A historic part of downtown Juneau’s Telephone Hill could look different in the coming years.

The City and Borough of Juneau Assembly passed an ordinance Monday night that appropriated $100,000 to initiate the process of redevelopment of Telephone Hill, a rocky hillside in downtown Juneau that’s currently the site of seven houses.

Along with the initial appropriation, an additional $2 million could be added to the project’s funding if the temporary 1% sales tax extension — set to appear on fast-approaching municipal ballots — is OK’d by Juneau residents.

Telephone Hill has been a hot topic for the city for decades and one that hasn’t come without its fair share of controversy and uncertainty, said City Manager Rorie Watt.

“The question is what are we going to do with the property?” Watt said. “It’s been in a state of limbo for 40 years. We’re really looking at an urban redevelopment project and exactly how we’re going to do that, we don’t know.”

The people that reside on the downtown hillside — nicknamed Telephone Hill after a telephone company called it home in the early 1900s — don’t own the homes they live in, but rather have been renting them out from the state for nearly four decades.

[City OKs $5M for future downtown parking expansion project]

Back in 1984, the state bought the property for $4.6 million with the idea to redevelop the land to develop a new capitol. That never happened. Instead, the land sat in limbo leaving the people living on the property in a state of unease and uncertainty about what the future might hold for the land.

In late June, a bill was signed into law that included an amendment — written by State Sen. Jesse Kiehl, D-Juneau, which handed over the property to the City and Borough of Juneau to decide how the land will be used as it was determined it was underutilized in its current state.

“It became clear we were not building a new capitol, so this land was never going to be put to this purpose, this was appropriate to get it back to the city,” Kiehl said in an interview with the Empire. “The transfer had been in the works for years, and it was a way to take something that had been out there and theoretically in process for a long time to get a move on.”

The recently OK’d $100,000 appropriation signaled the initiation of the property’s likely future of being redeveloped, though Watt said there are no concrete plans on what that change might look like or when people may need to leave the property.

The decision on Monday night was met with intense opposition from a 28-year resident of Telephone Hill, Tony Tengs, who described the move as “master-class manipulation” and said the city “ blindsided” the residents.

He said this summer the city’s public works department was in the process of replacing the water main and sewage main on West Third and Dixon Streets — the two streets on Telephone Hill — but once the news came of the land being transferred to the city, all replacement halted.

“Why would they want to hook us up? As soon as the lease got signed over, they completely took away Phase 2,” he said. “They led us to believe things were being honored to keep them there.”

Watt said it was accurate that the city did halt the second phase of replacement once the bill passed, but there was a lot of uncertainty about if the bill would pass or not at the time.

“We did not know what was going to happen up there, if the status quo kept on going we would have to replace the utilities, so once we knew that the property was coming to us, I curtailed the replacement of those,” Watt said.

Tengs said he understands the city’s point of view, but he asks that the city come up with a plan before they “kick out” the tenants currently living on the property and demolish the houses.

“They just voted to approve $2 million for the demolition of our entire neighborhood,” he said. “This was money to pay for the demolition of an entire neighborhood in a housing crisis, without any plan for what they wanted to do with the land. It was completely embedded and a fancy piece of sleight of hand.”

Watt said that is inaccurate and that there has been no decision made about what will be done with the property yet.

“There’s an assumption that we’re going to demo all those houses but we actually haven’t decided that,” Watt said.

He added: “I think it’s completely reasonable that they should be concerned because anybody who lives in any home anywhere is going to get upset if they think they’re going to lose their housing. But, I think they need to be realistic and realize it’s pretty likely they are going to have to move eventually and they should start looking.”

Kiehl, who previously served on the CBJ Assembly, agreed with Watt and said nothing has been decided about what will happen with the land and said demolition is not the only thing being considered.

“I don’t consider it a settled thing,” Kiehl said. “The future has endless possibilities and that is where Juneau community members need to put a decision together and figure out what we actually want and decide. We can decide if it will remain a small and quiet neighborhood, or maybe that we want to go big and bold with the land.”

Watt said he encourages the residents of Telephone Hill to “not wait” to see how long the city will take to redevelop the property, and said the earlier they start looking the likelihood of finding suitable housing is higher.

“It’s not like they have a hard date of when they’ll lease will end, at a minimum today they have four months before we get the property and we just don’t move that fast,” he said. “It’s unfortunate that the long-term tenancy is going to end, but I think we’re trying to do it in the most appropriate and humane way possible.”

• Contact reporter Clarise Larson at clarise.larson@juneauempire.com or (651)-528-1807. Follow her on Twitter at @clariselarson.