granted to operate the port with the upfront payment going into the fund.

So, our financial assessment is that that would mean a total of around $3.5 billion dollars is what we've modelled that on going into the Auckland Future Fund, that can then provide returns to the council and also provide those advantages in terms of self-insurance and ability to form resilience.

The next slide, please.

[Video: the next slide appears. the text on the slide says: Other options:

Option 2: Enhanced status quo

  • No establishment of an Auckland Future Fund.
  • No transfer or sale of the remaining shares in AIAL.
  • POAL would continue to operate the port.

Option 3: Auckland Future Fund with AIAL shares only

• Establish an Auckland Future Fund.

• Transfer AIAL shareholding into the fund.

• POAL would continue to operate the port.

Option 4: Auckland Future Fund with AIAL shares and POAL dividends

• Establish an Auckland Future Fund.

• Transfer AIAL shareholding into the fund.

• POAL would continue to operate the port.

• POAL dividends would be invested into the Auckland Future Fund.]

[Speaking: Michael Burns]

So then other combinations of answers give us other options, right? So, the second option, of course, is the status quo. Calling it the enhanced status quo, we continue to work with Ports of Auckland Limited to enhance the returns we're getting from the port so that's why we're calling it an enhanced status quo.

So, this says, we're not going to establish the Auckland Future Fund. We continue to own and own the shares in the airport in the way we do at the moment, and that Ports of Auckland would continue to operate the port. The return to the council would continue as it is now and is forecast with funding from dividends from those two investments supporting the council's operations.

The next option we look at is option three. So, under this option, we're looking at a fund with airport shares but without a port, without a port lease being undertaken. So, the answers to the questions - yes, we do establish a future fund, yes, we do transfer the airport shareholding into the fund, but no - we don't undertake lease of port operations and putting those funds and the returns from that lease into the fund.

So, under this option, the future fund would be populated with about $1.4 billion based on the current share price and would continue to deliver: the council would receive distributions from the fund for how it manages that investment but would also continue to receive dividends from ports of Auckland.

Option four is slightly different. Under option four, the council chooses to establish a future fund, transfer the airport shareholding into the fund but not lease the port. But in this case, rather than the dividends from the port being used to fund council operations, those dividends would be invested into the future fund. That would mean that the return to the council to fund operations would be lower, but over time the future fund would grow faster.

Can we just go to the next slide, please.

[Video: the new slide appears on the screen. The text on slide says: Options assessment: Our consultation material includes strategic and financial assessments of each option.]

[Speaking: Michael Burns]

So, within our consultation document, there is some detailed discussion of these options and the questions and the strategic and financial assessment and implications of each of the questions, and then when we pull those together as four different options.

I do encourage people to go and look at the document and read those. They're obviously thrilling reading, but also it gives you a better idea of the different trade-offs.

Behind these, we have some supporting information that people can look at. That includes all the assumptions that we've made that sit behind our calculations, how the calculations work, and some sensitivity testing that we've done on those assumptions so that we can say, well, if this one was slightly higher or this outcome was slightly lower, what would it mean?

Next slide, please.

[Video: new slide appears on the screen. The text on the slide says: Giving feedback.
Four questions on this topic to provide your views to decision-makers. The slide also shows a screenshot of a page from the consultation feedback form.]

[Speaking: Michael Burns]

So, then we come to giving you feedback. So, through the feedback form that the council has prepared in its consultation document, we've tried to step people through those questions that I've talked about.

First one, what is your preference around setting up the fund and transferring the airport shareholding into the fund?

The second one, do you support the leasing of the operations of the port? Obviously, just remembering this is just the operations, not the land or the wharves, but just the operations of the port for a period of around 35 years. Or do you think the operation should stay with Ports of Auckland Limited?

Next question. If the council were to lease the operations of the port, what should happen with the profits? Sorry? If the council continues to operate The Port of Auckland, what should happen with the profits and dividends?

So, if the council continues to receive dividends, should they be used to reduce our operating spend and reduce rates, or should they be invested into the future fund to enable for that fund to grow faster?

And then, of course, we have another bullet point where we look for any other feedback you have on parts of this proposal. You may find that you support some parts and not others, but also that you want to make comments on some of the specific things that I've talked about, such as some of the policies and rules around what the fund is invested in, some of the policies and rules around what the proceeds are ringfenced for or identified for, what terms, specific lease terms that you think the council should be considering if it was to enter into a lease.

So, that's really important. The feedback is more than just ticking some boxes. Tell us what you think and really support the councillors in their decision-making.

So, if we just flick to the last slide.

[Video: new slide appears on the screen. The text says: There is a lot to consider and some big decisions to make. Read more about our proposal and the choices available in our consultation document before giving your feedback at: akhaveyoursay.nz/our plan.]

[Speaking: Michael Burns]

So there's a lot to consider here. This is really complicated. Don't want to go into too much detail here and look forward to your questions to find out where it is that you want to hear more.

So, please go and read the consultation document after you've asked your questions, look at the information on AK Have Your Say and really let us know what your opinion is and have your say.

Thanks, Toby.

[Video: video tile of Toby Shephard appears in the top-right of the screen.]

[Speaking: Toby Shephard]

Thanks, Michael. As you say, even just this one part of the LTP proposal is a complex topic and I think you've done a really good job there of just kind of laying it out for us and then we'll use the remainder of our time to kind of get into the nitty gritty.

There will be questions about each of those options and as you say, that kind of next tier of detail. And the best way to do that is to respond to your questions and I can see some coming through. That's wonderful.

I just wanted to acknowledge we have Councillor Christine Fletcher. She's joined us online from an in-person Have your say event.

[Video: The screen splits into four: Deputy Mayor, Councillor Desley Simpson is in the top-left of the screen, Toby Shepphard is in the top-right, Michael Burns, bottom-right, and Councillor Christine Fletcher is in the bottom-left of the screen.]

[Speaking: Toby Shephard]

Councillor Fletcher was the chair of the political working group that worked on the Auckland Future Fund proposal, so it's great to have her alongside the deputy mayor and our other councillors and local board members online tonight to hear your questions and learn from the discussion.

So, welcome. Just a reminder - and you have been doing that -thank you, we've got the question function in the Q&A part of your Zoom interface. If you can be short and sharp, that helps us frame the question to the panel and get you the answer you're looking for.

And again, if you don't get your question answered tonight and it hasn't been answered, we'll do our best to provide those online at akhaveyoursay.nz.

Tonight's focus is the Auckland Future Fund. But if you do have questions that are about any of the other LTP proposals or some of the other areas of the LTP itself, please do pop those in the chat. We might not get to them tonight, we will prioritise the questions about the Auckland Future Fund, but if we can come back, respond to those questions as I say, online, I think it's the best way to make sure that you get the answer that you're looking for.

Okay, so we've reached the part of the evening where we will go to some questions. We have a few in here that almost kind of boil down to just what are the advantages and what are the disadvantages here of the Auckland Future Fund? So, I know we've had a presentation there, Michael, but I wonder whether maybe that's the starting point. It's just sort of what are we working with here? What are the advantages and what are the disadvantages as the council sees it?

[Video: Ross Tucker joins the team in the bottom-left of the screen, and Nicola Mills also joins the team in the bottom-middle of the screen between Ross and Christine.]

[Speaking: Toby Shephard]

I think we have you on mute, Michael, at the moment. The classic!

[Speaking: Michael Burns]

Sorry, so just looking at advantages and disadvantages, I think we need to look back at those objectives that the council set, and those objectives look to how someone can weight up the different options and those option look at some of the advantages that we can see. You know, our modelling suggests that the financial returns probably would be better. It's hard for the council to - we have no crystal ball, so we need to take the market on what it's saying and what Ports of Auckland is saying about their returns in the future. But we think that the suggestion is that it could be better. We also need to look at our strategic outcomes and how they are impacted by this.

[Video: Alastair Cameron joins the team in the top-right of the screen.]

[Speaking: Toby Shephard]

Thanks, Michael.

A few questions coming through around that fund manager role. So, if we kind of keep it at the level of the Auckland Future Fund rather than the sources of money that might go into it, if you like, being the port lease and the Auckland International Airport shares. So, if we just stick at that kind of fund level. A couple of questions here around how that works and just what the fund manager might be entitled to do. Are you able to speak to that or is that one for Nicola? We might need to move across.

[Speaking: Nicola Mills]

Thanks, Toby.

So, the investment manager and their role that will be set out in the documents to manage the fund, that investment manager will be accountable ultimately to the Governing Body, and it's their job to align with the objectives, the rules and the policies of the fund that the Governing Body has set.

[Speaking: Toby Shephard]

Thank you, Nicola. Would there be a cost to council for someone to manage this fund? How would that work?

[Speaking: Nicola Mills]

So, yes is the short answer to your question. What has been provided for in the consultation document is an assumption of fees and overheads of 0.15 per cent. And the returns to the council, which we have modelled at 7.5 per cent, is net of this cost.

So, if you do quick maths, the estimated cost of that would be around $5 million per annum under the central scenario, which is around a $3.5 billion fund and $2.1 million under option three, just to give you an example there.

So, this is an estimate, and obviously it will depend on a number of factors, including the size of the fund, what kinds of investments that it makes, the legal and the governance structures that might be involved. For example, our expectation is that there would be a competitive market process run to secure a professional fund manager, and that's a way that we can ensure that we get best value for Aucklanders.

[Speaking: Toby Shephard]

Thanks, Nicola.

If we think about that 7.5 per cent investment rate of return, can you talk a little bit about how the council came up with that number, as that's one of the numbers that we're using in our proposal. So how did council officers come up with that 7.5 per cent investment return? What information goes into that assumption? Thanks, Nicola.

[Speaking: Nicola Mills]

Good question, Toby.

So, the 7.5 per cent return is based on advice that the council received around the average historical returns from similar funds that we see in Australia and New Zealand. Just a little bit further to that. This is based on an investment mix assumption of 80 per cent growth and 20 per cent income investments. And just to note, of course, that 7.5 per cent is a long-run historical average. It's the best information that we could base an assumption on. But all investment involves risk and of course, past results are no guarantee of future performance.

[Speaking: Toby Shephard]

That's always a good caveat to introduce into a discussion like this. Thank you, Nicola.

I think those are the questions that I can see here, kind of at that general level of the Auckland Future Fund. I wonder whether we come down into the airport shareholding kind of sphere of questions. I can see one or two here.

Probably one to start with here might be for Ross. If you'd like to join us with your video on, please. Just got a question here. Just, I guess, confirming whether the remain - so the proposal is to move the Auckland International Airport shares into the fund and then just confirming whether or not those shares would definitely be sold. So just what the arrangement is there in the proposal as it relates to the shares, Ross.

And just to apologise to our audience members, I am coming and going in terms of dark and light, I think, and I can't quite tell on here, I'm struggling with the blinds and the sun in my eye and the only room in my house where this makes sense for me to do the call tonight. So, I apologise about that.

So, Ross, if you could join us, please, and talk to us about the shares and whether or not they would definitely be sold if they were transferred in the proposal.

[Speaking: Ross Tucker]

Yes, so the proposal is to transfer 11 per cent of the Auckland Airport. So, the council sold down a partial stake and holds around 11 per cent - the proposal is to transfer that into the fund. So, the council itself wouldn't go and sell it, it'll be the shares themselves go into the fund.

The council would then appoint a fund manager, as Michael's talked about, and the fund manager would be tasked with a set of investment objectives that are set by the council. Those objectives would be to earn a good rate of return, to manage the risk and importantly, to spread and diversify the risk.

So, because the fund manager will have an objective to diversifying risk, it's extremely unlikely they would decide to hold all of those shares and have all the eggs in one basket. So, any fund manager with that mandate would almost certainly sell those shares down.

So how much they sell, when they sell would be up to that professional fund manager working within those parameters set by the council. They'll be accountable for the performance. They might decide to hold some or all those shares as a certain stake or for a period of time, but we do want to be upfront that it is almost certain that all or most of the shares would be sold down at some point under this proposal.

[Speaking: Toby Shephard]

Thanks, Ross.

Just one more here in the airport space. So, we've got a question here: if the airport shares are sold down, will that affect the cost of borrowing to the council when the council needs to borrow money? So, if we sell down the shares, does that have an impact on the cost of money to council?

[Speaking: Ross Tucker]

So, no, we don't expect that to have an impact on the council's cost of capital. The big determinant of the council's cost of capital is the credit rating. The view is that this change wouldn't affect the credit rating.

One of the key drivers of the credit rating is the council's ratio of debt-to-revenue. This proposal doesn't change debt, it changes the revenue somewhat, we'd lose dividends, but would get returns from the fund. So, you're kind of replacing one revenue source with another. So, it would expect it to be neutral for debt-to-revenue, we'd expect it to be neutral for the credit rating. So, on that basis, it wouldn't cost the council more to borrow.

[Speaking: Toby Shephard]

Thanks, Ross. That's clarifying.

So, we've had a couple of questions there on the airport. I'm going to move to the port. I can see some coming through in relation to the leasing of the port operations.

Michael, I wonder if you can get ready to join us online, please. Thanks to council staff switching and dealing with these questions as they come in.

So, a couple of questions here on the port lease. So perhaps the first one here: if we were to lease the Ports of Auckland, how much money would we be able to raise and would that change year to year? Would that change year to year? I suspect they're asking there whether there are annual payments in relation to the lease, Michael.

So, the first question there, if we were to lease the Ports of Auckland, what assumptions would the council use when it thinks about the value of that lease, how much money would it be able to raise? Then there's a question, I think, in there around any kind of annual dividends as part of that lease arrangement.

Michael, are you able to speak to those for us, please?

[Speaking: Michael Burns]

Sure, Toby. Thanks.

Yeah. So, as I mentioned earlier, the proposal to lease the port is based on an upfront payment. So rather than paying lease payments every year, the proposal is that the lessee would make a single payment upfront to the council and the estimates are that that would be between $2 billion and $3 billion.

So, we've had some external experts who've looked at cases where similar deals have been done around the world, particularly some in Australia, and looked at what that could mean. And the assessment is somewhere between $2 billion and $3 billion. And that work's been peer reviewed. So, yeah, it won't change from year to year. The aim is that we get a nice big cheque up front and then look at using that to seed the future fund.

[Speaking: Toby Shephard]

Thanks. Thanks, Michael.

I think that addresses that kind of annual piece well. I hope that addresses the question from the audience member if it doesn't, come back to us.

So just to stay on the port lease question. So, Mike, if I can hold you there for a moment, the question here is around the council's ability to influence the operations of the port once it's leased. So, obviously the port is a big part of downtown and it has activities that impact on the city centre and then of course, its staff and the outcomes of Auckland as a whole.

So, the council currently exercises a measure of influence over the port. Once in a proposed environment that port was leased, how would the council or would the council have influence over the port's operations?

[Speaking: Michael Burns]

Thanks. As you mentioned, the council is currently 100 per cent shareholder of Ports of Auckland Limited. So, the council has a high degree of governance control over the port, but it actually has very little influence currently over the day to day running of the port.

Under this proposal, the council would be able to influence the operations of the port through those lease terms that I mentioned earlier. And in the consultation document we talk about some of the areas that the council could choose to exercise those rights as lease terms and to write things into the lease.

And some of those areas that we've talked about include some strategic investment in rail and port road infrastructure, maybe a desire to cease coal or dirty dusty trades, operating safety, environmental standards, obviously noting that we'd still have our regulatory role to play.

There could be a lease term around safeguarding jobs for port workers and entitlements around those jobs. There could be something around requiring future investment in the port to create growth in jobs, requiring consultation with the council on matters, significant matters, or even could choose to do something around pricing for the port. So those are all options for the council.

Obviously with any lease, the more terms you put in into a lease agreement, value gets reduced. But the council has options here and those are options that could maintain its ability to influence the operations of the port.

And as I mentioned earlier, this is where we want people to exercise their ability to give other feedback on the consultation. And if they've got strong views in this place, please include it in your feedback forms that come to the councillors and support them in their decision-making, thanks.

[Speaking: Toby Shephard]

Thanks, Mike.

Probably a sort of a related question here, right, while we're talking about the lease, obviously at some point, so you mentioned kind of a 35-year period, is what we looked at internationally, seemed to kind of make sense there. And there's a couple of questions here about how would we make sure that the Port of Auckland is still run well by others and that it continues to be an asset when it's returned? The operations continue to be an asset when that lease finishes.

So, you've spoken a little bit there about our ability to kind of structure the lease arrangement. Is there anything you'd add there in answer to that question, how we can make sure that the Ports of Auckland is sort of run well and returned in good order.

[Speaking: Michael Burns]

I think in that case we just turn again to it's a lease arrangement and like any lease arrangement, the lessee continues to play a key role with the asset and having oversight of performance under the lease. So, if the party operating the port was not fulfilling its side of the bargain, then the council would have all the rights that it would have under any lease arrangement.

[Speaking: Toby Shephard]

So, perhaps another example there about feeding back so that councillors can hear the feedback that they receive as they go to make their decisions throughout the long-term plan process. It's hearing from the community about what's important there.

There is another question here about the port lease. I wonder whether it is one for Ross, so we might ask Ross to join us. Thanks, Mike.

So, Ross, there's a question here about in the lease scenario, the council is retaining the debt of Port of Auckland Limited. So, the question is why is the council retaining the debt of Ports of Auckland Limited under the lease sale proposal?

Ross, are you able to speak to that, please?

[Speaking: Ross Tucker]

Yeah. So, the proposal is for the council to retain underlying ownership of the wharves and the land. And so the view is that that debt has been used to build up the assets over time and so that debt stays with the assets. So, the council becomes effectively the landlord, it owns the assets and it has some debt associated with those assets. That's the reason why the debt is retained.

[Speaking: Toby Shephard]

Thanks, Ross.

Just another question here about the fund manager. I wonder whether we, I'm just checking my notes here, it might be one for Nicola. Nicola, can we have you join us, please? Just a question here about. Excuse me, Michael. Sorry, I read my notes wrong there. Michael, if you could join us, please. We've got a question about the choice of a fund manager. So, whether or not Auckland residents and ratepayers would get a say, have a choice in that fund manager. Could you speak to the appointment process there and what that might look like? Would ratepayers have a role in selecting the fund manager?

[Speaking: Michael Burns]

I think the selection of the fund manager is probably something that wouldn't be directly involved in, but I think what we need to take a step back and say what are the criteria for a fund manager and what expectations the council would set on a fund manager? And that's where it's really important that councils, that the people of Auckland kind of have a say and let the councillors know: what is it that you would expect of a manager managing those funds on behalf of the people of Auckland, and what rules the council should put in play for that manager in terms of what they invest in, what they don't invest in, what targets they're given, how they operate the funds, what levels of risk they take. So less about the who but the what, what they do and the conditions of that appointment process.

[Speaking: Toby Shephard]

Yeah, and the objectives that they're driving towards. Thanks, Mike.

Ross, I've got a question here about, I suppose, the candidates for the port lease arrangement. Would there be any protections there about, say, for example, a foreign operator? Would that be something that is considered in the leasing arrangement, Ross?

[Speaking: Ross Tucker]

The council would have to decide on a procurement process for any lease and decide, well, what is the best way to move forward in terms of who can participate in a transaction and how and what that looks like. So that is stuff that needs to be worked through.

There's a range of protections in terms of an operator doing undesirable things and there's controls that can be put into the conditions of the lease around pricing, about making sure that the interests of the port customers are looked after and that could be things that look at protections for employees, etc. So there's a range of different conditions the council can impose as part of the lease terms that would provide some of the protections that some people may be worried about. But in terms of how people participate, who can bid, that is still to be worked through.

[Speaking: Toby Shephard]

Thanks, Ross. Good.

A question here, kind of back up at the Auckland Future Fund level as well. I think this one might be for Nicola, please, if we could have you join us.

So, the question is, if it turns out that the fund's earnings are taxable, how would that affect the projected return?

So, you spoke before about how our assumption has been the long-run return here. A reasonable assumption looks like seven and a half, but if the fund's earnings are taxable, this question asks, by how much would that affect that target and what would that be reduced by? Are you able to speak to the kind of taxation question, please?

[Speaking: Nicola Mills]

Thanks, Toby. Yeah, I'll give that a shot.

So, whether the fund's earnings will be taxable or not is going to depend on what legal structure the fund takes. And keen for some feedback on that as well if people want to. A few options are being investigated. So, one example would be a trust, another a council-controlled organisation, also possibly a standalone council department.

And so we're working with our tax advisors on this to make sure that we understand what the likely implications are. And so far, depending on the structure, the amount that gets reinvested in the fund, which we have estimated at 2 per cent as an assumption, that could be subject to up to the maximum tax rate we currently have of 39 per cent. So just as an indication there.

[Speaking: Toby Shephard]

Thanks, Nicola.

So, just one or two more that I can see in the chat. So just a reminder to our audience, if there are any other questions that you would like answered tonight, please send them through in that Q&A box in your Zoom interface and we can respond to those.

So, I've just got one or two left here that I can see. The first is on the so, Mike, this might be just one for you. Partly covered earlier, I think, but worth revisiting. Just a question around why the 35-year period was selected. So, if you could speak to the 35-year lease period, please.

[Speaking: Michael Burns]

Sure. Thanks, Toby. So the 35-year lease period is based on some of the work done by the external experts we got in and they said that nothing shorter than 35 years would likely be attractive to potential operators.

These operators want to come in and operate the port. They need to set themselves up and in order for them to get a return, they would need a good period of lease. And that also enables us to maximise the return we can get from that.

One of the other questions we've been asked in some of the engagement sessions is, what does this mean for the future of the Port of Auckland? And there's been lots of talk about the future of the Port of Auckland over the years.

This proposal does not say that the port will always stay in downtown Auckland or that after 35 years it will magically disappear. This is just that for the next - if this lease were to go through, you would have certainty that there was a port operating in downtown Auckland for the next 35 years.

At the end of that period, the assets would be required to be returned to the council subject to the terms of the lease returned back to the council, and then the council could make another choice whether to continue to go back to operating it itself, to another lease for another period or a number of other choices around what it does with its ownership of those land and wharves in downtown Auckland.

Thanks, Toby.

[Speaking: Toby Shephard]

Thanks, Michael.

So, just another question on that lease arrangement. So, I think that's a good explanation around why 35 years has been selected there.

So, just a connected question. Auckland Council's expected upfront income from the 35-year lease, so this person writes, is about 50 to 70 times the current profit being made by the Ports of Auckland. Obviously, the lessee will want a much better return than that.

And the questioner asks, what does Auckland Council think the lessee will do to the port to make it much more profitable? So, I guess the point there being the assumption used is that the value of the lease is high relative to the return, than the profitability of the port currently. So, what changes might a lessee make? I suppose, in order to kind of realise that as a good deal in their eyes.

Are you able to comment at all on that, Mike?

[Speaking: Michael Burns]

I suppose - not sure exactly what a lessee would do. I suppose what they need to think about is what they can bring to the Port of Auckland. And like anyone taking on a business where you buy a business or an operation, you look to what is it you can do and you believe you can run more efficiently, whether it has to do with other connections that a potential operator might have or maybe they are involved with, or part of a consortium is involved with ports overseas and has experience or other skills that they believe they bring to the table.

It's probably not for us right now to go into exactly what it is that they would believe they could bring. But, yeah, there's a number of different ways in which different operators could look to ensure that they can get value from this.

[Speaking: Toby Shephard]

Yeah. And a difficult one to put to you on the spot there with, Michael. You're not a port operator yourself but thank you for your answer there.

So, just another question here. I think, Ross, it might make sense for you to jump on and answer it if we can, please. Thanks, Mike.

So just, I like the phrasing of this one 'lolly jar'. So, the person asking this question, asks, how will this fund not become an irresistible 'lolly jar' for future mayors and councillors? And they also make a comment here about whether or not it will address operational indiscipline over time. So, I guess the question there being, Ross, kind of what protections are there, if you like, around the Auckland Future Fund being used for the purposes that it is kind of set up as? Are you able to kind of speak to the arrangement for the fund itself?

[Speaking: Ross Tucker]

Yeah. So, the core part of the proposal was setting very clear policies around what the fund can be accessed for to make it clear that it can only be used to provide liquidity in terms of market disruption.

It'd be that rainy day fund for major events, provide some self-insurance relief and respond to climate change impacts. So, it's kind of having those things start out really clearly. Some of those things will be captured through the long-term plan and there's a bunch of protections in terms of the Local Government Act, in terms of councils have to follow some of the key provisions in their long-term plan.

There's a range of other provisions that might apply which kind of depend on the form of the future fund, the legal structure. So, for example, if it was set up as a trust, then there can be protections as part of a trust deed in terms of the way the trust is legally structured. And there's many examples of trusts out there that have got very tight legal protections. There are other options, if it's a company structure, there's company constitutions and other things that can be put in place.

One option, some other funds, there's other examples around New Zealand where there is kind of legislation in place that kind of sets some rules and protection. So, all of those things are possible. It depends upon the legal structure around the trust.

So, there's a clear intention to have rules that have certain weight and then the legal structure will determine just exactly what are the mechanisms to change or vary any of those rules, if there was a desire to. The idea is to have the things set up with some very clear rules in place.

[Speaking: Toby Shephard]

Thanks, Ross. Just one more actually, if I can keep you here on the port lease, and kind of a practical question, when does the council expect a port lease to apply from? This is a good one. So, do we have an idea of kind of timings here? How does this work were the proposal to kind of go ahead on the port lease?

[Speaking: Ross Tucker]

So, it would take a little bit of time to work through the detail of the due diligence, all of the things you have put in place work through the process. It will take probably at least a twelve-month period, might take a little bit longer, could be a little bit shorter.

For financial forecasting purposes we've assumed that if a decision is made to proceed as part of this long-term plan by May/June this year, then we think a lease and future fund could all be up and running and providing benefits by 1 July next year. So, 1 July 2025. That's our assumption. It might be a little bit early, it might be a little bit later, but we've got to work on one assumption.

[Speaking: Toby Shephard]

Thanks, Ross.

So, fitting within essentially the financial year for the council and local government.

Alastair, I wonder whether we can ask you to join online, please - our manager for council-controlled organisations (CCOs) and strategic relationships.

So, there's a question here for you around CCOs. Would the Auckland Future Fund require a CCO? So, we talked a little bit about the trust and deed kind of situation, but the audience member here asking would we need a CCO, a council-controlled organisation, or would it be a department that oversees the fund, how is that envisaged?

[Speaking: Alastair Cameron]

Well, I think, as was mentioned earlier this evening, the final form of how the fund would be held would still need to be worked through to make sure it's the best structure possible for the council.

I think I'd say that a fund manager would be appointed to manage the fund on the council's behalf. The council has, within existing departments, the ability to manage and monitor that fund manager itself.

If it was decided to establish a CCO to be the best structure to hold that fund and that CCO was to manage the relationship with the fund manager, then yes, that would come with some additional cost.

I would note that earlier in the history of Auckland Council we had a very similar CCO, Auckland Council Investments Limited, which at the time managed a diversified assets portfolio as well as a range of other investments on behalf of the council. And the cost of having that CCO, I don't have the exact figure to hand, but it was in the order of $1 million per annum or less. And it's my understanding that the costs of monitoring any arrangement with the fund manager are broadly baked into the proposals that are put out for consultation.

[Speaking: Toby Shephard]

Thanks, Alastair.

So, yeah, quite a bit of interest here on the port. Thank you, audience, for your ongoing questions here. So, Tam, I wonder if you might join us.

[Video: Tamsyn Matchett joins the team on the screen, in the middle row between Michael and Ross.]

[Speaking: Toby Shephard]

We've just got a question here about process and about consultation. So this person asks, "will you consult with tangata whenua when deciding about the Ports of Auckland whenua?" So, Tam, I wonder whether you could speak to whether we'll be consulting with tangata whenua when deciding about the Ports of Auckland whenua.

[Speaking: Tamsyn Matchett]

Kia ora, Toby. And thank you very much for the question.

Yes, so as part of this consultation, we are in direct engagement with both iwi organisations and matawākā organisations across the entire LTP proposals or all the proposals included in consultation. So that's not just the Auckland Future Fund that we're discussing tonight, but the other proposals that also includes those related to the ports whenua. So, yes, absolutely, that is part of this process.

[Speaking: Toby Shephard]

Thanks, Tam.

[Video: Tamsyn Matchett leaves the screen.]

[Speaking: Toby Shephard]

Just got another question here around drawing from the fund. So, Ross, I wonder whether you could join us online to speak to this one.

So this person asks, under what circumstances would the council draw from the Auckland Future Fund? They give the example of a natural disaster and how would the spending of this future fund be assessed?

So actually, that's probably a two-parter. Maybe just that first piece first, Ross. So, under what circumstances is it proposed that the council would draw from the Auckland Future Fund?

[Speaking: Ross Tucker]

Yeah, so it's proposed, there's a really clear set of rules around what those circumstances are. It covers things like a natural disaster, self-insurance and response to climate change events. So, I guess the details of that are to be worked through. The idea is it's not intended that we create this fund and then start spending it immediately. It's about being a rainy-day fund - if unexpected events occur and things become necessary.

And if you think about the experience Auckland has had with the floods and cyclone last year, that's kind of a major event. The council's had to respond to help out affected people, to provide, make land, people's homes and businesses more resilient. Just those kinds of major events that the council would really struggle to be able to afford and be able to do without.

So, the exact details of that are to be worked through, but the intention is for there to be a high bar. It's for these big events where response is needed, we have to work through that and make sure that there's a proper assessment process and these things are given really careful consideration as they occur.

[Speaking: Toby Shephard]

Thanks, Ross. Just a question here, Michael, I think it might be best to ask you to join us to take this one.

So, the person asking this question asks how much research has been done around the consequence of leasing ports overseas? So, I suppose the experiences of other jurisdictions overseas in relation to leasing port operations. And this person kind of acknowledges that the purchaser of that lease arrangement is unlikely to be a New Zealand-based purchaser. But I suppose just to get to the heart of that one, it asks how much research has been done around the consequence of leasing ports overseas.

Mike, are you able to speak to experiences overseas in similar circumstances?

Thanks, Mike.

[Speaking: Michael Burns]

Sure. Yeah, so the expert advice we received as part of their work, they did do research on similar long-term port leases of operations of ports in Australia. And actually within our consultation material, there's some answers on page 63 that look at what is it that they have seen over the last two decades of these sorts of operations.

I suppose even more, there's even more information, as I said earlier, within our supporting information, starting on page 538 of our supporting information, more information on what we've done, what assumptions we have and how we've built up those calculations of the potential returns. And in there is also links to some of the external research and advice that we've received so that Aucklanders can go all the way through our documents and to the external advice that we've received and see what they've said firsthand.

On the question of unlikely to be New Zealand based purchaser, I think we need to be open to there's lots of different options here. There could be single operators come forward, but also we could look at consortia or different structures of an operator and those could well have local New Zealand involvement. So, it's not guaranteed that it would be an overseas-based purchaser. And if that's something that is important to you, please include that in your feedback.

[Speaking: Toby Shephard]

Yeah, thanks, Mike.

Maybe just sticking on the lease arrangements there, there are one or two questions that I can see that are around the structuring of that lease. So, like one person is asking, would it be possible to separate that lease into different sections? I think they're suggesting here could it be five or ten-year periods and kind of review and check the lease is a good option and so on.

I suspect we already know the answer in the sense of your comment earlier about a big sort of sum up front and any of these kind of conditions or changes would sort of alter that and therefore kind of maybe alter the proposition that we're dealing with. But if I were to ask you that, firstly, I suppose, is it possible to separate leases in that way and then you may or may not have a kind of comment on whether that's a desirable thing.

[Speaking: Michael Burns]

Yeah, so I suppose the first thing that we've said, and we've talked about a little bit here about what a new operator would think they would bring that would create value for themselves. But also it's a big undertaking to take on operations of a port. And the research that's been done, market soundings that have been done, do suggest that they would want certainty of at least a 35-year period.

In some other parts of the world, these leases are much longer, but the council at the moment is just looking at a 35-year period. They believe that provides the certainty that would enable a new operator to undertake some operations.

And I see some of the people have been asking questions both here and in other sessions about, you know, what does it mean for the future of ports? And as I mentioned earlier, 35 years is a period that enables the council to still make some decisions about the long-term future of the port over time, because any significant changes to how Auckland deals with its freight would take a number of years to make to.

[Speaking: Toby Shephard]

Mike, while we've got you here, there's another question here around, kind of goes back to the discussion we were having about the council's ability to influence operations as well. And so this one is about port access fees, pricing costs, that sort of thing.

So, this person is asking, will the council have any control over the port pricing and kind of costs of imports? We hand over the strategic assets, I suppose and lease the operations and our Auckland is therefore at risk of a higher cost of goods, essentially.

Are you able to kind of speak to the impact of leasing those operations and then what that operator might or might not be able to do in so far as access fees and pricing and cost?

[Speaking: Michael Burns]

Yeah, so I suppose there's a couple of parts to this question and to the answer. The first one is, again, the ability to use the lease terms to restrict what could be done in terms of operations of the lease. And yes, we could look to insert something into the lease and in fact, it's even discussed in our document around, you could look to restrict prices and access.

But I suppose the other side to the story is within New Zealand we already have a competitive market for ports and the Port of Auckland does already compete significantly with other ports around the country and most notably with Port of Tauranga. And so, I think that we need to be aware that those market forces are at play already and they would limit any ability for sort of significant price increases that would impact the cost of goods because those users would most likely just look for a cheaper port to use in their importing into New Zealand.

[Speaking: Toby Shephard]

Thanks, Mike.

Ross, I wonder whether we can have you back on screen, please. Just a question here about, and you kind of were addressing this a little earlier about the circumstances in which we might draw down from the Auckland Future Fund.

So this person is asking, could a market slump? (And they're referencing COVID 2020) or an event requiring a drawdown for self-insurance, something that you mentioned there, so the example given the weather events in early 2023. So, could an event like that seriously kind of impair the purpose of the fund?

I suppose they're implying there that we're withdrawing so much from the fund that we are kind of inhibiting the kind of strategic purpose that it's there for.

Ross, are you able to answer that? So, could a market slump or an event requiring a large drawdown for self-insurance kind of seriously impair the fund?

[Speaking: Ross Tucker]

Yeah, that's a really good question. It absolutely could. That is kind of the nature of this kind of fund. It's a bit of a watch list to deal with these things. Obviously, we'd love to put the money into a fund and have nothing bad go wrong for decades to come. That would be fantastic. But the whole purpose of this fund is to give us that resilience and be prepared.

It is something we've turned our mind to. We've had some modelling done, PwC have done some modelling on this, looking at those kind of shocks about what happens when early on or later on, and different scenarios about the size of it, and what that kind of shows is that you have to think carefully about how do you respond to that.

If a shock happens, you've kind of got a choice. You can sort of keep taking the money out and the fund will shrink, won't grow, it'll shrink over time. And there is a risk if the fund is too big or too early, you keep taking money out, it might go eventually down to zero and all of it's used up. Or alternatively, you can take less money out and then you have to find other ways to fund operations.

Rates might have to be higher, but you can then recover the value of the fund faster. So you've kind of got these different choices.

The modelling kind of shows as well, though, that the bigger the size of the fund, the more ability you've got to respond to endure those kinds of shocks. So the modelling shows that a $3.5 billion fund with the port lease and the airport together gives you much more ability to deal with those things than if, for example, you just had the airport shares only by themselves.

With airport shares and the event happens, there's a bigger risk that there's a big shock and you don't have the value over time, or you can't take the money out as intended. So, yes, there was always risks, but I would say that there is risks regardless.

There are risks in the insurance space. There's risks we might not be able to get the kind of insurance we've been able to get historically. And so there's risks that without this proposal, and if we just rely on insurance markets going forward, we may have a big uninsurable event that hits us.

Also, if we just kind of maintain the status quo and we have all of our investments in the Port of Auckland and Auckland Airport, and a big event happens, how are we left then? If it's a natural disaster and it impacts on those investments, it could be that those investments, those two big investments, are impaired at the very time when Auckland Council needs the money the most.

So, this is about spreading risk. It's about putting us into a better position. It doesn't eliminate the possibilities of natural disaster, but it puts us in a better position to manage those risks and be more resilient.

[Speaking: Toby Shephard]

Thanks, Ross.

I guess there's an element there around the way that the Auckland Future Fund rules are kind of monitored. And I wonder if we could have Alastair - I think we've just got time for just the last question here.

Alastair, we had somebody here asking who is doing the monitoring, so are you able to speak there to who will monitor the kind of running of the fund itself? So we've got a fund manager, but who are they kind of accountable to? Can you share that with us?

[Speaking: Alastair Cameron]

Yes, certainly.

So, right up at the beginning, the Governing Body of the council would need to set some rules or parameters about how they would like to see that future fund invested and the fund manager would be responsible for that.

Now, depending on the structure that's ultimately decided on to hold that future fund, whether it's directly by the council or through a CCO or some trust structure will depend on who will monitor that fund manager. But say it's held out in a CCO, it would be up to the CCO, that board, to monitor the performance of the fund manager.

That CCO is ultimately responsible back through to the Governing Body. Likewise, if it was a council department responsible for managing the fund manager, that council department would be responsible. Its accountability lies back to the Governing Body. So, at the end of the day, it will be the Governing Body of Auckland Council that will have responsibility for making sure that the rules of that future funder adhered to.

[Speaking: Toby Shephard]

Yeah. Thanks, Al.

So, that brings us to the end of the questions that I have here and not far from our finished time. So, I want to thank everybody for the questions that they put into the Q&A function here for us tonight and hopefully you found some answers there. And then a reminder to delve into the supporting information and the consultation document itself for any further information.

Before we did go, I wanted to check with Deputy Mayor Councillor Desley Simpson whether you had any reflections on this evening's discussion.

[Speaking: Deputy Mayor Councillor Desley Simpson]

Thanks, Toby, and thanks for the opportunity just to say a few words.

I want to thank the people of Auckland who are online tonight for their questions. It gives us a lot of insight into the fact that you still have some questions around the whole concept of the future fund.

And so what we will be doing, as well as putting this online webinar on the council website, we will be publishing all questions and answers. And actually, the mayor's office is coming up with yet another set of questions and answers too, because it is complicated and there are a whole lot of moving bits to it.

But if, after you've listened to this webinar, you've gone off tonight and you've still got some more questions, please feel free to email them through the team, either to myself or via the email address for AK Have Your Say and we'll get those answered to you promptly because it's really important for us as the decision-makers around this, to know that your feedback is actually based on the fact that you've got all your questions answered and you can actually make an informed choice.

I also want to say that it isn't a done deal. We do have an open mind. A lot of people ask me, are you just going through the motions and asking Aucklanders when you're going to do it anyway? I just want to remind people to think back to the mayor's first budget, which started off in a very different place to where it ended.

So, we have an open mind. We are listening. Please do have your say. Remember, there's so many opportunities to do that, whether it's in person, online, by phone and let us know your thoughts.

But again, thank you for taking part and listening tonight. Thank you. Thanks, Toby

[Speaking: Toby Shephard]

Thanks so much, Desley.

Councillor Christine Fletcher as well, I wondered whether we might invite any closing comments from yourself, having been the chair of the political working group that worked on the Auckland Future Fund. Kia ora.

[Speaking: Councillor Christine Fletcher]

Thank you, Toby.

I think it's been an excellent session and actually a lot of the questions are the very same questions that have been posed by councillors on the working party.

I think what underpins all of this, though, is that the storms of 2023 and the cyclones of 2023 showed us that we just don't have the resilience in terms of moving forward. So we can't just keep doing the status quo.

The deputy mayor is quite right. We are approaching this with an open mind. But what we are doing is saying if we were to create an Auckland Future Fund, there's a huge amount of work yet to be done. The questions around the terms of the lease, how these would all be managed, there's a lot more work needs commissioning. But none of that work ought to be commissioned until we understand Aucklander's appetite for doing things differently.

For me, I think an Auckland Future Fund is long overdue and if we were to go down the path of having a 35-year lease, we would at the end of it be handing over to a future generation of Aucklanders their choices as to what they want.

The difficulty has been in the past when assets have been sold, they've just gone into the great ground of Auckland Council and been soaked up. This is something quite different. This is actually having a targeted fund to give us that resilience and I'm really looking forward to hearing what Aucklanders have to say.

But there's a lot more work yet to be done. But I think the officers have done an excellent job in explaining this initial phase to us tonight and you've done a great job in mc-ing it. So, thank you to everyone.

[Speaking: Toby Sheppard]

Thanks, councillor.

So that brings us to the end of the evening and all that remains is for me to say a big thank you to the deputy mayor, the councillors and local board members that we have online, the staff that have given up their evening to be with us tonight and to take those questions.

I think really important that we've been able to spend this time together delving into quite a complicated topic. And of course, a really big thank you to you, the audience, for participating, bringing us your questions.

Just final reminder, the engagement is open until 28th March. You can go to akhaveyoursay.nz/ourplan. You can find the feedback form there, you can find in-person sessions in your area there, and we really do encourage you to engage with the information that's there and please give your feedback.

The councillors are showing us tonight, they are waiting and keen for feedback as they think about the decisions that they make during the LTP process.

So Pō mārie. Have a lovely evening. Thank you all for joining us and good evening.

[Video ends]

Back to Online events.

Back to Online events.

[Video: Auckland Council’s Long-term Plan 2024-2034 logo appears with an image of Toby Shephard in the top-right corner.]

[Speaking: Toby Shephard]

You're just joining us? Welcome. We'll get started shortly. Kia Ora. Good evening, everybody, Tēnā Koutou and welcome.

My name is Toby Shephard. I'm a manager here at Auckland Council and I'll be facilitating this evening.

Thank you for joining us tonight for our information session on Auckland Council's Long-term Plan 2024-2034. The purpose of this session is for those of you who are joining to learn some more about the council's proposals for the 2024-2034 long-term plan.

A reminder that the consultation is running from the 28 February to 28 March and further information including the feedback form can be found at akhaveyoursay.nz/ourplan.

Tonight, the purpose is to ask questions and you can do that via the chat function here on the Zoom call and hear from staff across the Auckland Council Group, answer those questions.

Tonight, we're not asking for you to provide your feedback. To do that you can go to our website or come to a drop-in session. You can find sessions in your area online. Tonight's session will provide an overview of our proposal for the budget, but it is specifically about the proposal for an Auckland Future Fund. More on this in a minute.

The long-term plan consultation seeks your input into how the council should work to improve the daily lives of Aucklanders. It's about how we should do that work and how it should be paid for. Our proposal for the long-term plan would strengthen Auckland's physical and financial resilience while tackling some of our big budget challenges.

We've organised the LTP around seven areas of investment, transport, water, community, the built environment, natural environment, economic and cultural development and how the council manages the organisation and supports its elected members.

For the first time, the council has created options. So, we have a central proposal and a do more and pay more and a do less and pay less option and we want your feedback on each of those areas for each of those options, and that'll help the councillors in their decision-making.

In addition to the central proposal there are the pay more get more and the pay less get less proposals.

We want to hear what you think about our proposals for our transport plan, options for creating an Auckland Future Fund, the investment fund that we're here tonight to find more information about, options for the waterfront properties, options for North Harbour Stadium, changes to other rates, fees and charges, and our local board priorities.

So, as I say, the focus for this evening is on the proposed Auckland Future Fund. First, just a few housekeeping notes on tonight and some Zoom etiquette.

The session is being recorded and it'll be made available on akhaveyoursay.nz/ourplan in the next few days. All the members of the audience have their cameras and microphones disabled. We have staff on hand to answer any questions that you put inside the chat function for us. And if you can do your best to think about the time constraint that we have here and really focus your question, it'll make it easier for us to understand exactly what you're asking and help us answer it. And of course, any comments or questions that are disrespectful or off topic, they'll be dismissed.

Joining the discussion tonight, we have the Deputy Mayor, Councillor Desley Simpson. Welcome, and welcome to our other elected members on the call. We have some councillors and local board members who are joining us online to listen to the discussion to hear what types of questions the public are asking.

Welcome to you all and thank you for joining tonight. We also have Nicola Mills, she's the council's Group Chief Financial Officer.

We have Ross Tucker, the General Manager for Financial Strategy and Planning. We have Michael Burns, our Head of Financial Strategy. And we have Alastair Cameron, who's the Manager of our Council Controlled Organisations and External Partnerships team.

Tonight's session will take about 90 minutes and the format is a presentation from Michael about the long-term plan and it's followed by a Q&A where you'll have the opportunity to ask questions using that chat function.

If you can again remember to keep those questions short and succinct. That will help us answer your specific query and help us get the most out of the time that we have together tonight. If we don't get to all the questions in the session, the team will take them away. And anything that isn't answered tonight, we will do our best to get a response to those as well and then we'll be able to publish the response to those questions along with the recording from tonight's session on the AK Have Your Say website in the next few days.

So welcome again and now to kick us off for the evening, we have a message from Mayor Wayne Brown. Over to you, Mr Mayor.

[Video: video appears of Auckland Mayor Wayne Brown in front of a view of the Auckland City harbour.]

[Speaking: Mayor Wayne Brown]

Kia ora tātou.

Auckland faces some big challenges over the next decade. The Auckland anniversary floods and Cyclone Gabrielle caused damage across the region. One year on, the impact for our communities continues. As a city, we will still be recovering from this in years to come.

These devastating events have shown that we must strengthen the financial and physical resilience of our region. If we want to reduce the impact of future shocks for Auckland households and businesses, we need to think seriously about reducing the city's exposure to risk. We shouldn't just be relying on the ratepayers to cover the cost of disasters.

The long-term plan provides an opportunity for us to rethink the way we do things and reassess what matters most to Aucklanders in the wake of unprecedented events.

Many Auckland householders are really feeling the pinch in this cost-of-living crisis. We're talking about big cost increases year after year, with the result that more people are struggling to pay their mortgages and meet their living expenses and taking on more debt to bridge the gap.

Local government is not immune to these pressures. In the past, Auckland Council has relied on debt to bridge funding gaps, and committed to government megaprojects while underfunding the renewal of core assets like roads, pipes and community buildings.

The removal of Auckland's regional fuel tax will leave an estimated shortfall of $1.2 billion in transport funding. The full impact of the government's water reform is yet to come and there are several hefty, unavoidable bills ahead, including the City Rail Link and the ongoing storm recovery.

Nevertheless, I'm determined to put Auckland Council in a better financial position. As we develop the long-term plan, we have to focus on areas where we will have the most impact. We need to get back to basics, get things done better, faster and cheaper and finish what we've already started.

My priorities remain the same: fix Auckland's infrastructure, stop wasting money, get Auckland moving, take back control of council organisations and make the most of our harbours and environment.

Auckland ratepayers deserve better value for money from the public services and activities and more competitive returns from public investments which will help keep rates as low as possible. We all have difficult decisions to make.

In the past, council staff have led development with a long-term plan, but this year the process was led by our councillors, local board chairs and members of the independent Māori Statutory board along with myself. We're doing things a bit differently.

Our core proposal has gone to public consultation with options to do less or do more, with the understanding that doing more will cost more for Auckland ratepayers.

I want to thank you in advance for having your say on Auckland's Long-term Plan. We'll listen to what matters most to Aucklanders. The decisions we make today will shape our city over the next decade. So let's fix Auckland.

Tēna koutou, tēna koutou katoa.

[Video: an illustrated Auckland Future Fund background appears, with Toby Shephard in the top-right corner of the screen. The text on the screen says: Making changes to our largest investments could improve the council’s physical and financial resilience.]

[Speaking: Toby Shephard]

Thank you, Mr. Mayor. Deputy Mayor Desley Simpson, do you have any initial comments following on from what the mayor has just shared with us?

[Video: Deputy Mayor Desley Simpson, appears in the top-right corner of the screen.]

[Speaking: Deputy Mayor Desley Simpson]

Thanks, Toby.

Look, I think tonight's webinar on the Auckland Future Fund is a very, very key and important part of the proposal for discussion around the LTP. It's an approach we've never used before, so it's new to the council and a new idea. I'm here to listen, I'm here to listen to the questions that people are asking and I'm here to make sure that the discussion remains respectful. So back over to you. Thank you very much.

[Video: Toby Shephard appears in the top-right corner of the screen.]

[Speaking: Toby Shephard]

Kia ora Desley, Thank you.

So, as discussed, the particular focus for tonight's session is the proposed Auckland Future Fund. That proposal creates a new managed investment fund.

The proposed Auckland Future Fund would diversify revenue sources and could reduce the extent to which the council relies on rates to fund our plans. The proposal is to transfer all of the council's remaining shares in the Auckland International Airport Limited into the fund and the Auckland Future Fund manager would be enabled to decide to sell any or all of those shares.

The objectives for the proposed Auckland Future Fund would include diversification and that means spreading the fund across a range of investments to diversify risk. It is almost certain that most of the remaining AIAL, the Auckland International Airport Limited shares or potentially all, would be sold over time.

The council is proposing splitting the land and operations at the Ports of Auckland in addition to this, and that proposal is to lease the Port of Auckland operations and use the funds from the lease to help create the Auckland Future Fund. In this proposal, the port land and wharves would be retained in Council Group ownership.

An important point to note is that the LTP also proposes separately to the proposal to lease the port operations a plan to make the most of our waterfront.

The proposal is to stop the port operations on Captain Cook and Marsden wharves. These are the western wharfs currently being used for cars and some bulk storage. And these wharves would then be used for something else. And this could include the creation of new public amenities such as new open spaces and or new residential or commercial development. So that's the fund in a nutshell.

We will now have Michael Burns, the Head of Financial Strategy to present a more detailed information pack about the proposed Auckland Future Fund.

So just a reminder while we listen to Michael's presentation that you can pop your questions using the Q and A function in the Zoom call. Thanks very much. And here is Michael.

[Video: Michael Burns appears in the top-right corner of the screen.]

[Speaking: Michael Burns]

Kia ora koutou.

So, Auckland Council owns two significant financial investments on behalf of the people of Auckland and like any good stewards of public assets, we need to review these from time to time to ensure that the public are getting best value for them.

So, this part of our long-term plan consultation looks at some options to make changes to these investments and whether they could result in improvements to the council's physical and financial resilience. So go to the next slide, please.

[Video slide: the text on the screen says: Major investments - Auckland Council currently owns just over 11 per cent of Auckland International Airport Limited (AIAL). ]

The council also owns 100 per cent of Port of Auckland Limited (POAL), which owns and operates Auckland's commercial freight and cruise ship harbour facilities.

Recent years have seen significant fluctuations in the returns from these two investments due to a range of commercial factors and the impact of the COVID-19 pandemic.

These investments are important components of the council’s financial strategy, and it is crucial to assess whether they can be leveraged for greater cash returns to fund council operations, reduce risk and better long-term financial sustainability.]

[Speaking: Michael Burns]

So, the two major investments we're talking about here are the council's shareholding in the airport and the ownership of the Ports of Auckland Limited. So, the airport company owns and operates Auckland International Airport and some surrounding developments.

Following the sale last year of part of its shareholding, the council now owns around 11 per cent of all shares in AIAL. These shares are publicly listed, and my phone tells me that they are worth, around $8.26 at the moment, and that means the council's holding is worth between $1.3 and $1.4 billion. Port of Auckland is the company that owns and operates the port in Auckland's downtown.

So, in recent years these investments have been impacted by both commercial conditions and also major factors that have impacted the rest of the council. The operations of both were hit significantly by COVID and also the airport was also impacted by last year's weather events.

Sorry, next slide, please.

[Video: a new slide appears on the screen. The text on slide says:
Objectives of a proposal:

  1. Protecting the value of the council's intergenerational assets.
  2. Provide self-insurance/resilience.
  3. Enhance cash returns.
  4. Deliver diversification.
  5. Improve flexibility.
  6. Strategic outcomes.]

[Speaking: Michael Burns]

So, when we're looking at these investments and trying to think about whether they're delivering the best value and looking at different options for what we could do, what we've done is we've looked at what our objectives of any proposal would be.

So, in this case, we've looked firstly to - how do we protect the value of the council's intergenerational assets?

So, in this proposal we look at - can we at least maintain the real asset value over the long-term? We look at, could the proposal provide an ability for the council to improve its physical resilience? So that could include using the fund to provide some level of self-insurance that could support our ability to respond better to shocks or natural events.

Could we also use it to enable us to fund more expenditure in response to climate change or could it provide liquidity in the event of some kind of major financial disruption?

Thirdly, we're looking at - could a change to the investments enhance the cash returns received by the council?

So, these investments currently deliver cash returns to the council that help fund our operations. Any improvements to these returns could fund these, provide more funding towards these, and reduce the council's need and reliance on rates.

Next, we look at delivering diversification. So, the current investments are both focused on transport infrastructure in the same city, which is also the same city where the council's own infrastructure risks sit. So, the question is, by spreading investments over a range of assets, both in terms of where they are and what they are, could we reduce the risk of them losing value?

Improving flexibility. So, could changing the structure of our investments enable the council to rebalance investments over time to reflect changing community needs or investment objectives?

And finally, how would any proposal impact the council's overall strategic outcomes? So the consultation document looks at both stated and inferred strategic objectives of both the port and the airport investments and how they might be impacted by the proposals.

Next slide, please.

[Video: new slide appears. The text on the slide says: Key decisions:

  1. Do we establish a regional wealth fund (the Auckland Future Fund) to manage our financial investments?
  2. Do we transfer our AIAL shareholding into the fund?
  3. Do we change the way the port is run by leasing the operations, while maintaining ownership of the land and wharves? If so, do we invest the proceeds in the fund?]

So, this slide is at the core of what this proposal is. There are three key questions that we're really asking Aucklanders and those key decisions feed into the options we're looking at. So firstly, do we establish a regional wealth fund, which we'd call the Auckland Future Fund, and have that in place to manage the financial investments.

So, the proposal is to establish this regional wealth fund. It would be managed by a professional fund manager under a clear set of rules, objectives and policies. These rules would apply to both how the fund was run, what returns are targeted, levels of risk, any limits on what it is invested into, and also rules around what the fund could be used for.

The fund would pay an annual distribution to the council, as we talked about earlier, which would help fund our operations and reduce the need for rates. It's also proposed that a portion of the fund, we're saying at a minimum around a billion dollars, would be set aside to provide a level of self-insurance for the council.

As you've seen for yourself, no doubt, insurance costs are going up and, in some places, and for some assets, insurance is getting harder and harder to obtain. So, the council is looking at how we could reduce our reliance on external insurance markets and have some self-insurance through this fund to provide savings, both now and savings into the future.

So, the second question is around the airport shareholding. Do we transfer our airport shareholding into the fund? So, this issue was canvassed in depth through last year's annual budget, where the council decided to sell some of the shares it had and pay down council debt. Much of the strategic and financial assessment that's included in the consultation document is based on that material produced last year.

But, of course, we've updated our financial assessment and that shows or suggests that significantly better financial returns could be achieved from a diversified fund than are currently forecast to be delivered by the Auckland Airport shares.

So, if the shares were transferred into the fund, then the investment manager would assess whether these shares are held or sold. But as Toby's mentioned, given the fund would be focused on investment diversification, it's almost certain that most, if not all, of these shares would be sold.

And then the third question is, do we change the way the port is run by leasing its operations while maintaining ownership? And if so, do we invest those proceeds in the fund?

So firstly, there is no proposal for the ownership of the land and wharves under the Port of Auckland, not to stay with the Auckland Council Group. This proposal is around the operations on the port, the commercial freight and the cruise ship operations. So, what we are proposing is to grant someone else a lease that would allow them to run the operations of the port for a certain period of time.

Our indications from the market are that something around 35 years provides a balance between what could be acceptable to the market while also not committing the council too far into the future.

The proposal is that the lessee would pay the council upfront for these rights to operate the port and we expect, obviously this would be based on market process, but we expect this to be between $2 billion and $3 billion and that these funds would then be invested into the future fund.

So given this arrangement would be in the form of a lease, the council could use the terms of that lease to ensure the operations continue in the public interest so we can build things into the terms of the lease to say 'the council requires this in terms of environmental outcomes, employment outcomes', or similar requirements'

So those are the three key questions that we're looking for the feedback from Aucklanders on.

If we go to the next slide, please.

[Video: new slide appears on the screen. The text on the slide says: Our proposed option: Option 1 : Auckland Future Fund with AIAL shares and Port lease proceeds:

• a regional wealth fund that is professionally managed in line with investment objectives and policies set by the council.

• could improve the council’s long-term financial resilience by making provision, and self-insuring, for some of the risks posed by climate change and other major environmental and economic challenges.

Transferring the council’s remaining AIAL shareholding into the fund - as the council’s objectives involve diversifying risk, it is almost certain that most, if not all, of the AIAL shares would be sold over time.

Granting an operating lease of around 35 years to an external party to operate the port:

• The council would receive an upfront payment for this lease, which would be invested into the fund.

• All port land and wharves would remain in council group ownership and at the end of the lease the port operations would transfer back to the Council Group.]

[Speaking: Michael Burns]

So, what we've done is we've looked at combinations of these three questions and what they form up in terms of options for Auckland. And the first option is our proposed option and is effectively what we call a full future fund option. So, under this option, the fund is created, the airport shareholding is transferred into that fund and a lease is granted to operate the port with the upfront payment going into the fund.

So, our financial assessment is that that would mean a total of around $3.5 billion dollars is what we've modelled that on going into the Auckland Future Fund, that can then provide returns to the council and also provide those advantages in terms of self-insurance and ability to form resilience.

The next slide, please.

[Video: the next slide appears. the text on the slide says: Other options:

Option 2: Enhanced status quo

  • No establishment of an Auckland Future Fund.
  • No transfer or sale of the remaining shares in AIAL.
  • POAL would continue to operate the port.

Option 3: Auckland Future Fund with AIAL shares only

• Establish an Auckland Future Fund.

• Transfer AIAL shareholding into the fund.

• POAL would continue to operate the port.

Option 4: Auckland Future Fund with AIAL shares and POAL dividends

• Establish an Auckland Future Fund.

• Transfer AIAL shareholding into the fund.

• POAL would continue to operate the port.

• POAL dividends would be invested into the Auckland Future Fund.]

[Speaking: Michael Burns]

So then other combinations of answers give us other options, right? So, the second option, of course, is the status quo. Calling it the enhanced status quo, we continue to work with Ports of Auckland Limited to enhance the returns we're getting from the port so that's why we're calling it an enhanced status quo.

So, this says, we're not going to establish the Auckland Future Fund. We continue to own and own the shares in the airport in the way we do at the moment, and that Ports of Auckland would continue to operate the port. The return to the council would continue as it is now and is forecast with funding from dividends from those two investments supporting the council's operations.

The next option we look at is option three. So, under this option, we're looking at a fund with airport shares but without a port, without a port lease being undertaken. So, the answers to the questions - yes, we do establish a future fund, yes, we do transfer the airport shareholding into the fund, but no - we don't undertake lease of port operations and putting those funds and the returns from that lease into the fund.

So, under this option, the future fund would be populated with about $1.4 billion based on the current share price and would continue to deliver: the council would receive distributions from the fund for how it manages that investment but would also continue to receive dividends from ports of Auckland.

Option four is slightly different. Under option four, the council chooses to establish a future fund, transfer the airport shareholding into the fund but not lease the port. But in this case, rather than the dividends from the port being used to fund council operations, those dividends would be invested into the future fund. That would mean that the return to the council to fund operations would be lower, but over time the future fund would grow faster.

Can we just go to the next slide, please.

[Video: the new slide appears on the screen. The text on slide says: Options assessment: Our consultation material includes strategic and financial assessments of each option.]

[Speaking: Michael Burns]

So, within our consultation document, there is some detailed discussion of these options and the questions and the strategic and financial assessment and implications of each of the questions, and then when we pull those together as four different options.

I do encourage people to go and look at the document and read those. They're obviously thrilling reading, but also it gives you a better idea of the different trade-offs.

Behind these, we have some supporting information that people can look at. That includes all the assumptions that we've made that sit behind our calculations, how the calculations work, and some sensitivity testing that we've done on those assumptions so that we can say, well, if this one was slightly higher or this outcome was slightly lower, what would it mean?

Next slide, please.

[Video: new slide appears on the screen. The text on the slide says: Giving feedback.
Four questions on this topic to provide your views to decision-makers. The slide also shows a screenshot of a page from the consultation feedback form.]

[Speaking: Michael Burns]

So, then we come to giving you feedback. So, through the feedback form that the council has prepared in its consultation document, we've tried to step people through those questions that I've talked about.

First one, what is your preference around setting up the fund and transferring the airport shareholding into the fund?

The second one, do you support the leasing of the operations of the port? Obviously, just remembering this is just the operations, not the land or the wharves, but just the operations of the port for a period of around 35 years. Or do you think the operation should stay with Ports of Auckland Limited?

Next question. If the council were to lease the operations of the port, what should happen with the profits? Sorry? If the council continues to operate The Port of Auckland, what should happen with the profits and dividends?

So, if the council continues to receive dividends, should they be used to reduce our operating spend and reduce rates, or should they be invested into the future fund to enable for that fund to grow faster?

And then, of course, we have another bullet point where we look for any other feedback you have on parts of this proposal. You may find that you support some parts and not others, but also that you want to make comments on some of the specific things that I've talked about, such as some of the policies and rules around what the fund is invested in, some of the policies and rules around what the proceeds are ringfenced for or identified for, what terms, specific lease terms that you think the council should be considering if it was to enter into a lease.

So, that's really important. The feedback is more than just ticking some boxes. Tell us what you think and really support the councillors in their decision-making.

So, if we just flick to the last slide.

[Video: new slide appears on the screen. The text says: There is a lot to consider and some big decisions to make. Read more about our proposal and the choices available in our consultation document before giving your feedback at: akhaveyoursay.nz/our plan.]

[Speaking: Michael Burns]

So there's a lot to consider here. This is really complicated. Don't want to go into too much detail here and look forward to your questions to find out where it is that you want to hear more.

So, please go and read the consultation document after you've asked your questions, look at the information on AK Have Your Say and really let us know what your opinion is and have your say.

Thanks, Toby.

[Video: video tile of Toby Shephard appears in the top-right of the screen.]

[Speaking: Toby Shephard]

Thanks, Michael. As you say, even just this one part of the LTP proposal is a complex topic and I think you've done a really good job there of just kind of laying it out for us and then we'll use the remainder of our time to kind of get into the nitty gritty.

There will be questions about each of those options and as you say, that kind of next tier of detail. And the best way to do that is to respond to your questions and I can see some coming through. That's wonderful.

I just wanted to acknowledge we have Councillor Christine Fletcher. She's joined us online from an in-person Have your say event.

[Video: The screen splits into four: Deputy Mayor, Councillor Desley Simpson is in the top-left of the screen, Toby Shepphard is in the top-right, Michael Burns, bottom-right, and Councillor Christine Fletcher is in the bottom-left of the screen.]

[Speaking: Toby Shephard]

Councillor Fletcher was the chair of the political working group that worked on the Auckland Future Fund proposal, so it's great to have her alongside the deputy mayor and our other councillors and local board members online tonight to hear your questions and learn from the discussion.

So, welcome. Just a reminder - and you have been doing that -thank you, we've got the question function in the Q&A part of your Zoom interface. If you can be short and sharp, that helps us frame the question to the panel and get you the answer you're looking for.

And again, if you don't get your question answered tonight and it hasn't been answered, we'll do our best to provide those online at akhaveyoursay.nz.

Tonight's focus is the Auckland Future Fund. But if you do have questions that are about any of the other LTP proposals or some of the other areas of the LTP itself, please do pop those in the chat. We might not get to them tonight, we will prioritise the questions about the Auckland Future Fund, but if we can come back, respond to those questions as I say, online, I think it's the best way to make sure that you get the answer that you're looking for.

Okay, so we've reached the part of the evening where we will go to some questions. We have a few in here that almost kind of boil down to just what are the advantages and what are the disadvantages here of the Auckland Future Fund? So, I know we've had a presentation there, Michael, but I wonder whether maybe that's the starting point. It's just sort of what are we working with here? What are the advantages and what are the disadvantages as the council sees it?

[Video: Ross Tucker joins the team in the bottom-left of the screen, and Nicola Mills also joins the team in the bottom-middle of the screen between Ross and Christine.]

[Speaking: Toby Shephard]

I think we have you on mute, Michael, at the moment. The classic!

[Speaking: Michael Burns]

Sorry, so just looking at advantages and disadvantages, I think we need to look back at those objectives that the council set, and those objectives look to how someone can weight up the different options and those option look at some of the advantages that we can see. You know, our modelling suggests that the financial returns probably would be better. It's hard for the council to - we have no crystal ball, so we need to take the market on what it's saying and what Ports of Auckland is saying about their returns in the future. But we think that the suggestion is that it could be better. We also need to look at our strategic outcomes and how they are impacted by this.

[Video: Alastair Cameron joins the team in the top-right of the screen.]

[Speaking: Toby Shephard]

Thanks, Michael.

A few questions coming through around that fund manager role. So, if we kind of keep it at the level of the Auckland Future Fund rather than the sources of money that might go into it, if you like, being the port lease and the Auckland International Airport shares. So, if we just stick at that kind of fund level. A couple of questions here around how that works and just what the fund manager might be entitled to do. Are you able to speak to that or is that one for Nicola? We might need to move across.

[Speaking: Nicola Mills]

Thanks, Toby.

So, the investment manager and their role that will be set out in the documents to manage the fund, that investment manager will be accountable ultimately to the Governing Body, and it's their job to align with the objectives, the rules and the policies of the fund that the Governing Body has set.

[Speaking: Toby Shephard]

Thank you, Nicola. Would there be a cost to council for someone to manage this fund? How would that work?

[Speaking: Nicola Mills]

So, yes is the short answer to your question. What has been provided for in the consultation document is an assumption of fees and overheads of 0.15 per cent. And the returns to the council, which we have modelled at 7.5 per cent, is net of this cost.

So, if you do quick maths, the estimated cost of that would be around $5 million per annum under the central scenario, which is around a $3.5 billion fund and $2.1 million under option three, just to give you an example there.

So, this is an estimate, and obviously it will depend on a number of factors, including the size of the fund, what kinds of investments that it makes, the legal and the governance structures that might be involved. For example, our expectation is that there would be a competitive market process run to secure a professional fund manager, and that's a way that we can ensure that we get best value for Aucklanders.

[Speaking: Toby Shephard]

Thanks, Nicola.

If we think about that 7.5 per cent investment rate of return, can you talk a little bit about how the council came up with that number, as that's one of the numbers that we're using in our proposal. So how did council officers come up with that 7.5 per cent investment return? What information goes into that assumption? Thanks, Nicola.

[Speaking: Nicola Mills]

Good question, Toby.

So, the 7.5 per cent return is based on advice that the council received around the average historical returns from similar funds that we see in Australia and New Zealand. Just a little bit further to that. This is based on an investment mix assumption of 80 per cent growth and 20 per cent income investments. And just to note, of course, that 7.5 per cent is a long-run historical average. It's the best information that we could base an assumption on. But all investment involves risk and of course, past results are no guarantee of future performance.

[Speaking: Toby Shephard]

That's always a good caveat to introduce into a discussion like this. Thank you, Nicola.

I think those are the questions that I can see here, kind of at that general level of the Auckland Future Fund. I wonder whether we come down into the airport shareholding kind of sphere of questions. I can see one or two here.

Probably one to start with here might be for Ross. If you'd like to join us with your video on, please. Just got a question here. Just, I guess, confirming whether the remain - so the proposal is to move the Auckland International Airport shares into the fund and then just confirming whether or not those shares would definitely be sold. So just what the arrangement is there in the proposal as it relates to the shares, Ross.

And just to apologise to our audience members, I am coming and going in terms of dark and light, I think, and I can't quite tell on here, I'm struggling with the blinds and the sun in my eye and the only room in my house where this makes sense for me to do the call tonight. So, I apologise about that.

So, Ross, if you could join us, please, and talk to us about the shares and whether or not they would definitely be sold if they were transferred in the proposal.

[Speaking: Ross Tucker]

Yes, so the proposal is to transfer 11 per cent of the Auckland Airport. So, the council sold down a partial stake and holds around 11 per cent - the proposal is to transfer that into the fund. So, the council itself wouldn't go and sell it, it'll be the shares themselves go into the fund.

The council would then appoint a fund manager, as Michael's talked about, and the fund manager would be tasked with a set of investment objectives that are set by the council. Those objectives would be to earn a good rate of return, to manage the risk and importantly, to spread and diversify the risk.

So, because the fund manager will have an objective to diversifying risk, it's extremely unlikely they would decide to hold all of those shares and have all the eggs in one basket. So, any fund manager with that mandate would almost certainly sell those shares down.

So how much they sell, when they sell would be up to that professional fund manager working within those parameters set by the council. They'll be accountable for the performance. They might decide to hold some or all those shares as a certain stake or for a period of time, but we do want to be upfront that it is almost certain that all or most of the shares would be sold down at some point under this proposal.

[Speaking: Toby Shephard]

Thanks, Ross.

Just one more here in the airport space. So, we've got a question here: if the airport shares are sold down, will that affect the cost of borrowing to the council when the council needs to borrow money? So, if we sell down the shares, does that have an impact on the cost of money to council?

[Speaking: Ross Tucker]

So, no, we don't expect that to have an impact on the council's cost of capital. The big determinant of the council's cost of capital is the credit rating. The view is that this change wouldn't affect the credit rating.

One of the key drivers of the credit rating is the council's ratio of debt-to-revenue. This proposal doesn't change debt, it changes the revenue somewhat, we'd lose dividends, but would get returns from the fund. So, you're kind of replacing one revenue source with another. So, it would expect it to be neutral for debt-to-revenue, we'd expect it to be neutral for the credit rating. So, on that basis, it wouldn't cost the council more to borrow.

[Speaking: Toby Shephard]

Thanks, Ross. That's clarifying.

So, we've had a couple of questions there on the airport. I'm going to move to the port. I can see some coming through in relation to the leasing of the port operations.

Michael, I wonder if you can get ready to join us online, please. Thanks to council staff switching and dealing with these questions as they come in.

So, a couple of questions here on the port lease. So perhaps the first one here: if we were to lease the Ports of Auckland, how much money would we be able to raise and would that change year to year? Would that change year to year? I suspect they're asking there whether there are annual payments in relation to the lease, Michael.

So, the first question there, if we were to lease the Ports of Auckland, what assumptions would the council use when it thinks about the value of that lease, how much money would it be able to raise? Then there's a question, I think, in there around any kind of annual dividends as part of that lease arrangement.

Michael, are you able to speak to those for us, please?

[Speaking: Michael Burns]

Sure, Toby. Thanks.

Yeah. So, as I mentioned earlier, the proposal to lease the port is based on an upfront payment. So rather than paying lease payments every year, the proposal is that the lessee would make a single payment upfront to the council and the estimates are that that would be between $2 billion and $3 billion.

So, we've had some external experts who've looked at cases where similar deals have been done around the world, particularly some in Australia, and looked at what that could mean. And the assessment is somewhere between $2 billion and $3 billion. And that work's been peer reviewed. So, yeah, it won't change from year to year. The aim is that we get a nice big cheque up front and then look at using that to seed the future fund.

[Speaking: Toby Shephard]

Thanks. Thanks, Michael.

I think that addresses that kind of annual piece well. I hope that addresses the question from the audience member if it doesn't, come back to us.

So just to stay on the port lease question. So, Mike, if I can hold you there for a moment, the question here is around the council's ability to influence the operations of the port once it's leased. So, obviously the port is a big part of downtown and it has activities that impact on the city centre and then of course, its staff and the outcomes of Auckland as a whole.

So, the council currently exercises a measure of influence over the port. Once in a proposed environment that port was leased, how would the council or would the council have influence over the port's operations?

[Speaking: Michael Burns]

Thanks. As you mentioned, the council is currently 100 per cent shareholder of Ports of Auckland Limited. So, the council has a high degree of governance control over the port, but it actually has very little influence currently over the day to day running of the port.

Under this proposal, the council would be able to influence the operations of the port through those lease terms that I mentioned earlier. And in the consultation document we talk about some of the areas that the council could choose to exercise those rights as lease terms and to write things into the lease.

And some of those areas that we've talked about include some strategic investment in rail and port road infrastructure, maybe a desire to cease coal or dirty dusty trades, operating safety, environmental standards, obviously noting that we'd still have our regulatory role to play.

There could be a lease term around safeguarding jobs for port workers and entitlements around those jobs. There could be something around requiring future investment in the port to create growth in jobs, requiring consultation with the council on matters, significant matters, or even could choose to do something around pricing for the port. So those are all options for the council.

Obviously with any lease, the more terms you put in into a lease agreement, value gets reduced. But the council has options here and those are options that could maintain its ability to influence the operations of the port.

And as I mentioned earlier, this is where we want people to exercise their ability to give other feedback on the consultation. And if they've got strong views in this place, please include it in your feedback forms that come to the councillors and support them in their decision-making, thanks.

[Speaking: Toby Shephard]

Thanks, Mike.

Probably a sort of a related question here, right, while we're talking about the lease, obviously at some point, so you mentioned kind of a 35-year period, is what we looked at internationally, seemed to kind of make sense there. And there's a couple of questions here about how would we make sure that the Port of Auckland is still run well by others and that it continues to be an asset when it's returned? The operations continue to be an asset when that lease finishes.

So, you've spoken a little bit there about our ability to kind of structure the lease arrangement. Is there anything you'd add there in answer to that question, how we can make sure that the Ports of Auckland is sort of run well and returned in good order.

[Speaking: Michael Burns]

I think in that case we just turn again to it's a lease arrangement and like any lease arrangement, the lessee continues to play a key role with the asset and having oversight of performance under the lease. So, if the party operating the port was not fulfilling its side of the bargain, then the council would have all the rights that it would have under any lease arrangement.

[Speaking: Toby Shephard]

So, perhaps another example there about feeding back so that councillors can hear the feedback that they receive as they go to make their decisions throughout the long-term plan process. It's hearing from the community about what's important there.

There is another question here about the port lease. I wonder whether it is one for Ross, so we might ask Ross to join us. Thanks, Mike.

So, Ross, there's a question here about in the lease scenario, the council is retaining the debt of Port of Auckland Limited. So, the question is why is the council retaining the debt of Ports of Auckland Limited under the lease sale proposal?

Ross, are you able to speak to that, please?

[Speaking: Ross Tucker]

Yeah. So, the proposal is for the council to retain underlying ownership of the wharves and the land. And so the view is that that debt has been used to build up the assets over time and so that debt stays with the assets. So, the council becomes effectively the landlord, it owns the assets and it has some debt associated with those assets. That's the reason why the debt is retained.

[Speaking: Toby Shephard]

Thanks, Ross.

Just another question here about the fund manager. I wonder whether we, I'm just checking my notes here, it might be one for Nicola. Nicola, can we have you join us, please? Just a question here about. Excuse me, Michael. Sorry, I read my notes wrong there. Michael, if you could join us, please. We've got a question about the choice of a fund manager. So, whether or not Auckland residents and ratepayers would get a say, have a choice in that fund manager. Could you speak to the appointment process there and what that might look like? Would ratepayers have a role in selecting the fund manager?

[Speaking: Michael Burns]

I think the selection of the fund manager is probably something that wouldn't be directly involved in, but I think what we need to take a step back and say what are the criteria for a fund manager and what expectations the council would set on a fund manager? And that's where it's really important that councils, that the people of Auckland kind of have a say and let the councillors know: what is it that you would expect of a manager managing those funds on behalf of the people of Auckland, and what rules the council should put in play for that manager in terms of what they invest in, what they don't invest in, what targets they're given, how they operate the funds, what levels of risk they take. So less about the who but the what, what they do and the conditions of that appointment process.

[Speaking: Toby Shephard]

Yeah, and the objectives that they're driving towards. Thanks, Mike.

Ross, I've got a question here about, I suppose, the candidates for the port lease arrangement. Would there be any protections there about, say, for example, a foreign operator? Would that be something that is considered in the leasing arrangement, Ross?

[Speaking: Ross Tucker]

The council would have to decide on a procurement process for any lease and decide, well, what is the best way to move forward in terms of who can participate in a transaction and how and what that looks like. So that is stuff that needs to be worked through.

There's a range of protections in terms of an operator doing undesirable things and there's controls that can be put into the conditions of the lease around pricing, about making sure that the interests of the port customers are looked after and that could be things that look at protections for employees, etc. So there's a range of different conditions the council can impose as part of the lease terms that would provide some of the protections that some people may be worried about. But in terms of how people participate, who can bid, that is still to be worked through.

[Speaking: Toby Shephard]

Thanks, Ross. Good.

A question here, kind of back up at the Auckland Future Fund level as well. I think this one might be for Nicola, please, if we could have you join us.

So, the question is, if it turns out that the fund's earnings are taxable, how would that affect the projected return?

So, you spoke before about how our assumption has been the long-run return here. A reasonable assumption looks like seven and a half, but if the fund's earnings are taxable, this question asks, by how much would that affect that target and what would that be reduced by? Are you able to speak to the kind of taxation question, please?

[Speaking: Nicola Mills]

Thanks, Toby. Yeah, I'll give that a shot.

So, whether the fund's earnings will be taxable or not is going to depend on what legal structure the fund takes. And keen for some feedback on that as well if people want to. A few options are being investigated. So, one example would be a trust, another a council-controlled organisation, also possibly a standalone council department.

And so we're working with our tax advisors on this to make sure that we understand what the likely implications are. And so far, depending on the structure, the amount that gets reinvested in the fund, which we have estimated at 2 per cent as an assumption, that could be subject to up to the maximum tax rate we currently have of 39 per cent. So just as an indication there.

[Speaking: Toby Shephard]

Thanks, Nicola.

So, just one or two more that I can see in the chat. So just a reminder to our audience, if there are any other questions that you would like answered tonight, please send them through in that Q&A box in your Zoom interface and we can respond to those.

So, I've just got one or two left here that I can see. The first is on the so, Mike, this might be just one for you. Partly covered earlier, I think, but worth revisiting. Just a question around why the 35-year period was selected. So, if you could speak to the 35-year lease period, please.

[Speaking: Michael Burns]

Sure. Thanks, Toby. So the 35-year lease period is based on some of the work done by the external experts we got in and they said that nothing shorter than 35 years would likely be attractive to potential operators.

These operators want to come in and operate the port. They need to set themselves up and in order for them to get a return, they would need a good period of lease. And that also enables us to maximise the return we can get from that.

One of the other questions we've been asked in some of the engagement sessions is, what does this mean for the future of the Port of Auckland? And there's been lots of talk about the future of the Port of Auckland over the years.

This proposal does not say that the port will always stay in downtown Auckland or that after 35 years it will magically disappear. This is just that for the next - if this lease were to go through, you would have certainty that there was a port operating in downtown Auckland for the next 35 years.

At the end of that period, the assets would be required to be returned to the council subject to the terms of the lease returned back to the council, and then the council could make another choice whether to continue to go back to operating it itself, to another lease for another period or a number of other choices around what it does with its ownership of those land and wharves in downtown Auckland.

Thanks, Toby.

[Speaking: Toby Shephard]

Thanks, Michael.

So, just another question on that lease arrangement. So, I think that's a good explanation around why 35 years has been selected there.

So, just a connected question. Auckland Council's expected upfront income from the 35-year lease, so this person writes, is about 50 to 70 times the current profit being made by the Ports of Auckland. Obviously, the lessee will want a much better return than that.

And the questioner asks, what does Auckland Council think the lessee will do to the port to make it much more profitable? So, I guess the point there being the assumption used is that the value of the lease is high relative to the return, than the profitability of the port currently. So, what changes might a lessee make? I suppose, in order to kind of realise that as a good deal in their eyes.

Are you able to comment at all on that, Mike?

[Speaking: Michael Burns]

I suppose - not sure exactly what a lessee would do. I suppose what they need to think about is what they can bring to the Port of Auckland. And like anyone taking on a business where you buy a business or an operation, you look to what is it you can do and you believe you can run more efficiently, whether it has to do with other connections that a potential operator might have or maybe they are involved with, or part of a consortium is involved with ports overseas and has experience or other skills that they believe they bring to the table.

It's probably not for us right now to go into exactly what it is that they would believe they could bring. But, yeah, there's a number of different ways in which different operators could look to ensure that they can get value from this.

[Speaking: Toby Shephard]

Yeah. And a difficult one to put to you on the spot there with, Michael. You're not a port operator yourself but thank you for your answer there.

So, just another question here. I think, Ross, it might make sense for you to jump on and answer it if we can, please. Thanks, Mike.

So just, I like the phrasing of this one 'lolly jar'. So, the person asking this question, asks, how will this fund not become an irresistible 'lolly jar' for future mayors and councillors? And they also make a comment here about whether or not it will address operational indiscipline over time. So, I guess the question there being, Ross, kind of what protections are there, if you like, around the Auckland Future Fund being used for the purposes that it is kind of set up as? Are you able to kind of speak to the arrangement for the fund itself?

[Speaking: Ross Tucker]

Yeah. So, the core part of the proposal was setting very clear policies around what the fund can be accessed for to make it clear that it can only be used to provide liquidity in terms of market disruption.

It'd be that rainy day fund for major events, provide some self-insurance relief and respond to climate change impacts. So, it's kind of having those things start out really clearly. Some of those things will be captured through the long-term plan and there's a bunch of protections in terms of the Local Government Act, in terms of councils have to follow some of the key provisions in their long-term plan.

There's a range of other provisions that might apply which kind of depend on the form of the future fund, the legal structure. So, for example, if it was set up as a trust, then there can be protections as part of a trust deed in terms of the way the trust is legally structured. And there's many examples of trusts out there that have got very tight legal protections. There are other options, if it's a company structure, there's company constitutions and other things that can be put in place.

One option, some other funds, there's other examples around New Zealand where there is kind of legislation in place that kind of sets some rules and protection. So, all of those things are possible. It depends upon the legal structure around the trust.

So, there's a clear intention to have rules that have certain weight and then the legal structure will determine just exactly what are the mechanisms to change or vary any of those rules, if there was a desire to. The idea is to have the things set up with some very clear rules in place.

[Speaking: Toby Shephard]

Thanks, Ross. Just one more actually, if I can keep you here on the port lease, and kind of a practical question, when does the council expect a port lease to apply from? This is a good one. So, do we have an idea of kind of timings here? How does this work were the proposal to kind of go ahead on the port lease?

[Speaking: Ross Tucker]

So, it would take a little bit of time to work through the detail of the due diligence, all of the things you have put in place work through the process. It will take probably at least a twelve-month period, might take a little bit longer, could be a little bit shorter.

For financial forecasting purposes we've assumed that if a decision is made to proceed as part of this long-term plan by May/June this year, then we think a lease and future fund could all be up and running and providing benefits by 1 July next year. So, 1 July 2025. That's our assumption. It might be a little bit early, it might be a little bit later, but we've got to work on one assumption.

[Speaking: Toby Shephard]

Thanks, Ross.

So, fitting within essentially the financial year for the council and local government.

Alastair, I wonder whether we can ask you to join online, please - our manager for council-controlled organisations (CCOs) and strategic relationships.

So, there's a question here for you around CCOs. Would the Auckland Future Fund require a CCO? So, we talked a little bit about the trust and deed kind of situation, but the audience member here asking would we need a CCO, a council-controlled organisation, or would it be a department that oversees the fund, how is that envisaged?

[Speaking: Alastair Cameron]

Well, I think, as was mentioned earlier this evening, the final form of how the fund would be held would still need to be worked through to make sure it's the best structure possible for the council.

I think I'd say that a fund manager would be appointed to manage the fund on the council's behalf. The council has, within existing departments, the ability to manage and monitor that fund manager itself.

If it was decided to establish a CCO to be the best structure to hold that fund and that CCO was to manage the relationship with the fund manager, then yes, that would come with some additional cost.

I would note that earlier in the history of Auckland Council we had a very similar CCO, Auckland Council Investments Limited, which at the time managed a diversified assets portfolio as well as a range of other investments on behalf of the council. And the cost of having that CCO, I don't have the exact figure to hand, but it was in the order of $1 million per annum or less. And it's my understanding that the costs of monitoring any arrangement with the fund manager are broadly baked into the proposals that are put out for consultation.

[Speaking: Toby Shephard]

Thanks, Alastair.

So, yeah, quite a bit of interest here on the port. Thank you, audience, for your ongoing questions here. So, Tam, I wonder if you might join us.

[Video: Tamsyn Matchett joins the team on the screen, in the middle row between Michael and Ross.]

[Speaking: Toby Shephard]

We've just got a question here about process and about consultation. So this person asks, "will you consult with tangata whenua when deciding about the Ports of Auckland whenua?" So, Tam, I wonder whether you could speak to whether we'll be consulting with tangata whenua when deciding about the Ports of Auckland whenua.

[Speaking: Tamsyn Matchett]

Kia ora, Toby. And thank you very much for the question.

Yes, so as part of this consultation, we are in direct engagement with both iwi organisations and matawākā organisations across the entire LTP proposals or all the proposals included in consultation. So that's not just the Auckland Future Fund that we're discussing tonight, but the other proposals that also includes those related to the ports whenua. So, yes, absolutely, that is part of this process.

[Speaking: Toby Shephard]

Thanks, Tam.

[Video: Tamsyn Matchett leaves the screen.]

[Speaking: Toby Shephard]

Just got another question here around drawing from the fund. So, Ross, I wonder whether you could join us online to speak to this one.

So this person asks, under what circumstances would the council draw from the Auckland Future Fund? They give the example of a natural disaster and how would the spending of this future fund be assessed?

So actually, that's probably a two-parter. Maybe just that first piece first, Ross. So, under what circumstances is it proposed that the council would draw from the Auckland Future Fund?

[Speaking: Ross Tucker]

Yeah, so it's proposed, there's a really clear set of rules around what those circumstances are. It covers things like a natural disaster, self-insurance and response to climate change events. So, I guess the details of that are to be worked through. The idea is it's not intended that we create this fund and then start spending it immediately. It's about being a rainy-day fund - if unexpected events occur and things become necessary.

And if you think about the experience Auckland has had with the floods and cyclone last year, that's kind of a major event. The council's had to respond to help out affected people, to provide, make land, people's homes and businesses more resilient. Just those kinds of major events that the council would really struggle to be able to afford and be able to do without.

So, the exact details of that are to be worked through, but the intention is for there to be a high bar. It's for these big events where response is needed, we have to work through that and make sure that there's a proper assessment process and these things are given really careful consideration as they occur.

[Speaking: Toby Shephard]

Thanks, Ross. Just a question here, Michael, I think it might be best to ask you to join us to take this one.

So, the person asking this question asks how much research has been done around the consequence of leasing ports overseas? So, I suppose the experiences of other jurisdictions overseas in relation to leasing port operations. And this person kind of acknowledges that the purchaser of that lease arrangement is unlikely to be a New Zealand-based purchaser. But I suppose just to get to the heart of that one, it asks how much research has been done around the consequence of leasing ports overseas.

Mike, are you able to speak to experiences overseas in similar circumstances?

Thanks, Mike.

[Speaking: Michael Burns]

Sure. Yeah, so the expert advice we received as part of their work, they did do research on similar long-term port leases of operations of ports in Australia. And actually within our consultation material, there's some answers on page 63 that look at what is it that they have seen over the last two decades of these sorts of operations.

I suppose even more, there's even more information, as I said earlier, within our supporting information, starting on page 538 of our supporting information, more information on what we've done, what assumptions we have and how we've built up those calculations of the potential returns. And in there is also links to some of the external research and advice that we've received so that Aucklanders can go all the way through our documents and to the external advice that we've received and see what they've said firsthand.

On the question of unlikely to be New Zealand based purchaser, I think we need to be open to there's lots of different options here. There could be single operators come forward, but also we could look at consortia or different structures of an operator and those could well have local New Zealand involvement. So, it's not guaranteed that it would be an overseas-based purchaser. And if that's something that is important to you, please include that in your feedback.

[Speaking: Toby Shephard]

Yeah, thanks, Mike.

Maybe just sticking on the lease arrangements there, there are one or two questions that I can see that are around the structuring of that lease. So, like one person is asking, would it be possible to separate that lease into different sections? I think they're suggesting here could it be five or ten-year periods and kind of review and check the lease is a good option and so on.

I suspect we already know the answer in the sense of your comment earlier about a big sort of sum up front and any of these kind of conditions or changes would sort of alter that and therefore kind of maybe alter the proposition that we're dealing with. But if I were to ask you that, firstly, I suppose, is it possible to separate leases in that way and then you may or may not have a kind of comment on whether that's a desirable thing.

[Speaking: Michael Burns]

Yeah, so I suppose the first thing that we've said, and we've talked about a little bit here about what a new operator would think they would bring that would create value for themselves. But also it's a big undertaking to take on operations of a port. And the research that's been done, market soundings that have been done, do suggest that they would want certainty of at least a 35-year period.

In some other parts of the world, these leases are much longer, but the council at the moment is just looking at a 35-year period. They believe that provides the certainty that would enable a new operator to undertake some operations.

And I see some of the people have been asking questions both here and in other sessions about, you know, what does it mean for the future of ports? And as I mentioned earlier, 35 years is a period that enables the council to still make some decisions about the long-term future of the port over time, because any significant changes to how Auckland deals with its freight would take a number of years to make to.

[Speaking: Toby Shephard]

Mike, while we've got you here, there's another question here around, kind of goes back to the discussion we were having about the council's ability to influence operations as well. And so this one is about port access fees, pricing costs, that sort of thing.

So, this person is asking, will the council have any control over the port pricing and kind of costs of imports? We hand over the strategic assets, I suppose and lease the operations and our Auckland is therefore at risk of a higher cost of goods, essentially.

Are you able to kind of speak to the impact of leasing those operations and then what that operator might or might not be able to do in so far as access fees and pricing and cost?

[Speaking: Michael Burns]

Yeah, so I suppose there's a couple of parts to this question and to the answer. The first one is, again, the ability to use the lease terms to restrict what could be done in terms of operations of the lease. And yes, we could look to insert something into the lease and in fact, it's even discussed in our document around, you could look to restrict prices and access.

But I suppose the other side to the story is within New Zealand we already have a competitive market for ports and the Port of Auckland does already compete significantly with other ports around the country and most notably with Port of Tauranga. And so, I think that we need to be aware that those market forces are at play already and they would limit any ability for sort of significant price increases that would impact the cost of goods because those users would most likely just look for a cheaper port to use in their importing into New Zealand.

[Speaking: Toby Shephard]

Thanks, Mike.

Ross, I wonder whether we can have you back on screen, please. Just a question here about, and you kind of were addressing this a little earlier about the circumstances in which we might draw down from the Auckland Future Fund.

So this person is asking, could a market slump? (And they're referencing COVID 2020) or an event requiring a drawdown for self-insurance, something that you mentioned there, so the example given the weather events in early 2023. So, could an event like that seriously kind of impair the purpose of the fund?

I suppose they're implying there that we're withdrawing so much from the fund that we are kind of inhibiting the kind of strategic purpose that it's there for.

Ross, are you able to answer that? So, could a market slump or an event requiring a large drawdown for self-insurance kind of seriously impair the fund?

[Speaking: Ross Tucker]

Yeah, that's a really good question. It absolutely could. That is kind of the nature of this kind of fund. It's a bit of a watch list to deal with these things. Obviously, we'd love to put the money into a fund and have nothing bad go wrong for decades to come. That would be fantastic. But the whole purpose of this fund is to give us that resilience and be prepared.

It is something we've turned our mind to. We've had some modelling done, PwC have done some modelling on this, looking at those kind of shocks about what happens when early on or later on, and different scenarios about the size of it, and what that kind of shows is that you have to think carefully about how do you respond to that.

If a shock happens, you've kind of got a choice. You can sort of keep taking the money out and the fund will shrink, won't grow, it'll shrink over time. And there is a risk if the fund is too big or too early, you keep taking money out, it might go eventually down to zero and all of it's used up. Or alternatively, you can take less money out and then you have to find other ways to fund operations.

Rates might have to be higher, but you can then recover the value of the fund faster. So you've kind of got these different choices.

The modelling kind of shows as well, though, that the bigger the size of the fund, the more ability you've got to respond to endure those kinds of shocks. So the modelling shows that a $3.5 billion fund with the port lease and the airport together gives you much more ability to deal with those things than if, for example, you just had the airport shares only by themselves.

With airport shares and the event happens, there's a bigger risk that there's a big shock and you don't have the value over time, or you can't take the money out as intended. So, yes, there was always risks, but I would say that there is risks regardless.

There are risks in the insurance space. There's risks we might not be able to get the kind of insurance we've been able to get historically. And so there's risks that without this proposal, and if we just rely on insurance markets going forward, we may have a big uninsurable event that hits us.

Also, if we just kind of maintain the status quo and we have all of our investments in the Port of Auckland and Auckland Airport, and a big event happens, how are we left then? If it's a natural disaster and it impacts on those investments, it could be that those investments, those two big investments, are impaired at the very time when Auckland Council needs the money the most.

So, this is about spreading risk. It's about putting us into a better position. It doesn't eliminate the possibilities of natural disaster, but it puts us in a better position to manage those risks and be more resilient.

[Speaking: Toby Shephard]

Thanks, Ross.

I guess there's an element there around the way that the Auckland Future Fund rules are kind of monitored. And I wonder if we could have Alastair - I think we've just got time for just the last question here.

Alastair, we had somebody here asking who is doing the monitoring, so are you able to speak there to who will monitor the kind of running of the fund itself? So we've got a fund manager, but who are they kind of accountable to? Can you share that with us?

[Speaking: Alastair Cameron]

Yes, certainly.

So, right up at the beginning, the Governing Body of the council would need to set some rules or parameters about how they would like to see that future fund invested and the fund manager would be responsible for that.

Now, depending on the structure that's ultimately decided on to hold that future fund, whether it's directly by the council or through a CCO or some trust structure will depend on who will monitor that fund manager. But say it's held out in a CCO, it would be up to the CCO, that board, to monitor the performance of the fund manager.

That CCO is ultimately responsible back through to the Governing Body. Likewise, if it was a council department responsible for managing the fund manager, that council department would be responsible. Its accountability lies back to the Governing Body. So, at the end of the day, it will be the Governing Body of Auckland Council that will have responsibility for making sure that the rules of that future funder adhered to.

[Speaking: Toby Shephard]

Yeah. Thanks, Al.

So, that brings us to the end of the questions that I have here and not far from our finished time. So, I want to thank everybody for the questions that they put into the Q&A function here for us tonight and hopefully you found some answers there. And then a reminder to delve into the supporting information and the consultation document itself for any further information.

Before we did go, I wanted to check with Deputy Mayor Councillor Desley Simpson whether you had any reflections on this evening's discussion.

[Speaking: Deputy Mayor Councillor Desley Simpson]

Thanks, Toby, and thanks for the opportunity just to say a few words.

I want to thank the people of Auckland who are online tonight for their questions. It gives us a lot of insight into the fact that you still have some questions around the whole concept of the future fund.

And so what we will be doing, as well as putting this online webinar on the council website, we will be publishing all questions and answers. And actually, the mayor's office is coming up with yet another set of questions and answers too, because it is complicated and there are a whole lot of moving bits to it.

But if, after you've listened to this webinar, you've gone off tonight and you've still got some more questions, please feel free to email them through the team, either to myself or via the email address for AK Have Your Say and we'll get those answered to you promptly because it's really important for us as the decision-makers around this, to know that your feedback is actually based on the fact that you've got all your questions answered and you can actually make an informed choice.

I also want to say that it isn't a done deal. We do have an open mind. A lot of people ask me, are you just going through the motions and asking Aucklanders when you're going to do it anyway? I just want to remind people to think back to the mayor's first budget, which started off in a very different place to where it ended.

So, we have an open mind. We are listening. Please do have your say. Remember, there's so many opportunities to do that, whether it's in person, online, by phone and let us know your thoughts.

But again, thank you for taking part and listening tonight. Thank you. Thanks, Toby

[Speaking: Toby Shephard]

Thanks so much, Desley.

Councillor Christine Fletcher as well, I wondered whether we might invite any closing comments from yourself, having been the chair of the political working group that worked on the Auckland Future Fund. Kia ora.

[Speaking: Councillor Christine Fletcher]

Thank you, Toby.

I think it's been an excellent session and actually a lot of the questions are the very same questions that have been posed by councillors on the working party.

I think what underpins all of this, though, is that the storms of 2023 and the cyclones of 2023 showed us that we just don't have the resilience in terms of moving forward. So we can't just keep doing the status quo.

The deputy mayor is quite right. We are approaching this with an open mind. But what we are doing is saying if we were to create an Auckland Future Fund, there's a huge amount of work yet to be done. The questions around the terms of the lease, how these would all be managed, there's a lot more work needs commissioning. But none of that work ought to be commissioned until we understand Aucklander's appetite for doing things differently.

For me, I think an Auckland Future Fund is long overdue and if we were to go down the path of having a 35-year lease, we would at the end of it be handing over to a future generation of Aucklanders their choices as to what they want.

The difficulty has been in the past when assets have been sold, they've just gone into the great ground of Auckland Council and been soaked up. This is something quite different. This is actually having a targeted fund to give us that resilience and I'm really looking forward to hearing what Aucklanders have to say.

But there's a lot more work yet to be done. But I think the officers have done an excellent job in explaining this initial phase to us tonight and you've done a great job in mc-ing it. So, thank you to everyone.

[Speaking: Toby Sheppard]

Thanks, councillor.

So that brings us to the end of the evening and all that remains is for me to say a big thank you to the deputy mayor, the councillors and local board members that we have online, the staff that have given up their evening to be with us tonight and to take those questions.

I think really important that we've been able to spend this time together delving into quite a complicated topic. And of course, a really big thank you to you, the audience, for participating, bringing us your questions.

Just final reminder, the engagement is open until 28th March. You can go to akhaveyoursay.nz/ourplan. You can find the feedback form there, you can find in-person sessions in your area there, and we really do encourage you to engage with the information that's there and please give your feedback.

The councillors are showing us tonight, they are waiting and keen for feedback as they think about the decisions that they make during the LTP process.

So Pō mārie. Have a lovely evening. Thank you all for joining us and good evening.

[Video ends]

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Page last updated: 22 Mar 2024, 08:32 AM