Hey, everyone, and welcome back to the long-awaited return of ZacCast. I'm Chad, that's Patrick. How you doing?

I'm good, Chad. How are you doing, is the question.

I am amazing.

So-

Do you believe me?

No, not at all. 'Cause I actually can see you, unlike the rest of the listeners here. Um, give everybody a picture of Chad. He looks like he slept a solid three hours last night. He has a 12 o'clock, uh, shadow going on. He hasn't shaved in days.

This, this is like, this is not a 12 o'clock shadow. This is like a two-week shadow.

A two-week shadow.

Which is, which is, which is how sad it is, I-

Yes

... my facial hair growth. But yeah, so it's not that, uh, I got three hours of sleep last night, it's just the cumulative, uh, the cumulative effect of less sleep. So I, I... Before we get started, I'll just, I'll just throw out there, I was severely underestimating the, um, the challenge of that fourth kid, but I'll tell you why.

W-

It's because our, our third kid, we adopted him.

Uh-huh.

And so my wife wasn't recovering from pregnancy and childbirth, right? So, like, she could pick the kids up, she could go up the stairs, she could drive, she could, like, do whatever she wanted to do. So that workload was shared a lot more once the new kid was here. Well, this time obviously that was different.

Mm-hmm.

And so I'd forgotten how f- how few things that she could actually do in the short term, couple weeks right after giving birth. So i- it w- it ended up being a little bit more work than I remembered. But now we're kinda past that window, and, and, uh, it's, it's a little bit easier.

So are you sleeping through the night yet?

Oh, no.

Okay.

No, but, um, if, if we're lucky, we can get two interruptions, and then that second one is kind of at the window where it's, like, a little bit earlier than you'd like to wake up, but not super early, like five o'clock-ish.

Okay.

So it's not terrible.

So you can at least turn on, like, the news and see the first section of the news segments. Like, it's not-

I-

... 5:15 in the morning

... I'll turn on my podcast and I'll listen to my, my daily news podcast, my Up First on NPR or The Daily or whatever.

They're out that early in the morning?

Oh, yeah.

I didn't realize they were up that early.

I didn't either until I started waking up at 5:00 with a kid.

So I, you know, my Spotify, that comes on my, uh, my daily mix on Spotify.

Mm-hmm.

So I always usually listen to that on the drive. So, so I feel a little bit of your pain, but only for one night. So my son's ninth birthday rolled around. Uh, my wife thought it was the greatest idea in the world that we have a sleepover with some of his friends. So we have, uh, my son and four of his, uh, wildest and most friendly kids, um, that stayed over last night. And so I had my first experience of being that dad that we probably all had when we were kids, where I had to constantly go in there about every 30 minutes and tell them to go to sleep.

You guys, be quiet. Go to sleep.

Go to sleep.

Get off the couch.

Stop drinking Gatorade in the TV room. All those type of things.

They, they did it in the TV room?

Oh, yeah. I can't handle that. So Gatorade has to stay on the tile in this house. Shoes have to stay at the back door. I'm one of those... Y- you, you had those friends, right?

Yeah.

Were you that kid?

Well, so we only have one room with carpet, um, that's the, the movie room.

Uh-huh.

And so, yeah, there's no food in there. But everything else is tile, so shoes aren't that big of a deal. I wish they would take the shoes off, not for cleanliness, but because that way we could find them.

Mm-hmm.

Whenever it's time to, like, go to school the next day or, you know, get in the car, we don't have to spend 20 minutes looking for shoes. But there's a... You know how many shoes my wife has, right?

Yes, yes.

My daughter has about that same number. So there's a pile of, like, 50 pairs of shoes by the front door or by the garage door-

Okay

... that are all my daughter's, and it's like, "Okay, which shoes am I gonna wear today?"

So, so anyways, I, I got through the, the, the sleepover last night, but I'm working on about three and a half hours of sleep, and I don't think there was a single REM cycle that occurred at all last night. So, um, I think after the podcast I may go down for an afternoon nap. We'll see how that goes.

Nice.

Yeah. There's an awkward pause.

Well, that's an awkward transition. Let's jump in then. Uh, so we've got two topics today, since you've, uh, you've now interjected your light topic to the beginning of the podcast and totally thrown off our rhythm.

Yep.

Okay. So Chuck Marohn, uh, the founder of Strong Towns, he recently tweeted kind of a tweet storm late at night about a proposal for a national infrastructure bank. This is supposed to be, like, a way that we can cure all of our challenges with infrastructure. Obviously, there's an infrastructure bill that's been proposed, and, uh, one side wants a lot of money, the other side doesn't want quite as much money. And it seems like that bill is kinda dead, so a lot of people are saying, "Well, here's this other option to infuse the market with up to $5 trillion in infrastructure spending by creating a national infrastructure bank." So the idea is that, uh, that it would be seeded with about $500 billion from treasury bond buybacks and things like that, and that would essentially give people who sold those bonds shares in this bank, okay? And then, uh, that $500 billion would be repaid back to the federal government through dividends, yada, yada, yada, based on the interest payments. But the idea is that this could be leverage to provide up to $5 trillion worth of loan funds to state and local governments for infrastructure projects.

Correct.

The-

And what would the interest rate, what, what would the interest rate on the loan be? That's important to talk about.

The National Infrastructure Bank will create, uh... I'm sorry. The National Infrastructure Bank will charge interest on the loans equal to the benchmark treasury bond rate, plus points to reflect the borrower's credit quality. So it kinda depends on how good your credit rating is.

I'm going to look at what the treasury benchmark rate is right now.

Uh, it says, "Or a minimum of 1.6." So whatever the bond rate benchmark is or 1.6, whatever's lower. I'm sorry, whatever's higher.

So the-Yes. The 10, the 10-year Treasury yield spread right now is basically 1.47%. The 20-year Treasury rate is 2.10%. So first, now that we know that, and with all the city people that are listening to this podcast, it's important to know where rates are because we're taking bonds out all the time, right? So now, Chad, I want you to go into what are, what are your issues with the Treasury bank proposal, separate from Chuck's issues. A-and, and let's explain exactly what Chuck's, Chuck Maroun's issues are. He specifically basically is saying, "Okay, we're just gonna take out debt. We're gonna repay loans," just like you would to a bank, uh, yet a bank is not going to be looking at this like they would a private loan where there's a return on the investment, right? That's, that's the Twitter storm that Chuck went on. It's all based on we're gonna build all these projects, and there's no return on investment calculation.

That's one of his major arguments with our infrastructure project funding anyway, is that we don't look at the return on investment. But, uh, specifically with this one, in terms of this being a panacea for all of our infrastructure woes, yeah, we're gonna be taking out all these loans, and there's no... If you look at the projects that they're talking about funding, a lot of them have the same low return on investment that you would expect that might be funded through actual federal money, right? Like, the Feds having a $2 trillion infrastructure bill and then just sending that money to the states, whether in matching funds or something like that, where their return on investment that they're looking for is different than what the actual local is looking for from a return on investment, right?

Mm-hmm.

'Cause they have different economic goals. They're looking at GDP growth. They're looking at employment, things like that. Whereas a local needs to look at the actual local, uh, economy, and they just have different, um, they have different economic goals to achieve sustainability for your lo- for your city, right? So there's a disconnect there. And The Strong Towns Book goes into that quite a bit, so I won't really hit that. But I would recommend if you have... if that's kind of a new idea to you, you should definitely check out The Strong Towns Book, because he does talk about how that disconnect causes problems in terms of the priorities. But yeah, that's-

Well, 'cause there's a, there's a public need, right? I mean, ultimately, return on investment is one conversation. I'm not downplaying Chuck's Twitter storm on this at all. But I am saying return on investment is, is really not the same concern that I have with, with this infrastructure bank, or maybe what you have. Uh, it is a concern, but there are numerous other areas for me to shoot holes in this than, than just the return on investment argument.

Okay.

'Cause you get into the nitty-gritty of return on investment, you get into the nitty-gritty of, uh, public need versus return. S-sometimes there are projects that you have to build because there is a, a distinct public need to build that project. I'll let you roll into your...

Okay. So my biggest problem with this is the muni, the muni bond market right now is already $3.7 trillion. This would add an extra $5 trillion in lending capacity. What I see is that... or I guess my main question would be, are there cities with good to decent credit ratings that if they have the capacity to take out debt for an infrastructure project are not able to get a loan today? 'Cause I, I don't think that that is really... That's not a problem that I have heard a lot from, especially with low interest rates. I've not heard a lot of cities having trouble finding lenders for infrastructure projects if they have the debt capacity, and if they have the, the credit rating that would justify a loan. Have you?

No, not really. And I think what humors me the most about specifically this is that when you look at the interest rate, so if you're looking at the 20-year Treasury yield at 2.1% plus a creditworthy city, there are numerous cities in the state of Texas that I know of that are currently getting 20-year rates that are less than 2.1%.

Right. I mean, we were getting rates five, six years ago with no property tax that were just slightly greater than, like 2.9%, didn't we get on, uh-

Yeah, we got, we got two, we got 2.9. I think we got, like, 2.72 at one point. So-

Oh, the 2.9 that we got was a taxable note.

That was a taxable note, yeah. We did, yeah.

Yeah. I think we got, like, a 2.7 w- on a, on a local project with no property tax to back up the debt, you know, just on our own. And I mean, obviously that, you know, that's... it changes. Things fluctuate over time. You know, we're, we're looking right now, the inflation numbers that just came out was, like, 5% year over year. So things are changing, but I just haven't seen or heard of this major, uh, like, liquidity problem in terms of getting debt to do these projects. Like, if a city has a good credit rating and can support the debt, that they've had a problem finding a lender. So to me, the problem with this is not so much that, uh, it would exist. It's just that do we have another 5 trillion in debt capacity at the s- at the local level for this bank? Because these are loans, right? These are not-

Mm-hmm

... these are not matching funds where the federal government is assuming the debt responsibility, quote-unquote. Right?

Correct.

Like, do, do we really assume the debt responsibility when they, when they run trillion dollar deficits every year? You know, that's, uh, that's an open question. The, the other issue is obviously that, that these, the projects that will be funded will be determined by some oversight board of this bank, right? So again, you get into the issue of differences between federal priorities on infrastructure and economic growth versus, versus local needs and having to make those decisions. Whereas if you are out on the open market, you know, you can have banks bidding on your debt that are more local, so they have a better idea of your local economy and what is worthy and not worthy of funding, right? So the rates that you get are more specific to the project that's being funded in addition to your overall creditworthiness, right? And that's one way that the market can help decide what projects are worth doing.

Mm-hmm.

Because if the market is looking at your, your loan proposal or your project proposal-And they don't see the return on investment, they're going to expect a higher return for their, their money, right? So the interest rates that you're getting when you're going out for debt, especially when you have, uh, the ability for local lenders to, uh, to play a part in that, in that bidding process, that can help, uh, impact the prioritization from... at a local level. Whereas you don't really have that mechanism with a national infrastructure bank. Now, I don't know how big of a deal that, that component is, but I think it is worth mentioning.

For me, it doesn't make a lot of sense just from a standpoint of if communities, cities, states don't have the debt capacity to go do those projects now, why do you think they're gonna have the debt capacity to go do those projects when the interest rate is actually a little higher than what they're paying today?

Right.

I mean, it, it's... To me, that's a, a big glaring problem with the proposal. The, the second problem with the proposal, uh, that I see is, is, is it's a federally backed infrastructure bank, yet it doesn't work like the traditional infrastructure banks work. And, and I'll give you a prime example. In, in Texas, we have the Texas Water Development Board, which is basically a big water and sewer and drainage now, 'cause we, uh, have a constitutional amendment for that, infrastructure bank. And the way that it works is, is it basically takes that treasury rate, and then there are funds injected into the system that allow for debt to be taken out at reduced rates, right? So, and it has some federal funding in it as well, um, but i- i- in the state revolving fund that you go and get debt on, if you're gonna build a huge water transmission project that's gonna bring water to a s- a, a, a ver- a huge region, right? You go and you take out, say, $30 million at a 30-year debt, and right now in the world of subsidy, you're paying, like, .10% interest. Now, we know that if you take out interest in the cost of a project, if you're able to, to create a subsidy to take out the interest, then you basically can build almost twice the size of the project, right? 'Cause over the term of the project, the interest at, at 2 to 3%, 2.5 to 3%, the, the interest cost on the project is gonna be about double the principal, right? Or it's gonna double the cost. If you do a $4 million project, by the time you're paying interest over 30 years, it's probably gonna be about an 8, $9 million project.

Yeah. It may, may not be quite that much, but it's significant, right?

It's sig-

Yeah

... significant. So using an infrastructure bank to subsidize the interest rate, right? Or to subsidize the interest rate in maybe a smaller community that doesn't have the creditworthiness of another community, or to, to look at these things from a, a localized level where locals are making decision on what the best thing for their projects are, um, is, is gonna take you a lot further than trying to basically just set up another quasi-government, free market backed bond system. It, it just doesn't make sense that we're gonna open a whole new bond market that performs worse in an interest rate standpoint than your private bond market does today. Now, maybe there are, like, the Detroits of the world, not picking on Detroit, but they are one of the bankrupt cities, right? Maybe there are the Detroits of the world that just can't go to that bond market, and so they need this infrastructure bank, I don't know. But that doesn't occur in Texas. I mean, you have public improvement districts, municipal management districts, MUDs, you know, triple B unrated debt that have no problem going to the market in the state of Texas at all.

Yeah, and if the problem is that there's a handful of cities that struggle to get debt, you can address that issue more directly, right?

Well-

Like, this is something that something that we're actually kinda writing about right now, uh, for, for a roundup, but, like, there's a tendency, everyone's probably had a manager where, you know, you have, like, um, a small rare incident occurs, and then the reaction is to create this whole infrastructure of policies.

Mm-hmm.

So that, that small thing that has never occurred before and is likely never to occur again will for sure never happen. But now you have all this other, all this other stuff that you have to, uh, just sort of cruft that is now a part of your organization. Whereas, you know, you could just say, "Hey, don't do that again. And if you do, you're gonna get punished," right? Like, you don't have to have all of this baggage of, of a policy. And if the problem is that there is a handful of cities that are having trouble getting debt, there's probably a more direct way to remedy that problem versus creating an entire new infrastructure bank that's offering interest rates that may or may not even be competitive with the open market for everybody else.

I think there's a big elephant in the room in this conversation, though, and that comes into play when you look at the difference between federal transportation policy and state and local transportation policy, right? That's a... There's a big difference here. If you look, um... If you look in the tea leaves of this proposal, you're gonna find a lot of conversation about transit and mass transit and the funding of those projects. And the reality is, on the local level, there's just not been a ton of support for mass transit funding. So to me, it looks like trying to subvert the local direction it's going. Now, the, the problem that I have with that is, is I look at communities that have had serious conversations about mass transit and have been criticized on a federal level for it. I, I'm, I'm, I'm gonna point one out a- and they're not a client. So I'm gonna point out Arlington, Texas, right? Arlington is one of the largest cities in the nation until recently, without mass transit. So they don't have bus service, they don't have rail service, they really don't have any mass transit at all, um, and they're a significantly large city to not have any type of mass transit. Arlington fought the mass transit model, one, 'cause they didn't wanna give up some of their sales tax, and two, because they just didn't believe it was an efficient model. They didn't like it. They thought the cost was substantially higher than the demand, and they, they thought that they could fulfill the needs of their residents differently. So Trinity Metro, which is in Tarrant County, is the big busing provider that's here, uh, and they serve Fort Worth and some other areas, really wanted to get into ArlingtonAnd Arlington voters just continually over and over and over again said no to the additional tax rate necessary to allow Trinity Metro in. But they still wanted some options for people to get transit. And so Arling- Arlington went to the drawing board. They tried, you know, automated vehicles for short haul. They've tried a, a... you know, a, an Uber partnership at one point. And finally they've landed on this partnership with Via, uh, which got a bunch of national press probably two to three months ago. But they landed on this partnership with Via, which is basically like a, um, a, a, a set rate transit, direct transit provider. So Via picks you up at your house, not a bus stop, right? Takes you directly where you need to go in Arlington, and then they basically have a, a, a system that's set up that shows, you know, hey, uh, if you go to this location at this radius, it's gonna cost you 12 bucks, 15 bucks, 20 bucks, whatever it may be. I think it actually caps at, like, 10 or 15 bucks. Um, but then you can have a Via card as well. And this is costing the city of Arlington, I, I believe if I look again, it's costing them less than $10 million a year, right? And Trinity Metro would've cost significantly more, and the ridership would've been significantly less. So-

Yeah, it would've cost them half a cent on their sales tax rate.

It would've cost them half a cent on their sales tax rate, and, you know, that, that's a lot of money in Arlington. But the reality of, uh, of this is, is that Arlington came up with a local solution to a local problem, and this infrastructure bank looks to me like it's a national solution to a problem that locals and state officials may not actually think are actual issues.

Yeah, and the other question is, so kinda getting a little bit more closer to, or a, a little bit closer to Chuck Marohn's argument. You know, we, we get these reports every year about the state of our infrastructure and how much is needed, and it's, like, some absurd amount of money that's needed. But a lot of that is, is new infrastructure, right?

Mm-hmm.

When we're already not taking care of what we have. So I think there's a legitimate question about do we actually need $5 trillion in additional infrastructure spending when that money is focused on the things that we're focusing on when we talk about infrastructure at a national level. I think at the end of the day, the return on investment on, on the maintenance side is a lot more lucrative for local governments. But that's probably not gonna be the type of thing that's funded with an infrastructure bank like this. It's, it's not really the kinda thing that's funded with, with federal infrastructure bills, and there's no reason really to think that the priorities would be any different.

So I love the Texas Central High Speed Rail project in Texas personally for two reasons. One, it is going to be able to take me to Aggie baseball games and bring me back home on the same day. And two, it is pursuing and going to be privately funded. The project itself is going to be sustainable and privately funded. It's gonna connect Dallas, Houston, Arlington, Fort Worth, and there's enough ridership there, just like there's enough ridership on Southwest Airlines to fund Southwest Airlines, for that to be a profitable project. So if they get it off the ground and they're able to go to the funding round and get everything done, then it shows, hey, there's a demand for this. We should have it. And people will pay for it. I just think in the transportation world, that $5 trillion of additional projects, there's gonna be a lot of unnecessary bridges to nowhere. A lot.

It took an awful lot of restraint not to make a snide comment about how the Aggies aren't even playing baseball anymore.

Uh, big coach hire.

Just wanna let you know.

Da, da, da, da, da, da, da, da. A big coach hire in College Station. I don't know if you... Have you paid attention to that, that we hired the TCU coach?

Yeah, you took TCU's coach.

Yeah, so pretty excited. Texas couldn't take a TCU coach for the life of them, but we got one.

Well, Texas is still playing right now.

That is true.

We are hosting a super regional-

They are still playing

... by the way.

Yes. That's, that's outstanding for y'all.

So South Florida-

Is Texas Tech still in it as well?

I think so. South Florida's coming to Austin, and the best part about that is that there will be no horns down from anybody because they have co-opted our hand sign.

All right. Next topic.

Next topic.

Next topic. Chicken Little.

Since... Yeah, since we're, uh, kinda doom and glooming here on that one. So at this point, even though with, with businesses asking non-vaccinated people to still wear masks here in Texas, um, and if you go into a business like that, you would be under the impression that somewhere on the order of 90% of Texans are fully vaccinated. Uh, we know that number is actually closer to about 40-

Mm-hmm

... uh, percent, but things are reopening. Case loads are dropping. Uh, you know, the, the outlook is, is getting better economically. Sales tax for local governments was up 28% year over year for the June allocation. They were up 30% year over year for the May allocation, and I think that we should probably talk about that at some point because those numbers-

Mm

... are ridiculous.

They are.

Um-

We need a couple more months of data, though, to really-

Yeah

... be able to tell people what's going on.

But in light of that, we thought it might be interesting to kinda go back and look at some of the initial reactions to the outlook for COVID when everything first hit the fan. Uh, in, in particular, there was a GFOA piece that was put out at the very onset of the pandemic that was extremely drastic in terms of how cities should respond financially. You wanna hit that a little bit, Patrick?

Yeah, so GFOA in March of 2020, so basically in, at the beginning and as things were shutting down and businesses were closing, GFOA released a report, um, that has since been updated, by the way. It was updated, I believe, in June or July of 2020. But they released a report that went into details about cities and cashflow, and how in order to weather this storm that we were about to go through, cities needed to be cash heavy. And in order to be cash heavy, they gave a list of recommendations of what cities should do to be and remain cash heavy.Right? And so let's, let's roll through some of those recommendations. Um, and I, I, I'm gonna hit the top line. But one, number one on their list, reduce personnel cost. Um, th- and they actually say, "This is the biggest area of expense for most governments, so serious retrenchment effort will have to address personnel cost. Reduce your capital spending. Reduce materials or contractor cost. Create more advantageous inflows and outflows of cash." Basically that means don't pay your invoices on time. And last, get new resources. Uh, and, and those, you know, are, you know, resources for additional revenue. So go find a way to get more revenue, uh, for your community in the midst of an economic downturn. Um, so, so that, that kinda runs through it. We can go into more detail. But what happened when this came out is we got phone calls, right, Chad? I mean, immediately we got responses from our clients who were asking us, you know, "How bad was this gonna be?" And, uh, "What, what should we do and what, what should we look at?" And, and we just said, "Hey, we all have reserves, we all have time, you're all responsible. Let's give it some time. Let's look at what's going on. And in the meantime, we will try to do some real world live analysis to give you some comfort level over the next 60 to 90 days as data rolls in." And so that's what we did. We built, um, you know, basically like the live platform where you could, you could see how busy so- you know, like your top 15 or 20 taxpayers were. And we basically figured out that people may not be going inside these stores, but they were still there, right? They were still ordering things. And this is before we knew that there was just gonna be a huge uptick in consumer demand that really weathered the storm for us. But we were able to tell that, you know, hey, most communities were not gonna be down in like the 30%, 40% range. They were gonna see single digit drops, and that's what we ended up seeing, uh, over the next couple of months. So I, I think it's important, Chad, to talk about what happened in 2008 and how that impacted cities long term and with this GFOA example of just saying, "We, we have to do it now. We have to be draconian today and right now."

Real quick, because we actually just ran through some of these numbers with the 140 or so cities that we work with, um, for whom we had data going all the way back to 2019. So the 12 months from March 2019 to February 2020, those are the, the, the months where the sales occurred, okay?

Mm-hmm.

Not the months when the allocations occurred. So we kinda normalized it for that. Comparing that 12-month period to the following 12-month period, which was the 12 months during the pandemic-

Mm-hmm

... retail sales tax among those cities grew by 13%. Now, we did have a dip during those first couple of months.

Yep.

But across that 12-month period, if you had, if you had like kinda s- been sitting back, you know, 15 months ago and said, "Hey, retail sales over the next year are gonna grow 13%," I don't think that anyone would've taken you seriously. To just assume that because of this pandemic that they were going to drop by 13% is, it's just, it's ... There's a human nature, uh, that kind of gravitates towards worst case scenarios and the sky is falling, but the problem with it is that tends not to bear out in reality. Like what actually ... If you ... Like the worst case scenario is literally the worst thing that could happen, right?

Mm-hmm. Correct.

And facing what looked like, you know, a maybe two to three-month hard shutdown, uh, followed by a, a long period of difficulties until we got vaccines, like what was the actual worst case scenario in that, in that situation? Like, I mean, the worst case scenario was probably '28, 2008.

Correct.

Which, uh, was a, a, for locals, was a short blip in sales tax growth and a hit to property valuations. Well, we knew that property valuations in Texas weren't going to take a hit. Now, they have in some places. Like New York is struggling right now because New York has a ton of office commercial -

That's correct, yes

... property that is, was for a year une- you know, unable to be leased, right? So like that does have an effect on property values. But Texas isn't New York City, and uh, so there was no, there was not really a concern that in this short window when property values are rated on January 1st, so we were already past last year's tax year, and you're only really gonna have this January 1st, 2021, uh, tax year where there might be a pandemic effect. But what we actually happened, had happen was like hordes of people coming to Texas, right? So now the property values are just skyrocketing. So like there's no property tax impact from COVID, at least here in Texas. And people still had to shop. They still had to do ... They couldn't maybe go to a store like they used to, but they still had, uh, they still had things they had to buy. And what turned out to have happened was that it ended up not being all that bad. And you can see across the country that states all over the place are having record surpluses right now. So all this to say on my end is it's very important not to get into a Chicken Little mindset even when you're faced with something extremely terrifying and unknown like, like coronavirus. And to have the imprimatur of like a GFOA going out there and saying that you should immediately be doing all these draconian things is just really, it's not helpful I don't think.

Well, I, I think the bigger concern-

I don't know. Maybe I need to go back and kinda re- and restate that whole section, but ...

Well, no, I think it was pretty good. I mean, I, I ... But to sum it up, you have the preeminent finance organization of government officers in the United States-That doesn't actually look at the data before they make a recommendation. They go get a couple of folks, one of them's a PhD. It's literally just-

It's just academic

... this is what you need to do now. Though it's just, it's literally academic. It's, it's not what is actually occurring in cities today. Not at all. I mean, I had two conversations with cities that are not clients of mine that did salary reductions and sal- and salary freezes, right? That I picked up the phone and I said, "Are you sure you wanna do that? W- why would you say that?" Because we're looking at the data. I'm looking at how busy your Walmart actually is when I look at cell phone analysis. Your, your numbers are not gonna be down that long or that bad where you need to actually make adjustments to the lifestyle of your employees or to your service levels. The bigger issue is, is we drop service levels at a point in time where p- people probably needed better service levels.

They needed it more, yeah.

Correct. So we have a responsibility as a governmental entity. That's a fairly conservative guy saying that, okay? Especially when we're in a pandemic, that we don't reduce service levels. Uh, and that we stay involved in the areas that we need to stay involved in, instead of worrying about the worst case scenario, the sky is falling. And, and that, that's my concern about what came out. It, it, the same thing happened in 2008, right? You had cities in Texas that still have not recovered from this where they had massive layoffs in 2008, and it was like a five-month blip. And in the worst cities it was like 14-month blip, right? But it still wasn't huge reductions in revenue. It was still manageable, less than 10% on most cases. I just, it in my concern. Now, I will say, even we did not think it would be as, as light as it has been, okay? Uh, we did analysis for a couple of different cities, a lot of different cities, where we basically did a COVID analysis of, hey, a, a probability analysis of where your sales tax could go, right? We don't give worst case scenarios. Typically, we like to give a probability analysis and allow you as the client to make a decision on, uh, on, on-

Your comfort level with the risk that you have.

You're... Correct. Your comfort level with the risk that you have. But in that analysis, one of the things that we have to do is we have to set confidence intervals, and I'll, uh, we didn't prep for this, but I'll remind you of the conversation that you and I had on one client, and it was also happened to be the client that we got the most wrong on this. But I looked at the data, I looked at the live traffic information, the cell phone analytic data that we had for this, uh, this municipality, and for some of their larger retailers, I actually put their confidence intervals significantly in the positive, where the median, you know, when you ran 1,000 simulations, the median probably would've fell in the positive zone. And you and I talked about that and we're like, "Yeah, but it's COVID." Like, "Can we really be a median in the positive?" And so we made adjustments. When it, we provided that, they were, I think we provided they were gonna be down 2 to 3%. They ended up being up, like, 11 or 12%, right? We basically adjusted ourselves out of our own analysis on that, because we, we thought to ourselves, "No way in COVID is somebody gonna be positive." And-

Yeah. And so what we did there was we, we did two things. One, we, we shifted the overall window down a little bit, but we also made the window bigger, right? 'Cause-

We made it wider

... we're trying to, we're trying to set our 90% confidence. We're 90% sure that whatever occurs, we'll be within this range. And I think they were probably still within that, the, the confidence interval range.

Mm-hmm.

Um, but it was at the very high end of that of that range.

Correct.

Is what they actually-

Yeah

... come to, came down at.

And, and we just gave everybody the secret sauce over a podcast. I mean, we only charged, like, 8 to $15,000 to do these analyses. And, and honestly, we've had cities that have called us in the past and said, "Well, you know, what are, what are y'all doing and how do you do it?" And we've actually just sent them our spreadsheet, uh, and, and our behind the scenes, you know, sausage-making on it. But the reality is, is that, uh, there was still a human interaction there that was somewhat more negative than what the actual data was showing. So I'm not just calling out GFOA and saying, you know, they're the only ones that did that. I mean, we did it a little bit, but the reality is they didn't look at any data. They sent that report out originally-

In March

... in March.

A week after Texas shut down, is when I, when someone sent it to me.

Yeah.

Yeah. And the thing is too, there's a lot of unknowns at that time, but cities also have fund balances for that express purpose, to weather those storms. So I mean, sure, if you have vacancies, maybe you don't fill them, right? Get some salary savings. Uh, if you have, at that point, it was in March, right? So a lot of your summer road projects haven't happened yet. Okay, so maybe you scale back on those a little bit. That's gonna end up costing you over time but, you know, when you're faced with something like COVID, maybe cutting your, your road maintenance projects in half for one year is a decent option for weathering that storm. What I saw in 2008 was that unfortunately, a lot of those types of cuts became permanent, and that was a big problem for those cities that, that, that happened in. You know, tw- 2008, 2009 happened and, and street budgets got cut in half or more, and then they started growing by their normal two, three, four, 5%. Like, that money did not go back to the street funds. It went, uh, it went other places.

Correct.

It went to police and fire, but you know. It went to other places, and so it took, like, four or five years before the city fi- so those cities kind of finally realized, "We never restored this funding, and now our streets are falling apart." So you have to be careful if you're gonna do something like that, that it doesn't become permanent. Um-

Right

... but that is a huge pot of money that in an, in, in a really, really bad scenario is an option for temporary reduction in services that doesn't affect the social services that people would need in a pandemic, that doesn't affect-... uh, your existing employees, um, especially when, when there's, when there's an unknown like that, it's just, it just makes sense to wait until you have more data before you make a drastic decision.

Well, there's that, and there's also, and, uh, one, two things. I'm not a financial advisor, and I'm also not a motivational speaker. But if you're gonna open yourself up to the negative, also open yourself up to the positive.

Wow, Tony Robbins here.

Little, little bit of Tony Robbins. And the reason I say that is I, I had a couple funny conversations as we were going through some of these analysis and, and one of those was, was actually with a staff member in the city of College Station. And the conversation I was, I was having a conversation over discount tire. Um, and if I'd opened myself up to really that conversation long-term, I would have, uh, bought stock in Michelin. Because the reality is cars will still need tires. And just because people don't wanna walk into a place to get a tire, they're still driving to go get food somewhere, and they're still dr- they're still somewhat driving. They're gonna need a tire at some point. And so what do we have now that we're, you know, a little bit in the post-COVID world? A tire shortage, right? We have a shortage of everything that we didn't buy for three months or four months. We're now trying to catch up to that consumer demand, whether it's tires, lumber, um, you know, fiber-

Steel

... steel. It, it doesn't matter. We, the reason is is 'cause our system was set up to provide a monthly demand. We didn't have it for four months, so we didn't sell it, so we didn't manufacture it, and now all that demand is whipped back, and they want that four or five or six months that we missed of demand back. And, and I saw it a little bit, like, from a personal standpoint, that's why I say I'm not a financial advisor, but I did buy AMC stock at its bottom when... 'Cause I figured after COVID, people are gonna go to the movies. I bought Royal Caribbean. People are gonna go on cruises again. They're gonna wanna go back to Disney, right? Those things are going to come back in, into the, the fold and into the mix of who we are. So my comment is, is don't just look at the negative. Look at what the positive is going to be. I don't think we would've predicted 32% or 28% increases in sales tax post-COVID. I, I'm not, I'm not saying that at all. I'm just saying we could have at least said we're not gonna have 40% drops in sales tax.

Yeah. E- every single city that we looked at, uh, in detail, when we provided, whether it was just a, uh, a projection of the impact of the closures or a, a full-on sales tax forecast for the current fiscal year, every single forecast that we provided was significantly rosier than what the city was thinking.

Yeah.

Like orders of magnitude more optimistic. And in many cases, we still tended or ended up being more pessimistic than what really happened. There are some cities that were hit harder by it, like, you know. That, it will happen every now and then that, uh, that, that worst case scenario will come closer to truth than, than is normal. But generally speaking, it's the worst case scenario because it's extremely unlikely to happen. Like, the worst case scenario and the best case scenario, those are, those have like a .0001% chance of happening. So reality is somewhere a lot closer to, to the median. Um-

Worst case scenario is in the tail of the normal distribution that you cut off.

It's in the extreme tail, yes.

It's the extreme tail.

Yes. Yeah.

Right? I mean, and, and to put that into perspective, when we did those analysis, we were within just a couple of percentage points on almost all of them on our projection from what actually happened, except for one. And even on the one where we were wrong, and we were wrong in a good way, we thought it was gonna be lower, it ended up being a very positive number. But even in that one when we, uh, we got on our call to show them the report, walk through the report with them, they still thought we were too rosy on that report, right? And so they were all selecting the worst case scenario in that group, and our worst case still was not, you know, anywhere near what GFOA would consider a worst case to be-

Yeah

... because we were using real data.

But it's not just finance, right?

No.

This chicken little-

Let's go

... this chicken little is, it, it's, it's a human tendency, and it happens a lot in local governments. One example from just a couple days ago, uh, I was listening to the Yolitics podcast, which I think-

By the way, great, great podcast. I like it, but it's a, it's a DFW-centric podcast.

Yeah, I think it's like WFAA or, or whatever. It's, it's a Texas politics podcast. And, and so they had a, uh, they had a couple police officers or law enforcement adjacent people. I don't remember exactly what their roles were. Uh, they were at least former officers for sure. But they were, they were there to talk about the impact of the constitutional carry bill that was recently passed and signed. And if you were to listen to that conversation, you would think that this, whatever your opinions on it, like, I- it doesn't even matter. But you would think that this bill is going to result in completely flooded 911, response times that are gonna be doubling or tripling, and a, a need to, like, double the number of police officers because of the, because of what's going to happen because of this bill, right?

Mm-hmm.

Like, this is a worst case scenario that because of constitutional carry, everyone's just gonna go around shooting each other, and dispatch is gonna be overloaded. Every w- every officer is gonna be responding to these calls all the time, so your, like, your normal calls are gonna be, they're gonna go unanswered because of this. And that's just, whatever you think about it, that's just not a realistic scenario. Uh, I remember one time, real quick, I'll let, and I'll let you jump in. One time, I was budget director for a city. We were in the, we were in our council budget hearings, and the police chief came up, and he was giving, he was giving a talk. There, there had been a question that was asked about, uh, late night alcohol sales. At the time, the city had two-Businesses that had after hours alcohol sales, two restaurants that, that sold alcohol till 2:00. That's all that this city could support, right? And so obviously, you know, that generates a certain number of DUI calls, it generates a certain number of, uh, what, it, it generates activity for the police department to be sure. But the argument that was presented was, "Well, this is the, this is the current workload because of this, and when we have 20 of them, we're going to need an extra 20 officers, more shifts, more dispatch. We're gonna need all of this other stuff." And maybe that's true, but you're, that's 15, 20, 30 years down the road, right? If you can currently support two restaurants that have late hour or late alcohol sales, you can't support 20 of them. Like, there's only so many people who will patronize these restaurants. So yes, it may technically be true that when you can support 10 times as many of these restaurants, you will need additional officers, but that's such a Chicken Little scenario because it's, it's so far into the future that it's almost not even worth considering right now.

Yeah, I agree with all of that. I'm, I'm really not gonna add onto it at all. I'm just gonna say, and I don't wanna regurgitate the podcast, but for the city managers out there and for the future city managers, go listen to that Y'all Tics podcast. We'll, we'll put it in our show notes so you can listen to it because, um, Chad and I talked about it kind of back and forth after we both listened to it. It just kind of tells you why, uh, city manager and, and police relations tend to be so strained. To wrap this up on your mindset, there's a quote in this Y'all Talk, Y- Y'all Tics podcast. Uh, Manny Ramirez is the president of the Dallas Police Officers Association. He's being interviewed on this podcast and, uh, he's upset about the law passing, and his quote is, "When you're going to pass a law, don't you think you should have the police officers telling you what that law should be?" And folks, that is a direct example of point of view.

Yeah. I, I, I think maybe he, like to give him the benefit of the doubt, maybe he wasn't speaking generally. Maybe he was speaking more along the lines of when you're going to pass a law like this, maybe that's-

I'm gonna leave-

... the most charitable interpretation.

I'm gonna leave that up to the listeners 'cause he kept digging that hole for another five minutes on that podcast. So

Yeah. When I heard it, that was my initial reaction too, I was like, "Really?"

Yeah. So I mean, it's, it's, it's kind of why we have, you know, distinctly a separation, um, of powers, uh, here. It's, it's why your political officials are the ones who make the decisions on what the law should be, and those enforcers are separate. Um, so-

Well, not even just the enforcers, but there's a, there's a disconnect between quote experts and policy makers. The one thing that did irritate me is he kept saying, "You know, you have a doctor that's making this laws. Like, you have a, you have ... You go ask the doctor what he thinks about this." Like, that's really dismissive because that doctor was elected by the people to make those decisions, and you have expertise in one very narrow field of life, and that expertise does not necessarily make you an expert in everything else or anything else, or certainly not the trade-offs that have to be made when considering public policy, right? Like-

Correct

... if you ask a fire marshal, uh, what the safest option is for, you know, preventing fires to schools, they would tell you to, like, close all the doors and, like, you know, do all this. Like, you deal with that, we deal with that in planning all the time when you have a fire marshal come in and tell you that you need to have, like, all of this other infrastructure to manage the fires when it's not, it's not required by the code and it's not really necessary. It might be nice to have, but from a cost-benefit standpoint, it doesn't really make sense. But their job is to look specifically at fire safety. Someone else's job is to make the decis- to take that information and weigh it against everything else, and then make a decision on it.

And, and that's why your building codes are so terrible by the way, um, because a fire marshal's made a decision that we now need to fire block open air hallways. Very few people have died in open air by the way, so just ... But that being said, uh, that's why city managers are generalists, right? That's why city managers are big picture people is because we, we have to take the information that's given to us by people who work in their lane, and we have to take it from that lane, and we have to put it in the spaghettis of the freeway and figure out the direction from a policy standpoint that we need to recommend, or at least show to the policymakers. That's why a city manager is so important, 'cause we can package that information in a way that's more generalist, that's more real life, that's not Chicken Little.

It's a tough job.

Very tough job. And that's it, right? What else we got?

That's it. I think since you al- well, you already talked about your, your sleepover, so my, my eldest calls it a spendover.

A spendover.

That's his terminology.

I like that. I like that. Has he, does he have sleepovers yet, spendovers with his friends?

Uh-

He's a little younger

... he's a little bit younger. Uh, most of his, his sleepovers are with grandparents. Um-

Okay

... we, uh, during COVID, we took a little trip out to, uh, Great Wolf Lodge in Grapevine-

Mm-hmm

... with one of his friends. So, like, we had a room, they had a room, and they did a spendover. His friend came and stayed with us one night, he went and stayed with the friend one night. But no, he, like, he hasn't gone over to a friend's house yet.

Yeah, I can't wait till the weekend where both of my kids have friends that they go stay at and I just get the house by myself. That's gonna be amazing. That's, that's gonna be very enjoyable. So, but hey, it's Friday. Uh, we've got a lot of friends at TCMA. We've got a couple slides and a presentation at TCMA that will be shown this afternoon, uh, looking specifically at what you talked about. Um, and so hopefully we'll get this thing posted. I don't know if it's gonna be this weekend or not. Maybe we can catch people on their drive home. But, uh, I hope everybody's enjoying their time at Professional Management, getting back to that first conference. Pretty excited.

Yeah. Sorry we missed you, but I hope you guys are having a good time.

Yeah, absolutely. So let's wrap it up. Thanks, Chad. Appreciate it, man.

Hey, thanks, Pat.