Legislature(2015 - 2016)

12/19/2015 09:00 AM LEC

Audio Topic
09:04:08 AM Start
01:45:09 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                     ALASKA STATE LEGISLATURE                                                                                 
                       LEGISLATIVE COUNCIL                                                                                    
                        DECEMBER 19, 2015                                                                                     
                             9:00 AM                                                                                          
                      Approved August 3, 2016                                                                                 
                                                                                                                              
     MEMBERS PRESENT                                                                                                          
                                                                                                                                
     Senator Gary Stevens, Chair                                                                                                
     Representative Bob Herron, Vice Chair                                                                                      
     Senator Lyman Hoffman                                                                                                      
     Senator Charlie Huggins                                                                                                    
     Senator Kevin Meyer                                                                                                        
     Senator Peter Micciche                                                                                                     
     Representative Mike Chenault                                                                                               
     Representative Craig Johnson                                                                                               
     Representative Sam Kito                                                                                                    
     Representative Charisse Millett                                                                                            
                                                                                                                                
     MEMBERS ON TELECONFERENCE                                                                                                
                                                                                                                                
     Senator John Coghill                                                                                                       
     Senator Anna MacKinnon                                                                                                     
     Representative Mark Neuman                                                                                                 
                                                                                                                                
     MEMBERS ABSENT                                                                                                           
                                                                                                                                
     Senator Lesil McGuire, alternate member                                                                                    
     Representative Mike Hawker                                                                                                 
     Representative Steve Thompson, alternate member                                                                            
                                                                                                                              
     OTHER LEGISLATORS PRESENT OR ON TELECONFERENCE                                                                           
                                                                                                                                
     Senator Costello; Representatives Drummond, Guttenberg,                                                                    
     LeDoux, Lynn, Stutes, Tarr, Tuck, and Vazquez                                                                              
                                                                                                                                
     AGENDA                                                                                                                   
                                                                                                                                
     ANCHORAGE LIO - EXECUTIVE SESSION IF NEEDED                                                                                
                                                                                                                                
     SPEAKER REGISTER                                                                                                         
                                                                                                                                
     Pam Varni, Executive Director, Legislative Affairs Agency                                                                  
     Doug Gardner, Legal Services Director, LAA                                                                                 
     Tanci Mintz, State Leasing & Facilities Manager, Div. of                                                                   
        General Services, Dept. of Administration                                                                               
     Mark Pfeffer, Real Estate Developer, Pfeffer Development,                                                                  
        LLC, and co-owner of 716 W Fourth Avenue, LLC                                                                           
     (SPEAKER REGISTER CONTINUES ON NEXT PAGE)                                                                                
SPEAKER REGISTER CONTINUED                                                                                                    
                                                                                                                              
Peter Shorett, Exec. Vice President, Kidder Matthews Real                                                                       
  Estate Appraisal                                                                                                              
Serena Carlsen, Partner, Stoel Rives, LLC                                                                                       
Deven Mitchell, Debt Manager for the State of Alaska and                                                                        
  Executive Director for the Alaska Municipal Bond Bank                                                                         
Mark Davis, Chief Infrastructure Officer for the Alaska                                                                         
  Industrial Development Export Authority (AIDEA)                                                                               
Representative Bob Lynn, District 26                                                                                            
Representative Louise Stutes, District 32                                                                                       
Representative Liz Vazquez, District 22                                                                                         
                                                                                                                                
     9:04:08 AM                                                                                                               
                                                                                                                                
 I. CHAIR GARY STEVENS called the Legislative Council meeting                                                                 
     to  order  at  9:08  a.m.  in  the  Anchorage  Legislative                                                                 
     Information Office  Auditorium. Present at the  call were                                                                  
     Senators Stevens,  Meyer, Hoffman, Huggins, and Micciche;                                                                  
     Representatives  Herron,  Chenault,  Johnson,  Kito,  and                                                                  
     Millett.  Participating via  teleconference were Senators                                                                  
     Coghill and  MacKinnon, and Representative Neuman. Absent                                                                  
     were Senator McGuire, alternate member; and Representatives                                                                
     Hawker and Thompson, alternate member.                                                                                     
                                                                                                                                
II. ANCHORAGE LIO                                                                                                             
                                                                                                                                
     CHAIR STEVENS reminded members that  this was a follow-up                                                                  
     meeting to  the December 4, 2015, meeting. The goal today                                                                  
     was to provide the committee with an update on the analysis                                                                
     of the Anchorage office space options as was requested. He                                                                 
     asked  that members keep in  mind as they  go forward the                                                                  
     obvious  fiscal problems in  the  state, which  have been                                                                  
     discussed in both the House and the Senate; the governor's                                                                 
     budget has  indicated a reduction last year  of some nine                                                                  
     percent, a reduction this year of two percent plus in this                                                                 
     year's  plan, as well  as an  income tax  and use  of the                                                                  
     permanent fund; so  we all know  we're facing some pretty                                                                  
     serious  problems here. He  said he  knows the  Senate is                                                                  
     looking  at  additional  reductions  from the   governor's                                                                 
     suggested budget cuts.                                                                                                     
                                                                                                                                
     Chair Stevens said that in this morning's paper there was                                                                  
     an  article about this issue and about two representatives                                                                 
     who  commented  on  their  thoughts.  There  has  been  a                                                                  
     consistent mistake made when we see it in the paper talking                                                                
     about "breaking the lease." He said  that, if we do move,                                                                  
     that we wouldn't be breaking the lease, but rather taking                                                                  
     advantage of  a negotiated clause in the  lease that went                                                                  
     through  a lot  of discussion as  two sides  negotiated a                                                                  
     contract. He said further that members should remember that                                                                
     what may be done here today is advisory to the Legislature;                                                                
     Council doesn't have the power of funding anything and we                                                                  
     have to  make a recommendation, hopefully, one way or the                                                                  
     other,  to  the  entire Legislature  to  include whatever                                                                  
     decision is made in the budget.                                                                                            
                                                                                                                                
     He said he also wanted to make notice of the letter sent to                                                                
     the  Council  by Senator  Wielechowski and  Representative                                                                 
     Tuck. He said that what they are talking about is a concern                                                                
     about moving  to the Atwood Building; they suggest having                                                                  
     individual offices  around Anchorage someplace  within an                                                                  
individual Legislator's district. That is  something that                                                                       
can certainly be accommodated and, should it happen that we                                                                     
go to  the Atwood, we  can reduce the  space that we  are                                                                       
leasing there quite readily. He said his  response to the                                                                       
letter  is  that  can  be  taken  into consideration  and                                                                       
Legislative Council can  establish smaller offices around                                                                       
Anchorage, for example, should they choose to.                                                                                  
                                                                                                                                
Chair Stevens said in closing that  to all Legislators in                                                                       
the room, he was pleased to  have them here. They will be                                                                       
recognized and  may ask  any questions they  want; please                                                                       
respond and  let us  know your  thoughts -  not only  the                                                                       
members of  Council, but  any Legislators that are  here.                                                                       
Having said that, Chair Stevens asked Pam  Varni and Doug                                                                       
Gardner to the table to give an overview of what happened                                                                       
at  the   last  meeting.  He   said  also   available  on                                                                       
teleconference are Serena Carlsen, our attorney with Stoel                                                                      
Rives, LLC,  and Peter  Shorett from Kidder  Matthews, to                                                                       
present the  various options they  have as  well, talking                                                                       
about the discount rate and the inflation analysis.                                                                             
                                                                                                                                
Chair  Stevens  said,  in   response  to  a   request  by                                                                       
Representative Millett, that Council hear from the owner of                                                                     
the building, Mr. Pfeffer, that if he was willing to speak,                                                                     
they would find the time for him.                                                                                               
                                                                                                                                
PAM  VARNI,  Executive  Director of  Legislative  Affairs                                                                       
Agency, put herself on the record and noted that also with                                                                      
her at the table was Doug Gardner, Legal Services Director,                                                                     
and on teleconference was Chuck Burnham, Research Manager.                                                                      
She said the Agency worked on coming up with some scenarios                                                                     
that looked at annual cash outlays over a ten year period,                                                                      
from 2016-2025. We went over those scenarios last time, and                                                                     
for the benefit of the members that were not  at the last                                                                       
meeting and  others in the  audience, she said  she would                                                                       
briefly go over those. She  noted that these scenarios do                                                                       
not look at inflation and do not look at net present value.                                                                     
Peter Shorett and Serena Carlsen will speak to that after                                                                       
she, Doug, and Chuck go through the five scenarios.                                                                             
                                                                                                                                
Ms.  Varni said the  first scenario  was to  continue the                                                                       
current lease at 716  W 4th Avenue. Looking at a  10 year                                                                       
period, the total cost is $40,320,000; total monthly cost                                                                       
per usable square foot is $7.41. The Legislature would need                                                                     
to  fully fund  the lease  through the  Legislature State                                                                       
Facilities Rent component every year for the remainder of                                                                       
the original 10 year lease, which expires on May 31, 2024.                                                                      
The cost  per square  foot are based  on usable space  of                                                                       
45,371 and a total of 86 parking spots.                                                                                         
                                                                                                                                
     In  response to a question by  Representative Millett, Ms.                                                                 
     Varni said the lease is based on a gross figure of 64,000                                                                  
     square  feet  and  all of  the  other  legislative leases                                                                  
     throughout the state and also in the Executive Branch are                                                                  
     based on usable and not on  gross. Usable does not include                                                                 
     bathrooms,  the vertical  penetrations, and  some of  the                                                                  
     common floor areas. The  square footage was double-checked                                                                 
     by  RIM Architects and asked Peter Shorett to confirm her                                                                  
     definition of usable space.                                                                                                
                                                                                                                                
     PETER SHORETT, Exec. Vice President, Kidder Matthews Real                                                                  
     Estate  Appraisal, said that  Ms. Varni had  described it                                                                  
     accurately. He said that  the usable areas are those that                                                                  
     are  occupied by the  Legislators or for their  conference                                                                 
     uses. It does not include the lobbies, hallways, corridors,                                                                
     and vertical penetrations.                                                                                                 
                                                                                                                                
     REPRESENTATIVE MILLETT  asked if  the Auditorium  and the                                                                  
     conference rooms across the hall, as well as the conference                                                                
     rooms on  each of the  floors, would be considered usable                                                                  
     space.                                                                                                                     
                                                                                                                                
     MS.  VARNI AND MR. SHORETT both confirmed that they would                                                                  
     be.                                                                                                                        
                                                                                                                                
     MS.  VARNI continued with Scenario #2: Purchase 716 W 4th                                                                  
     Avenue Funded by  AHFC Issuing Fixed Rate Bonds. She said                                                                  
     the  total after a  10 year  period is $48,850,000; total                                                                  
     monthly  cost  per  usable  square  foot  is  $8.97.  The                                                                  
     Legislature would need to pass a stand-alone bill to enable                                                                
     AHFC to finance the purchase of the building. This scenario                                                                
     shows a 10  year maturity at a fixed rate at approximately                                                                 
     2.16 percent.                                                                                                              
                                                                                                                                
     However, Ms. Varni said that last  night, Friday, December                                                                 
     19, 2015, Senator Stevens and Representative Herron, along                                                                 
     with herself and Doug Gardner, met with Mark Pfeffer. She                                                                  
     told Council members that he had agreed to come down on his                                                                
     price from $37,000,000 to $36,000,000. The new offer still                                                                 
     includes the $950,000 cost for the loan pre-payment fee for                                                                
     his $28,000,000 loan. Due to the late hour of the meeting,                                                                 
     she was  not able to create new scenarios, but that under                                                                  
     Scenario #2, with the new purchase price, the total after a                                                                
     10 year period is now $45,701,840.                                                                                         
                                                                                                                                
     In response to a question from Speaker Chenault, Ms. Varni                                                                 
     said  the  meeting between  building owner  Mark Pfeffer,                                                                  
Senator Stevens, Representative Herron, Doug  Gardner and                                                                       
herself took place at 4:30pm.                                                                                                   
                                                                                                                                
CHAIR STEVENS commented that he was  in his Senate Caucus                                                                       
meeting and received a call from Doug Gardner saying that                                                                       
the owner would like to meet. He said we did meet with him                                                                      
briefly for about 30 minutes. He wanted to make sure that                                                                       
Mr.  Pfeffer knew  that  while  he  knew about  the  non-                                                                       
appropriation clause, the Chair was in no way meeting with                                                                      
him to try to get him to lower his price, but that if Mr.                                                                       
Pfeffer had a different offer he wanted to make, the Chair                                                                      
was certainly glad to listen to him.                                                                                            
                                                                                                                                
MS. VARNI moved to Scenario #3: Purchase 716 W 4th Avenue                                                                       
via   Issuance   of   Variable   Rate   Certificates   of                                                                       
Participation. The total for this scenario after a 10 year                                                                      
period would be $42,948,659; total monthly cost per usable                                                                      
square foot would be $8.19. The Legislature would need to                                                                       
pass a stand-alone bill outlining the project, cost, annual                                                                     
payment and total payments. There being no questions, Ms.                                                                       
Varni moved on to the next scenario.                                                                                            
                                                                                                                                
Scenario #4: Purchase 716 W 4th Avenue through the Capital                                                                      
Budget.  The  total after  a  10  year  period  would  be                                                                       
$41,750,000; total  monthly cost per  usable square  foot                                                                       
would be $7.93. The Legislature would own an asset and be                                                                       
responsible for all ongoing maintenance and operating costs                                                                     
of the building. The Legislature would not be reimbursing                                                                       
the  landlord for  property taxes or  insurance once  the                                                                       
Legislature owns the building. A building manager position                                                                      
was factored into this scenario. There being no questions,                                                                      
Ms. Varni moved on to the next scenario.                                                                                        
                                                                                                                                
Scenario #5:  Move  to  State-Owned Space  at the  Atwood                                                                       
Building. The action required would be a non-appropriation                                                                      
of the  lease with 716 W  4th Avenue and to enter  into a                                                                       
State lease with the Department of Administration for the                                                                       
Atwood Building. She said the Legislature would be charged                                                                      
for 84  parking spots based on the square footage  of the                                                                       
proposed lease  space.  Actual parking  would include  80                                                                       
underground parking spots  reserved for Legislators on  a                                                                       
first-come, first-served basis; and an additional 266 spots                                                                     
available on a  first-come, first-served basis located in                                                                       
Blocks 102 and  79. The total cost  for a 10  year period                                                                       
would be $6,647,760; total monthly cost per usable square                                                                       
foot  of  $1.85.  In  addition,  there  would  be  tenant                                                                       
improvement costs for the Atwood Building of $3,500,000.                                                                        
                                                                                                                                
     SENATOR  MICCICHE, noting the  state fiscal  gap and  the                                                                  
     $7,500,000 in tenant improvements already invested in the                                                                  
     current space, asked what was the bare minimum to spend in                                                                 
     tenant  improvement costs,  even at  a  certain level  of                                                                  
     discomfort, to move into the Atwood Building.                                                                              
                                                                                                                                
     MS.  VARNI,  after confirming  that Senator  Micciche was                                                                  
     asking if  the tenant improvements could be done for less                                                                  
     than $3.5 million, said that they would have to work with                                                                  
     Tanci Mintz, and her  architects and staff to see if that                                                                  
     was  possible. For instance, on the 19th floor, there was                                                                  
     possible space for leadership offices with existing office                                                                 
     walls and beautiful wood trim that could  potentially work                                                                 
     as-is. Some  of the space needs new  carpet for sure, but                                                                  
     there is some room to save some money.                                                                                     
                                                                                                                                
     CHAIR STEVENS  added that a lot  of it is  offices on the                                                                  
     perimeter of the floor with cubicles in the center, which                                                                  
     would not be  adequate for Legislators who would need more                                                                 
     privacy  to talk  to  constituents. He said  there wasn't                                                                  
     really a way to just move in and make it work without some                                                                 
     changes.                                                                                                                   
                                                                                                                                
     REPRESENTATIVE MILLETT said it was her  understanding that                                                                 
     Mark Davis from AIDEA was present and Deven Mitchell from                                                                  
     the bond bank on teleconference with some other options and                                                                
     asked if Council would be hearing from them. She asked if                                                                  
   there were any documents with regard to those options.                                                                       
                                                                                                                                
     DISCUSSION FOLLOWED to  confirm that there were documents                                                                  
     available and the request was approved to hand them out to                                                                 
     Council prior to the presentation.                                                                                         
                                                                                                                                
     SENATOR  MACKINNON  asked  about parking  at  the  Atwood                                                                  
     Building. She said Legislators are in and out of meetings                                                                  
     in the downtown area on a regular basis and asked if there                                                                 
     were  any  parking  spaces  that  would be  dedicated  to                                                                  
     Legislator parking. She wanted to know if the State could                                                                  
     accommodate   some  spots   designated  specifically  for                                                                  
     Legislators.                                                                                                               
                                                                                                                                
     MS. VARNI noted that the Linny Pacillo parking facility has                                                                
     838  parking  spots, also  Legislators and  Directors and                                                                  
     Commissioners in the Executive Branch have 80  underground                                                                 
     parking spots at  the Atwood Building. In addition, there                                                                  
     are surface parking lots at Blocks 102 and 79 where there                                                                  
     are  266  spots. She  said it  would likely  be  the same                                                                  
     practice that is  currently followed at 716 W 4th Avenue,                                                                  
     where there  wasn't a spot reserved  for a Legislator but                                                                  
there were enough open  spots to accommodate parking. She                                                                       
said when she went through the underground parking facility                                                                     
recently, there  were at  least 25  vacant spots and  she                                                                       
didn't think  there would be  a problem with  parking. In                                                                       
response to  a  follow-up question by  Senator MacKinnon,                                                                       
Tanci Mintz was asked to come forward.                                                                                          
                                                                                                                                
TANCI  MINTZ, State  Leasing Facilities  Manager for  the                                                                       
Department of Administration, said that the State had not                                                                       
been planning to do reserved spaces for Legislators as it's                                                                     
not very often everyone is there at the same time and they                                                                      
want to try and maximize the use of the space. As Ms. Varni                                                                     
had said, there were plenty of spaces for everyone to park,                                                                     
whether it be in the Linny Pacillo Parking Garage directly                                                                      
across the  street or in  the Atwood Building underground                                                                       
garage.                                                                                                                         
                                                                                                                                
SENATOR MACKINNON expressed her concern that there be a few                                                                     
spots dedicated for use by Legislators and asked that her                                                                       
concern be considered.                                                                                                          
                                                                                                                                
CHAIR STEVENS invited Mark Pfeffer to  address Council at                                                                       
the request of  Representative Millett, who had questions                                                                       
for Mr. Pfeffer who said he had not  planned to be at the                                                                       
meeting but was asked to do so.                                                                                                 
                                                                                                                                
REPRESENTATIVE MILLETT asked Mr. Pfeffer to  walk Council                                                                       
through  how  we  got here.  She  said  she  was  new  to                                                                       
Legislative Council and this building had preceded her. She                                                                     
said she  understood that at  one point  that we were  in                                                                       
negotiation to purchase the building when we started doing                                                                      
building improvements. She said it would be helpful to walk                                                                     
through that history.                                                                                                           
                                                                                                                                
MARK PFEFFER said that  the Legislature had occupied this                                                                       
building for  a  little  over 22  years;  first under  an                                                                       
original procurement in 1992 or  93 and  then a follow-on                                                                       
procurement in 2003 and 2004. The last procurement was for                                                                      
a five year lease with five one-year options to renew. He                                                                       
said he was  not an owner of the  property through all of                                                                       
that but  was asked  for help  in trying to  find a  path                                                                       
forward for the Legislature by the building owner Bob Acree                                                                     
and he eventually became a partner with Mr.  Acree in the                                                                       
building. Through the first five years and  the five one-                                                                       
year  options,  the   Legislature  issued  numerous  RFIs                                                                       
(Requests for Information) that were all published in the                                                                       
newspapers, so like everybody else, he said he watched what                                                                     
was going on. There were several attempts at government-to-                                                                     
government procurements, there were a  couple attempts to                                                                       
     buy buildings and renovate them. Eventually, in May 2013,                                                                  
     the Legislature was down to one year left on the lease and                                                                 
     after 12  procurement attempts with no resulting awardable                                                                 
     contract,  Representative  Hawker,   who  was   Chair  of                                                                  
     Legislative Council at  the time, approached the building                                                                  
     owners and asked if we could provide a proposal for how to                                                                 
     extend the lease.                                                                                                          
                                                                                                                                
     Mr.  Pfeffer  said  that  in  May  2013 they  gave  three                                                                  
     proposals: one was  carpet and paint, with the lease rate                                                                  
     remaining the  same; the second  was carpet, paint, re-do                                                                  
     bathrooms, put in new elevator and some mechanical upgrades                                                                
     and  the lease rate  would moderately tick up;  the third                                                                  
     choice was a full modernization. At that time, the Council                                                                 
     didn't  take any  action but rather  said the  Legislature                                                                 
     should go out for an RFI one more time before they figured                                                                 
     out what they wanted to do. The RFI did go out and they got                                                                
     two responses. In June 2013, the Council met and apparently                                                                
     they had considered those two options and rejected them. At                                                                
     that point, they passed a series of resolutions authorizing                                                                
     Representative Hawker  to negotiate  an extension of  the                                                                  
     lease based on the full modernization approach.                                                                            
                                                                                                                                
     REPRESENTATIVE MILLETT  interrupted to ask  if  it was  a                                                                  
     unanimous vote to go ahead with that authorization. It was                                                                 
     confirmed that it was a unanimous vote.                                                                                    
                                                                                                                                
     MR.  PFEFFER added that there were five motions needed to                                                                  
     make  it happen. One of those  motions was to obtain AHFC                                                                  
     (Alaska Housing Finance Corporation) as the  Legislature's                                                                 
     representative in the discussions. He  said that AHFC had                                                                  
     represented  the   Legislature in   discussions  when  it                                                                  
     attempted to put together a  project on Block 39 with the                                                                  
     Court  System  a  few years  earlier,  so  AHFC had  some                                                                  
     background with the subject and they had the expertise on                                                                  
     staff. Those  motions passed and technically at that time                                                                  
     Representative Hawker was  authorized to execute  a lease                                                                  
     amendment; that's not what he did. He  said Representative                                                                 
     Hawker  then,  along  with  his  staff, had  the  owners,                                                                  
     Legislative Affairs staff and AHFC staff and AHFC's third                                                                  
     party consultants spend about 11 weeks meeting weekly to go                                                                
     over the  details of what the scope should be  - how many                                                                  
     rooms, how  many offices, how many conference rooms, what                                                                  
     kinds of finishes, elevators, security, telecommunications,                                                                
     servers, all the details. He said that by the time that 11                                                                 
     weeks was up it was late August 2013 and by that time, the                                                                 
     scope had been  put out to bid and the numbers were back,                                                                  
     AHFC  had  back-checked those  numbers and  Representative                                                                 
     Hawker brought  that to the Council  and presented all of                                                                  
that information. The Council didn't take specific action                                                                       
because it had already authorized Representative Hawker to                                                                      
execute the lease, so it was a presentation to see if there                                                                     
was any objection to  moving forward. Mr. Pfeffer said at                                                                       
that time there was no objection but there was a motion to                                                                      
request that Representative Hawker attempt to negotiate a                                                                       
purchase option with  the owners.  After that Legislative                                                                       
Council vote in August 2013, it took several weeks to kind                                                                      
of  button up  the  details of  the  lease extension  and                                                                       
amendment. There were two key exhibits to that lease: one                                                                       
was a finding of  the procurement officer that all of the                                                                       
statutes had been met and that was Exhibit C to the lease.                                                                      
Exhibit D to the lease was a certification by the Executive                                                                     
Director that the lease had been reviewed by an appraiser                                                                       
and the lease amount was at least 10% below market rate for                                                                     
a comparable product here in  downtown Anchorage. He said                                                                       
based on that certification and the signed lease, there was                                                                     
then  a  document that  was  executable, which  was  then                                                                       
executed  and  with   that  they  were  able   to  secure                                                                       
construction financing and advance the project.                                                                                 
                                                                                                                                
Mr. Pfeffer said a purchase option was negotiated then and                                                                      
that went to  Legislative Council in 2014 during the last                                                                       
legislative session. He said on their side, they wanted to                                                                      
defer the income taxes that they would have to deal with if                                                                     
there was a sale,  so they suggested that the Council buy                                                                       
the building for the debt amount, which was $28,000,000 and                                                                     
then the $9,000,000 they had in equity would be in the form                                                                     
of a ground lease. The Council didn't like the idea  of a                                                                       
ground  lease, so  did  not take  action  on that  signed                                                                       
agreement. In  response to  a question  by Representative                                                                       
Millett, Mr. Pfeffer confirmed that a "ground lease" meant                                                                      
they would still  own the land and  the Legislature would                                                                       
lease the land. He continued that the Legislature would buy                                                                     
the building and there would be a fixed price option to buy                                                                     
the land at a future date.                                                                                                      
                                                                                                                                
SPEAKER CHENAULT asked if what Mr. Pfeffer meant was that                                                                       
in 2014 at  a Legislative Council meeting, a proposal was                                                                       
put together that Legislative Council could have bought the                                                                     
building  for the  cost  of  the  renovations, which  was                                                                       
$28,000,000; and then the owners wanted to lease the land                                                                       
for tax  purposes back to the  State for approximately 10                                                                       
years and then the Legislature could have bought the land                                                                       
at fair market value.                                                                                                           
                                                                                                                                
MR. PFEFFER said that the way the numbers really worked was                                                                     
that  the  total  project cost  was  $44.5  million,  the                                                                       
Legislature put in $7.5 million, which left $37 million of                                                                      
     cost and they had $9 million of cash that they put into it                                                                 
     and  they borrowed $28 million. He said that's the reason                                                                  
     that, today, they've said  they'll sell it at their cost,                                                                  
     which is $37 million with the land. He said last year there                                                                
     was  no action taken  by Council but  there was a  lot of                                                                  
     concern about buying the building without buying the land.                                                                 
     Now,  given  the   fiscal reality,  we  recognize  that's                                                                  
     important to the Legislative Council so they've agreed that                                                                
     they would sell the building and the land. He said they've                                                                 
     asked  to sell the  building at their cost,  which is $37                                                                  
     million. He said there is a prepayment penalty because they                                                                
     are now  on their long-term loan; last year, they were on                                                                  
     their  construction loan  and  there would  have been  no                                                                  
     prepayment amount if the sale had occurred last year.                                                                      
                                                                                                                                
     SENATE PRESIDENT MEYER thanked Mr. Pfeffer for the history                                                                 
     because  during that time  period, he  served off  and on                                                                  
     Legislative Council. He said that there used to  be a bar                                                                  
     here, Anchor Pub, and they were pretty anxious to get that                                                                 
     out of the way, there'd been some problems.                                                                                
                                                                                                                                
     MR.  PFEFFER confirmed  that was  so and  said  there was                                                                  
     literally  blood on  the  street. He  confirmed that  the                                                                  
     Auditorium used to be the Anchor Pub.                                                                                      
                                                                                                                                
     SENATE PRESIDENT MEYER said  he had advocated for leasing                                                                  
     instead of buying because his friend Charles Wohlforth and                                                                 
     Senator MacKinnon were all on the  Anchorage Assembly back                                                                 
     in the 1990s when the State bought the Atwood Building and                                                                 
     took that off the tax rolls, which essentially then raises                                                                 
     the property taxes for the rest of the folks in Anchorage.                                                                 
     He said he was not a fan of buying this building and taking                                                                
     it off  the tax rolls. Also, he said he thought it was in                                                                  
     the  Anchorage 2020  Plan that  government buildings stay                                                                  
     downtown, so we were limited on where we could go. That's                                                                  
     why  the  Courthouse, the  Federal  Building, the  Atwood                                                                  
     Building, City Hall, all government buildings are downtown.                                                                
     He said there was not much space available and some wanted                                                                 
     to lease versus buy. Others he remembered said that if the                                                                 
     Legislature was going to stay at this location, let's make                                                                 
     it  big enough that if  a special session occurred, which                                                                  
     happened just last year, it could be held here. He said the                                                                
     history of this and how it's evolved is very complex and he                                                                
     doesn't  think  it's ever  been  fully  described, so  he                                                                  
     appreciated Mr. Pfeffer enlightening Council and the rest                                                                  
     of  the folks here. He said he  appreciated everything Mr.                                                                 
     Pfeffer has done to  try to work with the Legislature and                                                                  
     we're not an  easy group to work with because we all have                                                                  
     different opinions as you're hearing. He said he's not sure                                                                
what's going to  happen here, but he wanted to  thank Mr.                                                                       
Pfeffer  for  his  time  and  patience  in  working  with                                                                       
Legislative Council over all these years.                                                                                       
                                                                                                                                
REPRESENTATIVE JOHNSON  said  he  wanted to  clarify  the                                                                       
addendums to  the  lease. He  said  there  was one  where                                                                       
Legislative Council and the Agency, the LAA staff, got an                                                                       
independent appraisal that it was 10% below market value,                                                                       
and that was an addendum to the lease, correct?                                                                                 
                                                                                                                                
MR. PFEFFER confirmed that was so, and went on to further                                                                       
explain that  it  was an  independent appraisal that  was                                                                       
ordered by AHFC. Under the  statute under which the lease                                                                       
extension was done, a lease can be  extended if the lease                                                                       
rate is at  least 10% below market value. In the  case of                                                                       
that appraisal, the  question was is  there 64,000 square                                                                       
feet downtown with parking dedicated on site. He  said he                                                                       
believed if Council reviews that appraisal, what they'd see                                                                     
is that in order to accomplish that, the market comparable                                                                      
would have to be  created. The appraisal analyzed what it                                                                       
would cost to do that and  then it analyzed what it would                                                                       
cost to renovate the existing building and the difference                                                                       
was 13%  lower to renovate. The appraisal itself  was not                                                                       
attached to the lease, he didn't believe, but there was a                                                                       
certification  signed  by  the   LAA  Executive  Director                                                                       
referring  to  the  appraisal saying  that  it  had  been                                                                       
reviewed,  it  had  been  back-checked and  it  had  been                                                                       
certified that the lease rate was 13% below market value.                                                                       
In  response to  a  follow-up question  by Representative                                                                       
Johnson, Mr.  Pfeffer said  that was  from  AHFC and  the                                                                       
Legislature. Mr.  Pfeffer added  that  the owners  didn't                                                                       
actually know what that appraisal was going to  say until                                                                       
after they had laid out their total costs after putting the                                                                     
project out to bid, developed the lease rate and presented                                                                      
that  to  Legislative Council;  subsequent to  that,  the                                                                       
appraisal came in, so they weren't targeting a number based                                                                     
on the appraisal.                                                                                                               
                                                                                                                                
SENATOR HOFFMAN asked about the provision that the Chairman                                                                     
talked about, a clause or an option in the lease that says                                                                      
that the Legislature can terminate the lease by not funding                                                                     
it. He asked Mr. Pfeffer to describe how that clause got in                                                                     
the lease and Mr. Pfeffer's interpretation of that clause.                                                                      
                                                                                                                                
MR. PFEFFER said that every government lease - city, state,                                                                     
federal  -  in  every  state  has  a  subject  to  annual                                                                       
appropriation  clause.   He  said   he   would  encourage                                                                       
Legislative Council  to  talk to  the  investment banking                                                                       
community and the commercial banking community to get their                                                                     
     take on the importance and significance of that clause. It                                                                 
     is  a rarely, if ever, used clause because once it's used                                                                  
     that subsequent leases have to be looked at as though they                                                                 
     are basically only a one year lease. So, one would have to                                                                 
     pay the full cost of whatever it is one's leasing basically                                                                
     in  one year because the lessor cannot count  on a longer                                                                  
     term payment schedule. He said there was  probably 200-300                                                                 
     leases around  the state that are  current that have that                                                                  
     clause in it. Landlords and banks and investors invest in                                                                  
     projects for  government knowing that the clause is there                                                                  
     but also knowing that it's virtually never used and if it                                                                  
     is used, it's going to have a significant effect on the way                                                                
     one is  able to do things in the  future. He said he knew                                                                  
     there was a letter out from the Alaska Bankers Association                                                                 
     and he encouraged members to look at that carefully. He did                                                                
     not  request that the letter be written, he  said he just                                                                  
     knew that last year when the Senate didn't appropriate the                                                                 
     lease payments, the bankers were pretty concerned and got a                                                                
     letter out  to Legislative Budget and Audit, and he knows                                                                  
     there have  been a few  other letters from the  investment                                                                 
     banking community since then. The clause exists but it is a                                                                
     tricky credit issue to use that clause.                                                                                    
                                                                                                                                
     REPRESENTATIVE KITO said he understood that the clause has                                                                 
     been used and he didn't know of detrimental impacts to the                                                                 
     ability to enter into leases, so he said he didn't see that                                                                
     as being a challenge here.                                                                                                 
                                                                                                                                
     CHAIR  STEVENS said that he  believed Ms.  Mintz said the                                                                  
     Administration has  used it  two or  three times  and, of                                                                  
     course, the Legislative Council used it once in Juneau as                                                                  
     well.                                                                                                                      
                                                                                                                                
     SENATOR MICCICHE thanked Mr. Pfeffer for being here and for                                                                
     all he'd put up  with throughout this deal. He said people                                                                 
     like to shoot arrows at folks for various reasons; we can't                                                                
     always identify what's in their hearts or in their minds.                                                                  
     He asked if Mr. Pfeffer could list other projects he's done                                                                
     with  municipalities  and  state  government  so  Council                                                                  
     understands he has a background in this kind of business.                                                                  
                                                                                                                                
     MR.  PFEFFER said he  facilitated the Anchorage City Hall                                                                  
     being  renovated in  1992  for the  then-owner  Warehouser                                                                 
     Mortgage Company; eight years later, they were ready to get                                                                
     out of the state, so he bought that building from them and                                                                 
     that's  a  current and  ongoing lease  subject  to annual                                                                  
     funding  clause. He said  he developed the  downtown fire                                                                  
     station, he  developed as a partner the convention center                                                                  
     and the Linny Pacillo garage but those were all done with                                                                  
capital  budget monies,  not  leases. He  has  a  lot  of                                                                       
experience and he is working on other projects in the Lower                                                                     
48  with other  local governments, but  again, those  are                                                                       
capital appropriations.                                                                                                         
                                                                                                                                
SENATOR MICCICHE said that his only point was that this had                                                                     
been a  difficult deal since long  before this particular                                                                       
stage, when this happened and there was no space available,                                                                     
they went with  someone with the experience in developing                                                                       
similar types of properties; it's not that this was a one-                                                                      
time deal for  Mr. Pfeffer, he's got a  lot of applicable                                                                       
experience and he thought that, with the times that we're                                                                       
at,  this is  exacerbating a  difficult situation and  he                                                                       
wanted folk to be aware of that.                                                                                                
                                                                                                                                
VICE CHAIR HERRON said that with regard to exercising the                                                                       
right to  termination which is in the  contract, this was                                                                       
probably the  crux  of the  whole decision.  He said  the                                                                       
Legislature had used it in the past, it was the Behrend's                                                                       
Building, and it was in the last year of the lease and the                                                                      
lease  was  $300,000. They  sued  and we  paid  them  off                                                                       
$300,000, so the Legislature didn't win that legal battle.                                                                      
He said he spoke with Angela Rodale, the executive officer                                                                      
of the Permanent Fund, and her caution to the Legislative                                                                       
Council is, again, that if we exercise this right, members                                                                      
have to realize the potential problems that could come down                                                                     
the  road. So,  using  the Alaska  Permanent Fund  as  an                                                                       
example, in our near future, hopefully within seven years,                                                                      
we could ask the Permanent Fund, if they're interested in                                                                       
investing in it, other people would like to invest in it,                                                                       
but if  we do  exercise that right, it  will always be  a                                                                       
concern not only to the Permanent Fund but to other people                                                                      
that wish to invest in Alaska. He  said we can talk about                                                                       
all  these  scenarios, and  the  history, etc.,  but  the                                                                       
decision is about do we really want to exercise that right                                                                      
or try to figure something out, some other alternative.                                                                         
                                                                                                                                
MR. PFEFFER said they've gone on the record as saying that                                                                      
they realize that the fiscal situation is different today                                                                       
than when the decision to ask us to do this was made. So,                                                                       
their mantra has been let's find a pathway to savings. They                                                                     
know the  Legislature needs to  save money,  they believe                                                                       
there are numerous ways  to do that where  we don't incur                                                                       
what comes from using that clause, sort of as described by                                                                      
Representative  Herron.  In  a   way  that   they're  not                                                                       
necessarily profiting but they're also  not taking a  big                                                                       
financial hit, so he thought Council had some alternatives                                                                      
in front of them. He knows Mr. Mitchell from Department of                                                                      
Revenue is on the line and he'd seen that hand out and that                                                                     
     definitely looks  like a pathway  to savings. He  said he                                                                  
     knows that AIDEA was  present and they had some ideas. He                                                                  
     said they have put some other options on the table; their                                                                  
     debt is fully assumable, so there are numerous ways to do                                                                  
     it,  but there just hasn't really  been a robust dialogue                                                                  
     about  that. He  encouraged Legislative Council to  get a                                                                  
     committee or team of folks to have that dialogue with them                                                                 
     and they are happy to do that as soon as possible.                                                                         
                                                                                                                                
     REPRESENTATIVE MILLETT asked Mr. Pfeffer if  he felt like                                                                  
     there had been a robust enough conversation and negotiated                                                                 
     with him or talked to him about some of the other options.                                                                 
     She asked if the dialogue had been back and forth or if he                                                                 
     had just been given a  set of options - scenario 1, 2, 3,                                                                  
     and 4  - and left with no other options. She asked if she                                                                  
     could request from him  if he did have other options, she                                                                  
     wanted to  see them. She  said she felt it  was unfair if                                                                  
     Council made  a decision without all the information. She                                                                  
     said she was starting to feel like she just walked in the                                                                  
     door and she gets these options that she hasn't seen before                                                                
     that maybe she's not getting the full picture. She said she                                                                
     would  hate to make  a decision being  new to  Legislative                                                                 
     Council and just getting involved in this. She had been on                                                                 
     the  record  saying  that  she  wanted  to  do  the  most                                                                  
     inexpensive thing and make sure that the fiscal house is in                                                                
     order, but  she said she also  did not want to  end up in                                                                  
     continued lawsuits about things that may hurt the State's                                                                  
     credit  rating, that may  make the  State an  unreasonable                                                                 
     partner in business. She said protecting the State was the                                                                 
     utmost  responsibility, also managing the fiscal deficit.                                                                  
     She repeated her question to Mr. Pfeffer about whether he                                                                  
     felt there had been enough dialogue and was he willing to                                                                  
     continue that dialogue if Council was to hold off on making                                                                
     a  decision  with  the  only  scenarios that  we've  been                                                                  
     presented today. She asked if there was an opportunity to                                                                  
     still continue looking at  some of these options that she                                                                  
     just got this morning that she didn't know were out there.                                                                 
     She said it was frustrating at best.                                                                                       
                                                                                                                                
     MR.   PFEFFER  said   he   would  not   characterize  the                                                                  
     conversations to date as robust and back-and-forth. He said                                                                
     there was one meeting in July 2015 where he offered to sell                                                                
     the  building for the owners' cost. There was a follow-up                                                                  
     meeting in September where he was asked if they could do it                                                                
     less than the owners' cost and he said he begrudgingly said                                                                
     no, he  didn't think that was appropriate. He said he was                                                                  
     asked to do this level of improvements, it was back-checked                                                                
     and  certified before he spent the  money, so he  said he                                                                  
     thought the number should be  the cost. That was the last                                                                  
thing he  heard until the memo got  laid on the  table in                                                                       
November before the  last Legislative Council meeting. He                                                                       
said he never saw that memo before it went out, he didn't                                                                       
know what it said, and only  saw it after the fact. Since                                                                       
then, he knows that the sheet that  Representative Millett                                                                      
held up he believes came from Department of Revenue, he had                                                                     
nothing to do with it. He said he had  seen it and all it                                                                       
does is take the dollar amount that we said we would sell                                                                       
the building for and show different ways to analyze how the                                                                     
Legislature would deal  with that  dollar amount to  find                                                                       
savings. He said he knows AIDEA has done the same thing on                                                                      
their own  and he believed AHFC  has some ideas, but  all                                                                       
that's in that memo is the debt service schedule for how to                                                                     
pay  off $37,950,000 over  10  years. He  said he  didn't                                                                       
believe all the options have been looked at. He added that                                                                      
he was happy to meet and continue a dialogue.                                                                                   
                                                                                                                                
SENATE PRESIDENT MEYER said that Ms. Varni shared quite a                                                                       
laundry list of problems with the building. He said it was                                                                      
certainly understandable that there's always a punch list                                                                       
after there's been a major renovation done. He said one of                                                                      
the Council's concerns was the Auditorium itself; sometimes                                                                     
meetings include an executive session and the noise carries                                                                     
over into the halls. He asked if Mr. Pfeffer had been made                                                                      
aware of the problems.                                                                                                          
                                                                                                                                
MR.  PFEFFER  said  that  he  checked with  his  property                                                                       
management person and they are responsible for maintaining                                                                      
the mechanical systems in  the building. There  have been                                                                       
service calls with regard to that and his people get right                                                                      
on them. He asked if there was a good email record of back-                                                                     
and-forth call response and it was his understanding that                                                                       
there was although he hadn't dove into the details of that.                                                                     
With regard to other things, whenever a project like this                                                                       
is  finished,  he  gets a  one  year  warranty  from  the                                                                       
contractor that he hired and so there's a warranty period                                                                       
under which he can go  to the contractor about issues and                                                                       
they'll take care of it.  In order for him to do  that he                                                                       
needs to know what the issues are. He said he hadn't had a                                                                      
lot of communication about that. He heard a list that was                                                                       
shared at the last Legislative Council meeting, some of the                                                                     
deficiencies, and said that's really the first he had heard                                                                     
of it  other than the mechanical service calls.  That one                                                                       
year warranty is up December 31, 2015, so  two weeks; but                                                                       
having said that, he said they would honor an extension of                                                                      
that and they would get in here and take care of whatever                                                                       
needs to be done.  In response to a follow-up question by                                                                       
Senate President Meyer, Mr. Pfeffer said that he thought it                                                                     
was possible to better sound proof the Auditorium.                                                                              
                                                                                                                                
     REPRESENTATIVE MILLETT  asked Mr.  Pfeffer that  when the                                                                  
     Auditorium was built  and the other conference rooms were                                                                  
     built, was sound-proofing part of the specs he had.                                                                        
                                                                                                                                
     MR.  PFEFFER said  that in  the  specifications that they                                                                  
     prepared with the Legislature's consultants, there were STC                                                                
     ratings -  Sound Transfer Coefficient ratings. He said he                                                                  
     knows  all the  walls  and ceilings  meet and  exceed STC                                                                  
     ratings for these kinds of rooms. Where he thought it fell                                                                 
     apart was with the glass doors and with the crack between                                                                  
     the doors. In terms of everything else, he thought it was                                                                  
     all workable. He said they would take a look at the glass                                                                  
     doors because any time there is a crack, there's going to                                                                  
     be  sound through that crack. In  response to a follow-up                                                                  
     question from Representative Millett, Mr. Pfeffer said the                                                                 
     Auditorium  wasn't supposed  to  be  sound-proof, it  was                                                                  
     supposed to  be a room with  the right STC ratings, which                                                                  
     doesn't mean sound-proof. To get it sound-proof, the doors                                                                 
     would need to be replaced.                                                                                                 
                                                                                                                                
     REPRESENTATIVE JOHNSON said that just  for the record his                                                                  
     new window in his office in Juneau actually leaked and had                                                                 
     to  be fixed, so  that window  is considerably newer than                                                                  
     anything in this building and it was leaking.                                                                              
                                                                                                                                
     CHAIR STEVENS thanked Mr. Pfeffer for taking the time to be                                                                
     here today.                                                                                                                
                                                                                                                                
     REPRESENTATIVE JOHNSON asked if Mr. Pfeffer would be able                                                                  
     to  please  stick around  in  case there  were  additional                                                                 
  questions. Mr. Pfeffer indicated he would be available.                                                                       
                                                                                                                                
     CHAIR STEVENS asked Ms. Varni and Mr. Gardner to return to                                                                 
     the testifier's table. He asked if there was any response                                                                  
     to  what had been discussed in the previous testimony. He                                                                  
     said  he would  be particularly interested in  information                                                                 
     about exercising the right to termination or anything else                                                                 
     they would care to speak to.                                                                                               
                                                                                                                                
     DOUG GARDNER, Director of Legal Services, said that he has                                                                 
     discussed the termination clause language with Legislative                                                                 
     Council on a number of occasions and it's all been within                                                                  
     executive session. He said that present in the audience was                                                                
     Mr. Jim Gottstein, an opponent of the Legislature in some                                                                  
     litigation, so he  said he would tailor his comments with                                                                  
     that in mind.                                                                                                              
                                                                                                                                
CHAIR STEVENS  said that  if Mr.  Gardner thought Council                                                                       
needed to enter into an executive session because of legal                                                                      
issues, to please advise him. As much as possible he wanted                                                                     
to be on the record since this has gone on forever and it                                                                       
could go on forevermore; because members don't come to some                                                                     
meetings and when they do come, they have more questions,                                                                       
and this could just extend for the next 10 years as it has                                                                      
extended for the last 10 years.                                                                                                 
                                                                                                                                
MR. GARDNER said he would respond in a way that he thought                                                                      
was appropriate. The lease is public and mentions the right                                                                     
to termination on a number of occasions. He said he agreed                                                                      
with Mr. Pfeffer on  a couple of points, one is  that the                                                                       
Legislature does have  the right to  exercise the clause;                                                                       
it's in  the  lease, and  it's in  the lease  in multiple                                                                       
places, not in some hidden fine print at the bottom. It has                                                                     
to be in  the lease, as Mr. Pfeffer observed, it's in all                                                                       
the leases that the  State has. It's there because future                                                                       
legislatures cannot be bound and  it's there because long                                                                       
term state debt cannot be contracted. It's a vehicle that                                                                       
allows termination for an appropriation decision; and this                                                                      
is a quintessential appropriation discussion. The question                                                                      
is does  the Legislature have the money to remain  at its                                                                       
current   Anchorage    location   because   of    changed                                                                       
circumstances. He said he didn't want to comment on whether                                                                     
it creates an issue with the State's credit rating or how                                                                       
it may affect other leases; those are policy decisions that                                                                     
the Council needs to make. He said the Legislature has the                                                                      
right to terminate the lease for non-appropriation. He said                                                                     
that as Council works through this, ultimately, if a court                                                                      
were  to  evaluate that,  a  court  would find  that  the                                                                       
Legislature has  that  right  to  do  that.  He  said  he                                                                       
recognized that with Mr. Pfeffer, that's a painful process                                                                      
and one that likely would be avoided if possible, but it is                                                                     
a right the Legislature has nonetheless.                                                                                        
                                                                                                                                
Mr. Gardner said his purpose at being  at the table today                                                                       
was to follow on  from Ms. Varni's presentation that went                                                                       
back over the cash flow analysis that's been presented to                                                                       
Council  before. At  the  last  Council meeting,  several                                                                       
members  asked questions  about the  scenarios that  were                                                                       
presented and they wanted an update on net present value,                                                                       
some issues  related to discount rates and  inflation. As                                                                       
Council is aware, there is a contract with Serena Carlsen,                                                                      
who is a partner with Stoel Rives in Seattle and is online                                                                      
today. Stoel Rives Anchorage represents the Legislature in                                                                      
litigation with Mr. Gottstein. He said also available for                                                                       
questions is Peter Shorett, who he hired to both appraise                                                                       
the Anchorage LIO and to provide Council with a financial                                                                       
     analysis that members have in front of them. Those are the                                                                 
     scenarios  that  say  "Scenario Analysis  for  Legislative                                                                 
     Affairs Building" with a turquoise heading at the top. He                                                                  
     said he  would like to try to efficiently ask a series of                                                                  
     questions  to Peter  Shorett and,  where appropriate, Ms.                                                                  
     Carlsen, and go through these scenarios and to  facilitate                                                                 
     the conversation. He said one of the important things for                                                                  
     the public that is watching and for the members present in                                                                 
     evaluating this is  to understand what the  inputs are to                                                                  
     these models. Financing is all about inputs and some of the                                                                
     assumptions that we've made, he's noticed, may be a little                                                                 
     different than some  of the assumptions that Mr. Mitchell                                                                  
     may talk about and that is  probably a result of different                                                                 
     availability to information.                                                                                               
                                                                                                                                
     CHAIR STEVENS noted for Council members that there are two                                                                 
     documents  Mr.  Gardner  will  be  referring  to  in  his                                                                  
     discussion with Peter Shorett, one at 5% discount rate and                                                                 
     one at 8.25% discount rate.                                                                                                
                                                                                                                                
     MR.  GARDNER said he  was going  to pick the  8.5 percent                                                                  
     discount  as most of  the  remaining variables remain the                                                                  
     same,  so once  members understand the first  spreadsheet,                                                                 
     it's  simple to see what the  difference in the 5 percent                                                                  
     discount rate is to evaluate the second one.                                                                               
                                                                                                                                
     Mr. Gardner confirmed that Mr. Shorett worked at and was a                                                                 
     partner in  Kidder Matthews in Seattle. He confirmed that                                                                  
     Mr. Shorett has been qualified as an expert in court before                                                                
     on matters related to real estate appraisal and the topics                                                                 
     that he  will address this morning. He confirmed that Mr.                                                                  
     Shorett had been listening to the discussion today and that                                                                
     Mr.  Shorett was familiar with the numbers that Ms. Varni                                                                  
     worked  through, which Mr. Gardner described as  the cash                                                                  
     flow  approach to  looking  at how  to  buy  or otherwise                                                                  
     continue  to  lease the  716  W 4th  Avenue  building. He                                                                  
     confirmed that he had hired Mr. Shorett to do an appraisal                                                                 
     of  the building to help understand options to be used by                                                                  
     Legislative Council  to either  purchase the  building or                                                                  
     address the financing of it.                                                                                               
                                                                                                                                
     Mr.  Gardner confirmed that Mr.  Shorett had the Scenario                                                                  
     Analysis for Legislative Affairs Building with the note in                                                                 
     the left that all  scenario variables are at 8.25 percent.                                                                 
     He asked Mr. Shorett to discuss what is a discount rate and                                                                
     why did he use 8.25 percent.                                                                                               
                                                                                                                                
     MR. SHORETT said that a discount rate is a rate of return                                                                  
     that an investor would expect on a real estate investment.                                                                 
It factors the time value of money, which basically is the                                                                      
theory that the value of money you have now is greater than                                                                     
the promise to reach or receive the same amount of money in                                                                     
the future. He said it's  a rate that's used to basically                                                                       
convert the defined cash flow into  a value. He confirmed                                                                       
that, per Mr. Gardner's comment, he assumed for purposes of                                                                     
both models that there would be a 3 percent annual increase                                                                     
in  operating expenses. He  confirmed, in  response to  a                                                                       
question by Mr.  Gardner, that the models are based on  a                                                                       
purchase price of $37,950,000; he agreed to Mr. Gardner's                                                                       
assertion that the price, which the owner had just reduced                                                                      
to $36 million, was based on an original purchase price of                                                                      
$37 million plus the prepayment penalty of $950,000.                                                                            
                                                                                                                                
Mr. Shorett, in response to a question by Mr. Gardner, said                                                                     
he would explain the term "reversion price" in the context                                                                      
of the analysis he did. The analysis he performed based on                                                                      
the  direction  from Mr.  Gardner  in  terms  of  various                                                                       
assumptions is modeling a cash flow, and in looking at the                                                                      
present value of that cash flow over a 10 year period. The                                                                      
"reversion" is a word  that is used to  describe the sale                                                                       
event of a property at the end of a hold. In other words,                                                                       
most sophisticated investors that use discounted cash flow                                                                      
analysis, which  is what  is being  done here, that  make                                                                       
projections for rent, etc.; and then, at the end of that 10                                                                     
year  analysis,  they assume  that  they  will  sell  the                                                                       
property. The investors initially put the money out as  a                                                                       
cash out flow and then, in turn, the property sells. It is                                                                      
the future event of the sale of the property at the end of                                                                      
the tenth year.                                                                                                                 
                                                                                                                                
MR. GARDNER confirmed with Mr. Shorett that, in reference                                                                       
to  Scenario   #3  -   purchasing  with  Certificates  of                                                                       
Participation - that number, when compared to moving to the                                                                     
Atwood Building, those costs begin to look like there might                                                                     
be an advantage potentially to purchase the building, the                                                                       
closer those numbers come together. He confirmed with Mr.                                                                       
Shorett that  the assumption on  the purchase  versus the                                                                       
moving to Atwood is a  way of looking at this transaction                                                                       
but  part of  that  analysis and  that  number means  the                                                                       
Legislature sells the building at the end of 10 years. He                                                                       
confirmed with  Mr. Shorett that  if you  go  through the                                                                       
analysis with net present value, but the Legislature does                                                                       
not sell the  building at the end of 10  years, then it's                                                                       
really costing the price noted in Mr. Shorett's scenario,                                                                       
in this case $14,300,000, plus the amount of the value of                                                                       
the building at the end of the 10 year period. In response                                                                      
to a request for clarification by Mr. Shorett, Mr. Gardner                                                                      
said the assumption is that state governments don't tend to                                                                     
     acquire  buildings and  then sell  them in  a  short time                                                                  
     period, they tend to occupy or own buildings for the long-                                                                 
     term. Given  that assumption, Mr. Shorett agreed that the                                                                  
     value would go  up if that were the case, as described by                                                                  
     Mr. Gardner.                                                                                                               
                                                                                                                                
     MS.  CARLSEN, Partner at Stoel Rives, LLC, interrupted to                                                                  
     say that under these assumptions, the cost would go up but                                                                 
     the value would be in the asset of the building rather than                                                                
     the cash from the building.                                                                                                
                                                                                                                                
     MR. GARDNER said that was a good point and that at the end                                                                 
     of a  Certificate of Participation process, if from a cash                                                                 
     flow  standpoint, you  want  to  get  to  that number  of                                                                  
     $14,300,000, the building needs to  be liquidated. If the                                                                  
     belief is that the building is an asset and the Legislative                                                                
     Council wants to have  that asset instead of money in the                                                                  
     bank, then  the comparison that's closer to moving to the                                                                  
     Atwood,  it makes this  process more  competitive. If the                                                                  
     Legislature  doesn't sell  the building  and  the primary                                                                  
     concern is purely cash flow, then it isn't as competitive.                                                                 
                                                                                                                                
     MS. CARLSEN said that was correct and added that you would                                                                 
     have to  remember that you do still have the value of the                                                                  
     building and you can sell it. She said the second point is                                                                 
     that  this scenario shows the value of the  building in a                                                                  
     general  market  scenario rather  than  as  a  specialized                                                                 
     building.                                                                                                                  
                                                                                                                                
     MR. GARDNER directed to Mr. Shorett that if the assumption                                                                 
     that was discussed earlier on the reversion price, in other                                                                
     words if the  amount that you get for the building at the                                                                  
     end of 10  years, if it is just viewed as an asset on the                                                                  
     books or if  it is sold, the higher that number goes, the                                                                  
     more competitive the purchase is with moving to Atwood. Mr.                                                                
     Gardner reframed his statement to say that Mr. Shorett had                                                                 
     appraised the building without the  lease and without the                                                                  
     lease, the  building is perhaps worth less  than with the                                                                  
     Legislature's lease.                                                                                                       
                                                                                                                                
     MR. SHORETT confirmed that was so and offered the following                                                                
     explanation. The reversion price  represents the value of                                                                  
     the property that he estimated in July 2015. That appraised                                                                
     value was  $20 million. That appraised value assumed that                                                                  
     the State would not be in the building but that there would                                                                
     be  a market  rent paying tenant, not  the rent  that the                                                                  
     Legislature is  currently paying. To further address this                                                                  
     issue, he  said that if that reversion value were higher,                                                                  
     there  would be more  asset value and  the occupancy cost                                                                  
would  become more  in  line with  moving  to the  Atwood                                                                       
Building.                                                                                                                       
                                                                                                                                
MR. GARDNER asked Mr. Shorett if there was an argument to                                                                       
be made that the  reversion price that he had assigned to                                                                       
the building at the end of the 10 years may be a little on                                                                      
the conservative side; that  the Legislature may actually                                                                       
have a more valuable asset at the end of the 10 years. He                                                                       
said perhaps that is a judgment call.                                                                                           
                                                                                                                                
MR. SHORETT said no, it was not a judgment call. There was                                                                      
an answer to that and the answer was that there is value to                                                                     
the State because the building suits their needs, but there                                                                     
probably isn't value  to too  many other tenants in  that                                                                       
market. The State has to look at their real estate a little                                                                     
bit differently than the market might because of the more                                                                       
unique requirements in how the space is laid out.                                                                               
                                                                                                                                
MR. GARDNER asked if the issue was for a higher value of a                                                                      
building like  this. He said  there are  a lot  of public                                                                       
spaces, a lot of large meeting rooms in this building; was                                                                      
the consideration to  purchase a building like  this that                                                                       
this kind of building might be worth more to the State than                                                                     
it might be to a private party. In other words, a business                                                                      
might not  want to  pay as much  to be  in here, but  the                                                                       
Legislature asked  for improvements and,  ultimately, the                                                                       
building is more suited for a public use than it might be                                                                       
for a private space. He asked if  this was a problem that                                                                       
municipalities and states have to  deal with in  terms of                                                                       
valuing an asset.                                                                                                               
                                                                                                                                
MR. SHORETT said it was not uncommon that there's a special                                                                     
purpose-type use building like the Legislature has. He said                                                                     
he  described  it  as  special  purpose  because  of  the                                                                       
Auditorium for  example;  that's  not a  common  type  of                                                                       
improvement for even a lot  of other state buildings. The                                                                       
large lobby  area is another atypical improvement but  it                                                                       
suits the needs of the Legislature, so there's value to the                                                                     
State for those improvements. He said it's not uncommon for                                                                     
other agencies and the like to have a value premium to do                                                                       
their business, so it's kind of the cost of doing business.                                                                     
                                                                                                                                
SPEAKER CHENAULT asked  Mr. Shorett if  a tenant-occupied                                                                       
building would have the opportunity for a higher purchase                                                                       
price than a building that was sitting vacant.                                                                                  
                                                                                                                                
MR. GARDNER, in response to Mr. Shorett's not understanding                                                                     
the Speaker's question, attempted to clarify. He said Mr.                                                                       
Shorett valued the  building at $20 million but  if there                                                                       
     were tenants in the  building, that amount would certainly                                                                 
     be  higher and  asked  Mr. Shorett  if that  was correct.                                                                  
     Speaker  Chenault agreed and  added  if the  building was                                                                  
     occupied or unoccupied, would that make a difference in the                                                                
     reversion price.                                                                                                           
                                                                                                                                
     MR.  SHORETT  said it  would  make a  difference and  his                                                                  
     appraisal was  based on the  assumption that the building                                                                  
     would be occupied by a market rent paying tenant. He said                                                                  
     he  believed he assigned a rent value  to the property of                                                                  
     $3.50 per  square foot. If it  was not occupied, it would                                                                  
     probably have a  lower value because of the need to lease                                                                  
     the  space,  so there  would  be lost  income  and tenant                                                                  
     improvement requirements, and the like.                                                                                    
                                                                                                                                
     MR. GARDNER said he'd like to close by requesting a summary                                                                
     from Mr. Shorett. He said Mr. Shorett knew that Legislative                                                                
     Council was  looking closely at possibly moving to Atwood                                                                  
     versus perhaps financing a  purchase of this building and                                                                  
     let's get  down to the  crux of it.  He asked Mr. Shorett                                                                  
     about the  pros and cons of moving to the Atwood Building                                                                  
     from both a cash flow standpoint and a purchase standpoint,                                                                
     and  what are the pros and cons  based on his analysis of                                                                  
     purchasing the building with Scenario #3 and  Certificates                                                                 
     of Participation.                                                                                                          
                                                                                                                                
     MR. SHORETT said he hadn't been prepped on this and would                                                                  
     try to be as succinct as he could. He said he had been to                                                                  
     the  Atwood  Building but  had  not  seen  the space  the                                                                  
     Legislature is considering. He said he would have to make                                                                  
     the  assumption that  the comparison would  be  apples-to-                                                                 
     apples with  regard to how nice the  space was; the space                                                                  
     that the Legislature is currently in is very nice space. He                                                                
     said he  can't imagine the Atwood is going to be quite as                                                                  
     nice as that. He said that two scenarios were run - 5A and                                                                 
     5B. 5A  was looking at 30,000 square feet that was on the                                                                  
     table  as being  needed by  the Legislature; and  we also                                                                  
     looked at it  as though it was the same square footage of                                                                  
     what of the current space. There is not a  huge difference                                                                 
     between those  two numbers -  $8.5 million and  maybe $11                                                                  
     million, so a couple of million dollars difference. He said                                                                
     he heard the discussion about parking and there was better                                                                 
     parking at the current location. He said at the end of the                                                                 
     day  it is  clearly a  lower cost to  move to  the Atwood                                                                  
     Building  than to  stay at  716 W.  4th Avenue  under the                                                                  
     current  lease. The  numbers don't  actually reflect what                                                                  
     exactly is happening because the scenarios are for 10 years                                                                
     and  the Legislature has already burned one  year off the                                                                  
     lease. If  you look at the cost of  staying in 716 W. 4th                                                                  
Avenue, it is very significant, it's $27 million, under the                                                                     
current contract. It appears that the financing options are                                                                     
very  attractive, but there  is a  downside to  financing                                                                       
although he was surprised at how close the numbers were. He                                                                     
said there are three  main components of expenses or cash                                                                       
outflow. One  is  the  debt service,  the  second is  the                                                                       
operating cost, and the last is the purchase price and then                                                                     
the sale of the property. The Legislature has the ability                                                                       
to  borrow at  such a  low rate  that it  makes borrowing                                                                       
extremely attractive. He said that the problem is that with                                                                     
a purchase price of $37.9 million and the Legislature only                                                                      
receives a  reversionary benefit at the end  of something                                                                       
that is considerably less, then the Legislature will incur                                                                      
a loss. One of the things that this covers up, the purchase                                                                     
with fixed rate bonds or certificates of participation, is                                                                      
the deferral of that loss for 10 years; and that has to do                                                                      
with the  time value of  money. He said, in  other words,                                                                       
instead of incurring that loss now and writing a check for                                                                      
$37.9 million, the Legislature is deferring that.                                                                               
                                                                                                                                
VICE  CHAIR  HERRON   said  to  Mr.   Gardner,  just  for                                                                       
clarification, let's return to September 19, 2013, letter                                                                       
that Ms.  Varni signed, and  that he assumed  Mr. Gardner                                                                       
prepared, that's certifying that the appraisal that we had                                                                      
was the value at that time.                                                                                                     
                                                                                                                                
MR. GARDNER said that was  correct. That letter was based                                                                       
wholly on the appraisal done by Tim Lowe that AHFC worked                                                                       
through. That's a number that was delivered to both he and                                                                      
Ms.  Varni; and they  asked Mr.  Lowe a  number of  brief                                                                       
questions before  they worked  through the  September 19,                                                                       
2013, letter. He  said the  issue with this  appraisal is                                                                       
that's the  value  of the  building with  the Legislature                                                                       
occupying it with a fairly robust lease for a public space.                                                                     
That is not necessarily the same as the valuations that Mr.                                                                     
Shorett's talking about.  The letter  is accurate and  he                                                                       
doesn't have a reason to believe the Lowe appraisal isn't                                                                       
accurate, but the  appraisal views the building  with the                                                                       
Legislature leasing  it;  if  we  leave, then  there  are                                                                       
different numbers that have  to be  addressed. The amount                                                                       
that someone would pay to lease it would be a market rate;                                                                      
we have a rate that includes the improvements that we asked                                                                     
Mr. Pfeffer to put in. He said he respected Mr. Pfeffer, he                                                                     
worked with him a lot and Mr. Pfeffer did what he said he                                                                       
was going to  do. He  built the building that Legislative                                                                       
Council asked for, but as  a public space, more expensive                                                                       
than it would be as a law firm or a bank or something like                                                                      
that. He asked Ms. Carlsen if she thought that was a fair                                                                       
response to Vice Chair Herron's question.                                                                                       
                                                                                                                                
     MS. CARLSEN agreed that it was. Clearly, the building would                                                                
     not  have been built  at the cost  that was spent  if the                                                                  
     Legislature was just going to go out and get a market rate                                                                 
     rent.                                                                                                                      
                                                                                                                                
     REPRESENTATIVE JOHNSON said he is still having trouble with                                                                
     the apples-to-apples comparison on 10 years. If we own the                                                                 
     building, it's a 40 year building, why aren't we amortizing                                                                
     it  over 40 years instead of 10; what did  that do to the                                                                  
     numbers.  He  directed a  question to  Mr.  Shorett about                                                                  
     whether he had ever done something like this on a 10 year                                                                  
     basis; is 10 years standard or is it longer term.                                                                          
                                                                                                                                
     MR.  SHORETT said that was a  very good question. He said                                                                  
     this was the term he was asked to consider; however, he did                                                                
     look at longer term financing and the relationship between                                                                 
     the  numbers  don't  change considerably.  Obviously, the                                                                  
     numbers go up is what happens. At the end of the day, the                                                                  
     Legislature is buying a $30+ million building and the value                                                                
     has to be realized over a period of time. This is a little                                                                 
     bit  different scenario  because it's  an  occupancy cost                                                                  
     analysis, it's not an appraisal of the property.                                                                           
                                                                                                                                
     MS. CARLSEN interrupted to say she just wanted to make it                                                                  
     clear  that Mr.  Shorett did use  a  20 year  amortization                                                                 
     period in the scenarios before Council. While the cost are                                                                 
     looked at in a 10 year period, which was chosen because the                                                                
     lease was for a 10 year period; but the amortization of the                                                                
     building has been done on 20 years, which is a market-based                                                                
     look at amortizing a building.                                                                                             
                                                                                                                                
     CHAIR  STEVENS  said  as  Council  will recall,  we  have                                                                  
     scenarios for a  20 year period and the 10 year scenarios                                                                  
     were used because the lease was for 10 years, allowing for                                                                 
     an apples-to-apples comparison.                                                                                            
                                                                                                                                
     REPRESENTATIVE JOHNSON said he wasn't sure he agreed with                                                                  
     that statement. He said that comparing a 10 year lease with                                                                
     a 10 year purchase isn't even in the same vegetable group,                                                                 
     much less apples-to-apples. He said we are really talking                                                                  
     about cash flow in a time when we don't have a lot of cash,                                                                
     so in terms of cash flow and the price per square foot, to                                                                 
     do a  10 year comparison with a 30 year comparison doesn't                                                                 
     make sense. For example, a cost per square foot of $7.41,                                                                  
     if taken over  30 years, the cost of the building is paid                                                                  
     for and after that it's the cost of maintenance and upkeep,                                                                
     so that needs to be figured on that cost per square foot if                                                                
     we're going to  have a legitimate conversation about cost.                                                                 
He said  in the  20, 30, and  40 year scenarios  when the                                                                       
Legislature is  paying $1.70  or $1.60  per square  foot,                                                                       
what's that going to look like. If Legislative Council in                                                                       
30 years is looking at this and saying we're paying $1.70                                                                       
per square foot and you look around, that's going to be a                                                                       
pretty sweetheart deal. He said he thinks we need to look                                                                       
at cash  flow and he doesn't think anything in  here does                                                                       
that.  Hopefully with  Deven  Mitchell and  AIDEA,  maybe                                                                       
there's an opportunity to look at those numbers and we can                                                                      
compare strawberries-to-apples, which is  what he  thinks                                                                       
needs to be done.                                                                                                               
                                                                                                                                
MR.  GARDNER  asked  if  Mr.  Shorett  could  respond  to                                                                       
Representative Johnson's point. He asked Mr. Shorett what                                                                       
is the impact, to the extent he  knows, on cash flow over                                                                       
time. If the building is purchased over a 30 year period,                                                                       
what do the Legislators have to confront then each year in                                                                      
their budget from a cash flow standpoint.                                                                                       
                                                                                                                                
MR.  SHORETT confirmed that  all the  attachments to  his                                                                       
spreadsheets were handed out to Council. He said that his                                                                       
answer is that  if members look at each  of those sheets,                                                                       
then for leasing, staying in the 716 W. 4th Avenue building                                                                     
is $4,032,000 annually. In the second scenario, it's $1.26                                                                      
million; third is $2.5 million, and you can see the numbers                                                                     
are there.                                                                                                                      
                                                                                                                                
MR.  GARDNER  clarified that  he  believes Representative                                                                       
Johnson's concern is  have we  analyzed what a  cash flow                                                                       
would look like if we purchased this building over a longer                                                                     
period of time and what does that  do to the annual total                                                                       
cost from a cash flow perspective.                                                                                              
                                                                                                                                
MR. SHORETT said that the longer you  stretch out a loan,                                                                       
the lower the debt payments are. Your operating costs are                                                                       
consistent. It really depends upon the assumptions that are                                                                     
used. He said he  didn't know what vehicles would be used                                                                       
for financing. If it was bond financing, you're paying it                                                                       
back in a lump sum. If it was Certificates of Participation                                                                     
financing, you're paying principle and interest. He said he                                                                     
didn't know how long those debt loads could be carried.                                                                         
                                                                                                                                
MS. CARLSEN  asked if it  was fair to  say that  it would                                                                       
depend on over what period of time do you want to pay the                                                                       
purchase  price. Once  you've  paid  the purchase  price,                                                                       
obviously the cash flow price goes way down because it is                                                                       
just operating expenses at that point. It goes back to the                                                                      
discussion about  deferring when  the  purchase price  is                                                                       
actually paid. There  was a short  discussion between Ms.                                                                       
     Carlsen and Mr. Shorett clarifying the details. Ms. Carlsen                                                                
     then  said that if the debt  payment was stretched over a                                                                  
     longer  period of time,  there is more  interest, but the                                                                  
     actual out of pocket every year goes down.                                                                                 
                                                                                                                                
     REPRESENTATIVE JOHNSON said that under any of the scenarios                                                                
     where the Legislature purchases the building, in year 2036,                                                                
     we  would only be  paying $525,000 per  year adjusted for                                                                  
     inflation to be in this building. In year 2036, we would be                                                                
     paying under $1 per square foot and is that or is it not a                                                                 
     good deal.                                                                                                                 
                                                                                                                                
     MS.  CARLSEN said in  some ways it's  the situation being                                                                  
     faced  in  the  Atwood Building  right  now  because that                                                                  
     building is  paid for. So  all you have  is the operating                                                                  
     expenses.                                                                                                                  
                                                                                                                                
     MR. GARDNER asked if, ultimately, under any of the purchase                                                                
     scenarios, the  Legislature would have  the value  of the                                                                  
     asset. If the Legislature sold it, there would be cash in                                                                  
     the pocket; if they valued the asset on the State's balance                                                                
     sheet as the building as it is right now, that asset would                                                                 
     be owned by the State. Under any of the purchase scenarios,                                                                
     the cash outlay would have to occur each year to make the                                                                  
     purchase, so there would be a cash flow on the purchase, so                                                                
     you realize the gain at the end. It is either sold or it is                                                                
     an  asset on  the balance sheet. Ms.  Carlsen agreed. Mr.                                                                  
     Gardner repeated that each year, the Legislature would need                                                                
     to appropriate the sufficient amount to purchase it, which                                                                 
     is in Mr. Shorett's analysis.                                                                                              
                                                                                                                                
     MS. CARLSEN said that was correct and it just depended upon                                                                
     how the purchase was financed. That number changes based on                                                                
     how it was financed and over what period of time.                                                                          
                                                                                                                                
     MR.  GARDNER said that Representative Johnson's point was                                                                  
     that once the building was paid for, then you start reaping                                                                
     the  kind of savings that  are consistent with the Atwood                                                                  
     Building. Ms. Carlsen agreed.                                                                                              
                                                                                                                                
     SENATOR MICCICHE said he  felt that we were softening the                                                                  
     value of ownership of the asset. Someone made the statement                                                                
     earlier that we do  have the value in the building and we                                                                  
     can sell it if  we were to purchase this building. He said                                                                 
     he  noticed the ownership value remains at $37,950,000 and                                                                 
     that there is no escalation in that value over a 20 or 30                                                                  
     year note period. He asked how would escalation in value be                                                                
     applied and assume a  reduced long-term per square footage                                                                 
     cost.  He  further asked  how  that would  be  applied in                                                                  
understanding which is the right way to go at a lowest cost                                                                     
per square foot basis.                                                                                                          
                                                                                                                                
Discussion  followed  between  Mr.  Gardner  and  Senator                                                                       
Micciche  in an  attempt  to  clarify  Senator Micciche's                                                                       
question.                                                                                                                       
                                                                                                                                
SENATOR MICCICHE said he wanted to know how to capture the                                                                      
inflation in  the value  of an  asset as  they make  this                                                                       
analysis considering we'd be  holding a  real asset as  a                                                                       
state that could be sold. There's no ownership value in the                                                                     
Atwood  since it  is  already  owned. There  would  be  a                                                                       
substantial ownership value somewhere above $37,950,000 at                                                                      
the end  of a  financing term, whether that be  20 or  30                                                                       
years.                                                                                                                          
                                                                                                                                
MR. SHORETT  said it really depends  upon the assumptions                                                                       
that are made. The assumptions that he has made, which are                                                                      
reflected in  the  reversion price,  is  the $20  million                                                                       
escalated at three  percent a year.  Most investors, when                                                                       
they do a cash flow model, use three percent a year, it's a                                                                     
very common escalator factor. Now, if you're looking at it                                                                      
from an owner/investor prospective and you want to  be in                                                                       
the building, then you might use  a different number than                                                                       
$20 million. At the $37,950,000 price, you have a  lot of                                                                       
ground, a lot of years to make up to get to that number if                                                                      
you use the $20 million figure. He said if you're assuming                                                                      
that you're not in the building, than you have 25-30 years                                                                      
before  you get  there.  The other  thing  to factor  and                                                                       
recognize is  that it's not  going to  be a  new building                                                                       
anymore. Right  now, it's  almost a  brand  new building,                                                                       
subject  to  some renovation  of  the building;  but  the                                                                       
condition and quality of the building will be considerably                                                                      
less in 25-30 years than it is today.                                                                                           
                                                                                                                                
MR. GARDNER said that in Mr. Shorett's appraisal, he also                                                                       
looked at the replacement costs of the building. That is a                                                                      
different value.                                                                                                                
                                                                                                                                
MR. SHORETT said that  the building is so unique  that he                                                                       
looked at how much it would cost to recreate that building;                                                                     
not rebuild it  in the same  site, but to find  a similar                                                                       
site, similar land, and  recreate the building there. The                                                                       
cost numbers when he added the cost to develop, provided a                                                                      
reasonable  developer's  profit,  before   assigning  any                                                                       
depreciation to it, was somewhere around $35 million. When                                                                      
he came to look at it from the prospective of the current                                                                       
building, recognizing that it is  not a  new building and                                                                       
that there are some  dated components of the building; he                                                                       
     believed he took a 10 percent depreciation off and came up                                                                 
     with a  lower number. That contrast what was actually paid                                                                 
     for the building, or reported to be paid, of $44.5 million                                                                 
     and  the big  difference there is that  they were working                                                                  
     around an  existing building as opposed to starting fresh                                                                  
     from scratch.                                                                                                              
                                                                                                                                
     MR.  GARDNER said if you used  that number as a reversion                                                                  
     value, if you can do so, what does that do to giving weight                                                                
     to the ownership of the asset at the end in terms of making                                                                
     this more attractive from a purchase standpoint.                                                                           
                                                                                                                                
     MR. SHORETT said it raises it  considerably. It brings the                                                                 
     value  of the  property, assuming that  it's going  to be                                                                  
     reverting  back to  you, to  a price  point that  is more                                                                  
     consistent to the price that you are actually paying. So if                                                                
     he were to put in the price that you were actually going to                                                                
     pay  into the reversion, the cost  of ownership goes down                                                                  
     considerably and the  cost of ownership then  is just the                                                                  
     cost of financing.                                                                                                         
                                                                                                                                
     SENATOR MICCICHE said that was  the answer he was looking                                                                  
     for. He  does think there is real value in ownership, not                                                                  
     saying that's the way he is going, but he does think it's                                                                  
     something Council has to  carefully understand before they                                                                 
     make the decision.                                                                                                         
                                                                                                                                
     REPRESENTATIVE KITO said he thought we might be talking a                                                                  
     little too far ahead of ourselves. The people of Alaska do                                                                 
     own the Atwood Building. It may not be the Legislature but                                                                 
     it  is the Administration. In this time when we're asking                                                                  
     everybody to tighten their belts, it's not well-advised for                                                                
     the Legislature to be looking at buying a new building when                                                                
     we can get  past that purchase price already in the Atwood                                                                 
     and pay  basically the operating costs, post-purchase, for                                                                 
     space in that building. We avoid the expenditure of the $37                                                                
     million for the  State of Alaska and we're in a situation                                                                  
     where we are just paying for the operating costs.                                                                          
                                                                                                                                
     REPRESENTATIVE MILLETT asked how much money has been spent                                                                 
     to renovate the Capitol Building in Juneau. She asked if we                                                                
  should we stop that renovation too because we're broke.                                                                       
                                                                                                                                
     MS.  VARNI said that  money is  already set aside,  it is                                                                  
     encumbered. It is a  four year project for a total of $33                                                                  
     million. The  building needed new windows; to change from                                                                  
     the steam heat; there were lots of problems with pieces of                                                                 
     brick and cement falling from the building. The Legislature                                                                
     owns that building and we need to  maintain that building.                                                                 
This committee approved that project, which is going very                                                                       
well and is on time and on budget. It's something that will                                                                     
last us another 80 or 100 years.                                                                                                
                                                                                                                                
CHAIR  STEVENS, in  response to  Representative Millett's                                                                       
request  for a  follow-up, said  he  thought Council  was                                                                       
getting too far  afield and didn't know  what the Capitol                                                                       
Building  had to  do  with  this  discussion. He  allowed                                                                       
Representative Millett to ask her question.                                                                                     
                                                                                                                                
REPRESENTATIVE MILLETT said her question was in response to                                                                     
Representative Kito's comparison that we're spending money                                                                      
and she said we're spending lots of  money in Juneau. The                                                                       
operating costs alone, she can't imagine the heat bill. So,                                                                     
if  we're going to  tighten our  belts, we  should really                                                                       
tighten our  belts and  start thinking about  things that                                                                       
aren't necessary.                                                                                                               
                                                                                                                                
MS. VARNI said the Capitol Building Renovation and Retrofit                                                                     
was necessary. It was a project that needed to be done and                                                                      
the Legislature needs to maintain its buildings. Going back                                                                     
to the maintenance on the 716  W 4th Avenue building, she                                                                       
said  that  Mr. Pfeffer  and  his  staff have  been  very                                                                       
responsive. The items  that she listed  were just to  let                                                                       
people know  that  there is  substantiation for having  a                                                                       
building manager for this building if  Council decided to                                                                       
purchase it, because the number of maintenance problems are                                                                     
ongoing. Unlike other  property management companies that                                                                       
the Agency has had to deal with in the past 20+ years the                                                                       
Legislature has had offices in this building, Mr. Pfeffer                                                                       
and his staff respond quickly and it has been outstanding.                                                                      
                                                                                                                                
SENATOR MICCICHE said he normally doesn't do this but he's                                                                      
going to.  He said  he's not sure  he appreciates someone                                                                       
advising him on what to ask. He said he has a deal with his                                                                     
constituents and that his vote on operating this government                                                                     
is going to be on the lowest cost per square foot that he                                                                       
can  possibly find. In  order  to do  that,  he needs  to                                                                       
understand all the aspects, not just with surface factors,                                                                      
but to look deeply into what the value of this decision is                                                                      
in the long-term. He said he's going to ask every question                                                                      
associated with that so that he makes the right decision.                                                                       
He just wanted to make sure that when we're talking to the                                                                      
people of Alaska, he  thinks he has a  record that proves                                                                       
that's the way he's going to go, but he wants to make sure                                                                      
he  has the  right information. He appreciated the  Chair                                                                       
giving him the opportunity to state that.                                                                                       
                                                                                                                                
     REPRESENTATIVE JOHNSON said he  wanted to go  back to the                                                                  
     value  of this  building in the  future. He asked  if Mr.                                                                  
     Shorett had  any idea  what the Atwood  Building is worth                                                                  
     today. In response to Mr. Shorett saying he had not given                                                                  
     that a thought, Representative Johnson said that he wanted                                                                 
     to point out that the State paid $18 million. He then asked                                                                
     if  Mr. Shorett would  agree that the  Atwood Building is                                                                  
     worth considerably more than that today.                                                                                   
                                                                                                                                
     MR. SHORETT said he was not trying to avoid the question,                                                                  
     but  he  really had  no  idea. In  order  to  answer that                                                                  
     question, he would need to spend a little time.                                                                            
                                                                                                                                
     CHAIR STEVENS said  Mr. Shorett was not asked to evaluate                                                                  
     the Atwood Building.                                                                                                       
                                                                                                                                
     REPRESENTATIVE JOHNSON said his point was that we bought it                                                                
     for $18 million and it is worth considerably more than that                                                                
     now. It's a building the State has owned for 15-20 years.                                                                  
     He wondered what this building was going to be worth in 20                                                                 
     years; maybe nothing if our economy continues to go down.                                                                  
     That's the point of reference that he'd like to look at as                                                                 
     opposed to  two percent evaluation over a  30 year period                                                                  
     divided by the sum of the square of the earth.                                                                             
                                                                                                                                
     MR.  GARDNER said  he  had no  further questions for  Mr.                                                                  
     Shorett. His goal was to facilitate the discussion and to                                                                  
     ensure that some of the questions that have been asked at                                                                  
     previous meetings were answered today.                                                                                     
                                                                                                                                
     MR. SHORETT said he wished Council luck, he knows it is not                                                                
     an easy decision and if he can be of any help, please let                                                                  
     him  know.  He  agreed to  stay  online  in  case further                                                                  
     questions arose.                                                                                                           
                                                                                                                                
     SENATOR  MACKINNON said the  only thing that  hasn't been                                                                  
     brought out that was discussed at the previous meeting is                                                                  
     that  there  is  revenue  that  the  current facility  is                                                                  
     generating that hasn't been used in any of the calculations                                                                
     put  before  the Legislature.  Apparently there are  some                                                                  
     antenna rentals on the top of the building, as well as some                                                                
     minimal income coming from the existing parking structure.                                                                 
     She  wanted to  make sure  that as  Council looks  at the                                                                  
     analysis on all of the components comparing the advantages                                                                 
     and disadvantages to moving or continuing the current lease                                                                
     that there is a revenue structure in this current lease; as                                                                
     there could be at the  Atwood Building if we utilized less                                                                 
     space  than what is  there today. She put  that forth for                                                                  
consideration for those  who may  not have  been at  that                                                                       
earlier meeting.                                                                                                                
                                                                                                                                
CHAIR STEVENS, with agreement from Ms. Varni, said that the                                                                     
next  step  was to  hear  from  Deven  Mitchell with  the                                                                       
Department of Revenue about his projections.                                                                                    
                                                                                                                                
DEVEN MITCHELL, via teleconference, said he hadn't planned                                                                      
to  make  any  comments.  He  did,   at  the  request  of                                                                       
Representative Johnson, put together a somewhat simplified                                                                      
analysis of  some  different cash  flows  related to  the                                                                       
potential  decisions before  the  committee. He  said  he                                                                       
understood that  analysis  had  been  distributed to  the                                                                       
Council. He  said  he  agreed with  Mr.  Shorett and  the                                                                       
declarations  he's   made   about   the   present   value                                                                       
calculations. He said he was not an expert on real estate                                                                       
pricing and  Mr. Shorett's expertise should be  valued in                                                                       
that arena. He  used a discount rate of  five percent. He                                                                       
said he wasn't necessarily looking at it like Mr. Shorett                                                                       
would have. He was maybe looking at the expected earnings                                                                       
of the Permanent Fund or the Retirement Trust or the CBRF,                                                                      
other places that if money is spent in the future, where it                                                                     
might reside and where it might be invested in the interim                                                                      
time frame for purposes of establishing a discount rate and                                                                     
that's how he arrived at five percent. As far as the value                                                                      
of the building, he just used a very simplistic assumption                                                                      
that the building is worth the purchase price today or in                                                                       
the future;  meaning that you  would anticipate that  the                                                                       
building would appreciate through time and if you bought it                                                                     
for a  price today, that's what it's worth and  you could                                                                       
turn around  and sell  it today  presumably for the  same                                                                       
price.                                                                                                                          
                                                                                                                                
Mr. Mitchell said it is  a difficult analysis and that is                                                                       
very apparent to everyone. There are two different things                                                                       
on the table with  the move to the Atwood Building versus                                                                       
the  options with  716  W 4th  Avenue  building currently                                                                       
occupied. One  of the  components that maybe  hasn't been                                                                       
discussed as much as  it could is the move  to the Atwood                                                                       
Building is  what otherwise is  going to  happen to  that                                                                       
30,000  square  feet  in  the   Atwood  Building  if  the                                                                       
Legislature doesn't move in. Is there an opportunity cost,                                                                      
is there going  to be less expensive or  folks that don't                                                                       
need the same quality of space or don't need to be located                                                                      
downtown that are going to be placed in  that space as an                                                                       
alternative to  the Legislature.  He said  there is  some                                                                       
additional analysis  that could  happen on  that side  to                                                                       
determine what the true opportunity cost of moving into the                                                                     
Atwood  Building might  be. As  far  as  the alternatives                                                                       
     related   to  the   Anchorage  LIO  Building,   from  his                                                                  
     perspective,  the  alternatives  seem   to  suggest  that                                                                  
     purchasing  the  building  is  going to  be  better  than                                                                  
     maintaining the status quo with the lease arrangements that                                                                
     the Legislature's currently in. This analysis has the same                                                                 
     deficiency that Mr. Shorett pointed out, that it  is a 10                                                                  
     year analysis when one year has already expired from that                                                                  
     10 year period, so it is off in the same fashion that Mr.                                                                  
     Shorett discussed. He said that  was really the extent of                                                                  
     the comments he might make associated with that analysis.                                                                  
                                                                                                                                
     Mr. Mitchell said he was here before the committee as the                                                                  
     State's  debt manager, not  as the  Alaska Municipal Bond                                                                  
     Bank's executive director. With that in mind, there's been                                                                 
     discussion about the potential of a failure to appropriate                                                                 
     for  this lease, resulting in a  downgrade of the State's                                                                  
     credit. This  State's credit is  somewhat tenuous at this                                                                  
     point. We have negative outlooks from Moody's that was put                                                                 
     in place in  December 2015; we have negative outlooks from                                                                 
     Standard and Poor's that was put in place in August 2015;                                                                  
     and by  definition those outlooks imply that there's going                                                                 
     to be  30% chance of a ratings change within the following                                                                 
     12-18 months. There's already stress on the State's credit                                                                 
     rating; as  has been discussed, there is a prohibition in                                                                  
     the constitution on dedicating revenue which results in the                                                                
     subject  to  appropriation clause  in  lots  of different                                                                  
     contracts, including this one. This lease wasn't a secured                                                                 
     type lease of the State of Alaska like the Atwood Building                                                                 
     was when it was purchased. It doesn't carry a rating based                                                                 
     on the State of Alaska's balance sheet but it would, as Mr.                                                                
     Pfeffer mentioned earlier, send a negative message to the                                                                  
     banking community as well as the underwriting community. In                                                                
     the  national market right now,  there is  some stress on                                                                  
     subject to  appropriation type credits that are out there                                                                  
     due to issuers like Puerto Rico and Detroit, Michigan, not                                                                 
     paying on those types of obligations. So, if the State of                                                                  
     Alaska, with some of the negative news that you see, both                                                                  
     locally and nationally, related to the low price of oil and                                                                
     the correlated reduction in state revenue, if we start not                                                                 
     paying  on obligations, it's  just going  to be  one more                                                                  
     negative story for potential investors to consider or our                                                                  
     credit  analysts to take  into consideration when they're                                                                  
     reviewing how to evaluate our credit, which is essentially                                                                 
     the  investors'  trust  that  we're going  to  repay  the                                                                  
     obligations that  we say we  are. Mr.  Mitchell ended his                                                                  
     testimony and made himself available for questions.                                                                        
                                                                                                                                
     REPRESENTATIVE  JOHNSON thanked  Mr.  Mitchell for  being                                                                  
     available on a Saturday. He said that when he looks at the                                                                 
scenarios from LAA, specifically Scenario #4 to purchase,                                                                       
he sees a square footage of 53,479 and he noticed that Mr.                                                                      
Mitchell used 45,371 square feet. If Mr.  Mitchell was to                                                                       
use the  same square footage number as  Scenario #4, that                                                                       
would  basically lower  the  per  square foot  cost.  Mr.                                                                       
Mitchell  agreed.  Representative Johnson  asked  for  an                                                                       
updated calculation based  on using 53,479.  Mr. Mitchell                                                                       
said that in the 30 year  appropriation from general funds                                                                      
option, it drops it to $2.79 per square foot.                                                                                   
                                                                                                                                
There was no further questions for Mr. Mitchell.                                                                                
                                                                                                                                
CHAIR STEVENS said Council would move on  to the material                                                                       
and testimony from Mark Davis with AIDEA.                                                                                       
                                                                                                                                
11:02:14 AM                                                                                                                   
MARK DAVIS,  Chief Infrastructure Officer for  the Alaska                                                                       
Industrial Development Export Authority (AIDEA), said that                                                                      
the working assumption AIDEA had was quite different from                                                                       
anything heard this morning. He said their assumption was                                                                       
Council might not  want to  continue with the  lease, and                                                                       
therefore would be  interested in a purchase. AIDEA is  a                                                                       
finance organization, so we only operate on the  basis of                                                                       
purchasing an  asset.  AIDEA owns  assets  throughout the                                                                       
state. Examples would be the FEDEX hangar at the airport;                                                                       
the risk there was that land was owned by the Department of                                                                     
Transportation, purpose-built building for FEDEX but they                                                                       
were comfortable with that and it's worked out. AIDEA also                                                                      
built the US Coast Guard  Headquarters at JBER; that on a                                                                       
Department of Defense license which creates risk. They have                                                                     
a right to  take it back in a  time of warfare. The Coast                                                                       
Guard then pays the Department of Military Affairs and then                                                                     
the DMA pays AIDEA and  there's risk that the Coast Guard                                                                       
may not have an  appropriation from the federal government                                                                      
and there's risk that  the Department of Military Affairs                                                                       
may  not have appropriated  money to pay  AIDEA. He  said                                                                       
they've  worked through  these  kind  of transactions  in                                                                       
various things they've done.                                                                                                    
                                                                                                                                
Mr.  Davis  said the  numbers  before Council  reflect  a                                                                       
purchase/loan price of $43 million which was in the report                                                                      
and that  includes a maintenance figure. It results in  a                                                                       
figure  of  about  $2.3   million per   year.  Using  the                                                                       
purchase/loan price of $37  million which was based on  a                                                                       
press report  of what the  developer might be  willing to                                                                       
take, the figure comes out to about $1.9 million per year.                                                                      
He said the  testimony this morning was that the building                                                                       
might be  for sale  for less  than that and  so that  was                                                                       
another possibility.                                                                                                            
                                                                                                                                
     Mr. Davis said he didn't have many facts prior to attending                                                                
     this  meeting, but now that  he does, he  said a scenario                                                                  
     could probably be  developed for purchase that would deal                                                                  
     with the different tranches of finance. That is, there is a                                                                
     note  on this building that is $28  million; that note is                                                                  
     essentially equal to the capital expense lease valuation of                                                                
     the building. If a 35 percent assumption of cost was run in                                                                
     the amount of the lease agreed to by  the Legislature, the                                                                 
     value of  the building would be approximately $28 million.                                                                 
     He  said it looks like  the mortgage company probably did                                                                  
     that analysis. He said there was also testimony that there                                                                 
     were  construction loans that were taken out by EverBank;                                                                  
     typically those construction loans will have  construction                                                                 
     loan  analysis appraisals and he hasn't seen  those so he                                                                  
     doesn't know what they came up with. When AIDEA looks at a                                                                 
     project, they like to dig up all the information. There is                                                                 
     a process - there is a suitability committee that they take                                                                
     a project to and the committee has to decide that AIDEA can                                                                
     make a rate of  return. Then there's a loan committee that                                                                 
     changes depending on what division is doing the project. He                                                                
     said it could be structured in a number of ways. It could                                                                  
     be  structured at  a  purchase price of  $28  million for                                                                  
     example, that would take out the note, then there would be                                                                 
     the  issue with the developer of how  to pay the residual                                                                  
     amount which sounds like it  is between $8 million and $9                                                                  
     million. He said they ran it by  some of their consultants                                                                 
     and financial advisors, probably the least expensive way to                                                                
     purchase this building would be for AIDEA to be the owner                                                                  
     and then it would be an asset. AIDEA is very interested in                                                                 
     the residual value of things it finances, so that if AIDEA                                                                 
     owned it, we would definitely run it out for 30 years. He                                                                  
     said he ran that lease by their internal committee and they                                                                
     see no reason to finance a 40 year building for less than                                                                  
     30, which is  the way they can get the best cost of money                                                                  
     and  the best return. The nominal annual rate  he used of                                                                  
     4.11 percent came from looking at figures from one of their                                                                
     underwriters, Goldman Sachs. The actual bond rates now are                                                                 
     floating between 3.5 and 3.87 percent. As Mr. Shorett said                                                                 
     very correctly, every investor is going to want an internal                                                                
     rate of return and, as Council knows by statutes passed by                                                                 
     the  Legislature, AIDEA has to make a  rate of return, so                                                                  
     there's a little room for that. He said, of course, AIDEA                                                                  
     will  give some of that back  via a dividend, which makes                                                                  
     them a  little unique; it will be over  time, it won't be                                                                  
     fast. It does actually reduce the costs over time.                                                                         
                                                                                                                                
     Mr.  Davis said in  response to an earlier  point made by                                                                  
     Senator Meyer,  if AIDEA did buy  this building, and this                                                                  
would have  to be  checked with  their counsel, it  would                                                                       
probably take the  building off the tax  rolls, which has                                                                       
been the  situation with other AIDEA  properties. He said                                                                       
there is an exemption from taxation in the AIDEA statutes                                                                       
although it can vary on the type of project. That doesn't                                                                       
preclude  a PILT;  they  have  a  PILT on  the  Ketchikan                                                                       
Shipyard, for example. He said that what could be done if                                                                       
the Legislature wanted to save money, a private placement                                                                       
through AIDEA does not need legislative approval. If AIDEA                                                                      
was interested, there would be their own internal process.                                                                      
The  AIDEA committees  would have  to  vote that  they're                                                                       
interested in owning an asset like this; that it has a rate                                                                     
of return risk analysis, although they are willing to take                                                                      
appropriation risks as illustrated by the two examples he                                                                       
mentioned. So,  maximum  flexibility is  with  a  private                                                                       
placement debt obligation. The Legislature could also do a                                                                      
tax exempt  financing with a private  placement through a                                                                       
bank. He said this building might also be susceptible to an                                                                     
AIDEA loan participation depending on the valuation and the                                                                     
appraisal. If it was broken into tranches of 28 and 8, then                                                                     
one  of  those  tranches would  definitely qualify  under                                                                       
current statutes for loan participation by AIDEA, which is                                                                      
currently capped at $25 million. The current interest rate                                                                      
for  that is  about 4.16; that  rate fluctuates with  the                                                                       
Federal Home Loan Bank of  Seattle and that's by statute.                                                                       
That is a transparent number that isn't picked out of the                                                                       
sky, it comes out of an index.                                                                                                  
                                                                                                                                
Mr. Davis said municipal bonds could also be used, as Mr.                                                                       
Mitchell has already gone very carefully through. There is                                                                      
less payment  flexibility with those. There  are multiple                                                                       
investors, higher issuance costs and  an extended funding                                                                       
cycle. On the other hand, financing terms could be longer.                                                                      
Mr. Davis said Representative Johnson asked how come nobody                                                                     
had run a 40 year scenario; he said that AIDEA internally                                                                       
just briefly looked at going beyond 30, but this looks like                                                                     
a  40 year building,  so you're pushing  the life of  the                                                                       
building up against the financing, so traditionally that is                                                                     
not done. On the other hand, if the lease was the same as                                                                       
the building then you can sometimes go longer. AIDEA ran 30                                                                     
years thinking it's a 40 year building, with a 30 year term                                                                     
and  a  30  year lease,  which  is  common in  commercial                                                                       
transactions; a  10 year  residual value, which could  be                                                                       
substantial, given inflation, but they'd have to  run the                                                                       
numbers; and a change in location.                                                                                              
                                                                                                                                
Mr. Davis said that the next issue is the cost to run it.                                                                       
He  said he'd seen  a  figure of $525,000  throughout the                                                                       
figures, which strikes him from his experience as a former                                                                      
     transaction lawyer,  that you've owned  this building for                                                                  
     almost a  year and we  should be able to  get actual hard                                                                  
     figures for the operating costs. He said if AIDEA was going                                                                
     to look at  it, what was actually paid for utilities, what                                                                 
     is  being paid  for  maintenance. They'd need  the actual                                                                  
     figures  to run  them  through because that  makes a  big                                                                  
     difference. Then  you'd have  an escalator factor  as the                                                                  
     building ages. That can be covered with a capital lease; it                                                                
     can be covered with a "sink and reserve fund"; or it can be                                                                
     covered with  a capital  reserve fund. He  said there are                                                                  
     various ways to structure it.                                                                                              
                                                                                                                                
     Mr.  Davis said all AIDEA was  trying to do  was give the                                                                  
     Legislature  options on  purchase.  Legal  structures can                                                                  
     change.  This building  could  also be  purchased by  the                                                                  
     Department of Administration if that was  a better way to                                                                  
     go. That would make it look more like the Atwood Building.                                                                 
     AIDEA  could provide project  financing for that  type of                                                                  
     scenario. That might change some of the parameters and some                                                                
     of  the numbers, but then  it could be  managed under the                                                                  
     current system and that might  be what you would like. If                                                                  
     AIDEA  owns it, we  would not have a  project manager; we                                                                  
     would  not hire someone because  we already have building                                                                  
     managers under contract. That doesn't mean we can't do it                                                                  
     that way. If the Legislature likes it that way and it's an                                                                 
     important public policy to the Legislature, AIDEA could run                                                                
     those numbers. They're not trying to give the  Legislature                                                                 
     any advice on how to run buildings. He said the Legislature                                                                
     could  try other legal structures that  might effect that                                                                  
     outcome of  the figures and AIDEA  hasn't done that. They                                                                  
     could; it would take a little time. It would probably mean                                                                 
     sitting down at length with the owners, which they've done                                                                 
     many times. AIDEA sometimes buys projects that the owners                                                                  
     want to sell. With Ketchikan Shipyard, AIDEA stepped in to                                                                 
     deal with issues of devolving federal grants that would not                                                                
     be available if it  was under private ownership. The legal                                                                 
     structures on  how this  was approached would  affect the                                                                  
     overall financing. He  said AIDEA didn't  assume that the                                                                  
     Legislature wanted to keep the current deal. They assumed                                                                  
     that the Legislature would want to finance it using AIDEA's                                                                
     capabilities  to  its fullest  to  result  in the  lowest                                                                  
     possible cost per month especially given the current fiscal                                                                
     situation.                                                                                                                 
                                                                                                                                
     REPRESENTATIVE MILLETT asked Mr. Davis what would happen if                                                                
     the Legislature does decide to get out of the lease and a                                                                  
     lawsuit ensues. She asked him if he could give any history                                                                 
     of any other type of lawsuits like this and what the type                                                                  
     of  costs were incurred and if the State has prevailed on                                                                  
them.  She asked  if Mr.  Davis could  give  some of  the                                                                       
ramifications if the Legislature decides to move into the                                                                       
Atwood Building and a lawsuit does result.                                                                                      
                                                                                                                                
MR. DAVIS said that on behalf of AIDEA he really can't give                                                                     
a legal opinion on litigation. As a citizen of the state,                                                                       
he said that Representative Herron mentioned the Behrend's                                                                      
Building in  Juneau, which is one  he is  aware of as  an                                                                       
attorney. That was  settled to his  understanding. In the                                                                       
commercial transactions he has been  involved with, which                                                                       
are not with an appropriation risk, there have often been                                                                       
disputes and those can be resolved various ways, sometimes                                                                      
in litigation, or  by cancelling the  deal and  trying to                                                                       
restructure   it.   Obviously,  there   are   significant                                                                       
transaction costs that could ensue.                                                                                             
                                                                                                                                
REPRESENTATIVE MILLETT said maybe the lawsuit question is                                                                       
better directed to Mr. Gardner. She then asked Mr. Davis if                                                                     
this  was something  that AIDEA  would  be interested  in                                                                       
pursuing on its own  without the Legislature's involvement                                                                      
in it and leasing it back to the Legislature. Much like the                                                                     
Atwood Building,  government exists, and  the Legislature                                                                       
would obviously be a long-term tenant; AIDEA wouldn't have                                                                      
to worry about who would occupy the building. She asked if                                                                      
the Legislature could request that  AIDEA do all  the due                                                                       
diligence of the process so they could at least have come                                                                       
up with some of the other options so the Legislature is not                                                                     
exposed to litigation and we can find a way that preserves                                                                      
the State's bond and credit rating. She said she is looking                                                                     
for solutions, especially because of the fiscal situation.                                                                      
She said she wanted to be very prudent and make sure that                                                                       
Legislative Council was doing what was best for the State                                                                       
of Alaska. If we end up  getting in a lawsuit and owe $20                                                                       
million; we need to be fully aware of  what we are doing.                                                                       
She said she doesn't think they have gone deep enough and                                                                       
looked at  and  reviewed all  of the  options to  make  a                                                                       
decision today.                                                                                                                 
                                                                                                                                
MR. DAVIS said that if the Legislative Council wanted AIDEA                                                                     
to, we could take it to  our committees. He said he is in                                                                       
charge of what's called Unconventional Finance at AIDEA. An                                                                     
example would be that they recently lent the Bond Bank some                                                                     
money as  they were a  little short at  the end of  their                                                                       
fundraising and  they stepped in  to do  that. They  also                                                                       
recently did a  loan for Alaska Pacific University, which                                                                       
was not a typical loan because they have unplatted land, so                                                                     
they had to  take security against the entire University;                                                                       
which is not typical in commercial lending. If there was a                                                                      
request, he thought AIDEA would look at it. It's going to                                                                       
     take time, they would definitely have to talk to go through                                                                
     the  record,  which  they haven't  done  yet. They  would                                                                  
     probably want to talk to the  Legislature's counsel to see                                                                 
     what he has done previously and then they'd want to talk to                                                                
     the developer.                                                                                                             
                                                                                                                                
     SPEAKE CHENAULT thanked Mr. Davis for putting together the                                                                 
     numbers on short notice. He asked Mr. Davis to confirm that                                                                
     the State of Alaska would actually finance a building built                                                                
     on anyone else's property other than the State of Alaska.                                                                  
                                                                                                                                
     MR.  DAVIS confirmed that AIDEA has  done that before. He                                                                  
     said  that AIDEA financed JBER-U.S. Coast Guard; that was                                                                  
     through a legislative change and the Legislature let them                                                                  
     invest in what's called Federal Facilities. Once AIDEA had                                                                 
     that legislative change, they worked with the Department of                                                                
     Defense; they have a license, which is essentially a lease                                                                 
     and  then AIDEA  did  the transaction. They  brought that                                                                  
     building in under budget from the estimates and it saved a                                                                 
     substantial number of  jobs in the  U.S. Coast Guard that                                                                  
     were  perhaps going to move to  Seattle. That was AIDEA's                                                                  
     emphasis in doing that. He said AIDEA assessed risk based                                                                  
     on how they think they are going to get paid, how much they                                                                
     are  going  to   get  paid,  and  that  one  did  involve                                                                  
     appropriation risk.                                                                                                        
                                                                                                                                
     SPEAKER CHENAULT said he was actually being facetious; he                                                                  
     knows  that the Legislature does it,  the Alaska Railroad                                                                  
     does it and  numerous other things. He said sometimes when                                                                 
     we talk about the history, as Mr. Pfeffer did earlier, he                                                                  
     remembers all those reasons why we're in this position that                                                                
     we  are today. Maybe it  wasn't being built  in the right                                                                  
     place; maybe it took the building off the tax rolls; maybe                                                                 
     it wasn't in the right part of  town; maybe the building's                                                                 
     old. As  we've heard today is all that  we really did was                                                                  
     update this building, we're certainly doing that in other                                                                  
     parts of  the state; our Capitol being one  on a building                                                                  
     that was  built in 1928. We're certainly putting a lot of                                                                  
     money into the Capitol. We might argue whether that is the                                                                 
     right expenditure of funds; we're going to argue about what                                                                
     this  building's worth  or  even maybe  what  the Capitol                                                                  
     Building  is worth. Maybe  if we  would have  bought this                                                                  
     building 20  years ago,  maybe we would  be remodeling it                                                                  
     today and owning an asset instead of talking about either                                                                  
     still leasing  an asset or actually  buying the asset. He                                                                  
     said there are lots of questions, lots of concerns and he                                                                  
     does appreciate the information the Mr. Davis brought up.                                                                  
     He liked the idea of it. He said he doesn't really have a                                                                  
     dog in this fight in all reality. He comes from Kenai and                                                                  
while he has an office here, it's out of convenience, not                                                                       
out of necessity. Anchorage's Legislators have needed for                                                                       
years and have had a place in Anchorage to be able to meet                                                                      
and have meetings and be able to do the work that they're                                                                       
required to  do.  He represents nine  communities in  his                                                                       
district. He has an LIO in his district and it's actually                                                                       
120 miles from where he lives. There is an LIO in the next                                                                      
district over. Anchorage is a big area. We  did receive a                                                                       
letter from  a Senator and  a Representative about having                                                                       
individual offices in their district, in their community,                                                                       
so  they  can talk  to  the  people  that live  in  their                                                                       
community. He said he wouldn't even  propose that he have                                                                       
nine LIO's in his district so he can go  to the people in                                                                       
his area that he represents and be able to meet with them                                                                       
for coffee every day or  every other day. There are other                                                                       
people  sitting  at  this  table  who  have  a  lot  more                                                                       
communities than he does in  their districts, but we find                                                                       
ways to get to those communities. He said this is a central                                                                     
place. Anchorage  is the  biggest city  in  the state  of                                                                       
Alaska; there should be a place for out-of-town Legislators                                                                     
to meet.  We've had a gentleman that  is a member of  the                                                                       
House that has been crucified over this building. He said                                                                       
that  what he  can  tell  people is  that  it's not  this                                                                       
gentleman's fault. He said he would take as  much or more                                                                       
blame  for  this building  because  of the  inactions  of                                                                       
Legislative Council. We have thrown this project under the                                                                      
bus for the last 12 years that he has been on Legislative                                                                       
Council. It's unfortunate that we actually have a lease, a                                                                      
lease that we  agreed to, that we've signed, and  that we                                                                       
knew the  cost of  before it was  signed. We've had  many                                                                       
opportunities to  buy;  we've had  many  opportunities to                                                                       
lease; but Council has always found a reason, whether that                                                                      
was that we didn't want to take it off the tax rolls, or it                                                                     
has to be downtown -  we can't move to midtown or uptown.                                                                       
Whether it was  perceived as a threat whether we  build a                                                                       
building or  we buy a  building that's big  enough, maybe                                                                       
we'll move the Capitol out of  Juneau or maybe we'll move                                                                       
the  Legislature out of  Juneau, or  maybe  we will  have                                                                       
special sessions some place other than the Capitol. Maybe                                                                       
we haven't done it because maybe we'll move the Capitol to                                                                      
Willow or some  other place in the  state. There's always                                                                       
been a reason, there's always been a catch. Unfortunately,                                                                      
there have been  many people thrown under the bus  and he                                                                       
told the Chair he may not probably be one  of them but he                                                                       
could be. He  said he doesn't have the  answer. He's been                                                                       
looking for information; how could it be  put together so                                                                       
that  it benefits  all  Alaskans and  not just  those  in                                                                       
Anchorage. Legislative Council has had to deal  with this                                                                       
for the last 10-12 years and we  need to make a permanent                                                                       
     decision, not one that just gets us out of hot water with                                                                  
     the  voters right now, but one that makes actual business                                                                  
     sense. He said in  order to get to that point, we have to                                                                  
     have the information that we need and the options that are                                                                 
     available. He again thanked Mr. Davis for the work he and                                                                  
     his folks have done. He also thanked everyone else for the                                                                 
     opportunities that  they've given Council. Even  in these                                                                  
     sheets, he  sees ulterior motives as to why those numbers                                                                  
     are how  they are. He would never have looked at buying a                                                                  
     building of this magnitude on a 10 year loan and he can't                                                                  
     think of any  other business that probably would have. Why                                                                 
     was  that number picked, because it  was the term  of the                                                                  
     lease, he assumed. As Council continues to dig down through                                                                
     this thing, they keep seeing new numbers that drive those                                                                  
     costs down for not only the Legislature but for the State                                                                  
     of  Alaska. He said he does believe in owning, he doesn't                                                                  
     believe that leasing the majority of  the time is of good                                                                  
     benefit for the State of Alaska. He thinks we ought to own                                                                 
     the  assets. If  we don't  believe that  we ought  to own                                                                  
     assets, than why does  that State own the LIO building in                                                                  
     Kenai and many, many other buildings around the state? If                                                                  
     there's  an advantage  to leasing,  we ought  to just  be                                                                  
     leasing them  all and just  pay someone else. He  said he                                                                  
     thought  it behooved the  Legislature to  look at  how we                                                                  
     invest our money and make those decisions wisely.                                                                          
                                                                                                                                
     REPRESENTATIVE JOHNSON directed to  Deven Mitchell asking                                                                  
     about  exposure costs  and whether  Mr. Mitchell  had any                                                                  
     insights into if the  Legislature does exercise the option                                                                 
     of the lease, what the repercussions would be from a bond                                                                  
     aspect.                                                                                                                    
                                                                                                                                
     MR. MITCHELL said that failure to appropriate for this type                                                                
     of  lease wouldn't necessarily result in  a rating action                                                                  
     against the State  because it's not a securitization of a                                                                  
     subject to  appropriation pledge that the State of Alaska                                                                  
     authorized by law or where the State's credit was actually                                                                 
     pledged. So there's a  distinction there, but it would be                                                                  
     another  negative story in  a recent  history of negative                                                                  
     stories about our state. He said we are talking about other                                                                
     subject  to   appropriation  pledge  credits  right  now,                                                                  
     including pension  obligation bonds, and future potential                                                                  
     undertakings  for  large infrastructure  projects in  the                                                                  
     state, that if you were an  investor, you're going to say,                                                                 
     well, they started down a path of not paying when they said                                                                
     they were going to pay. He said the investor understood it                                                                 
     was not the  same obligation that the investor was buying,                                                                 
     but it would make them a little more hesitant to lend them                                                                 
     money because they can't be  trusted as much as they were                                                                  
the day before they  didn't appropriate for that lease in                                                                       
this  circumstance; where you're  at the  beginning of  a                                                                       
lease, you have  asked the developer to  do something and                                                                       
they've  performed  and  provided  a  facility  that  was                                                                       
requested and  then we  have  an alternative that's  less                                                                       
expensive and, granted, the times are more difficult now,                                                                       
but  from  the  investor  prospective, they're  going  to                                                                       
potentially use that as a means from extracting more value                                                                      
out of the state.                                                                                                               
                                                                                                                                
REPRESENTATIVE JOHNSON  followed  up  to  ask  about  Mr.                                                                       
Mitchell's spreadsheet and asked if it  was his building,                                                                       
what would he do.                                                                                                               
                                                                                                                                
CHAIR STEVENS interrupted to allow Mr. Davis to leave the                                                                       
testifier's table and thanked him for his time.                                                                                 
                                                                                                                                
MR. MITCHELL responded that on his spreadsheets, the yellow                                                                     
across the page has the  present value of the cash flows.                                                                       
For  nominal  cash  flows,  go  to   the  bottom  of  the                                                                       
spreadsheet. He said he  didn't inflation proof operating                                                                       
costs, he just used the  same information that was in the                                                                       
November 24  memorandum analysis, just flat  numbers. For                                                                       
example, the 10 year appropriation, the total cash flows,                                                                       
which is the purchase plus the operating costs comes to a                                                                       
nominal dollar cost of  $43,200,000. If you present value                                                                       
those cash flows of the future, which are really just the                                                                       
operating cash flows, it diminishes to $42,488,799 that is                                                                      
shown in the yellow box. The ownership value is assumed to                                                                      
be $37,950,000 either today  or the future value  of that                                                                       
$37,950,000. Even  though that's  a  static amount,  this                                                                       
analysis assumes you're not discounting that $37 million,                                                                       
you're in fact doing the opposite by leaving it static when                                                                     
you're comparing it  to otherwise present valued numbers.                                                                       
The real  cost would  be the  differential, so $4,538,799                                                                       
would be today's cost of  buying the building if you were                                                                       
just looking at  cash flows. A greater amount for  the 20                                                                       
year option at $8 million and then $11 million for the 30                                                                       
year option. He  said for the  COP option, it's  the same                                                                       
thing essentially. Mr. Davis described different scenarios                                                                      
under which  AIDEA might be  able to help  facilitate the                                                                       
financing of the building or AHFC might under a different                                                                       
circumstance be able to finance the building. He said those                                                                     
alternatives and the COP alternative are all, at the end of                                                                     
the day, going to be fairly similar. The reason why in the                                                                      
10 year  scenario the real  cost is  actually negative is                                                                       
because the cost to capital for the COP's is 1.94 percent                                                                       
and the discount rate is 5 percent so on those future cash                                                                      
flows you're going to make more money  on the money being                                                                       
     retained than  you're going to  be paying  on your annual                                                                  
     interest expense and that overcomes that and the operating                                                                 
     costs during that 10  year period. He said, theoretically,                                                                 
     if you could sell the building at the 10 year term for the                                                                 
     future value of  the purchase price, you would be able to                                                                  
     save  $1  million in  real dollar  cash flows,  so you're                                                                  
     theoretically creating money in that scenario. The 20 year                                                                 
     option has  more operating costs incorporated into it and                                                                  
     there's more interest expense as the financing is stretched                                                                
     out for a longer period of time. Your annual cost goes down                                                                
     and your present value cash flows go up and the real costs                                                                 
     go up over the value of the building, so if you sold it at                                                                 
     the 20 year period - and that same relationship holds true                                                                 
     for  the 30 year analysis for  the real costs goes  up to                                                                  
     $3,168,000 - at some point, he said  you reach equilibrium                                                                 
     where the annual operating costs, the increment of the cost                                                                
     of  the real property would be minimized by the number of                                                                  
     years in the analysis due to that annual operating expense                                                                 
     incorporation. He  said for  the lease options,  the cash                                                                  
     flows are pretty self-explanatory. There's not an ownership                                                                
     value at the end and so you just have the annual cash flows                                                                
     present  valued for  the three  lease options  within the                                                                  
     current Anchorage LIO and then the three options within the                                                                
     Atwood  Building, and those  have a  correlated real cost                                                                  
     today.                                                                                                                     
                                                                                                                                
     Mr. Mitchell said in the first six columns, this was really                                                                
     an  attempt to do  what Mr. Shorett was  talking about as                                                                  
     well,  incorporating  some concept  that  if  you  buy  a                                                                  
     building, if  you buy an asset, well,  there's a value to                                                                  
     that. This might not be the right value, it maybe should be                                                                
     a  different number. For the information he had, this was                                                                  
     the best number that he had to use. He said Council needed                                                                 
     to  take that  into consideration when you're  considering                                                                 
     your cash flows because after you own the building, there's                                                                
     going to be a  benefit. Whether you sold it or whether you                                                                 
     had a diminished operating cost; and that's all relative to                                                                
     staying  in the  LIO.  The Atwood  Building, as  has been                                                                  
     pointed out, the final  payment is in fiscal year 2017 on                                                                  
     the $40 million of bonds that were issued back in 1997 and                                                                 
     so, at  this point, you're just paying the operating costs                                                                 
     and  that's all  that the  $664,776 incorporates. So  the                                                                  
     benefit of that purchase road is already being realized in                                                                 
     those three columns.                                                                                                       
                                                                                                                                
     REPRESENTATIVE JOHNSON said it did answer his question. He                                                                 
     then  asked Mr. Mitchell that in  looking at the columns,                                                                  
   which is the best value for the State, in his opinion.                                                                       
                                                                                                                                
MR. MITCHELL said, of course, like everybody, he's going to                                                                     
say it depends. He said you  stay in the Anchorage LIO or                                                                       
you don't and he doesn't know how you make staying in the                                                                       
LIO versus you don't apples-to-apples because they are very                                                                     
different options. He said if you're staying in the LIO, in                                                                     
this environment, you would be considering the use of debt                                                                      
and probably the 30 year debt option because you're going                                                                       
to have the benefit of right out of the gate reducing the                                                                       
annual cash  flow by $1.4  million or thereabouts and  so                                                                       
you've got a reduction to the budget; you're going to own                                                                       
the building at the term of the financing; and after that                                                                       
you know you have an expectation of just paying operating                                                                       
costs for some period of  time and recognizing that there                                                                       
will be maintenance at some point in the future. He said if                                                                     
you're going  to move into  the Atwood Building, he  said                                                                       
there's a  different analysis, although it's difficult to                                                                       
compare the two. There's a different number of square feet,                                                                     
he  doesn't know what  that space  is otherwise going  to                                                                       
facilitate if it doesn't facilitate the Legislature; and he                                                                     
doesn't know if that value is comparable to the Legislature                                                                     
moving in  there, if  it's less or  more. Once  you start                                                                       
saying what's the best choice, you're jumping across those                                                                      
two different options. He said the lowest total cash flow                                                                       
at this point, just in isolation, is of course going to be                                                                      
the Atwood Building. Going across the bottom lines, you're                                                                      
looking at  the 10  year $10,147,000 in  nominal dollars;                                                                       
$16.8 million for the 20  year and $24.1 for the  30 year                                                                       
option, with these assumptions that you  just have static                                                                       
operating  costs and  those  are  more than  these  other                                                                       
alternatives but you don't own a building at the end.                                                                           
                                                                                                                                
SENATE PRESIDENT MEYER asked  that Mr. Mitchell give  his                                                                       
title on the record for the general public and what he does                                                                     
for the state.                                                                                                                  
                                                                                                                                
MR. MITCHELL said he is the Debt Manager for the State of                                                                       
Alaska and he is also the Executive Director for the Alaska                                                                     
Municipal Bond Bank. As the Debt Manager, he works with the                                                                     
State  Bond Committee  for issuance  of  State of  Alaska                                                                       
obligations, which would include general obligation bonds;                                                                      
revenue  bonds with  the  State including airport  system                                                                       
revenue bonds; Certificates of Participation of the State,                                                                      
which are  subject-to-appropriation lease transactions of                                                                       
the State, as  well as operating lease securitizations or                                                                       
other special projects including working on things like the                                                                     
pension obligation bond  issuance that's contemplated. He                                                                       
said he had been doing this since around 1997. As the Bond                                                                      
Bank's Executive  Director, he works  with municipalities                                                                       
around the  state  to issue  debt to  fund  anything that                                                                       
     municipalities  fund,  from  community  buildings, ports,                                                                  
     harbors, schools, roads, airports, you name it.                                                                            
                                                                                                                                
     SENATE PRESIDENT MEYER said that in the six years that he                                                                  
     was  co-chair  of  Finance, he  and  Mr.  Mitchell worked                                                                  
     together on  a lot  of debt issues.  He said he  knew Mr.                                                                  
     Mitchell was in constant contact with the credit agencies                                                                  
     and bankers back in New York and back east. He said he was                                                                 
     concerned that Mr. Mitchell had mentioned that Standard and                                                                
     Poor's and Moody's, which we've all seen in the media, are                                                                 
     concerned about our future outlook. He is concerned about                                                                  
     Mr.  Mitchell's comments that if we don't appropriate the                                                                  
     money to stay in the LIO, then that's just another negative                                                                
     story that they're going to look at and perhaps use against                                                                
     us in the future as to when we get ready to borrow money.                                                                  
     He said he would imagine the risk will be greater and we'll                                                                
     have  to  pay more.  So, for  potentially looking at  and                                                                  
     wanting to borrow billions on  a gas pipeline in the near                                                                  
     future, how much value should be put on this being another                                                                 
     negative story.                                                                                                            
                                                                                                                                
     MR.  MITCHELL said that's more of an  art than a science.                                                                  
     There  is  a  lot going  on  when they  pull  the ratings                                                                  
     together. Of  course, they  are looking  at a  variety of                                                                  
     factors and they try to make it scientific, but at the end                                                                 
     of the day, there is a certain amount of art that goes into                                                                
     it.  He said that  he would expect that  this, by itself,                                                                  
     would be an  action that wouldn't have any ratings impact.                                                                 
     He said in the broader context right now, it could get more                                                                
     attention than he would suggest that it maybe is warranted                                                                 
     from a  ratings perspective. What exactly that is, he does                                                                 
     not  know. He said the real concern that  he has would be                                                                  
     that  a potential investor would  see this story  and, if                                                                  
     we're selling subject-to-appropriation bonds, say well the                                                                 
     state failed  to appropriate on that operating lease, are                                                                  
     they in such bad shape that they can't afford to pay their                                                                 
     commitments anymore and where is that likely to waterfall                                                                  
     to;  maybe this credit is  what they say  in their minds,                                                                  
     whether  they truly  believe that or  they see  it as  an                                                                  
     opportunity to say they need a 3-5 basis point increase in                                                                 
     yield, so that's where he sees the real risk. He said there                                                                
     could  be some  increase in  a future  issue based on  an                                                                  
     investor's reluctance to  continue to trust the  State as                                                                  
     much as they might have otherwise.                                                                                         
                                                                                                                                
     SENATE PRESIDENT MEYER followed up to say that if Council                                                                  
     tried  to compare numbers and  numbers, should that  be a                                                                  
     factor we should also consider.                                                                                            
                                                                                                                                
MR. MITCHELL said it  was very difficult to say  what the                                                                       
impact would be. It would depend on when we were going to                                                                       
issue debt, and  of what size, and how  recent this story                                                                       
was, and how it was  picked up by national media. He said                                                                       
there would be a lot of variables that would go into that.                                                                      
He said  it's certainly something that Council  should be                                                                       
aware  of as  you  make your  decision, that  there is  a                                                                       
potential that it could have some impact on a future bond                                                                       
issue. He said he cannot define that and the impact could                                                                       
be zero  or it could  be 5 basis  points that we wind  up                                                                       
paying in extra yield on a particular sale.                                                                                     
                                                                                                                                
CHAIR STEVENS noted that Representatives Millet and Johnson                                                                     
were in the queue  to speak, but before that happened, he                                                                       
invited any other Legislators that are present in the room                                                                      
or are  online to address this issue  before Council. Mr.                                                                       
Mitchell was  requested to stay  online by Representative                                                                       
Johnson who had a follow-up question.                                                                                           
                                                                                                                                
REPRESENTATIVE BOB LYNN, District 26  in South Anchorage,                                                                       
said that everyone knows that we have  a big problem with                                                                       
this LIO  situation. Whatever we do, he  thinks should be                                                                       
done  expeditiously.  He   said  he  knows   Council  was                                                                       
considering moving out the LIO to perhaps the State-owned                                                                       
Atwood Building and, if we move, that might work out okay                                                                       
and he would certainly hope so. He said perhaps there were                                                                      
some better alternatives; alternatives that would be more                                                                       
practical  for  Legislators,  less   expensive  and  more                                                                       
constituent-friendly.  He  said   the   current  LIO   is                                                                       
underutilized by  Legislators, though staff  are here  of                                                                       
course. He  thought it would  likely be  the same in  the                                                                       
Atwood Building. There's a reason you don't find that many                                                                      
Legislators  in  the   building,  except  during  special                                                                       
occasions such as  we're going through today. He  said he                                                                       
does what most other Legislators do; when he meets with a                                                                       
constituent or some other person, his first choice for the                                                                      
meeting is coffee  at a place near  his home or  near his                                                                       
district. His favorite meeting place for constituents and                                                                       
others is a coffee shop down on  Huffman; he calls it his                                                                       
"branch office."  He said it works well and it brings the                                                                       
government closer to the people. Most constituents like it                                                                      
better than the formality of a big, fancy building such as                                                                      
this one and maybe a steel office downtown. He said it puts                                                                     
constituents more  at ease,  especially people that  have                                                                       
never met with a Legislator before and there are a lot of                                                                       
them.  He suggested  that if,  in  fact,  the Legislature                                                                       
vacates the  building, put some  mini-LIO's in the  east,                                                                       
north and west  parts of town. There are  strip malls and                                                                       
small professional buildings all over the place with space                                                                      
     that could work as mini-LIO's, and the rent would surely be                                                                
     less than it is at the current location. If, by chance, we                                                                 
     got into some problems with some future mini-LIO landlord,                                                                 
     the scale of the problem would be far, far less than here.                                                                 
     We can  put a north side mini-LIO for staff in the Atwood                                                                  
     Building;  that  should drastically  reduce the  cost  of                                                                  
     renovating the Atwood, as well as the hassle of moving the                                                                 
     current occupants all of the Atwood Building to make room                                                                  
     for  the Legislature. He  said he  was asking  Council to                                                                  
     consider the  mini-LIO concept and asking Council to have                                                                  
     someone pencil out the estimated cost of the mini-LIO such                                                                 
     as  we've been hearing for staying here in  the lease, or                                                                  
     buying here, or  going to the Atwood Building. He said he                                                                  
     thinks that trying to put the whole kit-and-caboodle of the                                                                
     Legislature in the  Atwood is going to be interesting. He                                                                  
     said he didn't have and doesn't have now, a vote on any of                                                                 
     this  LIO stuff.  He  is not  on  Legislative Council and                                                                  
     doesn't plan to apply any time soon, at least until this is                                                                
     over.  He said  he doesn't  envy Council's job,  but does                                                                  
     appreciate Council's willingness to  make tough decisions                                                                  
     such as this will be.  None of us are going to be able to                                                                  
     make everybody happy. He said he  really enjoyed listening                                                                 
     to  what folks have  been having to say  this morning and                                                                  
     thanked Council for listening to his testimony.                                                                            
                                                                                                                                
     CHAIR STEVENS said  he appreciated Representative's Lynn's                                                                 
     comments and referred members to a document in their packet                                                                
     titled a "Legislator Statewide Office Space Lease Expense,"                                                                
     which  is  exactly what  Representative Lynn  was talking                                                                  
     about. It's all there, and  those Legislators in Anchorage                                                                 
     are at $7.41 per square foot. The Chair said for his LIO in                                                                
     Kodiak, it's  $2.29 per square foot; and he  has one with                                                                  
     Representative Seaton which is $1.69  per square foot. He                                                                  
     said for Senator Micciche, it's $1.87 per square foot, so                                                                  
     it's all over the place. In some places, like Bethel, it is                                                                
     more expensive because of the cost of doing business there.                                                                
                                                                                                                                
     REPRESENTATIVE LYNN said he assumed that  the cost of the                                                                  
     Anchorage area would be a little less than someone that is                                                                 
     out in the villages. Rent is cheaper here.                                                                                 
                                                                                                                                
     CHAIR STEVENS said he didn't think there were any Anchorage                                                                
     Legislators that had offices outside of the Anchorage LIO.                                                                 
     He  said  that  was  certainly something  the  Legislative                                                                 
     Council would consider and would be glad to work with folks                                                                
     on,  particularly if we  were in the  Atwood Building, we                                                                  
     could reduce the space we are leasing from the State there.                                                                
     He said  he didn't think we could reduce the space in the                                                                  
current LIO location but we could sublet, that's always a                                                                       
possibility.                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN said he  wanted to point out  that he                                                                       
wasn't the only one thinking about this. He said there were                                                                     
several in the majority as well as in the minority who are                                                                      
considering some concept of this mini-LIO idea.                                                                                 
                                                                                                                                
CHAIR STEVENS noted there was also the letter from Senator                                                                      
Wielechowski and Representative Tuck as well, referring to                                                                      
a similar idea of small offices located in each Anchorage                                                                       
district.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  LOUISE   STUTES,   House   District   32,                                                                       
representing Kodiak, Cordova, Yakutat, and  several small                                                                       
villages along coastal Alaska, said,  unlike the Speaker,                                                                       
she does feel like she has a  dog in this fight. She said                                                                       
there is an LIO in Kodiak and there is also one in Cordova                                                                      
that  has been  reduced  to session-only  at this  point.                                                                       
Kodiak's LIO is a very, very, very active LIO; in the short                                                                     
time that she has been there, there's nary a day that goes                                                                      
by that we  don't have a constituent in and out  of their                                                                       
office. It  is very  well-utilized. She said  it is  very                                                                       
difficult for her to explain to her constituents, as well                                                                       
as for her  to understand, when we have urban Legislators                                                                       
that  have  two  and  three  offices,  and  we  as  rural                                                                       
Legislators are being threatened with  having their LIO's                                                                       
closed. Her  constituents just don't understand that  and                                                                       
neither does she. She said she hopes that Council will take                                                                     
that into  consideration in making that decision, because                                                                       
it's  very important to  rural  Legislators to have  that                                                                       
contact with their constituents; they know where  we are,                                                                       
they utilize us, and they are grateful the Legislators are                                                                      
there, just as we appreciate the constituents. She thanked                                                                      
Council  and  said  she  appreciated the  opportunity  to                                                                       
testify.                                                                                                                        
                                                                                                                                
REPRESENTATIVE LIZ VAZQUEZ, House District 22, representing                                                                     
West Anchorage, Sandlake, Jewel Lake and Northern Campbell                                                                      
Lake, said she wished other Legislators could have had the                                                                      
packet to review previously, she would have loved to have                                                                       
really studied all of the documents. She said it was a very                                                                     
important decision. She said all of the options need to be                                                                      
explored, we need to do our due diligence, because we are                                                                       
talking about facing litigation. She said if we break the                                                                       
lease, assuredly we will be in litigation, either from the                                                                      
parties  that we  owe  the  money  or, if  they  go  into                                                                       
bankruptcy, we  will  then deal  with  a  very aggressive                                                                       
trustee. Trustees will go after deep pockets and everybody                                                                      
     knows the State of  Alaska has deep pockets. We do have a                                                                  
     fiscal  crisis  in  that  our  income  doesn't equal  our                                                                  
     expenditures, but  we do  have savings and  we do  have a                                                                  
     Permanent Fund and everyone knows that. She said that, for                                                                 
     the record, she did  commercial litigation in her previous                                                                 
     lives;  she has done  bankruptcy litigation. She said the                                                                  
     judge,   the  court,  the   trustee  will  look   at  the                                                                  
     Legislature's due diligence, what exactly we looked at, did                                                                
     we  do our homework properly. She said it appears to her,                                                                  
     and she hasn't been involved as she just got elected last                                                                  
     fall, from a 40,000 foot level, that we have not done our                                                                  
     due diligence and we're going to pay for it if we get into                                                                 
     litigation. The bottom line is that it's going to cost us a                                                                
     lot  more money.  We are  talking about paying  attorney's                                                                 
     fees; we are not talking about $50,000 attorney's fees and                                                                 
     this  type of litigation is  going to drag  on for years,                                                                  
     you're talking about millions of dollars. You're going to                                                                  
     see  probably litigation fees upwards of a half a million                                                                  
     dollars if not over a  million dollars; and we're probably                                                                 
     going to  pay damages; and we're going to  get bad press.                                                                  
     There's water  under the bridge what  happened previously.                                                                 
     She  said she thinks we need to  do our due diligence, we                                                                  
     need to look at the numbers, to look at the facts, and make                                                                
     a  decision based on that. She  said, by the  way, we are                                                                  
     spending  lots  of money  in  Juneau  and  she knows  the                                                                  
     delegation in Juneau harps about  we don't need this LIO,                                                                  
     whatever, but we  are spending $33 million renovating the                                                                  
     Capitol in Juneau. Doing the math here, this is not really                                                                 
     accurate because the  Juneau delegation would be paying a                                                                  
     lot more in rent. She said to the Chair that in the future                                                                 
     it  would  be good  to  identify all  the  documents, who                                                                  
     prepared them  and the exhibit number so  that for future                                                                  
     reference and even litigation, parties would know.                                                                         
                                                                                                                                
     CHAIR  STEVENS  noted  that  the  document  Representative                                                                 
     Vazquez was  referring to was prepared by the  LAA at the                                                                  
     request  of   Council  at  the   last  meeting  for  that                                                                  
     information.                                                                                                               
                                                                                                                                
     REPRESENTATIVE VAZQUEZ  repeated that  it  would be  very                                                                  
     useful  if  that  information  was  contained within  the                                                                  
     document; the name of the person that prepared it and the                                                                  
     date of preparation. She said that in looking at this whole                                                                
     process, it looks like we haven't done our homework. It's                                                                  
     very  dangerous  in  light  of  the  litigation  and  the                                                                  
     litigation will come; either through the parties themselves                                                                
     or  through a trustee. She said  from her experience, her                                                                  
     observation, in litigating in bankruptcy and litigating in                                                                 
     commercial court, trustees are very aggressive. They take a                                                                
percentage  of  what  they  collect,  so  they  are  very                                                                       
incentivized to collect as much as they can.  She said we                                                                       
will have to pause, we will have to take a "patience pill,"                                                                     
but we'd better do our due diligence before we proceed to                                                                       
break a lease. She reminded Council about the older case in                                                                     
1987 that the Legislative Council lost; they broke a lease                                                                      
and they had to  settle. She also mentioned an article in                                                                       
the Alaska Journal of  Commerce that said there may be  a                                                                       
negative impact on the  State's credit rating. She shared                                                                       
her  experience with  credit  rating  agencies. She  told                                                                       
Council that while  she is not  on the committee, she  is                                                                       
going  to  get  tagged  with  whatever  reckless  actions                                                                       
Legislative Council makes or whatever responsible actions                                                                       
made. She said she  is requesting that Council does their                                                                       
due diligence, she's sorry that it is a difficult job and                                                                       
she's sorry that there's a lot  of water under the bridge                                                                       
but we need to move on and do our work well.                                                                                    
                                                                                                                                
CHAIR STEVENS noted that the Legislative Council's vote is                                                                      
simply  advisory. Whatever Council  decides to  do  is  a                                                                       
recommendation to the  Legislature. The Legislature makes                                                                       
every decision on any funding; that will be in the budget,                                                                      
worked out in Finance and will be voted on the floor of the                                                                     
House and the Senate.                                                                                                           
                                                                                                                                
REPRESENTATIVE TARR said she wanted to be on the record as                                                                      
being present.                                                                                                                  
                                                                                                                                
REPRESENTATIVE MILLETT  requested to  AIDEA  and  to  Mr.                                                                       
Pfeffer for them to get together and have a conversation.                                                                       
She said she would like to put politics and emotion aside                                                                       
and actually  have an  honest conversation about what  it                                                                       
means to the State of Alaska if we break our lease; what it                                                                     
looks like if we buy the building; and she said she would                                                                       
like some true costs  of moving into the Atwood Building.                                                                       
She said she would like the true costs of when we would be                                                                      
leaving the current building and leasing another building.                                                                      
She  said she  heard  rumors that  we're  looking at  the                                                                       
McKinley  Building  already  and  she   didn't  know  who                                                                       
authorized that. She said she would like to know an actual                                                                      
cost of all of this on every option that we have. Right now                                                                     
she  doesn't feel  like  we  have.  She said  she'd  like                                                                       
litigation to  be  equated into  that  cost also  because                                                                       
nobody's talked about the  option if we  break the lease,                                                                       
what litigation looks like and what  we could be possibly                                                                       
losing. Talk about saving money, these are the things that                                                                      
we  should  be  doing.  We  shouldn't have  half  of  the                                                                       
information that may be slanted one way or another. 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, and  that do  not do  leases every  day. We're                                                                  
     trying to learn lease issues on a committee on a Saturday                                                                  
     afternoon. She said  PFD and LIO are  all people know and                                                                  
     it's going to continue that way if we get ourselves into a                                                                 
     piece  of litigation, it's never  going to end.  She said                                                                  
     she'd like to put this to  bed but she'd like to do it in                                                                  
     the right way. She said she'd like to do it with accurate,                                                                 
     unbiased, non-political, factual information. She said if                                                                  
     she  could request that, maybe they could put together at                                                                  
     some point, some type of committee outside the Legislature                                                                 
     that  can give  Council a  true evaluation; it's  not the                                                                  
     Legislature's attorney; not Pfeffer's attorney. Maybe AIDEA                                                                
     is the right person, maybe AHFC, people that do it all the                                                                 
     time. She said right now she feels like we brought AIDEA in                                                                
     at the last minute and he's giving us new information that                                                                 
     she didn't know about. She said she'd be very interested to                                                                
     know if AIDEA would be  interested in buying the building.                                                                 
     Making  us  take  a  vote today  on  information that  is                                                                  
     imperfect and  incomplete would be a sad  state. Like the                                                                  
     Speaker, she's  been getting beaten up right  and left on                                                                  
     this issue but  she doesn't want to continue to make poor                                                                  
     decisions and continue to get  beat up. At some point, we                                                                  
     have to try to restore public confidence in the committees                                                                 
     that we have.                                                                                                              
                                                                                                                                
     CHAIR STEVENS said that one of the problems he had as Chair                                                                
     was that people don't show  up for the meetings. We had a                                                                  
     meeting last time in which we  went into Executive Session                                                                 
     and  we heard information on what litigation may cost. He                                                                  
     told  Representative Millett that he was sorry she missed                                                                  
     that.                                                                                                                      
                                                                                                                                
     REPRESENTATIVE MILLETT said she was on the phone listening                                                                 
     to that.                                                                                                                   
                                                                                                                                
     CHAIR STEVENS said  then you heard the potential costs of                                                                  
     litigation. That was in Executive Session.                                                                                 
                                                                                                                                
     REPRESENTATIVE  JOHNSON directed  his  question to  Deven                                                                  
     Mitchell. He said  we're looking at bonding for over $100                                                                  
     million for capital in the next cycle and every two years                                                                  
     after that. He said if  we lost and went up three to five                                                                  
     basis  points, what  the  additional costs  on  that $100                                                                  
     million a year be.                                                                                                         
                                                                                                                                
     MR. MITCHELL said he would be a little reluctant to try and                                                                
     put  a dollar figure on  it. Three basis  points is three                                                                  
hundredths of one percent, so when you start doing larger                                                                       
issues, it starts adding  up and it's money but  it's not                                                                       
going to be millions and millions of dollars at the end of                                                                      
the day until you start doing very large deals.                                                                                 
                                                                                                                                
CHAIR STEVENS asked Tanci Mintz to come forward to answer                                                                       
some questions.                                                                                                                 
                                                                                                                                
TANCI MINTZ, State Leasing Facilities Manager, Department                                                                       
of Administration, put herself on record.                                                                                       
                                                                                                                                
SENATE  PRESIDENT MEYER,  on behalf  of  Council and  the                                                                       
general public, asked Ms. Mintz why we didn't do this three                                                                     
or four years ago when we were trying to make a decision on                                                                     
whether to stay in the current building or move. He said as                                                                     
he recalled the Atwood was not an option at that time and                                                                       
asked Ms.  Mintz what had  changed to  make space in  the                                                                       
Atwood now that wasn't available before.                                                                                        
                                                                                                                                
MS.  MINTZ  said   that  three  or  four  years   ago  is                                                                       
approximately when they  started the new  universal space                                                                       
standards  that  were  put  in   place  by  the  previous                                                                       
administration. Through that process,  they were able  to                                                                       
identify more efficiencies within the building and we had                                                                       
more space available. As time passed, they started working                                                                      
with the Legislature to offer space in the Atwood and the                                                                       
other process was put on pause as to who  was going to be                                                                       
backfilling the space until a  decision was made; knowing                                                                       
that the potential savings that the State could have in its                                                                     
entirety,  between  the  Legislature  and  the  Executive                                                                       
Branches, would be substantial as compared to the rate that                                                                     
is currently being paid to lease the current space.                                                                             
                                                                                                                                
SENATE PRESIDENT MEYER asked that wasn't the thought too,                                                                       
that two or three years ago, we could get  out of some of                                                                       
the  leases  we have  city-wide.  By  consolidating state                                                                       
employees into  one building,  there would  be some  cost                                                                       
savings  there. He  said  he  thought that  was  why  the                                                                       
Legislature felt that wasn't an option because it was going                                                                     
to be  either filled with other state employees or leased                                                                       
out to law firms at a higher rate. He said he thought that                                                                      
information was important if we're going to do additional                                                                       
analysis so they can determine what the opportunity costs                                                                       
are that we either lose or gain by moving into the Atwood                                                                       
Building.                                                                                                                       
                                                                                                                                
MS. MINTZ said  one of the points of  the universal space                                                                       
standards was to help identify who could be brought in and                                                                      
provide the  best value and  be the  best fit  within the                                                                       
     Atwood Building. She said they had started that process and                                                                
     got  out  of some  leases that  naturally expired in  the                                                                  
     Bayview  Building, by bringing in  a  couple of different                                                                  
     agencies there. She said that process had started and then                                                                 
     it  was  put  on pause  to  wait for  a  decision by  the                                                                  
     Legislature. If the  Legislature decides not to move into                                                                  
     the Atwood Building, they have a list of potential agencies                                                                
     that  would move in to backfill the  vacancy to bring the                                                                  
     cost down as compared to where they are at now.                                                                            
                                                                                                                                
     SENATE PRESIDENT MEYER asked  if that comparison had been                                                                  
     done. If  the Legislature buys the current building versus                                                                 
     getting  out  of  our  other  leases  and  moving various                                                                  
     employees into the Atwood Building - has that analysis been                                                                
     done.                                                                                                                      
                                                                                                                                
     MS.  MINTZ said it has not been  done. She said she could                                                                  
     only go  by the square footage of what the Legislature is                                                                  
     paying currently versus  the agency that is  first on the                                                                  
     list, what they would probably be paying at their existing                                                                 
     location.                                                                                                                  
                                                                                                                                
     REPRESENTATIVE JOHNSON said that he  knows that there has                                                                  
     been some discussion of litigation in Executive Session and                                                                
     asked if that was something that should be made public or                                                                  
     something that should remain confidential. Does that fall                                                                  
     under the category of potentially detrimental to the state?                                                                
                                                                                                                                
     CHAIR  STEVENS said he  is in  favor of making  everything                                                                 
     public that we possibly can but the Legislature's attorney,                                                                
     Doug Gardner, may have other ideas. He asked Mr. Gardner to                                                                
     address that issue.                                                                                                        
                                                                                                                                
     MR.  GARDNER  said  it  is  hard  to  have that  kind  of                                                                  
     conversation in public. He said it is fair comment on those                                                                
     who have touched on it, that nobody wants to get into any                                                                  
     kind  of  litigation. Why would  we  want a  court making                                                                  
     decisions about the Legislature; he said that everything he                                                                
     does  for the Legislature is  in effort to  try and avoid                                                                  
     litigation. Litigation is expensive and the issues related                                                                 
     to this case, if we  did get into litigation regarding the                                                                 
     non-appropriation, could be  complicated. Certainly would                                                                  
     raise  issues of constitutional law; it's undesirable for                                                                  
     the Legislature, in his opinion, to ever get into court if                                                                 
     it can be avoided, on constitutional issues. Litigation is                                                                 
     expensive and it is a valid cost to crank into whether or                                                                  
     not the Legislature buys the building or moves to Atwood.                                                                  
     He said if  the Legislature goes to Atwood, a fairly large                                                                 
     number  would need  to be  put on  litigation expense. In                                                                  
response to a request for  clarification by Representative                                                                      
Johnson, Mr. Gardner said if you want  the public to have                                                                       
this  information, it  wouldn't  surprise  him  that  the                                                                       
Legislature could spend $1 million to $2 million litigating                                                                     
the case. He said that he thinks that the Legislature has a                                                                     
right constitutionally not to appropriate if you determine                                                                      
that  we can't  spend our  dollars on  this.  He said  he                                                                       
believes the Legislature will ultimately prevail, but it's                                                                      
going to cost a lot of money. Litigation is just money out                                                                      
of pocket no matter what. It's not unreasonable to add $1                                                                       
million to  $2  million to  this project  analysis. Those                                                                       
numbers may be high, but by putting the numbers high, he's                                                                      
trying to be  conservative so nobody gets a  surprise. He                                                                       
said he  would not talk  about a losing scenario at  this                                                                       
point, in response to a question by Representative Johnson,                                                                     
and said he wasn't trying to be cavalier with his answer.                                                                       
                                                                                                                                
REPRESENTATIVE JOHNSON said he didn't  want to do or  say                                                                       
anything on the  record that would jeopardize anything in                                                                       
the future, but it  was something Council needed to think                                                                       
about.                                                                                                                          
                                                                                                                                
MR. GARDNER said he believed the Legislature's position to                                                                      
be superior in this regard, but he's not unwise enough to                                                                       
think that until it's litigated and until we see what the                                                                       
other person's arguments  were, he's just  on a pull  and                                                                       
shoot in a vacuum.                                                                                                              
                                                                                                                                
REPRESENTATIVE MILLETT said the reason that she wanted to                                                                       
have this conversation out of Executive Session is because                                                                      
there are a  lot of reporters here and this is  one issue                                                                       
that has not been out in the press; the cost of litigation                                                                      
and breaking the lease. We hear a  lot about how much the                                                                       
building costs, how much it costs to buy, how much it costs                                                                     
to lease, but we don't hear the other side of the story and                                                                     
what's at risk for the State, the bond rating, litigation.                                                                      
Speaking to Mr. Gardner, she said he was optimistic in that                                                                     
he thinks that the Legislature would win but we've seen in                                                                      
the past  in the '80s,  we lost and  had to pay  the full                                                                       
price. She said she wants the full story to  be out there                                                                       
because  we've been  demonized an  awful  lot about  this                                                                       
building but we also have to make very, very wise decisions                                                                     
in the future especially because of the fiscal situation.                                                                       
She said she just wants accurate information out there so                                                                       
the public understands the gravity of the situation. It's                                                                       
not just a move to the Atwood Building, there's much more                                                                       
moving parts. It could be a very expensive option, it's not                                                                     
just this cheap idea of spending $1.00 per square foot at                                                                       
the Atwood  Building, it's much more  involved. It's been                                                                       
     very simplified in the press and with the public. She said                                                                 
     she wanted to emphasize that there's much more at risk than                                                                
     just  taking a cheaper lease. She appreciates the Chair's                                                                  
     commitment  to being  as transparent as  possible because                                                                  
     that's  the  way they  keep  their constituents informed.                                                                  
     Legislators  are  obligated not  to  talk  about what  is                                                                  
     discussed in Executive Session.                                                                                            
                                                                                                                                
     SENATOR  MICCICHE  said it's  difficult  to  quantify the                                                                  
     potential  liability.  We've  heard  about  a  couple  of                                                                  
     instances  where  we've  exercised  that  option  to  not                                                                  
     appropriate. He said he only knows of one that's been sort                                                                 
     of concrete and we  lost it. What he doesn't know if they                                                                  
     were  rewarded the remainder of the term or  if they were                                                                  
     rewarded a year of the lease fees.                                                                                         
                                                                                                                                
     CHAIR STEVENS interrupted to say he wasn't sure we lost the                                                                
     case, it was settled out of court.                                                                                         
                                                                                                                                
     MR.  GARDNER said there was litigation surrounding a non-                                                                  
     appropriation scenario regarding the Behrend's Building in                                                                 
     Juneau. He said that case was not particularly relevant or                                                                 
     helpful  to this, and  said he  didn't think he  had ever                                                                  
     provided the Senator with the briefing, so he wouldn't know                                                                
     that. It was a non-appropriation that happened in the last                                                                 
     year of the lease. The way that the appropriation bill was                                                                 
     drafted was a  bit murky, it left arguments that probably                                                                  
     wouldn't exist in this situation. He said Senator Micciche                                                                 
     was right, the Legislature did pay what he believes was the                                                                
     very last year of the lease, we paid out the last piece of                                                                 
     the lease in  some settlement. He said it is a case worth                                                                  
     noting and the  answer is there are risks involved if the                                                                  
     Legislature  non-appropriates; there  are  also  ways  to                                                                  
     protect the Legislature.                                                                                                   
                                                                                                                                
     SENATOR MICCICHE said his point was making an assumption of                                                                
     cost  that could be  applied to the value  of whether the                                                                  
     Legislature moves  or not.  So, we  think that  there's a                                                                  
     between $1  million and  $2 million in  legal fees alone,                                                                  
     potentially if we were to not be successful. If we're not                                                                  
     successful, there's  likely some settlement and  he's not                                                                  
     sure what number to use. If we use a  year, because that's                                                                 
     the only model, even if  it's not apples-to-apples, it's a                                                                 
     $6 million settlement. He's applying a number in his mind,                                                                 
     he  doesn't like risk and wants to  protect the people of                                                                  
     Alaska as much as possible, and if you apply that number,                                                                  
     it reduces the value of moving on a square footage basis.                                                                  
                                                                                                                                
CHAIR STEVENS reminded Council that we're discussing a lot                                                                      
of things that  were discussed in a confidential session,                                                                       
but to  clarify, the  range we heard  was $200,000 to  $2                                                                       
million was the range of litigation.                                                                                            
                                                                                                                                
MR. GARDNER said that it was possible to spend $30,000 per                                                                      
month for two years and he came up with a number of about                                                                       
$1.7 million and he added another $250,000 on to that as a                                                                      
cushion and as a cost for some experts which could be very                                                                      
expensive in a case  like this. Directing this comment to                                                                       
Senator Micciche, he said that we have not  ever tried to                                                                       
bake those numbers into any of the project costs because he                                                                     
didn't  think that  was  traditionally done with  project                                                                       
costs, but he didn't think it was unreasonable and was glad                                                                     
the Senator had brought it up. It is not unreasonable for                                                                       
the Legislature to be looking at a litigation scenario and                                                                      
how negative that could be, both from a fiscal standpoint                                                                       
and from a legal standpoint.                                                                                                    
                                                                                                                                
SENATOR COGHILL said the way he had  to consider this was                                                                       
like many  others. When  we made  a lease,  was the  non-                                                                       
appropriation clause an option to exit or was it a safety                                                                       
valve based on,  for example, the fiscal time we  are in,                                                                       
which is catastrophic. If it's not an option similar to an                                                                      
option to purchase, then exercising it seems like  one of                                                                       
the last  resorts we'd want to  do. The economics of  the                                                                       
Atwood  Building  make  it  very,  very  attractive,  but                                                                       
generally speaking, a deal is a deal and he'd like to stick                                                                     
with that  deal as  much  as possible. If  there is  some                                                                       
willingness to go back and negotiate and re-negotiate the                                                                       
cost of  the current building or if there are  any offers                                                                       
that will come this way, before he'd be willing to use the                                                                      
non-appropriation clause that is legal, that it may not be                                                                      
the wisest thing to do. He said that's where the balance of                                                                     
his  struggle was.  He said  he tries  to  listen to  the                                                                       
Legislators from  the  Anchorage  area the  most  because                                                                       
they're the ones who will be  impacted the most. For him,                                                                       
the temptation to move to the Atwood Building is huge with                                                                      
a couple of exceptions. He does not  have a comfort level                                                                       
with the non-appropriation clause that it's an option that                                                                      
should be  exercised until  we  absolutely have no  other                                                                       
option. The Legislature is probably not going to  go away                                                                       
any time  in the near future  unless the whole government                                                                       
collapses. He said he thinks the Legislature should have a                                                                      
house that people can go  to that is the Legislature; and                                                                       
the identity of the Atwood Building could be made that way,                                                                     
but it is not that  way right now, as the current LIO is.                                                                       
So, there's the legal and political ramifications that he                                                                       
struggles with; that he  can tell you that $5  per square                                                                       
     foot  or  somewhere in  that  neighborhood sure makes  it                                                                  
     attractive to move  on. He said it may  be AIDEA may have                                                                  
     some  ways to help  us navigate through  financing but he                                                                  
     didn't hear anything in the numbers that would help us get                                                                 
     there. In  any case, a  30 year loan doesn't  seem to get                                                                  
     anywhere close to the Atwood Building. So, then it's just a                                                                
     matter of the cost of breaking the lease, which is both a                                                                  
     bond and  legal, and then the value to the Legislature to                                                                  
     have a separate place along the way. He said he has tried                                                                  
     to weigh that as much as he can. He said listening to the                                                                  
     legal  discussion  on  the  non-appropriation clause,  it                                                                  
     doesn't look like it's as much of an option as it is a last                                                                
     resort exit clause. He said he would probably like to see                                                                  
     us head in  the direction of getting better numbers to see                                                                 
     if  we can buy  the building and land; and  make a little                                                                  
     progress on the value of this building. He said he wanted                                                                  
     to  let people know that he had been listening and really                                                                  
     struggling between our  legal responsibility and the poor                                                                  
     budgeting that we've found ourselves in.                                                                                   
                                                                                                                                
     CHAIR STEVENS said that if Council is amenable, it would be                                                                
     best to take a 15 minute break to let the House and Senate                                                                 
     members talk to each other and see if there's any reason to                                                                
     carry on this meeting. Council will take a brief 15 minute                                                                 
     break and return at 12:45pm.                                                                                               
                                                                                                                                
     12:28:05 PM Legislative Council took an "at ease."                                                                       
                                                                                                                                
     NOTE: Vice Chair Herron left the meeting prior to the "at                                                                  
     ease."                                                                                                                     
                                                                                                                                
     1:32:25 PM Legislative Council returned from the "at ease."                                                              
                                                                                                                                
     CHAIR STEVENS brought the meeting back to order.                                                                           
                                                                                                                                
     SENATOR MICCICHE moved that Legislative Council advises the                                                                
     Legislature not to appropriate for the 716 W Fourth Avenue                                                                 
     lease  pending  the  outcome  of  the   currently pending                                                                  
     legislation or unless negotiations between counsel for the                                                                 
     Legislature and  a State entity  within the next  30 days                                                                  
     result in a competitive cost on a per square foot of usable                                                                
     space basis.                                                                                                               
                                                                                                                                
     SPEAKER CHENAULT clarified to ask if Senator Micciche had                                                                  
     used the word "litigation" or "legislation."                                                                               
                                                                                                                                
     SENATOR  MICCICHE  restated the  motion.  He  moved  that                                                                  
     Legislative  Council  advises  the   Legislature  not  to                                                                  
     appropriate for the 716 W Fourth Avenue lease pending the                                                                  
outcome  of the  currently pending  litigation or  unless                                                                       
negotiations between counsel  for the  Legislature and  a                                                                       
State  entity  within  the  next  30  days  result  in  a                                                                       
competitive cost  on a  per square  foot of  usable space                                                                       
basis.                                                                                                                          
                                                                                                                                
CHAIR  STEVENS  said   we  are   expecting  some  serious                                                                       
negotiations. We expect to have our attorney Serena Carlsen                                                                     
involved in this and a State agency in the hopes of winding                                                                     
up with a contract that we can agree to on this building.                                                                       
                                                                                                                                
SENATE PRESIDENT MEYER asked Doug  Gardner if he  had any                                                                       
comments  or  thoughts on  the  motion  made  by  Senator                                                                       
Micciche. He said was it  a legitimate motion or one that                                                                       
was going  to get  us in  trouble if we  vote one way  or                                                                       
another.                                                                                                                        
                                                                                                                                
MR. GARDNER said he didn't think the  motion was going to                                                                       
get Council members into any trouble. He  said during the                                                                       
stating and restating of the motion, he spoke briefly with                                                                      
Mr. Davis from AIDEA and he was concerned about the 30 day                                                                      
timeline, especially with  the upcoming holidays, to  the                                                                       
extent that he's an  entity that might work on  this. Mr.                                                                       
Davis respectfully was  hoping he might  get 45 days  and                                                                       
authorized Mr. Gardner to mention that. He said he did not                                                                      
think there was a problem with the motion. As he understood                                                                     
Chair  Stevens' comment, the  idea was  that within  that                                                                       
period of time, however, that period of time was defined -                                                                      
30 or 45  days - the Council's expectation was that Stoel                                                                       
Rives' Serena Carlsen and others would work with the owners                                                                     
to try to bring back a proposal that Council can evaluate                                                                       
and he thought that could be done.                                                                                              
                                                                                                                                
CHAIR STEVENS said Council is under the gun  to a certain                                                                       
extent in that they have  asked for some time Tanci Mintz                                                                       
and the Department of Administration to not lease the space                                                                     
to others in the Atwood Building and we want to make sure                                                                       
that we  don't dawdle too long,  as has happened in  past                                                                       
years, to the point that  we lose that as an opportunity.                                                                       
Ms. Mintz said 30 days was acceptable and he thought more                                                                       
would be problematic with the Department of Administration.                                                                     
At this point, he would like to stick with the 30 days and                                                                      
ensure progress is  being made. It  was possible that  if                                                                       
progress is being made, we can work with the Department to                                                                      
try and get that extended; but he thought a 30 day period                                                                       
was pretty crucial so we don't lose that facility.                                                                              
                                                                                                                                
MR. GARDNER said that as counsel for the Legislature and in                                                                     
working with Stoel Rives, they'd do everything they can to                                                                      
     provide all the documents to whatever entity is trying to                                                                  
     price this for Council.                                                                                                    
                                                                                                                                
     SENATOR MACKINNON asked if Ms. Mintz could come forward to                                                                 
     ask about the 45 days. One of the reasons that she believed                                                                
     she would be  supporting the motion that is before Council                                                                 
     is so that there can be an opportunity for some additional                                                                 
     price  comparison on that  square footage or  the overall                                                                  
     investment opportunity or challenge that the State faces.                                                                  
                                                                                                                                
     MS.  MINTZ again put herself  on the record  again as the                                                                  
     State  Leasing Facilities Manager  for the  Department of                                                                  
     Administration. In response to  the question from Senator                                                                  
     MacKinnon about the possibility of extending the timeline                                                                  
     to  45  days, because  of  the Christmas  and  New Year's                                                                  
     holidays making it difficult to get the work done by the 30                                                                
     day timeline, Ms. Mintz said she believed 45 days would be                                                                 
     acceptable.                                                                                                                
                                                                                                                                
     SENATOR  MACKINNON asked Senator  Micciche to  consider a                                                                  
     friendly amendment changing the timeline from 30 to 45 days                                                                
     to ensure Council can get the results that we want.                                                                        
                                                                                                                                
     SENATE PRESIDENT MEYER said  that since Council's vote is                                                                  
     only advisory, the ultimate decision is still going to be                                                                  
     done during session in Juneau. He asked Senator Micciche to                                                                
     withdraw his original motion and bring forward a new motion                                                                
     with the 45 days.                                                                                                          
                                                                                                                                
     SENATOR MICCICHE withdrew his original motion.                                                                             
                                                                                                                                
     1:40:53 PM                                                                                                               
     SENATOR MICCICHE moved that Legislative Council advises the                                                                
     Legislature not to appropriate for the 716 W Fourth Avenue                                                                 
     lease  pending  the  outcome  of  the   currently pending                                                                  
     litigation or unless negotiations between counsel for the                                                                  
     Legislature and  a State entity  within the next  45 days                                                                  
     result in a competitive cost on a per square foot of usable                                                                
     space basis.                                                                                                               
                                                                                                                                
     CHAIR STEVENS, in response to a  request by Representative                                                                 
     Neuman for clarification of the motion, said the motion was                                                                
     to not appropriate, to await the litigation that is now in                                                                 
     place; to  negotiate a price with a  State agency and Mr.                                                                  
     Pfeffer; and  to give  45 days  to do  that. He explained                                                                  
     further that if, after the 45 day time period, there was no                                                                
     agreement, then Council would recommend to the Legislature                                                                 
     that the funds not be appropriated for the lease.                                                                          
                                                                                                                                
SENATOR MICCICHE said that clearly the people of Alaska are                                                                     
paying attention to this issue and  we owe it to  them to                                                                       
operate  at  the  lowest  cost   possible. He   said  the                                                                       
Legislature  is  moving,  unless the  pending  litigation                                                                       
results in a null and void lease or negotiations result in                                                                      
a cost that competes with other space that we are currently                                                                     
leasing. That way, we would be operating here at the lowest                                                                     
cost. If that doesn't happen, our recommendation is that we                                                                     
simply move on.                                                                                                                 
                                                                                                                                
CHAIR STEVENS  asked for a  roll call  on the  motion and                                                                       
repeated that a  "yes" vote would be a  non-appropriation,                                                                      
wait for litigation 45 days, and negotiate a price.                                                                             
                                                                                                                                
A roll call vote was taken.                                                                                                     
                                                                                                                                
YEAS:  Stevens,   Meyer,  Coghill,   Huggins,  MacKinnon,                                                                       
       Micciche, Chenault, Johnson, Kito, Millett, Neuman,                                                                      
       Herron                                                                                                                   
                                                                                                                                
NAYS: None                                                                                                                      
                                                                                                                                
The motion passed 12-0.                                                                                                         
                                                                                                                                
NOTE: Representative Herron participated in the roll call                                                                       
vote via teleconference.                                                                                                        
                                                                                                                                
There being no further business before the committee, the                                                                       
Legislative Council meeting was adjourned at 1:45 p.m.                                                                          
                                                                                                                                
1:45:09 PM                                                                                                                    

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