Legislature(2015 - 2016)
03/31/2016 05:05 PM House LEC
| Audio | Topic |
|---|---|
| Start | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE COUNCIL
MARCH 31, 2016
5:05 PM
Approved August 3, 2016
MEMBERS PRESENT
Senator Gary Stevens, Chair
Representative Bob Herron, Vice Chair
Senator John Coghill
Senator Lyman Hoffman
Senator Charlie Huggins
Senator Anna MacKinnon
Senator Kevin Meyer
Senator Peter Micciche
Representative Mike Chenault
Representative Craig Johnson
Representative Sam Kito
Representative Charisse Millett
Representative Mark Neuman
Representative Steve Thompson, alternate
MEMBERS ABSENT
Representative Mike Hawker
OTHER MEMBERS PRESENT
Senators Egan and Olson; Representatives Claman, Colver,
Josephson, LeDoux, Ortiz, Spohnholz, Tarr, Tuck and Wool
AGENDA
ANCHORAGE LIO - EXECUTIVE SESSION
SPEAKER REGISTER
Sheldon Fisher, Commissioner, Department of Administrative
Services
Mark Pfeffer, Pfeffer Development and 716 West Fourth
Avenue, LLC
Don McClintock, Ashburn & Mason P.C.
5:05:15 PM
I. CHAIR GARY STEVENS called the Legislative Council meeting
to order at 5:05 p.m. in Room 532 (Senate Finance) of the
State Capitol. Present at the call were Senators Meyer,
Coghill, Hoffman, Huggins, MacKinnon, Micciche, and
Stevens; Representatives Chenault, Johnson, Kito, Millett,
Neuman, Thompson, alternate member, Drummond, alternate
member, and Herron. Representative Hawker was absent.
II. ANCHORAGE LIO - EXECUTIVE SESSION
CHAIR STEVENS noted for members that this meeting was to
address the motion passed by Legislative Council at the
December 19, 2015, meeting; specifically, "…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." Based on that motion, Council is meeting today to
discuss a proposal by the owner of 716 W 4th Avenue. He
said that before Council hears from Mr. Pfeffer, he wanted
to give time to the commissioner of Administrative Services
who has to leave shortly to catch a plane. He asked that
Commissioner Fisher address the basic question of whether
space at the Atwood Building is still available to the
Legislature.
COMMISSIONER SHELDON FISHER confirmed that space in the
Atwood Building continues to be available to the
Legislature. He said that the space totals approximately
34,690 square feet, and it would consist of the area that
was formerly the Diane Restaurant on the first floor, the
public meeting room, and two floors in the building as well
as some space on the 19th floor. In terms of availability,
which assumes that a final decision and an RSA is given by
early May, the space should be ready early in January 2018.
He said the space on the first floor, the public meeting
space, as well as some space on the 19th floor could be
made available sooner, approximately seven months after the
RSA is granted.
SENATE PRESIDENT MEYER asked for an estimate of what it
would cost to do the build-outs for the Legislature.
COMMISSIONER FISHER said that the build-out was estimated
at $3.5 million, did not include costs associated with
moving the Legislature, and assumed that existing fixtures,
furniture and equipment can be repurposed and moved from
the current office space to the Atwood.
SENATE PRESIDENT MEYER followed up to ask if there were
other state leases around the City of Anchorage that would
be expiring soon and whether those employees could be moved
to the Atwood.
COMMISSIONER FISHER said that if the Legislature does not
take the space, it will be filled with other Executive
Branch tenants.
REPRESENTATIVE KITO asked if temporary space was available
on the second floor of the Atwood that could be used in the
transition.
COMMISSIONER FISHER said that while the space on the second
floor was vacant, their expectation was that some of that
space would be used to effectuate the rest of the build-
out, so would not really be available until early 2018.
CHAIR STEVENS said that currently during the interim there
are approximately a dozen people that work in the Anchorage
legislative offices - about six LIO staff, three in Ethics,
and maybe three to four legislative offices have staff
present during the interim; about a dozen folks altogether.
SENATOR MICCICHE followed up on Senator Meyer's question
about other State offices moving into the Atwood to ask if
such a move would facilitate a savings for the State.
COMMISSIONER FISHER agreed that certainly there would be a
savings. The commercial lease rate in Anchorage tends to be
a little over $3.00 per square foot; he said they haven't
defined precisely who would relocate to the Atwood, so he
couldn't speak to the exact savings. As leases were
terminated and employees moved to the Atwood, there would
be a savings as the Atwood Building tends to be closer to
$1.80 per square foot. In response to a question by Speaker
Chenault, Commissioner Fisher reiterated that the entire
renovation would be finished early in January 2018 and
would expect that with the move, the Legislature would be
occupying the space by the end of January 2018.
SENATOR MICCICHE asked if it was possible to achieve
renovations for a lower cost than the estimated $3.5
million.
COMMISSIONER FISHER said that it was possible to do fewer
renovations to bring down the cost. He said the estimates
were pro forma; they haven't gone out to bid, haven't tried
to negotiate more favorable rates than they have
experienced in the past, but for budgetary purposes, they
are suggesting a figure of $3.5 million.
CHAIR STEVENS thanked Commissioner Fisher for being
available to answer questions and for being excellent to
work with.
Chair Stevens said that members should have received the
report and addendum from Navigant. He said he had hoped
there would be a purchase price that would be comparable to
moving to the Atwood Building, and said that they,
including Legislative Council's attorneys, Doug Gardner and
Serena Carlsen with Stoel Rives, came up with a figure of
$32,500,000, which he shared with the owners; and they came
back with a counter figure of $35,450,000. They had a
follow-up meeting and the owners put forth a new purchase
price of $33,975,000. He noted Mr. Pfeffer was here today
to discuss the purchase price with Legislative Council.
MARK PFEFFER introduced himself and his attorney Don
McClintock, who he said was here primarily to speak to some
of the ongoing litigation issues.
CHAIR STEVENS noted that Mr. Pfeffer had requested to make
a public presentation and then to also be allowed to stay
in Executive Session to address issues that should remain
confidential.
MR. PFEFFER said that, as he spoke with various Legislators
and Legislative Council members, he wanted to address the
questions that seem to keep arising about what happened and
when it happened; that there were questions about the chain
of events. He said he wanted to walk through the steps of
how we got to where we are today and then would be happy to
discuss any proposed fiscal terms in Executive Session. He
said he'd like Mr. McClintock to respond to any recent
emails members might have received from Alaska Building
Inc.'s Jim Gottstein on the litigation.
Mr. Pfeffer said that prior to May 2013, Legislative
Council went through just about a dozen attempts to find a
new house for legislative offices in Anchorage; a
combination of buy/build/lease through Requests For
Information (RFIs). By the time it got to April 2013, none
of those procurement efforts had resulted in a solution.
The Legislative Council approached him and his partner (Bob
Acree) to provide alternatives for how to extend the lease.
They asked specifically for three choices: (a) new carpet
and paint, lease rate remains the same; (b) new carpet, new
paint, repair bathrooms, fix elevators and some mechanical
upgrades with a moderate increase in the rate; and (c) a
full modernization which is what they had just done with
the old Chevron building near the Park Strip on 9th Avenue.
Those options were presented in May 2013 and Legislative
Council indicated a preference for the modernization
option, but said they wanted to go out for an RFI one more
time to see if anything else was available. The RFI was
published and two responses were received. He said he
wasn't present at the Executive Session meeting, but
understood the proposals were deemed unacceptable. A new
Legislative Council meeting was called for June 7, 2013,
and at that meeting, several motions were made. In general,
they authorized the Chair to move forward to negotiate a
lease on a full modernization basis and how to do that
under the Legislature's procurement code, and hiring Alaska
Housing Finance Corporation (AHFC) as the Legislature's
third party representative to review the proposal. At that
point, the Chair had the authority to enter into a contract
without coming back to Legislative Council; he indicated
that was not his preference and that he wanted to go
through a process. Mr. Pfeffer said that they then spent
three months, June through August, with Legislative Affairs
Agency and legislative staff and AHFC, who had a third
party construction cost estimator and a third party
appraiser. As we developed the scope that Council was
looking for and the finished project, the prices would be
estimated and AHFC would review it and decide if it was
fair and reasonable in the market place. That was a three
month back-and-forth process, at the end of which the Chair
chose to come back to Council. On August 23, 2013, and in
an Executive Session, we presented the scope, AHFC
presented their findings of cost competitiveness, and there
were no objections; because it was in Executive Session,
there aren't meeting minutes to reflect those
presentations. The public portion of the meeting shows that
members came out of Executive Session; the Chair indicated
there were no objections to moving forward; Representative
Johnson made a motion to try to negotiate a purchase price;
and the deal was set to go. The only thing remaining at
that point was to sign a lease and, in order to move
forward on a lease and to do the improvements, we needed to
be able to finance the improvements. That meant getting
past the scrutiny of banks; we went to several banks in an
attempt to finance the project. The banks wanted to see the
T's crossed and the I's dotted before they made that loan.
Two key exhibits to the lease were a nine page procurement
officer's finding that he said he believed was drafted by
Legislative Legal and signed by the Chair as the
procurement officer, and a finding of savings under this
methodology as compared to providing the same scope in a
different place in downtown Anchorage. He said that's kind
of a tricky concept because at that time there was no
ability to lease more than maybe 10,000 to 15,000 square
feet in any single location in downtown Anchorage, so if
you wanted space with parking onsite in the quantities we
were talking about, it essentially boiled down to new
construction so the cost comparison was to try to be 10% or
greater below new construction. The AHFC reports concluded
that. There was a finding by the Legislative Affairs
Executive Director that that test had been met and there
was a letter sent to Legislative Budget & Audit saying that
they had met that test, which was required by statute. He
said that as part of the procurement officer's finding
there was a notice to the legislative leadership that the
Chair intended to enter into the lease. He said that took
about three weeks and the lease was then signed September
19, 2013.
Mr. Pfeffer said that basically we were in a position of
okay, perform, or you're in default under the lease. We got
to work, we acquired the adjacent property, we let the
construction contracts and we got the project done. We were
obligated to deliver a completed project by December 31,
2014. As we got close to completion, we were ready to
transition from the construction lenders to the long-term
lender. The long-term lender was new to the project and
wanted to see the T's crossed and the I's dotted. He had
the lease with the exhibits, the procurement officer's
finding, the letter to LB&A; but as with any commercial
real estate transaction, that lender also wanted what's
called a Subordination of Non-Disturbance Agreement, which
is basically something that is signed right before you do
the final closing of the financing and the lender wants the
tenant to say everything's in good order, the work is
complete, we're satisfied with the results, the scope's
been done, all the conditions have been met and we're ready
to commence paying rent. He said that agreement came from
their lender to Legislative Council and that was signed by
the Chair as procurement officer on December 23, 2014.
Based on that certification that everything was in good
order and good effect, the lender closed on the
transaction, paying off the construction loan; and the
leased commenced January 1, 2015.
Mr. Pfeffer said that shortly thereafter, fiscal crisis
issues started to rise and everybody started second
guessing if this was actually the best solution. The option
of relocating to the Atwood Building was discussed and that
culminated in Legislative Council recommending to the
conference committee to fund the full lease which happened
last year, so the 2016 annual rent amount was funded. As
part of that recommendation from the Council, they also
asked the Chair again to negotiate a purchase price. During
the summer of last year (2015) and into September and
October, we met with Senator Stevens and Serena Carlsen
(Stoel Rives LLC) and Doug Gardner (Legal Services
Director), and we basically said the purchase price should
be $37,000,000, which was our costs and those costs were
validated by the third party before we entered into the
contract. If we didn't have those validations and
certifications and procurement findings, we wouldn't have
entered into the contract, but we did, based on those
approved costs. We believed that to be a fair purchase
price. He said that in December, an analysis was presented
to Legislative Council that showed a wide variety of
different ways of looking at comparison of costs. He said
that many of the Council members questioned at a meeting on
December 4, 2015, and again on December 19, 2015, if there
was really a true third party analysis done of that. By the
time we got to December 19, 2015, we were six days before
the holiday and, at that point, the Council passed the
motion that Senator Stevens read earlier that, in essence,
said that Council recommended to the full Legislature not
funding the lease unless it can be shown to be cost
competitive on a usable square foot basis. We then said
okay, we think we have a lease that says something but
alright, here's a new target. We said we were willing to
try to jump in and help and see if we can find savings; we
realized things were different than when this deal was cut.
He said we started to work to see if we could hit the
target set in that motion. We asked that a financial
consultant be retained by Legislative Council so that there
was an independent analysis and that request was declined,
but we submitted our proposal within the 45 days thinking
that we believed we hit the target.
Mr. Pfeffer said there was somewhat of an independent
analysis by the Department of Revenue who prepared a
spreadsheet that said, yes, under these conditions, that is
a cost competitive solution. Legislative Council then
convened February 11, 2016, and said that an independent
analysis was needed because there were so many different
opinions. Council retained Navigant Consulting; over a
three week period they completed their analysis. He said
they met with him for an hour and a half somewhere near the
end of that three weeks. He provided them with his
information and then on March 14, they came out with their
report. He said we didn't see that report until March 16
and, in essence, it says that if the State were to purchase
the building for the $37 million, the equivalent lease rate
for Atwood would be about 4% higher. The report said that
if the State were to purchase the building for $35.6
million, it would be equivalent to the lease for Atwood;
and, obviously, if you purchased it for less than $35.6
million, it would be less than the Atwood. He said we were
pleasantly surprised to have it confirmed by the consultant
that we were cost competitive. We believed we hit that
target from the December 19, 2015, meeting motion. Since
then, as Sen. Stevens said, shortly after that report came
out, Sen. Stevens made a purchase offer of $32.5 million,
and we agreed to lower the price to get within a number
that's lower than needed to be competitive with Atwood, and
we proposed $35.4 million. He said, subsequent to that,
just this past Monday, there was a conference call with
Sen. Stevens, Rep. Herron, Mr. McClintock, Mr. Pfeffer,
Serena Carlsen, and Doug Gardner. After a bit of "what are
we gonna do," Rep. Herron asked if we'd be willing to split
the difference between those two numbers and we verbally
agreed to that. It hasn't been done in writing, with the
exception that he said he sent an email this afternoon to
confirm that the verbal agreement was for a number just
slightly less than $34 million, which puts it solidly below
the cost of Atwood on a usable square foot basis.
Mr. Pfeffer said the Navigant report also, on page 6,
highlighted really three other factors that they didn't
address from a financial perspective. He said he was just
going from memory, but that the report said it doesn't take
into account any of the costs or expenses that might be
associated with breaking the lease or any of the
relationships that breaking the lease might cause in the
business community; it doesn't account solidly for
potential cost increases in a move to the Atwood Building.
He said Council just heard the Commissioner of
Administration say they believed that to be the cost, but
might be less, might be more. He said the report also laid
out that the office building as designed and built was per
Council's specifications and hits a lot of the criteria
that are important to the legislative branch that may or
may not be achievable in the Atwood Building. He said those
are intangibles. He believed they beat the cost per square
foot number plus we avoid those intangibles. The last thing
he said he wanted to add before Mr. McClintock addresses
the litigation issues was that several Council members have
said that they heard a rumor that the owners have made a
lot of money on this project - maybe we made $9 million or
maybe $5 million or maybe $3 million. He said that on
several occasions by multiple different parties,
Legislators and others, have asked if we would be willing
to agree to an audit of the cost and every time we've been
asked, we've said yes. If we go into Executive Session and
it's important to everybody, we'd almost prefer to insist
that there was an audit because we know what our costs
were, we know that they were validated up front, we know
that they are fair and reasonable. He said we'd ask that
Council get an independent auditor to confirm that so it
puts that rumor to rest.
Mr. Pfeffer said the point was that the first request of
them was in April of 2013 - can we solve a problem, can we
give Council solutions - and there have been multiple
requests since then and every time we get those requests we
try to solve the problem and, so far, we think we have
every time. He said if we can help achieve savings, we're
willing to do it and we're here to talk about that. Mr.
Pfeffer made himself available to answer any questions
before Mr. McClintock spoke to the litigation issues.
REPRESENTATIVE KITO said he had a question and perhaps a
comment. He said thinking back to the motion in December
and, while Mr. Pfeffer recounted many things that happened,
one of the things he didn't identify was that the other
part of the motion indicated that there was either a per
square foot comparable or that the lawsuit resulted in a
declaration that the lease was invalid; and he said we do
have that second component, that the lease is invalid. He
said that, to him, the motion says that the Legislature
does not appropriate according to Council's motion in
December. He requested clarification on that part of the
motion. He then said that Mr. Pfeffer had identified that
Legislative Council had received an appropriate possible
third party Department of Revenue analysis and he just
wanted to find out for the record if Mr. Pfeffer had a
relationship or formal role with the Department of Revenue
where he is engaged with that Department.
MR. PFEFFER said he was not engaged with the Department of
Revenue, but he was the chair of the Alaska Municipal Bond
Bank Authority, which is an independent authority. The DOR
is a resource for the AMBBA in doing their lending work
around the state, but it is an independent relationship. He
said that review happened in December when Mr. Mitchell was
requested by a Legislator (he wasn't sure who) to show up
on December 19, 2015, and have an opinion. Mr. Mitchell
came to the meeting with a spreadsheet that he said made a
bunch of assumptions, that he didn't have accurate data and
which was a quick exercise for him. Mr. Mitchell presented
that data on December 19, 2015. When we were asked to try
and hit this target of being cost competitive, we asked
that an independent third party be hired to analyze the
report; we asked in writing and were told no in writing. We
said the only person left standing was the DOR spreadsheet
and we, through Representative Herron's office, had asked
DOR to update their spreadsheet. DOR asked us for updated
information and we provided it.
REPRESENTATIVE KITO asked Chair Stevens if there would be
an opportunity to ask questions about the Navigant report.
Chair Stevens confirmed that would happen in Executive
Session and that Navigant would be on teleconference to
answer any questions Council has.
There being no additional questions for Mr. Pfeffer, Chair
Stevens asked Mr. McClintock to share his information.
MR. MCCLINTOCK, from the law firm of Ashburn and Mason,
said he wanted to respond in part to Representative Kito's
last question. He said his firm had filed a Motion of
Reconsideration. The court had ordered additional briefing
with responses to their motion due April 11, 2016. Not
surprisingly, in the way most litigation is, from our
perspective, the lawsuit is far from over. We think there
were some significant errors that were made in the court's
order that went beyond the question that was presented to
them. But that's not to be argued here, but that was the
procedural status.
Mr. McClintock said the main thing he wanted to address,
and just very quickly, was that Council had received a
number of emails from Mr. Gottstein offering gratuitous
legal advice to the Legislature on how to proceed. He said
it goes without saying that he thought the Legislature had
excellent legal counsel with Legislative Council staff and
they should look to them for guidance. He said that he took
a personal affront to a few of Mr. Gottstein's accusations
- not just for himself, his firm or Mr. Pfeffer, but also
for the staff of the Legislature's counsel and the
participants of the process they went through. He said
whatever happened, it was all definitely in good faith. The
accusations that Mr. Gottstein repeats over and over about
outrageous conduct, or brought in motions to the court when
he asked for punitive damages and qui tam damages - those
motions lost. The issue Mr. Gottstein had raised
continuously, efforts to get into the personal financial
affairs of Mr. Pfeffer, the court had basically ruled, at
least until this order, that those were not relevant. He
said they believe Mr. Gottstein made fairly reckless
accusations of the status of where things are. He said that
lastly, the court had never made a finding of any sort that
there was any bad faith that has gone forth in this process
on behalf of any of the parties, and that he would let the
record stand for itself. He said that he would also note
that early in the case, there was no question that Mr.
Gottstein acknowledged that his motivation for bringing the
case was over money; he wanted money and he wasn't paid
money, and he brought the case. He said there was
deposition testimony to that effect. Mr. Pfeffer has
offered that we will protect the rights that 716 W 4th
Avenue LLC has under the contract and in the litigation but
our sincere hope is actually that another path be found to
bring everything to a resolution.
There being no further testimony offered by Mr. Pfeffer and
Mr. McClintock, and no further questions, Chair Stevens
requested the motion to move the Council into Executive
Session.
5:42:40 PM
VICE CHAIR HERRON moved that Legislative Council go into
Executive Session under Uniform Rule 22(B)(1), discussion
of matters, the immediate knowledge of which would
adversely affect the finances of a government unit and
22(B)(3), discussion of a matter that may, by law, be
required to be confidential. I ask that the following
individuals remain in the room: Pam Varni, Doug Gardner,
Katrina Matheny, Linda Hay, Mike Abbott, Mark Pfeffer, Don
McClintock, Amy Slinker and any legislative staff working
for Council members and that Serena Carlsen, Kevin Cuddy
and Nigel Hughes remain on the teleconference line. We also
welcome any Legislators that are not on Legislative Council
to remain in the room.
CHAIR STEVENS, in response to a request by Representative
Kito, said that his plan was to first ask the Municipality
of Anchorage to make a presentation; then to allow Mr.
Pfeffer and Mr. McClintock to offer information, then they
will be asked to leave the room and Council will continue
with the Executive Session.
There being no further discussion, Council went into
Executive Session.
7:36:17 PM
Council came out of Executive Session.
CHAIR STEVENS said the discussion in Executive Session was
quite extensive. Council heard from the Municipality of
Anchorage who was interested in working with the
Legislature on the Anchorage LIO project; Council spoke
with outside attorney Kevin Cuddy with Stoel Rives LLC in
Anchorage, about the current litigation; Council spoke with
Nigel Hughes from Navigant, and Serena Carlsen, attorney
with Stoel Rives in Seattle; and Council had a good
discussion about all the issues they are facing. He then
called for a motion.
7:36:58 PM
VICE CHAIR HERRON moved that Legislative Council recommend
the purchase of 716 W. 4th Avenue building and land in the
amount of $32,500,000, and authorize the Chair to enter
into a purchase and sale agreement which is subject to
appropriation by the Legislature. Legislative Council will
maximize space in the building by consolidating legislative
entities.
CHAIR STEVENS said discussions will continue with the
Anchorage Municipality and will look at other financing
issues as nothing in the motion precludes trying to finding
other ways to finance this project.
A roll call vote was taken.
YEAS: Meyer, Coghill, Hoffman, Huggins, MacKinnon,
Micciche, Chenault, Johnson, Kito, Millett,
Thompson, Herron, and Stevens
NAYS: Neuman
The motion was approved 13-1.
There being no further business before the committee, the
Legislative Council meeting was adjourned at 7:38 p.m.
7:38:30 PM
| Document Name | Date/Time | Subjects |
|---|