In this episode of ZacCast, Abilene, Texas City Manager, Robert Hanna, joins us. We talk about the difficulties inherent with complicated projects, steering large organizations toward a common goal, and gaining community buy-in for potentially controversial proposals. This is ZacCast, episode seven. Here we go. All right, guys, I wanna welcome you to ZacCast. Uh, today we have a special guest, Robert Hanna. Uh, he is the city manager of Abilene, Texas. Uh, Robert and I have known each other since I was a young pup. Uh, but Robert, welcome to ZacCast, man.

Hey, thanks for having me. I'm really l- really glad to be here.

Yeah, absolutely. Well, hey, uh, Chad's with me as well. Uh, this is our first time to Skype in a guest, so we're, uh, we're working through the kinks for sure. Uh, but give us just a little bit, uh, about yourself. Tell us how you started your career and what cities you've been in.

Oh, sure. Well, uh, I started my career as an intern for the town of Addison, and, uh, then went to Denton, um, as a management assistant, worked with Mike Conduff, who is a heck of a guy, and, uh, was blessed to have him take an interest in my... in my- in me and my profession. And, uh, he came up to me one day and said, "It's time for you to leave Denton," and lined me up a job in Hudson Oaks as the assistant city administrator. I was there for about six months, they made me the city administrator. Um, and that's where you and I met. I hired you out of grad school.

Yeah.

And, um, then I got plucked to go to Weatherford as an assistant CM, and then Denison as a CM, and now in Abilene as a CM. I got about, well, coming up on nineteen years of doing this stuff, and it's, uh... I never thought I'd have so much fun at a job, but I really enjoy being a city manager. So much fun.

So don't forget, uh, Robert, you brought me over to Weatherford, too. Um-

I did. I stole you from Fort Worth.

So the, the funny thing there is that, for anyone listening, if Robert offers you a job, if he tries to handpick you and bring you out, just understand he's probably gonna be leaving in about six months.

Well, six months to a year. It's all part, it's all part of the succession plan.

Yeah, but I will say that he'll stay with you, uh, from a mentorship standpoint, so- ... no worries. Just, just a heads-up.

I got your back, man.

He, he is currently the reigning TCMA Mentor of the Year, right? Isn't that technically what you are right now? So, uh-

That is. I have to pay people to get that, though, but yes.

Yeah, it's pretty fantastic. So, uh, you know, kinda to give some history there, uh, Robert and I actually met over a mock interview, uh, and thirteen years later, I'm still in the same city you plucked me to, so it worked out well for me, and I appreciate that.

It did.

Yeah.

You've done well for yourself.

Well, hey, Robert, I, I wanna go specifically into some things that you're go- doing in Abilene, which are a little bit different. Uh, one of the things about ZacCast that we wanna talk about is the creativity that's occurring within city government. Uh, and I want you to talk a little bit about, uh, the convention center project that you guys are working on in downtown Abilene.

Sure. So we're, uh... When I first got to Abilene, uh, the mayor at the time took me to Dallas, and we talked to a company about building a downtown convention center hotel, and, uh, the deal they were pushing was just horrible, uh, for the community. It didn't put us in a position where we were seeing any return on the investment. We were just handing out dollars. And so, uh, what we decided to do was continue to work with our state, uh, representative and state senator and work on a piece of legislation that would allow us to take advantage of, uh, what the tax code calls an eligible central municipality. Um, that allows us to take the state portion of the sales tax and the state portion of the hotel occupancy tax, um, tied to about a 1,000-foot radius of an eligible hotel project and use that to pay for the debt service associated with building the convention center associated with that hotel or even some elements of the hotel. So we worked hard to get that done, um, two legislative sessions ago, and then spent, uh, the other better part of two years, um, trying to get this, uh, project off the ground, and it's extremely complicated. Um, we worked, uh, really hard to get a private equity partner, and we just weren't able to do it. So, um, we had an idea to create a local government corporation. Um, that's allowed. Um, most cities have access to them through the transportation code, and so we were able to do that. And local government corporations only exist to do things that cities can't do, so since we really can't own, uh, own a hotel, um, we... the LGC can. So we created this LGC. Uh, it's a separate corporation from the city of Abilene, um, but the board members are appointed by the council. And the LGC's gonna, gonna create, gonna build this hotel. It'll be operated, uh, by a third-party operator. It'll be a Hilton product, be branded as a Hilton DoubleTree. Um, and they will- they'll issue debt for the hotel. City of Abilene will issue debt for the convention center facilities that we're building in association with the hotel, and we'll have a 206-room, uh, hotel with about, I don't know, 20-something thousand square feet of, uh, meeting space, uh, pre-function space. There'll be a full-service, uh, restaurant, uh, a bar, a full-service, uh, conference facility kitchen. It'll be the best hotel between here, uh, and Lubbock, for certain, uh, for, for- between Fort Worth and Lubbock for certain. It's gonna be first class, best hotel in Abilene.

So, uh, specifically on this project, did you see somebody else that had used an LGC in the past and try to mimic what they were doing, or did you guys find a path that had not yet been used?

Well, I, I, I don't wanna say that we've never... that other people haven't ever used this path before because they sure have. I mean, you, you look at, um, local government corporations are used across the state of Texas, um, by larger cities in particular. Houston has several hotels that are through, uh, LGCs. I think the, I think the Omni in Fort Worth or the one in Dallas may be. Um, uh, so I won't say we, we did- we invented the wheel. We, we didn't do that, but from a city of our size to do something like this-... um, I think it is fairly innovative. Uh, the way we've got the debt structured I think is the more innovative portion. All the LGC debt is, is, uh, non-recourse to the City of Abilene, so we don't have to pay any of that back if the hotel, you know, just is a complete failure. Uh, the taxpayer are not gonna be on the hook for that, except for one small portion of the, uh, liens. There's three liens with the s- taxpayers. We have to give a credit enhancement to the third lien, and that credit enhancement just means... Uh, we're doing that so we can get a, a rate that's reasonable. Um, but we've worked with our local foundations, and they are buying that through a private placement. So, um, I'm, I'm fairly confident that if we ever ran into trouble, we'd be able to work with our local foundations, who are extremely generous for the city, um, to try to come to an arrangement that protects the taxpayers. Uh, the other thing that foundations are doing, they're putting money in, in the con- the conference side. So all told, of a $64, $66 million project, they're putting about $19 million into this project. So, uh, we wouldn't be able to do this really without them, so leveraging, um, foundation support, about $7 to $8 million worth of state tax revenue. Um, and then the rest of it will come from the city's, uh, sales tax and hot tax revenue generated by the hotel. Uh, based on the pro forma and the numbers and the debt service, we should be, uh... We should have a very healthy product.

So, so the most people that we deal with, you know, not everybody understands debt structures-

Right

... and, and how debt is structured. So when you say private placement, uh, you know, obviously there are two different types of, of major debt placements. There's a public placement, where you actually go out and get rated dollars, right?

Yep. Yep.

And then there is a private placement, where you have a buyer on the private market, and you don't have to go out to the public market. And you guys are doing the private side, correct?

Well, we're doing both. Um-

Okay.

That third lien, so there's, there's... On the, on the hotel side, there's three tranches of debt. There's a senior, subordinate, and junior lien. The senior and subordinate are gonna be sold through a public offering via Citigroup, uh, out of New York, and, uh, we've already, uh... We feel very bullish on these bonds. Uh, they, uh... Citigroup is, uh, in the process of selling some now, uh, for another product, and the market, as they've said, is healthy for this type of investment. So we're working hard to get our project, uh, design finalized and get a, uh, guaranteed, uh, maximum price so we can go to the markets and get s- get some debt, 'cause rates are really healthy right now, too. They're really attractive.

Yeah-

Yeah

... they, they, very much so. And we're, we're doing a placement right now on some water debt, and I mean, it's, it's crazy how low the rates have gone on long-term debt.

We just, we just issued 30-something, $8 million, $38 million for GOs and some o- and some, uh, COs. We got, like, a aggregate rate of 2.75. It's just, it's ridiculously cheap.

Yeah.

Um, which is great. Uh, take advantage while you can. Um, the o- but the third lien, um, because it has to be credit enhanced, um, originally, we're gonna go on a public offering model, but because I have the foundations that are interested in buying it, we're gonna give them a little bit of a higher coupon. Um, but, uh, we might get in a public offering, but we have, we have some guarantees we don't necessarily have through the public offering process in regards to repayment. Does that make sense?

Yeah, makes sense. It's a, it's... I mean, it's a very interesting setup, especially when you have, um, when you have good, uh, private foundations that are willing to invest in your community.

It's an incredible blessing.

Yeah, yeah, very much so. So, so what, what is the timeline, do you think, to actually get this thing to construction and completion, and w- when, when do you foresee that I'm gonna be able to get a hotel room at this location?

Uh, January of 2022.

All right.

Uh, we have, uh... Uh, we started design work in earnest, and that's about a nine-month process, so we think, um... Well, six to nine months. We think probably March, April, or May, we'll be done with the design. We'll get our maximum... We'll, we'll get our, uh, budget, final budget dollars established for the design-build contract, probably issue debt in July of 2020, um, fund the construction, and it's about an 18-month window, so we're thinking January of 2022, uh, you can come down to Abilene and stay in a brand-new DoubleTree.

Yeah. Uh, I mean, I think this is a really important conversation to have. I, I was, uh, I was talking to a couple other cities that have also put their hat in the ring for this, uh, uh, for the qualifications at the state level-

Mm-hmm

... uh, the special legislation that the cities have to get in order to qualify for the 1,000 feet. Um, I believe less than 10% of the cities that have actually gotten the qualification have been able to utilize it, as in put things together to get it through. I mean, you guys have really had to muscle through to, to make this work. These are not easy type developments to, to have. I mean, I think it's important to talk about how difficult that really is.

Yeah, this is not something that's, that you just pull off a shelf and do. Every project is individual, um, and unique to that city and that community and what they want to do and what they don't want to do. Some cities don't wanna own a hotel. Uh, some of them have a philosophical objection to it. Uh, Abilene would be one of those, uh, but it's the only way the council... uh, we could do this, and council finally said, "It's worth us... It's worth it enough to make this happen." Um, House Bill 4347 is legislation that was passed this last session that kind of renewed this whole process, because, uh, legislative session before that, they put a, uh, sunset. If you hadn't started your project, um, by September of 2019, you were no longer eligible. So, uh, 4347 corrected that sunset provision, uh, removed it completely, but they also made some other program requirements to help tighten it up. Some cities are out there trying to build a water park and a hotel and call it a convention center. Um, the state of Texas doesn't have a lot of patience for that.

Mm-hmm.

Um, and sometimes the people that are really trying to push the bleed- leading bleeding edge on the legality of a project end up killing the goose for everybody else. So if you listen to this, just follow the law. Don't, don't try to do anything so crazy you're gonna kill it for everybody else. Um, but a hotel/convention center's not easy to do. It took us really four years of constant work. I met once a week-... for four years with the developers-

Wow

-pushing through the project. Um, it took us about seven or eight months to get our, uh, letter ruling from the Comptroller's office, and we were the first one in our House Bill 4347 to do so. So we're ahead of the pack right now a little bit, and we're looking forward to, uh, getting under construction as fast as we can.

So that arrangement is just for the full term of the debt that's taken out, or is that ongoing?

No, it's a great question. It's for 10 years. There's a 10-year window, and so the way we're structuring our debt for this is I've... 'Cause I've got different pots of money. I've got some foundation grants. I've got state revenue. I've got our own hotel tax revenue. Um, so my foundation grants, uh, because they're payable over five years, I've got a, uh, small issuance that's gonna be repaid in five years. The state issuance is tied to 10 years, um, and it, it ex- it retires in 10 years, and then I've got a little chunk left. I've got about 12 million left that we're gonna have to pay over, over, uh, 20 years on the city side. Uh, that's payable through hotel revenues and the taxes generated by, by that hotel, not any other hotel in town, just that hotel.

So, I mean, I, I think it's also important to talk about what's going on in downtown Abilene. Uh, like other cities that are more, you know, metroplex related or, or interior, you guys are actually seeing a rebirth in your downtown, and, and this project is gonna be, you know, imperative to continuing that, correct?

Yeah, there's been a lot of people that have, have done some private investment in downtown Abilene, and we've partnered a little bit with, uh, some demolition grants and some facade grants. Uh, $20,000 here, you know, maybe $100,000 there, nothing, um, crazy, and it was all dependent upon the project. We try to stay 10% below CapEx. Um, we've never really gotten to that number except for one development, um, and they had literally started with a pit in the middle of downtown, so they needed a little extra help. Um, but, uh, uh, it... There is a bit of a renaissance, and the people who have been in Abilene the longest, uh, say they can't remember a time we've had so much construction and, and so much reinvestment in our downtown, um, since the very early days, frankly, of the foundations, so the Dodge Jones Foundation and the work they did to rebuild the Grace Museum, and the work that they did to rebuild the T&P Depot, um, the Elks Lodge building. We have some beautiful historic buildings that have all been, uh, redone as a labor of love, uh, by our foundations, and they were done in the '80s and the '90s. And then, uh, the city just kind of let the torch go, um, didn't keep carrying the torch, and so, uh, we're doing that now. Uh, one of council's priorities is infill development in the downtown hotel. Uh, both downtown redevelopment and the downtown hotel are intimately increment... or intim- intimately linked with that concept of infill development. Um, a lot of folks are doing their reinvestment on the promise of the hotel. Uh, they know it's coming, and so it's just this concept that it's out there. But when it gets built, I imagine it to be an even more powerful catalyst than it already has been.

So a- are your facade grants, uh, are they geographically based? Are they only in the downtown area? How do you feel that program's worked? And the transportation fee that was recently approved, um, are you seeing additional dollars going into rehabbing that downtown area? Uh, are you getting, uh... Is it freeing up money to do things like maybe sidewalk improvements or enhanced walkability in the downtown area?

That's a really good question, Chad. Um, so we're- we've created a TIRZ, and we've created a neighborhood empowerment zone, and so, uh, they don't overlap, but they share some space. Um, and in the TIRZ... You have to be in the TIRZ to be able to get a demolition grant or a facade grant 'cause you're using TIRZ dollars for that purpose. Um, the empowerment zone is just an opportunity to, uh, provide some incentives by waiving fees, um, uh, giving alternative zoning opportunities. People, uh, can, can look at some different things from energy code requirements. Um, uh, we don't have, uh, impact fees, but under state law, the only way I'm aware of to waive an impact fee is via an empowerment zone. Um, otherwise, I think everybody's gotta pay that thing. Um, at least they did last time I looked at it when I was in Weatherford, um, so some years ago. But, uh, the street maintenance fee, which we, which the voters approved, by the way, um, in 2018, um, majority of the voters went to the polls and voted for the street maintenance fee. It's six seventy-five per resident, and then it's either twenty-five to seventy-five bucks per business, depending on the pack traffic you generate, and we determine that, uh, by the International Transportation Engineers', um, uh, Trip Index. It's something they publish every now and then. So we look at the business, we see what your category is, we determine how many vehicle trips you have. Um, it's, it's really an imper- as we've learned, as we've implemented this thing, is completely imperfect, but it's the only thing that really is out there that's objective, so that's what we're using.

It's the first ordinance I ever wrote in the city of Bryan-

Well, there you go

... was the transportation fee ordinance. Yeah.

But it's... And we didn't, as you know, we didn't invent that. Other cities have, have done it. Um, in fact-

Through, yeah, through lawsuits mainly-

Yeah

... we figured that one out.

That's right. Um, and we talked about it maybe in Hudson Oaks years ago, but we just served- we deci- I decided since we're general law, I didn't want to try to move in that direction, and probably council wouldn't have gone there anyways, but-

Co- yeah, our council actually still sees it as a strategic priority long term for the city to have that option.

Yeah.

But it would take, it would take a legislative action to do it. We, we couldn't do it internally.

Yeah. You just don't... General laws don't have the authority to do it. But, um, so we're home rule, and uh, we do, and the voters approved it. Uh, one of our very conservative senators said, "Look, you, voters approved it. I don't have any problems with it as long as the voters approve it." So I think we're gonna be okay if it ever gets challenged. Um, but the money we're using for that is really going to fix streets. It's not being tied to sidewalks at all at this point in time. We have... Back in '09, Abilene, um, experienced their version of the Great Recession, and it finally caught up to them, I guess, and they ended up having to... They gutted-... they just gutted the public works department. Um, when I-

It's the easiest money to go get.

I know, it is, and the problem is, um, you know, it was that way for a decade. They never put the money back. And so when I got there, we had $380,000 as a line item for maintenance and materials. Well, I'm 100,000... I'm 100- 100.2 square miles. I've got 700 and something lane miles. Um, if you do center lane miles, I've got, like, 1,400-something center lane miles, and I've got $385,000 to spend on road maintenance? The city of Hudson Oaks has a hard- larger road maintenance budget than the city of Abilene did.

That was correct, yes.

Yeah. I mean, it's, it's, it's, uh, it's just... It was horrible. So, um, the people made the decisions they had to make at the time, and they were the right decisions for them at the time, but we had to come back and find a way to fix this problem, 'cause our roads were just crumbling. And so, uh, we dug deep, and we had, like... Oh, man, we had, like, 40-something public hearings. It was, it was a... It was something that we really had to push hard, too. Um, and it's, frankly, it's very controversial still. Um, there's a lot of citizens who don't like it. There's a lot of citizens that think it's genius. There's a lot of citizens that just hold their nose and pay it. Um, but we're able to bring in about $4.5, $5 million annually, uh, for road maintenance now, which is beginning to make an impact. We also partnered with our 4A corpor- Type 4A corporation, and they're giving 2 million a year for the next five years, essentially, about 8.5 total, uh, total, um, over the next five years, uh, to pay for road projects that they're eligible to pay for, uh, that help generate new retail and industrial growth in the city. So they've gotta make a determination that meets the requirements. Once they make the determination, uh, the road project's eligible. So-

Wow.

It... We're trying to be very creative. We talked about a street maintenance, like, a street sales tax, um, and, uh, s- that came... Those wheels came off, and that's why DCOA, our Type A corporation, is now making some contributions to road maintenance. Um-

Is your full 2% right now is, is totally utilized?

Our full 2%'s utilized. We've got, um, we've got, uh, money, uh, we got half cent for Type A, uh, half cent for property tax reduction, and a penny for the general.

Okay, I, I think it's important to talk about, uh, you know, how difficult these decisions are when, when you're in a community that's on an island by itself. I mean, you, you guys are out there. You provide services for not only Abilene, but basically the entire county.

Yeah, well, uh, abs- uh, I think 89% or 92% of the population of Taylor County lives in Abilene. Um-

Yeah

... that's, that's changing. Uh, frankly, as, as time goes by, the southern Taylor County is growing, um, at, at a faster rate, I think, than we are. Um, and that's, that's gonna provide some interesting dynamics and interesting demographic shifts, um, as time goes by. It's one of those, it's one of those things you worry about as a city manager a little bit, especially now that the state's pretty much taken away our ability to annex anybody.

Mm-hmm.

Uh, God bless them for that. So, uh, but you're left with what the tools you have, and so you try to make it all work. But, but yeah, it's, it's, um, we are a, uh... It's called the Big Country out here. We are the, we are the most important city in a 22-county region. Um, and, uh, we have all the hospitals, we have all the shopping, we have all the retail, we're the population center. Um, we have the D- Dyess Air Force Base. We've got a very large agricultural sector as well as part of our economy. People, uh, don't think about that, but Abilene is a, a multimillion dollar, hundreds of million dollars annually in agriculture. Um, and so it, it really is kind of a, um, an, an urban hub in a rural, a more rural environment than the Metroplex or Austin, for sure. But, you know, we have our, our suburbs as well. Uh, they're just on, on a much smaller scale and much more rural, but we provide water to them. Um, you know, there's, uh, mutual aid agreements for fire, even for police. Uh, and so you've gotta be the big neighbor to help everybody out. Regionalism is, is a real thing, even out here, um, and you've gotta make it work. You've gotta band together and, and find a way to serve the public.

Yeah, I think, I think we could talk for hours about the changing, uh, landscape in Texas as it comes to annexation reform-

Mm-hmm

... and what that means for cities, and, uh, I've had lots of conversations with county judges about what that means for counties. Uh, I don't, I don't think anybody really has stepped back and looked at the fact that counties are gonna have to provide service levels that they've never provided before and be able to get the legal authority from the legislature to do it.

Yeah, and the-

It's gonna be tough

... and the revenue, 'cause the legislature just capped their dollars, too. I, I think these last two or three legislative sessions are, a- as time goes by, gonna be looked back as really a dark time, uh, for Texas as a whole. And not to disparage any of our elected representatives in Austin, because they, they, they do their job, they work hard. It's... But it's just a function of a philosophy that's there right now, and it really needs to change. The Texas miracle from an economy standpoint isn't driven by the state of Texas. It's driven by cities, and we need the freedom to be able to do that, or Texas is gonna end up in a world of hurt, in my opinion.

Yeah, we've talked about that in previous podcasts, really, you know, trying to explain to people, especially who aren't in the state of Texas, who may be listening to us, that how diverse the state really is, how different, uh, you know, Travis County and Austin are from College Station-

Yeah

... even though they're only 100 and... Yeah, I mean, how many miles apart are they?

170.

Yeah, 170. So I mean, it's... 107, sorry, miles apart. So I mean, we're, you know, trying to explain to folks that, uh, these are very different communities with different populations, and, uh, and the state has really kinda uniformly changed everything the same way. Uh, it's, it's gonna be, it's gonna be wild to watch for the next 10 years.

It will, and I think it may take that long to kinda shake out. Um, but a- again, I, I don't think that this is a, this sort of, you know, "We hate cities and counties," that you heard expressed by, uh, our speaker and the representative from Lubbock. Um, I don't think that's the majority of our legislators down in Austin. I think it is, uh, a powerful group, uh, with, uh... But, but I'm, I'm really hopeful they're a minority of folks. Uh, but they are very powerful at this point in time, that's for sure.

They, they are that. They are that. Well, Robert, uh, I wanna thank you for taking time to talk to us about what's going on in Abilene and, and really an awesome project that you guys are doing downtown. Excited to see that. I think a lot of city managers, uh, especially young and up-and-coming city managers, see what some of these cities around the state are doing, uh, and understanding how difficult those projects really are and how much time it really takes, uh, can be, uh, you know, just daunting for folk- folks to see. So I wanna thank you for taking the time to kind of explain that for us and, and really give everybody the, the gauntlet of what you guys went through to get those projects done.

Hey, it's really my pleasure, and anybody... I'm in the TCMA directory, so if you have any questions, feel free to reach out. I'm happy to help in any way that I can.

Excellent. Thanks a lot, Robert, and we appreciate you coming on.

You bet. Take care.

Hey, everyone. Thanks for joining us. Apologies for the sound quality issues. We will figure out that whole Skype thing. Show notes for this episode are available at zakcast.com/7.