To buy or not to buy? That is one of the questions the Alaska Legislative Council wrestled with at an almost 5-hour meeting Saturday in the Anchorage Legislative Information Office.
Council members were trying to decide whether to vacate, purchase or continue to pay rent at the newly renovated building.
After hearing from a battery of real estate attorneys and an executive session, the council voted unanimously to recommend ending the lease on the LIO, with an option to wait 45 days to work out a potential financial arrangement with the building’s owner, Mark Pfeffer.
“We are pleased the Alaska Legislative Council decided to gather more information before making a decision,” said Pfeffer’s spokesperson Amy Slinker in an email. “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.”
Before the vote, Sen. Gary Stevens, who chairs the council, said the final decision rests with the legislature. He also said press reports about breaking the lease on the building were not accurate.
“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,” he said. “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 said LIO landlord Mark Pfeffer told him Friday that he had dropped the $37 million price of the building by $1 million. That was a surprise to most council members, as did a last minute spreadsheet from state debt manager Deven Mitchell, which presented a dozen new scenarios with detailed costs of purchasing, leasing or abandoning the building through 2046.
The council wrestled with four main scenarios, three outlining different purchasing schemes, and one advocating ending the lease and moving state offices to the Atwood Building in downtown Anchorage.
Pfeffer fielded questions from the council for about half an hour. He told the council that in August 2013, the lease was 10 percent below market value, and that a purchase option was amended to it. Pfeffer said a clause in the lease makes it subject to annual appropriation, and using that clause creates a tricky credit issue.
“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,” Pfeffer said. “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.”
Rep. Sam Kito III said the state has used such clauses in the past with no adverse effects.
