In a 9-1 vote this morning, the City Council agreed to spend $33 million more to renovate the circa-1975 Frost Tower, which will eventually house the city's administrative staff in 18 of its 22 floors.
District 10 Councilman Clayton Perry was the lone dissenting vote. District 8 Councilman Manny Pelaez did not attend the meeting.
The total cost of the project is $127 million — $52 million for the purchase of the building from Frost Bank and $75 million for the renovation, up from the $42 million figure the Council approved in 2015.
The move consolidates 24 city departments that currently office out of seven locations and will save the city $3.8 million annually that it's currently spending on leases, city officials said.
"We are saving those lease payments and using those to issue debt," Assistant City Manager Lori Houston told the council, explaining how the city will back its added 30-year debt.
The consolidation is one aspect of a complicated deal between the city, Frost Bank and Weston Urban that is resulting in the construction of the bank's new glassy 23-story tower kitty-corner to the old tower at West Houston and North Flores Street.
City officials told the Council that the project's new cost mostly was because of inflation in the construction market. Other factors included the later decision to relocate the city's IT department into the building's basement; and the addition of city employee amenities such as a cafeteria, wellness center and gym.
Officials ensured Council members that the project would remain cost neutral, meaning the city would not lose money on the move after the 30-year lifespan of the bonds.
"We continue to update that pro forma all the time and it continues to be cost neutral to the city," said Ben Gorzell, the city's chief financial officer.
District 9 Councilman John Courage asked, "Why wasn't that inflation anticipated so that we're not having to add more later down the line? Shouldn't that have been forecasted instead of adding millions later?"
Mike Frisbie, director of the city's Transportation & Capital Improvements department, told Courage that the city typically factors in 5 percent inflation for bond projects, but that the flourishing Texas economy — i.e., booming labor prices — could not have been predicted.
"It has been double digit inflation for the last few years," Frisbie said.
City Manager Sheryl Sculley added, "Hurricane Harvey has had a tremendous impact on the cost of construction over the past year. We have seen our prices escalate (with a) shortage of skilled workers on construction. That is something I don't think anyone could have predicted."
Perry asked why the city didn't take the expenditure to taxpayers by placing it on the 2017-2022 bond program.
"This was a large enough project, and we had plenty of time to plan and put it on the 2017 bond," Perry said, "and let the community vote on whether we should do this project."
City Manager Sheryl Sculley said simply that Weston Urban and Frost Bank could not wait.
"They needed to know whether or not we were partners on the project in that timeline," Sculley said.
In 2014, Weston Urban and Frost Bank approached the city about the deal. For its part, Weston Urban has agreed to build 265 units on properties it has acquired from the city and Frost Bank in the deal in the west end of downtown. Those include the San Fernando Gym on West Travis Street, the upper floors of the Municipal Plaza building (which will become apartments), and parking lots in the area.
Perry asked whether the city considered building a new facility.
"We did take a look at whether we should build a new city hall, but this accomplished a greater number of objectives," Sculley said. The city's cost estimate for a new administrative building would cost $220 million Frisbie said.
Courage scolded city staff for not providing all information to Council members on a timely fashion.
"The $75 million number was never sent to my office," he said, "and I never discussed it to anyone on the staff, and I think that's a significant factor that needs to be fully conveyed to us when we are going to be undertaking significant expenditures."
The city's administrative staff is expected to move into the old Frost tower in 2021.
Featured photo by Ben Olivo | San Antonio Heron