FAIRBANKS -- With the Legislature facing a fivefold increase in the rent for its Anchorage offices, some lawmakers are hoping it may lead to a buying opportunity.
But when members of the Legislative Council decided to extend the lease last spring, they didn’t mention the possibility of purchasing the building in downtown Anchorage.
In fact, two members of the council, Anchorage Sens. Lesil McGuire and Kevin Meyer, said at that time they were glad that the privately-owned building would remain on the tax rolls in Anchorage instead of becoming a state building.
On June 7, the Legislative Council approved plans to authorize its chairman, Anchorage Rep. Mike Hawker, to “negotiate all the terms and conditions necessary to extend” the lease on the Anchorage building.
The motion was done under terms of a state law that allows the Legislative Council to “extend a real property lease that is entered into under this chapter for up to 10 years if a minimum cost savings of at least 10 percent below the market rental value of the real property at the time of the extension would be achieved on the rent due under the lease.”
While the rent is going to be five times higher after the renovation, a state appraisal found that the cost would still be more than 10 percent below the expected market rate for the renovated space. The refurbished building along Fourth Avenue will cost about $5 million a year in rent, including taxes.
Hawker said there were no other buildings in downtown Anchorage suitable for legislative offices. A Request for Information prepared by the state in May mentioned the need to lease up to 45,000 square feet of Class A or Class B space that could be ready by May 1, 2014. It did not mention purchasing a building. At the June meeting, Hawker said aside from extending the lease, the only option would be to build a new building.
“The council has definitely chosen that building a new building, state-owned building, is not a desirable outcome, so we’re looking at providing these tenant improvements to our existing location here,” he said in June.
At that meeting, McGuire said it is a “public benefit to keep this particular building on the municipal tax” roll and to continue the lease. Meyer said he was glad the council was not planning to build or buy, saying he didn’t want to see a repeat of the controversy that occurred in Anchorage when he served on the assembly in the 1990s.
“We were pretty upset when the state bought the Atwood Building and took that off of the tax rolls because every time we do that we essentially are increasing property taxes for the rest of the folks in Anchorage,” he said.
But the council changed its position about three months later. After a brief discussion in August, the council decided unanimously that in addition to extending the lease, it allowed Hawker to “research the possibility” of having the Legislature buy the building.
I asked Hawker last week why the purchase option did not come up in the spring, before the council settled on extending its current lease.
“Statute and regulation limited the original discussions with our landlords to a lease renewal meeting certain conditions, with material modifications,” he wrote Friday.
“As the public record shows, I have now received authority from the Legislative Council to investigate a further transaction,” Hawker added. “That’s all there is to it. Nothing more. I don't know if such a thing is of any viable interest to our landlords now or not. Regardless, it is inappropriate for me to comment or speculate further on any prospective financial discussions that may or may not occur at this or any other time.”
At a council meeting in November, Hawker said he had been talking to the owners about a lease/purchase arrangement and they were interested.
“We sought and were granted the authority to pursue the change of approach on this building into some form of a lease/purchase, so that at the end of the day it would be a purchased building when the project was completed, or some time down the line,” he said at the November meeting.
“I can only say that they are very willing to sit down and talk to us,” he said.
We don’t know if Hawker will propose a purchase of the building. But the record shows a problem with procedure. If the goal is to buy the building, that should have been made clear at the start as part of a competitive bid process. If the law prevented the extension of the no-bid deal with a purchase option attached, a bypass operation after the fact is hardly the right approach.