Viewpoint – Future Fund a step forward

I’m pleased to say we have a solution to ease shock rates increases and build up Auckland’s financial resilience for the future. Last month, council’s Governing Body gave the Auckland Future Fund the go-ahead, which will solve several solutions for Aucklanders.

Latest figures show that it should generate about $700 million over the next 10 years. If we held onto the Auckland International Airport Limited (AIAL) shares, we’d only get back about $287 million. You don’t have to be good at math to see one of those numbers is bigger than the other.

But despite all but one councillor voting for it, there was a fair bit of hysteria surrounding its creation. I was amazed by the sheer amount of ideological myth-making that drove a conversation desperately in need of rational thinking. The notion that we were losing control of the airport was probably the most misplaced. We don’t control the airport as it stands now. You need at least 52% to have control and 20% to get a director appointed. We had 11%.

The belief that we’re selling the family silver was also moronic. Isn’t silver meant to go up in value? If we’d sold the shares a year ago, we’d be $100 million richer! Great for owners who have got 30 years to wait for a return, but we don’t. If the airport shares are the family silver, then we’re selling them to buy gold.

Some commentators with vested interests tried to argue that we needed the cashflow from the airport shares. But we’re only getting a 1.4% dividend return from the shares. This isn’t enough to cover the 5.5% interest we’re paying on $12 billion of debt. Holding onto these under-performing shares is costing us dearly. We’d get better returns from a savings bank account.

It’s a slush fund that’ll get raided for other purposes, they said. So, I’ve made sure there will be protections to prevent this. It will require 75% agreement from council if we need to gain access in the future. It will be established as a trust, which can provide a very high level of protection against raids. We will also be seeking the added protection of legislation.

There was also distrust that council had the expertise to manage the fund well enough. Council won’t be managing the fund. We’ll get people in who do that for a living. It’s the same as when you put your money into a retirement fund – somebody else manages that for you.

Based on independent advice, the Auckland Future Fund’s cash contribution to Auckland Council is expected to be $400 million more than its projected dividends from AIAL shares over the next 10 years.

This will be a $40 million saving in rates each year. Establishing the fund enables us to swap a single asset – the shares in the airport – for a diversified asset portfolio that can be expected to provide a higher and steadier rate of return, as well as being more resilient to shocks that impact the council’s other assets.

The fund will be well capitalised with the airport shares alone, valued at around $1.3 billion. It will now be established faster without the port lease, creating a potential windfall gain of around $20 million next year. And this money will be channelled into a reserve fund to fix and finish community projects for legacy councils that didn’t sell their airport shares before merging into a single Super City. So, everyone’s happy.

Thank you to all the councillors who were supportive of the Auckland Future Fund. With that now a reality, the conversation can turn to wealth creation, rather than just budget holes and debt.