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Lawmakers vote to end LIO lease in 45 days, unless better price given

By Liz Raines 3:56 PM December 19, 2015

After a more than four-hour meeting Saturday morning, the Legislative Council voted not to continue funding its lease on the Anchorage Legislative Information offices, unless its landlord offers a more “competitive” price.

The Legislature’s current 10-year lease on the building is valued at $40,320,000. The building’s developer, Mark Pfeffer, said he’s offering to sell it at his costs after adapting the building to the Legislature’s requests. Pfeffer says he has ideas for how to make the sale more affordable.

“In a way that we’re not necessarily profiting, but we’re also not taking a big financial hit,” Pfeffer said.

After taking an hour-long break at noon, legislators unanimously passed a motion by Sen. Pete Micciche to recommend the Legislature not appropriate funds for another year on the current LIO building lease, pending a lawsuit by Jim Gottstein that the contract is illegal, and unless the building’s developer negotiations a more “competitive cost per square foot” for the building in the next 45 days.

The unanimous vote from lawmakers came after a long morning of back and forth with the state’s debt manager, Devon Mitchell, about the potential outcomes of breaking the lease — how it could affect the state’s image and credit rating.

Lawmakers seemed torn.

“I do believe in owning,” said House Speaker Mike Chenault. “We need to make a permanent decision, not just one that gets us out of hot water with the voters right now, but one that makes actual business sense.”

Rep. Sam Kito didn’t waiver in his position to move to the Atwood building.

“It’s not, in my opinion, well advised to be looking at buying a new building when you get that purchase price already in the Atwood,” he said.

At one point, Millet said she felt like the issue had become too political.

“We shouldn’t have half of the information that may be slanted one way or another,” said Millet, who suggested forming an independent committee to crunch the numbers. “I actually think that we need someone independent that doesn’t have politics in the back of their mind looking at this instead of a group of legislators that are not real estate brokers, that are not attorneys.”

Pfeffer testified to the joint committee that he’s incurred $28 million in debt on the building in addition to spending $9 million in cash to modernize the building.

He told legislators he didn’t feel his discussion with lawmakers on working out a financial agreement on the building had been “robust,” and wasn’t aware of the options they were considering until a meeting earlier this month.

Legislators said Pfeffer now has 45 days to work through his ideas for lowering the cost of the building. Legislative attorney Doug Gardner said if the state breaks the lease, and Pfeffer decides to sue, it could cost as much as $2 million.

Rep. Liz Vazquez, who is also an attorney, said she’s worked on commercial litigation and warns that the cost could be much more.

“We could easily spend upwards of $2 million, if not more. That’s just if we won. If we lose the case, then we have to pay the attorney’s fees for the other side, we have to pay damages, and what the judge believes the parties are owed,” Vazquez said. “We could wind up paying millions and millions. We could wind up paying for the whole building.”

After the meeting, committee chair Sen. Gary Stevens said he wasn’t worried about litigation and doesn’t think lawmakers should pack their suitcases yet. Stevens said he thinks 45 days is the right amount of time to push Pfeffer towards a price lawmakers can live with.

“We’ve given him every opportunity to strike a fair deal and I think that will happen,” Stevens said.

A spokesperson for Pfeffer’s company said in a statement after the meeting:

“We are pleased the Alaska Legislative Council decided to gather more information before making a decision. We believe there are several options that save the state money without taking the drastic step of breaking the lease and risking what others have said would be serious negative credit implications.”

The Legislative Council did not specify in it’s motion what the price would have to be, or whether it would be in terms of building rental or sale.

Space in the Atwood building will be held for 45 days, pending the Legislature’s decision.

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