INSIDE REAL ESTATE: Redevelopment may not solve affordability problem

Mark Twain said, “Buy land because they don’t make any more.” I always believed that but recent changes in housing may make that statement no longer as true as it once was. Robert J. Shiller, Professor of Economics at Yale, wrote an interesting article in July 2006 about the devaluing of land over several decades. Because land is the largest single cost component of any housing structure, does that mean the cost of housing will ultimately decrease in Anchorage and create more “affordable” housing, the topic of conversation that seems to be on every citizen’s mind, along with our balmy weather and the Permanent Fund Dividend?  Shiller categorized land into three residential groups: country, suburban and urban. The first was country such as Midwestern farmland adjacent to suburban areas that has been transformed into large lots for single family homes like what is currently occurring in the Mat-Su Valley. These lots are usually larger than one acre and have minimum utilities to them (gas and electric) and function with well and septic systems. The second category was suburban land with public water/sewer and publicly dedicated and maintained roads, which is like the type of residential communities in southeast and southwest Anchorage. These lots are usually 6,000 to 10,000 square feet and are close to schools, shopping and entertainment. Urban land is his final definition and is where new land, i.e. the opportunity for more housing, is being created. This urban redevelopment with increased density is what is occurring in South Addition, one of the oldest subdivisions in Anchorage. Most South Addition lots were platted in a grid configuration with alleys and front streets and most were built out with single-family homes despite the underlying zoning of R2 (low density multi-family). Now, these single-family structures, built mostly in the l950s, are being replaced with duplex and four-plexes to be sold as individual townhouse style condos. Thus, creating more usable “land.” This urban new land is right in keeping with both the millennial and aging baby boomer home buyers who have a strong desire to be near community activities, cultural events, trails, parks and eclectic eateries. It does not, however, solve the “affordability” issue Anchorage faces in its housing as redevelopment is expensive and land prices are high on a per unit basis, costing as much as $125,000 per unit. Even the micro 200-square foot units being built in other urban cities are most likely not going to solve Anchorage’s shortage of affordable housing as the majority of baby boomers and “millies” still have a love affair with their F-150 long bed pick-up truck and snow machine. That’s why Alaska is different than Portland, Seattle or Minneapolis.        Connie Yoshimura is the Broker/Owner of Dwell Realty. Read more columns by Connie at Contact her at 907-229-2703 or [email protected]

Anchorage LIO owners file $37M claim against Legislature

The owners of the Anchorage Legislative Information Office building filed a claim for just more than $37 million against the Legislative Affairs Agency on July 8 as the Legislature prepares to buy other office space in Anchorage. In a 19-page claim signed by longtime Anchorage real estate developer Mark Pfeffer, who is the manager of the building owner group 716 West Fourth Avenue LLC, $37.01 million is being sought from the Legislative Affairs Agency. The figure is the amount the owners invested in the six-story Downtown Anchorage office project in 2014. The claim technically goes to Kodiak Republican Sen. Gary Stevens, because he currently chairs the Legislative Council. As chair of the council, Stevens is the de facto procurement officer for the Legislative Affairs Agency, which handles business matters for the council and the full Legislature. According to State of Alaska claims process, Stevens has 90 days to decide on the claim. If he denies it, the claim then goes to an administrative law judge within the Department of Administration and then before the commissioner of Administration before heading to Superior Court as a lawsuit. This spring, the council voted to buy a Midtown Anchorage office building owned by Wells Fargo bank at a price of up to $12.5 million. The money was included in the otherwise bare bones capital budget and Gov. Bill Walker did not veto the appropriation when he signed the budget on June 29. However, the governor did urge legislators to find another, more cost-effective option for Anchorage offices. Stevens Chief of Staff Katrina Matheny said the claim does not immediately change plans to purchase the Wells Fargo property and that it has been turned over to Legislative Legal Services for review. Stevens originally hoped to finalize a purchase agreement for the building by July 15, but scheduling conflicts have likely delayed signing the deal for about a week, she said. Stevens was traveling and unavailable for comment, according to Matheny. Public pressure to get out of the 10-year, $3.3 million per year lease for the downtown space while the state grapples with yearly multi-billion dollar budget deficits pushed the council to consider other options starting late last year. Last December, the council voted unanimously to not continue to fund the lease and to explore the cost of moving to the nearby state-owned Atwood Building versus a purchase of the LIO. The council later voted to purchase the building for $32.5 million based on a cost analysis that found it to be cost competitive over 20 years compared to moving to Atwood. After Walker said he’d veto that appropriation, saying it would be inappropriate to spend the money given the state’s bleak financial situation, it emerged that Wells Fargo would sell its Midtown building for $12.5 million and the council voted May 2 to rescind its offer on the LIO and purchase the Wells Fargo building. In March, state Superior Court Judge Patrick McKay ruled the lease invalid because the council violated state procurement code when it signed the deal for the building project in 2013. Rep. Mike Hawker, R-Anchorage, chaired the Legislative Council at that time and signed off on the deal, which totaled $44.5 million. The Legislature invested $7.5 million in the redevelopment project. “Under Alaska law, despite the (Superior) court’s order, the Legislature cannot impose the entire cost and burden of its flawed procurement process, and the effort and expense contractually required of 716, on 716’s shoulders,” the claim states. “Public policy and the need for the public to have faith in the state’s contracting obligations require that the Legislature bear the cost and consequences of its decision to abandon the (Anchorage) LIO building.” Pfeffer has said repeatedly that the building, finished in late 2014 and occupied by the Legislature shortly thereafter, was custom-built to meet the Legislature’s needs. “We still believe we can achieve a pathway to savings and are disappointed that we are forced to take this step. We are willing to work with the Legislature to achieve savings but without the Legislature’s cooperation, we have no choice but to seek legal recourse,” 716 spokeswoman Amy Slinker wrote in a formal statement. In May, shortly after the Legislative Council announced a preliminary deal to purchase the Wells Fargo building, Florida-based EverBank wrote a letter to the Legislative Affairs Agency demanding the state follow through with its lease obligations upon which the bank based its $28.6 million loan to 716 for the LIO. “In the future, if the McKay (court) order is upheld, EverBank will present its claim against the state,” an attorney for the bank wrote to the council.

DNR transition at top takes place amid budget challenges

When outgoing Natural Resources Commissioner Marty Rutherford gives the keys to incoming commissioner Andy Mack, she will be handing over a major state agency that is, considering the state budget, in pretty good shape. Rutherford is a 27-year veteran Department of Natural Resources administrator who retired June 30 after having served for years as deputy commissioner with several stints as acting commissioner, the most recent since March with the departure of former commissioner Mark Myers. She first became the deputy boss at DNR in 1991, leaving in 2005 after a falling out with then-Gov. Frank Murkowski. She returned to her old job in December 2014 when Gov. Bill Walker took office. The Legislature treated DNR relatively easy this year when it wielded its big budget axe and that’s partly because of legislators’ respect for Rutherford and partly because the agency was hammered hard in the preceding two years. Some good news is that some of DNR’s revenue-generated core divisions, like the Division of Oil and Gas, are going into next year with its funding and staff relatively intact, although there were come cuts. Incoming commissioner-designee Mack, who takes the helm July 1, is known for having good political skill, which will be sorely needed over the next few years because the state’s financial situation won’t be getting better any time soon. Unlike many state agencies the DNR has the ability to generate some of its own funding, through fees. “We’re basically in the economic development business,” Rutherford said, and that includes raising revenues where it’s possible, including selling t-shirts and hats with state logos to support state parks. “No idea is off the table,” deputy commissioner Ed Fogels said, including ideas like renting out unused parking space at the state’s new geological materials center in Anchorage, a former Sam’s Club. Here’s the budget picture for DNR: State undesignated general funds approved for the agency by the Legislature for fiscal year 2017, the budget year starting July 1, totals $62.47 million. That’s down from $70.3 million in fiscal year 2016 ending June 30, $77.92 million in 2015 and $83 million in 2014. “We’re losing 17 positions next year and that’s on top of 76 positions lost last year. It’s a reduction of 10 percent of our workforce over two years,” deputy commissioner Ed Fogels said in an interview. Some good news is that the agency has been able to preserve its core divisions, particularly those that bring in money. The Division of Oil and Gas, for example, took a $139,000 hit this year and lost three positions. The bite was deeper last year for the oil and gas division, however. Other divisions took deeper cuts, however. The Division of Forestry is down $752,000 and two positions. The commissioner’s office was cut $335,000 and two positions. “This is going to affect our ability to deliver services,” Rutherford said. “In the divisions of forestry, mining, land and water management, there are cuts to support staff. This is going to slow down our work.” In the Division of Land and Water Management, which is cut $363,000 and two positions, there will be an effect on the processing of state land and water-use permits. This is an area where the DNR, and the Legislature, applied extra resources in 2011 to catch up on a backlog of land-use permit applications. The agency may be able avoid some piling up of applications by unified permitting procedures and electronic permitting, Fogels said. In other divisions, DNR is moving to find new fund sources so that agencies can become more self-funding. “If people use it, they should help pay for it,” Rutherford said. One example is in the state Parks Division, a small part of DNR but one that is popular with the public, which is already partly self-funded through campsite and visitor fees. The parks division will still take a $99,000 reduction this year. However, a planned increase in park and camping fees will allow the division to pay about half of its costs, Fogels said. The remainder could eventually be covered through new revenues from sales of state park t-shirts, caps and other paraphernalia with the state park logos and other designs, he said. Most state park systems in the U.S. help support themselves through sales of memorabilia, and now Alaska’s will do so, too. State park managers are now working on designs and ordering materials. Fogels said the objective is not to compete with the private sector. The state will be a wholesaler, selling the goods through retailers. Continued development of the state parks and campgrounds, however, could become very profitable for the state. The new K’esugi-Ken campground in Denali State Park, on the Parks Highway, will be open by Memorial Day 2017 with 32 campsites and, weather permitting, stunning views of Denali. “This is one of the best views of Denali along the Parks Highway, and it’s going to really pull people. We expect it to be very profitable,” Fogels said. More public-use cabins, for which fees are charged, are planned in high demand areas, too. “My goal is to get the Parks Division completely off state general funds,” Fogels said. Similarly, the state Division of Geological and Geophysical Services, another part of DNR, wlll be charging for access by companies to use its geologic materials center, which is an expensive facility to maintain. This is common in other states, but has not been done in Alaska. The division is taking a $53,000 cut this year. Rutherford is concerned about the state Forestry Division, which is taking a larger reduction. Cuts this year will eliminate a forester position in the small Haines State Forest in Southeast, and that, plus other reductions, could impair the state’s timber sales program in the region. The Southeast timber sales are profitable for the state, Rutherford said, and are also important for the few sawmills that remain in the area. State-owned forest lands are now the most important source of wood for these mills because harvests in the Tongass National Forest are sharply down. A bill passed by the Legislature this spring to allow the state to do negotiated long-term timber sales will help these mills secure a steady supply of wood. Previously the mills had to bid competitively in shorter-term sales, which meant that purchasers selling state timber as logs into export markets could usually outbid the local mills, which make products. In Interior Alaska the state supplies wood for small mills and biomass for heating from the Tanana State Forest. Rutherford is worried about the Forestry Division’s cuts in firefighter training. Last year saw a hugely destructive forest fire season and it’s too early to predict this year. “If we’re unable to have our own trained firefighters we have to import firefighters from other states,” she said. That not only drains money out of the economy — seasonal firefighting is a big source of jobs for rural Alaska — but it can slow response time. The federal government pays firefighting costs on its own lands, mainly in the Interior and northern parts of the state, but Alaska is responsible for state lands, which are also mostly near communities. Last year the state spent more than $75 million on firefighting. One division in DNR, the Division of Agriculture, has been a kind of step-child in previous years, but the division, and the industry it serves, is actually doing well, though Alaska farming is small-scale, Rutherford said.  The Matanuska-Susitna Borough has long been a source of fresh vegetables for Southcentral Alaska communities and the advent of weekend farmers’ markets had added a new profit center for local growers, though it is small. The new director of the Division of Agriculture, Arthur Keyes, is a local farmer himself and an entrepreneur who also developed the vibrant weekend farmers’ markets in Anchorage. The success for Alaska growers will be in niche markets, Rutherford said, like growing and shipping peonies for seasonal out-of-state markets. Even in Delta, east of Fairbanks, where the state unsuccessfully attempted to develop a large barley farming project in the 1980s, farmers still grow the grain for local markets and are making and selling new products. Bryce Wrigley, one local farmer, is making a barley flour that he sells in Fairbanks and Anchorage stores. His company is Alaska Flour Co. Rutherford said one of the Agriculture Division’s most important functions is the plant materials center that provides seeds for local grasses and plants that are important for land rehabilitation and restoration. Providing disease-free seed potatoes for Alaska growers is another function. This unit was under the budget axe this spring in Juneau. The state House cut $335,000 from the Agriculture Division, essentially eliminating the unit, but the Senate restored the money for one year. “In the next year we’ve got to figure out a way to raise funds for the plant materials center,” Fogels said. Rutherford said the ability to grow grass and other plant seeds in the state is important for keeping invasive plant species out. “Growing our own eliminates the need to import seeds for Alaska growers,” she said. It’s when seeds are imported that invasive species are introduced, mixed in with the out-of-state seeds. The state-owned and prisoner-operated Mt. McKinley Meat & Sausage plant in the Mat-Su, which provides the Southcentral region’s only approved U.S. Department of Agriculture inspection service for meat sales, was also given a reprieve by the Legislature. It was to have closed in July but lawmakers are allowing it to stay open while negotiations are underway with a local nonprofit that could take over ownership and operations. Tim Bradner is a correspondent for the Journal. He can be reached at [email protected]

USDA advances $16M in rural energy development grants

In an era of state cutbacks, every federal penny counts. U.S. Department of Agriculture-Rural Development Alaska State Director Jim Nordlund announced on June 23 that nine grant applications from Alaska totaling $16 million are moving to a final review process. The USDA’s High Energy Cost Grant program is intended to help families and individuals in areas with extremely high per household energy costs, which is federally classified as any community that pays 275 percent of the national average. Alaska has some of the highest utilities costs in the nation at just less than 18 cents per kilowatt-hour, according to a March 2016 report from the U.S. Department of Energy. The national average is 10 cents per kilowatt-hour. In rural Alaska communities, this number grows even higher. The grants fall under the USDA Rural Development program, which has granted more than $2 billion in housing, community facilities, businesses, energy, water and sewer and telecommunications projects in 226 rural Alaskan communities since 2009. USDA specifies the funds may be used to acquire, construct, extend, upgrade or otherwise improve energy generation, transmission or distribution facilities. The USDA received grant applications between $400,000 and $3 million from Alaska Power & Telephone Company, Alaska Village Electric Co-Op, City of Grayling, City of Pilot Point, Alaska Native Tribal Health Consortium, NANA Regional Corp., New Koliganek Village Council, Asa’carsarmiut Tribe and Naterkaq Light Plant. Each project still has to pass an environmental review before approval. Nordlund said he was uncertain on how long the process takes, but staff estimated 60 days as typical for some previous projects. “It really depends on the project,” said Nordlund. USDA’s program picks up some of the slack from a drop in state funding geared toward the same purpose. “Because of the state fiscal crisis, the money for things like that fund and other efficiency programs has dropped precipitously over the last two years,” said Chris Rose, executive director of the Renewable Energy Alaska Project, a coalition of over 70 business and power producers, conservation groups, and electric utility companies focused on energy efficiency development. The Alaska Renewable Energy Fund passed in 2008 at the behest of REAP and others similarly focused groups. Since then, the state has appropriated over $250 million into the fund, which in turn produced another $200 million in federal and state matches for feasibility studies, designs, and construction. The 50 projects currently completed with these funds will displace 30 million gallons of diesel per year, according to the Alaska Export Authority estimates. Nordlund said proposals are increasing for the federal program, both in quantity and in quality. “I think we’re seeing a lot more interest,” said Nordlund. “I’m seeing a lot more creativity in the projects that come in. I think what you’re seeing is more sophistication in the proposals, because we’re starting to build a core of engineers and developers in this state who understands what works and what doesn’t work in the state of Alaska. They’re getting to be better prepared.” Most of the nine awards foster development a few key technologies. The three largest grants of $3 million apiece to Alaska Village Electric Co-Op, Alaska Power and Telephone Company and Naterkaq Light Plant will go toward wind energy development projects.  “If you were to collapse them into categories,” said Nordlund, “every one of them either has something to do with wind generation, waste heat recovery, solar, battery technologies, electric thermal stoves, or biomass, which in English is like heating with wood.” Health organizations like the Alaska Native Tribal Health Consortium, granted $690,388, will use the money for water treatment, lowering one of the larger power costs in remote places. “A good cornerstone of health is good water,” said Steve Weaver, director of the Division of Environmental Health and Engineering at ANTHC. “We’re looking at putting solar panels on eight water treatment plants in eight remote communities that use diesel fire generators to provide electricity. We expect solar to offset their power costs by 15 percent over time.” Jason Custer, a business development representative from Alaska Power and Telephone, estimates the project will reduce cost to 15 cent per kilowatt-hour in the heavily diesel-dependent communities it services. In Alaska Power and Telephone’s case, the $3 million makes the total $10 million project financially viable. Cost reductions are key to the program, but Rose said the ebbs and flows of oil and gas pricing are enough concern on their own for utilities companies and their customers.  “We don’t have any control over fossil fuels, even though we produce them here in the state,” said Rose. “We don’t have control over the price of diesel. We don’t have control of the price even of the natural gas we use here in the Anchorage area.” With renewable sources, he said, even if the price doesn’t go down it will at least be more predictable. “For a lot of these communities, the most important thing is that it’s stably priced. Once you put in a renewable energy project, you can much more predictably see what the cost of power is going to be in the future.” As with oil and gas, Alaska’s renewable energy development can give direction for national and international projects of the same scope and purpose. Navigant Consulting, an energy consulting firm, produces studies related to renewable energy. Alaska ranks top of the line in at least one category.  “Their definition of microgrids includes islands that have renewables in them,” said Rose. “By that definition, Alaska has more small islands with renewables integrated into them than any other place in the world.” Rose said his group is already working with Outside communities to help adapt Alaska-bred methods. “We believe we can export these technologies,” said Rose. “There are people we’re working with in island communities in the Caribbean and the Pacific who we believe want the same technology.”   DJ Summers can be reached at [email protected]  

INSIDE REAL ESTATE: Anchorage home market shifts from sellers to buyers

According to the Multiple Listing Service, residential active listing inventory in the Municipality of Anchorage bumped up to over 900 units for sale in April and May, similar to the available inventory in 2010, turning the Anchorage market into more of a buyer’s market than a seller’s. Just a year ago, inventory was in the 600 for sale range for the same months. At that time, frustrated buyers dealt with competitive multiple offers on homes with some offering more than listed price. Not so today where homes are selling for 98.23 percent of adjusted list price and that percentage does not include any buyer-paid closing costs by the seller. Adjusted list price means any reduction from the original listed price, and that percent sale to original list price is 95.98 percent. Anchorage is a small market with 2,860 single family homes selling in 2014 and 2,993 in the past year. It is hard to generalize and put percentages on any specific home or subdivision but midway through 2016, the trend is pretty clear. Inventory is up but sales are still strong. Through the first five months of this year, there have been only 69 fewer sales than in 2015 for the same time frame. So with inventory up, the approximately same number of buyers have more choices and are taking more time to make a decision. This is reflected in longer days on the market with the six-month average of 51 days on market compared to 44 the past 13 months.  Sellers, whether builders or private parties with pre-owned homes, need to do more to make their homes attractive. That includes fresh touch up paint, cleaning out the garage so that it appears more spacious and the important lawn and landscaping care. First impressions are the most important. If the exterior of the home is not attractive and well cared for or looks exactly like the same of every other home on the block, that buyer is going to drive right by, whether they are with their realtor or by themselves. An unkempt lawn or dead bushes make a negative impression that is not retrievable. Once the home is in market condition, it is all a matter of price. Sellers need to look not what the home down the street sold for six months ago but what is currently on the market that competes with the home they are selling.  Every home has attractive features which is why the sellers bought the home in the first place. Although Zillow and Trulia are for many buyers the first online stop, they don’t provide enough detail as to what was an important feature to the seller and prospective buyer. Buyers shopping only online may miss out on the home of their dreams. This summer is one of our best for sunny skies and warm temperatures. If you’re looking for a new home, get in your car, on your bike or walk around the neighborhood where you would like to live. You might be surprised at what you find. Connie Yoshimura is the Broker/Owner of Dwell Realty. Read more columns by Connie at Contact her at 907-229-2703 or [email protected]  

INSIDE REAL ESTATE: Test your knowledge of the Southcentral real estate market

1. Has the average sales price of Anchorage homes increased or decreased year-to-date when compared to the 2015 average price? 2. By what percentage has this increase or decrease occurred? 3. Has the number of residential sales for the first four months of 2016 increased or decreased when compared to the same time last year? 4. How many home sales have occurred in the first four months of 2016 as reported in MLS? 5. In the last six months, how many million-dollar homes listed in MLS have sold? 6. What price range has the highest percentage of inventory? 7. How negotiable do most sellers have to be in order to sell their home?  In other words, what is the percentage sales to original list price the past six months? 8. What is the average sales price of an Eagle River single family home and is that higher or lower than Anchorage? 9. How many homes priced over $749,999 are for sale in Eagle River vs. Anchorage? 10. What is the average sales price of an Anchorage condo? 11. How many condos are for sale in this price range? 12. How many condos are for sale over $400,000? 13. Have Anchorage residential building permits increased or decreased YTD when compared to last year? 14. What is the average listed price for a home in the Mat-Su Borough? Connie Yoshimura is the broker/owner of Dwell Realty. Read more columns by Connie at Contact her at 907-229-2703 or [email protected]     Answers 1. Decreased        2. 2.5%, wiping away the 2015 appreciation rate of 2.27%       3. Minimally decreased. 52 fewer home sales       4. 722 5. None 6. $500,000 to $749,999, 21% of all MLS Anchorage inventory       7. 4.33% less than original list price.       8. $362,688, almost identical to Anchorage’s at $360,978        9. 4 in Eagle River; 75 in Anchorage       10. $213,070 11. 29 12. 33 13. Decreased.  Still waiting for the MOA to post April and May permit info but rough data indicates a continued decrease in activity    14. $284,400    

Congress approves $561M for Alaska military construction in FY2017

Missile defense and fighter jets could be a just-in-time boon for Alaska contractors feeling the effects of low oil prices and state budget cuts. The U.S. House and Senate each passed appropriations bills May 19 to fund a dozen projects totaling $561 million worth of construction activity in Alaska. Most of that money will go to Interior military installations to upgrade the country’s missile defense system and prepare for the arrival of two squadrons of F-35 fighters to Eielson Air Force Base in 2020. The Senate’s $139.4 billion packaged appropriations bill addressed military construction, Veterans Affairs, Transportation and Housing and Urban Development spending for the 2017 fiscal year that begins Oct. 1. The $81.6 billion House bill funds Defense infrastructure and VA programs. Despite differences in other areas, the bills are nearly identical in terms of military construction funding for Alaska. “The decision to base two squadrons of F-35s, totaling 54 aircraft, at Eielson Air Force Base and position Long Range Discrimination Radar at Clear Air Force Station were major victories for Alaska and the nation. Not only will these systems play an immense role in defense of our nation, they also mean a significant boost to our economy and our local communities,” Rep. Don Young said in a May 19 statement. “Today’s House-passed Milcon-VA Appropriations Act lays the groundwork for these two important basing decisions and further supports the needs of our military men and women.” Sen. Lisa Murkowski added language to the Senate bill in the Military Construction-VA Appropriations Subcommittee encouraging the Defense Department to “conduct outreach to contractors located in Alaska and experienced in Arctic construction techniques in the execution of the military construction program for Alaska,” according to a release from her office. The intent language also urges DOD to maximize local workforce participation and coordinate that work with the state Labor Department and the University of Alaska to provide training for the pending construction work. The language was pulled as the bill moved through the committee process, but was ultimately reinserted in the legislation that passed. Despite Alaska receiving more military construction funding than any other state in the appropriations package, the projects are security investments for the entire nation, Murkowski said in a release. “This funding bill not only allows us to obtain the resources that we need to support our military efforts, such as preparing for the arrival of the F-35s at Eielson Air Force Base and building the Long Range Discrimination Radar at Clear; it also represents a resurgence for Alaska’s construction industry and thousands of new full-time jobs at a time when Alaska’s economy needs it most.” Murkowski’s office estimates the projects could spur nearly 2,700 new construction-related jobs and more than 1,600 permanent positions. Missile Defense Agency Director Admiral James Syring said during a February talk to the Fairbanks Chamber of Commerce that more than $325 million will be spent over the next six years installing the Long Range Discrimination Radar at the Clear Station near Nenana. That work will require a 350-person man camp starting next year, with peak occupancy and construction in 2019, he said. Syring added that the missile defense and detection upgrades in Alaska are all aimed at expanding the country’s defense mechanisms against North Korea. He said he would expect local contractors to get much of the work at Clear Air Force Station at least. Elwood Brehmer can be reached at [email protected]

INSIDE REAL ESTATE: As you may have guessed, Anchorage home listings on rise

As you might have suspected, Anchorage inventory has continued to increase over the past few weeks. Spring and early summer is the time of year when sellers like to put their homes on the market and our uncertain economic outlook has no doubt helped increase Anchorage’s inventory. A snapshot of a week’s inventory of available homes in May when compared to the same time in 2015, shows a 64 percent increase in active for sale single family homes. On May 2, 2015, there were 428 homes for sale; on May 2, 2016, there were 702. Not all Alaska communities are showing such a dramatic increase in inventory and some inventories have actually declined. Wasilla, as you might expect, has had a 32.36 percent increase in inventory, an increase from 343 to 454. Kenai had a 55 percent increase, from 60 to 93. Chugiak has increased from 30 homes to 49 and its neighbor, Eagle River, has gone from 134 homes for sale to 171, an increase of 27.61 percent. Big Lake, originally a cabin and recreational community, has developed into a year-round community with larger lakefront homes. It’s had a 39 percent decline in available homes. There are now only 37 homes for sale compared to 61 a year ago. You can expect that market to further tighten up as the summer recreational season takes hold. Likewise, Homer has had a 14 percent decline in available homes, from 114 to 98. Homer and Halibut Cove have established their communities as the go to place for upscale visitors as well as Alaskans. Sitka and Seward are also stable with little or no movement up or down. So it’s a mixed bag of supply and demand. It’s hard to explain why Talkeetna and Willow have a decreasing supply of homes for sale while Wasilla, the hub of the Mat-Su, has had such an increase.  However, neither Anchorage nor Wasilla has reached a saturation point of oversupply. Anchorage, in particular, is still a long ways from the high water mark of 1,299 homes for sale in June 2007. Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-229-2703 or [email protected]

Senate approves $1.6B state construction budget

JUNEAU — The Alaska Senate has voted 16-4 to send the state’s $1.6 billion capital construction budget to the House. The $1.6 billion budget is in many ways a bare-bones appropriation and went unchanged from a version previously approved by the Senate Finance Committee. Of the budget, $1.3 billion will be funded by federal dollars administered by the state. Only $77.5 million will be spent in undesignated general-fund dollars as matching funds needed to unlock that federal money. The remainder of the budget will be funded with various other state accounts. “It’s tough times; it requires tough decisions, and the Senate has risen to the occasion,” said Sen. Anna MacKinnon, R-Anchorage. Most of the budget is allocated for transportation-related construction projects, which are matched at better than a 9-to-1 rate by the federal government. The biggest point of contention in the budget was the lack of a $7.2 million appropriation for the Kivalina school in the Northwest Arctic Borough. Gov. Bill Walker had requested $7.2 million to finalize the settlement of a lawsuit alleging unequal treatment between rural and urban school funding. According to an analysis of the settlement provided by the Alaska Department of Law, the state must provide $50.4 million for a new Kivalina school. Last year, the Legislature appropriated $43.2 million for the school. Walker’s request would have covered the remaining amount, but it was removed by the Senate Finance Committee. “Our attorneys last year gave us a different number,” MacKinnon, co-chairwoman of the finance committee, said in a floor speech. In a memo dated May 13, 2016, legislative counsel Megan Wallace wrote MacKinnon to say that the state is obliged to fund only $43.2 million. While the Legislature could choose to provide more money, Wallace concluded, “the Legislature’s decision whether to appropriate those amounts cannot and will not lead to any violation of the consent decree.” Instead of additional money for the Kivalina school, the capital budget includes a statement declaring that the Legislature believes it has already met the requirements of the settlement. That language and the removal of the Kivalina money was opposed by members of the four-member Democratic Senate minority and Sen. Donny Olson, D-Nome and a member of the Senate majority. Olson represents Kivalina in the Senate. The budget also includes $12.5 million to purchase an Anchorage office building for use by the Legislature. Speaking on the Senate floor, Sen. Gary Stevens, R-Kodiak and chairman of the Legislative Council, implied that the purchase is the best of a series of bad options for the Legislature. It cannot purchase its existing downtown Anchorage building because of a veto threat from the governor. It cannot continue to lease the downtown building because the lease was ruled illegal. Moving into the state-owned Atwood Building would require renovating that structure and finding interim space for lawmakers while the renovations take place. The Senate Minority offered an amendment to strip the $12.5 million from the budget, but that was rejected 4-16. Members of the Senate Majority said that on a square-foot basis, the $12.5 million purchase will work out to 57 cents a square foot. Sen. Bill Wielechowski, D-Anchorage, retorted that on a square foot basis, the new building is so large that every Anchorage legislator would be getting 2,000 to 3,000 square feet of office space. “Do you really need 2-3,000 square feet per legislator?” he asked. Members of the Senate majority also rejected amendments that would have de-funded the Knik Arm Bridge and Bragaw Road extension projects in Anchorage. The capital budget moves to the House for consideration.  

INSIDE REAL ESTATE: Anchorage’s housing shortage continues

Anchorage, Alaska’s largest metropolitan area, continues to face a housing shortage due to the lack of new construction activity that has been exacerbated by the implementation of the new Title 21 land use regulations. As the chart demonstrates, new single family permits have been at a steady decline since 2013 and the decline from 2015 to 2016 is a whopping 50 percent. For the first quarter of 2016, Anchorage had only 26 single family permits, a historic low. Only 14 duplex units were permitted compared to 26 just a year ago. The most dramatic decline, however, came in multi-family permits for new units. In 2015, there were 148 first quarter units permitted compared to only seven in 2016. This low number is particularly discouraging for moderate and low income residents and is indicative of struggle all market segments are having with the new regulations. To put these historic low permit numbers into a wider context, let’s take a look at other communities with similar populations, some of which have also been affected by the struggling oil industry. Tulsa, Okla., has a population of 391,906 and for the first quarter had 118 new single family permits. Arlington, Texas, has a population of 365,438 and had 66 single family permits. Both of these communities are influenced by the health of the oil industry and yet proportionately in relationship to the population are creating more new housing starts than the Municipality of Anchorage. The difference can only be attributed to our newly minted land use regulations. Henderson, Nev., has a population of 257,729 and had 500 new single family permits for the first quarter of 2016. Nevada, in general, has had a rebound from the recession of 2008, and although one can’t expect Anchorage to have a comparable first quarter of single family permits, it has actually been years since we have had 500 new single family permits annually. There is no easy solution to the problem that the planning department and the Municipal Assembly has created. Repeal is most likely not going to occur. Instead, hundreds of hours and thousands of consultant dollars will be spent trying to peel the onion off the over regulations, one layer at a time. And, as for all those purported homes coming on the market, as a result of oil industry layoffs? We need them to fulfill the shortage of housing created by the new Title 21. It is not that lenders will not lend and builders are afraid to build, it is a simple fact that the new regulations are making it more expensive and creating delays to getting sticks in the air. Read Connie Yoshimura at Contact her at 907-646-3670 or [email protected]  

Delegation wants repeal of regs aimed at Native contracts

Rep. Don Young is trying again to make a small change to federal code that he says will have a big impact on many Alaska Native corporations doing business with the federal government. The changes Young is seeking would repeal special criteria the federal agencies are required to consider when justifying sole-source government contracts totaling more than $20 million to Alaska Native corporations and other small businesses. That language would be replaced by existing and widely used criteria found in the 1984 Competition in Contracting Act, which Young contends is better understood and easier to apply. Young’s proposal was included as an amendment to the 2017 National Defense Authorization Act, which moved out of the House Armed Services Committee April 28. The current five-step justification process requires federal agencies to cite their authority and need to go outside the standard competitive bidding process was added to the 2010 Defense spending authorization as Section 811 of that bill. Young said in an April 29 release from his office that Section 811 has led to “major inequities” for Native contractors. “What was sold as a good governance measure in the Senate has led to the discrimination and mistreatment of Native community-owned businesses. The heightened level of scrutiny required by Section 811 is found nowhere else in the federal government, and has resulted in the net loss of jobs, more than 60 percent decline in revenue from these contracts and a frightening layer of bureaucratic red tape,” Young said. Among the regional corporations, 28.5 percent of their total revenue was from 8(a) contracting in 2014 compared to 42.9 percent in 2010. Subsidiaries of Alaska Native regional corporations and Native village corporations are often first in line for government contracts under the Small Business Administration’s 8(a) Business Development Program. The program aims to help “socially and economically disadvantaged” small business owners by allowing them to receive sole-source government contracts generally capped at $6.5 million, according to the SBA. However, agencies are allowed to award sole-source contracts of any size to Native-owned corporations. It is Young’s third attempt to clarify or repeal Section 811 since 2013. His amendments to the 2014 and 2016 Defense spending bills were pulled during negotiations with the Senate. Alaska Native Village Corporation Association Director Keja Whiteman said in a formal statement that the group supports Young’s effort to repeal Section 811. “The passage of Section 811 has been detrimental to the already heavily regulated and highly scrutinized Alaska Native corporations and Native 8(a) businesses,” Whiteman said. Sens. Lisa Murkowski and Dan Sullivan echoed Young’s sentiment in statements from their offices. “Section 811 was ‘air dropped’ in the dark of night into a non-amendable conference report to accompany the 2010 National Defense Authorization Act,” Murkowski spokeswoman Jenna Mason wrote in an email. “The full Senate was never given an opportunity to debate, amend or cast an up or down vote on the provision. This is the worst sort of process and was undertaken deliberately to silence the voice and vote of Indian Country supporters in the House and Senate.” Sullivan’s spokesman Mike Anderson noted the sole-source justification provision was implemented before he was in the Senate and said he supports language to mitigate the “harmful effects” Section 811 has had on Native 8(a) contracting opportunities. “Sen. Sullivan is committed to using his position on the Senate Armed Services Committee to attempt to correct this problem,” he wrote. Missouri Democrat Sen. Claire McCaskill has led a push in Congress in recent years to get increased oversight of Alaska Native regional corporations, particularly in regards to the companies’ business with the federal government. She argues that much of the money awarded to the corporations through the 8(a) program does not reach the corporate shareholders as intended. The 12 Alaska Native regional and smaller village corporations were established as part of the 1971 Alaska Native Claims Settlement Act. Many corporation subsidiaries have been established as small businesses to specialize in government contracting for construction, IT and operations management services among others. A comparison of Section 811 sole-source justification requirements and those in the Competition in Contracting Act by a 2012 Government Accountability Office report found the criteria to be rather similar; the biggest difference was that Section 811 requires “a determination that the use of a sole-source contract is in the best interest of the agency concerned.” The same December 2012 GAO report concluded the number of $20 million-plus 8(a) contracts issued declined after the justification requirement change because apparent confusion among agencies as to exactly when the Section 811 criteria applied. According to the report, the number of sole-source contracts to 8(a) businesses fell from an average of about 50 per year from 2008-2010 to about 20 per year after enactment of Section 811 in 2011. Another GAO report requested by McCaskill and released March 21 — titled “Alaska Native Corportions: Oversight Weaknesses Continue to Limit SBA’s Ability to Monitor Compliance with 8(a) Program Requirements” — found that 344 Alaska Native corporations and subsidiaries were still awarded roughly $4 billion in 8(a) federal contracts during the 2014 fiscal year, or nearly a quarter of the $17 billion in total government spending that went to almost 5,600 businesses in the program nationally. Of that $4 billion, about $3.1 billion went to six Alaska Native corporations and their subsidiaries according to Bloomberg’s annual list of the 200 leading federal contractors in fiscal year 2014. The six Alaska Native regional and village corporations in the top 200 were: Arctic Slope Regional Corp., No. 75 at $793 million; NANA Regional Corp., No. 85 at $707 million; Afognak Native Corp., No. 107 at $491 million; Chenega Corp., No. 119 at $441 million; Chugach Alaska Corp., No. 138 at $384 million; and Bristol Bay Native Corp., No. 142 at $363 million. Elwood Brehmer can be reached at [email protected]  

House or condominium, know your rules for landscaping

This is the time of year when everyone’s thoughts turn to landscaping and outdoor maintenance. Whether it’s buying that Bell’s hanging basket for your deck or installing a brand new yard, each homeowner and condo association is unique in their rules and requirements when it comes to landscaping. Prospective homebuyers should carefully review the public offering statement or resale certificate prior to their purchase so they are aware of what the homeowners association, or HOA, expects of them regarding the installation and maintenance of landscaping. Well-maintained landscaping adds cohesiveness in the community and adds to a planned, attractive and well laid out streetscape. It also adds real value when it comes to the resale of a home. In some new home communities it is the developer’s responsibility to install four to six inches of top soil, hydro-seeding and a specific number and type of trees and shrubs as part of their platting approval. Other new home communities leave the landscaping to the initial homeowner and must be completed within a specific time period, usually one year after occupancy. Some subdivisions may require an actual dollar amount be spent on landscaping a new home while others may actually dictate the height, trunk caliber and type of tree for the front yard. One new subdivision in southeast Anchorage is requiring foundation landscaping at the front of each home, as recommended by Anchorage’s new Title 21. In pre-owned homes, where the initial landscaping has already been installed, the issue becomes one of maintenance. HOAs require that the landscape design for the community be maintained on each lot, the enforcement of which is the responsibility of the landscape committee. Enforcement can include the timely removal and replacement of dead trees and shrubs. If the committee is not knowledgeable on landscaping, disputes can arise over dead trees and lawn maintenance. Some associations have the ability to fine homeowners if their landscaping is not in conformation with the covenants, codes and restrictions. Other associations may limit how many times an owner may fertilize in a growing season due to the run off into ecological sensitive areas. In condominium developments, the association takes care of the landscaping for all common areas, including signage, unless an area is designated as a limited common area adjacent to a particular unit when it becomes the responsibility of the individual condo owner. Associations have no authority over limited common areas. The association board generally hires a landscape contractor and is paid for out of the monthly dues. The contractor is responsible for spring and fall cleanup, aeration, fertilization, watering, raking, weed control in beds and lawns, mowing and trimming. For many owners, it is a small price to pay for an aesthetically attractive community. Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-646-3670 or [email protected]  

Mat-Su Assemblyman proposes marijuana moratorium

The Mat-Su Borough could halt marijuana commercial activity in its unincorporated areas sooner than thought if a proposed moratorium passes the Assembly. Mat-Su Borough Assembly member Randall Kowalke introduced a temporary moratorium on commercial marijuana on April 19. The Assembly will accept public comment and vote on the moratorium on May 3. Depending on the results of an October borough ballot initiative that would ban commercial marijuana, the moratorium could extend indefinitely. Kowalke said he doesn’t intend the moratorium to be a roadblock. He said state regulatory authorities and the borough’s own zoning regulations make him want to take a pause. “My ordinance is rather straightforward,” he said. “It’s to call a time out.” The moratorium responds to zoning concerns, Kowalke said, as his district’s libertarian land ownership practices seem to have found their limit. The unincorporated borough’s lack of zoning laws has presented a tricky situation, he said. Commercial marijuana cultivation facility proposals are sprouting up in rural areas that could be classified as residential but have no legal distinction as such. Lakefront property owners and others have called him concerned about grandchildren running around in the vicinity of a marijuana grow. “My district has long prided itself on you buying a piece of land and doing whatever you want on it,” he said. “Those are some of the folks that have contacted me about the marijuana things.” Further, Kowalke said he’s concerned with the federal background check provision in statute. Marijuana Control Board director Cynthia Franklin has said she will not process marijuana license applications until legislation allows the board to request federal background checks. Two bills in the Legislature allow this, but the Senate and House cannot agree on either. The motivation, Kowalke said, is to avoid the ambiguity and “to give a time out to try to zone residential issues, give the state time to figure out background checks, and work with planning and zoning.” The borough already has a ballot initiative scheduled for October that would ban all commercial marijuana in the unincorporated borough. This temporary moratorium would halt commercial licenses until voters decide the measure — potentially making it a permanent ban rather than temporary moratorium. The moratorium would apply only to unincorporated areas. Palmer, Wasilla, and Houston, as established cities, would be left out. However, both Palmer and Wasilla have each passed commercial marijuana bans. If the temporary moratorium passes, only Houston will remain as a cannabis-friendly zone in the state’s second-largest population center. Operationally, this gave hopeful businesses time to begin their state licensing process. Over 30 applications to the state Marijuana Control Board have addresses in the unincorporated Mat-Su Borough. About three-quarters of those are for cultivation businesses. One such business hopeful, Bailey Stewart, said she’s already sunk her life savings into a retail marijuana operation in the borough. Stewart, vice president of the Matanuska Valley Cannabis Business Association, said the time in between now and the October vote is crucial. The state will begin issuing licenses in early June, provided the Legislature authorizes the federal background checks for applicants. If cultivators and retailers have the opportunity to begin a few months of sales — and pay municipal taxes — the October vote might swing in industry’s favor. “We had an opportunity to show the community that we weren’t going to be in their face,” said Stewart. “If the moratorium passes we’ll lose that opportunity before the October vote.” Stewart said she doesn’t think borough lawmakers are antagonistic to the industry. They simply don’t understand either the money involved in setting up a marijuana business or the potential tax dollars to be gained. The state collects a $50 per ounce excise tax on cannabis cultivators, and municipalities have implemented varied sales taxes, including a 5 percent sales tax in Anchorage with the ability to rise to 12 percent. Meanwhile, state licenses cost $5,000 on top of the payments for the leased cultivation, retail, or manufacturing premises. Marijuana entrepreneurs in Alaska have a precarious financial situation in a state with limited capital options. Federally insured banks will neither loan to them nor accept their deposits. State regulations forbid Outside investment. Many like Stewart bootstrap their businesses with savings.  “We’re talking about an industry that is financial sensitive,” she said. “When you’ve worked this hard for so many years, you don’t want to see your life savings go up in smoke.” Not only is the downtime between license issuance and the October ballot necessary for public perception, Stewart said, but recovering some of the initial investments as well. “I would have had the chance to recoup some of my costs,” Stewart said. “Now, they’ve already spent that money. A lot of them, it’s no going back.” DJ Summers can be reached at [email protected]  

Congress split over F-35 funds for Eielson Air Force Base

FAIRBANKS (AP) — The U.S. House and Senate are divided over how much construction funding the Eielson Air Force Base should receive to prepare for two new squadrons of F-35 fighter jets. A Senate subcommittee approved $295 million Wednesday for construction during the 2017 fiscal year. A House committee voted to reduce funding by $82.3 million, The Fairbanks Daily News-Miner reported ( The Department of Defense has asked Congress to fund seven construction projects at Eielson for fiscal 2017, which starts Oct. 1, 2016. The request comes after the Air Force announced it would station 54 F-35s at the base near Fairbanks starting in 2020. The House funding bill included money for one aircraft weather shelter to house only one squadron of F-35s. The House committee cut the funding for a second shelter because there is concern Alaska has too many military construction projects planned in the next fiscal year, said Matt Shuckerow, a spokesman for Rep. Don Young, R-Alaska. "Congressman Young raised his concerns directly to the House Appropriations Committee Chairman Rep. Hal Rodgers, R-Ky., and requested that all seven Eielson-based (military construction) projects be funded; however, the committee expressed concern over the sheer volume of projects in Alaska during (the 2017 fiscal year)," Shuckerow said by email to the newspaper. Young "disagrees and knows that Alaska is ready and able to complete all construction projects to support the bed down of the F-35s at Eielson," Shuckerow said in an email to The Associated Press on Friday. He added Young plans to work with House leaders and Alaska's U.S. senators to get the money put back in the bill before it's sent to President Obama. The Senate version of the bill included $561 million in military construction projects in Alaska. "While Alaska is set to receive a larger share of the 2017 military construction budget than any other state, these investments are incredibly important for the security of our entire nation," said Sen. Lisa Murkowski, R-Alaska in a statement. In addition to the upgrades at Eielson, the funding bill in both the House and Senate includes $155 million for a Long Range Discrimination Radar at Clear Air Force Station. It also includes $47 million to construct a hangar for the Gray Eagle Unmanned Aerial Vehicles at Fort Wainwright and $9.6 million for electrical improvements to the missile defense fields at Fort Greely.  

Senate panel OKs medical marijuana access for veterans; Alaska to see $561M in construction spend

A Senate subcommittee moved veterans one step closer to accessing medical marijuana in states where it is legal, which up to this point has been strictly prohibited under a 2011 Veterans Health Administration directive. The U.S. Senate Appropriations Subcommittee on Military Construction, Veterans Affairs, and Related Agencies voted to approve the Veterans Equal Access Amendment into the FY2017 Military Construction and Appropriations Bill. Sens. Steve Daines, R-Mont., and Jeff Merkley, D-Ore., introduced the amendment, which would prohibit any federal funds to be used to punish Veterans Affairs doctors from recommending or discussing medical marijuana with their patients. Alaska U.S. Sen. Lisa Murkowski voted in favor of the amendment. When Pennsylvania Gov. Tam Wolf signs a bill that will legalize medical marijuana in the state, the U.S. will have 24 states with legalized medical marijuana systems, and 17 states with allowances for medical use of cannabidiol oils. Even in states where medical marijuana is legal, however, veterans do not have access through their VA physicians because of the 2011 order. A 2011 Veterans Health Administration directive forbade VA doctors from recommending or even discussing medical marijuana with patients. The directive was set to expire on Jan. 31, 2016, but is still in effect as the VHA anticipated a congressional action to reverse the policy. The amendment in the FY17 appropriations bill will have to be renewed annually. The same amendment passed the same committee last year by an 18-12 vote with four Republicans joining 14 Democrats. This year the vote to approve the amendment was 20-10 with Sens. Lindsey Graham, R-S.C., and Roy Blount, R-Mo., joining the majority. Daines spoke out against the current policy during the brief debate, characterizing it as, “a violation of the 10th Amendment against states and the 1st Amendment against veterans speaking freely with their VA doctors.” Daines and 21 other legislators wrote a letter to Veterans Affairs Secretary Robert McDonald in 2015 urging him to let VA doctors discuss and recommend marijuana in states where it is legal. Speaker of the House Rep. Paul Ryan, R-Wis., has been amenable to certain marijuana legislation in the past. In 2012, he expressed a personal opposition to Colorado’s recreational marijuana legalization effort, but ultimately believes that the matter should be left to states rather than the federal government. Similar amendments to allow for veteran medical marijuana usage failed in the past, including the Daines-Merkley amendment last year. It failed in the House by a vote of 210-213. Rep. Sam Farr, D-Calif., introduced legislation in 2015 to allow Veterans Health Administration doctors to recommend medical cannabis, but the House Appropriations Committee rejected the measure. The House of Representatives has slightly warmed to medical marijuana, passing an appropriations bill in 2014 with an amendment by Farr that would have banned federal prosecutors from challenging state marijuana laws. It is also subject to annual renewal. Alaska construction spending totals $561M; $103B for VA forward funded for FY18 The committee approved the full $561 million in the president’s request for Alaska-related military construction spending, with more than half of that for the recently announced deployment of two squadrons of F-35s to be based at Eielson Air Force Base in Fairbanks. The totals break down as follows, according to Murkowski’s office: $295.6 million for seven construction projects supporting the 2020-2021 beddown of 54 F-35 A Joint Strike Fighters at Eielson Air Force Base. $155 million to construct the Long Range Discrimination Radar (LRDR) at Clear Air Force Station. $47 million to construct a hangar to house the Gray Eagle Unmanned Aerial Vehicles at Fort Wainwright. $29 million to expand and improve the Airborne Warning and Control Systems Alert Hanger at Joint Base Elmendorf- Richardson. $20 million to construct a new fire station at Clear Air Force Station. $9.6 million for electrical improvements to the missile defense fields at Fort Greely.  $4.9 million to construct a jet fuel truck offload facility at Joint Base Elmendorf-Richardson. A total of 54 new aircraft and an estimated 2,765 personnel will be part of the F-35 deployment, with construction to begin in fiscal year 2017, which begins Oct. 1. Veterans Affairs spending increased $14.7 billion over last year to a record $177.4 billion total. Veterans mandatory benefits received $103.9 billion in advance FY2018 funding. This includes veteran disability compensation programs for 4.4 million veterans and 405,000 survivors; education benefits for nearly 1.1 million veterans; guaranteed home loans for 429,000 veterans; and vocational rehabilitation and employment training for more than 141,000 veterans. Veterans medical programs received $66.4 billion in advance FY2018 funding. DJ Summers can be reached at [email protected]

Capital budget sliced to $80M in UGF; federal match raises total to $1.5B

Just when it appeared Alaska’s capital budget couldn’t get smaller, the Senate Finance Committee found ways to cut state further. The committee version of the 2017 fiscal year capital budget, introduced April 11, contains just $79.7 million in new unrestricted general funds, which is more than $100 million less than Gov. Bill Walker’s original capital budget request. Combined with an expected $1.3 billion in federal matching funds, the capital budget totals about $1.52 billion. Staff for Finance co-chair Sen. Anna MacKinnon, R-Eagle River, said during a committee meeting that the budget attempts to capture and reappropriate unspent funds from previous capital appropriations to minimize the General Fund outlay in this year’s budget. “We have done everything — working with legislative finance and our team — to be able to place out into Alaska projects that will help sustain the items that we have, that we’ve invested in, but it is a reduced capital budget,” MacKinnon said. More than $20 million of the state’s match for Federal Highway Administration funding, for example, is a reappropriation of lapsing funds from projects funded in prior years, according to MacKinnon staffer Laura Cramer. A plan to issue general obligation bonds for up to $500 million in capital projects over the next two years was floated by the administration late last fall and initially had a positive reception from legislators but fell apart as the state’s fiscal situation has continued to worsen and the appetite for taking on more debt was lost. The state’s projected 2016 fiscal year deficit increased from about $3.5 billion to $4.1 billion as oil prices fell lower than expected over the winter. The bond package could have funded many millions of dollars still needed for the University of Alaska Fairbanks engineering building, the Matanuska-Susitna Borough’s rail extension to Port MacKenzie and the Port of Anchorage Modernization Project, all of which are unfinished and unaddressed in the budget. The Senate Finance capital budget is still expected to capture more than $1.3 billion in federal matching funds primarily for highway and airport projects. Cut from the governor’s request was $7 million for the Kivalina School replacement, a project that received about $40 million last year, as well as $8 million for Department of Transportation and $10 million for University of Alaska deferred maintenance projects. Cramer said the funding for DOT and university was eliminated because each had unspent funds from previous deferred maintenance appropriations. The University of Alaska estimates its total deferred maintenance bill to be roughly $700 million for its 400 or so facilities statewide. Nearly $11.3 million of general funds was also removed for school boiler replacements and energy efficiency upgrades in Kake, Petersburg and the Bristol Bay School District because those projects qualify for a public building energy efficiency improvement low-interest loan program through the Alaska Housing Finance Corp. The budget includes intent language directing school project proponents to determine if their given projects qualify for the loan program that has been in place for several years but has not been used because state grants have largely been available previously. The committee, through the capital budget bill, is also asking DOT to provide the House and Senate Finance committees with an additional list of highway projects that qualify for up to $170 million of federal funding beyond the state’s typical federal aid level for the 2018 fiscal year budget. That money went was not used by other states and it could be available for repurpose in Alaska if matched with state funds. The one notable addition to the capital budget is $32.5 million line item to pay for the Legislature’s tentative purchase of the Anchorage Legislative Information Office building. The money comes from the Capital Income Fund, not from the unrestricted General Fund. After months of debate over whether to break the $3.3 million per year lease for the Anchorage offices and move elsewhere, the Legislative Council voted March 31 to buy the building for $32.5 million and hopefully end what had become a prolonged melodrama and self-induced political headache. The building owner has tentatively agreed to the purchase price pending the details of the deal. AEA project funding The Senate Finance capital bill would appropriate about $2.7 million to the Alaska Energy Authority for its rural Bulk Fuel and Power System Upgrade programs with unspent earnings from the Power Cost Equalization Fund administered by the authority. Repurposing the excess earnings from the endowment-style PCE Fund, which subsidizes expensive diesel-generated power costs for rural residents, follows the intent of Senate Bill 196 that would direct unspent PCE money to support AEA’s popular Renewable Energy Fund grant program and other capital project programs the authority manages. The Renewable Energy Fund, which supports rural energy infrastructure projects, has historically been paid for with direct General Fund appropriations. A $5 million request was cut out of the governor’s amended fiscal year 2017 budget. Introduced by Finance Committee member Sen. Lyman Hoffman, D-Bethel, the bill passed the Senate on April 13. The $970 million PCE Fund often earns more in investment returns than the roughly $30 million to $40 million it has paid out in subsidies each year, leaving it with excess earnings available for appropriation. SB 196 would cap the annual power cost assistance payout at $30 million and the rural energy program payout at $25 million, while lowering the maximum annual PCE payout from 7 percent of the fund balance to 5 percent. Some reconciliation with the House’s version of the operating budget will likely be needed if SB 196 passes and is signed by the governor because the current House budget diverts $24.7 million of excess PCE money to one-time fund part of the University of Alaska budget.   Elwood Brehmer can be reached at [email protected]  

INSIDE REAL ESTATE: Friendlier building permit regime gives Mat-Su an edge over Anchorage

According to the latest census data for 2015, Anchorage has lost 1,458 residents when compared to 2014 while her popular neighbor to the north, the Mat-Su Borough gained 1,801. How many of Anchorage’s lost neighbors became residents of the Mat-Su is hard to calculate, but anyone who’s driven the Glenn Highway in the past 12 months can attest to the growing long line of traffic back and forth. According to the same census information, the Mat-Su has now become the second most-populated region in the state, surpassing the Interior to which like the Municipality of Anchorage, or MOA, has also continued to lose population. What makes the Mat-Su so attractive is the almost over-abundance of developable land resulting in more affordable home prices. But, it is not just the small ranch home that beats Anchorage home prices between $50,000 and $100,000, but also the more attractive and custom homes as well. With large lots, many with views and some with lake frontages, the Mat-Su has also become a fast-growing luxury home market. However, just like there is plenty of land to develop, there are also plenty of homes for sale. As of last week, Anchorage had 638 homes for sale, an increasing number, but not unusual for this time of year. That number reflects one home for sale per 468 residents. In the Mat-Su, with a population estimated at just over 100,000, there is one home for sale per 168 residents or more than 2.78 times the choices if you’re looking for a home to purchase. Needless to say, lack of home-building regulations in the Mat-Su Borough makes building faster and more affordable. Only the city of Palmer actually has building permits. The rest of the borough is wide open with the only regulation coming from private inspectors in order for a home buyer to obtain long-term financing. Buyers should be aware that all homes are not created equally, and a popular home plan built in the Mat-Su versus the MOA may, for example, have fewer electrical outlets than the same home in Anchorage. However, fewer restrictions are also available in Girdwood, Eagle River, and Bear Valley. The flight to the Valley is understandable but worrisome from a residential real estate perspective. While the Mat-Su may be too loose without permits and adequate oversight, Anchorage is going in a different direction with new Title 21 regulations requiring even a strict percentage of windows on the front elevation of all new homes, and the continual upgrading of the Design Criteria Manual, that little-known document governing the requirements for the construction of roads, without any public review process. Somewhere in between the development philosophy of the Mat-Su Borough and the MOA should be a reasonable compromise so that both communities can fulfill the housing needs of its residents.      Read Connie Yoshimura at Contact her at 907-646-3670 or [email protected]  

Owners ‘conceptually’ agree to $32.5 million offer for LIO

The Legislative Council made a $32.5 million offer to purchase the Anchorage Legislative Information Office building late March 30. It is the first substantive progress to resolve an issue that has lingered during a session in which policymakers are faced with financial decisions that could impact the course of the state for years to come. Rep. Mark Neuman, R-Big Lake, was the lone no vote among the 14 council members on a motion to approve the purchase offer. Council Vice Chair Rep. Bob Herron, D-Bethel, said the purchasing the custom-built, six-story office building would save the state about 50 percent over 20 years compared to the $3.3 million per year lease terms the Legislative Council agreed to in 2013 for renting the building. “It’s time to put this issue to rest either way. Our state faces great fiscal uncertainty and this distraction takes away valuable time and energy from our ability to focus on continuing the great work that we’ve done to shrink the day-to-day cost of government, and focus on reforms to major cost drivers like Medicaid, prisons and crime and retirement systems,” Herron said in a statement. “Thank you to my colleagues on the council for tonight’s decision.” The building owner group, 716 West Fourth Avenue LLC, named after the Downtown Anchorage address of the building and led by real estate developer Mark Pfeffer, had made repeated attempts to sell it to the Legislature for $37 million starting in October. That is the amount Pfeffer’s group invested in the $44.5 million project. Pfeffer said April 6 that “conceptually, we are in agreement on the price pending other details of the transaction.” The annual lease rate for the premium office space — nearly five times what the Legislature paid for the former, smaller, decrepit Anchorage LIO — has drawn public and political ire from many who say the state should not be spending multi-million dollars per year for off-season legislative offices when it is trying to find its way out of a $4 billion budget deficit. The Legislature contributed $7.5 million for tenant improvements. It moved into the building shortly after it was completed in December 2014. The lease, invalidated by a March 24 Superior Court ruling, is paid through May 31. Judge Patrick McKay deemed the process by which the lease was procured in 2013 by then-Legislative Council chair Rep. Mike Hawker, R-Anchorage, to have violated competitive bidding guidelines in state procurement code. 716 filed a motion for reconsideration with the court March 30, arguing the ruling was premature and exceeded the court’s authority — that simply finding the council’s procurement process to be flawed does not automatically invalidate the lease. The Alaska Supreme Court has ruled in similar cases involving public procurement issues that the governing body can be obligated to pay for work done by a contractor under an improperly secured agreement because a private party should be able to trust a public body will uphold a deal and is not responsible for how it was reached. An attorney for 716 cited multiple cases in which judgments in favor of the private contractor were reached in a March 27 letter to hired Legislative Council attorneys. Prior to the Legislative Council meeting, Pfeffer revised 716’s offer several times, ultimately settling on a sale price of just less than $34 million. An independent financial analysis of the Legislative Council’s options done in early March found purchasing the LIO with low-interest bonds for $35.6 million would match the long-term price, on a per square-foot basis, of moving to the nearby Atwood Building. The state-owned Atwood houses executive branch agencies. The full Legislature could seemingly purchase the building outright through a direct appropriation or finance a deal with state bonds. Council chair Stevens said during the public portion of the meeting that, “nothing is precluded from finding a way to finance this project.” Some legislators have pushed to move the Anchorage offices into the Atwood Building to rid the state of its expensive political headache. Department of Administration Commissioner Sheldon Fisher told the council prior to an executive session that included Pfeffer at its March 31 meeting that the prospective space at the Atwood would not be fully move-in ready until January 2018. Elwood Brehmer can be reached at [email protected]  

INSIDE REAL ESTATE: Anchorage condo market holds steady so far in 2016

Condo sales in the Municipality of Anchorage have remained consistent year-to-date when compared to the same time as last year, and prices are stable with only 0.82 percent increase from 2015. This bodes well for the first-time homebuyer and downsizers who are looking to scale back their square footage and utility expenses. It is also indicative of the continued interest and activity in the lower price ranges of the Anchorage market. Single-family homes have actually fallen in average sales price by 4 percent when compared to the average price of $366,585 in 2015. In general, the average condo days on the market has decreased by 33 percent. The number of condos sold for the first two months of the year has remained consistent at 132 and 134 respectively. This decline in days on the market is consistent throughout the Municipality of Anchorage, or MOA, including Girdwood, Eagle River, and Chugiak/Peters Creek, which is somewhat surprising as it is not unusual for perimeter sales to fall when an economy slows or stalls due to the indecision by the legislature on how to handle its budget shortfall. One major factor contributing to the stability of the condo market is the lack of new construction. Multi-family starts are down and only one duplex was permitted in the first two months of this year compared to thirteen last year at this time. This downward trend in condo starts will undoubtedly continue at least through the first half of the year as developers grapple with the new Title 21 regulations. The new Title 21 impact is going to be felt most in this entry level market as the MOA’s desire for denser development can’t help but increase costs not only for construction but design time as well. It is a common misconception that building up is less expensive than row or townhouse style lower density. Interior corridors have to be heated and maintained. Four story buildings must be built to commercial standards. For appraisal purposes, condo square footage is measured interior paint-to-paint of the living area only and common areas are never taken into consideration when evaluating the value. Although there is some market demand for flats in three and four story buildings with interior corridors the vast majority of buyers, including millennials, are still looking for a garage attached to the living area as opposed to a common garage area where the buyer is assigned a stall which may, or may not, have a storage area nearby. Buyers also want access to a private backyard even if it is only a couple hundred feet. The MOA, on the other hand, requires more shared open space and even designates its configuration and location. I would challenge planners to tour communities that have shared open space to see if and when it is used. The most popular amenities to single family or condo development are sidewalks, trails and connectivity. In today’s world, where security is becoming more and more an issue in neighborhoods, buyers want their children to play within eyesight and walk their pets on frequently-used sidewalks and trails. Townhouse style condos with attached garages, whether old or new, will continue to have excellent absorption in 2015.   Read Connie Yoshimura at Contact her at 907-646-3670 or [email protected]  

After record price year, construction loans and permits dip

Editor's note: this article has been updated to reflect that the current 2016 average home sale price only includes January and February, which are historically the lowest priced months of the year.  Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them. With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015. Anchorage’s land shortage, along with new municipal land use rules, make the Anchorage market spendy, particularly for new construction. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data. Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects. “We’re seeing a real hesitation,” said Kissik-Michelsohn. “Once they hire us and we get done with design and get to the costing component, they are so cautious.” Kissik-Michelsohn said the “cold feet” some of her potential clients get near the end of a contract negotiation loops back to concerns over the state economy and the oil industry. She said one Anchorage customer, a Slope worker asking for a large custom-built house, is waiting until April to finalize plans. He needs to make sure he has a job first. “Anybody in the oil industry…they’re all scared,” Kissik-Michelsohn said. “The state of the Alaska economy in general has really had a big impact.” Indeed, municipal records show a drop in new home building interest. In Anchorage, building permit records from the municipality show a decline in building projects from the same time in 2015. To date, only 13 single-family home building permits have been submitted for 2016, down from 21 during the same time period in 2015. Totals reveal an even bigger gap. In January and February 2015, applicants filed for a total of $66.6 million in building permits. In 2016, they applied for $35.7 million. The lack of enthusiasm for new construction collides with state fiscal woes and the highest housing prices on record for Anchorage. According to statistics, 2015 was the most expensive year ever for Alaskans looking to buy homes, with some of the lowest interest rates. According to the Freeman-Reed Index, an analytical tool used by the Alaska Multiple Listings Services, the average Anchorage residential price peaked in 2015 at $366,585, lower than the average provided by municipal data but still greater than any year in Alaska history and roughly double the average price in 2000. In Juneau, the average price for an existing single family home was $377,620 in the third quarter of 2015, and $414,717 for new construction. In Fairbanks, homes were cheaper, at $265,884 for existing homes and $287,833 for new construction. According to the National Association of Realtors, the average single-family home sale price for existing homes in 2015 was $267,300. Condominiums followed the same path as homes, with an average sale price of $213,071 in 2015, also the highest in Alaska history. Anchorage’s residential prices are now coming off their record highs. The lack of new construction coincides with the first dip in average housing prices this decade. The average residential sale price has declined for the first time since 2011. So far, Anchorage’s average residential price is $353,729, a 3.5 percent decline from last year. However, these numbers only include January and February - historically, the lowest point of the seasonal ebb and flow of home sale prices, as people are more willing to move in summer months. January and February combined have declined $2,000 compared to the January and February total from 2015. January itself actually increased in price compared to last year.  Going by three-year average, the prices of Anchorage homes peaked at $356,652 in 2015. That average has lowered to $353,729 in 2016. Similarly, condos’ three-year average lowered from $216,952 to $214,821 in 2016. Statewide, a steady roll in interest rates coincided with the housing prices climbing. Over 7 percent in 2000, the average Alaska mortgage interest rate came to 4 percent in 2015. Key indicators from the Alaska Housing Finance Corp. indicate that new construction took a downward bend at the end of 2015. Statewide, there were 14 percent fewer condos, single and multi-family homes, and mobile homes built in 2015 than in 2014, with each category declining year-over-year. Loan activity started strong in 2015, but went down in the back half of the year. In the first and second quarters, total loans for single family loans — the largest segment of the housing industry — increased from the same quarter in 2014 over $24 million for the first quarter and over $21 million in the second quarter. Loan activity for condominiums increased in both quarters, while multi-family homes lost in the first quarter but gained over $3 million in the second. That turned around in the third quarter. Loans activity for single-family homes dropped in the third quarter of 2015 by $55 million, and by $18 million in the fourth quarter. Loans for condominiums dropped by $14 million and $2 million in the third and fourth quarters. Only multi-family homes kept the momentum, increasing loan activity by $400,000 and $5 million. Anchorage took the biggest hits, posting loan declines as early as the second quarter of 2015. In total, the Anchorage real estate market saw a $73.2 million reduction in single-family home loans in 2015. In Fairbanks, single-family home loan activity declined in every quarter, resulting in an overall $29.2 million reduction in 2015. Single family loan activity fell by $3.5 million in Juneau. Loans for new construction of single-family homes increased despite the loan reduction. Statewide, $400,000 more worth of loans were used to build new single-family homes, but those numbers skew declines in home building activity in the state’s two largest population centers. In Anchorage, $8.4 million less in loans was used to fund the new construction of single-family homes compared to 2014. In Fairbanks, $1.6 million less was used. Juneau, however, saw an increase of $2.6 million in loans used for single-family home construction in 2015. DJ Summers can be reached at [email protected]


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