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.

Joseph Krist

Publisher

This is the final MCN of 2024. We make no prediction as to the impact of a return to the Presidency by Mr. Trump on the municipal bond market. The level of disruption anticipated to occur is impossible to understate given the involvement of idealogues and the wildcards posed by the involvement of Messers. Musk and Kennedy. We’re already seeing it in the inability of Congress to pass a continuing resolution to fund the government. It will be important for investors to look beyond the billowing clouds of smoke and dust which we are bound to see in the first 90 days of Trump2.0.

It comes at a time of weak leadership especially at the local level. The list of indictments in New York City grows almost daily. The mayor of Chicago may have gotten a budget passed but it came at a huge political cost leaving the Mayor significantly weaker. In Los Angeles, the deputy mayor for public safety is under investigation for making bomb threats against the building he works in. None of this inspires confidence.

The pending campaign for Mayor in New York will be disruptive enough but it will come as the Governor faces significant headwinds. Congestion pricing is turning into a lose-lose for the Governor as it may be stopped by the Trump administration. A plan to change school funding in NYS was dropped last year in the face of strong opposition. The gubernatorial election in New York is 2026 but it will complicate this year’s budget negotiation.

But that is next year. Now, it’s time to enjoy the holidays and take a bit of rest. So, Merry Christmas to you and best wishes for a Happy New Year. We’ll be back for the January 6, 2025 issue. Be well, be safe, and be good to yourselves.

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CHICAGO GETS A BUDGET

The Chicago City Council voted to pass Mayor Brandon Johnson’s final budget proposal calling for $17.3 billion of spending.  The plan represents quite a retreat from the Mayor’s original plans which relied on the revenue side of the budget to achieve balance. They called for a $300 million property tax increase. The budget proposal approved by the Council included no property tax increase. Instead of increases in property taxes, a variety of other taxes would be increased. They are designed to be paired with some small expense cuts.

One key takeaway: there were no layoffs. The city used a series of one-time fixes to help close the gap that are unlikely to be accessible next year. From the start, that included $139.6 million from using surplus revenues from prior years, a TIF surplus that will bring in $54 million more than in 2024, and improved debt collections. It is clearly a stop gap budget reflective of the City’s political divide and poor management by the Mayor of the politics of the budget.

The expense “reductions” include some $286.3 million have come from planned “operational efficiencies,” which the mayor’s budget team has not fully detailed. Personnel savings — in this case, getting rid of vacant positions — total about $42.7 million. Johnson’s initial proposal cut the city’s headcount by 743 positions. Instead, the Mayor proposed $1 million in staff reductions at the mayor’s office, $2.8 million in “middle management cuts” and $1.1 million in shifting costs from Business Affairs and Consumer Protection to a “cable TV origination fund.” 

On the revenue side, $165.4 million will come from raising various city taxes and fees including the city’s lease tax charged on things like car leases and software licenses, the tax on streaming services, parking and valet rates and plastic bags, the added speed cameras, and a mix of other smaller fee and service increases. Streaming taxes will rise from 9% to 10.25%, and lease taxes will go from 9% to 11%. Taxes on garage and valet parking will climb to 23.25%, up from 22% on weekdays and 20% weekends. The plastic bag tax would climb to 10 cents.

One assumption sticks out as likely unrealistic: $215.4 million in “structural” fixes came from changes in how the city assumes revenues will come in next year. The biggest was the hope that CPS would make good on its promise to pay the city for a $175 million pension bill for non-teacher employees. With its own longstanding fiscal problems and a shared tax base, that would seem to be a shaky assumption. Another is a provision to levy a fee to cover the cost of large events like Lollapalooza and NASCAR races.

At the end of the day, the budget barely made it through and it did nothing to truly address the concerns about structural balance and the City’s poor pension position. Our view is that the ratings should carry a negative outlook in that it is likely that a similarly difficult budget environment will prevail going forward with the Mayor’s bucket of good will steadily leaking.

IRA FUNDING

One of the immediate concerns stemming from the results of the November elections was how loan funding under the Inflation Reduction Act would be accomplished before a change in the Presidency in January, 2025. The fear is that agencies counting on approved but not closed loans for a variety of projects might never receive the money under a Trump administration. Some notable projects for manufacturing were seen as being at risk.

Recently, a couple of loan closings were affected to enable substantial manufacturing projects to continue to move forward. the U.S. Department of Energy’s (DOE) Loan Programs Office (LPO) announced the closing of a direct loan of up to $9.63 billion to BlueOval SK LLC (BOSK) for the construction of up to three manufacturing plants to produce batteries for Ford Motor Company’s future Ford and Lincoln electric vehicles (EVs).

Together, the plants, one located in Tennessee and two in Kentucky, would enable more than 120 gigawatt hours of U.S. battery production annually. The three facilities created more than 5,000 construction jobs as the plants were being built and will create up to 7,500 BOSK operations jobs. BOSK is a joint venture between Ford Motor Company (Ford) and SK On, a world leading Korean EV battery manufacturer. 

The U.S. Department of Commerce awarded Micron Technology up to $6.165 billion in direct funding under the CHIPS Incentives Program’s Funding Opportunity for Commercial Fabrication Facilities. The loan is part of a projected $100 billion investment to develop manufacturing facilities outside Syracuse, NY. Micron is the only U.S. manufacturer of memory chips. A four factory production complex is promised to create 9,000 manufacturing jobs in an area which has seen manufacturing jobs disappear.

INSURANCE

In early 2023, the Senate Budget Committee began a series of hearings examining the risks that climate change poses to insurance, mortgage, and property markets in coastal and wildfire-exposed communities. Florida has the highest average statewide non-renewal rate; Texas is not even in the top ten. Southern New England, the Carolinas, New Mexico and counties in the Northern Rockies, Oklahoma, and Hawaii. In 2023 alone, all 10 of the top 10 states ranked by insurance non-renewal rate were either coastal states or states with counties that experienced an average annual loss of $10 million or more from wildfire damage.

The states where nonrenewal rates are the highest are California, Oklahoma, Louisiana, Mississippi, Florida, North Carolina, and Massachusetts. In the case of North Carolina, non-renewals were already an issue before this year’s hurricane disaster. In 2023, it had the third highest non-renewal rate of any state, and in 2018 it was the highest by a significant margin. Those numbers are expected to spike in the aftermath of Hurricane Helene. Likewise in California where wildfires continue as we go to press.

The report highlights the fact that it is not just coastal areas susceptible to climate change risks. Land-locked Oklahoma ranked 7 of 10 by non-renewal rate in 2023 and 5th among states with the highest growth in non-renewal rate from 2018 through 2023. High rates of non-renewal in Oklahoma are likely explained by increasing winds and hail from severe convective storms. Fire risk is driving non-renewals in New Jersey and Montana.

The long-term implications – sky-high insurance premiums and unavailable coverage will make it nearly impossible for anyone who cannot buy a house in cash to get a mortgage and buy a home. Ultimately, house prices and values will drop with an accompanying impact on local revenues. Much has been written about the potential impact of a second Trump administration on regulations and the climate. That debate is unlikely to alter the current trends in residential insurance. In the end, insurance may be what drives responses to climate change rather than rhetoric or even legislation.

TAMPA STADIUM VOTE

The Pinellas County Commission voted 5-2 to approve its $312.5 million share of bond financing for the Tampa Bay Rays’ proposed $1.3 billion ballpark in St. Petersburg, Florida. The vote follows the approval received from the City of St. Petersburg for its share of the planned financing. The County was lobbied heavily prior to the vote. The most prominent lobbyist was the MLB Commissioner.

Pinellas County commissioners voted in July to approve $312.5 million in public financing for the stadium using tourist taxes to pay off the debt. The commission voted 6-1 in October to delay votes on issuing bonds due to uncertainty over where the Rays would play the 2025 season after Hurricane Milton tore off the roof at Tropicana Field. Since then, the makeup of the Commission has changed. It is impossible to understate the role of the MLB Commissioner.

One prior vote in opposition was flipped as a result of that effort. “While I do not trust the owner of the Rays [Stu Sternberg], I trust Mr. Manfred,” that commission member said. “He is the reason I am voting yes. MLB is aware of the several instances where the Rays organization has intentionally tried to sabotage the very deal they agreed to. As a result of this vote, it is my hope that the Tampa Bay Rays will finally have an owner that our other wonderful local franchises have.

WATER WARS

Arizona Attorney General Kris Mayes filed a nuisance lawsuit against Saudi Arabia-based Fondomonte Arizona LLC, which has farming operations in La Paz county on the state’s border with California. Its operations consist on growing water-intensive alfalfa for use as feed for cattle in Saudi Arabia. These operations date back only 10 or 15 years but they are having a measurable effect on local water sources. There are currently no limits on the amount of water which the farm can consume.

According to a hydrology report commissioned by the Attorney General’s office, Fondomonte pumped 31,196 acre feet of water in 2023, enough for over 90,000 homes in the state, and uses more than 80 percent of the Ranegras Plain Basin’s water pumped each year. The State has already cancelled leases with Fondomonte covering state owned land. The goal of the lawsuit is for Fondomonte’s other operations to be declared a nuisance, its “excessive” groundwater pumping curtailed and an abatement fund established to address the damages it has caused, such as draining local wells. 

RISING FARES AND TOLLS

The Bay Area Toll Authority (BATA) will increase tolls at the region’s seven state-owned toll bridges by $1 on Jan. 1, 2025. This will be the third of the three $1 toll increases approved by the California Legislature in 2017 through state Senate Bill 595 and by voters through Regional Measure 3 in June 2018. The first of these toll hikes went into effect on Jan. 1, 2019 and the second on Jan. 1, 2022. The new toll will be $8.00. BATA also approved a plan which is projected to raise tolls to $10.00 in 2030.

Starting on January 1, toll rates on roads in Ohio, Oklahoma, Pennsylvania, New Jersey and New York are set to rise anywhere from 3% to 15% for passenger and commercial vehicles. The lowest increase is for drivers on the New Jersey Turnpike and Garden State Parkways at 3%. In Ohio, toll rates will rise an average of 7.7% for passenger vehicles as well as most commercial vehicles. Oklahoma will see the highest increases. Toll fares will rise 15% across the entire system of the Oklahoma Turnpike Authority, which operates 12 turnpikes. An automatic 6% increase every two years starting Jan. 1, 2027, to account for inflation has been authorized. 

New York’s MTA announced that it expects to raise bus and subway fares by $0.10 in 2025 to $3.00. Coming right after congestion pricing takes effect, the fare increase is alienating riders and drivers. It comes in the midst of negotiations between NYS and NJ to try and settle litigation against the congestion fees.

DEMOGRAPHICS

According to U.S. Census Bureau data released this week, the country’s population grew by almost 1 percent this year to surpass 340 million people, marking the fastest annual growth rate since 2001. Net international migration, which refers to any change of residence across U.S. borders (the 50 states and the District of Columbia), was the critical demographic component of change driving growth in the resident population.

With a net increase of 2.8 million people, it accounted for 84% of the nation’s 3.3 million increase in population between 2023 and 2024. This reflects a continued trend of rising international migration, with a net increase of 1.7 million in 2022 and 2.3 million in 2023. With a population gain of nearly 1.8 million — a change of 1.4% between 2023 and 2024 — the South added more people than all other regions combined, making it both the fastest-growing and largest-gaining region in the country. Within the South, Texas (562,941) and Florida (467,347) had the largest numeric gains, and the District of Columbia grew the fastest (2.2%) from 2023 to 2024.

In the West, California (232,570) and Arizona (109,357) had the largest numeric gains between 2023 and 2024, while Utah (1.8%) and Nevada (1.7%) grew the fastest. Just over 57.8 million people lived in the Northeast between 2023 and 2024. During that time, the number of residents increased by 0.76% — a gain of almost 435,000. Growth in the Northeast largely stemmed from net international migration (567,420).

The number of people moving from the Northeast to other parts of the country continued to slow as the region lost fewer residents via net domestic outmigration (192,109) in 2024 than in 2023 (278,245). Within the Northeast, New York (129,881) had the largest numeric gains, and New Jersey (1.3%) had the fastest-growing population.

The population in the Midwest increased by over 410,000 (0.6%) to a total population of 69,596,584 in 2024. The region had a net domestic migration loss of 49,214, far fewer than the net domestic outmigration of 89,787 in the previous year. The Midwest gained 406,737 people through net international migration and experienced a net gain of 52,741 from natural increase. Within the region, Illinois (67,899) and Ohio (59,270) had the largest population gains, while North Dakota (1.0%) and Iowa (0.7%) were the fastest-growing states. 

Three states saw their populations decrease slightly between 2023 and 2024: Vermont (-215), Mississippi (-127) and West Virginia (-516), up from two states that lost population between 2022 and 2023. Puerto Rico had a population of 3,203,295 in 2024 — a 0.02% decline over the prior year. Though Puerto Rico’s population declined, it did so at a much slower pace than in recent years, having experienced drops of 1.3% and 0.5% in 2022 and 2023, respectively. The U.S. territory did experience positive net migration (15,204), although this gain was offset by natural decrease, as there were far fewer births (18,219) than deaths (33,920). 

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

CYBER CRIME AND A RATING

Moody’s has affirmed Children’s Hospital Los Angeles’ (CA) (CHLA) Baa2 revenue bond ratings. The outlook has been revised to negative from stable. 

The negative outlook reflects challenges CHLA faces to stabilizing (and eventually growing) its unrestricted days cash on hand and total cash balances (inclusive of restricted funds) over the next several quarters owing to weak financial performance and high receivables balances related to the Change Healthcare cyber-attack. That attack occurred on February 21, 2024 but it was not until July 19, 2024, that Change Healthcare filed a breach report with OCR concerning a ransomware attack that resulted in a breach of protected health information. 

The most visible impact to the public was the interruption in processing charges and reimbursements to patients and providers. In this case, the difficulties at Change had a stronger impact. Like most of the children’s hospitals, CHLA’s reliance on state funding and reimbursement policies due to its high Medicaid exposure made it vulnerable to delays experienced by the State in receiving Medicaid revenues.

On top of the impact upon its non-Medicaid patient base, the result has been to pressure its unrestricted days cash on hand and total cash balances (inclusive of restricted funds) over the next several quarters owing to weak financial performance and high receivables balances related to the Change Healthcare cyber-attack.  

OAKLAND DOWNGRADE

Moody’s has downgraded the City of Oakland’s (CA) issuer, general obligation bond, and pension obligation bond ratings to Aa2 from Aa1. It also downgraded the city’s lease revenue bonds to Aa3 from Aa2. The outlook has been revised to negative from stable. It reflects Moody’s view that management has not made sufficient and timely budget adjustments to fully absorb the one-time pandemic relief monies that were used to fund operations, and declining revenue, in particular real estate transfer taxes. As such, the city has reduced its flexibility to address ongoing spending pressures.

Based on fiscal 2024 unaudited actuals, the city will record a $30.3 million deficit, and available general fund balance will remain solid at $211 million or 22% of revenue. While management has implemented a plan to reduce operating expenditures, they are still projecting to end fiscal 2025 with a $93.1 million deficit in their general purpose fund. The City is still feeling the effects of crime which accompanied the end of the pandemic. It had a major impact on economic activity and the City’s real estate market.

Underlying all of this is the political environment. The Mayor was recalled in November. While the City has a weak Mayor-strong Council structure, the recall in the midst of federal investigations still matters.

HOSPITAL RATINGS

Moody’s has affirmed Legacy Health’s (Legacy) (OR) A1 revenue bond rating. Legacy has approximately $700 million of debt outstanding. The outlook remains negative. We noted the potential merger of Legacy and Oregon Health & Science University earlier this year (6.17.24). Moody’s notes the strong possibility that a merger with Oregon Health & Science University (OHSU, Aa3 stable) will be completed by the middle of next year. 

Even with a merger, the resulting entity would still face lower than average profitability and cash position. This is blamed on high labor rates, the continued dependance on temporary labor, inflated length of stay, and unfavorable state regulations. All merger integration processes are complicated and rarely have they gone to plan. The merger agreement also includes provisions which would require a certain amount of Legacy’s unrestricted cash and investments to be transferred to an independent foundation. 

Over recent years, the trend towards consolidation by hospitals has reaffirmed the importance of larger balance sheets and liquidity. In some rural areas consolidation and scale allows providers to survive even in those tough markets and maintain credit quality. One example this week comes from North Dakota. Moody’s has affirmed Altru Health System ND’s (Altru) Baa3 revenue bond ratings.

Altru Health System is its region’s largest provider and is the primary referral hospital for a 17-county, 20,000+ square mile territory in northeastern North Dakota and northwestern Minnesota. While its patient base is spread over a huge area this does not totally offset very high leverage; a rural market with low population growth; somewhat challenging demographics; and a history of difficult physician, nursing, and staff recruitment given its remote location. Its sole community provider status does support better Medicare reimbursement. 

EV

General Motors will fold its Cruise subsidiary into its main operations and work to develop fully autonomous personal vehicles. It will bring to an end the company’s effort to develop an autonomous taxi model. It was one of these vehicles that hit and dragged a pedestrian during live street testing in San Francisco. Waymo, a unit of Google’s parent company, offers autonomous taxis in San Francisco, Los Angeles and Phoenix with plans to expand to Atlanta, Miami and Austin, Texas. 

CARBON CAPTURE

Project Tundra is a plan to install equipment that would capture emissions from Milton R. Young Station, a power plant near Beulah, North Dakota. The electric cooperative behind the project has estimated that it would cost $2 billion to complete. The U.S. Department of Energy has singled out Project Tundra as having national importance. The department’s Office of Clean Energy Demonstrations last year awarded the project up to $350 million to help cover costs if construction moves forward. 

TC Energy, the Calgary-based company whose portfolio also includes TransCanada pipelines, was the project’s lead contractor. It recently announced that it had decided to step away from the project. No reason was cited but the company referenced

Where are public power entities considering a carbon capture retrofit for operating coal plants? The Nebraska Public Power District continues to explore the possibility of placing a carbon capture system at Gerald Gentleman Station, the largest coal-fired power plant in the state with a summer capacity of 1,365 megawatts. There is no timetable for making a decision about whether to move forward with the project.

Two Illinois utilities are considering carbon capture. The city-owned utility in Springfield, Illinois, held a ribbon cutting ceremony in July to mark the beginning of testing and operation for the carbon capture system at the 205-megawatt Dallman coal plant. The Prairie State Energy Campus is also evaluating carbon capture at its plant. It must comply with a 2031 deadline for reducing emissions. Prairie State’s study includes an estimated capital cost of $2 billion to install a system that would capture and store 95 percent of the plant’s carbon emissions. In addition, the system would cost about $175 million per year for operation and maintenance.

SCOTUS COAL ASH RULING

The Supreme Court rejected a request from East Kentucky Power Cooperative to block an Environmental Protection Agency effort to address the health risks presented by coal ash. EKPC argued that the E.P.A. had exceeded its statutory authority by requiring monitoring and remediation at facilities that were no longer producing coal ash. That argument was rejected by an appeals court. The case before the SCOTUS was rejected for review.

EKPC says that monitoring required by the E.P.A. would cost some $16 million annually to operate. The E.P.A. estimated the cost at under $300,000. Either way, EKPC has time to develop a plan to abide by the ruling. “The earliest compliance deadline the cooperative faces is far down the line — well into 2028,” one of the briefs said. “And that deadline requires it to comply only with modest groundwater monitoring requirements.”

INTERNATIONAL ENROLLMENTS AND A TRUMP ADMINISTRATION

In the 2023-2024 academic year, there were 1.1 million international students. Students from India and China account for 54% of those students. Enrollment levels for these students are at an all time high. These students are attractive because in many instances they are “full fare” payers versus the significant number of domestic students needing financial aid.

A combination of much more restrictive immigration policies and the pandemic slowed and then reduced the number of international students. For the 2020 and 2021 academic years, these enrollments showed actual declines. Since the end of the pandemic and a new administration, international enrollments returned to more normalized growth.

Now many universities are advising their international students to return to campus from the holidays before Inauguration Day. One said, “A travel ban is likely to go into effect soon after inauguration. The ban is likely to include citizens of the countries targeted in the first Trump administration: Kyrgyzstan, Nigeria, Myanmar, Sudan, Tanzania, Iran, Libya, North Korea, Syria, Venezuela, Yemen, and Somalia. New countries could be added to this list, particularly China and India.”

CLIMATE LITIGATION

The efforts to make the fossil fuel industries pay what would effectively be reparations by governments continue. So far, the litigation initiated by states and cities has been launched against the oil companies. Those cases will continue in state courts as efforts to have the cases be handled in the federal courts have been unsuccessful. While these cases are litigated, a new class of defendant has been named in a suit filed by a small North Carolina town over many of the issues in the pending cases.

The Town Council of Carrboro accuses Duke Energy Duke Energy of intentionally spreading false information about the negative effects of fossil fuels for decades, despite knowing since the late 1960s about planet-warming properties of carbon dioxide emissions. It claims the power company funded trade organizations and climate skeptic scientists who created doubts about the greenhouse effect and obstructed policy and public action on climate change.

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

UNPREDICTABLE TRUMP

In the month since Election Day, the pundits of the world have been busily trying to predict what the impact of a Trump administration would be on various economic sectors. We see that as a bit of a fool’s errand based on the first Trump administration. That’s especially true for the municipal bond market. In spite of all of his emphasis on the nation’s “third world infrastructure”, significant investment in it never occurred under Trump. The emphasis instead was on things like opportunity zones which tended to have much bigger private sector benefits.

One example of where unpredictability can be a liability is the issue of loans made under the Biden administration for a variety of energy and manufacturing production facilities under the IRA. On the one hand, the loan program is a prime target for Project 2025 proponents to eliminate. On the other, the program will jump start significant manufacturing projects in states like Georgia, Kentucky, Indiana and Tennessee. Those projects alone would reflect some $20 billion of investment.

Federal action generated movement on several large scale transportation projects. The Bret Spence Bridge, new road and bridge facilities in Mobile, AL. In other instances, public private partnerships expanded their footprint with states like Louisiana utilizing them for major projects. The use of P3s continues to expand in the New York metro area as the local airports are brought up to date. These were the types of projects and funding mechanisms that were supposed to be championed under the first Trump administration.

The results of the election which produced the smallest majority in the history of the House of Representatives will make the enactment of significant legislation in areas like energy, taxes, and transportation that much harder. Given the President-elect’s transactional nature, things like private activity bond expansion and the SALT deduction will be in the middle of the negotiating storm over a budget. Given the dynamics of the House, there is no way to predict the fate of those provisions.

NYC – RIKERS ISLAND

Laura Taylor Swain may be one of the busiest federal judges given her stewardship of both the Puerto Rico bankruptcy and the operations of New York City’s main jail, Rikers Island. Litigation over the operations at Rikers have occupied two Mayoralties, stretching over more than ten years. This week the judge issued a 65-page opinion that said the city and its Department of Correction had violated the constitutional rights of prisoners and staff members alike by exposing them to danger, and had intentionally ignored her orders. She ordered the city and lawyers representing prisoners to devise a plan for a receivership by Jan. 14.

The facility has been operating under a consent decree which was reached in 2015 under Mayor Bill de Blasio. It is easy to forget that the City Council has voted to close Rikers Island by August 2027 and replace it with four smaller borough jails. The intent was to reduce abuses and aid visitation. The politics of siting the proposed facilities has effectively blunted that effort.

The judge will appoint a receiver who will report to her. The receiver would have significant powers. One example – judge could grant a receiver the power to dissolve or alter labor contracts like the one that provides officers with protections like unlimited sick leave.

HOSPITAL MERGERS

A proposed merger between Union Health and Terre Haute Regional Hospital, the only acute care hospitals in Vigo County, Indiana has been delayed in the wake of a pending disapproval of the plan by state regulators. The two providers are the only acute care providers in Terre Haute and its surrounding Vigo County. A merger would have given the resulting entity a full monopoly over acute care hospital services in the County.

The hospitals sought the merger under a state provision known as a “Certificate of Public Advantage” law, or COPA. Indiana and 18 other states have such laws that shield hospital mergers from federal enforcement by the Federal Trade Commission. Under COPA laws, states typically agree to monitor hospital performance and quality while limiting price hikes. It is a real concern especially in the light of HCA’s participation in the proposed merger as the owner and operator of Union Health. Recent deals with HCA hospitals under COPA laws are seen as having fallen short in terms of their impact on access and costs.

That legacy has contributed to five states – North Carolina, Maine, Minnesota, Montana, and North Dakota —repealing COPA laws. Maine ended its law last year amid warnings from the FTC regarding such mergers. The situation in Terre Haute is a textbook example of how HCA conducts its business. In 2021, Union Health leaders were instrumental in the passage of Indiana’s COPA law. They supplied draft language for the bill to one of the bill’s authors, according to legislative testimony, and Union Health’s CEO Holman testified before lawmakers that the merger would improve the county’s poor public health rankings.

The effort is not dead. Union faces a July 1, 2026, deadline to refile an application, according to Indiana’s COPA law.

STADIUM UPDATES

The ownership of the Tampa Bay Rays has reaffirmed their existing agreement with the City of St. Petersburg and Pinellas County to finance a new baseball stadium. The reaffirmation was in response to a county demand for one prior to a vote by the County legislature on December 17 to move forward with the project. This followed last month’s statements from the team that the project could not happen without approval by the County in November. The County then gave the team a choice – you’re in or you’re out. They say they’re in.

The other travelling franchise, the Oakland A’s got some bad news on their stadium in Las Vegas. The cost of the Athletics’ planned new ballpark off the Las Vegas Strip has increased by a quarter of a billion dollars. Those costs will be the responsibimove this week.ity of the team. The new estimated cost is $1.75 billion, up from a previous $1.5 billion mark. The Las Vegas Stadium Authority Board gave its final approvals for the Athletics t

GRAIN BELT EXPRESS

The Grain Belt Express, a $7 billion transmission line project that’s been more than a decade in development, has won conditional approval for a $4.9 billion federal loan guarantee. The project plans to use its conditional loan guarantee to finance the first phase of its 5-gigawatt high-voltage direct current (HVDC) transmission line — a 578-mile stretch from southwestern Kansas to Missouri. It looks like the loan for this project may be one of the early casualties of Trump administration plans to significantly cut government spending.

The project has also secured some prospective buyers for its power, including a consortium of 39 municipal utilities represented by the Missouri Public Utility Alliance. It has received regulatory approval from both Kansas and Missouri. The Missouri approval is significant in that it followed changes in the availability of power to Missouri utilities. Unless all of the loan documentation can be completed before January 20, this funding is likely at risk.

You would think that the funding mechanism for these loans was a Biden administration creation. In fact, the Department of Energy’s Loan Programs Office (LPO) was established under the George W. Bush administration in 2005. For what it’s worth, one of the entities to receive funding from the LPO was Tesla.

ELECTION LITIGATION

Last month, Maricopa County voters overwhelmingly approved Prop 479  to keep the half-cent transportation tax residents in Maricopa County have been paying since 1985.  It’s projected to raise nearly $15 billion over the next 20 years for various transportation services and improvements. The Maricopa County Republican Committee recently filed a lawsuit asking the court to overturn what voters approved. The plaintiffs claim that Prop 479 is not a continuation of an old tax but a new tax that funds new projects. It also argues that the ballot measure didn’t pass the 60% voter threshold needed to approve a new tax in Arizona.

LADWP AND EQUITY

The L.A. Department of Water and Power has achieved a settlement with residents around one of its generating facilities over their exposure to unhealthy levels of methane leaking from the plant. Some 1,200 people who lived, worked or went to schools nearby will share in a $59.9-million settlement reached with the city. The litigation was started in December 2020. It alleged that the DWP failed to adequately inspect or repair equipment, or to notify residents of leakages during the 1,085-day period when community members were potentially exposed to methane and other toxic chemicals.

The Valley Generating Station is located in the San Fernando Valley between the communities of Sun Valley and Pacoima and generates electricity using natural gas. According to the complaint, NASA’s Jet Propulsion Laboratory first detected gas being emitted by the station in September 2017 and notified the utility. LADWP did not notify the community for some three years. In January 2021, the South Coast Air Quality Management District gave the utility a notice of violation over equipment identified as the source of the multiyear methane leak. 

CARBON CAPTURE

Wolf Carbon Solutions is withdrawing its petition to build a 95-mile carbon capture pipeline through eastern Iowa. Wolf sought a permit last year to build the hazardous liquid pipeline across Linn, Cedar, Clinton and Scott counties. It noted significant opposition in spite of the fact that Wolf had said it would build its pipeline without the use of eminent domain. This follows the decision this fall by Wolf to withdraw its application for a pipeline approval in Illinois.

The Wolf pipeline in Iowa was projected to connect with pipeline in Illinois to deliver carbon dioxide to a sequestration facility operated near Decatur, Illinois. In September, the U.S. Environmental Protection Agency alleged that ADM had failed to adequately monitor the sequestration site after some carbon fluid moved to an unauthorized zone.

This comes as the Iowa Supreme Court affirmed a lower court’s decision that Summit Carbon Solutions is allowed temporary access to properties for surveying, because it is a pipeline company that would be transporting a hazardous liquid. Summit is the only entity continuing its effort to build its pipelines at present.

FLORIDA HEALTH INSURANCE DELAY

KidCare is a Florida program which provides low-cost health insurance to children whose families make too much money to qualify for Medicaid. In Florida, that has meant families have paid $15 or $20 a month for coverage. In 2023, the Legislature voted unanimously to make more children eligible for KidCare by increasing the income threshold for eligibility to 300% from 210% of the federal poverty level. The change raised the income limit to $90,000 from $64,500 for a family of four.

The State needed federal approval to implement the pln. That approval included a requirement to comply with a federal rule put in place during the COVID-19 pandemic that requires the state to provide eligible children with a full year of continuous coverage. Florida balked at that requirement and challenged the rule in court. The lawsuit resulted in a delay just as Florida began reviewing Medicaid eligibility after the end of the COVID public health emergency. More than a half-million children were disenrolled, and they couldn’t get on KidCare due to the waiver dispute.

The Centers for Medicare & Medicaid Services accepted Florida’s application for a waiver after a yearlong delay, but with the stipulation that the state provides 12 months of continuous coverage. In response, the state’s Agency for Health Care Administration said it planned to request a 30-day delay on the waiver. The State wants to be able to disenroll children in the event that their family misses a premium payment.

We anticipate that efforts will continue to chip away at providing expanded Medicaid eligibility in states with conservative legislatures. Those efforts occurred with some regularity during the first Trump administration. The result was a near constant stream of litigation and failures to obtain court approval for things like work rules and other issues that states opposed to Medicaid expansion under the ACA.

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

OAKLAND – WHAT’S WRONG WITH THIS PICTURE

In late September 2023, the City of Oakland, CA received an AA+ rating from Standard and Poor’s. The City proudly publicized that upgrade and the Mayor took credit for it citing “Oakland’s commitment to prudent financial policies and sound fiscal management,”. The City noted then that “Both credit ratings agencies point to challenges ahead for the City, among them rising costs to provide services and substantial long-term liabilities for retiree pensions and health care. The stable outlook assigned by both credit rating agencies signals their expectations that the City will be able to meet these challenges through continued prudent financial management and ongoing economic growth.”

Some 14 months later, the situation has apparently changed and declined so rapidly that municipal officials are openly talking about Chapter 9. The Mayor was recalled on November 5, as Oakland residents faced significant crime issues, a perceived decline in general services and quality of life. City officials are faced with an apparently surprising budget shortfall of $93 million for the upcoming fiscal year. Almost all this overspending will be by the police and fire departments. OPD is projected to overspend its 2024-2025 budget by $52 million, mostly due to overtime.

On June 26, 2024, the City Council approved Ordinance No. 13801 authorizing the City Administrator to negotiate and enter into a Purchase and Sale Agreement (PSA) with the African American Sports and Entertainment Group (AASEG) for the sale of the City of Oakland’s (City) 50% interest in the Oakland Alameda County Coliseum Complex property (Coliseum Complex). This follows the departure of MLB’s Oakland A’s after 57 years at the Coliseum.

On August 31, 2024, and as amended effective September 23, 2024, the City of Oakland (City) entered into the PSA, also known as the Real Property Sale Agreement, with Oakland Acquisition Company (OAC), an affiliate of AASEG. The Purchase and Sale Agreement between the City and AASEG provides for $110 million to be paid during the City’s fiscal year ending June 30, 2025. The budget passed by City Council includes $63 million in revenue from the sale.  

The problem is that not all of the parties to the transaction are ready to close. The County has not delivered its approval yet and there are questions about the resources behind the AASEG proposal. In the interim, the finance department forecasts an annual structural deficit of $120 million from 2025 to 2027. The Finance Department has strongly advised against incorporating the anticipated Coliseum sale proceeds into future budget measures until those funds have materialized and the transfer of property title has been executed.

All of this led S&P Global Ratings to placed its various ratings on Oakland, Calif.’s outstanding general obligation bonds, non-ad valorem bonds, and lease revenue bonds on CreditWatch with negative implications. “There is at least a one-in-two chance of a lower rating, potentially by multiple notches, in the next 90 days, given the material and rapid deterioration in the city’s financial position, largely driven by overspending, as well as what we view as potential governance weaknesses that could complicate fiscal decision-making under challenging circumstances,”.

CHICAGO

S&P Global Ratings placed its rating on the city of Chicago, Ill.’s outstanding general obligation (GO) debt on CreditWatch with negative implications, while affirming the ‘BBB+’ rating. The move comes after a unanimous rebuke of the Mayor’s proposal to raise property taxes by the City Council. “”The CreditWatch placement reflects our view that there is at least a one-in-two chance of a lower rating in the next 90 days, pending the passage of the city’s fiscal 2025 budget and our assessment of whether its credit quality has deteriorated due to heavy reliance on one-time budget-balancing measures, perpetuating a large outyear structural imbalance,”.

The 50-0 vote on the tax increase was telling. The Mayor has been reluctant to take on the forces driving the budget. The best example is his plan to finance a school system without addressing many of the issues facing CPS. Borrowing for current pension expenses and reliance on a politically untenable tax to cover the cost of maintaining underutilized buildings and staff just doesn’t cut it. It is unrealistic to expect support for a general tax increase designed to support the Mayor’s relationship with the teachers union.

The new fiscal year begins on January 1 so time is fleeting. The Mayor’s latest proposal is getting a frosty reception. The tax on sale of liquor that is 20 percent or more alcohol by the volume would increase to $3.62 cents a gallon, up from $2.68. The tax on beer sales would climb ten cents to 39 cents.  Many of the effected establishments were crushed during the pandemic. It will face heavy opposition. Our expectation is that the City will not have achieved a comprehensive solution through the current budget process. The Mayor is essentially refusing to do what everyone knows he must do and make significant cutbacks. That should make it easy to see a downgrade soon after New Year’s. 

CALIFORNIA WATER

The Biden administration and eight California water agencies have reached an agreement to share in the costs of raising a dam to expand San Luis Reservoir. A plan would raise B.F. Sisk Dam which would enlarge the reservoir near Los Banos to enable it to hold more water during water suppliers in parts of the Bay Area and the San Joaquin Valley.

Local California agencies that have agreed to help fund the project include urban suppliers such as the Santa Clara Valley Water District, which serves San Jose and other Silicon Valley cities; San Benito County Water District; and the city of Tracy. Also participating are agricultural water suppliers such as Westlands Water District, Del Puerto Water District and Pacheco Water District. The federal government has so far contributed $95 million toward the construction.

The dam is now undergoing a retrofit that will raise its crest by 10 feet and fortify the dam for earthquake safety. The Bureau of Reclamation and local agencies have agreed in principle to raise the dam an additional 10 feet to expand the reservoir’s storage capacity, making it a total of 20 feet taller than its original height. The reservoir will gain an additional 130,000 acre-feet of storage space.  

San Luis Reservoir’s more than 2 million acre-feet of storage space is divided between the State Water Project and the federally managed Central Valley Project. It is owned by the federal government and operated by the state’s Department of Water Resources. The Bureau of Reclamation said its endorsement of the project last year was the first approval of a major water storage project in California since 2011.

FLORIDA INSURANCE

Citizens Property Insurance in Florida paid homeowners’ claims less often than any other insurer in the state last year — with over half of claimants receiving nothing. It is an emerging phenomenon as it occurs in the private sector as well for storm-related claims. Overall, Floridians filing a homeowners insurance claimhad the lowest chance in the 50 states of getting a check from their insurer in 2022, with more than a third of claimsgoing unpaid. In 2022, Florida had the second-highest rate of claims paid after 60 days. Only Louisiana had a higher rate.

CARBON CAPTURE

Summit Carbon Solutions said it resubmitted its permit application to South Dakota regulators with what the company described as “major reroutes.” Summit is highlighting reroutes in Spink, Brown, McPherson and Lincoln counties — areas where local siting laws played a role in state regulators’ denial of Summit’s first permit application. 

Many of the new South Dakota legislators who will take office in January are opponents of the project’s potential use of eminent domain. Fourteen incumbent state legislators were defeated in the June primary election, and the incumbents’ support of a controversial pipeline law was a factor in many races. In August, the South Dakota Supreme Court ruled that Summit had not yet proven its status as a “common carrier,” a designation necessary to the eminent domain process. The court sent the lawsuits back to lower courts, where Summit said it would try to prove its case.

SALT RIVER PROJECT

Salt River Project (SRP) and Flatland Storage LLC, a subsidiary of EDP Renewables North America LLC (EDPR NA) have entered into an agreement to provide 200 megawatts (MW) of new energy storage. The Flatland Energy Storage Project will be a 200 MW/800 megawatt-hour battery energy storage system located near Coolidge, Arizona. The project will utilize lithium-ion technology, designed and manufactured in the U.S. by Tesla.

Scheduled to be online in 2025, the facility will have enough capacity to power up to 45,000 homes for four hours during peak electricity demand periods. SRP currently has nearly 1,300 MW of storage and nearly 3,000 megawatts of carbon-free resources online and serving customers. 

AFTER BERKELEY

When a 2023 federal court decision against the City of Berkeley, CA and its ban on the installation of gas infrastructure in new buildings took effect, environmental advocates looked for new ways to achieve that goal. Now some Silicon Valley municipalities are taking another swing at modifying building codes to influence builders not to use natural gas.

They are adopting “policies” rather than outright restrictions. Cupertino chose to implement a policy that requires new buildings to meet rigorous energy efficiency standards by incentivizing all-electric builds, but left room for a mix of electricity and gas. prohibits the installation of nitrogen oxide-emitting equipment such as water heaters, furnaces, ovens, stoves and dryers in new construction or substantial remodels. 

WILL TRUMP TANK THE D.C. ECONOMY?

One thing for sure is that if a second Trump Administration follows through on its promise to eliminate whole swaths of government, the District of Columbia would face real economic difficulties. “A drastic reduction in federal regulations provides sound industrial logic for mass head-count reductions across the federal bureaucracy,”. If they can’t fire people, the plan is to move agencies out of the District.

It is a tactic which was tried on the Bureau of Land Management during the first Trump Administration. The move did drive a significant majority of the D.C. staff to leave the Bureau. It made the move much more difficult and was generally seen as not successful. The first step in the expected process would be an end to remote work for the Federal workforce. The hope would be that this would drive people to give up their jobs. Then we’ll see if the next step is moving agencies.

MEDICAID

After a period of relative calm, the expansion of Medicaid under the ACA will be coming under pressure. No matter who oversees the Medicaid program, the goal will be to reduce eligibility. In the Southeast, several states will be expected to seek authorization to impose work requirements and more stringent record keeping rules on recipients. During the first Trump administration, it was clear that some of the reporting systems especially in areas of low or no internet penetration were really designed to make reporting very difficult.

Should those requirements be imposed (it will be done at the state level but federal approval is needed) the hospital sector will be under pressure. That will drive pressure on states to go back to the days of uncertain indigent care funding. In rural states, it will only increase the pressure on small rural hospital facilities.

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

NOVEMBER 5 AND MUNICIPALS

The election results and initial announcements of cabinet nominees have set everyone about the task of trying to figure out what the impact of the federal elections will be on municipal bonds. There are certainly plenty of tea leaves to examine in the process. One thing making analysis harder in this case is the history of wild inconsistencies in terms of policymaking and implementation we saw in the first Trump administration.

The prime example is the experience with Trump’s infrastructure policies. It’s easy to chuckle and remember that Infrastructure Week never happened. The massive support for public/private partnerships initially expressed quickly withered. The Gateway Tunnel project sat unfunded. In the time between 2016 and now, many significant P3 projects have been completed even in places like New York State. But they were locally driven.

Then there is the STAR deduction. Repealed by the 2017 Tax Act, it reflected real regional animus towards states like NY and CA. Now, the President purports to support reinstatement of the deduction. Considering his election performance in many of the states (even where he lost) it would not seem to be a high priority. Someone should tell that to the President of the NYMTA who is suggesting that congestion fees can be paid out of the lower tax bill due to a reinstated STAR deduction.

What exactly does an RFK Jr. leadership at HHS mean if it actually happens. There is plenty of reason to believe it won’t. Will he try further cuts to Medicaid and Medicare? Will an effort be made to repeal the ACA? Does he continue efforts to defund rural healthcare? What is the outlook for a hospital sector given all of these uncertainties? How will all of this impact health costs for states?

For big city credits with significant migrant related impacts, the outlook is really cloudy. If there is a serious effort to deport illegal migrants, a number of ancillary costs and impacts will be borne by localities. NYC is still taking care of some 60,000 migrants. Chicago is undertaking a plan to close migrant-only housing facilities and house homeless migrants in its existing homeless housing system.

What will the final shape of the expected tax cutting plan look like and how it will impact municipal bonds isn’t clear no matter what anyone tells you. Turnover leads to a need to constantly educate Congress about municipal finance. With different seniority rules, it’s harder to find legislators with enough detailed knowledge to advance the cause. Something on private activity bonds could be positive. I would be surprised if favorable changes to advance refunding rules emerge. I would be happily surprised if SALT was preserved.

One policy change likely to be implemented is the end of the $7500 electric vehicle purchase subsidy. Trump needs to repay fossil fuel industry supporters and his ally. Mr. Musk thinks that the end of the credit will be worse for his competitors. Tesla does not rely heavily on the tax credits as some Tesla models do not qualify for them because of several requirements, including that the vehicles be free of Chinese-made components. According to the International Energy Agency, the global rollout of electric vehicles could reduce oil demand by nearly six million barrels a day by 2030.

CONVENTION CENTER REALITIES

In 2023, Orlando will host the largest number of the top 250 conventions, followed by Chicago, New Orleans, and San Diego. The South/Southeast region will host 38% of the top 250 conventions in 2023, followed by the West/Pacific region at 31%. Within individual states, California will host 17% of the conventions, followed by Texas at 12% and Florida at 8%.

Dallas is spending $3.7 billion to build a new 2.5 million square foot convention center next to an existing one built in 1973. In Orlando, Fla., the Orange County Convention Center will be expanding at a cost of $560 million. The City Council in Los Angeles approved a $1.4 billion plan this year to add nearly 350,000 square feet to the city’s aging convention center as well as to renovate an adjacent plaza. The project is expected to be completed ahead of the 2028 Summer Olympics.

In recent years, Las Vegas, Denver and San Francisco invested hundreds of millions of dollars to expand and update their convention centers. The Javits Center in New York completed a $1.5 billion expansion in 2021. It is far from clear that these facilities achieve anywhere near the financial results initially projected in support of associated debt. The number of large conventions has declined even though available space is growing.

CONGESTION PRICING

Governor Kathy Hochul announced that she was supporting congestion pricing but at a lower charge. The originally planned rollout featured a $15 charge. The Governor proposes a $9 charge. The move is motivated by the fact that the elections are over for now and that it is highly unlikely that a Trump administration would give the required federal approval. The Governor’s goal is to have the charges begin before January 20.

It’s not clear that a $9 fee generates the level of revenues demanded by the authorizing legislation supporting the charge. The idea was to establish a charge at levels sufficient to generate some $1 billion annually. Advocates are already contemplating longer amortization of debt planned to be supported by fee revenues.

State officials believe that they will not need to repeat the lengthy environmental review process because the previous review accounted for a range of tolls from $9 to $23. The state and city must sign an agreement with transportation officials in the Biden administration. The proposed reduction would apply to all types of vehicles including trucks. Press reports indicate that state officials say privately that with a $9 fee instead of $15, more motorists may decide to drive into Manhattan, at least partially offsetting the loss in revenue from the lower toll.

Under a revised plan with a 40 percent toll reduction, cars would pay an off-peak rate of $2.25 from 9 p.m. to 5 a.m. on weekdays, and from 9 p.m. to 9 a.m. on weekends. Trucks would be charged $14.40 or $21.60 during peak hours, depending on size. And passengers would see an extra per-ride surcharge of 75 cents in taxis and $1.50 in Ubers and Lyfts. Passenger cars would also receive a discount for entering the congestion zone through four Manhattan tunnels — the Lincoln, Holland, Hugh L. Carey and Queens-Midtown — during peak hours, with a proposed credit of up to $5 going down to $3.

Advocates for congestion pricing are going along with the new plan. They have already expressed an intent for steadily increasing rates while settling for an initial lower rate. There will be many questions regarding the implementation of the plan although we note that the physical infrastructure is in place. The rollout of the program will likely provide lots of fodder for both sides of the debate surrounding the fees.

We will see if the program actually produces all of the traffic and environmental benefits promised or it becomes just another way for the MTA to get revenues.

PUBLIC TRANSIT CUTS

The San Francisco Municipal Transportation Agency (SFMTA) says it is looking at an annual deficit of $240 million to $320 million starting in 2026. It has been presented with several proposals to align service with available revenues. They are said to include cuts to three cable car lines; the F Market streetcar; cuts to undetermined buses and light rail lines; eliminating some nighttime service; and shutting down buses on hilly routes. Muni ridership reached a post-pandemic high in September, with more than 520,000 weekday boardings. The problem is that’s still under 75% of 2019 levels.

AUSTIN ELECTRIC

Austin Energy said that it will bring a new geothermal project online in 2025, and that it will add five megawatts of carbon-free energy to the local grid. It is a pilot project to be located at an existing Austin Energy generation plant. Scottish company Exceed Energy Inc. partnered with Austin Energy on the project.

TAMPA BAY STADIUM

The pictures released after Hurricane Milton hit Florida’s west coast made this week’s announcement that the Tampa Bay Rays would be unable to play the 2025 season at their current home stadium unsurprising. The fabric roof was completely torn off and substantial damage was incurred inside the stadium. It was estimated that repair of the roof and the other damage would be a $55 million proposition.

So, the Tampa Bay Rays will, for the first time, play home games in Tampa. They will utilize the stadium at the NY Yankees spring training complex in Tampa. Steinbrenner Field is the largest minor-league stadium in Florida, with 11,206 seats and 13 skyboxes. Steinbrenner Field is the largest minor-league stadium in Florida, with 11,206 seats and 13 skyboxes.  The Rays’ average attendance in 2024 was 16,515, among the lowest in MLB.

The irony is that this is the second MLB team to plan to play in a minor league ballpark in 2025. The Rays join the A’s in that category. The A’s will play in Sacramento in a triple-A ballpark.

DALLAS

Moody’s Ratings has revised the City of Dallas, TX’s outlook to negative from stable. It affirmed the A1 issuer rating and A1 general obligation limited tax (GOLT) rating. The negative outlook stems from the approval of Proposition U by the electorate. Proposition U requires the city to maintain a police force of about 4,000 and use at least 50% of new revenue for public safety (including pension contributions).

The city will annually increase its pension contributions starting this fiscal year to the Dallas Police and Fire Pension System (DPFP) and the Employee Retirement Fund (ERF) in order to amortize the unfunded liabilities within 30 years, as mandated by state law. Pension funding has been a continuing credit drag on the City for some time. Proposition U is expected to result in the eventual hiring of many additional officers (a force of 4,000 is mandated by the proposition) and an increase in officer starting salaries, both of which will increase the DPFP liability. 

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

Joseph Krist

Publisher

THOUGHTS ON GOVERNANCE

Corruption and/or incompetence and/or ideology are all understood to just be something one is likely to have to deal with when politicians are your clients. Nonetheless, the growing list of local officials under indictment in some of the country’s major cities is concerning. This week, the mayor of Jackson, Miss., a City Council member and the local district attorney have been indicted on federal corruption charges. They join New York Mayor Adams in the ranks of the indicted.

Then there is the recall of Oakland’s district attorney as well as its Mayor. They were voted out by substantial margins. The Mayor had been the subject of a federal investigation. Further south in Orange County, a county legislator had to resign over the misuse of federal COVID related funds.

CLIMATE ON THE BALLOT

Washington State did not approve Initiative Measure No. 2117 which would have repealed the Climate Commitment Act (CCA), one of the most progressive climate policies ever passed by state lawmakers. Over 1.5 million of those voters, or 61.7%, voted “No” while over 972,600, or 38.3%, voted “Yes.” The law requires major polluters to pay for the right to do so by buying “allowances.” One allowance equals 1 metric ton of greenhouse gas pollution. Each year the number of allowances available for purchase drops — with the idea of forcing companies to find ways to cut their emissions.

It was not all good news for the climate on the statewide ballot. Initiative 2066 bars cities and counties from prohibiting, penalizing or discouraging the use of gas for heating, appliances and other equipment in buildings. The measure requires utilities and local governments to provide natural gas to eligible customers and prevents approval of utility rate plans that end or restrict access to natural gas, or make it too costly. It overrides state building and energy code requirements designed to get more electric heat pumps – instead of gas furnaces – installed in newly built houses, apartments and commercial buildings.

In California voters approved Proposition 4 authorizing $10 billion of new debt to fund loans and grants to local governments, Native American tribes, not-for-profit organizations, and businesses. Proceeds will be applied for projects including Drought, Flood, and Water Supply ($3.8 Billion); Forest Health and Wildfire Prevention ($1.5 Billion); Sea-Level Rise and Coastal Areas ($1.2 Billion); Land Conservation and Habitat Restoration ($1.2 Billion;. Energy Infrastructure ($850 Million); Parks ($700 Million); Extreme Heat ($450 Million); Farms and Agriculture ($300 Million).

Ann Arbor voterspassed ballot proposal A with 79% of the vote. It authorizes the creation of a municipally-owned sustainable Energy Utility (SEU) which would supply, generate, transmit, distribute and store electricity from renewable sources. It would run as a compliment to the existing DTE system serving the city. Businesses and households can sign up to receive power through the SEU or they can remain DTE customers. Initially, the SEU is expected to offer services including solar and battery storage, efficiency and weatherization programs, and electrification for homes and businesses. In the future, the city hopes the SEU will include the use of microgrids and geothermal energy.  

CANNABIS ON THE BALLOT

A majority of voters supported an amendment to Florida’s constitution to legalize recreational marijuana. The initiative required a 60% super majority so it failed. In South Dakota, voters rejected the latest effort at legalization of recreational cannabis. Voters authorized legalization in 2020 but a successful legal challenge overrode that vote. voters in North Dakota rejected Measure 5 which would have made it legal for adults 21 years old and older to produce, process, sell and use cannabis in North Dakota while establishing a state body to regulate it.

Nebraska voters approved two measures that legalize medical marijuana and regulate the industry. The measures received overwhelming support — nearly 71% voted in favor of legalization, while almost 67% voted in favor of establishing a commission to regulate the industry. It could all be undone by a pending legal challenge to 3,500 signatures on the petition to get the law on the ballot. A judge in Lancaster County, however, has yet to rule on whether some of those signatures were tainted. If the signatures are rejected, the results of the election could be voided. Nebraska’s election results are set to be certified on Dec. 2.

GOING TO THE SUN

The federal government recently released data on the utilization of solar energy. Nevada was ranked in first place. It sources nearly 29 percent of its electric capacity from utility-scale solar. It is pursuing an aggressive renewable portfolio standard which requires that 34 percent of the electricity supplied by the state’s utilities comes from renewables in 2024, 42 percent in 2027, and 50 percent by 2030. 

California came in second with just over 21 percent solar capacity on its grid. It’s very aggressive requiring 60 percent of the state’s electricity to be sourced from zero-carbon sources by 2030 and 100 percent by 2045. Utah is in third place with solar providing nearly 21 percent of its grid capacity. It is pursuing a non-binding target of 20 percent clean energy by 2025. 

At the other end of the spectrum are three states with less than 1% solar generation.

North Dakota, has no utility-scale solar. New Hampshire is second to last, with just 0.05 percent utility-scale solar. Kansas is third from the bottom at 0.2 percent. 

TRANSIT ON THE BALLOT

Davidson County, TN voters approved a plan to fund bus system, sidewalk and traffic signal improvements with a half-cent sales tax hike. Voters approved the plan 65.5% to 34.5%. Nashville is no longer one of just four of the nation’s 50 largest metro areas that do not have dedicated funding for transit. The tax surcharge will end once the debt issued for the plan is paid off and Nashville’s council affirms the tax is no longer needed.

Seattle voters approved Proposition 1, a property tax measure that will spend $1.55 billion over the next eight years on streets, sidewalks, bridges, transit routes and bikeways. The levy passed with 67% of Tuesday’s count.

CHICAGO PUBLIC SCHOOLS

Voters had a rare opportunity to elect ten individuals to the board of the Chicago Public Schools (CPS). The vote occurred as a part of the process of reconstituting the CPS board under the terms of state legislation which ended 30 years of mayoral control. The 10 individuals elected will constitute one component of its membership with the remaining 11 positions filled by mayoral appointment.

The range of ideologies which now sit in the elected seats includes 4 seats supported by the teachers union while 3 seats went to school choice supporters and 3 presented as unaffiliated. The question now is how many of the appointed seats will be seen as choices of the teachers union. The Mayor must announce his appointments by December 16. This puts the schools issue in the spotlight while the Mayor fights what is shaping up to be a real battle over a proposed tax increase for the City and the need to find revenue for CPS to support its plans to keep underutilized schools open.

The Mayor does have to deal with some limits to his appointment power. According to state law, each school board district is divided in two for the purposes of the 2026 election and beyond. The new winners become incumbents in the subdistrict in which they live. The law spells out that between now and Dec. 16, Johnson must appoint school board members who live in the opposite subdistrict of the winning candidate.

This follows the recent machinations at the board which saw 7 members appointed by the Mayor (now six after social media took down one of them). They could in theory be appointed so long as they lived in the right places. This all leaves the already weak CPS credit likely even weaker. Potentially, there could be a new fight over a CEO, a pension bond issuance, school building closures and/or taxes. None of the potential likely results over the next few months are likely to be positive for the credit.

CARBON CAPTURE VOTE

South Dakota voters rejected a proposal that would have made it harder for South Dakota Counties to regulate the location of carbon pipelines. Referred Law 21 was placed on the ballot by the legislature to try to override voter sentiment against the Summit Carbon Solutions pipeline in the state. The law would have exempted “pipelines for the transmission of carbon dioxide” from property taxation and shield them from future tax increases and additional fees.

Pipeline companies and other “transmission facilities” would have needed only obtain a construction permit from the three Public Utilities Commissioners in Pierre to be exempted from all local zoning rules and regulations that other companies doing business in those jurisdictions must follow, including setbacks and other safety protections. It was designed to overcome opposition to the use of eminent domain for acquisition of right of way.

Summit Carbon Solutions will apply for a permit in South Dakota on November 19th. The Iowa Utility Commission has awarded a permit to Summit so it can use eminent domain to seize property from unwilling land owners and build the pipeline, but construction cannot start until Summit gets regulators’ approval in the South Dakota.

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.