Greetings, and welcome back to ZacCast, the official podcast for local government nerdery. This is our end of summer extravaganza. Patrick, how was your summer, bud?

Uh, summer was amazing, but I cannot tell you how excited I was to drop those kids off at school today.

First day today.

Thank you, teachers! It's first day.

Yeah.

First day, yeah.

Same here. The, uh... So, like, our kids do camps all summer, but they're not, like, overnight camps, so-

Mm-hmm

... many of them are also half day. So the productivity level has dropped precipitously since the end of May. Um, I'm looking forward to it picking right back up, hopefully. Yeah, I, I assume it's gonna take me at least a couple of days to kind of get back in the swing of things, but not having to do, like, a 9:00 AM drop-off and a 12 A- 12:00 PM pickup every single day is gonna be quite-

Yeah

... beneficial for productivity.

This is, this is gonna be the best month in sales at ZAC Tax ever.

So before-

So-

... before we start, 'cause today's gonna be kind of a downer episode, I have a feeling.

Oh, yeah, very great sadness.

Great, great sadness. Uh, I wanna-

Yeah

... I wanna tell you about something that my wife and I came up with. I sh- I have to give her almost all the credit, but I, I feel like I helped massage a little bit of the idea. So, uh, my daughter is in competitive dance. She has a duo with her little, like, best friend, almost like her sister, and they were gonna do a Bluey, uh, routine this year, but the dance teacher just does not like the mix, like the musical mix. So we're trying to brainstorm, right? And when we, when we brainstorm ideas for dances, um, we try to start with absurd ideas, and then that kind of helps, like, widen the net of possibilities, which then you can kind of narrow it back down. So my wife ultimately came around to this idea of, uh, Dr. Evil and Mini-Me, right? Which is... It kind of works because, uh, my daughter's friend is the same age but quite a bit smaller than her.

Yeah.

Uh, so, you know, it'd be kind of cute. They did Snow White and the Evil Queen last year, so there's already this kind of, uh, vibe about some of their dances, where, like, there's an element of badness to it. And l- my daughter loves to be the, the, the, you know, bad character, so she was the Evil Queen last year.

Uh-huh.

So, so my wife pitches this to me, and I'm like, "Eh," like, "Austin Powers is kind of... Like, it's okay, but, you know, it's not a great idea." And she says, "Okay, well, just wait, 'cause obviously you have to do the Just the Two of Us song, right?" Okay, so-

Okay

... like, that's required. That's probably gonna be the opening. And then she says, "Okay, the next song, Britney Spears, I'm a Slave for You."

Wow!

Okay? Right, so-

Uh-huh

... that's, that's the middle number, with Mini-Me-

Okay

... doing this. And you know how they have the cat, like the, the Mr. Bigglesworth, like the, the ball cat?

Yes, yes.

So instead-

Yeah

... of the snake that Britney Spears has, like that iconic snake that she carries, she's gonna-

Uh-huh

... they're gonna- she's gonna put the cat around her neck. Okay?

Wow.

So, like-

Okay

... this is gonna be a deep track sort of-

Uh-huh

... uh, performance, and very memorable.

How many people in the audience are actually gonna get this?

The judges are generally about our age, so-

Okay

... they should get it.

Okay.

Yeah, and then all- most of the parents-

Okay

... I mean, you go to the grocery store, and they're playing, like, you know, mid-'90s pop music, right? Like-

Oh, yeah, yeah, yeah.

Like, everyone-

For sure

... is catering now to our generation in terms of that kind of stuff, so. Okay, but that's not the best. The closing song, I don't even know if you're gonna know this song.

I'm prob-

This was a boy band or a parody boy band back in the, like, super late '90s, early 2000s, called 2Gether.

Uh, was this, like, the Walmart crew? Like, they would go to Walmart stores and do-

I, I don't know any of the backstory. I just remember the song.

Okay.

The song-

Okay

... is called Calculus . Do you remember it?

Do, do, do you have this song that we could play a little bit? Like, is this...

Okay, so I will play it for you.

This is the intro.

If you don't remember this, just know that it was intentionally terrible, and that's my commentary.

Okay, did this ever... I, I remem- I don't remember this ever being, like, a radio song, though.

Hang on, let me skip to the chorus. Yeah, I know my calculus. It says- There it is ... you plus me equals us. Yeah, I-

Okay

... know my calculus.

Let's, let's, let's stop for everybody on there-

You plus me equals us

... 'cause you're gonna cut all that piece out because we don't wanna... Trust me, this song is so terrible, we do not wanna have to pay- ... the rights to actually put this on the podcast.

Back to life.

Uh-huh.

I think that if we do it as sort of a... Like, if we add commentary over it-

Okay

... then I think we can get away with it. That's how people do it on TikTok, right? They're like... They'll take copyrighted material, but then they'll-

Okay, it's like-

... talk about it as they're showing it.

Right.

I think maybe we can do that.

Let me just, let me just give everybody the visual of while we listened to that, Chad did the actual boy band dance.

You plus me equals us.

You were meant to be a dance dad. Of all your children, of all your children, I gave you... The Lord gave you one girl.

And one girl was enough.

And-

My girl was enough.

I, I do wanna give a little bit of additional color to this conversation. Didn't she also do a dance with... It was, like, with a, a, like a skull body?

Yeah.

Like a-

It was called Skeleton Sam.

Okay. This is dark, man.

A very memorable dance, like, everyone remembered her. Next year, her solo is, uh, I'm in Love with a Monster, which-

Okay. What's the monster gonna look like?

Uh, it was created by a group called Fifth Harmony-

Is it gonna be like, "I'm in love with a monster"

... for the 2015 animated film, Hotel Transylvania 2.

Okay, but what's the song? Is it-

I'm in Love with a Monster.

Are you gonna... Is that, is that how the song goes, like I just sang it?

That's the name of the song, and that's how the song goes.

So it's, "I'm in love with a monster, da, da, da, da, da."... I don't know what song that is.

I'll, I'll send it to you, and, and-

Oh, no, we need to cut that out. Now I do know what song that is.

What song is it?

I'm in love with a stripper, da, da, da, da, da.

Oh, my. Yeah, that's a much different song.

Yeah, we're gonna have to cut that out for sure. Sorry, guys.

So that's the, that's the, uh, song. Uh, and she's gonna have- she's gonna be, uh, like a, a mad scientist.

Okay.

And we're gonna have, uh, a Frankenstein on the table.

Interesting. Okay.

Yeah, there's a bunch of drama, too, 'cause your solo routine is a very tightly kept secret, 'cause you don't want people to steal it.

Ah.

And, uh, her solo kind of got stolen by a duo of older girls.

Wow.

So there's some drama brewing.

And on the next episode of Dance Moms.

Exactly. Okay. Patrick, my man, it's been kind of a... It's been kind of a weird time over the past few months.

Is this your standard Texas reference? Are we really gonna do a Texas reference here?

Uh, we are rolling into the topics here. This is an economics-

Okay

... episode, okay?

Okay.

Uh, aside from all of the political upheaval, some of which we talked about on the last episode-

Yes

... the economy is really kind of just still in this weird place where there are indicators, if you want to see them, that say, "Everything's okay," and there are indicators that if you want to see them in a certain way, you would say, "Ah, we're screwed," right? Or at least, like, "We're headed towards a bad place."

Yep.

So today we just wanna chat about some of those different things, what we're seeing. Uh, you just did a- a lunch and learn yesterday, where you talked about some of this stuff, so we're gonna-

I did, yeah

... share it with everyone. Um, and the first... Where I wanna start, Patrick, is with, uh, the unemployment data, okay? Because-

Which is what started the... Like, everybody was like, "Oh, it's gonna be a soft landing," and then it was like, unemployment data hit, and it was like, "Ooh."

Yeah.

Right?

So if you have, uh, paid attention at all to, like, your 401 , although a lot of our listeners are probably on some sort of municipal retirement system, so maybe you don't have a 401 -

Yes

... but if you have some other investments, uh, last week the market took a huge hit when the unemployment data-

Mm

... came out, and the-

Somewhat recovered.

It, it somewhat recovered.

Yeah.

Um, part of the reason for that was the fact that we crossed or triggered what's called the Sahm Rule. Now, Patrick tells me-

A rule that was invented, like, 20 years ago, and I learned about it in my economics class, but apparently it was only made up five years ago.

Thank, thank you for bringing this up.

Thank you, Diego. Yes.

So I, I, I-

Yes, you're fine

... bef- in the green room, I p- pop up YouTube, 'cause I wanna make sure I'm pronouncing her name correctly, and, uh, so I'm watching a video of, like, a news report where they interview her. It is indeed Sahm, Claudia Sahm. Um, and Patrick says, "Yeah"-

What's the rule?

He says, "No, that's what they told us-

What's the rule?

... in, uh, in my economics class," which was, like, 20-plus years ago. This rule was in- was published first in 2019, so just to give you an idea of what a BS artist Patrick can be sometimes.

Hey, 30... Uh, you know, the old saying that my brother has is, "30% of the time I'm right 100% of the time." It's also from, uh-

Also from Anchorman

... Anchorman, right? Yeah. So-

Yeah, so that's two inappropriate jokes that you have made today- ... because, uh, I don't know if you remember the context of that, that phrase, which is actually 60% of the time.

Yes, we're gonna have a... We're gonna have an NR rating on our episode today.

Yes, we might have to, like, just by proxy-

Yes

... 'cause, like, we're not necessarily going that far, but you are definitely making some references here today.

Yes.

Okay, so the Sahm Rule says... What, what it does is it looks at the unemployment rate, the three-month rolling average of the unemployment rate, okay?

Okay.

If the current month's three-month average bumps half of a pers- half a percentage point above the low from the previous 12 months, then the Sahm Rule is triggered.

Mm-hmm.

And the Sahm Rule basically says, you're in a recession, right?

Yep.

It's, it-

Or a recession is... You're in it-

You're-

... yet you don't know you're in it yet.

Yes, right.

Yeah.

It's like an early warning system for recession.

Correct.

And there's only, to my knowledge, over the past, what, like, 70 years, been one false positive triggered by the Sahm Rule, and that false positive actually ended up being a recession that occurred, like, six months later. Okay?

Yeah.

So this is what really initiated a lot of panic or a lot of sell-off. It wasn't the only thing, 'cause there was a whole issue with the Japanese carry trade, uh, being unwound, right? Which also affected the market, uh, last week. Um, but this really got the ball rolling saying, "Okay, we finally triggered the Sahm Rule. Now what's... what... where are we?" Right? So you wanna go on the inflation stuff? We'll kind of package the macroeconomics together and then have a little discussion.

Yeah, I think let's talk, let's talk big cycle, right? And, and look at this from a... You know, look, I, I don't... There's a lot of conversation out there looking at inflation. So let's talk inflation first, and then we'll talk about real estate, some of the impact on real estate, and we'll talk, uh, you know, what we're seeing from a, you know, what I believe is, is kind of a recession that has kind of been a time coming. But I, I think in city finances, we've almost been in a recession. I'll talk about that in a sec. So we had some core inflation data that came out yesterday that was lower than expected, or cooler than expected was what everybody ran with in the papers. Uh, and then we had the actual recession data that came out today that put recession-

Inflation

... below 3%. Sorry, inflation.

Yeah.

The inflation data came out today from the, um, from the Fed, that, uh, it was less, uh, than 3%. It actually landed at 2.9%. Uh, so that, that was released, like, 30 minutes ago, 45 minutes ago, so it's brand-new information, just hit the presses. Uh-

Breaking news here on-

That's probably-

... the Zackast.

Breaking news. I haven't looked at what the market is doing, but that's probably actually gonna send the market higher as well. Um, so I, I think-

So normally-

... So what am I?

My portfolio is down. Let me just check the- yeah, S&P is down. Eh, it's flat.

It's down, so-

It's down-

Okay

... 0.04%.

So that, that's probably because I think people were hopeful after the unemployment data, people were hopeful after the data yesterday, 'cause the market was up, like-

It was up pretty good yesterday

... 400 points yesterday. It was up pretty good. S&P was way up. Uh, it was the third-best day of the year for the S&P, uh, yesterday, so that was, you know, it was pretty telling. I, I think what people were hoping for is not that we're gonna get a rate cut. I think there's almost 100% agreement that there's gonna be a rate cut at this point, uh, in September. I think what people were hoping for is that we were gonna have a half a point rate cut. I think with 2.9% inflation, we're still not kind of at that two and a half to two number, so you're probably gonna see a quarter point instead of a half a point. I think that's what we're, what we're moving towards. Um, then the big question is, if the Sahm rule has been hit, and we're going to be in an inflation, which I- or sorry, if we I'm gonna get this wrong every time. If the Sahm rule has been hit, and we're going to be in a recession, what does the recession look like, right? Um, '08, '09 was a bad recession. I mean, and I think that's the last one we've gone through, so that's kind of... You know, technically, we went through a recession in COVID, but nobody really lived through it, 'cause the government gave everybody free money, uh, to get through COVID. So the reality is, is that we're gonna go through this, this recession, and people are asking questions about what that's gonna look like, and that's been interesting to kind of listen to the economists talk. There was another journal podcast on this not too long ago, uh, talking about it. And I, I think what we're- when we look at '08, '09, why was it so bad? And it was so bad because people, uh, lost value in investments on the market, and they all lost value in their investment, which is their home, which is, you know, for most people in the United States, their largest investment item is their house.

And to be fair, a bunch of banks went completely belly up and had to be bailed out, right? So, like-

And they had- yeah, and we bailed out a bunch of banks, and, you know, uh, you know, people didn't lose money so much on that, 'cause the FDIC insured a lot of those deposits, but, uh, the banks went belly up because of the, the home lending that they had. I think there are some dangers in this possible recession that we're gonna see here. Uh, I think this is probably gonna be considered like a '24, '25 recession. We, we may actually get all the way to '25 before we really feel it, although October is always the big telling month, by the way. Uh, so usually it's October, November when we really- you know, when the world figures out whether life sucks or life is good, right? Um, but in '08, '09, it was residential real estate, and right now we've got a lot of commercial real estate assets, specifically office assets and multifamily assets. Um, specifically in the office assets, it's because people just aren't going to the office anymore, right? And, um, you know, there's a lot of... I mean, if you look at downtown Fort Worth, there's been a couple of foreclosures on ma- major office buildings that have occurred already within that market, and that's a pretty hot office market. Uh, and so when you look at some of these other cities that are not as hot, you, you kind of get concerned. Um, and so it's happening in office because that's the market. Like, there's just not as many people leasing space, and lease rates are following, and people aren't being able to make those debt service payments on those buildings. In the multifamily side, it's, it's a different issue. It's not that the multifamily occupancy is not there. Um, it's rent rates are dropping a little bit, especially when you're in hot markets like Austin, you saw 11 to, you know, 12% drops in rents. But in, in those markets, you're seeing, um, the debt that they took out three to four years ago to build that, a lot of those multifamily, uh, facilities took out three- to four-year notes, and they're in the refinance now, and it's a much different interest rate environment. So therefore, because of the interest rate environment, it's a much different package, right? And so banks are looking at this and going, "Well, at your current rent rates and at these new debt rates, you may not be able to make those payments, and we're not gonna be able to get the coverage we have." So we may have a lot of assets that go back to the market there as well. Um, and there's just- I mean, you're talking, you know, a ton of money that's gonna be out there going through the refinance cycle at a time where interest rates are not there. So if the Fed's gonna cut interest rates a half a percent, that's gonna put everybody in a better position than if they cut a quarter percent, right? I actually think it's gonna be interesting to see what the Fed does there, because I think if the Fed cuts a half a percent with a 2.9% inflation rating, which is the last one we're gonna get, right, before the September rate cut, I think they're actually saying more about the kind of office and, um, real estate market associated with multifamily properties than they are about the inflation rate. Uh, they think that could actually push us a little further into what would be more of like an '08, '09 recession verse what I would consider to be like a bumpy landing recession, which would be like '95, right? Um, it's, you know... I, I love that in the news cycle, like everybody's like, "Oh, we're gonna have a soft landing," and then all these economists have come out, like in the last two weeks, and been like, "Well, we've never really had a soft landing." "It's always kind of been a bumpy landing." So, um, there's been a little bit of a change there. So I, I think ultimately, from a, from a macro standpoint, we're, we're seeing inflation, and things are there. My last point is, s- in my opinion, cities have already been, at least for a year, most communities for about a year, cities have always already kind of been in a recession when they're looking at their own finances, right? Because their growth in revenues has not been outpacing the inflation rate, uh, for over a year at this point. Uh, and so I think in a lot of communities, there are some communities that are high growth that, you know, aren't faced with that, but there are quite a few communities that, uh, are having to, you know, figure out a way to pay their police officers seven or 8%, because the Texas Legislature made a genius move to require police officers in every school. I love that my kids have that, but they didn't think about what that was gonna do to the market for police officers. So police officer pay has gone through the roof in the last couple of years, and cities just haven't had enough revenue to pick up for that. So that's been eating up and gobbling up a lot of their budgets. And we just haven't had the growth in sales taxes, and obviously, property tax growth is limited to 3.5%. We just haven't had a growth in those two areas to be able to keep up with the inflationary pressures and wage pressures that we've had in cities. So we've, we've kind of already been in this situation where we're, you know, kind of, um, you know, robbing Peter to pay Paul at this point, and so there's gonna be a reset at some point. I think it's gonna be coming up pretty soon.

Yeah, I mean, we've been talking about-... sales tax momentum for eight, nine months now, right? Like, we wrote a blog post in-

Yeah

-January about how-

We don't hold back the analysis

... over the past six months, momentum has-

Yeah

-been slowing down. In some cases-

Yep

-turning negative, but in almost all cases, definitely sl- like, the growth rates are slowing at the very least, right?

Yes.

That was eight months ago, looking backwards six to 12 months. So we're talking a year and a half now worth of time, where this has been going on on a, from, from a city revenue standpoint. Like, forget about the macroeconomics and whatever, but, like, the actual money that's coming into your coffers has been slowing down. Um, that has continued. We re- reran that MACD analysis, uh, on, on August data, right? We haven't published that yet-

Mm-hmm

... but, I mean, it's continuing, right?

Yeah.

Uh, the last two months of citywide or statewide city sales tax allocations in Texas have been negative.

Although the, the, the message has not been negative. The number has been negative, but the message has been like, "Everything is okay. The deck chairs are still on the Titanic."

It's wild to me the impact of that, like, the, the political aspect of the comptroller's role-

Yeah

... where he has to be like Baghdad Bob, like, "Everything is fine," right? Like, uh, Baghdad is getting- ... you know, blown up by, uh, shock and awe, and he's like, "No, everything's good." Um, yeah, the spin that comes off on some of those reports is interesting.

Yeah.

Especially like, two, what was it? Three months ago when we had a blip of increase, and the comptroller's report was like, "See, we told you everything's okay. All that stuff in the previous couple of months was just an anomaly." And then, like, the next two months we're, we're at negative growth again, so.

Yeah. And the blip of increase was, you, you could pretty much go in and tell why that blip was there. We can't talk about that, but, you know, it's... You could look at the data, and you know why that was a blip. But the, the reality of it is that when you look at- so moving more into a micro analysis of Texas and what we're seeing, retail is incredibly soft, I mean, and negative in most places. Um, you know, we've, we've seen, I would say, negative turn in retail in the urban cores now probably the longest, but we're starting to see that edge into the suburbs and the exurbs pretty quickly. Um, and you know, we're, we're gonna continue to see that. Um, you've got a lot of data out there. I know you're gonna talk a little bit about, you know, just the kind of the home goods retailers and, and-

Building supplies

... home improvement retailers. Yeah, building supply and wholesale. Um, but you, when you, when you jump into like the restaurant look, I mean, you can see people pulling back, specifically in your mid-tier or full-service restaurants and sit-downs. Um, you're, you're seeing declines significantly within, like, the, you know, uh, the major, uh, mid-tier sit-down players. Uh, trying not to get into the confidential data and tell you exactly who that is, but it's pretty much everybody across the board, uh, unless they're having significant growth in number of locations. Um, but same store-over-store sales, I mean, I, I haven't seen a restaurant release positive store-over-store sales in a long time. Uh, and we're not seeing, you know, positive store-over-store sales with inflationary pressures in their menu items. So you've got a perplexed-

I have a question for you.

Uh-huh.

This is probably something that I should know, but I, I don't. When you buy something on Uber Eats or DoorDash, the sales tax that they collect, does that get- like, does that go to the restaurant and then get remitted by the restaurant, or does that get collected by, like, as a, as a reseller by DoorDash or Uber Eats?

It's collected by the restaurant.

Okay. So the sales tax-

Yeah

... that DoorDash and Uber Eats generate, that's just on their service?

I believe so, yeah.

It's a pretty good amount of money. I'm wondering, uh... I would be interested to s- if that's how it actually works. Like, 'cause it could, it could theoretically work both ways.

Well, I mean, Uber is charging sales tax on their service, right?

And they're just passing through the sales tax on the food?

That's correct.

And the restaurant is picking it up?

Yeah.

Okay.

Yeah. Um, that's- so my understanding from some of the local restaurateurs that I talk to-

Okay

... is that's how it works, right? Um, and so there's not like a resale certificate passed, basically-

Mm-hmm

... from the restaurant to Uber Eats. So whatever the restaurant cost is, is the cost. And then, now, Uber Eats may have... They don't do this as much, but Uber Eats may have, like, a 5% increase on the menu price-

Yeah, yeah

... on the actual menu of the restaurant.

And then they may charge that on top of it.

And they may charge that-

Yeah

... and may tax that, right? So, uh, it depends what level of restaurant you are and what scale of business you do, 'cause obviously, like, the corporate players don't have that.

That's not true.

So, like, the Chick-fil-A DoorDash stuff-

That's not true.

Uh, what?

Those prices are way more expensive.

So, but if you order through the Chick-fil-A app, and they deliver using DoorDash, you don't pay the DoorDash price.

Okay, if you buy through the DoorDash or the Uber Eats or whatever, it costs a lot more.

Correct.

Uh, like, the unit prices are higher.

Yes. That's correct, yeah. Same thing with Chipotle, right? If you buy through the Chipotle app for delivery, and it gets delivered by DoorDash, you're paying the Chipotle pickup price, right? Plus the delivery fee. Um, you know, s- but if you go directly to DoorDash to buy Chipotle, you're paying more for Chipotle. So fascinating item. But I actually got rid of my, I can't remember, my DoorDash premium subscription. Like, I just didn't get a benefit out of it. I was paying, like, 50 bucks a year for that, and I did- I didn't see the benefit. Uh, and frankly, we just don't, we don't do delivery very often. But, um, that's interesting. Obviously, you know, you're seeing people start to cut back on streaming services. That's been talked about pretty extensively. Uh, I saw today that, you know, Apple+ is offering me three months to come back for free, those type of things. Like, it's, it seems like it's a more competitive environment. Um, you're seeing restaurants start to adjust pricing, uh, so you're seeing some, uh, deflationary pressures.... that are occurring in areas where sales are slumping, and then even in fast food restaurants, uh, which, which tells me that we're really in an early stage of a recession. Y- you know, I think the Sahm rule is probably spot on. Um, but fast foods are still seeing declines in sales, right? Whereas when you're in a middle to later tier of a recession, you'll start to see fast food sales pick up as full service continues to decline, right? 'Cause people go to the cheaper food source. Um, but one of the things I talked about yesterday in my Lunch and Learn was, um, I mean, you'll, you'll pay more to go to Chick-fil-A, a family of four going to Chick-fil-A, than you will to go to Cheddar's as a family of four now. Like, that's- so there are some fast foods out there that are actually more expensive than some of your full service sit downs. Uh, so that's been-

Cheddar still have that Dijon chicken with the port mushrooms?

Oh, they do-

Yeah, always my favorite

... it's still, you know, $11.99. It's crazy pricing. Um, but yeah, I mean, you got... y- you're, you're seeing in, in the micro side, we're seeing a lot. So what are you seeing in the wholesale building supplies?

Um, well, we talked about this a few months ago, I think after the Q1 earnings, where Home Depot blamed interest rates and things like that for sluggish sales. They just released their Q2 earnings report, and-

Mm-hmm

... lowered their guidance for same source- same store sales down to about 3 to 4% declines for the rest of the year. So if you rely heavily on a Home Depot, the trends that you're seeing are probably going to continue. Um, Lowe's doesn't come out for another week or so, but based on the industry as a whole, it's likely that they're gonna have some similar problems, right? So, um, those are, those are big players. If, if you're a small town or a smallish town with a Lowe's or Home Depot, that's gonna be a big chunk of your revenue. Um, and to, to see those continued drops, right, that's, that's not good. It's interesting, though-

Right. Well, I think-

... because when people can't... Like, most home projects, like small home projects, you have one of- you have two options. You're gonna pay cash from Home Depot-

Mm-hmm

... or you're gonna use their card to get, you know, like 18 months of free interest or something on, on like appliances or whatever, uh, or, or carpet. Um, or you're just gonna use your own credit cards. Like, it- the, the idea that these interest rates are causing such huge problems on, on, like, home, small home projects and small remodels, i- never really made a whole lot of sense to me. I can see it on, on bigger scale projects, right? But that's on the pro side, and the pro side has not, apparently, according to, you know, reports, the pro side has not been the problem for Home Depot, it's been the consumer side. So th- there's just an incongruence in that message. I think there's something else with it. I, I, I think that the interest rates are a boogeyman that you can blame for it, but I think something else is going on with, with Home Depot.

Well, I mean, I, look, I mean, I, I think people's incomes are rough, right? I think inflationary pressures are... I mean, the co- I mean, if you're, if you're living in Texas right now, just the difference in the cost of electricity in Texas over the last-

Yeah

... two years, right? I mean-

Insurance.

Uh, insurance. I mean, my in- my homeowner's insurance has doubled, right? My electricity cost has go- has doubled. Um, and I don't care what your Texas legislature tells you about electricity, but that's 100% not an inflationary issue. That is a, that is a policy problem in Texas, right? I mean, to see where we are from an electricity... You just go look at the, the daily heat rate cost of gas, and you're not gonna see a doubling in the cost like you have in your electricity bills. My electricity bills in the summer have gone from, like, 250 bucks up to, like, I was, like, 680 this month, right? I mean, it's, it's very significant, the difference in the cost of electricity that we're seeing in the state of Texas right now. Um, and, and it's not, it's not getting any better. I mean, we, we are allowing, uh, you know, line companies specifically, uh, the Oncor's, the CenterPoints, those players, um, we're allowing them to pass through, uh, rate increases in cost at, uh, staggering numbers and, and without regulatory review like they used to.

Well, the one thing if you-

The last legislative session was even worse.

Like, if it were going to infrastructure, if it were going to something that you could, like, see as a tangible improvement, that'd be one thing.

Yeah.

But then you see millions of people without power for weeks in Houston, CenterPoint is doing nothing about it, right? Like, where- where's-

Yeah

... where's it going-

Yeah

... is a big question.

Well, and, and I think leadership matters, right? I think that's a, that's a huge part of it. I, I, I will say, you know, Oncor's leadership is significantly more stable than, than the CenterPoint structure in Houston. But, um, you know, we're- our response to Winter Storm Uri was to allow the electric industry to basically come in and specify, you know, how we were to change it. And what they used that as, is an, is an ability to go get rate increases more often in the line side. Um, the line companies used that as an opportunity to go down and lobby and open up the process. Where that old process used to be, they would come in and ask for rate increases on the lines from all the local cities and communities and things like that, and, you know, um, they still have to do that a little bit, and they're still a player at the PUC, but it's not like it used to be. It's not like those rate increases would go through full rate hearings and lawsuits and things like that to hold rates down for consumers. Um, we don't have that same power and authority in the municipalities anymore that we used to, and so you've seen significant increases. Just look at your bills from two years ago to now, and most of the rate increase... You, you're gonna see... You know, look, you're gonna see a 30 or 40% increase in your retail electric side. So what you're paying, you know, your Reliant or your, you know, US Electricity or whatever the company is over there, uh, or your Ambit-... but you're really gonna see the increase in the line side. That's where the massive increase has happened. Um, and, you know, we continue to pay for political failures, and we just don't hold people accountable in Texas. That's, that's the issue is, is that with a one-sided political state like we are, uh, and as I've said a thousand times on here, I'm a super conservative guy, but we don't hold people accountable when it comes to that. And, and that's where we are, is we're, we're paying for that. Uh, just look at the, the generator stuff that happened. Houston Chronicle did a great article talking about, um, the generator stuff and all the money that CenterPoint had spent, uh, $800 million on generator leases, uh, that were meaningless and useless, uh, at any point of any of these, uh, issues that we've had. But there were a lot of people that made a lot of money on that process, and, you know, the regulators were just kind of fooled by it. Um, and even, you know, our legislators were kind of fooled by it. They feel fooled by it. Hopefully, that changes things. Hopefully, they see that as a, "Hey, we really need to go tamp down on the industry and have a conversation here." It's the same thing on the insurance side. Um, why are Texans paying for losses on insurance companies in other states? I, I have no idea. Um, but we've allowed insurance companies that used to be highly regulated in the state of Texas to almost deregulate themselves in a regulated market and pass on these costs to Texas residents because that's the business-friendly thing to do. Um, but it's really not the best governmental thing to do. So we're seeing all these things at the same time, and, you know, we're spending a ton of money in this state on things that don't necessarily matter for the future growth and economic enhancement of Texas. Uh-

And they definitely don't generate sales tax revenue.

They definitely don't generate sales tax revenue, no. And, um, it's just, it's, you know... It, it's a really tough- well, we're making the Ponzi scheme worse, right? It's just, it's getting worse and worse and worse, and, uh, we have to start asking questions. Um, and I do think on the electric side, especially the CenterPoint stuff, there's gonna be... There, there are gonna be some really good questions that happen out of that because there are some, uh, state senators who got real fooled in that process and are very embarrassed, and they should be very embarrassed that they got fooled in that, and they need to go fix it. Um, you know, that's, that's where I'm gonna hold them accountable.

Hopefully-

It needs to get fixed.

Hopefully Ben Scott's involved because then he won't spend so much time on property tax next session.

Well, I mean, look, our- you know, one of our good friends, Senator King, is involved in it. I mean, he was, you know, he's the co-chair of that committee, and he, you know, publicly stated in the Chronicle how embarrassed he was and how, like, hoodwinked he was basically, uh, by this process. He felt like these generators were gonna have some benefit, uh, in a Uri facility, and really it ended up just being a, an ability for CenterPoint to go raise rates and use lease payments to, to, to raise rates. And so, um, you know, there are good people that got tied up in that. There are good people on that committee. Um, but we are way too dependent on industry, and we don't ask for opinions anywhere outside of that, and it gets us in a ton of trouble in Texas. Uh, and the last eight years of legislative sessions have probably been some of the ugliest under Governor Abbott. I will call the man out directly. Um, I do not care, but it's, it's ugly, and we've gotta get it fixed. Um, and so hopefully we'll do that. Uh, you know, you got Mattress Mack. He's out there talking about it, Houston people, you understand that. So-

Hook 'em.

"I'll save you money." He is a Texas ex in me. It hurts me. It hurts me. So-

So where are we-

Micro

... where are we going here? Like, what, what are the takeaways, right? We've got-

Mm

... unemployment, we've got the Psalm rule triggered, we've got inflation that's stubborn enough where it could impact-

Mm-hmm

... interest rate decisions. We've got an election coming up, right, uncertainty there. We've got the, at the micro level, we've got issues with our retail sales, we've got issues with restaurants, we've got inflationary pressures on things that are not revenue-generating, right? It's like this, this is like a, a big storm potentially brewing here. What would you be doing if you were back in the CM chair?

Not panicking. We don't know how bumpy it's gonna be. We know it's coming, but we don't know how bumpy it's gonna be. I think I'd be just watching my expenses, right? I'd, I'd wanna make sure that, you know, first off, my sales tax projections would be miserably low, uh, going into this next fiscal year. Um, when I say miserably low, I'd be, you know, for organic growth, existing organic growth, I'd be, you know, zero to two percent probably, uh, depending on what my mix was. Um, I, I think for me, I would just kind of sit back and have a convers- I w- I always like to have conversations with the employees, I mean, you've, you kinda know me on that side, and kinda give them a, an outlook, you know, positive or negative. Like, I want them to know what I'm thinking and why we're thinking it. Uh, and so, you know, doing things very early to make sure that I'm not cutting people, uh, and operations, uh, and services, that, that would be the first thing that I look at. I don't ever wanna get myself in a position as a city to have to cut out my maintenance issues, because it just costs me so much money down the road, right? Uh, but it's always the first thing that most cities cut. And, uh, if we can avoid that, I, I-

Well, I mean, if you're not gonna cut people-

Earlier

... right, what, what's left?

Well, I mean-

There's not a whole lot left.

You know-

I guess you could cut new projects, but-

I would say we're so early in the process, like, I think we're probably gonna be sitting here... If, if October is the October that it normally becomes in recessions, I think training and travel starts to get cut in January, right? That's typically the first thing that goes. I, you know, I think, you know, new hiring freezes probably occur by March or April so that we are in a better spot for the new budget season. Um-... you know, I, I just, I think that's where we're gonna go.

Yeah, but do you think-

I think what got-

-with all of this, these headwinds coming at us during the budget process, surely a lot of people have already made some of those adjustments in their actual budget approval process?

Well, I, I would hope they would've made those adjustments when we started talking about this eight months ago, and then again when we talked about it in February when, you know, Christmas sales were lethargic. Um, you know, a lot of the city managers that I talked to, when they- their decision point was, like, February or March of this year, of '24. That was when they started to say, "Okay, we have to have a different outlook," right? 'Cause you don't, you don't wanna project 8% sales tax growth when you know it's not gonna hit, and then act all year like it's still gonna be there. And so the cities that went through and did a mid-year adjustment in March, April, May-ish, before they got into this budget season, are gonna be in better shape. If you've lived all year like you were gonna hit 8% and you only hit 3%, good luck with, uh, FY25 budgets. That's, that's a much difficult, more difficult area. So yes, I agree with you, like, we should have already been tightening our belts and trimming, uh, and already prepared to kinda just go into this. Um, you know, whereas in, like, '08, '09, I don't think anybody prepared, right? We, we hit October of '08, and it was, it was like there was... It was really- I, I distinctly remember being at ICSC in 2008. That's like when all the crap hit the fan, the market started going crazy. Um, and-

The local one?

You know... No, it was, uh, yeah, it was San Antonio.

Okay.

It was Texas. Yeah. Um, and I remember everything dropping out, and it was, like, the first day of ICSC, everybody was there, and then the second day of ICSC-

Everyone's gone.

Everyone was- it was a ghost town, right? Um, it was great for us, 'cause it was my first meeting with HEB, uh, and they were still there. The grocers are never worried about recessions. So-

Also-

Yeah

... they were, it was in San Antonio, so-

It was in San Antonio

... where are they gonna go?

So it wasn't far from the home base, yeah. Uh, but, I mean, the reality of it is, is that, you know, nobody was really prepared then, so there was a lot of, like, extreme cutting that was in everybody's mind. I think we're a lot more prepared for it now. Like, I think everybody... And not only that, we had huge revenue growth during COVID and post-COVID, right?

Yeah, I think that's the key, is when you have periods of rapid expansion, how are you setting your budget up in such a way that you can weather these types of storms when they eventually come, right? Like, if you're putting all of that-

Yeah

... new money into hard costs that can't be adjusted, then you're gonna find yourself in a much tougher position right now, right?

Well, the good news is, they couldn't hire anyways. There was nobody to hire.

It's true.

Right? So they had all that, they had all that new revenue that came in during COVID, and, you know, most of the time we would, we would say, "Hey, tap the brakes on all the new FTEs that you wanna put in," 'cause that's what every city manager wants to do. More money, more people. Um, but the reality of it is, is that even if cities were in that mindset where they, you know, they, they still couldn't hire those FTEs, because they weren't available, and the markets just didn't have 'em. So, um, I think there's a lot of pet projects that got put on, you know, uh, a lot of- I've seen a, you know, a ton of city facility parks, upgrades, those type of things. I've seen new facilities put in, you know, uh, quality-of-life type things. And the great thing about those quality-of-life type things is, you know, the, the capital cost is a one-time, right? So, um, you know, I saw a lot of cash financing. That's changed because of the 3.5%, uh, cap. Nobody's gonna cash finance anything anymore, which, you know, we could talk about on a different podcast, but just to give sentiment there, there's no cap on I&S, but there's a cap on M&O, so, uh, cities are trying to move everything they can to I&S to capture values. Um, so I, I think, I think we're gonna weather this storm a lot better. It does, though, depend on how bumpy this is gonna be, right? How bumpy of a landing is it gonna be. I, I think it's gonna be mild. I mean, I think that's the better way to say it. I, I still believe this is gonna be a mild recession.

It- the way that it's shaping up, where it's just, like, a slow burn, and every three or so months we think, "Oh, okay, a recession's coming." Like, we, we had two consecutive quarters of negative growth earlier in the Biden administration, right? So, like, this has been, like, three years in the making. I think when we finally get there, it's gonna be a lot less severe, just because it's been kind of spread out over a lot, lot, a lot more time. That's what I'm hoping at least.

Agreed, and I think cities' revenues in '21, '22 were so significant that they should be okay to weather that storm. More as in '08, '09, I think we were incredibly overextended as cities. Like, it was like the growth would never end, and we were in this, like-

We had 8% revenue growth-

... crazy cycle

... and we had double-digit property value growth, right-

Yeah

... like, for four or five years.

Correct. And so, uh-

0% interest rates.

Yeah.

It's like the perfect storm.

Perfect storm, for sure. So, uh, it's, it's gonna be, it's gonna be real interesting to see where, where it goes, but yeah, I think it's gonna be a mild recession.

Okay, so at least we're not ending on as gloomy of a note as I figured we might when we started, right?

Mm-hmm.

Some bad news, but-

Right

... the sky's not falling.

Sky's not falling, world's not ending. Um, just be responsible, and honestly, if you started being responsible eight months ago and started looking for the things that you, you, you should have back then... Uh, I mean, we've had a few clients that we've done sales tax projections for FY25 that kind of took our advice in FY24, that when we gave them our projections, they were, you know, significantly higher than what they were projecting, right? Because they, they had become just so conservative and pessimistic that it actually opened up some stuff in their budget for 'em when those projections came in. And so, uh, that's been a fascinating topic. I just think we're better prepared for it this time, because most of your management professionals-... who are in city government right now lived through a very severe economic downturn, right? With '08 and '09. Uh-

Kind of looms large in the back of your mind.

Yeah, I mean, it, it just loo- it just looms with a lot of the management professionals because the, the- I, I think the- I think if you asked a city manager, "What's the worst possible thing that you would ever have to do," right? I think burying a city employee is probably number one. Like, you know, you, you don't wanna do that. Any city employee, uh, you don't wanna bury a city employee. And then the second thing is, you don't wanna lay people off. I mean, that's, uh, that's a really tough thing. You and I have both worked for managers and seen people who have, you know, through tears, laid people off. Like, that's a very, very difficult thing to do. Um, and I just think that is ingrained, even in, you know, people like us who were in assistant roles back then. Um, you know, I just- I, I think it's burned into us at this point, and so culturally we're just- we're gonna- we've been more conservative through this downturn than we have been historically.

Cool. You got anything to wrap us up with?

What's your prediction of the A&M Texas football game?

Well, uh, if my recent experience with NCAA football 2025 is any indication, it will be 83 to nothing, Texas. I had... Here's the thing. If, if the, uh, the, the ratings and the, like, the characteristics of the players are any, any indication-

Yeah

... Texas has so much team speed, especially among the skill players. We unfortunately lost our starting running back, and then we lost a backup running back, so hopefully we're gonna take it easy on scrimmages for the rest of the fall camp. I heard apparently y'all also lost a running back as well.

We lost a stud five-star running back, yeah.

Yeah, right. Oh, uh, it was Owen, wasn't it?

He'll be okay. Yeah, I believe so.

So I don't know.

Yeah.

I think it's too early to tell.

It's gonna be a fascinating game. I-

It's gonna be so-

Like, I'm, I'm not-

... the, the emotions are gonna be so raw for the fans.

Yeah.

I'm really interested to see what it's gonna be like for the players, 'cause these players-

Are we going to this game?

I don't know.

I feel like we need to talk about this, but-

But these players are-

Uh-

Even the oldest ones were 10 or 11 the last time we played.

Yeah.

So I don't know. Like, when we've played Arkansas, right, there's a bitter rivalry among the fan base.

Yes.

And I don't know how much, at least, especially on our side, how much that carried forward with the players. 'Cause the first time we played Arkansas with Charlie Strong, we got destroyed. Um, the second time we did it recently, we- we're on a backup quarterback, so, like, it... There was some issues and, you know, some contingencies.

Man, Arkansas hates you for this comment.

They hate us so much.

They hate you so much.

Um-

It's so funny.

And so I, I expect that we're gonna have a fun game. I don't think it's gonna be a blowout either way. It's gonna be close. Like, even Texas OU, except for a couple of years during the Mack Brown time period and then the game a couple years ago, it doesn't really matter how much better one team is the- than the other, it's usually a pretty close game.

Yeah.

Um, and I expect that this will be as well, coming from, you know, all that time of having not played, there's gonna be a lot of build-up for it. Both sides are gonna probably be amped up for it, so I think it'll be a close game.

Okay. Yeah, I, I think it's gonna be... I think it's gonna be interesting to see where it's gonna go. I- you're gonna face a, a very, very good defensive front.

I think y'all will, too.

Right? Eh, your defensive front is a bit weaker, I'm just gonna be honest, right? You, you do have a better wide receiver core. I, I would agree with that.

We have probably the best wide receiver core in college football.

It's, it's pretty good. Um, but-

And that's after losing three to the draft.

I- look, Sark is really good at recruiting wide receivers. It's- there's no doubt. Uh, that's, that's what he's really good at. I think it's gonna be really interesting to see how you do with the defensive front. Uh, and you're playing in Kyle Field.

We are. The good- which, which, however, is not that difficult of a place to play over the past t- decade.

But for Texas, it's your first time to be back in Kyle Field.

That's true, and it was also-

You historically have not played well

... Appalachian State's first time to be in Kyle Field.

Yeah. Hey, historically, Texas has not played well-

Uh-huh

... in these big SEC environments when they're on the road.

That's right. I forget, what happened last year at Bryant-Denny? I can't remember.

Yeah, did y'all win that game?

I think, I think s- I think it was the biggest, the biggest loss in the Saban era.

A lot of people win at Bryant-Denny, by the way.

I think at home.

It was worse than the Johnny Manziel loss?

It wasn't at home. Hey, friends, sorry for the interruption, but I just could not let that aggression stand. I did not catch it in real time, but for Patrick to say that a lot of people win at Bryant-Denny Stadium, please. Now back to your regularly scheduled ZacCast.

Yeah, but the Johnny Manziel loss was amazing. Still one of the greatest football games of all time, by the way. To be fair-

It was one of the greatest meaningless games of all times, yes. Like, games that ultimately-

To be fair

... had no impact on the season itself, except for maybe the Heisman Trophy.

Are you gonna let me be- are you gonna let me be nice to you?

Well, you're gonna say except for maybe-

Right? In my opinion-

... the 2005 championship game

... the Rose Bowl is probably one of the greatest games ever.

Yeah. It's-

Yeah

... a super fun game to watch, yeah.

I, I will give you that. And, and, and you know from my high school days how much I dislike that quarterback- ... 'cause he knocked me out of the playoffs my senior year. Um, so I, you know, I have feelings when it comes to Vince Young-

Yeah

... so, and his terrible steakhouse.

So I'm gonna tell you one, one thing before we wrap up.

Mm-hmm.

Premier League's, uh, football starts this weekend, and I've gotta tell you, like, this is my, my first r- off-season of really following it. It's a super-

Okay

... short off-season. It's, like, two months long. They play almost-

Yeah

... the entire year. Amazing.

But soccer only plays once a week, right?

They play, yeah, typically once a week.

Yeah.

But they've got, what?

So-

38 games.... or matches. So, plus then they play-

Matches

... you know, European leagues, and they have an FA Cup, and then they have all these other tournaments that they play in. So there's, there's a lot of games to watch.

Yeah, you can't, you can't give soccer guys too much time off, though, 'cause then they just get on the couch and get fat.

Yeah.

Yeah.

Whereas opposed, like, football players where for half of them, that's perfectly fine.

It's 100% fine, yeah. Just, just get big, get fat. So, um, all right, man.

All right.

Well, that's a wrap, that's a wrap on summer.

That's a wrap on summer. School's back in-

Yep

... so we're gonna be back to our normal bi-weekly schedule. Schedule.

Schedule. And, uh, we're officially in October.

October.

October.

Yeah.

Fall starts in August, so they call it October now?

That's a new one on me.

Yeah. It was on the Today Show this morning. You missed it.

I don't watch the Today Show.

Dude, I love the Today Show. It was Hoda's birthday!

Who?

Hoda.

Isn't that a type of shoe-

Come on, man

... like a running shoe?

Man, 7:00 in my morning, that's- Today Show comes on.

7:00 in the morning, I'm making my coffee. I've got my Wall Street Journal pod- like, the What's News podcast. I've got the New York Times-

Yeah

... Daily podcast, and I've got a couple of other news ones. So that's what I'm doing. I cue the podcasts, make my coffee, go sit on the porch, get a little bit of, uh, vitamin D, some sun rays. 'Cause, you know, it's, it's better in the early mornings. Like, whenever the sun is at, like, lower in the horizon, it's not as damaging to you.

You, you would know, cancer boy.

You gotta take these things with a s- significant amount of caution here. You gotta enjoy life-

To, to be fair-

... but you gotta do it with a risk tolerance.

The most expensive ticket in college football, by the way, is the A&M-Texas game.

Yes, I know. In fact-

It's a 500- it's a $500 per seat ticket.

Um, Texas has, like, three of the top four or five or six most expensive tickets this year.

Chad.

We do.

Did y'all even sell out of your season tickets this year?

Yes.

I didn't think you did.

Yeah, no, like, of the top 10 games that are, like, the most expensive tickets, Texas has at least, like, four of them. And the one-

How many does A&M have?

... the one that's Texas A&M is the against Texas.

Okay.

So-

Yeah

... it's a hot ticket, man.

It's a hot ticket.

Texas is back.

It's a hot ticket.

Everyone wants to see us.

Now I just gotta convince you to go to the game.

No, that's not true. I, I, I'm sorry. Your Notre Dame game, I think, is also, uh, on there. Is it-

Yeah, it's, it's a Friday game, right?

Is that the opening week?

Uh, what?

Notre Dame, or is it week two?

No, it's opening week.

Okay.

Yeah, it's game one, boy, and that is, uh... Oof. That's a heck of a way to start out your first game out there.

Yeah, I'm curious how they're gonna be this year.

Notre Dame?

Yeah.

Oh, they're gonna be good. They're gonna be really good. It's gonna be a really tough game.

I would put more money on them not being very... Like, probably a top 25 team, but not, like, a top 10 or 15 team.

So you're saying A&M, A&M's gonna win that game?

I'm not saying that.

Okay.

But you remember how Miami was, like, a beast that was unbeatable after-

Yeah

... week one a couple years ago or last year.

Oh, yeah. Yes.

Yeah.

I remember it, yeah. So who y'all playing week one?

Don't know, some puff school, and then we go up to Michigan.

Oh, okay. Well, Michigan's gonna be a different school than it was last year.

They will be, yeah.

Yeah. You, you should beat them handily. Go out strong.

Yeah, I, I'm hoping. It would've been better with, with, uh, Baxter leading the running backs-

Yeah

... 'cause he's more of a bruiser. Jayden Blue's more of a speedster. But-

Yeah

... we'll see.

I mean, look, Harbaugh, Harbaugh, one, cheats, right? And then two, he's-

They lost a bunch of people.

They lost everybody, yeah. The transfer portal changes the game a ton, and that's the thing. Elko was able to hold on to a lot of people 'cause he was a known, known quantity, so that was helpful. But, um, and we kept a lot of our bigs, which is good. So on the line side, we should be all right. Um, but yeah. When is that game, by the way? Is it a Friday or a Saturday?

What?

The A&M-Texas game.

Uh, I believe it's currently scheduled for that Saturday.

Okay.

I would like them to move it to the Friday.

I'd like it to go back on Thanksgiving.

That'd be fine with me, too.

Yeah, I think every-

But now that-

... every, like, true Texas A&M fan wants a-

But the NFL has stacked another extra game on Thursday night, so...

Well, they did that on purpose.

So, yeah, so they wouldn't have any college football games.

So they, so they, they... Well, they did that on purpose to keep that Texas-Texas A&M game going back to Thanksgiving. Um, but I don't think that matters. I think college football would outplay it anyways, so-

Es- especially a Texas, and-

Yeah

... Texas A&M revival.

Correct.

All right, we've been, uh, we've been dilly-ing in here for too long on random nonsense, so-

Enough!

Let's cut this off, and, uh, Pat, we'll see you in a couple weeks.

Couple weeks. Bye, guys.

You, plus I, me, equals I, us.