Joseph Krist

Publisher

CALIFORNIA BUDGET GAP

The Legislative Analysts Office in California has released its Fiscal Outlook prepared for the upcoming budget season. This along with the Governor’s budget and the May revision are the three key dates in the budget process. The report identified three key areas of concern. Largely as a result of a severe revenue decline in 2022‑23, the state faces a serious budget deficit. Specifically, under the state’s current law and policy, the LAO estimates the Legislature will need to solve a budget problem of $68 billion in the coming budget process.

Typically, the budget process does not involve large changes in revenue in the prior year (in this case, 2022‑23). This is because prior‑year taxes usually have been filed and associated revenues collected. Due to the state conforming to federal tax filing extensions, however, the Legislature is only gaining a complete picture of 2022‑23 tax collections after the fiscal year has already ended. Specifically, the LAO estimates that 2022‑23 revenue will be $26 billion below budget act estimates.

One positive takeaway notes that while addressing a deficit of this scope will be challenging, the Legislature has a number of options available to do so. In particular, the Legislature has reserves to withdraw, one‑time spending to pull back, and alternative approaches for school funding to consider. 

Budget gap drivers include the finding that the state’s economy is in a downturn. The number of unemployed workers in California has risen nearly 200,000 since the summer of 2022. This has resulted in a jump in the state’s unemployment rate from 3.8 percent to 4.8 percent the state’s economy into a downturn. The number of unemployed workers in California has risen nearly 200,000 since the summer of 2022. This has resulted in a jump in the state’s unemployment rate from 3.8 percent to 4.8 percent. Inflation‑adjusted incomes posted five straight quarters of year‑over‑year declines from the first quarter of 2022 to the first quarter 2023.

The portion of income taxes collected directly from workers’ paychecks was down 2 percent over the last twelve months compared to the preceding year. Collections data now show a severe revenue decline, with total income tax collections down 25 percent in 2022‑23. Reflecting the risk of continued weakness, the LAO revenue outlook shown anticipates collections will be nearly flat in 2023‑24, after falling 20 percent in 2022‑23. The LAO outlook then has revenue growth returning in 2024‑25 and beyond. Based on this trajectory, the LAO revenue outlook expects collections to come in $58 billion below budget act assumptions across 2022‑23 through 2024‑25, with about half of this difference ($26 billion) attributable to 2022‑23. 

What can be done? The state has $23 billion in the Budget Stabilization Account under LAO estimates, plus about $1 billion in the Safety Net Reserve. Over a three‑year period, the state could reduce General Fund costs by $16.7 billion if it were to lower school spending to the constitutional minimum allowed under Proposition 98. The state has at least $8 billion in one‑time and temporary spending in 2024‑25 that could be pulled back to help address the budget problem.

This ride on the downside of the roller coaster which is California’s credit is a bit out of the norm. The unique situation which extended the tax payment deadline into the fall is a one off. The strikes in the entertainment industry likely had a bigger impact than anticipated. The timing of these two factors accompanied the fact that the number of California companies that went public in 2022 and 2023 is down over 80 percent from 2021. Capital gains have an outsized impact on the State’s finances given the overall structure of its income tax base.

MEDICAID EXPANDS IN ONE MORE STATE

On December1, nearly 600,000 North Carolinians will be eligible for Medicaid. They qualify under the terms of the Affordable Care Act. Half of these people will be automatically enrolled. Single adults aged 19-64 who earn up to $20,120 per year are now eligible, and a family of three who earns a little more than $34,300 is now eligible. The state’s prior Medicaid structure covered parents earning only about $8,000 per year combined for a family of three. Childless adults had no coverage.

As with the case with the many other states, the federal government will pay 90 percent of the costs of expansion. Under another piece of the legislation the initial costs will be covered at an even higher rate. A provision in the 2021 American Rescue Plan provides an additional 5 percent “bonus” to previous holdout states to help offset the first two years of expansion. In North Carolina, that amounts to almost $1.8 billion. 

There are now only 10 holdout states remaining. They share the common trait of having a Republican governor, a GOP-majority legislature or both. Six are in the Southeast. The two largest by population are Texas and Florida (no shock there). Kansas, Georgia, Wyoming and Wisconsin rely on legislative action. In Florida, a ballot initiative effort from 2020 stalled out.

MUSEUMS AND THE POST-PANDEMIC WORLD

This week, New York’s Guggenheim Museum announced staff layoffs. While tourism has been recovering in the city, lower number of visitors are patronizing museums. After long closures, museums have sought to revive both attendance as well as revenue and many have raised the price to enter in their effort to shore up their finances. The price of admission to the Guggenheim was increased from $25 to $30. Nevertheless,

In November, the San Francisco Museum of Modern Art announced the elimination of 20 staff positions, citing a 35 percent drop in attendance from 2019. Like the Guggenheim, it raised its prices by 20%. A month earlier, the Dallas Museum of Art also reduced headcount by 20 and said it would no longer be open to the public on Tuesdays to save money.

TAX REALITIES IN NEW YORK

One of the enduring features of the political debates in blue states over taxes is the constant specter of mass migrations out of a state driven by marginal tax rates. This is especially true of California and New York. The significant impact of COVID in those states brought the issues to light as the pandemic drove migration to other areas. Those issues were recently revived during the debate between the Governors of Florida and California. A variety of statistics were cited by both to buttress their arguments over taxes. It has become harder to find objective analysis of the issue.

There was much focus on the movement of people from California and New York to Texas and Florida respectively. The lack of an income tax in Texas and California and fewer COVID restrictions were cited as driving factors. Now, a new report from the Fiscal Policy Institute seeks to separate myth from reality. The findings are not what many expected. Here are the main findings.

High earner migration out of New York during Covid was temporary, and primarily driven by work-from-home and flight from New York City. In 2022 — after two years of elevated, pandemic-induced out-migration — high earners’ migration rates returned to pre-Covid levels. While New York lost 2,400 millionaire households over the past three years (2020- 2022), New York gained 17,500 millionaire households in the same period due to a strong economy and rising wages.

There is no statistically significant evidence of tax migration in New York: High earning New Yorkers move out of New York State at one-quarter the rate of the rest of the population during typical, non-Covid years. High earners do not move in response to tax increases: Out-migration for those most impacted by recent effective tax increases (in 2017 and 2021) did not increase significantly in response to the tax increases. When New York’s high earners move, they are more likely to move to other relatively high tax states.

A huge driver of out migration was not tax policy but the work from home movement and concentration of lower wage earners in NYC. Prior to Covid, the city was already a source of disproportionate out-migration: 51.1 percent of New York State’s out-migrants from households with income in the bottom 95 percent (less than $354,000) originated from the city, as did 64.5 percent of households with income in the top five percent. This was greater than the city’s share of the state population — the city is home to 42.7 percent of those in the bottom 95 of incomes and 45.5 percent of those in the top five percent.

This drives the continuing hollowing out of the middle class in NYC. The people leaving New York at the fastest rate last year were families making between $32,000 and $65,000. A disproportionately high share of these movers was Black and Hispanic. They were followed by people earning $104,000 to $172,000 a year. More than three-quarters of rich people (the top 1 percent of income-earners, making more than $815,000 a year) who left during the pandemic moved to other high-tax states, including Connecticut, New Jersey and California. 

Over the same years that saw a rise in domestic out-migration by high earners, the overall number of high earner New York tax filers has increased. The only year since 2015 that saw an overall decrease in full-year residents making over $200,000 was 2020 — a year that also saw growth in the population making over $5 million in annual earnings. In 2021, New York State enacted higher personal income tax rates on incomes over $1 million, $5 million, and $25 million. In the same year, the only income group affected by this change — the top one percent — began out-migrating at a lower rate than they had in 2020, falling further in 2022.

MISSION ACCOMPLISHED?

The utility industry has been successfully lobbying for changes to net metering schemes which have long supported private home installations of solar energy panels. The best example is in California. The state’s three IOUs – PG&E, SoCal Edison, and SDG&E – are benefitting from a new payment scheme to solar customers who send excess generation to the companies.

Under the terms of the scheme which was replaced on April 15, utilities paid customers the full retail rate for solar power produced in excess of their own electricity consumption. The new rules significantly reduce that rate. The new policy doesn’t apply to the 1.5 million rooftop solar installations already in place. For installations post- April 15, 2023, the new scheme will reduce utility-bill savings from new solar systems and extend the amount of time it takes owners to recoup the cost of installing them. 

In March, the industry released a study which forecasted that new residential solar installations in California, after doubling in size from 2020 to 2022, were expected to decrease by nearly 40 percent through 2024. A subsequent report from the California Solar and Storage Association had data showing a 77 to 85 percent drop in rooftop solar projects since April. 

Two of the state’s three major investor-owned utilities subject to the CPUC’s net-metering rules. Those utilities have seen a 66 to 83 percent drop in residential rooftop-solar interconnection applications in the five months since the new structure took effect, compared to the same months in 2022. Solar installers in the state are forecasting that 17,000 jobs will disappear by the end of 2023, which amounts to roughly 22 percent of the state’s solar workforce. Most of those jobs are in installation, where workers earn an average of $70,000 per year.

This mirrors the experience of public utilities in California whose customers have already been subject to less favorable net metering payment schemes. Installations also declined by more than 50 percent in the California regions where public utilities reduced net-metering compensation between 2015 and 2017.  Arizona, Hawaii, Nevada, Utah are other states where rooftop solar installations have declined dramatically after regulators or utilities reduced the compensation value that customers can receive from them.

GETTING THE LEAD OUT

The Environmental Protection Agency (EPA) announced a proposal to strengthen its Lead and Copper Rule that would require all US water utilities to replace 100% of lead service lines within 10 years. The proposed requirement is considerably more ambitious than the existing rule, which requires that only utilities exceeding certain thresholds of lead concentrations replace 100% of lines in 30 years. The EPA estimates that replacing lead service lines would cost utilities about $20-$30 billion over the next decade, with additional costs for new monitoring and treatment requirements.

The estimated $20-$30 billion in costs to replace lead service lines nationally over the next decade are substantially higher than the $1-$3 billion estimated under the existing rule. The Infrastructure Investment and Jobs Act provides funding for lead pipe replacement (about $7.4 billion is allocated in grants and principal forgiveness, with another $7.6 billion in low-interest loans). The remainder will be funded out of rates. That will be especially challenging for utilities with significant proportions of lower income residents. Cities like Chicago, Milwaukee and Detroit are examples of the latter.

The EPA requires every utility to submit an inventory of lead service lines by October 2024, but existing data indicates that lead service lines tend to be more prevalent in Midwestern cities with older housing stock. The installation of lead service lines was banned by Congress in 1986. The proposed Lead and Copper Rule Improvement allows for extensions in limited circumstances. The proposed rule caps the number of required service line replacements at 10,000 annually.

Chicago’s water utility has one of the highest concentrations of lead service lines in the nation would likely qualify for a deferral. State of Illinois data shows that the city has approximately 410,000 lead service connections, comprising over 80% of total retail connections. The city would have approximately 41 years to complete the replacements, though the Illinois EPA could require a faster timeline if deemed feasible. Chicago recently closed on a low-interest WIFIA loan for $336 million to help fund the replacement of some 30,000 existing connections.

NYS THRUWAY P3 FAIL

It took a long time for the New York State legislature to authorize the use of public private partnerships for major infrastructure projects. Fortunately, the first few projects – multiple bridge replacements in the NYC metro area and projects at the airports went off well and the P3 concept was seen as a useful tool in overcoming historic difficulties in the State with infrastructure projects. Those successes built support for P3 projects so additional such projects were approved.

One of those projects is the refurbishment and modernization of service areas along the Turnpike. There are some 27 of them. I’ve been wondering for a while why the service area refurbishments on the New York State Thruway were taking so long. As a life long New Yorker it was easy to assume that each rest stop would be over built and designed and that traditional inefficiencies were plaguing this project.

Now the Authority has admitted that the projects are way behind schedule and facing serious cost overruns. An Irish firm Applegreen leads the private side of the partnership. The deal was for Applegreen to rebuild the weathered and outdated rest areas in exchange for a 33-year lease of the facilities and a share of revenues. Construction began almost two years ago, less than half of the work has been done, and it’s running well behind schedule.

The partners have cited increased costs due to inflation and supply chain issues related to the pandemic. There are no provisions in the agreement for increased funding from the State. Efforts were made in the State Legislature to generate support for funding part of an estimated $250 million funding shortfall. Those efforts were undertaken as part of the fiscal 2024 budget process and failed. The hope for the partners is that the issue will be reconsidered in the fiscal 2025 budget negotiations.

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

STORMWATER FEES

When rain falls, it either lands on a pervious or an impervious surface. Pervious surfaces—like lawns, gardens, and sand— can absorb and retain water (albeit at varying rates) during precipitation events and then gradually release it back into the water cycle. Conversely, impervious surfaces are hard surfaces that prevent water from soaking into the ground, such as roofs, pavement, metal, and wood. Since impervious surfaces cannot soak up water, they generate stormwater runoff. Stormwater runoff is water from precipitation that flows on impervious surfaces until it reaches a pervious surface or drains into a sewer system or waterway.

Currently, most jurisdictions in New York do not bill property owners separately for stormwater management. Instead, jurisdictions use revenues generated from metered water and sewer bills based on the amount of clean water consumed, property taxes, or both. Neither water consumption nor property values reflect a property’s contribution to stormwater runoff, creating a disconnect between the revenue being generated and stormwater management costs.

For instance, when metered water revenue is used to pay for stormwater management projects, properties like parking lots that have large impervious surfaces— which contribute to stormwater runoff—but use little or no metered water, pay almost nothing towards the cost of stormwater management. Similarly, when property taxes are used, parking lots may pay very little for stormwater management because they are less developed and therefore may have lower property taxes assessed.

At the request of New York State Assembly Member, Emily Gallagher, the Independent Budget Office (IBO) examined the fiscal impact of a potential stormwater fee in New York City by applying the stormwater fee rates of four peer cities—Baltimore, Philadelphia, Seattle, Washington, D.C.—to properties in New York City. The two most important elements of a rate structure are what the fee is assessed against (impervious land area versus total land area) and whether the fee is set as a flat, tiered, or variable rate.

Revenue potential greatly varies depending on how the stormwater fee is set. IBO’s revenue estimates range from $266 million (using Baltimore’s rates) to $892 million (using Washington, D.C.’s rates) per year. For most census tracts, the median fee per household would equal less than one percent of median household income under all peer city rate structures. Among residential properties, those located in boroughs outside of Manhattan would likely face a greater financial burden due to larger average property sizes, lower population density, and lower median incomes.

The City of Ithaca is the only municipality in New York State with a general stormwater fee, which it adopted in 2014. Since then, no other New York municipality or county has followed suit, despite interest and advocacy from various jurisdictions, including New York City. One concern a municipality may have in implementing a general stormwater fee is the ambiguity surrounding legal authority of localities to implement stormwater fees (Ithaca’s fee has not been challenged in court).

The 2023-2024 legislative session in Albany includes a proposal (A4019/S4169) to address this ambiguity by explicitly authorizing “local water and sewerage authorities to charge fees for surface runoff.”

CONGESTION PRICING DEBATE GETS REAL

The announcement of proposed pricing for the congestion pricing initiative in NYC has stimulated a robust debate. The proposal:  Passenger vehicles and passenger-type vehicles with commercial license plates should be charged a $15 toll for entering the CBD, no more than once per day. Trucks should be charged a $24 or $36 toll for entering the CBD, depending on their size, as defined below. Buses providing transit or commuter services should be exempted from the toll. Other buses should be charged a $24 or $36 toll for entering the CBD, depending on their type.

Motorcycles should be charged half the passenger vehicle toll, no more than once per day. Tolls should be charged to vehicles only as they enter the CBD – not if they remain in or leave the zone. Congestion toll rates should apply during the most congested times of the day – from 5am to 9pm on weekdays, and from 9am to 9pm on weekends. Toll rates should be 75% lower in the nighttime.

A credit against the daytime CBD toll rate should be provided to vehicles entering through the four tolled entries that lead directly into the CBD: the Queens-Midtown, Hugh L. Carey, Holland, and Lincoln Tunnels. The credit should be $5 for passenger vehicles, $2.50 for motorcycles, $12 for small trucks and intercity/charter buses, and $20 for large trucks and tour buses. No crossing credits should be in effect in the nighttime period when toll rates are 75% lower.

One issue we will note was the less than sensitive comments from the planning panel’s chair regarding access to medical facilities within the congestion zone. No, insurance companies do not cover the cost of driving and parking when you go to a doctor. Parking is not always at a favorable price even at hospital facilities. In many cases, the drivers and/or passengers are disabled which means that mass transit – under the current conditions – is not an accessible alternative. Full subway access is not expected for another 25 years.

New Jersey remains a primary source of opposition and proposed discounts for NJ drivers using the Lincoln and Holland Tunnels have done nothing to quell it. Some are positing that the fee will make office space in Jersey City, Hoboken, and Weehawken that much more attractive. Nevertheless, litigation is pending which challenges the fees. There is also a call for objective monitoring of changes in pollution in areas like the Bronx which are likely to attract more truck traffic.

The comment period is underway and the hope is that the scheme can take effect by May 1. In the interim, it will be a rough ride as many constituencies are seeking exemptions and many will have compelling cases to make. One last issue: data released by the Traffic Mobility Review Board shows that 85% of 1.5 million people commuting into Manhattan south of 60th Street already take the subway, the PATH, the three commuter railroads or a bus.

DROUGHT AND PORTS

When labor unrest led to fears of shutdowns at West Coast ports – Los Angeles being the major example – some shippers took to using the Panama Canal and unloading their cargos at East Coast ports. For a time, the cost of travelling further to the East Coast provided a reasonable alternative so long as the Panama Canal remained open and cost effective.

The finalization of contracts with the major unions representing Port employees resumed the attractiveness of West Coast ports. The Port of Los Angeles and Long Beach have seen steady increases in traffic since the labor settlement. That trend is only going to increase as the Panama Canal has become a much less efficient and cost effective alternative.

A drought has impacted water levels along the route of the Panama Canal. This has resulted in limitations on the size of ships permitted to pass through as well as on the number of daily transits. This has caused the operator of the Canal to resort to a reservation system for ships wishing to transit through the canal. It has also been steadily reducing the number of daily passages.

The Panama Canal Authority, which normally handles about 36 ships a day, announced on Oct. 30 that it will gradually reduce the number of vessels to 18 a day by Feb. 1 to conserve water heading into the dry season. There was a total of 55 vessels with booked slots waiting as of midday on November 27. The real problem is with ships without reservations. The operator began offering an additional slot in the Panamax Locks for auction two days prior to transit. This slot is being limited to supers (boats above a certain size) and regular vessels that have been waiting for at least 10 days before the auction and do not have a booking slot. It was estimated that the initial bid will be $55,000 in addition to the normal tariff.

It is therefore, no wonder that the Port of LA/Long Beach is seeing steady increases in cargo volumes. October was the driest moth recorded in the history of the Canal. Until water levels revive in the lake segments of the Canal, the limitations will persist.

AV REGULATION

Law enforcement in San Francisco has taken a view that “no citation for a moving violation can be issued if the [autonomous vehicle] is being operated in a driverless mode.” California law requires that a moving violation ticket must be issued to a “driver”. Speed camera laws specify that a violation is cited against the vehicle and is not assigned to a driver for purposes of license points. Texas changed its transportation laws in 2017. According to the Texas Transportation Code, the owner of a driverless car is “considered the operator” and can be cited for breaking traffic laws “regardless of whether the person is physically present in the vehicle.”

General Motors is slowing the expansion of its Cruise automated driving division and significantly cutting spending at the unit after suspending operations in the wake of its difficulties in San Francisco. “We must rebuild trust with regulators at the local, state and federal levels, as well as with the first responders and the communities in which Cruise will operate.” Cruise has been testing self-driving taxi services in San Francisco; Phoenix; Houston; and Austin, Texas; and it has tested its autonomous vehicles in six other cities, including Nashville and Seattle. 

ELECTRIFICATION

The Washington State Building Code Council approved new codes mandating the use of heat pumps in most new construction. Those regulations are scheduled to take effect on March 15, 2024 absent legal challenges. The new regulations follow challenges to previously established regs. What the council enacted Tuesday offers builders incentives in the permitting process for choosing electric heat pumps – which provide both heating and cooling in the same unit – instead of natural gas furnaces. 

The biggest changes removed language mandating heat pumps for heating water and rooms in homes. It revised how credits that builders need to comply with the state building code are awarded under a scoring system in hopes of spurring greater use of low-carbon building solutions. Under the new rules, a builder will need five credits for a home of less than 1,500 square feet. That’s double what they need today. For a home between 1,500 and 5,000 square feet, they will need eight credits, up from five.

Connecticut Governor Ned Lamont has withdrawn his proposal to end the sale of internal combustion cars in the state by 2035. He cited a lack of legislative support. The hope is that the issue will be reconsidered in the 2024 legislative session.

The City of Detroit has created the first stretch of road in the United States with the capability to charge electric vehicles as they drive on the road. The project is a public private partnership between The Michigan Department of Transportation works with an Israeli electronics firm which developed the technology. The use of the copper and rubber charging infrastructure is buried under conventional asphalt paving. The state is covering one-third of the cost while the private partner covers the rest.

NYC PENSION CHALLENGE

Four NYC employees, backed by Americans for Fair Treatment, a right-to-work group that provides assistance to public sector workers who want to leave a union filed a suit in the New York state courts challenging the divestment from fossil fuel investments in the three pension funds covering City employees. The suit is based on the theory that asset managers breached their fiduciary duties by including climate-related risks when assessing the financial liability of energy companies.

The plaintiffs believe that their pensions are threatened by the use of ESG criteria in the investment process. The City points out that the employees are beneficiaries of a fixed benefit pension plan. The City’s obligation to pay is not based on investment performance. The pension funds — the New York City Employees’ Retirement System, the Teachers’ Retirement System of the City of New York and the New York City Board of Education Retirement System pointed out that after the 2021 decision to stop investing in fossil fuels, the energy stocks lost more than 35 percent of their value, while the broader stock market increased in value by more than 50 percent.  

The suits are part of a coordinated effort. Texas’ attorney general lost his case in September which challenged a US Department of Labor rule that ESG considerations were appropriate factors to be considered in the investment process.

Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas (the conservative go-to judge on a number of issues) however, rejected Texas’ challenge in September, writing that the Biden rollback was not “arbitrary and capricious” under the Administrative Procedure Act, nor did it run afoul of the federal law that sets standards for retirement plans. It did not however, rule on any issues related to fiduciary duty.

Kacsmaryk wrote that the Labor Department since at least 2015 had “posited that ESG factors ‘may have a direct relationship to the economic value of the plan’s investment.’” The case is being litigated by the son of Antonin Scalia who ran the Labor Department in the Trump administration. The politics of the case are obvious.

HOSPITALS

Moody’s announced that it had raised its rating on Catholic Health System’s (Buffalo, NY) rating to Caa1 from Caa2. The upgrade to Caa1 reflects a reduction in the risk of payment default because of recurring operating improvement and the likelihood of covenant compliance at fiscal year-end 2023 as well as approved state and federal grants that will stem further liquidity declines.

Like so many hospitals, the reductions in volumes during the pandemic along with the costs of labor and supplies had significantly strained the System’s balance sheets and liquidity. There were real concerns about default. Now, volumes are recovering which has benefitted the System’s cash position. While outpatient surgeries have rebounded, inpatient volumes still lag pre-pandemic levels. Liquidity will remain weak and reliant on one-time grants for near-term stability.

The outlook on the rating was raised from negative to stable as monthly declines in the operating loss excluding non-recurring grants continue, compliance with the fiscal yearend 2023 covenant, and maintenance of 30-40 days cash on hand.  Whatever funding is received from state and federal sources will be supportive of liquidity.

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

Happy Thanksgiving to you all. It may be the best holiday in that it is not based on political ideas or dare we say religion. It’s the one day when no matter who you are or what you like to eat, it is a day simply to be grateful for being. That is something that everyone – no matter their identity – can do in their own way. Safe travels to those who must. Enjoy the feast.

Our next issue will be the December 4 issue.

__________________________________________________________________

NYC – IT BEGINS

We have long been of the view that the outlook for New York City’s budget is at best mixed and far from stable. We are aware that many disagree. That debate continues but the November Financial Plan Update released by Mayor Adams will add heat to the debate. The Update reflects operations of the City through its first fiscal 2024 quarter.

The FY24 budget has grown $3.4 billion since budget adoption in June, in recognition of $2.6 billion in grant funds and $776 million of better-than-expected revenue growth, primarily driven by income and sales tax collections. Outyear gaps are $7.1 billion in FY25, $6.5 billion in FY26, and $6.4 billion in FY27.  To meet costs associated with care for asylum seekers, the city added $6.2 billion over FY24 and FY25 in this plan, bringing total funds budgeted for migrant needs over the two fiscal years to $10.8 billion. The administration added the following on top of previously budgeted funding: city funds of $1.4 billion in FY24 and $4.8 billion in FY25, state grants of $447 million in FY24 and $272 million in FY25, and federal aid of $10 million in FY24.

As always it is a political document. The mayor continues to blame the federal government for the problem and insufficient aid. Away from the migrant issue, the Mayor cites sunsetting COVID-19 stimulus funding, slowing FY24 tax revenue growth, expenses from labor contracts this administration inherited after being unresolved for years, and a lack of significant state or federal government action on the asylum seeker crisis. The Mayor’s relation ship with Albany is poor and the notion that contracts his Administration settled were somehow “inherited” lay the politics on a bit thickly.

The Mayor correctly notes that the historically large $7.1 billion FY25 budget gap must by law, be closed in mid-January. The deliberations between the Mayor and the increasingly activist City Council will likely be contentious which will complicate the effort to balance the budget.

CLEAN ENERGY SETBACKS

The clean energy sector is beginning to hit some bumps in the road to development and production. The impact of higher interest rates and inflation has reduced the economic attractiveness of many projects, especially wind. The recent announcement by Ørsted that it is not going to build wind turbines off the New Jersey coast is just one example. Now, Siemens Gamesa confirmed the cancellation of the company’s proposed $200 million factory at the Port of Virginia in Portsmouth. It would have created more than 300 jobs.

In Georgia, SK Battery facilities in Jackson County supply batteries for Ford and Volkswagen EVs. The company announced that it would layoff some workers at the facility. Lower than projected demand for electric vehicles was cited. The news comes in the wake of announcements of reductions or pauses in investment at GM, Ford, and Tesla electric car facilities in the face of slower than hoped demand.

This all comes after a series of setbacks to wind development projects. In addition to the NJ cancellation, developers of wind generation off the New England coast have sought to renegotiate output sales agreements. Inflation has driven up the cost to build wind arrays just as several projects were preparing to execute contracts with suppliers. Manufacturing capacity in the U.S. for offshore wind towers, blades and rotors, or for building and operating the ships needed to install them at sea is inadequate to meet current demand.

Wind is still making progress amidst the upheaval. Vineyard Wind, a joint project of Avangrid and Copenhagen Infrastructure Partners off the coast of Massachusetts is under construction with full operations beginning by next year. South Fork Wind, an Ørsted project off the coast of Rhode Island that will power New York, may go live sooner. Dominion Energy said last week that its 176-turbine Coastal Virginia Offshore Wind project is on schedule.

Residential solar power is under attack again, this time in West Virginia. In a rate case filed with the West Virginia Public Service Commission, Monongahela Power and Potomac Edison are asking the commission to restructure the current net metering policy for future solar customers and change how much users are credited for selling back power generated through solar. Current regulations allow households and businesses to sell back their surplus solar energy to the electric grid at a fair market value — the same price the power companies charge other residential customers for that electricity.

Mon Power and Potomac Edison want to change the policy so that solar customers are credited at a “wholesale rate” of $0.0663 per kilowatt hour — roughly half of the rate charged by the companies — rather than the market rate. Solar customers already pay their utility company a base level fee which is supposed to cover the connection and other related costs. 

NEW MEXICO ENERGY BOOST

The Department of the Interior’s Office of Natural Resources Revenue (ONRR) announced the disbursement of $18.24 billion in revenues generated in fiscal year 2023 from energy production on federal and Tribal lands and federal offshore areas. The funds may be applied to irrigation and hydropower projects, historic preservation initiatives, conservation of public lands and waters, and investments in maintenance for critical facilities and infrastructure on public lands. 

ONRR disbursed $4.72 billion in fiscal year 2023 funds to 33 states. This revenue was collected from oil, gas, renewable energy, and mineral production on federal lands within the states’ borders and offshore oil and gas tracts in federal waters adjacent to four Gulf of Mexico states’ shores. The big winner in this round was New Mexico. It received $2.93 billion. That is about equal to the size of the state’s budget reserves coming into FY 2023. Wyoming was the only other state to receive over $200 million ($832.86 million).

PREEMPTION IN MICHIGAN

The issue of preemption by state governments to overcome local regulation of energy development has usually been used by those opposed to the expansion of wind and solar. Whether it is setback requirements or zoning obstacles, the move toward preemption has generally been to stymie the effort to decarbonize. As with many other things however, the door to preemption swings both ways. In Michigan, it is clean energy proponents who seek to override local control.

The legislature approved bills to shift permitting authority over wind, solar developments to the state. Thetwo-bill package would let state regulators override local decisions about where to allow large-scale wind and solar arrays. The state has cited local regulation as an impediment to adoption and pointed to difficulties the state’s IOUs have had in siting renewable energy. The bills make the Michigan Public Service Commission the ultimate permitting authority. The bills also set criteria governing how much noise and light the projects can emit, how far they must be from neighboring buildings, and other particulars.

The bills provide for local governments to keep permitting authority if they pass their own ordinance complying with the state’s requirements. But developers could bypass the local permitting process if a community lacks an approved ordinance, takes too long to review a proposal, or rejects a proposal that complies with state standards.

LOOKING TO THE STATES TO BE SAVED

PacifiCorp has asked the Oregon Public Utility Commission to limit future lawsuit awards against the company to “actual” damages for property and loss of life. The company also wants to be allowed to establish a condition of accepting electrical service with the utility. The company seeks to require customers to waive their right to other types of damages such as non-economic and punitive awards by juries.

The utility has filed the same request in five of the six states where it provides electricity service, including Washington, California, Idaho and Wyoming. PacifiCorp was successfully sued after a September 2020 fire resulting in $90 million in damages against it. The company cites the fact that all but some $4 million of that mount was for economic damages. That has helped drive up the company’s liability insurance costs.

The company faces another lawsuit from victims of the Archie Creek fire in southern Oregon that is slated to go to trial in 2024 and 2025. There will also be three hearings in 2024 to determine damages for 20 additional plaintiffs and a group of timber companies. PacifiCorp said in its most recent financial filings that “certain government entities” informed the company that they are contemplating legal actions. Total damages sought in lawsuits filed in Oregon related to the 2020 fires is about $8 billion.

Will it work? The Oregon Public Utility Commission said it had never previously addressed a waiver of liability in exchange for service as PacifiCorp has proposed. In addition, state regulators are planning to recommend the commission suspend a current pending rate filing for an investigation. The “remedies clause” of the Oregon Constitution, which guarantees that the remedies that exist in law remain available to every person would seem to stand in the way of PacifiCorp’s goal.

TRANSIT TAX IN KC

Kansas City, MO has levied a separate, half-cent sales tax to fund bus service since 1971 that is not subject to voter approval. An additional 3/8-cent tax was approved in 2004 through a public vote. The tax was supposed to phase out after five years and be replaced by a bi-state transit tax, but that never happened. Instead, Kansas City voters overwhelmingly renewed the tax in the fall of 2008 for 15 years. A vote this month was to extend the term of the tax by ten years.

Some 73% of Kansas City voters approved extending the 3/8-cent sales tax that supports bus service within Kansas City’s boundaries. The sales tax provides about 30% of the Kansas City Area Transportation Authority’s budget. If the voters had rejected the extension, KCATA would have had to cut its budget by 25% by eliminating eight bus routes, reducing service on 19 others and cutting service on Sunday and Saturday night.

The vote came against the backdrop of local transit funding policies. KC is a jurisdiction conducting its own experiment with free fare programs. If the vote had failed, the KCATA board of commissioners had instructed KCATA management to find new funding sources for the zero-fare program and complete a feasibility study by December on “the possible re-institution” of bus fares.

DESERT WATER PROJECT

The agency which manages the aquifer providing water to the City of Ridgecrest, CA has been facing declines in available supplies as the result of California’s long term drought. The city competes for water with area farm and mineral interests as well as the US Navy’s China Lake Weapons base. The pressure on the aquifer has led the Authority to propose new sources of water.

The latest and largest is a $200 million, 50-mile-long pipeline system that would move water from the California Aqueduct in California City—over arid desert mountains—to a storage tank in the urban center of Ridgecrest.

The Authority believes that it can look to the federal government and it would pay $150 million of the cost. The remaining $50 million of cost would be passed on to ratepayers. The plan comes as substantial water users like pistachio growers and mining operations are subject to an effective surcharge with a special “groundwater replenishment fee” of up to $6 million a year.

It’s the latest example of the ongoing water shortages in the West. State law requires that local agencies bring groundwater aquifers into balanced levels of pumping and recharge. The Indian Wells situation can only achieve that through reduced groundwater withdrawals. The amount of water currently flowing into the valley’s underground basin is 7,650 acre-feet a year. Annual usage is about 28,000 acre-feet. 

The Authority and the local water distributor the Indian Wells Valley Water District are caught in the middle of disputes between the Authority and large ag and mining interests. The District is making full payments of all charges and assessments to the Authority but is doing so “under protest”. The large water user and employer – China Lake – is ironically exempt from the groundwater fee as a federal entity.

In reality, the plan faces several significant hurdles. Its route would run from a starting point at the Antelope Valley-East Kern Water Agency feeder pipeline in California City through historical habitat for wildlife including mountain lions, state and federally threatened desert tortoises and state threatened Mojave ground squirrels.

AUSTIN, TECH, AND KEEPING IT WEIRD

At the end of 2022, some 6.6 million square feet of office space was expected to be occupied over the next few years primarily by tech companies. The narrative has been that the more favorable income tax situation in Texas and Austin’s history as a tech center would drive mass migration from California to Texas. The reality is that the plans of the tech companies have significantly changed.

Upon completion, an under construction office tower was poised to become Austin’s tallest building. Its occupancy would be anchored by Meta which had committed to leasing nineteen floors in the building. In another building, Google planned to occupy 35 floors. They are paying for the space but not occupying it. Facebook, Tik Tok, and Indeed are all stepping back from office space commitments.

It does not look like a temporary trend. The airlines have noticed. Virgin Atlantic says it will discontinue flights from Austin to London early next year, and American Airlines is cutting 21 Austin routes, mainly to domestic destinations such as Cincinnati and Nashville. Virgin’s rationale: “demand in the Tech sector is not set to improve in the near term, with corporate demand at 70 percent of 2019 levels.” Austin’s commercial vacancy rate hit 30% in the third quarter, near its peak during the Great Recession.

The most interesting aspect of this is that many in Austin won’t miss those companies. The city’s real estate market has been on hyperdrive and locals hope that it will relieve pressure on home prices. They are already seeing rent declines. The city can take a bit more measured approach to infrastructure if demand in the near term remains constrained. All in all, the effort to “keep Austin weird” would seem under a bit less pressure.

BATTER UP IN VEGAS

Major League Baseball owners approved relocation of the Oakland A’s to Las Vegas in a unanimous vote. Ownership intends to move the team into a new stadium in the city ahead of the 2028 season. The team’s current stadium lease at the Oakland Coliseum expires after next season. Where the A’s will play for the 2025-27 seasons is not yet clear. Nevada’s legislature and governor have approved $380 million in funding, but a political action committee backed by teachers in the state is attempting to get the funding on a public ballot next November. 

In Las Vegas, the team would likely be a perpetual recipient of revenue-sharing dollars from other team owners. It would be MLB’s smallest television market. However, the league projects that local revenues will be higher in Las Vegas than they’ve been in Oakland in recent years. The stadium will be located on the Strip on the site of Caesars Palace.

UTAH UTILITY TAKEOVER

A bill has been submitted to the Utah legislature which would provide for what would effectively be a legislative takeover of the management of the Intermountain Power Project. The bill would give lawmakers four of the seven seats on a new governing board for the Intermountain Power Authority, replacing a current board made up of representatives of the 23 Utah cities that can draw power from the plant. Two other seats would come from the cities, and the last would be appointed by the governor.

The legislature commissioned an audit which found that IPA was managing the plant with too much deference to its largest customer, the Los Angeles Department of Water and Power. The sponsor wants the Authority to employ carbon capture and enhanced pollution control equipment to facilitate the use of coal. IPA is undertaking plans to convert the plant to natural gas and produce hydrogen.

IPA is responding to the fact that the customers for 95% of its power are under mandates to stop supporting coal plants.  Efforts by Utah coal producers to export coal have hit hurdles as West Coast jurisdictions will not approve coal handling equipment at ports. Efforts to export oil by train are running into even more regulatory hurdles. The reality is that California customers have built up more renewable sources and need less from the plant. This means that the project has employed fewer people and paid fewer taxes in the state than was originally anticipated.

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

WE WORK, REMOTE WORK, DOWNTOWN WORK

A combination of events and releases of data this week has shone a brighter spotlight on the current state of office real estate. The glaring symbol of the change in where people work is WeWork. The bankruptcy, unlike many failures, has several fathers. Nevertheless, the decline of office space utilization and the rise of remote work wreaked too much damage on the company’s business plan. It puts the debate over remote work back on the front burner.

The data part comes from a recent release from the University of Toronto. Researchers there have been using data from cell phones to track the changes in foot traffic in North America’s largest cities. The latest data showed the level of traffic in the March to May time period in 2019 versus that in 2023. It covers 66 cities in the U.S. and Canada. It does not paint a particularly favorable picture even if it does support what the eye sees.

Only Las Vegas has returned to the same level of foot traffic. It is currently at 103% of the 2019 level. Given the increasing number of large scale events (to say nothing of an upcoming Super Bowl, this weekend’s inaugural F1 race) both newly occurring and recurring, this is not a surprise. Following Las Vegas was a group of eight Sun Belt cities of which Miami and Phoenix fared the best with recovery rates in the 90%+ range.

It is the lower rated cities that are concerning. The bottom 10 cities in terms of recovery rates include Minneapolis, Portland OR, Chicago and Houston which all had rates of 64% or less. The next 10 with recovery rates between 60 and 70% include NY, D.C., Baltimore, S.F., Denver and Philadelphia.

ELECTION DAY

Cincinnati voters approved a ballot initiative which allows the Cincinnati Southern Railway board to sell the railroad to Norfolk Southern for $1.6 billion. The railroad was the last municipally-owned railway in the U.S. Sale proceeds will be used to create a trust which is designed to generate interest earnings which will be used to improve city infrastructure. The Cincinnati Southern Railway has long been leased to Norfolk Southern, but in April of 2022 during negotiations to renew the lease, Norfolk Southern offered to buy the railroad. The current lease brings in roughly $25 million a year.

In Maine, voters decisively rejected an initiative to create a public power utility to take over the operations of two investor owned utilities. Despite widespread dissatisfaction with the state’s largest electric provider, the Governor and several labor unions opposed the measure. In Ohio, despite being overshadowed by the presence of an abortion initiative, voters approved the legalization of recreational marijuana. The vote marks the first time that a majority of Americans will live in states with legal cannabis.

Coloradans rejected an initiative which would have weakened the impact of the TABOR amendment which requires funds above certain levels to be returned to taxpayers. Texans voted to increase the homestead exemption for local property taxes from $40,000 to $100,000. They also voted to create a fund for the development of broadband in the state. They rejected the concept of a wealth tax. The most impactful may be the approval of the creation of an energy fund designed to provide low interest financing for new generation. The down side of the vote is that the proposition was explicitly designed to support new natural gas generation.

TRANSPORTATION OPINIONS

The Mineta Institute founded by the former US Transportation Secretary has recently announced the results of its 14^th annual survey of attitudes towards transit issues. The findings highlight the disconnect between what people think and what lawmakers seem to believe. Findings related to gas taxes include that only 2% of respondents knew that the federal gas tax rate had not been raised in more than 20 years, and 70% of respondents supported increasing the federal gas tax by 10 cents per gallon if the revenue would be dedicated to maintenance or safety.

With respect to mileage fees, around half of respondents supported some form of mileage fee, whether that was assessed on all travel or just on commercial travel. The majority of respondents supported variable rate structure options that included 62% who supported charging low-income drivers a reduced mileage fee rate and 52% who thought electric vehicles should pay a lower rate than gas and diesel vehicles.

From here, the conclusion to draw is that mileage fees can’t come fast enough. Set them by class of vehicle and set it at an amount that most closely parallels the revenue stream from gas taxes. This way registration fees do not have to be set differently depending on the source of power for the vehicle. Currently, fee differentials provide fuel to complaints from EV owners about the higher fees they pay even though they arguably are a net cost to transportation funding relative to gas powered cars.

NUCLEAR HAS A MIXED WEEK

The hopes of those seeking to develop small scale nuclear generation technology took a big hit this week. NuScale Power announced that it was cancelling its development of a six unit modular generation facility in Idaho. The project was being undertaken with the participation of a public power agency – the Utah Associated Municipal Power Systems, which supplies electricity to public power providers in seven Western states.

UAMPS management was enthusiastic about the project but not all of its member utilities were. That put the project in the position of needing additional capacity purchases in order to justify moving ahead with the project. The cost of building the reactors had increased significantly to $9.3 billion from $5.3 billion because of rising interest rates and inflation. This left the project with insufficient commitments to allow financing to move forward.

In Illinois, Governor Pritzker said he will sign a bill into law to lift a 36-year-old moratorium on nuclear construction. He had vetoed a previous bill enacted earlier in the legislative session. This bill limits the nameplate capacity of such reactors to 300 megawatts. The law requires the state to develop regulatory proposals for regulators at the Illinois Emergency Management Agency to approve by January 2026.  

PARKING REQUIREMENTS

A long standing practice for local planning and zoning boards has been to require off-street parking associated with a new development. As climate change grows as an issue, many have pushed for changes in local development regulations to reduce the need for parking at new developments. There is also the idea that remote work will reduce auto use and the need for parking at current scale.

This week, the Austin TX City Council voted to eliminate minimum parking requirements for virtually every kind of property citywide including single-family homes, apartment buildings, offices and shopping malls. Portland, OR, Minneapolis and San Jose are prior adopters of the policy. Austin now becomes the largest population city to take the step. The city will still require properties to comply with federal law and build accessible parking spaces for people living with disabilities.

Now, does Austin take the next step and address overall zoning regulation reform? Like many other places, housing is an issue in the city and there is a push to use zoning to address the issue. There is a push to allow up to three housing units in most places where single-family homes are allowed and reducing the required amount of land those homes have to sit upon.

OLD SCHOOL AIRPORT FINANCE

Normally it would not be an especially big deal to see voters in a municipality approve debt for revenue based assets. So, it was not a particularly noticeable headline to see that cited the approval of bonds for airport projects by voters in Des Moines, IA. What was noticeable was that the bond authorization will not be backed by a direct pledge of airport revenues to secure the bonds.

The voters approved a $350 million general obligation bond issue for the project. Tax backed full faith and credit bonds. The project will modernize and expand the city’s airport. Here’s where it gets interesting. Construction of the terminal is planned to begin in April 2024. A study is projected to start in January, to assure the airport is prepared to pay back the debt. Estimates are that it will take two to three months to complete.

Ultimately, the city will execute a loan agreement with the Des Moines Airport Authority that expects to capture airport revenues. The rationale for doing such an old school financing is based on cost and ownership. The use of general obligation debt is to secure a lower borrowing cost than would be achieved on a stand alone revenue bond. The city also explored but ruled out a P3 attributing that decision to a desire to maintain ownership of other airport assets.

NYC ECONOMY AND THE PANDEMIC

The NYC Independent Budget Office released some interesting data on incomes for the year 2021. The study used tax return data. About 3.9 million full-year New York City residents filed tax returns in 2021, a return to normal from the unusually high 4.1 million number of filers in 2020. Total AGI in 2021 was $457 billion, up from $391 billion in 2020 (or $410 billion, adjusted for inflation), despite the lower total number of filers in 2021.

One data point leaps out as a source of concern. The top 1 percent of filers represented 44 percent of New York City’s AGI in 2021, up from 39 percent in 2020 and 35 percent in 2019. At the other end of the spectrum, total unemployment compensation diminished to $15.4 billion in 2021, from $22.9 billion in 2020, it remained far above 2018 and 2019 levels of $514 million and $545 million, respectively. The concern is that these changes just further cement the issues of inequality which continue to grow in the city.

NYC WARNING

The NYS Comptroller raised concerns about New York City’s finances as it deals with the recovery from the pandemic at the same time it is overwhelmed by asylum seekers. He warned this week that the fiscal year 2024-2025 budget gap for the city could reach as high as $13.8 billion unless Mayor Eric Adams quickly implements cuts to city programs and curbs new spending. The most alarming number was that some 42% of the estimated gap is attributable to the costs associated with the asylum migrants. The city estimates these costs may grow next year to equal what it spends to run the sanitation and parks departments combined.

He also highlighted an issue we have been worried about for some time. They are not all attributable to the Adams administration. The DeBlasio administration started the city down the road of funding recurring expenses with non-recurring revenues. “City-funded spending has increased more than 50% over the past decade while recurring revenues have not kept pace,” according to the Comptroller.

The other major worry concerns school funding. The Department of Education accounts for 36% of citywide expenditures and faces several issues — including low enrollment and the state-enforced class size mandate. Much state aid is tied to attendance. Public school enrollment fell nearly 9.2% between 2019 and this school year, with some projections expecting it to decline further.

The Mayor will be releasing the November update to the City’s long term fiscal plan.

PUERTO RICO SOLAR

We have long advocated for the development of solar power infrastructure in Puerto Rico in the wake of the 2017 hurricanes. Now, the U.S. Department of Energy (DOE) has announced which solar companies and nonprofits had been selected to install rooftop solar and battery storage systems for vulnerable households in Puerto Rico.  

Eligible beneficiaries of the systems to be installed will include very low-income, single-family households that are either: located in areas that have a high percentage of very low-income households and experience frequent and prolonged power outages; or include a resident with an energy-dependent disability, such as an electric wheelchair user or individual who uses at-home dialysis machines.

This marks the first round of selections from the 2023 PR-ERF Funding Opportunity Announcement, which was announced in Puerto Rico in July 2023.  The Fiscal Year 2023 Consolidated Appropriations Act included $1 billion to establish the Fund. Three qualified solar companies with an existing workforce in Puerto Rico as well as five qualified nonprofits and cooperatives across the region were selected to negotiate the implementation of the program.

CARBON CAPTURE

The evidentiary hearing for Summit Carbon Solutions’ pipeline permit in Iowa concluded this week. Now the process will involve development of a transcript, a period of time for written comments about the transcript, and a period of time for rebuttal comments. The company had sought an IUB decision by the end of the year. Summit had initially planned to have its pipeline system in operation sometime in 2024.

While it waits for the Iowa process to unfold, North Dakota is in the process of reconsidering the company’s new modified application, but there is no deadline for that process to complete. Summit has indicated it will reapply for a permit to build its pipeline through South Dakota, but it has declined to say when that will happen. Operation has already been pushed back into 2026.

In the meantime, the first commercial plant in the United States to use direct air capture began operations in Tracy, CA. The process takes the carbon dioxide it pulls from the air and have the gas sealed permanently in concrete, where it can’t heat the planet. To earn revenue, the company is selling carbon removal credits to companies paying a premium to offset their own emissions. The project is much smaller than two other projects planned for Texas and Louisiana. Previous attempts at scale have not been successful.

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

In Europe and Canada, the 11^th of November is Remembrance Day. A poppy is a signal of remembrance and a symbol of the individual sacrifices made by those who fought for their countries. Recently, like so many other things, the poppy has been under attack as a symbol of the causes people fought for rather than that individual sacrifice. By remembering their service and their sacrifice, we recognize the tradition of freedom these men and women fought to preserve. They believed that their actions in the present would make a significant difference for the future, but it is up to us to ensure that their dream of peace is realized. On Remembrance Day, we acknowledge the courage and sacrifice of those who served their country and acknowledge our responsibility to work for the peace they fought hard to achieve.

_____________________________________________________________________________________

CLIMATE CHANGE AND DISPATCHABLE POWER

One of the issues that complicates efforts to plan for and deal with climate change is the status of gas-fired generation. Is it – as advocates might claim – that natural gas cannot be part of a clean energy transition plan – or is it a key component of system reliability and availability while the transition to fully green energy unfolds? Is natural gas a useful less polluting component of a carbon-free future or is both its production and combustion dangerous contributors to climate change?

Those issues have complicated recent decisions by public utilities to incorporate natural gas into their energy generation portfolios. The decision earlier this year by the Tennessee Valley Authority (TVA) to replace coal-fired generation with natural gas-fired turbines generated much disappointment among its customer base.

Now a significant joint action agency utility is embarking on its own energy transition journey. Platte River Power Authority is jointly owned by Fort Collins, Loveland, Longmont and Estes Park. It has been operating under a plan to reach its goal of being carbon-free by 2030. PRPA has claimed that it is 88% of the way there in terms of contracted generation assets. Late last week, PRPA approved its plan to cover the last 12%. It rests on three legs – batteries, virtual grids, and a new, $240 million aeroderivative gas turbine facility. 

PRPA set a no-carbon goal in 2018. Today, carbon-free sources make up 33% of PRPA’s portfolio. In 2024, it’s expected to be 35.8%. Currently, coal supplies about 47% of PRPA’s energy portfolio. It maintains ownership in three coal-fired generation units which are scheduled to close between 2025 and 2029.  

In this case, the plan is to replace some of the coal power with power generated through aeroderivative gas turbines.  In the latest effort to convert aircraft turbine technology to use for electric generation, aeroderivative gas turbines are to be used. The technology has been used on existing aircraft gas turbine engines. They are lighter and smaller than industrial gas turbines. Aeroderivative gas turbines are utilized in electrical power generation due to their ability to be shut down and control load changes faster than industrial machines. The dispatchability of the power is what makes the technology attractive.

One way PRPA is going to achieve cutting carbon emissions is through the closure of its coal-fired Rawhide 1 unit in Larimer County by the end of 2029. It’s also part-owner of two coal units in Craig that will close in 2025 and 2028. PRPA also has five older gas turbines at the Rawhide Energy Station. They were purchased in the early 2000s and have an expected life through 2040.

It receives hydropower through contracts with the Loveland Area Project and Colorado River Storage Project, wind power purchase agreements through the Roundhouse Wind Energy Center and Medicine Bow Wind Project and solar power purchase agreements with Rawhide Flats and Rawhide Power solar projects.

NATIVE AMERICAN SPORTS GAMING

In 2021, the State of Florida entered into a compact with the Seminole Tribe of Florida which provided that anyone physically present in Florida could place mobile bets at its casinos so long as the computer servers handling the transactions were on tribal land. The Seminoles sought the arrangement in the wake of the US Supreme Court’s 2018 decision overturning federal restrictions on sports betting.

That decision led to Florida voters approving a referendum that said expansions of legal gambling would require a further referendum. It did provide an exception for “the conduct of casino gambling on tribal lands” when approved under a federal law. The Seminole Tribe then undertook sports gaming operations via mobile phone. Two private casino operators sued and a federal district court judge found in their favor. That decision was reviewed and overturned in the federal appeals court.

The plaintiffs made an emergency application to review their appeal which said the 2021 compact violated federal laws and the equal protection clause of the Constitution. They cited racial and ethnic issues in that application. The two sides are summed up nicely in two comments released as part of the case. Justice Kavanaugh noted that “To the extent that a separate Florida statute (as distinct from the compact) authorizes the Seminole Tribe — and only the Seminole Tribe — to conduct certain off-reservation gaming operations in Florida, the state law raises serious equal protection issues,” he wrote. “But the state law’s constitutionality is not squarely presented in this application.”

The federal government position was that “the compact in this case is an agreement between two sovereigns — the State of Florida and the Seminole Tribe — concerning the tribe’s own conduct of commercial gaming operations within the state. “That agreement between sovereigns does not implicate race-based equal protection concerns. A sovereign government has no race.” It may not matter in the end as the Florida Supreme Court has yet to rule.

As the federal government notes, “If the Florida Supreme Court concludes that the Florida Legislature’s authorization of the placement of wagers outside Indian lands is not permissible under the Florida Constitution, that would afford applicants the relief they seek. That pending case provides the appropriate forum to resolve applicants’ claims based on the meaning of state law.”

WIND

Orsted is a Danish company that is a leading offshore wind farm developer. This week, it said that it would write off as much as $5.6 billion as it gives up on plans to build two wind farms off the coast of New Jersey. The two projects, known as Ocean Wind 1 and 2, were destined to provide green energy to New Jersey.

In the United States early contracts lacked protection from inflation and developers incurred high costs because of delays in approvals during the Trump administration. This week BP said it would write down $540 million on three planned wind projects off New York, after the state authorities declined to renegotiate their terms. 

New York State declined efforts to renegotiate existing offshore wind power contracts, but a subsequent auction awarded deals to supply power at significantly higher prices and with various provisions to protect the developers from inflation. While it’s clear that offshore wind will have a major part to play in the move to clean energy, it is also clear that wind will not be as cheap as it’s advocates hoped.

NOT WHERE YOU WANT TO BE

Earlier in October, the U.S. EPA released an annual survey which shows the level of green house gases in the atmosphere as well as identifying the largest sources of those emissions. The data represents emissions from 7,586 industrial facilities across nearly all sectors of the economy and represents about half of all U.S. emissions.

The power production sector has been right in the lead in terms of public pressure to turn from coal and oil to other fuel sources. Within the power and oil production sectors, the top ten list of leading emitters includes nine utilities and one refinery. Only one generation plant owned by municipal market issuers made the list.

The Laramie River Station has three coal-based units: Unit 1 began operating in 1980; Unit 2 began operating in 1981; Unit 3 began operating in 1982. Laramie River is unique because it delivers electricity to two separate electrical grids. Unit 1 is connected to the Eastern Interconnection, while Unit 2 and Unit 3 are connected to the Western Interconnection. 

The electricity produced at Laramie River is delivered to Missouri Basin Power Project (MBPP) participants: Basin Electric, Tri-State Generation and Transmission Association, The Lincoln NE Electric System, and the Western Minnesota Municipal Power Agency/Missouri River Energy Services. These are the only municipal utility credits to find themselves in this dubious top ten.

TNC SETTLEMENT IN NEW YORK

Uber and Lyft have agreed to pay their New York drivers $328 million to settle a wage-theft complaint charging that the companies collected certain taxes and fees from drivers rather than passengers. The action was brought by the New York State Attorney General. Uber will pay $290 million and Lyft will provide $38 million into two funds that will pay out claims from roughly 100,000 current and former drivers in New York State who are eligible to file. 

From 2014 to 2017, Uber was accused of deducting sales taxes and fees from drivers’ payments when they should have been paid by passengers. From 2015 to 2017, Lyft similarly deducted an 11.4 percent “administrative charge” from drivers’ payments in New York equal to the amount of sales tax and fees that should have been paid by riders, the attorney general’s office said. Uber and Lyft also failed to provide drivers with paid sick leave.

Drivers in New York State and New York City are classified as independent contractors. This agreement between the state and the ride-share companies did not make any changes in the drivers’ classification as workers under state. The settlement comes as the MTA moves forward in its quest to collect congestion fees. One of the issues under consideration is the level and frequency of charges for TNC vehicles and who actually pays them – driver or passenger.

CONGESTION LITIGATION

The mayor of Fort Lee, N.J., announced the second lawsuit from New Jersey lawsuit challenging congestion pricing as an environmental threat. The lawsuit is a potential class-action proceeding on behalf of residents who have asthma as plaintiffs. It asserts that congestion pricing would increase pollutants like nitrogen oxides and carbon monoxide in Fort Lee.

The lawsuit is a reaction to complaints from the chair of the MTA that the existing lawsuit from the State of New Jersy threatened the ability of the MTA to finance its capital needs. The suit seeks a “full and proper environmental study” and a monitoring program for people with respiratory problems resulting from additional traffic. It references agreed to aid to sections of the Bronx expected to experience extra truck traffic to avoid the fees.

The Mayor is upfront about the ultimate goal of the suit. It is to stop the fees. No surprise there.

TRANSMISSION SPARK

The Transmission Facilitation Program is an initiative at the U.S. Department of Energy.  The program is the administrative framework for a $2.5 billion revolving fund to help overcome the financial hurdles associated with building new, large-scale transmission lines, upgrading existing transmission lines, and connecting microgrids in Hawaii, Alaska, and U.S. territories.

Under the program, DOE is authorized to borrow up to $2.5 billion to purchase a percentage of the total proposed capacity of the eligible transmission line. By offering capacity contracts, DOE aims to increase the confidence of additional investors and encourage additional customers to purchase transmission line capacity. The goal is to reduce the overall risk for project developers. 

DOE announced that it is entering into capacity contract negotiations with three interregional transmission line projects: the Cross-Tie 500kV Transmission Line a proposed 214-mile,1500 MW transmission line connecting existing transmission systems in Utah and Nevada to increase transmission capacity, improve grid reliability and resilience, relieve congestion on other key transmission lines; the Southline Transmission Project (Arizona, New Mexico) a proposed 175-mile, 748 MW transmission line from Hidalgo County, New Mexico to Pima County, Arizona.

The Twin States Clean Energy Link (New Hampshire, Vermont) a proposed 1,200 MW high-voltage direct current (HVDC) bidirectional line that will expand the capacity of the New England electric grid and improve its resiliency, reliability, and efficiency by providing access to clean firm energy supplies in Quebec, Canada. One aspect unique to this project is the bidirectional design of the line. That will also allow the New England grid to export power to Canada when New England is producing more energy than it needs to meet its own demand, which is expected to occur as the offshore wind industry in New England expands.  

NATIVE AMERICAN WATER

Earlier this year we reported on a SCOTUS decision which did not affirm the rights of the Navajo Nation to require federal funding for infrastructure to support withdrawals of water from the Colorado River allocated to the tribe under treaty. While direct access to the Colorado remains out of reach, other programs are developing other sources of water for the Tribe and infrastructure to access it.

The Navajo-Gallup Water Supply Project is designed to provide a long-term sustainable water supply to meet the future (40-year) population needs of approximately 250,000 people in these communities through the annual delivery of 37,764 acre-feet of water from the San Juan Basin. These areas currently rely on a rapidly depleting groundwater supply that is of poor quality and inadequate to meet the current and future demands of more than 43 Navajo chapters, the city of Gallup, and the Teepee Junction area of the Jicarilla Apache Nation.

Ground water levels for the city of Gallup have dropped approximately 200 feet over the past 10 years and over 40 percent of Navajo Nation households rely on hauling water to meet their daily needs. This week an appropriation under last year’s infrastructure legislation was announced to support the project. The project will receive $164 million this year from the Infrastructure Law and the Reclamation Water Settlements Fund. Another $2 million will be directed to Navajo-Gallup Water supply operations, maintenance and replacement efforts.

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

PIPELINE PAUSE

“The development of Navigator CO2’s pipeline project has been challenging. Given the unpredictable nature of the regulatory and government processes involved, particularly in South Dakota and Iowa, the Company has decided to cancel its pipeline project.” And so, Navigator CO2 announced it is halting its plans for a 1,300-mile pipeline to take carbon dioxide from ethanol plants across five states to be sequestered in Illinois.

On Oct. 10, Navigator withdrew its application for a certificate of authority before the Illinois Commerce Commission, needed to allow the company to use eminent domain for the pipeline route within Illinois. Navigator had only 15% of the agreements with residents it would need to pursue the route without eminent domain. In late September, the company had officially paused its permit-seeking process in Iowa, following a permit denial in South Dakota.

Navigator first proposed to sequester carbon dioxide in Christian County, Illinois, even though Christian County passed a moratorium on such projects. Navigator’s latest application also had a spur leading to a sequestration site in Montgomery County, Illinois. 

According to DOE, Biden’s goal of a net-zero U.S. economy by 2050 will require capturing and storing 400 million to 1.8 billion million metric tons of CO2 annually through CCS and carbon removal technology such as direct air capture. DOE estimates 30,000 to 96,000 miles of pipeline could be needed to link capture sites with geologic storage. There’s only about 5,000 miles of CO2 pipeline in operation today in the United States.

One of the other major pipeline companies – Summit Carbon Solutions -has formally extended the in-service date for its unapproved carbon pipeline network from 2024 to 2026. It blamed regulatory delay. In North Dakota, the Public Service Commission has agreed to reconsider Summit’s permit request with an adjusted route. A hearing to consider whether to overrule two county ordinances that restrict pipeline placements is expected to be scheduled for no earlier than December. In South Dakota, Summit plans to adjust its route and reapply for a permit. In Iowa, Summit’s final evidentiary hearing is set to resume in November.

HONOLULU MASS TRANSIT

The Honolulu Authority for Rapid Transportation (HART) announced that the Federal Transit Administration (FTA) will begin the process to restart funding for Honolulu’s expanding rail system. The goal is to finalize a new grant agreement with the city by the end of this year. That would lead to an immediate grant of $125 million. More importantly, it would enable a process to release funds which had been earmarked for the Honolulu project.

The FTA has withheld $744 million in federal funds since 2014 as the city struggled to resolve cost overruns and a long series of construction delays. The original funding plan was established in a 2012 agreement. That plan called for the federal government to contribute $1.55 billion to help fund construction of a 20-mile elevated line originally expected to cost $5.1 billion. It was supposed to be open for business by 2020.

The city ultimately decided shorten the line by one mile and eliminate the construction of a large parking garage. It cancelled plans for two stations. Those changes to the rail project triggered a new environmental review process and required a new grant agreement with the federal government. Completion of the shortened rail line is now scheduled for spring of 2031. HART estimates the system will now cost $9.93 billion including finance charges.

It is expected that the FTA will release $125 million in federal funding once the new full funding grant agreement is finalized, and will provide an additional $250 million after HART awards a contract for construction of the rail line and stations in the city center.  The first 11 miles of the rail system opened on June 30, but ridership on the half-built system has been limited.

HEALTHCARE

Westchester County Health Care Corporation (WCHCC) operates the only tertiary and quaternary provider between New York City and Albany. WCHCC is also the majority corporate member (60%) of Bon Secours Charity Health System with hospitals in Rockland and Orange Counties, and the sole member of HealthAlliance with hospitals in Ulster and Delaware Counties. This creates a large service area with unfavorable demographics and economics.

Like many other systems, WCHCC experienced significant utilization impacts during the pandemic from which it has been slow to recover. Now those impacts have hit WCHCC’s ratings. Moody’s just lowered its rating on WCHCC debt as well as that of institutions which WCHCC guarantees to Ba1 from Baa3. Lower than expected operating performance and thin liquidity that will result in high operating and balance sheet leverage for several years was cited. Uneven state funding sources and equity contributions toward a planned capital project will further strain cash.  

CA HITS THE BRAKES ON AV

The California DMV today notified Cruise that the department is suspending Cruise’s autonomous vehicle deployment and driverless testing permits, effective immediately. The DMV has provided Cruise with the steps needed to apply to reinstate its suspended permits, which the DMV will not approve until the company has fulfilled the requirements to the department’s satisfaction. This decision does not impact the company’s permit for testing with a safety driver.

Based upon the performance of the vehicles, the Department determined the manufacturer’s vehicles are not safe for the public’s operation. It found that the manufacturer has misrepresented any information related to safety of the autonomous technology of its vehicles. The ongoing investigation centers on an incident we reported last week that killed a pedestrian. The federal government announced its own probe last week which is focused on two reports to the NHTSA and a further two incidents the regulator identified on “public websites.”

TECH HUBS

The creation of hydrogen hubs has grabbed attention as a potential source of carbon mitigation. The focus has been on developing the technology versus just economic development. This week, the Biden Administration announced a hub plan for “tech” development in fields like autonomous systems, quantum computing, biotechnology, precision medicine, clean energy advancement, semiconductor manufacturing.

The U.S. Department of Commerce’s Economic Development Administration (EDA), announced the designation of 31 Tech Hubs in regions across the country. The Tech Hubs program is “an economic development initiative designed to drive regional innovation and job creation by strengthening a region’s capacity to manufacture, commercialize, and deploy technology that will advance American competitiveness.” Each designated Tech Hub can now apply to receive between $40 million and $70 million each for implementation funding, totaling nearly $500 million.

Like many other job creation programs, it managed to achieve buy in by spreading out the projects across the country. These Tech Hubs are located across 32 states and Puerto Rico, and represent a cross-section of urban and rural regions. For Puerto Rico it could become a case of remember the future. The PRBio Tech Hub would center on biopharmaceutical and medical device manufacturing in Puerto Rico. The irony is that the project could take PR back to its Section 936 days when it was a significant pharmaceutical manufacturing center. Once the 936 tax benefits were fully phased out, the pharmaceutical industry on the island declined significantly.

Other hubs reflect some already established investments. The Intermountain-West Nuclear Energy Tech Hub centers around small modular reactors and microreactors in ID and WY. Those two states were already pursuing nuclear generation technologies.

SPORTS DEFAULT

The high yield market is watching another speculative sports related bond issue default. In May, the operators of a 320-acre destination sports facility in Mesa, AZ declared bankruptcy. Over the summer, the owners hoped to be able to sell the facility via competitive auction. Unfortunately, that never came to fruition and the pressure to sell the facility increased. The judge presiding over the Chapter 11 proceedings was pressuring the parties to get the project sold.

Now, Legacy Park will sell for $25.5 million with the buyer Burke Operating Partners to provide $19.5 million and $6 million to come from the landlord Pacific Proving LLC. A sale hearing to close the deal with the judge’s approval will be scheduled for Nov. 20 with the expectation to close by Nov. 30. Some $19.1 million will go to pay the mechanic lien claimants, who were roughly owed $30 million. 

That just leaves the little detail as to what happens to the holders of the approximately $283 million of bonds issued through the Arizona Industrial Development Authority. If this deal is approved, bondholders will get $2.2 million and 11% of equity in the buyer. It is another pelt on the wall of failed sports bond credits. And it even had literally dozens of pickleball courts. What could’ve gone wrong?

FREE TRANSIT

Free transit fares are just one of several progressive ideas being tested out when the opportunity arises. Given the impacts of the pandemic on transit ridership, these efforts are being undertaken to attract and reattract riders. The results of these efforts have varied with the programs in smaller cities being perceived more favorably. In the big cities, the testing of the concept has been more limited and the results have varied.

The Mayor of Boston is a big proponent of free fares on the T. This summer, the closure of a tunnel was accompanied by free fares on the T’s Blue Line. It was thought that a combination of free fares and the closure would provide a good test for the impact of fares. For proponents of the idea, recent results from the T experience over the summer was not especially encouraging.

The Sumner Tunnel connects Logan Airport to I-93 in Boston. It was closed on July 5 for rehabilitation. According to MBTA estimates, 40,000 cars travel through the Sumner Tunnel on a typical weekday. The MBTA estimates the riders of 3,900 cars, or nearly 10 percent of the total, shifted to public transit, while 5,500 cars just stopped coming in to Boston. The T estimates three-quarters of the cars just traveled a different route – 10,200 used the Ted Williams Tunnel, 10,400 used the Tobin Bridge, and 10,000 used other roads.

The tunnel reopened August 31. Weekday ridership dropped 3% on the Blue Line and 58% on ferries after the reopening. Fares were maintained on the Orange Line but increased service seemed to have attracted riders. Orange Line ridership weekdays was up 14% and commuter rail posted a 1% gain. We expect that such experiments will continue but we do not see fare free transit in the big cities taking hold in the near term.

LOUISIANA REJECTS A P3

The Louisiana legislature voted to reject a proposed private-public partnership that would have replaced the Calcasieu Interstate 10 Bridge. The $2.1 billion project would have relied on state and federal funding along with tolls. It was the proposed use of tolls that killed the plan. Now, the recently elected governor will have to come up with a plan to replace the bridge without tolls. The opposition to tolls is reflective of the current state of Louisiana politics.

The final vote on the plan fell mostly along party lines, with Republicans largely voting to reject the deal, and Democrats voting to approve it. The trucking industry was the main source of opposition. The plan called for tolls on vehicles across four categories: 25 cents for local cars, $2.50 for nonlocal cars, $2.55 for medium trucks and $12.50 for large trucks equipped with toll tags. Some $800 million in state and federal money for the project had been committed, with the other dollars set to come from toll collections.  

The truckers prefer that the project be funded with much more federal funding so as to allow the bridge to remain toll free. In 2017, a bill to raise the state’s fuel tax in part to fund the bridge failed. These deals have been an especially tough sell in the South. Bridge and prison P3s in Alabama fell to political winds as has this one.

RELIGIOUS CHARTER SCHOOLS

Oklahoma’s Attorney General sued to stop a state board from establishing and funding what would be the first publicly funded religious charter school after the board ignored his warning that it would violate both the state and U.S. constitutions. The Oklahoma Statewide Virtual Charter School Board was sued after three of the board’s members signed a contract for the St. Isidore of Seville Catholic Virtual Charter School, which is sponsored by the Archdiocese of Oklahoma City.

Oklahoma’s Constitution specifically prohibits the use of public money or property from being used, directly or indirectly, for the use or benefit of any church or system of religion. Nearly 60% of Oklahoma voters rejected a proposal in 2016 to remove that language from the Constitution. Nevertheless, the school “participates in the evangelizing mission of the Church and is the privileged environment in which Christian education is carried out.”

The AG’s lawsuit also suggests that the board’s vote could put at risk more than $1 billion in federal education dollars that Oklahoma receives that require the state to comply with federal laws that prohibit a publicly funded religious school.

MEDICAID WORK RULES

Georgia remains the only state permitted to impose work requirements on Medicaid recipients. Those sorts of regulations have been challenged and overturned in the courts. Georgia’s Pathways to Coverage was conceived as the replacement program. The Georgia Department of Community Health has projected up to 100,000 people could eventually benefit from Georgia Pathways to Coverage. 

That outlook is clouded by the fact that the new health plan for low-income adults has enrolled only 1,343 people through the end of September. As has been the case in other states where work rule efforts failed it is the reliance on individuals to use computers to document work. That assumes that recipients (among the nation’s poorest) have access to a computer to submit information. Many low-income people struggle to document the required 80 hours a month of work, volunteer activity, study or vocational rehabilitation.

During the pandemic, states were not allowed to reduce their Medicaid rolls. That time period ended earlier this year and many states began a process to force those who had qualified during the pandemic to resubmit qualification data. The state launched Pathways on July 1 coincident with its review of Medicaid eligibility following the end of the COVID-19 public health emergency. In addition to imposing a work requirement, Pathways limits coverage to able-bodied adults earning up to 100% of the poverty line — $14,580 for a single person or $30,000 for a family of four.

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

AUSTIN’S COAL DILEMMA

On March 26, 2020, the Austin City Council approved an emissions-reduction plan that called for its city-owned utility to shut down its portion of the Fayette Power Project, a coal-fired power plant by the end of 2022. Since that decision, the Texas power market has endured a variety of stresses. The winter storm debacle was followed by a couple of summers of life on the edge as the state grid operator struggled to maintain adequate supplies in the face of record heat. The pressure on suppliers to maintain lower costs while supporting adequate supply was significant.

Those factors combine to support the current realities facing the City of Austin as it considers its energy plans. After the 2021 winter storm, the grid manager moved to encourage more “dispatchable” power – the kind most easily produced at natural gas and coal plants. The operator wanted more flexibility in its load management efforts. This year, ERCOT created financial incentives to encourage power generators to expand their ancillary services, a system in which power generators hold a portion of their total power generating capacity in reserve, ready to provide more to the grid when demand threatens to outpace supply.  The change also made the economics of a natural gas plant much more favorable. This was in line with the state’s politics which support natural gas.

Austin still has not closed the Fayette plant. Through the reserve system, coal plants can also get paid simply for keeping some of their capacity available if called upon. All generators have profited from higher overall prices, but because coal operators can choose when to ramp up production, they can catch the highest price peaks to maximize profits. On the summer’s warmest day, the generation from that plant generated some $11 million of operating profit. Those unanticipated “profits” are ostensibly used to reduce revenue requirements to be generated from retail ratepayers.

Austin Energy is now in the process of updating its resource, generation and climate plan for approval by the City Council in 2024. It will not be easy to stop using Fayette plant power given the fact that the facility is co-owned with another agency, The Lower Colorado River Authority. LCRA was created by the Legislature, and its board of directors are appointed by the governor. It recently reiterated its plans “to operate FPP as long as it continues to be a reliable, cost-effective source of power.” So, a move to divest itself of its share of the plant by Austin won’t shut the plant down and it may be more expensive to replace.

MICHIGAN HOSPITAL MERGER

Henry Ford Health announced Wednesday that it has signed an agreement to join with Ascension Michigan and Genesys to create a $10.5 billion health system based in Detroit with 13 acute-care hospitals, roughly 50,000 employees and more than 550 sites for regional health care. Henry Ford Health says it is a joint venture that includes no exchange of cash.  Henry Ford went out of its way to emphasize that the arrangement is “not a merger”.

The organization would remain headquartered in Detroit and carry Henry Ford Health’s name and branding. It would be governed by a board of directors with representatives from both Henry Ford Health and Ascension Michigan. At least for now, the Catholic identity of the Ascension Michigan facilities would continue. If the combination receives regulatory approval, there would still be five large-scale competitors in southeastern Michigan: Corewell Health, The Detroit Medical Center, Trinity Health, McLaren Health Care and the University of Michigan Health.

Ascension, which is based in St. Louis, reported an operating loss of $3 billion in fiscal year 2023, and is selling many of its holdings. The combination will be reviewed under new guidelines issued in July by the Justice Department and FTC which would prohibit mergers that increase concentration in highly concentrated markets or eliminate substantial competition between firms. Nine Ascension hospitals will be part of the transaction. Six Henry Ford facilities will participate.

NUCLEAR

The federal Inflation Reduction Act provides funding for the New ERA program. That program sets aside money specifically for U.S. generation and transmission cooperatives to help them decarbonize their electricity portfolios. The IRA provides some $9.7 billion to fund these efforts.

In Michigan, an electric cooperative is seeking to use the program to support investment in nuclear generation. Wolverine Power Supply Cooperative, based near Cadillac, has submitted an application to the USDA for the 9.7 billion grant and loan program. The coop hopes to obtain power from a reopened Palisades Nuclear plant. Wolverine announced a power purchase agreement with the Palisades owner, Holtec International, to buy electricity from the plant, if and when it reopens following a regulatory review. The program would provide funding for up to 25% of the coop’s costs to purchase the nuclear power.  

The Palisades plant stopped operating in May 2022. Holtec has recently submitted requests to the U.S. Nuclear Regulatory Commission to effectively halt the decommissioning process and resume operations under an operating license that expires in March 2031. According to the National Rural Electric Cooperative Association (NRECA), U.S. electric co-ops submitted requests for more than twice the amount of program funding available, representing $93 billion in new investments. Awards are expected to be announced in early 2024.

CONGESTION PRICING

One of the major objections to the imposition of congestion fees is the favorable treatment being given to vehicles operating through transportation network companies (TNC) like Uber and Lyft. It is clear that one of the major contributors to increased congestion in Manhattan is the presence of these vehicles. This has led to calls to restrict or lower the number of TNC vehicles in operation.

Given the opposition to the new fees, it would not seem to be the best time to throw some oil onto that fire. Nonetheless, that’s what Mayor Adams seems to be doing. It was announced this week that New York City’s Taxi and Limousine Commission will lift its cap on new licenses for for-hire vehicles starting this week, so long as they’re issued to fully electric cars. The change could allow companies including Uber, Lyft and the recent start-up Revel to deploy thousands more vehicles on city streets.

The excuse is that the policy will promote non-polluting vehicles. At the same time, the move will increase the number of vehicles which will cause more congestion. The policy allows drivers to rightfully note that the fee is a congestion fee not a pollution mitigation fee. It further buttressed arguments that the fee really is just a money grab rather than a well thought out transportation policy.

One leading transit analyst (a former NYC transportation commissioner) has found that people who drive personal cars into Manhattan’s central business district travel just one or two miles, while for-hire vehicles drive 20 to 40 miles every time they enter the MTA’s planned congestion zone. That makes a TNC vehicle ten times more of a congestion contributor than an individual’s vehicle.

City data shows the number of cars operated by e-hail companies grew from roughly 13,000 at the start of 2015 to more than 70,000 in 2018. Meanwhile, the number of yellow taxi medallions — which give cabbies the exclusive right to street hails in much of the city — remained capped at 13,500. The City imposed a cap on new for-hire vehicle licenses in 2018 but allowed new ones to be issued to wheelchair-accessible and electric vehicles. The TLC revoked the electric vehicle exemption in 2021. As of July, there were more than 77,000 for-hire vehicles working for e-hail companies operating in the city.

The new policy is a part of Mayor Adams’ hope to convert all taxis and for-hire vehicles in the city to electric or wheelchair-accessible vehicles by 2030. He’s hoping that by the end of 2024, 5% of the city’s for-hire vehicle trips will be in an electric or wheelchair-accessible vehicle.

AUTONOMOUS VEHICLES

The National Highway Traffic Safety Administration (NHTSA) is opening an investigation into whether General Motors’ self-driving unit Cruise is taking sufficient precautions with its autonomous robotaxis to safeguard pedestrians. It is looking into reports of incidents including Cruise autonomous vehicles “encroaching on pedestrians present in or entering roadways, including pedestrian crosswalks, in the proximity of the intended path of the vehicles.” In December, NHTSA opened a separate safety probe into the autonomous driving system in Cruise vehicles after reports of two injuries in rear-end crashes.

The announcement follows an incident in San Francisco two weeks ago in which a pedestrian was struck by a hit-and-run driver, thrown into an adjacent lane and hit a second time by a Cruise robotaxi, which was not able to stop in time. The self-driving vehicle came to a stop on top of the pedestrian, It comes as NHTSA continues an investigation in association with a February 2022 Cruise petition seeking permission to deploy up to 2,500 self-driving vehicles annually without human controls like steering wheels. 

HYDROGEN HUBS

Hydrogen hubs are a collection of linked assets designed to work together to develop the domestic production of hydrogen. Hydrogen is currently used to make fertilizer and in various industrial processes in the petrochemical industry. The hope is that hydrogen can be produced for use as a carbon-free fuel in industries like long-haul trucking, maritime cargo shipping, and airplane travel. It is at the center of Biden Administration efforts to achieve emissions goals which could offset the negative impacts of energy transformation.

To help achieve these goals, the Inflation Reduction Act provided funding for the support of start-up facilities across the country. Using different sources of fuel to produce hydrogen, plants will provide an opportunity to evaluate the different sources of energy used to produce hydrogen and determine the actual “greenness” each technology and/or fuel results in. This week, the Administration announced the funding for seven hydrogen “hubs” across the country. Their power sources will reflect their locations.

The Appalachian Hydrogen Hub encompasses parts of West Virginia, Southeast Ohio, and southwest Pennsylvania and will use the large quantities of natural gas in the region. The Gulf State Hydrogen Hub will be centered in Houston, Texas, and will cover most of the Gulf Coast and southeast Texas. Texas has large quantities of energy to use in producing hydrogen. The hydrogen hubs that use natural gas to produce hydrogen will use carbon capture technology.

The Mid-Atlantic Hydrogen Hub spans parts of Pennsylvania, Delaware and New Jersey. The Midwest Hydrogen Hub is in Illinois, northwestern Indiana and southwestern Michigan and will produce hydrogen from, among other sources, nuclear power. The California Hydrogen Hub spans from Southern California to Northern California and encompasses three ports: Los Angeles, Long Beach and Oakland. 

The Pacific Northwest Hydrogen Hub encompasses eastern Washington, northeastern Oregon and some parts of Montana and will produce hydrogen for making fertilizer. It will likely connect with the California Hydrogen Hub. The Heartland Hydrogen Hub is hosted in Minnesota and includes a significant presence in North Dakota and South Dakota, and takes advantage of the uses the very inexpensive and abundant wind resources to make clean hydrogen. 

SPRINGFIELD, ILLINOIS MUNICIPAL UTILITY

City, Water, Light, and Power (CWLP) is owned and operated by the city of Springfield, Illinois and provides drinking water and electricity to Springfield residents. In 2021, an incident occurred at one of the City’s generation plants releasing more than 700 tons of fly ash into the environment. Subsequent investigations were impacted by CWLP’s inability to provide adequate documentation to investigators.

This led the state attorney general to file a lawsuit alleging CWLP violated the Illinois Environmental Protection Act, Illinois Pollution Control Board regulations and its Clean Air Act Permit Program permit. The lawsuit sought to prohibit CWLP from future violations of state environmental laws and regulations, as well as civil penalties. The litigation has resulted in an interim order while the lawsuit is pending which requires CWLP to conduct a thorough analysis and report to the IEPA within 30 days of the order being entered by the court. Failure to comply could lead to criminal and/or civil penalties against CWLP.

WANNA BUY A RAILROAD?

The City of Charlotte, NC has been approached by the Norfolk and Southern Railroad to consider the purchase of a stretch of railroad track owned by the company. That section of track lies in a path for a proposed rail connection (the Red Line) through Mecklenburg County to the Charlotte city center. Initial plans called for a 25-mile commuter rail line with 10 stops between Gateway Station in Uptown Charlotte to Iredell County. The idea is to provide an alternative to driving on I-77.

The track, known as the O line, is used for freight operations currently. Norfolk and Southern would be expected to continue using the tracks. It is not clear whether the ultimate transaction would involve a change of ownership or a lease arrangement. The plan will get serious consideration as it would go a long way towards enabling the Red Line.

In Cincinnati, the Norfolk and Southern is a potential buyer of rail tracks from the City. The Cincinnati and Southern Railway is the only municipally-owned railway in the U.S. It has been leased by Norfolk Southern since 1881. In 2021, that lease was extended through 2051. The city wants to sell the railway to Norfolk Southern for around $1.6 billion. It would take the proceeds of a sale and place them in a trust fund. The interest generated from the corpus of the trust is estimated to generate some $50 million annually for infrastructure investment in the City.

The City earns approximately $25 million per annum under the current arrangement. The Trust is projected to generate twice that much. The level of annual payments from the Trust to the City are not guaranteed. The plan contemplates a required minimum payment of $25.6 million per year, regardless of the investment returns. This ensures that the city won’t receive any less than it generated from the railroad prior to the sale. 

The planned ballot proposal requires that “in the unlikely case that the trust balance dips below 75% of the balance from the previous year, then a moratorium on payments to the city is required until the balance of the trust recovers to the level of the previous year before that loss.” The city is estimating a 5.5% return on its investments.

TEXAS BROADBAND

The U.S. Census Bureau reports 93.9 percent of Texas households had a computer, but only 86.9 percent had a broadband internet subscription in 2017-2021. The rate is substantially lower in the more rural areas of the state. To address the shortfall in broadband access, Texas voters will have a chance on November 7 to approve a constitutional amendment, Proposition 8.

The amendment creates a broadband infrastructure fund of $1.5 billion to expand high-speed internet availability. The fund is designed to take advantage of federal funding available through the Broadband Equity, Access, and Deployment Program to stimulate internet expansion. Texas was promised $3.3 billion, the most of any state, and Texas’ Broadband Development Office predicted it would begin accepting grant applications in 2024.

Eligible applicants would include internet service providers, political subdivisions and public-private partnerships interested in developing broadband infrastructure. Supporters have cited the benefits of the Rural Electrification Administration in the 1930’s which benefitted many rural residents. It is a comparison we have made for years. Broadband is the electrification project of the 21^st century.

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

DETROIT PROPERTY TAX EXPERIMENT

As a city with a significant amount of vacant land, Detroit has always faced difficulties in maintaining property tax revenues. Taxed according to traditional property tax valuation methods, the relationship between land and development could not have been clearer. As the City tries to continue its recovery, the abundance of underutilized land has driven moves to try to derive value from those lots commensurate with their location, size and development potential.

Under the current system, vacant land and blighted buildings are taxed at a much lower rate than land with single-family homes and other structures. The Mayor would see land and structure values taxed separately. Detroit would have the ability to increase the tax millage on land and reduce the tax millage on structures like homes and buildings. That means property taxes on land will go up while the taxes on structures like homes and buildings would go down. 

According to the Mayor, ninety-seven percent of Detroit homeowners would see a reduction in their property taxes while the remaining 3% would see no change at all. The median homeowner will save 27% on their tax bills. The average $50,000 home in Detroit will see a $450 tax cut, while a $100,000 home will see a tax cut of $900.

The goal has been to qualify an amendment question on the ballot in February, 2024. The Legislature needs to approve enabling legislation and it has been a slow-going process. If approved, the Land Value Tax Plan would be phased in over three years beginning in 2025.

MEDICAID

In August we noted concerns regarding the potential loss of Medicaid benefits by those whose removal had been halted by pandemic regulations. In the states where the opposition to expanding Medicaid under the Affordable Care Act has been the strongest, aggressive moves were made to remove thousands of patients out of the program. Florida was particularly proud of its efforts in this area. Advocates had cited the potential for these removals as a real source of concern.

The initial data indicates that those concerns were not assuaged. Just before Labor Day, federal officials notified states that there were problems with the eligibility certification process. The Centers for Medicare & Medicaid Services (CMS) worked with states on the return to regular eligibility operations following the end of the Medicaid continuous enrollment condition. In that time, it identified issues where states are out of compliance with renewal requirements.

This issue most commonly affects children in households with at least one adult enrolled in Medicaid. Medicaid and CHIP eligibility levels for children are generally higher than those for adults. While the Medicaid income eligibility limit for adults is 133% of the federal poverty level (FPL), the median Medicaid/CHIP eligibility level for children across states is 255 percent FPL. Children’s eligibility levels range from 170% of FPL to 400% of FPL with all but two states covering children at or above 200% FPL.

CMS also determined that due to incorrect systems programing or other operations, some states are requesting information or documentation for individuals for whom the state has completed a renewal and are terminating coverage for individuals if other members of the household do not provide requested verification.

CLIMATE DISCLOSURE

California Gov. Gavin Newsome signed off on the Climate Corporate Data Accountability Act, or SB-253, and the Climate-Related Financial Risk bill, or SB-261. SB-253 will require all public and private firms that operate in California — and whose annual revenues surpass $1 billion — to disclose both direct and indirect greenhouse gas emissions. If companies fail to adhere to the demands of the law, they will face fines of up to $500,000 a year.

SB-261, meanwhile, will require companies that generate more than $500 million in annual revenue to publish climate-related financial risk reports biennially, beginning in 2026. Failure to comply with SB-261 will result in administrative penalties of up to $50,000 in a reporting year.

Federal rules proposed by the U.S. Securities and Exchange Commission are not as stringent as the California rules. Those proposed rules would require publicly traded companies to disclose both direct and indirect emissions, while the California legislation includes private corporations as well. The laws do not impose any additional reporting requirements for municipal bond issuers. At least, not yet.

SCOTUS AND CLIMATE CHANGE

The U.S. Supreme Court agreed to hear an appeal from fossil fuel industry entities who are being sued by the State of Minnesota. Like so many cases filed by other jurisdictions, the suit charges that the defendants knowingly concealed evidence of the impact of their businesses on the environment. Like all of the other litigation, the case being made is that the issues at hand are federal rather than state issues.

In its last session, the Supreme Court declined to hear challenges to climate cases from Hawaii, Colorado, Rhode Island, Baltimore, Maryland, and San Mateo County, California, that were all seeking to have the cases moved to federal court. 

LABOR AND HEALTHCARE

Given its outsized role in the healthcare ecosystem serving the western U.S., the settlement of negotiations this week between Kaiser Permanent and its non-provider workforce are a sign of the challenges many systems face in the post-pandemic world. As we discussed last week, some 75,000 employees at Kaiser Permanente health facilities staged a three-day job action. The strike was designed to move negotiations on expired contracts.

The strategy seems to have paid off. As we go to press, Kaiser has announced an agreement with the striking workers. A proposed four-year contract would include significant wage increases. The contract would set a new minimum of $25 an hour in California for the healthcare workers. That creates a new tier of minimum wage, $5 an hour higher than the new raise approved for fast food workers. It is about $10 an hour above the state’s basic minimum. The agreement would raise the hourly rate to $23 in other states and would stagger a 21 percent increase in wages over four years in all locations. 

Along with general inflation, labor costs have been and likely will continue to be a pressure on finances. The fact that this contract covers a large multi-state employer reflects at least one sign that size and consolidation are not providing much relief from the current wave of cost pressures.

In the Midwest, it is the provider class which is moving towards organizing in the face of recent trends. Some 400 primary and urgent-care providers across more than 50 clinics operated by the Allina Health System in Minnesota and Wisconsin have voted to unionize. The group is estimated to be the largest group of unionized private-sector physicians in the United States. More than 150 nurse practitioners and physician assistants at the clinics were also eligible to vote and will be members of the a local of the Service Employees International Union.

The issues were not just compensation based. In many areas and systems, staffing levels are a huge bone of contention between providers and hospitals. Allina say that staffing was a concern before the pandemic and that staffing has never fully recovered to its prepandemic levels. Others point to relatively low pay for clinical assistants and lab personnel. These factors appear to have contributed to the staffing issues.

NUCLEAR LITIGATION SETTLEMENT

Georgia Power is moving closer to settling litigation over the cost overruns associated with the expansion of the Votgle nuclear plant. A 2018 agreement was arrived at when the parties were at odds over who would pay for the rising costs from building the new units. That agreement gave Oglethorpe Power and the new units’ other co-owners — MEAG Power and Dalton Utilities — a one-time chance to cap their liability for construction costs. The utility partners believed that once a certain cost level was breached, the agreement permitted them to effectively cap their ultimate liability.

Georgia Powert already settled similar claims with the Municipal Electric Authority of Georgia. MEAG owns a 22.7% share in the new Vogtle reactors. A lawsuit filed by Dalton Utilities, which holds a 1.6% stake in the units, is still pending. Georgia Power said that it could have to pay another $17 million to resolve that dispute.

Now, a settlement between Georgia Power and partner Oglethorpe Power has been announced. Oglethorpe Power claimed that costs had moved past the trigger point of $19.2 billion agreement established in the 2018, affording the co-op the opportunity to limit its exposure to the rising costs, in exchange for forfeiting a share of its ownership in the new units. Georgia Power argued costs hadn’t yet reached that level.

Georgia Power said it will pay Oglethorpe $308 million to cover its share of construction costs that were already incurred. Georgia Power will also pay an estimated $105 million for Oglethorpe’s portion of the costs needed to complete Vogtle’s expansion, and will cover 66% of any additional cost overruns. Oglethorpe will maintain its 30% ownership in the new Vogtle units and has agreed to dismiss its lawsuit. 

The settlement comes as Georgia Power disclosed last week that it is facing another technical setback with Vogtle’s second new reactor. The problem at Vogtle Unit 4 involves a faulty motor inside one of the reactor’s four coolant pumps, which keep temperatures at safe levels inside the reactor core. Georgia Power said the issue was discovered during start-up testing and that the entire pump will have to be replaced. That pushes the expected commercial operating date into 2024.

SAN ANTONIO ELECTRIC

The Electric Reliability Council of Texas (ERCOT) issued a notice on Oct. 2 requesting as much as 3,000 megawatts of additional capacity — enough to power 600,000 homes during periods of peak demand — for the coming months. As part of that request, ERCOT cited several shuttered coal-fired plants which could be restarted to address the need. One of those plants is owned by the San Antonio electric utility, the J.T. Neely plant. Deely represented 40% of the 2,100 megawatts of capacity that would be eligible for a special contract this winter if it could come back online, ERCOT said in its notice. 

San Antonio will not be reopening the plant. The utility cited the short amount of time before the onset of winter relative to the time frame for getting the plant back in operation. The plant has been closed for five years. Supplies that are eligible for special contracts under ERCOT’s request include plants that have been or are about to be mothballed, new gas plant projects that may be accelerated and programs that pay big power users to curtail their usage during emergency conditions. 

GUARANTEED ADMISSION

The increasing pressure faced by colleges in an environment of declining demand is generating a variety of different approaches to the problem. As the demographic trends depressing college demand continue, the competitive environment for attracting students is driving a variety of different responses. The latest is guaranteed admissions.

Virginia Commonwealth University in Richmond, Virginia, recently announced a guaranteed admission program for first-year freshman applicants who have a GPA of 3.5 or higher and are in the top 10% of their high school graduating class. Last spring, the State University of New York notified some 125,000 graduating high school students that they had been automatically accepted. Undergraduate enrollment in the U.S. peaked at about 18 million students over a decade ago. Today, there are more than 2.5 million fewer students enrolled.

Cost continues to be a huge factor. Tuition and fees plus room and board for a four-year private college averaged $53,430 in the 2022-23 school year. At four-year, in-state public colleges, it was $23,250. When you put that together with the declining view of the worth of a college education held by many for whom cost is a huge issue, the pressure on enrollments should not be a surprise.  

CHICAGO – HOPE VS. REALITY

Chicago Mayor Brandon Johnson unveiled his proposed budget for the city of Chicago for the fiscal year beginning January 1. The much-anticipated plan followed significant campaign promises from the Mayor. Many of his plans included higher taxes to fund increased spending on social services-related needs. Those plans were made before it became clear that the projected budget gap for 2024 was some $580 million. Total spending is set at $16.6 billion.

The new promises and revenue requirements have driven some tried and true tactics to balance the budget. The Mayor declared a tax increment financing surplus of about $434 million, Chicago’s highest in 15 years. By closing five TIF accounts and siphoning $100 million from the La Salle Street TIF, he’s generating roughly $100 million for the General Fund and more than twice that amount for Chicago Public Schools. The city again will refinance city bonds, generating $89.2 million and carrying over $50 million from last year’s unspent balance.

The signs of a cash-strapped city remain as the Mayor relies on some old school special moves to present a “balanced” budget. They include $41.5 million in unspecified “personnel savings”. There was no detail as to whether the savings will come from closing out vacant positions or the elimination of other jobs. At present, it is estimated that there are 1,700 police vacancies. At the same time, Johnson’s plan includes 311 new positions and an overall city workforce of 36,729, the highest in years. 

The Johnson administration is relying on “improved revenue projections” to generate $186.8 million and stronger “revenue enforcement collections” to add $35 million. The plan however, does not include any of the local tax increases — on jet fuel, hotel rooms and business employment — which the Mayor promised during the campaign. It also maintains property tax rates and eliminates the automatic escalator that increases property taxes to match the rate of inflation.

The budget does seek to address some well-established concerns. $303 million is allocated for a pension prepayment and $53 million for lead pipe replacement which has been a significant ongoing issue. There’s a “slight increase” in the police budget, to $1.74 billion, from the corporate fund. But some vacant police positions will not be filled. Nevertheless, spending on police will exceed 10% of the total budget.

WIRES VERSUS PIPES

There has been so much attention paid to the efforts of carbon pipeline builders to obtain approvals for their proposed projects that it has taken attention away from efforts to develop other energy infrastructure. One such sector is that of new electric transmission projects. One of the largest new projects is the Grain Belt Express. It is designed to move wind generated power from Kansas to Illinois through Missouri. It had received approvals from regulators in Kansas and Illinois but it was a harder process in Missouri.

The project would have traversed the whole state of Missouri but would have provided only a minor share of the power from the line within Missouri. Local Missouri utilities made an effective case that given the physical impact of the line on the state, that it made more sense to provide a more substantial share of the power travelling through the line to their customers. Now, the Missouri Public Service Commission has approved a revised plan for the line and the distribution of its power.

Previously, state utility regulators approved a line that would have brought only 500 megawatts of energy to the state. Now, five times as much electricity will be delivered to the state some 2,500 megawatts as compared to earlier plans. The project sponsor – Invenergy – must either sign voluntary deals with landowners or use its power of eminent domain to build on the property of landowners.

The fight against the use of eminent domain failed last year in the Legislature. Instead, the legislature compromised and legislated that in the event of future large transmission lines, greater compensation for landowners be provided. The laws also set a seven-year time limit for companies to build transmission lines after obtaining their easements.

As this goes to press, Invenergy said it had acquired 95% of the easements it needs in Kansas and Missouri.

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

COOL PAVEMENT

Cool Pavement is a process which coats street surfaces in an effort to reduce road temperatures. Beyond the impact on the road itself, the hope was that the effect would impact so-called urban heat islands. With environmental and social concerns intersecting, there has been a real press on municipal officials to address “environmental equity” issues. Cool Pavement is the latest iteration of the phenomenon.

The city of Phoenix, AZ began testing Cool Pavement in certain neighborhoods to combat the effects of the urban heat island.  The city has been installing more than a hundred miles of the special coating.  Now, the project has been temporarily halted, the second time that this has been required. The products and materials the department and its contractors use to pave and maintain city streets are routinely tested to ensure they meet department specifications. As a result of that testing, the Cool Pavement application schedule was recently temporarily paused as the department and its contractors work to resolve a concern about the thickness and texture of the Cool Pavement product. 

It seems that the road may be a bit cooler but that benefit is apparently not moving much beyond the curb. ASU’s researchers found that just 6 feet from the pavement, the air temperature was only .3 degrees cooler during the day and only half a degree cooler in the evening. Some studies have questioned the technology noting that it reflects more sunlight back off the road and that this could make the immediate surrounding areas actually hotter – as much as 5 degrees hotter. 

While Cool Pavement is three times more expensive, early findings show it holds up to wear better and protects the infrastructure under the road. Whether that is enough to justify the increased cost remains to be seen.

LONE STAR FLOOD RISK

Hurricane Harvey led the Texas Legislature to enact laws requiring the Texas Water Development Board to develop Texas first statewide flood plan. An initial risk assessment was released in mid-summer.  It showed that some 6 million Texans, or about 20% of the population, live in an area susceptible to flooding. More than 2.4 million Texans live in areas that have a 1% chance of flooding each year, known as the 100-year floodplain, the analysis found. Another 3.5 million people live in areas with a 0.2% chance of flooding each year, known as the 500-year floodplain. One-fifth of the state’s land — roughly 56,000 square miles — now fall within the 100-year floodplain.

The analysis identified how many buildings, homes, people, hospitals, roads and agricultural areas are in a floodplain. The San Jacinto region, which includes Harris County and Galveston, has the most people living in a floodplain: almost 2.5 million people are in a 100- or 500-year floodplain. The Lower Rio Grande region, which spans much of Texas’ southern border and includes the Rio Grande Valley, is next with about 1 million people at risk.

This will cause some concern. Sixty-three of Texas’ 254 counties had no existing flood hazard information prior to the planning effort according to the Board. As for the risk on the Texas Gulf Coast, between 2000 and 2019, rising sea levels caused the Texas coastline to retreat about 4 feet per year on average, according to a 2021 University of Texas Bureau of Economic Geology report for the Texas General Land Office.

CONGESTION PRICING

The long process of determining the appropriate level of New York City’s pending congestion fees is under way. Already, the panel appointed to determine the fee has released some potential adjustments to the fee schedule in response to obvious sources of opposition. This week, the first list of proposed adjustments and exemptions has been put up for discussion.

Before determining the base fee, the panel established that there will be “substantial” discounts for entering the congestion zone during overnight hours. Taxis, black cars, and TNC vehicles will not be charged directly rather a fee of between $1 to $2.75 would be added to the fare. Drivers would be charged just once a day even if they drive all day within the zone or enter and exit it multiple times.

CARBON CAPTURE

Navigator CO2 wants to suspend its pipeline permit process in Iowa until utility regulators in Illinois approve the project. Navigator filed a motion with the Iowa Utilities Board on Friday to cancel a scheduling conference that was set for Oct. 9, withdraw its motion to establish a procedural schedule and to pause its permit proceedings. The company plans to file an update on its project with the board by the end of March. Illinois regulators are expected to make a final decision on the project by the end of February.

In another example of the federal effort to drive carbon capture, the Bureau of Land Management is seeking public comment on a proposal to permanently store carbon dioxide in underground rock formations on public land in Carter County, MT. The BLM issued a revised policies in June 2022 allowing for the geologic sequestration of carbon dioxide on public lands. The project would store carbon dioxide in more than 100,000 acres of subsurface pore space.  

ONE TIME VERSUS RECURRING

We take no happiness from the fact that some of our previously expressed fears about government finances are coming true. The majority of those fears were based on one of the fundamental sound tenets of public finance. That is that programs with long-term time horizons must be funded with dependable recurring revenue sources. That has been true regardless of the source of the non-recurring revenues – intergovernmental aid, one-time windfalls, bond refinancings. The risk of one- time revenues has always been clear.

The latest example is from NYC where the potential impacts of 15% across the board cuts are focusing attention on the city’s finances. It is clear that the proposal is a political ploy but nonetheless the potential effect of those cuts is already driving debate. The prime area of concern is the schools. Expanding 3-K was former Mayor Bill de Blasio’s signature achievement. Unfortunately, his administration did not secure long-term funding.

Funding for disabled child education has relied on stimulus funds. The City is required to pay tuition to a private school for a child who cannot be served by the Board of Education. Students with disabilities make up a fifth of all pupils. Now, both 3K and the disabled tuition requirement rely heavily on stimulus. The City Comptroller noticed in a recent report that before this fall, school budgets were not slashed for low enrollment. If the proposed cuts to budgets are actually imposed, some 45 schools where stimulus dollars make up a significant portion of their budgets could each lose more than $630,000, on average.   

PUBLIC FACILITIES AND PROPERTY

Texas property owners flooded by Hurricane Harvey and Tropical Storm Imelda sued the Lone Star State after their land flooded for days following the storms. One group of landowners has alleged that the flooding impacting their properties was the result of a state-led highway elevation and expansion project. Ironically, the roadway was meant to serve as an evacuation route during emergencies. The plaintiffs contend it also prevented floodwaters from receding into the Gulf of Mexico.

Richard Devillier v. Texas is meant to determine whether the negative impact on property as the result of a project constitutes a taking under the Constitution. Texas, meanwhile, has fought the property owners’ claims for compensation, saying it was immune from the lawsuit, and in the case of Harvey, the challenge came too long after the 2017 storm. A 5th U.S. Circuit Court of Appeals ruling that found property owners could only sue for damages if Congress passed a law allowing it.

The case would impact general governmental projects like roads but it would also address concerns around the impacts of private utility infrastructure development on adjacent private property. It is based on a theory that the impact on a property owner of one of these projects constitutes an “inverse takings” situation. Inverse condemnation challenges can include suits against utilities operating outside their easements, or those allegedly at fault for sparking wildfires.

Four years ago, the Court ruled in a 5-4 decision to undo long-standing precedent requiring that takings claims be raised first in state court before being raised in federal court. If a plaintiff was unsuccessful in the state courts, they were barred from bringing their suit to federal court. The plaintiff property owners had first brought their challenge under the takings clauses in the United States and Texas constitutions to state court. Texas successfully shifted the case to the U.S. District Court for the Southern District of Texas, where it was consolidated with other cases into a single lawsuit including 77 property owners.

The case could have implications for projects like transmission lines for utilities or carbon capture pipelines.

LABOR ACTIONS AND MUNICIPALS

The last 40 years have seen the power of unions decline. With fewer members strikes had become more infrequent and major industries in what were highly unionized environments located in what were effectively right to work states. The idea that significant labor actions could actually impact credit was significantly diminished.

That is changing in 2023. The West Coast port credits saw pressure as prolonged negotiations with port labor drove business away amid fears of long-term impacts. Workers at UPS threatened to strike and received significant compensation improvements as their strike deadline drew near. Workers at several higher education institutions also struck. Between the lack of actual strikes and quick resolutions to others, labor negotiations have not been as impactful as they might. That could be changing.

Throughout the year, different segments of the hospitality industry have faced contentious contract negotiations and strikes. A strike in L.A. became a real political issue when Taylor Swift came to town. In the latest example, hospitality workers in Las Vegas have voted overwhelmingly to authorize a strike against major resorts along the Strip.

Contracts for an estimated 40,000 housekeepers, bartenders, cooks and food servers at MGM Resorts International, Caesars Entertainment and Wynn Resorts expired on Sept. 15, after being extended from a June deadline. Other workers remain on extended contracts that can be terminated at any time. A total of 60,000 workers could be included.

The UAW strike continues to expand and continues to highlight the challenges of the transition to electric vehicles. As it drags on, local economic interests will be impacted. Taxes based on economic activity will decline. The strikes in the entertainment industry clearly impacted the economies in the cities where these activities are concentrated like NY and LA.

The next strike threat is credit specific. Kaiser Permanente provides care for 13 million people in eight states, including California, Colorado and Washington, and the District of Columbia. This week, some 75,000 Kaiser Permanente employees undertook a three-day job action to protest the lack of a new contract. The previous contract expired on Saturday. Union leaders say this could be the largest strike by health care workers in recent U.S. history.

The strike does not include doctors or nurses but most of the technical, clinical support, and maintenance staffs are participating. Patients could experience delays in getting appointments, or elective procedures that are not considered urgent could be postponed. Like many other hospital providers, Kaiser has had to face the reality of rising costs for supplies and equipment while also accommodating the fact that the pandemic drove many employees out of the business.

It was workers in the medical field that were impacted the most during the pandemic and the people striking at Kaiser were exactly the ones who could not work remotely, had to take public transit and by and large came from groups or circumstances that placed them at greater health risk. Unsurprisingly, while dealing with inflation themselves as well, they would like to get paid too.

WATER AND GEOPOLITICS

One of the features of the debate over water in the western U.S. is the impact of agriculture on water supplies. As supplies of water have declined attention focused on how land was used in terms of how water intensive certain crops were. It is not an accident that nut growers have significantly increased their marketing efforts. In order to maintain historic water allocations, many farmers switched crops in order to maximize their yield from a gallon of water.

One of the most water intensive crops is alfalfa. A surprising amount of irrigated land in places like the Imperial Valley in CA and areas of southern Arizona is devoted to alfalfa. It is a contentious point because the alfalfa supports meat production primarily in other states while drawing down local – often groundwater -sources. It has been difficult to persuade legislators to take actions which might hurt their agriculture supporters.

One formula to address the problem is unfolding in Arizona. It has taken the confluence of water conservation advocates, domestic agriculture interests and geopolitics to create a unique situation. The State of Arizona has announced that an Arizona farm owned by a Saudi Arabian company that grows alfalfa for export is set to lose its access to state land. The farm is allowed to pump unlimited amounts of groundwater, free of charge, to irrigate its crop. 

The alfalfa is shipped to Saudi Arabia for use in its domestic dairy industry. Arizona is moving to immediately terminate one lease held by the farm owner and will not renew three other leases that are set to expire in February. Ironically, Saudi Arabia banned growing alfalfa and other green fodder crops within its own borders in 2018 in a bid to relieve pressure on the kingdom’s water resources.

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

STADIUMS COMING BACK TO THE TROUGH

Tampa, Charlotte, Washington, D.C., Phoenix, K.C., Milwaukee, Cleveland, Pittsburgh

Phoenix – The Arizona Diamondbacks aren’t really asking but they have made it clear that they want renovations to Chase Field and that they would be happy if they received public funding assistance. The team would be willing to pay more than 75% of the Chase Field upgrade costs, it says. The total estimated cost – $500 million. The Diamondbacks’ lease with the stadium expires in 2027.

One wrinkle is the fact that a previously approved tax district could be activated by then team which would implement a 1% to 9% tax on anything sold at Chase Field.  They would rather not do that.

Jacksonville – “If Jacksonville loses an NFL team, they’re never going to get another one. Do you want to keep the NFL in Jacksonville?” – Jacksonville Jaguars president Mark Lamping. The Jags’ lease at EverBank Stadium  is scheduled to expire in 2030. The team has proposed a $2 billion renovation or replacement. They would like to have public funding cover 50% of that.

Tampa – The Devil Rays of MLB Rays and the city of St. Petersburg announced plans for a $1.2 billion, 30,000-seat stadium. Small? Yes. But the Rays are never strongly attended. Since the club’s debut in 1998, the Rays have ranked last or next-to-last in American League attendance 18 times. The plan is for a facility opening in 2028. As is the recent trend, the ballpark is expected to serve as the centerpiece of a larger, 86-acre redevelopment of St. Petersburg’s Gas Plant District. The Rays plan to pay $700 million toward the project, as well as any cost overruns, while the public sector will contribute $600 million. 

Milwaukee – Republican legislators announced a bill that would devote more than $614 million in public funding to repair and renovate the Milwaukee Brewers’ stadium. Under the proposal, the state would give the team $60.8 million next fiscal year and up to $20 million each year after that through 2045-46. The city of Milwaukee would contribute a total of $202 million, and Milwaukee County would kick in $135 million by 2050. The team would contribute about $100 million and extend its lease at American Family Field through 2050, keeping Major League Baseball in its smallest market for another 27 years.

According to a Legislative Fiscal Bureau memo attached to the legislation, baseball operations at the stadium currently generate about $19.8 million annually in state and local taxes. That figure is expected to grow to $50.7 million annually by 2050, according to the memo. Milwaukee County and the City of Milwaukee would together pay a total of $7.5 million each year, totaling around $200 million. That would be broken down into $5 million in yearly county payments and $2.5 million city payments.

Baltimore – The State of Maryland and the Orioles announced a 30-year lease extension. The current one runs out in December. The negotiations became public and contentious – ownership is not a favorite of the fans. 

Kansas City – The club is deciding between a 27-acre site in downtown Kansas City, in Jackson County, and a larger 90-acre tract in neighboring Clay County. It places the two primary stadium development templates in competition with each other. The push has been for a downtown stadium but the suburban location may offer greater overall development potential.

ELECTRIC VEHICLES AND THE UAW

Underneath of all the discussion of benefits and wages animating the strike by the UAW, the issue of electric vehicles is driving the dispute. Much of the establishment and expansion of the electric vehicle industry is occurring in right to work states in the South. It is what has put Georgia and Tennessee at the center of EV development and production. This movement towards non-union states had been offset in part by the announcement of new or retooled factories, especially in Michigan.

The strike was recently expanded at the other two automakers but Ford was spared an expansion. Now that may change as Ford announced that it was suspending construction of a battery factory in Marshall, Michigan because of concerns that the plant might not be able to make products at a competitive price. The company cited potential increased costs related to a labor settlement. Ford had said it would invest $3.5 billion to build the factory and employ 2,500 people when production begins in 2026.

At the same time, politics have also gotten in the way. The proposed Ford plant would use technology licensed from CATL, a Chinese company that is the world’s largest maker of batteries for electric cars. That has caused partisan criticism of the plant. At the same time, Tesla continues to use similar batteries in its cars. The pressure against the Chinese has led the Administration to consider regulation effectively keeping the batteries made in China out of the U.S. market.

WHERE ARE EVs OWNED?

We recently came across some research by the U.S. Office of Energy Efficiency and Renewable Energy. The office looked at registration data and used it as a proxy for sales of electric vehicles. Based on that data there were four counties in the United States with electric vehicle (EV) market penetration above 30% as of December 2022, and all were in California.

Tech oriented Santa Clara County reports a 35% rate, followed by Marin County at 34%, and then Alameda and San Mateo Counties at 32% each. Several counties outside of California also had robust EV sales, including Boulder County, Colorado (22%) and San Juan County, Washington (22%). As of the end of 2022, there were 100 counties where EV market penetration was 10% or more.

The vehicles are for now a primarily West Coast phenomenon. The wealthier counties around major American cities show the greatest adoption levels but rates in excess of 10% were not the rule.

FIRE AND PUBLIC POWER

Recently we were asked if we believe that there was a heightened risk of bankruptcy for public versus investor-owned utilities. The issue has come in the wake of litigation against PG&E in California after several fires and litigation against Hawaii Electric related to the Maui fire. Our view is that the risk, while not an immediate credit threat is a potential long-term problem. There just has not been an opportunity to test the vulnerability with a public power provider.

That changed this week. Inland Power is Washington State’s largest electric cooperative and currently serves more than 34,000 members across 13 counties in eastern Washington and northern Idaho. Founded in 1937, the co—op was established to serve primarily a farming base after the Rural Electric Administration has brought electricity to those areas. A lawsuit filed in Spokane County Superior Court says Inland Power and Light Company’s electrical equipment contacted or caused sparks to surrounding vegetation that started the Gray fire on Aug. 18.

The suit alleges the utility designed its power lines to be bare, uncovered and carry a high voltage. The suit charges that this increased the risk of fire. Wiring has been a major issue associated with prior litigation resulting from fires. A second lawsuit, filed on behalf of 44 people affected by the fire, says an outdoor light constructed by Inland Power was seen sparking near the origin of the blaze. So far, the dollar amounts do not appear unmanageable. It does shine a light on the fact that litigation risk for utilities – public or IOU – has clearly increased. The ongoing impacts of climate change and the increasing severity of natural disasters will increase the risks of litigation. The Washington Department of Natural Resources has said it could take months to determine what caused the Gray fire.

CARBON CAPTURE

Japanese manufacturer Kawasaki Heavy Industries and their partner, Japan Carbon Frontier Organization, will officially complete construction on their carbon capture testing system at the Wyoming Integrated Test Center (ITC) in Gillette on Oct. 9. The project is a solid sorbent carbon capture system, which uses physical or chemical absorption to capture carbon dioxide. The project aims to show that this technology is viable for commercial deployment to large-scale power plants.

In Wyoming, a 2020 bill that requires coal-fired plants to be retrofitted with carbon capture, utilization and sequestration technology in an attempt to prevent them from retiring early drives efforts to show the viability of the technology. The Wyoming Public Service Commission approved a carbon capture compliance surcharge for Rocky Mountain Power customers in Wyoming.

Summit Carbon Solutions announced plans to resubmit its construction permit to build a carbon pipeline through Soth Dakota. The company has announced the creation of team to convince farmers unwilling to grant easements to Summit. In addition to increased staff as residents of the area, Summit is considering changes to its proposed right of way. Both sides agree that trust between the company and the reluctant (mostly farmers) needs to be rebuilt. Summit went so far as to say it would “turn over a new leaf” which is as close as a company is going to come to saying it screwed up.

MIAMI DADE EXPRESSWAY

The long running battle between Florida state legislators and local operating authorities continues. The effort has been to create a new entity to take over the operation of the Miami-Dade Expressway and somehow be able to lower or eliminate tolls on the facility. MDX, the entity which operates five toll roads in the area was authorized in 1990. It is run by a toll board governed by a majority of members appointed by the County Commission.

The Florida Legislature passed legislation in 2019 dissolving MDX and replacing it with GMX, a board governed by most appointees of Gov. Ron DeSantis. Since then, the matter has been in the Florida courts and that process culminated in a decision against MDX. Last week, Miami-Dade commissioners advanced legislation seeking to dissolve GMX. Counsel for the County contend Miami-Dade retains under its “home rule” authority granted in the Florida Constitution. That provision prevents the Florida Legislature from passing laws only affecting Miami-Dade.

The state’s own moves in the wake of the legislation seems to support the County’s theory. The latest version of the GMX legislation that led to the recent  takeover circumvented the home-rule defense by adding a portion of Monroe County to the toll board’s authority. That portion of land happens to be located in the Big Cypress federal preserve, where the only transportation option is a gravel road. The likelihood of continued litigation grows each day.

LITIGATION

For the cash strapped U.S. Virgin Islands government, $75 million is not an insignificant amount of money. That is how much will be paid under a litigation settlement with JP Morgan Chase. JPMorgan Chase will pay $75 million to settle claims brought by the U.S. Virgin Islands relating to the bank’s dealings with deceased financier and sex offender Jeffrey Epstein. The settlement calls for the bank to pay $30 million to support charitable organizations in the U.S. Virgin Islands, $25 million to support law enforcement efforts to combat human trafficking in the territory and $20 million in attorneys’ fees.

The 2nd U.S. Circuit Court of Appeals sided with the state of Connecticut, upholding a lower court decision that said the state’s lawsuit against Exxon Mobil should be heard in state court. This is the seventh court to rule against the oil industry on this matter.

PUBLIC POWER AND EMISSIONS

An industry group recently released the results of a review of utilities and their emissions reduction goals. It focused on those utilities which have made it their goal to reduce carbon dioxide emissions by 80% by 2030. That is a more aggressive goal than is required under the Clean Power Plan Regulations developed during the Obama administration. A list of 25 utilities with such stated goals.

On that list are a total of 13 public power entities. They range from joint action agencies (JOA) to individual municipal distribution utilities and are located all across the country. JOA utilities include Southern Minnesota Municipal Power and Platte River Power Authority. The co-op on the list is in Vermont. Local utilities include those serving Austin, TX, Colorado Springs, Fort Collins, CO, Eugene, OR, Snohomish PUD, and Concord, MA. California utilities include LADWP, Pasadena, and Sacramento.

ANOTHER KIND OF CONGESTION FEE

The congestion fee plans moving towards implementation in NYC have generated much debate. Part of the process is assigning blame which focuses on things like double parking and delivery vehicles. While that debate unfolds, other jurisdictions have been testing other strategies impacting the delivery vehicle cohort.

Pittsburgh has been experimenting with the idea of ‘smart loading zones”. The concept designates certain portions of on-street curb space which are painted purple. These zones charge for parking by the minute – it used a graduated payment system, which started at seven cents per minute for the first five minutes and went up to 27 cents per minute for cars that parked between 30 and 60 minutes. The idea was to make it very uneconomical for non-commercial parking.

The initial zones were located within the central business district. It was expanded to two other zones with declining rates. The fees were not universally supported especially by local merchants. This week, legislation was introduced in City Council that would revamp the fee structure. If the legislation is approved, the smart loading zones would have a 15-minute free grace period before vehicles are charged.

Vehicles that park from 16 to 30 minutes will be charged the hourly metered rate, which is $4 in Downtown, $3 in Oakland and the Strip District and $2 in Squirrel Hill and Lawrenceville. Cars parked from 31 minutes to an hour will be charged double the hourly metered rate, and vehicles parked for up to two hours would be charged three times the metered rate.

The city agency overseeing the project the Department of Mobility and Infrastructure (DOMI) cites data showing that about 55% of people who park in the smart loading zone park for less than 15 minutes. Less than 5% of smart loading zone users stay there for between one and two hours.

In a manifestation of the nudge theory, enforcement would change. Initially, the smart loading zones were enforced Monday through Saturday from 5 a.m. till 10 p.m. At the start of this year, DOMI adjusted the hours to 8 a.m. till 10 p.m. to incentivize loading at early morning off-peak times. The changes are estimated to be revenue neutral to negative. It is not designed as a revenue maximiser as so many critics of New York’s plan point to.

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.