Chad (00:11)
Greetings and welcome back to Zac Cast your official podcast for local government nerdery. I'm Chad and that's Pat and after a much I guess an unfortunate delay Patrick we've been so busy we haven't been able to actually jump on this podcast in a few weeks so since spring break is coming up we wanted to jump out there real quick and at least give you something that you can chew on for the next couple of weeks and this actually is a really timely episode because

We're in the middle of a legislative session. And so we thought, what better topic than to go through some stuff that you probably need to know about. So, Pat, how are you doing?

Patrick (00:44)
I'm good man, I'm good. Busy is an understatement. Brother, have been more than busy. It's been a really wild time at Zac and we have been super, super busy. Put a post out on LinkedIn the other day, just asking folks who may be interested in side hustling, things like that. had 46 responses in my message. So if I have not gotten back to you yet, please realize that I'm still rolling through those responses and getting back to people. So.

Chad (00:48)
It is.

Patrick (01:13)
think I've gotten messages out to most folks who've reached out to me. But, you know, obviously could use all the help we can get right now as, as cities are dealing with not only a slowing economy. Hey, you remember when I use that word stagflation the other day, I sent the article last night where we have officially or we're getting very close to entering a stagflation economy.

Chad (01:31)
I do. You sent that article last night. was like, aww he got me.

Although in my defense,

in my defense, the environment that we're in right now is much, much different than it was, you know, four or five months ago when you first brought that term up.

Patrick (01:51)
It is, but I think, I distinctly remember sitting in my economics class at A and the professor explaining the different ways in which stagflated economy could move or how they would occur. And this seems to be one of them. A trade war, multiple trade wars at the same time.

Chad (02:14)
multiple trade wars.

Patrick (02:18)
a globalized economy that somehow is trying to readjust itself to the globalization. It's like the reverse of the last stag flation, right? So it's basically, it's not a, it's not American manufacturing that has slowed down so much and can't really sell to the rest of the world. It's that we want the rest of the world not to sell into the United States and it's creating like an unnatural inflation that, that is happening. So in, in, in city revenues, we're not really seeing

the same increases in sales tax that we are seeing in the increases in the cost of goods, which is the direct indicator that you try to keep at least keeping up with inflation. You want sales tax to keep up with that inflation number. And we're not in like negative territory yet in a lot of the communities that I was poking around at. We've got a measurement inside the...

the ZAC software that shows you what your actual growth is versus the inflation rate. And those are still positive in many communities. They have turned negative in a few. But I think we're going to see that because consumers just watched a CNBC interview with the CEO of Target. I think it was yesterday talking about the shift that they've already seen with consumers and how consumers are becoming significantly more cost-conscious and also trying to spread that dollar.

So as prices go up, mean a banana cost is going to go up 25 % with a 25 % tariff, right? So as bananas cost go up, you're you're gonna see that bananas are bad example because they're not taxable But I think it's easy easy to use that right I mean you could use that equivalent in car parts or anything else that comes through the delivery process I Saw the other day there were some vehicles. Yep. Go ahead

Chad (03:51)
Cause they don't say, I was going to say that, but yeah.

Real quick, one thing to keep in mind with, if you've been looking at like February's data, there

was a massive audit adjustment in February, which means it's not indicative necessarily of what we're going to see going forward. So like if you were way up relative to inflation, because you had a huge audit adjustment, right? That is a one-time adjustment. It remains to be seen, and data comes out in just a few minutes, hopefully. It remains to be seen.

Patrick (04:11)
There was, yeah.

Chad (04:32)
whether that one particular adjustment, which if you had it, you know it, what I'm talking about, represented something that should actually increase your your revenues moving forward, or whether it was just a one time thing that what happens today is going to help us understand that a lot better. Unfortunately, the comptroller is a little bit tight lipped on some of those things. And so we have to infer what happened. but yeah, I mean, if you're looking at like last month,

the total percent change was 8.73%. But for many cities, that one audit adjustment was like 20 % of their revenue. So if you back that out, then where are you sitting?

Patrick (05:07)
Right, right.

Yeah, and talking about that, the reference that we're making right there, right? I think the one thing we can infer is that we know that those audit adjustments went back to January of 2020, which is the same month and what's the rule change occurred for destination. So you can automatically assume based on the, the taxpayers, which we can't disclose because that's confidential data, but based on the taxpayers that we saw in the data and the fact that it went back to January of 2020, it looks like there were a number of taxpayers, not just, not just one or two.

but there were a couple of taxpayers that did not properly handle destination sales tax. And I think that some of that is revolves around the confusion of where an item is bought. Like if somebody walks into a store and buys a washer and dryer verse where that washer and dryer was actually shipped from, right? So without giving too many details, you can kind of assume based on my example I gave there. So,

Chad (06:01)
interesting example that you gave there. I thought you were going to use the bananas again.

Patrick (06:08)
And we did see higher volumes in residential communities, like suburbs that had high levels of home building during those periods of time. We saw significant increases in those areas, know, so house goods, home goods, those types of things, you know, that's where a lot of that was seen. As we talk industry, we just can't tell you the exact taxpayer.

Chad (06:30)
Yeah.

particularly in areas or in cities where that particular taxpayer did not have a physical presence, where you wouldn't expect to see such a large audit adjustment, but for a destination.

Patrick (06:40)
Right. And if you

Right. And in the state of Texas right now, if you want to,

you know, obviously don't want to be salesy here, but if you want to see that data, give us a call and we'll get you on board it in like the next two and a half months. I'm just kidding. I'm just kidding. I'm just kidding. We're still in a 10 day on board window when it comes to sales tax. So, um, 10 business days. Yeah. Which kudos to them on most of what we've requested recently, especially with the ebbs and flows, they have been fairly quick and they've had a lot of turnover in that office too. So,

Chad (06:54)
Hahaha

10 business days as long as the controller can get us the data.

Patrick (07:13)
We appreciate the work that they have done for us. But so we want to jump into legislative issues though and talk about that. Obviously there's a lot of governmental decisions that are being made both in Austin and in DC that are impacting local government revenues. Austin in its standard two-year window of direct stupidity is put forward a couple of bills that I think we ought to take a look at. And obviously we want to say, look, these are proposed bills. They're not.

Um, you know, we, it's really early in the session right now to understand like, you know, this is like the scary time. Like these are all the terrible things that could happen yet. We don't really know what's going to happen yet. And we don't have any sense from anybody on the legislative side, cause they haven't had, these things haven't gone to committee hearing. Um, we haven't, you know, some of, some of them have been referred to committee, but we really haven't seen any committee hearings yet of, um, you know, importance to really be able to tell you what is going to happen or what's not.

And frankly, you got to remember most of what gets filed in text legislature never gets passed because they don't have time to get through all these bills. So I want to roll through that. We actually, this is going to be a little easy for me because yesterday I had a city manager who gave me a list of the bills as they went through them. So I really appreciate Jared Greenwood for sending me that list because it made me deep dive into some of those bills.

Chad (08:24)
you

Patrick (08:38)
one of these bills we were already tracking because it would have a significant impact on our business model. And so we were we were tracking that one. And I'll talk about that positive impact for us, negative impact for cities. We'll talk about that as the last bill when we get to it, because I think we'll spend a little time on that. So really rolling through this. So let's let's start. They're all House bills right now. The Senate has been busy dealing with all of the property tax reform issues that they're trying to jump on.

with homestead exemptions and a school tax. By the way, the existing homestead exemption that the state has put in place is estimated by the LBB to take up 22 % of the state's budget in the next biennium. I'm just going to say that out loud. Yeah, 22 % of the state's budget will be taken up by handling the cost and the increased cost associated with the constitutional amendment we've already passed for the $100,000 homestead exemption for schools.

Chad (09:22)
Say that again.

Patrick (09:38)
for ISDs in Texas. That's the number. There's a Texas Tribune article somewhere on that. If you want to read that, that's correct. Yes. The cost of property tax buy downs in homestead exemptions will probably, I don't know, what percentage is Medicaid funding make up of the state budget? I think that's the most expensive part of the state budget. I think we may exceed that as well.

Chad (10:05)
just from that one or from the cumulative effect of all those homesteads for local school districts.

Patrick (10:10)
So the cumulative, so the way the homestead exemption in Texas works is, so you have that hundred thousand dollar homestead exemption and then the state supplements that fund, right? So whatever the school district is losing from that homestead exemption, the state is sending that money. That's going to be the cost. That's going to be the 22 % of the budget cost that's going to occur because there's no cap on that, right? This is, I actually had this conversation with an influential politician who's not in the state level.

but at the county level and they asked me the question, I don't understand how this cost is rising. And I said, because the state is growing. So every time we build a new house in a district, that's a new hundred thousand dollars that has to be taken care of. And there was like a big aha moment. Why would they have done that? And I'm like, good question. Still trying to figure that out myself. so because they don't want to mess with appraisals, you know, the, the real issue, they don't want to go after the real issue.

And so it's just easier for them to kind of increase the homestead exemption, even though it has such a detrimental impact. And if you read the comptroller's revenue estimates, right? That was, I guess the revenue estimate would have been presented right in the beginning of January, like mid January. There's a, there's a sentence and I don't have it in front of me. So I'm going to kind of, you know, work off of memory here.

But there's a sentence at the very end that's basically just like a warning sentence that says, although we have a surplus, blah, blah, blah, blah, we should be very aware of the continuing cost of the moves we've made. Right? The comptroller is kind of sending that warning without doing it like harshly. But it's a pretty substantial warning that, you know, two to four years from now, the state's going to be in a really rough budget spot.

where a bulk of the state budget is taken up by something that doesn't actually provide a service at the state level. It's basically just buying down tax rates, subsidy. So, and that's outside of the voucher conversation or anything else, right? I think that's a big, big push that's going on right now in Austin to try to do that, let alone vouchers are going to spend another 4 billion in the body as well.

Chad (12:10)
Yeah, subsidy.

Patrick (12:31)
So if that passes.

Chad (12:31)
So does that provide any

incentives for school districts to be more amenable towards multifamily developments? Which typically they have not been quite so fond of, right? So multifamily is not going to have an onset on it.

Patrick (12:42)
Yeah, correct. mean,

So we don't do financial analysis yet for school districts. That's something we've always talked about doing. And that would be a really interesting, that would be a really interesting thing to look at, right? The cost per pupil versus the development style that they have. Most of the superintendents that I talked to over the years have always told me that they don't make enough money on that. I'll be honest, I've always been very skeptical of that, right? Because if a city looks at this based on

Chad (13:11)
How many kids, how many school

age kids are living at a one bedroom apartment?

Patrick (13:15)
Correct. And I do know that the local district that I work in actually got fairly aggressive in some of the conversations with localities to keep those apartments at one or two bedroom facilities, right? Because when you get to three bedroom, you do kind of, you you put yourself in a position where you're to put more kids in there. But I just have to ask the question, like the value per door in the mix. I just think there's like an equation there. And at some point, I just don't think you can put a blanket.

Chad (13:17)
and probably even a two bedroom.

sure it's

net positive.

Patrick (13:44)
Yeah. I, you know, because of all the stuff that we do to calculate the cost of a road or the cost of city services. we know what multifamily looks like there or a 40 by one 20 lot versus 60 by one 20 lot, right? Like we, know that there's not necessarily a value difference in the home all the time on a 40 versus 60. you know, you, one of my favorite developments in the whole state is actually in Aledo, Texas. It's parks of Aledo.

And it's, there's a lot of 40 by one 20 lots, 40 by one 25 lots in that community. And, you know, they're selling six, seven, 800,000 homes in there. So from a value per linear foot of road frontage, the city's doing quite well, right. Uh, on that development. So, you know, it, it's not always about the lot size, I think is an extremely important way to look at it. Um, so value per acre is, is, is a much better measure.

Chad (14:38)
value per acre.

Patrick (14:43)
on that. So, wow, we got sidetracked on that for a minute. So I'm going to jump into the actual bills here and talk about them real quick. I've, I've got, you know, basically four or five bills to talk about. I'm to start with house bill two 50. it doesn't seem too coherent, but house bill two 50 doesn't really impact cities, but there's kind of an unfair,

taxation policy that's out there right now where cities have to abide by the three and a half percent voter approval rate. So obviously anything over under three and a half percent cities can adopt that's above the no new tax rate obviously but anything above three and half has to go to the voters. Well higher higher education institutions like and like community college districts and hospital districts and some other players.

Chad (15:33)
community college districts and stuff like that.

Patrick (15:38)
we're given the option to stay at that 8 % number in that last bill. And this bill would basically remove that. I say that it's not a coherent bill because if you read the bill, it's very poorly written. was, ledge council did a terrible job on it. And so it's going to have a committee substitute. So we don't really know what's going to, what it's going to look like. It looks like they put it in there as a placeholder, but obviously as bill 250, they filed this thing.

pre-session way beforehand. had plenty of time to get this right and they're still going to have a huge committee substitute. It's going to be adopted at the last minute. Just, I don't know, was very ugly work in my opinion. They can do better. so from that bill, move on to house bill 416. This one is really interesting for cities and I like it. I'm not, I'm not going to lie. I like this bill.

So House Bill 416 extends the appraisal district's window for providing certified data, but it also changes the process for cities to go through the truth and taxation and tax rate setting process. So specifically, right now, certified roles are to be provided to cities on July 25th, and this bill would move that to August 25th. Okay, so it's just short in the window.

Chad (16:59)
which sounds bad.

Patrick (17:01)
It sounds bad, but let me explain why it's not bad. Right now, if you get your certified data on July 25th, and there are still a substantial number of properties in ARB review, so people who are fighting their appraisals, and then you end up getting that money anyways, it changes your collection rate, your three-year average collection rate, which in turn could take that collection rate above 100%.

on average over those three years. it very, it affects your no new revenue rate and it is very detrimental for revenue out of the property tax side of your equation. So we've actually encouraged our clients and anybody who's listening, we encourage our cities to almost negotiate with their appraisal district based on the certified values that get sent to them as in.

Chad (17:33)
That affects your no-new revenue rate.

Patrick (17:55)
If they're sitting a little early, like they said, a July 20th instead of July 25th, like, can you ask your chief appraiser? Like, Hey, what would that have been on July 25th? And can you recertify those values for us? Because, you know, maybe the appraisal area drops by a couple hundred million dollars, right? those assumptions and, and what is going to win and not going to win has such a huge impact in your collection rate that that matters. yep, go ahead.

Chad (18:20)
So let's walk through the mechanics of this real quick. Okay. So say

that there is $500 million worth of property that's still in ARB. The appraiser has to estimate what the final certified value of those properties is going to be as part of their certified values. Right? So let's say that they predict that the after arbitration, it's going to be 300 million. Right?

So there's a $200 million gap between the current appraised value and what they expect it will be once all of that stuff is worked through the process. If it turns out that the actual number after ARB is 400 million, then you're going to have a certified value that shows 300 million, but in reality, it's going to be 400 million, which means that when you collect on that delta, your collection rate theoretically, and in many cases actually does,

go over 100%.

because the certified value is what that is based on, not the actual amount that was taxed. Okay.

Patrick (19:30)
Yep, that is correct. And actually, I think it's the opposite though. It's when, because the way it works in a truth in taxation, it's when they overestimate how much value loss you're going to have because of the ARB review.

Chad (19:42)
then

you'd have less. Your collection rate would be lower.

Patrick (19:44)
No,

no, because it gets removed from your certified value at that point in your TNT worksheet. So when that number comes back into your certified value, it doesn't change what the certified value for the future year was. It just changes the amount of collections that you

Chad (20:00)
Yes, but then you would collect lower than what you're anticipating.

Patrick (20:03)
No, no, no, no. So let's say.

Chad (20:05)
because the

is not based on what you actually collected. It's based on what you were expected to have collected. OK, I got you.

Patrick (20:10)
That's correct. It's based on the expected collection

in the TNT worksheet. It doesn't ebb and flow based on real time, right? So it's the snapshot in time that you use. And then in a future year, it goes back and looks at, okay, you said you were going to collect a hundred million dollars in property tax and you collected $102 million in property tax. You now had 102 % collection rate, right?

Chad (20:31)
Yes,

but that would seem to support my scenario.

Patrick (20:37)
No, your scenario is, that they actually, the ARB actually had more, um, the, the property owners won more often in your scenario, you went from 300 million to 400 million, right?

Chad (20:54)
which means that they actually won

less than was expected.

Instead of dropping that 500 million down to 300 million, it only dropped it to 400 million. But you based your budget on 300 million. Which means that you actually collected more than what you budgeted.

Patrick (20:58)
So, okay, so let.

Yeah, so let me let

Yeah, so let me,

I get it, but let me walk you through mentally the TNT worksheet in today's format, right? Cause this is a new format from the last legislative session. It's so fun to do math on a podcast. So I'm going to try to do this like visually as best I can. So we start with the certified value, right? We subtract exemptions. Okay. We then subtract anything the appraisal district believes is going to win an appraisal review. Okay.

Chad (21:17)
I love doing math on the podcast.

Patrick (21:40)
That's the number we're talking about. Okay. So let's say you had a hundred billion dollars in value and you had $5 billion of value that was under appraisal review that they thought was going to Right. Some appraisal districts look at that as the amount of winnings. Some appraisal districts put in all properties that are still in the ARB process. So not the Delta between what the value is and what the winning is, but the total value of it.

Chad (22:04)
total value of it.

Patrick (22:07)
which is why I tell everybody you need to negotiate that because that makes a huge difference in your collection rate calculations. But let's say that that's 5 billion, right? Well, at the end of the day, only 4 billion of that actually wins. Okay. But you originally took a certified value in the TNT of 94 or 90, sorry, 95 billion, right? And you collected actually on 96 billion because only 4 billion won. Um,

instead of the five billion. Because you collected on that, your normal 98 and a half percent collection rate now just became a hundred and you know, a hundred point two or whatever that number would be right at that number because of that difference in collections. in most cities, collections rates are above 98 and half, right? They're, you know, 99 and some change. there are some communities that are lower, but it eventually does get to a hundred percent. It's kind of a goofy way to do it.

Chad (23:00)
mean, it eventually gets to 100%, but yeah.

Okay, so I think

that we are saying the same thing then.

Patrick (23:08)
Right, right. just, for the finance directors that listen to the podcast, just, I wanted to put that like as if they were reading the TNT worksheet. Now I say this out loud and I do not say this to sell anybody on this, but I'm just telling you when you, if, if you're doing your own TNT worksheet, seek assistance of multiple parties, whether that's consultants, us, people in your staff, if you have that staff and team to do that, that the algebra needs to be looked at.

because you need to understand how you infill the information, right? How you take into account your exemptions, homestead exemptions, how you take into account your over 65 freezes, all those types of things. And in today's world, you actually, when data starts to come in in May, you can start to make some assumptions of what that's gonna look like. If you're in a county that provides taxable data,

Obviously, Tarrant County for some reason doesn't do that, which just irks the life out of me. But it's just important to look at that. But this bill specifically.

is looking at all of the deadlines and extending them by a month. So all the deadlines you're used to now, it's giving an extra month on that. But then it is also shortening the period of time that cities have to go through the public process. Right? So you're losing 30 days, but they're also kind of removing 30 days from the process of posting. So you still get stuff done.

Chad (24:38)
Okay, so you are going

to be proposing a budget with an estimate of your final tax values as opposed to using the certified values and plugging that in at the very last minute.

Patrick (24:51)
That is correct. Yeah.

Chad (24:52)
then

a month later, when you're coming up to the really tight end of your budget negotiations, then you're gonna have an actual final number, but it'll be a lot closer to reality. And hopefully this problem will be less pronounced. This is what your argument is. Okay.

Patrick (25:11)
That is my argument. I don't

actually think that's why this bill is being written. I want to be clear. They don't care about this. Yeah. I think this bill is getting written because appraisal districts cannot keep up with the volume that they need in the ARB processes. And so I think that's why the bill is allowing that to occur.

Chad (25:16)
No, they don't care about the impact on cities, but yeah.

They should only allow

you to protest your property values like once every three years, especially if you succeed at a protest.

Patrick (25:43)
Well, mean, under law now

it's, if you, if you successfully protest your property, like me personally, I successfully processed my property last year. Right. and so they can't make a change to my property. I think for two years, right? Yeah. So

Chad (25:59)
Okay, that's good. Maybe it should be five. Just thin

out. I mean, come on. You have a 10 % cap on a homestead anyway. Now that doesn't affect obviously like commercial, but I don't know. Some way to kind of thin out the number of cases they're having to review.

Patrick (26:09)
Correct.

So they move everything back a month, right? And they also take that the timeframe of governing bodies to adopt tax rates after the appraisal role moves from the 60th day to the 30th day. So usually when you get your appraisal role, you can't adopt for 60 days, right? Now you would be able to adopt after 30 days because they're taken 30 days away for process.

And the big one is, that filing of protest by property owners, the period owners have to file protests would go from the 30th day to the 60th day after we need receiving notice, right? So when they get their notice on May 1st, they usually have to have that filed by June 1st. That's typically the way that world works. And then, you know, you would then in turn have until July 1st, right? And so the whole process is being extended 30 days. It's gonna help the inundation.

Chad (27:07)
So that's not gonna help anything then.

Patrick (27:14)
of it's going to spread it over a longer period of time so that they can get through it more efficiently is the thought process. I'm not saying that's actually going to occur. I'm just telling you, I think that's what they're from what I've read. It looks like that's what they're after. So

Chad (27:28)
Well, let's just assume

that they have instead of having, you know, 500 protests, which is obviously a small number, but 500 protests all filed within the first 30 days. So by the end of June, or I guess by the beginning of June.

Right, beginning of June? Okay, so instead of having them all filed immediately, we're now going to file half of them before and half of them after.

Patrick (27:45)
beginning of June.

Chad (27:52)
I mean, I guess in that scenario, you're still having, you're still pushing off. Like how many can they actually go through? If they can only go through 250 a month anyway, then there's not actually any, any benefit. But if it encourages more people to protest because they have more time to think about it and do it, then it's just going to add to the number of protests they have to resolve anyway. So they're going to be, are they going to have a higher percentage resolved by August 25th?

Patrick (28:16)
Right, so.

Chad (28:21)
than July 25th if they're giving an extra month to file. I don't know. Maybe they will.

Patrick (28:25)
Yeah.

Yeah. I mean, look, I like it personally because it allows cities more time to see the tax rolls as they come in for cities that are looking at that data. Right. So you're going to get multiple uploads of property tax file that are going to come through the process. And so you're going to get more time. There are counties out there that when they release their prelim file,

will release a prelim file, but forget to put residential properties in the prelim file, right? They sent a notice, but for some reason the data is not available. And so you start making, so this, does give like an extra 30 days to get that cleaned up so that cities can, can look at that because they're not held by like this really hard, fast deadline of posting what they need to do verse cities have to make a, if they're going to go up,

over the new revenue rate and if, or if they're going to do the de minimis, which is like the ability to go get $500,000 for like smaller communities, smaller taxing districts. There's a, there's kind of a very long process that they have to follow to do that. And this slims all of that down quite a bit so that they can take a little longer to look at their decision-making. I feel like last year was the first year that a lot of cities struggled with that decision-making window. and

This is going to give them more time to see the data so that they know what they actually have to do. Cause I think a lot of cities, it's hard to say, okay, should we be going under the de minimis format or should we, you know, should we be looking at this from just a sub three and a half percent, you know, somewhere between no new revenue and the three and a half percent number. I don't know any community that's gone above the three and a half percent rate to go to the voters at this point. So, this is reality.

So on onward, right? House Bill 217, speaking of going to the voters, House Bill 17 would raise the threshold to 60 % if you wanted to go above the voter approval rate of three and half percent. So you would need 60 % of your voters to say yes in order to go up above the three and a half percent number. I think that's a very interesting conversation. Could we require all legislators who get elected to get 60 % of votes to be elected?

that would be a wonderful thing. think we could solve a lot of issues in the Texas legislature if we required them to get 60 % of the votes. What do you think? How would that, how would that functionally work?

Chad (30:58)
I think it would result in even worse gerrymandering.

Patrick (31:02)
it probably would, you're right. yeah, mean, interesting.

Chad (31:06)
And so

this might be a bill that doesn't have much of an actual impact if very few people are doing so.

Patrick (31:11)
Yeah, very few are doing it. Yeah.

I, I've not seen there's, there's probably a bill out there. know there's going to be one proposed that they've, they want to go to, you know, a 60 or 75 % threshold for a bond tax increases, right? That's been proposed. I haven't seen anything filed on that yet, but we expect it's going to come at some point.

Um, house bill seven 63 removes the disaster provisions for that three and a half percent, um, threshold.

So right now, if your county is declared a disaster area, then you are allowed to go above the three and a half percent, somewhere between three and a half percent and eight percent. And so they're, they want to remove that with this house bill seven 63. Obviously, obviously I'm going to disagree with that because you're going to need all the flexibility in the world under disaster. I think the issue here is, is that counties in Texas are really big.

And so you open a window for somebody who may have not actually had a disaster to do this. Right. So the better way to do this would try to be to do it surgically, but they're trying to do it, you know, with a swath, you know, wide swath.

Chad (32:26)
So I can, I mean, I can see the argument behind this, which is, I guess I can see it on both sides, obviously, but if you have a one-time disaster, but you're allowing a local government to get like an outsized bump in their tax rate, essentially forever.

I mean, I can see the argument. Now, on the other hand, you're probably going to have reduced property values. So this may even still result in less revenue over time than you would have otherwise had without the incident. And then on the flip side, if you've just been through a natural disaster, like is it the best thing to raise your taxes indefinitely afterwards? I don't know. It seems like the, I mean, a better option is.

better state funding for emergency relief. Because this is largely a one-time rebuilding expense. Right? So, I mean, maybe it's not the best idea to take advantage of that and use the opportunity to increase your tax rate because you can.

I'm just trying to think about it from the legislature's perspective.

Patrick (33:39)
Yeah, I think, I think your devil's advocate stance is actually pretty good to be honest. I'm not super against this. you know, I'm not sure there's a lot of cities out there that go raise their tax rate after disaster anyways, right? Cause frankly, one of the crazy things in Texas is, is the way our appraisal system works is that thing was there on January 1st. So yeah, that tornado hits on January 2nd, you're still paying taxes on

Chad (34:03)
Yes, on January 2nd that got taken out, on January 1st it was there.

Patrick (34:08)
the tornado hit, right? And I mean, there are some things in state statute to kind of give you some ability to get out of some of that. But this is also why cities keep fund balance. And this is why we keep back reserves and make responsible financial decisions so that we don't put ourselves in a wild position. I just think it needs to be more surgical. I think there needs to be some type of authority. If I could trust the governor, I'd be all about having some type of governor authority to be like, yes,

because of the situation you're in, could have this flexibility, right? Because I think every situation in a disaster declaration is different.

Chad (34:48)
think it might be better

if you're going to keep it, which you're arguing for, it would be better to make that a an opt out for the governor where he has to explicitly say or she has to explicitly say, you're not eligible for this, dear local government.

Patrick (34:52)
Right.

Right.

Correct. Yeah.

Right. You see what I'm saying though? I just, but I mean, we, know, in counties that we've worked in, we've seen disasters declared where we didn't have much damage, but we got access to FEMA funding to do like road construction work. Right. and I mean, we, kind of all know, like if we were going to have a Doge conversation here, this is one of those areas that like, could have some serious Doge conversation. just, just being honest, right.

Chad (35:17)
Yes. Been there.

Patrick (35:30)
I think every city manager who's listening to this will, will agree with that. Like there are, there are some fundamental flaws in that system that there's a whole industry built around and a whole consulting industry that's built around that almost encourages you. mean, I distinctly remember when we went through some of the flooding that we had in Parker County, I distinctly remember getting phone calls from large, by the way, working for governor Abbott on his behalf, large accounting firms.

calling us to say, Hey, what do you got? You know, give me a list of what you got. mean, yeah, we can get you funding for this and funding for that and blah, blah, blah, blah, blah. And give me the list. It's just a waste of money. People like I didn't need a road patch. Like that was my responsibility anyways.

Chad (36:15)
Yeah,

you needed it, but you didn't need the people from Seattle or Spokane or Sheboygan to pay for it.

Patrick (36:18)
Correct. Yeah.

Right. So, but I mean, that's kind of been, you know, it's, hard, right? But we have like no local responsibility in disaster relief anymore. And so we don't, we don't necessarily play a level of fiscal conservatism to be ready for that disaster relief. Because we, you know, we know that the federal government is going to be there, whether we actually had a disaster or not, if we're in that county that gets declared a disaster. So

So that's why I think this probably needs a scalpel to kind of look at it. This is not a scalpel. This is the way that they're doing this is just removing it altogether. It's, you know, standard populism. Let's just, you know, it doesn't sound good, so let's get rid of it, but let's not think through what that's actually going to do. And that's a problem. So the bill that will change the world. The worst for last. Well, I mean, for our city clients, it's, you know,

Chad (37:11)
You saving the worst for last?

Patrick (37:18)
an interesting conversation. House Bill 1433. It is totally new law. This is the Doge law, right? So the bill would propose or proposes mandatory efficiency audits for certain political subdivisions in Texas that exceeds the no new revenue tax rate for five consecutive years. It actually goes back historically too. So like if you've done this in the past two years and then you do three years forward or something,

that it's

Chad (37:48)
Okay, not

the 3.5 % cap. Okay, so a city that is not able to function on a flat property tax budget needs to have an efficiency audit. Okay.

Patrick (37:52)
No, just the no new revenue.

right.

So a city who is increasing taxes to keep up with inflation, because remember the legislature set it at three and a half percent because they believe that was the standard inflation in the state of Texas. You can go look at all the writings that they wrote up. If you want to go talk to Jefferson and Madison of the last session, that's what you would read in their papers. But the reality of it is, is that now

Chad (38:33)
That's very generous

of you.

Patrick (38:35)
Now, if a city just wants to keep up with inflationary pressures, according to Texas legislature, and they do that for a period of five years, they are going to have to go through an operational efficiency audit every five years. They will have 60 days to complete that audit and 30 days to have a presentation and disclose that audit online. And that audit would have to be done by a certified accountant.

Chad (39:06)
So an accountant, you know how much that's gonna cost to get an accountant to do a full efficiency audit of your entire organization in 60 days.

Patrick (39:14)
Doesn't it look really good that we hired a CPA?

Chad (39:17)
Although I guess maybe theoretically, if you knew, I've done this for four years now and we're gonna have to do it again, you probably have some ramp up time before that. So what happens after this is released and presented? Does the legislature come read it and then decide that you're not efficient enough or is this just like some paper that's gonna sit on a shelf that we're gonna pay for?

Patrick (39:44)
100 % this is going

to be, I mean, look, we do this now, right? Let's, let's, our Zac finance team works in cities as CFOs and works as cities and working through efficiencies of budgets. And we do a lot of this today, right? City managers are doing this all the time. Assuming that a city manager is not trying to be efficient is just frustrating to me.

I mean, really, in my opinion, it's just, it really is frustrating. I don't think city managers just sit back and say, I want to go spend, spend, spend. I mean, I think we're trying to do things that are measurable and we're trying to do things that show a direct reference. I mean, in order to get the GFOA budget award, you actually have to put a lot of these things in your budget, right? I know you rolled your eyes at that, but I, the reality of it is, is that some of this stuff is already getting done, right?

Is it a good idea for a city to do some type of efficiency look back and look forward every five years? Probably. I mean, they do. Right.

Chad (40:54)
lot of your bigger cities already have internal audit departments, which

function much like an inspector general at the federal level. Now you can argue, is that independent enough? Okay, maybe that's fair, but it has to be independent. Yeah.

Patrick (41:09)
Well, the bill, yeah, so the bill actually specifically says it's not independent enough. It has to be

independent and it has to be unaffiliated with the city.

Chad (41:19)
But this is all performative. This this bill

is just a performative efficiency analysis. Nothing's going to change from that. If your city actually had I've worked in a city that had an internal audit department and they were constantly working on projects and looking at programs to see what you know what could be made better or more efficient or cost less. That was a lot more actionable than anything that will come out of this bill. This is make work. That people will have to go through.

Patrick (41:47)
this.

Chad (41:50)
and then they'll have this presentation and no one will care and then they'll just keep on doing what they're doing. But there's no like there's no teeth in this to say well any finding has to be implemented and maybe I shouldn't even be saying this lest someone hear it and modify the bill. you know it's just it's just show.

Patrick (42:12)
I mean, I don't know if it's just show, right? If you post an efficiency audit, right? And it gets involved in the election cycle process. I mean, I don't know if a city could just like bury that.

I think it gives somebody something to talk about and to run on. And if you're being inefficient with taxpayer dollars, like people are going to talk about that. Now, my thing is who's, who's actually certified to do this is the question because I don't, I mean, most of the outside others we work with love them to death, right? But they, don't understand how cities actually operate.

Chad (42:40)
I agree, but I feel like this is just...

This is literally the doge bill, doge bill. Because those people go in and they don't have any idea what they're looking at. And so...

Patrick (42:54)
It's literally, yeah.

Yeah, and

as I said to a couple of city managers who've asked me questions about this bill, I think it's crazy and it's dumb because we do it anyways. But for us, as in like Team Zac, this is a huge boon for us. Yeah, we run a finance, we don't really do audit or outside audit because we run internal finances for a lot of cities and help there. But we would be the perfect

Chad (43:14)
gladly take the work.

But we can sure as hell do

an efficiency audit.

Patrick (43:26)
We could do an efficiency audit and we would be the perfect group to do it. And if you're a city manager, do you want to go hire Deloitte who doesn't have anybody who's ever run a city in their entire life? And it's probably some 24 year old kid running out of college. Or do you want a bunch of ex city managers and department directors who know what they're doing to come in and have conversations with your people? I think, I think it's a no brainer, right? But I still think it's totally unnecessary.

I think city managers are more than capable and their staffs are more than capable of looking at themselves internally. And if they're not, there's a process for that. And it's called voters and city council members and somebody getting fired. I don't think anybody disagrees with that. I'm not hurting anybody's feelings. Who's a city manager for saying that we are all driven to run great organizations. and we're going to learn this the hard way on the federal government side. There were a lot of really good employees that just got laid off and there's going to be some

Chad (44:05)
.

Patrick (44:23)
really excuse my French, shitty federal services coming forward in the future. Right? Have you tried to get a driver's license in Texas lately? Do you know how long it takes to get an appointment at the DMV to get your driver's license in Texas? You better book that four to six months out. Right? Because that's how bad that department has gotten. We've stopped paying people in Texas to be good at their job. And because we've stopped paying

good solid professionals. We are seeing it in the LBB. We're seeing it in ledge council. We're seeing it in the comptroller's office. We're seeing it in all different departments across the state. Text. We are losing great people and they're contracting out more and more and more and more to do work that could be done by internally well-trained government servants. And you know, it is what it is. Like it's a difference of opinion. I'm a fiscal conservative. I've said it a million times.

Chad (45:09)
Okay.

Patrick (45:21)
It's not fiscally conservative to just cut government willy-nilly, right? Or to come in there.

And so if you start looking at this bill specifically, 1433, no city manager in their right mind is going to allow some teenage kid who, you know, has a computer and can code a little bit to come look at all their information and tell them how they should run their city. There's going to be a whole industry that revolves around this bill if it passes, right? And

We know that already. So we'll see. I think it's probably going to pass because I think this is one of those things. It's like we got to get on board with it. I just wish the state would pass their own statewide Doge bill. Like explaining to me why we have the Texas Education Agency. If we're going to doge the federal agency, why aren't we Doge ing the state agency? Like it's just ridiculous between the two.

Chad (46:13)
So,

I think the fundamental problem comes down to a difference of opinion about the definition of the word efficiency. I feel like efficiency doesn't necessarily mean doing something as cheaply as possible.

It means it's much bigger than that. Like Ron Swanson says, don't half-ass two things, whole-ass one thing. And this is my big problem with Doge is that they're just, yeah, they're tinkering at the margins with these, you know, this contract or these, these Microsoft Teams licenses, and you're going to save what? Half a percent of the federal budget. The, there are much bigger questions about.

Patrick (46:46)
He also says he wants to eat all the bacon and eggs.

Chad (47:01)
the not how are we doing every single program that we're doing, but which programs should we be doing and not be doing? Right now, the biggest question at that level is the entitlements, which we don't need to get into. But just from a fiscal standpoint, that's the biggest question with our long term structural deficits at the local level or at the state level. You don't get more efficient by just paying people less.

and providing worse service, but doing the same, the same things. You get better by really like Steve Jobs would say, saying no to things, instead of saying yes to everything. Let's figure out what our core competencies are, what our core mission is, and let's do those things as best as we can and not do these other things that are distractions.

Or that take away from our core mission like we struggle with this all the time. You just mentioned we don't do school district analysis We've talked about that for years, but it's not our core competency It doesn't it's it's outside of our normal lane right now and maybe one day we'll get there But right now it's not our lane and so we could do it. But how would it affect Everything else that we do and our efficiency with our core competencies in our main line of business

The cities have the same question. This kind of efficiency audit is going to be, uh, well, you're, you're, wasting money on like, I have literally been in budget meetings where during the 2008, 2009 recession fallout and the street department budget has been cut by 30, 40%. We can't maintain our roads and we're talking about creating a centralized office pool.

for office supplies because we're using too many staplers and paper clips and pens. Instead, we'll have like the city secretary or someone maintain this big pool of office supplies. And if you need one, you can come check out some pens. And that way we can keep these costs in line. This is like a quarter of a percent of a quarter of a percent of our budget is the Bic pens that we're buying. But the amount of time that we spent on that discussion versus

these other much bigger fundamental questions was just mind blowing.

Patrick (49:29)
versus what was the 10 year

cost? was the 10 year cost to the city of cutting 30 % out of your road budget? Right. Like, and for those folks who are not city employees who listen to our podcasts, I know there are a few.

Chad (49:33)
Yes.

Patrick (49:43)
If you don't maintain roads, the cost increase and what it takes to maintain that road gets exponentially more expensive, right? So if you maintain a road in its first five year window versus its 10 year window versus 15 and 20 year window, if you don't maintain a road and you get to reconstruction, that reconstruction costs you significantly five to 10 times more, yeah, mean, huge amounts more than if you would have just chip sealed or

Chad (49:55)
And not only that, but the-

orders of magnitude more.

Patrick (50:13)
you know, better yet crack sealed or surfaced or, you know, fog sealed or whatever that road within its maintenance period. And that's usually what gets cut. Right. I mean, the first thing to go is travel training, right. And the road maintenance side, those are the first two things that could cut out a general fund almost every time. And, know, it's, know, we, we, we don't realize that those are also some of the most costly areas that, that.

Chad (50:14)
micro surfaced or crack sealed

Patrick (50:43)
impact our budget. Maybe not travel as much, but training for sure is one of those areas that I used to always argue about. If I can take a lower level employee and train them to do a high level task, that saves the city significant amounts of money, right? Rather than having to go hire a consultant to do it or hire outside. Now in today's world, we're in this whole market where there just aren't people there for high level task.

And it's just gotten more and more difficult to get people in there, mainly because of the private sector competition. But yeah, I 100 % agree with you on that, Chad. It's point very well taken. And I distinctly remember having phone calls with you after those meetings where you were streaming in the phone. There were a few choice words over the office supply pool that you were asked to work with in a budget.

Chad (51:33)
Yeah, we didn't do it because it was stupid, but we had to talk about it extensively. So that's what I worry about is you just get.

Patrick (51:35)
It was, it was stupid. Yeah.

Chad (51:44)
when you when

Patrick (51:44)
It was brought

up by a nice man.

Chad (51:47)
nice man, seasoned city employee, but when you, when you just don't have the full understanding of how things fit together, then you focus on things that are easy to understand. And that's what this is. That's what Doge is. That's what this is. that's how you end up laying off a bunch of probationary people because you think they're all new hires and not people who have recently been promoted. like Chesterton's fence is all I'm saying.

Let's understand what we're doing before we do it.

Patrick (52:21)
So last bill, I have one more. Yeah. House bill 924. I do not think this is going to pass. This has been proposed in the last two legislative sessions. No surprise here. This is a change on the sales tax rules. Specifically, the bill stipulates that if certain subsections do not apply, a sale of a taxable item is considered consummated at a location in Texas where the item is stored immediately prior to shipment, delivery and transfer of possession. This bill has been presented in the last two legislative sessions. It would

Chad (52:22)
You have any more bills?

Patrick (52:48)
fundamentally change the way that sales tax is delivered and most of our communities that receive large amounts of remote sales tax would not receive that remote sales tax. So if you are a suburban, exo urban or even far rural community, this would be a terrible, terrible bill for you. If you were

Chad (53:08)
I'm just looking through this.

looks like it almost completely gets rid of destination.

Patrick (53:11)
It pretty much gets rid of destination. Yeah. Which is what's written as the last year. I don't even think it made it to committee last year. Um, we,

Chad (53:20)
Who's proposing

this?

Patrick (53:23)
Yeah, Schofield who's the, uh, and he, the chair of ways and means or tax. can't remember which one it is, but he's the same guy who presented it last year and it went through committee hearing and, know, was, I don't even know. I don't even know if it was talked about in the committee, to be honest. Um, so I don't expect this one to pass. It would have a substantial impact, um, on, on cities. And if you want to know what that impact would be of this bill, you can go into Zac Tax

you can pull up just remote sales tax. actually have in cohorts, there's a designated cohort that you can run in live mode. That is just for online taxpayers and it will pull out how much money you made on those online taxpayers. And you can see that 12 month average and also the fiscal year to date from last year and this year and pull that number directly. So what's up?

Chad (54:17)
You know his district?

Patrick (54:19)
No, what's his district?

Chad (54:21)
West Houston, parts of Katy up to Waller.

Patrick (54:27)
yeah, because it's that's where all the distribution centers are. I mean, it's a great bill if you're like a distribution center, but this, mean, honestly, if this bill went to the floor, it would never pass. There's there's just there's way too much revenue loss for way too many communities for this bill to pass. I'm not even really sure why it's being proposed anymore, other than the fact of you've

you know, probably got some very specific politicians who have a connection to Scho field that are trying to get that done. So, if representative Scho field would like to talk to me about this, his chief of staff can give me a call. My number is on the wall of many chief of staffs in Austin. And I would be happy to talk to them and tell them how stupid this bill is and the fact that it won't pass. so look me up, give me a phone call and I will use a one of my 40 hours a year that I'm allowed to use talking to legislators or staff.

Chad (55:22)
Yes.

Patrick (55:24)
So, but I've only use 30 minutes so far this legislative session. And my 30 minutes was used on this bill to ask the question, what are the chances and I was told dead on arrival. good luck representative Schofield getting that done. that's it, man.

Chad (55:29)
That's pretty good.

Can we have

a Department of Legislative Efficiency where we evaluate people who file bills that will never get passed?

Patrick (55:50)
Man, I would love to see it. I boom. mean, or file bills just because they feel like they're going to get something done. And I'm going to get back on my soapbox just for a minute about, the amount of money we spend in this state at the state level to tell the local level what to do, especially in schools is crazy. we've added over 400 employees to the TEA in the last six years.

Chad (55:52)
Boom. Okay.

Patrick (56:21)
I mean, we have basically blown that department up.

Chad (56:24)
Almost two for every counting.

Patrick (56:26)
Yes. And if you follow the money at the TEA and you look at why it's being blown up and all of the private vendors that are testing and doing things that are getting paid in contracts.

Chad (56:38)
The amount of money that gets paid to consultants in public education is wild.

Patrick (56:43)
It's wild. I mean, it really is. So I'm just saying, look, as, we have this voucher debate that's going on, I'm going to, I'm going to take a little bit of a stand here. I, I have always been for somebody's choice of where their kids could go to school. I believe we should allow that. I have lots of homeschool friends at homeschool their kids. And we have school choice now, right?

Chad (57:07)
But we have school choice. You have the ability to choose

not to go to a public school.

Patrick (57:13)
Right. Giving me $10,000 with no direct economic benefit of a reason to give me $10,000 makes no sense. I don't need your $10,000. I'm a business owner, half business owner. Hi Chad. My other half business owner. We're doing fine folks. I don't need your money to send my kid to private school if I choose to send them private school. Okay. Now if we're going to do something like that though,

Don't you think we should have a direct economic benefit to what's happening to that student? Yeah, or means test it. I mean, you you can get into that conversation too, but we actually passed a really good bill for junior colleges and community college in the last session that basically ties their funding to the performance of the graduate or whether somebody graduates or whether somebody gets a job. It's the TSTC model, which is Texas state technical college is a great school where it's basically you go there and

Chad (57:47)
or means tested.

Patrick (58:13)
their funding is directly tied to you getting a job. So it's like you work here, you get you graduate, you get a job. I mean, it's a very good program. If we really care about the Texas economy, we should fund all schools, public schools, private schools, whatever that kid is going to. We should fund a school, a base level of funding with a funding level that is increased based on the economic benefit that that student provides. And we should start to track that.

we don't do a really good job of tracking that dollar today. And also, if students just start moving around willy-nilly, why can't they move around within the public districts as well?

Right? If we're truly going to compete, let's compete, but hampering one by lifting up another, it really doesn't

Chad (59:10)
you

Patrick (59:12)
have to accept all these other students. And then by the way, not tracking that dollar moving forward is just absolutely nuts to me. It's crazy. If that dollar is public, we should know the direct benefit that is spent on that dollar.

You know, I just don't think that's very difficult to do in today's world. you know, if they're college bound, great, give them a bonus. If they're going to tech school, great. Give them a bonus. Like I feel like every level of the education platform should be, should be funded based on outcomes. We should specifically care about outcomes.

Chad (59:37)
Yeah, I just think it's

So I think that's fine. As a general principle, I worry how you would implement it at the public school level where like the baseline funding would have to be sufficient to actually provide the service. But I would worry that you might end up with.

a growing bifurcation between good schools and bad schools. Right, it's gonna compound because then schools that are already doing well at that are gonna get even more money and have more resources and schools that are struggling at that are gonna be working with even less and less relative to the other schools. And so I think you just have to be careful of how would, something like that would be implemented to avoid that kind of scenario.

Patrick (1:00:36)
So it's already technically in the public schools. already technically have that graduation rates matter in their funding. So like if, if a kid doesn't graduate, they get docked on their funding, right? On this scenario, on the voucher side, it wouldn't matter. So to put that into perspective under the bill that's being proposed and it looks like it's probably moving to pass at some point. My wife is a public educator. I've said that before on a podcast, but just make sure I say it now. If

My wife decides that she wants to be a private educator. She can start a private home group school, charge $10,000 a kid, take that voucher money, have 15 kids, work two days a week and make $150,000 a year.

this bill would allow that to happen, right? She has no requirement to make sure that those kids pass any test, right? Now their SAT scores would be tracked by the state. Their ACT scores would be tracked by the state, but there's no like penalty on my wife if they don't score high.

Right? If that kid drops out, she loses that funding for that next school year for sure. But it's not, it doesn't penalize her. So you're going to have lots of people who just start picking these programs up to make this money. Little pop-up shops. I mean, you think ARPA was bad? Get ready for this one. This one's going to be a lot of fun watching.

Chad (1:01:56)
Little pop-up shops.

This is

the food truck version of schooling.

Patrick (1:02:08)
It is the food truck version of schooling. and I think this is, it's going to be really interesting to watch what happens, but it's just not a thought through policy. and you know, frankly, the numbers are crazy, man. I mean, I think, I think Arizona's numbers, and Oklahoma's even higher. but I think in Arizona, their numbers are like 88 % of the students who take a voucher were in private school previously. Can you check that real quick? We want to Google that one.

It's pretty high though, but basically in all of the states that have adopted this program, 80 % of the students at this point have been in private school previously. Let's go ask chat GPT this question.

Chad (1:02:48)
I love that you're getting super, super reliant on ChatGPT It's just kind of funny.

Patrick (1:02:54)
Sorry, I'll take that back. 75 % was the number. In Arizona's empowerment scholarship accounts program, approximately 75 % of the universal voucher recipients were already attending private schools and had no prior public school.

Chad (1:03:00)
Arizona, okay.

So you're just giving money to people that were already paying for it. You're making private school a little bit less cheap for them, a little less expensive for them.

Patrick (1:03:10)
You're just giving money to people that are, yeah. Correct.

Yeah. Uh, going rate for all saints Episcopal on the west side of Fort Worth, like 38,000 a year country day academies up in that high thirties, low forties as well. Trinity Valley up in those numbers as well. I'm sorry, but a kid from stop six or Como who takes $10,000 is not going to be able to afford the difference between $10,000.

Chad (1:03:32)
That's why I'm just

saying it should be means tested if you're gonna do it. The whole argument, the crux of the argument is we have all of these big inner city schools that are failing people and so we need to give those students a way out. So let's give them 15, 20 % of what they need to go to a private school when the rest of that tuition may be 60, 70, 80 % of that.

Patrick (1:03:36)
That's correct. Yep.

Chad (1:04:02)
household income. This is not doing anything. $10,000 does nothing to those people in terms of getting them into a private school.

Patrick (1:04:15)
Look, at the end of the day, it's not even the voucher part that kills me. It's not even the fact that that person's gonna get that. As a taxpayer, I should want to know what the economic benefit of my dollar is.

Chad (1:04:31)
are the private schools going to go through efficiency audits?

Patrick (1:04:34)
That's a question. There we go. You got government money. Are you now required to doge everybody? So, all right, we're going to wrap there guys. Yep.

Chad (1:04:37)
Just doge for everybody.

I was like, real quick, can I just say,

like whatever you think of Doge, the fact that they named it after a meme coin, I think is interesting. I'll just leave it at that.

Patrick (1:04:52)
Yeah.

Well, and I think it's also important to say, look, you can't be running $2 trillion deficits. Right? We have to do something. You and I have talked plenty on here about, man, if the federal government was only held at the same accountability standard that state and locals are when it comes to budget balancing, right? We'd actually be a much wealthier country than we are right now.

Chad (1:05:04)
Of course not.

Yeah, because we wouldn't

build so many roads and highways for one.

Patrick (1:05:25)
Correct. And there

is a serious need for social security reform, right? There is a serious need for Medicare and Medicaid reform. But wow, the way we are doing things right now, I'm not sure I'd want anybody in that administration to touch those things, right? But let's not forget 2005, George Bush put forward social security reform. He was killed not only by Democrats, but by his own party, right? And if we would have

Chad (1:05:54)
Yeah.

Patrick (1:05:55)
if we would have implemented the Bush reform.

Chad (1:05:58)
Has anyone done a study on what that would have looked like right now?

Patrick (1:06:00)
I

saw it the other day. It's $35,000 a month. So Social Security's max is like 4,500, I think. So right now, if you pay in Social Security and then you get to 72, you'll get the $4,500 a month, right? If you would have implemented that in 2005 under the requirements that were there, because it was anybody that was under the age of 50, I think, that would have been able to do that. But if you were age 30, you would...

And all you did was buy a fund that tracked the S &P.

Chad (1:06:31)
with your, it would have been what your six and a quarter plus your employee six and a quarter. So you've been putting 14 and a half or 12 and a half percent of your, well, okay. Six and a quarter percent of your take home pay plus an extra six and a quarter percent. So that is an actual cost to the employer for you, but it's not technically part of your take on pay. So either way, about 12 % of what you earned into a relatively simple index fund, not like

Patrick (1:06:36)
That's correct. If you would have privatized your money.

Right.

Right, was, correct.

Yeah. So technically

the, but technically the Bush proposal was only to put half of that money in there in a private account. Half of the money would that the rest would stay in social security and there would be a hundred billion dollar cost to the federal government at that point, in order to make sure that the fund had enough money in it to, to survive. Right. was, basically the numbers that were thrown out around that time. but if you had done that, if you'd put half that money in the S and P over that period of time, and it would have just followed the S and P.

Chad (1:07:01)
You're not putting it as something super risky.

OK, and the rest would say in security.

Patrick (1:07:30)
you would have made like it came out to like $34,000 a month that you would have had at 72.

Chad (1:07:35)
And that's even accounting for

2009, 2020, like all of the stock market disruptions that we've had since then.

Patrick (1:07:41)
Yes.

That's correct.

That's correct. And not only that, but think of the overall economic benefit we would have had.

Chad (1:07:52)
So this was my concern is that putting that much extra money into the market would have just goosed it and given us an initial like bump.

Patrick (1:08:01)
But it wouldn't have been all

at once. It wouldn't have been all at once, right? It would have been, it would have been, yeah.

Chad (1:08:05)
It would have been a little, I mean, it wouldn't have been true, but

if we had that many people start immediately investing that much more money every single month, it could have had a goosing effect on the market, which could have made it seem like it was a much better idea. it's like, yeah, like Ceteris Paribus, yes, we'd be here now and you would have been able to get X number of dollars monthly, but

Patrick (1:08:21)
Right, right, right, it would have overvalued stocks. Right.

Chad (1:08:33)
Would that have changed any of the market dynamics along the way? I don't know.

Patrick (1:08:38)
It would have, mean, in...

The answer to question is yes, it would have inflated the market. There's no doubt. The analysis that was done was done on if it just followed the S &P the way it performed, right? But I think the S &P would have, yeah, the S &P, if it had no effect, and the reality is it would have had an effect. It would have inflated the cost of stocks and that would have actually driven up some things associated with that. It would have had an impact for sure, but it's real hard to know exactly what it is because that's just such a free flowing market.

Chad (1:08:50)
if it had no impact on the market.

Patrick (1:09:11)
But I think it speaks to the fact of people do not understand that Social Security is not invested.

Chad (1:09:19)
No, it's

spent on a well right now every dollar. Actually, we spend out more dollars than we take in. Right, but. Yeah, but up until recently. What we didn't spend went elsewhere. In the federal government. So which is why Al Gore wanted a lockbox. Have you ever gone back to listen to some of those old debates? For some reason I went back over the summer, obviously, because it was an election year.

Patrick (1:09:21)
It's spent.

That's correct. In 2035, it will be fully bankrupt.

Right, right. So, but.

Chad (1:09:48)
But I went back to go watch some old debates and I happened to watch the lockbox one and it was just, it was really funny to hear him say that word like 40 times.

Patrick (1:09:57)
I've been watching, I've actually gone back and watched a lot of Reagan's speech. His library like has all his speeches on there. And so I've just kind of gone through them like one by one, little by little, when I've got some time and listen to him. I actually posted on my Facebook the other day about his evil empire speech, cause I thought it was very telling on what we're going through in the Russian Ukraine conflict. And in his reference and that if you just get some time, I'm not going to have any opinion on here, but his reference to CS Lewis is screw tape letters, which I'm not a big book reader.

Shout out to Brittany Huff, by the way, for she actually handed me a copy of screw tape letters for me to read. wow, Reagan's reference to Russia and Marxism and communism and the imperialist thoughts of those thought processes and how they relate to C.S. Lewis's writings is just, it's a phenomenal speech. It's not even that long. It's just a phenomenal speech. His speechwriter was just, I mean, a star.

and the things that they were able to put together. But let's not forget that Reagan

Reagan was against his party on a lot of issues. He lost elections coming up because he was against the grain. And I think in today's world, that's probably what you're going to have. You're going to have something like that. You know, it's a very interesting political environment out there. Right now you have the most precipitous drop in presidential approval ratings within the first 90 days in the history of the American presidency. Just put that in perspective. So

It's a very interesting, this is a, I'm going to tear the band-aid off approach because if I don't do it within the first 18 to 24 months before I get to the midterm election cycle, I'm not going to be able to get it done. So I'm going to try to get everything I can get done now. So we're going to have two years of this and

Chad (1:11:33)
you

Patrick (1:11:47)
then we are going to have two years of elections and impeachments. And we know that's coming. And if I'm Elon Musk, I'm not sure I really want that. Right.

Chad (1:11:48)
of impeachment.

Patrick (1:11:58)
Like it's Elon is, Elon is going to be living at Congress two years from now. and you know, people are like, well, you know, there's not going to be as big switch. Show me the last presidency that we didn't have a switch at the midterms folks. Let's have a conversation like American history is American history. So it's been a while.

Chad (1:12:19)
Yeah, I think it was 2002.

Patrick (1:12:22)
Yeah, after 9-11.

Yeah. And before that, I think it was.

Chad (1:12:26)
Yeah, because

Obama's first term we had the tea party. And then I'm pretty sure both Trump and Biden lost.

Patrick (1:12:35)
Which to be fair, Doge is very similar. I had this conversation the other day with a government official. Doge feels very similar to the Tea Party to me.

Chad (1:12:46)
except it's in the executive branch instead of Congress.

Patrick (1:12:49)
Right, right. But there's like a kernel of truth.

Chad (1:12:54)
It definitely

feels like all of the Tea Party council members that got elected and the mindset that they had coming in to council.

But yeah, go ahead.

Patrick (1:13:06)
Right.

Yeah. So I just, you know, but in tea party, there was always like this kernel of truth that they had, right? They're like, the government wasn't transparent enough and we didn't know enough and da da da da. And Doge is doing a really good job of tapping into that too. Right. Like I can't believe we spent this money here. Uh, or, or my favorite, uh, I can't believe we're paying all these dead people, social security. Um, and, why, why are all these people in there? Well, one, they're actually not receiving checks and two,

mean, code when you insert a null value, they had a very specific number format that they use for that null value. Right. And so I can't remember what the date was, but it was like 1875. There was some sim symbolic reason they used 1875. I can't remember what it was.

Chad (1:13:48)
Yeah.

I'm sure it has to do with COBOL but it also could have just been because it was so out of range that you would know it wasn't real

Patrick (1:13:57)
Yes. So, but the 22 year old coder that was working behind the scenes who came up with that and sent that information out, forgot to basically tell them that that was the null value. So, but hey, you know, I guess you actually have to work in government to understand how those numbers are going to work. that's why we say all the time, like, you know, we can't just go hire somebody who doesn't understand the industry that we're in. I mean, we tell our own kids, like, if you want to get in this business, you have to go work in cities for 10 years. No ands ifs or buts you got to go do it.

So you have to understand where we, what we do and why we do it. I'm sorry, but you can't, you can't take the coder from space X and be like, Hey, why don't you come in here and tell me how government should run. good luck long-term. It's just not a long-term solution. And by the way, my favorite is anybody who knows anything about governmental budgeting, just because I cut the workforce does not mean that the workforce goes away. Those FTEs full-time equivalent employees.

are budgeted employees. So just because I laid off 30 % of them, when a Democrat gets elected, they get to go hire that 30 % back. They're still authorized. So we still have to work with Congress.

Chad (1:15:06)
is still authorized.

And

now you have salary savings.

Patrick (1:15:13)
True.

Chad (1:15:16)
Salary savings are where you get to do all the fun stuff.

Patrick (1:15:19)
First off, you know, every city manager just heard you said that started laughing, right?

So now I have salary savings where I can shift that money to something else in the department that's not actually cut, right? So anyways, all right, let's wrap it up, man. That was supposed to be it. We've been pushing for a little while. So I hope you guys enjoyed this episode. If you got any questions for us, as always, you can reach out to us. I'm Patrick. This is Chad. We're available by email at patrick@zactax or chad@zactax.com. And you can get us on our socials as well. But hopefully this one comes out.

Chad (1:15:33)
yeah that was supposed to be a thirty minute one of we've been pushing well over an hour

Patrick (1:15:52)
We were using a new studio platform for the podcast. So hopefully this one comes out well, Chad.

Chad (1:15:57)
Let us know in the comments, you can just email us and let us know if it was any better or worse. Not the content, like the audio quality and all that kind of stuff, the technical side.

Patrick (1:16:03)
Correct.

And please listen to us,

please listen to us on Spotify, because Chad is a big fan of Spotify.

Chad (1:16:12)
You know, we might actually post the videos here and then you could watch it on Spotify. Yeah. I'm not going to get a little bit. Yeah. Well, but I'm recording it on my end and yours is on your end. Yeah. Yeah. So, all right. Well, it's spring break next week. You're going to be gone. I'm going to be gone the week after, which is a normal podcast week. So I may try to do something next week. Like I may bring someone on or something just so we have an episode, but if not, we'll see you guys after.

Patrick (1:16:16)
that's pretty cool. I like that. So your video kind of ebbs and flows. So.

so smart. Look at that. Look at that. Yeah.

Chad (1:16:42)
after the spring break time.

Patrick (1:16:44)
Yeah, do you need any bananas and avocados when I go to Mexico?

Chad (1:16:48)
I don't think you can bring that back.

Patrick (1:16:50)
Wow, I was trying to avoid the 25 % tariff on avocados.

Chad (1:16:53)
Yeah, where was I? I'm trying to remember. it was in Palm Springs. Someone had was like stopped by customs and they had police and everything over because they had tried to bring food back into the country. Like their bag was all over the floor and they're like pulling food out. It was wild.

Patrick (1:17:07)
man.

Yeah. Coolest airport

I've ever flown out of, by the way, outdoor outdoor airport was very awesome. So terrible in the summer, by the way, but yeah, it was awesome. We were there. All right. Cool. Kudos. See you later.

Chad (1:17:14)
It was interesting.

I would imagine so, yes, but not so bad in February.

Adios.