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]

DOD to spend $325M on Clear missile defense radar

Another big chunk of the roughly $1 billion the Defense Department is spending to upgrade the country’s missile defense system is headed to Alaska. Missile Defense Agency Director Vice Admiral James Syring said Feb. 23 to during a presentation to the Fairbanks Chamber of Commerce that more than $325 million will be spent at Clear Air Force Station over the next six years to install a new power plant and missile detection radar. Clear Air Force Station is a radar base located near Nenana along the Parks Highway southwest of Fairbanks. Much of the construction spending will begin in 2017, Syring said, when $155 million of work on the mission control facility and related infrastructure is started. In 2019, another $150 million will be spent on the station’s new power plant and fuel storage facilities. This year, the Missile Defense Agency plans to spend about $25 million building a 350-person man camp and decommissioning the Ballistic Missile Early Warning System, among other things, Syring said. That work will be contracted through the Alaska District of the U.S. Army Corps of Engineers. Syring said he expects much of it will be done by local contractors. Long Range Discrimination Radar, or LRDR, being developed by Lockheed Martin in New Jersey, will replace the early warning system. The LRDR will then be shipped to Alaska and installed at Clear. Syring said the man camp will be used from 2017 to 2021, with peak occupancy in 2019. Clear Air Force Station is on the electrical grid; however, the upgraded power plant is a backup facility that will be protected against electromagnetic pulse weapons that could be used to render electrical systems useless, Syring explained. “Everything we are doing here in Alaska is to expand our defense against that North Korea threat,” he said. Early in 2013 the Pentagon announced plans to add 14 interceptors to the 26 currently installed at Fort Greely near Delta Junction by 2017. Those interceptors are the country’s main defense against the intercontinental ballistic missile (ICBM) threats primarily coming from North Korea and Iran, according to Syring. He said the impetus for adding interceptors to Greely was a rocket launched into orbit by North Korea in 2012. A similar test several weeks ago demonstrated the temperamental country still has the capability to reach orbit and is still pursuing an ICBM feet. Repeating nearly every Defense official who references Alaska, Syring noted the state’s global position as key to its role in the missile defense program. “Why we are here is (Alaska’s) strategic and geographic location and there’s no two ways about it,” he said. Army Chief of Staff General Mark Milley said to Sen. Lisa Murkowski in testimony before a Senate committee Feb. 24 that he wants to delay a force reduction from Joint Base Elmendorf-Richardson planned for 2017 by at least a year because of increasing threats — North Korea included — in the North Pacific. Milley cited the ability of Alaska forces to reach East Asia within hours of deployment as a primary reason for keeping strong military resources in the state. Elwood Brehmer can be reached at [email protected]

INSIDE REAL ESTATE: Anchorage housing crunch pushes buyers to multi-family

According to the National Association of Homebuilders, there are nine groupings of homebuyers in America. Those nine groups include the young single, older single, single parent, young couple, mature couple, older couple, young family, middle family, and mature family. Each group is then broken down by income, age, and family description, including traditional or blended, in the family category. Alaska’s demographics fit well into these various groups with a growing population of the mature family (aging baby boomers) and the emerging millennials as young single, single parent, and young couple (with or without children). However, unlike communities in the Lower 48, such as Las Vegas and Phoenix, which are once again experiencing growth in new home starts, Southcentral Alaska is falling behind and failing to meet the housing demand for all of the home buying groups. According to the recent Building Owners and Managers Association presentation, Anchorage lacks hundreds housing units not built over the past five years. Even taking into consideration an estimated population dip of 1,800 in Anchorage (with an average family size of 2.65) Anchorage’s shortfall is still critical. With remaining Anchorage land having poor soils, wetlands, and topographical challenges, along with the ever increasing cost for the extension of roads, water and sewer, due to changing regulations of the type of pipe and required road insulation, Anchorage’s housing shortage will continue to spiral out of the affordability index for most of the nine home-buying groups. As a result, more and more homebuyers are going to be forced to turn to multi-family housing if they want the convenience of living relatively close to employment centers. But even those multi-family choices are limited to older, attached zero lot lines without adequate covenant, codes, and restrictions to preserve value; or 1980s condos, many of which have inadequate reserves and may face special assessments in the near future. Most multi-family zoned land (R2, R2M, R3, R4) has been eaten up by the duplex style condo, a plethora of which was built during the 1990s. However, a small but emerging market some buyers may turn to is the owner–occupied duplex, triplex, or fourplex. Whether brand new (if you can find one) or an older property, mortgage financing is readily available with as little as zero down for Veterans’ Affairs financing, or 3.5 percent down payment for Federal Housing Administration. Mortgage loan amounts for owner occupied duplexes are as high as $800,000. Thirty-year fixed rate mortgages are at 3.65 percent, and the preferred 15-year mortgage, if you can afford the monthly payment, which will save you tens of thousands of dollars over the lifetime of the mortgage, is only 3 percent. Brand new duplexes or fourplexes are going to be expensive. The two most expensive rooms of any home are the kitchen and bathrooms, and multi-family doubles or quadruples their numbers. However, savvy homebuyers in all groups are beginning to recognize the value of letting a renter help with the mortgage. Even if the renter only provides enough income for the taxes, insurance, and the rising cost of utilities, it’s a monthly cash contribution to the homeowner. I belong to the aging baby boomer group. As a tenant new to Anchorage, I lived in a duplex on Barbara Street. As an owner, I’ve lived in a Petersen Tower condo, on the hillside, an attached townhome, and a luxury single family home. I also owned and lived in a Bootlegger Cove fourplex that I regret ever selling, and for the past 19 years a duplex just five minutes from my office. I’m a good example of how our housing needs change as we pass through the various home buying stages. Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-646-3670 or [email protected]  

Anchorage Assembly to reconsider marijuana land use rules

Anchorage marijuana regulations could get a makeover only two weeks after their final passage by the Anchorage Assembly, potentially revising the 500-foot distance marijuana businesses must be from sensitive areas and how that distance is measured. The Assembly will hold a meeting on Feb. 23 to reconsider its marijuana land use ordinance, which established zoning regulations for cannabis businesses including setbacks from schools. The Assembly will not take public comments, as they are not required for ordinance reconsideration. Assembly member Patrick Flynn called for reconsideration after noticing inconsistencies between an amendment he passed and those introduced by Assembly member Amy Demboski. “One amendment defined distance based on pedestrian routes from front door to front door, the other based on lot lines,” said Flynn. “We as a policy making body need to come up with a final answer so that we can resolve that incongruity and give clear direction to zoning.” On Feb. 9, Anchorage tightened certain regulations while holding off on others. Among other restrictions, the new regulations redrafted the measurement standard between marijuana businesses and sensitive areas. The Assembly narrowly approved a 500-foot separation distance from schools, which halved the earlier proposed 1,000-foot separation. However, that distance is no longer measured by the shortest pedestrian route, but “as the crow flies,” from property line to property line instead of from entrance to entrance. As a result, many businesses’ previously selected retail and cultivation buildings became illegal overnight. Industry panic ensued. Flynn said he’d been contacted by several people in the marijuana industry whose buildings ride the line of legally and illegally placed; one business planner’s building would be just less than 500 feet from the nearest school by shortest pedestrian route, but just more than 500 feet if measured by lot line. Cannabis business attorney Jana Weltzin said the Assembly’s actions made three clients’ buildings illegal. Demboski and Assembly chairman Dick Traini did not respond to calls for comment. DJ Summers can be reached at [email protected]  

Marijuana industry faces steep lease rates in tight market

Marijuana business can expect a hefty square footage price for retail, cultivation, and manufacturing leases within the Municipality of Anchorage once they open for business. On Feb. 24, the Alaska Marijuana Control Board will start accepting business license applications. In the meantime, several industry sources report being charged several times the average per square footage lease rate for their planned marijuana operations, or entering into lease agreements that give a percentage of business profits to the landlord. This follows an observed pattern of real estate investment in both Washington and Colorado, where real estate brokers and media reported industrial warehouse space in marijuana-zoned areas being leased up to four times the average rate. A combination of market factors and regulations drive prices up for marijuana-friendly buildings and make owning such buildings a lucrative enterprise. On Feb. 9, the Anchorage Assembly passed an amended land use ordinance requiring setbacks between marijuana business and schools, churches, recreational facilities, and child-centered facilities. However, the assembly will reconsider those land use regulations at a Feb. 23 meeting. Market rates for these zones go up as scores of marijuana businesses vie for limited space. The land restrictions create pockets of proper zoning in B-3 business zones for retail and industrial zones for cultivation facilities, largely concentrated in Midtown-Spenard and South Anchorage. Wasilla’s recent ban on commercial marijuana intensifies the demand for space in Anchorage as Mat-Su entrepreneurs look for opportunities farther south. In turn, landlords see an opportunity to charge two or three times the average rate, in keeping with real estate patterns in other states where commercial marijuana has been legalized. Because of residency restrictions on licenses, Outside investors eyeing Alaska cannabis have no other route beyond real estate speculation, seeking to make profits through lease rates. Beyond profit motive, investors have a familiarity with real estate they don’t have for marijuana. Lower 48 real estate investors already control a sizable portion of Anchorage industrial space. Seattle’s Slattery Properties owns 15 industrial buildings in Anchorage, and has been present in Anchorage since 1989. Slattery Properties recently outbid Chris and Rick Euscher, who are planning the marijuana cultivation facility RC Tinderbox, on an industrial building, leading to some industry speculation that the company plans to corner the cultivation market. Michael Slattery, the owner of Slattery Properties, said his company is not actively courting the marijuana industry, and that his properties’ conformity with marijuana zoning requirements is happenstance. “We have not purchased anything outside of our core competency,” said Slattery. “The properties we have purchased add synergy to the other seven properties we own in the Cinnabar Loop (in South Anchorage). It’s not our intent to specifically target that industry.” Insurance rates are too high for Slattery to want a large portfolio of marijuana businesses — Lloyd’s of London charges rates up to 250 percent above average for marijuana-related coverage — and Slattery himself said he has “moral issues renting to marijuana types.” The building in question sits in South Anchorage, home to the vast majority of marijuana-zoned industrial space. Slattery has owned properties in Cinnabar Loop dating back to 1989, according to municipal records. Though the company isn’t looking for marijuana clientele, Slattery said he does “keep an eye” on market trends. “I’m not saying we’re going to be looking for them, but as market forces bring the industry out, if they’re socially responsible, and if they meet the regulatory requirements…they need to go somewhere,” he said. Real estate investment and the resulting price increases for marijuana entrepreneurs has been a fixture of the market since Colorado legalized recreational marijuana in 2014. Investor networks from the Lower 48 say real estate is often the first choice for potential investors, as it doesn’t require any knowledge specific to cannabis business and bypasses the residency restrictions in each state. “Probably some of the most prominent and prolific investment in the cannabis industry has been done in real estate,” said Steve Berg, who co-founded ArcView Group, an investor network geared explicitly for cannabis business investment. “The residency restrictions many states prohibit or at least restrict the ability of non-state residents to acquire interest. But there’s nothing to stop them from being landlords to a cannabis companies.” Berg said cannabis investors view real estate as the least risky and least restrictive ways to seed their money. Residency restrictions like Alaska’s — which bans all non-resident money from Alaska marijuana licenses — channels investment dollars that might otherwise have gone directly into business expenses. Cannabis businesses make for attractive tenants, Berg said. Beyond the newness and novelty, they are sound investments, with business plans and good profitability. If regulations or market conditions turn the business belly up, the investor still has the building. “From a risk-reward perspective, that’s very attractive to many investors that are coming out… If it plays out in Anchorage as it does in every other jurisdiction, the areas zoned for cannabis business inevitably see premium lease rates,” said Berg.” Already-legal marijuana markets experienced both an organic growth in marijuana-zoned building values and an increase in marijuana-specific premium rates from landlords. Real estate owners raised prices on marijuana industry businesspeople in Washington when it rolled out its recreational cannabis industry. In Washington in 2013, Seattle area landlords charged marijuana real estate deals of 150 percent to 200 percent premiums, reported the Seattle Times. "One unnamed party recently paid a $50,000 premium — above the lease rate — for a storefront outside of Seattle," read the Times article. "Greta Carter, a Seattle marijuana activist who passed on the tip, said the leaser paid it because the location was a prime spot, albeit grudgingly. 'We’re accustomed to paying a premium in the cannabis industry, but you cross a line when you want $50,000 up front,' she said." In Denver, the “green rush” spiked prices for properly zoned industrial areas to highs not seen since 2004, reported the Denver Post. In 2015, industrial lease rates climbed to $7.05 per square foot. Like Seattle, marijuana tenants were often asked to pay two or three times the average lease rate. DJ Summers can be reached at [email protected]  

LIO saga continues with third-party analysis sought by Stevens

And the beat goes on. Legislative Council chair Sen. Gary Stevens directed the Legislative Affairs Agency on Feb. 11 to hire a third-party for an independent analysis of dueling financial conclusions as to whether the Legislature should stay in the Anchorage Legislative Information Office or move to the Atwood Building that houses executive branch agencies including the governor’s office. The meeting was anticipated to bring some sort of resolution to the at times ugly dispute over the $3.3 million annual lease the Legislature has for the year-old space, but Stevens said more information is still needed with contradictory cost-savings proposals for moving versus staying. “This has all been political to this point,” Stevens said. “There’s been political advice and we need financial.” The Legislature’s lease of the building has drawn intense scrutiny from many legislators and the public as the state faces an annual budget deficit approaching $4 billion. Stevens said he has already discussed hiring a third-party consultant with the council’s outside attorneys who have been in contact with potential independent finance experts. A proposal submitted Jan. 29 by 716 West Avenue LLC, the building owner group, argues the State of Alaska should purchase the building for $37.9 million to accrue maximum savings that would outpace projected savings of moving legislators into the Atwood Building. However, in a Feb. 5 memo to Stevens, Pam Varni, executive director of the Legislative Affairs Agency that handles business for the Legislative Council, disputed cost-saving figures for staying at the LIO compared to Atwood. A spokeswoman for the LIO’s owner group said in a statement that the group will gladly provide all necessary information for a third-party financial review and also will continue to work with the Legislature to find the best way forward for the State of Alaska. Stevens acknowledged the need to have the financial review complete in time for the Legislature to fund, or not, its current Anchorage LIO lease in the state operating budget, which is usually finalized in late April. The current year’s rent is paid through May 31. On Dec. 19, 2015, the council recommended to the full Legislature via a unanimous vote not to fund the lease in fiscal year 2017 if a solution to stay in the LIO that is cost-competitive with moving the legislative offices to the nearby state-owned Atwood Building could not be reached. During the brief Feb. 11 meeting the council voted to remove the lease funds from its 2017 budget to bring its actions in compliance with the December motion. The full Legislature could add the lease payment appropriation back into the state operating budget if the current Anchorage LIO is retained. The Legislature could also terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case, by the Legislature. If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart. Mark Pfeffer, the managing partner of 716 West Fourth Avenue LLC has indicated an intention to sue if the Legislature walks away from its obligation. Proposal vs. proposal In the LIO owners’ proposal, tax-exempt financing to purchase the building would be “considerably less” than the current lease payments of $281,000 per month the Legislature currently pays, and the equity in the building would serve as an accrued savings account for the state. Varni wrote to Stevens that the proposal overstates the costs of moving to the Atwood Building by $11 million over 10 years and by $16.3 million over 30 years by including costs for debt service that is currently set to expire in March 2017. She concludes that purchasing outright or financing a purchase of the building would cost the state from $22.5 million to $94.4 million over 30 years compared to moving to the Atwood Building. The 716 proposal creates a “statistical misperception,” according to Varni. “The purpose of statistics is to make something easier to understand; however, when used in a misleading fashion, may trick the casual observer into believing something other than what the actual data show,” she wrote. “In this instance, 715 West Fourth Ave LLC, asserts it is less expensive to stay at 716 W. 4th Avenue than the Atwood Building, based on unrealistic and erroneous debt service data.” 716 West Avenue spokeswoman Amy Slinker said in a statement that Varni’s memo lacks third party analysis. “The Department of Revenue’s professional review shows the ability for clear savings,” Slinker said. The 716 West Fourth Avenue proposal also states the building owners have secured a settlement to dismiss a lawsuit brought by Jim Gottstein, owner of the adjacent Alaska Building, against the LIO owner group and the Legislative Affairs Agency. Gottstein’s complaint alleges the LIO lease is illegal because it is neither an extension of an existing lease, nor 10 percent below market value, as statute requires for a long-term extension. To fully settle the suit the Legislative Affairs Agency must agree to waive potential claims to recoup legal fees, according to the proposal document. Last month, the judge in the suit denied Gottstein’s petition to receive a “whistleblower” award of 10 percent of any money saved if the lease is ruled illegal. Trial in the case is currently scheduled for March. The proposal stated that the suit could be settled Feb. 12, a deadline that passed after the Legislative Council meeting, but Slinker said the settlement offer is still on the table. The Department of Revenue analysis of the Legislature’s options based on figures provided by 716 West Fourth Avenue — buying the building outright, having another state agency purchase it, break the 10-year lease and move to the Atwood or keep the status quo — found a potential savings of more than 55 percent over the existing lease if another state entity finances the purchase for the Legislature. Another stopgap solution offered to lower the existing rent by 5 percent, or $169,000 per year, beginning July 1 until a purchase could be executed. A rent reduction would require lender approval. The owner group also notes it has approval to waive earthquake insurance on the building, which could save another $59,600 per year from the Legislature’s $3.3 million annual bill. Revenue’s examination of the options put the upfront cost to move out of the LIO and remodel 30,000 square feet of the Atwood at $3.5 million to $5.5 million, with an annual building operating cost of $664,000. Purchasing the LIO in some fashion would require the initial payment and then operating payments of $269,000 per year for 45,000 square feet of usable space. Legislative Affairs concludes the Atwood’s annual operating cost to be $613,000, based on Varni’s memo. State ownership would also save $231,000 per year in municipal property taxes; however, taking the building off the city’s tax roll has been a reason cited by legislators for why the council did not purchase it initially. The building houses off-season offices for 25 Anchorage legislators and is the de-facto home to much of the general Legislature’s out-of-session activity. The Legislative Council, then led by Rep. Mike Hawker, R-Anchorage, decided to rebuild on the old LIO building site in 2013 after numerous attempts to find existing suitable space that meets the unique needs of a public government body in Anchorage failed. The Legislature contributed $7.5 million towards the construction cost, so Pfeffer and his company ultimately funded $37 million, about $28 million of which is long-term debt and $9 million is Pfeffer’s cash equity position in the property, he has said. Appraisals of the six-story building plus its underground parking facility have been as high as $48 million, but numerous estimates put its value at $44 million. The customized office space cost $44.5 million to build in 2014, according to Pfeffer. His group first drafted and submitted terms for the state to purchase the building for $37 million plus closing costs Oct. 9; a proposal requested by the Legislative Affairs Agency. The original terms agreed to by Legislative Affairs attorneys set a Jan. 31 deadline to act on the sale option, according to correspondence between attorneys for both sides. 716 waived the deadline in its Jan. 29 letter on conditions that the council either vote to buy the LIO by Feb. 5 or appropriate funds for fiscal year 2017 rent in the state budget. Elwood Brehmer can be reached at [email protected]

Construction forecast down 18% to 2013 levels

Alaska’s contractors will begin to feel the effects of the new oil reality in 2016 as statewide capital spending declines about 18 percent from last year, according to a construction industry forecast. The University of Alaska Anchorage Institute for Social and Economic Research projects just more than $7.3 billion will be spent on capital projects in 2016. About $8.9 billion was spent on construction projects in Alaska last year. “Our short-term outlook is challenging,” Associated General Contractors of Alaska Executive Director John MacKinnon said during a Jan. 28 presentation in Anchorage. ISER compiles the industry data for AGC of Alaska’s annual spending forecast. MacKinnon noted that the contraction in outlays is neither positive, nor a catastrophe; it takes the industry back to 2013 spending levels. Statewide construction employment in 2013 peaked at 20,700 jobs in late summer and averaged 16,600 workers throughout the year, according to the state Labor Department. Preliminary Labor numbers show the industry averaged 18,100 workers in 2015. Not surprisingly, the spending decline will be led by the oil and gas sector, which is expected to be down 25 percent at $3.1 billion from an all-time capital spending high of $4.2 billion last year, according to ISER Professor Emeritus Scott Goldsmith. The annual wellhead value of North Slope crude has fallen from about $20 billion several years ago to $10 billion in 2015 and is projected to be roughly $5 billion this year, Goldsmith said. Less revenue translates directly, he said, into less spending on exploration and maintenance of existing fields. However, spending on oil and gas development projects is often separate from immediate price fluctuations, as evidenced by the record 2015 industry capital spend in Alaska while oil prices fell throughout much of the year. Several major projects, including Shell’s offshore Arctic exploration, the Point Thomson gas project led by ExxonMobil, and ConocoPhillips’ CD-5 oil development, mostly wrapped up last year, leading to an organic spending vacuum. A bright spot for this year is ConocoPhillips’ $900 million Greater Moose’s Tooth No. 1 oil project in the National Petroleum Reserve-Alaska, which was sanctioned late last year. The age of the North Slope fields — Prudhoe Bay is closing in on 40 years of production — also helps spur workforce demand that is disparate from oil prices, Goldsmith said. “One of the things that is a positive is that jobs in oil and gas related industries — construction related oil and gas — continue to grow as production declines,” he said. “Aging fields require more maintenance and smaller fields require more workers for a given barrel of oil.” Projections were mixed for other industries outside of the dominant oil and gas sector, which supports about 40 percent of the total capital spend in the state. Transportation spending, pegged at just more than $1 billion, will be down slightly due to less work on the state’s ports and harbors. The Matanuska-Susitna Borough’s Port MacKenzie rail extension, which has relied on state capital appropriations, is also stalled this year for lack of money. Large state capital appropriations in the 2012 and 2013 fiscal years have supported many projects across Alaska; however, expenditures from public-supported capital projects will fade in the coming years if the state continues with sparse capital budgets. According to ISER, money from public projects “hits the street” over six years after the initial approval, with peak monies available two years following the appropriation. Gov. Bill Walker’s administration has proposed a $500 million general obligation bond package to fund capital projects in the 2017 budget being debated in Juneau now. Utility spending is expected to be down by a third to $459 million in 2016 mainly because, similar to oil and gas, several large projects wrapped up in 2015. Matanuska Electric Association and Golden Valley Electric Association both commissioned new power plants in 2015 and Anchorage’s Municipal Light and Power is nearly done with its replacement plant started in 2014. Most of the utility spending will be from nearly 50 small projects going on across the state, according to ISER. Long-term, Alaska’s Railbelt electric utilities are currently debating whether major upgrades, estimated at upwards of $900 million, are needed for the region’s transmission system. Defense spending is projected to reverse a several year trend and increase by more than 25 percent to $552 million this year. Work scheduled at Eielson Air Force Base in Fairbanks includes a new flight simulator in preparation for new squadrons of F-35 fighters and upgrades to the base’s heat and power plant. Upwards of $1 billion will be invested in missile defense systems over the coming years at Clear Air Force Station near Nenana and Delta Junction’s Fort Greely. “Anytime that kid in North Korea starts playing with fireworks it bodes well for Defense spending in Alaska,” MacKinnon quipped. Construction spending by Alaska’s large mines will remain flat at about $180 million in 2016, despite depressed metal prices, Goldsmith said. He noted lower oil prices can help the bottom lines of the state’s mines, many of which are remote and rely heavily on diesel fuel for not only equipment but for electrical generation as well. “I was surprised to find that all of the existing world-scale mines in Alaska are spending at higher rates than they have in years past and that’s to upgrade their facilities, to expand their facilities to be able to take advantage of new discoveries that will extend the lives of their mines,” Goldsmith said. Health care’s capital spend will be down about 20 percent at $195 million, ISER projects, again, as new construction in Anchorage, Kenai and Ketchikan is completed. Alaska’s health care industry has grown steadily both on the capital and employment sides for more than a decade. One major hospital project expected to start this year is the Yukon-Kuskokwim Health Corp.’s new $287 million clinic and hospital in Bethel. YKHC received a $165 million U.S. Department of Agriculture loan for the project, the largest single loan the USDA has ever approved, according to corporation leaders. Elwood Brehmer can be reached at [email protected]


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