ZacTax: How To Build Financially Healthy Cities

ZacTax is a financial analysis firm that helps city officials understand their revenue streams and make smarter financial choices. Today, Chuck is joined by its founders, Chad Janicek and Patrick Lawler. They explain how they work effectively with local governments and how their work is helping drive a cultural shift toward stronger and more productive cities.

• Click here for a computer-generated transcript.

  Chuck Marohn 0:00

  Hey, everybody. This is Chuck Marone. Welcome back to the strong towns podcast. We've been talking budgets recently. We just got done with a member drive and are switching back into budget season. There are so many ridiculous, crazy, interesting things going on at the city level, and there's one group that is neck deep in all of this stuff. Zach tax is out of Texas. They're a firm that does financial analysis work with cities. I've got Chad janicek And Patrick lawyer here to chat with me today. Chad, Patrick, welcome to the strongman's podcast. Thank you,

  Chad Janicek 0:46

  Chuck. Very excited to be here, especially reciprocating. We had you on our podcast a few months ago, and it's really good to get the chance to talk with you again.

  Chuck Marohn 0:55

  It was very nice, Patrick. I feel like this is way overdue.

  Patrick Lawler 0:58

  It's been a while, but for sure, yeah, excited to be here, and a lot of cool things going on that we get to talk about, and some of the stuff that you guys have done, we're excited to have a conversation on

  Chuck Marohn 1:07

  Well, you guys are doing fascinating work. I would like to have our audience know a little bit about you. You started this firm, Zach tax, and I know you've gone through all the iterations that that that we've gone through at strong towns, was like, here's kind of what we're doing, and here's what we figured out, and here's how that changes. A lot of lessons, what prompted you to go down this path, and maybe what kind of key lesson got you to where you're at today, the work that you're doing with cities and that kind of thing. Chad, you want to start, it's kind of

  Chad Janicek 1:43

  hard to see what prompted us to go down this path, because I think that we we always had the idea Patrick and I met in graduate school trying to get a Master of Public Administration, and, you know, we hit it off pretty quickly, but we both had kind of an entrepreneurial spirit, and so even though we knew we were going to get into local government, we always kind of had our eye on our exit strategy, sort of like when we get out. How can we, we kind of do this on a on a broader scale? So we always kind of had our eyes on on different opportunities, and we went through a lot of iterations, a lot of different things or attempts to, you know, to find either a product or a service that we could provide. But it wasn't really until we started working together in a city that we kind of hit on on our flagship product, which is, which is Zach tax. We do sales tax and property tax analytics for cities, mostly across Texas. But we're also moving out west into California, Utah and Colorado, which has been fun and interesting too, but I don't know, we just always kind of had this idea that we would probably use the experience we had in local government, but branch out into our own thing, and try to help not just one community, but hundreds of communities, if possible. Patrick,

  Chuck Marohn 2:47

  talk about some of the some of the lessons that you've learned working with cities. I worked for an engineering firm for like, five years, and then I ran my own shop for a dozen years, and I was a transformed person by the end, because working with government is way different than working in the private sector or anything like that, and you all are doing, I would say, almost like the intimate work that can be uncomfortable at times. You know, you're pointing out things that are working, things that aren't working. Tell me some of the key lessons that got you where you're at today,

  Patrick Lawler 3:19

  right? I think, I think one of the early lessons we learned in working with city governments, even though we were in city management, was when you try to change a role or maybe eliminate a position. Typically, it was very difficult to work in that field, right? We built a software package before Zach tax that basically we called Park man, and it was this great software. And just so everybody knows Chad codes everything, right? I'm the operations guy. Chad's the brain. I like to call us pinky in the brain. He doesn't really love that very much. I kind of sit back and say, Well, you know, brain, we're going to take over the world. But the reality of it is, is like we started to try to do this, and we built this software package and learned some really valuable lessons there. The software package would have eliminated basically the supervisor role in parks departments would have automated work orders and equipment on trucks and efficiency, you know, who was faster replacing sprinkler heads, who was faster at fixing jungle gym equipment, things like that? Right? And we went out there, we won an award in Texas. The Texas Parks and Rec Association actually gave us an award for the technology, and we still couldn't sell it, because the people we were selling it to were probably not going to be working very much longer in that job if we did it. So we kind of learned that we've, we've gone into some of like the HR functions, which are very, you know, rigid. I guess you would say HR and government is just very tough to get through. And so we were working in a city, and we just kind of landed on Zach tax, because we were working in a city that was sales tax dependent, and we needed to know, what did we make money on, and what did we not? How did we drive revenue? What users were more important? Who should we recruit? Things like that. So we built. Kind of the sales tax module of Zach tax, which was the first iteration Zach one. I like to call it the ugly duckling. You know, we built that first iteration, and it was just, where do we make our money? How do we make our money? How seasonal is it? Let's project off of this so that we can make brighter decisions in the future things like that. And really just built it from there. Started selling it, well, I say selling it, started giving it to friends of ours from kind of graduate school. Chad and I are both graduates of the UNT University of North Texas MPA program. And there's some great MPA programs out there. But what we did is we we found an area of cities, budget and finance, and in the city management office and in some planning departments as well, but mainly Budget and Finance, where we found creatives in city government. We found people who thought in a manner of, we don't always have to do it the same way, and maybe we should look at those historical patterns and figure out, did we do that? Right? I'm not going to criticize somebody like I would never criticize a city manager from 40 years ago. They didn't have the data we have today. Yeah, right, right, right, right, and, and. So, you know, it would be very difficult to depreciate a road 40 years ago or understand what the cost of that road was 40 years ago, as we were sprawling, right? But in today's world, like there are plenty of firms out there that either do it through software packages, like us, or do it like urban three is a great firm out there. Virginity is a great firm out there, like the folks that we work with all the time, that we see the product that they put on the ground, and we're kind of a hey, you know, fill that pool with as much water as possible and float those boats as much as you can, because we just need to inform cities about those decisions. So now, finding those creatives in city government, we've kind of learned that lesson of, okay, how can we improve upon this? That's why we brought in property tax and everything else that we put in our program, so that we can look at things parcel by parcel and street by street, neighborhood by neighborhood, to get a better idea of, you know, what did I build historically, and what can I learn from that? And then, what does it look like if I model that into the future as well? You know, I make that sound so easy. Chad has spent gobs of hours in the background trying to make that work. I like to promise and over deliver, and then Chad actually has to go code whatever I promise or over deliver. So we've learned our lessons, no doubt. You know, getting through it. I mean, even the original name of the company was Zacchaeus, and nobody would call it Zacchaeus, and so it was just called Zach and so the name changed to Zach x. So, surprisingly

  Unknown Speaker 7:23

  hard name to spell

  Chuck Marohn 7:25

  very Yeah, yeah. Where does the keys come from?

  Chad Janicek 7:30

  From the Bible? Yeah, the text this post Easter Week. Yeah, it's fitting. But yeah, the tax collector that's awesome. Up in the tree. Our logo is a sort of modernist version of a tree is to pay homage to our to our roots, to just follow up on Patrick, I think the biggest lesson is we found our niche when we found a complimentary service, as opposed to sort of a holistic operational change type service. And so that's really where we derive a lot of our our purpose as a company is, where can we compliment you? And a lot of that comes in data analysis and data preparation and cleaning, but we also do a lot of other things with cities as well, whether it's economic development modeling or fiscal analysis and things like that.

  Chuck Marohn 8:14

  I know there's a lot of people in our audience, private sector people, who have their own books, their own accounting. They recognize, you know, how those systems work. I actually think that they would be shocked by how city government accounting works. You said, Patrick at the beginning, like we were helping them understand where their sales tax was coming from, and what time of year it came in and and then I'm sure there's a lot of people thinking, like, done it on like, Yeah, those were questions for the 1970s but how many cities, when they approach you are really, in a sense, fiscally blind in a lot of ways that are really quite simple,

  Patrick Lawler 8:55

  depends what state we're in. To be fair, I would say that there's been wholesale cultural change in Texas. You know, obviously, with 282 90 jurisdictions in Texas, we've been a part of that cultural change, and that's pretty exciting for us, because at the end of the day, we're city managers, and we both kind of miss it every day, but we get to do that, you know, holistically in Texas. So I think it's very rare in the state of Texas we have any type of management community that kind of comes to us and says, you know, we need to know these things today's world, it's more about advanced analysis. How can we be better? How can we make our margins better? It's not only

  Chuck Marohn 9:31

  has that changed, though, how long ago would you have to go back to where you were, in a sense, bringing them pioneering data?

  Chad Janicek 9:39

  About eight or nine years. Yeah, yeah, we first built it. To be

  Patrick Lawler 9:43

  fair, I have to get some credit where credit's due. We took a class with a guy named Louis McLean at UNT, who did a lot. Lewis is incredible, yeah. And I made a B in that class, by the way, and I run it in as a CEO. So Chad made an A. Of course, it was

  Chad Janicek 9:56

  a performance performance measurement class. So, yes. Yeah, tangentially related, but not, not totally on point to what we do. And

  Patrick Lawler 10:03

  I argued with, I argued with Lewis in that class about 30% of the time. Okay,

  Chad Janicek 10:07

  to understand Patrick, you have to you to imagine you're sitting in a classroom, and the professor will just make a factual statement, and Patrick is the guy sitting in the back who's like, raising his hand saying, I'm not so sure about that.

  Chuck Marohn 10:25

  He's an acquired of us write it down. And Patrick just, I would like to dispute that point. Yes,

  Patrick Lawler 10:30

  yeah. So, so I think, I think there was a start to that conversation, you know, eight or nine years ago, when the technology allowed us to analyze large scale data sets, and to do that in a way that we could provide kind of a visual analysis for cities to be able to make better decisions on, I think that eight or nine years ago was probably, we've been a company for about 10 years, so I think that would probably be when it started. But in other states that we work in, I mean, you know, it's very raw. It's

  Chuck Marohn 10:59

  fascinating. Because you said, Everybody's got this, you there's been a revolution in Texas. It's interesting, because I have been coming, I think outside of Minnesota, Texas was the number one state at strong towns where I went and was giving talks early on, it seemed like there were a lot of people who are asking a lot of questions. This would have been 2012 2013 so a little, a little more than 10 years ago, and oh my gosh, it was really, really bad. I would agree. Though, I think things have gotten more sophisticated yet, you know, you're left with kind of the legacy of flying blind for a long period of time. Let's talk Texas. And then I want to go outside of Texas, because I do think that Texas has been part of, I think a revolution. I I've seen it with even, like, their league of cities where, you know, I presented 2013 and I was saying things that no one had ever thought of. I mean, it was insane. And I presented a couple years ago, and people came up afterwards and like, yeah, we're doing this and this and this now. So talk a little bit about what kind of things you're seeing in Texas. Chad, you want to start with that one,

  Chad Janicek 12:11

  if it gives you any good feelings. Chuck, I can tell you this, for the last two summers I have taught a course at UNT on economic and community development, and both summers the students already, they have read your stuff. That's right, so incredible. Yeah, as I start to kind of go through some of the material, like this, sounds a lot like strong towns. Get ready for it. We've seen a lot of interesting like organizational shifts. And Patrick can talk a little bit more about this, because he works a little bit more closely with it. But cities that are sort of combining budget and planning together and creating this sort of new analytics department so that when a development is coming through the pipeline, the budget and finance team are involved in that process. I mean, I can remember running budgets for a city and an incentive agreement would come in for, you know, a bowling alley or something like that, and we're giving them, like, 100% sales on property tax for 10 years. That makes no sense, but I don't actually see it until it's already been approved. That paradigm is changing, so the budget and finance are involved much, much earlier in the process, and not just just so that they're in the loop, but so that they can help shape it and make it a more productive, like, fiscally productive product.

  Chuck Marohn 13:24

  Yeah, that's incredible, Patrick.

  Patrick Lawler 13:27

  You know, look, I like to talk about the generations of city management that have occurred in in Texas. So I think if you look at city managers from like, the 80s and the 90s, when you showed up to a city management conference, like the badge of honor was, how many FTEs did I add that year? Right? Like, how many more employees did I get? How much revenue did I drive in order to do that? I think when you show up to a city management conference in Texas now, it's what did the pro forma look like for that development? You're not going to be able to Moneyball everything, and you're not going to be able to say that I make profit from everything, because there are governmental purposes to certain things that are not going to be profitable, right? But I think cities in general, in Texas are more concerned about what the overall economic impact of development is going to be, and I think that's been the big change. And like Chad said, we're seeing a lot more of like in Fort Worth. You see the lab really great, you know, chief innovation officer there really great staff of 12 to 15 different analysts that work across budget, planning and finance as well. They've all kind of been merged into one and and they're, they're kind of the like, extreme level of what you can do as a city, you know, look, you have to have a billion dollar budget to kind of, you know, justify that. You're going to build this department around that. But then you have, you know, cities that are like the size of, like, Flower Mound, Texas, also a great client of ours, who has a Strategic Services Department with two employees, and they are just working Council priorities and fiscally grading things and looking at the numbers and what what we should know politically about the financial cost of a decision before a decision is made. Right? Like we say, you should never go into any type of economic development agreement without a performer built and go into executive session with the City Council, with that performer. Cities can develop those performers on their own. Obviously we can help with that. There's plenty of other people out there who can help with it. But the reality is, is like you have all the information at your fingertips today, where it's almost irresponsible to not take that in a decision making process, right? And 30 years ago, 40 years ago, like I would never have expected some of like the grandmothers and grandfathers of city government to to be able to do that, because it just they would not have had the time and the day to go do that analysis. And frankly, they would have crashed your computer just trying to put data on it, right? But in 10 years, where we can, we can do that. So I think in Texas, we've seen the evolution of how cities are changing, how they're becoming more efficient, how they're using data to drive their decisions, and how they're providing that data to the politically elected officials so that they can make a decision with all of the information in front of them, instead of it's just pretty because I think if you go back in 90s, early, 2000s Texas, everything was, Is it pretty well, Toll Brothers is going to build there. It must be amazing, right, right? So, I want to build a city owned water park. We're going to take out $14 million of debt, and we're going to have a private operator, and, you know, we're going to go build a city owned Water Park, because that's the coolest thing to do in today's world. Like, everything was kind of like sticky, right? Yeah, now we look at it and we say, It's okay not to grow if we're not growing quickly, it's okay outward, right?

  Chuck Marohn 16:31

  Well, is this? Is this the main change? I was the young engineer sitting in those meetings where we were putting together the new development, and I had the numbers for how much it cost, and I had a buddy over here who, you know, worked for the city, who knew, like, did the revenue projection, and I'm like, cost revenue, they're not even close, like they're gonna go broke doing developments like this, but nobody was empowered to bring that information forward. How are you seeing the application of analytics show up in day to day decision making. Like is this changing the actual decisions cities are making? Yes,

  Chad Janicek 17:09

  absolutely. You can look at a city like fate, which is, what 12,000 maybe, maybe they've grown quite a bit, so maybe they made a little bit bigger than that. But incredible case study, yeah, yes, small, little city to the east of Dallas, they had just the traditional sprawl, you know, development. As they were growing, as the development pushed east, they just responded with, you know, a 2000 unit, single family home, lot development, just tract home development. And you know, that generated a lot of money up front, but as you know, and you've talked about, it's not going to generate enough money over multiple life cycles. So they've completely reoriented their development, and they have a like a brand new downtown, like they're trying to revitalize their downtown area and bring housing down there, bring more mixed uses, make it walkable. And this is a town of, you know, 15,000 maybe 3040, minutes east of Dallas. So very forward thinking and trying to consider different development patterns that a city like that in Texas would not have thought about even 1015, years ago. Their development focus right now is almost entirely on, how can I make this both a good place to live? Because when Patrick says, like, we can't Moneyball everything we can, you can make a development very profitable but still be a terrible place to live. And so you have to balance that human habitat aspect with the financial aspect. So they're trying to create a great place that also happens to be fiscally productive, is inculcated in basically every decision that they make from a development standpoint. And so we kind of expected to see that in smaller cities first, because they're a little bit more agile, and they can incubate new ideas, but to see that already reach all the way up into the, you know, the fourth largest city in the state, that, to me, is really exciting, because Fort Worth in particular, spent 2030, years just growing outward as fast as they could. And it caught up to to them in the, you know, mid the mid aughts, early to the 2010s and and they started realizing they had to kind of rethink that. So for them in particular, it was a combination of the timeline had caught up to them, and then now also we can, we can analyze this data more efficiently. So how can we actually sort of reorient our organization to do

  Patrick Lawler 19:14

  that? What's occurred is, is that we have figured out a way to package the information and the data in in a way that's digestible for both the city management folks and the politicians, the local politicians, to understand and be able to go out and promote that information. Right? I think that's what fate has done really well. Like, when you when you take a step back, fate is a client of ours, but they're like, one of those cities that I would say they basically just use this as like, this as, like a glorified data cleaner, right? They've built their own customized model that their council is on board with, that they've gone through lots of strategic planning and trainings and understandings about how it works and why it works, because it's important for those council members to understand. So when they go say no to something, or they say yes to something, they have to go tell the public. Why, right? I think we've just done a much better job at the why. I think you obviously you've been a part of that. It's talking about our students knowing about strong talents before they even get there. You talked about Texas Municipal League and our league here, I know for a fact that the upper level executives of tml listen to your podcast. They listen to our podcast, they reach out to me or text me and say, Hey, that was really a great idea. Sometimes they reach out to me and say, well, that's not a great idea. What? But out of way, there's a culture that it is okay to do something different and be creative, because we have the data to back up that if we do it differently, it's actually better than the way we used to do it, right? Whereas in government in general, it's like we've always done it that way. So why would we change it? That's the process. And I think now we can prove the why. This is why you change it. This is why you do things differently. Because what you're doing for taxpayers 20, 3040, years down the road is significantly better than what we did for taxpayers 20 years ago.

  Chad Janicek 20:58

  Yeah, the data has helped with that risk aversion, right? Because government is whether you're politically liberal or conservative as an institution, government tends to be a much more conservative organization, because the benefits for trying something different and failing are much smaller than the negatives that could come from trying something new and failing. So if you just keep doing what you're doing, at least, you sort of have that inertia that's been already built up, and so like no one's going to criticize you for just doing the same thing that that you've always done, whereas if the same thing everybody

  Chuck Marohn 21:28

  else is doing, yeah, right, yeah, yeah, you stick your neck out. It's very interesting to hear you talk about Fort Worth, because it's been, it's been a long time since I have engaged in any way with Fort Worth. But it was again, like 10 years ago. I remember I spent a day there, and I spent a day with their staff in like a conference room, presenting, strung down stuff and answering questions. And then I had, like a private it was a weird private meeting that night. I'm trying to recall exactly what it was, but it was at some, some rich dude's house. I remember this like an estate, and I got, like, brought in, and then I did, like, a kind of living room talk to a bunch of people, but I was told, like, these are decision makers here in Fort Worth. It's fascinating that they have embraced this. It's interesting when a city the size of fate does it, because fate is almost like intimate enough to have not only that level of depth and conversation, but also be able to change things. But Fort Worth is just such a bigger system, I guess I've not seen one that big and that sophisticated be able to have that conversation. Are you working at all with Fort Worth? Or is this observing from the outside? Oh no, we power

  Patrick Lawler 22:41

  the back end of the data system. For them. So a lot of the data is a we clean it. Basically, I would love to say that they use our platform. They, I mean, they're huge power users. Don't get me wrong, right? If you look at what they're doing, like in our geographic region system, I mean, they are, they're tracking every like neighborhood node that they're doing, you know, facade improvement grants in and things like that, to see. Okay, if I do a sidewalk improvement over here, what am I seeing in property tax growth in that area over time? Like they do a lot of that, but they also do some, like, really sophisticated work within their planning department, where they just take the data out of our system from a clean state, and they go do their own Python work and their own analysis work outside of our platform. So, but no, you're right. Like you would expect it in a smaller town where they maybe have a staff of like five to 10 executives that can be creative, right? You would see that and you are right. Like, you don't see a lot of Fort Worth. Can I talk just for a sec? Because, yeah, you have a lot of like, city management nerds on on your podcast that listen to it. I want to talk about how this is different than like, the mid odds of like performance management, right? Like please when we were when we were coming through grad school, the thing I was most critical of when I went through performance management was we studied the city of Austin, and Austin had, like, this very in depth, super expensive performance management program where they measured everything like and where I had hundreds

  Chad Janicek 24:09

  of KPIs, and they had a dashboard for it, and okay, state of the art,

  Patrick Lawler 24:13

  it was like the new thing, right, right, right, my criticism of that was okay, but what's that actually doing for us from a decision standpoint, right? I think the difference between like the Austin performance management side and like what you're seeing in both small and, you know, obviously Fort Worth being a large example. But to be honest, like Fort Worth a pretty large example. Waco is a large example. Like Bradley, Florida city manager. Waco super creative. What he's done in downtown. Yes, you know, really cool there as well. So, I mean, there are cities of 100,000 plus. Abilene has done some really cool things. So there are some areas in Texas where we have some larger cities. But like, Fort Worth is in a world, Planet of its own, at a million in population, right? But I think it's different than like that whole like performance management movement. It because they're doing it for specific decision points. And I think back in the day when Austin was doing all those KPIs, it was, oh, look here what we're doing, right? Like, let's justify why we're spending the money instead of now it's, let's make a money decision based on what we think is, analytically the best decision, right? I love the money ball conversation a little bit. I know we don't like to talk about money balling everything, but you know, sometimes you just have to ask yourself the question, like, why do we want Jason Giambi because he gets on base, or actually, technically, Jeremy Giambi, and the Jeremy, yeah, yeah, correct. Like, because he gets on base, and we can talk about that. So the why. There's no question in the why now, and I think you've brought that up, and obviously your books looking at historical patterns and understanding how that impacts the future financial security of the city. And it's just not like, hey, let's show a pretty picture. And I think when we were in the early 2000s it was, we just want to show the people everything that we do that's great, right? And I think now we're trying to figure out, Okay, what's a priority so, like, when you look at priority based budgeting that's coming out of GFOA, like, I mean, I know we've not always been a huge fan of GFOA over the time, but like, I'm not sure priority based budgeting would be there if Chuck, you weren't asking these questions 1520, years ago. Sure. Right? Sure. The

  Chad Janicek 26:17

  downside of the priority based budgeting, because we've been through hundreds and hundreds of cycles of different types of budgeting, zero base and whatever. The biggest challenge with those is that it's still a once a year discussion, and even if you whether it's priority based or performance based, you're still waiting until your budget cycle comes up and really like that last month or so, after it gets presented to council, and then it's open for public comment, you're still trying to balance basically the political side with the management recommendations and so like, how much of the actual priorities of the community get taken into account in those decisions? I don't know. It's really dependent on the city itself and how committed they are to it, but like with the Austin was doing performance based budgeting then as well, so it's, here's all the performance indicators, and then let's feed that into our budget process. But it's a lot more nuanced than that. And the thing that we're talking about with cities like Fort Worth or fader or Bastrop or Waco, it's an ongoing, all the time, every single day, process where all of these decisions are being made incrementally based on on this, this level of analysis. And we're not just sort of waiting for this crunch point where we have to approve a budget now, and so let's just kind of cram what we can, and then if we can't fit it in the budget, then we'll just wait for next year. I

  Chuck Marohn 27:41

  think my conversation early on with Fate, Fate approached me, and we had a lot of talks when strong hounds was a lot smaller, and so for me to spend time with anyone was like a commitment of all of our resources. You know, it was like, okay, am I going to spend time? And one of the questions I had for them is, are you prepared to say no to proposals that come in front of you that are just bad, that are going to fiscally sink you? And the answer was yes, and I've been deeply impressed by the fact that they've actually followed up and and done that. I spent time in Waco, and, you know, I said Fort Worth and brass strip I've been to a couple times. These are all places that 10 years ago, were asking hard questions. It's really amazing to see them kind of progress to the point where they've gotten through the I think there's a political pain, right? Because you have we talked about the bigger city and the smaller city. I feel like the thing that you get in fate is you can have trust, right? A new council member can come in and you can, you know, here's our books, here's how we do things. Ask the hard question I'll show you, and you create an environment of trust. I feel like, when it gets bigger, like to Fort Worth size, it's hard to have that trust. If they've been able to accomplish that, that's that's pretty astounding, really, really astounding. I think that's

  Patrick Lawler 29:05

  still a challenge. Don't get me wrong. I think city manager, I'm sure, spend a ton of their time on education, right? I mean, think relationship and education with a city council member is extremely important. And I think you have to, you know, educate every single city council, but if it's

  Chuck Marohn 29:18

  have, but if it's education based on analytics, not education, based on BS or propaganda or vibes. Vibes, yeah. I mean, it's such a different it's such a different operating system, right, right?

  Patrick Lawler 29:30

  And I think, like when you look at Waco, you know, just to kind of give you a little bit of nerd history here on City management, the city manager of Fort Worth so Dale fizzler, who's a dear personal friend of mine, but Dale was the city manager of Fort Worth when they went through kind of, like their urban village revitalization. So I would say, like they started focusing on some, like, core areas of the city where they could do in, in their mind, they could do some small investments to improve so West seventh, Magnolia, the Near South Side, some of those things that they they invested in. Yeah. So he went to Waco as the city manager, actually, as an ACM, and then eventually became a city manager. Then he brought Okay, Ford along, right? And so they kind of took some of those same concepts and said, let's focus on downtown. Let's focus on these nodes around Baylor University, right? Yep, obviously, you know, nobody could could guess that, you know, Chip and Joanna Gaines were going to have Magnolia right? Magnolia right, Magnolia network and everything that happened there, but let's create an ability to blossom from that. A lot of that kind of came from that same, same direction. I think you could see that a lot in Texas City government, like you can see people have worked for this manager under this pedigree, and they've little by little, been able to kind of go to other communities and take those ideas there, and you've seen this really take hold here in Texas, because, you know, it's data, and we can say, hey, this is what the data shows, right? I love the incremental development approach for these small cities. If I go in here and do a sidewalk improvement and make this more walkable, do I make more sales tax? It's like Chad said, you don't have to wait to the budget season to look at that. You can finish a sidewalk improvement, which is maybe not very expensive in your budget, and then you can track your sales tax over the next six months and really see, okay, does this have an improvement? We'll go do more of that, right and continue that. And I think that's what you see on a big scale in some of those other places. It's easy to understand when you go to downtown

  Chuck Marohn 31:18

  Waco. How is this unique to Texas. I mean, Texas, you have sales tax, you have property tax, you have, I think, a kind of commitment to, I'm going to say this, and then we can all laugh about it. I think you have a commitment to, like, you know, individuality and growth and like property rights. And it's a, it's a strange vortex of, you know, the role of local government and how it's perceived as compared to a state like, I know you guys are doing some work in California, where it's a much more top down system, and local governments do function as almost like an arm of the state, as opposed to more of an autonomous unit. People have heard us talking about Texas now, how much of that is applicable beyond, beyond the boundaries of the Lone Star State? Chad. Well,

  Chad Janicek 32:15

  I mean, I think it's all applicable, right? Because cities are functionally the same, right? They maybe operate in slightly different legal environments depending on where they're located, but functionally, they serve the same purpose. And so at the end of the day, if we want to create good places for people to live and shop and work and all that kind of stuff, there's no reason why those same kind of approaches can't work. In some states, like Montana, doesn't have a sales tax, right? They have very low property taxes, so maybe they're going to have even more different capabilities or tools in their toolbox. But in California, I mean, it's the most populous state in the country, they've got Silicon Valley. They've got everything that they need. I mean, their biggest challenge is something that we talked about on our podcast that Texas is going to face here pretty soon, which is that housing is just too expensive and they don't build enough of it, and that's causing really a drain on on so many other things. One thing that this sort of analytical approach can help to to address is, how can we make building more housing more politically viable? And so, I mean, that's a perfect opportunity in California for them to to utilize some of, some of that, those approaches and those tools walk

  Chuck Marohn 33:26

  us through that argument. Patrick, you were going to add something? Go ahead, yeah, I

  Patrick Lawler 33:30

  was just going to say, I mean, you know, we joke all the time that Texas is 20 years behind California from a taxation standpoint, right? Like we're doing things that, like cap revenues now and local governments and things that, you know, like prop 13 was done, you know, 20 years ago or so forth. And so we're like, 20 years behind them from that, but their political culture within city management and city government from like a they're just, you know, 10 years behind maybe where we are in Texas. It's mainly because there's not a lot of folks there that are that are providing that information, right? Like, honestly, Chuck, like, if you had all the time in the world and you were just gonna go be an evangelical right in in California, like, it's very fertile. Like, those city managers are great out, right? It's just there's not a lot of people doing that. I

  Chuck Marohn 34:20

  feel like when you guys are describing your start 10 years ago and going into places and showing them, like basic things, and having them go, wow, we hadn't really thought of it that way, I feel like California is that, and it's a little bit bizarre, because you have silicon valley there, and, like, the most sophisticated kind of tech economy in the country, and their governments tend to be. Their local governments tend to be, I think, even more antiquated than what you would find in other places is that a fair valuation of where things are

  Chad Janicek 34:55

  just take property tax in particular. They've got prop 13 valuations. Only increased by 2% unless a sales transaction occurs, and even then, it's not always guaranteed. If it stays within the family, they can avoid that sort of revaluation. So the incentive for them should be to build because that's new value that comes on at current market rates. But the political headwinds are so strong that that they kind of prevent it, and so that's when the state has to come in and say, No, we actually do need more housing. This, this lack of housing has spillover effects beyond just the city boundaries. So there's a role for the state to play in requiring it, but there are, to some degree, incentives in place already, despite how how many other problems, things like prop 13, cause that should induce more development. When we started in Texas, there was no one out there providing sales tax reporting from an analytical perspective. Sure it was sales tax from an audit perspective. So how can we recover revenue? And then, oh, here's some paper reports that you can have California is still kind of in that same mold, unless the city is doing the analysis themselves. There aren't really any vendors who are there to do it from an analytical perspective. Hopefully that will change over the, you know, next 510, years, that I think is the biggest challenge probably for them right now. Because I think, based on all the conversations that we've had over the past couple of years with California managers like Patrick said it's fertile. It's ripe for them to sort of jump on that bandwagon. But the tooling is not always right. It's not always there for them right now,

  Patrick Lawler 36:32

  let me add to that just real quick and to separate, you know, the sales tax, the firms that are trying to find missing sales tax revenue, which, by the way, there's not much missing sales tax revenue, right? Like, that's not a real thing in the long term. Like people may be paying the wrong jurisdiction, or the money's going from the wrong spot, but with technology today, we should be able to find that pretty quickly in it, not a 30% fee to find out, but the GOV tech sector in general also. So so when you talk about Silicon Valley, you talk about California, the GOV tech sector in general, the way it's set up to monetize is not necessarily what's best

  Chad Janicek 37:08

  for cities, right? They also don't understand cities. They don't, yeah, we've

  Patrick Lawler 37:12

  talked to a lot of them, you know, a lot of them that have sold for significant sums of money as they've grown. But the reality of it is, is that they are in it for a different reason. Chad and I went into this business, and we made a promise to one another that we weren't going to go into debt, that we were going to bootstrap our company from the ground up, if that meant we were going to work on our jobs. You know, I think I was technically in my job for like six years. I think Chad was in there for like four while we were growing this company. And, you know, we were going to do what was necessary to grow this the correct way, so that we could do what was best for cities, because at the end of the day, we're still city managers, right? I don't want to say we're a nonprofit. We make money, don't get me wrong, but there are plenty of city managers out there that make more annually than Chad and I do. Because

  Chuck Marohn 37:54

  can I say this in a different way? This was always my problem with the engineering profession, and I do think you know, you mentioned Kevin at virginity earlier, I feel like he's struggled with this too, because when you do engineering, there's a way to do it to make a lot of money, and it's generally building stuff that cities can get funding for, that cities want to do that, then will bring in the McDonald's and the big box store and the strip mall, but ultimately, are like, really, really bad for places. The difficulty is there isn't really a business model to do something helpful and productive for a lot of places, from an engineering standpoint, and I can see where from your niche as well. It's hard to go to a California city and say, hey, if we can help you understand where your sales tax is coming from, you can then understand how to boost your sales tax at lower rates of expense, get a higher return on your investment, actually build a better place to live. Do you see how I'm connecting like eight things, right? It's much easier to say, hey, I can come to town and find lost sales tax revenue, or I can come to town and get you a grant for the new strode it's like one step, and I don't have to do any like physical transformation in order to make that happen. Are we talking about parallel stories here? Because I do feel like for a city to use your stuff and use it like, really well, there's a sophistication level that has to kind of grow along with you. And I guess that could be part of the process, but you got to, kind of want to ask these harder questions. And I'm not sure that every city does.

  Patrick Lawler 39:36

  Yeah, I think, I think because of that sophistication level, right, when we were just doing sales tax, like, hey, you know, an Apple Store is a better way to go than an AT and T store, right?

  Chad Janicek 39:45

  Yeah, when we were gonna get a corporate at&t store, if you're gonna get

  Patrick Lawler 39:49

  one, yeah, franchise store, because they make more money or whatnot, right? So I think we were looking at things like that. It was there. I think, you know, that sophistication level has grown significantly to the point that we've actually had to build. So, you know, really recently, like, we've, you know, we're almost at 10 employees now, as a company like, we've had to build a whole apparatus within our company to do virtual CFO work and to do analysis work and things like that, so that we can provide the information to the city to be able to make those complex decisions, because they may not have the staff to do that. Now, there are plenty of cities that do, but there are also lots of mid size and smaller cities that want to be able to make those same decisions and have the enlightenment that you get from that, but can't necessarily afford the staff to do that, right? And so we fractionalize that in our world. And yeah, I mean, you talk about those parallel paths. I mean, I can't tell you how many engineering firms don't love us, right? There are some, no, there are some big firms out there, right? That that do they totally understand why we do what we do and how we do what we do. But yeah, for sure. Like, we're going to come in here and be like, Why? Why do you need to build that road 24 feet curb to curb? Like, what? What's 22 going to do for you? Because we're going to show the city the cost difference and the depreciation difference of that road from just two feet of less concrete, right, right? And the engineers look at it from a standpoint. And this is very important. I don't know if it's like this in every state, but in a lot of the states we work on, the larger that cost of that project can get, the more of their 6% or 9% the design fee is, and so their profit is generated by the size of the project, so they are generally going to project creep more over time. And I personally, as a city manager, figured that out really early. So there were a lot of engineering firms that didn't love to work for me, because they would come in with a change order because it got bigger. And I would never give them change orders, right? The

  Chuck Marohn 41:40

  engineers will get mad when I say this. Well, you just said they get mad at me. They're like, what we don't, you know, do that and I'm like, Okay, I've never seen an engineer say, Hey, we're going to make this project bigger, because then we'll get paid more. But I've also recognized just where the incentive is. Let me put it this way, there's no reward for really, like, engineering the heck out of it to make it tight and small and effective and, like, really cost. Like, there's no reward for doing that, and there's a lot of reward for not doing it. Is that fair? I think so. Yeah, let me ask you this. It's a little bit about how you work with cities. I remember sitting at a table, and I was a young, young engineer. I mean, this was like in the in the 90s, the city was going to build the sewer and water pipe out to the middle of nowhere to get an ethanol plant, and they were going to borrow, like, $20 million this was a smaller town. They didn't have $20 million and they were relying on the ethanol plant to be online and pay, and then all these people to hook up in between. And I was sitting at this the room where it happens. I was in the decision room before the meeting where the city manager and the city engineer and the bonding agent, and like all the key decision makers were in the room, and I remember looking around, going, if this project happens, you get paid, you get paid. You get paid. You get paid, and you get paid. And if the project doesn't happen, none of you get paid. As a 24 year old, young engineer, I'm like, There's something. I'm not saying this is a bad project, but I can't tell you that it's a good project, because it just there's something off here. I know you run into that kind of thing a lot. How do you help cities through that? Because I I don't think that they're necessarily getting like corrupt, immoral advice, but they are not getting the analytical type stuff that you guys put together, which is, I'm not gonna say completely dispassionate, but it's not coming at it from a sense of, like, Hey, here's the numbers. And if you do this, you can pay Chad and I a little bit more. And if you do that, you'll pay us a little bit. Like, there's none of that. I

  Patrick Lawler 43:59

  think, to answer that question directly, the first thing I have to say is there's a reason why we only work for city governments, right? We don't work for the private sector. I think that kind of, that kind of sets the tone for why we've made a decision to only work on one side of the table. Because a lot of times, when you're talking about engineers, they're gonna have a private development side and they're gonna have a public side, right? Absolutely, the two are intertwined together. One's working for a developer, one's working for a city. So when you're negotiating like in in Texas, for example, when you're negotiating tours agreements and pit agreements and all these other types of things that happen, it's in the best interest of a lot of players who work both sides of the table for those deals to get done, right? But it's

  Chuck Marohn 44:43

  not in if it's not in your city, they work for this city and this developer, and then in the other city they switch sides. Yeah, no, all the time. Yeah, yeah.

  Patrick Lawler 44:52

  And I think you know what we try to explain to cities is, when you look at the data, when you look at the financial analysis, the performance. It gets done on our end of the table. It gives you the ammunition to say no. And what we have found in Texas, because we've become very, very common in this process, you know, major developers come in the room and they have a Deloitte or a PWC and, you know, big name attorneys and all that type of stuff. And it is funny the reaction that you get on the other side of the table, when the city goes, okay, cool, we're gonna have the Zach guys put together a performer on this one, right? It's like, oh, okay, well, you know when, when you get that performer? Like, we'll take a look at those numbers, and it's almost always some type of renegotiation from what was originally put forward in that economic development incentive agreement for that development, right? So, you know, because numbers don't, it's not an opinion. There's no opinion we're putting forward, right? We're we're saying, Okay, you built a house. This is the value of the home that you're going to put on the ground. This is how much they're going to generate. This is how much the road in front costs. This is how much police, fire, Administrative Services charges, parks, all those type of things. This is what it cost. And when they ask us a question, well, how did you come up with that? We said, well, we, you know, we, we took the number of people that are going to move to move to this community. And we figured out the FTE cost of the police department, and we did the math, and this is how many FTEs you're going to be responsible for. And, oh, by the way, they're going to need a fire station. This is the cost of the fire station and 20 year debt and the replacement of that fire station all that like, I think, when you put that in into numbers, and you sit across the table and you give the justification for it, both sides of the table become amazingly easy to work with, right, right? And sometimes that is like, Hey, does that road have to be that big? Engineer? Does it have to be three lanes wide, right?

  Chuck Marohn 46:31

  I saw that in fate. There's a lot of creative thinking that actually comes out of this conversation, because you're putting real constraints on it, not as Chad said earlier, that the vibe in the room, right, right?

  Patrick Lawler 46:43

  You know what we have found from the development community? Chad loves it when I say this, but my father is a property developer, right? So my perspective on life is, is a little different than most city managers, because I grew up in a field, and then I went to work for, as my dad would say, the evil empire in city government. And, you know, I think when I look at it, what has surprised me the most is, is when we come forward with these financial performance and these negotiating points for these cities to use, developers are actually fairly open to it. They they start looking at it from their own numbers and going, because they're, they're numbers and sense people, right? It's a language they speak, yeah, exactly, exactly. And for the longest time in city government, we have not spoken a financial language. We've spoken, is it pretty? Does it have treed medians in it? You know, what's the entry sign look like? You know, those type of things. And I'm not, I'm not trying to make it seem like we were simpletons, but the reality of it is, now it's very easy for us to take that site plan and put it figure out, what are you going to make and use those historical, you know, those historical growth patterns and those historical cost and push those forward to get you pretty close to what we think is going to occur within that development. And so because of that, we only work for one side of the table.

  Chuck Marohn 47:55

  Simpleton is superficial. In a sense. I always watch cities. I want the trees and so I will give up, you know, a good financial deal in order to get the decorative thing on the facade. And I'm like, you just gave up half a million dollars to get something worth $10,000 like, what are you what are you doing? This makes no sense, but they never really had the I agree. It's not simpleton, because it wasn't like they were incapable of asking the question, but they didn't have the basis to ask the question, right? And I

  Unknown Speaker 48:27

  think that's what's changed in Texas. So yeah, go ahead,

  Chad Janicek 48:30

  yeah. And there's also the assumption that if it's new development, it's new revenue, right? And so, right? We just didn't look at the other side of the of the equation. Yeah. Are you

  Chuck Marohn 48:40

  guys gonna come work in Minnesota?

  Unknown Speaker 48:45

  We have in the summer yet? Yeah, maybe

  Chuck Marohn 48:47

  during the summer, during the summer, come on. Well,

  Patrick Lawler 48:51

  you still have a sweater on, and it's like 79 degrees outside here in Texas. What's the temperature there in Minnesota?

  Chuck Marohn 48:57

  It's like 45 so it's, it's a nice spring day. If you guys, I tell you, what? If you guys come up during January, I will take you ice fishing, and we'll have a lot of fun. They'll be driving on the lake, drill some holes in the ice, pull up some fish, you guys, it'll, it'll be great. You'll love it. Love it. Love it. What states are you working in now? And what does that mean, if, if people are not in one of those states and want to reach out to you,

  Chad Janicek 49:24

  so we're in Texas, California, Colorado, Utah, right now.

  Patrick Lawler 49:29

  All right, looking to expand in Kansas and Washington. Okay? You know, we actually just got back from the Alliance for innovation conference, which kind of put some creative city management professionals from across the nation in one room. In one room, which is a really cool conference. My opinion, it's just like a case study conference. Those are kind of the states that we're looking at expanding to. The big thing in our world is, do you have like a local government sales tax and do you have like, a confidential data file that can be that can be used in analysis? Right? Like we would love to. Do work in Oklahoma. I mean, Chad wouldn't, he's, he's a big Texas guy, but it's a two hour drive for me, right? So I would love to do business there, but the state doesn't share a confidential data file with locals, and so it can't, right? I think our push into those states, we do look for really good assistance organizations, so like the up and coming, Assistant twos, assistant city managers. You know, we look for great graduate programs and Pa graduate programs, because at the the root of what we're doing, we need people in the career, people that are going to be driven to make local government better, right? That's kind of the fertile soil we have to have. And so that's kind of what we look for, is those couple

  Chuck Marohn 50:40

  of things. So the the number one question I always get when people hear podcasts with people like you, they say, How do I go to work for them? I'm going to give everybody your website. So if you if you want to talk to Patrick, you want to talk to Chad, you want to convince them to come to your northern state to work in January. Or if you want a job. I don't know if you guys are hiring or not, but Zach tax, Zacchaeus tax, it's Z, A, C, T, A, x.com, is the website? Is there? Is there a better place to get a hold of you guys or send people to the website? That's the place to

  Chad Janicek 51:13

  go, yeah, Chad or Patrick at Zach tax.com, okay, try to keep that email address. Is simple, yeah,

  Patrick Lawler 51:21

  I'm pretty active on LinkedIn as well. So, you know, connecting with me on LinkedIn and, you know, following our exact tax page, we like to, we like to post a lot of content there. We're very active. You know, I actually in an eight hour day. I don't schedule longer than than four hours. I spend about four hours a day just on random phone calls, yeah? So I'm always open to that. If you want to reach out to me via email and connect, you know, I'll certainly love to do that. As I joke, a lot of people call my cell phone who are not city related anymore, so I don't really like throw that out there on a podcast, but you know, we want to provide cities what is necessary for them to make those more informed decisions, right? And really, what I'm excited about is what we're able to do with the data, not right now, but what we're going to be able to do with the data in six months, right? Yeah, you know, AI is going to allow us to do a lot of cool things. And Chad's been, you know, hard at work doing that, and so, you know, hopefully that will make it easier for us to move to additional states over time. But, yeah, I mean, we don't see this as like, a Texas or California. Only thing we we really want to get out there and help people. In all we are city managers first, right? I cannot say it enough. We want to make sure that city managers have all the tools they need to make more informed decisions. So that's what we do. I

  Chuck Marohn 52:34

  remember talking to Kevin at virginity over a decade ago, saying, what I want more than anything is for you to be really successful. So everybody copies your business model. I really do hope that people in New York and Florida and Georgia and you know, if there are people listening from there, like, this is really important, we need to be doing this too. I mean, someone needs to do it there. You guys are doing great work. I'm grateful that you're out there, and I'm grateful you took the time to to chat with me and talk about it. It's always a pleasure. Chuck, it is always a pleasure. And people can't see this, but you're sitting in your room, and you got your drum set behind you, and you and I are are drummers. So somebody, we're going to get together and have a jam session. It'd be really cool. Patrick, you play any music.

  Unknown Speaker 53:17

  He plays apple. He plays Spotify. Let's play Spotify. He's not a musician, though. I'll

  Chuck Marohn 53:23

  bet you're really good at Spotify.

  Patrick Lawler 53:25

  Yeah, we, we are very different people when it comes to that. Check. Sorry.

  Chuck Marohn 53:31

  All right, thanks guys. Hey everybody, thanks for listening and keep doing what you can to build a strong town. Thanks. Chad, take care. Thanks.

  Patrick Lawler 53:38

  Chad, yeah, thank you. Patrick, see you guys.

ADDITIONAL SHOW NOTES

• Learn more about ZacTax:

  • Website

  • LinkedIn

• Connect with Chad and Patrick:

  • Email: chad@zactax.com || patrick@zactax.com

  • LinkedIn: Patrick Lawler

• Learn more about the Strong Towns approach to finance.

• Chuck Marohn (Substack)

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