Greetings and welcome back to ZacCast, your official podcast for local government nerdery of all kinds. I am Chad, that is Pat, and today we are rejoined by Kyle Lester, finance director for the city of Colleyville. Kyle, uh, joined us about two years ago, almost to the day, as we were heading into the early stages of pandemic response. A lot of uncertainty existed, uh, as cities headed into their budget. So we chatted with Kyle a little bit about what Colleyville was doing, how they were approaching the budget season, and now that we are two years removed from that moment and heading into a different type of, uh, concern and, and level of uncertainty, we wanted to bring Kyle back and just kinda revisit the things that they did, how they worked out, uh, you know, how cautious were they, how did all of that stuff play out. And then looking forward with a new type of crisis, are we taking the same approach, a little bit different approach? So anyway, Kyle Lester, welcome back to the pod.

Uh, hey guys. It's great to be here. I'm doing pretty well these days. It's an interesting couple of years, but, uh, we're soldiering on. How are you guys?

Good, man. We're doing great, yeah. Uh, it's been, uh, really weird working through COVID, obviously. You know, I think we, we talked the first couple of weeks as we got into COVID about, you know, what to expect and where we were gonna be, and I think as a company we were in the same boat. Like, we had no idea, like, what are cities gonna do in this instance? Are we, are we gonna grow? Are we not gonna grow? And, you know, obviously as most of our clients know, we grew like crazy, uh, during that period of time and picked up a bunch of clients, which has been great. Um, it's been a lot of fun. I feel like we just caught our breath about last month, uh, where we've kinda caught up and, uh, you know, pushing property tax pretty hard, so that's, that's been a lot of fun, so. But it's great to have you back, for sure.

Definitely. And that'll be an interesting, uh, topic to kinda flesh out for you guys is, yeah, I mean, we all know that property tax has been a huge, you know, issue with the legislature for a long time. Um, and, you know, with, with the way values are in the housing market, it, it's just kind of a bizarre, um, sort of reality for a lot of cities. We just heard from, uh, our appraisal district that their, the reappraisals for, uh, residential are gonna skyrocket again. Uh, and so it's, um, just kind of an interesting environment we're in.

Yeah, so you know, the, the property tax side for us has been very, uh, very interesting, because it's given, it's given us the ability to see a lot of data that, you know, most of the time you don't see. Property tax in Texas is done by 254 different counties. You've got all these different appraisal districts. The data sources are all different. Um, and so therefore it's really hard to analyze, like, what's going on in the, the property tax world. I actually did post last week on my LinkedIn a story from the Texas Tribune, and I discussed it a little bit and, and there were quite a few city finance directors and folks that commented on it. But, uh, Texas Tribune did an article, we'll put it in the show notes, specifically talking about property tax in Texas, and the legislature's gonna have to retake up this issue after they, you know, quote unquote, "solved it" a year and a half ago, right? And, um, you know, Chad and I talked pretty extensively about the fact that it was never solved. It's, it, it's kinda been a Ponzi scheme of, like, populist opinions on how we're gonna fix it. And, you know, the most recent one was obviously this, we, you know, we're gonna have this 3.5% cap on cities, and they have to go to elections if they go over that. And then, you know, the redo of how no new tax is calculated, things like that. So, um, and, and we've said for years, uh, now, that it doesn't really matter whether you put those caps in place, you're still going to have increases on residential properties. And, and y'all, I, I mean, where you are in Colleyville, you guys really have kind of compressed tax rate, right, over the years?

We do, yeah. We've, we've gone with the no new revenue tax rate for four consecutive years. Um, it's been a political, uh, you know, win for our, our council, and especially going into election season, where, um, you know, we're gonna lose, um... well, I mean, we'll, we'll have at least two new council members, potentially one new mayor. Uh, and that's one of a handful of things they, they've been talking about. But back to your question, we've, we've been compressing that rate for several years now, and we're coming to a point where I'm not sure how many more years we can float on that.

Mm-hmm.

Um, but kinda you mentioned with the legislature not really solving the tax problem, it, it's a relatively complicated problem, and when you're a politician, you have to look for easy solutions so you can sell it. And that's, I feel like, what they've done, and that's what tends to happen even on a local level. You know, we're going into an election, and there are several things locally being brought up that, you know, as someone who works with this data on a day, day-to-day basis, you're kind of like, "Okay, I mean, that's, I guess, a good talking point," but doesn't really have a, a substantial, um, you know, effect financially. And I don't know, it's just one of those things as a, as a government official that's an, an interesting, interesting, uh, environment to work in, 'cause you end up being pulled in different directions that may, maybe you otherwise, you know, wouldn't be.

Yeah, I, I think Colleyville would be, like, a really good, interesting, uh, case study, you know, one, because you do have a very fiscally conservative council, right? Who has, from a policy direction standpoint, has said, "Hey, we are going to compress." Um, and which has become a more common term because of school taxes, right? All the school districts have been compressing. Um, but we're gonna compress, and, uh, we're gonna go to that no new tax rate. It, it would be an interesting case study because one of the things that we have, we have seen and what the legislators are dealing with, and this is what the Texas Tribune article was really talking about is even though there is these caps or the cities are adopting those no new tax rates, residential property owners are still seeing their tax bills go up by 6 or 7%, right? Even though you are actually not collecting an additional dollar in total-

Right

... property tax from existing properties-Those properties are seeing their tax rates, or sorry, tax bills go up six or seven percent. And we have talked about, extensively on, on this podcast, we've talked about the fact that that's really due to the difference in appraisal systems between commercial and residential property.

Right.

And the difference of appraisal systems is really having a negative impact overall on, on where that's gonna go. And so, you know, obviously the legislature has said now for three or four different sessions, I mean, I think we had, you know, three sessions ago, we had the, the school buydown where they kind of bought down tax rates and then eventually that got eaten up a couple years later. And then, you know, l- two sessions ago we had the school tax reform that went through. Then, you know, last year we had SB2, which is basically if you have an increase in property values over two and a half percent, everything else compresses. And then the cities had, you know, the three and a half percent or no new tax, um, you know, caps that were put in. Uh, so they've, they've really gone for like three or four legislative sessions at this point and s- and made like these really easy to talk about populist changes, but they aren't actually impacting people's tax bills. And we always said, most cities don't raise their tax rate by three and a half percent a year anyways.

One of the really interesting things, uh, that I think happened through COVID, especially in that second year, um, is that the, the way that commercial properties can be appraised, um, we saw commercial, you know, values go down because they're, you know, they're... a lot of the restaurants and retail things, they, they kind of go on, I can't remember what the term is, but they've basically stated that their, the quality of their property, because their business had, had gone down for the past year, their property value itself should reflect that, and the appraisal district takes that into consideration. And so, for instance, we have a, a very large and, um, robust tax increment financing district, and for the first year, that's largely commercial, and for the first year we saw those values basically go down. Um, all our residential values went, you know, went way up. Um, and so it's, it's, from a property owner standpoint, you say to yourself, "Well, if I'm a, a, a residential owner, I can go to the appraisal board and, and I got, you know, I got to have my research. There are attorneys out there that you can pay to help you with this if you want, and you can try and get that appraisal down as much as possible." But you're not gonna be nearly as successful as, um, as at least, you know, commercial properties have been in the past year. And so the tax burden overall is gonna shift, uh, to residential owners and away from commercial businesses. It, it certainly has in the last year.

The problem is that even under normal circumstances, the overall burden will shift to residential, assuming that residential is growing faster than commercial, right? But when you al- add on top of that a cap that's extremely low, um, yet still higher than commercial properties tend to appraise, like their valuation appreciation grows, then it's going to have an outsize effect on that burden shifting. And so if the problem that we're trying to solve, quote unquote, is that residential property taxes are growing, all we're doing is making them grow faster as a percentage of the, the overall burden. So, like, we're not fixing anything, we're just actually making it worse, and that just makes these conversations even more difficult. And yeah, I mean, like you said, it's extremely complicated and no one really understands it who's ma- well, very few people who make the laws understand it. There's like one person who does and that, that's... Anyway, um, but, but yeah, uh, we talked about, like, a crazy idea would be to have separate rates and separate calculations based on property type. Um, and that way you could actually, uh, do something about the residential properties independent of commercial valuations, mineral, personal valuations. Um, I don't... I mean, there are drawbacks to that, but at least it would take a, a little bit more of a direct, um, a direct angle towards the question of increasing residential values. But at the end of the day, if property values are growing ten, fifteen percent a year, even if there's an appraisal cap on it, like, you can't stop the property taxes from going up in that scenario. Like, this is the system that we have. It's like saying that inflation is growing at ten percent, and therefore sales taxes are growing because instead of paying, you know, eight twenty-five on a hundred dollar item, now I have to pay nine fifty because the price of that item is more expensive. Like, that's just, that's just the way that the math works. There's... If you want... The only way to solve it is to use a different system, and we just can't do that at this point.

Yeah. I, I'd be... I mean, I'm interested to see kind of how that would play out if you, you know, made the rates different by property type. I tend to believe that, you know, you can try and fix things to make it more granular, but overall, politically, they're always gonna try and slap a very easy to swallow band-aid on it that's gonna mess everything up.

Yeah. So I, I would agree with that, Kyle. The, the problem is, is that we are where we are because of the band-aids, right? The, the changes in a com- commercial appraisal systems, uh, or, or how commercial appraisals are allowed to be done by law, and then also the case law that's been adopted on that that gets used quite often, that's not actually codified, um, is, is why we're in the situation we're in. I think what, you know, what Chad is saying is, you know, it is one of those things that I think legislators could fairly simply get around, but I agree, they could possibly screw it up as well. But if you had a bucket of money that was commercial and you wanted that same bucket of money, and a bucket of money that's residential and you wanted that same bucket of money, you could set your tax rates based on that same bucket of money. You could also force a city, 'cause I c- the, the one thing that Chad and I have talked about in the past and I could see is that cities would, would try to raise taxes more on the commercial side than a residential side 'cause commercial doesn't vote, right? So-

Exactly

... you know, so you would have to put things in the law to say that, you know-You know, maybe a city has to equally raise taxes on, on both or, or somebody... something along there. So, but I think it's really interesting to talk about Colleyville because what you just said about your TIF district is exactly what we say on, on a more global county level data, just looking at, at county data. You know, when a residential property is getting appraised, there's only one method. It's the market appraisal, right? Your neighbor's house sells for $300,000 and you have the same square footage, your house is worth $300,000. That's the market appraisal system, and there is a 10% cap on a homestead, but you're just gonna be in cap loss for the next 20 years like we have been in Parker County, and you're just always gonna have increases in your property values. So, um, you know, on a resi- whereas on the commercial side, when you talk about your TIF during COVID, it's very interesting because those businesses, they could have been in a market appraisal system before, but they kinda got to the, uh, the spaghettis of the highway, where you've got I-20 and I-30 and 35 all coming together, and they get this choice-

Right

... right then, right? They're like, "You know what? I've been on I-30 for the last five years in appraisal methods. I'm gonna hire my attorney, tell him I wanna go to I-20's appraisal method now," right? Like, you just... You get an off-ramp. You get to go a different direction, and residential properties don't, don't get that, right? So there's a gamification of the system that occurs on the commercial side that is not available on the residential side.

Absolutely. Yeah. The, the fact that they don't have really equal footing in those, um, appraisal methods is, is, it's not talked about very much. Um, you know, another thing, and this is sort of tangential, I think, to what we're talking about, but it, it sort of feeds into, I think, strategy both financially and operationally for any city going forward is, is knowing, you know, not only the makeup of your property, residential versus commercial, but how much of those residential properties, uh, are moving to exemptions each year.

Mm-hmm.

Um, because we have, we have an older population, and in the past, maybe not last year, but the year before that, we saw our, uh, property exemptions go up about 15%. Um, and so the really only exemption we have is, is disabled or, uh, over 65. We don't have a homestead exemption. So you're, you're further shifting the property burden to, um, you know, to younger homeowners. Um, that, you know, is also sort of a, a part of the conversation that's, um-

Isn't that part of the problem, though, is that we don't have as many-

Yeah

... younger homeowners?

Well, exactly. And so we can say all, all we want, we're not taking in as much or, or any, any additional revenue, you know, on average, but the fact of the matter is you're still seeing a lot of property bills go up.

So can you, uh, for the, for the folks that we have that listen to the podcast who are not finance directors and deal with property tax every year, can you discuss how the over 65 freeze is taken into account in your calculations? Can you just run through that real quick?

Uh, sure. Um, so basically that, that property value gets frozen, um, you know, at a certain point, so their tax bill remains relatively static. But the loss that you get, um, from freezing that property versus the increase you would've gotten in turn gets sort of spread around amongst your other property owners. Um, so we tend... I tend to try and forecast as best I can how much that, that freeze is gonna go up, um, just sort of for informational purposes. But again, for the, from the standpoint of the known revenue tax rate, you know, that's, that's just based strictly on the amount of revenue we pull that in. So that, that's relatively simple for us just to say, "All right. If we're going for the no new revenue rate, we basically know how much revenue we're going to get." It just kinda breaks down a little bit different for, for property owners.

So let, let's say you have a million dollars in loss because of this 65 cap, right?

Sure.

That million dollars is then spread out to all the other taxpayers in the city because you're able to adjust your rate based on the fact that you got a million dollars of loss before you go above the no new tax rate, right?

That, yeah, absolutely true.

Okay. I just, I just think it's-

That's, that's the way to calculate.

Yeah. It's, it's important-

It works, yeah

... it's, it's important to note that, you know, basically there is a subsidy for people who are over the age of 65 that's occurring within the taxation system. That's what I'm trying to point out.

Yes. That's absolutely what's, what's been happening.

So Kyle, let's jump back to two years ago. Um, obviously, you know, we're talking about property taxes. It's relatively stable, uh, even with all of the rigmarole that you have to go through to calculate how much revenue you're going to get. Sales tax was the big question that you and a lot of other people had. So as far as your budgeting went, like, what did you put into your budget for 2021, fiscal 2021, for sales tax versus what you actually collected? Like, I'm not wanna call you out here on your projection skills, but, you know, everyone was, was, uh, in a, such a state of uncertainty. I'm just curious, like, what did you expect to happen versus what did happen?

That's an interesting question. Um, you know, this hit, I, I think we really started to see these things in like March and April, um, which was in, uh, I mean, better that it hits then than it hits like much closer to budget season, 'cause you still have a few months to see how something so immediate as like a pandemic and e- economic closures are gonna hit your, um, your sales tax base. But I had took a, taken a look at basically how exposed it seemed like we could be, uh, from in-person businesses and restaurants, and I just sort of guesstimated it's, you know, possible on the, the high end of things, um, to, to have about a 10% dip at the worst. And so I kind of projected out and looked at h- you know, what that would look like for us, um, particularly within the next two fiscal years. Um, and you know, we didn't have to... We had enough reserves and, and foresight from previous years of planning that we didn't have to try and have this knee-jerk reaction, um, and start making these huge cuts. I know a few cities in the area has had that. Um, but the very next month, um, April, I remember that came in and we had increased, I think, 6% over the previous April. And so we were like, "Okay."That's interesting. Not a deck that we expected at all. We thought maybe flat or of a couple of percent lower, you know, at the best. And since that point, we haven't come down. Um, the worst month we have was still a one percent increase over the previous fiscal year. And what we saw was our, our businesses that, you know, the, the ones that I looked at, the in-person stuff, uh, entertainment, restaurants, they did take a hit. But what I didn't anticipate is that so many of our residents shifted their purchasing habits to remote sellers so that we still had this influx of cash, um, to where... And if you look at cities like, like Colleyville and Keller, for instance, both had the same phenomenon where we never had a, a hiccup in sales tax. In fact, we set sales tax records for the city. Um, so it was an interesting look at kind of juxtaposing that with a very much more destination-based economy like Grapevine or Hurst. They had a really hard time, and they bounced back significantly. But, um, you know, the, the... I just go back to the purchasing habits of, of our residents has just shifted, uh, so that we didn't really have a huge disruption.

Do you think that in your particular case, where the, the commercial base is, is growing, um, but I wouldn't say it's something like a Southlake, for example, which, uh, is just a powerhouse, or, or even a Grapevine, where a, maybe a lot of your residents did a good bit of their in-person shopping outside of your city, and instead, if they're starting to order online, that sales tax that would've been going somewhere else is actually coming to you now?

Yeah. In, in any other environment, you know, if it had stayed within the city, it would've kind of cannibalized itself. But we're... you're right. We're next door to Southlake Town Square, um, Grapevine Mills Mall. You know, all those things are very, I have disposable income, and I'm gonna go spend it at these, you know, these awesome stores. Uh, and now they just, they couldn't go out, so they stayed home and ordered things online, and it gets sourced back to Colleyville instead.

So what did you budget sales tax growth to be in 2021? So this would've been, uh, fiscal 2020 is when the pandemic started.

Yeah.

Um, you know, you're building your budget for 2021 during that time. What did you project that sales tax growth to be the following year?

Uh, we kept it pretty much flat for the most part. Um, and the reason w- was, I mean, number one, we could afford to. Uh, we haven't needed to budget sales tax increases to kind of keep pace with our spending, uh, at this point in time. So we kinda had the room to not, to be like, "Okay, we can, you know, take our foot off the accelerator and s- still assume that we're not gonna really receive too much more in sales tax, um, given that we're kind of in the middle of a pandemic." We had a bit of an idea of what we think it's gonna do, but again, this is kind of unprecedented, at least in our lifetime. So if we can not rely on an increase, that's what we're gonna do. Um, what we actually saw in fiscal 2021 was we ended the year 14% higher than, basically than our budget. Um, and so we had all that growth coming into 2022, um, that we could kind of, you know, keep in our back pocket if we needed to.

So, so when you got into '20-

That equates to what? Like, almost... Um, sorry, Patrick. That's like $800,000, give or take?

Um, about 5 to 600.

Okay.

Yeah. Well, that's in, that's in the general fund. Um, basically double that, so, but upwards of like a million, a million two, uh, across the city.

So when you got into 2022 then, you started to budget and forecast into 2022. You're coming off that 14% increase in '21. What were your thoughts? Were your thoughts that, you know, like, w- did you think it was gonna slow down? Like, "No way we're gonna have growth over 14% year over year."

Yeah. I, I'm, I'm definitely not gonna budget for double-digit growth at this point. Um, you know, I talked a little bit about like, so take, you know, Grapevine, for instance. I always go back to Grapevine. They took a huge sales tax hit-

Mm-hmm

... which was predictable. But as soon as things opened up, I mean, they bounced back, you know, even higher than they were. And so assuming that we had people that otherwise would've shopped at Southlake or Grapevine, you know, now being sourced to us, you kinda have to assume the opposite when things open back up, that we're gonna kind of ease back down. Um, and so that's what I'm, I'm kind of assuming here, is that, you know, we're starting to see... We had double-digit growth several months. Now we're starting to see that come back down. Uh, and so I'm, I'm still gonna assume maybe a couple of percent, uh, increase, um, you know, finishing in, in 2022. Um, right now it's looking like maybe 5 to 6%. Um, and I think going into the next fiscal year, uh, we have a couple of expenditure pressures, uh, that are gonna be put on us, but I'm not gonna... I, I, I don't wanna budget that on the back of sales tax at this point.

How's inflation factoring into these projections, right? 'Cause obviously it's a big chunk of the growth that you're seeing, and, but it also has the sort of corollary effect on your expenses, right-

Absolutely

... in terms of salaries, you know, needing to keep purchase power parity for your employees, um, cost of goods and services, and things like that.

Mm-hmm.

So how are you balancing those two things?

So a couple of things on that side. Um, the first is you mentioned salaries and purchasing power and stuff. Um, we lost some employees, um, to different private sectors relatively recently. Um, and so we've... That, that's been a part of our decision to do a, uh, a citywide salary survey to make sure that we're within the market.Um, as you know, whenever that happens, it's public safety salaries that come back that you have to really adjust. So we know going into next fiscal year, we're going to have at least several hundred thousand dollars that we're probably gonna have to feed into, uh, salaries to keep everyone, you know, close to market and retain our employees. Um, the other spending pressure you kinda mentioned is, of course, just the purchase of goods and services. The biggest thing there is our capital improvement program, which is really extensive, and we- we're doing our best to fund it with cash. Every single bid we've gone out for has come back, come back, um, higher than we'd initially anticipated, just so the cost of construction, um, is so much higher. So we have to sort of adjust, uh, you know, our, our cost estimations and to potentially put off some projects because we just couldn't do as much with the dollars we have as we thought. Um, so I mean, at the end of the day, we're, we're gonna continue to be conservative from a, um, a revenue earning standpoint. Um, but I think it's, it's... You know, you can adjust some costs like those capital improvements, and others you really just have to try and keep up with, and those would be the, you know, the personnel capital, um, that you have there.

Well, people... I mean, let's talk about people real quick 'cause it's something you guys are faced with. I mean, we're s- we're actually doing a couple compensation studies for some cities right now, and what we have noticed is that the people side of the business is getting expensive very quickly. There just is-

Yes

... not a lot of people to fill the roles, and therefore, the, the price of those people are, are going up, right? Are... You know, public safety is obviously one of those areas where, like, if you lose... You know, for folks who aren't in cities, I'll say this out loud, uh, if you lose a police officer, there is an expense to that that's not just about going to hire another body, but you then have to bring somebody in, they have to be trained, they have to go to academy. You're gonna have overtime expense to cover that shift 'cause you still have minimum staffing levels, so forth and so on. So, um, you know, a lot of times not paying salaries in PD can cost you more money than it, it would if you actually paid the salaries just 'cause you have so much turnover.

Yeah.

But for you guys, what other areas of the city are you finding to be really tough to retain or where you feel like wages are, are increasing quick?

Um, you know, public works has always been one that can be difficult on the frontline.

Mm-hmm.

Um, you know, because I think you get, if you get to a level of, like, manager or above, you kind of somewhat built a career on that. But, um, you kinda mentioned losing a police officer. That happens more often than not, than, than a lot of people think. Um, and I think public works is a bit of the same way, is that you, you have pressures from maybe unrelated industries. They just kinda say, "You know, maybe I've kinda had enough of, you know, digging streets and, and filling potholes and doing capital projects. I kinda wanna jump over to something a little more lucrative that I have, um, you know, some, some upward mobility." Uh, especially with a city like Colleyville, we have a lean staff. Um, and I can name... You know, I have a few employees that are just fantastic, but I, I don't... There's only so much I can offer them from a growth standpoint. We have that in several areas of the city, and, um, I mean, there, there's only so much you can do to try and keep people around. Um, public works has been one of those that we've, we've had some issues.

Yeah.

So there's one thing that I will always have a great deal of respect for, and that's the street employees who in the dead of a Texas summer, 110 degrees, are out on a laydown machine pouring hot asphalt. Like-

Mm-hmm

... that is an absolutely brutal job. So yeah, it's, uh, depending on the market and how things are working, the possibility of losing someone to something that's m- maybe a little bit less physically demanding or at least a little bit in a more comfortable environment is, is something that's, that's always gonna be a challenge.

Yeah. And you, you have the same thing when, I mean, when the snowmageddon hit, we had our public works guys out there helping people shut off their water and all that stuff, just out in the freezing cold. And it's, it sounds weird to say 'cause we live in Texas, but I mean, it's, it's happened two years in a row.

So let me, let me ask this question. What, what is... Looking into fiscal year '23, right? 'Cause we're just now opening budget. You, you've probably had budget kickoff at this point, right? Or about to have it.

Yeah.

Okay.

Yeah.

So what is the mindset, you know, with, with kinda all the uncertainty in the world, the high inflation rate, you know, obviously the Ukrainian conflict, um, you know, all the different types of things that, you know, that we're seeing right now, what is your mindset for 2023, and can you compare that with any other fiscal year you've, you've lived through?

Yeah. It's, this is an interesting one because, as I said, you know, the previous four years, the city's been very dead set on, "We're gonna do the no new revenue tax rate. We can afford to do that." You know, we, we had areas that we knew we could sort of, um, uh, you know, move expenses to and, and make that happen. It's been relatively easy for us. But now we've kind of cut things as lean as, as probably we can without having a, relying on an increase in, in property taxes. And when you put the salary survey on top of that, that's gonna affect by at least a couple of hundred thousand dollars. You have to start tempering people's expectations that like, okay, we've really praised ourselves on the ability to hold the line, but now it's not really just up to us. Um, and we have to start to think about strategically if we're going to potentially, um, ask at this point maybe two new council members and our city council members to consider a potential tax rate increase or not going to the no new revenue rate. We have to be very, very careful about how we phrase that, um, and, and you know, how that not only is perceived in the public, but is also perceived from a staffing standpoint. Um, the easiest thing to do when you're, especially in a North Texas conservative city, when you talk about tax rate increases is to say it's for public safety. Um-You know, a lot of cities do that. Even, even people who are arguing against the tax rate cap, it was, you know, said, "Okay, talk about it. It's an anti-public safety bill," all that stuff. Um, conversely, when... I think when, um, employees, especially frontline employees, hear about that, non-public safety can start to feel a little bit demoralized and devalued. Um, so you have to control that message from, you know, externally and internally a little bit. And so I think a lot of our conversations in our director level has been, you know, we may not go for that no new revenue rate. We may not be able to do it. If we do, here's kind of what we're thinking strategically to make that happen, um, and to try and help our leaders understand what's happening.

Sales tax makes up what portion of y'all's budget?

Oh, 15%, I wanna say.

15%?

Something along those lines.

Okay. So it's, it's not huge, right? So-

No, we're, we're a very property tax heavy city.

Yeah. So I, I-

Most of it

... I say that because I, I wanna throw these numbers out there, right? So you for the last four years have adopted the no new tax rate, right?

Right.

I think, I think you said four earlier. You're gonna have-

Yeah

... a salary study that's gonna be done. Obviously, that salary study's gonna take in an inflation. Your max cap is 3.5% if you, if you were to go to that rate. The inflation rate this year that we estimate for you guys right now, this is as of, uh, this month, so, or as of last month, as of March, we're showing the inflation estimation to be 9.66%. Uh-

Yikes

... right? So, that's a, it's a, it's a huge number, right? That's, that, that is... It, it's literally hitting the milk and eggs and meats and those type of things that your employees are, are buying. Things are more expensive, you know. I, I joked the other day, I had to swipe my credit card twice at the gas station for the first time, right? That's a, that, that's a change, 'cause things are going up.

Yeah.

So do you see that conversation filtering in to discussion at city councils? I mean, like a legitimate inflation conversation that's gonna, that's gonna come up?

If it comes up, it's gonna be, um, probably on the cost of capital projects rather than, rather than our employees can afford XYZ. I've seen that, I think, come up in, not at this city council, but in Weatherford. Um, I think maybe the, the year after Chad left, we, we had talked about salary increases and mentioned inflation, and that didn't really go anywhere. Um, I don't know if it would here or not, but if-

Well, inflation was sub 2% back then.

Yeah. Well, I think we, we talked about, well, cost of, cost of living, stuff like that, and, uh, and I think that's, maybe be... is a, is a little bit beyond what a lot of people wanna talk about at that, that level. Um, you know, with the salary sur-survey coming back in, we'll probably just keep it at, "Look, this is the market, and the market is what the market is. Um, we have a lean staff. If we wanna retain good people, this is kind of what we're looking at." I, I really don't see inflation becoming a topic as pertains to, you know, people staying on city staff, um, other than, like, the cost of a lot of our other, you know, frontline services, construction, things like that.

I will be really interested to see which cities in their COLA projection, cost of living increases for those folks who don't work in cities.

Yeah.

You know, typically you have a 2 to 3% COLA increase on salaries a year, right, before you start talking performance and other things. I'll be really interested to see cities that come out and do 9% COLA increases. And the reason I say that's-

I haven't

... the reason I say that's really interesting, because I w- from a management perspective, I think that's really smart, because you're not gonna fight for the next three to four years to catch back up, right?

Yeah. You kind of bite off a little bit more at once rather than having to keep coming back to the well and taking these little bit, bits and pieces out of it.

Yeah. It, it gets very difficult to catch up when you're so far behind, right?

Absolutely.

If you, if you're always kinda at that top, top, or you're, you're pushing that lead, and when you have a huge inflation year like this, um... And, and I... You know, the, the only year that I can, like, look back at, and, and this isn't gonna make people feel warm and comfortable, where I felt like, and, and probably the actual inflation number was not near this high, but where I felt like things were really hot and we had to do some things with salaries was 2000 and, uh, like, 7. Like, 2006, 2007, right before we had the big housing downturn in '08. I, you know, I really felt like there were these inflationary pressures that were there that we really needed to take care of and make sure that we got our pay where it needed to be. Um, and so I don't know what happens next year. Um, you know, consumer spending does look to be a little softer than it is right now.

Mm-hmm.

Right? So there are some things there. Um, but yeah, I think you're smart. I mean, going back to that sales tax projection, I mean, not, not projecting double digits into '23 after double-digit gains in '22 is probably a, a good way to look at it. But, you know, ultimately, at this point, anything less than 9% or 9.5% is a loss. It's, it's not-

Yeah

... you know, it's not positive. It's a loss.

Well, Kyle, thanks for coming on, buddy. Good luck this, uh, upcoming budget season. Hopefully things will go smoothly for you. Thank you. Thank you. This... The conversation went pretty quick. I had a lot of other bullet points to hit-

Oh, well hit them

... and get to.

No, go. Let's, let's hear it.

Rapid fire, let's go.

Yeah, lightning round.

Oh, rapid fire. Okay. Other things we have to watch out for, um, obviously increase in health insurance. We've had a really good, uh, couple years in that, but our loss ratio is, uh, is still something that we have to, uh, you know, keep a lookout for. So that's another cost that I think was really big for people to hit on in the previous years and, and now the conversation is, at least for us, has shifted away from that, but it's definitely still out there. Um, I mentioned it being an election year kinda throws things a bit out of whack for us. Um, that's, you know, that, that's kind of a bit of a, a question mark. Uh, knowing that you have a couple of council seats that are come, you know, coming up and-What their priorities are going to be and, and all of that, um, is, is interesting. Um, maybe the last time to-- thing to, to hit on is Colleyville is almost built out. Our developable property is, um, is getting pretty, uh, scarce at this point. So that's obviously gonna hit, uh, your increases in sales tax and building permits just are, are continuing to tank, and they're, you know, it's just the way it is. But, um, I think as you-- as a city, you have to transition from a growth city to a pretty well landlocked one, uh, and that can be a difficult transition for, for staff.

Yeah. Or you could just up zone.

Just, just build, uh, build higher?

Yeah. More density, baby.

I tell you what, you come, come run for city council and mention density and see where that gets you.

Have we sent Kyle a, a, a signed Strong Towns book yet?

Yeah, I think he got one, didn't he?

A Strong Towns book.

Okay. Yeah. So that, that would be a, a very interesting case study in Colleyville, Texas if you, you know, walked into a, a neighborhood and said, "You know what? I, I wanna turn this one acre million dollar home, multi-million dollar home into a fourplex."

Four duplexes, yeah.

Yeah.

Oh, you would be run out of town. There is no one in this city that, that wants to argue for more density.

Well, so-

And if you could get, if you could get multifamily approved in Colleyville though, you would make a fortune as a multifamily developer, right? Like-

I'm sure you would. But you, you-

That product would just be killer.

Yeah.

So when we've-

So-

When we started pulling property tax data, one of the cities that I looked at, like, you know, pulling some neighborhoods and just looking at the sort of pro forma, I pulled a couple of neighborhoods in Colleyville, and the, like, the loss ratio was basically as consistent as pretty much anywhere else. I mean-

Mm-hmm

... the, the amount of revenue that can be generated, even on those really high value homes, does not cover the cost of the infrastructure and the policing and the public safety, um, which is, which is probably a much broader conversation relative to the appraisal caps and the senior freezes and the age and the population demographics and things like that. But, but yeah, it, it will be a very interesting question, like, when you cannot build really anything new and you shift to a kind of redevelopment or a maintenance mode. If you're underwater as it, uh, you know, to start with on those neighborhoods, which is not, again, not unique to Colleyville, um, it's basically the situation everywhere, but, you know, then what?

Yeah. I mean, no one ever... I, I don't ever really hear many people talking about, you know, revenue per acre or anything like that, and it's, it's an important metric, I think, to keep in mind, especially, you know, out in Weatherford, uh, I mean, in that area potentially, uh, particularly you have a lot of, like, car dealerships coming in and stuff like that, and you're like, "Man, they're taking up a lot of land." Um, and it, it can look flashy, but what are you really getting from that versus what you're having to give for that? Um, and it- that's, that's where having a really good economic development and financial s- financially savvy economic development guy comes into play.

Yeah. So Colleyville has done a pretty good job, especially with the office, like the, the office parks, 'cause those are relatively dense office parks. They don't take up a ton. They have a lot of shared parking.

Yeah.

So you're getting a lot of value, you know, I think for the, for the amount of acreage that's being used.

Yeah.

And, and office-

Well, and from a-

Is that, that's-

From a, like, a consumer standpoint, it's a lot of... We have several grocery stores that are higher end, and, and those don't tend to fluctuate as, you know, as much as, say, some of the retail establishments. So there's a lot of consistent shopping that goes on.

Matt, you got anything else?

No. I mean, I, it... Do we hit all of the bullet points in the lightning round?

Yeah, I think I'm good. I think I've done, uh, enough of a brain dump as I can.

Bleh. Bleh. I got it all out. Feels better now, man.

Hey, this is an interesting... This is, this is off the cuff and completely different from what we had talked about, but, um, as we've been doing capital projects and, and the fact that, like, bids are so public and everything, one thing we've got to watch out for is fraud. We actually had a pretty s- um, um, sophisticated, uh, try at about $4 million from us that, uh, my staff caught before it went anywhere. But I mean, we've, we've had several of those come in as we have these large scale projects come up. Uh-

Now, are they-

And especially-

W- were they trying to imitate the contractor and then get you to change the routing information? Is that what they tried to do?

Exactly.

Yeah.

And it's, it's, and, you know, it's easy to say, "All right, we just don't do that over email. We'll, you know, contact them and everything." But there are a lot of cities out there, and, and school districts I think are pretty s- you know, um, susceptible to this, but they, they fall for that. Um, we actually had one, um, someone who tried to change just an employee's, you know, direct deposit, and so I said, "Sure, we can do that. What's your bank info?" And they would email it to me, and I'd send that to one of our detectives. They freeze the account, and it turns out that same account had, like, $750,000 worth of a Texas school district's money.

Wow.

Um, and it's just, it's, it's crazy, like, how people can fall for that stuff, but it, it happens a lot. Um, so I, I don't know. I think, you know, just gotta, as a finance person, train your staff on that and keep watching for. But I thought that was, like, an interesting little aside that doesn't, I don't think, I've talked about with you guys before.

Yeah. With, with open data on that side too, like, you, you can go to a website now, and you can pull up any public employee's salary level, right?

Yeah.

And what their name is and what city they work for, and so it, it gets really easy to just spoof an email, you know, set up a Gmail account with a spoofed email and send that email to you to basically, you know, say, "Hey, I'm, you know, I'm John Doe, and I need you to change my routing information to a new bank," or, "I need you to set aside-

Yeah

... you know, 500 bucks of my paycheck to this bank account," those type of things, right? So, um, you know, we had this rule back in the day, and y'all probably do this too with transfers. Y'all, y'all have tokens for transfers, I would imagine. But-

Oh, yeah.

Yeah. So, um, and I'll, I'll talk about this because you really... You, you can't go wrong if you do it correctly.You know, we would have tokens and we would have to, we would have to insert two tokens into a wire transfer and, and our rule was you had to be together when you did it, right?

Mm-hmm.

Like the person requesting the wire, which would have been me, to my finance director, right? The finance director and myself had to be in the same room at the same time requesting our token number. That way we knew it wasn't a fraudulent, you know, somebody trying to-

Yeah

... spoof me 'cause we-- What, what ended up happening a lot and, and I don't know if this is still as common as it is, but it'd be like a city manager emailing his finance director or their finance dir- his or her finance director and saying, you know, "Hey, I need you to send a wire for this amount to this user for this deal." And you know, back in the day it's like, yeah, why not? City manager tells me to send it, it's less than fifty thousand, he has the authority to do it. It's good. But it was not actually the city manager sending the email, right? So, uh, yeah, it's in- it's incredibly tough and, uh, you know, in today's world. Chad got me into password managers and using crazy long passwords to be better at what we did. Um, but, um, yeah, it, it... the sophistication out there is crazy good right now.

Yeah. Usually you can spot it pretty easily for the ones that are, you know, coming in from another country that they're like, "Okay, you've misspelled the word 'the'" or w- you know, whatever, the, the language is off. But the one we had that almost... it wouldn't almost, but it was trying to get four million from us. There was maybe a few small signals that told us this is not legit. Um-

Yeah

... you know, regardless, we would've verified that verbally with our contact. So there was no way they were getting that. But it's just, it was kind of scary, like how, how targeted it was for the timing particularly 'cause that was the day that deal was supposed to go through.

Yeah. Yeah.

That's, you know, when you keep your check register online, all that open data, it can be a double-edged sword.

Yeah. It's wild, man. It's... it, it is crazy for sure. So, well, brother, I appreciate you coming on and talking with us today. Uh, Chad, are you still there with us?

Yep, I'm still here.

All right. Awesome. So, uh, you wanna wrap it up?

Uh, typically you are the one that wraps up.

He can't see my face right now.

I can see you.

Anyways, Kyle Lester, man, thanks a lot. Thanks for joining us. Thanks for coming in and talking about the, uh, the tough world of, of finance, especially in today's world of inflation and, uh, tight property tax values, and so we are certainly appreciative of that and appreciative of our friendship, man. Uh-

Yeah. Thanks for having me on.

All the way back to grad school where I annoyed the life out of everybody in the classroom, I appreciate you still hanging out with me.

That's, that's a fact. Yeah.

Yeah. So thanks brother, appreciate it, man.

All right. Thanks. See you guys.