Another Perspective on Infrastructure

I have been writing about and giving heads up about infrastructure needs since at least 1988. Nothing was mentioned much for years. In fact, when I went to the GFOAT Board at the time to request the topic be put on a conference program, nobody wanted to talk about it. Under the umbrella concern from finance folks that nobody was going to steal a street, it died. I was politely thanked and shown the door.

Since GASB was created, that particular Board eventually made a push to recognize Infrastructure cost. The general process for things like this in the governmental accounting world is to 1) don’t talk about it; 2) talk about it and measure it for informational purposes; 3) measure it but put it only in a footnote and 4); place it on the income statement and balance sheet. I wrote years ago that some cities are bankrupt and don’t know it. When assets turn into liabilities, it can wreck financial statements to make that most basic acknowledgment

The finance folks fought GASB at first, but we now about a dozen years of Infrastructure and especially the Depreciation numbers appearing in the CAFRs for the General Assets. In the footnotes. I am pretty certain that nobody has highlighted this information to their City Councils. That’s a shame. I often wonder how many City Managers even look at these numbers to put dollars to the gigantic investments in assets under their watch? When I started writing about Infrastructure that many cities may be bankrupt and not know it, I wasn’t kidding. Move that General Assets Depreciation number to your income statement and tell me how you look?

The picture gets worse when you realize the Assets of this nature are stated as historical costs only. And, get this, a huge portion of those assets weren’t built with city money anyway. They were built by developers and builders and then given to the city. To make matters worse, many of these development assets were built by cutting and digging through open corn fields without thousands of cars whizzing by. So, bottom line, the city gets to maintain, repair, rehab and replace with city money at today or future costs plus a premium for the time and danger to work in established traffic lanes at off-peak hours and weekends.

And worse, realize that all these assets are on a slow march to deterioration. Wait long enough, and the pace picks up. In 1990, while working on Impact Fees in Plano, the point was made about the very high percentage of their infrasture that had been built during the previous 15 years. Almost as quickly as the words were said aloud, the staff and consulting team realized that at some point in the future, there would be a bubble when those millions of miles of infrastructure would wear out in about the same short period. Ouch! BTW, that was 29 years ago. That bubble is here and has been here for a long time!

The Cost of Deferral

We are all familiar with the number one method of balance a budget – heck, just defer. Kick the can down the road, as the phrase goes. And that may just be one of the reasons some cities are so reluctant to do multi-year financial planning. Kick the imbalance to next year and … well, now that year and future years’ deficits just got deeper. If I were new to a council and discovered decades of decay had been shoved ahead for me to face, I would not be silent. I’d take care of the problem and show the tax rate spike that is a direct correlation to the malfeasance of neglect from councils in the past shoved ahead to my term. Why would I apologize, and why would I act surprised?

A Picture, Please!

The City of Carrollton provided an Infrastructure Report Card in 2011 and then updated the report in 2014 and 2018. It’s a must-read unless you don’t like to be bothered by future threats and sober reality. See https://www.cityofcarrollton.com/home/showdocument?id=13439.

Inside this report is a most fascinating diagram. I doubt that you need help understanding it. It is profound. You need to keep it in your hip pocket and pull it out as regularly as you show pictures of your kids or grandkids.

CarrolltonIllustration

Hit Me With Another Cheery Note, Lewis!

Thanks for giving me the permission to say everything again in another way.

I have found another helpful tool to easily obtain a statistic and a visual I’ve used several times doing a lot of manual work. This one is very useful and here is how it works. Go to your CAFR and pull out the number of miles of roadway in the Statistical Section. In my City of McKinney, it shows there are 802 miles of roads the City has to maintain. It also shows 960 miles of water mains and 713 miles of sanitary sewers. The last two are invisible – until they become visible, and then you’ve got a big problem.

Gee, that sounds like a lot, but look at my better way to say it offered here. If I were to draw a circle with a radius of 960, the picture below tells the fascinating story in a different and disturbing way. What would you expect from the Master Disturber?

Below is a circle with a 960-mile radius. That’s the picture of the assets for which you have been deputized to be the steward. That’s the “service area” stretched out in linearly. That’s the workload plan in some form or fashion.

I’ve driven these distances before (but not in every direction). You can have this sterile little statistic of 960 miles in a report. You might even say it verbally without it fully registering, especially if your staffers talk 100 mph without pausing when giving reports. All a yawner, perhaps. Try using a picture.

Hey, I’m just trying to help you tell a story. And as much as I love numbers, a picture is often much better. LFM

https://www.mapdevelopers.com/draw-circle-tool.php

Circle

Getting Taxed Out of Your Home? Prove it!

I find it interesting how anti-tax fanatics can camp on to a mantra and then start repeating it as truth. My fav is “People are getting taxed out of their homes.” The louder you cry it and the more emotional you get about it, the more it is accepted as the gospel, I guess.

I’d like to respond by saying “prove it!” Meaning, I don’t believe you. And if it is true, and you are over 65, then I’ve got a solution to offer. All I ask is that we talk with a little civility and respect on all sides. Well, I’ll match the responder’s tone.

Send me examples of people who are being taxed out of their homes. I will need their address. I will keep names and even the addresses confidential. But make no mistake about it, I will publish my findings.

Fire away.

For the Over-65ers

Meanwhile, I would like to respond to those over 65 this way: the state provides that you may not have to pay property taxes until you sell your home. You will eventually have to pay, and you will have to pay 5% simple interest.

The doubter and naysayer will likely respond incredulously to mean “won’t my estate may someday be in the hole?” Well, let’s examine that notion. To be as accurately as possible, I’m picking a home in my neighborhood so I can tie my calculations to a real tax bill.

The market value of the home is $419,198 (it could be any value). Let’s first address the issue of rising house values. That is the case here as shown below as the house value has increased from $212,883 in 1995 to $419,198. Holy Cow! That’s a 97% increase! Send up an Interceptor!

True. You could focus on that number alone and be mathematically correct if you wanted to be a warp-talker. But you could also compute the compounded growth rate over the 23-year period and learn that the actual annual rate is 2.99%. Gee, I hope the value has grown at least that much in my neighborhood.

MarketValue

So that means my tax bill has almost doubled, right? Not so fast. Never in history has my tax bill been based on the full market value. There have been generous discounts in the form of exemptions. In recent years, the owner turned 65, so the exemptions have grown in number and size. The actual base upon which the tax rates are applied are $332,936 for the City,  $302,597 for the County and about $251,000 for the School District and College District.

What’s more, the actual tax bill has been frozen for all but the City. Forever. Until the homeowner no longer lives there.

Now, let’s examine a scenario where tax bills in general are compared to home values in general. The combined tax rates for all four taxing jurisdictions equals $2.3772 per $100. Another way of understanding that number is to say property taxes equal 2.3772% of the home value. In other words, If a house value grows at 2.99% and the tax bill equals 2.38%, the homeowner may eventually get all City, County, ISD and College District taxes back when the house is sold – and then some.

The price of living in a full-service city, which benefits the homeowner, children and grandchildren, can be viewed in a different light. The emphasis on CAN BE is intentional. I may choose to be grateful for what I have. You may choose to complain. Your call.

Let’s understand the arithmetic by examining a sample:

Deferral

I’m taking my neighborhood example bill and situation and extending 25 years into the future. If the homeowner is 65, then this covers the scenario until the age of 90. One might safely assume the homeowner is no longer living in the homestead before then.

First, one might gasp that a deferred tax bill now about $6,500 annually can extend to just under $8,000 annually (due to the City taxes) in 25 years. You might equally be in disbelief that the home value could increase to $777,170. However, that is what happens when the home value grows at just 2.5% per year.

The exhibit shows the results USING THESE ASSUMPTIONS after 25 years. The deferred taxes totals $179,794.512. The accumulated interest on the deferred taxes equals $112,961.02 for a total of $292,756.14.

If the house were sold at that point for a price of $777,170, and the taxes and accrued interest paid off, there would still be equity in the home of $484,414.

What About Differing Assumptions?

I’m so glad you asked. This is when I go into my Excel teaching mode to show a feature just for this purpose. Let’s say you wanted to see what happens when the home value growth rate goes from 0% to 8% in 1/2% increments. You also wanted to see what happens if the state changed the interest rate to charge 2% to 8% in 1% increments. The interest rate was recently changed from 8% to 5%, so that assumption should be fixed for a number of years. But let’s see the results.

Boss, you just asked for 136 tables like the one above. Are you sure you want to see that many? And your response as a boss should be that you only want to see the results in the bottom line corner: What will be the remaining equity under these scenarios?

This is where a sensitity analysis (Data Table in Excel parlance) comes in. Here’s what you want to know once you understand the model above:

DataTable

As you can see, the net equity stays positive even if the house value growth increases were zero and the interest rate returned to 8%.

Other Issues

While you now have an alternative to offer those over 65 when they complain about taxes, there could be some hiccups. If they have a mortgage and the note holder balks, then this suggestion might not work. I can’t help you there other than to show them this blog.

Also, all of the air might be sucked out of the room by your city finance folks if this idea is suggested from the dias in a council meeting. There is a fear of losing revenue any time exemptions are discussed, and there should be. However, I have two responses. By the very nature of this legal solution, the tax deferrals are temporary. PLUS they pay 5%. If you have any kind of internal reserves to fund these deferrals, then compare 5% to the rate you are currently earning. Make it happen. Alternatively, my guess is that a local bank would be happy to be the financing party. Bottom line: it’s a legitimate concern with a legitimate answer.

There are already complaints that those NOT in need of this avenue of relief are taking advantage of the benefit. Sorry, I can’t help you there, either.

Conclusion

I live in a city where the mayor is way above average in smarts and heads above his peers when citizens come before the council making outlandish comments, mimicking the anti-tax mantras spoken in their ears. These naysayer robots are taken to task quite often and asked to explain in more depth. In other words, PROVE IT!

I am making an offer to my mayor as well as to your mayor and council. When you are bombarded with the “we’re being taxed out of our home,” get their address and send to me. I want to see the numbers, but I may also want to explore deeper. If they have lost their job or have huge medical bills, I want to point out that it’s not their taxes causing grief in their life. I will pray for them, but I won’t let them get away with inflammatory accusations about the cost of providing local government services.

LFM.

The McKinney Elephant NOT in the Room

Let’s keep this simple:

  • Commercial and Industrial taxpayers cost less to serve than Residential.
  • The tax rates in cities that have a high Residential to Non-residential ratios are generally higher.
  • McKinney has a relatively high R:NR Ratio. And it has grown significantly higher in the last two decades as we have added many, many residential rooftops.
  • Just about everybody running for McKinney City Council in recent years have had a big plank in their platform acknowledging everything I’ve said up to this point AND pledging that they are going to do something about it to lower taxes.
  • Now comes the issue of raising the tax exemption for homeowners over 65 from a gigantic $60,000 to an even larger $65,000. Who can resist the opportunity to lower property taxes for the voting class, especially those over 65? Exactly nobody.
  • But here’s the catch. Every exemption for one taxpayer is a tax increase for another taxpayer. In most cases, the burden is added to the Non-Residential class + Apartments + Renters.

Watch the video from the Council meeting of June 19. Mayor Fuller tried to make the points outlined above. I don’t think he used the word “irony” in his comments, but that was the centrality of his message. The plea was to no avail. In the drama of a patriot explaining why he or she would die for their country, it was clear that most council members were going to vote to raise the exemption. So, Mayor Fuller makes the motion to approve the exemption increase himself. Good for him.

Where’s The Frigging Elephant in the Room?

There was not a single member of the business community there to explain the irony and the issue of making it attractive for businesses to come to McKinney. Wait, before you shoot me with the gospel gun, I know that there are many reasons for a business wanting to locate to any particular city. I can list them all. Fair treatment to the business community is just one of the signals that we want everybody to be part of the family here.

We spend a lot of money giving economic incentives to attract new businesses. Where was the McKinney Economic Development Corporation Board to at least make the points the Mayor was trying to make?

Thanks a lot big talkers who go to Chamber luncheons to make each other feel like you’re important and to talk about prosperity in McKinney. Thanks a lot MEDC for letting the Mayor twist in the wind while he was trying to keep a good balance between Residential and Business tax burden.

Oh, I forgot. You want somebody else to put their name and reputation on the line while you raise a glass to McKinney today and look only for opportunities to help YOU. If being on the MEDC Board is a stepping stone for being elected to the Council someday, why would you want to speak up for the McKinney headed for more imbalance in the decades ahead? The two-year vision you have while serving on the Board is quite revealing.

We stand behind you, Mayor! Waaaaayyyyy behind you. I expect there might have been a few from the Chamber or MEDC who called the Mayor after the meeting to pat him on the back for trying. You are of the most cowardly and selfish people walking the streets of McKinney.

Business Community, MEDC: you got what you deserved. And there will be more shifted to you in the future. The new guys will get incentives for coming. You will get shafted for staying quiet. LFM

Why Do We Wait for Animal Control to Reach a Crisis Before We Act?

Actually, I could have replaced “Animal Control” with a blank since this question applies to hundreds of situations in government.

But today I want to focus on just animal shelters in particular. As most of you know, I read from a few hundred (246 to be exact) Texas newspapers and their suburban editions each day. I look for stories that are of interest to city officials, city managers and mayors in particular.

I have known for decades that few topics consistently make the Top 5 as often as animal control issues. I live in McKinney, a city of 180,000 people, meaning just about that many people have an interest or downright big investment in pets.

In recent years, there is one common topic that pervades the Texas headlines. It is the overcrowding of animal shelters. On most days I can point you to at least 10 stories about animal shelters waiving fees and going to extra lengths to incentivize residents to make a permanent home for a pet in order to keep them from being euthanized, the ugly alternative.

While there are usually two primary ways to deal with challenges like animal control, programming and larger facilities, it is always programming that should be given resources even though that means physical space, too. Spay and neuter efforts are foremost, of course. That goes without saying. And adoption endeavors need a robust and unrelenting dedication from staff and volunteers.

But the facilities need to be sufficient, and that is where I want to place an emphasis with my comments today. My main point is to not be surprised at this need. I rarely go to our animal shelter or any shelter. The reason is simple. Although my wife and I have four pets, I am positive a visit for any reason would result in us adding to our fur family. But the last time I visited the Collin County Animal Shelter, it was organized chaos. I’m sure the pet inventory was over-crowded, but I had to work my way through the people (some bringing pets, some taking one home) and volunteers to talk to the person I went to see.

Here is what I was left wondering, and I think about this every time I read yet another “Code Red” adoption story across the state in my daily readings. Why would we not realize that the companion story to the daily rah-rah about Texas’ hyper-growth in population has the same direct correlation to animal population management?

To know that any city’s population that has grown 5-20% in the last five years, and is likely to be on that same path for many more years – and to not have an animal shelter program and facility expansion in lockstep – is to have one’s head stuck in the sand.

There was a new story in the Amarillo news media this morning. A dog in labor was euthanized. I’m having difficulty even imagining how that could happen. But I do know  there are some basic management principles at play. There is an intake rate and an outflow rate. When the former grows at levels that some would have no problem describing as “massive,” then the inventory (facility) can only expand so far until the outflows have to increase: Pets have to be adopted, shipped to another facility (shifting the burden) or else the animal has to be euthanized put to death.

But those inventory and processing steps – called animal shelter programming and facility capacity – need to be sized commensurate with the population growth. Otherwise, city and county leaders can expect mistakes and regretful decisions from staff and volunteers. To turn one’s back to this problem is irresponsible.

C’mon folks, these animal shelters need some help – and kind-hearted adopters who already have too many pets cannot be the only solution. LFM

 

Stadium Cracks, Forensic Investigation and Bureaucratic Sedation at McKinney ISD

You can’t make this stuff up. MISD has known since January 2018 that the new stadium, in the race for the most expensive high school football stadium in Texas – or is it the world?, had problems with cracks. A forensic firm has been hired to figure out what to do. Months ago. And apparently it was not the contractor and engineer who found the cracks.

It’s too much to restate here, and you might not even believe me.  See the video. You can see more than you can hear since the Board Chair doesn’t have the sense to ask key speakers in the audience to step up to the microphone. Oh by the way, I can only see about a dozen humans sitting there to witness this giddy gathering.

But so far there is a bigger story here I see. Watch the video and how calm (and rehearsed?) the Board and staff are. There is a lead up to the official news unveiling at the meeting. No, it is not somber. It is all but a lead in to a Bruce Springsteen concert. The praises for the construction firm and engineering firms drip like syrup. I thought the staffer was going to choke up as he spoke of the privilege to be working with such a fine group.

Then the revelation. It’s a dry, boring, evenly paced announcement delivered like Ben Stein talking – after he’s had an extra dose of muscle relaxers.

Then comes the softball questions from the Board. Well trained to defend the bureaucracy, they grind up the strength to ask a question or two. They even award an attaboy at the end for “vetting” the problem.

One speaker even chunked in the obligatory word “transparency” to emphasize the honesty in the room. Kumbaya, my Lord! Someone is crying. And it’s the taxpayers. Or will be. No wait. A handful voted for these Board members and for The Stadium. And they are getting their full worth from MISD.

Holy cow! Look back over my blogs about MISD at http://www.citybaseblog.net. The Elected and the Bureaucrats want to lull us into acceptance of anything and everything they say once again.

Not me! LFM

Assertions, Exaggerations and Anecdotal Evidence

Last Wednesday night at the Special Meeting of the McKinney City Council, the Censure of La’Shadion Shemwell ended with a pleasant surprise. The public spoke, followed by individual Councilmembers speaking, saving Mr. Shemwell for last. I thought the monologues were more scrambled eggs than insight until the very end. Councilman Shemwell made the motion to approve his own censure. It was better than the ending I was hoping for as explained in my last blog. Like a professional, statesman and gentleman, he let his fellow Councilmembers off the hook.

But that wasn’t the biggest takeaway from the evening. Mayor Fuller was making notes of the public speakers’ comments. Then he led off the council comments with a response. He made a point of the way many people brought forth complaints to the City Council, including an illustration of how one of his closest friends and campaign volunteers had claimed an incident occurred. It was also recorded. The Mayor was quite blunt. The video provided a rebuttal of the events told to  him by a trusted friend. The event didn’t happen the way he was told. The Mayor stopped short of saying the friend was a bald-faced liar. He didn’t need to. We all got the point.

One very articulate woman made the claim that the City had done nothing to improve race relations since the ugly pool party incident three years ago. The Mayor rebutted that her statement couldn’t be further from the truth. He then enumerated the things the City had put in place. Another equally impressive speaker from the delivery standpoint asserted that if the Council thought Mr. Shemwell had done wrong, then just wait, he was going to reveal the very next day the number of shady deals that had occurred by past and current Councilmembers. The Mayor didn’t flinch. He all but deputized the speaker to bring those charges forth and said it was his duty to reveal such actions. Again, put up or shut up!

The Warning Shot for Future Speakers

It happens all the time and not just in McKinney. Speakers get up to register a complaint. Then to authenticate their assertion, they make an outlandish statement. “My taxes have doubled in the last three years!” Whoa! Hold it right there. Is that a true statement? I doubt it. The good thing is that the facts are obtainable. And should be. That would not be a smart move with the McKinney City Council. Most people of reasonable intelligence know when a story has been embellished. You will get nailed here.

In most cases the staff is obligated to check into assertions and complaints made by the public. Can you imagine the hours spent researching faulty statements? Not a problem if the claim is true and something needs to be done to rectify the findings. Most of the time, the Council is informed that the claim was in error with the facts documented made available to them.

I would like to see a follow-on report made public, just as the false or embellished claim was made public. Especially when made to feed an anti-government audience.

Stay on Track

Oh my gosh, watch the video of last Wednesday’s meeting. Some of the speakers started on one path and then veered off like one of those crazy race car video games. The facts in this meeting are very clear and simple to enumerate. But somehow some speakers wanted to throw in stories and extraneous information that would have rendered the Council playing Whack-a-Mole if they had tried to respond. Even Mr. Shemwell’s mother made a passionate statement that took us back to his childhood, one of terror and extreme odds to overcome. I was touched. There was only one problem. It had nothing to do with Mr. Shemwell speeding, refusing to sign a ticket and then getting arrested.

Anecdotal Evidence

One of the speakers I mentioned started her comments by yelling out that McKinney has a racial problem. If so, then let’s dig into it and prove or disprove her assertion. What I do know is that all 180,000 people in McKinney have seen or experienced a problem of some kind. We could all stand up and say McKinney has a pothole problem, a high-weed problem, a junk car problem, a leaning street sign problem or a littering problem. And I don’t want to downplay any of these. But there is a big difference between anecdotal evidence and a widespread problem.

There is also a distinction that needs to be made between now and the past. If McKinney had a racial problem a decade ago and has made great strides to address and correct the problem, where do we get credit for the improvement? Almost any statement about anything the City tries to fix is tempered with an obligatory comment: But we have room to improve, and we won’t be satisfied until we are better than we are now. Professional city management and good governance will never be able to sit on its laurels.

Then comes a companion issue. Let’s not be bashful when it comes to cost. On some things, response time and capacity are realities. If we were to fix every single pothole the instant it is spotted, and I’m talking 100%, that could be possible. But it would be an exorbitant expense, meaning taxes would have to be raised to pay for it.

If every ounce of our energy was spent to eliminate even a tinge of racism, that would be a different issue where the cost is more than just dollars. And dollars wouldn’t be the solution. Hey, I would like that. I bought in to every word the Chicago Bishop said at the recent Royal Wedding. Did you?

I thought it was interesting at last Wednesday’s meeting that a couple of white speakers used anecdotal evidence to make a point about racism. They have a friend or someone important in their life who is black. Yeah, that won’t cut it either. It works both ways. Alone, that doesn’t prove or disprove racism.

But where is the evidence that McKinney has a racial problem? I haven’t looked at the government required police racial profiling report where there is more than anecdotal evidence revealed. Yes, I know not one single piece of information would tell the entire story.

So, how do you prove McKinney has a racial problem? Or, how do you prove that McKinney does not have a racial problem?

And just exactly where and how is it manifested? And if it is rampant, point that out to me. And if existed but is improving, where would I find the people standing up to say it’s better or, someday, almost non-existent?

A Recommended Requirement

The Mayor reads a statement at the beginning of each meeting that basically enacts a decorum mandate for speakers and the audience, such as to address the entire Council and not single out an individual person.

I think he should add a similar note ahead of the Public Comments portion of Council meetings:

“We are genuinely interested in public comments. You are being asked to identify yourself and to provide contact information on your speaker’s card. We also want you to know that in almost all cases we will seek to answer your question or respond to your need. Please be factual and accurate with any assertions you make regarding your situation. We do not want to embarrass you or put anybody on the spot. However, as your comments are public, we will make our responses to you public at a later date. Thank you for assisting in the decorum of these chambers.”

 

The Best Option for Councilman Shemwell

There’s only one person who has done anything wrong in the Shemwell arrest saga, and it is without doubt that it’s a fact rather opinion as I said in my last blog.

Mr. Shemwell has placed the burden of dealing with this ugly episode on the City Council, which is truly a cowardly thing to do. Next Wednesday night, the Council is going to censure him. The resolution on the agenda is quite blunt and clear, as was Shemwell’s actions.

There are two appropriate actions I see the Councilman taking. The first is to resign before a vote is taken. That would be the honorable thing to do.

But I have a better idea, and one that is consistent with the man everyone supported during the elections – well beyond the voting base of his District.

He should seek redemption.

That decision would be consistent with the man I praised a year ago. That shouldn’t be so hard for a man caught in a blatant lie. The action would pave the path for a true reconciliation between Mr. Shemwell and the public, along with the City Council and Police Department.

But it would have to be more than a decision. It would  have to be genuine, and the burden is on Mr. Shemwell to be convincing.

I cannot imagine a single person not responding well to Mr. Shemwell’s redemptive steps. Steps that include an elocution and allocution of the facts. Yes, we know the facts. But we haven’t heard him speak the facts and ask for forgiveness.

Yes, he needs to ask for forgiveness. From the officer involved. And from the City Council to which he has shrugged his shoulders as he tried to shift the focus on everybody but him.

Even if Mr. Shemwell is censured, this story doesn’t end there in a satisfactory way. His credibility will never be restored. He will be powerless. Oh, he could make noise, but that’s a far cry from being a leader anybody wants to follow.

On the other hand, forgiveness is the completeness of redemption. And I know he will have forgiveness. The restoration means we can all move forward. We can heal, and we can build. I dare say that in no time the memories will be of the redemption, not of the act. The prayers will be of gratefulness from all sides.

But only one man committed an offense here. And only one man can write the proper ending to this story. LFM