The Whack-a-Mole Citizen

Imagine a Whack-a-Mole game with the sides removed so you can see the innards. Oh, I know the connotation of a mole, but hang with me for a minute, please.

This is the image I get when I read or see yet another story of the right and self-righteous folks appearing before the City Councils with only one mission in life: to not pay.

The Whackers don’t really have any interest in looking at the workings of government. It would be completely against their nature to listen to citizen requests for services. They don’t have the guts to be there to shout down an elderly citizen asking for their sidewalks to be fixed. They could care less about the wishes of the youth sports representatives wanting more ballfields and for them to be maintained properly.

Nope! Not in their DNA. What they want to do is stand above the responsibilities of governance and simply take the mallet to crack the noggins of the elected body and staff wanting to deal with the most basic of questions. How are we going to pay for all the things our citizens want?

Do you think these things come free? Answer: Whack!

Are you listening to what I am asking? Whack!

Do you have any sense of fairness about you? Whack! Whack!

Would you consider sitting on this side of our jobs and … Whack! Whack!

Are you a robot? Whack!

Have you ever been responsible for running any kind of business? Whack!

Is it your plan to do anything other than wield a mallet? Whack!

Have you ever asked the city to fix a problem?

Have you ever needed the police, fire or EMS?

Do you children participate in any of our recreation programs?

You’re being awfully silent. Are you reconsidering your position? Whack! Whack!

I see.

LFM

 

Putting Opioids in Perspective

It is imperative that you read the recent story published by the Washington Post. Actually, it is just one of a dozen stories I’ve read in a period of a few weeks. Therefore, I know that opioid abuse is rapidly moving to the forefront as it should. But I’m really burdened by this story. Why? Because of a number. The metric is 5,432,109,644.

What’s that mean? In our society, we see big numbers all the time. In fact, I’m convinced that we don’t grasp the magnitude of the difference between millions and billions any longer. And in many cases we have become numb to what trillions translate to.

There were 5,432,109,644 opioid pills sold between 2006 and 2012. Wow! That’s a big number for the U.S., right? No, no, no! That’s in Texas alone!

It is interesting that the Washington Post had to sue the Drug & Enforcement Agency (DEA) to get the data. And there is still another lawsuit to get more recent data. That’s simply amazing.

Tell Me More

These ugly Texas numbers totaled 602,064,872 for 2006. They climbed to 870,722,919 in 2012 for a compounded annual rate of 6.34%, about 3x the population growth.

Whenever you want numbers to look big, you add up several years. When you want them to look small, you divide by a big denominator. Okay, let’s do that. This billion-pill number equals about 53.75 pills per year for every Texan 18 years and older. Let that sink in for a minute. Do you consider that small?

Gee, Lewis, I’m sure glad you aren’t going to put the spotlight on individual cities!

Oh, but I am. It’s in the database. By city and even right down to the pharmacy or doc buying them from the suppliers.

I lied. I’m not going to show you. Why? Because you will look to see if you are better than average and gleam to know other cities are worse. Or else you will try to make up excuses or even find flaws in the data interpretation. I’ve already done that. Many cities don’t have pharmacies in their towns, making them go to an adjacent city. Interestingly, many of the pills go to veterinarians.

As you can guess, the total number of pills by city is somewhat correlated to the population. But the pills per capita for those over 18 does vary significantly. You will be gravely alarmed by some of the high numbers.

You are welcome to download the database. It’s got 12,108,468 records just for Texas. It won’t fit into Excel. Your IT folks can help you get it downloaded and summarized.

Example: My City

I live in McKinney. The total opioid pills purchased from 2006-2012 were 28,711,325! I almost choked when I saw that number. We are below average on a per capita basis, but that’s nothing we can really brag about. I don’t see a city in Texas that has any boasting rights. Rather, we have everything to fear about the threatening stories embedded in these numbers. We could talk to our school officials, hospitals, social services, police and EMS departments to discover exactly how 28.7 million opioid pills in McKinney translated into headaches, heartaches and costs.

What Are Today’s Counts?

Now, you’re getting my concern. If Texas accounts for 5.4 billion opioid pills in 2006-2012, what do those numbers look like for 2013-now? I have a guess based on the past trends plus population growth, but enough with the numbers. If 5.4 billion won’t get your attention, then you will also be numb when (not if) we go beyond double-digit billions.

Hmmm! Is that why the DEA doesn’t want to release more recent data?

Recommendation

There seems to be plenty of talk, talk, talk. And fortunately, the situation is so deeply into the critical stage that “epidemic” won’t capture the scale. It’s a pandemic. I’m guessing opioids have touched everybody reading this blog. They scare me to death.

How many of your employees are struggling with opioid addiction? Find out! Offer an employee assistance program.

Are there other implications? A prominent Texas City Manager got involved in taking a $25,000 land advisory fee years ago that ended his municipal career. Why did he do this? The answer was he needed to help his brother who had gotten addicted to opioids.

For every story I might have, I bet you have 5-10 or more. Strained relationships. Loss of productivity. Life-threatening situations. They are all around us. Let’s act now. LFM

 

 

Why Should I Apologize for Serving the Citizens’ Needs & Desires?

Every citizen is going to have to put themselves in the shoes of their LOCAL elected governing bodies. Here’s the deal as I slip into those combat boots:

“Dear Citizen:

I was elected to listen to your needs and to your wants. You come before this governing body asking for things at every council meeting. We evaluate those requests. We know about most of them because we walk and drive the community. We attend luncheons and all kinds of meetings. We talk to you on the phone. We ask you for advice, such as priorities and urgency. We can’t do everything you ask, but we would if we could. We try our best.

We know that you are intelligent and don’t truly think for a minute that there is a free lunch. We’d give services and utilities away for free if that were possible, but no responsible person would ever entertain that foolish notion. None of us are fools. And name one service we provide that was dreamed up only by local elected officials. Just about everything we do is because 1) you asked for it; or 2) because the state or federal government imposed it on us.

Now comes state government that thinks they know you better than we do. But wait. I’m not going down that road. To bash the Lege and the Gov is not constructive. You know what? Let’s just deal with what we are handed. You, the citizens, and we, the council. Don’t make any mistake about it. We’ve been handcuffed by the state without regard to our pledge to serve you.

And here’s a glimpse of the future. It is highly likely that we may have to hold an election every year for you to approve to pay what you have asked for us to provide. Representative government has been partially tossed out the window. That’s okay. We will put your wants and needs into the budget, but you will likely have to give direct approval as a separate step.

That’s the deal now. Let’s be honest. Holding an election each year is not all that expensive in the grand scheme of things. It’s simply a nuisance and will cause fatigue. Gird up! We didn’t ask for this, but it’s the law of the land. And we will follow the law.

We hope that part of the election routine will be coupled so that capital project approval will be married to the cost of operations. That has actually always been implied. You don’t expect us or anyone else to build a fire station, recreation center, ball fields or swimming pools and then expect the staffing, equipment and programming that goes inside to not cost something, right?

Did you know that the Operating & Mainteance costs, at least over time, are about 2-pennies for every 1-penny of the O&M tax rate? If permitted, we will start including this dual-approval on the ballots: “Approval for $____________ in Project X along with the companion O&M Costs that will mostly be paid for out of Ad Valorem Taxes.”

We may even have to go back and re-vote for some past project approvals or at least to explicitly approve the O&M that you implicitly approved into past bond elections.

The weird part of this onerous requirement on us and you is that we may be asking you to vote annually just because your values went up. We fully understand that our property tax revenues are the results of both taxable values and tax rates. Thanks to the new legal constraints, we may be asking for voter approval only because inflation has outpaced our property tax values. It’s complicated. We’re all for disclosure and being fair, but our Truth-In-Taxation laws are gravitating toward IRS-like hoops when all we are trying to do is to pay for the services you requested.

What we do know is that we won’t stop listening to your needs and wants. If you are willing to pay for these things, we will service your requests. It just might have to be in two steps.

We ask for your patience. We wouldn’t wish this imposition on anyone in the business of helping citizens. However, we are confident that you can wear our shoes at two critical times in our future: 1) when you ask for new services or for us to continue existing services that meet the needs of our community; and 2) be there for the companion decision to pay for those services.

No matter who is wearing the shoes, you can’t have one without the other.

Thank you!

Your Local Elected Official”

Who Owns Your Population Data?

That obnoxious screeching sound is coming from my fingernails going down the chalk board to get your attention.

You must understand the value I place on population data. Just about everything in local government current operations and forecasting is driven by population. Employment population is important, too, but residential population takes the front seat.

I also place great value on the data in your CAFRs, Official Statements for debt issuance and the multitude of expert studies and master plans that lead to decisions for future infrastructure and public facilities.

But here’s my problem. Rarely do I find the same historical numbers in all these documents. The tip off is when I see the same population numbers for multiple years, all rounded to even thousands or hundreds.

Then the difference is forecasted numbers is all over the board, the one I am scratching.

I realize this is a difficult issue and that there are dozens of federal, state and local agencies producing forecasts. And they vary so greatly that the red flag is glaring. I also know that there are pop estimates as of a calendar year, a fiscal year, and the federal numbers are often as of July except for the census as of April. Good grief!

Don’t bring me another problem, Lewis, unless you have a solution!

I do.

Recommendation

  • First, appoint someone in the City to be the official keeper of both historical and future population estimates. Probably the City Planner or the Public Works Department.
  • Reconcile all of your official documents with population and employment history to show the same numbers – and change them!
  • Have your Pop Keeper to be the only official source for future forecasts. Who can be more accurate than the City staffers keeping track of building permit data, utility connections and occupancy rates? Who else can track and see the future coming than those dealing with annexations, zoning, platting,  land use, densities and the remainder of the pipeline?
  • Have your staff delve into forecasting methodologies from your COG and all federal and state agencies. But don’t have them spend much time there. Instead, send your official history and forecasts to them, along with your methodology and implore them to use your numbers.
  • Have an annual review of pop forecasts with a presentation to your govering body AND have them adopt your forecasts.
  • State in your RFPs, Engineering and Consulting agreements that only your official forecasts should be used.
  • Change the organizational vocabulary such that you speak of revenues and expenses as well as workload measures on a per capita basis with the same zeal as a manufacturer talks of those items on a per unit or gallon basis. Dollars may go up. Big deal. That means little in light of the dollars per capita that might even be going down.

In summary, treat the population forecasts as sacred and have every internal and external player use your numbers for consistency and accuracy. Own the data! LFM

 

What is the House Value Needed to “Breakeven” in Your City?

Dear Lewis:

My mayor wants to know the value of a single-family residential home necessary to “breakeven,” meaning for residential to pay its own way?

Dear Colleague:

Thank you for asking me my least favorite question. However, it is an important question, and I will try to answer. But be forewarned, I’m going to give you my shortest answer or at least one you can work through on a cafe napkin. There is a reason.

This is a tough one. The answer has to be understood in the context of mix. If you had nothing but property taxes and nothing but residential, then the answer would be easier. It would be exactly the average value of a single family home available from your appraisal district. I know I can’t satisfy you with that answer that fits into a non-existent world. Yet it is instructive to frame your response starting with a pure single family residential community. Undertanding this one point makes the remainder of the explanation easier to digest.

Yet when the mix of all General Fund revenues is considered, and the tax base internal mix is considered, then the portion paid by the residential class forms the basis for saying the average home value is paying their share – and higher than average value is paying more than their share of their pie with the opposite also being true.

That sounds like circular thinking, but there you have it.

Try Harder, Lewis!

A better way of looking at the cost question is to ignore revenues for a minute and look only at the expenditure side initially.

If you are spending $36 million in the General Fund budget, and you have a population of 50,000, then the services equate to $720 per capita. If you have 3 people per household, then you need $2,160 per household. You can conclude the need for an AVERAGE house value of $540,000 ($2,160 / $0.40 O&M Rate * 100) to carry the costs before other revenues help lower the property tax requirement.

If you have a revenue base that yields 40% from other sources, then you only need an average house value of $324,000 ($540,000 * 60%), net of exemptions.

So, what is your average home value on the tax rolls?

It is $200,000, you say. Hmm! That’s a respectable amount. Let’s dig deeper to understand $540,000 on one end of the spectrum and $200,000 on the other end.

I expected your average home value to be considerably less since we’ve left out a million things, most notably the non-residential tax base. And here’s the deal. Some cities have little and some have much.

Here’s the way I would answer the question with necessary generalities included:

“If City of Fiscal Bliss had only property taxes (and then only a residential tax base) to cover the cost of general government services, it would require an average house value of about $540,000 to cover costs or else a very sizable tax rate increase applied to our average house value of $200,000 currently. Fortunately, we do have a respectable commercial tax that lowers the burden on the homeowner. We also have sales taxes, franchise taxes and some user fees to help lower the property tax burden. Therefore, we conclude that our average house value times our General Fund tax rate of $0.40 per $100 or $800 is our net breakeven cost even though property taxes alone would not cover the true service cost of $2,160 per home.”

Oh my! You aren’t going to like my answer, are you?

As I said, it’s complicated. The clue that this was not an easy question was when the  Mayor said average. That was the signal that the Mayor’s field of view was going to be too narrow. Here is the trap. You want to explain, but the Mayor wants the time, not how a watch is made. So, blurt out $540,000 and then ask if you can explain. I’m pretty sure you will have the Mayor’s attention with the obligatory pregnant pause following your incredulous number.

If you have an average home value of $200,000 in your community, then that should mean you are striving to add house values much greater than the average. It is a fact that the true cost is $2,160 per home, and it is also true that it would take a $540,000 at an O&M Rate of $0.40 per $100 to generate the true cost of service.

But thank goodness you have other revenue sources. Your citizens pay a sizeable amount cost recovery in the form of sales taxes and franchise taxes. You also have direct fees for some services. Otherwise, your average SF value would have to be $540,000 or else your tax rate on an average of $200,000 would have to be $1.08! ($2,160 / $200,000).

Did I just blow your ears back?

But We Paid a High-Priced Consultant for Another Answer

A more elaborate analysis would be necessary to offer much more help here. And while the calculations could get more sophisticated, and the wording much more verbose, I’m not sure the accuracy would be better or the conditional wording more understandable.

Does this help?

Lewis

Understanding The Cost of An Employee

I would like nothing more than to see all employees, municipal and otherwise, paid in accordance with their value to the community as well as to the organization.

However, that would mean many if not most would be paid well above six-figures. Multiple times for many. That’s not just fire and police. That would include teachers. It would also include that water department worker who comes out at 2 am to fix a water main break when it’s 35 degrees outside with the wind blowing 25+ mph. But that’s just me dreaming and being in deep appreciation for those who watch over and take care of my needs. I was raised in a blue-collar home where it was believed and often said how grateful we should be for having a good, steady job.

There is also another view I take. From the finance viewpoint, those levels of pay would probably not be possible. Ever. Actually, that’s not my real hang up. I am guessing that most people reading this blog have never had to make a payroll out of their own pocket. I have. That’s a completely different world when payroll time comes around at an unbelievably quick pace irrespective of the money you’ve made since the past pay date.

Another point I can’t resist making is that if I am going to get things done through other people, I need them to be there. I’ve seen projects take months that should have been done in weeks. The reason is that it might take the expertise or decision-making skills of 4-5 people meeting together. That’s hard to do with vacations (up to 4-5 weeks!) and holidays and other leave. I have thought many times that if we can do without an employee being at work 9-10 weeks a year, we might be able to do without them for 52 weeks. I’m dead serious.

Let’s look at some of the arithmetic.

Fair warning! If you think I’m exaggerating, you are invited to run these numbers for your own employees. I hope you do.

We tend to think of the base salary numbers as the cost of positions. However, depending on your circumstances and offerings, the table below shows how a $50,000 employee may actually cost you and taxpayers $77,689. That’s a 55.38% premium! Worse, most of the salary related costs are not visible to the employee. That’s your fault. Many cities prepare a statement of full costs to hand employees annually. Employees need to know and acknowledge they are aware of the money that is paid out of city bank accounts just for them.

Numerator

Now that we’ve reality-sized the Numerator, let’s look at the Denominator. Local governments are particularly prone to grant more time-off benefits. It doesn’t show up in the budget even though it should in the spirit of full disclosure. Again, let’s pay a $50,000 employee a total of $77,689 and then tell them their work is not all that critical so they can have more leave and paid to not show up. Sounds a little crazy to me.

Most employees are paid for 52 weeks a year and 8 hours per day or 2,080 hours a year. Yet if we were to deduct for 3 weeks of vacation, 2 weeks of sick leave, 2 weeks worth of holidays and then add another 56 hours for everything else (training, TML, start-up and shut-down time, leaving early the eve of a holiday, etc), we can see how this could add up to about 380 hours off, leaving only 1,700 hours of presumed productivity. I generally use 1,800 hours as a benchmark. What is your hours worked by employee?

How can we preach efficiency and effectiveness and rah-rah about productivity with those kind of numbers? Hold off on your answers. I know them all, and some are legitimate and some aren’t.

The reality is that you could easily have a $50k employee that is costing the equivalent of $45.70 per hour.

Denominator

One More Day

I know, you want to break out singing the wonderful song from Les Miserables. Sorry, I can’t let you do that right now. Dang! Now it’s stuck in my head.

In order to dig a little deeper into the impact of giving employees just one more day off, I’ll pitch out my favorite illustration. Let’s say things are tight, and pay raises are flat. We’ve all been there. We offer employees their birthday off or a National Starbucks day off to stave off a palace revolt. Sounds good.

However, again, if we really give a flip about productivity, let’s paint the reality using the City of Dallas just to create a little drama. Even for Dallas, to instantly plop almost 58 new employees on the scene might cause a few tremors in the foundation of City Hall. Yet, that is exactly the productivity loss by the one-day gift. Do the math on your city. It’s about 0.44 employee per 100 you have now.

OneMoreDay

Those 24×7 Year-Round Jobs

Lastly, let’s look at the impact of coverage for 24x7x365 positions usually found in public safety and a few other areas. In general, given holidays and vacations, it takes almost 5 positions to fill a single position 24x7x365.

Councils need to know these numbers. This is why the cost of a fire station isn’t the big deal. It’s what it costs to staff and equip the functions inside. A similar issue is where it takes a crew of 2-3+ to work on a sewer line. You don’t add 1 person only at a time.

24x7x365

Closing Thoughts

These are just the facts. If you are fretting over any of my individual comments or calculations, just chill. Dwell on the direction and thrust of this blog. I’m just wanting to increase the sensitivity to decisions that are costly and that are easy to grant and impossible to take back. It’s a genuine taxpayer inquiry, and you need to acknowledge that you understand the impact of these decisions, many of which aren’t actually discussed aloud in the public forum.

Employees are very, very expensive. The private sector knows this so well that they can’t move to robotics fast enough. If I can spend $77k x 4-5 worker to compare year-round productivity, and then perhaps look at a life span of a machine being 7 years (just playing with numbers), then I could spend $millions and save tens of $millions if the job could be automated.

But the most costly of municipal jobs aren’t conducive to robotics, right?

Hmmm! I’ll bet those were the very words from private sector workers a decade ago.

Here is my guess. If city management had to make payroll out of their own personal pockets, especially with a 2.5% cap on revenue producing opportunities, and maybe even a share of the cost-saving possibilities, we would see spectacular ideas implemented in a matter of a few years. LFM

Do You Watch Key Oil & Gas Data? You Should.

The role in Oil & Gas is big for Texas. You may think the concern is only for the oil patch to the west. But the HQs for many of these companies are in the metropolitan areas. Meaning engineers and executives. Meaning high paying jobs. Meaning the people who raise up the housing market and a ton of other economic benefits like property values and sales taxes from discretionary spending.

I’ve got a few charts to show you. One I have sent a few times in recent years. Another is a new one. If you don’t like to study charts, let me explain in a nutshell.

In a very short time frame, from early 2011 through yesterday, the price of West Texas Intermediate Crude (WTIC) has been as high as $113.93 and as low as $29.02 per barrel (42 gallons). As recent as last October, the price rose back to respectable levels in the $74 range. Then by the end of December 2018, the price plunged to $45.33. Since then WTIC has struggled to get back $60.14. I am far from being an expert, but my guess is that if WTIC stayed around $60, there would be many happy campers with nobody complaining when that price point translates to the gasoline pump.

WTIC+RIGS

The chart above shows rig counts, but I’ve added a chart below to zoom in on the critical points. Rig counts are just one metric, but many seem to watch for Baker-Hughes to release that information every Friday. If rig counts influence oil field decision makers, then perhaps we should keep an eye on it, too.

As WTIC prices rise and fall, rig counts generally do the same. Until they don’t. As the old saying goes, “the trend is your friend … until it bends at the end.”

RigCounts

Rig counts were pegged over 2,000 in the US when WTIC prices were in the stratosphere. At that time, Texas had about a third of the entire country. At the low point, May 20, 2016, the rig count had cratered to only 404 with Texas’ share rising to over 40%. As you can see above, the rig count peaked last November 9th and has been easing downward since then. Texas continued to rise to about 54% of the share in the US. Texas is down to 570 with the remainder of the US accounting for 511. It’s still early, but it appears a rollover is in process.

Gasoline

I would be remiss if I did not include the correlated numbers that touch the gas pump, meaning the pocketbook. The chart above may bring back some bad memories when we had to pay $4.00+ at the pump when processing, delivery and federal and state taxes are added.

You may also recall that the Texas sales tax numbers were headed in the wrong direction about the time WTIC dropped and the price of gasoline followed. It was huge, and it actually changed the direction of the Texas economy using the sales tax yardstick.

There is a reason for that, and Wal-Mart could tell you why. They measure the things that pour money into their stores by the ordinary citizen as well as the things that take money away such as tax law changes. An extra dollar per gallon in gasoline savings a week puts that money in their stores.  Just twenty bucks a tank full turns into big spending.

See the chart below of sales tax collections for all local governments. Note the slow down and then fall in the growth rate (the red line) in early 2013 even though sales tax dollars were edging up nicely. Look at the history to confirm that when the growth rate declines deep enough and long enough, absolute dollars also fall. For that to happen for Texas as a whole is quite remarkable.

But then as it was about to get ugly by early 2014, a valiant surge occurred. That was largely gasoline prices dropping. Then a drop occurred until the WTIC prices picked up with the improvement in west Texas helping the entire state as can be found up until 4-5 months ago. Remember that friendly trend? It started bending. With that piece of knowledge, WTIC prices and rig counts get more interesting.

STAX

The Take-Aways

We are wise to take note of the status of WTIC prices and rig counts. There are few things in our economy that rise or fall faster than the oil industry. Not only can they fall quickly, but they can fall deeply. History provides plenty of proof that it doesn’t take long before this industry touches all parts of Texas.

Now you have been equipped with a tidbit of information that might help you sound intelligent at your cocktail party tonight. My wife and I will be going to a play at a small community theatre. I’m guessing that nobody there will care, but you never know. LFM