Monday, December 23, 2013

ADN's Lisa Demer Writes Nice Article On Questionable Legislative Office Contract

The story takes up most of the top half of the front page and all of the back page.  It's great to see pieces like this, that obviously took a bit of investigative time, in the ADN, which has been getting slimmer for a long time.

Basically it raises the following questions:

  • Was the contract a good deal?  
    • different people measure costs different ways
    • can this special building be compared to going square foot rate?
  • Did the Legislative Council fool around for 11 years until they had no choice?
    • there were other choices that weren't followed up on
  • Did developer Mark Pfeffer land the deal because 
    • he had lots of political juice?
    • he worked harder than other developers?
    • he had a better product? 
A Good Contract?
     Measuring Costs:    

Demer gives the square foot price for the building given by the developer and the Legislative Affairs office as $6.21* per square foot compared to 
"Downtown, high-end office suites are going for $2 to $3 a square foot a month"
But a 'semiretired commercial broker, Larry Norene' whom Demer quotes a lot for an alternative view, thinks the numbers are fudged because the State uses gross square footage instead of  "net usable square feet" and because a lot of costs that normally are part of the rent such as "property taxes, building insurance, utilities, routine maintenance or janitorial service" will be paid for extra by the Legislature.  And there's also the $7 million of the renovation costs that the Legislature will pay for.

The new building, we're told by the state, will cost $3.4 million a year for the lease, but with the other extra expenses (tax, maintenance, etc.) and the renovation costs, Norene estimates it will come to $5 million per year.

Compared to the old  "$682,356 a year for a "full-service" lease."

Pam Varni of the Legislative Affairs is quoted as writing:  
"Our annual savings will be $528,344" 
Demer goes on to explain:
"But that wasn't savings compared to what the Legislature was paying -- once everything is added up, the state will pay about $4 million more each year. Instead, it was based on Lowe's calculation that the new building would have a "market rental value" of $3.9 million a year, compared to the $3.4 million that Pfeffer and Hawker agreed to."
According to the story, the state will pay about $5 million a year compared to the $682,356 a year they pay now.

     Is this a special building?

The explanation those defending the contract gave for the higher price was:  This is a specialized building - like
"churches and schools and courthouses and government office buildings and aviation facilities. I could go on and on. Sports facilities."
Consider a shuttered church building, he said. It will only sell for its full value to another church. Any other user would likely get a deal because it wouldn't have much use for a worship hall's special construction, stained glass windows, pews and altar. His report said prisons, medical buildings and sewage treatment plants also are examples of special-purpose facilities.
This is putting it on thick.

Anyone who's been to Polaris K-12 School knows you can even turn a movie theater into a school.    This is not nearly as special as a prison or sewer treatment plant.  It's offices and a meeting room.  And certainly no more security than many of the other office buildings downtown. Definitely less than the Federal building and the State Court building not to mention Concoco-Phillips. 

The head of the Legislative Council, Mike Hawker is quoted:
"The main hearing room sometimes couldn't handle all the constituents trying to attend, and it was tucked away on the second floor, reachable by one slow elevator."
How often is 'sometimes'?  Once every few years?  I've been to Redistricting Board meetings there and to a few legislative hearings - like the ones for HB 110.  
Back half of LIO Public Meeting Room Anchorage

There was no problem with capacity.  And if they're going to have a really big meeting, the Egan Center and Dena'ina Centers are nearby.

True, the elevator is small and slow, but there are stairs too.  Tucked away?  Then so are the House of Representatives' chambers tucked away on the second floor in Juneau.  That's silly.  That's painting a dire image to justify the change.  Don't get me wrong.  The existing offices were not luxury, but they were no worse than, say, many University faculty have as their full time offices.  (Most legislators have other full time jobs and only spend a great deal of time in their Juneau offices during the session.) 

It does need good teleconferencing facilities, but that's not too difficult to find in 2013.  And with the $4 million a year extra they'll be paying, they could get some pretty fancy stuff.

One reason for the 'good' numbers from the State, the article suggests, is that the appraiser, a Mr. Lowe, was an old friend of Mark Pfeffer.  (Read the article for more on that.)

From Wikipedia - click to focus

Did the Legislative Council fool around for 11 years until they had no choice?
"The council had been searching for replacement space since 2002 but nothing worked out, Hawker says. The Legislative Affairs Agency issued requests for proposals in a competitive procurement process in 2002 and again in 2003. The agency sent out five informal requests for information to see what was available, in 2006, 2007, 2009, 2011 and 2013."
In their defense, I'll say that it's hard when there's no real boss to make the final decision and they have to get a majority to agree. But this isn't like Congress where one house is Republican and the other Democratic.  Or the US House where a chunk of the Republicans threatens retaliation against their fellow Republicans (not to mention the minority Democrats) if they don't march to their inflexible orders.  Over an 11 year period, this looks like lack of focus and leadership to make a good deal for the citizens of Alaska.
"We were stuck with what we had because nobody had done anything and our lease was up," [Republican Representative] Pruitt said.
"State Rep. Bill Stoltze, R-Chugiak and a member of the Legislative Council that agreed to let Hawker negotiate the terms, said he has "renter's remorse." Stoltze, co-chairman of the House Finance Committee, said he mistakenly assumed the council would get to sign off on the terms when it agreed on June 7 to let Hawker negotiate.
"Bad on me," Stoltze said in an interview. "It was off to the races after that enabling vote."
That's what I call taking responsibility:  "Bad on me."  Possibly tens of millions of dollars in unnecessary costs and the consequence for Stoltze is 'bad on me."  (But at least he admitted a mistake, that's not something legislators do very often.)   Stolze is the guy who once spent ten minutes at Leg Council arguing why the legislature shouldn't allow its members to access Facebook from the Capitol building computers.  This was after saying he knew nothing at all about Facebook. 

Apparently there were a lot of choices over the years, but the Legislative Council couldn't get its act together to follow up on them.  
"Promising prospects fell through; the council failed to move quickly enough, the other party backed out or the property was too expensive."
"In response to the 2011 query, builders, developers, brokers and landowners -- among them some of the most prominent in town -- offered up a total of 24 possibilities for new legislative space. Twenty-two were within the specified geographic boundaries that started downtown, stretched south to Tudor Road then east to Gambell Street."

There was a Mental Health Trust parcel downtown. 
"The Legislature could have ended up there in a new building for much less than the cost of the renovated Fourth Avenue building, according to an analysis put together in 2011.
"We never got a response," said John Morrison, chief administrative officer of the Mental Health Trust Land Office. That lot now is being marketed anew." [emphasis added]
And there was
"the old Unocal oil company building at 909 W. Ninth Avenue as its No. 1 choice. Legislators were skittish about making an offer, and a deal involving NANA Development Corp. beat them out. Pfeffer, who is part owner of the building with Bristol Bay Native Corp. listed as majority owner, was the developer. The redone building is now a striking new NANA office."
And when they missed that opportunity, Demer writes:
"There's no evidence the council re-examined the next best sites."
Did developer Mark Pfeffer land the deal because 
  • he had lots of political juice?
    No question here.  The article points out all the Leg Council members Pfeffer had contributed to. 
    "On the current Legislative Council, Republican Reps. Hawker, Pruitt, Stoltze, Craig Johnson, Alan Austerman and House Speaker Mike Chenault, as well as Sens. Peter Micciche, Lesil McGuire, Kevin Meyer, Gary Stevens and Senate President Charlie Huggins, all got donations from Pfeffer their last campaign. So did Democrats Max Gruenberg, Dennis Egan and Lyman Hoffman, who like Austerman is an alternate. Only Rep. Peggy Wilson of Wrangell and Sen. John Coghill of Fairbanks, both Republicans, didn't report any contributions from Pfeffer."
    Follow the Money, in a report on attempts to privatize prisons in Alaska, says that Pfeffer's company's contributions to Alaska politicians from 1998 to 2006 were second only to VECO's (by quite a bit).


    Mark E. Pfeffer, founder of architect and design firm Koonce, Pfeffer and Bettis, gave $96,775 between 1998 and 2006. Democratic legislators got $20,600 and $63,825 went to Republicans. He gave $1,000 each to Gov. Knowles in 1998 and Murkowski-Leman in 2002. He also contributed $9,500 to the Alaska Republican Party."

    Back to the ADN article:
    "Mark has been involved in political and civic activities for many years," his marketing director, Slinker, said. "He does not target any special interests or particular candidates. Mark believes in the civic process and has a history of participating at the city, state and federal levels."
    "[He] believes in the civic process"?  What does that mean in this context?  Giving money to all politicians so that whoever wins, they'll see me and help me out?

    It's my experience that people give money to politicians for a number of reasons:
    • The are friends with the candidate
    • They are in alignment with the candidate's and/or party's platform
    • They are supporting the candidate's stand on a particular issue
    • For personal gain in the form (for example) of
      • greater access to the politician and information
      • favorable treatment in government contracts
    The first three can be idealistic and the only expected personal benefit is that the official will support one's world view, but not give personal favors.

    But when someone gives money to candidates of different parties with different ideologies who were not personal friends before the candidate entered politics, then we're left to assume they are doing it for the last reason.  

    And when almost all the politicians on the Council, that will decide a contract that the contributor has had an ongoing interest in acquiring, get maximum allowable financial support,  it becomes more than just a little suspcious. 

  •  he worked harder than other developers?

    I don't doubt this.  Most business owners try to do their business and really want to have as little to do with government as possible.  But there is also a segment of business owners who have figured out how government procurement works and like playing that potentially lucrative game. Pfeffer's company has made a lot of money out of government construction in Anchorage.
    "Pfeffer has been involved in numerous big public-private projects -- the Dena'ina Civic & Convention Center, the Linny Pacillo parking garage, the NANA office and the Alaska Regional Hospital expansion.He also is part of the group that owns Anchorage City Hall."
    I suspect that Pfeffer knew that there was a lot of money to be made and that not many other players were in the game.  The odds were good that he might win.  Of the 22 possible sites that met the location criteria in 2011, the ADN writes:
    "Pfeffer Development pitched five ideas, including a view lot on L Street between Seventh and Eighth avenues that made it to the top five list."
  • he had a better product?

    It seems from what I've cited above from the ADN article, that Pfeffer really wanted part of this action.  As the five other proposals he'd been part of failed, and the end of the contract came near, he bought into the building the Legislature was already using.
    "Pfeffer is a prominent and politically active Anchorage developer who bought into the Fourth Avenue building and neighboring Anchor Pub and Club earlier this year."
    The article says the current owner was difficult to work with, but when Pfeffer got involved, "legislators saw opportunity."

    Does he have a better product?  Probably not in terms of the facilities and the cost.  But probably in his ability to negotiate a deal with politicians, lubricated, I'm sure, by his campaign contributions.  I'd note that the Alaska Public Offices Commission report on his contributions shows that most of the Leg Council members got the maximum allowable contribution ($500 per year) from Pfeffer  for 2011 and 2012.


As go through all this, it seems pretty clear to me that we have:

  1. A political body that
    1. is not particularly well focused, efficient, or effective
    2. has more incentive to get advice from the people they should be negotiating against than to stand firm for the best interests of Alaskan citizens
  2. A politically savvy contractor who has learned how to work governmental contracts, particularly those worked out with politicians and whose checkbook is busy during campaign season
The Legislature does NOT sit down and prioritize their spending.  Some committees might do that, but overall, the legislature puts together their budget piece meal.

Did anyone in the Legislature weigh the benefits to the state of having fancier offices against getting, say, running water and sewage systems into the rural Alaskan villages that still don't have them?  Or getting Alaska out of the top ten states in rape statistics?  But that's expecting way too much.  After all, these are the folks who were convinced by the oil companies that the only way the companies could eke out a profit in Alaska was with a $2 billion a year tax break. 

At the end of 10 years, the state will have paid $50 million in rent.  If they'd just built or bought their own building, they would at least have own the building at the end of that time.  As it is, they'll be back in the same place they are now.  

I hope that Lisa Demer and the ADN don't think I've ripped off their article for this post. It's really meant as a nod of appreciation for doing this kind of work. We need a lot more of this kind of reporting. I hope my post adds a little value to all the hard work you've already done. And I'd add, buildings and leases are at least tangible and relatively understandable to most readers. We also need this kind of investigation into the more complex legislation that is passed in Juneau. And readers might consider that if the Legislature fiddles around on something relatively simple like a building, and are so influenced by savvy contractors, how badly are they doing on other legislation?

* for the first five years, and then when the renovation costs are paid, it will drop to $5.24 a square foot.


  1. Grease. The missing word is grease.

    1. Lubrication goes on at places like McGinley's. Especially on a lobbyist or 'friends' tab.

      It takes real grease to get a deal like this done. Just google "Alaska"+"political"+"grease". This deal rates among "The Man From Veco's Taxcut" the "Bridge to Nowhere" and some of the other notorious greasy acts.


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