Revaluation of land under roads

August 29, 2013

The Corporate Business Committee decision to re-value the land under public roads every three years stands. This follows advice from the Office of the Auditor-General. It is also in line with the practice followed by the New Zealand Transport Agency and a number of other local authorities.

Council Chief Executive Pat Dougherty and Group Manager Finance Warwick Read met with Council auditors Ernst & Young and staff from the Office of the Auditor-General last week.

In a follow-up letter this week, the Assistant Auditor-General, Local Government Bruce Robertson made the following points:

• it is up to Council whether or not to revalue land under roads for financial reporting purposes;
• there is no agreed methodology amongst the New Zealand valuation community for valuing land under roads;
• it would be “nice” to have a consistent methodology but as long as there is adequate disclosure in financial statements then “we are not unduly concerned about the use of different methodologies”;
• if a local authority decides to revalue land under roads, then it should be done with “sufficient regularity” to ensure the land is recorded at an amount that does not differ materially from its fair value.

Mr Robertson does question the benefit of revaluing land under roads, especially given there is no agreed methodology. However, he says the cost versus the benefits is one that each local authority needs to consider for itself.

He confirmed there was no useful link between debt-to-asset ratio and the revaluation of land under roads.

Mayor Jenny Rowan said the letter from the Office of the Auditor-General was helpful. “It clarifies a number of points while also validating our view that a more regular re-valuation of land under roads has little to do with our ability to borrow. We have always said the more meaningful yardstick is our ability to service and repay debt.

“It is also pertinent that the largest roading authority in New Zealand - NZTA – revalues land associated with State Highways on a three yearly cyclical basis. This is a Crown agency and the methodology used for the re-valuation is accepted by the Treasury.”

Mayor Rowan said Council already re-valued land under reservoirs and other restricted land associated with parks and reserves on a three yearly basis. “We have to recognise the value of all our assets, so this move is just part of that process. It is very much a normal part of our everyday business. This is not a tool for borrowing money.”

A copy of Mr Robertson’s letter dated August 27, 2013 is available here.

ENDS

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