Joseph Krist

Publisher

We are about to take a rare week off. We need to devote our attention to issues of great import which do not involve municipal credit. We will deliver our next issue for the week of May 8.

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DEBT LIMIT POLITICS AND MUNICIPALS

Long time readers know of my regular disgust when ideology trumps any practical plan to resolve issues. Whether it is tax policy, environmental policy, or general public policy, the answers which result in tangible accomplishments usually don’t come from idealogues. That what turns our focus to Speaker McCarthy’s recent comments about the need to lift the federal debt Limit. In particular, we focus on one of his proposals.

The idea in question calls for the “claw back tens of billions in COVID-related money.” He is basing that on a figure generated by the Republican Main Street Partnership which is affiliated with the former Main Street Caucus in the US house. The plan to take back money from state and local government would require revisions to existing law. For example, the American Rescue Plan Act, passed in March 2021, included $350 billion in Coronavirus State and Local Fiscal Recovery Funds. The funds must be obligated by December 2024 and fully spent by the end of 2026. 

My own view is that the extra money spent during the pandemic was in many ways shot out of a cannon when clearly it could not have been spent all at once. The view from McCarthy seems to reflect the belief that the hoarding of these funds occurs in service demanding blue states. The fact that many red states did not directly approve expenditures related to COVID but instead funded otherwise unaffordable tax cuts to their constituents (think Lenny the Mayor of NYC in Ghostbusters) and voters. Not all of that money was spent on COVID responses in those places.

Spare us the sanctimony and increase the debt limit.

SOMETHING IS OFF

DePaul is the largest Catholic university in the country. It has had a long presence as a major institution even if most people know it for the school’s basketball success in the late 1970’s and 1980’s. One year ago, Moody’s upgraded DePaul University’s (IL) issuer and revenue bond ratings to A1 from A2. The university had approximately $253 million of debt outstanding at the end of fiscal 2021. The outlook was stable. The rating and outlook were based on “the university’s strong growth in unrestricted financial reserves, driven by multiple years of superior operating cash flow retainment combined with strengthening philanthropy.

Now just one year later, DePaul is showing signs of a situation that is anything but stable. It is offering a voluntary separation program to about 15% of the school’s 1,400 full-time staff and administration, according to an April 4 notice by DePaul University President Robert Manuel. It appears to be concentrated on administration as faculty are ineligible. School officials project a shortfall of $56 million for the fiscal year beginning July 1, barring cost-cutting measures. 

Much of the problem is being blamed on pandemic impacts on enrollments. In fact, declines in enrollment have been long-standing. Since 2018, total enrollment fell 6.8%, with steep declines more recently among graduate students, according to data from the school. University-wide enrollment at DePaul fell 3.5% year over year to 20,917 students in 2022.  DePaul received authorization for $77 million of stimulus funds as of June 2021, according to Fitch Ratings.

DePaul has gone out of its way to reiterate a willingness and ability to pay debt service. Nonetheless, one has to ask how the perception of the school’s short-term credit outlook could be so positive in the face of DePaul”s specific declines which were already apparent. National trends are not in favor of a school already experiencing lower demand. It is clear that something was missed in the rating process.

NATURAL GAS BAN LOSES IN COURT

The US Court of Appeals for the Ninth Circuit ruled that Berkeley’s natural gas piping ban, which the city’s government passed in 2019 as part of its climate agenda, violated the federal Energy Policy and Conservation Act (EPCA) of 1975. The city can ban the use of gas appliances but the effort to restrict piping specifically was seen as an end run around the law. The panel unanimously held that federal energy law preempts Berkeley’s ban on natural gas piping within buildings, and that Berkeley cannot bypass federal preemption by banning the pipes instead of natural gas products themselves.

The suit was brought on behalf of the California Restaurants Association. Restaurant operators have been among the most vociferous opponents of the bans. Berkeley Ordinance No. 7,672-N.S. banned natural gas infrastructure and the use of natural gas in newly constructed buildings beginning January 1, 2020, making Berkeley the first city in California to take such action. In the original complaint filed November 21, 2019, the CRA highlighted that its members include restaurants that “rely on gas for cooking particular types of food,” as well as for heating space and water, for backup power, and for affordable power, and that they would “be unable to prepare many of their specialties without natural gas.” 

The decision focuses attention on why it has made some sense for other jurisdictions (like New York State and Minnesota) to exempt restaurants from limitations on the use of natural gas. The District Court in California dismissed the complaint in July 2021 but it did find that that the CRA had standing and the dispute was ripe, but disagreeing on the statutory interpretation of federal energy law. The judges argued that the Energy Policy and Conservation Act of 1975 passed by Congress “expressly preempts State and local regulations concerning the energy use of many natural gas appliances, including those used in household and restaurant kitchens.”

“Instead of directly banning those appliances in new buildings,” the ruling states, “Berkeley took a more circuitous route to the same result and enacted a building code that prohibits natural gas piping into those buildings, rendering the gas appliances useless.” At the time of enactment, the legality issue was an open question. As has been the case with most “environmental” legislation, the ultimate forum for addressing the details becomes the court. In this case, the lack of a restaurant exception and the effort to regulate the transmission of gas made it easier for the appeal to succeed.  

OAKLAND STADIUM

The never-ending process to provide a more modern home for MLB’s Oakland A’s may have come to an end. The last few weeks have offered a mix of good and bad news for proponents of the new facility and the development project proposed for the surrounding area. The Oakland Waterfront Ballpark Project (Project) proposed a 50-acre development at Howard Terminal within the Port of Oakland (Port). The Project proposed not only a new ballpark for the Oakland A’s, but also 3,000 residential units, retail and commercial spaces, a performance venue, and a hotel, all with associated parking. A draft EIR was completed in February 2021, and final EIR certified by the City of Oakland (City) one year later.

Opponent litigation has been focused on “safety” issues in the area around the proposed development connected with the presence and expected continuing use of rail tracks by freight trains. Opponents of the stadium have focused on that issue and the issue of whether the project’s environmental impact review should have included pedestrian safety. In that litigation including appeals from both sides, the California First District Court of Appeal concluded that the EIR prepared for the proposed Oakland A’s stadium was largely satisfactory, but on a single point failed to adequately mitigate wind impacts.

The bulk of the issues reviewed in this case are environmental but more regarding locations adjacent to the proposed project area rather than with the proposed ballpark itself. Many of those issues seem to be over procedure. The Oakland ballpark project received legislation requiring courts to resolve any CEQA challenge within 270 days at each level, to the extent feasible. Here, the trial court reached a decision just 170 days after the case was filed, and the Court of Appeal issued this opinion 178 days after the appeal was filed. 

Overhanging all of this has been the increasing impatience among MLB owners regarding the inability of the City of Oakland to address the stadium problem. Built in 1966, the stadium has always been a bad compromise producing lousy seating arrangements for both football and baseball. The City has been burned before in stadium negotiations especially by the now Las Vegas Raiders. Las Vegas again loomed as a potential location for a major league stadium and team. MLB would like to see a stadium (or relocation) deal reached by year end.

Those delays in obtaining approvals and that pressure from MLB to get a resolution to the stadium issue have now driven A’s ownership to look to Las Vegas. The franchise signed a binding agreement this week to purchase 49 acres in Las Vegas meant for a new stadium. Oakland city officials, meanwhile, said they were ceasing negotiations with the team on a new stadium in light of the Vegas news. commissioner Rob Manfred said: “We support the A’s turning their focus on Las Vegas and look forward to them bringing finality to this process by the end of the year.” The current Collective Bargaining Agreement calls for the team to lose its revenue sharing next year if it doesn’t have a resolution to the stadium.

TOLL ROADS HOLD UP AFTER THE PANDEMIC

The Illinois State Toll Highway Authority’s (ISTHA) has begun a program of debt issuance totaling $2 billion over the next three years. In conjunction with that issuance, the Authority has seen its ratings reviewed and in the case of Moody’s, upheld. The Authority’s Toll Revenue debt totals some $6.8 billion and is rated Aa3.

ISTHA operates a tollway system that consists of approximately 294 miles of limited access highway in twelve counties in the northern part of Illinois and is an integral part of the expressway system in northern Illinois. The entire tollway system has been designated a part of the US Interstate Highway System, except for the 10 miles of Illinois Route 390. 

Strong traffic and revenue trends through toll increases and state-level fiscal stress demonstrate the inelastic demand for the tollway system roads and limited impact of competition. The lack of reliance on State general revenues created a more solid floor for the Authority’s debt ratings during the pandemic. The role of commercial trucking as a strong revenue source showed up in annual financial results.

ISTHA revenues recovered to pre-pandemic levels, being 97% in 2022 and, in the first two months of 2023, at 102% of the same period in 2019.  Total traffic in 2022 was 94% of 2019. While passenger traffic was still 8.1% down from 2019 in 2022, commercial traffic has shown much more resiliency than passenger traffic, with 2022 commercial traffic up 5.8% from 2019. In the first two months of 2023, traffic was at 99% of the same period in 2019. 

NEW JERSEY

The State of New Jersey scored a ratings hat trick recently with S&P, Fitch and Moody’s all announcing upgrade actions covering the State’s general obligation credit. The State economy is benefitting as one might expect from the end of the pandemic but also from the growing prevalence of remote work. Employment is above the state’s pre-pandemic peak. Moody’s cited the state’s commitment to full, actuarial pension contributions through fiscal 2024 (starting 7/1/2023) and its additional allocations of funds to a program to defease debt and cash-fund capital projects.

The overwhelming majority of debt issued through the State is secured by statutory revenue collection and/or dedication provisions enshrined in the state Constitution. As a result of the upgrade of the state, the ratings on bonds secured under the State’s Qualified School Bond Program and the Municipal Qualified Bond Program werf also raised through the actions of the three rating agencies.

THE NEXT CHALLENGE FOR COAL

The latest regulatory proposal covering coal fueled generating plants from the EPA will concentrate on water. Specifically, the level and types of water discharge from electric generating plants. Effluent Limitation Guidelines (ELGs) will be the method of regulation. ELGs are national industry-specific wastewater regulations based on the performance of demonstrated wastewater treatment technologies (also called “technology-based limits”). They are intended to represent the greatest pollutant reductions that are economically achievable for an entire industry.

EPA’s proposed rule would establish more stringent discharge standards for three types of wastewater generated at coal fired power plants: flue gas desulfurization wastewater, bottom ash transport water, and combustion residual leachate. The proposed rule also addresses wastewater produced by coal fired power plants that is stored in surface impoundments (for example, ash ponds). The proposal would define these “legacy” wastewaters and seeks comment on whether to develop more stringent discharge standards for these wastewaters.

EPA is also proposing changes to specific compliance paths for certain “subcategories” of power plants. The Agency’s proposal would retain and refresh a compliance path for coal-fired power plants that commit to stop burning coal by 2028. The Agency is issuing a direct final rule and parallel proposal to allow power plants to opt into this compliance path. Additionally, power plants that are in the process of complying with existing regulations and plan to stop burning coal by 2032, would be able to comply with the proposed rule.

Coal plant wastewater has until now been subject only to 1982 standards that allow it to be deposited in coal ash ponds, where it may overflow into water bodies and contribute to the contamination of groundwater. The rule proposes a standard of zero pollutants discharged from water used in scrubbers and boilers, and requires the best available technology to achieve this goal. Filtration with fine membranes, chemical treatment, and recycling water back into the plant could satisfy mitigation requirements.

One major flashpoint between the government and the industry is avoided for now. The proposed rule does not cover the contamination that seeps from unlined coal ash ponds into groundwater. Lined ponds are subject to separate legislation. The effect on water from the emptying of existing ponds has been another issue. The rule proposes to deal with such “legacy wastewater” on a site-by-site basis. It is a true compromise.

The proposed rules would reduce discharges significantly but would also be a significant cost to operators. The proposed rule exempts plants from the new mandates if they promise to stop burning coal by 2028 or, in some cases, December 2029. It also allows plants that have already installed less-effective wastewater pollution controls to keep operating through 2032 without further upgrades.

It is yet another data point for the analysis of electric revenue debt.

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

NYS BUDGET

The budget stalemate under way in Albany is a disappointing return to past practices. Under the Cuomo administration, several factors contributed to a string of on time budgets. That improvement in timely budget adoption helped to support rating upgrades for the State and its related issuers. Now, with one party super majority control in the Legislature, a number of non-fiscal items are delaying budget adoption.

The two sticking points have been charter school expansion and bail reform. With super majorities, progressives in the Legislature are holding out for resolution of those two issues before enacting a budget. This in turn puts pressure on the underlying municipal entities most especially for New York City. Even without budget adoption, the City knows that its hopes for reimbursement from the State for the costs of the massive influx of immigrants in 2022 and 2023 have not been realized.

The stalemate comes as the State faces some significant demands going forward. The MTA remains a significant potential fiscal problem, massive capital allocation decisions regarding the Gateway Tunnel still await, and the public housing crisis in NYC remains. At least debt service will continue to be paid on state debt and an additional temporary funding bill (to get workers paid) is likely.

NEW YORK CITY

The Adams administration has completed labor negotiations with its biggest non-uniformed union (DC 37) as well as with its Police Department. Prior analyses of the Mayor’s budget proposals were limited by the lack of hard cost information associated with those contracts. Now that those negotiations have concluded, the City’s Independent Budget Office is able to assess the budget plans based on real numbers. So how much will the contracts cost the City?

The five-year contract ratified by DC 37 last week includes 3 percent raises for each of the first four years of the new contract (retroactive to the contract start date in May 2021), a 3.25 percent raise in the fifth year, an $18 minimum wage, and a $3,000 one-time bonus for eligible members. The eight-year tentative agreement with the PBA on April 5 ranges from August 2017 through July 2025. The first three years of raises follow the uniform pattern from the previous bargaining round. This pattern features 3.25 percent in years one and two, 3.5 percent in years three and four, and 4.0 percent in year five. The PBA’s tentative agreement did not include a bonus.

The DC 37 agreement sets the pattern of wage increases for all non-uniformed municipal employees, and the tentative PBA agreement set the pattern for uniformed employees. This includes all union and non-union employees at city agencies, as well as at the New York City Housing Authority, City University of New York, Health + Hospitals, libraries, and the Fashion Institute of Technology. IBO forecasts that the total cost of the new contracts for all employees would be $18.2 billion over the course of the financial plan from 2023 through 2027. This estimate reflects the cost above the amount already set aside in the city’s labor reserve.

The City will get some benefit from headcount reductions. Between 2012 and 2020, active full-time municipal headcount increased each year, to a record high of about 302,000 in January 2020. Since the pandemic began in March 2020, that total has dropped to just under 281,000 as of January 2023, a decrease of roughly 7 percent. The Adams administration implemented across the-board vacancy reductions as part of the Preliminary Budget’s Program to Eliminate the Gap (PEG), which removed about 4,000 vacancies. Despite this cut in budgeted headcount, almost 22,000 vacancies remain.

Except for the scenario one variations in which just DC 37, or just DC 37 and the PBA ratify their contracts this year, the annual estimated cost of labor settlements exceeds IBO’s estimate of vacancy savings under each scenario every year. If headcount remains at its current level, however, the savings from paying fewer than budgeted employees would offset some of the additional costs of higher compensation under the new labor agreements. In all scenarios, IBO projects an increase in total personal services costs during the plan period.

TRANSPORTATION EMPLOYMENT

U.S. airline industry (passenger and cargo airlines combined) employment increased to 790,657 workers in February 2023, 2,687 (0.34%) more workers than in January 2023 (787,970) and 59,661 (8.16%) more than in pre-pandemic February 2019 (730,996). The February 2023 industry-wide numbers include 679,578 full-time and 111,079 part-time workers for a total of 735,118 FTEs, an increase from January of 2,785 FTEs (0.38%). February 2023’s total number of FTEs remains just 9.44% above pre-pandemic February 2019’s 671,701 FTEs.

The 26 U.S. scheduled passenger airlines reporting data for February 2023 employed 482,271 FTEs, 4,543 FTEs (0.95%) more than in January 2023. February 2023’s total number of scheduled passenger airline FTEs is 39,493 FTEs (8.92%) above pre-pandemic February 2019. U.S. cargo airlines employed 248,681 FTEs in February 2023, down 1,187 FTEs (0.47%) from January 2023. U.S. cargo airlines have increased FTEs by 23,929 (10.65%) since pre-pandemic February 2019.

U.S. scheduled-service passenger airlines employed 508,450 workers in February 2023 or 65% of the industry-wide total. Passenger airlines added 4,696 employees in February 2023 for a twenty-second consecutive month of job growth dating back to May 2021. Delta led scheduled passenger carriers, adding 1,338 employees; Southwest added 1,134, and United added 1,082.

U.S. cargo airlines employed 248,681 FTEs in February 2023, down 1,187 FTEs (0.47%) from January 2023. U.S. cargo airlines have increased FTEs by 23,929 (10.65%) since pre-pandemic February 2019. U.S. cargo airlines employed 277,999 workers in February 2023, 35% of the industry total. Cargo carriers lost 1,372 employees in February. FedEx, the leading air cargo employer, decreased employment by 1,582 jobs.

The problems which confront mass transit providers are being reflected in employment trends within the transportation industry. The unemployment rate in the U.S. transportation sector was 5.0% (not seasonally adjusted) in March 2023 according to Bureau of Labor Statistics (BLS) data. he March 2023 rate fell 0.1 percentage points from 5.1% in March 2022 and was below the March 2020 level of 5.4%. Unemployment in the transportation sector reached its highest level during the COVID-19 pandemic (15.7%) in May 2020 and July 2020. Unemployment in the transportation sector was above overall unemployment. 

TIME’S UP ON THE COLORADO

The Biden administration on Tuesday proposed to put aside legal precedent and save what’s left of the river by evenly cutting water allotments, reducing the water delivered to California, Arizona and Nevada by as much as one-quarter. The Department of the Interior’s Bureau of Reclamation (Reclamation) draft Supplemental Environmental Impact Statement (SEIS) to potentially revise the current interim operating guidelines for the near-term operation of Glen Canyon and Hoover Dams. 

The draft SEIS analyzes three alternatives: one is to do nothing; another is to adjust water releases from the Glen Canyon Dam or a third which would see reduced releases from Glen Canyon Dam, as well as an analysis of the effects of additional Lower Colorado River Basin reductions that are distributed in the same percentage across all Lower Basin water users under shortage conditions. 

Clearly, the federal government would rather see the states work it out and perhaps the lack of a rea; sense of what a failure to agree would entail will act as a catalyst to further negotiation. The draft SEIS will be available for public comment for 45 calendar days and the final SEIS is anticipated to be available with a Record of Decision in Summer 2023. Between now and August there remains time for sanity to prevail.

The usual obstacles still remain however. Spreading the reductions evenly would reduce the impact on tribes in Arizona as well as many fast-growing cities. At the same time, it would hurt Southern California’s agriculture industry especially in the Imperial Valley. Overall, the action alternatives would hurt the lower basin states (CA,AZ,NV) relative to the four upper basin states.

As for California, the State Water Project (SWP) is expected to deliver 75% of requested water supplies. The last projection in February was for only 35% of allocation requests. The increase translates to an additional 1.7 million acre-feet of water for the 29 public water agencies that serve 27 million Californians. The Sierra snowpack is more than double the amount that California typically sees this time of year.  The SWP is able this year to pump the maximum amount of water allowed under state and federal permits into reservoir storage south of the Sacramento-San Joaquin Delta.

One familiar indicator is Lake Oroville, a regular subject of ours. Lake Oroville, the State Water Project’s largest reservoir, is at 120 percent of average for this time of year and currently releasing water through the Oroville Spillway.

UNIVERSAL BASIC INCOMES

Starting in February 2019, the Stockton Economic Empowerment Demonstration or SEED, gave monthly payments of $500 to 131 people. There was also a control group of 200 Stockton residents. The payments were to be a guaranteed income from February 2019 to January 2021.

The primary outcomes were income volatility, physical and mental health, agency, and financial wellbeing. The treatment condition reported lower rates of income volatility than control, lower mental distress, better energy and physical functioning, greater agency to explore new opportunities related to employment and caregiving, and better ability to weather pandemic–related financial volatility. 

The group which received payments comprised a group where gender was approximately 70% female and 30% male. Nearly half of recipient group and the control group were white, with one-third Black or African American. The recipient group had nearly double the representation and Asian and Pacific Islanders than the control group, and both groups had just over one third Hispanic or Latino.

Approximately 75% of participants lived in an under four-person household, and around 50% had children in the household. Most were single (59%), with 40% married or partnered. The average age was 40 years in the control group and 45 in the test group. Forty percent reported full- or part-time employment. More individuals in treatment were stay at home parents (11%) than control (7%).

The results of the study trend to support much of the anecdotal evidence which has been derived from other guaranteed income plans across the country. Those who received payments showed better physical functioning, slightly less income volatility, a substantial increase in full and part-time employment among the treatment group during year one. GI removed material barriers like childcare funds, transportation, reducing contingent labor, and completing necessary internships or training for applying to positions with unknown results. 

NYC EDUCATION SPENDING

In most localities, the school district is a stand-alone entity, managing its own budget and raising its own revenues above those received from the state. In New York City however, the financial operations are conducted within the City’s budget. A recent report from the respected Citizens Budget Commission does break out Department of Education spending. It comes as the state legislature is in the middle of a fight over the expansion of charter schools in the state.

CBC found that: DOE’s fiscal year 2023 budget totaled $36.9 billion as of January 2023. It includes non-education spending of $5.6 billion for pension contributions, debt service, and additional fringe benefits that are allocated centrally. Between fiscal years 2016 and 2022, DOE spending grew 32.5 percent, or 4.8 percent annually. Thirty percent of spending growth was due to one-time federal pandemic aid.

The increased spending came despite enrollment declines. Long-term enrollment declines accelerated during the COVID-19 pandemic. Between school years 2015-16 and 2021-22, K-12 DOE enrollment declined by more than 141,000 students, with the largest losses (90,000 students) occurring during the pandemic.

The number which causes the most negative attention reflects the fact that in fiscal year 2022, the DOE spent more than $37,000 per K-12 DOE student—up 15.2 percent from the prior year and 46.9 percent since fiscal year 2016, including centrally allocated cost. ​​​The total DOE budget for fiscal year 2024 is projected to decrease by $401 million to $36.5 billion, primarily due to a $243 million decrease in federal pandemic aid.

With enrollment declines projected to continue, K-12 DOE per-student spending will increase to nearly $38,000 in fiscal year 2024 and to more than $41,000 in fiscal year 2026. Adding unbudgeted yet likely collective bargaining costs, per-student spending would reach nearly $44,000 in fiscal year 2026. Given projected enrollment declines, per-student K-12 DOE spending in fiscal year 2024 would still be $555 higher than in fiscal year 2023.

NASSAU COUNTY UPGRADE

After a period of fiscal stress and outside oversight, Nassau County, NY continues its long-term trend of rating improvement. Moody’s Investors Service has upgraded the county’s issuer and general obligation limited tax (GOLT) ratings to Aa3 from A1 and has upgraded the Nassau Health Care Corporation, NY (county guarantee) ratings to Aa3 from A1. It also maintained a positive outlook on the credit.

Moody’s cited the reduction of liabilities and continued balanced budgets. It is clear that the oversight of the Nassau Interim Finance Authority (NIFA) has helped to maintain positive fiscal trends. The County has an overwhelmingly residential tax base. This should provide some protection about declines in commercial (primarily office) real estate which are vulnerable to current work trends.

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

WESTERN WATER

Back in 2017, the dam at Lake Oroville in California was damaged by water overflows resulting from a wet winter. It resulted in significant repairs to spillways and other infrastructure to handle anticipated water flows. Over the next few years, the lake found itself in a drought and water levels almost became too low to produce hydroelectric power. The Oroville Dam was becoming a virtual barometer of short-term water conditions.

Now those repaired spillways are being tested as the lake has filled and water is being released in a controlled manner. That water primarily serves customers in the north and east of the state and has a significant agricultural demand. Under current conditions, water is being counted on to recharge groundwater aquifers depleted during the drought years to support agriculture.

Compare this situation to that of southern California. There, irrigation interests and agencies like the Metropolitan Water District of Southern California are much more impacted by conditions in the Colorado River basin. The latest measurements of the lake, taken in February, showed its water levels at 1,047 feet, down more than 19 feet from the same time last year and down more than 40 feet from 2021.

March however, did bring unexpected good news. While the weather focus has been on the weather in California and its favorable drought impact, the weather has also been more favorable in the Rockies. Proof of that came this week when Lake Mead’s water level was at 1,045.91, almost 3 feet above the projected level. snowpack has built the Snow Water Equivalent (SWE) stored in the Colorado Rockies to 158% of the average. Lake Powell has risen more than a foot over the last month after dropping to a new all-time low in mid-March.

THE CLIMATE DEBATE IN A NUTSHELL

There may be no bigger fundamental disagreement than that we see in the debate over climate change. The amount of hype and distortion supporting various diverse opinions is overwhelming. While there are serious debates over the science of climate, the issue of climate change has become wrapped up in corporate virtue signaling and greenwashing.

The latest example comes from the Pacific Northwest. When the NHL Seattle Kraken was accepted into the league, they decided to play in a new arena which was designed to be carbon neutral. Much was made of the fact that even the ice the hockey was played on would be made from recycled rain water. Amazon went so far as to pay for the naming rights to the arena. In the midst of real debates over the contribution to climate change that distribution companies like Amazon make to a changing climate, Amazon is paying to have the arena named the Climate Pledge Arena.

Now, the Oregon legislature is considering a bill which would require data centers and crypto miners to use clean energy in big, new facilities. Amazon, Apple, Facebook and Google all operate large data centers in central and eastern Oregon. The companies have as yet not weighed in on their support or opposition to the bill publicly. It has become clear though that in private, Amazon has made significant efforts to oppose the clean energy requirement.

Apple and Facebook have built renewable energy projects to help power their Oregon data centers. Amazon’s data centers in Morrow and Umatilla counties appear to be relying primarily on carbon-burning fuel sources for most of its electricity. It’s not an accident that these facilities are located in eastern Oregon. Climate legislation passed in recent years in Oregon imposes emission limits on areas like Portland. Rural eastern Oregon was exempted from those limits.

The situation provides an example of why the politics and maybe more importantly the culture of the climate movement are so difficult. It is hard to advance the cause of decarbonization if its most prominent “influencers” creates an easy to criticize approach to the whole issue. And in the annual poll of NHL players by its labor union, Climate Pledge Arena did not make the top five of the rankings for best ice in the league.

PARIS PANS SCOOTERS

In the debate around “micro transit”, experiences in Europe and other locales are referenced by proponents of various schemes in the U.S. Whether it be bicycles, congestion pricing, Citibikes or other schemes (especially in New York), European experiences are referenced in the efforts to “nudge” behavior. This was especially true under the Bloomberg administration and continued since. Now, there is some evidence that those references might not be so helpful.

Voters in Paris voted to ban the devices from the streets of the French capital. Supporters of scooters will cite the fact that 100,000 Parisians voted, less than 7.5 percent of those eligible. Supporters of the ban can cite the margin of victory – 89%. Even the mayor of Paris who once championed the deployment of scooters led the campaign to support the ban. According to the mayor, “there will be no more self-service scooters in Paris” come Sept. 1. Privately owned scooters will still be permitted.

The City of Light joins Copenhagen and Montreal as large cities where deployment has been stopped. Copenhagen did allow scooters again but under a much stronger regulatory framework. It’s another example of not as much a rejection of technology but it’s manner of deployment. The same issues which have dogged scooter rental systems across the U.S. – careless riding, use on sidewalks, idle scooters strewn about sidewalks – plagued the Parisian system.

MEDICAID UNWINDING

Towards the end of 2022, Congress passed legislation which allows the continuous enrollment policy requiring that Medicaid recipients retain their coverage to end. That legislation carved out Medicaid from other pandemic related items and provided for states to begin to unwind changes during the pandemic which allowed people to stay on Medicaid without additional qualification checks through the term of the public health emergency declared due to the pandemic.

The carve out allows states to begin the process as of April 1 whereas most other impacted programs have until the end of the public health emergency on May 10. The eligibility verification process is expected to reduce Medicaid enrollment significantly. The legislation mandates that states report data monthly to the Department of Health and Human Services on how many people have been taken off Medicaid. It also allows the department to intervene if a state does not comply with federal requirements. It does not prevent recipients from losing benefits.

Last week we highlighted the importance of Medicaid to the rural hospital sector. Five states — Arizona, Arkansas, Idaho, New Hampshire and South Dakota — were expected to begin their processes of removing people from Medicaid this month. The expectation is that the process could take up to one year in some states. We note that these five states have significant rural health sectors.

The policy change also returns to the spotlight issues which plagued the Medicaid program before the pandemic regarding eligibility. The lack of computer and internet access and issues with literacy have been cited as major hurdles to be overcome by potential recipients.

COMMUTER RAIL GOES PUBLIC IN CHICAGO

Union Pacific announced that the freight railroad would transfer its Chicagoland commuter rail operation to Metra in early 2024. UP operates three commuter lines for Metra and the Burlington Northern Norfolk and Southern (BNSF) operates a fourth. Commuter service in Chicago is unique in that Metra operates some routes and others are operated by freight railroads under contract for Metra. The agency already owns the rolling stock operated by the private companies.

UP is paid $100 million annually to operate the commuter services. It has operated the lines since 1995 through an acquisition. In recent years, UP and Metra have had a contentious relationship. In 2019, UP sued Metra trying to get out of its obligation to provide commuter service. And in 2020, Metra said it was losing millions of dollars a month because UP was not having conductors collect fares. UP will continue to maintain the track and dispatch trains on the three impacted routes. 

WHY MADISON SQUARE GARDEN IS IN THE CROSSHAIRS

These should be heady times for the owner of Madison Square Garden. It’s two sports teams are in the playoffs, it remains a preeminent concert venue and it retains its reputation as “the world’s most famous arena. Nonetheless, the arena is now best known for the legal battles being waged between the Garden and some of its fans. The disputes have brought issues like the use of facial recognition to the forefront. That issue has focused a lot of attention on the tax breaks the Garden receives which are unique among New York’s teams

MSG is a privately-owned commercial property that would pay property taxes to New York City, if not for the property tax exemption granted to it in 1982 under state law. Prior to receiving the tax exemption, the owners of the arena, who also owned the Knicks basketball and Rangers hockey teams, threatened to move the teams to New Jersey if not provided with some form of property tax relief.

Since 1982, MSG has received a full exemption from property tax liability under Article 4, Section 429 of New York State Real Property Tax law. The exemption is contingent upon MSG’s continued use by professional major league hockey and basketball teams for their home games. It is worth some $40 million annually.

In contrast, Yankee Stadium, Citi Field, and Barclays Center were all built on publicly owned land that is exempt from property taxes. The land and the stadiums are leased to team-affiliated limited liability corporations (LLC). The team affiliated LLCs in turn make annual payments in lieu of taxes (PILOTs) to pay down the debt service associated with these bonds. The PILOTs do not enter the city’s general revenue stream as property taxes would. The stadium PILOTS totaled $84 million for Yankee Stadium, $44 million for Citi Field, and $39 million for Barclays Center in 2023.

It becomes more difficult to justify this sort of tax subsidy in the current environment. That has nothing to do with ownerships recent run of truly negative publicity (while he owns two playoff teams). It just screams out from an equity point of view that the current arrangement makes no sense.

NYC – WELL THAT WAS QUICK

It has been clear for some time that the fiscal outlook for NYC has been more guarded than many have let on. There were already questions about how the City would fund the increased costs related to labor settlements (MCN 2.27.23). When the settlements were announced, the City had no clear plan for those costs. Now it looks like the City is going to attempt to do things the old-fashioned way and rely on a significant budget cutback.

Mayor Adams announced that he was requesting the leaders of nearly every city agency, including the Police Department, to cut their budgets by 4 percent for the coming fiscal year, which begins in July. Only the Department of Education and the City University of New York will be subject to smaller cuts of 3 percent. The agencies must come up with a plan in 10 days.

The move comes after it became clear that the NYS budget was not going to significantly reduce the City’s costs associated with the wave of immigrants who have arrived in the City since last year. The budget director estimated that the price of providing services to the arriving migrants would be $4.3 billion through the next fiscal year. It also sets up a real conflict with the City Council who released its own plan that claims to have found an additional $2.7 billion in funding it said the mayor had failed to account for and called for $1.3 billion in new investments.

ARIZONA TRANSPORT CHOICE

In 1985, voters in Maricopa County, AZ approved a sales tax to fund transportation improvements in the County. It’s term was extended again in 2004. Over the years, projects like the City of Phoenix’s light rail system and major road projects were funded through the tax. Now the tax faces a 2025 sunset without a vote. Over the life of the tax, Maricopa County has been at the top of the list of the nation’s fastest growing counties. Regional leaders want to ask voters to extend the tax again but need approval from the state Legislature to hold an election. Two bills that would allow the county to hold the transportation tax election are under consideration in the Legislature. 

Over the same period, the politics of the state have become more ideological and the combination of climate issues and an anti-tax sentiment makes for an uncertain outlook for an extension. One bill would allow 39% of funds to be spent on transit, a small percentage of which could be used to operate and maintain light rail but not extend it. The second would allocate 26% of funds to public transportation and also forbids light rail expansion.

ANOTHER PRIVATE COLLEGE DOWNGRADE

Moody’s Investors Service has downgraded Rider University, NJ’s issuer rating to B2 from Ba3 and revenue bond rating to B2 from Ba2. The university had $111 million of outstanding debt as of fiscal year end 2022. The ratings have been placed under review for possible downgrade.

The downgrade reflects the university’s ongoing multi-year deep deficit of operations and rapidly deteriorating unrestricted liquidity, at just 22 monthly days cash on hand for fiscal 2022. Moody’s estimates that material negative cash flow from operations will continue through at least fiscal 2025, further depleting liquidity.

Starting in fiscal 2024, the university’s main source of liquidity is expected to be a $15 million line of credit; access to $10 million of the total $15 million line is at the bank’s discretion after it reviews the proposed use of funds, adding additional liquidity concern. Furthermore, the line expires on June 15, 2023, with the renewal process underway currently but not assured. Flat enrollment in fall 2023 continues the trend of enrollment which has seen enrollment decline 16% from fall 2018 to fall 2022.

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