Analytics

Services

Content Hub

We ❤️ cities, but there's a lot more to us than that...
hey@zactax.com
817-725-7241
Kevin Shepherd on fiscal sustainability, infrastructure gaps, and the future of development

Visit

ZacCast

Transcript

0:12 Chad
Hey, everyone. Welcome back to ZacCast. Today we're joined by Kevin Shepherd, founder and CEO of Verdunity. Uh, Verdunity is not your grandfather's planning and engineering firm. They approach their work with the goal of fiscal sustainability. They do a lot of really great analysis for, uh, cities across the country. We had the pleasure of getting to sit down with Kevin a few weeks ago on their Go C- Go Cultivate podcast, and we're really happy to reciprocate that and have him on ZacCast today. So Kevin, thank you so much for taking the time. Um, why don't you just introduce yourself a little bit, uh, talk about why you decided to go out on your own and try something different in this space.
0:47 Kevin Shepherd
Yeah, man. Uh, it's good to, good to be on with, with you guys. Um, I, my background is actually civil engineering. Um, I got, uh, graduated in '94 from Texas A&M with a civil engineering degree. Uh, did civil engineering. There you go, Patrick. Whoop. Uh-
1:05 Chad
Whoop
1:06 Kevin Shepherd
Did, uh, did the civil engineering thing for the first, uh, 17 years of my, of my career, uh, you know, municipal paving, drainage, water, sewer, site development. Um, and, and in engineering school you're taught growth is good, concrete is good, expansion, you know, help our, help our communities grow. Um, but you're not taught, uh, necessarily about place making and the, the value of social interaction, um, and especially, uh, maintenance and how cities are going to pay to maintain all of this good stuff that, that we build. Um, around the, the last recession, '08, um, I got, uh, 2008, 2009, I got offered the opportunity to interview for my former firm's, uh, National Director of Planning and Urban Design. Uh, and I thought it was just kind of a, I was like, "Why the hell you wanna talk with a with an engineer about planning and urban design?" But, um, went up, interviewed, ended up getting the job. Uh, and so for the, the last two years, uh, I was there, I was in a world of planners, architects, economists, um, and for a large architecture engineering firm, global architecture engineering firm, the planners were kind of a, a, a smaller group. But, um, but I got to travel around and, and what, what I learned from that two and a half years was that no matter where I went, cities of different shapes, sizes, rural, suburban, urban, um, you know, Midwest, West Coast, East Coast, very few of them had enough money to pay to maintain basic infrastructure. They were all struggling with, "How are we gonna, how are we gonna maintain everything that we have?" Um, and then I would come back to North Texas here in Dallas and see us blowing and going, even through the recession, right? We, I mean, we barely skipped a beat relative to, to most parts of the country. Um, and so in 2011 I said, "You know, I'm, I'm learning enough working nationally. Uh, we have an opportunity in Texas to, to take... You know, we're blessed with a lot of wealth, philanthropic, um, resources." I was like, "We've gotta take this and, and apply it to change the way that we're building our cities." Uh, and so we started Verdunity back in April of 2011. It's been, what's my Aggie math? Nine years. Uh, and so-
3:18 Chad
Yeah
3:18 Kevin Shepherd
... what we do now is, is hammer home that message of fiscal sustainability. And, you know, before you can get communities to do what I believe are more of, you know, quote, the right projects, um, you gotta, you, you need to get them to understand the, the fiscal impacts of the way that we've been doing things. So we, um, we always start with, with, uh, fiscal sustainability and questioning, um, you know, helping cities look at where they are fiscally in terms of, of being able to, to pay for maintenance, infrastructure maintenance in, in particular. Um, and then we push that into, um, planning work, uh, infrastructure design work, um, you know, things, things of that nature, so which I'm sure we'll, we'll dig into.
3:59 Chad
So, uh-
3:59 Kevin Shepherd
Yeah, sure. Sure
4:00 Chad
... small development planning-
4:38 Kevin Shepherd
Um-
4:38 Chad
... things like that.
4:39 Kevin Shepherd
Yeah
4:39 Chad
You know, along those lines, yeah.
4:40 Kevin Shepherd
So we do, uh, we do what we call land use fiscal analysis, which, and we focus on the relationship between the development pattern and property tax revenue and services paid for from the general fund or, or by property tax revenue. We can get into other things, so sales tax and HOT tax and, and some of those, but there's guys like you that are out there, uh, doing that piece of it. So really focusing on the, the nexus between de- the development pattern, the, the things you build on the ground, um, and the property tax revenue you're getting back from that, that investment, and does it, does it pencil out or not, and how big of a gap is that creating to be closed by sales tax and, and other sources. Um, we, uh, we're not from an engineering perspective. You know, I don't like to go after a lot of large roadway expansion projects. We, we tend to focus on maintenance and how you can, um, you know, maintain what you have, get more value out of what you have. Um, and then on the, the planning you, you, you mentioned the incremental development side. Um, what we see from our fiscal analysis is that the, um... And, and there's no one size fits, fits all here. There's no right or wrong pattern per se. Um, but smaller lots, narrower lots, um, parcels that have vertical buildings, multi-story buildings, um, there's, there's basic things from our analysis that-That show that those are the areas that, um, generate the most property tax revenue per acre. Um, and so it, it- s- when we were doing the analysis early on, it would be like, "This is great. We see we have a resource gap. Um, we can see that certain kinds of patterns do better than others. We would like to do more of the, you know, of, of the patterns the, that generate more property tax for us." Um, and that gets into incremental development, and, and it's, you know, what, who are the de- the developers, the builders that can go in and build one building at a time or a, a small live-work unit that maybe has a business in the front and an apartment in the back. Uh, and so there's, there's a lot of cities that are trying to get more of that kind of housing, you know, to diversify housing stock and price points and get more workforce housing in their community. Uh, but there's conversations about density. We don't want density in our community. Um, you know, that brings traffic, that brings, um, the poor people. Uh, we hear a lot of different things, but when you can show the math behind it and show that if you can build a portfolio in your community of different types of, of development patterns, you can actually generate more property tax revenue for your community without having to change the tax rate. And that's a really powerful discussion to have, is instead of being, "Heck no, we don't want the density," or, "We don't want incremental or small development," it shifts to, "Okay, we're, we're in, but where can we put it, and how can we design it in a way that, that fits with our community?" Which is a very different conversation than just fighting the battle of if you want it or not.
7:37 Patrick
So the, the question of density equals poor people, right? I mean, that's... Every city manager hears that in every suburban community that's out there-
7:46 Kevin Shepherd
Mm-hmm
7:46 Patrick
... that's trying to change their development pattern, right? So let's, let's talk about that. Like, statistically, data analysis-wise, what, what do you actually see in the real world? I mean, cities obviously can put standards on multifamily development to make them, you know-
7:59 Kevin Shepherd
Mm-hmm
7:59 Patrick
... more expensive, right, or, uh, to do certain things. I'm not saying that affordable housing is not a good thing. I, I'm just asking the question of, is, is that a one-to-one? I mean, does it, does... Do you see in your analysis that if you build multifamily, you're gonna lower-
8:14 Kevin Shepherd
No
8:14 Patrick
... your median household income?
8:14 Kevin Shepherd
I think there's a... Yeah, there's, there's presumptions out there that, um, you know, m- multifamily equals deteriorating property values. Um, it equals more crime. Uh, it's just, it's not true. Um, there's data out there that you can manipulate data to show that that is the case, but what we see in most cases, it's really, it's really not. It's, it's about where you locate it. You know, do you stick it off on the edge of town where there's nothing else around it, or do you actually put that kind of denser development in your prime areas that have the walkable access to everything? Um, you know, so it's, it's a decision by a city to put it in your most valuable areas versus do you stick it out on the edge. That, that's probably the-
8:53 Patrick
Mm-hmm
8:53 Kevin Shepherd
... biggest driver of do you get something that, that actually creates value and creates place and, and gets your young professionals and your, your reti- you know, your, your boomers that re- that are retiring. Um, 'cause th- there is a huge demand in North Texas for, um, across the country, but especially in North Texas for more diversified housing types and price points. Uh, we have so much of the typical single-family, um, and still need more of that. Um, but we need more of the smaller stuff for... Th- there's a lot of people that, that need those kind of, you know, smaller, more affordable units, uh, for different, for different reasons. But it's, yeah, it's more about location than it is just smaller, you know, smaller is less value, I guess. Does that help?
9:40 Patrick
Yeah, absolutely.
9:42 Chad
Kevin, when you talk about incremental development, um, you know, one unit at a time, one, one redevelopment piece at a time-
9:49 Kevin Shepherd
Yeah
9:49 Chad
... that seems to be a lot more difficult, right? Just a lot more effort, right? Because you're dealing with many more players versus the way that we typically develop right now is you'll have a developer come in, buy 100 lots, build 100 houses at once, and it's done. So you've got one person to deal with. You've got one process that you're working through, and, uh, we're just sort of used to that. Whereas an incremental approach, every single project is different. Everyone has-
10:12 Kevin Shepherd
Mm-hmm
10:13 Chad
... new players and has something different about that, you know, particular project. It, it does seem like it's a lot more effort. Is that part of the reason why cities are hesitant to approach things that way, or is s- something else involved?
10:25 Kevin Shepherd
Oh, that's a great question. Um, I do think there's more effort involved. Um, I don't know that it's more effort on the city's side, though. I think, I actually think it's, it's more challenging from a developer standpoint to make things pencil out when you're looking at smaller projects. Um, a lot of it has to do with, with zoning and building codes and, you know, what you're allowed or not allowed to do. Um, something that, that comes up of a lot of the fiscal analysis work that we do is we'll, we'll, we'll do, you know, we'll do our, our land use analysis, and then we'll, we'll show it by land use codes, by zoning districts. Um, and every single place that we've looked at shows the same trend, that the, the smaller lots have the highest revenue per acre, and the, the larger lots tend to go down. Um, but, uh, and so we, we always get this question of like, "Oh, well, you know, the, the two zoning districts or the two smallest single-family lots that, lot sizes that you're showing, our code doesn't even allow those anymore." So our cities are kind of moving towards this place that we're coding out the most fiscally productive development, uh, that they, that they have. Um, you know, Monte, Monte Anderson is a small developer that we partner with quite a bit. He's here in the Dallas area as well. And, um, you know, I, I think there's a... My feeling is there, there's a lot more people, um, a lot of them are actually our age, uh, who are wanting to get into small development and maybe build a, you know, a unit as, um, you know, an investment type of project where they can rent it out, get some rental income. Um, or maybe you have someone that, that wants to run their business in the front, and they wanna live in the back or rent out the back. Um, there's, there's starting to be more demand for that.Um, but on the city side, you've gotta be more welcoming of that and kind of know where you want it to go, because you do have to get some codes and things in, in line to allow it. Um, but you also have the, the push from the larger developers that, like you said, Chad, they, they have their system, they have their... I mean, they can crank that stuff out big, and from a, um, you know, big and fast. And from a city side, um, you know, I could see that, that conversation happening too of, you know, we can work with one guy and get 100 lots, you know, all at once, or we can go deal with these, these, you know, individual folks and get, you know, 10 buildings and 20 units or something like that. So I, I guess, um, you know, I could see where cities, smaller cities that have limited resources, they're thinking through that some.
12:55 Patrick
Yeah, I have to ask the question on codes, 'cause you kind of, you hinted at that a little bit. And, uh, Chad knows this about me, but not Kevin, we've never had this discussion. It's just a very interesting discussion to have. So building codes.
13:06 Kevin Shepherd
Yep.
13:07 Patrick
Uh, fire code, building code, electric code, mechanical, you know, MEP. My, my big complaint over the years about those codes, um, ha- has been that they're, those codes are built by trades, right? So i- if you're talking about electrical code, you have all these electricians that come in a room, and they create their own code. So therefore, the code gets more stringent over time because it makes their projects-
13:29 Kevin Shepherd
Mm-hmm
13:29 Patrick
... more costly, right? And so it, it just raises the cost of that. And, and we've seen that, uh, discourage incremental development, right? It makes it more difficult to go into an older downtown area, because the newer building codes are so substantially different than the older build- building codes.
13:46 Kevin Shepherd
Yep.
13:46 Patrick
Now, some of that's okay. I mean, some of it's health and safety related, and, and obviously, we've gotten better at getting out of a burning building than we used to from a code standpoint. But some of that is so difficult that it, it, it allows those buildings to just sit there. And so how do you, how do you change that? Do you see cities that are actually going in and, and trying to change those codes in older kind of historic areas or older downtowns to get that redevelopment?
14:13 Kevin Shepherd
Yeah. Yeah. That's a, um, that's a great, a great question, and that is a, you know, obstacle to get, to get over. Um, I, AJ, AJ Favreau on mart- on my team is more of our code specialist on this, but, but there are... Where there's a will, there's a way. Um, you know, I think, um, you're, you're right, 'cause i- if you, if you draw the line-
14:34 Patrick
Mm-hmm
14:34 Kevin Shepherd
... and your, your building inspector is saying, you know, "You've got to hit all of these codes," and it's across the board for every building, you are gonna have some older buildings that nothing's gonna happen because to bring them up to the current code all up front is just, that's an investment that a lot of people just can't make. Um, so what we see, um, in, in the communities that are making some progress there is there's a, there's a partnership happening that there's acknowledgement on the city side that for a, a small developer or a new business to, to get into one of those buildings, um, there needs to be intent on their side that they know they have to get it up to the codes, you know, over some period of time. But there's also, um, some appreciation from the city side that, "Hey, we'll, we'll give you a few years to do that. Let's get the absolute bare minimum, you know, life and safety things addressed, um, and then, you know, give you, uh, give you another couple of years maybe to generate some revenue, get your, get your, um, get your business going, and then you can start to get the, the rest of it going." Um, there's also some code tweaks you can do to go back to, um, to older building codes. I don't know the exact terminology, but there's some ways that some of the small developers can use to, you know, to get through some of that. But it ultimately comes down to, um, the city making a decision of, you know, how, how hard do we wanna enforce some of this stuff versus, you know, where, where can we have some flexibility? Because, you know, the, the alternative is those buildings sit there, they don't get filled, you know, and, and you end up with a, a beautiful historic area that, you know, doesn't, that the, doesn't get the investment that you, you need versus with just a little bit of energy up front-
16:09 Patrick
Right
16:09 Kevin Shepherd
... you get them in there and activated, and then they take off, and then you can get them all back up to code. It's just that dynamic of someone that's gonna go in and wanna build a small, a small building. Maybe they have a, um, you know, maybe they have a business idea that hasn't been fully vetted yet. And so to ask somebody to go in and, you know, purchase a building or build a building, well, not, not, we're not even talking about building, but, but purchase an older building, um, you know, when they haven't fully vetted their business idea, that's a, that's a huge risk that a lot of folks, you know, aren't willing to take that, um, you know, to flip that to an economic development incentive program, and there's a lot of cities that do have this. But, uh, a lot of your small developers and local developers will say, "Man, if our city would just take a portion of our economic development money that we throw at incentives to these big companies and put it into supporting us, uh, you know, on these building, uh, land or building, uh, purchases or, um, or retrofits, you know, it, it would go a long way." And for me, I, I, I see a, a city, if you help invest in a building, um, you know, that, that building's gonna be there and, you know, at least the smaller incremental deilding- buildings we're talking about, that building's gonna be there in your community for a long time. So whether one business goes in and out, that investment from a city's standpoint is, is gonna stick. Um, versus some of these incentives we throw to these bigger companies that they come, they're there for 15 or 20 years, and then they bolt, and then you're left with a big, a big box that's much harder to retrofit.
17:36 Patrick
Just to piggyback on that also, if, if you don't allow that kind of incremental development, then what happens to those buildings? They're either gonna sit there vacant out of code, uh, you know, or they're, you're not gonna have the investment, and they're still gonna be out of code, right? So what's, what are you losing?
17:51 Kevin Shepherd
Yeah. And then you have money from the city side that you've got, oh, we've got blighted, we got vacant buildings that, you know, aren't being kept up and, you know, what do you do to, to fill the storefront to make it look like something's there or y- i- which that's a cost to it.
18:05 Patrick
And you're spending money on code enforcement, you're spending money on policing and fire.
18:08 Kevin Shepherd
Right.
18:08 Patrick
Right. So yeah, there's definitely some trade-offs there.
18:11 Kevin Shepherd
Yep.
18:11 Patrick
Um, when it comes to incremental development though, one-
18:14 Chad
One issue is that a lot of cities' zoning, uh, requirements, like forget about the codes that they're using, but they have, uh, you know, setbacks and lot sizes and building sizes and building materials, and all of these restrictions that don't necessarily allow you to change what is currently there. Is there, is there a movement to sort of get away-
18:34 Kevin Shepherd
Mm-hmm
18:34 Chad
... from some of that form-based zoning or those more, those types of zonings that are very specific about how a building should look to allow a little bit more flexibility?
18:44 Kevin Shepherd
Yeah. Well, that's... So form-based is not necessarily the same thing as kinda what, you know, what you're talking about, but there's a, um, there's definitely, you know, there's Euclidian zoning that separates things by land use saying, you know, single family has to go here, industrial is gonna go over there. We've done that for a long time, and that, that I think is, is a challenge, um, in a couple of regards. You know, one, especially with regard to like single family, you can, you can lock a neighborhood into one look, you know, and, and you build that to a, to a certain standard, and we see that with a lot of the suburban neighborhoods today of i- y- there's, there's just nothing you can do to, to retrofit that kind of neighborhood. And that's okay, and I think a lot of people that live in those kind of neighborhoods want that, right? You know, don't, don't mess with, don't mess with this. Um, then you have other parts of town that you do want to be able to evolve and add density and incremental, you know, intensity over time, um, but you, you know, you get into, to allow that to happen, you're, you're more looking into, you know, what's the, what's the form, what's the... It's more about the, what I'll call the public realm or like, you know, when you're in the street, what the feel is. So that's where form-based codes can help of saying, you know, we wanna have the, the building up on the street, you know, versus having a setback, you know, where you have the, the building way, way off of the property line. Um, th- there's different ways to get at that, but I think what the planners will say is, you know, we're, we're trying to get to a place to, um, to guide the, the look and the feel of this neighborhood that it, that allows, or this area, that allows it to evolve over time, um, without handcuffing the developers too much on exactly what they, you know, what they have to do in terms of, um, some of the o- the other things that, um... It, it's... The best way I could put it is in a single family type of neighborhood, you wanna have, uh, there, there's, there has been at least interest in setbacks and, um, you know, the, just the amount of separation between buildings and things like that, that, that are easier to, to standardize versus, um, you know, in the incremental side. When, you know, when you get in a downtown or a main street environment, the, the ones that are the most interesting do kinda have the quirky factor to them, of the buildings don't all look the same and they're not all in the same place. Um, and that's what makes them interesting and, you know, makes you wanna get out and, and walk around. So it's, um, it's complicated, but I do think the, a lot more cities are having that, that conversation about how do we get these kind of places in our different communities, whether we're a rural place, a suburban place, you know, whatever. Uh, and we, again, just to bring it back to where we started, you know, fiscal, fiscal sustainability is, is the reason that, that I advocate for a lot of this stuff, is, um, a lot of the, you know, a lot of the communities that we study, when you just... One of the questions I like to ask is, uh, cities is, do, do you know if you had to fix all of the streets in your town right now, do you know what it would cost? Very few cities can answer that question. I'm shocked. Even today, you know, eight years later after I've been hammering on this, uh, and others too, cities still don't know how much infrastructure they have that they're on the hook to maintain. And when we do these analysis, I mean, it's gaps of 500 million, one billion. Our, our leader, I won't name the name, but our leader right now is $1.3 billion is what they need to fix all of their streets in their city right now. Um, you know, and that comes out, that comes, that comes out to like 65 million a year, and that, that particular city was spending 3 million a year on streets right now. Just to... That's the kinda, that's the gaps that we're talking about.
22:21 Chad
Y- you mentioned when you came back to North Texas, that was during the recession, and, uh, you, you said that N- Dallas, Fort Worth was just blowing and going, right? Like the recession didn't even stop us from these construction projects. But one thing-
22:33 Kevin Shepherd
Yeah
22:33 Chad
... that I know it did stop us on is the maintenance projects, because I was doing budgets for cities at that time. So d- what, did that gap widen during that time period?
22:42 Kevin Shepherd
Oh, yeah.
22:42 Chad
Like, we felt like we were doing great-
22:44 Kevin Shepherd
Yeah
22:44 Chad
... because we were still building stuff, but we actually were in- increasing that infrastructure gap because-
22:49 Kevin Shepherd
Oh
22:49 Chad
... we stopped maintaining stuff, and instead we just started building stuff.
22:53 Kevin Shepherd
Yeah. And I could... I mean, and this is, we, we talked when, when I first met you guys and we were getting into some of this, I, I was asking you guys some of these questions too. But, but yeah, I mean, the, the first thing, and we're seeing it right now with COVID budgeting too, right? I mean, one of the first things that gets cut is thou shalt not touch public safety. That's like, you know, although this new, this new kind of discussion is getting some cities to rethink, you know, a little bit of that. But, but it's always, you know, street maintenance is one of those, "Oh, we'll get it later. We'll get it later." You know, it's, it is the classic kick the can, um, you know, we'll do it later. And when y- what I've, what I hope we can get enough data at some point to, to start to really show and, you know, I don't wanna say predict, but start to, to look at is, you know, you hit a point in these neighborhoods where your, uh, your people, they're, they're living there and they're seeing, "Okay, my house is getting a little older. My streets are starting to crack. My sidewalks are starting to bust up a little bit." And, you know, there's a, there's a decision point as a homeowner that you make of, am I gonna reinvest in this home, in this neighborhood, or am I gonna sell, cash out on my home that's been escalating and, you know, growing in value? Am I gonna take that money somewhere else to a brand-new, shiny, new place? Um, and from the city side, you know, if you can't maintain the streets and the sidewalks, you're, you know, that neighborhood's gonna, it's gonna go. And, you know, and you hit this point that once w- it's, you know, the streets start to age and the wealth moves out like at the same point, and it just spirals. And, you know, that's what I saw in a lot of older, older places. So yeah, I'm, I mean, when I look at these maintenance gaps in cities, and, and we just focus on streets just to simplify itUm, but you see cities that are doing... You know, they've got a, they've got a $100 million gap, and they're doing a million a year, and it's just, it's not, that's... It's just not enough. And so you hit a, you hit a wave that cities are gonna have to... I, I don't know where the money's gonna come from, and this is my biggest, and we may get into this, but this is my biggest concern with the suburban model, is it's great right now when you're getting a great quality of life and new, new neighborhoods and new parks and new companies are coming to town. Um, but who's gonna pay it when that, when that maintenance comes due, what, what amount of people are really gonna be willing and able to pay that double, triple, quadruple property tax or other tax that it's gonna take to, to fix everything in the city?
25:19 Chad
I- is that a metric that y'all look at, um, reinvestment versus, um, like leaving? Like, do you look at a, a neighborhood, for example, and see h- how many permits do we have for remodels versus how many properties are being sold and people are moving out of the neighborhood?
25:35 Kevin Shepherd
We have not done-
25:35 Chad
Is that something that might have any value?
25:37 Kevin Shepherd
We haven't done that yet. Um, it absolutely would have value. I, I think in Texas, so many of our communities are still in growth mode that they're not quite thinking about maintenance mode yet. Um, you get to some of the older places. We're, we're working with Pasadena down by Houston right now, and they're, you know, they're an older kind of first-ring, uh, first-ring community out on the, the south side of Houston. They're, they're in full-on maintenance mode, um, and looking at how you can prioritize. That's something we are getting into, is how you can prioritize infrastructure investments, so CIP projects, which, which ones can you do and where can you do them and how can you do them in a way that will close that gap, you know, the, the most. Um, but I did, you know, I did see it. Memphis, uh, Memphis, Tennessee, is the one I'd like to point out. Um, they just did a, a recent comp plan last year, maybe two years ago now, called Memphis 3.0, and their whole approach was basically shrinking the city. They, they had extended, they had grown out too much. They didn't have the resources to, to maintain and serve it all, so they, they are shrinking, intentionally shrinking the size of their city to get it back to something that they can afford to maintain and serve. Uh, and then they're, um, they're encouraging codes and development incentives, everything for, for vertical development, so to go up. So the fastest way to close your gap is stop going out and start going up.
27:00 Patrick
The reality of it is, is that when I drive through client cities-
27:03 Kevin Shepherd
Yeah
27:03 Patrick
... one of the things that I really like to focus on, and, and we deal with a lot of suburbs, right? It just is what it is, and, and especially in Texas. Um, but you drive through these cities and there are little things that we could change. Like, and I say pleasantly plump because if you get a diet, you don't just go try-
27:19 Kevin Shepherd
Yeah
27:19 Patrick
... to do everything at once. There are some baby steps to get there, even when you're still in growth mode, right? And, and the one I always like to point out is I drive through a community that's got, you know, 70 by 120 lots or half acre lots.
27:34 Kevin Shepherd
Mm-hmm.
27:34 Patrick
And then I see a 33 to 36 foot wide road standard in that community, right? They've literally built an extra lane because their residential s- standard is, is wide.
27:45 Kevin Shepherd
Man, you are-
27:46 Patrick
We could start really easy just by changing some of our road standards so we don't have so much maintenance, right?
27:52 Kevin Shepherd
Uh, you just hit my biggest pet peeve of the, the intersection between my engineering background and all the fiscal work we do and planning. Um, how many suburban neighborhoods have you been into where the moms complain that they're, it's not safe for their kids to walk to the park or ride their bike because cars drive too fast? Dang near every one of them, right? Um, when we look at fiscal... I mean, I'll throw a number out for you. A, a number-
28:17 Patrick
Mm
28:17 Kevin Shepherd
... a quick number that we use is a million dollars for an 11-foot lane mile for concrete, right? So an 11-foot wide lane of, of concrete for a mile is gonna cost you a million bucks. Um-
28:29 Patrick
Mm-hmm
28:29 Kevin Shepherd
... we have residential streets that are, like you said, Patrick, 31, 38, 43, 47 feet wide in some places. Um, you know, and they're designed that way so that in the one-off scenario, you know, where, say, you have cars parked on both sides of the street and you need two lanes of traffic to get through and you need an emergency service, you know, um, vehicle to get through. So we've, we've built these standards to allow for worst-case scenario, um, without thinking about the fiscal, you know, the fiscal of how are we gonna pay for, for all of this stuff, or the quality of life for the, the people that live on that street every day. Um, you know, are they concerned about fire? You know, if my house catches on fire, do I want somebody to get here? Sure. Um, but if you ask me about the daily quality of life and, and safety in my neighborhood and you ask me about the fiscal of, uh, side of what I would have to pay in property taxes to maintain when a, a city builds those wider streets everywhere, uh, my answer's gonna change. Um, and I, I started asking this question in cities that we work with the fire guys. E- every city has an older part of town with narrower streets. And I'll, I'll say, "Okay, you know, if a house catches on fire in that part of town, what do you do?" And they say, "Well, we still get there. You know, we just, we'll plow over any car in front of us or whatever, and, you know, if we have to pay to replace that car, we will." Uh, and then I'll say, "Okay, the cost of that car or cars that you had to plow through to get to that house is much cheaper than your city maintaining 31-foot wide streets all over your city, a- and it's not even close." And then you start to see heads explode of like, "Well, we never thought, you know, we never thought about that." But it's again, it's, it's, it's kinda what's the real kinda-
30:10 Patrick
Mm-hmm
30:10 Kevin Shepherd
... point of your community and what are you, what are you, what are you trying to get at? And I get it from the engineering side and other reasons of why we've built some of these standards, whether it's building codes, street design. They, they were all done, you know, for good reasons, but we've just gone too far to where we're, we're starting to lose the, um, you know, some of the things that make our, our neighborhoods, you know, great. And, and again, you know, I, I think there's different people want different things, and that's something that we always try to sayBut, but we're building, we're building too much of patterns that aren't fiscally... They're not healthy, and they're not fiscally sustainable either, and I, I don't... We're gonna have to-- We're starting to see a, you know, a reverse, I think a reversal of that in some of the different kinds of neighborhoods that, that people want. Um, and there's city leaders, you know, guys, city managers, and planners and zoning folks and, um, and engineers, even engineers now that are willing to kinda look, revisit some of those standards, um, either citywide or at least in different parts of the, the city to get different, you know, different looks and feels of, uh, different neighborhoods.
31:16 Patrick
Well, the, the comment I've always made to a lot of our clients is, "Look, you don't have to rip the Band-Aid off all at once, right?"
31:21 Kevin Shepherd
Yeah.
31:21 Patrick
You can just start with the little corners. And, and the, and the reason I say that is you're not gonna go from one-acre lots to a high rise. That's just not, that's just not gonna happen all at once. Your politics aren't gonna get there. There's a lot of complicated to get there. But there are some really simple things you can do, especially as you build a new neighborhood, to make sure that you don't put yourself in the same position as you did with your old neighborhood.
31:41 Kevin Shepherd
Yep.
31:41 Patrick
Um, and so I think it's extremely important when you look at those engineering standards to throw a little bit more, like, revenue and, and return on investment logic into that to have that conversation.
31:52 Kevin Shepherd
Yeah, one of, one of the analysis we'll do is, is on street projects, and we'll just look at the return on investment, you know, of a, of a street, either current streets or, you know, or capital projects that cities are looking at and say, you know, "Just from a fiscal perspective, here's, here's the cost of the project. Here's the property tax, you know, the revenue that you're getting from the adjacent properties. And based on your current tax rate and the current amount of, uh, of property tax revenue that you put towards streets, you know, here's how long it would take to pay off that project." And I mean, we see 100 years, 200 years, and, you know, when you build streets like that all over your city, you know, there, there's just different ways we can show to kinda hammer that point home of, like, this stuff is gonna take... It's gonna take twice as long to pay off this street than the street's even gonna last. Um-
32:40 Chad
You're almost getting further behind with every project that you do.
32:43 Kevin Shepherd
A lot of cities are, Chad. A lot of every project they do, they're... I mean, they're using valuable tax dollars, and they're actually, they're-- When you build a street project, it's there. You're locking in that street and that pattern probably for, you know, another 20, 30, 40 years, um, when we talk residential, different residential patterns. When, when you're in a downtown or more of an incremental, a place where you allow different zonings and uses to mix, that street could be there a lot longer. But, uh, but yeah, it's, we see a lot of these residential, uh, I mean, you said it, third, third to a half acre lot, 31, 37 foot wide streets, cul-de-sacs, and it's just a, it's an absolute money pit for a city. You know, unless the, the other... We haven't talked about this, but you can get to a model where the, the price point, the, the home values are high enough that it does, it does cover that stuff, and that we have some communities, you know, around North Texas that are in that position. Um, but I, I would, I would argue that the percentage of people overall that are willing and able to pay for a half a million and up, you know, home, those are, there's not as many of them, you know, as there, as there used to be. So at that-- I get that question all the time is like, "Well, what's the average home value that pencils out and makes it all work?" And, and you guys know there's too many variables that that's, that's a loaded question. Um, but it is, it is much higher than people think it is. Well, so I, I wanna flip kinda for you guys a little bit, and I mean, you, you guys both get, you know, the city finance, you know, angle, um, a-as well, and, you know, as we, when we met, sounds like we were both falling each oth- following each other, you know, before, before we met. But, um, what, what happened with, with you guys in your situation that, that got you thinking about these kind of things? 'Cause, you know, for every one city manager, um, ACM finance director that I meet that, that understands this, I meet 10 or meet another nine that it, it's not, it's not resonating with them yet. So what did, what did you guys learn or see that, that got you thinking about these things?
34:44 Chad
Um, I would say, and Patrick, you're welcome to, to jump in here, but, you know, the city that we worked in, we don't, we didn't have a property tax. So everything that we did just by default was very keyed on are we actually gonna make money on this? And, uh, and in large part, how can this h-help our retail, uh, or, you know, our sales tax base? Um, we talked a lot about, uh, horizontal expansion and growth in order to, to get our population numbers up. Um, but you know, that didn't really bring anything to the table because those people were already shopping in our city, and we don't have a property tax, so it's not increasing our revenues. So there's not a whole lot of value add from a sustainability standpoint. Um, one big sorta thought experiment that, that helped both our staff and also our, our elected officials, um, was we, you know, we were looking at some, um, multifamily, some, uh, mixed-use developments, and I think it was, like 340 units, you know. It was about 1,000 people probably, plus some, uh, some commercial, uh, development along with it, and I think, uh, it totaled about maybe a 10th of a mile of actual roadway, um, ba-basically no infrastructure necessary for us to maintain. Uh, and we compared that with some neighborhoods that we had just finished, which had, uh, you know, 120, 140 houses, so less population, about 40 times more infrastructure to maintain. Um, and so, like, it, it's pretty easy. That, that's kind of extreme example. Uh, but the, you know, it proves the point, uh, that a little bit more density, even in a somewhat more rural community, uh, is gonna be more sustainable over the long haul. And so we started to kinda shift that focus and, and look at ways that we can develop a little bit differently because, uh, all the single-family residential property in that city is three-quarter acre lots. Um, so, you know, at some point something's gotta give if we wanna maintain a situation where we don't have a property tax indefinitely
36:44 Patrick
Yeah. For me, uh, similar experience. It was a little... And Chad and I really haven't talked about this, but we, we had a political issue come up in, uh, in our community where we had a really high-end community that was in our ETJ, uh, that wanted to annex, and we had a community that was to the south of us that kind of saw all the revenue we were generating, um, and, and they wanted to merge. And so we had these two things on the table kinda at the same time. And as a city manager at the time, I was of the standard, uh, thought process of bigger is better, grow, grow, grow, everything is great. Um, but we had that issue where we don't have a property tax. So we were gonna bring in this big gated community that has million-dollar homes in it. Um, but why is the question, right? Why take over their roads? Why take over their sewer? We already had their utility system, right? Um, and, and I kinda took the standard city manager approach, and Chad took the really financial, um, you know, we had to really-
37:49 Chad
Are you saying I actually changed your mind on something?
37:51 Patrick
You changed my mind on this, yeah. So, so th- I think that's really where, um, you know, I don't even think Strong Towns was a, was really a major thing at that point. I mean, this is like 2014. I hadn't read anything on it yet. But I started to do research. I started to look at this, and, and Chad's comment on these people were coming to our city anyways to shop. Why did we need to maintain the roads if they're out in the county? That's what really started kinda the, the mindset for me when I started to think about how should we build and where should we build. Um, and then we rolled into some strategic planning with our community, um, where we had a v- you know, still does today, has a very intelligent city council. Um, and we started to make the fiscal arguments to them about where we needed to go and how we needed to go there. Um, and, and that's, that's really where it changed for me. And then we got into the sales tax side where, you know, we, we kinda lucked into that. I mean, it, we had a community that had sales tax. We wanted to know where it was coming from 'cause we wanted to know what, uh, what could hit us if, if we lost it, right? We wanted to know what businesses we should be working with, if anybody was doing bad. So we got into that, and then we started realizing, uh, as we started collecting more cities, uh, and, and zag tax, we started realizing really quick, okay, we're, we're going after the wrong users. Like, we're going after a business that everybody thinks is, like, a great business. Go after that business. And, and we're like, "Well, wait a second. I can go get 1,000 square foot user that does the same amount in sales tax as that 40,000 square foot big box that's gonna be a problem for me down the road," right?
39:18 Kevin Shepherd
There you go.
39:18 Patrick
And so th- that kinda all mushed together about the same time and, and, and that's really where I think we started to think differently. Uh, but I give Chad a lot of credit for that. Chad would, Chad challenges, um, and sometimes, um-
39:32 Kevin Shepherd
Mm-hmm
39:32 Patrick
... vocally.
39:33 Chad
I like to play the contrarian.
39:35 Patrick
That's correct. Yes, he does.
39:37 Kevin Shepherd
Yeah, just the, just getting to know you guys a little bit, I can definitely see how this, uh, this interaction would, would work in the, the city, the city environment.
39:45 Patrick
There are many podcast conversations that have not made the airwaves. Uh, so but I, I will, uh-
39:53 Kevin Shepherd
No, I, I-
39:53 Patrick
Yeah
39:53 Kevin Shepherd
... in this, I mean, I think, um, you guys are onto something too with, uh, exactly the same thing with sales tax of there is, you know, there, there's a way for our communities to generate, you know, to, to be more efficient in terms of revenue generation, um, and the cost to, you know, to do that. And, you know, it does, it, it, it's residential, it's commercial, it's all, it's all a mix of things. But I think the, uh, you know, the, the thing I've seen that really helps move policymakers especially forward is being able to quantify and show these service costs that are coming and start to ask the question of, you know, at some point these costs are gonna come due and, you know, think about your, think about someone in your shoes 10 or 15 years from now. You know, do they, you know, who, who's gonna wanna be in that spot that has to go to their community and say, "We gotta raise taxes," you know, by double or something to... You know, so anything we can do, that, that's really what we've been trying to do with, with our podcast and our, the workshops that we do and, and a lot of the, the education work is to, to help give, you know, more data, more points, more images, you know, more stories, um, that, that make, you know, city leaders and, and council members more, more comfortable having this conversation and taking it, taking it to the residents. 'Cause, you know, I, I do see, um, you know, where, where you can have, where you put some of this analysis and these numbers and data in front of the community, you can have more, more transparent and more productive conversations about what kind of munity, what kind of community do you wanna be? Do you wanna be a disposable suburb that's great for 10 years and then you tank? You know, or do you wanna be somewhere that's, that's around and affordable? Um, you know, and, and if so, then there's all these incremental things, like you said, Patrick. There's all these little things that can be done year over year that close that gap over, over time and don't, don't require a huge, you know, huge tax, um, you know, huge tax increase.
41:51 Chad
Yep. Y- Kevin, you talked about, um, the property tax values per acre for smaller-
41:56 Kevin Shepherd
Yeah
41:57 Chad
... lots, um, and your analysis can typically be as high or higher per acre. We found the same thing to be true for sales tax. You can have, I mean, you can have a big 20-acre Walmart where, you know, three-quarters of it is used for a parking lot, but you can generate the same amount of revenue per acre in inline retail where some of that parking can be shared. You have, you know, less infrastructure that you actually need to support that development. And a lot of cities, they, they want those big splashy developments, but you don't necessarily need those in order to generate the same amount of revenue.
42:27 Kevin Shepherd
Yeah. I, I, I, I mean, it, it does tend to follow the same trend that with, you know, with property tax, the more, the more people you put in an area, typically the more, you know, the more revenue you're gonna see, and I think sales tax is the same way. You, the more people you put in an area, the more commercial demand you're, you're gonna have. And so, and when you look at, at, you know, community identity and placemaking and active living and, uh, those kinda things, I, I, I feel like, you know, if it's, if it's done right, you can, you can get a lot of those same kinda daily needs and, and the things that our, um, you know, our, our residents andemployers are looking for. You can get those in a different form that's, that's much more product- you know, productive in terms of revenue generation, and it's much more efficient in terms of cost to serve it.
43:11 Patrick
So I wanna end with this question. Um, what is the current fiscal shape during COVID of our cities? What are you seeing? What are we seeing?
43:23 Kevin Shepherd
Wow. Um, I, I think it's, it's been interesting because I'll t- ... In Texas, the online sales tax has been, I think for... And you guys know this probably better than I do, but what I'm hearing, that online sales tax has been a lifesaver for a lot of places of-
43:41 Patrick
Mm-hmm
43:41 Kevin Shepherd
... the everybody shopping on Amazon while we're holed up in our, in our homes and, and now the, the local municipalities can get that revenue versus the, the way it was befo- before. Um, I do feel like, um, a significant, uh, you know, a, a much, a much larger percentage of cities are having a, a more serious conversation about, um, just the, the fragility of the, the way they've been doing it, and reliance on sales tax and how f- quickly that could go away, um, and looking at property taxes. You know, property tax is the most stable, predictable revenue source, uh, for property tax states and cities that have property tax. I think that's the most stable, predictable source, you know, a, a revenue source a city has. Um, I have talked with some cities that, you know, they're not, they don't think they're gonna collect as much of the property taxes they have in past years, which, you know, most years it's 95% or more that they get. I think there, there's some worry that they might not get as much this year, but, um, there's, there's more awareness I think of just the fragility, um, and, and being able to have a, a balance between property and sales tax. Um, but I'd still... I'm not happy with how many cities are, are... don't know what their infrastructure funding liabilities are. I think that is the street, street funding in particular, residential street funding to be even more specific, that's just gonna overwhelm a lot of cities in Texas in the next probably 10 years, and we're just not planning for it the way we need to be.
45:15 Chad
D- do you think that this, uh, this sustainability issue is primarily, um, an expenditure problem, primarily a revenue problem, or some combination? Like, what, what do you think is the more approximate problem that cities are gonna have to deal with? Are they gonna have to find a way to, to generate new revenue, or are they gonna have to find a way to scale back their liabilities?
45:38 Kevin Shepherd
I think every city's a little different, but it's gonna be a combination. But I, I would say I think more cities are gonna be... They're gonna have the conversation of raising taxes or scaling back services, um, will be the first level. Um, and then beyond that, it's gonna be, you know, geographically. Uh, I mean, if you look at some older, older places in other parts of the country, there's geographic shrinking, you know, where they're contracting their service area. Uh, there's some cities that are just letting, they're intentionally letting cities or, or letting streets go back to gravel. They're just not ma- They've made a conscious decision to, like, "We're not gonna repave these. We're just gonna let them go." Uh, but I, I don't think we're there in Texas yet. I think if, if we, if we're smarter about, um, we still have resources that if we put them into the right things, you know, especially new development. Put new development in that is definitely not making it worse, right? Any, any new development should at least pay for itself, if not generate a bump that can help cover some, some of these other liabilities that we gotta catch up on. Um, I also feel like there's a lot of people out there that if you went to them, a- and you know, we've helped do this in some communities, but if you have a, a conversation with them and say, you know, "If, you know, would you be willing to pay for a street fee or, you know, a little bit of extra property tax if, if it can go towards intentional street maintenance program?" A lot of people would say yes. Um, they just, um, I don't think cities are, are communicating in the, in the right way and, and asking in the right way. Um, but it's, I think it's gonna get harder and harder. Cities are already, it's already hard to, hard to balance the budget, as you guys know, and it's just gonna get harder.
47:18 Patrick
Yeah, absolutely. Well, hey, Kevin, I wanna thank you for coming on, uh, ZacCast with us. It, it's been an awesome conversation. Before we go, though, can you tell people how to reach out to you, talk about your blog a little bit, uh, your, your podcast?
47:31 Kevin Shepherd
Yeah, yeah. Uh, verdunity.com, uh, V-E-R-D-U-N-I-T-Y. Uh, that's our main company, company site. The Go Cultivate blog is on there. Um, our podcast is called the Go Cultivate Podcast. Um, we've, uh, we've been at that for a couple of years now. Um, that's been, um, surprisingly way more successful than I thought it was gonna gonna be when we first started it.
47:52 Chad
It's a really good podcast.
47:54 Kevin Shepherd
Well, thank you.
47:54 Patrick
It's very good.
47:55 Kevin Shepherd
Yeah. Well, we had you guys on, so hopefully, you know, y- y- I know. But, uh, um, yeah, uh, that's, uh, and then Kevin@Verdunity is my, uh, my email. So, um, we're, uh, just like you guys, trying to, to educate, help, uh, help cities use data to make smarter, smarter decisions and, um, just increase awareness on this whole sustainability issue and, and how to close it incrementally over time with, uh, with the resources that you have.
48:22 Patrick
Yeah, I just wanna put one more plug in before we go, 'cause I, I just wanna talk about, you know, we talk to a lot of different cities about the fiscal analysis side, uh, and, and they start asking us questions about, "Well, how can we engineer it differently? How can we plan it differently?" You know, Kevin, you're always my first stop to ask questions to. You're always the first person I tell them to reach out to. Uh, I just think you're changing that game. You're a disruptor in the field. I congratulate you guys for what y'all have been able to do. Uh, I think it's a great thing for, uh, specifically where we work, for Texas cities. Uh, and so, you know, really appreciate the work that you guys are doing. I know it's not easy to be a disruptor. We're in that same boat. Uh, but, uh, obviously it's, it's a needed thing in, in, in our industry.
49:00 Kevin Shepherd
Yeah, I appreciate that. It's, um, it, fighting the good fight, right?
49:04 Patrick
Absolutely. Well, hey, hey, thanks guys, uh, for joining us on ZacCast. We'll have some information in the show notes for you guys, uh, if you have any questions about Verdunity or Kevin. Uh, and we'll see you next time.
49:14 Kevin Shepherd
Thanks, guys.
← A city used these easy steps to have a productive council meeting and you won't believe what happened next!
Sales Tax Gameday - August 2020 →
August 10th, 2020
Updated Oct 27, 2025
49:35
Podcast

related

for LLMs