Joseph Krist

Publisher

AFTER THE FIRE

The city of Los Angeles has approved permits to rebuild three homes in Pacific Palisades after January’s wildfire. As of last week, 72 property owners had submitted applications to the city. An additional 98 have filed with L.A. County for rebuilding in unincorporated areas after the Palisades and Eaton fires. We point this out to highlight the realities of recovery from natural disasters.

The City and L.A. County leaders committed to streamline permitting procedures for property owners who want to rebuild. The Eaton fire, which ignited the same day, displaced 6,900 households from Altadena and nearby communities. The city and county have opened one stop permitting centers for fire victims and waived discretionary hearings and other zoning reviews for those who want to build new homes that are roughly the same size as they were before.

The regulatory framework is a work in progress at all levels of government – city, county, state. The City has established that new accessory dwelling units would qualify for streamlined permitting and issued another order with plans to further expedite reviews for homeowners who choose to rebuild with all-electric systems and appliances.

The obstacles to rebuilding center on the need to clear the debris. To this end, some of the delay can be attributed to residents. For example, there are more than 1,000 property owners who have not opted in or out of the federal government’s free debris removal service. Permits are not being issued to properties which have yet to clear debris. The issue of toxicity from firefighting foam used to fight the fires is an additional complication.

These are the real life factors that make recovery a much more time consuming process than anyone would hope. The sheer scope of the recovery – 16,000 structures – and the limitations on resources especially skilled tradesmen create significant hurdles. Only so many structures can be built at one time. Concurrently, rebuilding is impacted by the reality that the true replacement cost of a house is often significantly higher than the insured value.

BRIDGES

The headlines made it sound like the Brooklyn and Golden Gate Bridges were about to be toppled by ships. The National Transportation Safety Board (NTSB) completed a vulnerability assessment which identified 68 other bridges frequented by ocean-going vessels that were constructed before American Association of State Highway and Transportation Officials (AASHTO) standards were updated in 1991. The Board issued a report with the release was timed to hit the first anniversary of the Key Bridge disaster in Baltimore. 

The Board urged the FHWA, Coast Guard, and Corps of Engineers to form a dedicated, interdisciplinary team that provides guidance and assistance to bridge owners on evaluating and reducing the risk of a bridge collapse from a vessel collision. It also urged the owners of the 68 identified bridges to calculate whether the probability of a bridge collapse from a vessel collision is above the acceptable risk threshold established by AASHTO.

The FHWA requires that new bridges on the National Highway System be designed to minimize the risk of a catastrophic bridge collapse from a vessel collision given the size, speed, and other characteristics of the vessels navigating the channel under the bridge. The Board found that the 30 owners of 68 bridges over navigable waterways frequented by ocean-going vessels are likely unaware of their bridges’ risk of catastrophic collapse from a vessel collision and the potential need to implement countermeasures to reduce the bridges’ vulnerability.

So, is a wave of financings and borrowings coming on to implement lots of updates to the bridges? We don’t think so. There is no requirement that the owning agencies conduct the recommended review let alone perform any of the proposed fixes. We note the wide variation in terms of type of bridge and age of bridge. Several are constructed after the AASHTO standards were established. One of the “vulnerable” bridges is the Sunshine Skyway over Tampa Bay which was built to replace a bridge which was damaged by a ship collision.

POLICY AND PORTS

The Port of Los Angeles processed 801,398 Twenty-Foot Equivalent Units (TEUs) last month, which was 2.5% more than last year and marked the Port’s second-busiest February on record. At the same time, the results acknowledge the uncertainty associated with White House trade policy. “Many retailers and manufacturers have been importing their products through Los Angeles earlier than usual as a hedge against tariffs. Given the substantial inventory already here, and the uncertainty of tariffs, it’s possible we could see a 10% volume decline in the second half of the year.”

What isn’t mentioned is a new non-tariff policy. President Trump is drafting an executive order that would rely on funding from a U.S. Trade Representative proposal to levy fines of up to $1.5 million on China-made ships or vessels from fleets that include ships made in China. Those potential port fees have limited the availability of ships needed to move agriculture, energy, mining, construction and manufactured goods to international buyers. Vessel owners have already refused to provide offers for future U.S. coal shipments due to the proposed USTR fees.

Industry groups have been consistent in their response. Among the groups fearing restricted exports are the West Virginia Coal Association, the American Petroleum Institute, and shipping associations. The shippers contend that very few maritime operators will be able to document that their annual share of U.S. exports meets the required 20% carried on U.S. built, U.S flagged vessels.

The USTR proposal also seeks to shift domestic exports to ships that are both flagged and built in the United States. The current fleet of U.S.-flagged cargo vessels numbers less than 200, and not all are U.S. built. To completely avoid the fees, vessel operators must be based outside of China, have fleets with fewer than 25% of ships built in China, and have no Chinese shipyard orders or deliveries scheduled within the next two years

The proposed shipping restrictions come as the US agriculture sector is already dealing with the impact of tariffs. The inability to secure ocean freight transportation from May and beyond has restricted their ability to sell bulk U.S. agricultural products like corn, soybeans and wheat because exporters are unsure what the final cost would be.

The United States exported more than $64 billion in bulk crops, bulk animal feed and vegetable oils in 2024, according to U.S. Census Bureau Trade data. Bulk agricultural exporters could face an additional $372 million to $930 million in annual transportation costs from the fees.

BLAME CANADA

Nearly 500,000 fewer travelers crossed the land border from Canada into the U.S. in February compared to the same month last year, according to data from U.S. Customs and Border Protection (CBP). The number of travelers entering the U.S. in a passenger vehicle — the most common way to make the trip from Canada — dropped from 2,696,512 in February 2024 to 2,223,408 last month. The number of travelers driving over the U.S. land border is the lowest it’s been since April 2022.

The number of cross-border travelers headed for the U.S. in October, November, December and January were all well above the numbers reported for the same month the year before. All categories of transit have declined beginning in February. That even includes those who walk across to shop or visit. CBP reported the number of walkers fell from roughly 117,000 in February 2024 to 99,000 last month. 

The anecdotal evidence is that fewer Canadians are maintaining their historic presence in Florida this year. I can tell you that the sentiment in Canada is strong. I see a lot of broadcasts of Canadian NHL teams. The advertising is telling. Companies are flooding the airways with ads emphasizing Canadian products. The political ads shifted in tone quickly last month and no longer focus on getting along with the U.S.

That has real implications for those businesses with significant demand from Canada. Small businesses nearer to the border all already taking a hit. Large entities are vulnerable as well. One credit that comes to mind is the Destiny USA mall in Syracuse. It derives approximately 20% of its visitors from Canada.

CLIMATE BALLOT IN COURT

Initiative 2066 which is viewed as protecting natural gas as an energy choice in Washington state was approved by the voters in November, 2024. A King County Superior Court Judge ruled that the scope of I-2066, approved by voters in November, was too broad and violated the state Constitution’s single-subject requirement.

I-2066 was in response to HB 1589, which was passed during the 2024 legislative session. The bill directs “large combination utilities,” or combination gas and electric companies that serve more than 800,000 customers, to plan for the development of specific actions “supporting gas system decarbonization and electrification” in alignment with the state’s goals to move toward 100% clean energy. I-2066 was aimed at resisting some of these moves.

The judge ruled the ballot measure’s title may have confused voters who could have voted “yes” to support the choice of natural gas but did not realize building codes would have to be amended or that there could be climate impacts as a result. Here is where the situation becomes amusing. Over the years we have covered laws and regulations on the conservative end of the spectrum often written by organizations like ALEC on the right. Now, the gas industry is complaining specifically about the involvement of the Pacifica Law Group. The gas industry is charging that the Group essentially wrote the judge’s decision for her.

Did they? Who knows and it’s not our point. We hate the ideological approach to governing on either end of the spectrum. We see fewer and fewer rational reactions to legal outcomes which is bad in an environment where legislation is almost impossible. It does no good to rely on the courts to do the work of citizens if we’re going to undermine the courts. There will be a motion supporting a direct appeal to the state Supreme Court.

NEW YORK STATE BUDGET AND FEDERAL MONEY

The New York State budget process is supposed to wind up on March 31 with the new fiscal year starting April 1. The already complex process was further complicated by the latest cuts being made by the DOGE. Two New York State agencies working on addiction services and mental health care told nonprofit providers that two federally funded state grant programs, which totaled about $330 million and were supposed to run through the end of September, had been halted.

In the fiscal year ending this month, New York State received an estimated $96 billion from the federal government, with roughly $57 billion going to the state’s Medicaid program. About $10 billion went to schools, about $4 billion to law enforcement and public safety and $2.5 billion to transportation programs.

Ms. Hochul had based her initial $252 billion state budget proposal for the coming year on the assumption that almost $91 billion would flow from Washington.

The budgetary meat ax being waved around by the DOGE reflects a complete lack of understanding as to how Medicaid works and how it covers people. There is a discussion to be had over whether all of the things that Medicaid in New York covers can continue to be supported. For some services, the states have longed relied on a private non-profit infrastructure network to provide many of the specialized services Medicaid covers like those provided by mental health providers. These abrupt cuts will leave many of those providers unable to operate.

FEDERAL FUNDING AND THE STATES

I have no doubt that the squad of boy wonders in D.C. has no understanding of the role of these funds and the non-profit service providers in the provision of addiction and mental health services. There is no way to provide these services privately in the sense that the providers would be hard pressed to self-fund. At the same time, governments would never be able to go back to what was another form of mass incarceration. So, the effort to reduce spending here is just going to cause more problems than it solves. 

Some research from the Pew Charitable Trusts published in September, 2024 provides a backdrop for the actions currently underway to cut and hold back federal funds to the states. It provides some clues as to what is currently going on. There are some caveats. The data covers 2019-2022, a time of extraordinary circumstances which are certainly not sustainable.

Nationwide, states received 60.8% more in federal grants in fiscal 2022 than they did just before the pandemic—ranging from 130.5% more in South Dakota to 32.8% more in California. The federal government awarded states more than $800 billion in COVID-19 relief. Fiscal 2022 was the first year states were eligible for the more than $760 billion authorized through the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. 

Federal funds, rather than state tax dollars, accounted for the largest source of revenue in 16 states, up from five states in fiscal 2019 and 15 in fiscal 2021. In fiscal 2020, federal funds made up the largest share in 18 states, the most on record. California and Montana were the only states where the federal share of state revenue was lower in fiscal 2022 than in fiscal 2019. 20 states reported their largest share of revenue from federal funds of any year in the past 50 years.

South Dakota experienced the biggest annual percentage-point growth in the federal share of state revenue, up 11 percentage points from fiscal 2021. This swing was related to the timing of receiving and spending federal pandemic aid. North Dakota experienced the biggest annual percentage-point decline, with the federal share falling 17.5 percentage points from fiscal 2021.

So where does this matter? Louisiana reported the highest percentage of revenue from federal funds (50.5%). North Dakota reported the lowest percentage (22.2%). The percentage of state revenue from federal funds in states with the largest federal shares—Louisiana (50.5%), Alaska (50.2%), and Arizona (49.7%)—was roughly double what it was in those with the lowest shares: North Dakota (22.2%), Hawaii (25.9%), and Virginia (27.6%).

REALLY?

The United States Department of Agriculture has moved to cancel $13 million in funding for Pennsylvania farmers who provide products for food banks. The funding came from the Local Food Purchase Assistance Program established in 2021. The purpose was to help both farmers struggling during the COVID-19 pandemic, as well as food banks that may not have a budget for fresh food. Since the program began, Pennsylvania has received over $28 million.

This move comes after Pennsylvania succeeded in a legal action against the effort to cut off $2 billion of federal funding for Pennsylvania by the Trump administration. Those funds are now being restored while a lawsuit against the cuts is still standing despite the fact that the specific cuts which are the subject of the suit have been restored. The congressionally-approved money for Pennsylvania saw most of those dollars be used for environmental programs like plugging abandoned oil and gas wells, building out clean-water infrastructure, and helping low-income households retrofit their homes to lower utility bills. 

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

The Trump administration appears to be using its Canadian playbook to manage its opposition to congestion pricing. March 21 was supposed to be the date by which the MTA stopped collecting congestion fees. Given pending litigation, MTA has continued to collect the fees and plans to keep doing so until it is legally stopped. Like it did with tariffs, the administration has now delayed taking action against the MTA for 30 days. MTA now has until Easter to collect fees.

Whether this indicates a clear softening in the administration’s position remains to be seen. The extension of congestion fees was accompanied by threats to withhold federal operating aid to the MTA. Ostensibly, this is supposed to lead somehow to reduced crime on the City’s subway system. While it was presented as a move against more than one transit agency regarding the issue of crime, its pretty obvious that the threat was designed to accompany the fee delay.

AFTER THE FIRE

The credit impact of the wildfires in January in California has begun to take shape. The placement of a negative outlook for the City of Los Angeles and other impacted municipalities was not unexpected. Now, the ratings impact is expanding to the utilities. This week, S&P placed seven municipal power agencies on negative outlook.

They are Lassen Municipal Utility District (‘BBB’); Modesto Irrigation District (‘A+’); Transmission Agency of Northern California (TANC; ‘A+’); Sacramento Municipal Utility District (SMUD; ‘AA’ senior lien and ‘AA-‘ and ‘AA-/A-1’ subordinate liens); San Francisco Public Utilities Commission (SFPUC; Hetch Hetchy Power Enterprise; ‘AA’); Truckee Donner Public Utility District (‘A+’); and Turlock Irrigation District (TID; ‘AA-‘, including bonds issued by the Walnut Energy Center Authority [WECA] and the Tuolumne Wind Project Authority [TWPA] that are payable as an operating expense of TID).

S&P noted “The negative outlooks reflect our assessment of the heightened longer-term credit pressure from the rising potential for future liabilities and operating and infrastructure costs associated with wildfires, which have grown more frequent and intense in California in recent years given the region’s increasing susceptibility to these events.

“The negative outlook also reflects our view that there is a one-in-three chance that we could lower the ratings on these various utilities within the next one-to-two years by one or more notches should we determine that wildfire mitigation measures combined with liquidity and wildfire liability insurance coverage are no longer commensurate with current ratings in light of the changing environmental conditions increasing wildfire vulnerabilities, particularly given California’s interpretation of inverse condemnation, or if infrastructure hardening costs materially pressure rate affordability,”.

As for the City of Los Angeles, the budget news gets bleaker. The city’s administrative officer testified before the City Council. He compared the city’s financial straits to the aftermath of the 2008 financial crisis and said the budget gap estimated for the fiscal year that starts in July represented an eighth of the $8 billion general fund. Los Angeles is facing a projected shortfall of nearly $1 billion next fiscal year, and significant cuts and “thousands” of layoffs are “nearly inevitable,”.

Preliminary estimates of the city’s costs from the January wildfires are more than $282 million just for expenses such as firefighter and police officer overtime and infrastructure replacement. The city controller estimated that city revenues would remain flat or decline next year, partly because of fire losses and the soaring costs of disaster insurance and partly because of “uncertainty generated by the new presidential administration’s radical policies on tariffs, federal spending cuts and immigration.” 

At the same time, the Controller reported that salaries and benefits this year had added more than $343 million to the city’s obligations as a result of new labor agreements, police and fire overtime and retirement and sick payouts. The city had spent more than $246 million on liability payouts for legal claims this fiscal year, roughly three times the $82 million the city had budgeted for such obligations. 

NUCLEAR

The U.S. Department of Energy on Monday announced a second loan disbursement to Holtec toward restarting its decommissioned Palisades nuclear power plant in Michigan. The action released nearly $57 million of an up to $1.52 billion federal loan guarantee for Holtec. The Palisades plant, if restarted, would generate 800 megawatts of electricity. Holtec officials last month announced plans to install the first U.S.-built small modular reactors on the Palisades property in Covert by 2030, in co-location with the restarted plant. The proposed two new modular nuclear reactors, dubbed SMR-300s, would each generate approximately 300 megawatts of energy.

WIND

The 1.5-GW Atlantic Shores 1 wind energy project in progress offshore New Jersey had its Clean Air Act permit from the Environmental Protection Agency remanded by the agency’s Environmental Appeals Board. The decision reflects the freeze on funding underway from the Trump administration. The permit remand comes a month after EDF Renewables, one of Atlantic Shores’ developers, booked a $980 million impairment associated with the project. Shell, EDF’s partner in the joint venture, booked a $1 billion impairment associated with the project in January, which EDF referred to as a “withdrawal” in its annual financial report.

REGULATION LITIGATION

Hearings were held this week before the Ohio Supreme Court on whether The Ohio Power Siting Board was within its rights to reject a permit application for a solar power facility merely on the basis of local governmental opposition. In , the Board rendered a decision denying Vesper Energy the right to build a 175-megawatt solar facility in Greene County, OH. The company claims the siting board failed to follow state law in its analysis of whether its project (Kingswood Solar) is in the public interest — one of eight criteria that power generation projects must meet to receive a site permit.

A 2021 law lets counties block most new utility-scale wind and solar energy projects before they even get to the Ohio Power Siting Board. Others, like Kingwood Solar, have been denied based on local opposition, even though they are exempt from that part of the law because they filed permit applications or got in the grid operator’s queue prior to the legislation’s passage.

In 2022, the board found that the proposed Kingwood Solar facility met all the other legal requirements for a permit, yet it concluded ​“that the unanimous opposition of every local government entity” bordering the project was ​“controlling” on the public interest question. The board denied the permit. Another part of Ohio law that says local governments can’t require their own consent for the construction of power facilities. 

A decision will come later this year. In the meantime, large scale solar will slow down in the Buckeye State.

EV POLICY REALITIES

A Princeton University study has evaluated the potential impact of Trump administration energy policies on the emerging electric vehicle industry. The report notes that the plans to eliminate tax credits and other federal support will have significant negative impacts especially in states considered to be Trump states. Through executive orders, President Trump has indicated intentions to eliminate federal regulations aimed at reducing greenhouse gas emissions from cars and trucks, repeal subsidies supporting electric vehicle (EV) purchases, and halt or redirect federal grant programs designed to expand EV charging infrastructure.

Their findings: If EPA tailpipe emissions regulations and federal clean vehicle tax credits are repealed: Sales of battery electric vehicles could drop about 30% in 2027 and 40% in 2030 relative to a scenario where current policies are continued. The share of battery electric vehicles in new light vehicle sales could drop from about 18% to 13% in 2026 and 40% to 24% in 2030. Cumulatively, 8.3 million less EVs and plug-in hybrids could be on U.S. roads in 2030.

As much as 100% of planned construction and expansion of U.S. electric vehicle assembly and half of existing assembly capacity could be at risk of cancellation or closure. Between 29% and 72% of battery cell manufacturing capacity currently operating or online by the end of 2025 would also be unnecessary to meet automotive demand and could be at risk of closure, in addition to 100% of other planned facilities. There would be further (unquantified) impacts on U.S. materials, parts, and component suppliers upstream of EV and battery assembly. 

POLICY REALITIES – NEW YORK

A report from State Comptroller Thomas DiNapoli reviewed the impact of the withholding of funds under current federal policies. The Inflation Reduction Act (IRA) of 2022 contained significant provisions related to taxes, health care, energy and the environment. Specifically, the IRA provided roughly $400 billion in clean energy investments to mitigate the causes and effects of climate change and air pollution in the form of rebates, tax credits, grants and loans. New York State agencies and authorities, municipalities, businesses and non-profit organizations have been awarded nearly $2 billion in grants to date.

Two projects will clearly be impacted by the withholding of grant monies under current Trump administration policies “pausing” these programs. The first is $451.6 million for the Port Authority of New York and New Jersey to reduce air pollution from port activities. Federal spending information indicates that there have been no outlays of funding from this grant. The second is $180.0 million for the New York State Department of Transportation’s I-81 Connecting Syracuse Project. It is not clear if there have been any outlays from this grant.

The latest congestion pricing twist and turn was the announcement that the secretary of transportation had extended the deadline for the State to end its collection of the fees by 30 days.

MISSISSIPPI

The Mississippi legislature is trying to reach agreement over competing plans to reduce if not eliminate the state income tax. The effort comes as the nation’s most federally dependent state – for every dollar paid to the federal government the state receives three – faces the risks of significant cutbacks in federal spending. The state Constitution requires a three-fifths majority of lawmakers to approve tax bills. There are significant gaps between the plans passed in the respective houses of the legislature.

The House would fully eliminate the state income tax by 2037. It would cut about $2.2 billion from the state’s current $7 billion general fund while it would increase the state’s net sales tax from 7% to 8%. It would also include an additional 15-cents-a-gallon excise tax on gasoline. The tax increase would be phased in at 5 cents a year over three years. This would be added to the current 18.4-cents-a-gallon. The plan would also transfer $100 million per year from the state lottery system into the public employee retirement system. 

The Senate would decrease the 4% income tax rate by .25% each year from 2027 to 2030 and leave it at 3% in 2030. The plan would reduce the sales tax on groceries from 7% to 5%. It would also increase the 18.4-cents-a-gallon gasoline tax by 9 cents over three years, for a total of 27.4 cents. Going forward, the tax would increase automatically based on the cost of road construction. To address pension funding, the Seante would change benefits for government employees hired after March 2026 to a “hybrid” retirement that includes part-defined benefit and part-defined contribution.

The likely result is that the state’s tax structure will be more regressive. That in a state with some of the highest poverty levels.

BABY BONDS IN NEW MEXICO

Legislation in New Mexico is being considered which would provide that each child born in New Mexico would receive a state-funded trust fund at birth. The bill estimates that a $6,000 award at birth could result in $20,000 at age 18. At that point, the funds could be accessed for higher education, homeownership, business ventures, or investments.

The recipient must maintain residency in New Mexico until they turn 18. To access the funds, they must graduate from high school or earn an equivalent diploma. The money can only be used for specific purposes, including: Higher education (tuition, books, or related expenses); Purchasing a home; Starting or investing in a business; Other approved investment opportunities.

ALASKA PERMANENT FUND DIVIDEND

For 2025, the Alaska Permanent Fund Dividend was set at $1,702 per person.  The Alaska Department of Revenue announced that the dividend will begin to be distributed on Oct. 3. The $1,702 includes a special energy relief bonus to help with high fuel costs. The Alaska Legislature allocated about $914 million for the 2024 PFD distribution, with more than 600,000 people eligible for the payment. This means roughly two-thirds of the state’s population will receive a cash infusion, collectively injecting nearly $1 billion into the economy. The 2024 dividend is $390 higher than 2023.

It can be argued that the Permanent Fund Dividend is essentially a basic guaranteed income plan. There are obvious differences. As opposed to a monthly check, the payment is one time a year. This tends to encourage spending on less essential things versus a monthly payment. The University of Alaska Anchorage’s Institute of Social and Economic Research found that spending was concentrated over approximately one quarter.

The research found that after receiving their PFD, “Alaskans spend significantly more on non-durables (such as cosmetics, cleaning products, food, fuel, and other consumables) and services in the month when they receive the dividend payment. Other studies by the University have documented that “the PFD has resulted in substantial poverty reductions for rural Alaska Natives,” with particularly pronounced benefits for elderly residents​. 

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

COLLEGE PRESSURES

Harvard University announced a hiring freeze. It comes in the wake of the announcement that the federal government was nullifying $400 million in grants and contracts from Columbia University over accusations that the school had failed to protect Jewish students and faculty from antisemitism. Harvard is one of 10 schools the Trump administration identified last month as subject to review over accusations that it had not done enough to curb antisemitic behavior on campus during protests over the war in Gaza.

At the University of Pennsylvania, administrators have asked departments in the School of Arts & Sciences, the university’s largest school, to cut incoming Ph.D. students. North Carolina State University announced that it was freezing most hiring. Stanford University announced it was freezing staff hiring, citing “very significant risks” to the community. The University of Louisville in Kentucky, announced an “immediate pause” on faculty and staff hiring until July. 

As the week opened a new list of target schools was announced by the Department of Education. They include American University, Arizona State, Boston University, Brown, Cal State-Sacramento, Chapman University, Columbia, Cornell, Drexel, Eastern Washington, Emerson College, George Mason, Harvard, Illinois Wesleyan, Indiana, Johns Hopkins, Lafayette, Lehigh, Middlebury, Muhlenberg, Northwestern, Ohio State, Pacific Lutheran, Pomona College, Portland State University.

The remainder on the list include Princeton, Rutgers, Rutgers-Newark, Santa Monica College, Sarah Lawrence, Stanford, SUNY-Binghamton, SUNY-Rockland, SUNY-Purchase, Swarthmore, Temple University, The New School, Tufts, Tulane, Union College, UC-Davis, UC San Diego, UC Santa Barbara, Cal-Berkeley, Cincinnati, University of Hawaii, UMass-Amherst, Michigan, Minnesota, North Carolina, South Florida, USC, University of Tampa, Tennessee, Virginia, University of Washington, University of Wisconsin, Wellesley, Whitman College, and Yale. They all made the grade.

While these institutions fight the ideology battle, others are fighting for their financial lives. The board of trustees for New Jersey City University voted to approve the pursuit of a merger with Kean University, a state school. NJCU was directed to find a partner by a state-appointed monitor after a new law was passed in 2023 to backstop the struggling institution and others in the future. The school serves a population primarily composed of first time and minority students.

D.C. DOWNGRADE REVIEW

It did not take long for the first “victim” of the DOGE and the President to emerge. Unsurprisingly, Moody’s Ratings has placed the District of Columbia’s ratings on review for possible downgrade. The outlook has been changed to rating under review from negative for all debt classes. Currently, the District is a Aaa credit with much of the support for ratings coming from the federal government’s dominant role in the District economy.

Placement of the District of Columbia’s ratings on review for possible downgrade is prompted by drastic cuts to the federal workforce. The large proposed reductions in federal employment- anticipated by the District to decline by 40,000 workers, or 21% compared to its previous forecast for the next four years will have significant impacts on both the public and private sectors.

The District’s downtown office real estate market also continues to experience high vacancy rates, leading to lower assessed values and property tax collections. According to the DC Office of Revenue Analysis, between 2020 and 2024, vacant office space increased by 8.4 million square feet, a 46.2% rise. The negative valuation trends are likely to be accompanied by potential reductions in the federal share of Medicaid funding. This is also highly credit negative for the District.

CLIMATE LITIGATION

The Supreme Court declined to hear arguments in a suit launched by 19 states (all red ones) who were trying to prevent other states, led by Democrats, from pursuing lawsuits against the oil industry. Those states include California, Connecticut, Minnesota, New Jersey and Rhode Island. It’s all part of a continuing effort to get climate litigation out of state courts and into the federal system. All attempts to date have failed.

In January, the Supreme Court denied review of a Hawaii Supreme Court decision rejecting oil industry requests to do so. That allows the state’s climate deception lawsuit to go to trial. This latest decision is consistent with those rendered in other request by the industry to take climate litigation out of the state courts..

ELECTRICITY TARIFFS

The U.S. is Canada’s only trading partner for electricity. In 2023, net electricity exports from Canada to the U.S. were 27.6 terawatt hours and came mostly from the provinces of Manitoba, Ontario, British Columbia and Quebec. Now, the power from Ontario will come at an increased cost of 25%. The Midcontinent Independent System Operator, which runs the regional electric grid in parts of 15 states including Minnesota and Michigan imported less than 1 percent of its total energy from Canada last year. The New York Independent System Operator said that 2023, New York imported a net 3,976 gigawatt hours from Ontario. That power represents almost 3 percent of the total energy usage across its bulk electric system.

AFTER THE FIRE

It has been estimated that 13,000 households were displaced by the Palisades and Eaton fires. They came from nearly 9,700 single-family homes and condominiums, almost 700 apartment units, more than 2,000 units of duplexes and bungalow courts and 373 mobile homes that Cal Fire determined were either destroyed or heavily damaged. That creates substantial demand for items necessary to a rebuild. Those items generally are subject to sales tax and one of the unintended consequences of natural disasters is a sharp rise in sales tax revenues as recovery occurs.

Just one example. It is being reported that sellers of furniture and other home decor around L.A. are seeing an unexpected rise in sales.  About two weeks after the start of the Palisades and Eaton blazes, Ikea stores in Los Angeles County began noticing an uptick in sales for sleep and kitchen basics. There should be plenty of demand. It will be a boost to consumer spending for residential furniture and bedding which fell 3% last year to $116.1 billion, according to the American Home Furnishings Alliance. The number of production workers for furniture and related products fell to 235,500 people from 244,800 in 2023.

TARIFFS AND LAYOFFS

Signs are emerging that even the threat of tariffs in North America is taking its toll on business.  Layoffs, closures and furloughs have impacted workers and companies tied to the manufacturing, distribution and freight sectors in the U.S., Canada and Mexico. Since Jan. 20, there have been 14,357 job cuts, according to Worker Adjustment and Retraining Notification (WARN) Act notices. Cargill Inc., Archer-Daniels-Midland Inc., Foster Farms, and Perdue Farms all reported significant job cuts.

Detroit-based Harvest Sherwood Food Distributors is shutting down all its operations across the U.S. and laying off about 1,500 workers by April 21. Cargill Inc. will close a Springdale, Arkansas, turkey processing plant with 1,100 workers on Aug. 1, the company announced. Production is being shifted to processing plants in Missouri and Virginia. The threat of tariffs is leading to automotive layoffs. Goodyear Tires plans to cut about 850 jobs at a plant in Danville, Virginia, by the end of the year. Bridgestone Tires plans to close its truck and bus radial tire plant in LaVergne, Tennessee, by July 31. The closure will impact 700 workers.

WATER WARS

Among the funding frozen by the Trump administration are payments from a $4 billion pot in the Inflation Reduction Act that has been going to pay cities, farms and tribes to forgo water deliveries and funding major infrastructure projects that conserve water over the long term. Much of this funding is designed to address the long-term impacts of the drought which has slowly drained the Colorado River. The freeze has motivated some entities to fire some initial shots across the bow of the administration and they may have worked.

The rights to approximately 40 percent of the water in Lake Mead are held by cities, farms and tribes. Recently, the Gila River tribe sought reimbursement for some $105 million of infrastructure costs under the IRA. Those monies had been applied to things like fixing leaks in irrigation system which lowered the amount of water that needed to be withdrawn. In the face of the administration’s cuts, the tribe told the Feds to either pay up or the tribe would exercise its full water rights. The Feds paid. Interior unfroze the tribe’s funding Feb. 19.

The federal drought dollars were a crucial component of those negotiations on a new agreement to divide the Colorado’s waters. Those monies offer compensation to users, especially farmers to reduce their usage and withdrawal requirements from the river. They are considered a key component of any deal to revise water allotments from the Colorado. Now, the lack of funding is throwing a huge wrench into the negotiations.

CARBON CAPTURED?

Summit Carbon Solutions filed a motion with the South Dakota Public Utilities Commission to suspend its permit application and extend the regulator’s deadline to issue said permit “indefinitely.” The company said “With the passage of HB 1052, the Applicant’s ability to obtain survey permission has changed. However, the project must survey the route completely in order to inform the Commission of the constructability prior to obtaining a permit. The surveys which are necessarily required to inform the route decisions as to right of way will be significantly delayed.”

Survey law requires Summit to have a permit application and the legal authority to condemn property. The company said its request to change the permit schedule would allow staff more time to buy easements. Summit Carbon’s permit application had a one-year window. This “pause” would effectively stop the clock on that deadline. The company indicated it could resume the process at a later date. Iowa’s permit is conditioned on Summit receiving a permit from South Dakota.

STADIUM FOLLIES

The Tampa Bays Rays announced Thursday that they are backing out of a $1.3 billion deal for a new stadium in St. Petersburg. Had the original plan gone through, the new ballpark would have been set to open in 2028. By backing out now, the Rays are able to seek approval to negotiate with locations outside of the Tampa-St. Petersburg market, though they’d have to get approval from the league. Recent press reports indicate that Major League Baseball would prefer to see new ownership which would build a stadium in Tampa.

The situation is complicated by the fact that the proposed St. Petersburg stadium was to be the centerpiece of redevelopment of the city’s Historic Gas Plant District. The mayor indicated that the city will move forward with the development of the Historic Gas Plant District. In the meantime, the Rays will play this year in Tampa at the NY Yankees spring training home. The team is committed to playing at the Trop through the 2028 season.

CALIFORNIA MEDICAID SHORTFALL

California will need to borrow $3.44 billion to close a budget gap in the state’s Medicaid program. That’s the maximum amount California can borrow, and will only be enough to cover bills for Medi-Cal — the state’s Medicaid program — through the end of the month. Gov. Gavin Newsom’s current budget proposal estimates the state will shell out $8.4 billion to cover undocumented immigrants in Medi-Cal in 2024-2025, and $7.4 billion in 2025-2026. California has been covering undocumented children on Medi-Cal since 2016. Under Newsom, the program has slowly expanded, to young adults in 2020, older adults in 2022 and then all ages in 2024. The state anticipates spending around $42 billion on Medi-Cal in 2025-26, a $4.5 billion increase over the last budget.

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

By the time you read this, the President may have gotten up on a different side of the bed and half of this week’s MCN may be out of date. Such is the world of Trump 2.0. Is it infrastructure week, yet?

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NON PROFITS UNDER PRESSURE

The recovery from the pandemic has been longer and harder than many of these institutions hoped. Lower attendance and revenues are pressuring financial operations. The Solomon R. Guggenheim Museum announced that it was laying off 20 employees across the museum — or 7 percent of its staff — starting immediately.

The museum cited other efforts – growing the endowment, programming fewer exhibitions and ticket price increases – but said that they had not done enough. Earlier this month, the Brooklyn Museum said that it was facing a projected $10 million deficit, planned to cut 40 employees, and would mount fewer exhibitions.

Those are the kind of cuts that people notice. In reality, the non-profits under the most pressure are smaller niche service providers. The freeze on federal funding is forcing significant layoffs and projections of potential closures at these small providers. For many of these providers, the fact is that federal money is key to their ability to provide services and provide a relatively secure revenue stream to secure debt issued for capital costs at these facilities.

COLORADO RIVER

“All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022.” The 2022 Inflation Reduction Act, or IRA, allowed Biden to designate $4 billion for Colorado River programs, funding farmers, cities, and Native American tribes to conserve Colorado River water by leaving it in those reservoirs. The payments are compensation for lost income.

The giant reservoirs of the Colorado River, Lake Mead (the largest reservoir in the U.S. in terms of water capacity) and Lake Powell, remain far below their capacities. The lakes, which provide the water that 40 million Americans depend on, are now only about 35% full.

The Bureau of Reclamation’s California office has lost 10 percent of its staff due to buyouts and orders by Elon Musk’s so-called Department of Government Efficiency. Among those fired are employees who were working on a power plant upgrade near Shasta Dam in Northern California. That facility, which helps move water through the federal system, has been sitting disassembled for weeks after the Trump administration froze funding for it under an order halting spending tied to the bipartisan infrastructure law. That funding may soon be released, but now key staffers hired to do the work have been fired.

Local water agencies — funded by water sales to individual farmers — pay for the Bureau of Reclamation’s services through contracts for water deliveries — not federal taxpayers. Power production at the dams also generates significant revenue for the federal Treasury Department.

WHERE THE CUTS COULD HURT

The proposed workforce reductions from the DOGE would have varying impacts on employment in the states. Maryland has the largest proportion of federal employees in its workforce at 5.3%. Hawaii (3.9%), Alaska (3.4%), Virginia (3.4%), New Mexico (2.5%), West Virginia (2.4), Oklahoma (2.4%), Wyoming (2.2%), Montana (2.0%), Utah (1.9%) and Maine (1.9) make up the ten largest exposures. Federal civilian jobs make up 21% of all nonfarm employment in Washington, D.C. — far more than any state.

The percentage of people who report having Medicaid is 21% nationally, but ranges from 11% in Utah to 34% in New Mexico (Figure 1). The percentage tends to be higher in the 41 states that expanded Medicaid under the Affordable Care Act (ACA), which includes 21 states that voted for Trump and 20 that voted for Harris. Rates of Medicaid coverage are also higher in states with lower average incomes and lower rates of health insurance offered through employers.

Stanford University announced a freeze on staff hiring, citing concerns about the Trump administration’s plans to cut funding for scientific research. the freeze does not apply for faculty positions, temporary and casual employees and student workers. Other significant research universities will face similar pressures.

HOSPITALS AND MEDICAID

Hospital care accounted for about one third of Medicare and Medicaid spending in 2023 (37% and 32%, respectively). For purposes of comparison, hospital care represented a larger share of Medicare and Medicaid spending (37% and 32%, respectively) than physician and clinical services (25% and 14%) or retail prescription drugs (14% and 6%). From 2010 through 2023, more hospitals closed than opened. Over this 14-year period, 300 hospitals closed and 192 hospitals opened, or 108 more hospital closings than openings. 

It appears that the budget proposals moving through Congress cannot achieve their expenditure reduction goals without hitting Medicaid. Even if the only real change is the imposition of work requirements, fewer people will be covered by Medicaid. That means lower revenues for hospitals with an expectation of higher levels of unreimbursed charity care.

CARBON PIPELINES

The South Dakota legislature considered two bills designed to limit the ability of developers to build pipelines to transmit sequestered carbon from out of state ethanol plants for storage in North Dakota.  Senate Bill 198, is a proposed measure requiring individuals or companies to meet certain requirements before attempting to condemn private property. The legislature did enact House Bill 1052, which outright prohibits carbon capture companies from using eminent domain — the process of taking private property for public services.

Summit Carbon Solutions launched a first tranche of lawsuits pursuing eminent domain in April 2023. The number of cases later grew to include about 160 landowners, as the state Supreme Court ruled in an August opinion that Summit Carbon had not proven it qualifies as a common carrier, a necessary designation to utilize the right to eminent domain.

S.F. SEWER DECISION

By a 5-4 vote, the U.S. Supreme Court sided with San Francisco in its challenge to the terms of a federal sewer and wastewater system permit that the city challenged as too vague and difficult to comply with. The court said that the Clean Water Act does not support the non-quantifiable water quality standards that the U.S. Environmental Protection Agency imposed in the permit for a combined sewer system and wastewater treatment facility.

The decision overturns a divided Ninth Circuit panel’s 2023 ruling that the Clean Water Act allows the EPA to include certain narrative water quality standards as part of a National Pollutant Discharge Elimination System permit for San Francisco’s Oceanside Water Pollution Control Plant. The issue revolved around combined sewage outflows (CSO) and how they must be treated. These occur in times of heavy rain when water volumes could easily overwhelm treatment capacities.

The issue of CSO is not limited to San Francisco. It has come up in all of the major treatment expansions or developments undertaken by major cities. There has always been a tension between utilities and the EPA over the issue. The cost of treatment to address small incremental improvements in effluent quality. As has been pointed out the most pristine source of a river has some level of “pollutants”. Fish and animals eat and excrete even in those waters so are they ever 100% clean?

The ruling marks the court’s first ruling on a case pertaining to EPA authorities since it struck down the long-standing Chevron doctrine, which held that federal agencies rather than courts have broad latitude in interpreting ambiguities in the language of the law.

ETHANOL

The U.S. Environmental Protection Agency upheld an April 28 implementation date in response to a request from eight Midwest governors to allow year-round sales of gasoline containing 15% ethanol, a blend known as E15. States had until February 26 to seek a one-year delay. EPA said it would delay an action by one year to expand sales of higher ethanol blends of gasoline in South Dakota and Ohio at their request.

The EPA’s implementation will now only apply to Illinois, Iowa, Minnesota, Missouri, Nebraska, and Wisconsin. The EPA’s expansion is meant to enable both E15 and the more widely available E10 fuel blends to be sold during the summer, where the existing policy often keeps E15 out of the market. It also could be a bailout for farmers who lose market share as the result of tariffs on their corn products.

FARM TARIFFS

China’s Ministry of Finance said it would add tariffs of as much as 15 percent on a wide range of agricultural imports from the United States, including chicken, wheat, corn and cotton. Beijing’s retaliation for escalating American tariffs on Chinese-made products also includes 10 percent tariffs on imports of sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.

China accounted for 14 percent — roughly $24.7 billion — of all agricultural goods exported from the United States in 2024, according to data from the Department of Agriculture. Mexico and Canada imported even more: about $30.3 billion worth of goods for Mexico and $28.4 billion for Canada.

China started to buy more soybeans from Brazil during Mr. Trump’s first term. China bought less pork. Soybeans accounted for about half of U.S. agricultural exports to China last year. About 85 percent of potash, a key ingredient in fertilizer, is imported from Canada, according to the American Farm Bureau Federation.

During Mr. Trump’s first term in the White House, China responded to his administration’s tariffs on Chinese goods with retaliatory tariffs ranging from 5 to 25 percent on many U.S. agricultural products. Those tariffs reduced U.S. agricultural exports by nearly $26 billion, according to a research report by the Agriculture Department.

Canada is the largest supplier of lumber to the U.S. Nova Scotia will immediately limit access to provincial procurement for American businesses. The U.S. will no longer be able to bid on provincial contracts while the province actively explores options to cancel existing contracts and reject current bids. The province will double tolls at the Cobequid Pass for commercial vehicles from the United States, effective immediately.

ECONOMY

This week’s tariff whiplash and the uncertainty it has caused in markets highlights the economic situation facing budget makers as the season unfolds. The Fed released its latest Beige Book summarizing current economic conditions across the country. You will note some common themes across regions which are a direct reflection of the policy changes being rolled out by the Trump administration and their potential impact on economic activity.

Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers. However, most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.

Prices increased moderately on average as wholesale food prices spiked, and contacts expressed concerns that tariffs would contribute to more intense pricing pressures moving forward.  Many businesses noted heightened economic uncertainty and expressed concern about tariffs. Half of the districts note a contraction in consumers spending and only two districts, in fact, saw a boost in consumer spending.

These all indicate higher prices and dampened demand may be as much of a result of the tariff scheme as would the alleged prosperity which will result. We are already seeing the signs – slower job growth, declining yields. That doesn’t include the price uncertainty arising from the President’s erratic trade policy announcements. That is raising the specter of higher car prices (average new car is nearly $50,000) even before the impact of eliminating tax credits for electric vehicles.

SOLAR

In 2024, solar photovoltaic sources accounted for more than 6.8% of all electricity generated in the U.S., up from 5.5% in 2023, a 24% year-over-year increase, according to the U.S. Department of Energy’s Energy Information Administration (EIA). A terawatt-hour (TWh) is a unit of energy that is equal to 1,000,000,000 kilowatt-hours (kWh). Total solar photovoltaic generation surpassed 300 TWh, an increase of 64 TWh from the prior year. This 27% growth was the largest absolute increase in solar generation since 2016.

Utility-scale solar expanded by 32%, while distributed solar grew by 15.3%, according to the EIA. As a share of total U.S. generation, utility-scale solar now accounts for nearly 5%, while distributed solar contributes just over 1.9%. Three states—Iowa, South Dakota, and Kansas—now generate more than 50% of their electricity from wind and solar. Maine and New Mexico surpassed 10% solar generation for the first time. 

The growth threatens to slow as the legacy generation companies fight  very hard to make solar less financially attractive especially to individuals. In California, the Public Utilities Commission is proposing more change to the state’s net metering structure. Under the CPUC’s previous net-metering regimes, customers are paid full retail rates for solar power they send back to the grid for 20 years.

CPUC proposes shortening those legacy periods, which could reduce costs for utilities but also undermine the economic calculations that made rooftop solar worthwhile. The Commission also proposes adding a ​“grid-benefits charge” to the bills of existing rooftop solar owners — in essence, charging them extra for having solar panels.

One approach the utilities have been slow to employ is to charge new sources of bulk demand (like data centers) the incremental costs of supplying those customers. That can offset some of the “lost” income from residential solar users. That would lower the need for new generation to meet the new bulk demand. That is a form of cost shift which makes more sense.  

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.