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.

Joseph Krist

Publisher

We are finally approaching the finish line of the election. The MCN mothership resides in one of the most contested races for House of Representatives. The volume of mail has been astonishing. And everything you hear about how nasty some of this stuff can be is true. But now that we’re here – there’s only one thing left to do. Vote. Please. Don’t boo. Vote. That goes for either side. T-shirts, lawn signs, all of that does not matter if you don’t vote.

__________________________________________________________________

WESTERN WATER

A federal district court judge ruled that the U.S. Army Corps of Engineers violated the National Environmental Protection Act and the Clean Water Act when it approved expanding a Colorado reservoir. The Gross Reservoir supplies 1.5 million people in the Denver metropolitan area. The Denver water utility has been seeking to expand the reservoir for some twenty years to deal with the ongoing growth in Colorado.

Work on the expansion of the existing dam began in 2022 despite the legal challenge. The project will add 131 feet to the reservoir’s 340-foot dam, allowing it to triple its water storage capacity and hold an additional 72,000 acre-feet of water diverted from the declining Colorado River beginning 2027. The decision cites the fact that the project could result in a “compact call” by the Lower Basin states (CA, NV, AZ). That would force the Upper Basin states (WY, CO, UT, MN) to release more water to satisfy the compact’s requirements.

The Upper Basin does not yet use all of the water it is technically entitled to, as the region doesn’t have large reservoirs as is the case with Lake Mead or Powell. It is still entitled to use an additional 3 million acre feet of water. Denver seeks to use water rights it acquired in 1945 to provide the additional water to the Gross reservoir. Colorado water law provides for water providers to receive a conditional water right from the state’s water court, which allows them to potentially develop that supply in the future. 

The court’s decision does not force Denver Water to stop construction, but orders the utility to meet with plaintiffs to agree on remedies for the project’s environmental impacts and notes that the groups have a right to relief from any damage caused by the construction. It’s not going to stop the dam expansion. It will possibly see Denver Water spend half a billion dollars on a project that will never be fully utilized. That will be on the ratepayers.

PORTS AND ELECTRIFICATION

This week it was announced that the US E.P.A. would award some $3 billion of grants to accelerate the electrification of vehicles at ports throughout the country. In many areas, ports have become associated with pollution from the ships themselves but primarily from the vehicles which serve the port. That includes not just the diesel trucks coming and going from the ports but much of the equipment used in the Port facilities themselves.

Two ports caught our attention. The Ports of L.A. and Long Beach were the recipients of some $412 million. This will be combined with some $225 million of funding from the Ports and the shippers. The Ports have been at the center of efforts to reduce the levels of air pollution around the Ports. The high volumes handled lead to significant truck traffic. The volume of trucks and sometimes long waits by those vehicles contributes to poor air quality.

The second is the Port of Baltimore. As part of the program, the Port will receive $147 million under the program. The collapse of the Key Bridge in March highlighted the important role the Port of Baltimore plays in the export market. The grant was announced in the wake of the settlement of claims against the operator of the freighter which crashed into the bridge. That settlement will provide $102 million towards the cost of cleaning up the debris from the bridge.

Overall, the program will provide grants to 55 ports in 27 states and territories. Ports receiving money include the Port Authority of New York and New Jersey, the Detroit-Wayne County Port Authority, the ports of Savannah and Brunswick, Georgia, as well as Philadelphia, Los Angeles and Oakland, California.

TRI STATE GENERATION

Tri State Generation has been at the center of the effort to address climate change. Its coal based generation fleet has led participating distribution coops it serves to seek out renewable power. It has been in response to customer sentiment. A few of these coops have executed agreements to withdraw from Tri State, requiring contributions from departing utilities. Those coops are replacing capacity with renewables. It has put Tri State under enormous pressure.

Now, the federal government is throwing Tri State a lifeline. The EPA is awarding $2.5 billion in federal loans and grants to retire existing coal plants and acquire new renewable energy resources across four Western states where its member cooperatives provide electricity to a million consumers. It will also fund Tri-State’s purchase of 1,280 megawatts of energy from solar, wind and wind/storage hybrid projects and more than 100 megawatts of standalone energy projects, about half of which will be located in Colorado.

The financing comes from the Department of Agriculture’s $9.7 billion Empowering Rural America (ERA) program for electric cooperatives only, helping co-ops in 23 states transition to green energy. A total of $1.1 billion of ERA money has been announced for Colorado. Tri-State received the largest allocation at $679 million.  United Power, the second-largest co-op in the state which left Tri State, received up to $261 million. CORE Electric Cooperative, the state’s largest co-op, is set to get $225 million. 

TEXAS POWER RULING

A U.S. district court ruled that a Texas law giving incumbent utilities the sole right to build transmission lines connecting to their systems was “invalid” because it violates the U.S. Constitution. Texas utility codes related to the transmission law “are unconstitutional because they violate the dormant Commerce Clause and are therefore invalid and unenforceable, to the extent they grant in-state transmission owners the exclusive right to build or acquire transmission lines in the non-[Electric Reliability Council of Texas] regions of Texas,” the district court said. The dormant Commerce Clause bars states from restricting interstate commerce.

In August 2022, the U.S. Court of Appeals for the Fifth Circuit found that the Texas transmission law likely violates the Commerce Clause. The Texas law was particularly restrictive because it prevented both regional transmission organization-planned and merchant projects. It comes after a few years of significant issues with the transmission of power in Texas. In one of those instances, El Paso which has access to power outside the Texas transmission system was able to continue to provide service when other utilities could not.

CHICAGO BUDGET

Chicago Mayor Brandon Johnson proposed a 4% increase in property tax bills for homeowners in the city as part of his plan to cover current and 2025 budget gaps. It is designed to generate $300 million in new tax revenues, although that could change based on property assessments for 2024. The tax increase proposal comes in the wake of the Mayor’s campaign pledges (last year) of no increases. His proposal includes no cuts in the City’s workforce.

Johnson’s proposed budget includes plans to use tax increment financing money for Chicago Public Schools, $52 million for youth opportunity programs, $40 million for an initiative to address the city’s homeless and migrant situation, and $39 million for a small business support program. Johnson noted that he plans to uphold the city’s pension obligations. The city’s projected budget deficit for FY 2024 is some $222.9 million, which is below previous estimates from earlier in the fiscal year. With the expiration of COVID assistance and other factors considered, the budget deficit for FY 2025 is estimated to be $982.4 million, according to city Budget Director’s office.

CHICAGO SCHOOLS ON THE BALLOT

On Election Day, voters will have their first chance in many years to elect 10 school board members, after the Chicago Teachers Union lobbied for years to end mayoral control of the school system. Enrollment numbers have ticked up in Chicago and other cities over the past two years, but still remain well below prepandemic levels. The resulting aid reductions tied to per pupil attendance have occurred at the same time spending on the schools increased.

We often criticize ideological approaches that involve finances and credits that usually come from red states. In this case, the nation’s most militant teachers union is working with the Mayor to limit changes to the school system. We do not argue here that historic funding for inner city schools was not equitable. It was not and still is not. The idea of having a neighborhood based school system is a valid goal.

But an example illustrates, in a time of clearly limited resources the goals have to be practical.  Frederick Douglass Academy High School is on the city’s West Side.  At its peak, it served more than 500 students in 2007. In the era after the Great Recession, demographic trends were negative in many cities and Chicago was no exception. In the case of the school, local trends have left the school with only 34 enrolled students.

Closing the school and getting the children to a fully staffed functioning school would seem to make sense. Under the union’s plans, these underutilized schools should be fully staffed even in the face of declining enrollments and a continuing nationwide teacher shortage. At the core of the current situation is a disagreement between the Mayor and the CEO of CPS.

The Mayor wants CPS to borrow to fund pension payment requirements. The CEO for CPS wants the City to apply new revenues generated by tax increment financing districts to covering some of the schools’ costs. Some Aldermen are advocating lessening pension funding contributions in lieu of a general property tax increase. There are still opportunities for a reasonable plan to be adopted but the politics of the situation don’t lend themselves to prudent judgments on credit issues.

ELECTION DAY

Several items on ballots across the country have drawn our attention. There are several initiatives to raise or establish taxes to support transportation. In Nashville, another effort is underway to develop and fund a comprehensive transportation system for this ambitious city. It comes after previous efforts to get voter approval for large scale projects failed. This time there is a much different backdrop to the effort to increase sales taxes than was the case in 2018 when a project including light rail was proposed.

Four states have cannabis on the ballot. Florida has an established medical marijuana scheme and now voters will be asked to approve legal recreational marijuana. Adults 21 years old and older would be allowed to purchase marijuana from licensed dispensaries. Florida also has a contentious ballot item regarding reproductive rights. Voters in Nebraska will have a vote on two initiatives which would legalize and regulate the use of medical marijuana in the state. Like Florida, Nebraska actually has two reproductive rights initiatives on its ballot.

North Dakota voters will have their third chance to legalize recreational marijuana. Efforts in 2018 and 2022 failed. South Dakota voters already voted in favor of legalization in 2020 but the head of the state police challenged the initiative in court. The South Dakota Supreme Court ultimately ruled against the measure. The current initiative was drawn up in the light of those concerns. The ballot also includes a proposed constitutional amendment regarding abortion rights.

AUTONOMOUS VEHICLES

This year, five states and Washington, D.C., enacted bills dealing with fully automated vehicles. The new laws in Alabama, Kentucky and South Dakota allow for the operation of fully autonomous vehicles. California’s new law requires manufacturers to continuously monitor every autonomous vehicle on the road and designate a remote human operator to immobilize a vehicle if necessary. The law also allows law enforcement to issue a notice of noncompliance when autonomous vehicles violate local traffic ordinances. California’s new law requires $5 million in insurance for manufacturers testing autonomous vehicles on state roads.

North Carolina’s brings the vehicles under updated dealer regulations for all cars. The new law in Kentucky for fully autonomous vehicles requires owners to file a safety and communication plan that law enforcement can use and to have a minimum of $1 million in liability insurance per vehicle, roughly 10 times higher than the amount for regular personal vehicles. Some of that reflects the fact that much of the impetus behind the law came from the trucking side of the issue. Alabama’s new law requires a minimum of $100,000 in liability insurance for fully autonomous vehicles, about the same as ordinary cars.

COOL PAVEMENT

A little over a year ago, we wrote about a test of “cool pavement”. The technology is a coating which can be applied on asphalt which will reflect sunlight. Untreated asphalt absorbs heat. The idea was to literally cool streets off in an effort to deal with local areas of overheating – “heat islands”. Now, Arizona State University researchers have issued a report on the effectiveness of the process tested.

Pavements in the city of Phoenix that were treated with cooling technology had significantly lower surface temperatures compared with conventional pavement. That heat has to go somewhere and on its way up increases the thermal stress that a person standing on the surface would experience at midday. Like if you’re waiting for a bus or to cross a street you would be buffeted by the heat rising. 

The researchers determined that cool pavement technology is most effective on large parking lots that lack shade or in car-centric cities with hot climates, low cloud cover and wide residential streets. It’s not effective in high-rise downtown areas and shouldn’t be used in areas with high pedestrian traffic like playgrounds, plazas or parks.

So, does it achieve its goal of reducing the impact on people of conditions in urban “heat islands”? Rather than rely on cool pavement to mitigate the effects of heat on pedestrians “Instead, heat exposure mitigation should focus on shading, such as trees and engineered shade, in these areas. “[Cool pavement] cannot replace the benefits of shade trees for pedestrian cooling.”

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

Joseph Krist

Publisher

NEW YORK’S MUNICIPAL WORKFORCE WOES

Recently, much attention has rightfully been focused on the potential impact of the management upheaval in the New York City government. The lack of permanent commissioners at the police and Fire Department are the best examples of the knock on effects of the Mayor’s (and his team’s) ongoing legal troubles. Before that however, there were real issues with the City’s ability to attract and maintain workers to fill the career positions that are essential components of any effective bureaucracy.

Here’s one example of the impact of a hollowed out professional workforce. The City provides multiple benefits to low-income New Yorkers, including Supplemental Nutrition Assistance Program (SNAP) food stamps and Cash Assistance (CA). CA consists of two programs, Family Assistance (FA) and Safety Net Assistance (SN). The Federal and State governments determine the program requirements, and it is up to City employees at the Human Resources Administration (HRA) division of the Department of Social Services (DSS) to process applications, determine eligibility, and ensure benefit delivery. SNAP benefits are 100% Federally funded, while CA benefits are a mix of City, Federal, and State dollars.

SNAP and CA applications have significantly increased since 2020, accelerating with the end of pandemic-era safety programs. At the same time, staff levels declined during the pandemic and did not begin to recover until 2023 and 2024. From 2020 to 2022, SNAP and CA cases rose by 13%, while relevant staff levels decreased by 9%. This led to backlogs in the process which put the City out of compliance with federal standards. Timeliness has improved since 2023, but remains a challenge, especially for CA. Almost one third of new CA applications were still overdue as of June 2024, according to the most recent data provided by HRA.

Much of the difficulty with staffing is based on the pandemic and the City’s response to it. The effort to force City workers back to the office before many other facets of the City’s social service infrastructure were open or available was a major negative. It’s a situation which is manifested in the use of cancelled open positions as a way to “tighten the City’s budget belt” when issuing financial plans and updates. Hiring is likely to be a problem throughout the last one year plus of the current administration.

PFAS

The US E.P.A. is moving towards enforcement of standards covering certain chemicals generally known as PFAS and their presence in local water supplies. EPA established legally enforceable levels, called Maximum Contaminant Levels (MCLs), for six PFAS in drinking water. Public water systems must monitor for these PFAS and have three years to complete initial monitoring (by 2027), followed by ongoing compliance monitoring. Water systems must also provide the public with information on the levels of these PFAS in their drinking water beginning in 2027.

Public water systems have five years (by 2029) to implement solutions that reduce these PFAS if monitoring shows that drinking water levels exceed these MCLs. Beginning in five years (2029), public water systems that have PFAS in drinking water which violates one or more of these MCLs must take action to reduce levels of these PFAS in their drinking water and must provide notification to the public of the violation. 

EPA estimates that compliance with this rule is estimated to cost approximately $1.5 billion annually. The Bipartisan Infrastructure Law has dedicated $9 billion to help communities impacted by PFAS pollution in drinking water as well as another $12 billion in Bipartisan Infrastructure Law funding available to communities to make general drinking water improvements, including addressing PFAS chemicals. Estimated costs include water system monitoring, communicating with customers, and – if necessary – installing treatment technologies.

That raises the issue of the potential impact on the finances of local water systems from the rule. The circumstances of where these chemicals came from will dictate the financial burden. If it’s at a current or former military facility does the federal government have the responsibility? What is the cost breakdown between private and public sources of the pollution? It is important to note that “EPA will focus enforcement on parties who significantly contributed to the release of PFAS chemicals into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, federal facilities, and other industrial parties.”

Superfund sites take a long time to be remediated and that reduces the current financial burden for localities. I note that the agency says that “EPA’s enforcement policy…will provide additional clarity on the agency’s intent not to pursue certain parties such as farmers, municipal landfills, water utilities, municipal airports, and local fire departments, where equitable factors do not support seeking CERCLA cleanup or costs.”

I see the program as a manageable long term issue rather than any short-term credit issue. There are already military installations (primarily those with air facilities) across the country which have executed agreements with host localities to share the burden of the cost of compliance. Air facilities through the use of firefighting foam have been huge contributors to the problem. A funding path would allow the costs to be spread across multiple balance sheets.

Public water systems can choose from multiple proven treatment options. In some cases, systems can close contaminated wells or obtain a new uncontaminated source of drinking water. The final rule does not dictate how water systems remove these contaminants.

HOUSING AND TAXES

A bill introduced this year in the  Honolulu City Council is the council’s third attempt since 2018 to pass an empty homes tax. It would consider homes vacant if they’re unoccupied for more than six months per year and includes exemptions for things like being in the military, receiving medical care or if the home is undergoing renovations. The Honolulu tax would be in addition to regular property taxes, and would start at 1% of assessed value before gradually going up to 3% over a few years. The bill’s language restricts how revenue can be used. No more than 5% could be used for administrative costs, and at least half of the revenue must go toward affordable housing and homelessness initiatives. 

The goal is to increase occupancy rates and decrease the number of homes sitting empty. It is a concept that was first adopted in Vancouver, B.C. Like Honolulu, it had a significant stock of properties maintained as second homes and/or investment properties. Vancouver’s tax only exempts homes occupied by residents who are on a lease or sublease. The pending bill in Honolulu has been amended to exempt short-term rental owners. It is a phenomenon that we see in many areas which have significant tourism sectors in their local economies and significant second home bases. The pressure to offer short term rentals is immense.

Opponents also cite the associated costs of enforcement. In Honolulu, the bill’s language restricts how revenue can be used. No more than 5% could be used for administrative costs, and at least half of the revenue must go toward affordable housing and homelessness initiatives. Bill supporters acknowledge those allocations may change during the upcoming budget process.

The primary goal of empty homes taxes is to reduce the number of vacancies. In Vancouver, vacancy rates were roughly halved. Another goal is reducing the number of investment properties. It will take three out of five votes on the Honolulu City Council to enact a tax. The complexity of solving housing shortages nationwide is reflected in situations like this. Some want the revenues to be generally available. Others want funding for housing development.

WINDY CITY WOES

The City of Chicago is facing a host of fiscal problems. The City’s FY2025 Budget Forecast, released in August 2024, estimated a $222.9 million year-end budget shortfall for FY2024, a $982.4 million deficit for FY2025 and over $1.1 billion for FY2026. These deficits equal or exceed those faced during the pandemic, and the City must now fill the $1.2 billion deficit for FY2024 and FY2025 without the benefit of the federal pandemic funding.

The City already allocates approximately 40% of its operating budget to debt and pension payments. Its personnel costs continue to increase while its revenues have not recovered as hoped. Labor negotiations are a major pressure. Chicago Public Schools face a militant teachers union (represented legally by the Mayor before he ran for Mayor) which is trying to negotiate a large pay increase while simultaneously pushing for the Mayor to support keeping schools open by. In part, limiting access to charter schools.

In December 2023 legislation for Tier 2 Chicago firefighters that changed the calculation of final average salary.21 This was promoted as the first part of a “fix” to preemptively address concerns about Tier 2 benefits potentially failing to meet Internal Revenue Service Safe Harbor rules, which requires that government pension plans that do not coordinate with Social Security provide benefits that meet certain minimum standards. Fixes to Tier 2 employee pensions and a new firefighters contract also are pending. (Tier 2 State pension benefits must meet Internal Revenue Service Safe Harbor Rules, which require public workers to receive a retirement benefit from their public pension that is at least equal to the benefit they would receive under Social Security.) This triple threat of labor issues is real.

The Mayor recently announced a hiring freeze across City departments but it is not clear whether this excludes police and fire. Those address what he can control. The FY2025 Chicago Public Schools (CPS) budget had to fill an initial $505 million deficit, which could grow by hundreds of millions more once contract negotiations with the Chicago Teachers Union are finalized this fall.

The Regional Transportation Authority (RTA) has projected a $730 million budget gap beginning in FY2026 once pandemic funds have depleted. These will all pressure the City to provide more funding over a period of massive competition for the same tax base. Tax increases are seen as currently not feasible (MCN 10.14.24). The State has its own fiscal issues to continue dealing with. The projected $538 million budget gap the City faced in FY2024 — the first year ARPA funds were no longer available to be used for revenue replacement — was originally closed in part with $49.5 million additional TIF surplus.

A Civic Federation analysis of the City’s near term fiscal outlook showed worrisome trends. The City’s four pension funds have a total of $35.6 billion in unfunded pension liabilities. All four of the City’s pension funds began to transition to state law-mandated 40-year funding plans in 2016. Since 2022, all four are now funded on an actuarially calculated basis. The FY2024 total required pension contribution was $2.8 billion (which included a $306.6 million supplemental pension payment), comprising 22.9% of total net appropriations. The two largest funds, the Municipal and Police Funds, received the largest portion of annual funding at 77% or nearly $2.2 billion.

In the meantime, the City of Chicago allowed a temporary casino space to open in September 2023. The Mayor’s FY2024 budget estimated that the temporary casino would generate $35 million to contribute toward the total $1.5 billion payment to the Police and Fire pension funds in FY2024. Meeting this projection would require just under $3 million per month in local tax allocations. The casino has only generated $13.1 million in total local tax allocations in the past twelve months and has yet to break $1.5 million in local allocations in a single month.

FEDERAL FOOD FUNDS FOR THE SOUTHEAST

The U.S. Department of Agriculture (USDA) announced that people in Florida recovering from Hurricanes Helene and Milton may be eligible for food assistance through USDA’s Disaster Supplemental Nutrition Assistance Program (D-SNAP). Approximately 407,733 households in 24 Florida counties are estimated to be eligible for this relief. USDA makes this funding available through states in the aftermath of disasters. It even allows people who may not be eligible for SNAP in normal circumstances to participate if they meet specific criteria, including disaster income limits and qualifying disaster-related expenses. 

Earlier this week, USDA announced that residents in parts of Georgia, North Carolina and Tennessee may be eligible for D-SNAP. USDA also announced that five more counties in Georgia —Dodge, McIntosh, Taliaferro, Thomas, and Warren—are now eligible, bringing the total area where D-SNAP is offered to 112 eligible counties and one Tribe across the states impacted by Hurricanes Helene and Milton. 

To be eligible for D-SNAP, a household must live in an identified disaster area, have been affected by the disaster, and meet certain D-SNAP eligibility criteria. Eligible households will receive one month of benefits – equal to the maximum monthly amount for a SNAP household of their size – that they can use to purchase groceries at SNAP-authorized stores or from

CLOSER TO THE EDGE

The National Student Clearinghouse Research Center reports that preliminary data for fall 2024 shows undergraduate enrollment increasing 3 percent. All sectors are seeing growth in the number of undergraduates this fall. There are however, worrying signs. Contrary to overall enrollment growth, freshman enrollment is declining, down 5 percent from this time last fall with public and private nonprofit 4-year institutions seeing the largest declines (-8.5% and -6.5%).

An almost 6 percent drop in the number of 18-year-old freshmen (a proxy for those enrolling immediately after high school graduation) is driving most of the decline. Is this the beginning of the long-awaited demographic cliff facing the higher education sector?

NATIVE AMERICAN GAMING

In California, card rooms have been a long running opportunity for gamblers to play legally. They are restricted to table and card games, hence the name, but slot machines are prohibited. In a number of small communities, card rooms generate significant revenues. Tribal casinos offering the full array of gambling opportunities are seen as direct competitors to the card rooms.

A new California law will now allow the tribes to sue to determine if the card rooms are, as the tribes contend, illegally operating games which are not permitted under California law. The tribes have exclusive rights to run the full array of games including slot machines. The tribes have sought to establish standing to sue over the issues. Without standing, the state courts were unwilling to hear the tribes’ cases.

A law passed in the recent legislative session has changed that. The Tribal Nations Access to Justice Act authorizes a California Indian tribe, under certain conditions, to bring an action solely against licensed California card clubs and third-party proposition player services providers to seek a declaration as to whether a controlled game operated by a licensed California card club and banked by a third-party proposition player services provider constitutes a banking card game that violates state law, including tribal gaming rights under the constitutional provisions described above, and to request injunctive relief. 

That final provision is what will enable the tribal gaming facilities to obtain injunctions against the card room operators. The bill would prohibit a claim for money damages, penalties, or attorney’s fees and would require that actions be filed no later than April 1, 2025. More than 60 tribal casinos operate statewide. It is estimated that there are 80 operating card rooms.

The law has the potential to change the landscape for the municipalities where card rooms are significant economic drivers. There are several of these in Southern California and there are concerns that should the tribes prevail in their legal efforts some of these smaller municipalities would lose employment and tax revenues.

DID ARKANSAS HIT THE MOTHER LOAD?

Researchers at the United States Geological Survey and the Arkansas Department of Energy and Environment estimate that there might be 5.1 million to 19 million tons of lithium in the Smackover Formation brines in southern Arkansas. That would represent 35% to 136% of the current amount of lithium estimated to be in the U.S. The U.S. relies on imports for more than 25% of its lithium.

The USGS estimates there is enough lithium brought to the surface in the oil and brine waste streams in southern Arkansas to cover current estimated U.S.  lithium consumption.  The low-end estimate of 5 million tons of lithium present in Smackover brines is also equivalent to more than nine times the International Energy Agency’s projection of global lithium demand for electric vehicles in 2030. 

LOCAL GAS TAX SUBSTITUTION

The issue of funding for road maintenance paid for by gas taxes continues to evolve. Cities are finding it harder to generate funds from gas taxes as electrification and fuel efficiency make gas tax revenues less dependable. At the state level, the debate over how to replace gas tax revenues has led to new or increased fees for electric car owners.

One city is trying a new model for generating revenues for street maintenance. On November 1, the City of Rock Island. IL will begin adding a flat fee to residents’ water bills to fund local street maintenance. The amount of the fee will vary with the size of the land parcels being charged. All parcels with a gross area of less than 6,000 square feet will pay $7 monthly. Parcels over 6,000 but less than 18,000 square feet will pay $10 monthly. Parcels over 18,000 but less than 43,560 square feet (an acre) will pay $20 monthly. Parcels greater than 43,560 square feet will pay $30 per month.

Currently Rock Island’s local gas tax brings in an estimated $500 K annually. The new fee is projected to generate $2 million in revenue. The new fee comes in the wake of legislation earlier this year that would eliminate an existing 1% state tax on groceries. That goes into effect on January 1, 2026. The law allows counties and municipalities to levy their own 1 percent grocery taxes by passing an ordinance. This eliminates the requirement for a referendum.

It’s an example of how even local government will have to be nimble as the transportation landscape shifts right in front of them. This is especially true as the rollout of a majority electric car market has been uneven. In the meantime, the roads still need to be maintained especially if the much heavier electric vehicles become the norm.

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

AFTER THE STORM

The Biden administration this week has awarded a total of nearly $2 billion in new grants to help harden, expand, and modernize U.S. power grids. The 38 projects that received grants are in 42 states and Washington D.C., and range in scale from $7.5 million to harden a remote grid in Alaska to $160 million for utility Georgia Power to deploy advanced power cables and ​“dynamic line rating” technologies to expand the capacity of its transmission network.

Part of the program are the up-to-$612 million in grid grants President Joe Biden unveiled earlier this week during a visit to storm-ravaged Florida. That funding will flow to utilities in Florida, Georgia, and North Carolina, as well as to the federal Tennessee Valley Authority. The money comes from the third round from the Department of Energy’s Grid Resilience and Innovation Partnerships (GRIP) Program part of the IRA.

DOE has received $50 billion in applications for the GRIP program to date, she noted, but the program has already given out about $7.7 billion of its total $10.5 billion in appropriations.

CARBON  CAPTURE

A leak in a well used to inject carbon dioxide into underground storage wells in Illinois has raised concerns over safety. Monitoring wells monitor the movement of CO2 within injection wells. These wells help ensure that the CO2 is spreading as expected and that there are no signs of leakage. Archer Daniels Midland was the first company in the country to ever put in a CO2 sequestering well. It has been operating for 13 years.

Recently, one of two such wells from ADM was found to be leaking. The timing could not be less favorable. In May, the Illinois Legislature passed the SAFE CCS Act. It makes Illinois just the second state after California to put a moratorium on approval of carbon dioxide pipelines while the Pipeline and Hazardous Materials Safety Administration decides on regulations for such projects. There are currently 22 injection well applications into the Environmental Protection Agency for sites in Illinois that are scheduled to have draft permits issued in the next six months. 

As the process plays out, concerns about issues like eminent domain continue. A recent poll surveyed registered voters across six Midwestern states. It found that eighty-one percent of registered voters say they oppose corporations utilizing eminent domain for private projects. The poll was conducted before the Decatur monitoring wells leaked. Concerns about eminent domain and aquifer protection not being included in the SAFE CCS Act remain an issue. 

As these issues are worked out, the federal government continues to push hard for carbon capture.

CARBON PRODUCTION

Th e US EPA develops an annual report called the Inventory of U.S. Greenhouse Gas Emissions and Sinks (Inventory) that tracks U.S. greenhouse gas emissions and sinks by source, economic sector, and greenhouse gas going back to 1990. Large polluters, which include power plants, belong to a subset known as “large stationary sources” and represent about half of the country’s total emissions. Recently released data for 2023 show where the carbon is coming from.

Power plants cut their emissions by 7.2 percent between 2022 and 2023. The agency said that this sector emitted 1.5 billion metric tons of carbon dioxide in 2023. Power plant emissions are down 33.8 percent since 2011. This sector represents a quarter of the country’s total emissions. in 2023, emissions from oil and gas production and processing increased by 1.4 percent, and are 16.4 percent above where they were in 2016. 

Emissions from other major pollution in industrial and waste sectors fell by 1.1 percent.

HYDROGEN

One year ago, hydrogen hubs were making news as the Biden administration announced financial support for seven of these facilities. They are designed to facilitate the production of hydrogen for fuel without producing carbon dioxide resulting from traditional production methods. These facilities were split between the production of “green” hydrogen and “blue hydrogen”. The federal dollars were designed to allow these projects to attract private capital. Now, a year into the program that private investment is not panning out.

One example is the Appalachian hub known as ARCH2. A study by a regional environmental group documents the difficulties that this facility is facing. In the year since the US Department of Energy awarded ARCH2 up to $925 million in federal grants, four project development partners have exited ARCH2 and five of the 15 originally proposed projects have been scrubbed. 

The result is that the projected economic benefits of the project are much less likely to be realized. The report on ARCH2 finds that it is expected to achieve an emissions reduction of just 2% across the tri-state region and create fewer than 3,000 permanent jobs. The end-uses proposed as part of ARCH2 by project developers – electric generation and home heating – are not currently economically competitive with other sources of fuel for these projects.

Away from the environmental consequences, the economic fallout is a bigger concern for green energy proponents. One of the basic pillars of the Green New Deal is the potential economic benefits of renewable energy as a source of employment and business activity. As proponents rely on the economic potential to offset the potentially disruptive nature of the energy transitions, failures do not auger well for long-term support.

One just has to harken back to the hit that solar energy took under the Obama Administration. Solyndra was a manufacturer of cylindrical panels of copper indium gallium selenide thin film solar cells. It was based in Fremont, California. In 2009, the Obama administration co-signed $535 million in loans to Solyndra. On August 31, 2011, Solyndra announced it was filing for Chapter 11 bankruptcy protection, laying off 1,100 employees, and shutting down all operations and manufacturing.

NUCLEAR

The municipal finance industry will finally take part in the small modular reactor space. After one failed effort by a Utah municipal utility to get involved with an SMR project, a new one has been announced. Amazon has signed three agreements to support the development and deployment of small modular reactors in the United States. The company entered into a deal with Energy Northwest, the successor to the Washington Public Power Supply System to deploy four reactors developed by X-energy that will together generate approximately 320 MW of electricity beginning in the early 2030s.

The first phase of the Energy Northwest agreement would see the deployment of four 80-MW Xe-100 SMRs at the Columbia Generating Station in Richland, Washington. Future phases could add eight more reactors, bringing the site’s total SMR generating capacity to approximately 960 MW.

EPA AND EMISSIONS

The Supreme Court will not stop regulation from the Environmental Protection Agency which requires coal plants in the United States to reduce 90 percent of their greenhouse pollution by 2039, one year earlier than the agency had initially proposed. The E.P.A. also imposed three additional regulations on coal-burning power plants, including stricter limits on emissions of mercury from plants that burn lignite coal, the lowest grade of coal. Lignite limits would impact Texas generators.

The rules also more tightly restrict the seepage of toxic ash from coal plants into water supplies and limit the discharge of wastewater from coal plants. Toxic ash ponds have long been a source of concern. There are about 200 coal-burning power plants still operating, with many concentrated in Pennsylvania, Texas and Indiana.

More than two dozen states challenged the regulation, arguing that the federal government had failed to prove that the techniques used to control emissions would curtail them to the degree that the government is seeking. It is a temporary setback to efforts to fight the rules. West Virginia, said it would continue to contest the rule.

The state’s challenge is currently pending in the U.S. Court of Appeals for the District of Columbia Circuit. In July, a three-judge panel refused a request by the conservative-led states to stop the E.P.A. rule from going into effect while the court case continued, prompting the states and other groups to ask the Supreme Court to step in. Ultimately, this case could end up in the Supreme Court argued over different issues.

THE POST-REFUNDING WORLD

To the extent there has been any focus on the municipal bond market during the Presidential campaign, it has been on the SALT deduction. In Congress, recent disasters have focused attention on the issuance and use of tax-exempt private activity bonds. One thing lost in the era of Trump tax cuts which does not look to be resurrected is advance refunding. That has limited options for issuers in terms of reaping the benefits of favorable interest rate movements. It has renewed interest however in a different technique – the bond tender offer.

The Division of Bond Finance of the State Board of Administration of Florida (the “Division”), on behalf of the State of Florida is offering holders of up to $500 million bonds it selects the chance to sell their bonds and receive a premium for doing so through a tender offer process. This week, marks the midpoint of a tender offer which extends through October 23.

The Tender Offer is being made as part of a plan to reduce the State’s debt. The candidates for purchase were selected to maximize debt service savings through principal reduction and/or avoided future interest cost. The bonds were issued as both general obligation debt for education and transportation and revenue bond debt for the Florida Turnpike. The State has the funding to pay for the tender and it has been legislatively appropriated.

Will the offer succeed? It’s not mandatory so if you wish to keep your targeted bonds, feel free. Estimates from Barclays suggest that some $30 billion of debt will have been the subject of tender offers over this and last year. It seems that only half of the targeted bonds in these offers have been sold back. It will be interesting to see if the timing of the offer relative to the two hurricanes has any impact on the amount of bonds tendered.

PENSIONS

The Equable Institute is a bipartisan nonprofit that works with public retirement system stakeholders to solve complex pension funding challenges with data. It produces annual reports and interim results on state pension funds. It recently reported on results through 3Q24. Equable found that the funded status of public retirement systems in the U.S. has continued improving as of September 30, 2024 — thanks both to strong financial market performance and record high contribution rates.

That’s the good news. Several negative pressures on public plans include steadily growing benefit payments resulting in record high negative cash flow combined with over 1 in 5 public plans contributing less than the interest accumulating on their existing unfunded liabilities. The net result is a nearly 6 percentage point increase to the national average funded status that hovers at a fragile 81%. Why is it fragile? After investment returns of nearly 25% in 2021 the national average funded ratio had improved to 83.9%. Public plans then suffered sharp losses, strong gains again, and some flat performance as well.

Current trends support a more positive few through this year. The national funded ratio average is projected to increase from 75.6% in 2023 to 81.4% in 2024. The total pension funding shortfall will decline to $1.29 trillion in 2024, down from $1.63 trillion in total unfunded liabilities in 2023.

RENEWABLES AND PUERTO RICO

We have long advocated for a reconstruction of the public power grid in Puerto Rico on a localized basis. This reflected the ongoing failure to consistently operate a heavily centralized system in an environment does not support that approach. Now, we see steps being taken to address a portion of the capital need to support a local approach and employ resources at hand such as the sun to power the island.

The U.S. Department of Energy announced this week that it has finalized an $861.3 million loan guarantee for the development of two solar+battery facilities and two standalone battery facilities in Puerto Rico. Project Marahu, will add 200 MW of solar generation and up to 285 MW/1,140 MWh of standalone storage to the island’s grid. The Marahu solar installations are expected to produce approximately 460,000 MWh of energy annually.

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,

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

CHICAGO

Chicago Public Schools (CPS) is undergoing real governance issues as a mass resignation by the Board comes in the midst of difficult negotiations with the teachers union. The Mayor comes from the union and this has put him in a vise as he tries to pacify his former employers while facing an ever increasing City budget deficit. Tax increases seem unlikely and expense cuts will be heavily opposed. In the meantime, there was sobering news regarding tax increases.

Cook County showed that initial property tax collections were down on a year over year comparisons. It was disappointing as a new set of assessments were generated for use in this year’s tax collections. Unfortunately, the reassessment had the effect of significantly raising tax bills and the impact of those increases has slowed payments as residents find ways to afford the increases.

The area most impacted were on the County’s south side. The number of delinquencies increased by 13% on a year after year basis. In the south and southwest suburbs, collections were down by 1.5% — fueled by a 27.7% increase in the number of residential delinquencies — after reassessments in that region shifted much of the tax burden from businesses to homeowners. The shift contributed to a record 19.9% increase in that region’s median residential bill.

New pressure on the City’s water utility came in the form of new EPA rules regarding lead pipes and the water supply. (see EPA Lead Rule below). It will undoubtedly rely on significant new debt. That will require higher rates

EPA LEAD RULE

The EPA announced new rules governing the use and maintenance of lead water pipes. The new rule imposes the strictest limits on lead in drinking water since federal standards were first set. Utilities will be required to generate an inventory of their lead pipes and replace them over the next 10 years. The measure replaces less stringent regulations, adopted during the Trump administration, on lead in drinking water. The federal government banned lead pipe in new plumbing in 1986. 

The E.P.A. estimates that water utilities must replace about nine million lead pipes at a total cost of $20 billion to $30 billion over the ten year period. The E.P.A. announced $2.6 billion in new funding to support lead pipe replacement. This funding will flow through the drinking water state revolving funds (DWSRFs) and is available to support lead pipe replacement and inventory projects.  The new rule also lowers the allowable amount of lead in the before replacement to 10 parts per billion, from the current 15 parts per billion. If the water supply repeatedly exceeds the new threshold, utilities must make water filters available. 

The rule also doesn’t require utilities to pay for the portion of lead lines that are on private property, including within a home. The new rule also allows some utilities with a particularly large number of lead service lines to go beyond the 10-year deadline. Chicago, which has the most lead pipes in the nation, has that problem because city building codes required all homes (smaller than a 4-flat) to install the lead service lines until 1986, decades after other cities banned them for health reasons. It will get twice as long to comply.

Several cities have been ahead of the curve on this issue. Milwaukee Water Works is on track to replace all remaining lead pipes within the EPA’s ten-year timeframe. In 2024 alone, Milwaukee received approximately $30 million in Bipartisan Infrastructure Law funding to replace 3,400 lead service lines. 

The Detroit Water and Sewerage Department has received $90 million from the Administration and will replace more than 8,000 lead service lines this year, putting the city on track to replace all lead pipes in 10 years.

The Erie, Pennsylvania Water Works has received $49 million from EPA to enable the city to replace all lead pipes within 5 years instead of 25 years. Syracuse now plans to use state and federal financing to start replacing the approximately 14,000 service lines in the city, which expects to get to 2,400 of them next year.

Denver Water has accelerated its efforts through $76 million from the Bipartisan Infrastructure Law, allowing the city to be on track to replace all lead pipes within a decade.

In Newark, NJ. the danger from some 23,000 lead pipes was exposed in 2019 and there was no real program to provide funding for it. So, Essex County, which includes Newark, stepped up and $120 million in bonds were issued through the county’s improvement authority. We would expect to see issuance for water systems to grow as these programs move forward.

CHATTANOOGA STADIUM MOVING DOWN THE TRACKS

The latest financing for a pro sports stadium is for a minor league franchise, the Chattanooga Lookouts. The City is issuing debt payable from a variety of taxes generated from activity in and around then stadium. The plans include development of an entertainment district centered on the stadium. It is a continuation of the current trend in stadium development, especially for baseball.

It’s being stimulated, in part, by the success of the stadium developments in St. Louis and Atlanta. Ballpark Village in St. Louis was a muni financed deal. Looking at the skyline behind center field this week in San Diego, it was easy to see much of that development you see wasn’t there before Petco Park. The Tampa Bay Rays new stadium (how timely) deal is packaged as an overall development project and that is the model that proponents of a new stadium for the KC Royals are hoping to get approval for as well.

The model of pairing stadium and commercial development is extending to other sports like soccer and hockey. It is not a surprise that this happening in Tennessee. Chattanooga is taking a cue from Nashville. Nashville has been very upfront about its belief that pro sports teams are a key to achieving their economic goals. They have been pushing tirelessly for an MLB franchise to go along with the Titans and Predators.

One of the reasons there is still some doubt about where the Oakland A’s will be playing in three years is because the potential for associated development at the proposed site in Las Vegas is limited. The site was cleared this past week with the demolition of the Tropicana hotel.

As always, the details of these deals are what ultimately determine whether these projects are worth it. The results have been mixed overall. The municipalities often are at a disadvantage in those negotiations especially given the political nature of the whole process.  In this case, the process has yielded a pretty good result for the Lookouts. There will also be more of these situations as Major League Baseball continues to pressure Minor League franchise operators to modernize and/or replace stadia to maintain their working agreements with MLB franchises.

CARBON PIPELINE LITIGATION

Legal efforts to stop Summit Carbon Solutions from constructing its pipeline for captured carbon through Iowa have moved to a decisive stage. Over the last couple of years, litigation challenging Summit’s right to enter private property for the purpose of surveying land without the right of eminent domain have produced conflicting opinions.

In May 2023, a Clay County landowner along the now-abandoned Navigator CO2 Ventures pipeline brought suit against Summit on the same issues. In that case, the district judge agreed with landowners that the Iowa law in question was unconstitutional, since landowners were not compensated for intangible damages of allowing a survey on the land. 

A case in Hardin County is the one before the Iowa Supreme Court. The district court in Hardin County ruled in May 2023 that the landowner plaintiff could not interfere with Summit Carbon Solutions’ attempts to enter his land to survey for its pipeline project. The landowner is appealing the Hardin County decision on the argument that it is unconstitutional for a pipeline company to undertake land surveys and examinations before it is vested with eminent domain.

GEORGIA EV PLANT

Hyundai has begun producing electric SUVs in Georgia less than two years after breaking ground on its sprawling, $7.6 billion manufacturing plant. The official formal opening will occur in 2025 but production is underway. Hyundai has said it will produce up to 300,000 EVs per year in Georgia, as well as the batteries that power them. The plant’s vehicle production areas have been completed and are being staffed by more than 1,000 workers. Battery-making facilities remain under construction. 

ORLANDO UTILITIES COMMISSION

Within 16 years, the Orlando Utilities Commission (OUC) plans to take out of service more than 90 percent of its with generation plants that burn fossil fuels, mainly coal and natural gas, and will have erected solar panels on more than 10,000 acres. The plans will put OUC at the forefront of the changing energy production industry. Later this year, OUC will start generation at a pair of large solar plants – Harmony II and Storey Bend in Osceola County – able to provide for about 28,000 homes or roughly 10 percent of residential customers. 

While the utility moves towards creating its own base of solar power, it also wants to reduce payments under its net metering plan. That is not going over well with existing owners of residential solar. Of the utility’s nearly 250,000 residential electric customers, about 10,000 have solar panels on their rooftops. Those panels plus those of commercial customers have a combined capacity to generate 104 megawatts, or nearly 5 percent of OUC’s capacity. By 2032, according to OUC reporting to the state’s Public Service Commission, OUC “anticipates” constructing a dozen large solar plants, each covering between 500 and 800 acres, containing approximately 300,000 panels.  

DISASTER BONDS

When large scale disasters occur, Congress has authorized spending plans to assist recovery by authorizing special issuance of private activity bonds. Congress has created special tax-exempt bond categories in response to disasters over the past two decades, including Liberty Bonds following September 11, Gulf Opportunity Zone Bonds and Ike Bonds after hurricanes, and Mid-Western Disaster Recovery Bonds after severe flooding along the Mississippi River.

Each required a special act of Congress that took months before capital became available. Those processes took weeks and months to be enacted which complicated recovery. Now, large scale natural disasters are becoming more frequent and widespread. This is generating a proposal from the Council of Development Finance Agencies (CDFA). It would provide for permanent provisions governing the use of tax-exempt private activity bonds in response to natural disasters.

The bonds would not be subject to federal volume cap restrictions and would be available to the affected areas upon the declaration of a state of emergency by a state’s or territory’s governor. Disaster Recovery Bonds would be authorized for use in a Disaster Recovery Zone to finance: the acquisition, construction, reconstruction, or renovation of non-residential real property (land, buildings, and fixtures); the construction and rehabilitation of multi-family rental property for low- and moderate-income individuals; the repair or reconstruction of damaged public utilities facilities and transportation infrastructure; and the immediate repair and mitigation of severe environmental contamination to a public water source.  

DAMS

Every natural disaster creates new opportunities to learn from. In recent years, flooding has become a more widespread concern. The recent experience with Hurricane Helene has highlighted the number of dams located throughout the country. While people tend to think of the larger scale dams which provide power, water and flood control, the majority of these facilities are much smaller and localized. They primarily were designed to control flooding.

The very active summer storm season has served to highlight the infrastructure that is at the base of much of the flood control effort in the US. Some $3 billion was dedicated to dam projects under the Bipartisan Infrastructure Law, which Congress passed in 2021. So far this year, the Federal Emergency Management Agency (FEMA) has distributed a record $215 million in dam safety grants. The FEMA dam safety grant program only accepts dams that could cause loss of life if they fail and are in poor or unsatisfactory condition. 

FEMA has a limited amount of money to give out so the agency is prioritizing dams in the poorest condition that also pose the greatest risk to the public. That means that the larger hydroelectric dams in the West and dams near higher populations are the current funding priority. That has generated disparate distributions to different regions as FEMA releases funds. Eleven Midwest states will receive a total of $30 million in FEMA dam safety grants this year, just half of the roughly $60 million that 13 states in the South will receive. Another $60 million will go to 11 states in the Northeast. In the West, 11 states will receive about $45 million.

Earlier this month, the Department of Energy (DOE) announced it was handing out more than $433 million to projects that will improve safety and grid resilience for hydropower dams across 33 states. DOE will provide $63 million between seven Midwest states to improve their hydropower dams. That is half of what Northeastern and Southern states will receive and one-third of what Western states will get. DOE awarded more than $176 million to six Western states: Arizona, California, Oregon, Washington, Idaho and Utah.

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.