North Pole adopts 5% local bidder preference despite city attorney's constitutional warning

The North Pole City Council voted 5-1 Monday to give businesses inside city limits a 5% edge when the city weighs bids, after City Attorney Robert Palmer told members the measure is likely unconstitutional. Mayor Larry Terch cast the only no vote.

The ordinance, sponsored by Councilmen Jordan Schuster and David Brandt, applies to bids for goods and services. The city still pays the winning bidder's actual price. It also requires the city to contact a qualified North Pole business before seeking quotes from businesses outside city limits.

Palmer said he sent the council a memo about two weeks earlier. "Anytime a municipality or government in Alaska provides a local bidder preference, it's likely unconstitutional. I don't get to that conclusion lightly," he said.

He pointed to a 1983 Kenai Peninsula Borough case, Gilman v. Martin, in which the Alaska Supreme Court struck down a land-sale discount of 5% for each year of residence, up to 50%, as a violation of equal protection. Many Alaska local governments still have bidder preferences on the books from the 1970s and early '80s, he said, and some have legal advice not to enforce them.

Asked by Police Chief Jed Smith what the risk looks like, Palmer said a losing outside bidder could challenge an award to a North Pole business within 5% of its price. A judge would typically give the contract to the lower bidder, he said, and because the challenge would be constitutional, the city would usually have to pay the challenger's attorney's fees.

Schuster said losing a local business would harm the tax base more than a 5% preference would, and that the ordinance writes into code that the city's first call should go to local businesses. Councilman Santa Claus said local businesses already pay property and other taxes in the city.

Aubrey Barnett, who was sworn in to the council later that evening, testified against the measure. She said local contractors quoted $35,000 to replace her boiler, compared with $15,000 from a Wasilla contractor. "We're going to pay out the wazoo for local," she said. "I think that local needs to be more competitive."

Terch agreed. "While we sit up here and we talk about overtaxation of our residents, we then turn around and say we're going to provide a bidder preference to our local businesses," he said. He said the city already shops local first.

Councilman Benny Williams said that if he were roofing his house, he'd take an $18,000 bid over a $20,000 one if the work were the same quality. He then voted for the ordinance.