When you have young kids, there are so many things that you want to share with them but rarely enough time to do them all. So when the opportunity arises, I do my best to take advantage. Such was the case this past weekend, when an ad hoc movie night provided the chance to share two disparate things with my oldest that I've been eager to share with him: Harry Potter and chess.

I'm sure Patrick is chortling under his breath as he proofreads this right now, but hear me out.

Like many of you, I was skeptical of the whole Harry Potter fad back in the early 2000s, but my future wife was quite the fan. Back in those days, you could pretty much only buy books at bookstores. And if you wanted to get the newest installment of a ridiculously popular series, you had to pre-order a copy, arrive at the book store several hours before release, and wait in a long line to get it. So it was that I attended 3-4 book release parties for a franchise that I had little interest in reading. (Part of me still wonders if she made me go with her because at the time I bore a passing resemblance to the titular character.)

It was several years later, though, just before we got married, that I finally gave in and read the first book. Just a few weeks later, I had finished the series. I'm not saying it's on par with Dickens or Tolstoy, but it's an entertaining story with quite a bit of depth and attention to detail. Callbacks in book 7 to something in book 2 make you wonder if the entire story was in JK Rowling’s head all along.

But this is all just pretext.

Toward the end of the first book/movie, Harry, Ron, and Hermione must LARP a game of Wizard's Chess in order to save the day. And of all the fantastical elements found in the first movie, this is the part that piqued my eldest son's attention the most.

"Dad, can we play chess?" he asked. #ProudDadMoment

I don't know how quickly a five-year old is supposed to grok the game of chess, but I'd say he did a fine job. He got a little antsy toward the end but he picked up the basic idea pretty quickly, even getting himself out of check early in the match with a pretty clever move I hadn’t expected. And though his win/loss record currently stands at 0-1 (I mean, I'm not going to go easy on him just because he's 5), I think the world has a new chess fan. That’s a good thing if you ask me.

Chess is a beautifully - perhaps deceptively - simple game. There are 6 different types of pieces, each with their own specific movement patterns. Aside from the occasional quirks, like castling and en passant, the rules are quite simple. But within the confines of these simple rules, a massively complex system emerges.

After both players have moved once, there are 400 possible board arrangements. After each player has moved 3 times, around 121 million. Talk about exponential growth.

Though there's room to doubt the claim, grandmasters of chess are said to be able to think 15-20 moves ahead, estimating their opponents reactions and identifying the best course of action. Even Deep Blue, the IBM supercomputer that beat Garry Kasparov and which could calculate hundreds of millions of positions each second, would only search to a depth of up to 20 or so moves at a time. Of course, Deep Blue's brute force approach to problem solving meant that it was more likely to evaluate lines of play that the grandmaster would know, through intuition gained by years of study and experience, were less favorable than others. That experience probably provides a useful heuristic to narrow the range of reasonable inquiry, reducing the computational burden the grandmaster must exert to choose his or her next move.

Which brings me to Magnus Carlsen, the 30-year-old Norwegian chess prodigy who became a grandmaster at 13 and who holds the record for the highest rating of any player in the history of chess. Even if you don't have a thorough knowledge of chess (which I don't, I just enjoy the game), watching him play is impressive. His approach is unique, in that he doesn't care too much about the opening sequences. His goal is to get straight into the middlegame, where he will play largely mistake-free chess while he waits for his opponent to mess up. Taking advantage of his impressive memory and pattern-matching skills, he waits for that moment when you've put yourself at a disadvantage and then he pounces.

But what's more interesting to me is that he doesn’t constantly try to think dozens of moves ahead. Sometimes, Carlsen says, he will make a move and "really [not] know why." He doesn't always know the moment that he makes the decision to move; he just makes it (sometimes immediately realizing he made the wrong move).

He doesn't always have a long-term vision of what he's trying to do at any given point in the match. He just understands the confines of the game and uses that knowledge to wait for the right moment to take the advantage over his opponent.

By now, you're probably asking what in the world this has to do with local government. As I was teaching my son the simple rules for this complex game, it dawned on me there is a profoundly Strong Townsian lesson to be learned from it. And since the founder of Strong Towns, Chuck Marohn, is making the rounds for his new book tour (including several stops in Texas), it seemed apropos to discuss.

We've talked about Strong Towns before, but for those not familiar, it's a non-profit that focuses on helping cities achieve more fiscally sustainable development by taking lessons from the differences in how we build communities today versus how we built them for thousands of years. We don’t necessarily agree with everything they write, but their approach to local government issues is worth paying attention to.

So to round this out, here are three quick takeaways for city managers:

1) There are literally too many possible outcomes in chess for anyone to calculate. It's a complex game, but it's not a complicated game. There are simple rules to follow, and they lead to any number of undetermined outcomes. Because the rules of the road are simple, complex systems are flexible. They're able to adapt over time to different pressures that are unknowable when the rules are established.

On the other hand, complicated systems are brittle. They are governed by many small rules attempting to specify behavior in any given circumstance. As new pressures emerge, the baggage that comes with all of those rules makes complicated systems less able to change.

We should want our cities to function as complex systems rather than complicated ones. It's tempting to set rules that govern exactly how we desire our city to be, but that's a recipe for disaster. Instead, we should focus on creating simple rules that allow the creativity of our neighborhoods and residents to thrive, creating strong and resilient communities that can adapt over time.

2) Because the rules of chess are simple, it’s possible to beat even the best players with enough brute force. When Deep Blue looks ahead 20-25 moves, calculating every possible iteration of gameplay, it will evaluate paths that the grandmaster intuitively knows are less optimal. Deep Blue can get away with wasting that energy because computing power is cheap. When you can calculate 200 million permutations each second, what's the harm in a few wild goose chases if you end up with the “perfect” move? In other words, Deep Blue can sustain its gameplay style because it has effectively limitless resources.

Our communities, on the other hand, don't. We only have so much time, money, and space with which to operate. Strong Towns argues that the development style we've pioneered since World War 2 - the same development style that they argue is ultimately causing cities to be less resilient and less financially secure - came about in no small part due to an effectively unlimited set of resources.

With Europe in tatters, a booming post-war economy, millions of men and women back home in the workforce, federal programs injecting large amounts of money into local communities, and cheap undeveloped land, we didn't have to worry about the same constraints that the generations before us had to worry about. We didn’t notice that we were building insolvent communities because the next round of development was right around the corner, keeping our fiscal health propped up for another generation.

But eventually, they argue, the "Growth Ponzi Scheme" will catch up to us. Eventually, we'll have to learn to live within a reasonable set of constraints. And like the chess grandmaster, we'll have to use our collective intuition to narrow down the possible moves we can make. We have to work more like Magnus Carlsen than Deep Blue.

3) Even if you have a grand vision for what success looks like, it's better if you don’t try to plan every step on the way to achieving it. Magnus Carlsen knows what he's looking for in order to win a chess match; he knows that there are a handful of patterns - where the pieces are arranged just right - that will allow him to achieve victory. But he's not trying to plan out 20 moves in advance. He lets the game come to him, avoids making costly mistakes, and seizes the opportunity when it comes.

This is the chess version of incremental change that Strong Towns champions. The best ideas rarely come from grand, ornate plans. They often come at the spur of the moment, from a place least expected, and in a way that you might not even realize when it hits you. If you go all in on your ideal strategy, you might find that it blows up in your face 5-10 moves down the line. Incremental changes might fail, too, but they carry far less risk.

For local governments, that can mean less reliance on your detailed planning processes and more on listening to the everyday needs of people who live in your town. It can mean allowing your neighborhoods to change little by little, rather than building them all at once to a finished state. It can mean focusing on enhancing the value of what you already have, rather than trying to continually expand where you aren't.

Working on incremental improvement allows you to experiment, to fail, and to get better. Those are things that every city manager should prefer over shooting for the stars, succeeding, and then realizing you were aimed in the wrong direction.

If you made it this far, you deserve a gold star (or at least some kind of acknowledgement). Sometimes my analogies fall flat; hopefully this isn't one of those times, especially since we took some time off from this newsletter over the summer. From all of us at ZacTax, we hope you’re coming out of your budget process relatively unscathed and looking forward to a new fiscal year. If you found any of the Strong Towns arguments interesting, and will be in the Dallas/Fort Worth area on September 24, Chuck Marohn will be speaking at the Hurst Convention Center. As of writing, tickets are still available!

I’ve known Pat for nearly 15 years and I still wasn’t sure if it was meant to be a compliment or a dig. Being the resident skeptical introvert of our company can take its toll, though, and I thought back to an experiment I once conducted on myself.

For about a year, I made a point to respond to the generic greeting, “How’s it going?” by saying, “Best day of my life.” Part cheerful optimism, part willful attempt to create my own reality, that response begat some interesting conversations and often served to aid in my daily struggle not to be Larry David. So I chose to take his kurt response as an endorsement of the topic.

Having said all that, if you don’t like this edition of the newsletter, it’s 100% on Patrick for not being clear enough to deter me from writing about it.

* Actually, this response came immediately after the second time I sent him the article, which was 11 days after the first time I sent it. But who’s counting…

A study recently published in Nature starts with a photo of something that has very little to do with nature, per se:

As a general rule, if you want to hook me into reading something, including a Lego reference in the lede is a solid start. Childhood nostalgia notwithstanding, the article highlights a study with interesting implications for problem solving.

Participants in a study were shown this image, which depicts a Lego structure with precariously unstable roof. They were told to make any changes to the structure they wished so that the roof would support additional bricks being placed on top. Any brick they added cost them $0.10, and they had up to $1 to play with.

Nearly 2/3 of the participants solved this puzzle by placing additional bricks under the roof. Just over 1/3 opted for the quick (and free) option of removing the superfluous 2x2 block who presence was the cause of the instability.

The report outlines seven other studies all testing a similar hypothesis. In some cases, participants were asked to either improve or make worse a putt-putt golf hole; in others, they were asked to make 3 quadrants in a 2x2 grid look the same as the 4th by toggling the color of squares. In all cases, participants tended to focus on “additive” strategies to solve the problems rather than “subtractive” strategies.

The authors described “additive” strategies as one that ended with more components than the original, while “subtractive” strategies as one that ended with fewer components than the original.

Think back to the last time you were involved in some problem-solving exercise at work. Did you reach for a subtractive solution? Were they actively encouraged during brainstorming sessions?

As I think back on my time in city government, not too many stick out. The one big example that kind-of-maybe-not fits came toward the tail end of the design process for a bridge and intersection remodel project. Early on in the project (as in, 7-8 years before this point, since TxDOT was involved), estimates for utility relocations were prepared. The City had included in its initial debt issuance funds for these relocations based on those estimates, but when it came time to let the project and get those gas pipes lowered, things changed. The cost estimates from the gas company, which had changed ownership during the intervening years, was now nearly 3 times as high, and at a level that we simply were unable to bear. Certainly not on such short notice.

Panic ensued, as tends to happen in such situations. In meeting after meeting, we struggled to find a solution to the problem. Each one inevitably seemed geared toward what the study authors would have called additive, and none of them solved in the problem in a timely or cost-efficient manner.

I’ll pause to note that in this case, our struggles could fairly be blamed on a couple of things: tunnel vision due to the length of the design phase, and an engineering bias which tends to disincentivize what we would otherwise call “outside the box” ideas.

Fortunately, the project managers at the city weren’t engineers, so we didn’t have any problem throwing out suggestions that might otherwise be kind of stupid. At one point, we asked:

- At how many locations do we have an actual conflict? One.

- How much more room do we need between pavement and pipe? A couple of inches.

- Is there any way we can just raise the road a couple of inches? [crickets.gif]

It took some arm-twisting, but it turns out there was a way to do it. If we rerouted drainage at one corner of the intersection, we could afford to raise the road enough to eliminate the conflict altogether with no delay, few (if any) quantity changes, and the cash we had originally planned to use available for something else.

Instead of trying to “fix” the problem, we worked our way out of the pickle by just removing the problem altogether.

In the world of city government, though, we tend to be biased toward additive solutions. We get awards for building parks, not removing them. We get better ISO ratings for adding fire stations, not for finding ways to provide similar service levels with fewer stations. When our zoning code becomes brittle, we layer new planned developments and overlays on top, rather than removing the cruft from the bottom.

And even doing an objectively great job, such that you win the accolades of your peers, may not be enough to hang on to your city manager chair.

Of course, subtractive solutions don’t necessarily require reducing services, lowering the standard of living, or making life more difficult. It simply means not predisposing oneself to thinking that a solution to a problem necessarily requires something new.

The authors of the editorial accompanying the study offer some thoughts on why we tend to favor additive rather than subtractive solutions. First, that we might tend to expect that subtractive solutions will be less appreciated than additive ones; that they won’t be viewed as creative or as helpful.

I think there’s some truth to this. “What if we just don't do X” doesn’t necessarily scream Innovative, especially during a brainstorming session where colleagues are throwing new ideas onto the whiteboard.

Second, subtractive solutions might be less attractive, particularly in a workplace setting, because they are more likely to involve downsizing, eliminating functions, or otherwise impact people’s livelihoods.

Finally, they offer the idea that concerns over sunk-costs might bias us toward adding rather than subtracting. While it’s certainly possible, my hunch is that this would have a greater impact in the decision-making phase rather than the ideation phase. However, if you know that the decision makers might be biased toward sunk-cost thinking, that could certainly impact the types of solutions that are offered.

The good news from the study is that our general tendency toward additive solutions can be mitigated by ensuring that subtractive solutions are welcomed. Several of the experiments showed that by including verbal and written clues that subtractive solutions were acceptable, the number of participants who opted for such solutions increased in a statistically significant way.

Repetition also helped. In one experiment, participants were shown a digital grid pattern consisting of 4 quadrants, each with a 5x5 grid. One quadrant had extra boxes shaded, and the participants were asked to make all 4 quadrants look the same.

On subsequent attempts, more and more participants realized that it was more efficient to remove shading from the anomalous quadrant, rather than to add shading to the other three.

Knowing that we can increase our likelihood of receiving additive and subtractive solutions by reiterating that both are acceptable is important. Be sure to use language that lets your employees know subtractive solutions are OK, and they’ll be more likely to consider or suggest them.

It’s especially important for managers to remember this when stress levels are high. Participants that were placed under higher cognitive loads were less likely to find subtractive solutions, even when those cues were provided. At times when they needed the more efficient option the most, the added environmental stress made them less likely to reach for them.

Where are some places that we can add by subtracting in our day-to-day as public managers?

• Removing restrictions on Accessory Commercial Units might be an opportunity for supporting local small business growth, improving the environment, and creating more dense, walkable neighborhoods.

• We might be able to encourage alternative transportation and more diverse development while strengthening our tax base by removing parking minimums.

• Smaller pocket parks or neighborhood green spaces that can be walked to in favor of large, beautifully landscaped flagship parks that you have to drive to.

• As we continue to struggle with the role of policing in America, one thing to consider is the shear volume of criminal laws on the books. @CrimeADay’s Twitter feed is a shrine to the absurdity of federal criminal law, but the fact that it would take more than 800 years to tweet one federal crime per day raises serious questions. Each law brings the potential for deadly encounters, and we might want to rethink whether we should have laws on the books that we aren’t willing to endanger the lives of our officers or the public to enforce.

• Federal transportation planning is notorious for adding time and cost to any project with federal funds. And while there isn’t a lot that locals can do about that in the short term, shunning the “free money” that comes in the form of grants and matching funds in favor of locally-controlled projects with fewer strings might be a better long-term option for you.

At the end of the day, each community is different. Your mileage may vary (or, as the kids say, YMMV). The important thing is to encourage open dialogue where additive and subtractive solutions are freely welcomed. Subtractive solutions aren’t always the right way to go, but sometimes they are. If your organizational culture or management style is artificially limiting the world of possible solutions under consideration, it might be worth reflecting on how you can solicit a wider range of ideas.

Although this study showed that we have a tendency to focus on new and more, it also showed that with repetition and explicit reminders, we’re pretty good at adding by subtracting when the circumstances warrant it.

Around the web

Voters would have to approve police budget cuts under bill approved by Texas Senate (Texas Tribune)

While not as Draconian as some of the bills making their way through the Texas House, SB 23 would require an election be held before reductions in police spending could occur in years when the overall budget has not decreased, or if cuts to police spending were proportionally larger than overall budget cuts.

Cities need housing. Parking requirements make it harder (CityLab)

A bill introduced into the California legislature would eliminate parking requirements for new buildings built near public transit or in walkable neighborhoods, arguing that the move will help reduce housing costs.

Elon Musk is donating $30m to Brownsville schools and downtown revitalization (Business Insider)

The move caught the city by surprise, and it will be interesting to watch how SpaceX’s presence will impact Cameron County.

More from Zac

Dark Stores and Coaches Teams (ZacCast)

We talk about the Dark Store appraisal theory and riff on organizational culture through Patrick’s unsuccessful attempt to criticize the flagship University of Texas.

HB 4072 and all-time great baseball movies (ZacCast)

We talk about a bill working through the Texas Legislature that would fundamentally alter how sales tax works in Texas, and celebrate the return of our national pastime by arguing over the best baseball movies of all time.

Several years ago, I decided to stop focusing on trying to score my debate points, to land that devastating one-liner that will surely convince the other person that he or she is wrong and I am (obviously) right. Instead, I’ve tried to focus on finding that one bit of common ground: That one point of divergence where our principles split and ultimately lead to differing policy positions.

To do that, you have to ask lots of questions and listen to the answers. In the property tax debate, if you listen long enough you’ll find that bit of common ground - that Core Issue - is the fact that residential tax bills continue to increase despite the Legislature's efforts to prevent it.

If the problem is rapidly growing tax bills, it might make sense (on the surface) to make the entire process more transparent and place artificial limits at various points in the system. And aside from tinkering here and there on the edges as favors for various special interests, that's pretty much what we've done.

The Truth-in-Taxation-cum-No-New-Revenue regime is intended to make the appraisal and rate setting process more transparent. Caps on appraisal growth and tax rates set by localities are intended to restrict how much tax bills can grow each year.

Unfortunately, our good intentions were laden with unintended consequences, and the Core Issue is still hanging around. Residential tax bills continue to grow, blame gets placed on cities and local governments, and the Legislature asserts more power over them. Lather, rinse, repeat.

It's time to end that cycle and have a real conversation about our property tax system. One divorced from the heated rhetoric and finger pointing that typically dominates this debate. Creating a fair and equitable system of wealth taxation is extremely hard, regardless of how differently individuals may define the terms "fair" and "equitable." The nuances of real life are always going to be difficult to capture in the arcane language of the law.

In an effort to protect homeowners, we've harmed them. It wasn’t intentional, but we do need to talk about the underlying problems so that they can be fixed (and the State’s meddling can hopefully start to decrease over time).

This issue of the Roundup is part of an ongoing look into the problems with property taxes in Texas, which are legion. Like many things in life, this is a complex issue. There is no monocausal explanation for what’s wrong. However, like many of you, we are wary of the perpetual attempts to "reform" property taxes by the Legislature. And if local governments can't find a way to tell the story properly, we won't be able to fix these underlying issues. Be sure to follow our podcast for more discussion of this issue in the weeks and months ahead.

Let’s get real (but hopefully not personal)

OK, enough with the property tax puns. For those that are less familiar with property taxes in Texas, here’s a 30,000 foot overview.

What are property taxes?

Property taxes are an ad valorem tax - a millage rate based on the value of various types of property - assessed on the owners of said property.

Who sets the values?

The responsibility for appraising property falls to the Central Appraisal Districts (CADs), and there is one for each county. State law specifies how different types of properties are to be appraised.

Residential properties are to be valued “solely on the basis of the property’s value as a residence homestead, regardless of whether the residential use of the property by the owner is considered to be the highest and best use of the property.” In other words, even if a property is ripe for redevelopment, and may be worth a lot more as a dirt patch than a house, it has to be appraised as a house.

When you consider the abundance of information related to home values, including MLS listings and third-party estimates from companies like Zillow and Trulia, this should be a relatively straightforward process with a variety of checks and balances in place to ensure reasonably accurate appraisals.

Commercial valuations, however, are a bit more… subjective. Appraisal districts can choose from a variety of methods, including cost, income, and market data comparison. Each methodology presents opportunities for judgement calls in ways that residential appraisals simply do not. We’ll dig into these appraisal methods a bit more later in this issue.

Values are assigned as of January 1 of each year. Preliminary appraisals are released at the end of May, and certified values in late July.

Property owners are allowed to protest their valuations through an arbitration process.

Who sets the millage rates?

Local taxing entities receive appraisal rolls from CADs showing how much taxable value has been identified. It is based on these reports that annual budgets can be finalized. These entities are responsible for setting the rate at which those properties are taxed. They can assess taxes for operations as well as for debt service.

Local taxing entities include cities, school districts, counties, and special districts (Municipal Utility Districts, Hospital Districts, Library Districts, Community College Districts, and many, many, more).

Then what?

Property owners are then sent their tax bill, which is due by the end of the following January. Delinquent accounts are assessed penalties and interest.

How has property tax reform complicated this process?

That’s a great question, thanks for asking. Let’s look at two factors of reform that we mentioned earlier, appraisal and revenue caps.

Appraisal Caps

Appraisals for residence homesteads (Property Tax Code 23.23) cannot grow by more than 10% from the previous year, not including new improvements made to the property. This means that in booming markets, a gap can grow between the appraised value and the market value that the CAD actually believes your property holds. When the housing bubble burst in the late aughts, this caused a wave of confusion among homeowners whose home was decreasing in value while their tax appraisals continued to increase.

In other words, the core responsibility of accurately appraising properties is paramount for our CADs unless those values are growing too fast. The mixed signals being sent are, unfortunately, not isolated to residential appraisals.

Revenue Caps

On the other end of the spectrum are revenue caps (or tax rate caps if you prefer). The goal behind these is to limit the growth in actual revenue that local governments can collect from property taxes. In the past, this was called Truth-in-Taxation. Today it’s called the No-New-Revenue tax rate, but the mechanisms are largely the same.

To prevent revenue from growing to quickly, taxing entities are required to calculate the rate at which properties on both the current and previous year’s appraisal roll should be taxed, taking into account their new values, to generate the same amount of revenue. Here’s an extremely simplified diagram:

When property values are generally increasing, the No-New-Revenue Rate (which we’ll call the NNRR for short; it was previously called the Effective Rate), would be lower than the nominal rate the taxing entity assessed the previous year. When property values are decreasing, the NNRR would be higher than the nominal rate.

What seems like a simple calculation is actually quite complex, largely because cities (and local governments generally) are complex. Special considerations are given for any number of circumstances, including cities that have adopted a sales-tax-for-property-tax-reduction, cities that have divested portions of their operations to other entities, and rate shifting from debt to operations or operations to debt, just to name a few.

Suffice it to say that the NNRR formula is extremely complicated, and at times I wonder how confident anyone actually feels that the rate they calculated and published is correct (or if there is even a “correct” number).

Once the NNRR is calculated, the Voter-Approval Tax Rate (VATR) is calculated. The VATR is a certain percentage above the NNRR (the rate varies based on locality type). If the locality adopts a tax rate above the VATR, the locality is required to hold a special election requesting voter approval for the higher rate.

Under Truth-in-Taxation, this was called the Rollback Rate, and adopting a rate higher than the Rollback Rate triggered the ability for the people to petition for an election, but an election was not required. The old Rollback Rate was 8% above the Effective Rate. The new VATR is 3.5% greater than the NNRR for Texas cities.

Since we’re talking about Truth-in-Taxation and its successor, the No-New-Revenue Rate, it’s worth mentioning that these are also transparency reforms in addition to revenue restriction reforms. However, anyone who has had to write and/or decipher the public notices that these regulations require can tell you that it’s anything but transparent. In fact, it’s often so confusing that those of us who have to write them each year often can’t figure out what exactly the notices are trying to tell us. But the transparency aspect is not particularly relevant to problems we’re discussing, so we’ll leave it at that for now.

And yet, residential tax bills keep going up…

Despite these reforms (we do use that term loosely), homeowners are still seeing their tax bills go up. And they can increase even if their city lowered their tax rate to the NNRR. Property values are rapidly increasing across the state, driven up in part by the surge in demand from new residents and increases in the cost of materials.

But shouldn’t they be protected by the revenue caps? Why are some seeing increases of 8-10% in their tax bill when revenue isn’t supposed to increase by more than 3.5%?

The thing about averages…

If you have your head in an oven and your feet in a freezer, on average you’re feeling pretty OK. But in reality, you’re not doing so well are you?

The thing about averages is they don’t always tell the story accurately. Outliers can skew it in smaller data sets, and they don’t necessarily tell you how any specific datapoint is doing.

But more importantly, averages are not terribly useful when you are averaging fundamentally different things. And in Texas, residential properties are fundamentally different than all other property types when it comes to property taxes.

Because the No-New-Revenue system treats all properties the same, and lumps them together to calculate the No-New-Revenue Rate, it has had an outsized impact on residential taxpayers. Why? Because appraisals for residential properties are appreciating more quickly than other property types.

The correlation between residential property value growth and the growth in values of commercial, mineral, and personal properties is about the same as the correlation between unicorns and leprechauns. Which is to say, there isn’t really much correlation. As a result, the No-New-Revenue program actually benefits non-residential properties at the expense of homeowners.

Let’s look at an example of why treating them the same for the purposes of calculating an effective rate will shift the overall burden over time to residential properties.

In this table, you’ll see both residential and commercial values starting at the same total. Residential values grow more quickly (10% year) compared to commercial (3% per year), which is reflective of what we’re seeing and what we know about how these properties appreciate for different reasons and at different rates.

With the continued adoption of a No-New-Revenue Rate, the total tax rate has fallen by 18%, but residential property owners are paying 9.8% more in gross taxes, while commercial properties are paying around 9.8% less. The taxing entity is receiving the same nominal amount of money (of course, with lower purchasing power due to inflation), but the residential property owners are now paying a larger share (55% compared to 45%).

The burden shifting works the same way even if the city adopts the Voter-Approval Tax Rate (3.5% above the No-New-Revenue Rate). Residential burden still increases to 55% of total revenue. The only difference in this scenario is that total revenue for residential properties increases by 22% while commercial properties end up paying about the same nominal amount.

In short, using the average of disparate things to calculate the No-New-Revenue rate will necessarily shift the burden to the types of property that are growing more quickly. We don’t think that was the point of the current regime, but that’s the effect of it.

About those commercial appraisal methods

We spoke briefly about the more subjective nature of commercial appraisals earlier, and it’s important to note that there’s a legitimate reason for this: commercial properties don’t appreciate in value in the same way that residential properties do. Everyone needs a place to live, whether it’s a house, apartment, duplex, or what-have-you. The factors that drive residential property values (population growth, zoning restrictions, quality of schools, materials pricing, etc.) coupled with the ability to get reliable pricing information makes residential appraisals more straightforward for appraisal districts.

Commercial properties are much different. The market for commercial properties varies greatly (how many users need a 180,000 square foot tilt-wall warehouse, after all?), as do the types (big box retail, inline storefront, office space, mixed-use downtown buildings, etc.). Texas law allows for appraisal districts to use one of several appraisal methods depending on the specific property in question.

The cost method utilizes data from “generally accepted sources” and allows adjustments for physical, functional, or economic obsolescence. The income method allows appraisal districts to analyze comparable rent data or potential earnings capacity of a property to estimate gross income potential for the purposes of appraising a property. And the market data comparison method allows using data from comparable sales within the past 2-3 years (depending on the size of the county) to set values.

Appraisal districts have the ability to choose which method to use depending on the specifics of the property. While this allows them to take into account different types of commercial uses, it highlights the fact that commercial valuations are fundamentally different than residential valuations, and it raises the very valid question of why we accept that they’re different on the one hand but treat them as if they’re the same on the other.

The “dark” side of commercial appraisals

Some commercial property owners have attempted to add a de facto fourth option based on the so-called Dark Store Theory. Since this is not exactly an approved appraisal method (outside of litigation and settlement), we wanted to highlight it separately from the methods mentioned above.

This theory, which is wielded with particular skill by single-tenant, owner-occupied big box stores, argues that certain commercial properties should be appraised based on their value as if they were not in operation, or “dark,” due to the fact that the buildings would be difficult to sell to subsequent buyers.

This Dark Store Theory is contradictory to the general methods of appraisals outlined in State law, which require properties to be appraised based on their current use, not a subjective assessment of what a future user might do with them or whether the current owner would be able to sell the buildings if they decided to leave.

But the impacts are significant, and result in reductions in appraised values of 50-75%. The Comptroller reports that Lowe’s has been the main proponent of this in Texas, in some cases suing appraisal districts over the issue.

In Tarrant County, values for Lowe’s stores hover around $50/foot (see Keller, Lake Worth, Southlake, and White Settlement for example). Not only are the appraisals well below permitted construction costs for these buildings, they rarely change (none of the stores linked above have seen their total appraised value change since at least 2016). And curiously enough, they all end up around the same total value despite having wildly different compositions:

One might ask, how does a store in Keller have its improvements valued at $29.91 per square foot, while the same store of the exact same size just 16 miles away in in the Lake Worth area get valued (by the same appraisal district) at just $11.33 per foot? Indeed, that would be a good question.

What about Walmart?

Again, the total value per square foot hovers around $50 and the key predictor in both samples for what the improvements are valued at is land values. But it’s a small dataset, so let’s expand a bit.

A quick analysis of 41 Lowe’s from across the state shows quite a bit of variety in improvement values (ranging from $9-$53 per foot) while the vast majority of buildings are roughly the same size.

In Bexar County, the 5 stores we looked at averaged 136k square feet, but improvement values ranged anywhere from $17 to $53 per foot. However, all of the properties had total appraised values of between $10.1 million and $10.6 million, a curious happenstance if we ever did see one.

In other words, the more expensive the land is, the lower the appraised value of improvements, even for nearly identically sized stores. In areas where land is more valuable, the same building will be appraised for less. And not just a little less; it will be appraised low enough to make the total value more or less consistent across the county. There really isn’t a good logical explanation to have such variation in improvement values (for basically the same buildings) only to end up in basically the same result (around a $10.3 million total value).

We’ll continue to collect more data on the impact of Dark Store valuations. In the meantime, it’s worth filing away this practice and noting that this practice is being aggressively pursued by big box retailers across Texas.

It’s causing massive distortions in valuations, particularly when you compare single-use, owner-occupied box stores with power centers rented out to multiple retail tenants. In the latter case, the property owners have no reason to protest since higher tax bills simply get passed on to their tenants, who have no standing to protest the disparate treatment between them and Lowe’s or Walmart. This raises a number of equity issues that will have to be considered in future discussions.

Where does that leave us?

Texas homeowners have continued to see their property tax bills increase each year, despite efforts by the Texas Legislature to control their growth. Appraisal caps and revenue caps have been implemented - and increasingly tightened - as the primary method for solving this issue. But it’s not working, and no one can seem to figure out why.

Fortunately, the answer (or at least an answer) is right there for us to see.

Texas law tacitly admits that residential, commercial, and other types of property do not necessarily appreciate the same way. There’s little correlation between the value of a mineral lease and the home that sits above it, nor between the duplex on the corner and the big box store across the street. We allow central appraisal districts to take these intricacies into account (whether they are fully valuing commercial properties or not).

The No-New-Revenue system ignores that. We artificially limit the growth of property tax revenue by averaging all of our properties together, when we know that the factors that cause appreciation of residential properties are not necessarily correlated with factors that cause commercial appreciation.

In trying to restrict the growth of property tax revenue, we’ve created a system that slowly but surely shifts the burden to residential properties. We’re comparing apples and printers. Much like evaluating a National League pitcher by taking the average of his slugging percentage and WHIP, the system we’ve created not only makes very little sense, it isn’t measuring what we think it is.

As a result, the burden of property taxes will continue to increase on residential properties. The calls for additional “reform” efforts will continue to increase as well, which most likely means more Draconian measures will be layered on top of our current system, all without solving the underlying issue. Instead, we need real reform that acknowledges the differences in property appreciation from start to finish.

We hope you’ll continue to follow us as we dive more into this topic, whether on our podcast or in the pages of this newsletter, including future discussions of potential solutions to this problem. Many of our readers are still in public management roles, and may not be able to speak as freely about these issues as we can. If you’ve got something you want us to look into, please reach out. If you found this interesting, we’d love you to forward it to your friends and colleagues.

Around the web

America’s Obsession With Wipes Is Tearing Up Sewer Systems (CityLab)

TL;DR: Wipes are great but don’t flush them!

The fight over local control turns to representation — and lobbyists (Texas Tribune)

A look at the ongoing fight in the Texas Legislature over “taxpayer-funded lobbyists”

Have you met This Guy? (Strong Towns)

Daniel Herriges offers an interesting heuristic to help cities discover whether their development regulations are too complicated: the omnipresence of a “That Guy” at your public hearings.

More from Zac

Fighting the wrong fight on property tax reform (ZacCast)

An early chat about historical property tax reform efforts and why focusing on revenue caps was the wrong fight for Texas cities.

The one Patrick expects a lot of feedback on (ZacCast)

A grab-bag chat covering parking violation snitching, poo in the river, and Denton, Texas suing ERCOT.

My job was funded under Senate Bill 3678, the Pandemic and All-Hazards Preparedness Act, which was signed into law by President Bush on December 19, 2006. With a CBO-estimated program cost of $6 billion (from 2007-2011), the Act provided funding for planning and preparedness activities at the local level, more specifically within local county health departments. Across the State of Texas, local health departments and emergency management officials applied for and received funds to prepare for the inevitable pandemic.

The small role I played in developing the County's Pandemic Flu and Response Plan gave me an interesting perspective, however, as I was one of the few people that actually read every word of the document. And as anyone who has worked with me can attest, what I lack in grammar skills is more than balanced out with a photographic memory (which can be both a blessing and a curse).

Thus it was that my reaction to early reports of Covid-19 were on the more optimistic side. While sitting in a nondescript Florida bleacher watching the Houston Astro’s spring training last year (editor’s note: no trash cans were allowed at spring training per new MLB rules), we got word that our trip would end prematurely. Major League Baseball had canceled the remainder of spring practices. When my wife asked what I thought, I told her we had planned for this. We have procedures, we’ve coordinated regionally… I think we’ve got it.

On the bookshelf behind almost every city manager’s desk you will probably find a strategic plan, CIP plan, water and wastewater master plan, a five year financial forecast, and under a half-inch of dust, an emergency management and pandemic plan.

On the flight back, I asked our county emergency manager to email me (still a city manager at the time) the pandemic plan so I could review it prior to stepping off the plane. The response to this day still baffles me:

Mr. Lawler, 

The county does have a Pandemic Flu and Business Continuity Plan. As the Emergency Management Coordinator for ********** and ***********, I can assure you and your residents that we are currently working through the applicable plans. However, we do not send copies of these secure documents out, they are for internal utilization only. 

Please let me know if you have any additional questions. 

Thank you,

**************

To be fair, most officials were surprised by the pandemic, but this response made my heart sink into the pit of my stomach. After I landed, I went to the office and cleaned off the dust to read and refresh myself on the pandemic plan. These plans are not shared publicly so I will be very careful in what I say moving forward, but the forgone conclusion is simple: we pulled a Bill Buckner.

For those not familiar, Buckner was no Hall of Fame baseball player, but he had a solid 20+ year career that anyone would be proud of. He was a particularly good hitter, having won a batting title and never striking out more than twice in a game. For a player with such longevity, that’s a remarkable feat.

But that’s not what he’s remembered for. In 10th inning of Game 6 of the 1986 World Series, he let a routine ground ball slip between his legs at first base. The error gave the Mets the win and forced a Game 7, which the Mets also won.

Had Buckner fielded the ball, there’s no guarantee the Red Sox would have ended the Curse of the Bambino that night. Their bullpen had just blown a two-run lead, and the Mets had the home crowd on their side. But those are the types of routine plays that first basemen practice every day. They plan for them; they’re ready for them; they expect to make that play. In that situation, you can’t let the ball slip between your legs.

By my lights, that’s exactly what we’ve done.

As the next year unfolded, I found myself asking again and again: “Why are we not following the $6 billion dollar plan?”

The 2005 National Pandemic Plan laid out three pillars:

Pillar One: Preparedness and Communication

The plan was intended to define responsibilities at all levels of government and link up local plans with the federal response. In a federal system, it’s important to understand ahead of time which level of government bears responsibility for what. Without a clear delineation, any challenges or setbacks may devolve into an exercise in bureaucratic finger-pointing.

While we largely succeeded in outlining responsibilities, the process of linking our state, local, and federal plans were flawed in two ways: our plans relied on too many assumptions, and they struggled to provide a real-world outlook.

Tabletop exercises are great for defining responsibilities and stress-testing responses to different stimuli. Officials at all levels sit in a room and discuss available assets and planned responses as problems get thrown up on a board. We move these assets around like chess pieces, and we’re reassured that everyone in the room is on the same page. For this to work, however, we have to assume that the other players will fulfill their responsibilities. One of the tragedies in our Covid response was the lack of available resources that many in emergency management just believed would be available. We need to perform shot clinic? The feds will send help. We need personal protective equipment? We can request that from a stockpile (except many of those items were expired).

Tabletop exercises also lack the ability to “practice at game speed,” especially when preparing for a pandemic. When our assumptions are proven wrong, we have to be able to adapt in real-time. Our inability to do that exacerbated an already difficult public health crisis.

Pillar One also called for expanding domestic supplies, stockpiles at local and regional levels, production capacity, and scientific advancements in vaccine technology. At each step, we failed to fully implement what we had planned to do. Domestic supplies and stockpiles were inadequate (and as mentioned above, stocked with outdated equipment). Production capacity increased in the private sector as supply and demand attempted to reach equilibrium, but some companies have since been hit with unexpected regulatory burdens for helping out. And although the Moderna vaccine was developed in just two days, the regulatory process slowed widespread distribution for nearly a year (which still represented record time for vaccine approval). During that time, millions were infected, hundreds of thousands died, and many more lost their livelihoods. All this despite the federal plan calling for research and funding which would streamline vaccine development and approval much like our annual flu shots, especially for new technologies like the mRNA vaccines currently being distributed.

Our efforts in Pillar One failed largely due to complacency. We thought we were ready, had a beautiful plan, conducted a few tabletops, and had some warehouses with supplies. But we didn’t account for the idea that some (or all) of these elements would not actually be implemented by the time a pandemic struck.

Pillar Two: Surveillance and Detection

A large part of what makes the pandemic plan work is surveillance of pathogens around the world. In 2005, the concern was mainly avian flu. Today, it is obviously Covid-19 and its variants. The federal plan specifically states, “An effective surveillance and detection system will save lives by allowing us to activate our response plans before the arrival of a pandemic virus to the U.S., activate additional surveillance systems, and initiate vaccine production and administration.”

Our investments in Pillar Two actually worked well in the beginning. The virus was detected early and the scientific community immediately began work (vaccines were developed in just two days). The front end portions of Pillar Two performed well; it was the back end that struggled.

Surveillance also includes contact tracing and other steps necessary to limit the spread of infectious disease, and in this matter we obviously flunked. There appears to have been no coherent strategy for contact tracing. Many states relied on temporary labor, staffing agencies, and part-time university students to perform contact tracing.

The State of Texas even rummaged through its unemployment rolls, hiring a whopping 18 unemployed individuals through the Texas Workforce Commission as of August. Governor Abbott set a target of 4,000 contact tracers, although a model from George Washington University researchers suggested the state may need as many as 15,000.

Lacking dedicated software to perform this work, many states utilized a platform created by Salesforce (whose primary product is a sales CRM and a platform-as-a-service that allows organizations to build custom “apps” to access their data). Development on this new platform began in April (three months after the first confirmed case in the United States) at the behest of the governor of Rhode Island.

In the spring, Apple and Google both announced the development of privacy-focused contact tracing apps. Their apps went live in October, after 7 million cases had been confirmed and 200,000 had died.

In short, there was no coordinated effort to plan for contact tracing on a scale necessary to identify outbreaks and slow the spread of the virus.

At this point, most of the major models predict that about 15%+ of the Texas population has contracted Covid-19. That means that if you’re reading this, you most likely know at least one person who has tested positive (full disclosure, that includes myself).

If you tested positive for Covid-19, did you get a tracking phone call? In large counties, tracking is handled locally, but in smaller counties without local health departments the State is handling tracking. I took a small (and admittedly unscientific) poll of around 10 people in my circle who tested positive for Covid; I was the only person to get a tracing call.

While contact tracing is commonplace in parts of the world more familiar with viral outbreaks, it’s a relatively novel idea in America, and one that runs a bit counter to the traditionally understood American spirit of independence and individual freedom. On the surface it seems a bit Big Brother-esque. But the efforts of Apple and Google were actually quite inventive in the way they protected individual privacy (which is saying a lot for something Google developed). Perhaps if we had been working to build a platform like it before a pandemic hit, it might have been ready (and acceptable to the general public) in time to help.

Pillar Three: Response and Containment

When Pillar Two fails to protect the American public, we must aggressively move to Pillar Three and mobilize the local, state, and federal response according to those dusty plans on the shelf. Response and containment is activated when known human-to-human spread is occurring.

The goal is simple: contain the outbreak, limit the spread, and communicate effectively with the public to avoid panic. The federal plan outlines specific responses for containment, leveraging national medical and public health capacity, sustaining infrastructure and the economy, as well as ensuring effective risk communication. To keep from writing a book, let keep the light on risk communication.

Communication during any crisis is difficult, but it makes the situation even more challenging when you get in the way of your own messaging. Consider the debate over mask wearing. Early last year, officials suggested that masks were not effective for the general public, a position that has since been retracted by the same officials who have stated that they were trying to preserve mask availability for medical personnel.

The Texas Association of Municipal Information Officers (TAMIO) used to give out a crisis communication card for city officials to use when being interviewed, and I distinctly remember one of the key bullet points: “Tell the truth”. Much like the TAMIO, my mother also taught me that a lie is a lie, regardless of whether you said something overtly false or you left out pertinent information.

Telling the public it is not necessary to wear a mask without providing the context behind that message breeds distrust. Like many Americans, I’ll give experts the benefit of the doubt until they give me a reason not to. But once that line is cross, it’s hard to trust you ever again.

Those officials may have been well intentioned, but the failure to “puke honesty” has left us in a pickle. At a time when we needed honesty, our institutions - which have already struggled with a crisis of trust - didn’t give us the whole truth. And this is just one of many examples of messaging gone wrong during the pandemic.

As public officials, we love to plan. We’re always looking for ways to be ahead of the curve, whether it’s related to water use, development patterns, or public health crises. But a plan is only as good as its implementation. And in the past 12 months, we’ve seen how a failure to implement our plans can negate the value of making them in the first place.

We know far more about Covid-19 today than we did a year ago. Scientists and researchers are testing new treatments and vaccines, and high-risk populations are getting jabbed in the arm (to borrow a phrase from our friends across the pond). In fact, nearly 7% of the population has received at least one dose and we are averaging 1.3 million doses delivered per day. But we’re not out of the woods yet. We need to continue focusing on implementing the plan: increasing domestic production of vaccines/supplies, utilizing all governmental resources at the local level, and continuing to support economic stability efforts will help us crawl out of the pandemic.

We may never know why we navigated away from the pandemic response plans - mainly because the public was unaware of the process and accountability is lacking - but as management officials we should all be asking the tough questions locally and encouraging resiliency.

Since we’re talking about epic fails…

There is so much to unpack, and still so much to learn, about what caused the widespread power outages across Texas last week that it can’t be fully explored in this secondary section of the Roundup, which we traditionally have reserved for shorter discussions. But one thing that deserves a quick comment on is how utterly poor communication was both before and during the crisis.

During an emergency, proper public communication is often as important as, if not more important than, one’s ability to plan, coordinate, problem solve, and manage the crisis itself. In this regard, our leaders failed terribly. So terribly, in fact, that the best indication for the average news consumer that something awful might be about to happen was the fact that retail power companies began to publicly squirm in the days before the storm hit.

Griddy, which offers retail access to wholesale energy prices for a small monthly membership fee, sent a letter to its customers encouraging them to switch providers ahead of the storm if they could. Since their customers pay wholesale market rates for power, and those were expected to surge during the storm, they recognized the potential for extreme cost increases ahead for their customers.

Reports also came out of several retail providers offering incentives for their customers to switch providers before February 15th, most likely because they didn’t have the capital to foot the delta between the fixed rates their customers were paying and the about-to-explode wholesale costs they would have to pay themselves.

When both sides of the retail power market are trying to shed customers ahead of a major storm, it’s probably a good sign that something really bad is about to happen. But we didn’t hear that from anyone whom we should expect to tell us. ERCOT spent less than a minute discussing the storm in public session the week before it hit. Weather reports suggested prolonged periods of inclement weather, but virtually no one with the responsibility for overseeing our power grid sounded the warning bell to an extent that the average person could hear it.

Similarly, leaders local and national, current and former, started to place primary blame on minor elements of the outages. Failures in wind and solar were keyed in on as though they were the proximate cause for what we lived through, when that was far from the truth.

There are no grand solutions in life, only trade-offs. For all of the criticism that Texas’ “solo grid” and deregulated market has taken over the past two weeks, there have also been tremendous benefits of those decisions accrued to electric customers across the state. Pros and cons; good and bad. A trade off. Natural gas failures caused the bulk of our power outages last week, but our leaders couldn’t admit it in real time. That failure doesn’t condemn natural gas as a power source; it condemns our preparation. But we couldn’t get off message, because the political calculations are often more important than the truth. Unfortunately, that kind of bunker mentality can cause ripple effects that can last much longer than the crisis itself.

Emergency situations require trust, and trust requires honesty and transparency. When we fail to warn people ahead of time about the seriousness of the situation (ERCOT claimed yesterday that we were less than 5 minutes away from total catastrophe), and then deflect blame while the crisis is ongoing, all we do is make the next emergency that much more challenging for ourselves.

Finally, a special thank you from us to all of the front-line personnel who worked so hard last week to keep their communities safe. Street crews, line operators, water and sewer workers, public safety, and even you administration folks, you didn’t have the option of hunkering down with blankets by a fire. You had to go out and take care of your communities. That, ultimately, is what makes local government so special. So many circumstances are beyond your control. But when they arise, it’s your job to make the best of it for the people you serve. And for that, we thank you.

Unlike traditional broadcast cameras, Fox used a handheld mirrorless camera that required a special backpack with equipment capable of streaming the feed to the broadcast.

But it wasn’t just the camera that got people’s attention. It was the way the video looked that got people talking. Unlike traditional broadcasts, where the cameras are set to keep the entire screen in focus, the new on-field cameras used a low aperture setting to highlight the players during touchdown celebrations while blurring out everything in the background. 

It’s the same effect the Portrait Mode setting on your iPhone attempts to emulate, and it is indeed stunning in a live 4K sports broadcast.

Most people seemed to think this “new camera angle” was the result of some amazing new technology, but the tools necessary to produce that picture are quite pedestrian. In fact, you can grab a DSLR camera from Best Buy for a couple hundred dollars and make your own NFL-worthy videos. While everyone thought it was a monumental leap in broadcast technology, it was really just a change in focus.

If you’ve followed our podcast, you’ve heard Patrick mention my t-shirts. In a constant quest to find the next most clever shirt, I came across this gem:

As we wrap up what, for most of us, was a truly rough year, it’s worth a bit of reflection and perhaps even a bit of a reset. With a vaccine now in the first phase of distribution and the light at the end of the tunnel beginning to make itself visible, it will be tempting to swing the pendulum all the way back and do what we can to make up for the lost time of 2020. 

But as is our tendency, we suggest an approach rooted in moderation. Instead of coming back with guns blazing, let’s use this opportunity to validate our focus. 

We recently spoke at a UMANT one-day conference themed around “building resilient cities.” At the last minute, we threw a photography metaphor into the end of our talk that seems germane to this topic. 

Photography is the kind of hobby that anyone can pick up, and the great thing about it is how it marries technical knowledge with creativity. There’s so much to learn about and experiment with when it comes to framing and post-producing your photos, but none of those things matter if your picture isn’t exposed well. 

There is a thing called the Exposure Triangle. It’s a simple* math formula that defines how the light available to you will be converted to an image, and it’s made up of (not surprisingly since it’s a triangle) three components: shutter speed, aperture, and ISO. 

Shutter speed determines how long the shutter is open and exposing the sensor to light. Shorter speeds can capture motion with less blur, but with less light hitting the sensor. Longer speeds will result in the blurring of motion, but more light hitting the sensor.

Aperture defines the size of the hole in which light enters. You can compensate for shorter shutter speed by increasing the size of the hole, but that limits your ability to keep the whole shot in focus. A higher F-value means a smaller hole (yes, it’s backwards) and broader focus; a lower F-value results in a bigger distinction between what’s clear and what’s blurred.

The final piece, ISO, determines the sensitivity of the sensor to light. You can compensate for shutter speed and aperture (the artistic sides of the Triangle) by adjusting the sensitivity of the sensor. But higher ISO values tend to add noise to your photos, making them less sharp.

Of course, this is an extremely shallow overview of the topic. There’s so much more you can learn about how to properly expose your photos, but the key takeaway is that these three pieces all work together (and to some degree, against each other). To keep a photo correctly exposed, you have to adjust the aperture, shutter speed, and ISO together. It’s a dance. A series of trade-offs, kind of like life.

Sometimes we have to deal with a 2020. It’s just the hand we’re dealt. To accommodate it, we have to make trade offs. And much like trying to take pictures of your kids in very low light, you have to decide whether you want to prioritize capturing their motion, highlighting the subject or keeping everything in focus, or sacrificing image quality in service of your artistic expression. It’s ultimately all about priorities.

*It’s not really all that simple…

We hope that 2021 will bring much better times for all of you, both personally and professionally. If you’ve lost friends or loved ones this year; if your city has struggled through outbreaks, closures, financial woes, and difficult decisions; or even if you managed to get through 2020 relatively unscathed, we truly hope the best for you next year.

For the last two Roundups of 2020, we wanted to keep a positive tone. Last month, we talked about gratitude and grace. This month, about focus.

The turn of a new year is always a time for reevaluation. The New Year’s Resolution-Industrial Complex is always present this time of year, urging you to make a major change to your life over the next 12 months. But if you’re anything like me, you probably struggle to uphold your resolutions for more than a few weeks (if you’re lucky). 

For me, and perhaps for you as well, part of the problem is simply trying too much. Being too ambitious. 

Steve Jobs famously argued that focus is about saying “no.” It wasn’t about willpower. It wasn’t about some superhuman strength to keep your attention dialed in all the time. It was about learning how to say No to the hundreds of potentially great ideas that present themselves to you so that you have the time and energy to stay focused on the handful that are the most important.

When he returned to Apple after more than a decade in exile, the company was months away from insolvency. It had lost its focus over the years, with too many irons in the fire to do anything particularly well. One of his first actions as interim CEO was simplify the product line: one desktop computer for consumers, one for pro users, and the same for laptops. Once they had nailed those core products, then they could consider expanding to new areas. 

And if you are at all familiar with the tech world over the past two decades, you probably know that it worked. Apple became the most valuable company in the world despite never having a large market share for its main business. But the hyper-focus on just a few things led to a resurgence that ultimately changed the world several times (the music industry, smartphones, and tablets) before he passed away in 2011.

Do you ever find your city to be unfocused? Do you have so many things going on that it’s hard to do any of them well? Part of that’s the name of the game, right? Cities are tasked with doing a lot, from street maintenance to public safety, water and sewer to providing leisure activities.

Sometimes we need to take a step back to evaluate what all we’ve got going on. To examine and adjust our focus. To drop that aperture, highlight the subject of our pictures, and blur everything else out. As awful as 2020 has been, it can also be an opportunity to do just that.

As we begin to pick up the pieces and return to normal, don’t be too quick to say Yes to all of those things we had to set aside the past 12 months. Everything you say Yes to becomes an obligation on your time, attention, and financial resources. 

Guard your focus with a laser-like intensity. Don’t be afraid to say No every now and then. It doesn’t have to be “never”, it may just be “not right now.”  That way you can focus on the things you’ve already decided are important. It may also mean saying Yes to something new and letting something old go away to make room.

Either way, it’s worth using 2020 as an opportunity to reevaluate the priorities of your community and make sure that you’re focused on the things that really matter to you.

Across the web

NYC considers paying parking snitches

A proposal to pay a finder fee to people who snitch on parking violations was introduced in New York City last month.

Sherwin-Williams fires student employee for bringing brand awareness to TikTok users

A former Sherwin-Williams employee was fired for creating a viral TikTok account wherein he posted videos of paint mixing. He took requests and purchased the paint himself, using downtime in the store to build brand awareness. When his supervisors found out, they suggested he show the corporate marketing team how large his following had grown in hopes that they could utilize the new marketing avenue. Instead, he was fired, raising the question of how willing we might be to build an audience with our younger generations through perhaps unconventional methods.

Will cities survive 2020?

The Upzoned podcast (featuring Chuck Marohn of Strong Towns) discusses a recent article of the same name and talks about the long-term impacts that 2020 may have on cities.

More from Zac

Greg Abbott: City Manager

Patrick and Chad discuss (and vent a bit) about the Texas Governor’s desire to take over the City of Austin’s downtown policing responsibilities. One way or another, local control issues run to the core of many issues the Texas Legislature will consider in the upcoming session. Is there anything cities can do?

We recently crossed the one-year mark for our podcast, ZacCast. As the anniversary came and went, I spent some time wondering whether we should remark on it. Thirty-plus episodes in, we’ve had the opportunity to talk to interesting people in the field and offer some thoughts on an increasingly wide range of subjects. But what really strikes me is how different our world looks just one year removed from those first episodes. Reflecting on those changes can throw even the most even-keeled person for a bit of a loop.

This year has been rough for just about everyone. It seems almost trite at this point to recount the myriad difficulties that we’ve shared over the past several months. Whether you’ve had a direct connection to Covid-19 or not, it’s impacted your life. The economic disruption, political turmoil, job loss, and general feeling of uncertainty. The loss of time with friends and loved ones, and in the saddest cases, the loss of friends and loved ones.

Adding to the personal stress, local governments faced a barrage of challenges as well, from implementing lockdowns, to dealing with protests, to budget shortfalls, and more.

If there were ever a time that we could all desperately benefit from an opportunity to give thanks, this is it.

If you’ve been personally affected by Covid-19, this might feel like even more of a stretch than it will for others. But research has repeatedly shown the physical and psychological benefits of gratitude on both the giver and the givee.

In addition to a spontaneous emotion that we feel, gratitude can also be deliberately cultivated. It’s something that we can choose to show, even if we don’t really feel it. And it can be even more important to show it when we don’t feel it, because the mere act of showing gratitude can actually change our emotional state.

It’s one of nature’s most powerful life hacks, and it’s particularly needed during times like these.

We all know that gratitude is a good thing, a bit like happiness. And while we can, to some degree, force ourselves to act happy even if we don’t feel happy, it’s much easier to cultivate gratitude. Gratitude is both the quality of being thankful for what you have, and also the readiness to show appreciation or return kindness. It is both a raw emotion and the outward expression of that emotion.

Dr. Robert Emmons identifies two stages of gratitude: acknowledgement of goodness in one’s life, and recognizing that some of the sources of this goodness lie outside of the self.

Although it can be hard, the first stage is critical to hold onto even in the darkest of times. No matter how dark the days, we can always find something to be grateful for. Sometimes you have to look hard to find it, but it’s there.

The second stage, however, is the vital piece of the puzzle. In order to work its magic, gratitude needs to be expressed outwardly to those responsible for that “goodness.”

And the benefits of doing so are numerous.

Research has shown that gratitude encourages pro-social behaviors and traits such as empathy and caring; it can make you happier and more optimistic; it can improve your physical health (or at least it is correlated with better physical health); and it can help your career, personality, and relationships with others.

It really is a superpower.

Cultivate the habit of being grateful for every good thing that comes to you, and to give thanks continuously. And because all things have contributed to your advancement, you should include all things in your gratitude.

- Ralph Waldo Emerson

Why does it work? Largely because it’s expressed for the benefit of others. The benefits we receive as a result are really just a fortunate side-effect. Like mold juice on a petri dish, a new market for a failed hypertension drug, or a smudge that becomes a beautiful little tree, it’s one of life’s little happy accidents.

The expression of gratitude is primarily to let someone else know you appreciate them, given without the need or desire for reciprocity. The act of offering a kindness without the expectation of anything in return is, it turns out, quite beneficial for your mental health.

And these effects can be especially powerful in those times when you may not feel too thankful. The kindness that you express has the effect of reducing bad emotions like envy and frustration.

If you’re married (or have been married), these are no doubt emotions that you’ve felt from time to time. It’s unavoidable. But how amazing that they can be overcome by simply expressing thanks, even for things that might seem insignificant.

It’s almost like we were given this gift of gratitude as a way to overcome the more base elements of our nature. No wonder gratitude is a key component of nearly ever major world religion.

It’s one thing to understand, intellectually, that gratitude is important; that it can be beneficial to you and others. But with most things in life, it can be difficult to translate “knowing” into “doing.” So how can we cultivate a sense of gratitude even when we aren’t feeling super grateful?

There are ton of self-help resources that can give you more insight than a newsletter purportedly geared towards local government managers. But since we’ve come this far, here’s a couple ideas:

Keeping a gratitude journal can be a good way to avoid the trap of only being thankful for the big things. By recording on a daily or weekly basis all of the things you are grateful for, it’s easier to remember the smaller things (someone holding the door open for you, picking up a coffee for you, etc). Journaling is also a good way to hold yourself accountable by forcing you to think about the subject. A great option is to use a service such as Trailmix, which for a small fee sends you a scheduled email each day that you simply reply to.

Most of our readers work in local government, and as a result get to interact with people from all walks of life. In addition to these daily moments, volunteering can be a great way to help people while also reminding you of the things you have to be grateful for.

The most important thing is to just do it. Make an effort to show thanks to your friends, your loved ones, your co-workers. To the water customer who just spent 10 minutes yelling at you about how their life was disrupted when a contractor hit a water line. It’s no easy task, but when life gets you down, gratitude can build you back up.

Tangentially related to gratitude is something we’ve been thinking about quite a bit over the past few months. If you’ve been steadily working through your Netflix queue since March, you might have come across a documentary called The Social Dilemma. It includes interviews from several former tech employees discussing the behind-the-scenes nature of social media and the impacts it’s having on society.

While some of the specifics may be news to you, if you spent any time on Twitter or Facebook during the course of our most recent election season, you’ve no doubt witnessed some of the polarization that the documentary highlights. You’ve probably encountered a touch of it in your jobs as well.

And that brings us to the second G: grace.

Unlike gratitude, which we can offer to others in response to something they’ve done for us, grace is something we can offer to others even when they may not deserve it. As such, it’s not only harder to do, it may not even be noticed or appreciated by the person to whom it is given.

More likely than not, you’ve been on the receiving end of an encounter that, shall we say, lacked grace. It’s somewhat built into the DNA of our line of work.

Maybe your city posted a note about a new development on Facebook, and the responses impute the worst possible motive to the decision.

“You’re just trying to tax us out of our homes,” is a common refrain, but you may also have been accused of kickbacks, not caring about child safety, or any number of awful things. (If this kind of attack bothers you, for your own sake please just avoid Next Door.)

Over the past week, I ran across numerous examples of public shaming on Twitter over the issue of parcel drivers blocking bicycle lanes. Since this is a discussion of grace, the name and location of this particular Tweet (which was sent by a city council member) have been redacted as we don’t want to get into the business of public shaming ourselves. It’s representative of dozens of similar comments posted over the Thanksgiving holiday:

Stipulating of course that the driver shouldn’t have parked in a bicycle lane, and that his response of “get a car” was probably inappropriate (if we take the charge being leveled at face value), what’s the purpose of such a public callout other than to get someone in trouble? Especially when your Twitter profile has your position of authority so prominently displayed? Mail delivery is an often thankless job, especially as online shopping has grown this year due to the pandemic. The driver might have handled the interaction poorly, but consider if the author/cyclist had said:

“Hey there! I know your job is difficult, especially over the past few months. I really appreciate how much you’ve had to do to help us out while we haven’t been able to shop at stores like we used to. In the future, would it be possible to park a little farther over so the bike lane stays open? It’s a little easier for cars to see your truck parked along the side of the street than me on my bicycle. I’d really appreciate it!”

One would suspect that this approach would yield a better result in the future. Instead, the two left with a feeling of mutual hostility, and the driver’s job may be in jeopardy as a result.

You see this quite frequently from so-called “Blue Checkmarks” on Twitter (those accounts that have been verified by Twitter as belonging to some public figure of note).

In January, a Blue Checkmark publicly called out a Target manager for “not honoring” the out-of-stock display sticker ($0.01) for a toothbrush that was on sale for $90. Target Tori, as she’s become known, received a wealth of public support, including donations sufficient to take a vacation. She has since used her platform to encourage kindness (using the hashtag #PauseBeKind) and has led fundraising efforts for other retail employees who have been subjected to the same kind of public shaming.

There seems to be an arms race on social media, increasingly where more of our lives are spent, to see who can be the most outraged. It’s feeding a vicious cycle of rage, resentment, and anger. And that’s no way to live.

So the message we’ve decided to push heading into 2021 is that we should all try to give others the benefit of the doubt. This is actually really hard to do. I struggle with it every day, and I’m sure you do, too.

But who wants to be defined by their worst moment? Who wants to have bad motives imputed to otherwise benign decisions or opinions? When it happens to you, you probably don’t appreciate it.

There’s a reason it’s called The Golden Rule. If we’d like others to give us the benefit of the doubt, we should be willing to do the same in return. Even if they may not appreciate it at the time. We can’t know what others are dealing with at the point in time when our paths cross. Instead of looking for opportunities to vent frustration, let’s look for opportunities to show grace.

Having read back through this, it’s clear that nothing we’ve written is novel. We all learned this stuff as children. But sometimes the things we already know are the things that are worth saying again and again. Or as my young daughter says, “‘gain again again again...”

As we move on from Thanksgiving week and head into the holiday season, let’s be grateful for the things we have, even in the face of monumental challenges like those we’ve seen this year. Let’s share that gratitude with those who give us reason to be thankful. And let’s show grace to everyone, especially when we think it’s not deserved.

We’ve all dedicated our lives to building strong and healthy communities. That doesn’t need to be limited to the mechanics of city government. We can also work to improve the relationships that make up the heart of those communities.

Across the web

In-store Black Friday shopping drops 52% (CNBC)

Preliminary data show a marked decline in foot traffic to retail stores on Black Friday.

Black Friday looks different this year, but some analysts are optimistic (CNN Business)

Before you get too worried, some analysts are projecting significant increases in online shopping this holiday season, particularly on Cyber Monday. But while this may help balance out the decrease in brick-and-mortar traffic, there may still be room for concern with locally-owned small businesses.

A Strong Towns approach to parking (Strong Towns)

Our friends at Strong Towns spent last week discussing parking regulations, how they shape the look and feel of our cities, and why we might be doing it wrong.

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But there’s one thing that we all fear, because it cuts to the very core of public service by undermining the trust of our community: the dreaded “waste, fraud, and abuse.” When these situations occur, they threaten the foundations of our calling. Not necessarily because the emotional toll of a fraud scandal even remotely compares to the tragedy of an on-duty injury or death; but because unlike the latter, the former should be 100% preventable.

To cover ourselves, we write personnel policies to outline the conduct we expect from our employees. We run background checks on our employees before placing them in positions of fiduciary responsibility. We hire auditors to investigate whether our internal controls are sufficient, and also whether they're being heeded. But despite our best efforts, and in the immortal words of Dr. Ian Malcom, life (uh) finds a way.

Although we didn't start this newletter with the intent to talk about the City of Austin every other month, a recent investigation by the Austin City Auditor is significant enough to turn our attention back to the capital city.

Covering a decade of nefarious activity by an employee of the Library Department, the report outlines in methodical detail how every one of those checks and balances failed to stop the theft of nearly $1.5 million in public funds. The employee, Randall Whited, repeatedly passed criminal background checks despite multiple theft charges in the 1980s and '90s. He had access to as many as 10 city credit cards (some general use, others vendor specific), and frequently acted as the authorizer of his own transactions in violation of city policy.

The report found that over the course of a decade, he purchased 10 times as much toner as would reasonably be expected, much of which was resold to online vendors. On more than one occassion, orders were shipped directly to his house in Kyle, Texas, nearly 20 miles from (and in a different city than) the nearest Austin library. He frequently arrived at work as much as an hour early after being told not to do so, due to inadequate supervision outside of normal work hours. He often volunteered to deliver supplies from branch to branch (in violation of department rules), submitted doctored and/or incomplete receipts, and used third-party payment platforms to conceal the details of his transactions (including video game systems, drones, and virtual reality headsets).

In short, Whited engaged in a systematic effort to defraud not only the Library department, but the citizens of Austin. And despite the system of checks and balances both within the department and across the city apparatus, he managed to get away with it for years.

The ZacTax team often preaches the benefits of lean, flat organizations, where all employees are empowered to make decisions and given the responsibility to act like an adult. But what happens when the employee, and the system at large, lets us down? For this month's Roundup: a mini-case study highlighting potential points of failure and suggesting ways to avoid being on the wrong end of a story like this one.

Why didn’t the background checks work?

The City of Austin is considered a “re-entry friendly employer,” and as such has a policy that only looks back ten years for criminal history. The problem in this instance was Whited had criminal convictions for theft and burglary in the 1980s and ‘90s. Whited passed five separate background checks and was actually given a fiduciary endorsement for purchasing. This endorsement provided him the ability to get city credit cards and make purchasing decisions.

While the City of Austin’s policy is, in theory, to provide a second chance to someone who may have made a mistake, it provided a path for a known thief to gain access to financial resources. The policy is broad, does not take into account specific roles, and although a novel political statement it may be, it is not written to protect the public trust.

If you have ever been through a city audit as a high level executive (ACM, CM) one of the many governmental accounting standards questions asked of each executive is, Do you know of any employee who has committed theft or fraud, or do you have a concern a specific employee could commit theft or fraud? The City of Austin’s policy basically allows executives to bury their fiduciary responsibility in order to provide a second chance.

To be clear, we do not have any issue with providing a second chance. However, placing a known thief in a position with unfettered access to the City’s financial resources is irresponsible. Over the years, Whited filled nearly every departmental purchasing role, making him one of the only employees in the department who knew how the entire system worked. Give those employees a chance, absolutely, but perhaps without a city credit card.

Who’s minding the store?

Another glaring deficiency highlighted in the Auditor’s report was the lack of oversight within the department itself, starting with internal controls over purchasing.

Whited had access to as many as 10 city credit cards, in violation of the city’s purchasing policies. This allowed him to spread expenses across accounts and make it more difficult to track his activities.

Whited was able to act as an “authorizer” for his own expenses, in violation of the city’s purchasing policies. As one of only a few employees with authorizer privileges, and owing to the multiple roles he held within the department during this tenure, he frequently signed off on his own charges.

APL’s Contract Management Supervisor (CMS) was also charged with this responsibility, but appeared reluctant to exercise it. In a response letter, this employee argued that a short video training on how to use the Procard system was provided, but that subsequent requests to be trained on what to look for when approving went unfulfilled (Whited being the party responsible for coordinating training for the department).

The CMS went on to state that transaction approvals were limited to ensuring that items were charged to appropriate budget codes - but not whether the transactions were appropriate or legitimate - and that Whited would frequently submitted supporting documents at the last possible minute, reduceding the ability to review them before approvals were due.

The CMS also claimed that approving transactions was not “contemplated or specified” in the Contract Management Supervisor’s duties. Yet when Whited left, this employee was given even more responsibility for reviewing transactions.

APL’s Financial Manager (FM), who received outstanding performance reviews for internal budget management, claimed in a response letter that it was not her responsibility to maintain copiers nor know how much toner was required to operate them. While perhaps technically true, continual overspending on toner might suggest that the line item budget should be increased. To our knowledge, no such request was made; instead, Whited just kept overspending his accounts.

In addition to the CMS, the FM reviewed the supporting documents provided by Whited which, in many instances, did not have sufficient information and/or were doctored to prevent detection of his misdeeds. The FM stated that there was no way to have known that a receipt was doctored, and perhaps Whited was extremely adept at forging documents (although the report stated that some of his submissions appeared to have been drafted in a Word processor). The response also failed to address approval of the receipts which either lacked sufficient information (redacted line item charges and/or shipping locations) or showed a shipping destination in Kyle, Texas.

The Assistant Director’s (AD) response to the Auditor’s finding that the department lacked sufficient internal controls was that Whited had read and signed off on the city’s purchasing policies, as if the fact that Whited knew what he was doing was wrong absolved the rest of the department from guarding against it happening. Additionally, the AD states in a response letter that it was expected that the FM would provide notification of any significant budget issues or overspending (which apparently did not happen).

Taken in their totality, the APL staff responses amount to little more than an exercise in bureaucratic finger-pointing. Given the scale of Whited’s misdeeds, it’s difficult to understand how three layers of oversight within the APL managed to find blame with the others while $1.5 million walked out the door.

What’s up, Budget Folks?

In reading the initial news articles and prior to reviewing the actual City Auditor’s report, our first question was, How did Whited spend all that money and stay in budget? Well, the answer is simple: he didn’t! In fact, he overspent the Austin Public Library supplies account in 2015 by 388%, 2016 by 304%, and 2017 by 414%. Not every City is the same and we have all probably overspent some budget accounts, but we can safely say we’ve never gone 4x or 5x higher than the approved budget (and certainly not without having someone ask what in the heck was going on).

Once you’ve gone through your departmental oversight, your budget department is the next line of defense. The budget problem shows a larger systematic issue within City of Austin. Not only did the financial controls within APL fail, but the fiduciary oversight of the budget office failed as well.

Each department will have at least one budget analyst assigned to it, particularly a city as big as Austin, and that analyst will most likely have a backup or belong to a team of analysts that support and review each others’ work. Multiple sets of eyes no doubt saw the significant overages Whited was racking up over the years.

The report states that he spread his expenses across multiple accounts, and used the existence of grant funding as a partial excuse for overages. But none of these excuses are sufficient to explain the outrageously over-budget line items.

In many cities, budget authority is granted at the division, department, or even the fund level, meaning that as long as the unit doesn’t exceed its authorized budget, how the funds get spent is more or less at the discretion of the unit’s management. For example, salary savings may be repurposed for a new computer when one unexpectedly breaks. Whited abused this flexibility, and the management responses contained within the Auditor’s report make mention of this several times (i.e., as long as the total budget isn’t exceeded, we didn’t look at the individual line items). This flexibility allows departments to manage their affairs without needed explicit budget approval, but it requires diligent oversight from the budget office.

The Auditor’s report holds APL financial staff to account for ignoring Whited’s overspending, but it does not discuss whether the budget office ever raised questions about it. Did anyone even notice? If so, did they meet with the Financial Manager or AD? Did anyone propose a budget increase due to repeated overspending (if so, it doesn’t appear to have been approved)? These are important questions that the Auditor’s report does not ask, and the answers to which potentially place additional blame on the City’s larger budget and financial practices.

There’s another big problem that many budget offices face, however, especially in larger cities: churn. Budget analysis is as stepping-stone job. After you put in your couple of years of unnecessarily long hours, you move on to some other part of the city (or take a management job in a smaller city). The frequent turnover means there’s often a lack of institutional knowledge in the budget office that limits its effectiveness.

We’ve been there, too. As a young budget analyst in my first professional position, our department was tasked with finding millions in mid-year cuts due to a recently-identified fund balance shortfall. My inexperience got the best of me as one of my departments made a very strong case why their overtime budget could not be cut. That the past few years of history wasn’t indicative of this year’s needs, and that they money would need to be spent whether or not the line item was reduced. I reluctantly went with their recommendation, and by the end of the year they had only spent about 30% of their budget. Fortunately, our financial situation was so tight that they didn’t have the option to shift those savings elsewhere, but that isn’t always the case. It also meant that other departments had hundreds of thousands of dollars in potentially unnecessary cuts.

One truism we come back to constantly is that in life there are no solutions, only trade offs. The same is true here. You want to give your departments the flexibility to manage their budgets, but you have to balance that with oversight and course corrections. Spending should be evaluated with each budget, and repeated line-item discrepancies like the ones that occurred in the APL have to be called into question. The budget office has to take this oversight role seriously, and finding ways to reduce the stress and churn of your budget analysts can help a great deal.

And what about the auditors?

The report we’re discussing originated with a March 2019 allegation against Whited. For more than 10 years, he engaged in a systematic operation to defraud the Austin Public Library. That’s more than 10 years worth of annual audits, each of which contains at least some spot checking of internal controls. Austin is a big city, but is it so big that a department with 21 public locations and a variety of programs that include purchases of video game systems, movies and music, and other consumable items doesn’t get reviewed in a 12-year period?

So many basic and fundamental internal controls went by the wayside to allow this event to occur that it does raise concerns about the level of detail going into routine audits. For example, there are almost no circumstances where an employee should be allowed to approve his or her own purchases (and we only leave the door open at all because we can’t contemplate all of the possible circumstances in which a city may find itself). How did Whited manage to get away with doing so for as long as he did?

It’s a good thing that the City Auditor eventually looked into Whited’s actions; but it is strange that it took a hotline call to figure it out. Hindsight is always 20/20, but the sheer volume of failings make it pretty clear that this could have, and should have, been caught earlier.

Wouldn’t a flat organization lead to more examples like this?

We often advocate for lean organizations that feature a flatter hierarchy and empower lower-level employees to make routine decisions. It’s fair to say that the APL did not fall victim to Whited’s actions as a result of a flat organizational structure; but generally speaking, doesn’t that environment lend itself to a greater likelihood for abuse like this?

In our opinion, no. In fact, we believe a lean or flat organization may have generated more accountability. Granted, if you allow a thief to have access to city credit cards because of a bad background check policy, fraud like this could still occur. But one of the most glaring issues arising from the Auditor’s report was the lack of accountability of the folks tasked with approving Whited’s transactions and budget accounts.

Many of the responses by these employees to the Auditor’s report sound eerily reminiscent of our most hated phrase, “That’s not my job”.

You see, a flat organization requires every employee to take responsibility for the successes or failures of the organization. In this case, the APL employees hid behind the complexity and policy-driven nature of the city while still clearly violating policies along the way. The complexity gave them the ability to hide, and any failures would just be blamed on someone else, or the apparatus as a whole.

Amazing things can happen if you flatten the organization, reduce job siloing, limit duplicative policies (while enforcing the ones you do have), and require each individual to become accountable for their work product. In a traditional organization, everyone has a very specific role and often narrowly defined role. In a flat organization, everybody plays a part in pretty much every role. When the buck stops on everyone’s desk, then responsibility is much more difficult to pass on to the next rung.

Flat organizations must not only place more authority in the hands of individual employees, but also create an environment of accountability. From department directors to administrative assistants, each person must provide a high level of service to the citizens and at the same time work to continually improve their department’s processes.

Flat organizations encourage asking questions, gaining understanding, and taking ownership. How many people in your organization go through the motions understanding neither the nuts and bolts of what they’re doing nor the reasons for doing it in the first place?

We once worked with a city whose finance department produced a monthly report on the budget and operational activities of one of the departments. The spreadsheet that generated the report was probably 10-12 years old (judging by the antiquated Excel file format), and was held together by hope and prayer. Extremely brittle, it could not even adapt to mid-year budget amendments (they had to be manually entered). So each month when the top-line numbers didn’t match the sum of all the accounts, we would get a call that the budget was broken. Despite repeated explanations of how to identify and fix the problem, the calls would come each month. For years, the employee responsible for this report had never taken the time to understand the spreadsheet so that errors could be debugged. They had never taken ownership of their work product. No doubt some of you have similar stories of your own that could be told.

Flat organizations also encourage cross-training, which provides opportunities to question the status quo and bring weaknesses to light; fresh eyes can see things that tired eyes can’t.

One of the craziest parts of the Whited fraud is that he continually turned his receipts and documentation in at the last moment in order to cause an environment where the manager would be rushed and unable to provide adequate oversight. And when the manager would request additional information, or for it to be turned in more timely, nothing happened. Whited relied on the fact that he was the only person who bought essential library supplies to avoid discipline for not submitting sufficient or timely documentation. When your job silos create single points of failure, a failure can be catastrophic.

Situations like this often result in a double-down: more policies, more procedures, and a promise that it will never happen again. But Austin didn’t have an insufficient policy regime before this happened. There just wasn't the accountability to enforce it. New rules won’t solve the problem next time, just like the old rules didn’t prevent it the last time. We need more accountable institutions if we want to avoid having a report like this written about our city. Flatter organizations, where decision making is dispersed, responsibilities are shared, and accountability comes from all directions, can provide a much more effective means of preventing these situations from occurring.

And now for something completely different…

Hopefully the members of your community are a bit more civil than the French beekeeper who “dumped a nest of giant Asian hornets outside a town hall” after the city refused to remove it from his property.

From across the interwebs

This site knows if your local McDonald’s ice cream machine is broken

I didn’t know that broken ice cream machines plagued McDonald’s, but this inventive programmer decided to reverse engineer the fast-food chain’s online ordering system to highlight the problem.

When ‘Live PD’ cameras rolled, Williamson County deputies used more violence

Back to the Austin area for this story, in which the Statesman studied records from Williamson County and found that officers were more likely to engage in pursuits and use force when “Live PD” cameras started documenting their activity.

Texas is on the cusp of another Covid-19 surge. Is the state better prepared to handle it?

The Texas Tribune looks at what the state has done to prepare for another wave, and what issues might cause it to spiral out of control.

Complexity scientist beats traffic jams through adaptation

We gave a talk last week at the UMANT One-Day Conference about designing adaptive cities, and this story from Quanta Magazine fits in nicely with that theme. It highlights a computer scientist who is working to solve Mexico City’s famous traffic problems with self-organizing traffic lights.

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Who tells your story? (blog)

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I can still remember the floor of my elementary school cafeteria as I sat, legs criss-crossed, hands on my chin. Waiting. Hungry. Bored, probably. How long can you keep the attention of a couple dozen eight-year olds, after all? As we started to get restless, a special visitor came in the room. Within minutes, we were transported.

No longer could we feel the cold vinyl flooring on our legs. We felt the warmth of the desert sun in the afternoon, just before it’s substituted for the evening cold. No longer were our senses subject to the familiar hues and hums of the fluorescent lights. We could now see the vivid red and orange colors of the American Southwest, and hear the wooden wagon wheels creak as they carried their travelers across a land as barren as it was majestic.

We became part of the story, fully engulfed and engaged as a voice continued to describe our travel deeper into wilderness. Along the way we encountered pain and hardship, but persevered through the harsh terrain. We had entered what is known today as the Four Corners, home of the Navajo Nation.

I never visited the Navajo region, Monument Valley, or the Four Corners. But to this day when someone asks if I’ve been there, my initial response is Yes. As an elementary student, a storyteller took me there. Through their words, they placed memories in my mind as if I were standing in Monument Valley among the Navajo Nation. 

Great storytellers have the ability to transport our minds to far off places, making us a participant in the story.

The art of storytelling is ancient, and in many cultures it is still a primary means of passing important information to new generations. In today's world, with a wide open firehose of information flowing in from multiple perspectives, storytelling can provide an opportunity for both distraction and focus.

It’s becoming harder and harder for leaders to cut through the noise, according to Nick Morgan. The president and founder of Public Words argues that, “Facts and figures and all the rational things that we think are important in the business world actually don’t stick in our minds at all.” On the other hand, stories create sticky memories by attaching emotion to your message.

Coming out of graduate school, many future city managers are trained to craft messages with a pro and con viewpoint. We then weigh these contrasting positions and provide a professional recommendation. Our brains, however, do not always translate facts and figures in order to come to a conclusive decision. Instead, many leaders are transitioning to tell stories, because stories stick with us.

We are constantly finding ourselves in a struggle to deliver the correct information and analysis to decision makers. However, many of us feel a sense of loss when policymakers make a “political” decision rather than what we would deem to be the “right” decision. At times we can blame ourselves, the political culture of our community, or perhaps even the ignorance of our elected officials (though of course we would never actually say that…). In a world clouded by often hyperbolic political messages and sensationalized social media content, can city organizations still make sound local decisions? We believe the answer is yes, and rekindling the art of the story can help.

It’s funny how quickly the tools we make can change us. Imagine whether Aesop’s Fables would have stood the test of time if they had been written as a series of corporate memos, or a PowerPoint presentation with 15 bullet points per slide. Our lives our so busy now. We want things to be succinct, tidy, and neatly packaged.

When it comes to establishing and instilling organizational culture and norms, storytelling can be extremely helpful. Culture is not created through the subject of a manager’s email, it is created when managers continually tell the story about who we are and why we do things.

Instead of only writing down our organizational values, or posting them on break room bulletin boards, leaders can tell stories about times when those values were lived out (and, perhaps just as effectively, when they weren’t). With vivid details and explanation, the examples of how we have impacted lives and bettered our communities began to stick and create a strong employee culture.

In an age full of increasingly loud and extraneous noise, we can all use more storytelling. But how do we get started? How can we use the power of storytelling to improve our organizational culture and decision making? Here are some ideas.

# Craft your message

Duh, right? What’s the point of telling stories if you don’t have anything to say? As a leader, you’ll probably have some overarching goals and priorities that you’ll want to press. Spend some time really hashing them out.

If you want to tell good stories, you have to outline your purpose. As Simon Sinek argues, “[a] significant part of feeling value beyond our compensation is working on something bigger than ourselves.” Have you really defined what that “something” is? Ideally, that “something” should be applicable to everyone in your organization; easily communicated; resilient to political, technical, and social change; and something ultimately unachievable. In other words, your mission should be something that will live on for the next generation of your organization’s leadership to keep working toward.

But you don’t have to limit your storytelling to big picture things. While your mission is critical (and theoretically unachievable), you work toward that mission through tactics, and those tactics often need to be sold as well. Whether you’re pitching a zoning change, selling a new community service program, or hiring a new IT support technician, craft your message around the needs those choices are meeting, and how they tie into the larger mission.

# Develop and hone your talking points

Storytelling is about more than just a narrative you tell once. Sometimes, storytelling means staying on-message over long stretches of time in varying situations. Developing and honing your organizational talking points can help with the long-game of storytelling.

In my previous job as a city manager, I had a number of sayings about how we treated our residents. The two most common were, “We puke honesty” and “We provide white glove service.” These were the primary mental models of how we should interact with our residents.

Now, just repeating those two phrases would not have resonated with the listener, no matter how vividly the term “puke” might seem to our staff. What does it mean to puke honesty? To provide white glove service? It took a combination of internal stories, external stories (about other organizations), and leading by example to ingrain what these phrases meant. But once we got there, the term “puke honesty” had a fully-formed context and became a story on its own. Integrating the same talking points into multiple stories adds further emphasis and provides the listener the ability to merge multiple prospectives, gaining a well-rounded understanding of the message.

As another example, consider how Steve Jobs approached his goal of having Apple viewed as more than just a “technology” company. According to him, Apple’s DNA was “technology married with liberal arts, married with the humanities.” His primary critique of Microsoft was that they had “no taste” and didn’t infuse any culture into their products.

Apple cared about art, they cared about design, and they cared about attention to detail. These were the talking points on which Jobs continuously harped, and they paid off in making Apple one of the most valuable and admired companies in the world; and as Apple fans, we can’t help but see a clear shift in the culture since Jobs’ death in 2011. Without the same talking points to guide the story, the company’s goals seem to have shifted.

# Gather your stories

Storytelling is a two-way street. In order to tell great stories, you need material. As an organizational leader, you need to ask questions, be vulnerable, and create a culture of allowing honest conversations.

It is fascinating how quickly folks will share the bad, and how much effort can be required to get them to also share the good. In order to build up an organization, a leader must be proactive in collecting the good. Many of our office conversations focus on the negative interactions, but if leaders make a point to randomly share their positive interactions, the information gates will slowly open.

You can build on this momentum by asking targeted questions of your staff: “Tell me about a time when…” some superlative event happened, something that was particularly emotional or an “Aha!” moment, can be a good way to start a conversation. Follow up with questions like “what did you learn?” and “how did that make you feel?” for a better understanding of the story and how to connect it to your message.

You can also solicit stories from your staff and residents, particularly as you approach major milestones, anniversaries, or decision-points. You’ve probably already heard many of the stories about bad interactions between your staff and the public; human nature is far more likely to complain about a problem than praise a positive experience. If you want more positive stories, you’ll probably have to ask for them!

While internal stories are especially powerful for culture sharing, you don’t need to be limited to only stories from your organization. Especially if you are trying to change something, you might need to provide examples from other organizations or even other fields. Just take care that they form a coherent message. The purpose is to create sticky memories, and consistency is key for that.

# Founding myths

The quintessential business story, the subgenre with which we’re all most familiar, is the founder’s myth. From Romulus and Remus, to Newton’s Apple, to Silicon Valley garages, we all love a good founding story. Some of them are simply stories without a larger motivational angle. Others identify the core struggle the founders set out to fix, describe the principles used to solve the problem, and showcase the diligent work that went into making that fix a reality. These three ingredients are the secret sauce of a founding myth, and can provide a sort of organizational North Star, regardless of how true the story is.

We were blessed, in our last stop as public managers, to have an Honest-to-God founding story. Our community’s founding leaders used a bit of cleverness and some legislative sleight of hand to extract themselves from a neighbor’s ETJ, forming a new city out of whole cloth for the express purpose of not taxing the wealth of its inhabitants. Forty-plus years later, this story continues to guide the community and its leaders. Operating with no property tax remains the primary goal of the city, around which all other decisions are oriented. It was one of the first stories told to new administrative hires (often in the interview process) to help them understand how our decision-making process was guided.

Most of our readers will not be in that fortunate situation. Many won’t even have enough material to fudge a little on the story (and let’s face it, most of the founder’s myths you’re familiar with are probably embellished at least a smidge). Plenty of cities were formed because a river, port, or rail station happened to be there, and the city just grew up organically around it. And while that’s an awesome story in itself (in a Strong-Townsian, organic and incremental growth sort of way), it’s not always obvious what guiding principles should be derived from it.

Perhaps you manage a smaller piece of the puzzle: a department or division, a new task force created to address a specific problem, etc. Focus on what makes your organization different than the average. Is employee retention better? Talk about how much happier your employees are, on how much the governing bodies focus on people, pay, and benefits, and how that directly enhances the customer service and product delivered to your residents.

# You don’t have to be a good public speaker if you have the right message

Don't let a lack of confidence in your speaking skills keep you from stepping outside your comfort zone. You don’t have to be able to work a crowd or be the most eloquent off-the-cuff speaker to be effective. A succinct, detailed, and organized story doesn’t always need told by a Toastmasters expert. If you have a great story to tell, it will shine through even the most awkward of deliveries.

A great example of this is Tony Hseih, who until this August was the CEO of Zappos, an online shoe and clothing retailer. Several years ago, he spoke about his experience as CEO and how important culture was to the company. The thing is, he comes across a bit nerdy, a bit socially awkward, and clearly nervous speaking in front of this crowd. But his stories clearly define his brand’s identify and the cultural expectations placed on his employees. The message and imagery stick, regardless of your first impression of him as a speaker.

If you’re short on time, you can skip to the 11:05 mark for a powerful customer service story, but the whole video is worth watching.

# Don’t be a hypocrite

In order for a story to stick, the storyteller must have some level of trust. Or at the very least, not be distrusted. If you are using stories to instill organizational culture you must also follow the guidelines embedded in your stories.

For example, we frequently speak about valuing quality over quantity when it comes to our labor force. And in smaller organizations, you really don’t have many other options! For one small city we have worked with, this was among the most important principles for their organizational culture. Management pushed hard with their staff and council to do more work with fewer people. New positions wouldn’t be considered until there was a tangible pain being felt across the board. After all, once you add a new position, it’s hard to go the other way.

In return for this extra effort, this city provided some of the highest pay and best health coverage of any city in the state of its size (or any size, in some cases). Training was a point of emphasis, as was prioritizing culture fit over skills when hiring.

This isn’t an easy road to go down. In fact, it can be quite difficult. But everyone pitched in, all the way up to the city manager’s chair. There were no administrative assistants to schedule meetings or gatekeep; employees cross-trained for multiple roles to cover vacation, sick, and family leave (which meant that they didn’t have to stress when it was their time to relax); even the city manager and assistant city manager would answer the phones and take utility payments.

By putting their money where their mouth is (both literally and figuratively), management was able to get buy-in for this concept. The demands to do more with less didn’t ring hollow because everyone across the organization lived by the same standard.

Wrap up

Storytelling is hard, but the benefits of having a firm foundation of who you are, what your organization stands for, and what it strives to do will far outweigh the risk. Many managers get frustrated when their organization or themself becomes defined by an uncontrolled narrative.

They may say, “That’s not me, I am not that person, and they should know our city does not do that.” But do they? Should they know that? If you are not out there telling your story both internally and externally, it will be written by someone else.

Facts and figures can help make your case; rational arguments are important. But as Stephen Few says, numbers rarely speak for themselves. You have to give them context. You have to tell their story.

And now for something completely different…

We’re not big on public shaming, but plenty of others are. Sometimes it’s easy to forget that, as public officials, we live in a fishbowl where every action we take might be the next viral image… Always be on your best behavior!

Across the web

Pandemic be damned: Business owners are still opening stores (Inc)

Tens of thousands of businesses have closed in the past few months, leaving a potential opening for a subset of entrepreneurs perhaps a bit more risk-tolerant than the average bear.

No, we still don’t need drive-throughs (Strong Towns)

Daniel Herriges argues that, despite the fact that many restaurants are currently surviving based on primarily drive-through business, they’re still a bad financial deal for cities.

Candy or Covid? Some places are canceling Halloween (CityLab)

Our kids have had to forego proms, graduations, birthday parties, and much more over the past few months, leaving many seeking an opportunity for normalcy. But is Halloween a safe bet?

Other stuff from us

Sales Tax Gameday (our real-time, no-prep look at local sales tax collections) for September 2020 (ZacCast)

We dug into the ESPN documentary series The Last Dance to talk about whether Michael Jordan’s leadership styles translate to public organizations (ZacCast)

A response to the proposal recently approved by the Austin City Council to change the operations and funding of its police department, the Governor’s Tweet is, in our opinion, a bit heavy handed. Austin’s proposal involves eliminating three academies previously scheduled for FY21, relocating approximately $80m in “civilian” police operations to other parts of the city, and reallocating approximately $50m in police funding to “alternative forms of public safety.”

The wisdom of this plan is not for us to say. We do not have the expertise or background knowledge of the Austin Police Department to determine whether these proposals will succeed or fail. It’s entirely possible that the proposal, if fully implemented, will have disastrous consequences for the most vulnerable residents of the state capital.

But at the same time, the implementation of a punitive property tax cap over policy disagreements represents a dramatic shift in the relationship between the State of Texas and its municipalities. A shift that we earnestly should try to avoid.

Do we believe in local control or not?

As a politically conservative state, we hear a lot about the value of local control - of federalism if you will - from Texas politicians. Interestingly, though, local control seems to defy the typical partisan divide. Liberal and Democratic mayors and city council members will argue for local control alongside their conservative and Republican counterparts. When you move one rung up in the electoral ladder, state legislators will often argue against federal overreach into state affairs, regardless of party affiliation.

The beauty of federalism, upon which our entire system of government stands, is that it allows for diversity and experimentation. It becomes quite difficult to maintain that system when one’s support for local control is dependent upon which branch of government one represents. The Governor and state legislators cannot, in good faith, decry the apparently meddling in their affairs by the national government in Washington while punishing home-rule cities for managing their own.

As an aside, we should not be naive to think this is the first time something like this has happened. A de facto nationwide drinking age exists because a Republican president signed legislation passed by a Democrat-controlled congress that threatened to “defund” federal highway dollars if states didn’t set a drinking age of 21. (Again, there are no real partisan boundaries on the question of local control.)

Every city across this state is different, from demographics to climate, transportation access to historical growth patterns, and much more. Texas has been successful because we have historically embraced this diversity, and that includes the specific needs of each city when it comes to public safety.

Do our state officials really know better than our local leaders the unique challenges facing each individual community? Has our Governor devoted enough attention, in addition to the duties required of his position, to evaluate the public safety spending and operations of more than 1,000 cities? From Texline to South Padre, from El Paso to Burkeville, is the Legislature so confident that not a single city in the state might reasonably reduce its police department budget that it is willing to place property tax caps on them for doing so?

Leveraging caps on property taxes to demand specific local public safety decisions is also likely to come with unintended consequences.

• Will cities be unable to come together to share common infrastructure on a regional basis if it would result in net reductions in public safety spending? In other words, will we end up punishing the search for efficiencies?

• If debt service costs are located in the police department’s budget, will the retirement of debt be seen as a reduction in spending?

• Will the formation (or elimination) of Crime Control and Prevention Districts be an unintended casualty?

• Will cities be forced to implement budget and accounting tricks to avoid these caps? Is it worth the time and attention of our local managers to pull electricity costs from non-departmental budgets, or create new internal service funds simply to avoid a tax freeze?

At the time of writing, no formal plan has been released. We don’t know what thresholds or specific actions might trigger a property tax cap, so the reader will have to indulge the prior speculation. But the unfortunate truth is that there are always unintended consequences when decisions like these are made. Good policy is often the last thing to come from reactionary responses.

How does the State removing local control affect the Texas Miracle?

The Texas Miracle is a widely used term to describe the pro-business/pro-development nature of Texas. The problem is most of these pro-business and pro-development decisions are made at the local level. Texas is blessed with a relatively stable legal environment and an established professional management culture within our local governments. Large scale economic development is complicated and the thousands of decisions needed to attract, build, and retain jobs are made at the local level. Removing the flexibility of local control in any fashion, but especially in regards to revenue, would significantly hamper local governments’ ability to support the Texas Miracle. 

Many moving parts are required to keep the wheels of the Texas Miracle turning. The partnership built between the State and localities is a major reason for the rapid growth of our state. The State continually works with locals to tackle large statewide issues such as water, drainage, and transportation funding to keep Texas competitive. Locals work directly with the Governor's office on large scale business recruitment, grants, and local incentives. These relationships matter, and the Governor’s rhetoric regretfully continues to erode a productive working relationship.

The drive and competition of local governments allows for experimentation of economic incentive packages, development styles, and government investment. Without this local government experimentation, Texas would not be one of the nation’s leading economic engines. Local governments make up the high powered horsepower of a really fancy truck; without local governments the State would still be “big and bright,” but stuck in neutral.

Is there a limiting principle?

Policies such as the Governor’s proposal often come without the benefit of limiting principles, the basic assumptions that identify when the action being taken has gone too far. Will the same hold true in this instance?

Is public safety the only local function that the Governor and Legislature would be willing to implement punitive property tax caps to protect? One could fairly argue that - to varying degrees - streets, parks, and libraries all contribute to the safety of the public. Is there any principled reason why cuts to those services couldn’t come with a similar penalty?

Slippery slope arguments aren’t really our cup of tea, and we certainly do not wish to add more hyperbole to these topics. But it is worth pointing out that punitive actions taken on behalf of one cause could surely be used for another, especially when they’re undertaken without clearly defined principles behind them.

More to the point, local governments have been told repeatedly that property tax caps implemented in the state legislature are a response to rapid and unnecessary increases in local tax revenue. They are not punishment, we are told, they are a means to limit the growth of government and put property tax increases up to the direct will of the people (rather than those whom the people ostensibly elected to decide such things).

If property tax caps are now to be used as punishment for the “wrong” policy choices, why should we believe they haven’t actually been punishment all along? It is difficult to envision a scenario where even raising the possibility of punitive tax caps would improve the already strained relationship between the state and its cities, let alone actually implementing them.

Is this debate distracting us from solving real problems?

Zooming out, our real concern with this discussion is that it serves as a distraction from solving some rather vexing problems. The history of policing in this country is complex and multi-faceted. Each community has its own challenges to address. In a time like this, we need less dramatic shifts in policy choices.

Whether the City of Austin’s plan will even be fully implemented remains to be seen. Most of the proposed cuts and reallocations are tentative, pending the results of a yearlong process. But there’s no doubt that it’s a big number and it makes for a big headline: “Austin City Council cuts police department budget by one-third” will certainly ruffle some feathers. This is a pendulum swinging action by the City of Austin, there’s no getting around that. Most people believe that at least some changes are needed in how we police. Like most things in life, though, we’d probably be better served with incremental adjustments than wholesale changes.

This need not be a binary choice, no matter how confident the masses on social media are that it is. Our public policy debates tend to operate in the high-confidence/low-knowledge portion of the Dunning-Kruger Effect. Everyone seems to be very confident in their positions, even though most of us don’t have enough knowledge individually to justify that confidence. Typically, the more of an “expert” you become on a topic, the more frequently you answer questions about that topic with a variation of “it depends.” That’s because this stuff is hard! We could all benefit from a little more humility when discussing these very difficult questions.

That’s easier said than done, of course. We all want to “do something”, but simply giving in to the “do something” feeling rarely works out in the long run.

Recent polling has shown that the people most likely to be impacted by policing are often more averse to reductions in police budgets. Austin’s proposal may end up being a terrible idea that causes real harm to people; or it might end up being much ado about nothing.

The question is, who should decide whether the City of Austin is allowed to try something different? As advocates for local governments, we believe that cities should have the right to make their own decisions and bear the responsibility for the results.

If Covid cancels college football, what happens to local economies?

Our original plan for this month was to write about the potential impact of college football being cancelled. So far, most major conferences featuring Texas universities appear to be doing their best to play at least some games this season. On top of that, we found it really tough to tease out the sales tax impact of college football based only on public data and a somewhat limited sample size.

Waco, Lubbock, and Bryan/College Station are perhaps the only “college” towns in Texas with football programs big enough to show some aberration in sales tax collections. With 10s of thousands traveling to those cities at least a couple times a month from September through November, we hoped to find a statistical difference in the proportion of revenue generated for those cities during football months relative to the rest of the state. Unfortunately, the data just weren’t clear enough.

But there’s a lot more to college football’s impact on local communities than sales tax collections. If this is something that interests you, here are a few reads on the subject:

• COVID-19 shuts down football conferences - what about small towns? (The Hill)

• College towns face a potentially devastating economic blow this fall: No football (CNN Business)

• Canceled Or Reduced College Football Will Damage Local Economies (Forbes)

And now for something completely different…

When you use general purpose software to manage critical elements of very important work, like finance or science, for example, you might run into some issues that just can’t be resolved. Scientists recently had to rename a handful of human genes because Excel would auto-format their names to dates. For example, MARCH1 becomes 1-Mar” (actually, it becomes 43891* since Excel stores dates as numbers).

Although this can be “fixed” by manually setting formatting before data entry, it is error prone (for example, spreadsheets may be saved as CSV, which removes all formatting metadata, and then later reimported into Excel).

Long story short, sometimes you just have to take matters into your own hands!

* 43891 represents March 1, 2020. Future readers may find Excel auto-formatting “MARCH1” to a different value.

Across the web…

When Street Design Leaves Some People Behind

This piece from CityLab looks at new trends in accessible street design and argues that, like most things, solving the accessibility issue will be a tough nut to crack.

Are we doing this right? Budgeting Edition

Our friends at Verdunity tackle everyone’s favorite part of working in local government: budgeting.

Salt Lake City planners have about 30 minutes a day for the big stuff

Another hat-tip to the folks at Verdunity for sharing this article about what can happen when the small things crowd out time needed to focus on the big things.

Other stuff from us…

• Our conversation with Kevin Shepherd about fiscal sustainability, infrastructure gaps, and the future of development (ZacCast)

• Some Dataviz tips and tricks as you prep your adopted budget book (ZacCast)

• Patrick and Chad summarize the ups and downs for August’s sales tax collections across Texas (ZacCast)

• How to keep your city council meetings productive (ZacCast)

Welcome to the first issue of the ZacTax Roundup. If you’re a ZacTax user, you probably remember receiving the Monthly Roundup alerting you that new sales tax data is available for you. With ZacTax 3, we have a new feature called the Monthly Digest. It’s a short email that you receive as soon as your data is ready, and it provides some high level details about how your sales tax performed.

If you haven’t been receiving a Monthly Digest, please let us know!

Since the Monthly Digest now serves to let you know that data is available, we’ve decided to convert the old Monthly Roundup into a newsletter format. It will be available to both ZacTax users along with anyone else who might be interested (so feel free to share!).

If you prefer not to receive this newsletter, you may unsubscribe at any time. Thanks for reading!

-Chad

Covid-19’s impact on Texas sales tax, and how Marketplace Providers saved some cities

As we discussed on the latest episode of ZacCast, local sales tax numbers across the state of Texas have outperformed the expectations of even the most optimistic among us. While many cities have taken substantial losses, the statewide loss in municipal sales taxes totaled just over 1% in July (the period covering May sales).

Why certain cities did better than others is the product of many, many factors, and there is no universal theorem to explain why this is the case. But there are some broad brushes with which we can paint:

Statewide

Statewide municipal sales taxes totaled $483,422,612 in July 2020, which was down about $5.495m or 1.12% from 2019.

Note: Once August sales tax is released, the link above will no longer contain data from July

Top 20 Cities

The top 20 sales tax generating cities (for 2020) pulled in 45% of all municipal sales tax in July. This group accounted for $19.624m in declines, a -8.27% change compared to 2019. The largest declines, from a percent-change standpoint, were in Midland and Odessa with 29% and 36% respectively. The top 5 cities (Houston, San Antonio, Dallas, Austin, and Fort Worth), saw total declines of 9.8%, or $14.1m. Only 6 of the top 20 cities had gains in July, including Arlington, El Paso, Irving, Lubbock, McKinney, and Grand Prairie.

Note: Once August sales tax is released, the link above will no longer contain data from July

There are many plausible explanations for why the largest sales tax cities saw the steepest declines, the most obvious of which being that these cities represent areas with higher population densities, and were therefore subject to higher case loads and more restricted reopening schedules in May than smaller, more rural areas. However, the declines were less pronounced in suburban areas adjacent to these larger cities, which suggests a complementary explanation: that they rely more on importing sales tax by drawing in residents of neighboring cities for shopping. With many businesses still unable to fully reopen, those neighboring residents opted for other shopping outlets (whether in their own cities or via the Internet) rather than traveling to “the city.”

The following image shows the gain/loss from cities surrounding Dallas and Tarrant counties compared with cities inside those two counties:

Nos. 20 - 250

The remainder of the top 250 (which includes cities ranging from San Marcos to Seabrook) accounted for 47% of all municipal sales tax in July, or $226.3m. This group saw an increase of $10.99m, or 5.11% compared to 2019.

Everyone else

The other 915 cities generated $39.49m in July, or 8.1% of total tax collections. This group had gains of $3.1m or 8.6%.

For this month’s interesting but ultimately meaningless coincidence: the losses of the top 5 cities were functionally wiped out by gains in cities 21-1,165 ($14.118m declines compared to $14.128m in gains, respectively), meaning that the net drop in sales tax across the state is fully accounted for among cities 6-20.

Assessing the impact of Marketplace Providers

While the tax importation explanation above does not completely explain why bigger cities saw, on average, larger losses over the past two months, a brief survey of marketplace taxpayers lends some credence to the idea.

If you aren’t familiar with the terminology, Marketplace Providers are entities that provide an outlet for third-party retailers to sell goods, but which do not act as retailers themselves. Examples include eBay, Etsy, Amazon’s third-party sales, and others. New rules passed in the 2019 legislative session require Marketplace Providers to collect and remit sales taxes on behalf of the third-party vendors that use those services. This is an entirely new revenue stream for Texas local governments in fiscal year 2020.

A full list of registered Marketplace Providers can be found here. We’ve taken this list and extracted the payments made by these vendors to the 130+ cities using ZacTax to evaluate their impact during the period of full closures in April and as those restrictions were eased in May.

While the new Marketplace Provider rules resulted in increased revenue across the board, for some cities this new revenue was a significant source of support during this period. These taxpayers represented an average of 3.55% of total collections in April (June allocations), and 4.03% in May (July allocations).

For some cities, new revenue from Marketplace Providers offset between 30-60% of other losses. And in about 2% of cities, it turned what would have been down months in June or July into net gains.

Zooming back out, the Comptroller has begun publishing marketplace totals for local governments.

Note: Once August sales tax is released, the link above will no longer contain data from July

We combined this report with the publicly available allocation data that we collect and make available at OpenZac to calculate the percent of total collections that Marketplace Provider payments made up for all Texas cities in July. The statewide average was 3.2%, but there was a significant difference in impact between larger and smaller sales tax generating cities.

Here’s a scatter plot showing marketplace payments as a % of total collections for cities generating between $5,000 and $250,000 in total collections (we’ve tried to remove some major outliers by limiting the collections to at least $5,000):

The negative correlation between total revenue and marketplace percentage remains when comparing all cities, but it is slightly less clear due to the low-end outliers. However, a statistically significant difference in the average percentage of marketplace payments exists when comparing cities generating more than $1m in July (2.99%) with those generating less than $1m (6.5%).

While certainly not conclusive, it does suggest the tax importation explanation might have legs. This will be something we’ll continue to monitor over time. If the tax importation hypothesis has empirical support, we’d expect to see the difference between large and small cities shrink as we eventually get “back to normal.” We’ll also attempt to retrieve this data back to November 2019 to see what the world looked like pre-Covid.

Where does that leave us?

The Covid-19 restrictions put in place across Texas during April and May no doubt had a significant impact on the sales tax collections for cities across the state. While it’s safe to say that the collections we’ve seen have outperformed, on average, what most people expected when the closures were implemented, many cities are still facing significant challenges.

Most of the net losses across Texas occurred in the larger cities. How much of this decline can be explained by the closures themselves, by the spikes in unemployment during those months, by sales tax importation issues, or by the general uncertainty felt by people across the state, is difficult to tease out using only the publicly available data.

The benefit of tools like ZacTax is that you have much more granular access to your sales tax data. By aggregating this information, we’ve seen how important the new Marketplace Provider rule was to local governments during this time. In our sample of ~10% of Texas cities, these new taxpayers accounted for 3.5-4% of all revenue collected during June and July. In some cases, cities that saw net gains in June and July would have experienced declines without this new revenue source.

We’re not out of the woods yet. As case counts continue to rise, and concerns about having to drop back down to Phase 1 restrictions grow with each day, we might indeed be looking at several more months of sales tax impacts. If you have any questions, or need some help evaluating your sales tax performance, please don’t hesitate to reach out to us.

And now, for something completely different…

This Tweet should have come with a trigger warning for data nerds:

As we’ve incorporated more and more Comptroller datasets into our OpenZac platform, we’ve had to deal with this exact issue multiple times. One of the biggest time sucks that comes with adding a new dataset is simply building the tools to clean the data. A quick analysis showed that ~55% of Texas cities have more than one spelling across Comptroller datasets for sales, mixed beverage, and hotel taxes. Port O’Connor leads the way with 9, while Jamaica Beach and South Padre Island are close behind with 7. Fun times!

Across the web…

Why local governments should nurture the growth of Proptech (governing.com)

We discussed this article on the latest episode of ZacCast, particularly comparing how Proptech is being used by the private sector with how similar products will be used by the public sector.

This is why we need to #DoTheMath, even on “small” projects (strongtowns.org)

A quick and dirty analysis of a street reconstruction project that questions the fiscal impact of even small projects.

The Ins and Outs of Your City Budget (citylabs.com)

Nothing in here you probably don’t know, but it’s sometimes helpful to see a different perspective on the things you deal with every day. This article talks about how cities can design their budgets to be easier for the average citizen to digest.

Advocating for Texas Cities (Go Cultivate! Podcast)

Bennett Sandlin of TML talks to Kevin Shepherd of Verdunity about a variety of issues Texas cities are dealing with and how TML can help cities large and small.

Other stuff from us…

• Venture Capital and Economic Development (ZacCast)

• What’s Proptech, and how has Covid affected sales tax? (ZacCast)

Before we leave you this month, a quick note on what to expect with in ZacTax Roundup. It’ll be a once-monthly email newsletter including original content and analysis as well as links to interesting news, analysis, and opinion pieces across the Internet. While our business is focused on sales tax (and other revenue sources), our passion lies in local government generally. You’ll see content spanning the gamut as it relates to local government. If you have any questions or suggestions, we’d love to hear them!