This story was updated at 6:04pm March 9, 2021, to include Chad Sorensen’s response to clarify his recommendations regarding the ACE president’s position.
City Council plays political football with convention center hotel’s PPP loan request
It was December 16, 2020, the day after the runoff election for two seats on the Austin City Council.
James Timothy “Jimmy” Flannigan, the District 6 council member, was the only incumbent to lose.
“I woke up thinking I need to go look for a job,” Flannigan said in a March 5th interview with The Austin Bulldog.
Then Flannigan’s phone rang. The caller was attorney Phillip Schmandt, board president of Austin Convention Enterprises Inc. (ACE). That’s the organization which oversees management of the city-owned Hilton Austin Convention Center Hotel.
Schmandt had a job offer. He wanted to fill the newly created position of president.
“Phillip called and asked me if I’d be interested—literally Wednesday after the Tuesday election,” Flannigan said.
As it turns out there is an upside to losing, moneywise.
His new job pays $140,000 a year plus $6,000 for health insurance. That’s almost $65,000 more than the $81,536 per annum he was making when he left the City Council. And the new job only requires him to work up to 20 hours a week.
Flannigan applied, got the job
Three days after being defeated, Flannigan emailed his résumé to formally apply. He was interviewed the same day by the Board of Directors.
“We discussed the job requirements that were posted to ACE website,” Flannigan told The Austin Bulldog. “There was interest in bringing me on.”
ACE Board secretary-treasurer Jolsna Thomas told the Bulldog, “We wanted transparency to the public, someone to develop the website, make sure all documents were visible to public, issue RFPs for various vendors—insurance, auditors, attorneys, all the various functions—someone who knows the procurement process.” The board was also looking for diversity, she said, and Flannigan—the first openly gay man elected to the council—checked that box.
Thomas is business development manager for Rosendin Electric, one of the nation’s largest employee-owned electrical contracting companies. She is also a City Council appointee to the City’s Firefighters’ Police Officers’ and Emergency Medical Services Personnel Civil Service Commission and Mayor Steve Adler’s appointee to the City’s Construction Advisory Committee.
“It was important for me to find somebody to have the right qualifications to do this job and give the organization the level of attention it needed,” Thomas said. “All three board members have full-time paid jobs. We went though the process, interviewed candidates, and selected the best one for the position.”
Flannigan was careful not to cross ethical boundaries, he said.
“I said I’m not going to sign anything or execute anything until after the new council members are sworn in. We’re not overlapping duties. I’m not going to sign this thing till after the swearing-in.”
To that end, Schmandt and Flannigan executed his employment agreement January 7, 2021, the day after the new City Council members were sworn in.
Big pay for small hours
Working 20 hours a week for 52 weeks adds up to 1,040 hours a year. At a base salary of $140,000, that works out to about $135 per hour. Add in $6,000 for health insurance and the hourly rate jumps to $140 plus change.
As a City Council member, Flannigan’s annual salary for the fiscal year starting October 1, 2020, was $81,536 for a job arguably far more demanding many full-time jobs.
By losing the election he landed a part-time job that pays $64,464 more than he earned as an elected official. And the work he does is mostly out of sight, out of mind. Although ACE is subject to the state’s Public Information and Open Meetings Acts, its website has been in operation for less than a year and board members have yet to hear a public comment during posted meetings.
That kick up the financial ladder is like a dream come true, right?
“They don’t pay council members what they’re worth on the market,” Flannigan said.
ACE gets more help for same money
Flannigan’s compensation is almost revenue-neutral for ACE’s budget because board advisor John Roberts—whose duties Flannigan took over—was paid $11,000 a month in 2020 for a total of $132,000, according to records obtained through a public information request. So in Flannigan ACE gets an employee on the payroll instead of a contractor who lives in Dallas for a net additional annual outlay of $14,000.
The ACE board settled on the base salary of $140,000 based on data Schmandt requested from consultants CHMWarnick, hotel asset managers. The firm did a survey of city owned hotel facilities around the country. Managing Director and Chief Operating Officer Chad Sorensen emailed a letter to ACE board members August 31, 2020, and recommended an annual salary range of $125,000 to $175,000.
Update: But Sorensen’s letter contained a seemingly odd recommendation. “Candidate should have other work interests and not treat this role as a primary source of income to mitigate the risk of over-stepping responsibilities and compromising the structure,” The Austin Bulldog has requested clarification of that statement and received this by email today: “…[t]he intent of ACE President position is not to supplant the role of Hilton as operator of the hotel, nor was it intended to supplant CHMWarnick as the professional asset manager to ACE, which is required by the bondholders.”
In a September 25, 2020, ACE board meeting, Schmandt moved to set the president’s pay at $150,000 with an expected 20 hours per week commitment of time, according to the board minutes. Board member Thomas offered an amendment to adjust the pay to $140,000 per annum, Schmandt accepted the amendment, Sherri Greenberg seconded, and the motion was approved unanimously. (Greenberg, a professor at the LBJ School of Public Affairs, also chairs the Central Health Board of Managers. She did not respond to a request for an interview for this article.)
Was hiring Flannigan legal?
As a sitting council member Flannigan voted February 20, 2020, to appoint the three ACE board members who hired him. Two of them contributed to his reelection campaign: Schmandt ($400 for the general election) and Thomas ($100 for the general election and $200 for the runoff).
In addition, Flannigan voted July 29, 2020, to approve an amendment to ACE bylaws that created the president’s position he was hired to fill.
The City Law Department examined Flannigan’s hire for the job with respect to revolving door policies and determined that no provisions in City Code were violated. The legal advice left open the option to amend rules for the future.
Flannigan also signed with lobby firm
When the Bulldog asked Flannigan what he was going to do outside his part-time job with ACE, he said, “I’m still trying to figure that out. I’m advising A.J. Bingham, a friend. None of it’s paid work, not paid right now.”
Bingham Group owner Alfred J. “AJ” Bingham Jr. sent an email to a client February 1, 2021, stating, “I’m writing to update you that we’ve signed former Austin Council Member Jimmy Flannigan as a strategic advisor to Bingham Group.
“In this role he’ll provide guidance to the firm on Council and city department engagement, as well as community relations (in Austin and Williamson County).
“As you may know, currently he’s the only former member of the 10-1 system on the market, so his insight is both a value add and unique amongst our competitors. He is immediately available for advisory engagements. To that end, we wanted to offer you and the team a free 30 minute consultation related to you business and the City of Austin. Just let me know the dates and times.”
Bingham is a lobbyist registered with the City of Austin, as is Bingham Group employee Julie Potrykus. The firm lists eight clients in its city lobby registration.
Asked if he has provided strategic advice to Bingham, Flannigan said, “That’s my expertise but I’m not lobbying and I have not been paid. He said he recalled that Bingham, when representing the Butler Park Pitch & Putt operators, once lobbied him as a council member. The golf facility has operated since 1949 on a narrow strip of land between Riverside Drive and Barton Springs Road, just east of Lamar Boulevard. Flannigan said he voted against Bingham’s client.
By stepping into a role that sells the experience he gained as a council member, Flannigan has the potential to run afoul of City Charter Section 2-7-66, which states:
“No former City official or former employee shall use any confidential information to which he had access by virtue of his official capacity and which has not been made public concerning the property, operations, policies, or affairs of the City, to advance any personal financial interest.”
For four years Flannigan sat in the City Council’s closed-door executive sessions with legal advisors. No doubt he heard a lot of information that was never made public. In advising Bingham Group and its clients, how will he ensure he’s not violating that provision?
“Because I spent a lot more time in public meetings,” Flannigan said, “and I try to be as public as possible. Really not that much stuff happens in executive sessions.”
Perhaps a better question is how will the public have confidence that Flannigan is not violating that provision?
In answer, Flannigan notes that he’s not the first former council member to walk this tightrope. Mike Martinez, for example, served on the council 2009-2014 and ran unsuccessfully for mayor in 2014. Martinez is currently a registered city lobbyist who represents 14 clients.
“This is not an unusual scenario,” Flannigan said.
Why hire Flannigan so quickly?
Let’s address the context in which the ACE board is operating.
Schmandt, in a March 2nd telephone interview, said, “I was recruited to be on the board, which was described to me as an opportunity for city service, with maybe monthly board meetings and limited involvement in overseeing this important public asset.”
Schmandt was no stranger to civic service. The attorney and partner in McGinnis Lochridge law firm had served on the City’s Electric Utility Commission (EUC) 2006 through 2013, including five years as EUC chair. Plus he was on several mayor’s task forces on energy matters, according to a list of his community service on the law firm’s website.
But serving on the ACE board is far different.
The EUC, like most City boards and commissions, is merely advisory. The ACE board provides direct oversight of the City-owned Convention Center Hotel and adjacent garage. ACE board appointments are for six years, although two of the three current members are serving out unexpired terms of previous members. (In fact, Thomas’s term expires at the end of next month.)
“We have three volunteer board members, no institutional memory on the board level…I accepted being appointed as president with little enthusiasm,” Schmandt said.
“This then became not a monthly experience for me but pretty much daily management, dealing with assets, dealing with the lawsuit (more about that later). It was way more than I bargained for and it’s been very frustrating. We have only three board members so we can’t communicate except in open meetings, and that’s made managing more difficult.”
The two board vacancies have yet to be filled by the City Council, despite an amendment to ACE bylaws approved May 12, 2008, that states the board “shall consist of five directors.”
When Greenberg, Schmandt and Thomas were appointed a year ago, ACE was in a tight spot. They came in with no overlap with previous board members. They had to learn how to manage an organization overseeing the City-owned Convention Center Hotel that in previous years had enjoyed operating revenues of about $80 million a year. Revenue plummeted in 2020 to less than $22 million due to the pandemic that hit just as these board members took office. (See accompanying chart.)
The board’s only staff was a Dallas-based independent contractor, John Roberts, who served as board advisor and whose contract was expiring at the end of this year.
“We had an asset valued about $400 million, overseen by a novice board, with an independent contractor who could resign at any minute with us having no access to his documents,” Schmandt said.
The ACE board’s previous three members—all city employees—were gone. One had retired. The other two resigned after being sued by Five Fifty Five Condominium Association Inc., because they owed duties of loyalty to the city and could not fully comply with duties owed in one capacity without violating duties owed in another capacity. (Cause No. D-1-GN-20-001141.)
The new board members immediately prioritized transparency in ACE’s meetings and documents. There had been no provision for taking public comments during board meetings and no repository of information the public could access. “That was one of the first orders of business so our meetings and core documents could be available to the public,” Schmandt said.
“Our next step was to approach council to hire a president that could provide that institutional knowledge.”
ACE bylaws did not allow the board to immediately fill that position. To change the bylaws meant getting the City Council’s permission. That was granted via Resolution No. 20200729-084 July 29, 2020.
The one who got away
In early October, Roberts informed the board he had received more than 150 résumés from Indeed and another 125 from LinkedIn. Others came from ACE’s website, ACE board members, and consultants. (See accompanying chart on the timeline for hiring.) In one email to Schmandt, Roberts wrote, “Many just don’t seem to pass the smell test, either by location, experience, industry or age…None really screamed ‘look at me.’ ” Ultimately Roberts weeded out the vast majority of résumés.
In response to the Bulldog’s public information request ACE’s outside attorneys at the Winstead law firm provided résumés of 17 “candidates considered by the ACE board for the position.”
The ACE board interviewed two candidates November 30th: Lee Crawford and Ying McGuire.
Ying McGuire’s résumé indicates she is vice president of international business for Technology Integration Group in Austin.
McGuire did not respond to the Bulldog’s request for an interview. But correspondence obtained through a public information request showed that she emailed the board the day after her interview and offered to step into the job on an interim basis or volunteer if needed. Clearly she was not offered the job.
ACE board member Thomas made sure that McGuire was being considered.
“She was a very good candidate, had a lot of good ideas, but was just not the right fit,” Thomas said.
Crawford is an assistant City of Austin attorney whose duties include being the city’s primary counsel for ACE legal matters.
In conveying Crawford’s résumé to ACE board members, along with others on October 16, 2020, board advisor Roberts indicated that Crawford was “soon to retire” from his city job.
Crawford declined an speak with the Bulldog for this story but via email responded to say, “The interview was cordial and professional, lasted for roughly an hour, and focused on my background and experience relevant to the President’s job description as posted on the ACE website. I had understood that ACE received a significant amount of interest in the President position, and considered myself fortunate to have been selected for an interview.”
All three ACE board members participated in his interview, Crawford said. “I have a lot of respect for ACE and believe the Council’s decision 20 years ago to create such a special purpose entity to support the convention center has brought a lot of economic and other benefits to our City. I hope your story will reflect that legacy.”
In the Bulldog’s March 4th interview with Schmandt, he said, “We made an offer. It was verbally accepted and the next day it was declined.”
He refused to name who got the offer.
But given McGuire’s day-after-interview email offering to step in temporarily or volunteer, it’s obvious the board tried to hire Crawford. When asked to confirm that, Schmandt said, “I prefer not to comment about that. I really respect people’s privacy rights when it comes to employment issues.”
Asked once again if he got a job offer, Crawford said, “I’m not confirming whether I was offered the position or not.”
Crawford makes $166,000 as an assistant city attorney, so taking the president’s job would have netted a smaller salary. But for a part-time job and likely ability to draw retirement pay (he graduated from law school in 1977, according to records of the State Bar Association), he would’ve been ahead in both income and reduced work hours.
Rejecting the job raises a red flag. Was Crawford’s knowledge of ACE such that he could foresee some looming problem he wanted to avoid?
In a email, Crawford said, “I’m not aware of any concerns about ACE’s operations…To the contrary, I have always believed ACE to be a very well-managed organization and a good steward of its assets. I also believe that ACE’s prudent financial policies over the years–including establishing substantial reserves to cover unanticipated events–have contributed to ACE’s ability to continue meeting its obligations under its bond indenture during these very challenging times for the hospitality industry.”
What Schmandt told the Bulldog the morning of March 4, was contradicted by what KXAN-TV Channel 36 reported later that same morning. KXAN’s story said, “Schmandt said no one would take the job in months leading up to Flannigan’s runoff loss and subsequent hire.”
While technically true—because Lee Crawford turned down the job in early December—Schmandt’s comment seemed to suggest that the ACE board offered the job to a number of people before hiring Flannigan. In fact the job had been offered to just one person. And for whatever reason, the board only interviewed a total of three people out of several hundred who had applied.
Hiring process criticized
One of the 17 applicants on the list of those “considered” for the president’s job who did not get an interview was Andy Slater. As it happens, he was the Hilton’s first general manager when the convention hotel opened for business in 2003.
Back then he was already area vice president for Hilton Hotels and was picked for that job by his boss, Ken Smith, who now heads KSI Hospitality Inc. Then a Hilton executive, Smith competed with other major hotel chains responding to the City’s Request for Proposals. All wanted to win the job of managing Austin’s new Convention Center Hotel, which opened in 2003. “I made the presentation,” Smith said in February 4th interview, adding the stiffest competition came from Marriott.
“I knew the hotel was going to take off,” Smith said. “We had bumps along the road but overall the hotel was extremely successful…“It turned out really well and was one of Hilton’s top hotels, pre-Covid.”
The City’s decision to build the hotel “primed the pump to get things moving” for the growth that occurred with the expanded convention center,” Smith said. “The City was small. Austin was an afterthought unless you were in the music business.”
Slater did a great job as first general manager, Smith said. “It’s the GM that makes or breaks a hotel, makes day to day decisions.”
Slater, via email, told the Bulldog, “I would like you to share my comments and name and disappointment that the courtesy of an interview for the position of President of ACE was not permitted. Clearly qualified candidates were not considered in this decision.” But he conceded, “They were very clear on the front end they weren’t looking for hospitality experience.”
“Keep in mind the board has hired an outstanding management company with Hilton, not just the brand but the operator,” Slater said. “Solid people are assigned to the project. By virtue of the contract they are also required to hire an operations monitor to look after the project and be a second level of oversight, to make sure. All have an extensive hospitality background. The board felt it had ample experience onboard with hospitality experience. And for whatever reason wanted to move in a different direction. I’m not bitter about it, I have plenty to do. My experience with the board has been an exceptional relationship.”
One other person among the 17 candidates considered, who spoke on condition of anonymity, said he was surprised the president’s position was not listed with the International City/County Management Association, the go-to spot for executives in search of jobs, including nonprofits. (The ICMA’s executive director and CEO is former Austin City Manager Marc Ott.)
That candidate said, “The job of president is just an administrative function…but it really sort of felt like they were hiding the hiring process.”
“When you see this lack of advertising for a position, it looks like an inside decision. You can apply, but don’t expect too much. It was a closed-door process and not transparent.”
Council action on PPP loan application
ACE Board President Schmandt needed the City Council’s approval so ACE could apply for a loan under the SBA’s Paycheck Protection Program (PPP) to support the Hilton’s front-line workers. It was a straightforward request so ordinary it had been placed on the council’s March 4 consent agenda.
Schmandt’s February 26th letter requesting permission to apply for a PPP loan stated, “The loan proceeds will be focused on the payroll costs of our hard-working staff that continue to support and operate the hotel. ACE administrative costs are not included in the calculation of the PPP loan amount.” The loan amount was not disclosed.
But because some council members suspected foul play in ACE having hired Flannigan so quickly, the run-of-the-mill matter came under intense scrutiny.
Ironically, the in-house expert the council turned to for legal advice on ACE’s PPP loan was Assistant City Attorney Lee Crawford. If he’d taken the president’s job, the PPP loan would likely have flown under the political radar and gotten rubber-stamp approval.
What’s evident in the council member comments during the PPP loan discussion is that collectively they knew little or nothing about ACE and the downtown Hilton it manages, a facility valued at $246.6 million, according to appraisal district records. It was as if ACE was something brand new—not something a prior council created two decades ago—and suddenly it deserved a lot of attention to allay their concerns about how it was managed.
After a closed-door executive session about the PPP loan (Agenda Item 68) Council Member Kathie Tovo indicated there had been inquiries from residents about whether the PPP loan pertained to a former council member to do work “performed by a third-party consultant in the past, and this new position is a 20-hour work week paid at $140,000 a year.”
Mackenzie Kelly said, “Rest assured we’re looking into this issue and intend to be getting answers outside this agenda item that will not be raised today.”
It helps to understand the animosity targeting Flannigan was in large part a backlash because of his strong advocacy for big projects like CodeNEXT, the sweeping citywide rezoning project. He was part of the go-go council majority that would’ve rammed through CodeNEXT had it not been for court intervention, while Tovo and others voted against at every opportunity. Not to mention that Flannigan was perceived as being so abrasive that one council member confided before the runoff election that working with Mackenzie Kelly would be preferable.
Crawford confirmed for the council that PPP loan proceeds would not be used to offset Flannigan’s salary. He said proceeds also could be used for paying utility bills and insurance for the hotel, although that did not appear to be the intent. Upon further questioning Crawford said the hotel had more than 500 employees before the pandemic hit and now has fewer than 200.
Crawford also confirmed the City would not be responsible for any debt created by the PPP loan, should it not be forgiven.
Council Member Leslie Pool noted during the PPP loan discussion that she couldn’t recall any reports the council had ever received from ACE regarding its finances. She said she hoped to hear more about ACE through the Council’s Audit and Finance Committee.
“I’m saying this publicly so the folks over at ACE will know that this is on our radar—which it probably should have been before. But we can make up for lost time with that and begin to see what’s going on and how they’re doing.”
“Why is it that the City of Austin owns a hotel still at this point?” Pool asked. “Would it be better not to own it? I think that’s a legitimate question for us.”
Council Member Tovo said she also looked forward to having a conversation about ACE’s two board vacancies and talk about how to fill them.
“It’s an awkward conversation,” Tovo added, “but I’m also interested in hearing from the board about their hiring of a president, because it’s something that’s being talked about in the public. It is an unusual thing…to extend an offer of employment to a council member while that person is actually still a member of the council. So…that’s something I look forward to talking with the board about that decision, as we move forward.”
Austin attorney Bill Aleshire emailed Tovo March 7th to suggest that ACE board members should, like all City board and commission members, be required to file personal financial statements.
“The City is using more Local Government Code Chapter 303 nonprofit corporations to carry out city functions. ACE and Project Connect are just two examples. The City should promptly amend its ordinance requiring personal financial disclosure of City officials to include the board members and executives of these corporations (e.g. Jimmy Flannigan) to file the financial disclosures just like other city officials who exercise powers of government.”
(Bulldog Disclosure: Aleshire represented The Austin Bulldog in two public information lawsuits in 2011. He currently serves as volunteer attorney for the Bulldog’s public information requests.)
Tovo’s email response to Aleshire states, “Good idea, Bill. I’m going to look into that. Thanks for sending along.”
As the PPP loan discussion wound down before the vote, several council members expressed appreciation for the ACE board’s work to increase transparency and launch a new website.
In the end, the council members voted unanimously to approve ACE’s request for permission to apply for a PPP loan.
After the council meeting, the Bulldog called Schmandt to ask for a response to the council’s expressed desire to get more involved in ACE’s business.
“I look forward to increased communication to the council,” he said. “That would be healthy.”
Not the only city-owned Hilton
Given the council’s “Aha!” moment regarding ACE’s management of the city-owned downtown Hilton and its PPP loan application, one must wonder if the council had to give a go-ahead for the PPP loan requested for another city-owned hotel.
The Hilton Austin Airport Hotel opened in 2001.
The city manages the airport Hilton through Austin-Bergstrom Landhost Enterprises Inc. (ABLE). The airport hotel is valued at $52.8 million, according to appraisal district records.
ABLE has already obtained a PPP loan and is considering making a second draw on it. Mandy McClendon, media spokesperson for ABLE, told the Bulldog today, “ABLE did not go to the City Council to apply for the PPP loan.”
ABLE is a nonprofit incorporated December 10, 1998, for the City’s benefit. A council resolution authorized ABLE to issue Airport Hotel Revenue Bonds not to exceed $45 million. That money was used to renovate the former Bergstrom Air Force Headquarters Building built in 1968, known as the “Donut,” and turn it into a hotel.
By the way, at the council meeting of January 27, 2021, Item 3 called for appointing five new members to ABLE’s board of directors. Resolution No. 20210127-003 was approved on consent.
What is Austin Convention Enterprises?
ACE is a nonprofit facilities corporation created by the City of Austin March 24, 2000. Its purpose was to finance, construct, and operate the Convention Center Hotel downtown at 505 E. Fifth Street, adjacent garage and related facilities. The hotel operates under the Hilton brand.
The City kicked off the convention center hotel project by giving ACE a $15 million grant. The hotel was built on downtown Block 39, which is bordered by Red River, East Fourth, Neches, and East Fifth Streets. The land was assembled from owners of various tracts on that block by H.L. Hotels LLC, which sold to Landmark Organization LP December 27, 2000. Landmark then sold Block 39 to ACE June 14, 2001.
Hotel construction broke ground July 10, 2001 and was finished January 17, 2003, with 801 rooms, according to Wikipedia.
In 2018 a $7.5 million overhead walkway was constructed to connect the sixth floor of the hotel to the fourth floor of the Austin Convention Center.
The downtown hotel was financed through bonds that ACE issued and for which the City itself bears no responsibility. In most years ACE has transferred millions of dollars to the city. (See accompanying chart.)
When the original bonds were refinanced in 2017 in the total amount of $194,655,000 the transfer was capped at $2 million a year.
The City’s budget for 2020-2021 shows ACE revenue earned by the Hilton Austin Convention Center Hotel, along with other funding sources, goes into the Waller Creek Reserve Fund for the Waller Creek Tunnel project.
Trust indicators: Ken Martin has been doing investigative reporting in the three-county Austin metro area since 1981. His aggressive reporting twice garnered first-place national awards from the National Newspaper Association for investigative reporting. Both of those projects resulted in successful felony criminal prosecutions, one for a Williamson County commissioner, the other for a con man based in Austin. You can read more about Ken on the About page.
Links to related documents:
Articles of Incorporation for Austin-Bergstrom Landhost Enterprises Inc., December 10, 1998 (11 pages)
Articles of Incorporation for Austin Convention Enterprises Inc., March 24, 2000 (14 pages)
Chad Sorensen of CHMWarnick letter to ACE Board President Phillip Schmandt re: ACE President Position, August 31, 2020 (2 pages)
Jimmy Flannigan’s employment agreement, January 7, 2021 (12 pages)