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Committee hears proposal to buy renovated legislative building in Anchorage

Lisa Demer
Bill Roth

JUNEAU -- The committee that manages the Legislature's business met Monday evening to consider whether a state corporation should buy the Anchorage legislative building for more than $28 million once renovations now underway are complete.

The House-Senate Legislative Council took no action. Senate President Charlie Huggins, R-Wasilla, and House Speaker Mike Chenault, R-Nikiski, both said they wanted a week to talk it over with their members. The meeting Monday put on the record and set a dollar amount for a tentative arrangement discussed behind closed doors by the council last month.

That $28 million purchase price doesn't include the land under the building at 716 W. Fourth Ave., nor its valuable downtown parking, including an underground garage. The building owners, developer Mark Pfeffer and partner Bob Acree, would retain ownership of the land and parking areas.

State Rep. Mike Hawker, chairman of the House-Senate Legislative Council since January 2013, told the panel that the Legislature would have to lease back the land and parking area for another $1.2 million a year, plus pay about $400,000 for maintenance and operations of the building.

In addition, he said after the meeting that the state would need to put another $7.5 million into the building to cover interior renovations known as tenant improvements that include carpet and walls. The $7.5 million wasn't included in a financial worksheet that Hawker, a retired certified public accountant, presented to the committee, but it was part of the Legislature's earlier arrangement with Pfeffer.

Hawker signed a 10-year lease extension last year for remodeled and expanded Anchorage legislative space.The no-bid deal has been sharply criticized as too costly and unjustified, and Hawker has taken most of the blame.

Chenault said the Legislature got itself into a fix by not solving the Anchorage office problem years earlier. He said he supported Hawker's approach.

"I'll take the hit for anything that we've done here," Chenault said.

Under the lease terms negotiated by Hawker, the Legislature would have paid about $4 million a year -- $3.3 million a year more than the old amount -- once utilities, property taxes and other expenses included under the prior terms were added.

That arrangement would be set aside under the proposal now before the Legislative Council.

Proposed legislation says the Alaska Housing Finance Corp. would buy the renovated Fourth Avenue building for over $28 million.

Owners Pfeffer and Acree would lease the land and parking lot to AHFC -- and the annual $1.2 million rent would be fixed for 20 years, Hawker said.

"That's a heckuva deal," Hawker, an Anchorage Republican, said at Monday's Legislative Council meeting.

AHFC also would have an option to buy the land after 20 years, with new lease terms if it doesn't make the purchase, Hawker told the committee. The original lease period is 40 years, with an option to renew for another 20.

The Legislature would repay AHFC. The city of Anchorage would continue to collect property taxes on the land, Hawker said.

If the renovations cost more, the current owners absorb the overruns, Hawker said.

"We get a facility that at the end of the day will take care of the Legislature for 60 years," Hawker said.

In all, the Legislature would spend about $68 million for the building, the interior renovations and 20 years of the land lease and operational costs. That compares to roughly $80 million over 20 years if it executed the lease.

Plus, the state will own a renovated and expanded office building under the new deal, Hawker said.

He said the state will save $2.4 million a year by switching from a lease to a purchase.

A semi-retired Anchorage commercial broker, Larry Norene, had criticized the lease as have Democrats in the Legislature. Norene estimated the real cost could be even higher than $4 million a year.

On Monday evening, both Norene and state Rep. Les Gara, D-Anchorage, said they continued to have concerns.

Under the old lease, the annual rent for the office building was less than $700,000, and that included maintenance, janitorial service, property taxes and utilities other than phones. Just the land and parking lot lease will cost double that.

"On one hand, it's twice as much rent as we used to pay, and to get to the point where we're paying twice as much rent, we have to pay $28 million," said Gara, a member of the House Finance Committee who sat through the Legislative Council meeting Monday evening.

Norene, told about the new purchase deal Monday evening, said he wanted to see the details. He said it sounded better than the 10-year lease, but likely isn't a bargain for the state. Land leases are falling out of favor around the country because the land owner often ends up acquiring the building when the lease ends, he said. The Legislature needs to hire a real estate expert to represent it across the table from Pfeffer, a skilled developer, Norene said.

On Thursday, state Rep. Scott Kawasaki, D-Fairbanks, tried to amend the House budget on the floor to pressure the Legislative Council to find tenants to sublease the new space in the building from the remodeling. But the measure didn't get support from Republicans in the GOP-led House.

Gara and state Sen. Bill Wielechowski, another Anchorage Democrat, are sponsoring twin bills to require the state to hold a public hearing and seek public comment on any no-bid proposed lease that would cost more than $250,000 over its lifetime.

Wielechowski's measure, Senate Bill 174, is getting its first hearing Tuesday before the State Affairs Committee.

Reach Lisa Demer at ldemer@adn.com or 952-3965.

New look at expensive renovations for Anchorage legislative offices
By LISA DEMER
ldemer@adn.com