Greetings and welcome back to ZacCast. I am Chad, that is Patrick, and it's been a while, but we are back now. So, uh, the summer vacation is over, kids are back in school, and we actually have some quiet in the house. So, uh, Pat, how was your summer?

Summer was pretty good. Uh, as usual, played baseball all summer long, or my kids played baseball all summer long. So was on the road quite a bit. Uh, and, and yes, my kids are back in school, so they are no longer in my ear or interrupting our attempts to record podcasts. I believe we actually did try to attempt to record a couple podcasts and it just didn't work out during the summer.

Yeah, we did and kinda gave it up, so.

Yeah.

That's okay. I mean, everyone needs a break, even our, uh, wonderful listeners, you know, they need a break from us too, so. So let's go ahead and just dive right in because we've got one bit of semi-breaking news that's definitely worth reporting and kinda chatting about, and that's the lawsuits that are related to the Comptroller's administrative rule changes, uh, for sales tax. Why don't you kinda fill us in on what's been going on there?

Yeah. So, you know, a little over a week ago, um, there, there was a lawsuit. There's a lawsuit out there based on, uh, the destination sourcing, uh, and what the Comptroller's rule change on that destination sourcing was. We listened to, or we've talked about this on our podcast quite a bit, so you can kinda go listen to some of those destination podcasts if you're curious what that change was. Um, but it had to do with online, uh, retail sales and where the place of business was established and so forth and so on, and it would've impacted a number of cities that had existing agreements with companies to be their place of business sourcing location. Um, those cities sued the Comptroller. Uh, their basis for the lawsuit was, was pretty clean cut, pretty, pretty clear. Um, the basis was that in the rulemaking process, the, um, the Comptroller, when they went to go change the rule, did not properly show the impact, uh, to local governments and, uh, you know, obviously couldn't, you know, determine how much money that local government was going to lose, which you and I have actually talked about previously, I think, where administratively that would just be next to impossible to try to figure out, like, how much of a business sales tax comes from online versus, you know, in person or place of business sales at a per- a, a certain location and, and versus destination. And, you know, in order for the Comptroller to really dig into that, they would have to, like, audit the business operations of every taxpayer, which is, you know, next to impossible. So, you know, the Comptroller kinda changed these rules, and they didn't really have a fiscal impact analysis. Well, the cities, uh, and there were a number of cities there, Coppell, uh, Round Rock, um, you know, a, a n- a number of communities that were involved in this lawsuit that had these agreements. They, they basically went out and said, "Look," you know, "they didn't show the impact on us. It's gonna have a very substantial impact," and so therefore, they didn't follow the administrative rules, uh, in order to do that. And they asked for a summary judgment. So before jury, before trial by judge, before any of that, they basically went to the judge and said, "Hey, they did not follow the rules to begin with, so therefore we shouldn't even have to go through the full lawsuit. We're asking for a summary judgment." And wow, the judge agreed and dismissed, uh-

Wow.

Yeah, wow. Uh, found in... Didn't dismiss, sorry, found in favor of the cities and basically told the Comptroller that, um, they are not legally allowed to implement that rule that they did through that rulemaking process. Uh, it was not the entirety of the rule. It's very important to understand that this lawsuit was only one subsection of that rulemaking process. Um, but I mean, I guess you could probably make the argument on other things. I think the biggest takeaway for me though, Chad, is what the judge kinda did and said about, you know, you didn't properly follow the administrative code on what, on what those impacts would be. That could be a little bit far-reaching, you know, coming down the road, 'cause we always complain that the state in general, not necessarily the Comptroller's office, they're usually really, really good, let's be, let's be fair. Um, but in legislative making process, like fiscal notes that are put on there, they're not required, uh, by statute or any rule to show what the impact of a local government is, right? So, um, it, it'd be interesting to see kind of does this kinda change that process where we're gonna have to show more impacts, and does it slow down rulemaking processes, uh, or just quell them altogether because they, they can't, they can't, you know, rightfully figure out that impact.

Yeah. It's gonna definitely make certain types of changes impossible without the legislature, right? Like-

Correct

... saying that online sales can no longer be recorded at a... And, like, the internet is not a place of business anymore. That shifts the nexus calculation basically to either a fulfillment-based or a destination-based, um, answer when you're asking the question of where does sales tax go. And in order to actually calculate that, you would literally need to know where every single order was shipped from and shipped to.

Correct.

And that's just for one business, right? That's gonna be extremely difficult to actually come up with. And honestly, from a cost benefits standpoint, there's no justification for going through that much effort just to make this rule change. Even though, in my opinion, and we talked about this before, it did clear up some inconsistencies in how certain types of sales tax were treated once we had online sales tax across the board, right? If you look at the fact that, like, any other online vendor, that sale's primarily gonna be destination-based, maybe fulfillment-based. And then there's this carve-out of a handful of businesses that had arrangements prior to Wayfair, and those are gonna be treated differently. So-There is a logical argument to say that these should all be treated the same, right? Like should be treated like like. Um, but because of the way the comptroller went about it, and because there was absolutely no way for them to figure out what the true impact would be, well, either to the cities that are gonna be negatively impacted or to the ones who are gonna be positively impacted, right, where their revenue would start flowing to them, the main thing that we know is that the overall amount of local sales tax should probably stay about the same. It should stay identical really, but it will probably stay about the same. It's just gonna be shifted from one city to the other. But I mean, like you said, there's no, there's really no feasible way to calculate how much would be taken away from those cities and how much would be distributed elsewhere. And if you're gonna do a true fiscal impact, like if you're just gonna say, this is gonna generate more revenue for those cities, then maybe since that's a net positive, that would be sufficient. But there certainly would be not any good way to calculate the negative impact, uh, for those other cities. And especially when you consider the fact that they already had de facto approval from the comptroller for those arrangements in the first place.

Yeah, the tax letters.

Because they all came before Wayfair was even a thing.

Yeah, and, you know, I think there's just... and, and we've had this conversation with numerous clients. I, I just truly doubt the comptroller really knew who was operating under those agreements and, and who was not. Uh, the cities know 'cause they usually have incentive agreements with those players. But, um, the reality is it's just, it's almost administratively, you know, not feasible because they, they don't know the operations of every single taxpayer in the state. And it just, it's not reasonable to think that they would. The other thing I'll say though is I do agree with you that if, if this change was made, pretty much the same local amount of sales tax would be collected. It would just shift where it's collected and who it goes to. Um, but, you know, the... kinda a couple legislators in this process have kind of proposed going to, and there was a bill, have proposed going to a, um, a straight destination sourcing, which we like to call change of pojet- possession, uh, just to kind of clarify what that means.

Well, we like to call what we have now change of possession sourcing.

Yeah. Correct. So and they wanna go to a destination sourcing where it's like wherever that item goes is where it gets taxed, right? Um, and-

Yeah. Well, we can... We assume that. It's, it's not entirely clear at this point exactly what they mean by destination sourcing.

No. Oh, yeah. A hundred, a hundred percent.

Um-

Nobody understands that.

Yeah. We- we're making the assumption that what they mean is that every item, the nexus for the item is where it ends up.

A-a-absolutely. And, and the reality is, is that they would, um, if they did go to that type of, of sourcing, my belief is, I, I don't know if you agree with this or not, but my belief is we would lose a significant amount of sales tax in the state of Texas because the administration of that tax would become so difficult.

Yeah. We would, we would definitely lose quite a bit. Um, I... even the big guys are gonna have difficulty keeping track of it. They may have the resources to do it, but it's still gonna be difficult, if only because of the volume.

Of course.

But I mean, we talked about this, uh, last week at the GFOAT meeting last, uh, week up here in North Texas. But if you're gonna actually ask Walmart, like if the goal is that every item that's purchased, just from a retail sales standpoint-

Mm-hmm

... every item, the sales tax should go where the item ends up. If you go to Walmart and you buy, say, some things for a party at your house and, and you also buy, say, a present for your kid's friends, and that's gonna go to their house somewhere else, and then maybe, you know, who, who knows? You already have at that point two different locations, two different destinations for one shopping trip. So you're-

Right

... either gonna have to be able to specify where it goes where for every item, right? So think about the impact for the consumer, let alone the retailer. Or you have to split these up into separate transactions, which is also a burden and an inconvenience. Now, when Wayfair was decided, one of the caveats for allowing online sales tax is that it had to be... you call like, you couldn't put an undue burden on these businesses to comply with it.

Mm-hmm.

Going to a full on destination sales tax is gonna put so much undue burden on both the consumers and the retailers that it's hard to imagine, A, that it's worth doing, right? But... and, and, B, that they're actually-

Yeah. No, no. I think-

... gonna go through with it.

I, I mean, I, I think you're spot on with that, so you know, for sure. All right, shifting gears a little bit, let's talk a little bit about property tax, 'cause we're, you know, we're in the midst of budget season. Um, a lot of people are filling out their, you know, what's called the de minimis, uh, tax spreadsheet or worksheet. Um, under the new tax statutes that we have in place, um, there's what is called basically the no new revenue rate, and then there is the, uh, voter approval rate. Uh, the voter approval rate is, is anything over three and a half percent, right? And above the no new revenue rate. But also in that law, there is this kind of revolving three-year window, uh, that you can bank. So if, say, you in year one adopt, um, you know, the no new revenue rate, you can bank that three and a half percent increase for some time period in the future years, uh, in that, you know, revolving three-year window. So but what's interesting about this, and talking to some finance directors, we've gotten quite a few questions from, from clients about, "Okay, that's awesome, but how do we actually show that in our budget document?" Because the worksheet that we're provided by the state and by the appraisal districts, which is basically provided by the state as well, um, doesn't take into account the banked amount. So a lot of cities who banked last year, 'cause we're just seeing this now, it's only two years old of a law, right? So a lot of cities that banked their, uh, their increases from last year to possibly put them into this year, and, you know, clearly with, you know, 8 or 9% inflation, you know, cities are having to, to increase some tax rates to be able to account for cost, uh, just like people at the grocery store are accounting for that.Um, they're going through this and, and trying to figure it out. The worksheet doesn't take into account that banked amount. So they have a three and a half percent amount on that worksheet that says, "Okay, here's new revenue. Here's the three and a half voter approval rate. Anything over that, you gotta go to an election." And then they're adopting a tax rate over that amount and not going to an election because they're not legally required based on the statute of banking. But there's nowhere in that worksheet to take into account the banked amount, right? Uh, so it's, it's a very interesting issue that cities are going to be adopting budgets with tax rates over the voter approval rate, yet not required to go to the voters. I'm not sure how many residents are gonna pick up on this, because I'm not sure how many people actually open up the city budget document off the website to look at that or look at the public notice, you know, right? But ultimately, it just seems like a goofy thing that we could have fixed. If it's in the statute, we could have accounted for in the worksheet anything that was left over from previous years.

Yeah, but that would presume a level of forethought that- ... that is, is a stretch to begin with, so yeah. It's not surprising-

True

... that a year or two years into this new system, we've already got, uh, a situation where no one really is confident in how they're supposed to move forward. I mean, truthfully, I don't know how anyone does those calculations anyway and feels confident with what, with them. It seems to me that it's kind of like doing your, your taxes, where there are probably five or six or maybe 10 different ways you could actually calculate your taxes and feel justified in, in making that argument and for that number. But I mean, even back under the old effective tax rate system, I mean, there was no way that in the world that I was gonna put my name to those numbers. So we just let the-

Yeah

... appraisal districts-

Yeah

... uh, to do that for us.

And, and every city is a little different, right? Like, the appraisal district would, would provide that worksheet, and some cities would take that as the gospel, right? And they'd run with it. And then other cities would just totally disagree with what the appraisal district was, and they would come up with their own numbers. And unless you get challenged in court over it, nobody's actually calling your bluff on it. Uh, the other thing within a diminis- diminishment rate calculation too, there are, are a couple other areas that are very interesting that have come up recently. Um, one, there's this ability to fund up to $500,000 in your O&M, right? So for smaller communities, smaller cities, smaller special districts, there's this ability to add $500,000 a year in revenue regardless of where it puts you on the voter approval rate spectrum and increase your tax rate to get to that sum without going to an actual election. That's, that's interesting. The other thing is that the I&S rate... Sorry, go ahead.

No, go ahead.

Yeah. So the other thing is, is that the, the three and a half percent cap is only impacted on the O&M side. The I&S rate is on an island all by itself. And all they did on the I&S side is they took out the ability for cities to issue COs for certain types of projects, mainly buildings, right? So they can still issue COs for water and sewer and streets, uh, and public safety facilities or buildings that have public safety facilities associated with them. So we have seen at this point a couple of cities that are building brand new city halls, and they have a public safety component, and those have been approved, uh, through the process to issue debt on them without voter approval, and that will increase tax rates. That-

Could you-

That happens-

Could you put a little police kiosk in a park?

It, it's a really good question, right? Like, where does that, where does that stop? Apparently the language in that statute, I have not read it, but apparently that language is pretty wide and broad. Um, and you know, when you take out debt, whether you're taking out a GO, voter approved GO, or you're taking out a CO, which is just council approved, if you take out debt on the CO side, only the attorney general is really... You know, your bond council goes through the attorney general to get that approved, and the attorney general says whether it's legal or not legal, right? Um, and we used to have to deal with that on like economic development debt, right? If we were doing an economic development deal and we're building roads and water and sewer, you had to be really careful to make sure that you could justify that those were all publicly needed improvements that were not always directly related to the economic development. Because if it was just straight economic development, by law, all debt issued for economic development purposes has to be approved by the voters. And so, um, just a ton of information I threw out there, but as much as we've tried to go in and make some changes, it seems like it's really had no impact on the daily ability for cities to issue taxes. I think it's important to note that that allows cities to increase tax rates on the I&S side while not increasing tax rates on the M&O side.

So I wanna throw something out here.

You look, you-

Well, I mean, look.

Yeah, you look-

None of this-

... like you're frustrated

... none of this is surprising because... Okay, so property tax is a wealth tax, right?

Yes.

It functions, it functions in a very specific way because it's a wealth tax. What we have essentially-

Yes

... tried to do for the past however many years is tinker with it so that it doesn't quite function like a wealth tax. And at the end of the day, what happens is unintended consequences, right? Um, the legislature has tried to restrict the ability of local governments to raise revenue off of this wealth tax because of how it functions, right? And then so you end up with all of these like random loopholes about how you can build a city hall now without having to go to the voters as long as you have a lit- a little couple of offices in there for your police department, um, or whatever the case may be. And I mean, it's not surprising that we get into situations where, um, everything just gets so out of whack because there's no, there's no real concern for like trying to just let cities do what they need to do and face their own voters. Um, we're gonna try and make them do what we want them to doAnd then the process, A, make things really difficult, and B, there's always gonna be some kind of way to get around it because you can't account for every scenario or circumstance So when you try to build these little carve-outs like, "Well, as long as it's public safety, it's okay," then you get into some stupid misallocation of resources like building a city hall with a separate little police department section in it that's totally unnecessary but just so that we can get through these little, you know, these red tape things, issues.

And, and to be clear, that's, that's happening all over the state, right? Because-

Right, and I'm sure it's not just this one particular issue

... cities understand that voters, voters don't approve city halls. Um, that's ... Y- if you take a city hall to a, to a bond, even though you may need it and you're gonna lose employees without it, and you're gonna have all these issues without it, they, they just typically don't approve facilities. If it doesn't have to do with public safety or pets, right, they don't get approved. That's just generally the, the way it is in cities. My, my concern here though, Chad-

Well, real quick, real quick.

Yep.

If it's the case that buildings don't get approved unless it's public safety, then why have a carve-out to allow public safety buildings without voter approval?

I, I, well, I agree, but my, my, my next point was gonna be we've ... It ... You know, the, the legislature has kinda run on, we have capped the increase in taxes, and we have simplified this for the voter, and the reality is, is they have complicated it more and probably taken the voter out of a position of truly understanding what's going on to where the voter can be, uh, involved in the process.

Yeah. So let me tell you an example here. Um, I recently, for the first time as a homeowner, paid for someone to look at my, my property tax, uh, statements for the upcoming year and-

Mm-hmm

... potentially protest them if they found reason to. Okay? So in my inbox, uh, a week or so ago, I get an email invoice saying that they saved me some amount of money and, you know, the tax implication was this, and so here's my, you know, 30% or whatever, uh, fee, so you owe me this much money. So I'm looking through it. One thing I noticed is that the amount that my, that my tax appraisal was now was basically 10% above last year. And so I called them because I'm thinking, "Am I just getting the benefit?" Like, initially my appraisal goes up, and then they realize I have that homestead cap, and so it gets brought down, and now I'm paying for them to do that, right? It turns out that was not the case. Uh, they ... The average person doesn't really understand all the mechanics to know how that all functions. They don't know how all these pieces fit together, and I don't know. There may be, like, one person in the state who knows how all these pieces fit together, and I think you know who I'm talking about. But-

I know exactly who you're talking about, yeah

... so, yeah. Basically, like, it's so convoluted that-

We see you, Senator. We see you

... that nobody knows exactly how it all fits together, and if you're just, like, a normal person who has a job and a family and you're like ... Are you supposed to spend, like, weeks reading the tax code and, and comptroller letters and things like that to try to understand how this all fits together? And going back through the history of the tax code to understand how, how it evolved and why we're here, where we are now. Like, there's just so- no way that you can do that. Nothing was simplified. Nothing's ever been simplified.

So just imagine this, Texas. The two guys, you and me, who are probably more involved in taxes in Texas when it comes to local governments than anybody else 'cause we do it for so many people-

Well, I wouldn't go that far

... property taxes.

I'd, I'd say we're in, like-

But, uh-

... the upper percentiles of people who understand all this stuff works.

C- correct, right? Even you and I do not truly understand our own appraisals. Right? Like-

We figured it out, but yeah.

I mean, yeah.

I mean, it took a while.

But, I mean, we had to take time to figure it out, and the reality is, is that we actually knew what we were looking at enough to figure it out. There are people out there with PhDs that, you know, obviously don't work in our field, but they still have trouble understanding what their appraisal notice is telling them. The, the biggest misconception is, is that the appra- appraisal notice is your tax notice.

Mm-hmm.

'Cause they put the whole section for taxes from the previous year on the appraisal notice on the bottom of the, bottom of the deal to show you what they think your taxes are gonna be, even though the cities couldn't possibly go up that much because they can only go three and a half percent.

Right. Right.

Right? So it's like, so why show 10%? Why not show three and a half percent?

Well, because it's not three and a half percent-

Because you can tell them-

... for the residential property owner.

Well, it's, it's-

It's not three and a half percent

... well, I mean, we're getting in ... Oh, boy. We could-

Hey, no, it's not

... we could have 20 minutes on that.

Like, we claim that the, the cap is three and a half percent, but it ends up not being three and a half percent on any individual taxpayer.

That's correct.

Right.

'Cause it's the cumulative total of the revenue brought in by the city from property taxes.

All properties.

And that doesn't take into account any shift in burden within the taxes-

Right

... as, as well, right? So I, I, I get that, but I'm still trying to make the logical point of, right, why are we showing them the 10% increase in their tax bill when we know they would never go that high without voter approval?

Well, the t- the true answer-

Why not just tell them-

... is that they shouldn't show it at all

... we don't know what your taxes are gonna be.

Yeah. They just shouldn't-

That's correct

... show it at all.

Yeah.

At the very least-

So-

... what it's more likely to do is cause outrage and storming of city halls, right?

Yeah. I mean, it ... And, and that's the thing is that, you know, it, it, especially at the school district level, right? E- even with tax compression, it just seems like we could figure out what the compression's gonna be based on what gets sent on notices. In today's world, we think this is where you're gonna compress to. And once we get final numbers, we'll have a final number for you.

Yeah.

Right? Like-

I mean, you could probably, as the appraisal district, calculate what the no new revenue rate i- would be and then say, "Here's what we, what your tax bill would be on the, you know, at the no new revenue rate and an estimated voter approval rate"-

Correct

... if you really wanted to do that. But-Even I wouldn't be caught up

Why not be honest? Yeah, but my, my thing is, is that cities get beat up. School districts really get beat up, okay? But cities get beat up because people get their initial appraisal notice with this is what we think your house is worth now, and then they look at the bottom line and they see that their taxes are going up $1,000. And the reality is their taxes aren't going up $1,000. Their taxes may be going up like 100 bucks or 150 bucks. Do they actually get upset about 100 or $150?

I mean, it would depend on where you are in that, like, income brackets, you know?

We don't-- Yeah, correct. But we don't know, right? We don't know because we show them false information in their notice. We, we never give them-

Yeah

... the actual information to, to make an educated decision on whether they're happy to pay for those services or not. If we would give them some clarity and transparency in that process, then we would actually know how the voters feel. And we don't, we don't get that. We just get a mob with pitchforks every reappraisal year.

Puppies.

Yeah. So anyways, I, you know, I ramble on about property tax because it's just, ah, it's so... We've made it more difficult on ourselves because we've made the statute side so difficult. And there are some ways that I think we could, we could give some clarity down the road. Uh, and the legislature's gonna go mess with property tax again this session. I mean, they, you know, they've got a ton of money on their hands. Uh, they're, they're gonna hit spending caps. They're gonna hit maximum caps on what can go into the rainy day fund. Um, and they're gonna have to figure out some way to buy down school taxes and do it within the expenditure cap limits. It's gonna be just wild and crazy this year.

Yeah. I mean, at the very least, I wish they would just, like, pick, like, pick one or two core objectives that they have with tinkering, and then do the most direct thing that they could do to address those instead of constantly messing around the edges and, like, pulling a string on step three and hoping that on step 50, they're gonna get the result that they want. Because they're never going to. I mean, the... Even in a medium-sized city of, say, like, 50,000 people, the, like, the property tax profile of all the different developments are going to be so different that there's no way for you to say, even if the total revenue goes by 3.5%, that any one taxpayer is gonna have no more than X or no more than Y, um, like, growth rate with the way that we have it set up.

Correct.

The problem is, if you actually wanna do that, you can do it. I mean, we can do Prop 13 from California. It's just gonna be a disaster for the real estate market, you know?

Correct.

And so that's why I say, like, if you don't want a wealth tax, then don't have a wealth tax. Like, find some other revenue source that is more directly tied to your ability to pay or some kind of objective measure that forms the actual tax base. Um, like, that's not to say that I support a state income tax, but at least the state income tax is pretty clear that your income is X and your taxes rate is Y, and your tax bill is Z, and your ability to pay is tied to it, and there's a lot less subjectivity with appraisals and things. Not that I, again, support an income tax, but we have a complex system, right? Our economy is complex, and what it really needs, what you really need to make a complex system function properly is very simple rules. And instead, what we get is a lot of complicated rules so that we can try to work around how the system is designed to function in the first place, and that's just gonna cause problems from here on out.

A-absolutely. Yeah. There's, there's so many hands in the cookie jar that you don't actually understand what the cookies are in the jar.

Yeah. I, I think also because you'd find a way to get schools out of property tax outside of I&S, it would solve a lot of our problems.

So to be, to be fair, right, um, the far-right conservative movement in Texas, which, you know, I, I don't agree with on most accounts, that is their biggest goal. Their biggest goal is to eliminate property taxes on the M&O side that support schools, and basically have schools just operate on a locally mandated I&S system, and the state would be able to fund them without property tax, right? I think that is a valid goal. I don't know if it's necessarily achievable. I think you can get down property tax in, in education. I think you can... You know, most districts are squeezed below a dollar now. They've dropped 20, 25%. Uh, I think they'll probably drop another 20 or 25% over the next biennium, and I think that will continue. But at some point, you're gonna have to hit, like, an operational bottom because the state still has to get revenue out of property tax. And I think what the state is, you know, what this group is hoping for is that sales tax will kind of make up that gap. Um, or we can add a percentage here to the sales tax, or we can figure out ways to put more things in that are taxable on sales tax, whatever that may be, and that sales tax will be the driving force. Um, but the reality is, is that I, I, I do not personally see an ability to get that tax rate to zero on the M&O side. Um, but I do see an ability to get it significantly lower. But we're using... In order to compress that, what most people don't understand is we- we're, we're not really saving money right now on the way the compression works. They're using the growth over 2.5% to compress.

Right.

So you're still paying a 2.5% increase every year in school taxes.

Yeah, it's just your rate is dropping to, uh, an eventual limit of zero.

Yeah. Correct. It's that 7.5% over that 2.5% in fast-growing districts that's getting compressed. So DFW, all the suburbs, that's happening. Houston suburbs, San Antonio suburbs, Austin suburbs, that's all happening. West Texas, not near as much. Uh, East Texas, not near as much. But the reality is in those fast-growing metropolitan areas, you're seeing those drops. Um-But, you know, legislators like to run on, "Well, we're giving people tax decreases." You're not actually decreasing my taxes. They're still going up two and a half percent a year.

Right. It'd be like saying that-

The statute actually requires them to go up

... it'd be like saying that sales tax rate dropped from, say, six and a quarter to s-six point two, and, "Oh, it dropped your tax rate." Well-well, if inflation hit, like, eight and a half percent-

So-

... I'm still paying more in taxes, right? Like, that's just kinda-

Correct

... how the math works.

So the concept of saying, "Hey, we're going to get rid of the M&O tax in schools, you know, by buying it down over time," it's-it's an interesting concept to say that because, you know, the things that they show that they're doing that with right now, it's compression, but I'm still paying more-

Yeah

... than I was before.

Yeah.

So it's really just gonna be a per- It's a, it's a percentage game, right? Millage.

Yeah. I don't think you'd be able to get rid of it just by compression. Even if, even if you could, it would take forever. Um-

Mm-hmm

... I think a lot of it could be supplemented with sales tax if that were really available, and we weren't neglecting other things that we might need at the state level. Um, I don't really have a solution. I would just like to get rid of or find another funding mechanism for the portion of the school funding allocation that is essentially state-funded.

Mm-hmm.

So that we would not have to be... Cities wouldn't have to be caught up in collat-as collateral damage in these arguments, right? 60, 70% of your property taxes is going to schools. Let's find a way to fund it in a different way that is at least, at least the portion that's already coming from the state, right? 'Cause you have magic pennies and that kind of stuff, which, geez, the school funding is a nightmare-

Oh, yeah

... trying to read through all that, all of it works. But there is a portion of school funding that is essentially fixed and basically comes from the state, effectively.

Mm-hmm.

Right? So, like, let's find a way, a, a different funding source for that, so that we can lower the actual property tax bill, disperse that to some other mechanism, and not have to have so many arguments and get... have cities get caught up in all these debates, you know, at the local level.

Yeah. I mean, look, in most, in most districts across the state, 90-plus cents, used to be $1.05-plus before the last two years of compression, but 90-plus cents is, is basically money that is bundled by the locals, right? School district taxes for that, appraisal district collects that, bundled by the locals and kinda given to the state to then give back based on average daily attendance numbers to the district. So, um, you know, people like to call, you know, some of that Robin Hood or, you know, whatever that may be. But the reality is, is it's just based on student population and, and what's there, and if a district doesn't collect enough money to pay for their average daily attendance and their student pop, then they just get money that was rolled back up to the state and rolls over to them, right? Um, and different districts based on growth and speed and percentages and things like that, they, there are some carve-outs there to make sure that they're taken care of. But ul-ultimately, um, most of your school taxes are just rolled up to the state. So... And then really the only control you have as a voter is your I&S rates, um, which most districts in the state are not really raising their I&S tax, uh, rates to build schools. They're just trying to keep up with growth, and they're using the growth in the actual property values in order to accommodate, you know, the building of schools.

Yeah, and to buy-

So-

... you know, very short-term things like iPads right? You know?

Yeah, so-

Like, those aren't capital expenses.

You know, and and I, I do, I do love the statement that's made on that, that, uh, you know, g-generally the statement made on that is, "Well, we pay that off on the front end of the note. We just account for that on the front end of the note."

Yeah, 'cause money is fungible, right?

Yeah, correct.

Okay.

So-

We gotta wrap up here in a second. Um, I know that you didn't read this article because you refuse, apparently, to pay for a New York Times subscription. But for any of our listeners who do have a New York Times subs- digital, digital subscription, we're gonna put a link in the show notes to this article. It's one of those, like, interactive data journalres- data journalism pieces that's... It's about, like, the rise of all of these employee and workplace tracking apps. Um, it's extremely interesting and also disheartening. Uh, but the actual design of the article is very impressive. So if, even if you just wanna pay, like, a buck for the free trial, or not free trial, but I'd highly recommend it because it's a very interesting storytelling mechanism, and maybe it'd give you some inspiration for things and ways that you tell stories about your city. But also, I would recommend, please, please don't track your employees in this way. I mean, there are companies, especially with remote work becoming more and more a thing, that force you to install software on your computer that, like, will take photos of you and screenshots of your computer-

Yeah

... like every 10 minutes, and, you know, if you're not, like, doing what they think is working, then you don't get paid, you know, for that increment. Or if you're on the phone or something and you don't have that software pulled up, then you don't get credit for it because they can't visually see that you're working. Like, this is not how you manage people. Um, good management is about making sure that the work product is done well and on time, not about managing every single second and all these, like, individual inputs that-

And I don't care how long that takes you to do it.

Yeah. If it takes you-

Let me just say that out loud, right

... three hours to do... like, to get everything done, okay, fine. Good for you. Like, go have a hot ham and cheese. Go have fun.

Which, which we, which we are looking for a few good people, if anybody wants to reach out to us. So just, just being honest, we're growing. Uh, it, you know, it's funny that you bring this up because I, I literally just had a, a call on a software demo, uh, that is a, a major media company, right? Uh, on a software company, and I asked that question when we were on the demo because I, I, I thought the individual who was doing the demo for me did a great job. And, um, I wanted to connect with that person on LinkedIn 'cause maybe one day we sell our software product in the state that she works in or the area of the country that she works in. And, um, I asked her the question. I said, "HeyYou know, is this recorded? Like, is your company recording this and, you know, are like keywords that I say or things like that gonna be sent back up? She's like, "No, it's... You know, the company I worked for before used to do that, and they used to s- they used to take snapshots of our work product, you know, every hour or so," and, uh, that, that really just led me away from them at the end of the day. 'Cause I'm in sales, and it shouldn't really matter what hours I'm working or when I'm working as long as I'm meeting my commission numbers and my quota numbers, and you and I have always been like that, right? Like, I do not care how many hours one of our employees works as long as they meet what we have set out as their goal to be met, right? That's, that's really all we're after. Um, and we were even like that in cities. I mean, I don't... Did I really care if somebody came in at 9:15 in the morning if they weren't, like, an upfront clerk person?

I mean, I mean, I came in at 8:30 every day.

True, true, true, though, but like-

Owing to my hour-long commute, plus dropping kids off at school.

Yeah, if somebody slipped out at 3:00 'cause their kid had private lessons or something like that. I mean, if you were in a role that it wasn't required that you were available for public, you know, interaction or something like that. You know, we, we did wanna make sure that, you know, our doors opened at 8:00 and our doors closed at 5:00, and that there was always somebody there to service a customer, but ultimately, like, it, you know, it's... I don't know, is that a generational thing? Is that just, like, a millennial thing of us that we just don't care about that? I-

I don't know.

I don't know.

I think there's also an element of not every job is suitable or structured in a way that allows for that, and so there's probably some s- equity concerns about, you know, people who are not in roles like that, customer-facing roles, don't have that kind of flexibility. You know, maybe they can't step out to go take a phone call. But, I mean, I just think about, like, buying a house, right? So if you're trying to buy a house, there is no way you can do that without taking time during the day to do it.

Correct.

Like, title company, realtors, they, they all-

Mm-hmm

... work during the day. I mean, especially title companies. Your realtor will answer your phone calls after hours.

Yeah, correct. Yeah.

After hours, but title company won't. Your mortgage company, your bank, you're trying to send documents back and forth, answer questions. There's just no way you can do that without taking time during the day.

Yeah, yeah, yeah.

And that's just, that's a major thing, right? Buying a house is a major thing.

Uh-huh.

But that's just one thing. Like, there's... Our lives are filled with lots of things, and work is one of them. And, I mean, if you're getting the job done, and as a manager, if you are evaluating the work product and making sure-

Mm-hmm

... that it's done well and on time, like, that's the most important thing. So just don't, like, monitor everything that you do. Uh, I guess, like, a lot of management used to be just, like, walking around and looking at people and, like, setting up your computers t- to face the door so you could see what they're doing. It's like Michael Scott, like, managing by walking around, and it's just not the best way to make sure that work is getting done or to make your employees feel like they're valued. Like, if you can't trust someone to do something, then find someone that you trust.

Once again, shameful plug, if you wanna work for people like us who don't track you or take pictures of your computer, uh, you know, we would always love to have somebody as we go through full-scale expansion. So, um, you know. Uh, last thing I wanna stop with or, or s- you know, talk about, sorry, before we wrap this up, um, is I think kinda what... We don't talk about our product much on this, on this podcast, but I think what we are about to release and what is coming down the pipeline in September, we just need to foreshadow it a little bit. It's super exciting, man. Chad, you're doing, you're doing a heck of a job on this thing, and I'm so excited to start getting this out to the client base.

Yeah. I remember when we were working on Signal, um, and we got to a point where it was functioning, and I think I told you that, like, this is probably the coolest thing that we'd ever do, and this new thing is so much cooler. Um, I'm hoping that this is, like, the last major thing that we have to do for a while. This'll give us-

Yeah

... like, some breathing room. There's nothing like this available for local managers, so just kinda be prepared. Maybe we'll talk about it, you know, on a future episode a little bit, but it's gonna be really cool.

Yeah, I'm excited about it. I think, I think our clientele is, uh, you know, our cities are gonna be excited a- about it, and so, uh, I'm just... You know, it's always fun when Chad is in the groove, and, uh, wa- watching you get in, like, your, you know, super Wozniak mode is fun.

Yeah.

Like, it's, it really is.

Yeah. The best part about being in a more creative role now as opposed to a more kind of administrative role is that there's so much time that you spend, um, just, like, beating your head against the wall, trying to figure out what is this thing that we're working on. You know, what should it look like? What should it do functionally? That when you finally kind of get past that sort of unknown phase and it clicks, then it's just all, like, blowing and going. Fun part.

30 seconds before we wrap up. Talk about that creative process a little bit, how mentally difficult it, it can be, the ups and downs.

Um, wow, you're gonna put me on the spot here.

Yep.

Man, we spitball so many things, you know, uh, the whole team, and-

Mm-hmm

... ideas that we have, things that bubble up from clients, or we read an article and something sounds cool, or a book or something like that. You know, we get an idea and try to figure out if this is something that could work for us. A lot of times we have to just say no. Like, we can't invest in this right now. This is not the right time, or it's not the right, uh, you know, functionality. It doesn't quite take us where we're trying to go, uh, you know, over the next six to 12 months. And part of that is also because we prefer to make smaller changes and smaller things. We don't want to bet the whole farm on one thing because that-

Mm-hmm

... leaves you vulnerable to making the wrong mistakeBut sometimes as these things bubble up and you think about them, eventually it just kind of gels to a point where it's, it just feels right, right? You just realize it's the right thing. But man, it is, it's frustrating because I think we have so many good ideas that we, we don't have the bandwidth or, you know, it's not the right time to do all of them. And-

I think-

They just kind of sit in the back of your head and stew and germinate, right? And a lot of the s- things we talked about over the past seven years, I still think about those things and like, maybe is now the time to do them? Is, is this the right kind of thing for us to do now? And they don't ever leave, right? So they just occupy space. That's the hardest part for me.

Mm-hmm.

They're just always sitting ba- in the back of my mind, fighting for attention, trying not to be forgotten. Um, so yeah. I, I don't know if that answers your question, but-

Yeah, I mean, I, I-

Yeah. The hardest, the hardest part is just getting something from like a seed to an actual idea and then to like the actual implementation.

You, you know, look, we're all about entrepreneurship. We're all about the side hustle, specifically like people in cities that have a skill set and side hustling in that skill set. Um, I just, I like to bring this up because I, I like people to see two things. One, the struggle is real, right? It's like the creative process is very difficult. Can be very difficult on, on you specifically, but it can also be difficult on the team as we grow. And then two, um, we probably fail a lot more than we succeed, right? Now, we catch a lot of failures maybe before the client sees them, right? I mean, other than like our parks app. You know, most failures, most failures aren't seen by cities.

Yeah. The other thing I'll add to that is that, um, a lot of times, you know, when you, when you have a, what appears to be a good idea, uh, but it's not the right time, um, instead of just trying to force it, um, uh, like one thing that we do I think pretty well is that we will build incrementally into our platform and kind of lay the structural foundation for what eventually becomes, uh, that original idea, right? Like we have slowly added in different metrics and kind of gotten into, um, some different things that have built up to what we're working on now. And so just like laying that groundwork for that ultimate idea is, uh, is often a good way to get around the fact that whatever you're trying to do right now, like you can't always do the big thing immediately. Sometimes you need to take smaller steps and build your way up to it so that at that point, that, that idea becomes the obvious thing to do, right? It just sort of becomes inevitable.

Yeah, absolutely. And a lot of times, a, a, a lot of times the movement in the cities hasn't gotten to that point, right? So the, the reality is, is as, as we grow as a community, uh, or as cities grow, sorry, is a better way to say it. Uh, but as cities grow, uh, and continue to progress, maybe our software catches up to where they are, right? Maybe we're ahead of where they would be in a couple of years. Sometimes we're behind, sometimes we're ahead. Um, but most importantly, it's important to note that we have had crazy ideas or many different ideas that we've actually spent a ton of time building those ideas and wireframing them and putting these things together, and not every idea has come to fruition and, and been a good idea. Uh, and the other important thing is to thank the cities that, uh, have been our beta testers over the years and told us that things were terrible ideas as well. All right, Chad, I think that does it for us, man. Thanks for hanging, talking about taxes. That was super exciting.

Yeah, it's always unfortunate when you go on like a two and a half month hiatus and you come back and just talk about a bunch of exciting- ... discussions on sales tax and property tax law and... But, you know, it's important stuff, so you gotta get back into the groove somehow.

It's a high-level nerd talk, man. High-level nerd talk. So anyways, uh, hope you guys, uh, get a chance to listen and, uh, k- as always, if you have any questions, you can reach out to us. We'll see you later.

See you, Pat.