JUNEAU — A Superior Court judge Thursday declared the Alaska Legislature's 10-year lease for its downtown Anchorage office building illegal and invalid, siding with attorney Jim Gottstein in his public-interest lawsuit against the Legislature and the building's landlords.
Judge Patrick McKay rejected the contention of legislative attorneys that the no-bid lease was merely an extension allowed under state procurement law. McKay said the contract was in fact not a lease extension, despite being called one, and he added a stinging rebuke that said finding it so would "eviscerate" competitive bidding requirements.
The extensive renovations to the offices at 716 W. Fourth Ave., McKay said, absorbed a building next door and left the Legislature paying nearly five times as much, plus an extra $7.5 million upfront.
The renovations were completed in January 2015.
"Plain common sense — a principle which jurisprudence should not require to be checked at the courtroom door — mandates a finding that a contract to lease over 2.5 times more newly constructed space for just under 5 times the current rent with an introductory payment of $7.5 million for leasehold improvements is not a simple lease extension," wrote McKay, who was appointed by former Republican Gov. Frank Murkowski in 2005.
The plain meaning of state procurement law, McKay added, is to exempt lease extensions from having to be competitively bid. While it doesn't specifically bar "substantive modifications" to a lease under an extension, it also doesn't expressly allow them, either, and lawmakers created separate laws requiring competitive bidding for new leases and lease renewals, McKay wrote.
The extension for the legislative offices, he wrote, is "undoubtedly a different lease instrument" from lawmakers' original 2004 contract, since the renovated offices are "vastly different" from the property in 2004.
In declaring the lease void, McKay said he didn't need to rule on other issues raised in the case, such as whether the new rent, negotiated by Rep. Mike Hawker, R-Anchorage, was 10 percent under market value, as the Legislature asserted and the law required for a no-bid extension.
Thursday's ruling is the latest development in what's become a yearlong Anchorage office saga. Gottstein initially filed his lawsuit in March 2015. That's the same month lawmakers grappling with a massive budget deficit revealed they were reconsidering their new lease, and examining whether they could save money by moving to the state-owned Atwood Building, an eight-minute walk away.
The ensuing political fight has pit members of Hawker's Republican House majority, who have defended the deal, against some of their counterparts in the Senate, all while attorneys for the landlords and Legislature have battled Gottstein, a Democrat, in court.
Even after Thursday's decision, lawmakers still have to decide whether they want to stay in their existing offices by buying them, or move, said Sen. Gary Stevens, R-Kodiak, who chairs the Legislative Council, the joint House-Senate committee that handles the Legislature's internal business and budgets. Hawker was the chair of the committee when he negotiated the new lease.
A meeting to decide what to do will be scheduled for early next week, Stevens said. It follows the release of a report last week that said moving to the Atwood Building would save the state $7.5 million over 20 years.
One Republican senator, Cathy Giessel of Anchorage, said the ruling hands lawmakers an opportunity to decamp to cheaper space.
"We're pretty happy," she said. "Let's move!"
Hawker responded to a phone message with a prepared statement that quoted him saying the Legislative Council "acted in good faith, working with our legal counsel to assure that the process and lease were valid."
"Clearly, a lower court judge has found otherwise," said Hawker, who represents the Anchorage Hillside.
Hawker, first elected to the House in 2002, has announced he won't be seeking another term.
Until lawmakers make a decision, Stevens said, he doesn't expect the landlords will force lawmakers out of the building — even though legislative attorneys' interpretation of McKay's decision is it declared the lease "void."
"I don't think we have any fear of being thrown out on the street — but we'll see," Stevens said in an interview.
A spokeswoman for landlords Mark Pfeffer and Bob Acree said in a statement they were reading McKay's decision and "analyzing next steps." Pfeffer didn't return a phone message, and the spokeswoman, Amy Slinker, declined to answer a question about whether the landlords would allow lawmakers to remain in the building.
McKay's decision can be appealed to the Alaska Supreme Court.
Gottstein, in a phone interview, said he welcomed the ruling, but added: "The lease was blatantly illegal from the beginning."
"We get the government we deserve by electing it," he said in a phone interview. "So, I think people should take a hard look at the people that look the other way, and are just not looking out for the peoples' best interests."
Gottstein's filings in the case included emails between Hawker and Pfeffer, the landlord, that Gottstein obtained through the discovery process.
The messages showed Hawker mocking legislative staff who raised questions about the lease's legality and cost, and devising a strategy with Pfeffer to counter a legislative attorney who said the deal might not be legal.
Gottstein's case also asked McKay to rule on a separate question of whether the lease extension complied with a law requiring it to be 10 percent below market value. The Legislature established the reduced rate with an appraisal that compared the lease extension to the value of the legislative office building itself, which the appraiser said is a common practice for a "special-purpose" space like the one used by lawmakers.
That question no longer needs to be resolved, McKay wrote in his ruling, since he declared the full lease invalid.
In the decision, McKay also rejected an argument made by the landlords that the legality of the extension shouldn't be decided by the courts because it's a political question about how the Legislature applies its own rules to itself.
As justification, McKay cited legislative attorneys' own arguments, which said the Legislative Council's written findings that the extension followed procurement procedures were, in fact, discretionary policy decisions protected by the separation of powers. But in the same argument, the Legislature's attorneys acknowledged the court could rule on the broader question of whether the lease is truly an extension.
Despite the landlords' argument, McKay said, "it would seem particularly inappropriate to fail to rule on the main issue in this dispute out of deference to a branch of government, which is not asking for deference."