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A Regulative Pathway from the Former Mayor of Philadelphia (Full Transcript)

The full interview transcript of the conversation between Michael Nutter and Peter Leyden is available below. The transcript has been edited lightly for clarity.

Peter Leyden: Welcome to the Future of Sharing. In this series, we’re going to look hard at the question, “How can a sharing economy work for everyone?” I’m Pete Leyden; I’m the founder of Reinvent. We have a special guest here for our interview today. That’s the former mayor of Philadelphia, Michael Nutter. It’s great to have you here.

Michael Nutter: Thank you.

One of the things about your story is you just recently left office. You were in office for eight years.

Yeah.

When you first came in office, there wasn’t a sharing economy. No one was really talking about a sharing economy. Talk a little bit about from your earlier days, what first kind of made you aware of this new kind of economy and what were you thinking when you first kind of came in contact with it?

Well, a lot of things have changed over the last eight and certainly 15 years. There are companies in business today who are recently celebrating their 10th anniversary. A lot has happened in the last decade or so. I think the first real interaction and almost kind of a public policy engagement was probably Zipcar, which, at some point, was a new concept that’s different than going to a place where you would rent a car. They had specific spaces on the street, so we had to create those spaces in the government. That car went there, that specific car was in that space and then you did your transaction however you did it. I think folks got a key fob or something and could access that vehicle.

That was kind of a different model than going to the airport or downtown Philadelphia, where a couple of the agencies have specific places and that’s how you got your car.

That was a very different kind of experience and there was a battle between Zipcar and some other company. I think, for me, that was probably the first engagement. Now, of course, we have Uber, Lyft and, of course, Airbnb, which is a very different model than the traditional hotel model. But when you think about it, this is actually a very old model. This goes back to ancient times where people welcomed other people into their home and they stayed there, maybe for a couple of days, maybe for a longer period. I wasn’t alive at that time.

But it really is a variation on a much older theme and experience of people opening their homes to another person. Sometimes they might not know them or could be relatives and come in and stay. We’re going to see more and more of this kind of economy. It’s about community. There are more people living in cities in the United States of America and around the world than at any time that we can go back virtually in recorded history. People want to be near each other. They want to have a shared experience. They want to experience things together, and technology allows them to do that. We take photos with our friends and then we electronically send them somewhere else to say, “We’re having a shared experience right now.” This is going to continue. It’s not a wave, it is the future.

We actually, funny enough, we’ve actually had the founder of Zipcar around here, Robin Chase, she was talking about the early days of when she was a very pioneer in this space. The early days, the Zipcar. Now, was that seen as, from the public point of view, was it welcomed? “Oh, this is great. It’s a new way to do it,” or was there an issue…

It was, I think, the word of the day continues to be…it was disruptive. We didn’t understand it. What do you mean that somebody’s going to park a car on the street and we’re going to give them space? Generally on most public streets especially in a downtown area, those are parking spaces. Now they have a meter that you put coins in. You don’t necessarily do that anymore in many situations. You have an app on your phone that allows you to put time on a singular…like a kiosk or something that tells a person, an enforcement officer that you have paid for that space.

So even in that industry, it’s continued to evolve. It was very, very different, tremendously disruptive. It took us a little while to kind of figure it out what to do and what was appropriate and what’s the balance if you’re taking away parking spaces from people who have cars, so that people who don’t have cars can take that vehicle from that designated space. So again, very disruptive in the industry.

Now in your experience, can you talk a little more of the evolution of it? You have some early experiences with Zipcar, you’re running the city for eight years. Can you please walk us through a little bit how this kind of came on your desk or you’re starting to be aware of it. Talk a little bit about how you started to learn about it, understand it, engage it?

One of the things about Philadelphia generally, we’re usually either waiting the parade or we’re the last to join. There’s really not much in between for Philadelphia. We are often in the vanguard on any number of different things. We can talk about where did that come from and where it…

Yeah, where did that…

It’s William Penn and the Quakers finding new property and starting community and Ben Franklin and the many, many, many great inventions that he performed. So there is an innovative or innovator spirit in Philadelphia. There’s an entrepreneurial spirit. Philadelphia was once called the workshop to the world. I mean we made all kinds of things, almost everything. Made in Philadelphia. I think that spirit is alive and well. I wanted to embrace it. Again, when you think about what’s happened in Philadelphia after about 60 years of population decline, during my time as a mayor, eight straight years of population growth, much of which fueled was by the millennial population. 101 colleges and universities in the area. Many of those young people stay. They’re innovative. They want new and different and creative activity in the city, and it was my view that we had to embrace them. So, different ideas come along, some maybe more controversial than some others.

My view was, “What is this about? Does it provide new or better service to our citizens and is it something that we, as a city, can or should embrace?” I always wanted to know what the newest thing was or what was going on that was different. We also get ideas and we learn from other cities and other mayors. Through the U.S. conference of mayors or other gatherings, we learn about what’s going on all across the United States of America and it’s pretty intense direct ways when we get together and talk about these things.

In my understanding, you were the head of the whole conference at one time.

I was the president. It’s a one-year term from June of 2012 to June of 2013, which also was during the presidential election year. That was a lot of fun.

In this project, we’re looking at that phenomenon you mentioned of people moving back, particularly Millennials, going back to cities. You said you’re open-minded and you want to be innovative. Was there pressure or political kind of interest in these new constituents kind of going with the flow of where they wanted to go or is there any feedback from that?

Again, when I was a member of the council and certainly as a mayor, I spent a lot of time out in the community in a variety of ways – new neighborhoods taking on their own…in Philadelphia, generally called attitude, taking on their own persona. Again, empty nesters moving in from the suburbs, Millennials staying after completing college or university, diverse immigrant populations again bringing new cultures, new foods, new ideas, new ways of engaging in what we call diverse community. I’m seeing all of this taking place. Sometimes, you have to step back a little bit and take in what’s going on in its totality. From a government perspective, what can we do to support entrepreneurs? What can we do to support innovation? Sometimes, it is literally showing up at an event, putting the thumbprint or the Good Housekeeping seal of approval from the government on something but without taking charge of it. It’s happening organically. Many days it’s encouraging it, it’s talking about it, it’s supporting it. In some days, it’s just getting out of the way and letting it happen. Again, that’s the kind of engagement that I had with many people in the city of Philadelphia during my time.

Did you find, in leaving the city council, was it a general feeling that you had that others had or was it something you had to bring people along or you had to really work with folks to kind of get them opened up to, whoa, this is a different way doing it?

Sometimes, but certainly all of the ideas did not emanate from the Mayor’s Office or from the city administration. For instance, the leading champion for having the proper set of rules and regulations in place for tax collection purposes and to have a regulatory scheme that really opened the city up to Airbnb, that was primarily driven by a member of city council. I was certainly supportive. I’d heard of Airbnb, I had to try to figure out what was that, this idea that people open their homes to other folks and they come and then maybe they’re there or they’re not there. How does that work? Folks had to explain it to me a couple of times. But again, I understood it, but there was a council member. We were anticipating the arrival of the World Meeting of Families. This was back in 2014.

Was that the Pope?

And then the Papal visit that went along with it. The World Meeting of Families is a convention or a conference in and of itself which sometimes the Pope attends. In this particular case, we were anticipating that Pope Francis was going to come and possibly bring close to a million of his closest friends with him. We talked about the need to have more options for folks. We have tons of hotels in Philadelphia, but they would never be able to take all of that population flow. We’re a city, we want to have as many options, good options, for people as possible to enjoy Philadelphia. Hotels did very well during the visit. But there were a lot of folks that hosted for Airbnb as well. So these are two very different models.

You got your standard 200, 250, 700 room bricks and mortar hotel. That’s one concept. Then you have your row house or stand-alone house that someone owns, lives in a community, and is engaged in bringing people into their home and hosting them.Those are two very, very different models and two very different experiences for the person who is the recipient or who is being hosted, if you will.

We’ve already talked about this example of the Pope. Could you have even pulled that off without some kind of distributed model of housing people or was it within…

It would have been more challenging or you have folks pitching tents and sleeping in the park and all that kind of stuff. We were prepared, certainly, for a number of contingencies, but there is no question about it that it was a richer and fuller experience that many people had, to be able to stay in the homes of hosts in Philadelphia, in the Philadelphia suburbs, and it certainly enhanced the experience. Whether you stayed in the hotel or whether you stayed in Airbnb, you had a place to stay. But I think you had a richer and fuller experience when you’re staying in someone’s home. Most likely, four out of five times, the host is probably there, so you have a level of engagement, human contact, which is really what Airbnb is all about. It is an essential component. It is a prime model of the shared experience. It’s about the engagement between and among folks. Airbnb brings people together in ways that are very, very different than some other models.

Which we’ll get into in a second here. Sticking with this idea, so part of the preparation, my understanding is before the arrival of the Pope, you actually had some kind of deals around taxes or around regulation that you kind of figured it out that, worked for your city and worked for everybody. Tell us a little bit about what was that and what made it work for everybody and how did it…

In any number of situations…again, because this is a relatively new and different model for a city or even for a state, in some places, there may not be a category in the regulatory scheme—how do you even categorize this, because this really didn’t exist before in a formalized way other than maybe in 250 B.C. So your code is your code or whatever your regulatory scheme is, and if you don’t have a category or if you don’t have an agreement that allows for the proper collection of taxes, the activity is taking place, the city is not benefiting from a tax revenue standpoint and from other parts of the government you don’t even know what to call these things.

For us, it was, “Okay, explain your model to us maybe more than a couple of times. Let us understand it.” So a person has a house. It’s a short-term rental kind of engagement, so it’s not long-term. It’s not like a lease for a year or multi-year or whatever. It could be a day, it could be two days, it could be four, whatever the case will be. It’s not the same person all the time, so it’s different people. Really, you just have to kind of break down the model on the business side, translate the business terms into government language if you will, reconstruct it, put it back together, and then write a piece of legislation that addresses what it is, how does the government get what it’s supposed to get, how do you put in place other measures related to quality and standards and those kinds of issues.

On the one hand, I don’t mean to make it sound so simplistic, but I think there is a model, there is a pathway here to do this. That’s that part. In some scenarios, of course, we’ve seen there might be opposition, there might be political interference, there might be special interests and the like. That’s usually where the complication comes in. But, I mean, it’s pretty easy to figure out what this is and how to regulate it and ensure that the government gets whatever taxes. The complication usually comes in where someone has a special interest, someone has a relationship with maybe a different model or doesn’t completely understand what this is all about.

So literally, can you give just kind of a little more concrete sense of, in that model, what is the new rules? We were talking about how long people could stay. How does the tax get collected? Something kind of concrete about how you dealt with it in a way that that can work as a win-win.

Absolutely a win-win. People have more options. Airbnb wants to make sure that local governments receive their proper tax revenues.

Which is the equivalent to what they would in a hotel or is it a different kind of rates on…

It’s a different kind of model. A hotel scheme usually has taxes that were set up that were particular to the hotel model. This is, again, this is not a hotel. This is someone’s home. More often times than not, owner-occupied. Again, part of the discussion here is you have to be willing to recognize the difference but keep your eye really on what’s the ultimate goal here. People should have as many options as possible, the home owner or the building owner, again, sometimes owner occupied. What is their role on this? What’s their responsibility? Where does Airbnb sit in that transaction between the host and the person who wants to be hosted?

Our model was to bring all of the respective entities that need to be involved in this discussion – from the housing side, from the building inspection side, from the revenue side, and a variety of others all sit in the room at the same time. Hear this. What is the it here? Get feedback from them in terms of, “What do you need to be able to do your job on the revenue side? Who’s paying the taxes? Where does it come from? Who’s the taxpaying entity? Who’s collecting?” All of those kinds of elements. Then you get your legislative people hearing all of this to address each one of those concerns and you write a piece of legislation that makes some sense and that people can understand.

I know that one of the issues that have come up in these things is like how long can people stay and is there a disruption in the neighborhood or something like that. How did you guys deal with that? Did you think about that? I mean, you have to balance that somehow.

It came up. I mean, again, obviously there is a difference between a short-term stay and a lease. There are, I think, not many regulations on the hotel side about how long someone can stay in a hotel, a solo hotel. You want to stay there for a month? Have a ball. But it is a little different on a residential, owner-occupied situation. In most instances, we’re really not seeing that on the Airbnb side of things. It really is for primarily short term rentals or short-term hosting experience. We’ve written in provisions that deal with those kinds of issues, how an Airbnb host home or place is categorized in the Philadelphia code and no one would ever confuse an Airbnb host with a hotel. They’re completely different entities. I think, again, unless you have an ax to grind, if you really look at all of the individual elements, you will very easily and clearly figure out that these really are two different and very separate models.

Let’s deal with facts and fundamentals while also being sensitive certainly to some of the concerns that people can legitimately have. It’s around issues related to the affordable housing market in a particular community or other gentrification issues. Where is the money going, and recognizing that. In the hotel environment, you pay your money across the counter and it goes wherever it goes. The Airbnb model, that person who just hosted you, the overwhelming majority of those hours of staying with that person.

What are they doing? They’re supplementing their income, they’re renovating their house, they’re sending their kids to school. It’s a second source of income for them. So I think when you talk to the officials helping them to understand. Your constituents are engaged in a relatively small business enterprise but there are possibly a lot of them doing it, which is also putting money in your economy. They have to buy goods and services, which is putting more money in the economy. They may have to bring someone on to give extra cleaning, for instance, of their house to make sure that it’s up and ready. They’re buying, I’m sure, more towels, toilet paper, whatever else is going on, than they would normally use in their normal home experience. You really have a new business enterprise going on all over the city in a variety of different places all focused on more people, more community, tourists, dollars, that otherwise would not be in the neighborhood.

If you look at the city of Philadelphia, great hospitality community, tremendous number of hotel rooms primarily in center city. A person books a room wherever they book that room. They’re more than likely going to go to dinner or some event or some activity in proximity to the hotel, and that’s fine. In the Airbnb model, those homes could be in West Philadelphia, North Philadelphia, the northeast, the northwest, south Philadelphia, or in center city. When the person stays there, they are much more likely to go to a neighborhood place who would never see, in many instances, a tourist or more importantly, or at least equally important, tourist dollars, in the community. I think getting that message out and helping people understand what is this really about and what it’s not is significant and very important.

Interesting. Again, for those who don’t know Philly, would that also apply to neighborhoods that are not as fully developed and as affluent or something. So these are…

Yeah. I think increasingly, you’re going to see activity certainly in neighborhoods that, again, for instance, would not normally see – tourist activity or tourist dollars. You can start to look at where we have coverage and where we want mark-ups as you kind of lay out where all the various hosts are in any city. Do you want to start approaching or making some in growth in to other parts of the city, letting people know, “Here’s an opportunity, this is what’s involved, this is what you can do.” You make some supplemental income. It’s not a full-time job. It’s not something that’s going to happen every day, depending on the activity and the listings, but it is an opportunity for you to do something very different. Maybe your kids have moved out, went to college. You have an extra room or you have an add-on to the house or something like that. It’s a way to literally monetize what, for most people, is the most valuable asset and the most important asset they’re ever going to have in their lives, which is their home.

Okay. Well, you got the convention coming, so I’m assuming there’ll be a lot more of these.

There is a lot of Airbnb in Philadelphia right now.

Get a place early.

If you don’t have a place, you might want to get it soon.

I should. We’re talking about the sharing economy here not just in the home sharing, and we did touch a little bit on the other issues. We talked a little bit about Zipcar which is kind of the early version. What do you make of the transportation side of the economy? How did you guys deal with that?

So there are any number of companies out there, but the two I’m most familiar with, of course, are Uber and Lyft. They’re really kind of going at it from time to time. That ultimately is more of a state issue because of its transportation and regulated in Philadelphia in a convoluted way. Everywhere outside of Philadelphia, those companies are regulated by Pennsylvania Public Utility Commission, also known as PPUC. In Philadelphia, which, of course, had no category for this disruptive vehicles running around the city, because they’re technically not taxis and don’t have a sign on the top and all of that and contacting by, again, technology, there was no category.

The taxi association, using a level of influence with the Philadelphia Parking Authority, which notwithstanding its name is actually a state agency as well, is doing everything it can to block both of these companies in the city of Philadelphia. So they operate under rules and regulations created by the Public Utility Commission, the other 66 counties of Pennsylvania, but in Philadelphia, they are under the jurisdiction of the Parking Authority for which there are currently are no stated regulations. So there’s a serious battle going on between and among the companies and their interests, Uber and Lyft, and the taxis and the parking authority. It is complete politics at its worst level. The citizens of Philadelphia suffer as a result of the political shenanigans going on.

So it’s just interest groups kind of blocking this. In the meantime, can they even operate in Philly or is it still…

Uber Black is legal in Philadelphia. They are definitely considered more of the limousine type and they fit within that regulatory scheme. Uber X technically is not authorized to operate in Philadelphia as well as a comparable Lyft service. But there’s no question that that activity is going on in the city of Philadelphia. Both of those companies are operating but without, at the moment, the necessary official regulatory scheme that otherwise would allow them to operate. But they are active in Philadelphia.

Given that you had your perspective with the whole association, is that just an oddball Pennsylvania-Philadelphia thing or is that more of a municipal issue for most cities?

I mean, the way we’re dealing with it is, unfortunately, a fairly oddball kind of way of dealing with it. But at the conference of mayors, I remember this. This was a year or two ago, a big fight about taking a position with regard to, in essence, either supporting and encouraging the Uber and Lyfts of the world to operate in our cities or taking the side of the traditional taxicab model. Many, many of us, when I was leading that charge were for the more disruptive, new, different, innovative technology because as mayor, I think one of our main jobs is to do what’s in the best interest of our citizens first.

They should have as many options as possible. In many instances, taxis are either dominant or have the entire market to themselves and there are no other choices or options for citizens and they get whatever service they get. More oftentimes than not, the new disruptive technology is coming in with different service, better service, upgraded service, and is a threat to the dominance in this particular instance of the taxi industry. They pay for medallions to be able to operate their service and the Uber and Lyfts do not because there is no medallion for them to get. Again, it’s a different business model. This is all about politics. But we’ve seen this across the country in a number of cities primarily where folks either, again, don’t understand the business model or can’t figure out how to capture tax revenues or there are special interests who are fighting the disruption.

We’re talking about the two major categories, but there’s other areas like sharing bikes, these little bikes or…

We have a bike share program. That was pushed and supported by the government.There are different models around that. We have a corporate sponsorship through Blue Cross and Blue Shield. We have a program in Philadelphia with a first of its kind where you did not need a credit card to be able to utilize the bike share program, which creates that much more access across a variety of socioeconomic categories and will really have dramatic impact on our ability to build out a system so that it’s not just in Center City or it’s not just in more well-to-do areas. If anything deserves greater access, it is certainly a bicycle which, for many people, will be a different mode of transportation even though bikes have been around for a long, long period of time. But these are well built, they’re maintained, they’re taken care of and really are a viable option to owning a car, or even taking mass transit. So bike share systems, again, it’s not your bike. It’s owned by somebody else. You take it from Point A, you drop it off at Point B or you bring it back to A or you take it wherever you want to take it, put it back in the charging station or the docking station and go on about your business. It’s a great model.

With Etsy, you kind of have people creating since they’re working out of their homes and creating things and selling them. Are there other categories that you guys had to wrap your head around in any way or was it pretty much this community?

Those are the main ones. But again, I think that we’re going to continue to see the evolution of the shared economy in a variety of ways. Before you know it, someone will come out with something new and different. My main thing is I just wish I had one of these ideas, just waiting on one great idea. If can get a million eyeballs on it and hopefully somebody will buy it, then that’s my exit strategy. I need one good idea.
But I haven’t had it yet.

So knowing you got this experience in government, who knows what you’ll do next year, but would you say that making room or getting involved with the sharing economy is a kind of…how fundamental do you think we have to rethink city regulations or the rules of the game here, given all these new technological things we can do and given that people are going to the cities now and the need for the housing and interest in sustainability, a bunch of things now starting to come together. Talk a little bit about your own sense of the moment we might be in here and how we should be thinking about this period.

Well, I think we’re going to continue to go through a significant period of disruption, change, innovation, and challenge in a variety of parts of the economy of the United States and the world. The technological revolution will continue. New products, new services, new ways of delivering service. We’re seeing increasingly on the food side where it’s pre-prepared and it’s actually good, or it’s made for you and you can just take it home. Even someone like me, in 30 minutes you can have a great meal which, of course, is disruptive as compared to the restaurant model, right? I can go to a restaurant and have a great meal and sit around and have all these other people or I can go to a store down the street, really great, great, great food, bring it home, and have it in my home, right?

So I think in any number of industries, we’re going to continue to see this kind of innovation. The Internet, again, some tools can be used for great good and some used for great evil. But the world continues to shrink because we are closer to each other by way of the Internet and we continue to share more information. Ideas are going to be created and then implemented at the speed of light. People are making things with 3D printers that you can actually utilize. They’re not just nice pieces on your desk, they’re going into production. They’re being used in medicine. All of these things will continue to evolve. They will know no bounds because there is no real boundary for the human experience and what people can think of and dream of. And in this world, in the 21st century and beyond, you’ll actually be able to put a lot of those concepts and ideas into practice much quicker. The technology will continue to allow us to think it, design it, build it, market it in a much more compressed period of time and then expand that out to the rest of the world in a relatively short period of time.

What would be the role of people running governments in cities particularly in this kind of period? What’s the advice you kind of give to people?

Pay attention, be open, ask more questions about what you don’t understand. I’s okay to not understand at all. If you understood it first, it probably would have been your idea. But just because you don’t know what it’s about, just because you don’t necessarily understand it at first, if they have explained it to you 10 times, take the 10th explanation, and on the 11th, the light bulb will go off, and always try to figure out how does this help improve the quality of life for my citizens? How does this create a new opportunity? How can we, my city, whatever city, best utilize this idea, this technology, this innovation, this disruption? Again, be practical. What’s on the other side? Where’s the opposition going to come from? Is this the fight? As they say, you can’t die on every hill. Is this the battle for me or do I need to let others lead the charge and just kind of let some things happen?

I think with more and more people coming to cities with the growth of technology, with the innovation that’s coming out of young and not so young folks, I think the role of mayors is, to some extent, almost like the air traffic control. I mean, you just need to see where it all is, where it’s all kind of happening. Make sure all the planes land and everybody’s safe. If you truly believe that something is bad or will be harmful, stake out that position. But your first response to everything that comes to you can’t be, “No. What did you want to talk to me about?” We have to open ourselves up that much more and embrace the possibility of change. There are things that we’re doing today; there are things that we were doing 40 years ago that were new, different, and disruptive in their time. Today, there are standard operating procedures. Today, what you mean they used to deal with it some other way? So there’s always going to be change, there’s always going to be disruption. What I say back home is, “Philadelphians love change, as long as things can stay the same.”

How is that working out for you?

It’s a tough fight every day.

As we’re kind of wrapping up here, you sound very optimistic in your thinking, but that said, are you worried at all that there’s a kind of a politics that’s emerging in cities now that are a backlash to some of these changes and that we have some kind of relatively narrow window to figure this out, or do you feel it’s just all a part of the process and a way to do it?

I think it’s really more of the latter. It’s a push-and-pull. Again, some people want to be leaders in some areas, some you’ll have to kind of drag them kicking and screaming. We’re still dealing with human beings, and it’s human nature to be somewhat skeptical of what we don’t understand, but it’s also human nature that there are going to be…there will always be a few people who could see the future before a number of other folks, who will struggle with the first version or first iteration of whatever the thing is today, retool it, bring it back, possibly fail, get up from that failure, and the next thing you know, here’s a new thing.

The first cell phone probably didn’t work that well. I tell young people all the time, they can Google it. That didn’t exist until a little while ago either, right? People used to carry a phone in a bag with a huge battery.
They would laugh if someone showed them something like that today and say, “I’m going to carry that around? Are you serious?” Then they continue to shrink and shrink and shrink, and now they fit in your pocket. It’s the evolution of big ideas and innovation and it’s happening in cities– small, medium, and large, across the country and around the world.

So if you had to look at out, let’s say, five, ten years, looking back in on the conversation here, are you confident and optimistic that we’ll have figured this whole new thing out and we’re running fine?

I think we’ll figure things out piece by piece. There will always be some activity that we don’t understand. There’ll always be these battles and fights because change is hard. It really, really is. I think for the person, for the entity, for the company, for the organization, for the sector, explaining time and time again what something is, what it’s about, where is the benefit for folks, people will get it over time. We’re going to continue to make progress. I think progress is inevitable, you can’t stop it. It’s like trying to stop waves in the ocean. They’re just going to keep coming.

It’s great to hear and it’s a good place to end our conversation. It’s been terrific to have a great insight of someone who has not only run a city but has run one of the most interesting cities in the country and has engaged this sharing economy about as fully as you can. Thanks.

Thank you. Appreciate it.