FAIRBANKS -- Last June the Legislative Council decided that it wanted to extend a sole-source contract to lease legislative offices in Anchorage instead of buying new space.
No one talked about buying the building. The sole-source lease extension, negotiated by Anchorage Rep. Mike Hawker with the approval of the council, started a flawed process that remains out of whack.
On Monday, the Legislative Council heard details of a plan to replace the sole-source lease with a sole-source contract to buy the building for $28 million, while continuing to lease parking and the land beneath the building from developer Marc Pfeffer for $1.2 million a year.
At this point, the state has the option of buying the building or leasing space at a much higher rate than anyone had predicted in June. Had lawmakers acted last year to make this a competitive process, there would be reason to put faith in the notion that this buyout is the bargain that Hawker says it is. But competition was lacking, then and now.
When the Hawker lease deal signed in the fall showed up with an annual cost of several million dollars, almost everyone began to suffer buyer’s remorse.
While the no-bid lease drew attacks for more than quadrupling the rent bill, Hawker is now pitching the buyout plan as a way to reduce the expense of the high-cost lease he negotiated last year. This is a weak negotiating position.
Meanwhile, the sole-source lease had been promoted as a way of keeping the Fourth Avenue building on the tax rolls in Anchorage.
“I appreciate, being an Anchorage legislator, that we’ve opted to extend and renovate rather than buy another building or build a new building,” Anchorage Sen. Kevin Meyer said at that June 7 meeting.
“I remember, having been on the Assembly back in the 90s and 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 are essentially increasing property taxes for the rest of the folks in Anchorage,” he said.
Anchorage Sen. Lesil McGuire said pretty much the same thing at that meeting. “Purchasing a new building at this stage, having lived with the controversy of the last 10 years that the Legislature went through, simply is not something that this Legislative Council wants to go through,” said McGuire.
In June, Hawker made it clear that the Legislature would be renting, not buying, if he received the authority to negotiate the lease extension.
“The council has definitely chosen that building a new building, a state-owned building, is not a desirable outcome,” Hawker said.
At that meeting, Hawker said that an attempt to lease space in Anchorage produced only two responses, both of which had “limited utility” for the Legislature. The state did not look for a building to buy.
“I believe we’ve done adequate due diligence,” Hawker said in June.
He concluded by saying it was the start of a “fabulous project,” which would take care of legislative facilities for the next 10 to 40 years. But less than three months later, the council allowed Hawker to “research the possibility” of buying the building instead of just leasing it.
That led to the sole-source sale arrangement revealed this week.
If the Legislature follows the latest plan and buys the building, the Municipality of Anchorage will not be collecting about $300,000 a year in property taxes on the renovated structure. This is one of the changes that would reduce the cost of the project, at the expense of Anchorage property taxpayers.
The major cost reduction would come through a $2.1 million annual reduction in debt service for the landlord, as the state would be buying the property.
A Memorandum of Understanding signed with the state says the owner of the building supports the $28 million buyout and "is willing to accommodate this lease restructure so long as the net effect of the transaction will preserve its economic position under the original lease."
What would the state get for its $28 million? Instead of paying $4 million a year under the lease, including $300,000 in taxes, the state would pay $1.2 million a year to lease parking and the land beneath the building. In addition, the state would pay up to $425,000 a year to operate the building. On top of the $28 million, the state would have to pay an additional $7.5 million in "tenant improvements," such as new carpets and partitions. Any new furniture would be extra. The council has a $76,242 contract for "furniture integration" services to decide how much furniture and what type might be sought.
At Monday’s meeting, both Sen. Charlie Huggins, president of the Senate, and Rep. Mike Chenault, speaker of the House, said that they share responsibility for the situation with Hawker, who has been the target of most of the criticism.
Those acknowledgements are not enough. The public deserves a more detailed explanation of why and how lawmakers failed to push for a competitive process, a topic that should be explored in a public hearing before deciding on the purchase that everyone said was not going to happen last June.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. Contact Dermot Cole at dermot(at)alaskadispatch.com. Follow him on Twitter @dermotmcole