Greetings, and welcome back to ZacCast, the official podcast for local government nerdery. I'm Chad, that is Patrick, and after a, a slight hiatus-

Little bit, yeah

... over the holidays, and then, uh, the winter ice storm part deux- ... uh, we are back.

And-

So we were actually hoping that we could record last week. We talked about it over the weekend, and we said, "Okay, it's gonna have to be on Monday, because when this storm hits Monday afternoon, like, our kids are gonna be home for a few days, and there's no way we can do a podcast." And so the plan was Monday we would do a podcast last week.

Mm-hmm.

And then, I don't know how bad it was where you were, but when I was leaving in the morning to take the kids, I was swerving all over the road-

Yes

... already.

So we were canceled, yeah.

So we were like, "Let's bring them back home, and this is gonna be it for the next few days."

Yeah, we were, we were canceled on Monday morning, so we didn't even- we didn't even take the kids in. Like, they canceled it first thing, 6:00 a.m. Monday morning, so we didn't go, but do you hear that?

The quiet?

The quiet. Oh, my gosh.

The sound of silence.

Dude, so f- for me, so you, you- we went on a cruise, uh, with the family. We went on a Dude Perfect cruise, by the way. As for parents that have kids, it was actually a blast. Uh, shout-out to the Dude Perfect guys, because they made it a whole lot of fun for my kids, and they were very interactive, and, you know, they're like superstars making $70 million a year on YouTube, right? But, uh, hanging out with 900 kids on a cruise ship for four days, like, God bless you guys. Thank you.

I can tell you, hanging out with four kids in my house for four days-

I- a- and-

... was exhausting

... and so that, that's what gets me to the point. So we get back from the cruise ship. I, I mean, I, I have a kid who has not been to school in, like, 15 days, right? Because we get back from the cruise ship, he gets COVID. We... You know, and it's, it's light COVID, like, kid-like COVID, right? So, but automatically, because our school district has these rules, which I'm fine with, that he has to stay home for five days, right? Which he was ready to go, like, on day... The next day, he could have gone back. Um, so he's home for that whole week, and, I mean, I, I think you and I were interacting during that week, and, like, every time I was on the phone with somebody, he's, like, in my ear asking me questions. Like, I'm just like: "Dude, I have to work." But, uh... And then last week, like, didn't even get him off to school on Monday. Uh, you and I were supposed to be on the road last week. We didn't even get on the road-

Mm-hmm

... like we were supposed to be. So, um, yeah, it was, it was crazy. So I've had, like, 15 days of my kids in my left and right ear at the same time, and I can't even hear out of my right ear anymore.

I was gonna say, yeah.

Yeah. So-

You should keep them on that side.

I should keep them on that side. So, so anyways, it's, it's, uh, it's kind of awesome to have some, uh, like, odd time and, you know, be able to kind of hang out and talk about some things other than, uh, "Dad, will you play me in Madden?" Just so much Madden.

Yeah. My oldest is really into Rocket League.

Oh, it's so fun, dude.

Um, it's super fun, and... But what's unfortunate is that he's, he's seven and a half, right?

Yeah.

So, uh, you know, he's kind of getting to that age where he can actually be proficient at video games. But until about two days ago, I would just mop the floor with him.

Mm-hmm.

Like, it didn't matter if you're playing, like, the soccer version, if you're playing Rumble with all the power-ups, like, it doesn't matter. I'd beat him, like, 15 to 3.

Yeah.

Right? And so he does a pretty good job of not getting really upset about it. But I made the mistake, I g- I got soft on one game, and I was like... I was up, like, seven to one, and he was starting to get a little bit down. So, like, I let him score a couple of goals-

Uh-huh

... you know, just to kind of get back into it, get into a rhythm, and then all of a sudden, it was, like, 12 to 7. He just destroyed me, and then since then, he's beaten me probably 75% of the times.

Yeah, so here's... This is the switch flip of, of video games, parents and video games with kids, right? So we, we just hit, like, just hit the point where Mason can beat me at all games pretty much all the time. Uh, I mean, I, I have no shot at Madden. First off, he gets tricky, and he, like, changes up settings in Madden to make it easier on himself, and-

Mm-hmm

... and things like that. But, y- you know, reality is, is it's real hard for me to beat Mason at anything in Madden at all. So-

Remember the last time we played Madden?

I think you smoked me.

When you, when you left Hudson Oaks and you started working at home with me-

Uh-huh

... we had this idea that we would have, like, Friday Madden days or whatever.

That was back before we had-

Uh

... you know, 40 clients waiting to get onboarded with property tax.

Yeah. Well, also then COVID happened, and so it was like-

And we got real busy.

Yeah.

We doubled in size in, like, two months.

But we did play one time, and I just remember I was just like Peyton Manning, just at the line, calling audibles, calling hot routes, doing all the stuff, and, like, it was... For this guy who's never played football before-

Uh

... playing against-

The football guy?

... the venerable, the venerable-

Uh-huh

... backup offensive lineman-

State champion

... for the mighty KD.

Yeah.

It was pretty fun. Anyway, let's get to it, uh, because as interesting as this is to us, uh, we've got some, some cool stuff to talk about today.

Mm-hmm.

So the first thing, I'm gonna introduce this. I have one snarky comment to make.

Okay.

And then, uh, I'll pass it to you and kind of get your thoughts. Costco has proposed in, uh... Where is this? This is South Los Angeles.

South.

The Baldwin Village neighborhood.

Yep.

Okay? This is a, an, uh, this is, like, a sort of urban store with 800 apartments unit- 800 apartment units sitting on top of it. It's, it's an interesting concept. It's obvious- it's not the first big-box store with apartments. I would say that if, like, if a big-box store is gonna be designing apartments as part of the building, it probably should be IKEA, you know, just because they, they already have all of these little units.

Could you imagine if, like, getting to your apartment was like walking through IKEA?

Oh, you had to go through the maze.

It'd be terrible.

So, uh, it's an interesting concept, though. 23% of the units are low income.

Okay.

Um, so because it's 25% retail, 75% housing, it qualifies for the city's transit-oriented development programs.... um, other kinds of grants and things like that. The, the one snarky thing that I'll say is that generally the point of this sort of mixing and close proximity of living and, and retail, especially groceries and things like that, is that by making things so close together, you don't have to, uh... You can shop more frequently, right?

Mm-hmm.

You can buy fewer things in smaller quantities, because if there's a neighborhood grocery, like, right downstairs, it's not a huge deal to just pop in, grab what you need for dinner, and then take it up and-

But you-

-cook.

But you can't buy-

Costco

... smaller quantities at Costco.

C- like, the whole point of Costco is-

Yeah

... that you go once a month.

Yeah.

Right?

Yeah.

So it's, it's an interesting juxtaposition there of-

They sell ground beef in, like, 15-pound logs, right?

Right.

Yeah.

Like, the business model, I think, may not be the right fit for this type of development. Um, but that's the one snarky thing. We can actually talk about the, the, like, the real-

Well, here- here's what-

-thoughts on this

... here's what I would, here's what I would tell you. One, I mean, I would hit up those $1.25 hot dogs and pizza slices all day. Like, I would-

All day

... all day. Um, they're really, really good. Um, but y- you know, here, here's the thing. So a, a couple of things on this development. One, it's a food desert development. It's a lower income area. There are some things that they're proposing here, like they're putting in about 23%, um, you know, low-income rent units in the facility. And I also wanna mention to a lot of cities who, who may not deal with this side, but what we see a lot of times in low-income rent properties is they'll build 75% market rent, and those will be built with wood floors and granite countertops and tile backsplashes and things like that. And then they'll build 25% low-rent units, and they'll build it with linoleum and VCT, and, you know, it'll have just, like-

Formica

... Formica countertops and things like that. Like, I'd, I'd just say that to cities to be like, "When you're doing that PD, make sure that 100% of those units meet the, the building standard, like, throughout." L- let's-

Yeah, I mean, I think what you have to do there-

Let's not have second-class citizens live in there 'cause they're getting a tax credit.

Yeah.

Right?

I think that in order to make it profitable, what you have to do, uh, as, as the city is... Like, one way is to build those lower-income apartments very cheaply.

Mm-hmm.

Uh, so that you can afford it. The other one is to just sort of balance out a little bit more-

Yeah

... in terms of the build quality on all of the units, so that you can still kind of make that, that return. The other thing is obviously having this retail. Like, having a Costco on the bottom is gonna make all of the other, um, residential side much more profitable, right?

So I'm gonna try to put myself in Costco's shoes for a minute on this one. This is kind of my second point. If I'm Costco, and I'm gonna build a store in a food desert, which is very difficult to do, and a, a lot of shout-out to, uh, a local Texas grocer that everybody knows the name of, because they, in the markets that they are in, they have actively tried to fill food deserts in those markets. And this is... Their movement in the DFW area is gonna be a good thing for DFW, uh, to get that. But I will say this, Costco's probably trying to go in there and fill this food desert, and what better way to fill a food desert than put 800 customers on top of you, right? And technically-

No, not 800.

Say what?

Like 1,600.

Like 1,600 customers, right?

Yeah, up to 2,400 maybe.

It, it was, like, eight- 800 units, right?

Mm-hmm.

So, um, what better way to do that? Uh, that's the same argument that you and I have made with these grocer-based developments, where we're like, "Hey, when you're gonna do a, a, a typical retail power center, grocer-anchored center, like, mix it." There's, there's no reason... Like, that's the opportunity for you as a city to justify why you would do multifamily politically. Now, we can justify it for you financially all day long, right? Because it's, it's gonna work better financially than a lot of other development styles will in, in a lot of cases. But when you have this opportunity where you have this gem of a retail development coming in, and you have the ability to have mixed uses there, like, try to combine them. And, and the problem is, is what I have found, as I've worked with numerous cities on these type of projects, is there's this wall built between retail developers and multifamily developers, and they don't talk. They don't communicate, they don't do anything. And so really the city has to be the one who says, "Okay, multifamily developer, like, you like this 40 acres over here, that's great, but we need to see an integrated development plan where there's also a retail component. So you need to go partner with somebody on the retail side and bring them back to us, and then we'll look at it."

Is it a surprise that there's such a dichotomy when basically our rules only allow them to be built separately?

Uh, no. I mean, that's, that's, that's it, right?

Right.

Uh, but, you know, I, I've, I've come to the conclusion that in order to do anything cool, you can't really build rules around it, you just have to build a PD, right?

Yeah.

Pl- Plan Development District, uh, for those folks who don't know what PD... We have some non-city people who listen to us, so I gotta throw that in there. But I, u- ultimately, I think it's just, like, every development has to be somewhat special. It, it's gonna meet the future land use plan because it's still commercial, right? Um, but, you know, and even, like, in the state use codes, this is the part that cracks me up, is a lot of times we characterize multifamily in the state use codes as, as multifamily commercial, not multifamily residential.

Residential.

Yeah, which is really interesting, super nerdy tidbit about property tax data. But, um, I, I just... You know, I, I think that there are solutions there, and so that's, that's what I look at this. The, the third thing I want to bring up is, the name of this real estate developer is Thrive Living.

Thrive Living? Mm-hmm.

And I just want to bring up how every multifamily developer that I have come across lately has branded themselves in some way to make them feel so much lighter and brighter, right? Uh, and the reality is, is negotiation-

Maybe BlackRock should take a, take a cue.

Maybe BlackRock should be like, uh... What, what would be a good name for BlackRock-

YellowRock

... if a single-family, you know, uh, landlord, slumlord landlord, right? Like, what, what would you ca- what would you call them? So-

It'd have to be a brighter color than black, that's for sure.

It, it would. Like Orange Horizons.

There you go.

So

... Free advice, BlackRock.

Yes, free advice. So, so anyways, I just, I thought that was a, a funny tidbit from this story as well. But I, I get it. Like, I-- you know, my thing is, is I would just like it not to be such a singular use like a Costco in that, in that retail mixed development. I like the fact that they're doing structured parking 'cause they're not having to spread out over additional acreage. You know, I like, you know, that they're getting so many-

Well, it's also near transit, right? So they don't have to have as many parking spaces.

Uh, yeah, and I mean, um, we, we probably don't need to have as many parking spaces on most multifamily units that we do because, like, like, little things in, in Texas, which are goofy, we force them to have a garage, but we don't count the spot behind the garage as a parking spot in a lot of communities, right?

Mm-hmm. Like in, like in front of the garage?

Yeah, like in front of the garage. Uh, and we force that spot to be twenty feet long and then have a twenty-four-foot fire lane behind it. So it's like, okay, that's kind of weird. Um, you know, little, little things like that where we could slim up the amount of parking that we have. Um, yeah, I just ca- I, I always tell cities, I'm like: "Hey, the, the more dense and high that you can go on the acreage, the more... But y- you're gonna take a shot 'cause it's multifamily politically, no matter what you do, right? So you might as well do this in a way that, that limits it on its, its acreage." Um, and then the other thing i- on this article that I didn't, it di- I don't think it showed in this article, it doesn't, yeah, that what the minimum square footage of the units are, and that's also-

I was wondering about that, too.

Yeah.

If there's gonna be, like, mostly studios, or if it's gonna be, you know, two- and three-bedroom-

I, I probably should-

Where you could fit larger, larger families.

Probably should have talked about this more in, like, a checklist form, like things you need to check into. And you and I had this conversation the other day about, um, you know, going in and, and kind of making our system smarter by tagging some things, like development styles that we find. Um, and, and it, it just got me kind of thinking, like, on multifamily development, like, what are the things we check, you know, on, on things like that? Like minimum square footages, number of one-bedrooms versus two-bedrooms, those type of things, uh, parking standards. And, and those are all, um, very community-driven. Like, um, you know, in the community that you and I worked in, you know, we had, like, three kids per household, so we wanted more two-bedrooms and three-bedrooms than we, you know, than we would normally get. You know, normally, you're gonna have, like, eighty-five percent one-bedroom apartments. So, uh, and we wanted that average square footage. I, I think our goal all the time when we were working on projects was we wanted average square footage, like, over nine hundred square feet livable, I think something like that.

Yeah, I think that's what it ended up, at least with the project that I was still-

Yeah

... working on when I left.

Um, but, you know, I- I... If you're gonna build it, at least they're doing it somewhat right.

Okay, so here's, here's what I have. If you're-

Yeah

... wrapped up here, I can kind of throw it-

I'm done with my stuff, yeah.

Okay. There's always a tendency to make the best the enemy of the good.

Mm.

Right? And so, like, there are, there are problems with this development. Um, the first thing, just from a livability standpoint, right? This is s- this is in a transit-oriented area. Um, the idea is to densify and provide some retail, particularly food, in a way that you could just walk to it, right?

Mm-hmm.

But when it comes to actually, like, having a, a livable and thriving street, a Costco is not gonna do it.

Right.

Because when... Even if it has, like, plastered with windows, that will be better, but it's still just this one huge behemoth, right? And what really makes these kind of urban walkable areas thrive is having multiple storefronts and differences in, uh, uh, in dimensions and, and d- and design style within, you know, a fifteen, twenty, thirty-foot space, so that as you're walking, it's always something different. Um, there's always places that you can go into and see people. And with this design, there's probably gonna be, like, two doors, right, on either side. There's gonna be some concrete walls, uh, tilt wall, probably at the, the ground level, and maybe some glass.

It's gonna be, uh, it-

Just looking at the renderings.

It's gonna be like the very sterile CVS and Walgreens that, like, located-

So sterile

... downtown, downtown areas, right?

Yeah.

Where it's, like, in the bottom of a high-rise building, and you're like: "This is so out of place."

There's nothing.

There's... Yeah.

Like, I'm just gonna be walking on this five-hundred-foot block-

Yeah

... and there's nothing for me to do or look at or, or, you know, keep my attention. I may as well just be driving here. So-

I would agree. I would agree with that

... So in terms of creating a community and an environment where, like, that street is lively, it's not really conducive to this kind of big single use. And that's one of the biggest problems that we have, um, with when we try to do some of this mixed-use development. I think in an urban area, you should-- I mean, this isn't like Manhattan, right? But, um, it's, it's, it's a little bit more of a grid area. It's near transit. So, like, I think you could probably be a little bit more adventurous, and perhaps... I mean, one of the easiest things that they could have done, or they- there's not even a building permit yet, so, but just line that, line that street, uh, frontage-

Mm-hmm

... with vendors, right? Like, you go to... I, I don't know how-- it's been a long time since I've been to Costco. I'm sure that they don't have the kind of thing like a Walmart or Target does, where there's, like, a LensCrafters and, uh, salon and things like that. Um, but at least give that street some soft edges that you can actually enjoy as you're walking through it, right?

Yeah, yeah.

The one thing that I will say about this, which is... Like, when we talk about multifamily or density or things like that, especially here in Texas with this more suburban development style, like, it's one thing to say: "Yeah, well, this is how you can get multifamily in, right, by putting also some commercial next to it." I think the biggest problem that we have in Texas with multifamily is that we just build massive apartment complexes, like, behind gates and with, like, surrounded by parking. And there's, they're sep- set apart from everything else, just like our residential neighborhoods are, single-family neighborhoods. So, like, yes, you can put a lot of people near some of this commercial activity, and that's what we tend to do with, with apartments is-... like those are the buffers between commercial and single-family residential, is our apartment complexes. But they're still just these huge, monolithic spaces that they're not really integrated. Like, there's no reason that you couldn't build an apartment complex that is- that lines the street.

Yeah.

Right? That provides, um, a sort of face to the street as you're either walking or driving on it, or biking, or what-- you know, whatever mode of transportation that you want. But when it's all back behind a fence... Like, we looked at a neighborhood as we were starting to do some of this profitability analysis. The neighborhood itself was very profitable because it had a lot of commercial and a lot of apartments.

Mm-hmm.

But when you look at the actual livability of this area, like, a person that lives across the street from the little grocery store, which I'm not going to mention what it is, 'cause I don't want to highlight where it is. But literally four hundred feet as the crow flies, maybe even less, is a whole apartment wing that is, like, right across the street from a little grocery store.

Mm-hmm.

And it would still take them about fifteen minutes to walk because they have to go all the way to the- around the entrance-

Yeah

... go down to the next intersection, and cross over. Like, this is not as, uh, suitable for the actual sort of living experience as it could be.

Well, I, I-

It's better-

Yeah

... because it's more profitable, but it's still lacking in terms of, like, vitality and vibrancy of that neighborhood.

I think that's going to be one of the coolest things we're going to be able to see historically with data, is as we start to label the different styles of developments, they are like, you know, built wal-- you know, walkable, you know, mixed-use multifamily versus, like, behind a fence multifamily that's not real walkable at all. It's, it's totally, you know, vehicular built, you know, for, for transportation. Uh, I, I think it's going to be really interesting to see kind of how those developments grow in property value versus decline in property value, things like that. Like, really being able to study what happens to those developments over time, I, I think will be, will be really interesting. So, um, you know, it-- w-we're getting better at it, but, you know, it's just the, it's like the little thing of, uh, apartment developers. Apartment developers will readily admit that there... it is not safer to build apartments with behind gates, right?

Mm-hmm.

They don't get-

It's safer to make, make the street some place that people want to be.

Correct.

And though, that's what's going to provide you with the safety, right?

That's correct.

The gate, uh, that's sort of setting you apart-

Yes

... all it's doing is just creating vacuums on the inside.

Yes. Yeah, it's-- So, but, you know, those conversations, like, they need to be had, and, and a lot of times what's crazy is they're not had at the development level, they're had at the city level, right? So, um, just encourage cities to keep talking about those things.

Cool. So that's Costco. What do you have for us?

Well, I'm going to talk some meat and potatoes. Uh, we're going to jump into legislative session started, everybody's most exciting time. Background music, claps. Um-

Tex Leg, our favorite time of year.

Our favorite time of year.

Favorite time of the biennium.

Of the biennium. Let's, let's hope that, uh, they did- they don't decide to come back for every year, uh, anytime soon. Uh, thank goodness we meet every other year. Uh-

Imagine

... so far, because the state has such a record thirty-two billion dollar surplus, um, we haven't seen anything like crazy stupid come out yet. Uh, a couple of things I want to give some updates on, just so everybody knows. There is a sales tax local sourcing bill that is pending. It's not changing what the comptroller's rules have been shifted into. Uh, it's HB, uh, fourteen sixty-five, and it has a companion bill, Senate Bill three thirty-three. Um, and this bill specifically would allow a location that was in effect on August thirty-first of two thousand and nineteen, which was the rule change date, by the way, just give everybody that, September first was. Um, and was the place of business of the retailer for purposes of certain economic development agreements, that it would remain a place of business of the retailer to the term of the agreement, and during the term of the agreement, the sale of taxable items in a consummated place of business, that the sale would be consummated at, is that is the place of business under the law. So this would, if passed-

This would grandfather all of those.

This would grandfather-

Grandfather

... the lawsuit cities, right? The cities that are currently suing the comptroller and going through multiple different rounds of lawsuits. Um, it would grandfather them and probably, and, and maybe solve some of their issues. I don't know if it would one hundred percent solve their issues, because at the end of these economic incentive agreements, they're still going to be missing whatever percentage the city was getting, right? Um, but it at least would kind of salvage that for, uh, for those communities in, in somewhat of a way. We-- I have not seen another sourcing bill filed yet to change... Like, last year, we got both sides of the equation. Like, let's change it back to the old way, and let's, uh, let's go to a full, you know, uh, like, destination sourcing model, right? And so I think we, we haven't seen those bills filed yet. Uh, and, and when we do, we certainly will jump on a pod and talk about it, and we'll talk to you about the reasons they're good, bad, or indifferent, or ugly, whichever, and, uh, and go through that. Want to talk about property tax a little bit. There's not a, there's not a lot of stuff filed on property tax yet that is gonna be super, super crazy. I mean, you've got the standard, like, eliminate property taxes in Texas totally. So eliminate property taxes by twenty throu-- uh, thirty-three. If you want a good read, check out House Bill fifteen thirteen. Has no shot of passing, by the way, but it's just a good read. Um, you know, property tax exemptions, there's been a lot of exemption conversation that's been, uh, that's been had. We are, um, you know, currently seeing the ability for cities to possibly increase exemptions. Uh, you know, you've got Senate Bill five forty-six that talks about that. Um, you've got, uh, the appraisal cap bill that's also that, like, next companion, which is five forty-seven. That's basically a, a Prop 13 bill.... right? Uh-

That would lower the appraisal cap on homesteads to five percent, right? From ten?

I believe it's the five percent reduction rate. Let me make sure. "Would establish an appraisal cap on appraised value of residence homestead as the lesser of ten percent of appraised value of the property for the preceding tax year, or the product of an inflation rate for the preceding year, expressed as a decimal, and the appraised value." So it would actually establish it to the CPI, right? Which, like, what CPI are you gonna use here?

That makes no sense.

Makes no sense at all, right? Um, but once again-

Yes

... really don't think that-

The price of your s- the price of your homesteaded property is directly correlated to consumer inflation.

Co- correct.

That makes a lot of sense.

Um, i- the one thing that I do know a lot of cities are trying to talk about, 'cause we have a lot of clients who are asking us to do a little bit of analysis on this, like, what would be the impact?

Oh, real quick, real quick-

Yep

... real quick. Uh, I wanna make sure I understood that. It would be the lesser of ten percent or inflation?

That's correct. So if inflation was over 10%-

So under normal circumstances, you're talking about two to three percent appraisal growth?

Yes.

Okay, so it is Prop 13.

It is Prop 13, yeah.

Okay.

So, uh... And, and sorry, for everybody, Prop 13 is-

Prop 13, yes

... the absolute economic disaster in the state of California. Just put it that way. If you want to become California, pass this bill. Um, and you will have the same problems and the crazy property values and the... You know, look, we have learned when you manipulate the market for residential real estate, it gets more expensive. So just don't manipulate it. Let the market work. That's all I got. Uh-

Let people build and let the... Yeah.

Yeah, correct.

I saw something funny yesterday. Uh, someone had written: "Property values should always go up, but property taxes shouldn't." This is the, uh, this is the take that is basically the root cause of so many of our-

Interesting

... uh, local government problems.

Interesting. Yeah, so, uh, y- the one thing I did want to jump into, okay, so there's this thirty-two billion dollar surplus. Um, Lieutenant Governor Dan Patrick has come out and said that they want to raise the, um, homestead cap for, um, for school districts, specifically, which is really state funding. It's, it's... I call it the, the s- the slide-by state income tax, right? Because you're paying your property taxes, and it's really going to pay for schools at a state level, and the funding formula of what you pay has nothing to do with what your, what your local school district is. It's just like-

Yeah, except for your magic pennies.

Y- y- especially

That's basically the difference.

Yeah, that's the difference. So, um, the, the state wants to increase that homestead exemption cap now, and, uh, yeah, we've heard a couple of different numbers that have been put out, that the, um, lieutenant governor wants to go all the way to one hundred thousand. Uh, right now, what's been put out there is that they're gonna increase it by thirty thousand. Is it... What is it now?

Yeah.

Is it twenty-five?

It's at forty.

It's forty.

It- no, so they increased it, uh, to forty.

They did, okay.

Yeah.

So it's at forty now. Um, so instead of buying down the school district M&O tax rate with sales tax growth, right, they want to basically p- get an appraisal or, or, sorry, it- go ahead and put that homestead exemption in there and increase, which we talked about two years ago. I'm just gonna kinda rehash what we talked about two years ago. Y- you know, there's this statewide dream in Texas, which is not far-fetched. I'm, I'm, I'm gonna kinda take a conservative route on this one. What makes us not competitive in the state of Texas a lot of times is school district taxes, and that has nothing to do with the ISDs. It's not their fault. It's just the way the state has decided to fund it. Uh, the, the ISDs only control I&S, right?

No, I understand.

Yeah.

But there's a little bit, there's a little bit in terms of the structure of our school system.

The, the inefficiencies in the structure of the school system-

Yeah

... for sure, yeah. I mean, we can have that argument. Uh, you know, we, we, we, we, you, you are correct, yeah. Y- and, like, you live in a school district that's, like, one of the largest landmass school districts in the state of Texas, right?

Yeah.

So-

There's like... I mean, yeah.

Yeah.

Yeah. But i- but in other places, you have, like, essentially unpopulated areas with, like, four or five school districts.

Correct.

Right?

Yeah.

And all of the administrative overhead that comes with that.

Correct, yeah. Uh, you and I both live in school districts where that's not necessarily the case, because they're just-

Right

... such high-growth areas, but, uh, yeah, you're a- you're absolutely right on that. I think most schools would kind of agree with that, too. Um, there's a local control argument there, like, "I want, you know, I want my local education to be more locally controlled," even though pretty much everything's set by the state anyways. Um, and but ultimately, we had this conversation where the M&O rate is basically set by the state. They've been going through what they call tax compression. So every year, growth over two and a half percent, you're still paying an increase of two and a half percent of your school taxes every year. I just want to point that out to everybody so you know.

Yeah.

But every year, the growth over two and a half percent that you have is compressed, so your tax rate compresses to what they call the compression cap. Um, and a lot of districts are gonna hit that compression cap next year, right? Because they are fast-growth districts, like where you live and where I live. There's a lot of revenue growth, and so they get that two-and-a-half percent increase on the old revenue, and boom, they compress, and they're gonna-

Right

... hit the cap that the state put in place so that people didn't overly compress, right? Well, the thought process of this compression cap system that they put in place was actually probably somewhat well-founded, that they wanted to try to get the state off of the M&O tax rates for schools. And the thought was they could do this over ten or fifteen years, and they could get that tax rate down to a, a small and minimal M&O mo- number, right? They're kind of going away from that. Like, they built this whole system two years ago to do it and to have this compression, but they're going away from it. And let me tell you why.

And now they have all this money.

Well, and now they have all this money.

Right, yeah.

And let me tell you why I think they're going away from it. I'll be honest, there's gonna be a lot of smoke and mirrors coming out of this legislative session, especially when it comes to school finance. They don't want to pay teachers-... they don't wanna pay for teachers' health insurance. I mean, you and I have talked about this before, but, like, I was in city government, you were in city government, we had great insurance. We were both on TMLI BP. We paid a reasonable rate. Uh, we had great insurance. If you're a teacher-

And most, yeah, most cities cover the employees'-

Yes, if-

-premiums

... if you are a teacher in the state of Texas, and you make $60,000 a year as a starting teacher, and you have a kid, right? You're going to be paying $1,000 a month for insurance, and that's an HSA-based plan, no PPO, no co-pays. You're 100% out of pocket till $5,000, right? Just do that math, and y- you would understand that it is, it is a terrible set of system. People ask the question: "Well, why is it that bad? Teachers are typically younger." Well, because they tied in the retirement side of the system, because the state didn't wanna pay its fair share. They tied in the retirees into the normal employees to buffer throughout. Well, they don't wanna talk about any of that, right? So they don't wanna get in compression because they got all this- these other things that they wanna go spend this money on. And so we're gonna have a legislative session where we act like conservatives in front of everybody, but then we make decisions behind the scenes that are not real good at conservative principles. I'm just-

This is my shocked face.

I, I just... Yeah, every- everybody's shocked, right? I, I just- I say this because why would they do this as an exemption? It, it, one, it doesn't give everybody credit. Renters are not gonna get as much credit-

Right

... right? Um, and so-

They'll get none because it's not a homestead.

Correct. And the, and the, and the thought process of, well, most homeowners are Republicans, is, uh, it's just, it doesn't really float. And, you know, a lot of-

Yes, so let's... E- even if that were true, let's give all of the people on our party a tax break, and everyone else not.

It's, it's still-

Like it's-

... it's still terrible. But here's the deal-

At least with compression, it affected everyone, right?

Correct. And w- I, I talked about this two years ago, but the whole compression thing was, nobody really knew if it would be able to pay for itself in the future years, right?

Mm-hmm.

'Cause you have to pay for that compression every year.

Right. It's compounding.

It's compounding. And so nobody knew whether it would pay for it. So I think what they've done is they're like: "Well, that was a lot more expensive than we thought it was gonna be in future years, and so now we just wanna do this one-time homestead exemption and only benefit a certain percentage because we can get a higher number, and we can go home and say, 'Well, we cut your taxes 8%.'"

Right.

Um, which, oh, by the way, you're gonna give me this additional homestead exemption. My house is gonna go up 10% this year, 'cause I'm gonna... We're in North Texas. Everybody hits the cap in North Texas. Is there not a cap in North Texas? Um, so I'm gonna hit 10% this year. You're gonna give me an additional 30, uh, thousand dollars of exemption. Oh, by the way, my taxes are about to go up 45 or $50,000, right? So I'm still gonna have a tax increase.

Not your taxes, your, your appraisal-

My appraised value.

Yeah.

Sorry. But I just, I- I-

So you'll still have a tax increase, and there's no way that you could say... Like, I don't think there's a way that you could do it, where you could actually have a reduction in taxes without serious compression, which was the whole idea that was talked about using all of this money.

And I actually like-

Right

... the compression policy scheme. I, I think it could work over time, right? I'm just, I'm just being honest. Like, I think we could take little bites of the apple every single year, and we could try to get that down. Because my bigger mindset is, at some point, Texas is not gonna be this big, beautiful place where everybody wants to move. We're going to have to be competitive, and in the pure numbers, we're not. When we look at taxation and where we land nationally with states for taxation, we're not competitive.

So let- let's, let me bring this back just a little bit to our first discussion.

Mm-hmm.

If the solution... Now, this is obviously, school districts have much less, uh, much less of a role in development. But let's just say that this kind of eventually kind of carries forward over to, to cities. Um, does it at least make single-family residential development, well, even a little bit less enticing?

Man, I-

Right? 'Cause-

I would say yes-

Not only on, on mixed-

... except for, except for rent growth, man. Rent growth has far outpaced, um, the, the value rise in resident- single-family residential households in the past couple of years, right? Like, you have to take that into account. You don't really have-

If you build more of it, if, if, if there's enough supply-

But you and I have pricing controls-

That will help to mitigate that

... right? Like, w- in this inflationary economy, you and I are sitting pretty 'cause we're sitting in our homesteaded houses on 2.9% interest r- interest rates, right? 30 year, 2.9, like, we, we are sitting pretty. And these folks who are having to go out there and buy a house that is my same house for three times what I paid for it, and what I mortgaged it for-

At a rate that's two and a half times

... At a rate that's two and a half times, like, that's, that's tough. Um, you, you have less control in the multifamily side. So I, I get from a development style and, and even from a lifestyle standpoint, that you can do that. But the crazy thing is, is the multifamily development right down the road from me, which is a beautiful development, it's very well done. Uh, I don't know who was responsible for it- ... but, um, that development, the, the two-bedroom apartment there rents for more than my mortgage rate. Like, I, I just, you know... So it's, it's tough. It's a lifestyle choice, you know, so forth and so on. But, uh, at least when I'm paying my mortgage every month, you know, a third of that payment or more is going to principal, which is actually a, a little bit of a savings account. And honestly, in the United States, that's like, that really is most Americans-

That's it.

That's it. That's all they do to save. And so, you know, unless you wanna George Bush this, which they all, you know, they all hit him hard for, right? When George Bush wanted to privatize Social Security so that Americans could get their saving rates up.... Well, to be honest, that may not have been such a bad idea if we go back and look at it, and we look at what the numbers would've been, and you look at the growth on the market. Our generation is not guaranteed Social Security, and we would've been guaranteed 7 to 9% returns for the last 15, 20 years. That probably would've been a little better, but, you know, hey, it is what it is.

Well, yeah. If you look at it over the long run, yes.

Yeah.

Over the past 15 years, not so much, but-

Correct. Um, but, uh, you know, I, I mean, ultimately, we just don't, we don't always do things logically, and we shoot ourselves in the foot for it. This appraisal, um, homestead exemption, this additional homestead exemption just doesn't- it just doesn't seem like a lot. Like, how much is it gonna cost you versus how much benefit is somebody actually gonna see in their tax bill?

Yeah, to me, that's the most interesting thing about how this whole conversation has gone from, you know, "We're gonna get rid of the school M&O property tax, 'cause we have $32 billion," and now it's like, "Oh, well, we're gonna just give you this slight increase in your homestead exemption and call it a day."

So what's in the-

Which I understand there's-

Yeah, so-

... there are issues involved with spending all that money, right?

Right.

Like, you have to take an affirmative vote to allow that extra money to be spent.

Yeah. So what-

And also, I, I, I, I do worry, like, the... My, my biggest concern about this whole talk about getting rid of the school property tax by using, using our surplus plus sales tax growth is, can you, can you rely on that for the next 100 years?

Right.

You know, if you're gonna get rid of those property taxes using sales tax growth and whatever your current one-time budget surplus is, like, that's, that's risky.

Yeah, no, no doubt. It's, it's super risky, and I, I think, you know, we gotta remember the $32 billion that's out there right now, a lot of that is COVID money. It's, it's not, uh, the bulk of it, but a lot of it-

And severance tax

... is COVID money, right? A lot of it is severance tax, because we are exporting a ton of natural gas, um, out of the state, and so... And, you know, I- whi- which takes me to my next topic that I'm gonna hit on real quick. Uh, so I'm gonna, I'm gonna move past this one, but it's related. The other bills that we're gonna see come forward, that I, I don't know if I've actually seen them filed yet, but I just know they're coming through the pipeline in some committees and some things that I'm on, uh, and people talking about. But we fully expect that there are going to be some bills filed, I, in my opinion, needed bills, that are going to address electric vehicles. Specifically, they're going to address gas taxation and the lack of that gas taxation with electric vehicles. So I'm an electric vehicle owner. Um, it's actually a really fun Ford Mach-E, uh, Mustang.

I have a golf cart. Does that count?

Uh, it doesn't count, no. It's- it, it does not. Uh, but I, I could tell you, I've had the... I, I don't know how long I've had it, almost, like, seven months or eight months.

Right, yeah, six, seven months.

Yeah. Um, and I have not paid a lick of gas tax yet. I drive on all y'all's roads. Um, and so... And, and, you know, I'm saving 300, $350 a month in gas versus what I pay in electric, uh, when I net out everything, by the way. I- like, there's gotta be some way, like, by mileage or something, that we... There's gotta be a way, because your, your electric cars are gonna take up more and more and more and more of the roadway, the percentage of vehicles that are owned, and, you know, you've got to figure out a way to, to recover the cost of that electric car. Uh-

Well, I mean, really, it's just, it's just the, um, the, um, mileage standard increases on steroids.

Right. The second half of that is, is that cities are gonna lose a significant amount of revenue, because they make a lot of revenue on C-stores, and gas stations specifically, and so cities are gonna have to recover a lot of revenue. I have proposed to a couple legislators that they really should consider allowing those cities that were not cities or did not opt in at the time, to tax electricity. Um, and that would be a significant increase-

Like a one-time makeup?

A one-time makeup, and a-

What about sales tax on vehicle purchases?

Man, Alabama. Wouldn't it have been great to have located Hudson Oaks, Texas, like in the middle of Alabama's sales tax area? We would've just... We used to joke about that, remember? That we would... 'Cause, uh, we, we sold, like, a-

Yeah, we'd send so much money back to the residents.

And, and, and, and we sold, like, 30,000 cars a year in a two-and-a-half square mile area, right? Like, we would be sending-

Yeah

... residents checks for the privilege of living in Texas.

But let's consider this, though. Like, you're saving $300 a month?

Yeah, in gas.

Per year.

In gas. No, a month.

A month?

A month, yeah.

You drive a lot.

Yeah.

Okay.

So we use that car for every- so, you know, I've got my truck, and that's my gas guzzler, and we go... Everywhere we travel, we take that.

Yeah.

Um, and we use the Mach-E for e- like, my wife drives it to work every day and back, and then if we go anywhere, uh-

Within reasonable radius

... within DFW, within the Metroplex-

Yeah

... really. Um, 'cause you could drive it home and back anywhere in the Metroplex, about 290-mile range. Um, and so, yeah, we, we drive that everywhere, and so it gets a lot of mileage on it.

Okay, so the one thing that, that doesn't necessarily help every city... It's been a long time since I've looked at that list of who actually, uh, assesses sales tax on elect- residential electric and who is eligible or w- was eligible to do it.

Mm-hmm.

Um, so I don't know how many cities, if you allow them to do that, that would actually impact. But many cities have, uh, uh, car dealerships.

Yep.

And the one thing that is a benefit there is that if you're saving this much money by buying an EV, right? You're saving this much money on gas, an extra 2% on the purchase price amortized over five or six years, um, is probably not gonna hit you... Like, you're probably still gonna net savings.

So I think it's gonna come in vehicle registration. The dealers' associations are not gonna allow it to happen at point of purchase, right? So there's not gonna be, like, a mileage fee at point of purchase for, you know, we have an expectation that in your, your 60-month lifespan here, that you're gonna use, you know, three thousand miles.

No, I'm just talking about adding... You have a 6.25% motor vehicle sales tax-

Oh, you're just talking about-

... only goes to the state.

Yeah, yeah.

I'm just saying add a 2% local option.

... yeah, I mean, it, it would generate so much money. So, but, uh, y- that's the common if you're gonna do a statewide sales tax, that's, that's one of the major ways you get rid of, uh... Because we already have a system to keep people from cheating the motor vehicle sales tax. Like, if you go buy a vehicle in Oklahoma, and you come to Texas to register it, they're gonna make you pay motor vehicle sales tax. I, I don't know if everybody knows that, but they do. If you move from California into Texas, they're gonna make you pay motor vehicle sales tax on the worth and value of the vehicle in order to get your plates. So it's just a- so there, there are systems set up for that. I think what's gonna happen is, when an electrical vehicle owner goes in to get their registration tag every year or every two years, they're gonna have to pay a multiplier in that registration process based on how many miles they drove, so like a millage or just, like, a flat fee. We're gonna see one or the other.

Yeah. Well, the biggest, the biggest problem with all this, or not problem, maybe, but the thing that it'll highlight the most is just how subsidized our road transportation system is.

Oh, super subsidized. Yeah, and it's a, it- that's actually a really good point, 'cause that's a topic of conversation, is how, how big that subsidy is. And, um, you know, it's, it's, yeah, it's wild. But we have-

When you factor in the fact that we actually don't maintain it properly, it's even worse.

Well-

But yeah, when that revenue starts to dry up... Now, that doesn't affect localities as much, right? Because they're getting gas tax money through cogs and, and things like that, but not typically for, for neighborhood roads.

It just doesn't flow-

So you just use more.

It just doesn't flow back. 'Cause of the way the political system in Texas work, it doesn't necessarily flow back to the cities in the region in which it was generated. Um, the-

Right

... the, the term for that that's used in those areas that are negatively impacted are called fair share allocations. That's what they call it. And, um, like in DFW, we send more of our f- because we have regional toll revenues, RTR revenues for the shared lanes that we have on all our highways, those things that are super popular and used all the time that we can't build any more of, 'cause the legislature said we can't. Um, and so you're starting to see that, you know, happen. Um-

Yeah. So the other thing is they could just, they could just... I'm sorry to interrupt you.

You're fine.

Um, just put tolls on the main lanes, too.

Yeah, I mean, it's, it's just, it's... Like, at some point, you have to pay for the use of whatever you're using, right?

It's a lot of valuable space.

Correct.

Public space.

Yes, very much so.

And just using it for free, there's, there's a perverse market incentive there.

So I'm gonna give you, like, a crazy example. So the one twenty-one corridor, right, the eight twenty, one twenty-one corridor going towards the airport, um, that has hit... This, this is just, like, crazy Texas politics at this point, but that corridor has hit its contractual obligation for the contractor. Because it's so profitable for the contractor that built it, it's hit its obligation for them to go expand the free lanes of that highway, uh, and also expand the managed lanes. So to put additional managed lane in, and then I think they have to put, like, an additional or two additional lanes in on one twenty-one, eight twenty, and maybe a part of one eighty-three.

Yeah.

Right?

But sure, we don't need that.

So... But I, I'm just, I'm kinda telling you, like, what they-

Yeah

... what they need and what they're required to do contractually. Here's the crazy thing is: the state, because of the law they passed, there's a contractual obligation, but they have not allowed it to happen. It's basically free money for the region to build something, but they haven't allowed it to happen yet, and so-

Yeah. Well, I think that's, I think that happens to be one scenario where they probably are making the right decision for maybe the wrong reasons.

Yeah.

But-

Well, I, I think that-

I don't think we need to expand those highways.

I'm a big proponent of the managed lanes in that area specifically 'cause they serve a very specific purpose for most of DFW, which is you can get to the airport at a specific matter of time, right?

Mm-hmm.

Whereas before, it was like, "Man, I gotta leave an hour and a half early to get to the airport," and it's really a twenty-five-minute drive, right?

Yeah.

Um, so the managed lanes, even though they may cost me six or seven bucks, they guarantee me that I can get to the airport in twenty-five minutes and not miss a flight, which, you know, for y- you know, folks that are becoming more and more road warrior, like you and I will become at some point, it's, it's gonna be beneficial to have. But I-

Yeah, but it's a rare occurrence, at least on the Fort Worth side, that those lanes are, are backed up. Unless there's-

The managed, managed lanes or the main lanes?

Yeah, the managed lanes.

Oh, yeah. The main lanes are always backed up.

Yeah.

So the managed lanes are never, unless there's an accident.

Yeah, so then an accident or a truck who's driving sixty miles an hour.

Correct.

Um-

Yeah.

So there's still capacity on those other lanes, that if the pricing was adjusted a little bit more... I mean, uh-

Yeah

... the idea is you do want free-flowing traffic on the toll lanes, right?

Correct.

You don't want it to be backed up.

But there's this formula-

There's probably still-

... that's in that agreement where, where that, that provider has to go in and, and build additional capacity in the, in the free lanes because they're making so much money in the managed lanes, so.

That's just counterintuitive.

Yeah. Well, you know, I know you don't-

That's all they're gonna do.

I know you don't like big freeways, so.

Well, even if you did it, like, in the short term, that would just take people off of the toll roads, which is gonna offset that productivity, right?

Correct. Yeah. I just, you know, there's-

And then those other lanes will fill back up.

Correct.

And then you'll say, "We need a new, we need new toll roads lanes as well," so.

Yes.

It's just this never-ending cycle of just building more until you're Katy Freeway.

Until you're the world's largest freeway. Yes, the Katy Freeway I grew up on, which I will tell you, the best part about that project, though, was they worked twenty-four hours a day. That was, like, the fastest project ever built because they worked twenty-four hours a day, every day, and they split it up into multiple contractors, and they just, they got after it. But the fair share allocation, I wanna get back to that 'cause that's what we were talking about. So for all the gas taxes that are paid in North Texas and for all the toll revenue that is paid in North Texas and all that type of stuff, N- North Texas does not get its full benefit at fair share allocation, 'cause they take that money, and they basically build kinda pet projects in areas that, that couldn't afford it. Or they build, like, hugely expensive projects, i.e., I-35 in Austin. They build hugely expensive projects with, with that money, and they kinda shift it around. So it's been a number of years since DFW has gotten its fair share allocation. DFW is also-... just point this out. I'm not like a DFW lover. I actually grew up in Houston. But DFW is also one of the only regions in the nation that has grown, uh, in population and not grown in congestion, which is a, a interesting way to do it. And I do have to give a massive shout-out to a lot of that has to do with our MPO, with our COG. Like, we just have a really good COG in North Texas. Um, and they do good work. There are a bunch of city managers, by the way, I just want to point that out. Way to go. Uh, but there are a bunch of MPAs that either worked in cities or retired from cities and, um, you know, project managed, and they just, they just do a much better hands-on job of making sure these big projects get off the ground and funded. Um, and, you know, as, as crazy as it, as it can be, uh, and you and I worked with them directly all the time. I'm not gonna call out any names, but they had some really good staff members that we worked with, and we had project overages that they took care of us on and, and things like that, and, and they just, they really take care of the local cities as if they are also city employees. Uh, which-

So note to people, all you have to do is ask.

Just ask, and, and they're really good. So yeah. So anyways, that's all I got, man.

Yeah, that was good. That turned into a more free-ranging discussion than I was expecting when you said you were gonna just talk about some of the, uh, some of the legislative bills that were coming up. So it's good.

Yeah.

Good stuff.

Yeah. So, um, yeah, we- we'll start to see once more of these bills get through, um, lege council, 'cause that's where a lot of this stuff is, is locked up. A lot of the stupid bills that we've been hearing about, lege council has kinda killed some of them because they're like: "Hey, that's not constitutional," so forth and so on. So we're, we're kinda watching what's coming down the pipeline. There's gonna be something. There's gonna be something big. There's gonna be some, you know, type of appraisal cap bill that they're gonna try to get done. Like, that's the big thing they're pushing after this year, especially with inflation going where it's, it is right now. So, um, just FYI, that's what, that's what we're seeing right now. I, I just... The price of housing has nothing to do with CPI inflation. It actually has an impact on CPI inflation, but it's not CPI inflation. So housing right now is going up at a faster clip than actual CPI is, so.

Well, it has been here in, especially in the Metroplex, for quite some time.

Correct. Um, and last but not least, I'll end on, we have to do something about Chapter three 13, 'cause if we don't do something about Chapter three 13, we will not be competitive in economic development. That's my last soapbox. We'll work on that one.

You'll have to give us more of your insights, uh, on the next episode of Zachast, which will be coming soon, hopefully.

Yeah, probably next-

As long as no one-

Probably next week.

Like, no more ice storms and no more COVID and fun things like that to keep us away from, uh, from these conversations.

Chad and I are headed to South Texas this week. The actual South Texas.

The actual South Texas, not Houston.

Absolutely. So all right, man, we'll see you, uh, later this week.

All right, buddy.

Bye.

Have a good one.