Some background. In 2013, Rep. Mike Hawker, Chair of the Legislative Council, the outfit that controls the Legislative Affairs Agency, negotiated a no-bid lease with the owner1 of property in downtown Anchorage to be used as the Anchorage Legislative Information Office. Alaska law has a strong preference for competitive bidding and competitive proposals.2 The Alaska Legislature – at least until Rep. Hawker came along – felt strongly enough about this that it generally bound itself to those important policies.3
There’s a very good reason explaining why the Legislature bound itself to a competitive process: Impeachment Plaza, a/k/a the Sheffield Center. WC is referring to the shenanigans surrounding the building that is now the headquarters of the Fairbanks North Star Borough School District. An effort in the mid-1980s to force the State to lease the building led to a grand jury investigation. The grand jury recommended that then-Governor Bill Sheffield be impeached. In the event, John Shively, Sheffield’s chief of staff, took the fall, but the impeachment hearings and sordid facts had an impact and contributed to a new procurement code.4
In 2004, the Legislature amended the parts of the procurement code dealing with leases to allow renewal of existing leases without a competitive process for a term of not more than ten years, provided that there was a determination that the rent under such a renewal was at least 10% below current rental values.5 The idea was that a 10% savings plus the avoided costs of moving an office justified skipping a the hassle of a competitive process. Hey, it seemed like a good idea at the time. But any exception to the principle of a competitive process carries risks.
The Taj Mahawker would be Exhibit A.
In the case of the Taj Mahawker, there were at least three violations of the law. First, it wasn’t a renewal of an existing lease. It was a new lease, with the old premises stripped to metal skeleton and an adjoining property – the old Empress Theater – added to the leased premises. The exception in Alaska law allows the state to extend the term of an existing lease, not expand the premises and create a new lease. Calling the deal with the Taj Mahawker a “renewal of an existing lease” doesn’t pass the Red Face Test. Gottstein’s email evidence shows even the developer’s own attorney, the canny Don McClintock, was skeptical that the deal was legal.
The second violation of the law was the “back channel” that Rep. Hawker created with the property developer. Rep. Hawker used his personal email account – not his Legislative account – to conduct state business; well, for a given defintion of “business” at least. Basically, he schemed with the developer how to get the Taj Mahawker approved over the strong objections from both the executive director of the Legislative Affairs Agency and its attorney that the whole deal was illegal. You read that right: Rep. Hawker ignored the advice of the professionals he employed and plowed ahead. State officials are required to use the state’s email server when conducting state business.6 In the case Rep. Hawker, his motivation for using his personal email is pitifully transparent. Let’s note in passing that any competitive process the kinds of back channel communications Rep. Hawker had would be prohibited.
The third violation was gaming the determination of the rental value. Remember, the law requires that the rent be ten percent lower than the market rate. Rep. Hawker slipped two tricks in to that calculation. First, he found an appraiser who would opine that the Taj Mahawker was so special that there was nothing in the entire Anchorage market to which it could be compared. That’s errant nonsense. It’s an office building with conference rooms. But by slipping the claim in he allowed the Taj Mahawker to be compared to – wait for it – itself to determine the fair rental value. The comparable rental values used by Rep. Hawker were the thing being compared.
The second trick was to appraise the greatly expanded space, not the originally leased space. Put another way, Rep. Hawker used the fruits of the illegal renewal to justify the illegal renewal.
The result is, by a considerable margin, the most expensive lease the State of Alaska has. The result is an increase to $4 million in annual rent, up from $680,000 before the renewal. Did anyone else notice the price of office space in Anchorage going up more than six-fold in 2013? No? Then how can $4 million be 10% lower than the former rental rate of $680,000. Rep. Hawker would argue that the State is getting much more space. But that argument means that the no-bid lease extension under AS 36.30.083(a) isn’t available, because it isn’t a renewal, it’s a new lease.
The bottom line? Rep. Hawker entered into an illegal lease. He ignored the advice from his own advisors that it was an illegal lease. He conspired with the developer to pass it off as a lawful lease. For WC’s money, he’s an unindicted criminal. But that’s just WC’s opinion.
You see why Rep. Mike Hawker hates lawyers? They tel him when is breaking the law. And he hates that, too.
- Ownership of the Taj Mahawker involves an unusually messy series of nested companies. Much of the property ownership is allegedly held by an Asset Protection Trust, a legal structure specifically developed and enacted into Alaska law to defeat the claims of creditors. Like persons trying to recover damages for illegal rent payments. ↩
- AS 36.30.100 and AS 36.30.200. ↩
- AS 36.30.020. ↩
- For the full story of Impeachment Plaza, here’s a link to a series of New York Times articles. ↩
- AS 36.30.083(a). ↩
- Rep. Hawker may be claiming that the restriction of email only applies to the Executive Branch. WC invites Rep. Hawker to explain the public policy reasons why the Legislative Branch should be treated differently, why the public’s right to know and the preservation of the record isn’t equally important, maybe even more important, in the case of legislators. ↩