Joseph Krist

Publisher

This is our year end 2022 review and outlook. We return with the issue dated January 9, 2023.

TRANSPARENCY

The Financial Disclosure Transparency Act passed the House. It would mandate that financial information from municipal bond issuers be presented in a machine readable form among other provisions. What it does not do is contribute to an increase in timeliness and data quality. Just because a format is selected does not mean that all of the data will be magically improved. The requirements would likely be a nightmare for smaller issuers resulting in increased costs with little discernable benefit to those issuers. It seems to be a benefit for data managers and distributors especially for those who will be developing and peddling software.

No one wants to go back to the days of contacting issuers and financial officers when information was closely held. When information was inconsistent or did not meet what might have been simple common sense inquiries. Now we are moving to an even more quantitative market where the data may be in a uniform format but is not additive to the analytic process. It will do nothing to aid the effort to assess and interpret data by analysts. As for the non-financial information which often drives credit and valuation decisions, this proposal does nothing to improve or enhance that process. This will be especially true for many enterprise backed revenue credits.

This is not like previous efforts to improve disclosure like rule 15c2-12 which did increase the volume of information. It does not offer a clear improvement to individual investors in terms of credit analysis. It continues to drive the market towards greater commoditization of the municipal market. In the end, it diminishes the role of credit in the investment process. A uniform data language does not improve the quality of project information whether it be the monitoring of construction progress or review of interim financial data. It does not address issues of law and policy which can be just as important to credit evaluation as numbers.

We generally support efforts aimed at increasing the quality, volume, and timeliness of financial disclosure in the municipal bond market. This is not one of them.

Many thought that the 2022 mid-term elections would generate results which might establish a clear background for next year’s events. The results were anything but. The euphoria over a Senate majority has given way to the reality of a very tenuous majority in the Senate let alone a House majority for the other party. Already, we are seeing the types of activities which have historically been used by more extreme members to weaken Republican speakers. The result is likely to be effective legislative gridlock which severely limits the potential for any serious legislation.

That should effectively end the vast flow of federal cash to the states and localities. It will be important to remember that the fiscal year beginning in June is the last year that states and localities can rely on outside money to fund programs that have been increased or established during the pandemic period. This will be a phenomenon which will be repeated across the country but there will be some prominent credits to watch as they begin to deal with the beginning of the end of federal largesse.

California benefitted greatly from federal pandemic assistance but its finances are already showing signs of a different outlook going forward in the near-term. In late November, the Legislative Analyst’s Office laid out a case for the entire $25 billion surplus the state has accumulated being offset by an emerging revenue shortfall. Already legislative proposals are being advanced which assume that a large surplus will be available to fund spending – income support, transit projects, homelessness – all have their advocates but no source of funding.

New York State saw increases in spending which were to be expected given the state’s pivotal role in the pandemic and its lingering effects and the realities of its political landscape. Now the State finds itself being the first state to deal with an FY 2024 budget. It does so in the face of an uncertain outlook for its finance and real estate industries. It is clear that the state’s recovery – especially that of NYC – has been slower than expected. It has been a bit of time since the current legislative leadership has had to deal with something other than divvying up other people’s money. The legislature is no longer veto-proof which will make the annual three people in a room setting characteristic of NYS budget making much more difficult.

New York City will try to continue to expand housing, maintain pre-K for all, repair the capital stock of the Housing Authority, address the crisis of mentally ill homeless in the face of an uncertain local economy and declining outside aid. The indicators are so mixed so far that one would be foolish to make assumptions about the future. Office occupancies still lag. Excess space remains on the market – both commercial office and retail. Attendance at the city’s schools continues to be below pre-pandemic levels and it is estimated that some 250,000 have permanently moved out. Tourism remains uncertain. Several Broadway shows have closed shortly after reopenings after the pandemic.

The Metropolitan Transportation Authority (MTA) has already begun the process of imposing a fare increase. The basic problem is simple. Passengers do not wish to see an increase in fares. The current image of the subways is that of slow service, unsafe facilities, turnstile jumping, and an overall breakdown of the environment. The heavy reliance on congestion fees in future plans relies on the success of that program. As much as any agency, the MTA relies on both the state and city government for funding which gives suburban legislators inordinate power.

It becomes clearer each day that new funding is needed and that is in addition to what congestion pricing yields. Unfortunately, MTA funding has been one of the preeminent battlegrounds in the state legislature. The City will face its own revenue needs and will not be a ready source of additional operating cash. Meanwhile, the dance in the press which accompanies any process of raising fares has begun. It also comes at a time when experiments with free service have begun in several major cities. The results to date have been mixed. Riders and transit advocates have pointed to service deficiencies playing as much a role in demand as fares. This has led to an underwhelming reaction in some places to these programs.

HEALTHCARE

It may be only two years ago that federal aid was bailing out hospital credits, mitigating some of the concerns about the damage done to hospital balance sheets. Since then, the virus may have ebbed but inflation has not. Hospitals seem to be one of the hardest hit sectors by inflation. Whether it be supply shortages or prices or labor costs, hospitals bore the brunt of the pandemic’s effects. In the aftermath of the pandemic, hospitals saw declines in non-emergency healthcare which help to extend the damage to finances.

One sector which was under siege before the pandemic was the rural hospital sector. Once the pandemic hit, rural hospitals were at the front line of COVID care as the only providers of emergency services. Now, many of those facilities are still at risk in the wake of the pandemic and hoping for outside help primarily from the federal government. Over 180 rural hospitals have closed in the United States since 2005. Ten percent of those closed in 2020.

A program is being offered by the federal government which would designate facilities as “rural emergency facilities.” Rural emergency facilities could receive monthly payments of $272,866, with increases based on inflation each year. They will also receive higher Medicare reimbursements than larger hospitals. There is one catch. They must promise to release patients to larger facilities within 24 hours. It would mean an end to inpatient treatment at those facilities. Not even for labor and delivery patients.

On the other side of the coin, the hospitals which are supposed to pick up the rural slack have their own problems. Consolidation had slowed during the pandemic but its aftermath is reviving mergers in the face of pressured finances. Volumes continue to be impacted as patients remain fearful of hospitals and hospital type environments especially at large facilities. This has impacted elective care and procedures which are often substantial profit contributors for hospitals.

The large metropolitan hospitals still face pandemic issues. Significant issues with COVID and RSV are both taxing to the facilities’ bottom lines but they revive the aforementioned fears holding down utilization. The situation is highlighted by revived masking requirements in Los Angeles and New York. Hospitals in those places are combating higher costs and supply shortages without additional governmental support.

PRIVATE COLLEGES

Private colleges have been on a downward trajectory in recent years as increasing tuition caused sticker shock and the pandemic limited access. The National Association of College and University Business Officers (NACUBO) conducts annual surveys of tuition rates across the country. The 2021 study showed that net tuition revenue per undergraduate increased year-over-year but is still down two percent from five years ago, after adjusting for inflation. Enrollment was relatively flat overall, as an increase in first-year students was diluted by a decrease in enrollment among other undergraduates. This occurs before the full effects of a pending unfavorable turn in demographics which is expected to reduce applications and matriculations through the decade.

To combat the trend, the smaller private institutions have embarked on a campaign to publicize the “true” cost of attendance. Most undergraduate students at these institutions received grant aid this year, and the awards were, on average, the largest they’ve ever been. In AY 2021-22, 82.5 percent of all undergraduates at institutions surveyed received aid, which covered an average of 60.7 percent of published tuition and fees. Ironically, the higher sticker prices may actually drive down demand for a given school.

POWER

The electric power sector remains the most interesting as it is at the center of nearly every contentious issue associated with climate change. Municipal utilities across the country are on the front line of the response whether it be generation development and siting; hydroelectricity vs. fish; equity – economic and environmental; refurbishment and expansion of the transmission and distribution grid. Municipal utilities are in a position to make pivotal decisions.

Coal vs. natural gas – the potential for Memphis to truly change the game will grow throughout the year as it decides whether or not to renew a long-term contract with the TVA. If a customer which accounts for 10% of TVA’s load demand turns away over environmental concerns, it could lead the TVA to reconsider its plans to replace coal with natural gas.

Nuclear – Utah Associated Municipal Power Systems (UAMPS) is a participant in a proposed small scale nuclear project. Small scale nuclear has hit some speed bumps lately as inflation has raised cost estimates. Nonetheless, utilities in the southeast have announced plans to deploy small modular nuclear in Virginia. A plant has also been proposed for the Hanford site in Washington. These plants will be in the news all year as the regulatory processes unfold.

One risk has already emerged and impacted development. The private developer of an advanced nuclear reactor proposed for southwestern Wyoming recently announced a two-year delay in the project. The issue is not with planning, record keeping, or poor construction management as has been the case with so many legacy nuclear reactors. Here the issue is a lack of the more highly enriched fuel the plant requires.

The primary (and often only) source of the fuel is Russia. This will require the development of a domestic source of fuel. Until that is resolved construction makes no sense.  The planned project site is currently the home of two operating coal units at electric utility PacifiCorp’s Naughton Power Plant. This project could repurpose the site as both units are slated to retire in 2025.

Transmission – This is the issue which is as much of a near-term obstacle to full electrification as anything else. Projects like the Grain Belt Express and the Central Maine transmission line remained mired in legal challenges and environmental concerns. Transmission – its capacity as well as its ability to accept new power – is simply inadequate to satisfy the goals of advocates. The imbalance between capacity and supplies is a real issue. It has slowed connections for solar and both residential as well as industrial scale. 

Electrification – The move to electrify the nation physically and economically is exposing so many conflicts on the road to this goal. Lithium is the key component in the process of manufacturing batteries to power electric cars. The effort to fully develop a domestic lithium industry is now running headlong into a gauntlet of environmental and cultural concerns. Numerous proposed mining sites are being challenged on environmental and religious grounds. That process will play out throughout the year. The trend of restricting natural gas use in new construction will continue. This will continue to conflict with natural gas proponents who are a large number even at the public agencies.

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

JACKSON, MS WATER

In October we documented the issues contributing to the unacceptable situation confronting the City of Jackson, MS and its efforts to run a municipal water system. Now, the US Department of Justice (DOJ) has announced an agreement with the city in litigation it had launched against the city over the management and operations of the water system. DOJ proposed appointing an outside expert to oversee operations until the system is reorganized and major repairs can be made. This is something which was done in Birmingham, AL when its water and sewer system dealt with bankruptcy.

Earlier this year, $5 million was provided by the U.S. Army Corps of Engineers through the Infrastructure Investment Jobs Act (IIJA). The state’s congressional delegation successfully included $20 million in supplemental appropriations in Congress’ Continuing Resolution on September 30. These funds will come directly to the city of Jackson for water infrastructure projects along with $4M in State and Tribal Assistance Grants through the Environmental Protection Agency (EPA).  The city also has applied for funding under the American Rescue Plan Act (ARPA) and match funding through the Mississippi Municipality & County Water Infrastructure Grant Program (MCWI) totaling over $71 million.

The outside manager has been appointed. Under the agreement, the interim manager would operate the city’s public drinking water system to bring it into compliance with federal and state laws, oversee the city agency responsible for billing and carry out improvements to the system.

MOBILE TRANSIT PROJECT

The Alabama Department of Transportation (ALDOT) will move forward with the Mobile River Bridge and Bayway Project, a project which has been mired in controversy over the funding of the project and costs to drivers. Now, ALDOT is moving forward with this project, utilizing funds from the $125 million federal INFRA grant as well as a commitment of at least $250 million in State funding. ALDOT will continue to pursue funding opportunities with the U.S. Department of Transportation but will not delay moving forward pending future grant awards.

The project will employ the design/build strategy. Those seeking the contract will have to provide a new Mobile River Bridge and a new Bayway. The project will have to provide for four non-toll alternatives.

This project will rise and fall over toll revenues from this facility. The plan will be based on electronic toll options of $2.50 or less for passenger vehicles, and $18.00 or less for trucks. An unlimited use option for $40 per month, which is under $1 per trip for daily commuters between Mobile and Baldwin Counties will tamp down opposition to the project. Tolls would significantly higher for customers paying in cash.

While the project will be constructed by a private entity, it will be owned and operated by the State of Alabama, with no private concessionaire. The project, as proposed, includes the construction of a new 215-foot-tall Mobile River bridge, and a new 7.5-mile Bayway between downtown Mobile and Daphne, along with the demolition of the existing Bayway. The entire project, without receiving additional grants, relies heavily on financing that includes $1.2 billion through bonding and another $1.1 billion through federal loans under the TIFIA program repaid through revenues generated by tolling.

The movement on the plan represents a turnaround in the state consensus which existed in 2019 when a proposed P3 for this project was proposed. Opposition weakened support at the statehouse but the access to federal funding and limitation of tolling to this facility has led the Governor to reverse and announce support for the project.

For bidding purposes, the project is in two parts – the bridge and the highway. Bids are due on December 21.

INFRASTRUCTURE TERROR

For half a century, the electric power grid has presented a real source of concern to those concerned with terrorism. The very essentiality of those physical assets combined with their locations in remote areas raise the level of concern. Fortunately, there have not been many incidents and the impacts have been limited. Recent events however, have heightened concerns about the vulnerability of the nation’s electric grid. As the country moves towards greater and greater dependence upon electricity, that vulnerability becomes more and more of a serious issue.

Two power substations in Moore County, NC were damaged by gunfire on last weekend in what they believe was an “intentional” attack on the power grid. The damage to the transmission equipment cut power for some 45,000 customers. The attack comes some 30 years after the issuance of reports from the federal government detailing the concerns about grid vulnerability. The equipment in question is the type of facility which one finds all over rural America.

The incident in North Carolina will raise a variety of questions about the location of these facilities and their true level of vulnerability. This incident follows on the heels of news that the federal government has acknowledged that “Power companies in Oregon and Washington have reported physical attacks on substations using hand tools, arson, firearms and metal chains possibly in response to an online call for attacks on critical infrastructure.  The attacks are attributed to “violent anti-government criminal activity.”

These events are the latest iteration of a long-term conflict based on the issue of federal land management.  That discontent has manifested in other violent confrontations with law enforcement but the new tactics of shooting out necessary electric infrastructure are problematic.

NYC FINANCIAL PLAN

The New York City Independent Budget Office testified this week about its analysis of the Mayor’s November Financial Plan update. IBO’s Fiscal Outlook finds the city will have a budget surplus for 2023 of $2.2 billion, a negligible deficit in 2024, followed by deficits of $3.5 billion in 2025 and $4.5 billion in 2026. (Years refer to city fiscal years unless otherwise noted.)

This incorporates IBO expectations of weak tax revenue growth, albeit higher than the mayor estimates, offset somewhat by expenses that it expects the city will incur, which are not included in OMB’s spending plan. The outyear gaps, although smaller than those estimated by OMB, are substantial and will require action by the mayor and the City Council unless revenues recover faster than expected.

The economic assumptions behind the projections are as follows. For calendar year 2022, IBO projects the New York City economy to add about 205,200 jobs as our recovery from the unprecedented job losses in the 2020 recession continues, although IBO projects that the city will still be 105,540 jobs (or 2.3 percent) below its pre-pandemic level at the end of this year. For calendar year 2023, gains slow to 44,600 jobs before bouncing back somewhat to 90,500 in 2024, 85,900 in 2025, and 82,400 in 2026. The employment recovery remains uneven among the sectors. Industries such as construction, retail trade, and leisure and hospitality are all estimated to be at less than 90 percent of their 2019 level at the end of this year. Others such as information, professional services, and health care have fully recovered to their 2019 levels.

After accounting for new needs, other adjustments, and PEG reversals, the administration, however, only achieved reductions of $705 million and $554 million in fiscal years 2023 and 2024, respectively. Out of roughly 55 mayoral agencies, only 18 achieved their PEG target in each year of the November plan.

Other findings raise concerns. Our concerns from the start of the Adams administration were about his management style and how engaged the Mayor would be with those management details. This report does not assuage these concerns. This past September, the administration issued savings targets to all mayoral agencies of 3.0 percent in fiscal year 2023, and 4.75 percent in fiscal years 2024 through 2026. The targets, known as the Program to Eliminate the Gap or PEG, were set to yield savings of $1.4 billion in 2023 and $2.2 billion in fiscal years 2024 and later. However, the administration did not meet these goals.

After accounting for new needs, other adjustments, and PEG reversals, the administration, however, only achieved reductions of $705 million and $554 million in fiscal years 2023 and 2024, respectively. Out of roughly 55 mayoral agencies, only 18 achieved their PEG target in each year of the November plan. Some of that reflects the Mayor’s approaches towards management of the workforce. The pandemic exposed how antiquated the City’s information system was (and still is) and the effort to force workers back to the office earlier than was the case for many in the private sector seems to have backfired.

The use of attrition to manage headcount is something we’ve criticized the administration for in the recent past and the impact of that method is emerging. Many of the positions which are not being filled were vacated by experienced workers. The crucial core of workers between thirty and fifty (young enough to be still engaged or too close to retirement and a pension to make a major shift) is steadily being hollowed out.

This comes as the potential budget threats from the reliance on COVID money to fund programs becomes clearer. IBO cites two examples. The Department of Education is expected to need $764 million in 2025 and $966 million in 2026 above what the mayor has currently budgeted for programmatic costs. This includes $678 million in 2025 and $881 million in 2026 if it wants to maintain services launched with federal Covid relief funds that will run out during fiscal years 2024 and 2025, such as expanded 3K. In total, these repricings result in IBO estimating higher city-funded expenditures in each year of the financial plan: $228 million in 2023, $1.1 billion in 2024, $829 million in 2025, and $928 million in 2026.

The other issue is less complex. The financial plan includes a reserve for future collective bargaining settlements as contracts with most of the city’s unions having either already expired or scheduled to do so by the end of calendar year 2023. The amount in the reserve is sufficient to provide for a settlement with a raise of 2.5 percent annually. However, given the steep rise in inflation over the past year, it is likely the unions will hold out for higher settlements, which would add to the budget gaps.

PORT AUTHORITY OF NY/NJ

Moody’s maintained a Aa3 rating with a stable outlook for the Port’s Consolidated Revenue Bonds. The rating reflects Moody’s expectation that “the Port Authority’s operating revenue will remain on a positive trend in 2023 despite a weakening economic environment supported by an expected increase in aviation revenue and a potential CPI-based toll rate increase in January 2023.”

We note that operating trends are positive as reflected by the fact that preliminary 2022 operating revenue exceeds pre-pandemic 2019 levels. The port segment has surpassed 2019 levels in 2022, traffic volumes at its bridges and tunnels have come back to 2019 levels and aviation was approaching of 2019 levels as of September 2022. The port segment has already surpassed 2019 levels in 2022, traffic volumes at its bridges and tunnels have recovered to 2019 levels and aviation is approaching 2019 levels as of September 2022. 

PATH remains the money pit it has always been although the move to hybrid and/or remote work has impacted ridership which was still only at around 58% of 2019 levels as of September 2022. Moody’s estimates that the PATH system will likely continue to generate negative EBITDA of over $300 million per year (-$382 million in 2021).

SALT RIVER PROJECT

The Salt River Project (SRP) is the largest electricity provider in the greater Phoenix metropolitan area, serving approximately 1.1 million customers. It has found itself over the last year at the center of a number of controversies including net metering, the location and expansion of gas fired facilities, and the general issue of equity. Now the utility plans to move forward in the renewable generation space.

The SRP Board of Directors announced that it approved the second phase of continued development at the Copper Crossing Energy and Research Center in Florence, AZ, which includes a utility-scale advanced solar generation facility capable of generating up to 55 megawatts (MW) of solar energy.

Historically, SRP has contracted generation from renewable resources through power purchase agreements with developers, as these entities have access to tax credits. Now with the passage of the Inflation Reduction Act, not-for-profit public power utilities like SRP are allowed to directly receive federal incentive payments for renewable projects.  As a result, this will be the first utility-scale solar asset in SRP’s portfolio that SRP self-develops, owns and operates.

Development will not occur overnight. Detailed engineering, material procurement and construction activities for the solar facility are expected to take approximately 24 months. Next year, SRP hopes to be able to move forward with a battery storage project complimenting the existing and proposed solar generation on site.

GAS TAXES

California Republican state lawmakers are offering legislation to try to temporarily suspend the state’s gas tax for a year. At 54 cents it is the highest state gasoline tax levy in the country. Bills were filed in both houses of the legislature for consideration during either a Special session or in regular session. The sponsor in the House has proposed backfilling those funds with money from the state’s general fund. That proposal comes soon after the Legislative Analyst for the state warned of a likely $25 billion budget shortfall which would effectively absorb all of the general fund’s reserves. That raises the question of whether this is a serious proposal or just grandstanding.

Hawaii’s Department of Transportation recommends “moving forward with a minimally disruptive transition to road usage charging.” Its proposal comes with a low price in comparison to some other proposals under consideration elsewhere. HDOT suggests the rate of .8 cent per mile be charged since that amount is equal to what the average gas vehicle in Hawaii pays through the gas tax. Currently, EV owners pay a $50 flat fee for registration. The mileage charge would be odometer based with calculation of the fee incorporated into the state’s annual vehicle inspection process. After California, Hawaii has the second-highest EV adoption rate in the nation. Hawaii collects 16 cents for every gallon of fuel sold, which amounted to $83 million in 2019. HDOT estimates that by 2045, the .8 cent-per-mile rate could generate over $65 million on all EVs or $100 million if levied on all vehicles.

MEMPHIS AND THE TVA

The Board of the Memphis, Light Gas and Water Board of Commissioners voted against a proposed 20 year, rolling contract with the Tennessee Valley Authority for the purchase of electricity. The contract provided for TVA base rates to decline by 3.1% and allowed MLGW to produce up to 5% of electricity independent of TVA.  The utility will continue to purchase power from TVA under an existing agreement. The proposed 20-year term appears to be as much of a stumbling block as anything else. The vote allows for new management to be in place to influence an ultimate long-term decision. New management starts in January.

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

NUCLEAR SUBSIDIES

The Department of Energy awarded the funding for the Diablo Canyon Power plant to Pacific Gas & Electric, which owns the nuclear facility, to help cover the cost of continued power production. The federal money follows a $1.4 billion loan from the state last month. provides about 9 percent of the state’s electricity. PG&E said the funding it had received from the state and federal governments would cover the cost of extending the license and operations of the plant. The utility said the federal money would help repay the state. There are still details to be negotiated but it is expected that the money would be distributed over four years beginning in 2023.

In Michigan, the owners of the shuttered Palisades nuclear plant announced late last week that it was denied funding from the U.S. Department of Energy’s Civil Nuclear Credit Program. No U.S. nuclear power plant has been reopened after an owner filed a formal notice — known as a letter of permanent secession of operation — to the Nuclear Regulatory Commission that it was being decommissioned, which occurred in the case of Palisades earlier this year. The decision

MTA 

The latest review of the mass transit situation in NYC comes from the NYC Independent Budget Office (IBO). As of this fall, ridership on public transit (subway, buses, and commuter rails) hovers around two-thirds of its pre-pandemic rate, while tolled crossings on bridges and tunnels have recovered to pre-pandemic levels. Ridership is now expected to reach just 81 percent of pre-pandemic levels by the end of 2026.

As a result of the revisions made in July, farebox revenues are expected to only make up about 25 percent of the authority’s $19 billion in annual revenues over the next several years—up from 17 percent during 2020 and 2021—but considerably lower than the near 40 percent of pre-pandemic revenues in 2019. Revenue from tolls is expected to stay around its pre-pandemic share.

Ridership on commuter-dominated services like the Long Island Rail Road (LIRR), Metro-North Railroad, and the subway reached extreme lows in the spring of 2020, averaging just 3 percent, 5 percent, and 8 percent of pre-pandemic ridership in April, respectively. Since the start of September 2022, commuter rail recovery has begun to outpace that of the city’s subway and buses.

Crossings on the MTA’s bridges and tunnels saw the least impact from the onset of the pandemic, reaching a low of 32 percent of pre-pandemic levels in the first week of April 2020, and quickly rebounding to over 80 percent by the summer of 2020. Currently, this is the only mode of transit under the MTA’s purview to have returned to 100 percent of pre-pandemic weekly ridership.

The various MTA services do not contribute equally to the authority’s revenue; commuter rail generates the greatest revenue per ride, at approximately $9, while buses have tended to yield the lowest revenue per ride, at around $2. However, most MTA user revenue is generated from tolls and high-volume services like the subway. At the start of 2020, subway ridership yielded the greatest proportion of monthly fare and toll revenue, at 44 percent.

This changed during the initial wave of the pandemic: from April through August 2020, toll revenue from paid bridge and tunnel crossings grew to more than half of all MTA user revenues and has since remained the largest source of these revenues. In August 2022, bridge and tunnel crossings made up 37 percent of user revenues, while subway fares contributed 35 percent.  IBO estimates that the MTA will meet its $6.2 billion fare and toll revenue targets for this year. This is, however, approximately $700 million less than the Authority’s original 2022 target set before Omicron.

The State Comptroller has also weighed in on the future revenue needs of the MTA. The Authority has also put forward an alternative plan to narrow its recurring budget gaps through 2028 by using early debt repayment. the MTA would also eliminate a projected $180 million in recurring debt service costs through 2053, which are associated with debt for operations that the Authority borrowed during the height of the pandemic. The paydown of the outstanding notes and bonds would reduce the size of the budget gaps by an average of $915.4 million through 2028.

The challenges remain substantial going forward. Fare revenue is expected to be the largest source of growth among all revenue sources between 2022 and 2026, rising by 29 percent. The MTA expects fare revenue (including none of the MTA’s major tax subsidy sources, including the Metropolitan Mass Transportation Operating Assistance (MMTOA), payroll mobility tax and real estate transaction taxes, are expected to rise by more than 7 percent over the same period, with toll revenue remaining flat over the period. Revenue in 2026, but that remains 10 percentage points lower than its share in 2019.

TRANSIT WORKER SHORTAGE

Public transit providers across North America face a shortage of operators and mechanics, a crisis that has strained budgets and forced agencies to reduce service. Ninety-six percent of agencies surveyed reported experiencing a workforce shortage, 84 percent of which said the shortage is affecting their ability to provide service. Although the shortage is most acute at agencies serving large urbanized areas and agencies with greater ridership, most agencies across the country report the shortage has forced service reductions regardless of the size of an agency’s ridership, service area population, or fleet.

Agencies reported that 45 percent of departing employees left to take jobs outside the transit industry, more than those who retire or left the workforce combined. The survey of agencies indicates that concerns about schedule and compensation were responsible for more departures than assault and harassment or concern about contracting COVID-19.

The problem is not limited to mass transit providers. States across the country are dealing with a shortage of snowplow drivers.  The Missouri Department of Transportation reports that it is nearly 30 percent below the staffing it needs in order to cover more than one shift. The Kansas DOT is about 24 percent short of snowplow operators needed to fully staff offices across the state. 

WESTERN DAMS

The Federal Energy Regulatory Commission (FERC) voted unanimously to approve the removal of four dams on the lower Klamath River to facilitate the return of salmon to the river. The move culminates a two- decade effort to restore the salmon runs on the river. The irony is that hydroelectric generation is being removed at the same time that carbon-free energy production is being favored.

As a result of the vote, FERC is ordering the surrender of the Lower Klamath Project License, which is currently held by energy company PacifiCorp. That license will be transferred to the entities in charge of dam removal: the states of Oregon and California, and the Klamath River Renewal Corporation, a nonprofit created to oversee dam removal that is made up of tribal, state and conservation group representatives.

PacifiCorp, their owner, had concluded that these outdated, inefficient hydroelectric dams would be more difficult to update than to remove.  In early 2024, the reservoirs are scheduled to be drawn down between salmon runs. In mid-2024, demolition will begin and by October 2024, the river should be open for the salmon’s return.

CRYPTO AND POWER

The recent downfall of FTX, the cryptocurrency exchange, does not help the image of the industry in ways obvious and not so obvious. Of the many factors cited by opponents of crypto, the enormous electric power needs of the industry and their increasing use of fossil fueled generation plants is gaining ever increasing attention. In that environment, legislation was passed in New York State limiting the expansion of crypto mining at abandoned fossil fueled facilities.

The legislation will impose a two-year moratorium on crypto-mining companies that are seeking new permits to retrofit fossil fuel plants in the state into digital mining operations. Many of these are some of the oldest and dirtiest generation in the state. The legislation will not impact existing mining facilities or stop all crypto-mining activities in the state. The restrictions will only apply to those seeking permits to re-power fossil fuel plants. Those that connect directly into the power grid or use renewable energy sources will remain unaffected.

It also requires New York to study the industry’s impact on the state’s efforts to reduce its greenhouse gas emissions. The industry resists these sorts of limits and study periods which may tell you something. It is feared that the New York law’s enactment could stimulate similar actions in other states.

MEMPHIS POWER SAGA

Memphis Gas, Water, and Light the municipally owned electric utility serving the city find themselves at the center of another to the ability of the TVA and the city to enter into a long-term power supply contract. This week, three nonprofits — Memphis-based Protect Our Aquifer, Energy Alabama and Appalachian Voices are challenging the long-term contract model with which TVA agrees to provide power to retail distributors.

The plaintiffs have argued the contracts violate the Tennessee Valley Authority Act of 1933, the law that governs TVA, and the National Environmental Policy Act, which requires environmental review of federal agency policy decisions. The case comes as MGWL decides whether to enter into a 20-year supply contract with TVA or to acquire supplies from other providers. The environment around the decision is also poised to change.

After a two-year period of bid solicitation and review, the outgoing CEO and a consultant hired on his watch recommended renewal of the relationship with TVA on a long-term deal. A new CEO began this week. The MLGW board delayed a vote on the 20-year deal this month because one company that bid on its electricity protested the decision to award TVA the contract. The ultimate decision rests with the Memphis City Council.

RENEWABLES AND PROPERTY TAXES

The Oklahoma Supreme Court unanimously affirmed a trial court’s ruling that federal production tax credits used to finance the construction of wind and solar farms can no longer be included in county assessors’ property valuations that determine the local taxes paid by energy companies. The Court said federal production tax credits (PTCs) are intangible property not subject to ad valorem taxation, according to the Oklahoma Constitution. PTCs are instead a tax incentive.

The ruling noted that while there is no doubt that tax credits may enhance the value of real property or have value for IRS taxation purposes, the Oklahoma Constitution states that intangible personal property is not taxable and that PTCs are intangible personal property. The ruling also stated that if the Oklahoma Legislature wanted to statutorily define PTCs as tangible property, it could do so but has not.

The current system leads to wide variations of similar properties especially those which cross county lines. Local assessments of energy properties can be “farmed out” to third-party assessors hired by elected county assessors to value more complicated assets, such as wind farms, pipelines and petroleum production assets. Multiple bills aimed at addressing property valuation disputes between county assessors and energy companies were introduced during the 2022 legislative session, with two of the measures being enacted.

One law requires energy companies protesting their tax valuations to file the correct paperwork in a timely manner and requires that county assessors inform school districts and tax jurisdictions of the property tax protests taking place within the county. In a concession to the industry, the law also prohibits the use of a third-party assessor during informal valuation negotiations between county assessors and energy companies. The second law moves valuation appeals of $3 million or more from the district courts to the existing Court of Tax Review.

The last provision reflects the fact that this tax dispute has gone on for six years and that the ruling potentially has implications for school districts across the state. The valuation changes will impact the amounts receivable by school districts from the state. The concern is that the law will raise uncertainties about school district bond financings. In 2021, about $80 million in property tax payments sat in escrow owing to valuation protests.

VIRGIN ISLANDS

We waited to see what rabbit the USVI Water and Power Authority would pull out of its hat before December 1 to keep its power generation system running in the face of a fuel cutoff by its propane supplier. The utility’s long standing financial problems have led to regular threats to its fuel supply.  Now, the Authority will use short term authority to acquire diesel fuel to run old power plants while a longer-term plan can be crafted. Electrical production by diesel costs twice as much as it does it by propane. WAPA had been paying $380,000 to $400,000 a day for propane. The Authority’s board authorized WAPA to spend up to $500,000 per day for propane because of the possible higher prices. The board authorized the amount through January 6.

A long-standing dispute between the USVI government and the estate of Jeffery Epstein has been settled. The estate of Jeffrey Epstein has agreed to pay what could amount to more than $105 million to the U.S. Virgin Islands to settle claims The estate of Jeffrey Epstein has agreed to pay what could amount to more than $105 million to the U.S. Virgin Islands to settle claims that he fraudulently obtained tax breaks for operating a financial advisory firm. Mr. Epstein’s estate agreed to repay in cash more than $80 million in tax benefits that one of his companies had received. It will also split the proceeds of the sale of a private island held by the estate.  The estate will have up to a year to come up with the necessary cash to fulfill its settlement terms.

INTERMOUNTAIN POWER

The Intermountain Power Agency has revealed that two private companies, apparently with understandings with state legislators offered to buy the Agency. Last month a proposal was offered that included the companies buying out all of IPA and its assets—its land and water rights, outstanding bonds and power contracts, as well as its transmission systems and generating station.  The plan was to use carbon capture and sequestration to extend the life of IPA’s two coal fired generating units. The power would be used for a data center.

One of the companies even sought to become a member entity of IPA, which is comprised of 23 Utah municipalities, as part of the proposal. That would raise all sorts of issues. All of it would seem to be moot as by agreement with the Environmental Protection Agency, IPA is allowed to operate the coal units until 2025, otherwise IPA would have to spend hundreds of millions of dollars building new coal ash disposal facilities in order to comply with federal regulations. 

If EPA believed IPA was set to diverge from the approved closure timeline tied to the ash disposal agreement, a 135-day deadline could kick in whereby IPA would need to open new ash disposal facilities or face imminent shut down. IPA received an approval order from the Utah Division of Air Quality in 2021 that allowed work to commence on IPP’s gas plant. Provisions of the order contain language about the closure of the plant’s coal-burning units.

Reopening that order to delay the closure of the coal units would likely trigger an 18-month delay in construction of the gas plant and could add costs of up to $50 million to the effort, according to IPA. 

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