Joseph Krist

Publisher

The Muni Credit News will take its summer break and the next issue will be the September 12 issue.

HE’S MAKING A LIST, HE’S CHECKING IT TWICE

The Texas Comptroller Glenn Hegar has released his list of financial firms which are now prohibited from doing business with the State of Texas or its underlying municipalities. It is based on his determination that “The environmental, social and corporate governance (ESG) movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy.” 

Black Rock, BNP Paribas SA, a French international banking group; Swiss-based Credit Suisse Group AG and UBS Group AG; Danske Bank A/S, a Danish multinational banking and financial services corporation; London-based Jupiter Fund Management PLC, a fund management group; Nordea Bank ABP, a European financial services group based in Finland; Schroders PLC, a British multinational asset management company; and Swedish banks Svenska Handelsbanken AB and Swedbank AB.

The move is consistent with Governor Greg Abbott’s continuing effort to achieve his own political goals via a series of political stunts. Whether it’s shipping migrants from the Mexican border to Washington, D.C. and New York City and dumping them on the street or efforts like this against ESG investment, it is not a serious debate.  In the end, it’s what the taxpayers think that matters. We refer you to our recent discussion of the observed cost of this move (MCN 8.15.22).

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SLOW COMEBACK FROM PANDEMIC

One of the casualties of the pandemic was the live entertainment industry. In the larger cities, these activities are always major contributors to those economies. With cities like NY and SF struggling to recover prepandemic working and entertainment patterns, the revival of the arts and entertainment industries are seen as key to longer term economic strength. It was hoped that “pent-up” demand might drive a quick return to prepandemic levels.  That does not appear to be the case.

Recent press reports have cited data showing that movie theaters have yet to recover their prepandemic audiences. Domestic box office revenues so far this year are down 31.2 % compared to the same period in 2019.  There are fewer releases but the pandemic did drive substantial demand for streaming services. Major League Baseball has been drawing fewer fans than it did before the pandemic.

TRG Arts is an analytics firm which serves the arts industry. It authored a recent study of 143 performing arts organizations in North America. It found that the number of tickets sold was down by 40 % in the 2021-22 season, compared with before the pandemic, and ticket revenues were down by 31 %. 

One of the sectors that New York is counting on is the theater, especially the Broadway theaters. Fewer than half as many people saw a Broadway show during the season that recently ended than did so during the last full season before the coronavirus pandemic. The 2021-22 season was still not a full one. The recovery in demand for Broadway started slow and concerns about virus variants limited attendance as the industry gradually reopened. There were 6,860 performances seen by 6.7 million people, grossing $845 million.

Those factors impacted other pillars of the New York cultural environment. During the 2018-19 season, the last full season before the pandemic, there were 13,590 performances seen by 14.8 million people, grossing $1.8 billion. The Met Opera saw its paid attendance fall to 61 % of capacity, down from 75 % before the pandemic. 

DETROIT AREA CREDIT UPSWING

This week, Moody’s revised its ratings and outlooks on three prominent Detroit area credits: the Great Lakes Water Authority Water and Sewer Revenue bonds and Wayne County. Moody’s affirmed the A1 senior and A2 second lien ratings on the water and sewer system’s existing bonds. Moody’s also revised the authority’s outlook to positive from stable. After the current sale, the water system will have about $1.6 billion of senior lien and $700 million of second lien revenue bonds outstanding. the sewer system will have about $1.8 billion of senior lien and $800 million of second lien revenue bonds outstanding.

The outlook is positive because the authority has strong management and stable operations and its underlying service area continues improve, particularly in the City of Detroit, as well as across Wayne (A3 positive), Oakland (Aaa stable) and Macomb (Aa1 stable) counties. The good ratings news comes amid the Authority’s efforts to replace a broken water main which generated some bad publicity.

Moody’s Investors Service has upgraded to A1 from A3 the issuer rating of Wayne County, MI leading to the upgrade of the county’s general obligation limited tax (GOLT) bonds and lease rental bonds. The upgrade of the county’s issuer rating to A1 reflects the continued strengthening of operating reserves and liquidity, aided by the restructuring of retiree benefits and proactive management. Once again, the benefit of dealing with retiree costs is clear as Moody’s noted that a retiree benefit restructuring has provided a level of budgetary predictability. 

MUNI UTILITIES AND COAL

Emissions data from EPA and power plant information from the U.S. Energy Information Administration has been released which shows the ten dirtiest coal fired generating plants based on emissions of greenhouse gases. That data was used to generate a top ten list which no power producer wants to be on – the ten worst emitters in the country.

Two of those plants are owned by municipal utilities. The Prairie State coal plant in Illinois is owned by nine different municipal utility owners. It may be one of the newest coal plants in the country but it ranks as the eighth dirtiest. The plant was at the center of the debate in Illinois over how to deal with carbon emissions as the state established emissions reduction limits in an effort to phase out coal plants. Illinois passed a law last year requiring all privately owned coal plants in the state to close by 2030. The law contains a carve-out for Prairie State, which must reduce its emissions 45 percent by 2035 and achieve net-zero emissions by 2045. 

The second plant on the list is the Fayette plant in Texas. It is owned by the Lower Colorado River Authority and the City of Austin electric system. Austin has attempted to reach an agreement with LCRA to divest itself of its interests in the plant but was unable to.

Some may have thought that the U.S. Supreme Court decision in June which questioned the ability of the EPA to regulate greenhouse gases at power plants may have granted some of them a reprieve from regulatory pressure. The Inflation Reduction Act amended the Clean Air Act and defined the carbon dioxide produced by the burning of fossil fuels as an “air pollutant.” In 2007, the Supreme Court, in Massachusetts vs. E.P.A., No. 05-1120, ordered the agency to determine whether carbon dioxide fit that description. In 2009, the E.P.A. concluded that it did. By classifying carbon dioxide as a pollutant, under the terms of the IRA the EPA can limit power plant emissions. 

IRA, AMT BACK TO THE FUTURE

The corporate AMT was eliminated under the Tax Cut and Jobs Act (TCJA) in late 2017.  Now, the Inflation Reduction Act of 2022 includes a 15% minimum tax on the adjusted financial statement income for corporations with three-year average incomes of more than $1 billion. It takes effect in 2023. While a change to the status quo, the revival of a corporate AMT is actually a trip back to the future. So far, the reaction has chiefly been on the legal side.

Newer official statements are including advice that “interest on the bonds will be taken into account in computing the alternative minimum tax imposed on certain corporations under the code to the extent that such interest is included in the ‘adjusted financial statement income’ of such corporations.”

Our biggest takeaway is the continuing lack of relief in the form of issuing flexibility for municipal bond issuers. It was not unreasonable to think that the largest infrastructure legislation might have taken full use of the municipal bond markets experience and position in the finance and development of infrastructure. Whether it be the AMT, the SALT deduction, or limitations on private activity bonds, the loss of those abilities limits flexibility and increases costs.

PA. TURNPIKE RECOVERS

In late 2013, Pennsylvania enacted Act 89 as a comprehensive funding plan for the Commonwealth’s road system, especially the local roads. That plan looked to the Pennsylvania Turnpike System to use its tolling powers to provide “excess” revenues for transfers under Act 89. The result was lower ratings for the Turnpike’s existing revenue bond debt and the need to create a subordinate lien of debt to finance the increased funding demands being made on the Turnpike. It took a strong credit with a long track record and a history of relatively stable tolls and diminished it unnecessarily.

The pandemic pressured tolls and forced the System to eliminate physical toll collections as a source of cost savings. Its bigger concern was the chance that once again the Turnpike could be caught up in the ongoing debate over how to fund roads and particularly bridges. It was a major uncertainty holding the credit back and there were concerns that Act 89’s clear statement that the Turnpike’s obligations to fund state roads at the end of the most recent fiscal year would not be respected.

In connection with its upcoming bond issue, Moody’s has reached some positive conclusions about the Turnpike’s post FY 22 exposure to revenue transfer demands. It announced that it had revised its revenue bond outlook to positive from stable on its A1 rating. “The revision of the Commission’s toll revenue bond rating outlook to positive from stable reflects our view that there is increased certainty that the Commonwealth will honor Act 89 given other available sources of funds for other state transportation needs. The change in outlook to positive reflects increased certainty about the forecast deleveraging expected over the next several years as the Commission increases the amount of its capital spending funded from future excess cashflow rather than debt.

ANOTHER VIEW OF CONGESTION PRICING

As the congestion pricing debate in NYC unfolds, we are seeing different jurisdictions taking different approaches to the issue. The latest example comes from Massachusetts. Many think that congestion pricing would be useful in Boston where there are mass transit alternatives. When the legislature passed an $11 billion transportation funding package in the recent session, it included a plan to create a state commission to study “mobility pricing,” which could include both tolls and congestion pricing.

So, congestion pricing is coming soon, right? Well, the governor doesn’t think so. As is permitted under Massachusetts law, Governor Baker returned that section of the bill unsigned, citing his long-standing concerns about “equity” issues associated with congestion pricing. He raises a fair point in the debate over congestion pricing. “Workers who have the financial means to pay a congestion price are best able to adjust their commutes to avoid it, and those who don’t have the financial means to pay a congestion price are those with the least flexibility in their schedules.” 

The move comes as Massachusetts voters will be asked to approve a constitutional amendment to fund transit. The proposed constitutional amendment, if approved by voters, would set a 4% surtax on the portion of an individual’s annual income above $1 million.  That money is intended to fund education and transportation but there are no restrictions formally established to insure where those funds go.

TOLLS ARE A DIFFERENT STORY

One coast is seeing the process of establishing congestion fees unfold. At the same time, another coast is seeing tolls move in the opposite direction. The Tacoma Narrows Bridge in Washington State collects tolls for the repayment of debt issued to finance its construction. While there is still debt remaining (until 2032) the debt service requirements are lower. That drove legislation enacted in March to encourage a toll reduction.

It is being portrayed as the first toll reduction in Washington State history. The reduction goes into effect October 1, 2022. Currently drivers with Good to Go passes pay $5.25 to cross the eastbound bridge. Those who choose to pay with cash are charged $6.25, and drivers who pay by mail pay $7.25. Truck drivers in vehicles with more than two axles will see reductions of more than $1.

The irony is that the toll decrease is occurring in a state which seeks to take a leading role in addressing climate change. For us the lesson is that the road to dealing with climate change is ever longer and rockier. The pressure on tolls is leading to moves like this while at the same time limiting funding via other options (mileage fees, e.g.).

CLIMATE LITIGATION

Another effort to move lawsuits against fossil fuel entities from state to federal court has failed. A federal Third Circuit panel rejected efforts to move lawsuits filed against the fossil fuel firms from state to federal court. This is the fifth time that the companies have failed to convince federal judges that their position is valid. The State of Delaware and the city of Hoboken, NJ lawsuits were at issue in the case.

The argument that the federal government leases the companies offshore drilling rights, and that they have contributed oil to the Strategic Petroleum Reserve and have provided specialty fuels to the military has not created a federal issue for the courts. This decision is fairly clear on that. “Most federal-question cases allege violations of the Constitution, federal statutes, or federal common law. But Delaware and Hoboken allege only the torts of nuisance, trespass, negligence (including negligent failure to warn), and misrepresentation, plus consumer-fraud violations, all under state law.”

LEGAL WEED ON THE MARYLAND BALLOT…

A marijuana legalization referendum will appear on the November ballot in Maryland this November. The referendum will finish a process which began in April of this year with legislation to put the question of legalization to voters as a constitutional amendment on the ballot and a complementary measure that will lay out the implementation framework.

“Do you favor the legalization of the use of cannabis by an individual who is at least 21 years of age on or after July 1, 2023, in the State of Maryland?” The existing legislation only authorizes the vote. If voters approve, implementation would be “subject to a requirement that the General Assembly pass legislation providing for the use, distribution, possession, regulation, and taxation of cannabis within the State.”

The implementation framework would allow for the purchase and possession of up to 1.5 ounces of cannabis by adults. The legislation also would remove criminal penalties for possession of up to 2.5 ounces. Adults 21 and older would be allowed to grow up to two plants for personal use and gift cannabis without remuneration. True “legalization” would be achieved gradually. Possession of small amounts of cannabis would become a civil offense on January 1, 2023, punishable by a $100 fine for up to 1.5 ounces, or $250 for more than 1.5 ounces and up to 2.5 ounces. Legalization for up to 1.5 ounces would not take effect until July 1.

BUT MEDICAL MARIJUANA MISSES THE NEBRASKA BALLOT

Ballot initiatives are always tricky. In some states where citizens have the right of initiative or referendum, rules for getting those items on the ballot often make the process less straightforward. The latest example comes from Nebraska where medical marijuana advocates saw efforts at a ballot item to approve it fail to make it over all of the hurdles.

To get on the Nebraska ballot, an initiative petition needed nearly 87,000 signatures — or a total of 7% of registered voters — as well as 5% of registered voters in at least 38 of Nebraska’s 93 counties to put the proposals to a vote of the people. The first of these intended to protect patients and caregivers from legal jeopardy – the Patient Protections initiative – collected 77,843 valid signatures, and the 5% threshold was met in only 26 counties. The second would have legalized the possession, manufacture, distribution, delivery, and dispensing of marijuana for medical reasons and would have established a commission to regulate a state medical cannabis program.

NET METERING WARS CONTINUE

Net metering – the method by which excess residential solar power can be sold back into the grid – has been the subject of much debate as utilities seek to minimize the financial impact of residential solar on their operations. Utilities which have attempted to limit net metering include municipal utilities like Salt River Project in AZ and San Antonio, TX. On the investor-owned side, Florida utilities have been especially aggressive in their effort to reduce if not eliminate net metering.

The latest chapter in this fight is taking place in Kentucky. Kentucky legislation allows power providers to restrict their programs once they reach 1% of a company’s “single-hour peak load” — the maximum power demand a company receives. Kenergy is a rural electric cooperative serving some 57,000 customers across 14 Kentucky counties. In Kenergy’s program, the co-op offers its qualified members credits on their power bills. Kenergy has been limiting its net metering program under the law. The PSC opened an investigation into Kenergy in October 2020 on the grounds that the power provider was restricting its net metering despite being under the 1% threshold.

This month, the PSC ruled that those limits were being imposed on customers in violation of the law’s requirements. “Kenergy’s cumulative generating capacity of net metering systems has not reached 1% of its single hour peak load during a calendar year, and Kenergy must continue to offer net metering under its Net Metering tariff until the cumulative generating capacity of net metering systems reaches 1% of Kenergy’s single-hour peak load for all sales within its certified territory during a calendar year.” 

AMERICAN DREAM DEFAULT

The American Dream mall in East Rutherford, NJ is showing the impact of the long delays in its development and the pandemic’s impact on travel and retailing. The developers were late in making a PILOT payment due to the Trustee for the bonds issued by the Public Finance Authority (WI) to support the project. The payment was due on August 1. It was ultimately made on August 11. That is within the stated cure period established at issuance. The amount received equaled the required payment but interest on the payment accrued beginning August 1. Until that amount is paid or waived, the bonds are in technical default.

It repeats a pattern of late monthly payments which began in May of this year. The interest on that late payment was eventually paid. Given all the impacts on travel, in-person shopping, and the cost of transportation it should not be a surprise that the mall would be underperforming. Given the highly leveraged nature of ownership, the current environment of rising rates and continuing patronage issues at the mall, it is not a surprise that the credit remains under pressure.

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.

Joseph Krist

Publisher

DIABLO CANYON

Diablo Canyon provides nearly a tenth of California’s electrical power. It was scheduled to close by 2025. In a significant development, California Governor and re-election candidate Newsome proposed legislation which would direct the California Public Utilities Commission to set a new closure date of Oct. 31, 2029 for one unit, and Oct. 31, 2030, for the second on the coastal site along the Pacific. By 2026, regulators would be allowed to grant an extension, but not beyond Oct. 31, 2035.

The state would provide a $1.4 billion forgivable loan to cover the costs of relicensing by PG&E. Pacific Gas & Electric applied to the U.S. Department of Energy’s $6 billion program to preserve the operations of nuclear power plants. No visibility has been provided regarding the issues of how much will be granted, or when. The process includes significant approval requirements from federal, state and local regulatory entities. One significant “exemption” is the provision of an exemption from state regulations to allow operators to maintain operations at the plant without conducting extensive technical analysis of the environmental effects.

California was always likely to face this sort of dilemma ahead of some others. Its hydro resources are depleted by drought both in state and from the Colorado River. It has eliminated coal in state. These were all sources of consistent base load power. The last five years have shown the variability of hydro (think Oroville Dam). There is an increasing fear that the anomaly along the Colorado was the wet period and that the near quarter century drought is the base line.

The closure of significant nuclear assets has generated initial negative results in New York State in terms of the environment and the use of fossil fuel for replacement energy. The same issues have driven the debates in OH and IL (once you took the cash out of them) over whether to subsidize existing nuclear plants. Germany had been on the path to closure of its three remaining operating nukes by the end of this year. Natural gas would have been a likely replacement.

Now with the war in Ukraine limiting gas supplies, the nuclear capacity needs to be replaced. So, does it come as a shock that Germany has proposed that shuttered coal plants be reopened? the Omaha Public Power District (OPPD) in Nebraska has now moved to slow its plans to close one of the nation’s dirtier coal-fired plants from 2023 to 2026. They are best positioned at present to meet the need. Once again, the environmental movement confronts the need to compromise. Perhaps one of the outcomes of the successful compromise in the Inflation Reduction Act can cause state legislatures to try it?

COLORADO RIVER

Federal officials had previously given the seven states which “share” the waters of the Colorado River until Aug. 16 to come up with a plan to reduce demand on the river to conserve as much as a third of the river’s flows. The amount reflects the Bureau of Reclamation they believe is necessary to keep Lake Powell above the levels sufficient to generate needed power and provide water.

The Interior Department holds ultimate authority over Colorado River deliveries in the Lower Basin and, through its Bureau of Reclamation, controls key infrastructure up and down the river. This gives the federal government enormous leverage. The deadline date is not arbitrary. It roughly coincides with the review and release of data in support of allocations of water for 2023.

Whatever is decided it will have to occur within the framework of existing legal agreements. Under Western water law, users with the oldest water rights are entitled to their full allotment of water before newer, junior users get a drop. Since farmers led the settlement of the West, a significant volume of senior water rights are held by agriculture, which uses roughly three-quarters of the Colorado River’ water. Cities typically hold junior, lower-priority rights.

Technically, water deliveries for cities and tribes in Arizona are first on the list to be cut back. Here is where geography becomes a real factor. Arizona, California, and Nevada are downstream from Lake Powell. If less water gets through than those states are at risk. The other Upper Basin states of Wyoming, Colorado, Utah and New Mexico sit upstream of Lake Powell. That gives those states direct control over these water resources.

At the same time, under the terms of a 1963Supreme Court decision, the Interior Department has the right to define what is — and isn’t — a “beneficial use” of water.  Western Democrats secured inclusion of $4 billion for the Colorado River in the Inflation Reduction Act. It would allow the Bureau of Reclamation to pay users to voluntarily forgo water use or to restore ecosystems affected by drought.

The deadline did not result in a new plan from the states, so now the lower basin states and Mexico are going to be cut back. Arizona will have to reduce its Colorado consumption by nearly 600,000 acre feet, or 21 percent of its annual allocation. Nevada’s total reductions are now 25,000 acre feet, or about 8 percent of its allocation. Mexico’s cuts total 104,000 acre feet, 7 percent of its allotted supply.

The cuts come with the release of the Bureau of Reclamation’s August 2022 24 Month Study. The 24-Month Study projects Lake Powell’s Jan. 1, 2023, water surface elevation to be 3,521.84 feet – 178 feet below full pool (3,700 feet) and 32 feet above minimum power pool (3,490 feet). The three states and Mexico will be impacted by actions at Lake Mead which will operate in its first-ever Level 2a Shortage Condition in calendar year 2023.

Depending on future snowpack and runoff, a range of actions will be needed to stabilize elevations at Lake Powell and Lake Mead over the next four years (2023-2026). The analysis shows, depending on Lake Powell’s inflow, that the additional water or conservation needed ranges from 600,000 acre-feet to 4.2 maf annually.

TRANSIT ON THE BALLOT

Voters in four counties in Georgia will be asked to approve new taxes to be dedicated to transportation. The state created the tax option (Transportation Local Option Sales Tax) six years ago for purposes that include roads, bridges, public transit, and seaports. It adds 1% to existing sales tax rates, excludes gas and motor fuels, and must be renewed every five years. According to the Georgia Department of Revenue, 102 of the state’s 159 counties have enacted the transportation sales tax.

Chatham County consists of eight municipalities including the city of Savannah. The tax is estimated to raise $143 million for the city of Savannah. Countywide, the 1% tax is estimated to raise $420 million over five years. The metro Atlanta Forsyth County would see the money be distributed among the county and the city of Cumming under a predetermined formula to address approved project lists. Most of the new tax revenue – 69% – would stay with the county which now collects a 7% sales tax.

Habersham County now collects a 7% sales tax. A prior effort to secure voter approval for this same tax in 2018 was defeated by a 54-46% margin.  The tax is estimated to generate $44 million over five years. The bulk of the revenue – $33.4 million – would go to the northeast Georgia county. The remainder would go to the county’s five cities. Oconee County voters failed to approve a ballot item to increase its existing 7% sales tax for transit. Nevertheless, proponents in the county that borders the city of Athens are trying again this year.

IDEOLOGY IN PENNSYLVANIA

Republican lawmakers in Pennsylvania are attempting to block the passage of proposed emissions regulations, which must be written into state law by Dec. 16 to meet a federal deadline that, if not met, threatens $500 million in highway funding. This amidst a continuing debate over how to generate and apply state revenues to Pennsylvania’s road system. The Legislature has 30 calendar days or 10 session days — whichever is longer — to vote on the regulations.

The regulation would require unconventional oil and gas sites, like fracking wells and natural gas processing plants, to adopt technologies that would limit emissions of volatile organic compounds (VOCs). This because when combined with nitrous oxides (also emitted by oil and gas sites) in the presence of sunlight, form ground-level ozone, a respiratory irritant is increased.

Sources affected by this final-form rulemaking include natural gas-driven continuous bleed pneumatic controllers, natural gas-driven diaphragm pumps, reciprocating compressors, centrifugal compressors, fugitive emissions components and storage vessels installed at unconventional well sites, gathering and boosting stations and natural gas processing plants, as well as storage vessels in the natural gas transmission and storage segment.

Pennsylvania currently has no state regulations on VOC and methane emissions from oil and gas sources. The PA Department of Environmental Protection (DEP) estimates that the unconventional oil and gas industry is currently responsible for some 5,648 tons of VOC emissions and more than 100,000 tons of methane emissions per year. The effort to delay or prevent legislation against the fracking industry has been an ongoing theme in the Legislature.

NORTH DAKOTA CANNABIS

For years, hemp was a viable cash crop. In World War II, hemp growers were encouraged to produce more to support the naval war effort. North Dakota was a major producer. That did not do anything to drive support for cannabis production or possession. Now, with the tide finally flowing in favor of cannabis decriminalization, the state’s voters will be asked to consider its legalization.

The Secretary of State of North Dakota has certified a ballot measure to legalize recreational marijuana. If enacted, the measure will permit adults 21 and older to possess up to one ounce of cannabis. It will also establish a regulatory system for registered cannabis businesses, run by the Department of Health and Human Services or another agency designated by the Legislature.

Regulators would have until October 1, 2023 to develop rules related to security, advertising, labeling, packaging and testing standards. The industry would be limited to 18 state-approved dispensaries and seven manufacturing facilities. 

BRIGHTLINE

It has not been a credit issue to date but the Brightline, a privately owned high-speed passenger line, has the worst fatality rate among the nation’s more than 800 railroads. Federal Railroad Administration data is reported to show 68 people und something that is the product of past practices along the right of way which includes significant stretches with unimpeded access, long established walking shortcuts, and hundreds of unsignalled grade crossings.

Who has the responsibility for addressing the capital need for fencing and signals? Are they the railroad’s job?  The state or local road agency’s job? That has delayed efforts to attempt to lessen the risks. A $25-million dollar grant from the U.S. Department of Transportation will allow the Florida Department of Transportation to fund 33 miles of pedestrian protection features. They will be constructed at 328 roadway-railroad grade crossings along the Florida East Coast Corridor from Miami-Dade, through Broward, Palm Beach, Martin, St. Lucie, and Brevard Counties.

AUTONOMOUS VEHICLES

The climate bill enacted this week puts much emphasis on electrification of both individual and mass transit vehicles. This has reduced the focus on autonomous vehicles which were seen as a driver of capital investment in anticipation of their full adoption. Tesla’s “autonomous” vehicle software has come under criticism. The most useful testing of AV technology has been on smaller scale Mass transit uses. That is what makes the findings of an analysis by an AV proponent – US Ignite – so interesting.

US Ignite is a nonprofit whose mission is advancing the use and development of urban technology. The U.S. Army Engineer Research and Development Center (ERDC) provided funding for a two-year pilot of an AV shuttle at Fort Carson in Colorado. The Fort Carson project operated from September 2020 until March 2021. The service operated on a 3.1-mile fixed route. Clearly it was a small scale effort. A total of 204 people rode the autonomous shuttle.

The findings indicate some problems in the short-term. “For safety reasons, the current generation of automated passenger shuttles operate at average speeds of 12-15mph, with some vehicles reaching a maximum of 25 mph. These slow speeds make driving on standard roadways challenging for AVs and other road users as it can create road congestion and cause frustration among other drivers on the road.

Speed limitations make it clear that AV shuttle offerings should be a “last-mile” solution – where the destination is beyond a comfortable walk but too close to justify taking a personal car. Speed limitations make it clear that AV shuttle comfortable walk but too close to justify taking a personal car.”

It is a sign to advocates that adoption will be a much longer term process. We are already seeing issues of reliability and availability in terms of electric vehicle charging infrastructure. That well before full rollout of charging infrastructure.

CONGESTION PRICING MOMENTUM SLOWS IN SF

The San Francisco County Transportation Authority has been researching potential congestion pricing plans for downtown SF. That continued even after the city was at the center of the pandemic. SF along with NY have been the two cities which have had the slowest return of workers to offices in the aftermath. Many commentators have paired the cities in terms of the return to office. Now, with New York trying to move ahead with its congestion pricing plan we see a divergence between planners in the two cities.

Downtown SF remains less crowded as the tech industries have been slower to return to office settings. Before the pandemic, San Francisco was studying a plan to charge drivers entering a downtown zone $6.50 — with discounts based on income. Those plans all assumed a return to pre-pandemic levels of traffic but they have not materialized. Now, The Authority has announced a “pause” in its efforts to establish these charges.

The latest plan called for implementing congestion pricing in two downtown zones — one including the Financial District, Chinatown, the Tenderloin and South of Market. The other zone would be larger, including North Beach, Russian Hill, Fisherman’s Wharf and Marina Bay.

The plan proposed electronically charging drivers entering the zone   between 6 a.m. and 9 a.m. and 3:30 p.m. and 6:30 p.m. a toll of $6.50 with a discounted cost of $4.33 for moderate-income people, $2.17 for low-income people and no charge for those with very low incomes. Drivers with disabilities would pay $3.25. Drivers for ride-hailing service like Uber and Lyft would pay the full charge for each ride. Residents of the zones would not be exempt.

The reality is that it would take five years before the plan would be implemented as it would require extensive planning, state legislation, installation of electronic toll collection equipment and alterations to some city streets. As for now, the companies are still in the process of establishing new hybrid work attendance requirements. Congestion remains a memory.

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.

Joseph Krist

Publisher

ESG BOYCOTTS – WHAT THE DATA TELLS US

We’ve been following the efforts of some conservative State Treasurers to support a boycott of banks and other financial institutions which are seen as hostile to the fossil fuel industry. There have been several issues over the years like municipal disclosure. A question always asked by issuers is how many basis points will it cost me not to comply. It has not been easy to answer. In the case of the State Treasurer boycotts we do have some data which helps to answer a similar question. How much does the bank boycott add to my financing costs and the burden on taxpayers? An analysis by two researchers one with the University of Pennsylvania and one with the Board of Governor of the Federal Reserve has an answer.

Here is what they had to say. The state of Texas enacted laws in 2021 that prohibit municipalities from contracting with banks that have certain ESG policies. This led to the exit of five of the largest municipal bond underwriters from the state. We find that municipal bond issuers with previous reliance on the exiting underwriters are more likely to negotiate pricing and incur higher borrowing costs after the implementation of the laws. Among remaining competitive sales, issuers face significantly fewer bidding underwriters and higher bid variance, consistent with a decline in underwriter competition. Additionally, underpricing increases among issuers most reliant on the targeted banks and bonds are placed through a larger number of smaller trades.

Overall, our estimates imply Texas entities will pay an additional $303–$532 million in interest on the $32 billion in borrowing during the first eight months following the Texas laws. That extra cost comes from the fact that issuers with significant reliance on the targeted banks opt into negotiations to soften the large volatility and higher borrowing costs which the study observed among competitive sales. Nevertheless, borrowing costs still increase by approximately 10 basis points for issuers with an additional standard deviation of reliance on the targeted banks. Borrowing costs increase by up to 45 basis points for issuers that had previously raised the majority of bond financing through the exiting underwriters.

It comes down to a question of how much is too much to pay for what will ultimately be a failed policy based on ideology. Are the states and financial officers enforcing these laws doing the best they can for their ultimate client the taxpayer? Is it the place of financial officials to act in other than a fiduciary interest for their client the taxpayers? We always caution against policies clearly rooted in ideological grounds. That applies to the entire ideological spectrum of ideas.

MAINTENANCE AND MASS TRANSIT

Two of the nation‘s major subway systems are under pressure to address safety issues. The Orange Line is one of the MBTA’s busiest routes, averaging about 101,000 trips each day. Now the “T” will have to find another way to move those passengers for a month beginning August 18.  Last week, the federal government ordered MBTA to conduct a “stand-down” and require workers to attend safety briefings before being allowed to return to work in maintenance yards and shops. The “T” has faced three “runaway” train incidents since May.  projects include track replacement, upgraded signal systems and station improvements. The agency will also complete track maintenance required by directives from the Federal Transit Administration.

The Washington Metro system has been working all year on addressing serious maintenance and safety issues associated with a substantial portion of its rolling stock. The system has faced reduced demand not just from the pandemic but from service reliability issues which had plagued WMATA over the last couple of years. Just this week, a new chief operating officer begins his efforts to end a train shortage and get Metrorail back to full service.

NYC CONGESTION PRICING

New York’s Metropolitan Transportation Authority (MTA) has released a preliminary schedule of charges to be levied under its congestion pricing plan. The proposal makes clear what many allege. The plan is clearly designed as a money grab more than it is a plan to reduce congestion or improve the environment.

The MTA released seven different scenarios for the tolling plan, with peak-period toll rates to enter the “Central Business District” below 60th Street of anywhere from $9 to $23, depending on the version implemented. In virtually all configurations of the plan, “peak” would run from 6 a.m. to 8 p.m. on weekdays and 10 a.m. to 10 p.m. on weekends. That clearly is designed to impact those coming into the City for Broadway shows, other cultural events, and sports events.

The CBD Tolling Alternative, TBTA would toll vehicles entering or remaining in the Manhattan CBD via a cashless tolling system. The toll would apply to all registered vehicles (i.e., those with license plates) with the exception of qualifying vehicles transporting persons with disabilities and qualifying authorized emergency vehicles. Passenger vehicles would be tolled no more than once a day. Vehicles that “remain” in the Manhattan CBD are vehicles that are detected when leaving, but were not detected entering in the same day. Given that they were detected leaving, they must have driven through the Manhattan CBD to get to the detection point, and therefore “remained” in it during a portion of the day. These vehicles would be charged that day for remaining in the Manhattan CBD.

The MTA’s assessment is required by the federal government in order to implement congestion pricing, because some of the roads are part of the National Highway System and receive federal funding. There will be six public hearings about the congestion pricing options. One component which caused potential opposition has to do with the treatment of commuters from New Jersey. This iteration of the plan would call for the entire amount of the tolls on the bridge and tunnels leading into Manhattan from New Jersey collected by the Port Authority to be credited against the congestion fee.  

The debate which will follow will be robust. There are many ways to address congestion which the city has not tried. Designated pick-up/drop off areas for Uber and other vehicles have been tried in Washington, D.C. Much congestion in the city stems from double-parked delivery vehicles. Those vehicles collect tickets but those fees are waived under an agreement reached by the DeBlasio administration. Philadelphia established areas on city streets for delivery vehicles to park. Such a plan would reduce the barriers which trucks create for smooth traffic flow.

When you see how the city has not tried alternatives, it makes it clear that this is not an environmental issue but a revenue raising issue. That is why the fee once imposed, isn’t going anywhere even if every vehicle is a non-polluting electric vehicle. Has the city made parking more expensive? The MTA analysis seems to be skewed towards the congestion pricing model. The analysis presents nine alternatives. Four would meet the goal of reducing congestion. Only one of those alternatives also would raise money for the MTA – no surprise, it’s congestion pricing.

Then there is the whole issue of how to deal with vehicles entering from New Jersey. Significant political opposition comes from the Governor of New Jersey. It matters because he can hold up actions by the Port Authority and the Gateway Tunnel project needs a cooperative relationship between the Governors. The dispute has generated the phenomenon of “crossing credits”. That’s what we call discounts proposed to reflect the $16 toll cars pay to enter the city under the Hudson River.

Parts of the plan seem to have been conjured up in a vacuum. One idea explored was to encourage remote work to reduce car traffic. And that makes sense if you are trying to convince drivers to subsidize people who are simultaneously being encouraged not to drive or use mass transit thus generating no revenue. The plan has already been flagged as being negative for environmental justice issues. Every congestion pricing scenario will result in more truck traffic on the Cross-Bronx Expressway and RFK Bridge. That will not reduce pollution in those areas.

In the case of the New Jersey side of the equation, more commuters use mass transit than use their cars to enter Manhattan. Other sources of concern exist as well. Some of the scenarios offered consider offering discounts for all tunnel commuters but not all bridge commuters, something that could drive traffic to already overwhelmed bottlenecks, like the Holland Tunnel.

WHEN ARPA FUNDS CURRENT EXPENSES

There is a significant legal battle unfolding in the NYS courts over cuts to the NYC education budget. In June, the City Council enacted a budget that included reduced spending on the public school system. The budget reflected the estimated loss of some 120,000 students with much of that loss attributable to the impacts of the pandemic. As is the case in many districts across the country, much outside aid to local school systems is tied in some major way to enrollments. The usual formula includes a reliance on the data point of average daily attendance.

The Adams administration crafted a budget that reflected attendance trends and current realities. It resulted in what is considered a cut of $200,000,000 in FY 2023. Here is where ARPA money fits in. These same attendance trends had been established during the DeBlasio administration but the choice then was to use ARPA money to support school budgets. Now that use of funds from a finite short-term source to cover a long-term expense is becoming a problem.

The situation also puts a spotlight on the teachers’ unions. It was only 3 or 4 years ago that images of thousands of teachers and students clamoring for better pay were generating favorable responses and support. Now a combination of factors has rapidly turned that supportive atmosphere around. Much of this has to do with teacher resistance to in-person versus on-line learning. It highlighted the child care role that schools serve for those parents who work. The teachers were seen as putting their interests above those of the children of many who were considered essential workers during the pandemic.

Nevertheless, the teacher’s union took the city to court and challenged the education appropriations even though they had been enacted through the normal budget process. The teachers feared layoffs. The initial decision in the litigation called for the city to restore the cuts to the education budget. Upon appeal, that order was reversed. It is likely that an appeal of that ruling will be undertaken by the teachers’ union to the state’s highest court.

We find the efforts by the teachers’ union in this case to be troublesome. Any budget process at any level of government is ultimately a political act. To have the courts intervene at this level of budget making is a concern. We do not think that budget making is sacrosanct in any way but in this case the court is being asked to override a decision undertaken through a public process by duly elected representatives. Outside of the large urban school districts in NY, school budgets are the closest thing you get to true democracy. Would the union take the view that a court should overrule a legally conducted budget election because the residents did not think that teachers should be getting a raise?

SHOW ME CANNABIS

Voters in Missouri will be asked to approve amending the Missouri Constitution to remove bans on possessing, consuming, delivering, manufacturing and selling marijuana for personal use by adults over the age of 21. The ballot petition calls for a proposed registration card for personal cultivation of marijuana as well as provisions to allow people with nonviolent marijuana-related offenses to petition to have their records expunged. A 6 percent tax on the retail price of marijuana would be imposed.

Medical marijuana has been legal in Missouri since 2020 when 65% of voters approved it. The sponsors behind the petition estimated that legalization would generate some $40 million annually to the State. The approval of the ballot item occurred as once again the Senate will be asked to consider the Cannabis Administration and Opportunity Act.

Two provisions to note are that the law would transfers federal jurisdiction over cannabis from the Drug Enforcement Agency to the Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the Treasury Department, and implements a regulatory regime similar to alcohol and tobacco, while recognizing the unique nature of cannabis products.  It hopes to eliminates the tax code’s restriction on cannabis businesses claiming deductions for businesses expenses, and implements an excise tax on cannabis products. The goal is to allow the industry to be a fully banked business.

UPDATES

The Port of Oakland filed a complaint for injunctive relief on July 25 with the Superior Court of California in Alameda County.  A temporary restraining order was granted on Tuesday, Aug. 2. In addition, a hearing on the motion for a preliminary injunction is scheduled for Aug. 29. Members of the California Trucking Association and the Owner-Operator Independent Drivers Association had blocked access to the Port in late July to protest new state employment laws.

The Jacksonville Electric Authority (JEA) is letting their customers know that retail rates could be as much as 45% higher by 2032. The projected 4.5% annual need cites the fact that “the biggest driver of our longer-term need for rate increases is driven by the combination of capital projects, Plant Vogtle, primarily.” JEA has already increased its base rate by three percent last year.

The National Indian Gaming Commission announced figures this week which showed that revenues nationwide totaled $39 billion in 2021. The onset of COVID-19 in the spring of 2020, every tribe shut down their gaming facilities.  The result was a decline of nearly 20 percent in gross gaming revenue. Once facilities began to reopen, revenues picked up and steadily increased. According to the fiscal year 2021 figures, gross gaming revenue at tribal casinos increased by 40.2 percent from the year prior. Compared to pre-pandemic levels, they increased by 12.9 percent.

On August 1, 2022, Chief Justice John Roberts granted energy companies’ application for an extension of time within which to file a petition for writ of certiorari for review of the Fourth Circuit’s decision affirming the remand order in Baltimore’s climate change lawsuit against the companies. The deadline for filing a petition for writ of certiorari is now October 14, 2022. This comes as the parties in a similar suit from Boulder, Colorado are in the midst of arguing a procedural issue in front of the Supreme Court. The industry continues to make every effort to get these claims shifted to the federal courts which have fairly consistently kept the cases in state court. This is one of them.

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.

Joseph Krist

Publisher

KENTUCKY

Daddy, won’t you take me back to Muhlenberg County

Down by the Green River where paradise lay?

Well, I’m sorry my son but you’re too late in asking,

Mr. Peabody’s coal train done hauled it away.

And much of what was left was washed away in this week’s flooding in eastern Kentucky. Much of the focus on environmental justice and social equity, especially in terms of the electric utility industry, centers around the location of generating facilities.  The lack of infrastructure before as well as after is staggering. If you have been in those hollows in KY, W VA, VA, OH, the difficulties with providing and maintaining basic infrastructure are apparent. So too, is the poverty that is the largest growing crop in these places. The barriers to overcoming these issues grow every day.

Recovery will be highly difficult at best. The lack of a real economy, limited physical access (true before the flooding), and a lack of insurance will all be difficult to overcome. It is estimated that only 5% of the homes flooded and/or destroyed had flood insurance coverage. At some point, what sounds like a lot of money (nearly all federal) will be pointed to as a marker of a recovery effort. The reality is that those federal programs don’t often provide the one commodity that disaster professionals all point to as a primary mover of short-term recovery and that is cash.

THE INFLATION REDUCTION ACT

An agreement was announced which should pave the way for a climate bill. The agreement includes 10-year extensions of existing credits for wind and solar, as well as provisions for heat pumps, rooftop solar and standalone energy storage, like batteries. the extension and expansion of a host of renewable energy tax incentives and for next-generation technologies, including clean hydrogen and advanced nuclear. EV incentives a $7,500 rebate for new vehicles and a $4,500 tax credit for used ones. Only people who make $150,000 a year or less (or $300,000 for joint filers) are eligible for the new car credit and those who earn a maximum of $75,000 (or $150,000 for joint filers) for used cars. 

The bill extends credits to hydrogen-fueled cars. It also expands a tax credit for companies that capture and bury carbon dioxide from natural gas power plants or other industrial facilities. It would also provide tax breaks to keep existing nuclear plants running and make permanent a federal trust fund to support coal miners with black lung disease. While much of that benefit will indeed go to West Virginia, health providers and governments in states like PA, VA, OH, and IL would all benefit from that funding. America’s Power, an industry trade group, said “Our preliminary estimates indicate that West Virginia would be one of the states with the largest number of coal retirements due to the wind and solar tax credits,”.

We view this legislation as establishing a political blueprint for what a legislatively realistic approach to climate change might look like. Support for carbon capture is clear. The continuing support for electric transportation on a bipartisan basis will drive demand for electricity. We see signs that nuclear is gaining support. The continuing inability (unwillingness) of managers at nuclear construction projects to meet budgets and schedules while ensuring quality work is the real impediment.

The hope is that some of those issues would be addressed through the development of small scale or modular reactors. The Nuclear Regulatory Commission (NRC) has indicated it will certify a small modular reactor (SMR) design planned to be developed in Idaho. The NRC on July 29 directed staff to issue a final rule that certifies the standard SMR design, for which NuScale submitted an application in December 2016. 

Only one NuScale project is under active development in the U.S. That has a municipal utility – Utah Associated Municipal Power Systems (UAMPS) – leading the effort to develop the 462-MWe Carbon-Free Power Project at an Idaho National Laboratory (INL) site in Idaho Falls, Idaho. While also a NuScale project it has a different design. UAMPS has so far signed up 27 of its 50-member pool—mainly in Utah, Idaho, Nevada, and New Mexico—as participants in CFPP.

CALIFORNIA ELECTRIC VEHICLE WEALTH TAX

Prop 30 would raise income taxes on people earning more than $2 million a year to fund zero-emission vehicle purchases and infrastructure. Half the money for incentives would go to people in lower-income communities and a share of the money for infrastructure would be used to install charging stations at apartment buildings. A portion would also be used to fund wildfire prevention efforts.

A 2020 order from Gov. Newsome requires all new vehicles sold in the state to be zero-emission by 2035. A related law compels ride-hailing companies like Lyft and Uber to mostly abolish internal combustion engines from their fleets by 2030.  So, now they are looking for additional subsidies for their businesses in the form of assistance for buying EVs. It’s important enough to Lyft to have spent $15 million to support the plan.

CARBON CAPTURE ECONOMICS

Last week we highlighted efforts by the municipal utility serving Farmington, NM to limit residential solar generation development. This week, the same utility was the subject of another analysis regarding renewable vs. fossil fuel-based energy. Farmington is the location of the huge coal-fired San Juan Generating Station. The plant has been slated for closure. Farmington has been seeking ways to keep the plant operating and maintain the jobs and tax base it offers. It has partnered with a private entity as it seeks to use carbon capture to keep the plant operating.

The plan is based on estimates by the sponsors that some 95% of the plants carbon footprint could be captured at the plant making it a viable generating option. Those estimates find them selves being questioned by the Institute for Energy Economics and Financial Analysis (IEEFA). The Institute is known for its lack of support for capture on economic viability grounds. In the case of the Farmington plant, specific issues have been raised in the study.

IEEFA’s analysis produced data which led them to conclude that even if the proposed project captures 90% of the CO2 produced by San Juan, the combined CO2-equivalent (CO2e) capture rate for both the mine and the plant would be only 68%. In this scenario, the project would continue to emit almost 3 million tons of CO2 annually. If only 75% of the CO2 produced by San Juan was captured, the effective capture rate for both the mine and the plant would be 57%. If only 65% of the CO2 produced by San Juan, the effective capture rate for both the mine and the plant would be 49%. 

The study comes as the U.S. Department of Energy (DOE) has issued a notice of intent to fund six carbon capture demonstration projects. Two are to be located at new or existing coal-fired generators, two at new or existing gas-fired facilities, and two at new or existing industrial facilities not proposed for electric generation. Funding is included in the pending climate legislation. It had better be, as even the entity vying to keep San Juan generating admits that there is little investor interest in its carbon capture project.

The study also highlights the issue of methane. While so much effort is applied to the development of carbon capture to deal with that problem, methane has taken its place as an issue with many believing that methane reduction could produce more significant climate benefits in a shorter time period than is the case with carbon capture. A recent study by the International Energy Agency (IEA) concluded that actual methane emissions from oil, gas and coal are 70% higher than reported in official data.

The major difficulty facing potential investors in carbon capture is one that the municipal high-yield market has seen many emerging technology projects which have never been operated at scale. Medium density fiberboard, rice stalk recycling, paper de-inking are just a few the sectors involved. The hope is that will change in the energy sector. We think that carbon capture could be a good test.

PUERTO RICO ANSWERS ITS OWN QUESTION

There are many responses one could have when Puerto Rico complains about oversight and its finances. When it wonders why investors and outside observers seek to obtain as much information as they can, when they ask for extended oversight, and tighter covenants. When it wonders why so many are suspicious of who and who isn’t appointed to run important functions. This week presented another answer to that question, courtesy of the Commonwealth itself.

The former governor of Puerto Rico, Wanda Vázquez, was arrested by the F.B.I. on charges of accepting bribes while in office from a campaign donor, and naming a regulatory official of his choosing in exchange for donations. The donor offered Ms. Vázquez a $300,000 campaign donation in return for replacing the island’s then top banking regulator.  It is charged that she took it but it was a bad investment as she lost in a primary.

The irony is that this failed investment was attempted to be reprised with the winning candidate. The same donor tried offering a bribe to the winner — the current governor, Pedro R. Pierluisi — but the person representing Mr. Pierluisi was actually working undercover for the F.B.I.  That comes after it came to light that he president and treasurer of a political action committee that raised money for Mr. Pierluisi’s campaign pleaded guilty in May in a scheme to hide the origins of “dark money,”.

This is why an oversight board is a necessity. 

PORTS AND CONTAINERS

The continuing backlogs at ports around the country are well known. With a peak shipping season underway, the clogged supply chain at all levels is refocusing attention on an issue that faced ports last year. Imbalances between exports and imports as well as shortages of truckers have created large numbers of empty containers which take up significant space at ports without generating revenue. It is in the ports’ interests to clear out the backlog.

The primary approach is to levy storage fees to motivate shippers to move the containers. In Los Angeles, such fees were proposed last year for the Ports of Los Angeles and Long Beach and the threat of them was sufficient to address the issue. Since the program was announced on Oct. 25, the two ports have seen a combined decline of 26% in aging cargo on the docks. As backlogs increased this year, the Ports of Los Angeles and Long Beach announced that they were considering actually collecting the fess beginning this month. The ports plan to charge ocean carriers $100 per container, increasing in $100 increments per container per day until the container leaves the terminal. The plan to impose the fees this month has been delayed to see if shippers can improve the backlog situation.

The Port of New York and New Jersey has announced that it intends to implement a new quarterly “container imbalance fee” for ocean carriers. Under this new container management fee, which will be assessed on a quarterly basis, ocean carriers’ total outgoing container volume must equal or exceed 110 percent of their incoming container volume during the same period, or they will be assessed a fee of $100 per container for failing to hit this benchmark. Incoming and outgoing containers include both loaded and empty containers, excluding rail volume.

WAS NYC WRONG ABOUT AMAZON?

When Amazon was looking for a tax incentive deal to support the development of a 25,000-employee campus, the deal had many critics. After Amazon decided ultimately locate in Arlington, VA. Supporters of the massive tax abatements and other incentives pointed to that move supported by tax concessions to call the failure to lure Amazon a mistake. It was part of a whole move by cities to put so much development hope in the location of tech company office facilities.

Now there is evidence that it might not have been the worst thing for the City given recent employment trends in the tech space. Twitter recently told employees that one office in San Francisco would close; plans for a new office in Oakland, California, would be abandoned; and the future of seven locations was being carefully considered as part of a cost-cutting measure. Five other offices globally would definitely be downsized. 

Other companies are following suit. Yelp announced it was moving to being fully remote, and closing 450,000 square feet of office space across the United States. Netflix said it plans to sublease around 180,000 square feet of property in California. Salesforce put up half of its San Francisco trophy tower block for sublease in mid-July. US Bureau of Labor Statistics data tells some of the story. Those numbers show that 27% of American workers in “computer and mathematical occupations” worked remotely at some point in the last four weeks. 

San Francisco estimates one in three workers who used to be in the city have now gone remote. The office vacancy rate in San Francisco stood at 22% at the end of the first quarter of 2022. In Dallas, where other tech companies have created outposts, more than one in four office spaces are vacant.

UPDATES

San Diego has become the latest jurisdiction to ban natural gas in new construction. The City Council approved the City’s Climate Action Plan.

Georgia Power has received approval to begin fuel loading at Unit 3 at Plant Votgle. The pending climate bill also provides a 10-year production tax credit for nuclear energy producers. The goal is to allow some existing nuclear generation to remain economical for operators. Existing facilities could receive a $15 per megawatt-hour credit. The credit gradually declines as power prices rise above $25 per megawatt-hour.

Carbon capture plans are continuing to generate opposition. Landowners in eight counties in South Dakota have now filed lawsuits against Summit Carbon Solutions and its well documented efforts to build a pipeline to ship carbon to North Dakota. The suits seek to challenge laws which provide that companies have a right to access land for survey work without consent, so long as there is a permit open with the South Dakota Public Utilities Commission, they give 30 days’ written notice to the landowner and they make a payment to the landowner in the event of any damages. 

The landowners cite an article in the state constitution which provides that private land cannot be taken or damaged without just compensation and another which provides that corporations that take private property must pay compensation before any damage to the property is done. The filings also cite an article in the state constitution that says landowners have a constitutional right to have just compensation determined by a jury and paid prior to entry on the land.

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.