Hilltop gets $875,000 from Municipality of Anchorage in settlement of real estate dispute

Nathaniel Herz

The nonprofit that runs Hilltop Ski Area is getting an $875,000 payout from the Municipality of Anchorage as part of a settlement reached with the administration of Mayor Dan Sullivan over a real estate dispute.

Youth Exploring Adventures, which runs Hilltop, sued Anchorage in 2010 after the city stopped making $95,000 annual payments to the nonprofit for use of space in the chalet building at the bottom of the ski area, which is located on the Anchorage Hillside near Service High School.

Hilltop argued its lease with the municipality guaranteed the annual payments through 2020, while the Sullivan administration said the payments were only an option if the city wanted to use the space.

A lower court judge sided with Hilltop in a March decision and said the city owed $1.1 million to the nonprofit. The Sullivan administration appealed to the Alaska Supreme Court but ultimately settled the case for the lower $875,000 figure, according to an agreement signed earlier this month by Municipal Manager George Vakalis.

"It's been a long battle," Hilltop CEO Steve Remme said in a phone interview. "It's just a shame we had to go four years in court and take it to that extent -- it probably could have been settled over a cup of coffee, but unfortunately the city didn't want to consider any options except for a hard line."

Municipal Attorney Dennis Wheeler did not respond to repeated requests for comment about the settlement, and a spokeswoman for Mayor Dan Sullivan did not respond to an email message Wednesday.

In a phone interview, the assistant municipal attorney who worked on the case, Bob Owens, said the decision to settle was made at the executive level.

But some of the factors included the cost of the litigation, the merits of the appeal, and where the municipality was in its fiscal year, Owens added.

The amount of the settlement was reduced from the $1.1 million based on the amount of money Hilltop can earn from the space that the city isn't using, Owens said.

For the ski area, which gets about 50,000 visits a year, attorneys' fees will cut more than $200,000 from the $875,000 settlement, leaving it with a little more than $600,000, Remme said.

That money could go toward improvements to Hilltop's existing facilities, construction of new buildings, or even a new ski lift, according to Remme.

"We can certainly use additional uphill capacity," he said.

The dispute over the payments has roots going back more than a decade, to when Hilltop built its chalet with a $2 million grant associated with its hosting of snowboarding events at the 2001 Special Olympics World Winter Games, according to the lower court ruling.

Cost overruns led Hilltop to borrow $400,000 to finish the building, but rising insurance and personnel costs combined with poor snow years led the ski area to default on the loan, and in 2005 it asked the city for help.

Ultimately, the Anchorage Assembly voted 7-3 to give Hilltop a $120,000 loan, and the lease agreement finalized afterward included the annual payments of $95,000.

The city would use 50 square feet of office space in the chalet year-round for a new Southeast Anchorage parks district, and it also planned to take over the chalet operations and schedule revenue-generating events and programs there during the summer. The $95,000 payments were aimed at compensating Hilltop for that use.

"It was a critical time, and the community wanted us to keep Hilltop operational," said Mary Jane Michael, who at the time was the municipality's director of community development. "And the organization -- aside from the fact they didn't generate enough revenue -- was doing a really good job, and they were running ski programs for kids."

Sullivan, who was on the Assembly at that time, voted in favor of authorizing the loan, though he said he had reservations because the city had not yet finalized the new lease with Hilltop.

The arrangement stuck for more than two years, and Hilltop repaid its loan.

But in February of 2009, a month after Acting Mayor Matt Claman announced a $17 million budget shortfall, the city told Hilltop that it was going to stop making its annual payments.

It hasn't paid the ski area or used the chalet since 2010, according to the lower court decision. Hilltop filed suit in December of that year.

The case hinged on whether the lease between Hilltop and the city required the annual payments or simply gave the city the option to make them each year.

Owens, the city attorney who worked on the case, said an appendix to the lease laid out a square footage rate for Anchorage to lease "up to" a certain amount of space every year.

"The 'up to' language suggested there was some discretion in how much space might actually be used," Owens said.

But the lower court judge, Frank Pfiffner, cited sections of the same appendix that said the city "will" operate the chalet during the summer and said "unambiguous language" required Anchorage to make the full payments.

Pfiffner noted that under the terms of the lease, Hilltop, which sits on city parkland, agreed to give Anchorage the title to the chalet, which had previously been disputed, based on the city's commitment to make the $95,000 payments.

Assembly member Jennifer Johnston, who represents South Anchorage, said she wasn't familiar with the details of the settlement, but she added Hilltop's lease was "left over" from a prior administration.

"The contract wasn't a well-written contract, and so there really wasn't much the city could do," she said. "The whole thing doesn't give me warm, fuzzy feelings."

The nonprofit does pay the city about $20,000 annually for its use of the parkland, though no money changes hands because the municipality allows Hilltop to credit any capital improvements against those payments, Remme said.

The ski area's lease with the city runs through 2020, he added, with an option for a 10-year extension that he hopes the city will exercise following the settlement.

"We're looking forward to many more years being here," he said.

Reach Nathaniel Herz at nherz@adn.com or 257-4311.