The state is no longer planning to build a new office building in Juneau, but will instead renovate one deteriorating building and do additional studies before deciding what to do about its local office space needs in the future.

The decision, announced Friday by Department of Administration Commissioner Becky Hultberg, means employees at the Department of Labor Building known locally as the “Plywood Palace,” will remain there for at least the near future.

At the same time, a Douglas building housing Alaska Department of Fish & Game employees is slated for major improvements.

“It’s not what the Juneau delegation wants, but the silver lining is it’s not a done deal,” said Rep. Beth Kerttula, D-Juneau.

A bill sponsored by fellow Rep. Cathy Muñoz, R-Juneau, to build a replacement building on the downtown subport property died in the Legislature after the Plywood Palace owners hired a lobbyist to oppose it.

The state then began a looking for new sites on which to build a new office building. A months-long search of possible locations narrowed options down to two: one in the Mendenhall Valley’s Vintage Park commercial area, and one downtown atop the current State Office Building’s north parking structure.

Nearly two months after state officials said they’d decide between two, Hultberg made the surprise announcement Friday that neither would be chosen.

Instead, she said, they would do the space study and renovate the Douglas building and look as well for offices for the staff at the downtown Public Safety Building, nearing the end of its useful life.

Hultberg also opened the door for the state remaining in the existing Department of Labor building, a change from previous statements from the administration.

“We recognize now that the building is in better condition, but it is not perfect and certainly some work needs to be done,” she said.

“I believe the building owner is aware of that as well,” she said.

Employees, and previous administration officials, had said they wanted to both be out of a leased building with inadequate maintenance, water infiltration and mold problems, as well as being in state-owned facilities where possible.

“The focus in the near-term is that employees have a good, safe place to work,” Hultberg said.

The Department of Labor Building’s owners have done some significant interior work to improve the building, she said.

“That’s not to say there’s nothing that needs to be upgraded, but compared to past years the building is in better condition.”

The space study will help answer questions about whether it is more cost effective to lease or own, how much space is available and needed and how large a building might be needed.

The state’s longer-term focus “is identifying a permanent and longer-term location for the Department of Labor, whether it is in that building or someplace else.”

The state’s lease for the Labor building, at a cost of $1.947 million a year, expires June 30, she said. An extension, presumably at a higher rate, is being negotiated.

Muñoz said she was happy to see the state taking the steps it is taking, even if wasn’t the one originally proposed.

“Obviously, I’d love to see a green light on a brand new state facility in town, but I also know that it’s prudent to look at maximizing the effectiveness of what we have now,” she said.

Playing a key role in Hultberg’s decision, she said, was the ongoing progress on the State Library, Archives and Museum building now being designed but not yet funded.

When that building opens, it will free up the current library space on the 7th and 8th floors of the State Office Building. That might be able to house the nearby employees at the Public Safety Building, Hultberg said.

At the same time, new studies have determined that while the Douglas Island Office Building has significant deferred maintenance needs, it is structurally sound.

Hultberg said the building’s problems can be corrected in a cost-effective manner by replacement of the building “envelope,” essentially its walls and roof, and that can be can be done while it is occupied.

Kerttula and Muñoz said they are prepared to help push for a capital appropriation during the next legislative session, if Gov. Sean Parnell includes it in his budget.

Hultberg said costs have yet to be determined, but she’s been in contact with the Governor’s Office about the budget.

Kerttula said that while Hultberg’s announcement wasn’t what she’d hoped for, it was not all bad.

“The door is not shut or foreclosed for getting a new building, it’s just not going to happen right now,” she said.

And she said she very much likes the idea of being able to keep the Fish & Game employees in Douglas, where they have been for years and where they are an integral part of the city.

Hultberg said the administration’s recommendation could still be a new building, depending on the office space analysis.

“We’re not saying we’re taking a new building off the table, but we’re saying we have some additional work that needs to be cone before we are prepared to recommend a new building, or certainly a building size or location,” Hultberg said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

Editor's note: This story has been changed to reflect the correct cost for the state's lease of the Department of Labor building.