Hey, everyone. Welcome back to ZacCast, the official podcast for local government nerds. I'm Chad. That is Patrick. Patrick's been on vacation. Nice to see you back.

It's, it's been a long vacation, too, I have to admit to everybody. It's been a couple weeks.

It's a couple weeks.

Yeah, it was. Had some baseball, did a little beaching. It was fun. And, uh, yeah, I'm glad to be back. Chad leaves in just a couple days, so we're trying to squeeze a podcast in before he takes off.

Yeah. You're gone for, like, two weeks, and I'm gonna be gone for a couple of weeks over the next month or so, so yeah, let's-

Yeah

... let's get to it. We have a lot of good stuff to talk about, I think. You planned some stuff for this conversation, right?

I did. I've got a couple things planned-

Okay, great

... and ready to go. Yeah.

Okay, so first things first. Sales tax for the past three months in Texas has been pretty crazy. We saw 30-ish percent growth for the months of, or sales in the months of March and April.

Mm-hmm.

And then about 19% growth for sales in the month of May. When we first looked at these, the numbers were just outrageous. Obviously, last year we had the shutdowns in half of March, and then the full shutdown throughout the month of April. So we, we expected to see some very large numbers come in. 30% was outrageous, especially for two months in a row.

Yep.

And, you know, we kinda thought there's, there's probably some holdover from, from some of the snowmageddon stuff. We talked about that a little bit. To see 19% growth in, uh, for May sales, which are the July allocations that we're, we're still waiting on all the confidential data to come in, so we, we don't have, like, a full breakdown of how each industry did and things like that. But 19% growth, when you look at it, is around 9 or 10% growth from two years ago.

Mm-hmm.

Right? From 2019.

Correct.

So if you were to take out 2020, which I th- most people would like to do. If you just kind of ignore 2020, that's about 5% annualized growth, uh, over that period, which is still on the higher end of sort of a normal growth cycle. You know, 5% growth year over year for two years is still pretty good. But don't let that 19% number fool you, because I think that we're, we're kinda getting back to sort of a normal trend that we were in before COVID.

Yeah. We're getting back to what we would consider just standard, right? Uh, so w- kind of we, we've seen a new normal. Uh, we're getting a little bit more into normal, and I, I think everybody's really excited about these big numbers that are coming in, but everybody forgets about the big numbers of losses that we had in 2020, right? Um, ob- obviously, you know, what's in front of me now, what, what I've had lately, is always more inspiring than what happened to me a year ago, for sure. But it, it's like you said, when you annualize it and you look at it over the, uh, multiple years, it's really just 5% growth, right? And so, uh, which is somewhat normal. It makes you think again, though, from a comptroller standpoint, because the comptroller has, has basically come out and, and redone statewide revenues a couple of times now, that, uh, they really thought it would be bleaker than it was, significantly bleaker than it was. And, um, I, I think we have thought along the way it, it's, it's going to normalize. We're gonna get back to a more normal, uh, growth process. At the same time, too, our clients that are looking at these, you know, 30% numbers or 20% numbers, 18, 19% numbers, you're not gonna see that every month. At, at some point we're gonna hit year over year positives again, and we're not gonna have, you know, we're not gonna be picking up for both 2020 and 2021.

Yeah, I mean, remember, we only really had, at least here in Texas, a couple of months that were just really, really bad. Um, as we got towards the end of the summer, we were st- we were still seeing positive growth across the state. Uh, there was-

Unless you were Midland or, or O- Odessa

... of course, yes.

Unless you were West Texas and you were also hit by oil, everybody across the state basically saw three bad months, and then kind of another two or three months of just, you know-

A little bit up and down, not quite sure-

Yeah

... where we were.

Correct.

Trying to get our footing back. But-

Yep

... but yeah, I mean, we didn't have, we didn't have 12 months worth of declines. So very quickly, in short order, we're going to be getting to those months where we already had growth last year. May have, may have been small, maybe it was a slight decline, but it wasn't a 20% drop like we had in March and April. But when you say we're kinda getting back to normal, one thing to consider is, I haven't looked at the inflation numbers, but, I mean, w- the last couple of months we've shown basically 2% annual inflation numbers.

Correct.

Right?

Mm-hmm.

So that's gonna already, assuming that consumption levels stay constant, that's already going to be bumping up your sales tax. Then you look at population growth, which-

Mm-hmm

... over the past year, two years especially, has been ridiculous. Um, you know, th- there's sort of these baseline factors that are causing our sales tax to increase. So you have to look at all those things before you really evaluate, um, what that 5% average annual growth rate means across the state. 'Cause it may not actually mean that much when you factor in that prices of goods are getting more expensive and there's a lot more people here shopping.

Correct. I mean, uh, I, I think that's, I think what you said is extremely important. You still have to go back to the basics and look at inflation, population growth. You know, we used to look at trash tonnage. I don't think that-

Online sales.

Online sales.

Which are still kind of-

Yeah

... I, we may still be, we may be a full year past it, but still, it's-

Yeah

... that's a new revenue stream, so.

Correct. I mean, so there's a lot of things there that you've gotta take into the numbers. I, I really th- you know, I'm not, this is not gonna make people feel more comfortable as they're going through budget season right now, but we're probably not gonna see a normalization of these numbers till we get to, like, October. September, October, in that range. And so, yeah, you've already adopted your budget, and then we're gonna say, "Okay, what's, what is the actual normal at that point?" It's gonna be hard for us to see that until we get to that point, but ultimately-The annualized growth is normal. I- you talked about inflation real quick. I do wanna point out, uh, inflation is a little higher than 2% right now because of how the, the basket of goods is calculated and what goods are included in that basket. Because used cars are up, like, 30% in value because of the new car crisis with chips, um, you know, inflation took, like, a one-time increase. I believe it was, like, 5%. And if you take cars out of that, it's a more normalized 1 1/2 to 2% number. So, uh, there is that. I just don't want people to think that, you know, the national inflation rate is only right at two, when I think it's actually growing because of the used car side. Saw an article on that. I'll try to find that for the show notes.

Are you familiar with the hedonic adjustments?

Hedonic adjustments? No, I'm not.

Yeah. So it's ... I came across this article a while ago, and it was very late at night, and I was I was feeding my newborn. Um, but so the market basket of goods is not just a market basket of goods. They, they have this hedonic adjustment which basically accounts for, uh, it's like a value proposition. So, uh, over time, actual inflation may be, may sh- show up as lower because, uh, because of the way that they account for substitutions and, and, and the perceived value of what you're paying for. It's kind of interesting. It's worth noting, but-

Okay

... essentially there's, there's a lot of subjectivity in the CPI calculation.

Uh, I mean, there's... The, the CPI calculation is... You know, we, we used to always pick and choose based on what contracts we were negotiating, right?

Right.

What CPI-

Yeah. Whichever one benefited us the most

... whichever one benefited us the most. So when we were, uh, when we were doing, like, trash contracts, you know, the trash company always wanted CPI urban trash. There was, like, an actual trash index. And we would always just negotiate for CPI urban, uh, right? 'Cause the basket of goods would stay lower there than the general CPI numbers would. Uh, so it's just, you know, uh, all, all of that is subjective. The actual basket of goods that's used in the calculation is extremely subjective, so therefore one item could significantly impact the value of the basket. So, uh-

Yeah. So we recently added some, um, some inflation adjustments into Zactax, and that's the, um, the series that we use is as close as possible as what we could get to things that are taxable.

Mm-hmm, mm-hmm.

Right? Um, and, uh, it, it didn't include vehicles and, and other things like that. Um, that's the series that we chose because it made more sense to what we're actually trying to compare.

Gotcha, gotcha. Yeah. So, uh, you know, we, we talk about where things are going from a sales tax perspective. I think most of the finance directors that I've talked to recently, the cities that we've had discussions with, they're feeling a lot more comfortable about their revenues, uh, for a couple different reasons.

For, for the next, like, three, four months, yeah.

For like... Yeah, for like the next three to four months. And, uh, I, I think that's, that's fair, and, and we could be in just, you know, rosy territory as we go through October as well. We don't know. Um, and, and also the reality is, is that we're seeing substantial population growth, which is also growing the value of residential properties in the state because there's such a high demand for residential. And, and so there's a lot of-

And we can't zone in a way that allows us to actually build residential properties, but-

That, that's correct, yes

... but in October, though, we have this huge change coming.

What is this?

This new ru- the rule change with the comptroller.

Oh, from the, from the comptroller. That's correct, yes.

Right. So we're gonna kinda get our footing after COVID, and then our world's gonna get turned upside down. So that'll be fun. Um-

That, that was a, that was a little bit more Chicken Little than I've ever heard you say there, but, uh, it's gonna get turned upside down for some cities.

For some people, yes.

Yes.

That's true. That's true.

Not, not for very many.

Yeah. So a couple of, couple of months ago or weeks ago, episodes, whatever, we talked about, um, a couple of the legislative changes that had been proposed for, for sales tax and kinda gave some disconnected opinions about whether they were good ideas in theory, whether they were a good idea to enact today when we have already been operating under a s- you know, a given scenario. We're obviously gonna have this big change coming with the comptroller. Um, but we had kind of an interesting conversation the other day about proposals for replacing a bunch of revenue types with a value added tax.

Yes.

So I thought that might be kind of a, uh, a fun thing to talk about. Um, some of-

Well, that all started because there was legislation that came about. It didn't go anywhere, but there was legislation.

It didn't go anywhere.

Correct.

That particular bill that I sent you was would have replaced property taxes and local sales taxes with a VAT and-

But it was way, it was way low.

It was way low.

What was the actual number?

It was like 6.725-

Yeah, it was way low

... for the statewide, and then it let cities go up to 2%. Like, there's no way you're gonna replace your entire sales tax and your property tax with a 2% VAT.

I should've researched this 'cause you told me ahead of time we were talking about this, but did the comptroller actually do a fiscal note on that one? Do we know?

I didn't, I didn't look.

You didn't look? Okay. So I'm not sure-

So-

... it ever went anywhere 'cause there's, the fiscal note would've been ugly.

It, it, it would've been ugly.

Yeah.

So the interesting thing about, about a VAT replacing sales tax... Well, first of all, what is a value added tax, right?

Right.

That is probably a good way to, good way to start this conversation. So with a traditional retail sales tax, you pay a, a millage rate on the purchase price, right?

Mm-hmm.

So you go buy a TV for $100. If you're at the full rate here in Texas, it's eight and a quarter, so you're gonna pay an extra $8.25. So that tax is assessed at the point of sale, right? Like, at, at its final state of consumption. A value added tax is assessed at each stage of production. So you, you purchase some raw materials, and then you, you know, the first step in the production process of that TV adds X amount of value, and then when it is, moves on to that next step, then the value added tax is assessed on the value at that point, whether it's 10, 20%, whatever. The, that next person or organization in the chain of production pays a value on what has been... pays a tax on the value that's been added so far.

So, uh, to, to put that into perspective, 'cause you did a better job of explaining that in the pre-show.

Yeah, sorry.

Yes, that's right, folks. We-

I, I got, I got the, you know, the red lights of the studio on right now, so...

The, the studio are on, right? So, but in the pre-show you talked about, uh, creating a pencil. You buy wood, you buy lead. The wood and lead is taxed at its, at, at its wholesale purchase, and then it's put together to make a pencil, and then that pencil is taxed at its increasing va-

The value that's been added by putting those things together.

That's correct.

Right.

Yes, the value added because it was put on-

Yeah

... put.

And, and maybe that's sold to a wholesaler.

Mm-hmm.

And then the wholesaler sells to the retailer, and so there's another extra value added at that stage.

Correct.

So the retailer is paying the value added tax on that difference, and then the actual consumer is paying the value added tax on the full price. But at each stage of production, there is, that tax is paid.

Correct. And, and let's, let's talk in realistic VAT numbers, uh, 18 to 20%, right? So let's say you create a pencil, it's a super fancy pencil, and at wholesale that pencil's $1. That tax was paid by the wholesaler at $1, 20% of that, so they paid a 20 cent tax. And then it goes to the retailer, and the retailer sells that pencil for $2.20 or $2, right?

Yeah, way to make, yeah, round numbers there for you. Appreciate that.

Yeah, way to make it round numbers there, yeah. And so therefore they have, they have to pay 20 cents of that sale, uh, in VAT. The, the actual purchaser, the end user, never pays in addition to the value of the pencil, it's just taken out, it's, it's built into the price of the pencil.

Right.

Right? The, the largest benefit of this is that there's a paper trail along the way from supplier to wholesaler to retailer where everybody's paying tax, and so therefore, if one level doesn't pay tax, the other level kinda calls that out.

Right. Yeah. There's an incentive to validate that the tax has been paid at all of the other steps, because you get, you get basically, um... So the way we've described it, it almost sounds like that 20% tax is getting paid repeatedly.

Mm-hmm.

But at the end of the day it's, say that if the VAT rate is 20%, then the 20% is all that's getting paid. So you get credits for the VAT that has already been paid.

Correct.

Right? So only that 20% is paid. It's not double taxed. So if, so because of that, you have the incentive to make sure that the VAT has been paid on, on the other stages of production, right? So, and you have this audit trail of all of these taxes and filings that have been, um, submitted. So in that way, it is easier from an administrative standpoint to ensure compliance versus a retail sales tax which is just assessed at, you know, at one point. Um, and it is more difficult 'cause you only have, there's no cross-reference for all those transactions, right? You just have the one transaction. That's one argument in favor of the VAT is that compliance is improved, administration from the, from the tax side, from the government side is improved. Um, one area that I think would be interesting in terms of how it would actually affect local governments is you still have the question of consummation, right?

Correct.

It's one thing if you have a state, statewide VAT. Then it doesn't really matter where each stage of production occurs, because it's still going to the state of Texas. But if the tax is consummated where that improvement occurs, where that additional value is added along the manufacturing process-

Mm-hmm

... then the question still remains where does the tax for that stage go? Most likely it would be due at the location where that, uh, value was added, right?

Right.

Assuming that it's, say, a manufacturing plant and they're doing X work to, or, you know, to improve this product and get it ready for, for sale. That changes the ballgame a lot-

Yes

... for cities.

Yes.

Right? Because if you have a Walmart right now and you sell a pencil, the location of that Walmart is where the sales tax is due.

Correct.

But if you have a Walmart that sells a pencil with a VAT, then every stage of production, where that occurred is where that tax is going to be due. And all that Walmart is gonna get is the incremental amount that was added through the process of the retail sale. Theoretically, at least, depending on how they worked it, but that seems to be the most reasonable way to approach it. But what that means is that that 8.25% that you would get on the s- on the sale of the pencil is not gonna go to your city where that Walmart's located. Only the incremental amount would go to your city. That changes quite a bit in terms of how sales tax is allocated across the state.

Correct. And in Texas you have this big fear of the state will take more control of the taxation system, right? In, in a VAT, I, I do think you get into a little bit more of a single pot system, where Texas starts to then, you know, filter out revenue from a state level. And that's a, that's a whole scary process. Um, I personally like the proposal that came, it was two legislative sessions ago. We've actually talked about it on the pod at some point. But I, I personally liked Charlie Geren's proposal that was, it gave counties and cities the option to add a local sales tax and eliminate their property tax, right? Um, so in today's world that we have now, they could add a percent and a half or 2%, and then they could totally eliminate, uh, their property tax. I, I felt like that was a good proposal, 'cause it still kept the kind of bread and butter and tradition of local government in Texas intact. And I... The VAT conversation to me is a non-starter, 'cause I just don't trust the state of Texas to do it correctly.

Well, so what if, I mean, as it stands-

Not that I don't trust the... I wanna be clear. Not that I don't trust the comptroller. Love the comptroller's office. Uh, those are very hardworking people. It's, what I don't trust is the legislature, right? I just feel like it becomes a political football. I mean, look at what, what we're going through right now in Texas. As we speak, the Democrats are in DC, it's just a, it's a fiasco.

This is all coming about because everyone hates property taxes, right?

Correct.

And the largest portion of property taxes is school districts. And at the end of the day-Your school district property tax

Is an income tax? I'm sorry, I gotta say it out loud

It's not an income tax

Well, I mean, it's, it's, it's a glorified workaround to the state's constitutional amendment of not having an income tax

Yeah, but it's irrela- it's, it, it, it is, it's not tied at all to what you make. You could be a retiree in a $2 million house. You have no income, but you're paying... It's a wealth tax

No, I get it. It's a... I, I get what you're saying, but my point is, is that it-

You assume it's a proxy for income, right? Because if you have more income, then you can live in a more expensive neighborhood, but it's not perfect.

Yeah, I, I agree 100%, but my point being, it's the way of the state getting revenue from the localities back to state coffers to pay for a state-required program.

Right.

Constitutionally, the state is required to educate children in Texas.

Well, and the reason for that is we don't, we don't have Robin Hood anymore, right? But we still have funding. We don't, we don't have, like, the old Robin Hood like when we were growing up.

You don't.

But we-

They have, they have what's called recapture now

Right. So we still have these funding mechanisms where this, where your local property tax is redistributed across the state.

And there's a, there's a per kid payment for average daily attendance that is a funding formula that comes back. Regardless of what a school district's M&O rate is, and we actually have some school district, uh, board members that listen to our podcast, uh, but regardless of, of what that is, the state is taking that money, and they're funding you based on a formula that has very little to do with your local district.

Right. So with that in mind, a statewide VAT for s- for public education doesn't sound like too bad of a deal. Because if your local property tax rate only has, you know, a, a percentage of it is based on what actually is funding your school-

Mm-hmm

... then it really doesn't make a whole lot of sense to fu- to fund your schools that way.

Oh, especially-

Right?

Uh, yeah, especially when you're talking about a school tax that M&O makes up a dollar of the $1.25, right?

But especially when-

And I know that's like 25%

... be- because of that, because of the way that it all works, it causes problems for cities and other taxing entities, right? Because they kinda get brought into this mix of property tax is awful, so we're gonna fix it, and they, there's just sort of casualties almost.

Oh, 100%. I mean, and cities, cities and counties, uh, counties are even more laughable to me than cities getting pulled into this, 'cause county taxes are, like, 20 cents, right? Uh, but counties get drawn into this, uh, and it, it, it's, the school district makes up a, a, you know, more than 60 or 70% of your tax bill. That's not the school district's fault, though. The state is literally funding education through a local property tax, and it's, it's kind of like a, it's a hidden wall between who's actually responsible for the tax and who gets blamed for the tax. That's the, that's the problem that we have, uh, here in Texas.

Yeah. And as I've mentioned before, I much prefer taxes where it's very clear who's paying what, like, who, who's actually bearing the burden, which is my really only complaint with the VAT, is that the tax is ultimately played- paid by the consumer, but you don't really see it. Like, there's an itemized item there at the bottom, but one nice thing about sales tax is that you take an item to the cash register for 100 bucks, and then they tell you, "You actually have to pay more." So at least you can see what that additional tax is. But let's say that we were to replace the school district portion of property taxes with a statewide VAT, that they could then allocate however they decided to.

Mm-hmm.

It seems to me that would improve some of the equity issues, uh, surrounding the redistribution of the property taxes. But would there be an issue, do you think, with having a VAT and a sales tax?

Uh, I mean, I would... I, I think if you did it... Well, the biggest issue would be that, you know, sales tax and a VAT, uh, I'm not saying this is my personal opinion, but that they're extremely regressive taxes, right? That they hit people at, at lower incomes harder than they hit people at, uh, higher incomes. I think there are ways to get around that. I, I think there are ways to either provide credits for a basic VAT level, or there are a way to, uh, provide, you know, like, like groceries, you know, not ready-to-eat meals, things like that, uh, and not have a VAT on those items. I... That's a slippery-

Or maybe just, like, a baseline amount of consumption that you could maybe get, like, a, almost like a-

Correct

... credit check back to you.

Yeah, correct. You get, like, a credit check back for the basic level of consumption. Uh, y- there's a slippery slope to trying to go through and, and actually say that certain items are not taxable because, as we know in Texas from a sales tax perspective-

Everything

... e- everything gets thrown into that, and you just have a ton of items that don't get taxed.

It's like, yeah, it's almost like every weekend there's, like, some random lobby has a-

Correct

... tax-free weekend.

Yeah. I mean, my favorite is, is, you know, cupcakes. Like, cupcakes are clearly ready to eat, but because they're a bakery item or a donut as a bakery item, it's not taxed.

Unless they hand you the fork themself. Unless the cashier hands you the fork.

But if you get the fork off the back counter, it's-

Then, yeah

... it's still not taxable. So I, I just, you know, things like that are ridiculous, but I think that's the biggest concern. Um, I, I, I think a VAT could work statewide to eliminate the M&O portion of school districts' property taxes, and I, I think that could go a long way. The biggest issue that you have with that is, is that the state, um, it's so risky. I don't think the state has enough revenue to be able to cover that over a biennium. I mean, that, that's, that's the fear, right, is that it, the additional VAT has a cooling effect on purchasing and purchasing power.

Maybe, unless you consider how much you're saving in property taxes.

Which, I mean, for-

Do you think that that's gonna trickle down not to just, uh, residential property owners, but renters, commercial, business personal property?

Wow, Reagan, you're getting crazy there with that trickle-down conversation.

I shouldn't have said trickle down. Sorry.

Yeah, trickle down- ... is the wrong term. But, but it, the, the question is, is, uh, you know, does an apartment owner take that savings in property taxes and pass it on in rent rates?

Hmm.

Depends how competitive the market is.

Yeah.But you would think that at least on the, on the business rental side, I mean, if you're passing through triple nets and all of a sudden your taxes go down-

You're correct

... that's, that's-

It would immediately have an impact, 'cause that's how leases are written on, on the commercial side. So yeah, you're right there. Uh, look, VIT's an interesting discussion. I just think there's a fine line between talking about a statewide VIT to replace all property taxes and one to just replace school property tax on the M&O side. You can't, you, you're never gonna be able to eliminate I&S on the school side.

No, because it's all... And it's... That's very specific to each district.

Absolutely.

How each district is growing, how much capital investment they need. You, I mean, you wouldn't wanna use a statewide VAT to get rid of local prop- city property taxes in particular.

Well, you couldn't-

Right

... 'cause at the same, you'd have to trust that the state would take this barrel of money and then redistribute it correctly to cities. I mean, you would just have, like, this terrible funding formula.

Right. But reducing or eliminating the school property taxes should take a lot of heat off of, off of cities, right?

It, correct.

'Cause they're not the ones that are causing the bulk of your property tax bill.

It's, it's, goes back to our conversation on the no new tax rate and the fact that people don't realize what's happening within that taxation. That's a previous podcast that you can go back-

Yeah

... and listen to. But the, the reality is, yeah, you, you're right, it would take a lot of pressure off, because people would... Let's say you have a $10,000 tax bill, you know, that $10,000 tax bill just became a $3,000 tax bill.

Right. That's, yeah.

Right. Yeah. People don't realize that that's, you know, 60 or 70% of that tax bill is school district based, and that money's going directly to the state to be redistributed through a funding formula to the district. So if you're ticked about that, call somebody who can actually do something about it.

Yeah. That said, I'm extremely skeptical about a local VAT, just because I think that, I mean, we talk about changing, uh, all, all these different rule changes that are going to affect how sales tax is sourced and, you know, what, where we consider it consummated. And depending on how they set that up, that could be... That could benefit cities that have manufacturing and really hurt cities that don't, especially small cities who just don't have, you know, any industrial, uh, development.

Yeah. That's why I think the VAT really in Texas only works on the school side. Uh, but-

And statewide.

And statewide, yeah. I, I, I personally like, uh, sales tax and sales tax replacement of property tax, because that's a locally controlled item. Um, but there are issues with sales taxes. I mean, how many contractors that come to people's house have a different price for cash than they do for credit, right? You got somebody cutting your trees or cutting your grass or whatever that may be, um, I mean, there's, there's a lot of people who aren't charging sales tax on services that should be.

A lot of times you're not getting an- any kind of invoice.

No. There's-

Like, "Uh, Venmo, Venmo me 200 bucks."

Correct. There's, there's absolutely-

They're not paying taxes on that.

Yeah. There's no, no paper trail to it at all. And I mean, it just, it just kinda is what it is. So, um, to clarify, I pay my lawn bill every month by credit card, so there's-

Yes, I do too

... there is a paper trail, and it has a percentage of sales tax on it. So ... But, uh, I mean, it's just the, the problem with sales tax is, is there's a lot of, uh, of missing revenue in the sales taxation system, both, you know, shooting ourselves in the foot, like, not taxing specific items because of loopholes that have been placed in statute, and also contractors that avoid paying sales tax based on cash sales. So what you got next, Chad?

We kinda killed both of those topics together, so that, that works out well. So what we... A couple days ago, I was listening to a Strong Towns podcast. And, you know, I've, I've read the Strong Towns book and I've, I've read Chuck Marohn's writings and heard him talk about this particular comment many, many times, but it never really hit me until this particular, uh, episode. But what he was talking about is, um, Disneyland.

Okay.

When, what Walt Disney wanted to create was a place that made you feel a very specific way. And in his words, "It just feels like somebody gives a damn."

Yep.

Like, when you go there, you just, you just feel like someone cares about how you feel in that place. And he questioned whether cities ever really even think about things that way. We have this plan for this cool mixed-use center that seems trendy and, and great, but do we really think about how people will feel when they go there, or a park or a library? And sometimes you can see people, you know, building these super fancy libraries, but maybe they feel kinda sterile. Like, maybe they don't really... Maybe there's not an intention to, um, to make you feel like this is a special place. You know what I mean?

Yeah, yeah.

So I don't know. I wanted to get your thoughts on, on that. How, like, how much did you take into account the feeling of a place when you were on that, uh, on that side of the equation?

Uh, I, I, uh, one, let me talk about Disneyland, right? 'Cause I think we've talked about this before. I'm a huge fan of Disneyland over Disney World, a lot of that because of just the, the environment. The minute you walk through the gate, the minute you're in downtown Disney or you're in, you know, California Adventure or wherever you're walking through, you just get this feeling of, like, it's, i- it's just a different world, right, that you just walked into, and how nice it is and how clean and, and all the other aspects of it that are there. But the, also what matters from a strong town standpoint, uh, to get to that, is the walkability of it, the ability to go to the cafe on the corner and the ability to go to the soda shop and the, you know, the ability to go see a movie at the movie theater and all the, all the different types of things that are there that are built in to the Disney experience. Um, and, and let's face it, Disney is, from a experience company, they're one of the best in the world, and that started with Walt. From a city perspective, it would be awesome to have those conversations. I think it would be great to put in those types of developments. The problem is, is the market is not driven that way.That is not necessarily the highest and best use for the market

Okay. Well, let's, let's step back from developments and just talk about, like, roads.

Okay.

How does it... How do you feel when you drive on this road?

So, I mean, if the road is ugly, if there's, you know, not ornamental lan- uh, lighting and landscaping and, uh, wide sidewalks and things like that, like, the feeling is different on a road that's bar ditch and, and asphalt, right, and 60 miles an hour than it is on a 35 mile an hour road that has, uh, parkway landscaping and sidewalking. Th- there's, there's going to be a difference in that feeling. There's also a difference on a roadway that's built for pedestrians and not built for vehicles, right? That's the big thing at Disney is. I mean, Disney has vehicles, but it's really built for pedestrians, right? Um, and so I, I, I feel like that is a very har- There are very few developers, though, in the market that build for the pedestrian experience. I mean, there's just... There's really very few. And from a zoning perspective, in order to build for the pedestrian experience, you have to have a development that's highly walkable. You have to build a city that's highly walkable, and it doesn't provide a lot of personal space for people who live in that community, and that's not, especially in Texas, that's not how our zoning is set up.

No. And we have so much land that it's almost, like, no one cares, right? When you have a glut of resources, the cost is not a factor, right? Like, I had to go get my tires, uh, replaced-

Mm-hmm

... I think last week, and it's in a shopping center with a Walmart and couple fast food restaurants and little, little strip center. So I didn't wanna sit in there for an hour and a half, so I walked to the Walmart. It's, like, a mile that I have to walk- ... to the Walmart. Uh, I get done. Truck is still not ready, so I go and, uh, you know, walk over and grab some lunch real quick. I mean, I, I probably put, like, almost 10,000 steps in just-

Yeah

... walking across this retail development. Like, we just don't... We don't build anything from a walkable standpoint. And even if we did, it would be largely the kind of development that you would have to drive to and then walk around.

Correct. Yeah.

Right?

I mean, and, and, and not only that, but even our retail environment is built for everything at your fingertips, so therefore we're building 50,000 square foot stores instead of 10,000-

Yeah

... square foot stores, right?

I mean, I can tell you that when that Walmart was built, we were su- everyone was super excited because there was nothing else within 15, 20 minutes of here. Like, if you wanted to go to the grocery store, you had to drive 20 minutes. So great, we have this Walmart. But now that it's here, and 80% of it is just parking that you have to walk across, like, it ha- it has a much different feel to it now. Like that-

Well, here-

... whole development has a much different feel when you actually use it versus just the idea of having the shopping center close by so you don't have to drive really far anymore.

It is so hard to, to build a Disney, right, or to build any community that allows that walkable feel, right? I give some community, uh, props to this to talk about a couple different cities that are built this way. Uh, Sonoma, California is a prime example. If you've ever been to Sonoma, it's a wine country. Sonoma downtown is built that way. The residential around it is, I wouldn't say super dense, but it's, it's nice. Carmel, California, same way. Um, Fredericksburg, Texas, right? Built on a grid format. Uh, downtown's actually on a highway. It's not the greatest in the world, but still very walkable of a city, uh, to get around. The, the reality is that's hard. It's, it's a lot easier to go build that Walmart development, right? It, it would've been real easy for us to build, um, an H-E-B in Hudson Oaks on 20 acres and make that store 40,000 square feet larger, right? But we didn't. We actually put it in an area that could eventually become walkable and have mixed-use development around it. And that's crazy to say a city that's 25 miles away from a major city center, and currently most of its development is on one-acre lots. But that was the vision. That's the dream that they have. But in order to do that dream, you have to constantly be talking to the residents about what that dream means and what it looks like because all they see is, uh, a brownstone development or an apartment development or, you know, the negativity of what's gonna happen. You constantly have to have somebody out there selling the positivity of what's occurring. And, and that's... Just face it, from a city perspective, we're not good at sales. And because we're not good at sales, we don't build Disneys. It's just that simple.

So it's one thing to say, you know, look at this entire development and think about how it makes you feel, but it doesn't always just have to be such big picture thinking.

Mm-hmm.

So I wanna ask you a question- ... about a recent experience that you had, okay?

Yes. Yes.

So you were at the airport-

I was

... and, uh, you needed some headphones. So you spent-

I was, I was delayed. I was delayed for, like, five hours, and we were supposed to leave at 9:00 AM, and we didn't get on a plane until, like, 3:00 or 4:00 in the afternoon.

Okay.

So that's, that's the, that's the background.

That's, that's, that's great. Yeah.

Okay.

Appreciate the context.

Yeah. There you go.

So you decided to go buy some Apple AirPods at, like, 20% above actual retail price.

I, I did not check that they were 20% above retail price. I just assumed that these Apple AirPod Pros, by the way, let's make sure everybody understands they're Pros, that they were good to go. And, and so everybody understands, in the world of Zach, um, technology is something we have a lot of. We all have MacBook Pros. We all have Apple AirPods. We all have updated iPhones. We're a technology company, right? So we, we have technology. Well, I had not bought Apple Pros yet. iPod, iPod Pros.

Whatever they are.

Whatever they are.

Air- AirPod.

AirPod-

AirPods

... Pros.

AirPods Pro.

Correct. Um, and so I was at-

It's the worst-named product that they have

... I've... I'm looking, I'm looking there, and I see it, and I buy it. Um-And about three days later, Chad sees it, and he goes, "What did you buy at the airport?" 'Cause it was, like, Electronics To Go or something like that. Charleston Airport, right?

Yeah, Tech To Go or something.

Okay. Tech To Go. And so Chad asked, and I said, "I bought AirPod Pros." I hadn't bought some yet, so I just went ahead and got them 'cause I was gonna be stuck there in the worst-

I was like, "Did you buy two pairs?"

Because apparently I overpaid by a solid... It was, like, 120 bucks. How much did I overpay by?

No, it was, it was, like, 20%, but-

Okay. 20%.

But anyway, that's, that's all really just an opportunity to get a dig at you. What I really wanted to ask you is-

Mm-hmm

... what did it feel like when you set them up?

It was super easy. I mean, one, they set themselves up, right? I mean-

Y- y- first of all, after you unbox them, which is beautiful.

Oh, of course.

It's beautifully done.

Yes.

And Apple pioneered this, this, uh, trend that we all now enjoy of, like, beautiful unboxing experiences.

They actually give directions now, which I don't like. I kinda liked it in, in, like, the original iPhones where they literally just... Like, the unboxing was the directions of how to use it. And, and with the-

Yeah, there's a little flappy thing now.

There's a flappy thing that gives you directions. I, I don't like that, but...

But basically, you take them out of the box, you sit them on top of your iPa- or your iPhone.

Mm-hmm.

It f- it finds them, it connects them, everything. It's, like, this beautiful screen. It's delightful.

Yes.

Right?

It is. Yes.

Now, there are plenty of other things that are kind of irritating with using them at times. Uh, the battery life doesn't, it's, it's not that great. Like, they start to degrade after about a year.

Mm-hmm.

So you have to buy a new one, right?

Correct. Yeah.

But for that one moment, it's just absolutely delightful to use them. You're just like, "Wow, this... Like, someone really thought about this."

So, so I bought the Pros-

So maybe in-

Sorry. I bought the Pros for the noise cancellation, and I will tell you-

Yeah

... the, the, the first awe moment I had is when, 'cause I was in an airport, when the noise cancellation kicked in. It was incredible.

Yeah.

It was crazy good.

Yeah. Our, uh, our newborn is the loudest of the four kids that we have. So-

Mm

... like, at night when he's wailing and I had to go change him, I just pop those in with the noise cancellation. I can still hear him very well, but it's, like, half the volume.

Uh-huh. Yeah.

So it's, it's very handy. But the point is, for that one moment, the experience that you had was almost magical.

Almost, yes.

Right? Not everything about the AirPods is magical. They're very easy to lose also-

Yes

... which I found out. But, so maybe instead of trying to start by creating an entire development that just makes you feel like it's a magical place, like a Disneyland, just look for those little areas where you can delight people in your developments or your parks or your public facilities.

Entry elements.

Right.

Small sidewalks. You know, things like that. Yeah.

Landscaping. I, any... Yeah. Just, just little things. S- what do they call it? Uh, just incremental steps, right?

Inc- incremental steps.

Yes.

Absolutely. Yeah.

So that's all I got.

That's a wrap, Chad. Have a, have a happy vacation. Enjoy your time off.

Yeah. I'm looking forward to the eight-hour drive with the four kids. It'll be fun. Yeah. So, uh, so I'm gonna be out for a week, and then we're gonna try to squeeze in another episode when I get back, 'cause I'll be gone again. So-

Yeah

... but if we don't, everyone have a wonderful July.

It's so hot.

Hopefully... It is so hot. Hopefully your property-

Yeah

... tax certified values come in okay. And, uh, get those budgets ready, and we will talk to you next time.

Well, uh, right before, I just gotta say-

Oh, you got more?

I got one more thing.

I had wrapped it up, man.

How blessed, how blessed we are in Texas right now that certified values are based on January 1st appraisals. Because if they were based on May, we'd all be in a bad shape this year if we'd-

Yeah. Well, you got your 10% cap, so you're okay.

That, that's true, but we'd be capped, for sure. Anyways, thanks guys for joining us on, uh, ZacCast, and Chad, we'll see you after vacation, man. All right.

See ya.

Bye.