Anchorage LIO proposal offers savings, settlement to lawsuit

A proposal by the building owners to keep the Legislature in the Anchorage Legislative Information Office building could save the state millions of dollars and get the legislators out of a political bind.

However, Pam Varni, executive director of the Legislative Affairs Agency, which handles business for the Legislative Council, disputed the figures in a Feb. 5 memo to Council Chairman Sen. Gary Stevens.

The proposal, submitted Jan. 29 to Stevens, suggests the State of Alaska purchase the building for $37.9 million to accrue maximum savings that would outpace projected savings of moving legislators into the nearby Atwood Building, primarily occupied by executive branch agencies.

A meeting of the Legislative Council is at 5 p.m. Feb. 11 to discuss the proposal.

Tax-exempt financing would be “considerably less” than the current lease payments of $281,000 per month the Legislature currently pays, and the equity in the building would serve as an accrued savings account for the state, according to 716 West Fourth Avenue LLC, the building owner group.

The leaseholder company is the Downtown Anchorage address of the LIO and the offer was signed by longtime Anchorage developer Mark Pfeffer, the firm’s managing member.

Varni wrote to Stevens that the proposal overstates the costs of moving to the Atwood Building by $11 million over 10 years and by $16.3 million over 30 years by including costs for debt service that is currently set to expire in March 2017. She concludes that purchasing outright or financing a purchase of the building would cost the state from $22.5 million to $94.4 million over 30 years compared to moving to the Atwood Building.

The Legislature could terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case by the Legislature. If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart.

Pfeffer has indicated an intention to sue if the Legislature walks away from its obligation.

The proposal also states that Pfeffer’s company has secured a settlement to dismiss a lawsuit brought by Jim Gottstein, owner of the adjacent Alaska Building, against the LIO owner group and the Legislative Affairs Agency.

Gottstein’s complaint alleges the LIO lease is illegal because it is neither an extension of an existing lease, nor 10 percent below market value, as statute requires for a long-term extension.

To fully settle the suit the Legislative Affairs Agency must agree to waive potential claims to recoup legal fees, according to the proposal document. Last month, the judge in the suit denied Gottstein’s petition to receive a “whistleblower” award of 10 percent of any money saved if the lease is ruled illegal.

The case is scheduled for trial in March.

A Department of Revenue analysis of the Legislature’s options based on figures provided by 716 West Fourth Avenue — buying the building outright, having another state agency purchase it, break the 10-year lease and move to the Atwood, or keep the status quo — found a potential savings of more than 55 percent over the existing lease if another state entity finances the purchase for the Legislature.

Another stopgap solution offered to lower the existing rent by 5 percent, or $169,000 per year, beginning July 1 until a purchase could be executed. A rent reduction would require lender approval.

The lease is paid through May 31, 2016.

Purchasing the LIO in some fashion would require the initial payment and then operating payments of $269,000 per year for 45,000 square feet of usable space. The building houses off-season offices for 25 Anchorage legislators and is the de-facto home to much of the general Legislature’s out-of-session activity.

State ownership would also save $231,000 per year in municipal property taxes; however, taking the building off the city’s tax roll has been a reason cited by legislators for why the council did not purchase it initially.

Anchorage Democrats, the public and legislators from elsewhere in the state have disparaged the LIO lease terms as far too expensive at a time when the state is facing annual budget deficits approaching $4 billion.

On Dec. 19, the Legislative Council unanimously recommended the full Legislature vote not to fund the lease at a meeting in the Anchorage LIO unless a solution that is cost-competitive with moving to the Atwood Building could be resolved within 45 days, which expired Feb. 5.

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