Monthly Archives: October 2020

Muni Credit News Week of November 2, 2020

Joseph Krist

Publisher

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PORTS REBOUND

I was taken aback a couple of weeks ago to see that many retailers already were putting out their Christmas related inventory. It made sense in that Christmas did represent retailers best hope of recovering some of their losses. Now we are seeing the impact of the great Christmas inventory build of 2020 on the port sector of the municipal credit spectrum.

The nation’s busiest port, the Port of Los Angeles, set a September record, processing 13.3% more 20-foot-equivalent units (TEU), totaling 883,625 containers compared with 779,902 last year. Officials also said the third quarter was the best in the port’s 113-year history as 2,701,847 TEUs were processed.

The adjacent Port of Long Beach also had a solid September, handled 795,580 cargo TEUs, breaking the record for a month set just two months ago. September’s figure is up 12.5% compared to 2019’s 706,955 TEUs. Long Beach processed 2,274,271 TEUs during the third quarter, a 14.1% increase from the third quarter of 2019. The port enjoyed its busiest quarter on record, topping the previous mark set in the third quarter of 2017 by 160,000 containers.

The Port of Oakland reported a 9.3% year-over-year increase in September, processing 225,809 TEUs compared with 206,539 in 2019, making it the best September in its history. Seattle-Tacoma, the Northwest Seaport Alliance reported September was its best month of 2020, processing 308,682 TEUs. Still, that was down compared with 347,278 in 2019. On the Atlantic, the Port of Virginia had a record September, processing 256,439 TEUs, up 6.2% from 2019’s 241,416. Savannah facility recorded an 11.4% uptick, moving 412,138 TEUs, compared with 369,999 last year. Port Houston reported a 1.1% year-over-year increase, handling 254,405 TEUs compared with 251,524 in the prior-year period.

The activity numbers support the view that port revenue bond credits are holding up well on both an absolute and relative credit basis.

MUSEUMS

The Board of Trustees of the Association of Art Museum Directors (AAMD) in April passed a series of resolutions addressing how art museums may use the restricted funds held by some institutions. Primarily, AAMD decided to refrain from censuring or sanctioning any museum—or censuring, suspending or expelling any museum director—that decides to use restricted endowment funds, trusts, or donations for general operating expenses. The resolutions place a moratorium on punitive actions through April 10, 2022.

The measures were a direct response to the pandemic based closures of these institutions. They came at a time when some were criticized for employment reductions without use of endowments. It has taken some time for museums to decide to sell art from their collections but a few are poised to do so.

For investors, you can get used to the word deaccessioning (the sale of art). An institution may consider the following sources for general operations, including necessary expenses such as staff compensation and benefits: Income (not principal) from endowment funds or trusts held by a museum and that are normally restricted to purposes other than general operations such as art acquisition, conservation, or research; Income (or principal) from donations or trusts held by outside entities in support the of museum, and that are also restricted to purposes other than general operations such as art acquisition, conservation or research; and the income (not principal) from funds generated by deaccessioned works of art, regardless of when the works were deaccessioned.

The Brooklyn Museum is putting 12 works up for auction. The Museum of Art in Baltimore is selling three of its prized pieces. These decisions however put other sources of funding at risk. In the wake of the decision to sell, two former museum board chairmen say they’ve rescinded planned gifts totaling $50 million.

TRANSPORTATION TECHNOLOGY

“Moving a complex technology with many variables requires more testing in a deployed situation than in the laboratory.” Therein lies the rub in terms of trying to anticipate the real emergence of a fully connected transportation system. Over recent years, proponents of fully smart transportation systems have tried very hard to make the need for significant connected infrastructure investment by governments a more immediate priority. Our view has been that the technology is not mature enough for use currently and that there are more pressing current road infrastructure demands.

The quote is from a recent analysis of a connected vehicle pilot test in Tampa, Florida, conducted by the U.S. Department of Transportation’s Intelligent Transportations Systems Joint Program Office. It found that the complexities of field testing and technology integration were “significantly underestimated.” The gap between performance in the laboratory and “real world’ performance is significant.

Vendors demonstrating their technologies at their own facilities “had a much higher degree of success” than those demonstrating on the expressway – leading one to infer that the “demonstrations at vendor facilities were more controlled” than those vendors who tried to demonstrate at expressway in an unknown environment. “More effort had to be put into testing applications that were believed to be ready for deployment

[meaning]

certain applications may be falsely marketed as deployment ready, when they in fact still require additional research and development to work effectively.”

That is the problem in a nutshell. Public transportation agencies cannot be expected to produce technology based transit infrastructure without the ability to assess the relative costs and benefits of the projects. For the foreseeable future, there are still many bridges to cross until the connected vehicle infrastructure future is realized.

HEALTHCARE CONCENTRATION CONTINUES

The pandemic may be wreaking havoc with the healthcare system in the upper Midwest but that has done nothing to slow the long term operating trends facing providers. To the end, we note the announced agreement to pursue a merger between two regional powerhouses, Intermountain Healthcare and Sanford. The two have signed a letter of intent for a partnership. The merger is expected to close next year pending state and federal approval.

The combined entity will employ more than 89,000 people and operate 70 hospitals. It will also provide senior care and services in nearly 370 locations and insure more than one million people. Intermountain operates 24 hospitals and 215 clinics in Utah, Nevada and Idaho. Those facilities will retain the Intermountain name. Sanford employs 47,757 at its 46 medical centers and 210 clinics which will retain the Sanford brand. Sanford employs 47,757 at its 46 medical centers and 210 clinics. Each system is the largest private employer in their respective home states of Utah and South Dakota.

COLLEGE ENROLLMENTS

Undergraduate enrollment is running 4.0% below last year’s levels. The usually upward trend in graduate enrollments remains so but at a slower 2.7% increase this fall. Overall postsecondary enrollment is down 3.0%. The declines reflect the fact that first time students are the cohort with the largest decline. The overall national rate of decline is 16.1% while community college enrollments declined some 22.7%.

Community colleges continue to suffer the most with a decrease of 9.4% percent. Community colleges’ enrollment decline is now nearly nine times their pre-pandemic loss rate (-1.1% for fall 2019 compared to fall 2018). Even more concerning, the number of freshmen also dropped most drastically at community colleges (-22.7%). Public four-year and private nonprofit four-year colleges show a much smaller drop (-1.4% and – 2.0%, respectively). Freshmen are down far more steeply (-13.7% and -11.8%, respectively).

As the only exception, for-profit four-year colleges are running 3% higher than last fall. At primarily online institutions, where more than 90% of students enroll exclusively online even before the pandemic, enrollments are growing at both the undergraduate and graduate levels (+6.8% and +7.2%, respectively), regardless of student age. Particularly, adult students age 25 and older, who make up most of the undergraduates at these institutions increased 5.5%, after a 6.3% decline in the year prior to the pandemic.

Students and families, facing skyrocketing unemployment, have been loathe to pay full tuition charges for largely online instruction. The American Council on Education and other higher education organizations estimated that the virus would cost institutions more than $120 billion in increased student aid, lost housing fees, forgone sports revenue, public health measures, learning technology and other adjustments.

Since February, colleges and universities have eliminated over 300,000 mostly non-faculty jobs according to federal data. Now that the pandemic is here for the long haul, the institutions face serious decisions impacting even tenured faculty. The furloughs of tenured faculty are occurring at both state and private institutions. ate enrollments are running undergraduate enrollment is running 4.0 percent below The pandemic and its direct effects has arrived to entities with several “co morbidities – years of shrinking state support, declining enrollment, and student concerns with skyrocketing tuition and burdensome debt. Overall demographic trends are not currently favorable for the schools with too many institutions chasing after an insufficient number of enrollees. A slow winnowing out of weaker institutions is now accelerating.

PUERTO RICO

While the effort to restructure the outstanding debt from the Commonwealth of Puerto Rico continues, the future of the Commonwealth’s government will be on the ballot on November 3. The six candidates running for Governor have a diverse set of views and plans. This is the first time since Hurricane Maria that Puerto Ricans have had a chance to express their views at the ballot box. The choices made will potentially have significant impacts as the Commonwealth deals with the pandemic, the rebuilding of the power system, and a potentially contentious debate over statehood.

For example, the rebuilding of the power system has been fraught with difficulties including hurricanes, earthquakes, and politics. In the wake of Hurricane Maria, the federal government got some questionable entities awarded large contracts to rebuild the electrical grid. After the Whitefish contract was eliminated, a new contracting process happened with a new contract being awarded to a different firm named LUMA Energy.

That contract has been controversial. Gov. Wanda Vázquez’s administration announced the chosen company in June 2020. Four out of the six candidates competing for governor have vowed that they will cancel that contract if elected. The other two have said they will not cancel it, but modify it instead. One of the controversies surrounding the contract is that while the transaction is being presented as a public/private partnership (P3), LUMA does not anticipate that it will invest money. In fiscal year 2021, it will be the opposite: payments to the company during the transition will trigger a deficit of up to $132 million at PREPA, according to the public corporation’s Fiscal Plan approved by the Fiscal Control Board.

Proponents can cite the long history of poor management at PREPA. Since 2017, it has had six executive directors. Opponents include ratepayers and employee unions who contend that the contract is designed to benefit LUMA. They cite the fact that the Fiscal Control Board submitted a motion for Judge Laura Taylor Swain, who oversees PREPA’s bankruptcy process under the PROMESA law in court, to consider that any payment to LUMA during the transition process be considered an administrative expense that it is obliged to pay. The judge approved that motion on October 19, meaning that if the public corporation’s debt adjustment plan is approved, LUMA would get paid before any creditor.

WAS WISCONSIN FOXCONNED?

Recently, the State of Wisconsin rejected requests from the Taiwanese multinational electronics contract manufacturer Foxconn for tax credits resulting from development of manufacturing facilities in southern Wisconsin. The Wisconsin Economic Development Corporation (WEDC) is unable to calculate either Job Creation Tax Credits or Capital Investment Tax Credits because the Recipients have not met the requirement that the FullTime Jobs created and Significant Capital Expenditures made within the Zone – or in the case of Full-Time Jobs, outside of the Zone, but within the State of Wisconsin, and for the benefit of the Recipients’ operations within the Zone – be related to the Project.

That is the formal way to document what is becoming a potential disaster for southern Wisconsin. Foxconn isn’t producing the large-sized TV display panels outlined in the original contract, hadn’t invested the pledged amount in the plant and failed to employ even the minimum number of people needed to get subsidies. The proportion of the much smaller projected employee headcount devoted to manufacturing jobs versus R&D jobs is another disappointment.

It was the manufacturing jobs that were the hook to gain state participation as well as the infrastructure investment under taken by the host municipal entities. Now “the Recipients have acknowledged that they have no formal or informal business plans to build a 10.5 Fab within the Zone.” That would be the primary manufacturing facility to be developed. As the State points out, ‘the Agreement and Application provide that, by the end of 2019, 2,080 Full-Time Jobs were anticipated to be created and $3,307,000,000 in capital expenditures would be invested. WEDC’s initial review of the 2019 Annual Project Report reveals that, by contrast, the Recipients employed fewer than the minimum required 520 Full-Time Employees and had invested roughly $300,000,000 in capital expenditures.

We are completely unsurprised by the idea that Foxconn was not prepared to meet their obligations. This deal was thrown together driven by an ideologue Governor and President Trump. They ignored the numerous red flags attached to this project including Foxconn’s past in Pennsylvania where it similarly failed to follow through on commitments made to procure tax benefits.

MTA

The palpable sense of fear about the future of the public transit system in New York continues in the variety of analyses available about the future f the MTA. The data lays out starkly a vision of significant cuts in service and expenses as revenues are slow to recover.

Their major concerns stem from the impact of cuts in MTA operations on the economy of New York City and the twelve-county region served by the Metropolitan Transportation Authority. Closing the projected gap in the MTA’s operating budget for 2021 could require a reduction of the agency’s workforce by 8,000 positions, directly and indirectly resulting in a loss of 13,380 jobs, with more than $1.4 billion in earnings, in the MTA region in 2021 according to the study.

A reduction in capital spending by $4.8 billion below the level previously planned for 2021 would directly and indirectly result in a loss of 23,264 jobs, with nearly $2.0 billion in earnings, in the region in 2021. Reductions in capital spend beyond the $4.8 billion planned for 2021 would directly and indirectly result in even greater job losses.

It’s one side of the transportation debate already underway in New York before the pandemic. The reality is that the mass transit system in greater New York has been one of the best examples of infrastructure subsidizing business. The concerns of business interests regarding the MTA’s future are real even if those concerns are motivated by enlightened self interest. These sorts of studies supply good ammunition in the argument over an additional federal stimulus. It’s becoming obvious that public transit.

GDP – BEHIND THE HEADLINES

Unsurprisingly, the Administration is touting the third quarter GDP numbers as signs that everything is on track for a recovery from a pandemic based world. There is no denying that the revival in GDP is positive but like so many other times, the President focuses on the headline number with no appreciation for the details.

Disposable personal income decreased $636.7 billion, or 13.2%, in the third quarter, in contrast to an increase of $1.60 trillion, or 44.3%, in the second quarter. Real disposable personal income decreased 16.3%, in contrast to an increase of 46.6%. Personal saving was $2.78 trillion in the third quarter, compared with $4.71 trillion in the second quarter. The personal saving rate—personal saving as a percentage of disposable personal income— was 15.8% in the third quarter, compared with 25.7% in the second quarter.

The impact on personal disposable income bodes poorly for those sectors of the economy which have served as foundational blocks for many revived cities. Declining disposable income hurts the entertainment/culture/arts, hospitality, and travel. Increasingly the path to recovery lengthens. This has implications for many revenue backed credits. The current wave of new corona virus cases will put the economy under pressure again. This comes as GDP has not fully recovered from the second quarter impact.

Already, the data was showing a decline from second quarter growth rates. This trend is likely to continue as the revival of the virus is already leading to reimposition of limits on activities. This will further pressure those sectors which had anticipated benefitting from a reviving economy. The potential negative impact on the Christmas shopping season of the pandemic has significant implications for state and local revenue streams.

One must also keep in mind that the fourth quarter will be the first to fully reflect the end of supplemental unemployment payments, the end of regular unemployment payments, and the lack of any additional stimulus. The combination of reduced disposable income and limited or closed retail venues will really be felt for the holiday shopping season. Without these sorts of seasonal boosts, many small businesses which have held out but depend on the holidays for a significant share of their profits may not be able to continue in the new year.

These issues are reflected in the findings of an analysis done by the National Association of Counties. Among economic priorities, individual and small business relief were by far the primary concern of county financial officials. These were followed quickly by unemployment which was cited by 51% of the counties. Many counties are seeing increases in Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) applications.

All of this points to a difficult budget making process in 2021.

NEW YORK AND THE PANDEMIC

Sales tax revenue for local governments in New York state dropped 9.5% in the third quarter compared to the same period last year, according to State Comptroller Thomas P. DiNapoli. Sales tax collections from July to September totaled $4.3 billion, or $452 million less than last year. New York City’s steep year-over-year decline of nearly 22% in sales tax revenue for the third quarter was the main driver behind the overall drop in local government collections. Nearly every other region of the state saw at least some increase over the third quarter of 2019, although these increases were not as strong as in the pre-COVID first quarter.

For September, New York City saw a 43.9% decline in collections compared to the same month in 2019, while the rest of the state rose 19%. Statewide, local sales tax collections declined by 11.8%, or $225 million, for the single month of September 2020 compared to the same month in 2019. So far in 2020, year-to-date (January through September), collections declined 11% or $1.5 billion compared to the same period last year.

CHICAGO RATING BLUES

Moody’s Investors Service has affirmed the Ba1 rating on the City of Chicago, IL’s outstanding general obligation (GO) unlimited tax bonds, the Ba1 rating on outstanding motor fuel tax revenue bonds, the Baa2 rating on outstanding water revenue bonds, the Baa2 rating on outstanding senior lien sewer revenue bonds and the Baa3 rating on outstanding junior lien sewer revenue bonds. That is some $6.2 billion of debt. The outlook however, was lowered to negative.

The change in the outlook to negative from stable reflects the expectation that the sudden and substantial decline in certain economically sensitive revenue will intensify the city’s challenge to reduce the persistent structural gap between revenue and expenses. Any negative variances arising from the uncertain operating environment could intensify and prolong the challenge. The city’s high and growing leverage from debt and pensions will also continue to weigh on its credit profile.

The move comes in the middle of the City’s budget making process for the fiscal year beginning July 1. None of the structural issues cited are new but the pandemic has put the City in an even more difficult situation than was the case prior to the pandemic.

Disclaimer: The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column. The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice. Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News Week of October 26, 2020

Joseph Krist

Publisher

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THE LAST SNAPSHOT BEFORE THE ELECTION

The last Federal Reserve Beige Book was released at mid week. Economic activity continued to increase across all Districts but, changes in activity varied greatly by sector. Manufacturing activity generally increased at a moderate pace. Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories. Increased demand for mortgages was the key driver of overall loan demand.

While businesses figure out how they will conduct their office operations amid the pandemic, commercial real estate conditions continued to deteriorate in many Districts. The role of office utilization is reflected in the fact that warehouse and industrial space construction and leasing activity remained steady. For commercial businesses the news was mixed as consumer spending growth remained positive, but there was some reported leveling off of retail sales and a slight uptick in tourism activity. Demand for autos remained steady, but low inventories have constrained sales to varying degrees.

Reports on agriculture conditions were mixed. Some Districts are experiencing drought conditions while in places like Iowa, crop damage from weather was excessive. Districts reported generally optimistic or positive outlooks for the sector, but with a considerable degree of uncertainty. Restaurateurs expressed concern that cooler weather would slow sales, as they have relied on outdoor dining.

The report essentially confirms what one can see on a daily basis. Much of the economy is in a state of suspended animation. Some obvious sectors like travel and entertainment (broadly defined) find many teetering on the precipice as they try to hang on until an additional stimulus comes. In much the same way, state and local government find themselves having to consider headcount reductions which would only exacerbate local economic conditions.

CHICAGO BUDGET

The fiscal position of the City of Chicago has been under assault as Illinois was one of the states hardest hit by the pandemic in the Spring. With much of its commercial life hindered, offices empty, and its world famous convention and hospitality industries were crushed. With a new fiscal year for the City beginning January 1, the budget process now begins in earnest.

Mayor Lori Lightfoot issued her proposal for a fiscal 2021 budget. The $12.8 billion budget proposal includes closing a $1.2 billion Corporate Fund budget deficit in FY2021 – 65% of which is directly tied to the economic impacts of COVID-19. There would be a $94 million property tax increase. That would work out to $56 more a year for Chicago’s median home value of $250,000. The plan would also index property tax increases to the Consumer Price Index. A three cent hike in the local gas tax is envisioned.

About 350 city employees would be laid off. More than 1,900 vacant positions would be eliminated and nonunion workers would be required to take five unpaid furlough days. Debt refunding and restructuring would be used to generate current budget savings.

SEATTLE TRANSIT GETS A REPRIEVE

The Washington State Supreme Court has ruled on a challenge to the formula used to calculate the value of automobiles for the purpose of calculating the tax due to Sound Transit, the public transit agency in and around Seattle. Taxpayers who are plaintiffs in the lawsuit contend that the transit agency uses a formula that inflates the value of vehicles when it levies a motor vehicle excise tax. That value is used to establish the amount of what is known as the car tab.

Vehicle owners in urban parts of Pierce, King and Snohomish counties pay the tax through their annual vehicle registration or car tab. The suit relied on an interpretation of procedural aspects of how a law is enacted. One provision says no law shall be revised or amended by mere reference to its title. The revised or amended law must be laid out “at full length.” The plaintiffs contend that the transit agency uses a formula that inflates the value of vehicles when it levies a motor vehicle excise tax.

Puget Sound area voters approved the car-tab tax rate increase in 2016. The car tab dates back to 1990, when the Legislature approved a new valuation schedule for the statewide car-tab tax that had been levied for decades. It overvalued the worth of a vehicle to raise more revenue for transportation projects. Six years later, the Legislature enacted a law which authorized Sound Transit to collect a car-tab tax. Voters that year approved a 0.3 % car-tab tax to help pay for light-rail projects. Sound Transit used the state’s valuation schedule adopted in 1990.

This is the second time that a determined group of activists has litigated their anti-tax viewpoint to the Washington Supreme Court. in 2002, voters statewide approved Initiative 776, which repealed the state law authorizing locally imposed car-tab taxes, Sound Transit’s car-tab tax and the valuation schedule it used. That initiative was overturned in the Washington Supreme Court in 2006. The Legislature then approved a bill authorizing local governments to create regional transportation districts to build roads, in part through car-tab taxes.

In 2015, a bill passed giving Sound Transit authority for a voter-approved car-tab tax not to exceed 0.8 % — on top of the 0.3 % approved in 1996 — for a total of 1.1 % of the vehicle’s value. That bill did not use the schedule with the lower values for vehicles that lawmakers approved in 2006. That formula would have meant less revenue for Sound Transit. The bill said the higher valuation schedule that Sound Transit had used since it began to collect car-tab taxes in 1997 temporarily would be in effect until its 30-year bond debt incurred in 1999 for light-rail projects is retired. The transit agency has said that will happen in 2028, when its 0.3 per cent car-tab tax is set to end.

The decision is a win for public transit financing in the Puget sound region.

MEDICAID EXPANSION – THE SONG REMAINS THE SAME

They keep swinging and missing but one more state is going to try Medicaid expansion with work rules. These provisions have regularly failed to be successfully upheld once they face the scrutiny of the federal courts. Nonetheless, Georgia is the latest state to receive federal approval to expand their program with work rules.

Governor Brian Kemp introduced his “Pathways to Coverage” plan that expands Medicaid but to a limited cohort. This would cover adults who meet the work requirements and who earn no more than 100 percent of the federal poverty level — $12,760 a year for an individual. It is estimated that 65,000 currently uninsured could qualify for coverage. That compares to estimates of the number of people who could be insured under a full expansion of some 600,000.

Because it does not qualify for federal funding, this partial expansion will have to be 100% funded by the State whereas a full expansion under the ACA would be 80% federally funded. The proposed work rules would require Medicaid beneficiaries to complete at least 80 hours of work, community service or other qualifying activities per month. Most individuals who earn between 50 percent and 100 percent of the poverty level will also be required to pay monthly premiums. had.

The program will likely have the same experience that the programs in states like Arkansas and Kentucky have had. So the legitimate question is: what are these states trying to accomplish? It’s not about healthcare access and it’s not about sound long term fiscal policy.

SOUTH CAROLINA PUBLIC SERVICE (SANTEE COOPER)

The resolution of a class action lawsuit related to the 2017 abandonment of construction at the V.C. Summer nuclear power plants Units 2 and 3 (Summer), which places an upper limit on the financial obligations associated with the lawsuit between the Authority and Central Electric Power Cooperative Inc. (“Central”), Santee Cooper’s largest customer has led Moody’s to upgrade its outlook on the credit of the South Carolina Public Service Authority to stable from negative. The litigation was just one of the issues serving as a drag on the Authority’s ratings to result from its participation in the ill-fated power plant expansion.

To refresh, terms of the settlement involve a $200 million payment from Santee Cooper payable over the next three years beginning in 2020. Santee Cooper is also required to hold base rates for the substantial majority of its customers to levels reflected in the Reform Plan it submitted to the General Assembly in January of this year through the end of 2024. Clearly, this will impact the utility negatively in terms of revenues and cash flows. The Authority believes that it can offset at least some of the foregone revenue through lower operating costs related to lower fuel costs will help mitigate the rate freeze impact over the next several years. The favorable environment for issuers should provide multiple opportunities to refund debt.

One thing in favor of the long term outlook for Santee Cooper is a significant service area and a strong monopoly position relative to other power distributors. That monopoly received recent legal support when a state court ruling ended a dispute between Santee Cooper and the City of Goose Creek over which utility was legally entitled to serve an industrial customer. The ruling that Santee Cooper’s right to serve the facility in the current location was established by the state’s General Assembly many decades ago is seen as reducing concerns about the ability of competitors to snatch away customers as the Authority recovers from the Sumner debacle.

There is uncertainty still remains as to whether Santee Cooper will be reformed or sold. The pandemic complicated many legislative issues in the 2020 session of the State Legislature. It is expected that the issue of Santee Cooper’s future will be a central issue during the 2021 session.

I’VE BEEN WORKING ON THE RAILROAD

The last week brought mixed news for the Brightline high speed rail developer. The good news came in the form of the announcement that the US Supreme Court had declined to review an appellate court finding against the lawsuit by Indian County, FL challenging the issuance of municipal bonds to finance construction. Investors had already made the judgment that the County’s legal challenge would be unsuccessful. This was probably the greatest potential legal challenge to the credit.

The bad news came in the form of the postponement of the sale of $3.2 billion of bonds, the proceeds of which would be used to finance construction of Brightline’s high-speed rail service between southern California and Las Vegas. The sale has faced a variety of headwinds related to the proposed route (Victorville is 85 miles from L.A. which is over 25% of the distance between L.A. and Las Vegas), concerns about the impact of the pandemic, the potential for litigation, and uncertainty regarding the success of Brightline’s Florida train. The deal has been restructured to reflect a higher equity contribution which will lower debt to 68% of total financing.

As was the case in Florida, the effort to finance the Las Vegas project faces a deadline to issue its debt. Brightline has until Dec. 1 to sell the bonds under a deadline from California officials, who approved the company’s request to sell tax-exempt debt. In September, Brightline sold $1 billion in short-term securities to preserve its federal allocation of so-called private activity bonds that it will refinance next year. It’s not clear whether the postponement reflects an insufficient number of buyers or if it is an issue of price. The analysis is also complicated by the ongoing shutdown of the Florida operation due to the pandemic.

Meanwhile in Texas, the governor has landed himself in the center of a storm over the Texas Central Railroad, the company handling the construction. Recently, the Governor sent a letter to Japan’s prime minister offering strong support for the project which will use Japanese bullet train technology. It created a bit of a storm as landowners resistant to selling their land for the proposed right of way.

Those landowners have been fighting eminent domain proceedings seeking to obtain their land for right of way. The state has a long history of resistance to the concept of eminent domain and the property owners have now generated enough pushback to cause the governor to waver. His staff has made it known that “the Governor’s team has learned that the information it was provided was incomplete. As a result, the Governor’s Office will re-evaluate this matter after gathering additional information from all affected parties.”

Texas Central has yet to file an application for the project with the Surface Transportation Board, the federal agency with jurisdiction over the project. It does claim that the proposed rail line recently received the necessary permits to begin construction. Opponents note that the regulatory process is far from complete.

The company hopes to begin construction in the first half of 2021. It has acknowledged that expected partners who operate rail lines overseas have seen their financial positions damaged by the pandemic. Opponents of the line have tried to portray the issue as being one of taking Texan’s land for the benefit of a foreign entity.

MASS DOT PROJECTS THE FUTURE

The Massachusetts Department of Transportation recently presented three scenarios in support of efforts by Mass DOT and the MBTA to plan for the recovery of transit in the wake of the pandemic. While designed for the greater Boston metropolitan area, the exercise highlights the issues which will face most, if not all mass transit systems in the nation’s urban areas.

Each of them covers the 2021-2023 time period. The first scenario portrays an almost full recovery. Under this scenario, travel patterns diverge from economic recovery as consumers and employees adapt to a new normal – especially in light of new and emerging remote meeting and e-commerce technologies. Travel and business restrictions are lifted and consumer spending slowly increases but consumers have increasingly shifted previously in-person activities like shopping to digital and e-commerce.

Telehealth appointments are common and higher education is increasingly online. In those industries that have historically supported teleworking (pre-COVID), half of employees choose to work exclusively from home an average of three days per week as employers are more comfortable with enterprise-wide tools for remote meeting space and cloud-based file access; flexible work arrangements become more common.

The second reflects an environment where travel patterns diverge from economic recovery as consumers and employees adapt to a new normal – especially in light of new and emerging remote meeting and e-commerce technologies. Travel and business restrictions are lifted and consumer spending slowly increases but consumers have increasingly shifted previously in-person activities like shopping to digital and e-commerce.

The third is based in a world where the economic impacts of COVID continue to depress travel and mobility for a longer period of time, especially on the MBTA. Telecommuting becomes the standard practice for the foreseeable future. The period in which at least some travel and business restrictions remain in place is longer in this scenario. In addition, discretionary spending including spending on travel remains lower. Half the workforce in tele-workable industries continues to work remotely but does so much more often than they did pre-COVID (on average, three days per week) because teleworking habits have had more time to form and employers see productivity benefits and savings in downtown real estate costs.

Which scenario proves out will have significant implications. For the MBTA, the first scenario would return ridership to just under 90% of pre-COVID levels. The second would produce ridership at about 75% of pre-COVID levels. The third would leave ridership at 60% of those levels. It is important to note that these percentages reflect the period ending in June of 2022 when the full recovery impact on ridership will be seen.

MBTA ridership and revenue is at a fraction of its earlier levels. Bus ridership is at about 40% of pre-pandemic levels, while the subways have seen about 25% of former crowds and commuter rail remains the lowest around 12%. According to favorable estimates, the MBTA FY21 loss could be $18 million and losses in FY 2022 could be $114 million. The pessimistic view puts the losses at $46 million and $271 million respectively. With many other transit agencies face bleak current and short term environments, it is easy to make the case for additional support in an stimulus being considered.

COLLEGE MODELS MOVE IN OPPOSITE DIRECTIONS

Two universities received opposing views of their outlooks as revealed by ratings actions by S&P. S&P Global Ratings revised its outlook to positive from stable and affirmed its ‘A’ rating on New Hampshire Health & Educational Facilities Authority’s revenue bonds issued for Southern New Hampshire University (SNHU). The ubiquitous TV advertiser found itself well positioned to take advantage of pandemic related demand for online learning.

One of the earliest providers of online learning, SNHU has seen its enrollment increase significantly in the last two years after some 20 years of steady growth. This has enabled the university to maintain its financial position to a greater degree than would otherwise be the case. It all led to the upgrade of S&P’s outlook for the credit to positive.

S&P Global Ratings lowered its long-term rating to ‘BB’ from ‘BBB-‘ on La Salle University, Pa.’s bonds, issued through the Philadelphia Authority for Industrial Development and the Pennsylvania Higher Educational Facilities Authority. The outlook is negative. In fall 2019, full-time-equivalent enrollment dropped by 5.4%, compounded by another 7.2% decline for fall 2020. Based on audited fiscal 2020 results, the university predicts a $1.3 million adjusted operating deficit (- 1%) and has budgeted for a larger deficit for fiscal 2021.

This reflects operating pressures prior to the pandemic. The university has already been operating for three years in a cost cutting mode in an effort to reflect the lower demand. The university has increased its reliance on endowment draws to maintain balance. The institution is not positioned nearly as well to accommodate a move away from traditional college learning structures.

Muni Credit News Week of October 19, 2020

Joseph Krist

Publisher

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It was dismaying to hear that after weeks of efforts to pass another stimulus which could benefit state and local government, the view still holds that additional help for states is a pension bailout. When one hears the continuing focus on pensions by the Administration, it lets you know that the whole negotiating process has been a bit farcical. This all reflects one less well thought out proposal from one Congressperson that specifically cited Illinois’ pension problem. Since May, the Administration and its supporters have hung their hat on the hook of stonewalling based largely on that one comment.

The impasse has seen mostly Senators cite pensions as their basis for stonewalling an additional stimulus. They cast the issue of pensions as a red state/ blue state issue. The reality is that pensions are a color blind issue. For every blue state opponents can cite, one can point to somewhere like Kentucky (sorry Senator McConnell) which has been a historical poster child for pension underfunding.

The inability to come to an agreement actually works against the goal of fully opening the economy. Neither government nor individuals can be expected to jump start the economy so long as the pandemic continues. One has to wonder what the policy goal is from the Republican side. Unemployment claims have leveled off at a steady 800 to 900 thousand a week and millions continue to collect benefits. At the same time, those benefits will begin to expire as we move into the late autumn and early winter setting the stage for a more prolonged and slower economic recovery.

No matter where you fall on the political spectrum, the current state of affairs makes no sense.

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THE GREAT WHITE WAY REMAINS DARK

The recent announcement that Broadway shows will not reopen until May 31 is a significant blow to the NYC economy. It also highlights the special circumstances that the entertainment/cultural sectors face as they try to deal with the pandemic. All Broadway theaters closed on March 12 as part of an effort to slow the spread of the corona virus by limiting large gatherings; at the time there were 31 shows running, including eight still in previews, and another eight were in rehearsals getting ready to start performances. In 2019, the industry’s theaters drew 14.6 million theatergoers and sold $1.8 billion worth of tickets.

Sports and the performing arts occupy a niche along with restaurants in that they depend on in person attendance or patronage. Their unique characteristics have left these businesses in an especially disadvantaged position as the pandemic unfolds. In cities like New York which made sustained concentrated efforts to make tourism an economic pillar, the lack of entertainment, cultural, and sports draws will have a real impact.

There has always been a risk that a tourist based economy would be impacted by exogenous events. Unlike other events whether they be natural disasters or things like terrorism, the pandemic carries with it a lot more uncertainty regarding a municipalities fiscal outlook. The ongoing nature of the pandemic and the lack of easy fixes, makes it extremely difficult to predict a timeline for recovery which makes the fiscal outlook even more difficult to assess.

GREEN MOUNTAIN CANNABIS

Vermont will become the 11th state in the nation to allow sales of marijuana for recreational use after Gov. Phil Scott (R) said he would not veto a measure passed by the state legislature. The law will take effect without his signature however. The legislation creates a cannabis control board that will establish the regulatory framework around sales, along with a significant 14% excise tax on all marijuana products.

The significance of the action is that legalization has largely been through voter initiative. This year there are four states where legalization initiatives will be on the ballot. There the legislative role has been crafting regulatory legislation rather than establishing legality. That has always been a heavier political lift. The move could also have knock on effects for bordering states like New York where legalization would have to occur legislatively. The press for new revenues in a post pandemic world will likely see the Empire State reconsider its previous unwillingness to legalize.

PANDEMIC CASUALTIES – PRIVATE STUDENT HOUSING

The pandemic and its impact on the ability of colleges and universities to hold classes on campus continues to negatively impact ratings. The latest example is Kanawha County Commission, West Virginia’s Student Housing Revenue Bonds (The West Virginia State University Foundation Project). a 10% enrollment decline at WVSU for Fall 2020, has resulted in weak Fall 2020 occupancy of 71% at the student housing project (Judge Damon J. Keith Hall).

The low occupancy has impacted financial operations to the extent that it will likely trigger required payments from West Virginia State University (WVSU or the University) under the Contingent Lease Agreement, in order for the project to maintain a minimum fixed charges coverage ratio (FCCR) of 1.0x. Under more “normal” operating conditions, fiscal 2019 saw the project generate a 1.17x FCCR prior to payment of subordinated expenses. Given that those coverage levels were achieved with 98% occupancy for Fall 2018 and 82% occupancy for Spring 2019, there has never been much room for error in terms of meeting covenant requirements.

All of this led Moody’s to downgrade bonds issued for the project to B1 from Ba3. The rating downgrade reflects the pandemic’s impact on university housing demand and overall project performance. The rating is still on negative outlook which “incorporates the project’s materially weakened financial position at current occupancy levels, which raises the possibility of future reliance on payments from the University (rated B1/Negative) under its Contingent Lease Agreement, due to reduced rental payments at the project.”

Another downgrade impacted $118,250,000 Maryland Economic Development Corporation’s (MEDCO) Student Housing Refunding Revenue Bonds (University of Maryland, College Park Projects) . The project’s reduced current year revenue expectations due to COVID-related lower occupancy, the project’s diminished trustee-held fund balances, and the lack of any direct financial support to date from the University of Maryland, College Park or the University System of Maryland all contributed to a downgrade to Ba1 from Baa2.

Fall 2020 physical occupancy of the project was 79.6% as of October 1, 2020. Once “normal” campus operations are restored, the likelihood is that historic full occupancy of the facility will be achieved. Even so, the rating remains on negative outlook reflecting “the unknown length of the COVID outbreak and its effect on project occupancy. If project occupancy were to decline further, a significant drawdown of the debt service reserve fund may be required, thus further weakening the credit.”

PANDEMIC CASUALTIES – TRANSPORTATION

As the pandemic drags on, the timeline for recovery continues to be extended. Recent announcements from companies point to the summer of 2021 as the more likely date for a more fully fledged return to offices. The move to remote working has led to clear impacts on those sectors which rely on primarily office based workers. A PricewaterhouseCoopers Remote Work Survey that found 77% of U.S. office employees are currently working from home at least one day a week, with 55% projected to continue doing so once the COVID-19 crisis passes.

Another survey, conducted by StreetLight Data, showed the impact of remote work on commuting patterns. Vehicle miles Travelled (VMT) is the basic metric at the core of the research. StreetLight based its study on an examination of VMT data from five major U.S. metropolitan areas – New York, Los Angeles, San Francisco, Washington D.C., and Chicago. It found significant impacts on commuting patterns as the result of the pandemic.

The data revealed that the impact of the pandemic has been uneven on a regional basis. Northeast states fall into a group with a larger drop in VMT and a slower recovery. This trend correlates with demographic factors including higher income, higher average population density, and higher share of professional services employment. States with a faster recovery trend have lower income levels, less population density, and fewer professional services jobs. COVID-induced VMT decreases were less pronounced in rural areas. This trend was especially true in counties heavy with essential industries.

The continuing realization by companies that a remotely based workforce does not have negative impacts on their operations complicates the outlook for transit. Just this week, two major mass transit agencies saw negative outlooks assigned to their S&P ratings. The Port Authority of Allegheny County is the mass transit provider in the greater Pittsburgh region. The authority relies on substantial state subsidies for its operations and the commonwealth collects, distributes, and governs the pledged revenues. The Regional Transportation Authority, Ill. finances mass transit in the greater Chicago metropolitan area. The sales tax revenue collections which secure the bonds are likely to be pressured in the coming months, and potentially beyond, due to recessionary pressures stemming from the pandemic.

Two more airports saw negative credit moves from S&P as the airline travel industry continues to suffer. S&P lowered its long-term rating and underlying rating (SPUR) on College Park, Ga.’s customer facility charge (CFC) revenue bonds, issued by the city of Atlanta to fund the consolidated rental car facility (CONRAC) project at Hartsfield-Jackson Atlanta International Airport (ATL), to ‘BBB+’ from ‘A’. The rating remains on negative outlook. Ontario International Airport Authority, Ca. saw its rating affirmed but the negative outlook on the bonds was maintained.

MTA

NYS Comptroller Thomas diNapoli has released his annual report on the finances of the Metropolitan Transportation Authority. It highlights the dire position in which the MTA finds itself in the face of Congress’ inability to generate an additional stimulus bill. The budget gaps are huge: $3.4 billion in 2020, $6.3 billion in 2021, $3.8 billion in 2022, $2.8 billion in 2023 and $3.1 billion in 2024. The 2021 budget gap is more than half (53 percent) of the MTA’s annual projected revenue.

Although ridership has begun to recover as parts of the economy reopen, fare and toll revenues for 2020 through 2023 are projected to be $10.3 billion lower than expected in the February Plan. The MTA projects ridership — and the revenue it brings — will return to pre-pandemic levels by 2023. Other revenue, from dedicated taxes and subsidies, are forecast to be $5.5 billion lower for 2020 through 2023, before achieving full recovery.

The data on debt is a concern for bondholders. The current burden, which has averaged 16.1% of total revenue for the past decade, is projected to reach 25.7% in 2021 before declining to around 23% in 2022 through 2024. The portion of fare and toll revenue funding debt service would reach 78.9% in 2020 and 64.6% in 2021 before declining to 47.2%in 2022.

Outstanding long-term debt issued by the MTA more than tripled between 2000 and 2019, rising from $11.4 billion to $35.4 billion. The MTA expects debt outstanding to reach $50.4 billion by 2024, without any potential additional borrowing. If the MTA borrowed $10 billion as allowed by the state, debt service could rise by $675 million annually starting in 2023, bringing it to more than a quarter of every dollar of revenue.

CALIFORNIA BALLOT

The balloting has already begun so let’s get right to the initiatives on the California ballot that municipal bond investors will care about. We see three out of the twelve on the ballot to fit that bill.

Proposition 15, the Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative is a constitutional amendment to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value, rather than their purchase price. This would be a substantial change for commercial owners who have been seen to benefit from the limitations of Proposition 13. Proponents see it as an opportunity to remedy what they see as a defect in Proposition 13 that limited tax burdens for commercial property relative to that of homeowners.

The change from the purchase price to market value would be phased-in beginning in fiscal year 2022-2023. Properties, such as retail centers, whose occupants are 50 percent or more small businesses would be taxed based on market value beginning in fiscal year 2025-2026 (or at a later date that the legislature decides on). Proposition 15 would define small businesses as those that that are independently owned and operated, own California property, and have 50 or fewer employees.

Proposition 19, the Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment would allow eligible homeowners to transfer their tax assessments anywhere within the state and allow tax assessments to be transferred to a more expensive home with an upward adjustment; increase the number of times that persons over 55 years old or with severe disabilities can transfer their tax assessments from one to three; require that inherited homes that are not used as principal residences, such as second homes or rentals, be reassessed at market value when transferred; and allocate additional revenue or net savings resulting from the ballot measure to wildfire agencies and counties.

It is a way to address the already massive dislocation caused largely by wildfires over recent years. This would represent the second attempt at the same goal after no success in a 2018 effort. It has been recast with The ballot measure would require the California Director of Finance to calculate additional revenues and net savings resulting from the ballot measure.

The California State Controller would be required to deposit 75 percent of the calculated revenue to the Fire Response Fund and 15 percent to the County Revenue Protection Fund. The County Revenue Protection Fund would be used to reimburse counties for revenue losses related to the measure’s property tax changes. The Fire Response Fund would be used to fund fire suppression staffing and full-time station-based personnel.

The third item could have huge ramifications for the future of Mobility as a Service (MaaS). Proposition 22, the Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers Initiative. This initiative is the industry’s reaction to AB 5, the state law which established a three-factor test to decide a worker’s status as an independent contractor. The three-factor test requires that (1) the worker is free from the hiring company’s control and direction in the performance of work; (2) the worker is doing work that is outside the company’s usual course of business; and (3) the worker is engaged in an established trade, occupation, or business of the same nature as the work performed.

Uber, Lyft, and Door Dash are the drivers behind the initiative. It continues their strategy of resistance when it comes to its relationship with labor. Proposition 22 would consider app-based drivers to be independent contractors and not employees therefore, state employment-related labor laws would not cover app-based drivers. The three companies have poured some $145 million into their campaign. In the meantime, on August 10, 2020, the Superior Court of San Francisco ruled that Uber and Lyft violated AB 5 and misclassified their workers.

BORDER PRESSURES ON CREDIT

As the pandemic drags on, those entities which are facing extended regulatory limits designed to slow the pandemic are beginning to show some wear in terms of their credit profile. One example we saw this week is the downgrade of Cameron County, Texas. The county is the home of Brownsville, an important entry point on the US-Mexico border.

The County saw its AA general obligation rating put on negative credit watch by S&P. Brownsville is the only port of entry from Mexico that provides all four methods of transportation: sea, air, highway, and rail. This puts international trade and travel at the center of the County economy. The continuing closure of the US-Mexican border is a significant drag on the County economy. There is a one-in-three chance that S&P could lower the ratings if reserves deteriorate to levels we feel are no longer commensurate with the current rating level, and if the county’s economy weakens as a result of the challenges presented by the COVID-19 pandemic.

Border cities have benefitted greatly from the expansion of cross border economic activity in the NAFTA era. This has encouraged locally based cross border activity for commercial purposes, especially small businesses. The benefits of the warehousing and expediting sectors in the local economy is obvious. The closure of the U.S.-Mexican border to nonessential traffic in response to COVID-19 will continue to affect the local economy and the county’s finances.

ANOTHER ONE BITES THE COAL DUST

“OUC Management recommends significantly reducing coal-fired generation no later than 2025 and eliminating it no later than 2027, using coal-to-gas conversion as a technology bridge, positioning solar as the main source of new energy, investing in energy storage, and leveraging other future clean technologies.” With that, the Orlando Utilities Commission moves to the forefront of municipal utilities dealing with CO2 emissions.

The OUC plan includes the end of coal-fired generation, with a significant reduction no later than 2025, and eliminating it no later than 2027. The Stanton coal units, with 940 MW of generation capacity, while being converted to natural gas, will “ultimately be retired no later than 2040. OUC also owns a 40% share of the 340-MW Unit 3 at the C.D. McIntosh plant in Lakeland, Florida; that unit is expected to shutter by the end of 2024.

The announcement comes amid a changing regulatory environment for power generation. The Federal Energy Regulatory Commission (FERC) proposed a policy statement to clarify that it has jurisdiction over organized wholesale electric market rules that incorporate a state-determined carbon price in those markets. Currently, 11 states impose some version of carbon pricing. FERC, as a regulator of regional power market activities

We note comments by the FERC chairman about carbon pricing. “If states continue to pursue carbon pricing — and I fully expect this to be the case — RTOs and their stakeholders can and should explore the feasibility and benefits of market rules that incorporate the state-determined carbon price.” The fact that the likelihood of an increased role for carbon pricing is accepted by the major federal regulator even in the face of the Administration’s unending efforts to promote fossil fuel use is noteworthy.

Muni Credit News Week of October 12, 2020

Joseph Krist

Publisher

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Three weeks out from Election Day we see little prospect of a stimulus package. We see continuing disruption and uncertainty in the immediate future in terms of state and local finances. The lack of a plan is already impacting not only the governments but their economies which would benefit from the economic stimulus of infrastructure development.

We look at the upcoming election through the lens of a municipal bond investor and analyst. A continuation of the status quo in Washington would leave the handcuffs on the municipal bond market. No advance refunding, no increased private activity limits, and no additional incentives to drive additional bank investment in municipal bonds. Combined with a clear unwillingness and inability of the Trump Administration to develop and articulate an infrastructure policy, the status quo would be an exceptionally poor outcome for municipal bonds.

If a Democratic administration emerges and if the Senate goes Democratic, a more favorable municipal bond environment would be a likely outcome. Increased flexibility, additional stimulus, a likely top marginal tax rate increase, all would drive additional supply and demand for municipal bonds. Stimulus would support credits and by driving economic activity would be credit positive as well.

None of those issues are red or blue.

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ON THE LINE IN NOVEMBER – MEDICAID AND HOSPITALS

The Trump Administration’s choice to press forward rapidly with its Supreme Court Justice appointment simply reinforces the importance of the election and its possible outcomes. Should the appointment be confirmed before November, one of its decisions could have real ramifications for the credit of states, counties, and hospitals. The U.S. Supreme Court is set to hold hearings on California v. Texas in November, a case in which the plaintiffs hope the court will invalidate the Affordable Care Act (ACA) in its entirety.

A recent Urban Institute report attached some data to support its view that should the ACA be found unconstitutional it would be a negative event. The bulk of current media and debate is on the idea of coverage as it pertains to the patient side of the equation. We look at the issue of what is the current situation where theoretically everyone could have coverage as it pertains to the ability of providers to sustain their businesses while states maintain their solvency under conditions which increase the amount of Medicaid and charitable care would be funded.

If the population were to revert to the pre-ACA environment, there would be significant. Opponents like to criticize the increased costs to states for increased Medicaid eligibility but they never provide data to show how increased coverage is not an overall positive for a state’s economy. The fact is that states only have to cover 20% of the expansion cost in their state undermines the budget argument. The return of the 2009 status quo would reduce some medical spending for states but it would increase costs in other ways that mitigate the value of any estimated net budget benefit.

In the context of the pandemic, the resulting upheaval stemming from the medical insurance market would be only more acute. Whether from a healthcare perspective or a purely economic perspective, such a change would damage the financial position of the funding and provider side of the equation will generating little if any net benefit to the consumer/patient side. The potential general economic impact would be negative from both an employment and consumption standpoint. COVID-19 has exposed health care providers to additional social risks related to protecting the health and safety of communities. Specifically, those risks could cause financial pressure should revenue and other federal and state support fail to cover the increased equipment and personnel costs stemming from demand to care for COVID-19 patients and should revenue losses occur as a result of individuals’ forgoing care for health and safety reasons related to the pandemic.

Approximately 5.8 million Americans enroll in individual (single adult) marketplace policies and receive federal help paying for their coverage. The average adult in this group receives $5,550 in assistance each year through premium tax credits. Another 2.7 million Americans enroll in marketplace plans with their family members and receive federal subsidies to help pay their premiums. The average family among this group receives $17,130 in help each year through premium tax credits.

36 states and the District of Columbia so far expanded healthcare coverage under the ACA. Whenever it is on the ballot for voter approval, it wins. That is not an accident.

ON THE LINE IN NOVEMBER – TRANSIT ON THE BALLOT

The operating outlook for many municipal transit systems is negative right now and the projected course of the pandemic so uncertain but this has not removed the pressure off transit agencies who by their nature develop long range plans for long lived assets. This reality is driving a number of municipalities to seek new or additional funding sources from their own revenue bases to fund transportation infrastructure.

Portland, OR – A 0.75% payroll tax on employers to fund a $7 billion transportation plan. Gwinnett County, GA – 30-year, 1% sales tax for transit expansion in the county, including money for bus and rail expansion, expected to raise a total of $12 billion. Austin, TX – 8.5-cent, no-sunset increase in city property tax to help fund Capital Metro’s $7 billion Project Connect plan.

These requests highlight the continuing lack of a federal role in new infrastructure development. Infrastructure week has morphed into something closer to infrastructure decade. These jurisdictions are all integral parts of significant metropolitan areas with real economic aspirations and it is not unreasonable for there to be clear guidance regarding the federal role in funding mass transit. The pending proposals highlight both the need for local funding as well as the policy vacuum at the federal level.

MICHIGAN

Early on, Michigan was one of the state’s hit hardest by the pandemic. The Governor was aggressive in dealing with it though the use of fairly strict restrictions on economic activity and travel. These moves have been undertaken in the face of vocal opposition which has gotten much publicity. The political atmosphere created real uncertainty about the likelihood that a fiscal 2021 budget would be adopted in time for the beginning of the fiscal year on October 1.

Governor Gretchen Whitmer signed the state’s $62.8 billion budget for fiscal 2021 (which ends 30 September 2021). It includes good news for local governments because it preserves their state funding in the face of revenue difficulties stemming from corona virus related restrictions. Preliminary state budget estimates had signaled local government funding cuts. The stable funding will likely allow K-12 school districts to avoid draws on reserves. The fiscal 2021 state budget includes $95 million in onetime supplemental funding for school districts, which equates to $65 per student.

Given the contentious politics of the State, the changes made to funding ratios and policies as a part of the budget were good to see. One is the change in how student attendance is calculated for purposes of distributing state aid to districts. Roughly 95% of traditional public school districts in the state are majority funded based on their individual per-pupil foundation allowance set annually by the state legislature.

Count day is when all districts in the state determine their enrollment and takes place in February and October. The state has also changed the way it will count students for the year, using a blended count more heavily weighted toward last spring’s Count Day which limits the financial impact of an enrollment drop resulting from students choosing not to attend this fall because of the corona virus.

Non-school district localities benefit from the fact that sales taxes – the primary source for state aid distributions – have performed better than was estimated. This has allowed the state to hold funding constant in the current year’s budget. It’s not all milk and honey for the larger municipalities which have more diverse revenue bases. The maintenance of state aid mostly addresses property tax issues. It does not offset losses from things like income and gaming taxes.

DOWNGRADES CONTINUE

S&P continues to lower airport revenue bond ratings. It lowered its long-term rating and underlying rating (SPUR) to ‘A+’ from ‘AA-‘ on Hillsborough County Aviation Authority (HCAA), Fla.’s outstanding senior-lien revenue bonds and to ‘A’ from ‘A+’ on the authority’s ‘s subordinate-lien revenue bonds, both issued for Tampa International Airport (TPA). A negative outlook was maintained. Combined enplanement levels are projected to be down 43% in fiscal 2020 (Sept. 30 year-end) compared with fiscal 2019 and down approximately 67% for the month of August year over year.

It lowered its long-term rating and underlying rating (SPUR) to ‘A’ from ‘A+’ on Oklahoma City Airport Trust’s revenue bonds. The outlook is negative. It lowered its long-term rating and underlying rating (SPUR) to ‘BBB’ from ‘BBB+’ on the Mobile Airport Authority (MAA), Ala.’s general airport revenue bonds lowered its long-term rating and underlying rating (SPUR) to ‘BBB’ from ‘BBB+’ on the Mobile Airport Authority (MAA), Ala.’s general airport revenue bonds. A negative outlook was maintained.

Other airport credits downgraded by S&P included Kansas City, Palm Beach, Fl, and the Manchester NH airport. Some of the larger airports have been able to maintain their ratings but have received negative outlooks. Memphis and Denver are the latest examples.

S&P maintained the City of Detroit’s negative outlook assigned in April. Fiscal 2020 revenues were in line with projections and while 2021 revenues have been revised downward, the city will likely use less fund balance than expected, factoring in conservative projections, efficient spending below budgeted levels, CARES Act funding, and some one-time transfers. So what is the major risk? “Revenues do not recover and there is no additional stimulus, and if this is expected to lead to a continued budget gap and even further draws on reserves.”

COAL TAKES ANOTHER HIT

The relentless pressure on the economics of coal continues to claim victims. Competitive energy supplier Vistra announced it would retire 6,800 MW of coal by 2027. The company owns seven coal-fired power plants across the Midwest. Company officials blamed state subsidies, declining gas prices, an overbuild of resources and the “systemic failure of the MISO capacity market to provide Illinois-based power plants with adequate revenues” for its coal fleet.

Interviews with the CEO of Vistra were telling in terms of the future of coal. Among his revelatory statements he indicated that these decisions are not politically driven. “The one key about coal plants is that they’re closing naturally because natural gas prices are low, which then turns power prices low. Even though the States are anti coal, what is interesting is that’s not why coal plants are shutting down.”

While the policy debate in terms of coal and climate change continues at the political level, we have previously opined the decline of coal would be a market driven rather than a politically driven one. Merchant coal plants are uniquely vulnerable to coal’s failing economics within competitive markets, because unlike vertically integrated rate-regulated utilities, competitive energy providers are unable to recover any losses associated with plants through their rate base.

Since Mr. Trump was inaugurated, 145 coal burning units at 75 power plants have been idled, eliminating 15% of the nation’s coal-generated capacity, enough to power about 30 million homes.

RETAIL UNDER MORE PRESSURE

If you own a credit which depends on a shopping mall, you got more bad news this week. The owner of Regal Cinemas in the United States, said it would temporarily close all 663 of its movie theaters in the United States and Britain. The move was expected to affect 40,000 employees in the United States. 200 theaters, mostly in California and New York, have been shut since the pandemic began in the spring.

The closure is attributed in part to the lack of new film releases. In many locations, theaters serve as a significant customer draw especially to food and drink establishments. The loss of associated sales tax revenues to host localities is problematic. In cases where the revenues are specifically pledged to support debt service, the loss is especially problematic. This is the case whether the revenues are collected taxes or are revenues from rent to developers who are responsible for payments in support of bonds.

PUERTO RICO

The Financial Oversight and Management Board (FOMB) overseeing Puerto Rico’s fiscal recovery had its status cemented this week by the U.S. Supreme Court. The Court refused to grant review of the opinion of the U.S. Court of Appeals for the First Circuit restricting the government’s spending powers to only those authorized by the board. The appellate decision stated that the Puerto Rico governor cannot carry out expenditures unless authorized through a Board-certified fiscal plan and budget. It also ruled that the board can make its fiscal plan recommendations mandatory.

At the same time, four groups of investment funds filed a motion in the U.S. District Court for Puerto Rico asking the court to require the board to do one of three things by Nov. 30: Affirm that it will try to finalize the existing proposed plan of adjustment announced in February, file a modified version of the existing plan with a modified disclosure statement, or file a new proposed plan of adjustment and disclosure statement.

The groups seek to have the requested material available by November 30. The motion seeks to require that by Feb. 1, 2021, the court consider the adequacy of the disclosure statement. The motion seeks to require voting on the plan start by early February and tabulation of the votes be completed by April 30. The motion seeks to have the court to consider confirming the plan no later than May 31 and order that the plan be consummated by no later than June 30.

Now that this has been settled, the Commonwealth can turn its attention to the gubernatorial race. After that, the political establishment can wrestle with status issues while the government attempts to meet the Board’s requirements for balanced budgets.

Oversight of a different sector made news when The Puerto Rico Energy Bureau (PREB) turned down a request by the Puerto Rico Electric Power Authority (PREPA) for an electricity rate hike the public utility contended was necessary to cover spiking fuel costs. A rate hike will be held back as utility officials acknowledged last week that above-market prices are being paid for oil to operate certain power plants. The PREB determined that “it is necessary to carry out an audit of the process of purchase, acquisition, transport, storage and consumption of fuel, carried out by [PREPA] during past years.”

In some cases, PREPA was paying prices 5 times the current market price at time of purchase. This is exactly the sort of thing that drives investors and analysts to drink. Regardless of the underlying economics, time after time the management inadequacies of the Commonwealth government are clear. It is one thing to have to deal with many of the economic and policy distortions which hold back the economy but competence must be developed and supported. The culture of failure has to be changed.

Muni Credit News Week of October 5, 2020

Joseph Krist

Publisher

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The announcement that the President has COVID 19 is potentially a huge hurdle to the ongoing reopening process. One can hope that it moves negotiations on the stimulus. It comes as the most recent unemployment and jobs numbers continue to show that the momentum is slowing and the economy is at a precipice. The case for additional stimulus strengthens every day. The end of many provisions of prior stimulus bills as of September 30 has raised the stakes for individuals as consumers, business owners, and employees. The concern has to be that the economic recovery slows and that revenue pressures facing municipal credits will worsen. Which leads us to this week’s credit happenings.

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NEW YORK STATE AND CITY

The rating shoe finally dropped on New York State and New York City. Moody’s Investors Service has downgraded the City of New York’s $38.7 billion of outstanding general obligation bonds to Aa2 from Aa1. It also downgraded to Aa3 from Aa2 approximately $4.5 billion of appropriation-backed debt issued through the Hudson Yards Infrastructure Corporation, NY (HYIC), the New York City Health and Hospitals Corporation (HHC), the New York City Industrial Development Agency (IDA), New York City Educational Construction Fund, NY (ECF) and the Dormitory Authority of the State of New York (DASNY).

it also downgraded to Aa3 from Aa2 approximately $4.5 billion of appropriation-backed debt issued through the Hudson Yards Infrastructure Corporation, NY (HYIC), the New York City Health and Hospitals Corporation (HHC), the New York City Industrial Development Agency (IDA), New York City Educational Construction Fund, NY (ECF) and the Dormitory Authority of the State of New York (DASNY). Here is the rationale – “The downgrade reflects the substantial financial challenges New York City faces caused by the economic response to the corona virus pandemic and our expectation that New York City is on a longer recovery path than most other major cities. The public health response to the pandemic brought the city’s infection rate down to among the lowest of big cities. The lasting economic consequences, however, will likely be amongst the most severe in the nation and require significant fiscal adjustments.

The city regularly identifies and closes future year budget gaps, but has delayed implementing more recurring savings and relied primarily on reserves, the possibility of direct federal fiscal aid, and a request for deficit financing authority from the state. The current budget assumes $1 billion in savings will come from labor concessions or headcount reductions but those savings have not been formalized. Favorably, current year revenue is tracking ahead of forecast. The city also faces additional fiscal pressure from potential actions the State of New York may take to balance its own budget and as the state tries to help the Metropolitan Transportation Authority, the state entity that operates the city’s mass transit system.

Which leads us to the State. Moody’s Investors Service has downgraded to Aa2 from Aa1 its rating on the State of New York’s general obligation (GO), personal income tax revenue, sales tax revenue, New York Local Government Assistance Corporation (LGAC), and NYC Sales Tax Asset Receivable Corporation (STARC) bonds. Moody’s also downgraded to Aa2 from Aa1 its rating on the New York State Workers’ Compensation Board Pledged Assessment and Employer Assessment Revenue Bonds. Moody’s downgraded to Aa3 from Aa2 ratings on other appropriation-backed debt including the New York City Transitional Finance Authority, NY’s Building Aid Revenue Bonds. The outlook for the state of New York and these associated bond ratings has been revised to stable from negative.

Moody’s said that the downgrade “reflects the financial consequences to the state of the disproportionate impact of the corona virus pandemic on the City of New York (Aa2 negative), the state’s economic engine, and on the Metropolitan Transportation Authority, the state controlled and funded transit system in the city and downstate region.” The MTA has been one of three major capital need sources – along with the City’s general infrastructure needs and the unique needs of the Housing Authority (NYCHA) – for decades. The only leg of that debt stool which has not been directly by the pandemic is the problematic NYCHA.

The lack of federal action (as we go to press) on an additional stimulus is really hurtful to the fiscal position of states and cities. As is the case with so many issues, New York’s role as the nation’s largest city, multi county local government, financial and cultural center as well as being the nation’s most diverse city place it at the front of the pack. That also means that it takes the primary impact of events which are global in nature. This requires that public officials competently manage the reaction to those events.

Since we are always willing to challenge the raters, we have to in fairness say that the outlook assignments of stable to the State and negative to the City are right on. We share their “ongoing uncertainty about how long the pandemic’s economic consequences will impact the city’s economy and budget, including the return of office workers, business and leisure travel and real estate markets.” And normal does not happen until there is a vaccine.

PANDEMIC CASUALTIES – COLLEGE ENROLLMENT

The National Student Clearinghouse Research Center produces a monthly report on college enrollments. This means that their September report is some of the first real data we have seen on a collective basis for the current semester. Total undergraduate enrollment is down 2.4% relative to last year. International student enrollment is down 11%. Declines were seen among all ethnic identities.

Some trends bode ill for the future. Community colleges show the greatest losses of 8%, followed by private nonprofit four-year institutions declining 3.8%. Public four-year institutions are suffering far less with a decrease of 0.4%, although they vary by campus setting, with urban institutions increasing slightly while rural schools fell 4%. Community colleges, on the other hand, suffered universally regardless of location . Historically, recessions have driven community college enrollments higher.

In Arizona, Maryland, North Carolina, Tennessee, and West Virginia, enrollments are up at both undergraduate and graduate levels. In Ohio and Pennsylvania, however, both undergraduate and graduate enrollments fell. Much of this follows similar declines in summer session enrolments.

MASS TRANSIT TAKING THE HITS

The problems of New York’s MTA are well documented but it’s not the only MTA facing revenue reductions. The latest is the Los Angeles Metropolitan Transportation Authority. The Authority’s directors voted to approve a $6-billion budget for the 2021 fiscal year, a $1.2-billion reduction from 2020. It would extend current temporary reductions in service through the end of the fiscal year. It comes as the Authority estimates that sales tax revenue is coming up short to the tune of $100 million per month.

Ridership is at about half of pre-pandemic levels. The proposed cuts would be a 20% reduction in service. Metro will receive about $875 million Metro will receive about $875 million in CARES Act funding. The budget assumes that Metro will see $730 million less from sales taxes, tolls, advertising and bus and rail fares than this year. It projects an 11% decline in sales tax receipts and a nearly 27% drop in grants from gas tax revenue distributed by the State of California. Fare revenue in 2021 is predicted to be nearly 79%, from $284.5 million in 2020 to $60 million this year. The budget cut does include layoffs or fare increases.

In Pennsylvania, the impacts of COVID 19 on the auto and mass transit sectors come together as the Pennsylvania Turnpike will postpone its second consecutive $112.5 million quarterly payment for transit distributed to local systems by the state Department of Transportation. This will be the second postponed payment. Turnpike traffic for the week of Sept. 20 was down 17.5% compared to the same period last year and revenue was down 21.5%. Since the pandemic began in March, traffic is down 32.9% and revenue is off 31.8% or $187 million through July.

The numbers highlight the revenue vise which local mass transit agencies find themselves in. Whether it’s transfers from the Turnpike in Pennsylvania or from the TBTA bridge system in New York, revenues to these agencies are down and are foreseen to remain so for multiple fiscal years. It shows the need for additional federal support for these agencies.

MAKING THE CASE FOR FEDERAL TRANSIT AID

The agency which has been most visible in news coverage of the financial crisis facing large urban mass transit system has been the MTA in New York. That has allowed the city’s longstanding enemies in Congress to try to cast the situation as a New York issue. A new survey by the Center for Neighborhood Technology shows that In the 10 regions it modeled alone, more than 3 million people and 1.4 million jobs would lose access to frequent transit. Second- and third-shift workers would lose an affordable way to commute, and households without vehicles would have an even harder time meeting everyday needs. Opponents of aid seem to think that the only people who use mass transit at night clean offices. the pandemic. NYC identified some 15,000 users who would have been left without service with just a four hour shutdown.

Overall, there would be significant impacts in all of the 10 markets surveyed. The study assumed that there is no aid which would require cuts at the high end of each agencies estimates (40% in NY and Denver). in the New York and northern New Jersey region, large numbers of people and jobs who benefit from access to frequent full-day service today would lose that service. 555,121 people would lose access to frequent full-day transit; businesses would suffer as 184,911 jobs currently near frequent full-day transit lose that access. The numbers are proportionately just as impactful in each of the other districts.

P3 PRESSURES CONTINUE

The private/public partnership concept has had a rough ride lately as some major transportation projects have faced issues with cost escalation which have caused P3 participants to rethink their stances. The biggest example is the Purple Line project in Maryland. The private contractors building the Purple Line have stopped construction. They are securing sites and are preparing for personnel to leave by mid-October. The State officials said the private contractor’s departure would add one to two years of delays to a project the concessionaire says is already more than 2½ years behind schedule. The Maryland Department of Transportation, said the state would use money from its Transportation Trust Fund to keep some Purple Line construction going, until the state could issue bonds.

The unfolding debacle with the Purple Line is impacting the potential use of a P3 to add toll lanes to the Capital Beltway and Interstate 270.

In Hawaii, Honolulu’s Mayor told the Federal Transportation Administration that the City and County of Honolulu has decided to cancel the process that would have used a public-private partnership to build the last third of its rail transit project through the city center. The Honolulu Authority for Rapid Transportation had estimated that the segment would cost $1.4 billion while one of the companies competing for the P3 contract had told investors that the cost to build the last rail segment would cost more like $2 billion.

The Mayor offered a different vision. “I hope to see the timely development of an alternative bid strategy, such as a more traditional design-build approach.” The Authority’s manager continues to advocate for continuing with the existing format which creates a major issue for the project in terms of support from the City going forward. It is thought that the Authority might seek to replace its head as it moves away from the current structure of the rail project.

THE PRICE OF CLIMATE CHANGE

Even when attempts are made to advance projects and technologies which have clear societal benefits, it is important to acknowledge the collateral damage that impacts often non-offending parties. One example is the impact of declining oil demand on jobs related to the industry. The impact of declining production has already heavily impacted direct drilling and oil transport jobs. Then oil services companies began to retrench and lay off employees as long term outlooks for oil growth diminished.

Now the job cuts are being associated with the next level of infrastructure – refining – which needs to align its refining capability with the realities of oil supplies. the industry is turning to plants that can process the full range of crude supplies from sweet West Texas oil to Canadian bitumen. Specialty plants which essentially refine only one of two qualities of crude do not deliver the economics which would support long term operations.

So in the last three months, six U.S. refineries — representing 3% of total U.S. refining capacity — have announced they are shutting down or converting to alternative fuels. Marathon Petroleum Corp., Gallup, N.M.: 27,000 barrels a day capacity, “indefinitely idled,” more than 200 jobs lost. Marathon Petroleum Corp., Martinez, Calif.: 161,500 barrels a day capacity, indefinitely idled but under consideration for conversion to renewable fuels, more than 700 jobs lost. Phillips 66 Co., Rodeo and Santa Maria, Calif.: 120,000 barrels a day combined capacity, converting Rodeo to renewable fuels starting in 2023, unknown jobs impact. HollyFrontier Corp., Cheyenne, Wyo.: 52,000 barrels per day capacity, converting to renewable fuels, 200 jobs lost. Calcasieu Refining Co., Lake Charles, La.: 135,500 barrels a day capacity, closed through December, unknown jobs impact.

The numbers of jobs do not seem so large but their role in the economies of their host communities is significant. These were some of the highest paying jobs in their regions especially for non-college graduates and were usually union jobs with good benefits. In addition to the economic hit to these communities, these sites often do not lend themselves to repurposing. If abandoned, the result is a brownfield site with potentially high remediation costs. The recent House clean energy bill would provide grants to develop transition plans and apprenticeship programs for local governments that lose fossil fuel plants like refineries.

PANDEMIC CASUALTIES – LAYING OFF MICKEY MOUSE

Try as it might, the recreation/hospitality/cultural space has had real difficulty on its path to recovery. This is in spite of mighty efforts by the Governor of Florida to make a recovery from the virus happen before it was under control. It makes the announcement by Disney that it would eliminate 28,000 jobs in the United States all the more dismal. Theme parks will account for most of the layoffs. It is one more case study of the bleak environment for these businesses and by extension the governments which rely on these businesses to drive economic activity.

The company cited the same issues facing governments as well – “limited capacity due to physical distancing requirements and the continued uncertainty regarding the duration of the pandemic.” The jobs are the sort that satisfied a variety of employee flexibility needs – 67 % of the layoffs will involve part-time jobs that pay by the hour – which served to generate good employment statistics. With current employment stats declining, their loss will still have a significant impact.

Orange and Osceola counties have many Disney employees as residents. Unemployment in Orange County where Disney World, the Universal Orlando Resort, SeaWorld and the numerous minor tourist attractions are — was 11.6 %. It was down to 3.1 % in August 2019, according to State data. Osceola County, Disney World’s southern county neighbor had 15.1% unemployment in August, vs. 3.5%.

Universal Orlando laid off a steady stream of employees over the summer and recently notified state officials that about 5,400 workers had been placed on extended furlough. SeaWorld laid off 1,900 employees at its Orlando properties this month.

PANDEMIC CASUALTIES – RATINGS

Ratings continue to move in sectors which we have previously identified as being especially vulnerable to the limitations on activity related to efforts to halt the pandemic. Two of those sectors are airports and privatized student housing projects. This week, S&P announced multiple downgrades in these sectors.

S&P Global Ratings lowered its long-term rating and underlying rating to ‘BB+’ from ‘BBB-‘ on a student housing project for Texas A&M University (TAMU) at the College Station campus. The outlook is negative. “The downgrade reflects our expectation of a decline in net operating revenues for fiscal 2021, which would produce projected debt service coverage below 1.20x and below-covenant requirements.”

S&P also lowered its rating to ‘BB’ from ‘BBB-‘ on the Pennsylvania Higher Education Facilities Authority’s series 2013A (tax-exempt) and 2013B (taxable) revenue refunding bonds, issued for Lock Haven University Foundation (LHUF), for the Evergreen Commons Student Housing project at Lock Haven University. The outlook is negative. The Foundation has had to subsidize debt service prior to the pandemic so the need for additional foundation support is assumed.

“The negative outlook reflects our belief that all projects in the sector are facing negative economic or fundamental business conditions that could result in downgrades over the next one to two years. In addition, the negative outlook reflects expected challenges facing the industry due to a sudden and potentially prolonged decline in student housing occupancy and the associated loss of rental revenue because many colleges and universities have transitioned to remote learning from in-person learning.”

The airport sector saw more downgrades. S&P Global Ratings lowered its long-term rating to ‘A-‘ from ‘A’ on the revenue bonds outstanding, issued for the Indianapolis Airport Authority (IAA), and removed the rating from CreditWatch, where it had been placed with negative implications on Aug. 7, 2020. The outlook is negative. It did the same for bonds issued for the Louisville airport. The fact that Louisville is a prime facility for UPS couldn’t offset the decline in passenger demand.

NEW JERSEY PANDEMIC BUDGET

The State of New Jersey has enacted a budget for the none months ending June 30, 2021. It includes a millionaires tax. The tax rate on income of more than $1 million will increase from 8.97 % to 10.75 %. To make that more palatable, the budget will provide rebates of up to $500 for hundreds of thousands of New Jersey families whose single-parent incomes are less than $75,000, or $150,000 for two-parent households. It reinstates a 2.5 % surcharge on corporations that will be phased-out in a few years.

It does not include any sales tax increases on “luxury” goods and it also does not include so-called baby bonds which would have given $1,000 to newborns.

CALIFORNIA ECONOMIC FORECAST

The September 2020 UCLA Anderson Forecast is out and it paints a picture of a slow recovery. The release projects that the state’s economic outlook will improve substantially in the third quarter of this year, but that a full recovery will not occur before the end of 2022. The outlook has payroll employment reaching 16 million by the end of 2020 (still far below the roughly 17.5 million jobs as of the first quarter of 2020), and the unemployment rate falling below 10% by year’s end, but still remaining close to 6% at the close of 2022.

The forecast included a number of observations about the economy going forward which have real resonance for the national economy. One example is office space. “An offsetting factor for the demand for office space will be a partial undoing of the two-decade-long trend to densify office space. The WeWork model of having 75-100 square feet of office space per employee does not work in a virus conscious world of social distancing. Office workers will have more space and there will quite a bit of Plexiglas separating workstations.”

For urban planners, the report offers food for thought. “It will take some time before pandemic-scarred commuters accept mass transit as a transportation solution. Hence the much-reviled automobile will once again become the commuter’s choice. This view is supported by a recent Citi survey of 5,000 urban households which indicated a strong desire to move to the suburbs, especially the higher-income ones.