Joseph Krist

Publisher

PUERTO RICO GRID

The Army Corps of Engineers issued a notice that it is seeking a contractor to fix existing power plants, electric transformers and cables and build new natural gas- and oil-fired generating units in Puerto Rico. The work has been authorized by the Federal Emergency Management Agency and will be funded by disaster relief money approved by the Biden administration after Hurricane Fiona last year.

The Army Corps of Engineers plans to spend up to $5 billion on fossil fuel power plants and infrastructure repairs. Many (including ourselves) see this a troubling long-term development. The investment will be in fossil-fueled generation. The Corps cited the need for a short-term fix to the island’s power problems. To accommodate a shorter timeline, the Corps is seeking “land-based turbine-style generators” that can run on natural gas or diesel oil.

The argument is that the island needs new baseload generation quickly. To address environmental concerns, “FEMA funds the mission-assignment for Army Corps of Engineers to assist with temporary emergency power restoration related to Fiona recovery efforts. Questions regarding long-term power generation should be directed to the Government of Puerto Rico.” At the same time, the contracts are constructed in such a way that the proposed generation could easily become part of the long-term electric grid.

The plan is raising questions about inconsistent federal policy responses. The Corps is taking the view that traditional base load generation is the answer. In January,  a report issued by DOE’s national laboratories and FEMA said that the build-out of rooftop solar and storage could make the territory’s power system more resilient.

In February, the Department of Energy announced it was allocating $1 billion to an energy resilience fund to deploy more solar and storage projects and support other clean energy and grid modernization initiatives. Now, the challenge is to come up with a coherent long-term plan to address not only total power supply but the move to more resilient renewables-based generation.

NEW YORK’S BUSY WEEK

Several significant issues saw movement with real potential implications for state and city revenues. The first involves the approval by the Federal government of the plan to impose congestion pricing in Manhattan. Final approval was granted by the Federal Highway Administration. A local panel appointed by the Metropolitan Transportation Authority can now decide on final toll rates, including any discounts, exemptions and other allowances. It will be quite a battle. It is likely that litigation could arise either from the State of New Jersey or in response to environmental concerns in the Bronx due to increased truck traffic due to the charges.

As we go to press, the NYC Council is still working through budget approval for the FY beginning July 1. A number of issues have complicated this year’s process with housing moving to the fore as the deadline nears. The budget has also been complicated by the flood of asylum seekers into the City which has been a driver of the expense side of the budget. As we approach the end of the process, it looks like the housing issue (in terms of the budget) has been settled so timely budget enactment is expected.

The State finds itself in a dispute with the Seneca Nation in its negotiations to renew the compact between the State and the Nation which governs the Nation’s gaming activities. The Nation currently operates under one of the more unfavorable compacts which the Nation seeks to adjust. The risk in these negotiations is that it could interfere with the distribution of monies to host cities like Niagara Falls which have come to rely on these revenues in the budget and also as a source of employment.

CALIFORNIA BUDGET GOES TO THE LAST MINUTE

The California legislature has reached an agreement on the fiscal 2024 budget. The process this year reflected the realities of significant revenue shortfalls and the difficult winter season across the State. The competition for limited funding put a number of categories under pressure and created a contentious debate. The finished product reflected significant compromises.

One item with credit implications was the state of the major public transit agencies around the state. The final agreement reverses the governor’s call to cut $2 billion to public transit after a substantial lobbying effort by urban transit agencies and Democratic lawmakers in San Francisco and Los Angeles. The deal includes a total of $5.1 billion for transit over four years. Anticipating the potential for cuts in the future, Democratic lawmakers introduced a separate plan to increase tolls on seven state-owned bridges in the Bay Area by $1.50 to generate about $180 million annually from 2024 through 2028.

The Governor and the Legislature agreed to renew a tax on managed healthcare organizations, known as the MCO tax, to fund Medi-Cal at a time when the state is expanding the pool of eligibility. The tax is expected to generate $19.4 billion in state revenue from 2023 through 2027.  As is often the case, a controversial policy item holds up completion. This year, two issues were intertwined.

The first was amending the California Environmental Quality Act to provide for more limited review of proposed projects. The second was how those changes would impact the Sacramento-San Joaquin River Delta tunnel project designed to move water to Southern California. It has encountered significant opposition and support for the budget became tied to that opposition. In return for giving up the project (for now), the Governor is getting his proposed CEQA changes.

TEXAS GIVES ERCOT IMMUNITY

The winter storm which wreaked havoc on the Texas electric grid continues to be the subject of litigation as local utility purchasers sought to recover some of their financial losses related to the storm. Throughout the ensuing period, ERCOT – a private entity which operates the dispatch of power in the state’s closed transmission system on behalf of the state – has been insisting that it has sovereign immunity against litigation such as that brought by the individual utilities.

The debate over the issue has been litigated in the Texas state court system throughout the last two years. The State Supreme Court has already issued decisions which overturned certain Public Utility Commission decisions regarding the validity of charges incurred during the storm. The next decision to be made regarded the ability of ERCOT to be sued.

That decision came this week in a case brought by San Antonio’s municipal electric system (CPS). Following Winter Storm Uri, some wholesale market participants defaulted on their payment obligations to ERCOT. CPS alleges that ERCOT unlawfully short-paid CPS to offset those losses. It sued ERCOT for breach of contract and various other claims.

The Court concluded that ERCOT is a “governmental unit” entitled to an interlocutory appeal and the Court held that ERCOT is entitled to sovereign immunity. Specifically, the Court held that ERCOT is an “arm of the State” because, pursuant to the Utility Code, ERCOT operates under the direct control and oversight of the PUC, it performs the governmental function of utilities regulation, and it possesses the power to adopt and enforce rules.

The decision was made by a narrow majority. Four justices agreed that ERCOT is a governmental unit and that the PUC has exclusive jurisdiction, but they would have held that ERCOT is not entitled to sovereign immunity.

MORE ON ELECTRIC VEHICLES

BlueOval SK, which will supply batteries for electric Ford and Lincoln cars and trucks is a joint venture between Ford and SK, a battery maker. It intends to build its own batteries at plants in Tennessee and Kentucky. Both states are providing subsidies and incentives but the biggest boost is coming from the federal government.

The Department of Energy has announced loans for the three battery plants the venture is building. This produces a total of $9.2 billion of support for the plants which are expected to create 7,500 jobs. Of note, the two Kentucky plants are expected to employ more people than Kentucky’s coal industry. BlueOval SK will pay the same interest as the federal government pays to borrow.

In Georgia, the state’s 10^th new manufacturing facility to supply electric vehicle production was announced.

At the same time so much progress on EV production has been made, there have been bumps in the road. Lordstown Motors filed for Chapter 11 bankruptcy protection. The pickup truck producer was seen as a potential savior of the former GM production facility which had closed. The plant was at the center of President Trump’s efforts to point to an improved auto industry. The outlook for the plant’s production has always been cloudy with issues surrounding financing holding back production.

The plant was also hurt by one of President Trump’s favorite companies, Foxconn. Foxconn also agreed to handle the manufacturing of Lordstown’s Endurance electric pick-ups at the site, and to make further investments provided certain milestones were met. The parties have been arguing since the beginning of the year. For those who have watched Foxconn operate in the US, the failure to follow through on agreements and promises has become Foxconn’s MO. As of December, Lordstown Motors had 260 full-time employees versus the 1,600 employed there by GM.

ALTERNATIVE TRANSIT

The issue of electric scooters and bicycles was initially about their availability and that of protected lanes where they could be used. They have become increasingly ubiquitous in big cities and have become the lifeblood of the food delivery industry. They are also an increasingly popular vehicle for low-income riders. One problem has emerged which threatens the use of these vehicles.

To keep costs down for buyers, many of the scooters and e bikes are powered by imported (from China) batteries. They are manufactured under less than exacting standards and have an annoying tendency to catch fire. Initially, these have been fairly isolated instances but recently the role of batteries in some devastating fires has been highlighted.

Many of these vehicles are stored indoors, often in residences. This week, the City of New York recorded the 100^th fire this year that is attributable to e bike and scooter batteries. The latest resulted in four fatalities. It has been a continuing problem especially if vehicles are stored in residences. Regulation is expected. NYC has tried a program whereby owners of electric bikes and scooters can effectively trade in their existing battery for one which has been UL approved.

Many of the fires have occurred when vehicles are being charged indoors. Because of the attraction of scooters for lower income users, concerns have emerged about their safety in public housing projects. NYC has announced a plan to use $25 million in federal funds to set up 173 e-bike charging stations at 53 NYCHA sites. As of last week, 13 New Yorkers had been killed and an additional 71 injured in such blazes so far this year.

The issue is complicated by the fact that the dominant source of batteries for these vehicles is China. Nearly all of the fires have been attributed to foreign batteries which are not made to US standards.

As this situation unfolds, beginning this week Connecticut residents looking to get out of their cars and onto two battery-assisted wheels, will soon be able to apply for up to $1,500 in state-subsidized vouchers to help cover the costs of purchasing a new electric bicycle. The state’s program offers a $500 voucher to all Connecticut residents aged 18 years and up. It offers an additional $1,000 incentive to those who also reside in Environmental Justice communities or distressed municipalities, including New Haven.

Residents who participate in certain income-qualifying programs such as Medicaid or Head Start, or who have an income less than 300 percent of the federal poverty level, which currently translates to $90,000 for a family of four, can also apply for the extra $1,000.

NEW GENERATION TRENDS

The Federal Energy Regulatory Commission (FERC) released first quarter 0f 2023 data covering trends in new generation deployment. The news will disappoint the more hard core environmentalist as a fossil fuel remains the energy source of choice for new projects.

In 1Q 2023, 217 new and expanded generation plants added 10,162 MW of capacity. The fuel source of choice was natural gas with 44% of new capacity being gas fired. Solar continues to expand its share of new development with 3,400 MW or 33% of new generation. Wind contributed some 19% of new generation.

The most noteworthy item is that 2023 1Q new wind production represents a decline of some 60% from levels of new wind deployment in the comparable 2022 period. We note that this coincides with a period of increased opposition to proposed wind power sites. This is true for both land -based as well as offshore wind generation. FERC also updated total installed capacity data. Natural gas (44.13%), coal (16.89) and wind (11.55%) are the three primary sources of generation. Nuclear follows at 8.8%.

That follows another delay at the site of new nuclear capacity. Georgia Power has announced yet another delay for the in-service date for the first of the two nuclear generating plants under construction at the Plant Vogtle site. Testing has been underway in support of a planned June in-service date but a leak was discovered in the generating equipment at Unit 3. The expected repairs will cause the scheduled in-service date to slip for at least a month. The required testing of the units is 95% complete. Late last month, the reactor reached 100% power for the first time.

COLORADO RIVER LITIGATION

The Navajo Tribe has lived along the Colorado River for millennia. The 1868 treaty establishing the Navajo Reservation reserved necessary water to accomplish the purpose of the Navajo Reservation but did not require the United States to take affirmative steps to provide infrastructure to deliver water for the Tribe. As the years passed and the Colorado River’s water has become a scarce resource, the Tribe has looked to the federal government to develop and fund infrastructure to deliver water throughout the 17 million acre reservation.

After years of inaction and in the face of the impact of climate change, the Tribe sued the government to compel the development of water infrastructure on the reservation. The Tribe asserts a breach-of-trust claim based on its view that the 1868 treaty imposed a duty on the United States to take affirmative steps to secure water for the Navajos.

To maintain such a claim, the Tribe must have established, among other things, that the text of a treaty, statute, or regulation imposed certain duties on the United States. Last week, the Supreme Court delivered a 5-4 decision which found that there was no requirement that the federal government provide the infrastructure.

The case turned on the absence of specific language – the Court found that the 1868 treaty contains no language imposing a duty on the United States to take affirmative steps to secure water for the Tribe. Notably, the 1868 treaty did impose a number of specific duties on the United States, but the treaty said nothing about any affirmative duty for the United States to secure water.

SALT RIVER GAS EXPANSION

Arizona’s Salt River Project has been at the center of a dispute over environmental equity issues. SRP owns and operates a gas-powered generating plant in Coolidge, AZ. The site was clearly designed to accommodate expansion beyond the initial plant. Nevertheless, when SRP sought to double the size of its plant, residents of nearby Randolph, AZ intervened in the approval process.

Founded about 100 years ago to accommodate primarily Black agricultural workers mostly from Oklahoma, the town is considered a historically Black community. This issue gave rise to pressure to locate the planned generators to another location. The state regulators faced not only local but organized national pressure and decided to stop the expansion.

Now, SRP has announced an agreement with state regulators reflecting those concerns while allowing for expansion. The expansion will be for only twelve units versus the originally proposed 16. SRP also agreed to give Randolph more than $23 million to pave dirt roads, paying for scholarships and building a new community center. Critics and opponents see the deal as a bribe for allowing the expansion.

Others would see this outcome as similar to so many other development deals where concessions are made and impact fees funded. In this case, there was going to still be an operating natural gas generator there even without expansion. At the time of the first disapproval, we noted that the air quality issues originally cited by opponents would remain. This deal does nothing to address those air issues.

HOSPITAL CREDITS REMAIN UNDER PRESSURE

Palomar Health is the largest public health care district in the State of California, with over $900 million of revenues reported for fiscal 2022, and generating over 23,000 admissions. The district operates acute care facilities in the towns of Escondido and Poway, and captures 44.5% of the market share within the district. This week, the pressures facing the industry in general have placed pressure on the District’s credit.

Operating performance, through March 31, 2023 has moderated due to increased labor expense and a delay in the consolidation and expansion of NICU beds at PMC Escondido, as well as a delay in the reconversion of a number of beds to medical. Hospitals everywhere are facing issues of reconfiguration and consolidation in the aftermath of the pandemic. In spite of the support the system receives in the form of tax revenues, cash has declined and debt secured by operating rather than tax revenues is high.

The system has not been immune to the industry-wide trend of higher labor costs. Added to the operating trends, the system’s cash balances are low and it has minimal flexibility to meet its debt coverage covenants. This produced a negative outlook from Moody’s for its Aa2 rating.

OAKLAND ONE STEP CLOSER TO LAS VEGAS

The Nevada Legislature approved a financing plan for the Oakland A’s proposed $1.5 billion stadium on the Las Vegas Strip. The plan calls for $380 million in public funding, including $180 million in transferable tax credits and $120 million in county bonds to be paid off through a special tax district that includes the planned stadium site.

The next step for the A’s is to garner the approval of the owners of MLB’s teams. Should that be achieved, the A’s could wind up playing in temporary sites until the proposed ballpark is completed for the 2027 season. The team would be the third major league franchise to locate in Las Vegas. The NHL’s Vegas Golden Nights have been a success on and off the ice including winning this year’s Stanley Cup.

NET METERING IN UTAH

The Utah Supreme Court has ruled against a request that net metering rates in Utah be based on a variety of environmental factors not currently considered as part of the ratemaking process. A solar advocacy group had challenged an order issued by the Public Service Commission that allows an annual expiration of unused solar credits and does not calculate anything other than the utility’s actual “avoided costs” net metering provides.

The advocates hoped to force the PSC to have public health and climate included in the calculation for solar reimbursement. The suit also challenged the annual calculation of the rate. The Court found that there is sufficient evidence to back the Public Service Commission’s order that grants the utility company its ability to invoke an annual expiration date on solar credits. 

The Court also found that the commission had made final its decision on expiration of credits and export credit rates undergoing an annual review. Under Utah law, a final decision is subject to judicial review. 

SMALL COLLEGE CREDITS CONTINUE TO WEAKEN

The pressures on smaller niche college credit continue. The issues of competition for students in the face of unfavorable demographics and costs continues to generate downgrades and negative outlooks.

Simmons University is a private, nonsectarian liberal arts university with an all-women’s undergraduate college and coeducational graduate programs. Located in Boston’s historic Fenway district, Simmons currently serves around 5,700 FTE students and generates about $177 million of operating revenue (fiscal 2022). The outlook on its Baa2 Moody’s rating was lowered to negative.

Biola University is a private, not-for-profit nondenominational Christian university located in La Mirada, California. It was originally established as the Bible Institute of Los Angeles. Today it offers baccalaureate, masters and doctoral programs across 9 academic units. For fall 2022, the university had total FTE enrollment of 4,651 about 72% of whom are undergraduate. The outlook on its Baa1 Moody’s rating was lowered to negative.

Illinois Wesleyan University is a small, private undergraduate liberal arts college located in the City of Bloomington, IL. The university’s fall 2022 full-time equivalent enrollment totaled 1,521 across its college of liberal arts, college of fine arts and school of nursing. The university generated $67.5 million in operating revenue in fiscal 2022. Moody’s downgraded its rating to Baa3.

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

The next issue of the MCN will be dated July 3. There are things to take care of even more important than municipal credit if you can believe it. When we are back, we will summarize what comes out of the remaining state legislative sessions as well as Supreme Court decisions bearing on municipal credits – colleges and affirmative action, e.g.

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PREEMPTION

The Texas Regulatory Consistency Act bars municipal governments from enacting policy that goes beyond state law in eight areas: agriculture, business and commerce, finance, insurance, labor, natural resources, occupations and property. Any local laws that currently do, such as tenant and worker protections, will be voided.

In Florida, a bill actually named Local Ordinances authorizes businesses to sue municipal governments over any law they deem “arbitrary or unreasonable”. While a speedy “rocket-docket” court deliberates the case, in most circumstances the government will have to suspend the rule in question. And if the challenger wins, the city must repeal it.

In Arizona, a decades-old sales tax that funds transportation projects in Maricopa County requires periodic legislation to extend the collection of the tax. The current deadline is 2025. The half-cent sales tax has been in place since 1985, and voters approved its extension for 20 years. Now the Republican legislature has passed Proposition 400.

It would lower the overall half-cent sales tax, increase freeway allocation to 46% and prohibit light rail expansion. The Arizona Freedom Caucus says their project would have cut sales tax for voters by over $3 billion, and prioritize building freeways and roads while cutting down commute times and traffic congestion. So much for local control.

Most of the preemption laws have been occurring in red states and they are in response to efforts to decarbonize. One recent exception is in California. A California state law, AB 205 took effect last summer. It is a change in regulatory practices which shifts approval for projects such as wind farms. The state has always had a role in determining whether a project is supported by a complete application. Now under AB 205, once an application is deemed complete, responsibility for approving a project lies with the state’s Energy Commission rather than with the County Board of Supervisors.

In this case, Shasta County has rejected prior applications for wind farms. Shasta County banned large wind energy systems in an ordinance last year, but the state could still approve this project under the new law. It is a form of turnabout is fair play. Just as the enactment of preemption laws is used by conservative legislatures to overcome local opposition to their energy policies, more liberal legislatures are finding that overriding local control can be effective in achieving their goals.

The gas stove issue is become one large pile of something. The Santa Cruz City Council voted unanimously to suspend a natural gas prohibition ordinance it passed in 2020 after an April ruling by the Ninth Circuit Court of Appeals struck down a similar ordinance in Berkeley that was enacted in 2019. The city of Berkeley filed an appeal to the decision May 31.

Because there is an outstanding decision in another federal District Court in favor of local control, the litigation is likely to reach the SCOTUS. While the process plays out, Santa Cruz County continues to enforce an ordinance that went into effect this year requiring electricity as the sole energy source for new residential construction in certain  unincorporated regions. 

WEST COAST PORT SETTLEMENT

The year long negotiation between shippers and the longshoremen who handle their freight at ports up and down the West Coast has finally achieved a settlement. the International Longshore and Warehouse Union and the Pacific Maritime Association announced a tentative agreement on a new contract that covers 22,000 workers at 29 ports from San Diego to Seattle. The announcement comes after pressure was put on the parties to reach a settlement. Recent weeks have seen a variety of labor disruptions at several of the ports.

The slowdown at the ports came just before the onset of the back to school and holiday shipping seasons. The major retailing and manufacturing trade groups went public with their concerns about the delays and exporters – especially agricultural – were concerned about the impact on their businesses. The negotiations followed a familiar pattern as federal pressure has been required to resolve prior disputes with port labor, most recently in 2015.

The resolution comes as throughput trends at the Port of Los Angeles improve. For the third consecutive month, cargo volume at the Port of Los Angeles increased in May, with the Port handling 779,140 Twenty-Foot Equivalent Units (TEUs) for the month. While that is a drop of about 19% compared to last May, it represents a 60% increase in cargo since February. During the first five months of 2023, the Port handled 3,304,344 TEUs, a 27% decline compared to the same period in 2022.

Now that an agreement has been reached, we will see how much of the cargo being diverted to East Coast ports returns. The uncertain labor situation has been cited as a driver of the cargo diversions. The numbers from L.A. are clear evidence of the problem.

ELECTRIC VEHICLE FEES

The issue of how to replace lost gas tax revenues has been the basis for legislative moves to increase or impose annual fees for the operation of an electric vehicle. The fees have created some strong feelings on both sides of the issue. What has been interesting is that the politics of the opposition has not fit conventional pigeon holes.

In Wisconsin, it is Republicans who say that it’s not fair to allow electrics to operate on roads that they are no longer paying for. Equity. It is Democrats who are advancing the view that the improvement to the environment is enough to offset the fact that one’s individual vehicle still uses the road. After all, those EVs are expensive. Virtue signaling. It’s the Republicans who hold the Legislature so the fee is expected to be increased from $100 to $175.

In Pennsylvania, the Legislature is considering changes to the Commonwealth’s current scheme for taxing “alternative vehicles.” Under the existing regime, each alternative fuel is converted to a gasoline gallon equivalent. The basis of this conversion is statutorily set at 114,500 Btu. The tax rate applied to the gasoline gallon equivalent equals the current oil company franchise tax applicable to one gallon of gasoline. Alternative fuels dealer-users must remit this tax.

It is as cumbersome as it sounds and the result is significant non-compliance. As a result, proposed legislation would simply impose an annual fee on vehicle operators. The sticking point will be the $290 projected fee. That would make Pennsylvania’s fee at or among the nation’s highest. Lawmakers say the fee was calculated based on the average annual gas taxes paid by owners of gas-powered vehicles at the pump in Pennsylvania.  In 2022, there were 42,785 EVs registered in Pa. compared to the 7,694 electric vehicles registered in 2018.

THE EV BELT EMERGES

As more and more announcements of new manufacturing investment are made, a clear “electric vehicle belt” has emerged. Start at the eastern border of Illinois and draw a straight line down to the Gulf Coast. Extend that strip eastward to the Atlantic. There you have the area receiving the overwhelming majority of investment in both vehicle and battery manufacturing. If you think about it, it is really no surprise.

It actually reflects many of the same factors which supported the expansion of US domestic production by manufacturers of smaller more fuel-efficient cars. Those foreign producers found available land and workers supported by governments with tax and regulatory policies. It also helped that those producers did not immediately face unionized labor.

The industry which resulted dispersed production from the industrial north to the south to the detriment of many cities and towns. Ironically, the availability of manufacturing infrastructure which resulted has allowed some of those communities to participate in current development. It has resulted in a bit of role reversal but it hasn’t been a zero-sum game.

The Inflation Reduction Act has been the catalyst for a slew of announcements of new manufacturing plants. Since the enactment, Georgia has emerged as a big winner. Multiple manufacturing plants for vehicles and batteries are in development and the development of local parts manufacturers to support those projects is underway as well. At the same time, some existing manufacturing infrastructure in places like Michigan and Ohio is being redeveloped and redeployed.

PUBLIC/PRIVATE CHARGING DEBATE

The issue of who will develop the nation’s infrastructure for charging electric vehicles created a real debate in legislatures this Spring. Two clearly different strains of thought have emerged. One view holds that utilities should be the ones to buildout charging networks and that the ratepayers of those utilities should pay the costs. That is what is happening in Florida where Florida Power and Light is building a network under those circumstances. That has drawn opposition from retailers (a lot of soon to be former gas stations) who feel unable to compete.

Concerns like that created legislative debates and different outcomes. Recent legislation in Oklahoma, Georgia and Texas  imposes limits on utilities using ratepayer money for charging networks. The Georgia legislation passed this year restricts utility ownership of charging stations to a single program that allows the dominant electric utility in the state, Georgia Power, to provide chargers in remote and rural areas, with private retailers offered a right of first refusal. 

Retailers in Colorado and Minnesota lead opposition which reflects concerns similar to those of their counterparts in other states. In those two states, Xcel Energy has a significant presence.

STRIKE TWO IN OAKLAND

The effort by the owners of the Oakland A’s MLB franchise to Las Vegas crossed another hurdle this week. The Nevada Legislature approved a $330 million package to support the development of a 30,000-seat baseball stadium. The vote came at the same time as the Vegas Golden Knights of the NHL were about to win the Stanley Cup. The timing was propitious.

Now, the hopes of A’s fans in Oakland come down essentially to the vote of the owners of the other teams. The A’s need 75% of the owners to approve the move. Oakland’s Congresswoman Barbara Lee is threatening to introduce federal legislation to require payments to cities by franchises which wish to relocate. It is the latest in a long line of Senators and Congress people trying to use federal law to influence franchise relocation efforts. It is easy to forget that Oakland is the third home city for the A’s franchise.

The city hopes to avoid the loss of its last major league franchise. The NBA Warriors moved back to SF, the NHL Seals left for Cleveland, and the NFL Raiders left not once but twice. The history at the existing stadium results in a facility which is agreed to be below standard. The effort to replace the Coliseum has been stymied numerous times by numerous factors local and regional. There may be a number of potential “bad guys” in this instance but the City as much as any shares blame.

As we write, the A’s are playing The Tampa Bay Rays. Hmmm..another team playing to below average crowds in a stadium no one has liked since it opened in the mid-80s? That has cities expressing interest? That is for another edition.

GUAM POWER

Moody’s has announced that it has its Guam Power Authority revenue bonds’ Baa2 rating on review for a possible downgrade following damage from Typhoon Mawar. Guam took a direct hit and damage to the physical infrastructure was extensive across the island. The Authority hopes to have 95% of the customer base restored to service by the end of the month. The credit implications are obvious for Guam and the Authority in particular. It will take time for demand to come back given the widespread damage. Moody’s did note that significant mitigation investment lowered overall damage to the power system.

One factor which cannot be discounted is the significant defense role filled by Guam. The increasing geopolitical pressures in the Pacific region make Guam a strategic focal point. The significant military infrastructure presence that strengthens and grows also will drive demand for restoration of housing and commercial stock needed to support a significant military presence. This will help the island to sustain an extended period of recovery especially in the tourism sector.

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

CONGESTION PRICING IN CALIFORNIA

The process of implementing congestion pricing in Manhattan meanders along. The ostensible reason for the fees is to reduce congestion and pollution. In New York, the case is being made that the fees are simply a moneymaker for agencies like the MTA. Now, that debate is spreading across the country. Given how contentious the debate is in a mass transit centric city like New York, there is no reason to expect that imposing congestion fees anywhere else will be less contentious.

Now, the Los Angeles Metropolitan Transportation Authority is undertaking the consideration of congestion fees for the use of portions of the existing freeway system in Los Angeles. Here is where the issue becomes a bit less straightforward. The agency has tried to be coy about where it would like to charge and how much. It has let slip that is projects $2.5 million of daily revenue from its plans.

The agency is said to be looking at several options including charging for use of portions of the freeway system within not just downtown but also leading from the Valley to the City. This is going to force the MTA into more perilous waters as it tries to achieve equity goals through the program. MTA has disclosed the pilot program aims to address equity concerns with subsidies for low-income drivers and carpoolers.

Complicating the issue is the fact that the congestion fee has been tied to the need to fund expansion projects in connection with hosting the 2028 Olympic Games in Los Angeles. That will not help the sales pitch as it will look like a revenue grab rather than a service enhancement.

MORE HOSPITAL CONSOLIDATION

The long-standing trend of consolidation in the healthcare industry continues. The latest example comes from Missouri where providers in St. Louis and Kansas City have announced a proposed merger.   BJC HealthCare and Saint Luke’s Health System announced the signing of a letter of intent to create a statewide integrated system. BJC had $6.3 billion of revenues in 2022 and St. Luke’s had $2.4 billion last year. There are many details to be worked out and there has been no definitive statement as to how the debt of the two systems will be addressed. It was made clear that the structure will call for the institutions to operate primarily within their existing service areas.

The new system would maintain each of the existing brands and operate from dual headquarters: one in St. Louis serving eastern Missouri and southern Illinois, and one in Kansas City serving western Missouri and portions of Kansas. Given the lack of detail as to the new debt structures it is unclear what the ratings impact will be. BJC is an AA rated issuer while St. Luke’s is an A+ issuer.

COLLEGE DOWNGRADE

Moody’s has revised Portland State University’s (OR) outlook to negative from stable and affirmed its A1 issuer rating. The move comes after ongoing FTE enrollment declines, falling more than 20% over the past six years, with expectations of continued declines over the next four years. The declines reflect a mix of the reduction in the pipeline from community colleges in recent years, fierce competition in the Oregon market and limited pricing power. 

The university will need to adjust its budget to reflect lower tuition revenues. Given its target market, the capacity of its students to absorb significant price increases is diminished. This will increase its already strong reliance on the state for support. The state also issues debt for the University as general obligations of the state. The university nonetheless retains the responsibility to generate the revenues necessary to repay it.

NET METERING

North Carolina’s rooftop solar payment rules have been in place since 2000. In line with so many other investor-owned utilities’ actions, those rates have been challenged. In this case, Duke Energy is claiming that the current system is unfair to non-solar customers because those payments are too high and amount to a subsidy for solar owners. This parrots the arguments made by generation for years.

In March, the North Carolina Utilities Commission issued new rules for net metering designed to reduce payments to those customers from Duke. Duke Energy has argued that the current system is unfair to non-solar customers because those payments are too high and amount to a subsidy for solar owners. That has become a go to argument for opponents of residential solar. The new system adopts Duke Energy’s plan to reduce what solar owners get paid and to add a new $10 monthly fee for residential customers who install solar panels. 

Credits for excess electricity would vary according to the time of day. It also adds a “grid access fee” for solar systems larger than 15 kilowatts. The new rules do not apply to rooftop solar owners who install systems before Sept. 30. They will be able to keep the current rates and rules until the end of 2026.

In New Hampshire, Gov. Chris Sununu vetoed Senate Bill 79 which would have allowed industrial-scale businesses to install renewable net metering generators of up to five megawatts annually. He was able to legitimately cite an error in the bill which eliminated the current one-megawatt cap in place for all customer generators, residents included. During his time as governor, Sununu has vetoed bills to increase the cap to five megawatts three times, in 2018, 2019, and 2020.

There is an active adjudicative proceeding in front of the Public Utilities Commission that is considering changes to the current net metering tariff structure. The State Department of Energy commissioned a study estimating that under current projections through 2035, distributed energy – mostly from rooftop solar panels – will raise the average bill of other customers in New Hampshire by about 1 percent, but will bring system-wide financial benefits. 

It is expected that a corrected bill will be offered in the next legislative session.

GAS BAN APPEAL

Berkeley, CA has asked the federal Ninth Circuit Court to grant what is known as an “end banc” hearing on its appeal of a decision which would have prohibited the city from enforcing its 2019 ban on new natural stoves and heating equipment. If a majority of active Ninth Circuit judges vote to review the case, the Chief Judge and 10 other randomly selected judges will take up the case en banc and issue a new opinion. The original opinion was rendered by a three-judge panel.

The litigation was brought by the California Restaurant Association which unsurprisingly takes the view that it cannot cook without natural gas stoves. No existing restaurant would have to stop using gas appliances. They just cannot install them in new buildings. The stakes for the city involve its rights to regulate within its own boundaries. Berkeley takes the position that it would be unable to enforce a variety of regulations the decision stands.

The original decision found that the 1975 Energy Policy and Conservation Act restricts local governments from controlling the energy use of equipment.

PREPA

The latest negative turn in the long running saga otherwise known as post-default Puerto Rico Electric Authority (PREPA) involves the source of over 20% of its power. Twenty two years ago, PREPA was an essentially 100% oil fueled generating base. That is what made the plan to develop non-oil fueled generation make so much sense. So, AES- Puerto Rico was established to develop, construct and operate a large base load generation facility to supply PREPA.

Part of the financing of the plant included an issue of tax-exempt bonds. Last week, AES-PR announced that it was unable to meet a June 1 debt service payment on that bond issue. AES Puerto Rico, L.P. entered into a temporary Standstill & Forbearance Agreement with the trustee of the 2000 Series A Cogeneration Facility Revenue Bonds and certain bondholders to address the event of default arising from non-payment of interest and principal due June 1, 2023. This enables PREPA to continue to receive power from the plant while the default is worked out.

The Project has experienced changes in law and other unexpected conditions that materially increase the Cash Operating Costs and materially decreased the Project Revenues. Specifically, reports indicate that AES points to regulations enacted by the Commonwealth dealing with the disposal of coal ash as a primary source of increasing costs above what the Power Purchase Agreement allows AES to charge for.

WEST COAST PORTS

In spite of declined utilization and more competitive East Coast ports, the negotiations between the port operators and the International Longshore and Warehouse Union drag on. The end of June will mark one year from the expiration date of the existing contracts. From time to time there have been short term interruptions at various ports at various times. That makes the shutdowns in recent days more ominous.

The shipper’s Pacific Maritime Assn. reported labor interruptions all along the coast. Ports impacted by slowdowns included Los Angeles, Long Beach, Oakland, Seattle and Tacoma, Wash. The actions reflected more coordination than has been the case up to now. Oakland said cargo operations had halted because there were not enough dockworkers to handle containers.

It is all about money now as the usually important issue of automation was settled in April. Labor uncertainty has become a drag on the revenues at the impacted ports as the cost of the longer travel times from Asia to the East Coast is offset by the uncertainty of port availability. It is a long-term credit drag on the port credits impacted. The looming back-to-school and Christmas (yes, Christmas) shipping seasons are leading the National Retail Federation and National Association of Manufacturers National Association of Manufacturers to call for the White House to mediate the dispute.

MUNICIPAL POWER AND NUCLEAR

Clark Co. Washington’s Public Utility District has been considering the feasibility of participating in the development of small nuclear generation. After a couple of delays, the County has authorized the District contribute some $200,000 to fund a share of a feasibility study to be under taken by Entergy Northwest. Entergy Northwest already supplies Clark Co. PUD with power from its existing nuclear facility.

Contributing to the study means the utility will not only receive information obtained through the study but will also get priority status for the facility’s future power sales agreements. The decision to participate follows a winter season which saw a new level of peak demand. The long shadow of the region’s experience with nuclear in the 1970’s and 1980’s looms over the nuclear proposal. The study will have to address the financial issues which result from that experience.

In Georgia, Georgia Power announced that the #3 reactor at Plant Vogtle had reached its maximum energy output for the first time. It is a significant if long overdue milestone. If all continues on track, GP predicts that Unit 3 will be fully operational in late this month. The second new reactor #4 is projected to be running within the first several months of next year.

According to GP, the latest estimates of total capital expenses (for which GP might seek rate hikes) is expected to reach $10.2 billion, which is $3 billion more than commissioners in 2017 considered reasonable. If the June date for Unit 3 is achieved, it will mark 14 years and $35 billion from approval to commercial operation.

Georgia Power owns 46% of Vogtle, followed by Oglethorpe Power Corp. with 30% and the Municipal Electric Authority of Georgia (MEAG) with about 20%. Dalton Electric will own less than 2% of the nuclear expansion. MEAG has offloaded a portion of its share through a power purchase agreement with the Jacksonville, FL Electric Authority.

In California, the State Lands Commission approved extending Diablo Canyon’s mean high-tide line lease off San Luis Obispo County through October 2030. It is just one of many steps which needed to be completed as part of the approval process to enable restart of the plant. The current licenses for its two nuclear reactors terminate in 2024 and 2025. Without the completion of a series of approvals, the Nuclear Regulatory Commission would not be able to approve the plan.

AV REALITIES

The move to autonomous vehicles continues its erratic path forward, sort of. Initially, the AV technology spotlight was on Tesla’s technology and some high profile incidents involving it. Those issues remain but it has been some time since a high profile incident. In the meantime, driverless technology companies like Cruise and Waymo have been testing the technology on the streets of San Francisco’s Bay Area and developing data.

So far, the data does not seem favorable. In June 2022, the California Public Utilities Commission authorized Cruise to deploy 30 autonomous vehicles — or AVs — for passenger use throughout designated regions of San Francisco, and said the company could charge for those rides. Five months later, the CPUC authorized Waymo to put its AVs on Bay Area streets as part of the state’s driverless pilot program. The companies are seeking extensions as well as approvals for some 100 more vehicles to operate.

This has opened opportunities for examination of the data and public reaction. It has been strong as the vehicles have a very mixed operating history. It is not that people are being injured. It’s that the technology in the cars has difficulty dealing with what must realistically be considered everyday traffic situations. Construction is a major problem cited along with the cars’ inability to deal with double-parked cars. These situations lead to the cars effectively stalling out in place often in intersections.

These tests continue to show both the promise and the shortcomings of the current state of the art in the AV industry. The vehicles are still tested in primarily favorable climates (no winter weather). Even with that, the San Francisco Metropolitan Transit Authority has indicated to state regulators that “Waymo driverless AVs have committed numerous violations that would preclude any teenager from getting a California Driver’s License”.

The SFMTA wrote a January letter to the CPUC that there were 92 reported incidents involving Cruise vehicles from May 29, 2022, through Dec. 31, 2022. 88% of them took place on corridors where Muni lines, buses and street cars operate each day.  The Authority may have summed the up where the industry is in terms of getting its technology accepted. “If they want us to believe things are getting better, they should give us data to demonstrate that, because that is not what we are seeing from calls to 911 and reports from SF Fire Department and Muni personnel.” 

MEDICAID RIGHT TO SUE

In 2016, when Gorgi Talevski’s dementia progressed to the point that his family members could no longer care for him, they placed him in petitioner Valparaiso Care and Rehabilitation’s (VCR) nursing home. Less than a year later, Mr. Talevski’s daughter suspected, and then confirmed with outside physicians, that VCR was chemically restraining Mr. Talevski with six powerful psychotropic medications. Suffice to say that ending the drugs led to improvement for the patient. That apparently did not make the facility happy.

The case includes forced visits to psychiatric hospitals and eventually a refusal to readmit the patient. The facility wanted the man committed to a psychiatric hospital. An administrative law judge nullified VCR’s attempted transfer of Mr. Talevski. Nonetheless, they did transfer him. Ultimately, he stayed at the new facility but it was located such that visitation was a burden. So, the family sued the county owned nursing home (VCR) and that then included the state through its Medicaid funding.

The family asserted that HHC’s treatment violated rights guaranteed him under the Federal Nursing Home Reform Act (FNHRA). The case was dismissed in federal District Court on the issue of standing. The District Court reasoned that no individual plaintiff can enforce provisions of the FNHRA.

On appeal, the Seventh Circuit reversed, concluding that the rights referred to in two FNHRA provisions specifically invoked in this case—the right to be free from unnecessary chemical restraints, and rights to be discharged or transferred only when certain preconditions are met— “unambiguously confer individually enforceable rights on nursing home residents,” making those rights presumptively enforceable. The Seventh Circuit further found nothing in the FNHRA to indicate congressional intent to foreclose enforcement.

The decision this week by the SCOTUS will not have a broad effect on the senior living space outside of the public sector. The Court made clear “this case is about these particular provisions and whether nursing-home residents can seek to vindicate those FNHRA rights in court “.  It does shine a light on certain practices and highlights just another aspect of the problem of mental health and the provision of services. County facilities will know have an extra level of responsibility/liability.

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

COLORADO RIVER FALLOUT

The recent agreement to limit lower basin states ability to withdraw water from the Colorado River has been hailed as a positive short-term result. No doubt that it is but now the realities of the ongoing water shortage in the West are being exposed. One of the largest examples of unbridled growth in the southwestern U.S. is Phoenix and its metropolitan area.

Now that growth is facing limits. The State of Arizona has determined that there is not enough groundwater for all the future housing construction that has already been approved in the Phoenix area, and will stop developers from building some new subdivisions. Maricopa County, which includes Phoenix and its suburbs, gets more than half its water supply from groundwater which is being steadily depleted.

The State will not approve new determinations of Assured Water Supply within the Phoenix AMA based on groundwater supplies. Developments within existing Certificates or Designations of Assured Water Supply may continue, but communities or developers seeking new Assured Water Supply determinations will need to do so based on alternative water sources.

The state says it would not revoke permits that have already been issued and is instead counting on water conservation measures and alternative sources to produce the water necessary for approved projects. The impact will be felt more in recently developed suburban parts of the state’s metropolitan areas. The major cities’ internal development has largely been approved.

The Phoenix Active Management Area (AMA) is a region of south-central Arizona encompassing 5,646 square miles and, with 4.6 million residents, the most densely populated area in the state. The State has determined that over a period of 100 years, the Phoenix AMA will experience 4.86 million acre-feet (maf) of unmet demand for groundwater supplies, given current conditions. The term “unmet demand” refers to the amount of groundwater usage that is simulated to remain unfulfilled as a result of wells running dry in the model” used by the State.

If a city does not have a designation from the state, then each proposed development must prove to the state it has a 100-year supply of water. That demand will increase pressure on agricultural land which will be more valuable as a source of water and rights to it than it would be as a producing asset.

TRANSMISSION

One of the reasons we have followed so closely the approval process for carbon capture pipelines is that it parallels in many ways issues with expanding the nation’s electric grid. The greatest holdup to efforts to decarbonize the electric utility industry and move the country to electric cars and appliances is the inability to deliver power from where it is produced to where it is needed.

The issue of transmission impacts the whole country. Maine has just gone through an extensive permitting and referendum process over the development of a transmission line from Quebec to Massachusetts. The Grain Belt Express would connect wind power from states like Kansas and send that power to demand centers farther east. Already, concerns over permitting and land acquisition resulted in changes to power distribution agreements to address local concerns.

In any week, there are new examples of proposed transmission projects seeking approval in order to deliver power from new source to consumers. The Interior Department’s Bureau of Land Management this week said it has advanced two transmission projects proposed by public utility NV Energy that would facilitate more renewable energy development and delivery in Nevada. The agency will start an environmental review for the Greenlink North project, which will span over 450 miles to connect Las Vegas to Reno, and release a draft environmental impact statement for the Greenlink West transmission project, which will cover 232 miles from Ely to Yerington.

The Bureau of Land Management (BLM) issued its record of decision last week for the SunZia Southwest Transmission Project, delivering up to 4,500 megawatts of primarily renewable energy from New Mexico into Arizona and California. The project was first proposed some 15 years ago.  The Idaho Public Utilities Commission is hosting public hearings throughout southern Idaho in mid-June to receive testimony about a proposed 500-kilovolt transmission line which would extend 300 miles across five Oregon counties and connect to Idaho Power’s existing Hemingway substation in Owyhee County. 

The problem is clear in the Northeast. PJM is the nation’s largest regional grid operator, with a territory that spans all or parts of 13 states from the Midwest to the Mid-Atlantic, plus the District of Columbia. Of nearly 2,500 utility-scale projects totaling 250 gigawatts of capacity waiting in interconnection queues nationwide today, 95% of them are in PJM’s queue.

California is considering legislation which would expedite the approval process for transmission line development and expansion in the Golden State. SB 619, a bill that would expand the California Energy Commission’s authority to certify and prioritize transmission projects on the agency’s agenda.  Last year the legislature enacted AB 205, which authorized the commission to certify and prioritize transmission projects that cost more than $250 million and carry electricity from renewable energy facilities to a system interconnection juncture.

SB 619 would broaden the types of transmission lines eligible for certification to include those lines that convey electricity to and from other facilities — regardless of their proximity to an interconnection point. SB 619 would apply to facilities like solar photovoltaic, wind or stationary thermal power plants with a generation capacity of 50 megawatts or more. Estimates for the scope of investment required range from $30 to $50 billion.

MEDICAID

Beginning on April 1, pandemic restrictions kept states from imposing new qualification requirements on Medicaid recipients. It was thought that many people might lose coverage if they were no longer able to qualify for Medicaid. Now after one month, data is emerging about the scope and nature of determinations that individuals were no longer eligible.

The Kaiser Family Foundation (KFF) found that 19 states had begun the process of renewing Medicaid eligibility. Based on records from 14 states that provided data, 36% of people whose eligibility was reviewed have been disenrolled. Four out of every five people dropped so far either never returned the paperwork or omitted required documents.

Some states have been more aggressive than others. In Indiana, recipients are given two weeks to comply with documentation requests. The Hoosier State has 53,000 residents who lost coverage in the first month of the unwinding, 89% for procedural reasons like not returning renewal forms. That is not an uncommon phenomenon as many of those people do not have access to the internet. States know that. So that is why they impose short-term response and qualification periods.

As of April 1, KFF found that more than 1 in 4 Americans — 93 million — were covered by Medicaid or CHIP, the Children’s Health Insurance Program. Some 50% of children in the U.S. get their medical care funded through these programs. KFF estimates that 15 million people will be dropped over the next year as states review participants’ eligibility.

In the end, the states might save money but then it will increase pressure from providers on the states to provide greater levels of aid for uncompensated care. It puts more pressure on hospitals already dealing with utilization and inflationary issues. For safety net hospitals, the pressure on finances will only increase.

EPA WETLANDS DECISION

The Supreme Court decision last week to narrow the scope of the Environmental Protection Agency regulations on wetlands. The decision will be a boon to project developers – especially road developers – wetlands regulation has been effectively used to slow down, alter and even stop highway developments. Projects with significant right of way needs will be able to access certain areas which were effectively off limits for development.

Not only will it aid development but it will also pressure regulatory efforts dealing with waste. You would be surprised by the size and nature of some proposed developments adjacent to bodies of water which may no longer be regulated by the federal government. In many of those situations, activities associated with developments generate indirect threats to local water sites. Even facilities like warehouses have been found to generate pollution at adjacent water sources.

P3 BLUES

Three years ago, the University of Iowa entered into an agreement with a private consortium to operate the University’s campus utility systems. The 50-year agreement with the consortium – “University of Iowa Energy Collaborative” or UIEC – was supposed to provide greater system reliability for a more certain and affordable cost. Now, only three years into the transaction, the parties are suing each other over payments and whether the promised reliability levels had been achieved. The university is obligated to the partnership for $35 million annually.

In January, the private partner sued the University in federal court over reduced payments it received from the University. It has agreed to drop that case but to renew its efforts in state court. The University has now filed a counter claim. The issues are twofold. There have been two significant electric outages since the operator took over. The University is also fighting efforts to get it to fund a $1.5 million annual fee which it believes is the operator’s obligation. Bottom line is that the University feels that it is not getting the benefits expected.

OFFICE OCCUPANCIES AND TRANSIT

The longer it goes on, the continuation of lower occupancy rates in commercial and office buildings makes the status quo look a bit more permanent. It has become clear that in major cities with significant cultural bases, it is those primarily evening/night activities which are driving returns to cities. This started the establishment of different utilization patterns especially on mass transit. Many agencies have been reluctant to alter schedules to reflect changing in demand in fear of being accused of feeding the “doom loop” phenomenon in their city.

Now efforts are taking hold in some of the most affected markets. BART – the Bay Area system designed primarily to facilitate work-based commutation from outside the City of San Francisco to and from the City. This dictated a traditionally based rush hour schedule. The declines in demand for that service have been offset a bit by increased demand for more frequent night and weekend service. This has led BART to announce revised schedules increasing service frequency at night and on weekends.

Connecticut Gov. Ned Lamont proposed reducing service on the MTA New Haven Line to 86 percent of pre-pandemic levels, potentially resulting in dozens fewer daily trains running between Connecticut and New York City. Last summer, the state expanded service for the New Haven Line by introducing new weekday express trains as part of its TIME FOR CT initiative, designed to deliver faster trains and improved travel time.

THE FED AND ITS TAKE ON NYC

The latest Beige Book from the Federal Reserve provides some insight on the New York City economy while it copes with its recovery from the pandemic. Tourism activity in New York City has remained strong and is nearing pre-pandemic peaks. Business travel has continued to pick up, particularly domestic travel, despite competition with destinations in warmer parts of the country. For the first time in three years, graduation season has brought many international visitors to New York City.

European tourists are returning in large numbers but lags in visa processing have continued to constrain visitors from China and parts of South America. Hotel performance has remained on a strong upward trend, and New York City has had the highest hotel occupancy rates of all the major markets in the country in recent weeks.

Residential Rents are at all-time records in Manhattan, Brooklyn, and Queens and vacancy rates remain exceptionally low. Office vacancy rates were steady at elevated levels across the District and rents were mostly flat. New York City’s retail market weakened, with increases in vacancy rates and rents trending down.

INSURANCE IN CALIFORNIA

Natural disasters have always generated issues with insurance whether they be directly weather related like hurricanes and floods, or earthquakes and wildfires in California. In the aftermath of Hurricane Andrew in the early 1990’s, the insurance industry began to pull out of the home insurance market in Florida. The hurricane states in the Southeast have had to create entities to issue insurance to fill in gaps left by private providers.

The most recent example of the phenomenon comes from California where State Farm has announced that it will not write new homeowners or business insurance in California. The insurance company stated that the decision was made because of rising construction costs that are outpacing inflation, a challenging insurance market, and “rapidly growing catastrophe exposure.” State Farm was the largest underwriter of property and casualty insurance policies in California in 2021 with over $7 billion in premiums written, and a market share of 8.3%.

MINNESOTA NICE

Minnesota Gov. Tim Walz signed a bill legalizing recreational marijuana. This makes Minnesota the 23^rd state to legalize it. The legislation allows adults 21 and older to carry up to 2 ounces of marijuana in public and possess up to 2 pounds at home, starting Aug. 1. The legislation had been held up in a split legislature in recent years. The legislature came under full Democratic control in January and the Senate reversed previous actions and approved the legislation.

It will take some time for the law to have real impact. The retailing infrastructure is far behind the legislation and the state regulatory agency has said that it will be some time before sales can start. The criminal record and conviction provisions included in the law merely begin a process that the state says will take several months to execute. The legislation allows adults 21 and older to carry up to 2 ounces of marijuana in public and possess up to 2 pounds at home, starting Aug. 1.

As we go to press, Florida’s Department of State reported that the proposed ballot measure to legalize recreational marijuana gathered enough signatures to put it on the ballot in 2024. Petitions to get the proposed constitutional amendment on the ballot gathered 967,528 valid signatures some 70,000 above the requirement to reach the ballot.

The law would permit adults 21 and over to possess up to three ounces of marijuana for personal use. Medical marijuana treatment centers, which were legalized by a statewide referendum in 2016, would be allowed to sell marijuana for recreational use.

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.