Joseph Krist

Publisher

AFTER THE FIRE

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

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

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

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

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

BRIDGES

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

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

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

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

POLICY AND PORTS

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

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

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

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

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

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

BLAME CANADA

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

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

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

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

CLIMATE BALLOT IN COURT

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

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

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

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

NEW YORK STATE BUDGET AND FEDERAL MONEY

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

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

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

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

FEDERAL FUNDING AND THE STATES

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

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

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

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

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

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

REALLY?

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

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

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

CONGESTION PRICING

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

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

AFTER THE FIRE

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

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

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

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

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

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

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

NUCLEAR

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

WIND

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

REGULATION LITIGATION

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

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

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

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

EV POLICY REALITIES

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

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

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

POLICY REALITIES – NEW YORK

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

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

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

MISSISSIPPI

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

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

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

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

BABY BONDS IN NEW MEXICO

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

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

ALASKA PERMANENT FUND DIVIDEND

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

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

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

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

COLLEGE PRESSURES

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

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

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

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

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

D.C. DOWNGRADE REVIEW

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

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

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

CLIMATE LITIGATION

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

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

ELECTRICITY TARIFFS

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

AFTER THE FIRE

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

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

TARIFFS AND LAYOFFS

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

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

WATER WARS

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

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

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

CARBON CAPTURED?

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

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

STADIUM FOLLIES

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

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

CALIFORNIA MEDICAID SHORTFALL

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

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

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

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NON PROFITS UNDER PRESSURE

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

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

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

COLORADO RIVER

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

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

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

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

WHERE THE CUTS COULD HURT

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

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

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

HOSPITALS AND MEDICAID

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

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

CARBON PIPELINES

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

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

S.F. SEWER DECISION

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

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

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

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

ETHANOL

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

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

FARM TARIFFS

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

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

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

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

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

ECONOMY

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

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

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

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

SOLAR

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

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

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

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

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

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Joseph Krist

Publisher

NEW YORK AND TRUMP CUTS

The New York City Independent Budget Office (IBO) publishing its independent analysis of the Mayor’s Preliminary Budget. New York State receives $93 billion, and New York City receives $9.7 billion in federal funds for programs through various agencies that support New Yorkers. The Department of Government Efficiency (DOGE) has clawed back $81 million in FEMA FUNDS Appropriated by Congress, money that was legally appropriated and dispersed to New York City for migrant shelter services. 

The report also notes some emerging trends in terms of the City’s ability to withstand revenue losses. New York City has been able to balance its annual budget by paying next year’s expenses with current year surpluses. In recent years, the amount of surplus the City applies to the following year have decreased. Thus, despite the City being projected to have a $3.8 billion surplus this year, its fiscal position is tightening. Last year, the surplus was $4.4 billion and in 2023, it was $5.4 billion. 

The City’s financial challenges extend beyond federal policy and reliance on past surpluses. Other financial management challenges include chronic underbudgeting, rising overtime costs, and funding ongoing education programs with time-limited COVID-19 funds that have expired. Last year, IBO reported that it had found a $605 million shortfall in the Fiscal Year 25 Executive Budget due to unaccounted overtime. than $840 million than budgeted in 2025.

Persistent budgeting issues—such as underestimated program costs, excessive overtime spending, and imprudent budgeting—combined with potential federal funding cuts and economic uncertainty, put the City’s ability to weather near-term shocks and maintain long-term fiscal stability at risk.

CONGESTION FEE RESULTS

New York’s congestion pricing plan raised $48.6 million in tolls during its first month. The first month’s revenue will pay for $11 million of expenses related to setting up tolling cameras and other parts of the system, and environmental projects to address concerns about urban pollution that might arise because of changing traffic patterns. That leaves about $37.5 million that can be applied toward financing a slew of major transit repair projects.

Congestion pricing is projected by the MTA to generate about $500 million per year during its first three years, $700 million per year after the first toll increase, and close to $1 billion a year after the next one. The tolls are expected to increase for most drivers to $12 in 2028, and to $15 in 2031. Some 68 percent was charged to passenger cars, while 9 percent was billed to commercial trucks, and 1 percent to buses and motorcycles. Roughly 22 percent of the tolling revenue came from taxis and for-hire vehicles, which are charged a smaller, per-trip fee that is added to the fare and paid by passengers.

CHICAGO BORROWS FOR TODAY

The Mayor’s proposed $830 million bond issue has been approved. The idea of bonding to meet budget shortfalls is not new, certainly not in Chicago. What is different is that the amortization schedule for the bonds does not contemplate any principal repayment for 20 years. It may be the ultimate “kick the can down the road” use of bonding for operations. Effectively, the City is operating under the strains of prior mismanagement which has driven up the City’s debt burden. Now, another generation will find itself paying for the mistakes of the past.

The approved issue comes with some strings. The Mayor had to agree that the money could not be used to cover controversial non-teacher Chicago Public Schools pensions. He continues to push for another bond to pay off those expenses. The Mayor says the City is facing the imminent prospect of closing out the 2024 budget with a deficit if the Board of Education doesn’t agree to make a $175 million pension payment by March 30. If the Board doesn’t, the City will have to reach into reserves to cover the shortfall.

That would increase the downward pressure on the ratings of both the City and CPS. CPS has $9.3 billion in long-term debt. The proposed bond for CPS would be some $242 million. The city is facing the March 30 deadline because its 2024 fiscal year ended Dec. 31 and it has 90 days to close out its books. The city is legally obligated to make the contribution and did so through 2020.

The debt and pension issues will likely cap the City’s ratings where they currently are at best.

BUDGETS IN THE MIDST OF DISRUPTION

This time of year is always interesting, sometimes fraught and always dramatic as the states undertake their annual budget process and rituals. The process always entails more than money as session lengths are tied to fiscal deadlines so this is the opportunity to continue or reverse policies. This year the normal pressures associated with budget making are being ratcheted up by the fiscal uncertainty being driven by the Trum administration.

First, what is the employment/economic impact of proposed cuts to the federal workforce. Take Virginia, where some 144,000 residents in the greater Arlington area are federal employees. Will those cuts also wind up impacting employment in the private sector jobs tied to the federal government – advisers and consultants from contractors? That’s where the fired today/rehired tomorrow moves currently underway are so damaging.

The same questions can be asked of any locality with a substantial civilian but federal employment base. Many communities benefitted from the location of federal offices both large and small. Regional offices for things like the Social Security Administration, Veterans Affairs have supported communities effectively in lieu of other economic development. Another is the importance of federal leased buildings in many places.

Federally leased office space under long-term leases has often been seen as a stabilizing factor for some development projects. The musings from the DOGE point to the potential savings associated with mass layoffs and breaking leases for things like offices.

FEDERAL FUNDING ROULETTE

In fiscal year 2024, Maine received and spent about $4.8 billion in federal funding, not including funds distributed to nonprofits, the state university system or quasi-state entities such as MaineHousing, according to the Maine Department of Administrative and Financial Services. In education alone, the state is distributing $250 million in federal funds to school districts in the current fiscal year. Academic programs for disadvantaged students and English-language learners, special education, nutrition, and career and technical education are what tend to be funded from those funds.

DISASTERS

Interstate 40 is set to open to traffic on Saturday for the first time since Hurricane Helene. The repairs have been complied such that there is one lane in each direction extending approximately 12 miles from Cold Springs Creek Road (Exit 7) in North Carolina to Big Creek Road (Exit 447) in Tennessee. Speeds are limited to 35 mph. Standard 18-wheelers allowed; no wide loads are permitted.

It was a massive job. The hurricane washed away about 3 million cubic yards of dirt, rock and material from the side of I-40. Crews installed 90,000 square feet of soil-nail walls across the 10 different damage locations in less than 130 days. They also drilled nearly 2,100 feet of nails and fortified 4 miles of the shoulder for truck traffic.

The project was executed as a P3. NCDOT entered a CMGC (Construction Manager/General Contractor) contract for the permanent reconstruction of I-40. 

PORTS

The threat of a longshoremen’s strike at the East and Gulf Coast ports is now gone with the latest settlement between the ship and port operators. This follows settlement of a strike at West Coast ports in mid-2024. Now the shadow over ports and their workers relates to tariffs. Will tariffs actually happen and if they do what will be the impact on shipping volume? Whatever declines happen they will be compared to a robust base of recent operating data.

The Port of Los Angeles reported record volumes for the month of January, processing 924,245 industry-standard containers compared with 855,652 a year earlier. This also follows an exceptionally busy 2024 — the port handled more than 10.3 million units, marking its second-best year. The Port of Long Beach also reported its strongest January on record, as well as its second-busiest month ever. The number of containers processed increased 41.4% to 952,733 containers from 674,015 last year. The port said the results largely were driven by retailers moving cargo ahead of the anticipated tariffs on goods from China, Mexico and Canada.

The Northwest Seaport Alliance said combined January container volumes from the ports of Seattle and Tacoma, Wash., increased 25.4% year over year to 264,869 TEUs from 211,283. Port Houston volume increased 7% year over year to 356,407 containers from 332,961. Those volumes were also 5% higher than the 340,418 containers processed the previous month. This follows a record-breaking year with the port processing 53,066,219 tons of cargo in 2024.

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

SPLITTING THE BABY

Governor Hochul announced that she would not be taking steps at this time to remove Mayor Eric Adams from office. Instead, she will ask to legislature to enact a variety of changes to increase state “oversight” over the City’s operations. She said that she had spoken to leaders of the City Council and the State Legislature and made clear she intended for the special provisions to expire at the end of 2025, when Mr. Adams’s first term expires, with the potential for renewal.

The proposed changes included creating a new state deputy inspector general focused on New York City’s operations; establishing a fund for the city comptroller, public advocate and City Council speaker to hire outside counsel to sue the federal government if the mayor is unwilling to do so; and granting additional funds for the state’s comptroller to scrutinize city finances.

The announcement comes as proceedings to determine whether the DOJ will succeed in its efforts to drop their case against were continued. The judge has appointed his own investigator to review the arguments for and against dismissal. Lost in all of this is that the requested dismissal of charges would be with prejudice. That would allow the charges to be brought again at a later date.

HOSPITAL LAYOFFS

Mass General Brigham will eliminate many management and administrative positions within its hospital network. The layoffs are due to an anticipated budget shortfall of $250 million over the next two years that the hospital is attempting to close. The healthcare system has more than 82,000 employees. Massachusetts General Hospital and Brigham and Women’s are among the top seven largest employers in the state.

The budget gap of $250 million is around over 2% of the hospital system’s yearly employee compensation costs, according to MGB. The system reported a loss from operations of $72 million or a -0.4% operating margin in 2024. The prosed cuts – the number of which is as yet undetermined – are centered on managerial and administrative roles rather than clinical positions.

CONGESTION PRICING

Only 45 days in to its life, the process to end congestion pricing is being undertaken by the Trump administration. It’s not a surprise and people were fooling themselves if they thought the fees would be maintained. Now, there will be issues regarding what is done with the revenue collected to date, any refunding mechanism will have to be determined and how to fund the MTA’s capital program. The transportation secretary cited the cost to working-class motorists, the use of revenue from the tolls for transit upgrades rather than roads and the reach of the program compared with the plan approved by federal legislation.

There were 1.2 million fewer vehicles south of 60th street between Jan. 5 and Jan. 31, a 7.5% drop, according to the MTA. The end of congestion pricing would force the state to come up with another way to raise $1 billion a year to fund the M.T.A.’s capital plan, and would leave the state with little way to recoup the half-billion dollars spent to prepare the city for the program. 

In the immediate future, the MTA plans to keep collecting the fees until they are legally stopped from doing so. MTA filed suit immediately and there are several arguments to be made that would lead the court to find against the President. All this as the State faces a fairly contentious budget process with the 2026 state elections hanging over the process. 

SCHOOLS AND TEACHER COSTS

People often assume that people who work in NYC by definition make more than folks everywhere else for the same work. That hasn’t been true for some time in areas like education and law enforcement. The NYC Independent Budget Office recently developed data on teacher salaries in NYS to give us something objective to look at.

The median teacher salary for traditional public school teachers in New York City is higher in nominal terms than in many other districts in New York State, including Buffalo, Rochester, Syracuse, and Yonkers, and in neighboring districts in New Jersey. New York City’s nominal median salary is lower, however, than that in suburban districts in Hudson Valley and Long Island.

Charter school teachers in New York City earned the lowest median salary, in nominal terms, among the school districts IBO studied. Salary differences, however, are observed when IBO looked at teachers with Master’s degrees and less than 5 years of teaching, whom IBO classified as novice teachers. When adjusting for education and experience, median salaries in New York City traditional public and charter schools were higher than those in other groups, even including the neighboring suburban areas.

However, the higher median salaries of novice teachers with a Master’s degree disappeared when the nominal salaries were adjusted for variation in similar professional occupations and the cost of living. Adjusted salaries became similar across New York State, and the adjusted salaries in New York City were even lower than in the large cities.

Median nominal salaries have consistently increased across school districts in New York State and New York City charter schools since the 2017-2018 school year. In New York City, traditional public school salaries were relatively flat in the 2021-2022 and 2022-2023 school years, after rising during the previous four years. This partly relates to contract negotiations between the City and the teachers’ union, as well as shifts in teacher composition.

The (nominal) median teaching salary in New York City traditional public schools ($98,699) was higher compared to the median salaries of other districts in New York State ($94,582), other four large urban school districts ($84,923), and neighboring New Jersey ($80,299). However, the median teacher pay in the City was smaller than those in school districts in Hudson Valley and Long Island ($112,182). Also, New York City’s charter schools had the lowest median teaching salary ($77,073) among the groups.

The City’s charter schools had the lowest median salary among all teachers studied but a salary among novice teachers similar to the City’s public schools. This suggests that charter school teachers generally have less education and teaching experience, which accounts for salary differences. About 51% of teachers in charter schools had less than five years of teaching experience and held either Bachelor’s or Master’s degrees.

It matters because the City faces stringent restrictions on class size. By definition, this will require more teachers. The City presents a number of daunting challenges not the least of which is housing. It will make it hard for the City to meet its needs in the classroom.

MEDICAID

Medicaid has long been a target of Republican lawmakers as well as President Trump. The goal has been to reduce both the cost of the program as well as limiting participation in the program. This is especially true in the light of the Medicaid expansion provisions associated with the Affordable Care Act. Throughout the first Trump administration, numerous attempts were made to allow states to impose work requirements through waivers granted by CMS (the agency overseeing Medicaid). Those programs were rejected in the courts.

Georgia is the only state implementing an 1115 Medicaid waiver that determines an individual’s eligibility for Medicaid coverage based, in part, on their ability to demonstrate participation in qualifying employment or educational activities. On October 15, 2020, the Centers for Medicare and Medicaid Services (CMS) approved the State of Georgia’s Section 1115 waiver demonstration project, “Georgia Pathways to Coverage.”

Georgia Pathways offers healthcare coverage to residents who meet program requirements and are not otherwise eligible for traditional Medicaid. Implementation of the demonstration was postponed, resulting in a demonstration period of July 1, 2023, through September 30, 2025. To be eligible for Pathways, applicants must satisfy, and continue to maintain, a qualifying hours and activities (QHA) requirement of 80 hours per month.

The qualifying activities include various types of employment, job training, vocational rehabilitation, community service, and education. During the first 13 months of implementation, approximately 26,000 individuals applied to Pathways. A majority of applicants (83%) were determined to be ineligible for Pathways, either due to general Medicaid requirements, or to the Pathways-specific QHA requirements.

How is all of this working out? In the original 2019 waiver application, the state projected enrollment of 25,000 individuals into Pathways in the first year of the
program; actual enrollment during the first year of implementation was approximately 4,300 individuals. QHA requirements also had a significant impact on program enrollment, particularly for older adults (aged 50-64). Older adults were less likely to be eligible for Pathways and more likely to be ineligible due to failure to meet QHA requirements compared to younger applicants. Of the nearly 6,000 individuals who met all requirements other than QHA, approximately 1,700 were ineligible only because of the QHA requirement.

So, what did researchers conclude? QHA requirements had a significant impact on Pathways enrollment. The QHA requirement had a particularly pronounced impact on older adults, who were less likely to be eligible for Pathways and more likely to be ineligible due to QHA requirements. Without the QHA requirement, enrollment for older adults would have increased by 65%. The Pathways program requires beneficiaries to report their QHA monthly. Allowing beneficiaries to report an annualized number of QHA hours (instead of 80 hours per month) would accommodate month-to-month fluctuations in QHAs such as seasonal work or academic calendar-based educational opportunities.

As of July 2024, fewer than 5,000 Georgians have received coverage through Pathways, indicating that the program is not currently serving as a significant avenue to health coverage in the state.

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

PUERTO RICO

Puerto Rico Governor González, a Trump supporter, recently filed a bill to scrap a law calling for renewable energy to meet 40% of the U.S. territory’s needs by 2025 and 60% by 2040. Puerto Rico’s newly appointed “energy czar,” recently said that burning coal for energy should continue through 2035 even though public policy dictates that the island stop burning coal in 2028. The project submitted by the governor upholds a 2050 goal that renewable energy meet 100% of Puerto Rico power needs, but eliminates other goals intended to keep progressing in the effort to reduce reliance on fossil fuels.

The new administration has been sending a variety of mixed signals about the preferred future course for the Puerto Rico Electric Authority (PREPA). There is this legislation and the recent comments from the director of PREPA in support of fossil fueled generation. She recently told El Nuevo Día newspaper that she believes a new fossil fuel-based plant in the island’s southern region is needed in addition to a natural gas plant being built in Puerto Rico’s capital that is expected to start operating in 2028.

At the same time, the governor announced a $767 million contract with Tesla funded by the U.S. government to buy 430 megawatts in energy storage systems.  These could potentially help stabilize Puerto Rico’s power grid. The project was initiated under previous administrations in the U.S. and Puerto Rico.

TRUMP REALITY – TRANSPORTATION

It does not take long for rhetoric to become policy (of a sort) in the world of Trump. We are already seeing specific examples of the small but pervasive ways executive orders suspending funds are impacting state and local government.

Louisiana transportation officials shared a public notice announcing the suspension of a program that would have built and maintained charging facilities for electronic vehicles at locations around the state. The Louisiana Department of Transportation and Development last fall announced it would take applications for its $73.4 million share of the National Electric Vehicle Infrastructure Program. It had planned to build 10 publicly accessible charging facilities.

The North Carolina Department of Transportation expected to receive up to $109 million to build electric vehicle infrastructure along its corridors. The federal government will reimburse states with projects already underway. That means the North Carolina DOT can still move forward with $5.9 million worth of construction of nine stations. From fiscal years 2022-26, Virginia was projected to receive $106,376,132 in EV charging station funding Trump has temporarily suspended. 

TRUMP REALITY – UNIVERSITIES AND RESEARCH

The truly unexpected move was the Trump administration’s plan to cap agreed-upon payments that universities and health systems receive to support research. The plan applied to $9 billion of the $35 billion in grants issued to research institutions. The 10 institutions that receive the most money from N.I.H. stand to lose more than $100 million per year on average. The Trump administration said it wanted to cut such funds roughly in half, by about $4 billion.

A federal judge issued a temporary restraining order against the cuts but that does not mean that the cash will be flowing. In a legal memo related to the lawsuit, universities argued that the funds were indispensable in research, including at facilities where lab animals undergo clinical testing, for the computer systems that analyze large amounts of data, for blood banks and other expenses that cannot be directly tied to a single project.

Many of the institutions which would be impacted have some outstanding municipal bond debt. The reduction in funding should it survive would represent a real reversal of historical experience.  An attempt to do this in the first Trump administration led to legislation intended to prevent it. The money which would be cut is out of a mutually agreed to amount under legislation enacted by Congress. In the lawsuit, the association of universities argued that the current proposal violated the will of Congress and also defied standard administrative procedures.

The hospitals likely to feel the most impact include 5 of the top 10 hospital recipients in Boston alone. The proposed cuts would total $285 million of grants which would come right out of the economy. University based health research entities would face the same treatment. In New York City alone, some $500 million of funding is at risk among those entities.

TRUMP REALITIES – BONNEVILLE POWER ADMINISTRATION

The federal agency which runs the northwestern hydroelectric grid and backstops debt issued in the municipal market on its behalf is another casualty of the meat-ax approach to efficiency. About 200 of the agency’s more than 3,000 employees have accepted the Trump administration’s offer to resign and receive eight months of severance pay. An additional 90 job offers at BPA were rescinded as a result of the administration’s freeze on federal hiring. Chief financial officer is among the open positions held up by the hiring freeze. Current and former BPA staff anticipate another 350 to 400 probationary employees could be cut.

The employees taking the buyout include linemen, engineers, substation operators and power dispatchers. That’s the problem with plans like this. You can’t be sure of exactly who and what skills and experience are walking out the door. BPA won’t confirm how many transmission-related employees were leaving the agency, or whether ongoing transmission upgrades would be slowed because of the loss of staff. 

The real irony? BPA is essentially self-funding so any ‘savings” would not accrue to federal taxpayers as revenues from electricity sales fund the agency.

CALIFORNIA INSURANCE

California’s FAIR Plan, the home insurance plan of last resort, does not have enough money to pay claims from the Los Angeles wildfires and is getting an infusion of cash from regular insurers. State regulators said that they will allow the program to collect $1 billion from private insurance companies doing business in California to pay its claims. Those assessments can then be added to the private insurer’s rate bases. State regulations allow insurers to pass along as much as half the cost of the assessment to customers, in the former of higher charges. Insurers must absorb the other half.

The fee will be divided among insurers based on their market share, as required by state law. The $1 billion assessment is the largest since the FAIR Plan was created in 1968, and the first time since the 1994 Northridge earthquake near Los Angeles that the FAIR Plan has faced claims in excess of its resources to pay them. Leaving California would not relieve insurers of their share of the assessment for the FAIR Plan. 

As of Feb. 4, the plan had received more than 3,400 claims from the Palisades fire, and more than 1,300 claims from the Eaton fire. About 45 percent of those claims were for “total losses”. That is because between 2020 and 2024, the number of homes with policies under the FAIR Plan more than doubled to almost half a million properties with a value of about half a trillion dollars. 

Some of the reliance on this assessment scheme reflects the fact that unlike Florida, the FAIR Plan does not have the ability to borrow money through bonds or a line of credit. That would relieve the immediate pressure on assessment collections. The real risk in the current situation is that assessments might drive insurers away from issuing new policies.

VOUCHERS AND SCHOOLS

Voucher systems have long been touted by advocates as a way for lower income families to have the same choices as other families have when deciding where their kids will go to school. These systems often included income limitations so that the program better meets its target population. In recent years, parents have clamored for making vouchers available to all families regardless of income. In those instances where programs do not have income restrictions, the benefits of those programs may not be reaching the intended audience.

Florida’s education voucher system is the nation’s largest. Voucher use has risen by 67% since lawmakers eliminated income eligibility requirements in 2023. The percentage of private school students using vouchers has increased to about 70%, up from about a third a decade ago. One-quarter of state scholarships or vouchers are now going to families in the top income tier. Many are applying the funds to private (including religious) schools. The program is shifting public money, estimated at $3.4 billion this year, into private, mostly religious schools.

More than 122,000 new students started using vouchers for the first time in the 2023-24 school year, and nearly 70 percent were already in private school. Schools that families were already paying for. Campuses that advertise annual tuition of $15,000 or more added more than 30,000 voucher students last year. More Florida students use vouchers — a total of 352,860 — to attend private campuses than are enrolled in public schools in Osceola, Orange and Seminole counties combined.

When the program started, only families whose children were enrolled in public schools could apply for the scholarships. A decade ago, the state deleted that requirement, allowing parents whose children had never been in public school to seek a voucher.

EMINENT DOMAIN

The Maryland Piedmont Reliability Project (MPRP) is a proposal from Public Service Enterprise Group (PSEG) to construct a 500,000-volt transmission line across roughly 70 miles in Frederick, Carroll and Baltimore counties. On Dec. 31, 2024, PSEG applied to the state’s Public Service Commission for a Certificate of Public Convenience and Necessity to construct the MPRP. Only after obtaining the certificate would PSEG be considered a public utility that can acquire rights of way through eminent domain.

State lawmakers from impacted districts are pursuing bills to change eminent domain proceedings, transmission planning processes and state approval criteria for utility projects in the event the MPRP proceeds. SB657 would require defendants in eminent domain proceedings to be reimbursed for legal fees and other costs associated with defending against the taking of their land, regardless of if they prevail. SB661 would establish that the “fair market value” of agricultural land for eminent domain proceedings is 350% of the property’s highest appraised value.

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

TIN CUP DAY

It is an annual ritual in New York where each winter the State proposes its budget and the Mayor of New York asks for more money. It always leads to an interesting back and forth between the Mayor and the Legislature. This year is no exception and the topic at the center of the debate is funding for migrants. It comes after a year in which the migrant problem was foisted upon jurisdictions around but not adjacent to New York City. That effort generated a lot of hostility towards the City which has long had a frought relationship with the rest of the State.

Now those differences are manifesting themselves in the budget process. The Governor’s proposed budget includes no increase in state support for the City’s efforts to manage its massive population of recent migrants. Last year, Gov Hochul and the legislature agreed to bring the state’s share of funding toward the migrant crisis to $4.3 billion. The State has been covering one-third third of the costs to house migrants, as well as working to help ensure they receive vaccines and health services.

Now, the Mayor is seeking an additional $1 billion from the state. And he wants it by May of this year. The Adams Administration released the City’s January 2025 Financial Plan on January 16, 2025. Here is where the Mayor runs into a problem. Outside analyses have shown that the Mayor historically over budgets for many costs. One of those areas is spending on the migrant problem. After the Mayor released the January plan, the NYC Independent Budget Office (IBO) released its analysis which highlights the problem.

The City regularly budgets funding to cover the cost of staffing at full capacity. In reality, the City recorded a low of 280,000 employees in April 2023. Since then, citywide headcount has increased to around 286,000 staff as of the November 2024 Financial Plan. Budgeted headcount, however, remains set at around 301,000 for the current year. Here, IBO highlights one of the Mayor’s go to solutions for managing the budget – funding that is budgeted but ultimately unspent. The City recorded a low of 280,000 employees in April 2023. Since then, citywide headcount has rebounded to around 286,000 staff as of the November 2024 Financial Plan. Budgeted headcount, however, remains set at around 301,000 for the current year.

Why does it matter? When you go to the Legislature with your tin cup it shouldn’t have money in it when you make the request. IBO notes that estimated that the net savings on employee salaries and related healthcare costs stemming from such over-budgeted headcounts total at least $600 million for 2025. That is half of what the Mayor says he has to have by May of this year.

INSURANCE AFTER THE FIRE

State Farm General, which had about a 20% share of the homeowners insurance market in 2023, insures about 1 million homeowners in the state and has 1.8 million other policies in force. The company, California’s largest home insurer, asked state officials for an emergency rate hike averaging 22% in the aftermath of the Los Angeles fires. The company has already received at least 8,700 claims and paid more than $1 billion to customers. 

The company is also asking for rate hikes of 38% for rental dwellings and 15% for tenants, with the rates taking effect May 1. The California insurer said it has lost $2.8 billion over the nine-year period ending last year, including gains from investment income. In June, the company filed for a 30% rate increase for its homeowners polices, a 36% increase for condo owners and a 52% increase for renters. That rate hike request is still pending. 

The company previously received a 6.9% increase of its homeowner rates in January 2023 and a 20% hike that went into effect in March of last year. The Department of Insurance said that any rate hike would be approved only if it is justified under Proposition 103, the 1988 ballot measure that gave the commissioner the authority to review, adjust and reject proposed rate hikes.

In March 2024, State Farm General announced it would not be renewing some 72,000 home, apartment and other property policies in California, citing soaring reconstruction costs, increasing wildfire risks and outdated state regulations.

That followed its May 20023 decision to stop writing new business, homeowners, and other personal property and casualty insurance in the state, with the exception of personal auto insurance.

State Farm modified its decision and said it would offer renewals to any policyholder affected by the Palisades, Eaton and other county fires whose policies had not lapsed before the fires’ start on Jan. 7. The insurer estimated that it would apply to roughly 70%, or 1,100, of the 1,626 residential policies it had in Pacific Palisades’ primary ZIP Code when it announced the nonrenewals last year.

It later expanded the renewal offer to any Los Angeles County policyholder on those same terms. The company said it had about 250,000 residential policyholders in the county.

WE AREN’T GONNA DO THE WIND THING

Maybe they’ll carve that under the face of Trump on Mount Rushmore but the President has done nearly all he can to stop the wind generation industry. The President signed an executive order which paused the approval of leases, permits, and loans for both offshore and onshore wind energy pending a federal review. It also temporarily withdrew new offshore wind lease sales and called for a review of the ​“ecological, economic, and environmental necessity of terminating or amending existing wind energy leases.”

Wind Energy was the source of about 10% of total U.S. utility-scale electricity generation and accounted for 48% of the electricity generation from renewable sources in 2023. There are seven offshore wind projects whose permitting was underway and several more in earlier stages that will now be temporarily halted by the order. nine commercial-scale offshore wind projects that already have federal permits in hand. Five are actively under construction from Maryland to Massachusetts. In total, the capacity of the fully permitted offshore wind plans left untouched by Trump’s order is 13,973 megawatts.

The order certainly disrupted the outlook for wind projects in the Atlantic. There is growing doubt about the continued expansion of wind capacity in New York which had made a big commitment to wind. New Jersey was more explicit about its disjointed market and the impact of the order. Already plagued by the departure of the Danish company – Orsted – scheduled to develop significant capacity off the Jersey shore, now at least two other projects are in permit limbo. Ørsted is the named lessee or parent company for eight commercial-scale wind projects in various stages of development along the East Coast. 

In Virginia on the other hand, Dominion Energy reiterated its support for its wind turbine project off the Atlantic Coast. Dominion said the total cost estimate of its 2.6-gigawatt Virginia Beach wind farm had increased from $9.8 billion to $10.7 billion. Dominion said the project is still on time to be completed at the end of 2026, with about 50% of construction finished.

CHICAGO PUBLIC SCHOOLS

The Chicago Teachers Union rejected a neutral fact-finder’s recommendations for a new, four-year contract. The recommendations only addressed two of the 15 issues the union submitted last month to the fact-finder. The union comes away from this step in the process with a win. According to the CTU, the fact-finder found that in his view the district has the revenue to boost salaries and staffing as the union proposed.

The engagement of a “fact-finder” is a required step before the union can declare a strike. The union’s demands include raising salaries by 5% during the first two years of the contract and hire hundreds of new teaching assistants and librarians. CTU has suggested using CPS’ general fund balance or reserve funds. In its fiscal year (FY) 2024 financial audit, the District listed a fund balance of approximately $1.3 billion on June 30, 2024. 

FUNDING ROADS

Nine states are considering legislation which would address the issue of declining gasoline sales and related tax receipts. An Illinois House bill would freeze the state’s fuel tax rates. Currently, a cost-of-living adjustment is made to fuel each July under the terms of a 2019 state law that established annual increases in fuel taxes. That legislation plan raised the then-19-cent gas tax and 21.5-cent diesel tax to 38 cents and 45.4 cents respectively. Starting Jan. 1, the gas rate is up to 47 cents, and the diesel rate is up to 54.5 cents.

One Indiana Senate bill calls for ending regular changes in the state’s fuel tax rate tied to a state law that requires annual rate adjustments through 2027. Adjustments made each July 1 are capped at one penny. In Minnesota, a 2023 state law indexed to inflation the gas and diesel excise tax rates. The rule allows for annual rate changes. A House bill would halt indexing fuel taxes. In Mississippi, a bill would add a 5% sales tax to gas and diesel purchases. The fuel sales tax would add $400 million to the state budget.

Missouri is considering multiple bills on the subject of road funding. A 2021 state law authorized an increase to the then-17-cent fuel tax over multiple years. Since then, the excise tax on gas and diesel purchases has been raised four times in 2.5-cent increments to 27 cents. The final 2.5-cent increase is scheduled to take effect July 1, raising the fuel tax rate to 29.5 cents. One Senate bill would repeal the fuel tax increases and return the rate for gas and diesel to 17 cents. SB494 also would eliminate the upcoming 2.5-cent rate increase.

New York is considering S2093 which would suspend collection of the excise tax and state sales tax when fuel prices reach $2.25 per gallon. The petroleum business tax would also be eliminated once prices reach $3 per gallon. Additionally, the bill would authorize New York City and counties throughout the state to adopt local laws limiting tax on gas and diesel.

In Oregon, since 2009, state law has required cities to get voter approval to raise local fuel taxes. SB687 would allow cities and counties to raise local fuel taxes without asking voters. Another bill provision would permit every Oregon county to implement or increase vehicle registration fees without a vote.

Currently, Rhode Island makes an adjustment to the fuel tax every two years on July 1. The adjustment is based only on the inflation that occurred in the previous year. S47 would change the rule to make the adjustment every two years based on the inflation that occurred in the previous two years. In Texas, One House bill calls for indexing the excise tax to the highway cost index. HB326 would authorize the rate to increase or decrease each Jan. 1 based on the cost of certain highway projects.

CARBON CAPTURE

Six bills to regulate the Iowa Utilities Commission and place new limits on carbon capture pipelines and eminent domain are under consideration in the Iowa House. Previous efforts to restrict eminent domain have passed the House, but failed to advance in the Iowa Senate. The six bills would allow landowners subject to eminent domain for a project being considered by the IUC to seek declaratory review from the Polk County District Court and require hazardous liquid pipeline applicants to submit to IUC proof that the pipeline company has an insurance policy that would cover all damages that may result from the construction or operation of the pipeline, and require a pipeline company to cover a landowner’s insurance premium increases due to the construction or presence of a pipeline.

The bills would also prohibit the IUC from renewing permits for carbon dioxide pipelines and prohibit such pipelines from operating for more than 25 years; prohibit the IUC from sanctioning a party to a lawsuit; require all IUC members to be present for hearings related to pipelines, transmission lines, or public utility regulation and remove the state consumer advocate’s office from underneath the Iowa Attorney General and makes it an independent office with a leader appointed by the governor.

NUCLEAR

Arizona’s three major utility companies—Arizona Public Service (APS), Salt River Project (SRP), and Tucson Electric Power (TEP)—have announced plans to explore the possibility of incorporating nuclear energy into the state’s power grid. The utilities are considering two types of nuclear technologies: Small Modular Reactors (SMRs) and potential larger reactor projects. 

The utilities have applied for a grant from the U.S. Department of Energy (DOE) to fund a preliminary exploration of potential nuclear sites. The fate of such a request is unclear. The hope is that it would support a three year study. The three utilities already have nuclear in their generation fleet, Palo Verde Generating Station, located west of Phoenix, generates 1,400 MW per unit.

The Texas A&M University System announced it had offered land near the campus to four nuclear companies for the development of small modular reactors. Santee Cooper in South Carolina is trying to sell its interest in the Sumner nuclear plant which was cancelled. The hope is that facilities like data centers would be interested in developing nuclear for their own needs.

PULLING THE PLUG

Freyr Battery officials informed the Coweta County Development Authority late last month that the company will not move forward with its planned $2.6 billion factory in Newnan, roughly 40 miles southwest of downtown Atlanta. The battery manufacturing plant was first announced in Nov. 2022 and was slated to bring approximately 723 jobs into the area. The company cited rising interest rates, higher costs due to inflation and new management at the company.

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

BATTERY FIRE

One of the concerns cited by opponents of the establishment of industrial battery storage facilities is the threat of fires. That fear and the inability of the industry to address concerns have stopped a variety of battery storage facilities around the country. While much attention is being focused on the California wildfires, another event in Monterey County is providing unwanted attention on the risks of battery storage.

A massive blaze that began a week ago forced the evacuation of 1,200 residents before it burned itself out. The fire at the plant, a 300-megawatt lithium storage facility, destroyed most of the building and its contents, according to county fire officials. The storage facility is a part of a natural gas-powered electricity plant operated by Vistra Energy, a Texas company. The facility also has a battery storage station owned by PG&E.

The fire raised concerns about the toxic impact of chemicals released during the fire on air, water and soil in the area of the facility. It will certainly embolden those with concerns over the siting of battery facilities. This is the largest such fire event associated with battery facilities. It will be important to conduct a thorough transparent investigation. The industry needs public support for its efforts so the circumstances need to be understood and realistic remedies must be offered.

The first bill on the subject has been offered in the CA Legislature. The Battery Energy Safety & Accountability Act, or AB 303, will remove battery energy storage facilities from the California Energy Commission’s opt-in certification program, and return the power to local communities on whether to accept new battery plants. AB 303 purports to “establish reasonable limitations on where battery energy storage facilities can be located,”. The limitations include requiring a 3,200-foot setback from sensitive places like residences, schools and hospitals.  

The California Public Utilities Commission will soon vote on establishing new standards for maintaining and operating battery energy storage facilities. In the San Diego area, the most recent fire occurred September 5 in Escondido at San Diego Gas & Electric’s 30-megawatt, 120 megawatt hours facility. That led to the temporary evacuation of about 500 nearby businesses. Last May, a fire broke out in Otay Mesa at the 250-megawatt Gateway Energy Storage facility, operated by LS Power and its subsidiary, Rev Renewables. Fire officials said the batteries kept re-igniting and it took nearly 17 days before the last fire-fighting and air monitoring crews left the facility.

WILDFIRE INSURANCE

The FAIR Plan said mid-month that it has received 3,600 claims so far and estimated that it covers 22% of the structures in the Palisades fire, representing potential exposure of more than $4 billion. Meanwhile, about 12% of the structures in the Eaton fire are covered by FAIR, representing potential exposure of more than $775 million. FAIR said actual claims following a fire have historically translated to about 31% of the total exposure in an area, on average.

FAIR also said it can access reinsurance once the first $900 million in claims are paid. Once that threshold is reached, reinsurance is fully available for the next $350 million of claims payments, subject to certain conditions. FAIR said it hasn’t yet asked California’s insurance commissioner to levy an assessment on insurers. This would be the ultimate source of funding for FAIR as is the case with other catastrophe bond programs across the country.

As the situation in Los Angeles County unfolds, the realities of individuals insurance situations become clearer. One of those involves the fact that many policies do not cover enough to “rebuild” a residence. That primarily reflects the fact that the cost of building materials has never fully come back down after the inflation of the pandemic. FAIR caps its residential policy limits at $3 million. For many insured, that would not be enough to “rebuild” in the Southern California market.

CHAOS AND CREDIT

This may be one of the more challenging budget seasons faced by state and local governments in many years. The potential economic impact of efforts to slash the number of federal employees will cause local issues. The complete chaos around the effort to withhold loans and grants one day and the restoration of those loan and grant agreements cast great uncertainty over the true availability of those monies.

In addition, it is clear that Medicaid is a prime target for cuts. The online portal through which state Medicaid departments receive federal funding stopped working. That halted the processing of claims and billing for services provided through the program. The outage naturally raised suspicions that it was intentional. Many states receive a large infusion of funds at the start of every month. 

The states received a warning that the system was taking “additional measures” that could cause delays because of “executive orders regarding potentially unallowable grant payments.” It’s a symptom of where it is believed that the current Administration wants to take Medicaid. A striped down, limited system with work requirements for all recipients seems to be where they are headed.

It isn’t just the impact on state budgets directly from Medicaid. Cutbacks and restrictions on the program would obviously impact hospital credits. Reduced reimbursements would ultimately lead to higher state funding levels to support “charity care”. This was something that the ACA specifically sought to address with success. Reimbursements on an interruptible basis for a lower level of payment will damage hospital liquidity which is a key ratings driver.

RHETORIC VERSUS REALITY

The issue of subway safety in NYC has ben front and center over the last year. One of the solutions involves increasing the number of uniformed police officers on the trains and platforms. As part of the 2025 State of the State Address, Governor Hochul announced a subway policing initiative to increase police patrols on subway platforms and trains in New York City. If passed in the State budget, every overnight subway train will have two New York Police Department (NYPD) officers onboard, along with additional officers stationed across the City’s subway platforms.

There is a cost to all of this and that is where an unexpected layer of uncertainty materializes. The NYC Independent Budget Office estimates that the cost, using citywide payroll data and information reported by the Hochul administration, is between $61 million and $159 million, assuming all shifts are paid at overnight overtime rates. The Hochul administration’s $154 million projection is at the high end of the range.

The Governor proposed that New York State and New York City will split the estimated $154 million overall cost of deployment. If approved, the State would pay half ($77 million) and the City would pay the other half. New York City is expected to cover the cost of the program until the State passes their final budget and can reimburse the City. The final cost depends on the mix of officers and their ranks which has a serious impact on the total actual cost as pay rates could vary by as much as two or three times depending on the rank of the officers deployed.

IDEOLOGY AND KANSAS SCHOOL DEBT

Voters in Greeley County, KS voted to approve a $4.6 million bond issue for Greeley County public schools in 2024. The 25 year bond was meant to finance refurbishment of school facilities such as a gymnasium. That approval was overturned by the Attorney General of Kansas, the renowned ideologue Kris Kobach. He said the election didn’t comply with a state law requiring the public to have been notified of the May vote through notices on a county website.

The attorney general’s office determined the county clerk’s “non-compliance with the website notification” amounted to a failure to follow state law. Two problems: the County did not have a website at the time of the election. It relied on three months of notices in local papers, the traditional way of notifying voters. In addition, the law cited as the basis for the objections by the AG did not directly mandate that each county have a website.

Now, the legislature is considering Senate Bill 2, introduced in the 2025 legislative session for the purpose of approving passage of the school bond. That would permit the district to issue bonds to finance construction of a gymnasium, locker room and playground compliant with the federal Americans with Disabilities Act. No complaints were filed at the state or local levels about the bond election. There is along history of acceptance of bond approvals that have failed to fully comply with vote requirements in Kansas.

CHICAGO PUBLIC SCHOOLS

The Civic Federation has released its analysis of the Chicago Public Schools (CPS) FY2025 proposed budget total of $9.9 billion. The Federation says that it presents a temporary solution to a long-term structural financial problem. The plan as presented manages to close a $505 million budget deficit through a series of strategies, including operational reductions and efficiencies, without resorting to irresponsible fiscal practices like issuing debt to fund operations or depleting reserves. 

The Johnson Administration suggested that CPS borrow up to $300 million in long-term debt financing to cover the costs of the contract and the proposed pension reimbursement. The Federation rightly points out that the City’s proposal would increase CPS’ daunting debt and increase the likelihood of a credit rating downgrade, thereby increasing borrowing costs and undoing much of the fiscal progress the District has made over the past several years to get back to investment-grade status. 

Trouble also lurks ahead according to the Federation. The District projects future budget deficits throughout the next five fiscal years upwards of a half-billion dollars before accounting for additional salary and personnel costs, which signals even larger structural deficits ahead. Assuming 4% raises for teachers and principals, as well as a $175 million contribution from CPS to the City’s pension fund for municipal employees, the FY2026 deficit could increase to $933 million. 

PUBLIC POWER IN TUSCON?

The Tucson city council heard an update from a study to analyze the financial feasibility of establishing either a Tucson Public Power Utility or a Community Choice Aggregation Program (CCA). A Public Power Utility would own and operate the electric distribution system within the City and provide power supply to residents and businesses. A CCA program would only provide the power supply portion of electric service while TEP would continue to provide delivery and transmission services.

For reference, based on current TEP residential rates, for every dollar charged 30 cents covers delivery services (distribution and transmission), and 70 cents is for power supply. TEP rates have increased at a rate of 3.4% annually since 2012. More recently, however, retail rates have increased by approximately 7.6% per year since between 2020 and 2023.

The study estimates the total distribution system book value at $1.5 billion. The City would not need to purchase the entire system. Assuming a simple cost allocation based on customers and usage characteristics, the City’s share of this plant is estimated at $820 million (book value). There is also some $575 million in general plant assets. The City would be acquiring a share of those assets as well. The Public Power Utility will be deemed feasible if costs can be met through rates that are equal to or lower than forecast TEP rates.

CALIFORNIA WATER OUTLOOK

The Department of Water Resources announced that its State Water Project would likely be able to allocate 20 percent of requested supplies, up from 15 percent at the end of December and just 5 percent earlier that month. Releases from the State Water Project come from the Sacramento-San Joaquin Delta (the “Bay-Delta”). The decision comes as the President has been pushing for more water to be released to Southern California from that source.

The water began flowing after a three day maintenance period. The President claims that “the military” was sent to increase water supplies. The reality is that Los Angeles actually gets an estimated 38 percent of drinking water from the Los Angeles Aqueduct. Another 9 percent of the city’s supply came from local groundwater and 2 percent from recycled wastewater, with 51 percent supplied by the Metropolitan Water District of Southern California. Just 30 percent of Metropolitan’s water originated in the northern part of the state, while 20 percent came from the Colorado River and 50 percent from a combination of other sources.

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

This is the first MCN of the new year. Publication has been on hiatus as we dealt with some health issues. Now that we’re back there is plenty on the horizon in the muni credit space to make 2025 a most interesting year.

Three of the nation’s largest cities are led by mayors facing political headwinds of their own making. In Chicago, Brandon Johnson is acting in an ideological way that rivals any conservative administration we have criticized over the years. The amount of political capital blown by Mayor Johnson will make it difficult to manage the City’s fiscal problems. This has already been validated by the City’s recent GO downgrade.

In Los Angeles, Mayor Bass finds herself significantly weakened in the wake of the recent wildfires. The mayor’s lack of presence at the outset of the fire’s is well documented. It will make it harder to generate support for the many decisions which will have to be made to facilitate the task of rebuilding. Added to the pressures of hosting a World Cup and a Summer Olympics within the next three years the Mayor will need significant political capital.

And then there is New York. It is difficult to cite a case of a weaker mayor in the last 75 years than is the case with Eric Adams. He is in the midst of proving that he can either fight his case in court as he faces multiple federal corruption charges or he can function as the Mayor. He will have to go hat in hand to a state legislature where his support is limited. The Governor can’t afford to send much more money for migrants to the City. A very contentious budget process will unfold while the Mayor faces trial in April on the charges he faces.

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PUERTO RICO

It is hard to believe that the situation in Puerto Rico saw the new year rung in by a massive blackout. It is a fitting end to a year that saw the battle between debt holders and the Puerto Rico Electric Power Authority (PREPA) drag on. It seems that the near term outlook for a settlement is as bleak as it has been for some time. As for the cause of the latest blackout, “preliminary findings point to a fault on an underground line.”  The blackout caps off another year of weak operations of the utility. A blackout in June left about 350,000 customers without power. In August, 700,000 lost power in the wake of Hurricane Ernesto. On the financial side, the ongoing PREPA bankruptcy drags on through multiple administrations both in San Juan and Washington.

Amidst all of this, the US Department of Energy’s (DOE) Loan Programs Office (LPO) announced that it had closed on a $584.5 million for developer-operator Convergent Energy. The loan will be used to finance a 100MW photovoltaic (PV) system with a 55MW/55MWh battery energy storage system (BESS) in the municipality of Coamo, Puerto Rico. It will also help fund three other standalone BESS projects, a 25MW/100MWh system in Caguas, a 100MW/400MWh system in Peñuelas and a 100MW/400MWh system in Ponce.

Puerto Rico will also provide an early test of Trump administration policies regarding both the Commonwealth in general and energy in particular. Two other finance components for projects in Puerto Rico were not closed before January 20. One is a conditional commitment of US$489.4 million to Pattern, a subsidiary of Pattern Energy Group, for three standalone BESS projects. The loan would be used for the 50MW/200MWh BESS in Arecibo, a 50MW/200MWh project in Santa Isabel and an 80MW/320MWh BESS and integrated 70MWac solar PV system in Arecibo.

Additionally, the LPO’s announcement included a conditional commitment of US$133.6 million to Infinigen, a subsidiary of AL-Infinigen Operating, for a 32.1MWac solar PV project integrated with a 14.45/4.76MWh BESS and a co-located standalone 50MW/200MWh BESS expansion in the municipality of Yabucoa.

Overhanging all of this is the continued bankruptcy proceedings for PREPA. A change in administrations has given some hope that an early resolution of the bankruptcy might result. While we see the new governor as less populist, the reality is that there may be little the Governor can do. PREPA’s customer base remains poor and it’s ability to generate significantly higher revenues is clearly limited.

REEDY CREEK

Florida’s Chief Inspector General ended the investigation into what was then known as the Reedy Creek Improvement District (RCID) before Governor DeSantis reshaped it last year. The restructuring followed a political donnybrook between DeSantis and Disney. RCID was replaced by the Central Florida Tourism Oversight District through legislation which enacted in April 2023. The governor asked the state’s Office of Chief Inspector General to conduct a review of the former RCID board’s actions.

That investigation concluded there was a “blurring of the lines” between The Walt Disney Company and the Reedy Creek Improvement District, or RCID. This is not a surprise. The reality is that one of the attractions of Reedy Creek as a credit was the dominant role in the management and operations in the District it held. It is hard to argue that the resulting entity was not as much a creation of the Legislature as it was of Disney.

CANNABIS IN THE NEW YEAR

Nebraska will join 38 other states that have legal medical marijuana programs, following the approval of a ballot measure voters passed in November. The measure allows Nebraskans to acquire up to five ounces of cannabis if they get a written recommendation from a health care professional. In Kentucky, medical marijuana patients will be able to start purchasing products at dispensaries in the state under a program state legislators passed in 2023. Voters in Dallas approved an initiative that decriminalized possessing up to four ounces of cannabis. The Texas attorney general, Ken Paxton, a Republican, is suing the city in an effort to invalidate the measure.

CALIFORNIA

Voluntary measures by Californians to save water in the Colorado River system are on their way to keeping well over the promised 1.6 million acre-feet of water in the reservoir by 2026. This year, 500,000 acre-feet were saved through Dec. 4. That figure was 700,000 in 2023. On Dec. 26, Lake Mead’s water level was 18.5 feet above what it was two years prior. Since 2002, California users have decreased their Colorado River water usage by 800,000 acre-feet, according to the river board. In Los Angeles, users have cut their usage by 44% over the last 30 years despite a population increase of more than 1 million people.

A new state regulation will require home insurers to offer coverage in high-risk areas. It sets out clear metrics for determining whether an insurer is meeting requirements. Insurers will have to start increasing their coverage by 5% every two years until they hit the equivalent of 85% of their market share. Fror example, if an insurer writes 20 out of every 100 state policies, they’d need to write 17 in a high-risk area.

In return for increasing coverage, the state will let insurance companies pass on the costs of reinsurance to California consumers. California is the only state that doesn’t already allow the cost of reinsurance to be borne by policyholders. The ultimate goal of the new rules is to get homeowners out of the California Fair Access to Insurance Requirements (Fair) plan. (MCN 8.19.24)

TAXES

Indiana will slightly lower its income tax rate to 3% in 2025, down from 3.05% in 2024. Iowa lowered its individual income tax rate to a flat rate of 3.8% starting Jan. 1, down from a top tax rate of 5.7% in 2024. Mississippi reduced its individual income tax rate to 4.4% on Jan. 1, down from 4.7% in 2024. Missouri lowered its state income tax to 4.7% on Jan. 1 from 4.8% in 2024. Nebraska residents will see their income tax rate decline to 5.2% on Jan. 1, down from 5.84% in 2024.

North Carolina, whose legislature is controlled by the Republican Party while its governor is a Democrat, will cut its tax rate to 4.5% on Jan. 1, down from 4.75% in 2024. The individual tax rate is scheduled to lower again in 2026, to 3.99%. South Carolina’s top marginal income tax rate drops from 6.4% to 6.2%. West Virginia residents will see their top tax rate reduced from 5.12% in 2024 to 4.82% on Jan. 1.

There are two outliers. Louisiana is cutting its individual income tax rate to a flat rate of 3% starting Jan. 1, down from a graduated tax with a top rate of 4.25% in 2024. Taxpayers in Louisiana who earn between $30,000 to $40,000 a year, the largest number of taxpayers in any bracket in the state, will see their state taxes reduced by 50%. Here’s the rub. The state’s sales tax will rise to 5% in 2025, up from its prior 4.45% rate, partly to pay for the income tax cut.

Starting on Jan. 1, New Mexico’s individual income tax brackets will be reduced for all residents. Why is New Mexico an outlier? It is the only state with one-party Democratic control to enact a tax cut. The state will now have six brackets, versus five in 2024, with rates ranging from 1.5% to 5.9%. 

INFLATION REDUCTION ACT FUNDING

San Miguel Electric Cooperative (SMECI), located in Christine in Atascosa County, will receive more than $1 billion in funding from the U.S. Department of Agriculture to convert an existing coal-fired generation plant into a solar and battery facility. It operates a mine-mouth lignite-fired power plant. Lignite is cheap but dirty. San Miguel currently produces 391 MW of electricity sold through a Wholesale Power Contract with South Texas Electric Cooperative (STEC), which, in turn, supplies power to its distribution cooperative members who provide retail service to more than 340,000 rural Texas customers. 

Through funding under the Inflation Reduction Act, SMECI will converting its lignite mining and generation operations to a 400 megawatt (MW) solar generation and 200 MW battery storage facility. That power will be sold under a new agreement with STEC. SMECI will use part of the New ERA funding to refinance debt from its stranded lignite infrastructure.  

Qcells closed on a $1.45 billion Energy Department loan guarantee to support its solar panel manufacturing facility in Cartersville, Georgia. The facility will create 1,650 full-time jobs and generate 3.3 GW of solar panels annually, enough to power 500,000 homes. The facility will produce solar components to support the end-to-end supply chain, including ingots, wafers, cells and finished solar panels. The factory will be the largest ingot and wafer plant ever built in the U.S., according to DOE.

NYS STATE BUDGET

Governor Hochul put out her proposal for the FY 2026 budget. It totals some $252 billion – a new record.  New York is expected to end the current fiscal year on March 31, with a surplus of $3.5 billion thanks to higher-than-expected tax collections. Most of that is coming from personal income tax revenue. The state is also increasing its early income tax revenue projections for the next fiscal year by $1.8 billion, bringing the surplus to $5.3 billion.

Those funds will be used to fund the Governor’s “affordability agenda”. Those include a $1 billion tax cut for middle-class New Yorkers, an increase to the child tax credit and $300 to $500 rebate checks. It includes a 4.7% increase to state school aid, which is once again the highest state commitment to schools in state history. It brings the total amount of school aid to a proposed $37.4 billion. It notably maintains a practice known as hold harmless that ensures schools get at least as much aid as the year before.

The state’s future budget gaps have increased to $6.5 billion in the 2027 fiscal year, $9.8 billion the following year and $11 billion in the 2029 fiscal year. The most recent projections from the Division of the Budget put those first two holes at $6.2 billion and $7.1 billion. To address some of the gaps, the governor is proposing to extend the state’s so-called millionaire’s tax on New York’s highest earners to 2032.

Weak spots in the plan include $90.8 billion as the amount of money that the state is expecting to receive in federal funding. With Medicaid being a likely target for federal budget cutters, that number is likely to decrease. Completely missing are any suggestions for how to fund the gap in the Metropolitan Transportation Authority’s 2025-2029 capital plan. Legislative leaders rejected the most recent MTA funding plan. Governor Hochul’s proposal leaves the funding question up to negotiations with the state Legislature.

As for New York City, the amount of new money that the state is giving to New York City to deal with the migrant crisis is zero. Over the past two years, the state has set aside over $4 billion in state dollars to assist the city. The State would like to see all of that money spent before it allocates more.

CLIMATE LITIGATION WIN

The SCOTUS handed a victory to those states and cities suing the fossil fuel industry. The suits were all filed in state courts under state laws. The oil companies contended that because some of their production occurred pursuant to federal leases that their activities were governed by federal rather than state law. That would allow the cases to be consolidated and the federal courts are viewed as a more friendly venue to the industry.

The suit filed by the City of Honolulu was the chosen vehicle for review. The state Supreme Court found that the case argues on deceptive marketing grounds rather than seeking to restrict interstate commerce. Now, the industry will have to defend against nearly 40 such suits. The discovery process in that many cases is likely to provide more interesting information.

CONGESTION PRICING AND DATA

It only took one day for the MTA to show how hard its going to be to make a short-term judgment about congestion pricing. After the first work day of the program, MTA hailed an increase in ridership on a same day year over year basis. Of course, it was higher because the same date in 2024 was on a weekend. It’s one of many potential distortions in data reflecting more than the fee.

Most of Manhattan’s largest employers are bringing the era of work from home to an end. That in and of itself will contribute to positive ridership comparisons. It is also part of a nationwide trend of return to the office. Remote work dropped 8 percent nationally in 2024. Surprisingly, the tech industry is a source of significant return to the office (layoffs will do that). Working from home in San Jose declined 33 percent in 2024, with similar downward trends in San Francisco and Seattle, which showed 24 percent and 29 percent respectively.

PORT AUTHORITY OF NY/NJ

The rush to close loan and funding agreements funded under the TIFIA continued right until the end. The U.S. Department of Transportation’s (DOT’s) Build America Bureau (Bureau) announced it provided a $1.89 billion Transportation Infrastructure Finance and Innovation Act (TIFIA) to the PANY/NJ to modernize its famous Midtown Bus Terminal. The building serves some 65 million travelers and commuters annually.

The new Midtown Bus Terminal will replace the 74-year-old obsolete and deteriorated terminal with a new 2.1-million-square-foot main terminal. The project includes new bus storage and staging facilities which will serve as a temporary terminal during construction and will be paired with new ramps to and from the Lincoln Tunnel, removing busses from city streets. The new building will be built on the site of the existing one.

ROAD USAGE FEES

The Fixing America’s Surface Transportation (FAST) Act2 established the STSFA program to provide grants to States or groups of States to demonstrate user-based alternative revenue mechanisms that employ a user-fee structure to maintain the long-term solvency of the Highway Trust Fund. The State of Washington was one of the first to undertake a test of road usage fees.

The Washington State road usage charge (WA RUC) pilot was launched in January 2018. It involved more than 2,000 drivers from around Washington State and a small pool of drivers from neighboring States. Technical findings showed that the smartphone app tested in the pilot could not reliably determine the specific vehicle being driven and driver/passenger roles because there was no straightforward solution to establish a connection between the smartphone and the vehicle without installing supplemental electronic tags or equipment.

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.