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What's Proptech, and how has Covid affected sales tax?

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Transcript

0:12 Chad
Hey, everyone. Welcome back to another edition of ZacCast. Chad Janiszek here with Patrick Lawler. How you doing, Pat?
0:17 Patrick
I'm good. I'm good.
0:18 Chad
Hey, man. It's been a little while. Let's, uh, let's do a little scattershot here today. What do you think?
0:23 Patrick
Yeah, I think that's the best way to do it. We got so much going on and so many different things going on in the world. I think we can, we can talk about quite a few subjects today.
0:30 Chad
All right. So the first thing is, uh, came across an article on Twitter the other day from governing.com titled Why Local Governments Should Nurture the Growth of PropTech, and it was kind of interesting. They talked a little bit about some, um, you know, some new players. So this is, like, a really new field, uh, generally speaking, but, uh, especially for, for local governments to kinda get involved in. Um, uh, but PropTech is, is basically using technology to, uh, to improve, uh, property development, you know, property management. Uh, but as far as cities go, some of the things that people are talking about are, uh, like, things like entitlements, um, uh, issues like streamlining the actual development process, u-understanding, uh, like, you know, your, where your actual property values are coming from, the, how the zoning is impacting your future development. So I thought it might be kinda cool just to talk about some of those things and, uh, you know, just see how it goes from there.
1:26 Patrick
Yeah, I mean, I... You know, this new firm, you know, or this new term called PropTech, right, um, I think is a, is an interesting term. Almost everything... The article in Governing was really good 'cause it, it really gave all these private sector examples of how PropTech interacts with government. Uh, so, you know, there's one company out there that's basically, which, which I'm not sure this really works yet, but that is going out there and telling developers, "Okay. Hey, you're interested in this property. This is how likely this property is going to be to be entitled for this use." And they're using machine learning and things like that to try to figure that out. Uh, I, you and I talked about, before we got on this podcast, we talked about that a little bit. I, I find that a little laughable because that takes so many things out of the equation that are never gonna be taken out of the equation. Um, y- the politics of entitlements, tho- those aren't gonna go away because of a machine learning product, right?
2:17 Chad
No, a- and the truth is, uh, even if you had data for every city across the entire country, you would think, "Oh, well, I have a lot of data points that I can use to kind of build an algorithm." But rea- in reality, uh, what you have is, uh, you really need to look at it at the city level. So, like, you can only use the examples from that city, uh, to evaluate how entitlement will go through in that city. You can't use Fort Worth to, uh, compare for Dallas, you know, or New York City to compare for Chicago 'cause they're totally different. And truthfully, you may not even be able to compare, uh, you know, one instance of going through the entitlement process for a city that happened 10 years ago versus now 'cause you have p- you know, political turnover and things change. Um, so, uh, it's, it's an interesting idea.
3:03 Patrick
I, I take that back, though. Yeah, I would, I would take that back, Chad, to not 10 years, but 10 days. I mean, the entitlement process is extremely complicated, and to try to streamline that through technology... Like, I understand streamlining submittals. I mean, we've done that before, right? Use softwares for speeding up submittals and plan reviews and those type of things. Like, that's, for sure, that can be done. Um, but trying to use machine learning to, uh, figure out whether you're gonna get through a political process or not, good luck. I just, I just don't see that happening. Now, using machine learning to find properties that are already entitled for what you want and trying to find those properties maybe at, like, the lowest basis costs and those type of things, that makes a lot of sense. Uh, shout-out to Matt McCombs, who started a, uh, software as a service that does that for developers. Um, he's a UNT alum, and, you know, we've known him for years, and, uh, he, he's done that. So he's kinda in that PropTech field for the private sector. But to take that to the point of, uh, the next level, somebody selling a software out there, which, which he doesn't do, but take this out to the software where it's like, "Hey, we can tell you whether you have a probability of getting this entitlement," that's, that's a little too far. But what was really interesting in this Governing article to me was not necessarily what's happening in the private sector portion of an- entitlements or, or PropTech, but what could happen in the public sector side. And I think it was interesting because had they interviewed us, we could've had a lot of conversation on that because... And, and we've hinted at this on, um, on our LinkedIn profile and Twitter feed and, and so forth and so on. And so that, uh, what we're currently building now, and I don't, I don't know how much we wanna go into that, but, you know, ultimately, uh, the property tax side of things is, is gonna have a, a PropTech aspect to it, right? I mean, that's, that's what everybody's growing to. Funny, you weren't the only one that sent me this article. I actually got it from two other individuals that sent me the same article because they kinda knew, you know, behind the scenes we're talking to people, getting ideas, and getting input, and they kinda knew that, and so they, they sent that information to me as well. So, a good article by Governing. Uh, it's just... Uh, and I think they're on the right track. They may be sniffing down the wrong trail, but I, I think they're on the right... Eventually, they're getting there.
5:23 Chad
S- so one example from the article is, uh, this zoning map that the City of Miami has. So it's basically, uh, like an Esri, uh, application that, you know, you can go to at, it looks like maps.miamigov.com/miamizoning. We'll link to it in the show notes. Uh, but basically, you can just click on a property on the map, and it will pull information from, you know, appraisals, uh, sales information, um, square footage of the lot, uh, the legal description, and things like this. All of this stuff is, uh, available from your appraisal districts, especially in Texas, but it's just really difficult to actuallyUse in a format like this. Like, why can't you just click on the map and see the information about that property? Um, if you've ever tried to use that information, uh, as a city official or, like, a budget person or development person, um, it's, it's a lot of data to pull. Uh, it's not neatly organized. A lot of the nicer appraisal districts will have, like, a, a data dump that you can just download, but then you're getting the entire county. Uh, you have to kind of filter that out, and most people don't have either the GIS skills or database management skills to, to do this. Um, but I mean, it's good information, it just, it doesn't really make any sense why it's so difficult to actually use. And, like, if you go, say you go to your appraisal district and you, you search a property, like, that's great, you can get information about that property, but you can't get information on a, on a broader perspective. You can't get it aggregated, you can't look at, you know, higher level things, and you certainly can't slice and dice it in any sort of analytical way, which would be extremely valuable for local governments. Hint, hint.
7:02 Patrick
A-absolutely, right. So, um, I like the hint there. The, the, the reality is is at the end of the day we can use technology better in cities from a revenue analysis standpoint. We can make better decisions by using this technology. I-if you wanna call that proptech, fine. It's, it's an interesting term, like fintech, but, you know, the, the reality is is that cities are going to get here. There are going to be vendors like us that get them there. Um, you know, we hope that the relationships that we've formed with all of our clients here in Texas help us get there faster. Uh, we hope the ability to be small and fast and, uh, and nimble, we're able to build a product that becomes beneficial. Uh, but also, I think what's, what's most important is, is being able to provide the tool for management to make a decision, right? The data alone is not enough. And, and I think it's great to provide a resource or a database management system to get the data. That's, that's fine, and it's dandy, but the reality is it's not enough. In order for cities to make decisions, because there are just so few of us in city government, there are so few city managers now, the, you know, we don't have huge administrative staffs and a bunch of analysts in these, these communities. We need to be able to provide that analyst atmosphere, uh, in a readily available format, uh, for decision-making, and I, and I think that's, ultimately that's what drives our bus. Um, and if we're talking about proptech, that's what needs to be driving the proptech bus, which means it's going to be extremely difficult for somebody who's never worked in local government or in city government to build a decision-making platform because they've never made decisions before. And, and so, you know, we are trying to do that. We've done that very successfully in sales tax, um, but in the other aspects of revenue development and the other aspects of decision-making, that's where proptech is gonna be extremely beneficial, whatever you call it. I'm not even a f-a, a fan of the firm, uh, the term, uh, proptech. Um, but that's where we're gonna move forward to. So just really interesting article. I'm sure we're gonna put it in the show notes so you can read it. Um, kinda shows where we're gonna go. Really matches with kind of what I would consider, like, our working group of city managers that we work with in Texas that are just, um, all different age ranges, you know, all different types of people from different backgrounds. But, uh, really, really data-driven decision-makers. Um, and, and, and we're gonna, we're gonna see that. Return on investment's gonna become a big deal for cities, that Strong Towns incremental development approach is gonna become a big deal.
9:43 Chad
Yeah, so tha- this article references, um, the it says, uh, this planning consultant has, quote, "created color maps that for some cities show that centrally located lots have higher tax yields and things like that," and that's, that's really good. But I think what you hit on is, is one of those decision-making points that, uh, a lot of cities are not really-- they don't have the ability yet or the tools to, to really analyze that. So, you know, i-if I have all of this, this property value data and my, a large portion of my revenue is generated based on the wealth that's, uh, tied up in property values, um, if I have a large capital project that I'm gonna s- you know, fit right here on this spot of the map, what's that actually gonna do to those property values over time? And how will that actually, uh, w-will that change allow me to pay for this? Do I have enough value as it is to pay for this? There was a really interesting article, uh, on Strong Towns recently that kinda asked this question because I, I, I actually think that the author was evaluating a street reconstruction project on his street, which is, which is, you know, that personal touch is kinda nice. Um, but his conclusion was basically there's not enough value in this area to justify this project. So even though it will benefit me, like, we'll never pay for it. But that's, it takes a lot of, uh, a lot of effort, and you have to pull data from a lot of different places, and there's no, there are no real good tools yet to help cities evaluate those questions.
11:20 Patrick
And, and that's where, you know, I think the governing article kinda takes us, right? Is this is kind of an early indicator of where things are gonna go. I think the governing article got one thing wrong. I, I, I think cities are a lot further along in knowing that they need this than what that article gives off, right? Uh, I, I don't, I don't think this phenomenon, what's gonna change in cities, is going to come from, you know, these private sector development-driven apps that are eventually gonna make their way into cities. I think this is gonna come from the cities themselves knowing what they need to make decisions, um, and, and being better at that.
12:02 Chad
Yeah, and to be fair, this article is basically, uh, the, the main thrust of it is, or the conclusion statement is that these-Tools will help developers and governments can improve those tools by providing more data, right?
12:16 Patrick
Right.
12:17 Chad
I- it's not even really all that geared towards, you know, what can cities do in this space to actually make better decisions themselves. Um, it's, it's more along the lines of, uh, how can they help other people make better decisions, which is, it's an interesting-
12:32 Patrick
Well-
12:32 Chad
... you know, approach, but, uh, I thi- I think cities can benefit from things like these as well.
12:38 Patrick
Well, I think we gotta hammer that nail in further. It's really not... That's not the direction... Uh, if the development community believes that that's the direction things are going, they, they are wrong. The way things are going is a developer is going to eventually submit something to a city and the city is going to do its analysis on its software, whatever they're using, and they're gonna make a decision without the influence of the developer.
13:03 Chad
Yeah. This is-
13:04 Patrick
I, I don't-
13:04 Chad
Yeah. Th- th- what, what's gonna happen is-
13:05 Patrick
The, the governing article thinking that it's the other way is, is, in my opinion, that's incorrect.
13:10 Chad
Yeah. What's gonna happen is that these products are gonna be available for cities, and it's going to allow them to make better decisions, which will probably actually make it more difficult for the developers.
13:19 Patrick
That is correct. Yes. Uh-
13:20 Chad
'Cause cities are gonna start to realize that what these developers want in exchange for what they're getting or giving is not a good bargain.
13:27 Patrick
It's, it's going to change the pro forma model that the developer uses significantly, so no doubt. Well, on another topic. Let's, let's move on to something else that's fun. So it is, we are recording this on Wednesday, July 8th, also known as Sales Tax Day in Texas. And talk about a crazy day. We're not gonna be able to give a bunch of, like, in-depth analysis on where sales tax is, but man, COVID has been-
13:52 Chad
It just came out like four hours ago.
13:53 Patrick
Yeah, it came out, like, four hours ago, and we've just been, like, going through it, looking at different cities, trying to figure out what's going on. Uh, and I mean, there are some things in these, in this data that pops and just crazy, and we'll talk about that. But, okay, COVID at -1.12% impact in May sales, you know, July check. Like, who, who, who, who at this point would have thought at the beginning when we were telling our clients four or five months ago, "Hey, don't lay off your employees. Hey, hold on. You know, we're looking at cell phone analytic data. We're looking at everything else that's going on." I felt like we were the only consultant out there that was telling these cities to just take a breath, just stop for a minute. Take a breath, hold on. Now, luckily, we have, like, you know, well over 100 cities that we represent, and so we were able to have a pretty significant impact in that conversation statewide. But wow.
14:51 Chad
I mean, truthfully, even some of our projections ended up-
14:54 Patrick
Oh, yeah, yeah
14:55 Chad
... ended up being a little bit more aggressive in terms of, uh, projected loss than-
14:58 Patrick
Oh
14:58 Chad
... than happened.
14:59 Patrick
No doubt. Ab- absolutely. There are some communities that we just got flat out wrong. There are some communities that have... I, I, I would tell you that the communities that we got wrong, uh, they share one thing in common, which is they are, uh, they are bedroom communities to some other ma- major metropolitan area. And where we got those wrong are the spending habits of those i- those individuals while they were at home increased significantly on things like home improvement, delivery to their house, like Amazon, Amazon Marketplace, uh, grocery shopping, uh, you know, to-go fast food, you know, to-go out to eat stuff. That, those all performed a little better in those communities than maybe they did in, in, like, the larger cities, like the Fort Worths and, uh, you-
15:42 Chad
Where you have a little bit more diversity.
15:43 Patrick
Yeah, you have a little more diversity and people were just-
15:45 Chad
In terms of tax base.
15:46 Patrick
Correct. And, and they're a little bit more dependent on people who come into town every day and go to work and eat lunch there, and those type of things. So, um, you know, they're, they're absolutely. Like, we didn't get everything right here. There were quite a few communities that we, we didn't get right. Um, but ultimately, our message was... And, and, and this message had a headwind, right? Our message was, "Hey, take a deep breath. We don't think it's as bad as it's going to be. Uh, we'll do some analysis for you to tell you what your worst case scenario is, so that you can budget based on worst case scenario," 'cause we always do the lowest common denominator in budgeting for some reason. Um, and, and it's, it's smart. I'm not saying it's not smart. But-
16:23 Chad
Well, it's not, it's not necessarily smart. So we-
16:26 Patrick
It's really smart, but-
16:28 Chad
So-
16:28 Patrick
You know, a fi-
16:28 Chad
But, you know-
16:28 Patrick
A finance director, to be fair, is always in the position of making sure that they don't... They don't wanna go into a deficit.
16:34 Chad
They don't wanna underperform.
16:35 Patrick
Like, everybody's scared. They don't wanna underperform. They don't wanna go into a deficit, and so they're gonna wanna know, like, what's my risk? What's my risk tolerance? What's my, what's my highest possible loss level? And then we can kinda negotiate them off of that highest loss and maybe put them into, like, a lower tier of loss, right? Um-
16:50 Chad
Well, I think, I think that's one thing that's unique about the way that we approach, we approached this when we started looking at these COVID-related closures and the impacts of them, is we didn't look at worst case, best case. We looked at the range of possible outcomes. So-
17:05 Patrick
Yep
17:05 Chad
... these are the top taxpayers that you have that are actually closed, and we called them, and they're not open. Or-
17:12 Patrick
Correct, yeah
17:12 Chad
... these are some, these are people that we thought might be closed, but we called them, and they're actually doing a lot better.
17:17 Patrick
Mm-hmm.
17:17 Chad
So based on that information, we built confidence intervals around how their sales tax would perform, and then we run those simulations based on those confidence intervals. And what you get is a probability forecast, not just a, well, here's the absolute worst case. The, uh, sh- the worst case is zero, right? Like, the worst case is that everyone panics and stops shopping, uh, except for the absolute staples, and that's not... It may be the worst case, but it's how likely is it? Is there, like, a 1% chance-
17:46 Patrick
Uh-
17:46 Chad
... a .1% chance that's gonna happen?
17:47 Patrick
Correct.
17:47 Chad
So there's really-
17:48 Patrick
Yeah.
17:49 Chad
You, you have to understand the probabilities of the worst case before you decide that's what you're gonna shoot for.
17:55 Patrick
Whi- which means that when we do this analysis for somebody, we're not picking a number. And I think that's really incredibly hard for a lot of people to grasp. We're not gonna come in here and be like, "Hey, you're gonna do 32 million this year." You're never gonna see that from us. We're gonna give you some type of probability analysis that gives you a, "Hey, you've got a 75% chance of doing $32 million this year."Um, you know, we, we kind of allow your staff to figure out what your risk tolerance level is. But I talked about the headwinds a little bit. I wanna go into that just a, a little bit.
18:25 Chad
Well, real, real quick, real quick.
18:26 Patrick
Yeah.
18:26 Chad
Just to, to put it on that, just like a one closing statement on that, the benefit of that type of analysis, and you can do this yourself, you don't need us to do it-
18:34 Patrick
Absolutely
18:34 Chad
... even though we're happy to do it for you. But the benefit of it is if you, if you're confident in your model and it shows 75% chance of getting X number of dollars, when you get into the budget process and council has pushed back and they want to do X additional thing and it costs $200,000, well, you can say, "Okay, well, instead of 75% likelihood, we're now at 67% likelihood. So there's an 8% greater risk of not hitting that budget based on the increase that you're asking us to add." That's way... That's an extremely valuable data point to have, because maybe 8% is perfectly fine from a risk tolerance level, that they'd rather take that 8% risk of not quite hitting that extra growth versus cutting some other important project. And if you don't have an idea of the likelihood of those numbers actually panning out, then you're, you're just kind of flying by the seat of your pants and you're saying, "Well, yeah, we're going from, say, 1% growth to 1.5% growth." And okay, that's probably reasonable, but if you don't actually have, uh, any idea of how likely that adjustment is to occur, then yeah, it's... It, it just puts you in a, a much more difficult situation when you're trying to make those decisions. Okay.
19:44 Patrick
Well, I-
19:44 Chad
That's all I got to say, so go ahead.
19:45 Patrick
Yeah. So I mean, I, I wanna go into some of the numbers here, right? So statewide sales tax was down 1.12%. And I, and I talked about the headwinds, right? That these finance directors are facing. So they're hearing from the finance director community, the budget director community, um, the professional organizations, right? The Government Finance Officers Association, not necessarily of Texas, but more the national branch. Um, you know, they put out like this draconian, "These are the things you need to do now to save your city." And it wa- it read like a list of your city's about to go bankrupt. You have to go do these things.
20:23 Chad
Yeah.
20:23 Patrick
And-
20:23 Chad
It was like everything short of cancel all of your, you know, retirement contracts and-
20:28 Patrick
Yeah. E- correct. Every-
20:28 Chad
Like everybody off. It was like, it was like one step below that.
20:32 Patrick
And, and I felt like I was screaming from a rooftop during that period of time. I mean, this is in like March, right? I think this came out like second or third week of March. I was screaming from a rooftop. I'm like, "Guys, you know, put that on a shelf. We, we have no idea what's about to happen. Don't make any drastic decisions." Some cities went ahead and laid off in April, right? We have one, one city that I'm tracking, they're not a client, they had some layoffs and they had some pay cuts, and guess what? They're up 7% this month.
20:59 Chad
And it was like 6% last month.
21:01 Patrick
Yes. You know, I mean-
21:03 Chad
And that's on, and that's on a portion of your revenue, of your general fund revenue.
21:07 Patrick
It's a portion of a portion of your revenue.
21:11 Chad
Of your general fund revenue.
21:11 Patrick
That's correct.
21:11 Chad
So you-
21:12 Patrick
And so-
21:12 Chad
You have your payable property tax, which is not gonna change at this time. I mean, maybe, maybe COVID has some effect, uh, in-
21:20 Patrick
In '22
21:20 Chad
... you know, the future years.
21:21 Patrick
Correct.
21:21 Chad
But it won't have an effect in, in the upcoming fiscal year, 'cause those values are all based on January 1st, which was pre-COVID. So like the appraisal district cannot take any potential COVID impact into account for the 2020 appraisals.
21:38 Patrick
Uh, I mean, it's just, it's an incredible... What has, what has occurred. Now look, the other side of this equation is I don't think anybody thought that we would see a couple single digit down months from COVID. You know, not even the comptroller thought that. The comptroller was, was throwing out like $5 billion statewide in loss. Um, you know, which would've equated to like 12 to 16%, somewhere around there, um, statewide. That... I- I'm, I'm just pointing out-
22:07 Chad
Yeah, just, just, just for comparison, the... So that 1.12% decline that you gave, that was for the local, like the city, um, city portion.
22:15 Patrick
That's the city, that's the city. That's... Yeah.
22:16 Chad
Okay, so-
22:17 Patrick
We work for cities, so that's the one I care about, right.
22:18 Chad
Yeah. So that equated to about $5 million in less revenue. So it went from 488 million-
22:26 Patrick
Correct
22:26 Chad
... in July of 2019 to 483 million this, this year.
22:31 Patrick
In, in year to date, so January, not fiscal year to date, but year to date, we are still positive .16%. We're still actually in positive territory year to date for local governments. So I, I, I just... I, I say this because I think it's important for everybody to take a deep breath. We're going to continue to see some declines. Uh, uh, uh, I'm, I'm not saying that we're, we're bouncing, right? And you're gonna see this elastic bounce that occurs. I don't think that's gonna occur, the reason I don't think that is, is going to occur is 'cause small businesses are still suffering. You're going to see more and more closures. You're gonna see industries that have to transition and change. Uh, you know, you and I had this conversation earlier this week, Chad, about movie theaters. Like, I don't know if movie theaters are gonna survive. You believe there's like a path to survival for movie theaters, and I, I don't see it. But-
23:19 Chad
I do?
23:21 Patrick
Yeah. Didn't you say that you thought people would still go to a movie theater at some point?
23:26 Chad
I mean, no, I, I, I think that, I think movie theaters, uh, are, are in trouble.
23:31 Patrick
Okay.
23:32 Chad
Yeah. I, I think it's gonna be potentially quite ugly.
23:35 Patrick
Yeah, I mean, I-
23:36 Chad
And especially we, we talked about this w- when it happened, but the Trolls movie, the second Trolls movie made more in like six weeks of streaming than the first one made at the box office.
23:45 Patrick
Yeah. Do we know what Apple paid Tom Hanks for his movie to move over there? I know Tom's not happy about it, but I'm excited. This is like war flick-
23:52 Chad
I'm gonna be-
23:52 Patrick
... that's going to Apple+. I'm excited about this. So, but, uh, any- anyways, I just, I, I wanna point out a couple things and, and look at some data. So I'm actually gonna call out some examples in the state. Some of these are clients, uh, some of them are not. Uh, the, the first one I wanna talk about is-
24:10 Chad
Let's, let's not say which ones are.
24:13 Patrick
Yeah, we won't say which one are clients or which ones aren't. But, uh, the, the first one I wanna point out, and why is it not coming up? Hold on. Wait for it. There we go. Is College Station, TexasRight? So this is a city that has sixty to seventy thousand students that live on campus, right? I mean, no doubt they have a ton of students that live on campus. Their total population, not including students, is about a hundred thousand inner city. So, you know, they lose thirty to forty percent of, of the people who live in this town. College Station, I think if you ask their staff, they would have assumed that their losses were gonna be significantly more than what it actually was. They were down six point six percent. That's just a-- it's mind-boggling to me why they performed so much better than expected. But the reality is, is that if you look at cities, if you look at other communities, right, and, and you look at how their performance is going, it's interesting. And, and we're-- I, I say this because-
25:14 Chad
You look at these college towns, you look at, uh, Waco was basically flat.
25:16 Patrick
Correct.
25:16 Chad
Lubbock was up to almost two and a half percent. Um, Abilene, San Angelo, both with colleges located in town, um, about flat. So th-those are, those are places where, where they have a large transient population because of the schools. You, you would kind of expect that to have done worse with all those students gone.
25:39 Patrick
Abilene in positive territory here, point nine three percent for the month. I mean, uh, way to go, Abilene. Good job. But I mean, yeah, they've, they've lost... I mean, Abilene, I think, has two universities, right, in town.
25:51 Chad
Yeah. Mm-hmm.
25:52 Patrick
Um, and those entire populations just went home, right? You look at College Station, it was like a ghost town on campus. Waco, same way. All those students who live in dorms, live on campus, spend a ton of credit card money, they all left. They were gone. And for these cities to perform at this level is just, is, is tremendous. So then, so then we jump into, okay, looking at the Metroplex, right? So outside the Metroplex, like our old hometown of Hudson Oaks, Texas. Hudson Oaks, Texas, twenty-two percent up, right? Weatherford, next door, you know, different, little bit different demographic, little more blue collar, Weatherford was up sixteen percent in that same month. Now, granted, Parker County was closed just like everybody else was closed. Things were opening up in May. You know, we started to see things kinda, kinda grow, but it's amazing how elastic sales tax is. We may have lost some spending in April, but a lot of that spending, I think, returned in May. It's gonna be hard to prove that, but the, the reality is, is we're seeing some of that grow. What el-what else you got? What else are you looking up over there?
26:58 Chad
I, I was looking at the, the biggest cities, uh, the Austin, San Antonio, Houston, Dallas, Fort Worth. Uh, those all, all those cities experienced decline. A lot of like what we talked about earlier with, uh, importation of sales tax. Uh-
27:10 Patrick
Mm-hmm
27:10 Chad
... you know, people not, not leaving their homes to come in and shop in, uh, all the major shopping centers there. Um, but I, I-
27:19 Patrick
We didn't have protest in May. We did not have the big protest in May, right? Let's, let's say that clearly. Those happened in June. Um, but you know, the policies were a little bit more stringent in some of those cities, uh, on COVID. There's a couple things that could factor into that. Who knows-
27:35 Chad
Yeah
27:35 Patrick
... what actually is impacting it or not. But-
27:38 Chad
Well, I-
27:38 Patrick
... Dallas is down twelve percent, right? Houston is down thirteen percent.
27:43 Chad
Yeah. Fort Worth is only down three and a half, three point two five.
27:46 Patrick
That, that's an amazing story to me 'cause last month, Dallas was down like twenty-four percent and Fort Worth was only down like thirteen, I think, maybe thirteen or fourteen. So it's interesting to me how Fort Worth is performing so much, uh, more, I, I guess, performing better than Dallas.
28:02 Chad
More better.
28:03 Patrick
More... I, I was trying not to say more better. But yeah, there you go. So-
28:08 Chad
Let's, I got-
28:08 Patrick
But I, I mean, you look at these cities. What, what was Austin doing?
28:12 Chad
Hang on. I'm pulling up Fort Worth from last. Fort Worth was thirteen point three percent down last month.
28:19 Patrick
I have Austin from this month. It's ten point one.
28:21 Chad
Austin was down twenty percent last month. They are down-
28:25 Patrick
Ten percent this month
28:26 Chad
... ten percent this month.
28:28 Patrick
We'll find out.
28:28 Chad
I mean, you go from partial openings compared to full closures. I mean, that's gonna be, there's gonna be a difference. Um-
28:35 Patrick
Yeah, absolutely. But Pflugerville, right, outside of Austin, up seventeen percent. I, I just-
28:42 Chad
I think there's a couple of key takeaways. So first is what we talked about a minute ago, which is whenever you're faced with a situation that is such an unknown, there's, there's, there's no need to take drastic measures before you know anything.
28:59 Patrick
There you go.
28:59 Chad
Um, I think that the, the cities who took the most drastic measures, at least that, that were, you know, publicized and you could read about, um, I think in, in most cases were probably not warranted. Uh, there's a, there's also a point to be made about sales tax diversification. Not s- not all of your sales tax is brick and mortar, you know, retail sales. There's a lot of other opportunities, uh, to expand your sales tax that don't involve doing things that the comptroller will later come back and, and change. Um, but-
29:36 Patrick
Yeah, and... Correct. Can I add to this right now? Because I don't wanna forget this. There were a lot of cities that went on a hiring freeze, and so there are a lot of people who just graduated with an MPA from a couple different universities in the state of Texas that are highly qualified individual candidates who have not been able to get jobs because cities froze up the market. Folks, let's not lose those people. You, you made some rash decisions very quickly. Let's go grab them now. You're fine. A lot of y'all are cooking. You're fine. Go get them. And let's, let's keep those professionals rolling into, you know, our cities.
30:14 Chad
So the other point to make, which we can only touch on tangentially because, uh, of confidentiality, at the beginning of this fiscal year, after the last two years' legislative session-There were some changes made to online sales, both with the, the single local taxpayer and with the marketplace provider. So if you are a, a platform for other people to sell items. Until September, October, uh, the sales tax was basically not, not captured on those sales. But those changes in the last session required the marketplace providers to begin collecting sales tax on those transactions. And I think that there is probably an argument to make that at least in the June data, which was for April sales, which is when the closures occurred in Texas, that that marketplace rule change saved a lot of cities.
31:11 Patrick
Oh, a lot of communities.
31:11 Chad
You can go in and look at the, the extra sales tax generated from those new taxpayers. And in a lot of cases, then when we're just, like, spot-checking them, it essentially made up all of the other losses from the local businesses. Which tells you two things.
31:23 Patrick
So if you're a Zach client... Yeah. Sorry, I was-
31:26 Chad
Well, it tells you two things. You're fine. Go ahead.
31:29 Patrick
I was just gonna say, if you're a Zach client, really easy to go look at that. Just go into Taxpayer Search and search Amazon, and you'll see in parentheses Marketplace. That's what you specifically wanna look at.
31:38 Chad
And you can also, when you're looking at the, the Monthly tab, click on, uh, Sort By Variance, uh, and the ones that had zero last year will be at the top of that list. Uh, so you can, you can tell whoever had no payments last year versus payments this year. Um, if they don't look familiar, they're probably one of those marketplace providers. But, I mean, at, at the very least, it tells you that the actual, uh, consumption levels were not significantly adjusted from a retail standpoint. People were not able to go to a store, but they were still spending money. Now, that may change over time as, uh, you know, if, if more businesses continue to struggle and people start losing their jobs, you know, uh, more rapidly, then obviously there's, like, there's a compounding effect over time. But when you're looking at, like, a four to six-week closure and you kinda think that your economic situation is not going to change long term, then your spending habits are probably not gonna change that much during that time either. I was very hopeful personally that we would, uh, we would have some savings in our budget during the month of April. That did not happen. I know a lot of people did, like, like, uh, quarantine projects. I mean, you could see pictures on people's social media of all the different housing pro- like, stuff that they were doing at their house. I mean, people were-
32:47 Patrick
I mean, I'm sitting in... Yeah.
32:48 Chad
People were spending money.
32:49 Patrick
Absolutely. I'm sitting in a brand-new, beautiful home office that was a quarantine project. So... But I, I mean, you're absolutely right. Uh, my personal budget also did not see a decline in spending. It probably actually saw a little bit of a prop in spending 'cause we started thinking about all the things we needed to buy off Amazon. Uh, there were lots of brown boxes that came to my house every day. Um, but, but, but the reality is, is look, there's a lot of things we still don't know, but there are answers to some of these questions, too. Like unemployment, that data's posted on the TWC website. Like, you can go look at it. You can see what the number of unemployment claims are, and you can clearly see statewide unemployment has stabilized. There's, there's no question at this point. Now, we may see another dip. I'm not saying we're not going to. But you can go look at that data, and you can see that statewide unemployment data has started to stabilize. So which means in the coming three or four months, we're gonna see a little bit more of a bottom that occurs on sales tax. My favorite thing to look at, trash loads and tonnage. I always love to look at that. I know we just did a big fiscal analysis where I took into account some, some trash loads. Uh, thanks, Robert Hanner, for that idea back in 2007. Um, and, you know, we're seeing an increase in trash tonnage, which means, you know, spending and consumer spending is up. I just, I find it very interesting to, um, that we make assumptions on things, and we think they could be very dire. And in some cases, we become Chicken Little when we can answer some questions ahead of time. There are some analysis points that we can answer questions on. So I don't, I don't wanna belabor this conversation. I think we've, we've talked enough about it, but it's good news for a lot of communities. And yes, I know you may be sitting in Dallas and you're like, "Hey, I'm still 12% down." I'm not saying that that's, you know, great news for you, but it's a lot better than the 24% you were down last month. Um-
34:35 Chad
Yeah. Truthfully, I think-
34:35 Patrick
... we're starting to see some improvements.
34:38 Chad
I, I think in mid-March when we announced closures, if, if you had thought that in, for, uh, July sales tax numbers, you'd only be 12% down, probably would've taken that in a heartbeat.
34:49 Patrick
Oh, I, especially in Dallas. There's, there's no doubt they would've taken that one. Uh, but Dallas has already announced layoffs. They've already been laying employees off, right? Um, and I, I just want everybody to remember, some cities have a fund balance requirement of 90 days. Some cities have 120 days. Some, some go longer, right? Um, we have a fund balance requirement for a reason, so that we can make decisions in a little bit of a delay. I'm not saying a lot of a delay, but in a little bit of a delay, we can make those decisions. So, um, you know, hey, today's good news. I think we should take it as good news. And as we wrap up this conversation and this podcast, um, I, I think, you know, our cities and the communities that we work with and all the professionals that we talk, talk to all the time, uh, I applaud y'all for, you know, holding the line and having the tough conversations and preparing for the worst, but not executing on it. Um, because I think what we're seeing now is that we haven't hit the worst, and, uh, we're, we could see some improvement as we move. But who would've... I mean, just great numbers today. I, I just, I thought we should talk about it. So.
35:50 Chad
All right. Well, uh, again, there are some things that we talked about we will put in the show notes, so just, uh, take a look for that, uh, in the, in whatever podcast app you're listening this, to this on. Uh, but otherwise, thanks for tuning in. If you enjoyed what you heard and you wanna hear more of it, we'd love a, a five-star review. Uh, but otherwise, y'all have a great day, and we'll see you next time.
36:12 Patrick
See you guys.
← VC and ED
Covid-19’s impact on Texas sales tax, and how Marketplace Providers saved some cities →
July 11th, 2020
Updated Oct 27, 2025
36:32
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