OSL does not have a clearly defined strategic plan to guide its operations

OSL is a separate legal entity acting on behalf of the Minister for Planning, and has a distinct function in government. However, it is yet to finalise its own Strategic Business Plan that includes a relevant strategy, objectives and targets to guide its operations. In 2015, OSL developed a Statement of Business Intent document. It has also developed strategies for managing the acquisition and divestment of land for the short to medium term. However, these strategies are not longer-term strategic planning.

OSL is run as a business unit within DPE, and adopts DPE’s corporate objectives and policies. OSL’s activities are included as functions within DPE’s business plan. There are four key deliverables relevant to OSL that have been allocated to the DPE Division that it sits within.

There are minimal reviews or reports by either DPE or OSL that indicate any monitoring to ensure OSL is working to achieve all four key deliverables.
 
Along with complying with the EP&A Act, these deliverables are the established direction for OSL. OSL is finalising its Business Plan to ensure it can continue operating as a self sufficient entity for the long-term. This Plan should clarify OSL's long-term direction, and guide its business and financial models and its operations.

Relevant performance targets and outcomes have not been established

OSL has an Action Plan which lists key tasks for achieving each of its four key deliverables. The Action Plan has allocated responsibilities for each task to individual staff, but there is no monitoring or reporting of progress in delivering on these tasks. There was also no indication that the Action Plan is regularly checked and updated to ensure it remains valid and useful.

OSL does not have any performance outcomes or targets that relate to optimising its land use, working with other entities, or the long-term sustainability of the SRDF - aspects that are part of OSL's core business.

OSL's only performance targets are to meet annual budgets:

• $40 million expenditure for 2017–18 to acquire strategic land
• $55 million target to transfer lands to local councils
• net sales revenue averaging $45 million for each of the next five years.

These financial performance targets are incomplete and do not reflect other key work done by OSL. For instance, land transfers by OSL to other NSW Government agencies are not reflected in the land transfer target. This land can be of substantial value, and help OSL achieve its key deliverables stated in Exhibit 3. In 2016–17, for example, OSL’s focus for transfers was on land to the Western Sydney Parklands Trust (WSPT), rather than on transferring land to local councils. A change in its performance measures would make OSL’s targets more reflective of its time and effort in delivering on a key government project.

By establishing a broader range of relevant performance targets and measures, including outcome-based measures, OSL can better direct its functions to achieve its role as a long term land holder and planning partner for NSW. It could also establish different outcomes and measures that reflect the different areas of responsibility within OSL.

OSL reviews its progress in achieving financial targets

While monitoring of outcomes was insufficient, we found the financial aspects of OSL’s business were well monitored. OSL has an Asset Policy Committee that meets every three months. The Committee fulfils its responsibilities to make policy decisions on property acquisition and disposal transactions, ensure acquisitions and divestments are appropriately reviewed, approve revaluations, and review the SRDF and other funding initiatives to ensure the SRDF and OSL remain viable.
 
OSL senior staff review and assess its short-term financial position. Each month, they receive detailed reports on progress against budget, including variances for each team, key programs, and overall, as well as explanations for significant positive and negative variances. An abridged monthly report is also provided to the DPE Audit and Risk Committee. 

Equally important to the financial aspects, is the achievement of performance outcomes. The implementation of a business plan is an opportunity for OSL to clarify its future business direction, and to establish a range of goals and performance measures to support it becoming a strategic land holder and planning partner with NSW Government agencies and local councils across NSW, for the long-term.
 

OSL could be more involved in identifying long-term land needs

OSL does not actively identify land to acquire to meet government priorities. It relies on advice from other NSW Government agencies when they require land to meet long term needs, and which land is appropriate for acquisition. This land is also recorded in each local council’s Local Environment Plan, following state government approval to reserve the land. 

The NSW Government agencies we spoke with said OSL provides a useful long-term land management function for government. To encourage better utilisation of its services, OSL should more actively promote its purpose, capabilities and services to other government agencies. This could assist in ensuring appropriate lands are identified early across government, and acquired for their future strategic purpose.

OSL needs to establish a budget and plan to acquire all the identified lands

In 2015, OSL developed its LandBank Acquisition Strategy. This Strategy identifies and reflects government and OSL priorities, objectives and programs. It also reports a substantial gap between the $1.2 billion value of land that OSL needs to purchase, and its current annual budget for purchases of $40 to $50 million. OSL has not established a plan or budget to acquire all the identified lands.

Landowners are advised, and restrictions are placed on land use and development, when their land is initially identified as required for future government purposes. OSL relies on landowners to initiate contact when they want to sell their land. OSL will then advise the potential seller of the acquisition process and when it is likely to offer to purchase the land. Purchases may therefore not happen immediately. This has resulted in OSL’s actual expenditure to acquire land being less than $30 million for each of the last four years.

OSL conducted a trial where it contacted some landowners to see if they were willing to sell their land in the Western Sydney Parklands area. OSL evaluated this more proactive approach, and did not consider it successful.

Our review of a sample of acquisitions since 2014–15 found that OSL maintained adequate documentation to show that it complied with DPE and OSL acquisition requirements, received appropriate approvals, and maintained communication with sellers throughout lengthy purchase processes.

There are potential advantages for agencies to use OSL for their long-term land planning and purchase purposes. OSL staff have the skillset to acquire and manage land for the longer term. Also, as a self-funding agency, OSL can plan and operate beyond the four-year budget cycle of other agencies. 

OSL can improve the record-keeping and management of lands

OSL may hold on to land it acquires for many years before it is transferred to another government agency or a local council for ultimate use. During this time, OSL is responsible for managing the sites. In some cases, OSL rents out the land it has identified as suitable.

OSL leases out land to generate revenue. It uses real estate agents to rent out residential land, and manages commercial land leases itself. It maintains property lists and tenancy schedules that provide details on each site, their occupants or real estate agents, and lease terms and amounts. These lists should be more frequently reviewed to ensure details are up to date. Without an accurate up-to-date listing, OSL cannot be sure that all land in its name is accurately recorded, and that the land maintains its value and utility for its identified future use.

We reviewed a small number of leased commercial and residential properties. We found that OSL generally maintains adequate and up-to-date documentation throughout the life of the leased asset. OSL maintains ongoing communication with, and checks reports provided by, real estate agents, and ensures they are meeting expectations. However, there was no evidence that OSL staff inspected any commercial or residential sites themselves to ensure the land remained safe and not inappropriately developed. Site inspections should be done on land OSL leases out directly, or through real estate agents, as well as unused land.

OSL has land management arrangements with councils

With some of its land, OSL has a care, control and management (CCM) arrangement with the relevant local council. CCM has been an historical arrangement; one example we saw dated back to 1972. Under CCM, OSL retains legal ownership and control over a lands’ use and any developments, and the council pays for and manages the upkeep. These sites are used for the benefit of the local community, such as local parks or sports grounds.

OSL does not regularly check land under CCM arrangements to ensure that there are no inappropriate developments, and that the land remains safe and suitable for future use. OSL advises this is because councils have an obligation to manage land zoned for community use under both the EP&A Act and the Local Government Act 1993. However, as OSL retains ownership and control over land under CCM arrangements, it should ensure land remains suitable for its intended purpose.

OSL needs to improve its records of land transfers

For land under CCM arrangements, and identified as surplus to NSW Government requirements, OSL’s preference is to transfer these to the local council for a token amount under a Land Transfer Agreement. The Agreements contain caveats that restrict development or zoning changes to the land, and ensure the land continues to be used for the benefit of the local community. Councils are also required to seek OSL approval for any significant change to the lands’ use.

Our review of land transfers to councils and other NSW Government agencies found that there was ongoing communication between OSL and the recipient. However, there was minimal evidence of appropriate timely approvals being received or records being kept up-to-date. OSL has established procedures and processes for divesting land, and it is an important accountability step that these are consistently applied.

OSL is a small self-funding entity which does not receive any budget allocations. Instead, its income is mainly from asset sales, council contributions, royalties and rental returns. OSL uses these funds to cover its ongoing operational expenses, acquire new land, and repay its Treasury loans.

OSL maximises revenue from land sales

OSL consults with other NSW Government agencies to identify and classify land as surplus when it is no longer required for government purposes. This may be because government priorities have changed, or land parcels may become excess to government needs following the completion of a major project, for example transport corridors.

OSL has a LandBank Disposal Strategy that maintains a schedule of planned divestments of surplus lands for five years into the future. The Strategy and schedule are reviewed, on average, every year. This Strategy is an appropriate method to identify when and how surplus land should be sold.

It is important that OSL continues to generate the best and highest price for any land it sells. The sale of surplus land is OSL's largest source of annual income. We found evidence that OSL does what it can to maximise the potential value of land before it decides to sell.

Our review of a sample of land sales finalised since 2015 found that, overall, there was adequate oversight and appropriate approvals throughout the disposal process, and that land was sold at best price.

Expected revenue from surplus land sales will be inadequate to purchase required land

In 2016, OSL identified surplus land currently worth $188 million for divestment over the following five years. It estimated that the sales over the five years could generate $276 million in revenue. 

Even if OSL sells all its surplus lands, which it has estimated could generate a total of $496 million in revenue, it will not be able to afford to purchase all the identified land, valued at $1.2 billion, as well as cover its operational costs. OSL also needs to generate adequate revenue to repay its Treasury loans, rather than continue to rely on the loans to fund its operations. OSL needs to develop a sound long-term approach to managing its financial and operational capacity, so that it can achieve its long-term purpose. 

Formula for council financial contributions should be reviewed to ensure relevance

Sydney councils make a financial contribution to OSL through their payments to the SRDF. OSL has used the same formula to calculate each council’s contributions since 1991. The statutory formula is based on each council’s rateable land value as at 31 December 1990, and adjusted annually for the Consumer Price Index. OSL has advised it will work with the Department of Premier and Cabinet, the Office of Local Government and local councils, to review the formula and contributions, during 2017–18.

The council contributions are OSL's only regular and consistent income stream, and OSL applies a consistent approach to calculating this annual income source. One problem identified with the formula to calculate council contributions is that it does not account for any changes to the council area, for example population or land value changes. The recent council amalgamations and border changes increase the chances of the calculated contribution being incorrect, and have increased the need to review the formula. 

OSL also applies a consistent and regular approach to collecting the council contributions. Each year, each Sydney council is advised of its required contribution and payment terms. However, councils are not advised on how the funds are spent. Councils we spoke with stated that they would like to know how contributions are used in their area. 

A review of the SRDF formula, and more open communication with councils, is necessary to improve OSL's financial viability over the medium term, and to ensure council's ongoing support for OSL.

OSL's current financial management approach may affect its long-term sustainability

OSL has acknowledged that its long-term financial capacity is a challenge. It has advised that it expects to run out of surplus land to sell within ten years. OSL is managing the timing of acquisitions and divestments, and therefore its finances, to ensure it can support itself for the short and medium term.

However, this is not an appropriate long-term strategy. Over the longer term, OSL will face challenges in remaining sustainable once all surplus land has been sold. OSL has recognised this as an issue and is finalising a Business Plan to address this, and to ensure it is financially and operationally capable to sustain itself for the long-term.

OSL relies on having the land and income to ensure it can remain self sustaining, as well as its capacity to effectively engage and work with NSW Government agencies, local councils and other stakeholders to continue its operations. 

No alignment of OSL's planning strategies with other state government agencies

We spoke with some state government agencies involved in strategic land use in NSW. They said that OSL was of value, and plays an important role in achieving government’s overall land development plans. None saw a duplication or cross over in purpose or functions between OSL and their agency.

However, there is no standardised approach to ensure OSL’s plans are aligned with other key agencies’ planning strategies to achieve long term government goals and land use benefits. Nor are NSW Government agencies required to use, or consult with, OSL to make strategic land purchases. Without a cohesive approach across NSW Government agencies, OSL, as the government’s identified long-term land manager, is not well utilised to ensure whole of government benefits are achieved.

OSL needs to clarify and communicate its purpose to other NSW Government agencies to ensure it is effectively used, and that there is an alignment of planning strategies across government.

State government agencies are generally satisfied with the level of engagement 

The NSW Government agencies we spoke with were generally complimentary of OSL's engagement and consultation processes. There is regular communication between key staff of OSL and these agencies.

One area for improvement is for OSL to have regular strategic meetings between its executives and the key executives of other relevant NSW Government agencies. However, there are no high-level agreements between OSL and relevant NSW Government agencies. Establishing a framework to clarify what each agency can expect from working with OSL would be useful to guide a collaborative approach that supports the identification and management of government's long-term land needs.

Councils consider OSL's engagement and communication is inadequate

The Sydney region councils we spoke with are not satisfied with OSL’s communication and engagement. There are no regularly scheduled meetings with, or other forms of updates for, councils on OSL's plans that could affect their area. OSL has acknowledged this needs to improve and is developing a communication package. The communication package is a mix of information on OSL's role, the SRDF, projects it is working on, and its achievements. The information is planned to be provided through the DPE website, brochures, information sheets, and traditional and social media. It will be targeted to either councils directly, or available for the general public to view, depending on its content.

The councils we spoke with stated that they were not informed of where or how their SRDF contributions are spent. Some councils suggested OSL should be more transparent on how SRDF monies are used. OSL's letters to councils advising of their required SRDF contribution provide only a generic explanation of how the SRDF is used. The letters do not specify how funds have been spent in the local council area.

OSL considers councils as partners in its SRDF arrangement. However, there are gaps in its communication and engagement with councils that need to be addressed. Changes need to be made to improve OSL's standing with councils and local communities, which should help OSL achieve its key deliverables.

Limited communication on OSL's operations with the general community

There is limited transparency and public reporting on the activities of OSL. It meets financial reporting requirements through its audited financial statement which is included in DPE’s Annual Report. The Annual Report also includes brief information on OSL’s activities for the financial year. However, for transparency purposes it would be better to advise the public on what OSL does and how its funds are used. OSL’s proposed new communication package should assist in improving the transparency of its operations to the public.