Anchorage LIO decision on hold for now

To buy or not to buy… that is one of the questions the Legislative Council wrestled with at an almost five-hour meeting on Saturday in the Anchorage Legislative Information Office. Council members were met with new information at the start of the session, making their decision on whether or not to vacate the newly renovated building, to purchase it, or to continue paying rent, even more difficult.

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It all boils down to how much the state will pay for a square foot of space. On Saturday, the state’s Legislative Council was presented with new financial data outlining a dozen or more scenarios comparing the cost of staying in the newly renovated LIO, buying the building outright, or moving state offices to the state-owned Atwood Building in Anchorage.

Council chair, *Kodiak Republican* Senator Gary Stevens, [R Kodiak] stated at the start that no matter what the vote, the final decision rests with the legislature.

“What we are talking about, if we do move, not that we will but if we should, that we wouldn’t be so much breaking the lease as we would be taking advantage of a negotiated clause that went through a lot of discussion as the two sides negotiated a contract. So it is taking advantage of a negotiated clause in the lease. Further, remember that what we do here today is advisory to the legislature. We don’t have the power of funding anything, and we don’t have to make a recommendation to the entire legislature to include this, whatever it is, in the budget.”

Stevens also mentioned that he had met with LIO landlord Mark Pfeffer on Friday, and that Pfeffer had dropped the $37 million dollar price of the building by one million dollars. That fact came as a surprise to some Council members, as did a last minute spread sheet from state debt manager Deven Mitchell, which presented a dozen new scenarios with detailed costs of purchasing, or continuing to lease the LIO compared with costs of moving to and occupying the Atwood through the year 2046.

Pfeffer, who had not intended to speak, was asked to by the chair and fielded questions from the Council for about half an hour. He told them that in August of 2013, the lease brokered by the state was 10 percent below market value at that time, and that a purchase option was amended to it. In answer to a question by Senator Lyman Hoffman, Pfeffer said that a clause in the lease makes it subject to annual appropriation.

“It is a rarely, if ever, used clause, because once it is used, it means that subsequent leases have to be looked at as though they are basically only a one year lease. So you have to pay the full cost of whatever it is you are leasing basically in one year because the lessor cannot count on a longer term payment schedule. It’s virtually never used and if it is used it will have a significant effect on the way you do things in the future. ”

“It’s a tricky credit issue to use that clause” Pfeffer said.  Representative Sam Kito III [D Juneau] commented that the state has used such clauses in the past with no adverse affects.

After hearing from a battery of real estate attorneys, the Council went into executive session, emerging to vote unanimously to end the lease on the LIO, by not funding it, with an option to wait 45 days to work out a potentially more beneficial financial arrangement with the building’s owner. That could mean buying the building or getting a better deal on square footage.

Although he joined in the unanimous vote, Representative Kito said Monday that he still favors moving state offices to the Atwood building, and that the data shows not funding the lease saves the state money.

“The agreement that came out of Legislative Council on Saturday was a vote to recommend to the full legislature not funding the current lease, or, a competitive price at our existing Anchorage LIO that will compete with the Atwood building per square foot price. So I guess the action from my perspective on Saturday is hopeful, in that there seems to be a step toward addressing the Legislative Information Office costs, but I am cautious because there is a 45 day window .”

Kito says he’s concerned that legislators may extend the 45 day window, thus extending the conversation on the issue. Some Council members advocated that purchasing the building would give the state a valuable asset in the future. Kito does not agree with that stance.

“I do have a concern about going in that direction. Because purchasing the Anchorage LIO means the state of Alaska, the legislature, would become a building owner in downtown Anchorage of one of the most expensive per square foot buildings in the community.”]

Kito says the thirty year comparisons provided by the state debt manager show that square footage costs are cheapest if the state offices are moved to the Atwood.