Judge declares legislature’s Anchorage LIO lease illegal

The sign outside the Anchorage Legislative Information Office, March 4, 2016. (Photo by Megan Ahleman)
The sign outside the Anchorage Legislative Information Office, March 4, 2016. (Photo by Megan Ahleman)

An Alaska judge today ruled the lease for the legislature’s controversial downtown Anchorage office space is illegal.

The court’s decision voids the contract for renting the Legislative Information Office building, but doesn’t spell out what’s next.

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The Anchorage Legislative Information Office, March 4, 2016. (Photo by Megan Ahleman)
The Anchorage Legislative Information Office, March 4, 2016. (Photo by Megan Ahleman)

The ruling from Superior Court Judge Patrick McKay said there were flaws in the way lawmakers entered the current lease. The decision rests on the word “extension,” — and whether a five-fold increase in the price of rent after $7.5 million in renovations could be considered an “extension” of a decade-old lease.

According to the judge, by treating the lease as an extension, lawmakers didn’t have to open it up to a competitive bidding process, which it deserved. Pointing to a dramatic remodeling alongside a substantial increase in costs, McKay wrote: “A court finding that this leasing scheme could be sole-sourced would eviscerate the competitive principles of the state procurement code.”

Read Superior Court Judge Patrick McKay’s ruling here

Speaking to members of the press in Juneau, Legislative Council Chair Sen. Gary Stevens (R-Kodiak), said the decision means the state can no longer make good on the current lease agreement.

“The contract that we have been operating under is void, so that causes us now to reassess things, to figure out where we’re going and what we’re going to do,” Stevens said. “It doesn’t change a lot of things, but it does change some things.”

Stevens said the legislature has to decide whether they’ll move to the state-owned Atwood Building nearby, or seek to buy the LIO building outright from its owners. A recent report from the Navigant consulting group obtained by the Alaska Dispatch News identifies different financial scenarios for the state to consider, including a competitive sale price of $35.6 million.

“What we’re looking at right now — and I should say, we’re not trying to harm the owner at all, that’s not the goal here,” Stevens said. “The goal is to find the right price. And it depends on what he’s willing to sell the building for.”

As of Thursday afternoon, Amy Slinker, a spokesperson for the building’s owners, 716 West Fourth Avenue, LLC, had a short emailed statement that read only, “We’re reading through the decision and analyzing next steps.” Recently, the owners have said they are willing to sell the building, but say the price would need to be closer to $37 million to not suffer a loss.

Rep. Mike Hawker (R-Anchorage) chaired the Legislative Council when the lease was negotiated. Hawker is currently in Anchorage undergoing treatment for cancer, but in a written statement released Thursday, he said the Legislative Council “acted in good faith.”

“Clearly, a lower court judge has found otherwise,” he wrote, adding that he had no further comment.

The McKay ruling is written anticipating an possible appeal in the case, but Stevens said the state is unlikely to go that route.

“We’re still in the same place we’ve always been, but it’s moved us forward to a position where now we need to make a decision,” Stevens said. “We’re going to try to call a meeting, if we can arrange it, on Tuesday, of (the Legislative) Council, and hear from all of our attorneys, hear from all our counsel, hear from the owner if he chooses to be there, and figure out where we go from here.”

The case is a victory for Anchorage attorney Jim Gottstein, who brought the suit against the building’s owners and the state. Gottstein has long insisted there were numerous problems with the way the lease was handled. He said he’s glad the superior court agrees.

“The main objective was just to get the lease declared illegal, which it has,” he said. “So I’d be happy for the case to be over.”

The legislature will continue paying for it’s lease through July.

Andrew Kitchenman and Rachel Waldholz contributed to this report.