Joseph Krist

Publisher

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EPA, THE SUPREME COURT, AND THE POWER FUTURE

Given the week of decisions from the U.S. Supreme Court, many wonder where the Court’s course leads to in terms of the ability to manage certain issues on a national aggregate basis or if it is the role of the State’s to regulate and oversee energy developers and providers. If one can get beyond the emotion and rhetoric, the issue over power plant regulation is not a surprise.

The Court’s decision in this case, as well as in other cases, is based on a view that even some of the thorniest issues facing our body politic are better addressed legislatively. It is true that there have been significant strides made in society as the result of Supreme Court decisions. Those same decisions remain argued and, in some cases contested to this day. Many of the challenges to some of these cases would likely not arise if legislatures (especially at the federal level) enacted sufficiently clear laws.

It’s obvious that this legislative inaction creates lots of opportunities for mischief on all sides of issues. At the same time, attempts at legislative actions in some states have created more than mischief with House Speakers in two legislatures having been brought down as the result of corruption linked to energy related issues. The issue of how much homeowners should be able to save if they install solar generation has been a significant issue in Florida and California.

All the attention on the EPA decision diverts attention away from the precarious state of the transmission grid. In areas with very high temperatures, the utilities are concerned about their ability to meet demand. This is driving discussions like those in CA which we documented last week. It is behind the drive to build new high voltage transmission across Missouri. And obviously, carbon capture is designed to avoid more stringent generation rules.

Utilities, especially those associated with the production and generation of electric power, have a long history of dealing with the regulatory structures of each of the states which they serve. On the downside, the resulting fragmentation of regulatory practices from state to state raises the issue of inconsistent regulation. A West Virginia coal plant serving customers in Virginia or Kentucky could see three different regulatory determinations regarding the same asset. In the end, the environmental impact isn’t directly mitigated. The revenue club is only so effective in changing behavior.

It should serve as a reminder of how much power resides in the regulatory infrastructure of stage and local government. The power is being exercised as you read this: zoning laws for and against solar and wind installations; the development and management of net-metering schemes for solar, state and local air and water quality regulations, state and local franchise oversight and, public service commissions and their equivalents None of these types of oversight are stopped.

SEC, SUPREME COURT, CLIMATE DISCLOSURE

We have documented the nature of the opposition to proposed disclosure standards put forth by the Securities and Exchange Commission (SEC) regarding climate change (MCN 6.27.22). Now, some of those opponents are asking if the ruling against the EPA and its efforts to regulate power plant emissions provides a basis for stopping the SEC from promulgating and enforcing disclosure standards.

Opponents of disclosure seek to use the same theory, the “major questions” doctrine, to say that the SEC cannot mandate disclosure rules not specifically included in authorizing legislation for the Commission. Disclosure supporters point to the fact that the West Virginia case involved EPA using a somewhat specific statutory authority to engage in an emerging type of regulatory effort, while the SEC has based its proposal in its basic mission from Congress: providing investors with the information they need to make smart financial decisions.

Over the last decade, it has become clear that the growing investor base motivated by ESG concerns still needs some objective standards to measure the compliance of individual investments with investment mandates related to climate change. The market has already established that climate related disclosure is necessary. The debate is over how to quantify data and how to use that data in the investment process.

In the municipal space, the information may not be as granular as some might think will be required by the SEC but issuers have been increasing their disclosure. The issue now is one of standardization. What sort of information is needed and how can that information be applied? The SEC is not trying to make environmental policy with these rules. They are taking a traditional role of financial market regulation – making sure that information provided to investors is not fraudulent. It is a response to market input not an agenda driven move.

CALIFORNIA INITIATIVE

Another front in California’s climate war was established this week when the  “Clean Cars and Clean Air Act”  ballot initiative was approved for the November ballot. The initiative seeks to increase funding available from the state to help mitigate the impact of transportation on the State’s environment.  The measure would raise the corporation tax for those earning more than $20 million in profits in California. These taxpayers would pay an additional tax of 2.45 percent on their California profits above $20 million. This tax increase would end the earliest of: (1) January 1, 2043 or (2) beginning January 1, 2030, the January 1 following three consecutive calendar years in which statewide greenhouse gas emissions have been reduced by 80 percent below 1990 levels.

The additional revenue generated from the increased corporation taxes would be deposited in a new fund called the Clean Cars and Clean Air Trust Fund (CCCATF). Forty-five percent of revenue would be allocated to the CA Air Resources Board (CARB) for programs to promote the purchase and use of zero emission vehicles (ZEV), as well as other mobility options intended to reduce GHG emissions and air pollution. For at least the initial five years of the programs, at least two-thirds of the overall funding must be targeted to programs that support the deployment of passenger ZEVs. half of the overall funding for ZEV incentives and mobility go to programs that primarily benefit residents who live in   near low-income and disadvantaged communities. 

Thirty-five percent would be allocated to the CA Energy Commission (CEC) for programs to increase the availability of ZEV infrastructure. During the first five years of the program, the measure requires that at least half of the ZEV infrastructure funding be targeted specifically to multifamily dwelling charging stations (20 percent), single-family charging stations (10 percent), fast fueling infrastructure for passenger vehicles (10 percent), and medium- and heavy-duty fueling infrastructure (10 percent). at least half of the total ZEV infrastructure funding be dedicated to projects that benefit residents in or near low-income and disadvantaged communities.

MICHIGAN AND MILEAGE TAXES

Transportation issues were always cited in discussions of Gov. Gretchen Whitmer’s election. “Fix the Damn Roads” became a well-known motto. Nevertheless, Michigan has gone through four years of trying different ways to tax fuel and to avoid a rate increase. The formula that dictates how Michigan fuel tax and vehicle registration fee revenue is divided between state trunkline roads, county roads, and city and village roads was established more than 70 years ago. With the state economy riding in part on substantial investment and employment in the development and manufacture of electric cars, this makes the formula out of date.

The state gasoline tax was increased from $0.15 per gallon to $0.19 per gallon in 1997. The gas tax remained unchanged until it was increased to $0.26 per gallon in 2017. The tax was also not subject indexation to reflect inflation, which steadily grew. To address that issue, legislation provided for indexation of gasoline as well as diesel fuel taxes beginning this year.

So, it seems that everyone agrees that whatever powers the vehicles that ride on them, roads will continue to be a significant expense in need of modern funding support. It is no surprise that the latest entity to share that view – Mackinac Center for Public Policy in Michigan – calls for a mileage-based fee. The reasons are not new and there is wide agreement on them.  Technology in cars is accepted and people are realizing that privacy is a scare commodity in today’s surveillance/smart phone world thereby weaking that hurdle towards deployment.

GATEWAY TUNNEL

The governors of New York and New Jersey agreed to split evenly their share of the $14 billion first phase of the Gateway Tunnel project. Before the federal government could agree to pay half or more of the cost, the two states had to come to an understanding about splitting the local share. The agreement is not the first for a split of the local share of the project. A 2015 agreement allowed federal consideration of a funding request to move forward. President Trump refused to give Gateway the approvals and funding it needed during his four years in office.

Away from President Trump, Governor Chris Christie was one of the primary obstacles to funding for the project. The 2015 agreement was the second that then Governor Christie walked away from after his decision not to fund under a 2010 agreement. This new formal agreement, covers “Phase 1” of Gateway, which includes the over century old Portal North Bridge and the Hudson tunnels. They agreed that the states would evenly split the local share of the costs of those parts of the project.

COURT HITS BRAKES ON P3

Proposals to implement tolling on a variety of bridges and highways in the Commonwealth of Pennsylvania have been floated over the years only to go down in flames in the face of significant opposition. This despite the fact that transportation funding has been a political football in the legislature on a nearly annual basis. The debate has continued even in the face of declining revenue sources and an increasing need to rehabilitate the state’s road infrastructure.

One plan was for the Commonwealth through its transportation agency (PennDOT) to undertake a public-private partnership to repair a number of bridges throughout the Commonwealth. The plan would have been funded through the collection of tolls on the bridge facilities to be rehabilitated. This would be a significant change from the current lack of charges for users of the bridges.

It was no surprise when opponents of the tolling plan sued to have it halted. Several local jurisdictions claimed that PennDOT failed to follow steps required by law to approve a P3 on transportation infrastructure, including providing local residents insufficient opportunity to weigh in on the tolling plan itself before it was approved by Pennsylvania Public-Private Transportation Partnership Board. The plaintiffs also claimed that the 2012 law establishing the board was itself a violation of the state’s constitution, because it represented an unlawful delegation of taxation authority that was reserved to the state legislature.

A preliminary injunction against the plan was issued in May and a permanent injunction was issued last week. The injunction applies to all projects under the Major Bridge P3 Initiative and PennDOT is prohibited from carrying out any activities related to the projects.  The plaintiffs also claimed that the 2012 law establishing the board was itself a violation of the state’s constitution, because it represented an unlawful delegation of taxation authority that was reserved to the state legislature. That question was not resolved as the injunction was based primarily on the procedural issues raised.

DE BLASIO FERRIES LEAVE A REVENUE WAKE

From the very beginning in 2016, the DeBlasio Administration’s plan to run ferry service from the Bronx and Queens to midtown Manhattan was viewed skeptically. Over time, the ferries came to be viewed as an unnecessarily subsidized service which only served to provide higher income passengers an alternative to traditional public transit. That alternative came at a price to users which only reflected about 20% of the cost. The rest was subsidized by the City.

The New York City Economic Development Corporation (EDC or the Corporation) entered into an Operating Agreement with a private entity to operate the NYC Ferry system beginning in 2016. EDC’s audited financial statements show that the net losses of the ferry operations for Fiscal Years 2017, 2018, 2019, 2020, and 2021 were $30 million, $44 million, $53 million, $53 million, and $33 million, respectively.

Now, the City Controller has released the results of an audit which cast the ferry operation in an even more negative light. This audit found that EDC did not disclose over $224 million in expenditures as ferry-related in its audited financial statements and that EDC understated the City’s subsidy (per ride) for the ferry operations by $2.08, $2.10, $3.98 and $4.29 for Fiscal Years 2018, 2019, 2020, and 2021, respectively. You see, the Mayor wanted ferry riders to pay no more than they would on the subway.

The ferry system has become a poster child for bad management as well as unacceptable financial disclosure practices. The audit highlighted several disclosure problems. Primary among them was some $224 million of expenses related to the ferries which were not reported. Most disturbing was the EDC response to the audit that refuses to use the recommended reporting procedures in future financial statements. Unaudited data along the lines requested will instead be put on a general website.

It tends to support the argument that the ferry service is a failure and that funds applied to subsidies could probably used to benefit a much larger transit user base.

STADIUM FUNDING

We came across a report from the Sycamore Institute, a public policy organization in Tennessee. It has generated some research about stadium financings in the wake of some $2 billion of spending approved by the Tennessee legislature to support the development of several new stadium facilities to benefit private sports franchises, especially NFL franchise. Our focus is not so much on the total dollars as it is on the percentage of these projects financed by the team owners.

The graph helps to highlight what drives opposition to and disappointment in the deal which NY State came up with for a new stadium for the Buffalo Bills. Out of eight stadiums opened since 2008, two of them were financed entirely with private funding. Out of the remaining six, only the stadium in Indianapolis was financed with a larger percentage of public money than will be the case in Buffalo or Nashville.

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

THE MUNI MARKET

It has clearly been a somewhat difficult year for the market. The pace of recovery from the pandemic was erratic and sometimes a case of one step forward, two steps back. The Puerto Rico bankruptcy drags on while potential restructuring options become more expensive by the day. High rates and a potential recession are the last things that situation needs. Other outstanding high yield credits would likely come under pressure as rising rates and some layoffs are dampening enthusiasm for discretionary spending.

At the same time, the basic structure remains very much the same as borne out by statistics just published by SIFMA. They cover the period 2017-2021 so that includes the very strong economy period, the pandemic period, and some of a reemergence period. Nevertheless, total municipals outstanding have stayed within a narrow range of between $3.9 and $4.1 trillion. The average maturity of new issues has only recently showed a measurable decline reflecting higher rates and duration risk. The SIFMA Muni Index is back where it was in FY 17 at 3.2%. The difference is that the index has increased by some 90 basis points from year end.

TEXAS CENTRAL REPRIEVE

As we went to press last week, the Texas Supreme Court had not yet published its ruling in the Texas Central Railroad eminent domain case.  It has now ruled that Texas Central’s proposed 200-mph rail line between Dallas and Houston was entitled to take property through eminent domain provisions that were established for “interurban electric railways” in 1907. The decision rejected the position that the law did not apply to high-speed rail projects under the 1907 law. The decision theoretically allows Texas Central to revive its land acquisition process to obtain needed right of way.

The pointed out that the case had nothing to do with project approval. “The case involves the interpretation of statutes relating to eminent domain; it does not ask us to opine about whether high-speed rail between Houston and Dallas is a good idea or whether the benefits of the proposed rail service outweigh its detriments. The narrow issue presented is whether the two private entities behind the project have been statutorily granted the power of eminent domain, a power otherwise reserved to the State and its political subdivisions because of the extraordinary intrusion on private-property rights that the exercise of such authority entails. 

Texas Central Railroad relied on its view that it is a “railroad company” and an “electric railway” with eminent-domain power under Texas law. The decision was made on the basis of the status of Texas Central as an interurban electric railway. The issue of whether it is also a “railroad company” was not decided as it was not necessary after the initial decision. This would allow Texas Central to continue to acquire right of way through eminent domain if necessary.

It is not clear what the immediate implications are for the railway’s proponents. Staffing at Texas Central is minimal, funding activities have crawled to a halt, and the CEO of the railway recently left. Numerous news outlets have documented the lack of any real public comments from the railway’s sponsors.

AUSTIN ELECTRIC

In 2021, the meltdown of the Texas power grid was the major concern facing electric customers as it led to damage, increased costs, and a likely need for significant rate increases to deal with the costs of that event. That blackout generated new interest in alternative power sources especially solar among residential customers. As is the case in a number of other jurisdictions, Austin Energy finds itself in a diminished financial position looking for new revenues.

That process has begun with Austin’s proposed rate schedule. Austin Energy continues to see approximately 2.5 percent annual customer growth. It has not however, produced comparable load growth. In 2012, City Council adopted an ordinance requiring Austin Energy to review its rates and update its Cost of Service Study at least once every five years.

While City Council adjusted Austin Energy’s base electric rates in January 2017, those adjustments were based on data from a 2014 historical test year. Subsequently, Austin Energy performed a revenue adequacy review, based on Fiscal Year (FY) 2019 test year, and determined a base rate update was not required at that time. However, the revenue adequacy review showed that a base rate increase may be required before the next mandated review.

In 2022, Austin Energy conducted a new Cost of Service Study. The new study uses an adjusted test year of FY 2021 to determine the revenue requirement. The lack of significant annual load growth has moved the utility to try to recover more revenue through monthly fixed charge-based rates rather than through usage-based power sales. The Cost of Service Study demonstrates that the residential customer class is well below cost of service, by $76.5 million, while certain commercial customer classes are above cost of service. The proposed rate increases are designed to shift costs from the commercial base to the residential base.

As one could imagine, the residential customers are upset. A logical move for a residential customer could be to install solar but if the distribution utility only raises its rates for its fixed charge coverage in response, the move to solar doesn’t make economic sense. It is trend emerging across the country as legacy utilities see themselves in a less competitive position without some external cost being imposed on solar users.  It is seen in thew efforts in Florida and California to limit net metering benefits and diminish the competitive advantage of solar.

The utility’s own presentation shows why residential customers are upset. “Austin Energy’s process has been developed to balance the various objectives of the utility, including equity, affordability, cost causation, and gradualism. This process recognizes moving customers towards cost of service and funding discounts for State of Texas facilities, local school districts, and military facilities. The residential rate structure has some unsustainable weaknesses that require modification to secure the long-term financial stability of Austin Energy and ensure a workable rate design. The proposed rate design includes reducing the number and steepness of the residential tiers and increasing the customer charge.

The municipal utilities in Texas like Austin and San Antonio have been moving in the direction of financing the costs of the transition to clean energy on the backs of residential customers. These utilities seem to be more concerned with the costs of large industrial and commercial customers than they are with residential rates.

ENERGY EMPLOYMENT

The U.S. Department of Energy (DOE) released the 2022 U.S. Energy and Employment Report (USEER) this week. The 2022 USEER, originally launched in 2016, covers five major energy industries: electric power generation; motor vehicles; energy efficiency; transmission, distribution, and storage; and fuels. The findings show that all industries, except for fuels, experienced net-positive job growth in 2021.  

In 2021, U.S. energy sector jobs grew 4.0% over 2020 while overall U.S. employment, which climbed 2.8% in the same time period. The energy sector added more than 300,000 jobs, increasing from 7.5 million total energy jobs in 2020 to more than 7.8 million in 2021. From 2015 to 2019, the annual growth rate for energy employment in the United States was 3%—double the 1.5% job growth in the U.S. economy. In 2020, the energy sector was deeply impacted by the COVID-19 pandemic and subsequent economic fallout. The energy sector lost nearly 840,000 jobs. Last year’s United States Energy and Employment Report (USEER) showed that, by the end of 2020, the energy sector was beginning to rebound, adding back 560,000 jobs.

Jobs in carbon-reducing motor vehicles and component parts technologies grew a collective 25%, led by 23,577 new jobs in hybrid electric vehicles (19.7% growth) and 21,961 jobs in electric vehicles (26.2% growth). In fact, jobs in electric vehicles, plug-in hybrid vehicles, and hybrid vehicles were among the only subcategories of any type of energy jobs that rose in numbers from 2019 to 2021 and that did not decrease from 2019 to 2020. In 2021, the fuels technology group declined by 29,271 jobs (-3.1%). Fossil fuel jobs accounted for most of the fuel jobs lost. Petroleum—both onshore and offshore—led losses, shedding 31,593 jobs (-6.4%). Coal fuel jobs declined by the greatest percentage, losing 7,125 jobs and decreasing by 11.8%. Fuel extraction jobs overall decreased by 12%. Biofuels, including renewable diesel fuels, biodiesel fuels, and waste fuels, grew by 6.7%, adding 1,180 jobs.

All transmission, distribution, and storage (TDS) technologies experienced employment growth in 2021 with an increase of 21,460 jobs. Smart grids outpaced virtually all other technologies in the TDS technology group in growth rate, increasing 4.9%. Traditional transmission and distribution added the most jobs (13,088) and grew 1.4%. Batteries, for both grid storage and electric vehicles, added 2,949 jobs (4.4%). Electric power generation jobs grew 2.9%, adding 24,006 jobs in 2021, slightly faster than U.S. jobs overall.

In total, there were an estimated 857,579 electric power generation jobs in the United States in 2021. Solar had the largest gains, both in terms of new jobs (17,212) and percent growth (5.4%). In 2020, the solar industry lost 28,718 jobs. Wind energy jobs, including land-based and offshore wind, sustained modest growth in terms of new jobs (3,347) and percent growth (2.9%), continuing a trend of steady growth over the last few years.

The geography of the energy transition is also interesting especially given the politics of energy in some states. Michigan added most new energy jobs (35,500) in 2021, followed by Texas (30,900) and California (29,400). West Virginia and Pennsylvania fared best nationally for percent growth in transmission, distribution, and storage, with the fastest growth occurring in West Virginia (29%) and Pennsylvania (14%). Electric power generation technologies grew fastest in the Midwest, with the highest percent growth in Nebraska (32%), Minnesota (18%), and Iowa (16%).

The top two states with the highest percent growth in fuels jobs were North Dakota (21%) and Montana (8%). Percent growth in motor vehicles jobs was spread across many states, led by Texas (20%), Tennessee (19%), and Indiana (18%). Oklahoma and New Mexico were among the top states for percentage growth among all five energy categories. Oklahoma had the third highest per capita growth nationally for transmission, distribution, and storage (11%) as well as energy efficiency (5.3%). New Mexico was first for energy efficiency (7.0%) and third for fuels (5.4%).

CALIFORNIA BUDGET AND INFLATION

One of the concerns that some had about the amount of money made quickly available to the states was that it might create a trough of money to be used fairly indiscriminately to send money to constituents. The sheer number of state gubernatorial and legislative elections occurring this year only enhanced those concerns. Now we see that some of those concerns may indeed by valid.

In several red states, the money effectively funded income tax cuts. In other states, particularly some of the bigger ones, the money has been used to simply transfer money to residents. In New York, homeowners are in the midst of receiving checks from the State regardless of income, tax status, or anything else. Yes, the Governor is hopeful of being elected to a full term as Governor for the first time.

In California, the Governor (also up for reelection) has proposed a number of ways to get cash in the hands of potential voters. The budget framework agreement announced by Governor Gavin Newsome for the State includes giving 23 million Californians direct payments of as much as $1,050. The payments would be issued via direct deposit refunds or debit cards. The agreement suspends the state’s diesel sales tax for 12 months, starting on Oct. 1. The diesel sales tax is currently 23 cents per gallon.

The Governor originally offered payments to offset the rising cost of gasoline. That plan called for California vehicle owners to receive $400 per vehicle registered in their names, up to two vehicles per person, and millions in grants to make public transit free for three months, pause a part of the diesel sales tax rate for a year, and pause the inflationary adjustment to gas and diesel excise tax rates.

How much will eligible residents receive? Joint filers who make less than $150,000 and have at least one child will receive the maximum amount of $1,050. Single filers who make under $75,000 would receive $350; those making between $75,000 and $125,000 would get $250; those making between $125,000 and $250,000 will see a $200 payment. Joint filers who make less than $150,000 will receive $700; while those making between $150,000 and $250,000 will see a $500 payment. Joint filers making up to $500,000 get a payment of $400.

The budget will also require some technical amendments especially in the energy sector. One of those pieces of legislation deals with a plan to establish a “Strategic Reserve” of electric generation sources. The plan allows power from fossil fueled generation to be used when we face potential shortfall during extreme climate-change driven events (e.g. heatwaves, wildfire disruptions to transmission).

The budget specifies what types of energy generation is eligible: Extension of existing generating facilities planned for retirement.  Note that Diablo Canyon cannot be extended with the current appropriations or authorities in the current budget. This requires further legislative action. Note that the Strategic Reserve in itself does not authorize extension of expiring assets, including retiring once through cooling plans.

Any extensions will be subject to authorization by regulatory entities or in the case of Diablo Canyon, subsequent legislation and review and approval by state, local and federal regulatory entities. ○ New emergency and temporary power generators of five megawatts or more.  The program is prohibited from operating diesel generators after July 31, 2023. The program does not provide for retrofit of backup diesel generators.

Here’s the controversial part. For Summer 2022, the budget bill exempts several statutes and permitting requirements, and the trailer bill allows the Department of Water Resources to enter into contracts without undertaking CEQA review. The budget specifies a loading order by requiring the Department of Water Resources (DWR) to prioritize feasible, cost-effective zero-emission resources over feasible, cost-effective fossil fuel resources; clearly states that the Strategic Reserve is a “last on, first off” resource to provide grid support only in emergency conditions.

DELIVERY FEES AND TRANSIT

Various methods of deriving revenues from changes in driving habits especially as they relate to commercial activity have been considered in the face of climate change and a shift to online shopping. Firms like Amazon have been targeted but proposals for fees to be charged to those using the home delivery services have not generally been supported by customers. Now, legislation in Colorado will test that dynamic.

Beginning July 1, Colorado customers will notice a range of extra charges on their receipts for goods delivered to their homes. They include a Retail delivery fee: 27 cents charged on orders, including those made online, for goods and most other items subject to the sales tax, including restaurant food; ride-hailing fee: 30 cents per ride on services including Uber and Lyft, or 15 cents for rides in zero-emission vehicles: Bridge and tunnel impact fee: 2 cents per gallon on diesel fuel purchases, rising to 8 cents by mid-2028; and Car rental fee: An existing $2 per day fee for car rentals up to 30 days will be indexed to inflation; it will newly apply to car-share rentals lasting at least 24 hours.

Electric vehicle registration fees will increase as the existing $50 registration fee for plug-in electric vehicles will be pegged to inflation, and additional annual EV fees will be phased in, starting at $3 for plug-in hybrids and $4 for full EVs. Those new fees will increase over the next decade to $27 for hybrids and $96 for full EVs.

Unsurprisingly, the fees are the subject of legal action. Given that they represent revenues to replace or increase tax sourced revenues, some see the scheme as an effort to get around Colorado’s Taxpayer’s Bill of Rights (TABOR).  That requires voter approval of many proposed tax increases. Voter approved Proposition 117 in 2020 which requires asking voters to approve fees if they’ll generate revenue above a certain threshold. Lawmakers attempted to work within its confines but litigation challenging that will be heard in the Fall. 

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

________________________________________________________________

COAL HANGS ON      

The Omaha Public Power District board is taking public comment on a proposal to burn coal at its North Omaha power plant for possibly another three years, until 2026. The board cites the fact new solar and natural gas plants that will replace the North Omaha units are running behind schedule and customer demand for electricity is rising. OPPD previously converted three of the five units there to natural gas. The remaining coal units are newer.

OPPD puts much of the blame on the federal government. Federally required interconnection studies are backlogged across the country. The need for these federal approvals is a constant source of delay for generation projects all over the country. In addition, solar projects all over the country are delayed due to restrictions on solar panel imports. The White House recently took steps to address the issue but the sheer number of projects seeking interconnection continues to grow.

DREAM A LITTLE DREAM FOR ME

The American Dream mall in the New Jersey Meadowlands seems to be falling victim to the impacts of a highly indebted owner, an unprecedented opening environment, and the realities of a post-pandemic world. As all of the factors have converged on the project, the financial impact has been difficult.

The Trustee for some $800,000,000 of outstanding revenue bonds issued through the Public Finance Authority (Wisconsin) informed holders that the May PILOT payment, which was due from the Developer in advance of the semi-annual June 1, 2022, Interest Payment Date, was not paid. The PFA Bonds are payable from Revenues, ultimately derived from the PILOT payments required to be made by the Developer pursuant to the Financial Agreement.

On June 15, the Developer made a payment to the PILOT Trustee in the aggregate amount of $13,870,191.21, which is equal to the amount of the missed May PILOT. The Developer has not fully cured its Default under the Financial Agreement however, as due to the late payment, pursuant to Section 4.02 of the Financial Agreement the Developer is also required to pay interest on the overdue May PILOT. That interest has not been paid.  

Another potential issue reflects the fact that the Developer is challenging the current tax assessment valuation of its interests in the Project in a proceeding under applicable New Jersey law. On March 31st 2022, it filed a Tax Appeal Complaint with the Tax Court of New Jersey to contest the tax assessment imposed on the property known as the American Dream Project for tax year 2022.

For tax years 2019, 2020 and 2021, the developer filed a tax Appeal Complaint to contest the 2019, 2020 and 2021 tax assessments on the American Dream Project. The tax appeals for 2019, 2020, 2021 and 2022 are unresolved at this time. The tax-assessed value is a key component of the revenues for the PILOTs, which are the principal source of repayment for the PFA Bonds.

The bonds bear all the markings of a prime restructuring candidate. If the assessment challenge cannot be adequately addressed, a clear risk will remain. The idea that a need to restructure this bond issue might arise is absolutely no surprise. The tortured development history, the limits of the pandemic and changed habits post-pandemic have created a credit squeeze. The mall partially opened in October 2019, was forced to close in March 2020 under pandemic restrictions and only reopened in October of that year.

Given all of that, operating losses in the first year at 60% of revenues are a problem. For 2021, the project did generate some $175 million in revenue but it resulted in a near $60 million operating loss.

CALIFORNIA HOUSING

The aid received by states from the federal government as the result of the pandemic, is providing an opportunity for the consideration of all sorts of programs seeking to spend money to achieve certain social goals. In California, it has led to a proposal to aid first time homebuyers which would incorporate the use of state funds for down payments, to be recouped later from price appreciation on homes.

The California Dream for All program would issue revenue bonds of $1 billion a year for 10 years to create the fund which would be applied to support the concept of shared appreciation mortgages. The program would create a partial ownership interest on the part of the fund and it would require repayment of the portion of a down payment covered under the program after sale of the property or a refinancing resulting from appreciation related equity.

It is being billed as a program to address “equity” issues. The program would be open to buyers making less than 150% of the median income in their area, and it would target first-generation homebuyers as well as those with high student debt loads. While the proposal may indeed lead to greater “equity”, it may ultimately exacerbate the state’s ongoing affordable housing crisis.

One clue is the support for the plan from the CA Association of Realtors. The plan clearly relies on steady appreciation in house prices. It also would help to drive that appreciation in that the plan only addresses the demand side of the housing equation. Empowering more demand in a market which cannot generate commensurate increases in supply is the definition of a price driver. No wonder the real estate industry supporting the plan.

The plan would do nothing to increase the supply of housing in a state with record breaking homeless populations. It would potentially expose the state to losses on the fund if the expected real estate price increases do not materialize. The other issue is that shared appreciation mortgages are a private sector technique. This would be the largest government sponsored and funded experiment. If for some reason the expected appreciation and repayment of down payments does not materialize, will that create an obligation for the state to fund? Will there be political pressure in future to forgive loans?

HIGH SPEED RAIL SLOWS DOWN

The proposed high speed railroad project undertaken by the State of California has been the target of much criticism. Its budget grew significantly, the timelines for project completion were delayed and extended, and anticipated federal funding was initially delayed under the Trump Administration. The scope of the project initial build out was reduced. All in all, the project was seen by many as just another public works failure.

As that project was unfolding, a planned Houston to Dallas high speed rail project was proposed. The cost of the project when originally proposed ten years ago was $10 billion. The funding for the project was to be entirely privately funded. Now, the expected cost is $30 billion. The funding for that cost is now proposed to include a $12 billion federal Railroad Rehabilitation and Improvement Financing program loan. Construction had been scheduled to be already underway. Instead, litigation challenging the right of the private project to use eminent domain to acquire needed right of way was argued before the Texas Supreme Court.

While the Federal Railroad Administration (FRA) issued its final rule for regulating the high-speed rail project in September 2020, Texas Central must still make an application to begin construction with the Surface Transportation Board. It has yet to do so. Management is at best in flux. It has been reported that the executive staff was let go in April. A Spanish news website reported the project has entered “a hibernation phase in search for financing.

Political opposition at the federal level is based in eminent domain concerns – a real long-standing issue in Texas and the need for federal aid. Issues regarding the use of Japanese train technology are also driving opposition and concern that use of the technology could clash with Buy America requirements in federal legislation.

NUCLEAR LITIGATION

Oglethorpe Power Corp. and the Municipal Electrical Authority of Georgia are suing lead owner Georgia Power Co. over proposed contractual changes from Georgia Power involving the expansion of Plant Votgle. Oglethorpe threatened to back out in 2018 unless it was protected from additional overruns. Georgia Power agreed that above a certain point, it would pay 55.7% of the next $800 million in construction costs, and then 65.7% of the next $500 million. Those extra contributions total $180 million. 

Oglethorpe and MEAG say the agreement activates once shared construction costs rise $2.1 billion above $17.1 billion.  Georgia Power says the base construction cost should be $18.38 billion and that the agreement doesn’t kick in until shared costs reach $20.48 billion. That creates a $695 million obligation for the municipal owners. Southern Co. has acknowledged it will have to pay at least $440 million more to cover what would have been other owners’ costs.

While the litigation process unfolds, Moody’s took the opportunity to review its ratings of debt issued by MEAG for the Votgle expansion. It assigned a Baa2 rating to the Municipal Electric Authority of Georgia’s (MEAG Power) planned issuance of approximately $52 million of Plant Vogtle Units 3&4 Project P Bonds, Series 2022A, and approximately $63 million of Plant Vogtle Units 3&4 Project P Bonds, Taxable Series 2022B. The Bonds are expected to be sold in July. The bonds are secured by payments received from the sale of a portion of MEAG’s interest in the new Votgle units.

That capacity sale is important to the MEAG credit as the purchaser is essentially the sole revenue source for the payment of these bonds for 20 years. The expectation is that sufficient demand from MEAG’s current participants at that time will absorb the capacity. The rating comes with a stable outlook reflecting a continued expectation that progress will continue to be made towards the construction of Vogtle Units 3&4 with commercial operation expected during the first quarter 2023 and fourth quarter 2023, respectively.

MASS TRANSIT SAFETY

While much attention has been focused on the issue of passenger safety in the context of criminal activity and its impact on ridership, another safety issue is plaguing two of the nation’s major subway steams. This week, the MBTA which operates Boston’s rapid transit system pulled all of its new Orange Line trains from service. This is the third time that the rolling stock on the Orange Line has had to be taken out of service over systematic issues.

The last Federal Transit Administration inspection has led to some preliminary conclusions and recommendations. They include increasing staffing at its operations control center, improving general safety operating procedures, and addressing delayed critical track maintenance and safety recertifications for employees. A full report and list of recommendations is due in August.

In Washington, D.C., WMATA has announced the return to service of subway cars which have been the subject of safety reviews over the last seven months. A Metro train derailment near Arlington National Cemetery in October 2021 found a wheel defect in some of the trains. As a result, all 7000-series railcars were removed from service on all D.C, Metro lines, removing nearly 60% of Metro’s fleet. Now, the Authority will begin releasing groups of the cars back into service.  The first release of 64 cars or eight trains in total represents less than 10% of the fleet.

The return to service allows the Authority to restore service levels. The 7000-series cars represent some 60% of the total WMATA fleet. The impact on service levels and safety perceptions were significant. The situation compounded ridership levels in addition to the impacts of pandemic limitations.  

TAXES ON THE BALLOT

The Massachusetts Supreme Judicial Court ruled that a ballot initiative calling for a 4% tax on incomes of $1 million or more. Opponents had challenged description of the initiative produced by the attorney general’s office. If the amendment is approved by voters, any household income over $1 million would be taxed at an effective rate of 9%. The first $1 million of household income would still be taxed at the current 5% tax rate, with a 4% surcharge — or so-called “millionaire’s tax” — tacked onto any additional income.

Opponents took issue with how the proposed constitutional amendment was summarized for voters in language written by the attorney general’s office.  “This proposed constitutional amendment would establish an additional 4% state income tax on that portion of annual taxable income in excess of $1 million. This income level would be adjusted annually, by the same method used for federal income-tax brackets, to reflect increases in the cost of living. Revenues from this tax would be used, subject to appropriation by the state Legislature, for public education, public colleges and universities; and for the repair and maintenance of roads, bridges, and public transportation. The proposed amendment would apply to tax years beginning on or after January 1, 2023.”

SEC CLIMATE DISCLOSURE

We have been generally unsurprised at the reactions against the SEC’s proposed climate change related disclosure regs. They have already been described as an act of terror by one state official in Utah and as is nearly always the case, issuers are expressing concerns with the potential costs of compliance with the proposed rules. Now, we are seeing initial efforts by some to legislate reality away.

The North Carolina House has a resolution which directs that Congress do all it can to legislatively block the SEC from imposing the rules. It is ostensibly in support of small farmers. The claim is that companies which are subject to the regulations will require individual farms to monitor their emissions.

NET METERING COMPROMISE

Every two years, Vermont Public Utility Commission is required to assess the incentives offered to new net-metering systems and decide whether they should be adjusted upward or downward. The latest review was released this week and it includes proposed changes in the state’s net metering scheme. As a result of the review and its resulting adjustments, most existing net-metering systems will see an increase in their compensation. Future systems that apply for permits on and after September 1, 2022, will see a small net decrease in compensation compared to existing systems.

The plan is an attempt to deal with the one aspect of net metering which has been most difficult to resolve around the country. In Vermont, the Commission notes the rapid expansion of solar installations and its potential to raise costs for customers without solar power. It cites the fact that in 2021, nearly 3,000 new solar net-metering systems and one wind net-metering system received were certified in 2021, for a total of approximately 45 megawatts (MW) of new, renewable energy capacity. That is an increase of the approximately 36 MW of net-metering permits issued in 2020 and continues to exceed the amount needed to meet Vermont’s current renewable energy requirements.

To better moderate the pace of new net-metering development, the Commission determined to reduce the compensation offered to new net-metering systems – resulting in a net decrease of $0.00272 per kWh, or less than three-tenths of one cent. However, because of other adjustments made in this order, most existing net-metering systems will benefit from an increase of $0.00728 per kWh, or approximately three-quarters of one cent, in their current incentives.

ALABAMA PRISON REDUX

Last year the State of Alabama attempted to finance a plan to replace two existing prisons with new facilities. The State has been under federal court orders to upgrade its dilapidated existing prisons. The plan had been to employ a public/private partnership with the private entity building and owning the prisons but with the State operating and staffing the facilities.

That plan succumbed to political pressure from the decarceration movement. The complaint was that there should be no way for a private entity to profit from the provision of prison facilities. (MCN 10.11.21) After a campaign of pressure against potential underwriters, that deal was scuttled. While seen as a victory for decarceration advocates, the fact was that the State still faced federal sanctions and that a jail replacement had to be built.

That left prison replacement to be dealt with the old-fashioned way. The State would design, build, staff, and operate the prisons. It would own the prisons. The Legislature would then have to appropriate each year for lease payments to pay debt service on the debt which will now be issued. The passage of time and the impact of inflation also make cost comparisons less favorable. Seems like a bit of an own goal for activists.

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

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NYC CULTURAL SIGNALS

The return to pre-pandemic levels of activity central to the NYC economy at venues for the arts have been mixed. On one hand, three established Broadway shows could point to weekly box office revenues at levels only 50% of pre-pandemic levels. That is not enough to sustain those shows and consequently they will soon go dark. Broadway has become such a tourism dependent industry now. Lingering hurdles to travel based on the economy, status of the pandemic, and a more difficult economic environment than hoped appear to be holding back tourism.

On the other side of the coin, the New York Philharmonic announced that it has taken in better-than-expected revenues since its reopening. In 2020, the season was canceled and the musicians received 25% pay reductions. Now, revenues are such that the orchestra announced it would lift the musicians’ salaries back to pre-pandemic levels in September. The pandemic cost the orchestra more than $27 million in anticipated ticket revenue. Cuts like those to the musicians saved some $20 million.

The Philharmonic is a major component of the Lincoln Center For The Performing Arts along with entities like the Metropolitan Opera and State Ballet among others. The LCPA credit has been under pressure from the pandemic. The positive attendance news should bode well for the overall credit in terms of the pandemic as an issue. LCPA debt went on negative outlook as the impacts of the pandemic became clear.

The negative outlook reflected the possibility of credit deterioration if the impact of the coronavirus and the deteriorating global economic outlook place prolonged downward pressure on key revenue sources including event income, investment income, and philanthropy. As we see venues return to pre-pandemic levels of attendance, the outlook and perhaps the rating could improve as well.

GIG WORK

The issue of how transportation network companies (TNC) classify their employees has been the subject of ballot initiatives and court battles but once the pandemic took hold, the issue dropped off everyone’s radar. In those days, the industry pledged to put significant resources behind a ballot initiative in Massachusetts which would have granted the wishes of Uber, Lyft, and the other TNC.

The constitutional provisions allowing ballot initiatives in Massachusetts have been very specific. An initiative can only deal with one question. Here, the Massachusetts Supreme Judicial Court found that while one question was “buried in obscure language” that it was indeed a separate question. “Petitions that bury separate policy decisions in obscure language heighten concerns that voters will be confused, misled and deprived of a meaningful choice,” the court wrote.  

In 2020, the state’s attorney general (and current gubernatorial candidate), Maura Healey, sued Uber and Lyft, arguing that they were misclassifying their workers by treating them as independent contractors rather than employees. That lawsuit is pending in court. In the meantime, the TNC spent over $17 million on the initiative.

The Court took was clearly troubled by a provision of the measure that said drivers were “not an employee or agent” of a gig company. Opponents of the initiative were successful in highlighting that as an attempt to limit Uber and Lyft from liability in the case of an accident or a crime. That provision was deemed by the court to be unrelated to the rest of the proposal, which was about the benefits drivers would or would not receive as independent contractors. 

SEC ENFORCEMENT

The City of Rochester, New York, its former finance director, and former Rochester City School District CFO with misleading investors in a $119 million bond offering. They had help as the Commission also charged Rochester’s municipal advisor. The SEC alleges that in 2019 the defendants misled investors with bond offering documents that included outdated financial statements for the Rochester City School District and did not indicate that the district was experiencing financial distress due to overspending on teacher salaries. In September 2019, 42 days after the offering, the district’s auditors revealed that the district had overspent its budget by nearly $30 million, resulting in a downgrade of the city’s debt rating and requiring the intervention of the state of New York.

The School District CFO was also charged with lying to the rating agencies. The SEC’s complaint filed in the U.S. District Court for the Western District of New York, charges violations of the antifraud provisions of the securities laws. The complaint also charges the advisors with violating the municipal advisor fiduciary duty, deceptive practices, and fair dealing provisions of the federal securities laws. The Commission is seeking injunctive relief and financial remedies against all parties.

The School District CFO has settled with the SEC. He agreed to settle the SEC’s charges by consenting, without admitting or denying any findings, to a court order prohibiting him from future violations of the antifraud provisions and from participating in future municipal securities offerings, and to pay a $25,000 penalty. 

INDIAN GAMING COURT DECISION

The US Supreme Court ruled that the State of Texas does not have the right to regulate the operation of bingo games at two tribal gaming sites. (MCN 2.28.22) The Texas Attorney General’s Office has been arguing for many years that the 1987 Restoration Act gave Texas the authority to regulate Tribal gaming on these reservations. Texas only permits activities like bingo to be conducted by non-profit entities for charitable purposes (Wednesday night bingo at the local church remains safe).

The case revolved around the fact that the reservations were restored to federal trust status in 1987 under the “Ysleta del Sur Pueblo and Alabama and Coushatta Indian Tribes of Texas Restoration Act.” However, the Restoration Act contained a provision that barred these two tribal nations from conducting gambling activities that are prohibited by the state of Texas. The tribes argued since Texas does not outright ban bingo, they can operate gaming facilities that offer bingo on their reservations. 

It’s not like the two tribes would be the first to operate a casino in the state. The Kickapoo reservation near Eagle Pass operates the Lucky Eagle casino near El Paso. That made Texas’ case a bit harder to argue. The court’s view was quite clear – “we find no evidence Congress endowed state law with anything like the power Texas claims,”.

AUTONOMOUS VEHICLE REALITIES

Over the last ten years, the notion that transportation would be provided through increasing numbers of autonomous vehicles in a relatively short time frame seemed to predominate. Whether it was commercial trucking, buses, or autonomous transport as a service NHTSA also collected data on crashes or incidents involving fully automated vehicles that are still in development for the most part but are being tested on public roads.

For the TNC providers, the answer to many of their personnel related issues seemed to rely on automation. That would require significant investment in “smart” transit infrastructure. How and when to undertake that change is a significant forward policy issue that the municipal bond market is in good position to finance.

New data released by the National Highway Traffic Administration (NHTSA) will help to stir that debate. The data covered the period from July 1, 2021 to May 15 of this year.  NHTSA documented 392 incidents in that period. There were six fatalities and five were seriously injured. Teslas operating with Autopilot, the more “advanced” mode of driver assistance were in 273 crashes. Five of those Tesla crashes resulted in fatalities.

The rest of the crashes were split among Honda (90) and Subarus in 10. Ford Motor, General Motors, BMW, Volkswagen, Toyota, Hyundai and Porsche each reported five or fewer. Tesla is by far the most prevalent electric car consequently the data is not surprising.

As for the TaaS sector, this is where completely autonomous vehicles are making some headway. NHTSA also collected data on crashes or incidents involving fully automated vehicles that are still in development for the most part but are being tested on public roads. These were involved in 130 incidents with only one serious injury, 15 in minor or moderate injuries. Those events were primarily fender benders or bumper taps reflecting the fact that autonomous public transit is a low-speed affair.

SCHOOL AID REALITIES

The enactment of a NYC budget for FY 2023 is shining a light on one of the impacts of the pandemic on school district finances. Most of the big city school districts around the country have seen declines in average daily attendance since the onset of the pandemic. This year, reductions in revenues tied to attendance-based state aid are putting pressure on districts to reduce spending. That need to control spending is generating some political heat.

In New York, the enacted budget includes $221 million less than in the prior FY. That money was generated from city revenues rather than state aid under a formula tied to attendance. The Mayor argues that the “cut” is formula driven and that it actually should be larger. The use of federal pandemic funds to reduce the school budget gap held the reduction to $221 million.

It is a scenario facing districts like the LAUSD in California and the City of Chicago. Education advocates are looking for ways to reduce the dependence of aid levels on attendance.

MEDICAID DEMOCRACY

Voters in South Dakota will have the opportunity later this year to vote on an initiative which would expand Medicaid eligibility in the state. In those states where the voters have a direct say on the issue, proposals to expand Medicaid are successful. It is estimated that some 42,000 South Dakotans would be eligible under the changes proposed in the initiative.

In states where initiatives pass, it often requires enabling legislation in order for the goals of the vote to occur. Opponents of Medicaid expansion use their legislative advantages to obstruct expansion. In South Dakota, opponents turned to “Constitutional Amendment C” which was up for a vote this week. The proposal would have applied only to measures that “raise taxes or require $10 million or more from the state over the next five years. It would have required a supermajority of 60% in order for it to take effect.

In addition to the 90% federal matching funds available under the Affordable Care Act for the expansion population, states also can receive a 5-percentage point increase in their regular federal matching rate for 2 years after expansion takes effect. The new incentive is available to the 12 states that have not yet adopted the expansion as well as Missouri and Oklahoma.

ELECTRIC CAR OBSTRUCTION

Electric car owners across the country are seen as receiving an unwarranted benefit from the fact that electric car owners do not have to pay gas taxes. Vehicle mileage fees which would be the same for internal combustion vehicles and electric vehicles are one current alternative. Many states already levy higher annual registration fees against electric vehicles. It is clear that there are ways to generate revenues from electric car owners which would address the “equity” concerns of legislators. Nevertheless, those seeking to slow the shift away from internal combustion are attempting new ways of obstruction.

Four legislators in North Carolina have introduced legislation designed to hinder the development of charging infrastructure in the state. The Equitable Free Vehicle Fuel Stations Act would require that an equal number of free gas pumps be installed anywhere there are no-cost chargers on municipal, county and state property. That would include public parking lots, parks and government-owned facilities. The bill also would force businesses with free electric vehicle chargers to disclose on customers’ receipts what percentage of their purchase goes toward paying for them.

The bill is ostensibly designed to eliminate a perceived “subsidy”. A 2019 study by the N.C. Clean Energy Technology Center at N.C. State University found electric vehicle owners would have paid an average of about $100 a year in gas taxes if they instead were driving a traditional vehicle of similar size and model year. The higher registration fee collected from EV owners is $130.

On another favored front in the battle over electric vehicles is West Virginia. The state is trying to “punish” financial institutions who will not bank the fossil fuel industry. The West Virginia State Treasury is slated to blacklist six of the nation’s largest financial firms from accessing state contracts, in view of perceived lending discrimination against the fossil-fuel industry. The six – BlackRock, Wells Fargo, JPMorgan Chase, Morgan Stanley, Goldman Sachs and U.S. Bank – will be given 30 days to provide the treasury with proof they have not stopped banking the coal, oil and natural gas industries. 

They would be placed on West Virginia’s restricted financial institution list within 45 days if they cannot satisfy the Treasurer’s issues. The action highlights one aspect of the irrationality of much of the debate over climate change. Whether it is laws like this or acts attempting to override local regulation, the opponents of efforts to move from fossil fuels are coming to rely more and more on legislative obstructions. Those efforts only serve to highlight the effort to substitute emotion for logic as the country moves towards electrification.

West Virginia’s treasurer has been a leader in the effort to “punish” financial institutions over climate change. He calls the move to electrification a “radical social agenda”.

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

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NYC HOUSING

With the State budget out of the way, the second calendar quarter is usually a time for significant policy issues to be debated in the NY Legislature. One of the key issues facing the new administration in NYC is the issue of affordable housing. The limits of the pandemic and lingering damage to the local economy have focused even more attention on the issue. Recent proposed rent increases for regulated units in the city have raised an outcry. All the while, the existing stock of public housing continued to deteriorate in the face of ever declining federal funding for maintenance and rehabilitation.

The federal debate over public housing funding leaves public housing operators at the confluence of all of the factors which bedevil public housing. So, they feel left to their own devices. The problem is biggest in the City of New York, the largest provider of public housing by far. NYCHA needs over $40 billion to fully restore and renovate all its buildings. NYCHA has a 250,000-waiting list.

A main goal of the Adams administration is increased funding for NYCHA’s capital needs. This week, the New York City Housing Authority (NYCHA) Public Housing Preservation Trust legislation, A7805D/S9409A  passed the New York State Senate on 38-25 vote, after passing the Assembly on a 132-18 vote. The Public Housing Preservation Trust would be a new, entirely public entity. It is designed to facilitate access to billions of dollars in federal funding to accelerate repairs.  

Under the legislation, leasehold interests for each development would be transferred to the Trust. This would allow for changes in the source of federal revenues able to be generated by each unit. NYCHA estimates that a typical unit would receive $1,900 under the Section 8 Tenant Protection Vouchers compared to just $1,250 per month under currently available funding sources. The median monthly rent for NYCHA apartments is about $500, and the median household income is around $18,500 per year, compared with $1,500 and $50,000 citywide. More than 43 percent of NYCHA households have at least one person employed, according to city estimates.

NYCHA would retain ownership of the land and buildings, and residents would continue to have the same protections they do under the current regulations, including a cap on rent payments set at 30 percent of a household’s income.

Within those parameters, the idea is to enable the Trust to pledge some of those dollars from a revenue stream seen as more reliable than that available under the current system. Those pledged revenues would be the source of repayments on bonds issued to fund the needed capital repairs.

While a fix for public housing was taking shape, another longstanding source of funding for “affordable“ housing was being allowed to whither on the vine. The 421-a property tax exemption—which grants up to 35 years of property tax benefits to newly built multi-unit buildings—will expire on June 15, 2022, after the state legislature did not renew the program during its session that ended last week. It has been a more and more controversial issue as the local hosing crunch became more severe.

The debate has always been whether the level of tax expenditure in the form of abatements is offset by the volume of desired housing produced. The City’s Independent Budget Office (IBO) has estimated the future cost of the program under the scenario that no new exemptions would be granted after fiscal year 2022, which ends in June.

The existing 421-a exemptions will cost the city a projected $25.7 billion from fiscal year 2023 through fiscal year 2056, when the last of the current exemptions would cease (all amounts in 2022 dollars). Existing 421-a exemptions will cost the city over $1 billion a year from fiscal year 2023 through fiscal year 2033. The annual cost falls below $1 billion in fiscal year 2034 and eventually diminishes to $6.8 million in fiscal year 2056.

RENEWABLES IN NY STATE

The NY State Legislature will not take up a bill which would have loosened financing restrictions on the New York Power Authority. The Build Public Renewables Act was intended to enable NYPA to advance the development of renewable generation in the State. The pace of renewable generation development has been slow. The bill easily passed through the state Senate last week and it is generally agreed that there were enough votes to get the bill through the Assembly and to the governor’s desk for signing.

The biggest hurdle now is the Speaker of the State Assembly. As has been the case in states like Ohio and Illinois, the private utility industry has been successful in financially supporting legislators who back those corporate interests. In 2019, the Climate Leadership and Community Protection Act, requiring New York generate 70% of its energy from renewables by 2030 was enacted. The new bill would have been one of the first pieces of legislation which would have driven public investment in renewables.

The public blowback from the decision to block the Legislation has already generated some backtracking. Public competition would likely motivate more overall investment and that lower cost competition could upend some very carefully laid plans. If NYPA is in a position to develop competing facilities with the benefit of tax-exempt financing, that would throw a serious wrench into those plans.

Case in point: the IOU which serves our location is owned by a foreign owned power company that is looking to move into the industrial scale renewables space. Their business plan is based on an IOU service area monopoly model. The plan is to develop an array of primarily wind generation facilities and sell it to their distribution utilities.

The Speaker also effectively killed a proposed ban on natural gas connections for new construction. While no improprieties are implied here, supporters of the bills noted that the Speaker gets significant financial support from the private industry. Attempts to influence legislation have already claimed speakers of the House in Illinois and Ohio. In NY, the reaction was so strong that the Speaker is trying to have hearings held in July on the legislation. It is a step in a process which could result in a special session of the Assembly to have a vote on the bill.

EMINENT DOMAIN

Missouri has enacted legislation which would require that landowners be paid 150% of fair market value for land taken through eminent domain for electrical transmission projects.  The legislation is seen as a compromise between the Grain Belt Express transmission line’s developers and landowners. The bill also requires that developers start construction within seven years of getting easements or their rights to the property would expire. It would also require that court-appointed commissions tasked with determining the fair market value of a farmer’s land during eminent domain proceedings include a farmer who has lived in the area for at least a decade. 

The Grain Belt Express is designed to transmit wind energy from Kansas to Illinois and beyond. It was not initially intended to provide power in Missouri. This was one of the main sources of opposition – the idea that the line would damage Missourians without providing any power in Missouri. Eventually, project supporters convinced local utilities to obtain power from the project. This softened opposition and led to the resulting compromise.

Significant issues around eminent domain continue to play out in neighboring states. It’s clear that this is less an environmental issue for opponents than it is one of property rights.

BRIGHTLINE

The private high speed rail project in Florida continues to move forward. Recent management comments indicated that a goal is the operation of trains (without passengers) for testing by the end of this year on the extension of existing service to Orlando. The railroad has said the extension to Orlando from Miami would open to passengers in early 2023. Brightline estimates that a trip between Miami and Orlando will take a little over three hours. The same trip by car takes some 3 hours and one-half hours.

That reinforces the ultimate dependence of the success of this project on foreign-based tourism. Landing in Ft. Lauderdale, one could go to either South Beach or Disneyworld. The hope is that less auto dependent and more train friendly visitors will drive utilization and revenues.

There was also an update on the Brightline West project linking southern California and Las Vegas. Construction is now tentatively scheduled for Christmas. Management said Brightline West could begin carrying passengers roughly three years after construction begins, or as early as 2025.

CALIFORNIA DROUGHT DRIVES NEW LIMITS…

The California State Water Resources Control Board is making “significant, very deep cuts” for water users, primarily in the San Joaquin River watershed. The San Francisco Public Utilities Commission as well as East Bay Municipal Utility District are among the retail municipal suppliers facing supply restrictions. Others with supplies subject to limits include agricultural water districts such as Merced Irrigation District, Oakdale Irrigation District, Turlock Irrigation District and El Dorado Irrigation District.

The state sent curtailment notices to a larger group of about 4,500 water Some 10% rights holders in August.  A total of ,571 water rights and claims are being curtailed in the Sacramento-San Joaquin Delta watershed. Those rights and claims are held among an estimated 2,000 water rights holders. Some 10% of those holders are 212 public water systems that supply drinking water. The real pressure is on agricultural users to use less water. That sector is by far the biggest consumer of water in the state.

Almonds, pistachios, grapes, alfalfa for cattle and other crops all being grown in a desert. It is the long-term issue which will not go away when viewing California over the long term. The current imbalance between agricultural and non-agricultural use is not sustainable.

..BUT WATER CREDIT HOLDS UP

Moody’s Investors Service has assigned a Aa1 rating to the Metropolitan Water District of Southern California’s Water Revenue Refunding Bonds. It also affirmed the Aa1 ratings on Metropolitan Water District of Southern California’s (“MWD”) approximately $2.5 billion in outstanding parity senior lien water revenue bonds and the Aaa ratings on MWD’s $20.2 million in outstanding general obligation unlimited tax (GOULT) debt.

MWD is the largest provider of drinking water in the US, serving as a water wholesaler to a 5,200 square mile service area with nearly 19 million residents. The district serves exclusively as a wholesale supplier, with no direct retail customers. It sells its water to a base which includes 26 member agencies including 14 cities, 11 municipal water districts and one county water authority. MWD provides supplemental water to its member agencies that represent a critical portion of the members’ water supply mix, with these supplies projected to represent roughly 50% of member agencies’ water supplies over at least the next 25 years.

Moody’s notes a potential benefit of usage limitations at least for the wholesaler. While member retail agencies continue to develop their own water supplies including recycled and desalination supplies, reliance on MWD remains stable and in some cases will increase as a result of water quality regulations, underscoring the essentiality of MWD water to the region.

WASHINGTON STATE DAMS

The long-running debate in the Pacific Northwest over the role of the federal dam system along the Snake River is moving in to a new phase. Advocates for native fishing interests have long advocated removing the dams which are a major contributor to the continued decline of salmon in the river. Advocates for keeping the dams have long worried about the economic costs of removing some of the dams.

Now, a report released by the Washington Governor and one U.S. Senator introduce some hard data into the debate. The report released last week estimates that breaching the dams and mitigating the loss of energy, irrigation and transportation benefits would cost $10.3 billion to $27.2 billion. The direct costs of the process of breaching the dams and the inevitable cleanup are estimated to cost between $1.2 billion to $2 billion. The rest of the costs reflect the loss of shipping capacity on the river and the replacement of that method of shipping by road and rail.

The report estimates that significant improvements to rail lines and roadways would be needed, and compensation for increased transportation costs, infrastructure maintenance and loss of jobs would need to be considered. Those improvements could cost between $542 million and $4.8 billion.  Those costs will be cited by opponents of breaching the dams.  The timing may not be good as well in that those previous efforts to get the breach plan funded through federal dollars came up short and were not included in federal infrastructure legislation. This would shift the costs to the State of Washington.

RETAIL CHOICE UNDER SCRUTINY

Legislation is under consideration which would make Massachusetts the first state to reverse course on retail electric choice after allowing it. The bill would prevent retail suppliers from creating new contracts or renewing contracts after 2023. The bill reflects the results of studies undertaken by, among others, the Massachusetts Attorney General which found higher costs for customers who left municipal or investor-owned utility service. 

This has been an issue in the state since the first Attorney General review in 2018. Polling shows high support for retail choice as individual customers try to eliminate their individual carbon footprints. The reality is that there is still a shortfall in terms of “green” energy supplies available for Massachusetts. This legislation actually spotlights the pressures in the region over the proposed transmission line through Maine to bring hydroelectric power from Quebec to Massachusetts.

MEMPHIS POWER

Memphis, Light, Gas and Water (MLGW) customers could see the utility save between $25.7 and $55.3 million annually, according to data from private sector bids released this week. An MLGW study published in 2020 originally projected savings of more than $100 million a year.  That difference is being seized upon by advocates for the status quo. The projected savings versus initial estimates (dating back to 2018) reflect increased solar and natural gas energy costs relative to when the utility released its integrated resource plan in 2020. 

That 2020 analysis estimated annual savings of $100 to $150 million a year if MLGW left TVA and received power through local natural gas plants, solar farms and purchasing energy through the Midcontinent Independent System Operator. The debate is about more than just cost. It comes as other municipal utility customers of the TVA call on it to move away from fossil-fueled plants rather than replace coal with natural gas.

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

Joseph Krist

Publisher

This week we look at corruption as a governance issue, the CA drought increases restrictions; a bad week for fossil fuel in court; the house insurance mess in Florida; Tri-State Generation dragged in to the future; the SEC and climate change; pressures on college enrollments; and the latest moves to limit gas taxes.

The next issue of the Muni Credit News will be June 13. Enjoy the weekend. Make sure you take a minute between cold drinks to remember what Memorial Day is for. You would not be here without those we remember.

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GOVERNANCE

The mayor of Anaheim, CA resigned this week in the midst of a federal investigation of alleged corruption associated with an effort to sell Angels Stadium. The publicly owned facility would be sold to the owner of the Los Angeles Angels and in return he would be allowed to develop land around the stadium for an entertainment complex. The charges are that the Mayor was trying to leverage his approval and support for the project in exchange for campaign funding.

The situation highlights the increasing role of real estate development tied to the financing of new stadiums. It’s been clear that the overall economic impact has never lived up to the projections of stadium proponents. A logical political response would be to have these facilities privately funded. Private funding has helped to drive support from political establishments in the various locales. Tying real estate developments to stadium development allows supporters to feel that these projects are economic development schemes rather than subsidies for rich owners.

The proposed deal would allow the owner of the Angels to develop    homes, restaurants, hotels and shops. It has run into opposition as the result of state law which requires local government to prioritize the use of “surplus” lands for the development of housing. In an indication of how potentially lucrative the proposed deal would be for the developers, Anaheim and the state agreed to resolve the matter by having the city pay a $96 million fine. 

As these projects get bigger and more complex, the pressure on local officials only increases. At the same time, the increasing value of professional sports franchises continues to grow rapidly. The future of stadiums and arenas will be increasingly tied to real estate development. This will increase the pressure on local officials.

MORE DROUGHT IMPACTS

As the Colorado River system continues to dry up, the impacts of the drought in the West grow. This week, the State of California adopted emergency regulations to require local water agencies to reduce water use by up to 20 percent and prohibit any watering of ornamental lawns at businesses and other commercial properties. require local water agencies to reduce water use by up to 20 percent and prohibit any watering of ornamental lawns at businesses and other commercial properties. 

The rules sound draconian and conjure up visions of grassless lawns and yards and athletic facilities without grass. In reality, the rules ban anyone from irrigating ornamental lawns at commercial and industrial properties with potable water. Individual house yards, parks or sports fields are not subject to the limits yet. The rules do limit watering of decorative turf at businesses and in common areas of housing subdivisions.

The move comes as local regulations begin to take hold. The Metropolitan Water District of Southern California’s already has more restrictive limits on outdoor watering. The city of Healdsburg bans irrigating yards. Santa Clara County became the latest locality to announce fines of up to $10,000 for wasting water.

CLIMATE LITIGATION

The fossil fuel industry continues to have a tough time convincing state courts around the country to have cases brought against them for their lack of disclosure of the environmental risks of their businesses. The two most recent examples come from New England. The first is case brought by the Massachusetts attorney general which charges that Exxon Mobil lied about the climate crisis and covered up the fossil fuel industry’s role in worsening environmental devastation.

Exxon tried to follow the latest tactic from the industry playbook by arguing that their misrepresentations to the public and to investors are a protected form of free speech. The company also tried to have the litigation halted by what are known as anti-SLAPP laws. Originally, these laws were used to protect individuals from strategic lawsuits against public participation (SLAPPs) filed against those opposing the interests of companies and wealthy individuals. The court rejected this argument out of hand. It follows a March decision if federal court which requires Exxon to meet discovery requests.

It did not get any better down the road in Rhode Island.  A federal appeals court ruled that a lawsuit by Rhode Island against 21 fossil fuel companies, including Exxon, BP and Shell, can go ahead in state court. The decision follows a pattern of losses by the industry in federal appeals courts in Colorado, Maryland and California. In March, a Hawaii state court gave the go-ahead for a case to remain within its jurisdiction. 

A most recent effort to fight climate mitigation efforts fell short in the U.S. Supreme Court this week. The Supreme Court allowed the Biden administration to continue to take account of the costs of greenhouse gas emissions in regulatory actions. It rejected an emergency application from Louisiana and other Republican-led states filed with the court asking for an expedited review of its appeals of unfavorable lower court decisions. The states had hoped to block the use of a formula that assigns a monetary value to changes in emissions.

FLORIDA INSURANCE

The problem in the West may be too little water but the problems in Florida are arguably from too much. The recent years have seen casualty insurers take it on the chin serving that market. As storms become more intense and frequent – the NOAA estimates that there will be 7 serious hurricanes this season – the damages pile up and the costs to insurers continues to rise. The insurers are left with a choice between massive premium increases and exit from the market. More are choosing exit from the market. This has led to political pressure to find ways to provide coverage while holding down premium increases.

The Florida legislature previously established the state-run insurer of last resort, Citizens Property Insurance Corp. That entity has seen doubled in volume in the last 18 months to absorb newly uninsured homeowners. Its activities are funded through bonds issued by the State backed by assessments against program participants. This entity too faces a potential need to impose significant assessment increases. The potential increases coupled with high rate increases from private insurers led to a special session of the Florida legislature.

Much of the pressure on the primary insurers comes from the reinsurance sector. These providers are proving reluctant to take on more of the increasing costs of development in a climate challenged market. Without reinsurance, primary insurers are limited in terms of which properties they can insure at what customers would consider reasonable or affordable rates. That was the focus of legislators.

These concerns produced legislation to create a $2 billion reinsurance fund to be called Reinsurance to Assist Policyholders, or RAP. The bill would allow insurers to charge separate deductibles for roof damage of up to 2 percent of the home’s total insured value or 50 percent of the cost to replace the roof. Deductibles would not apply to a total loss of the structure, a loss caused by a hurricane or a tree fall, or a loss requiring repair of less than half of the roof.

The final bill came after a series of Democratic-sponsored amendments, including a one-year freeze on rate increases, a mandatory 5 percent reduction in premiums, requiring insurers to disclose the effects of climate change on their business, and breaking down their policy issues by race and sex was voted down.

REALITY COMES TO TRI-STATE GENERATION

The realities of climate change continue to impact the Colorado-based regional energy wholesaler cooperative Tri-State Generation, As we have documented, Tri-State is under enormous pressure from its member distribution co-ops to deliver cleaner energy. This drove efforts by the distributors to free themselves from power supply contracts with Tri-State. The resulting disputes have garnered headlines for the contentious nature of the negotiations.

Recently, three distributors were able to negotiate contracts which reduced but did not eliminate power supplied by Tr-State. Now, three additional distributors across three states in the Tr-State service area have negotiated agreements as well. Currently, utilities working with Tri-State may source only 5% of their energy from outside sources or solar power within the communities they serve. The partial requirements membership option would allow utilities to source up to 50% of their energy from outside sources, in addition to the community solar and other self-supply projects.

Tri-State’s largest customer United Power, which serves 900 square miles of Northern Colorado, filed a non-conditional notice of intent to withdraw from Tri-State with the Federal Energy Regulatory Commission April 29. The new notice changes the intended departure date from Jan. 1, 2024, to May 1, 2024.  It was United’s efforts to leave that generated much attention on Tri-State’s efforts to use huge withdrawal fees as a mechanism to retain customers.

The Federal Energy Regulatory Commission held a hearing earlier this month to determine an exit fee for United Power. Previous calculations indicated Tri-State could charge United Power up to $1.6 billion to leave. A judgment on new exit fees is expected by the end of the summer.

SEC ESG PROPOSALS

From our perspective, the increased emphasis from investors on environmental, social, and governance (ESG) based investing has been hampered by the lack of consensus about what exactly that means. This has generated opportunities for lots of confusion about what funds invest in, how they determine what constitutes ESG investing, and how effective ESG investing is.

The rating agencies are trying to fill the resulting void by trying to establish and measure various ESG metrics through their existing ratings infrastructures. Individual entities have been trying to tackle the problem for some time but with varying rates of success. As the process unfolds, questions have arisen about how to best judge which funds truly are ESG funds and which ones are really efforts at “green washing” by firms.

The SEC is being looked to as a source of guidance on the issue as it appears that a regulatory entity may be the most effective driver of change in this area. This week, the Commission proposed amendments to enhance and modernize the Investment Company Act “Names Rule”. The Names Rule currently requires registered investment companies whose names suggest a focus in a particular type of investment (among other areas) to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). The proposed amendments would enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy.

Specifically, the proposed amendments would extend the requirement to any fund name with terms suggesting that the fund focuses in investments that have (or whose issuers have) particular characteristics. This would include fund names with terms such as “growth” or “value” or terms indicating that the fund’s investment decisions incorporate one or more environmental, social, or governance factors. The amendments also would limit temporary departures from the 80 percent investment requirement and clarify the rule’s treatment of derivative investments.

This follows another proposal which would categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments.

Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts. Funds that use proxy voting or other engagement with issuers as a significant means of implementing their ESG strategy would be required to disclose information regarding their voting of proxies on particular ESG-related voting matters and information concerning their ESG engagement meetings.

COLLEGES UNDER PRESSURE

The National Student Clearinghouse Research Center has released its latest data on enrollments at U.S. colleges and universities. The data shows that some significant trends which began to emerge over the last few years continue to impact these institutions.

Total postsecondary enrollment, which includes both undergraduate and graduate students, fell a further 4.1 percent or 685,000 students in spring 2022 compared to spring 2021. This follows a 3.5 percent drop last spring, for a total two-year decline of 7.4 percent or nearly 1.3 million students since spring 2020. The declines this spring are also markedly steeper than they were last fall, when total postsecondary enrollment declined by 2.7 percent from the previous fall.

Undergraduate enrollment accounted for most of the decline, dropping 4.7 percent this spring or over 662,000 students from spring 2021. This is only slightly less than last spring’s 4.9 percent loss. As a result, the undergraduate student body is now 9.4 percent or nearly 1.4 million students smaller than before the pandemic.  Undergraduate enrollment is also falling more steeply this spring than it was in fall 2021 (-4.7% vs.3.1%).

The declines were seen more acutely at the public institutions both two and four year. The pandemic clearly impacted enrollments as much of the decline was seen in lower income student categories. This cohort was severely impacted by employment limits due to the pandemic. Many students simply could not afford even local community college tuition as family members were laid off or eliminated due to pandemic changes. At the same time, the focus on student loan debt forgiveness has raised real debates about the need for a four-year degree.

GAS TAX

The Maryland legislature will not take up proposals to limit or eliminate a scheduled rise in the state’s gas tax on July 1. Maryland already had a 30-day gas tax holiday. Now, estimates that the state would be giving up $200 million in new funding for roads, bridges and transit projects provided by the upcoming automatic increase. Each year the tax is adjusted statutorily to reflect inflation. The change will increase the tax from around 36 cents to about 43 cents per gallon.  

The issue is being complicated by election year politics in many of the states. Florida has scheduled a suspension of its tax for the month of October (25-cents per gallon) during the month before the November election. New York’s suspension begins June 1 through year-end.  Georgia will extend a gas tax suspension into the middle of July. That occurred after the Governor was renominated. Georgia has among the lowest average gas prices in the nation at about $4.13 for a gallon of regular compared with $4.60 nationwide, according to AAA. 

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

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NET METERING UNDER ATTACK

Most of the attention given to the subject of efforts to reduce the economic attractiveness of solar power focused on the effort by Florida’s investor-owned utilities to limit net metering payments. While attention was focused there, efforts are underway in the sun-drenched but conservative South to limit the level of payments in several states.

The Mississippi Public Service Commission is considering rules that would expand subsidies for rooftop solar.  That is a reflection of pressure from solar owners who see that Mississippi reimburses them under a net metering program which pays less than any other for solar power. That may explain why only 586 Mississippi houses have solar roof panels. Legislation is being considered in North Carolina and California which would result in much lower net metering payments to solar owners.

It isn’t all bad news for solar proponents. The Arkansas Court of Appeals upheld Arkansas “net metering” rate structure, which provides for solar energy customers to receive the full retail rate for excess energy they return to the electric grid. The decision reversed the authority of utilities to impose a “grid charge” to net metering customers. It also clarified net metering requirements in a way that made it easier to both approve small solar systems and to aggregate smaller solar systems.

The court also found that the Public Service Commission (PSC) was beyond its statutory authority in regulating solar fields generating less than 1,000 kilowatts, and in setting specific standards for arrays between 1,000 and 5,000 kilowatts.

CITIES AND SOLAR POWER

BUDGET REVISIONS

Given their status as two of the market’s significant issuers, the revisions of their budgets each Spring always draws attention. The fact that governments all over the country appear to have underestimated revenues has shifted the usual attention on budgets from one of tight spending to an atmosphere of so much money sloshing around the legislative process. The money gusher has produced some startling turnarounds in the outlooks of California and Chicago.

California is dealing with an estimated $97 billion surplus. The surplus has led to all sorts of proposals for spending the money. They include checks to help drivers offset rising gas prices. The price tag of $11.5 billion could only be acceptable in these extraordinary times. One thing that will possibly deter excessively higher spending could be the stock market. 

The current volatility and declines in the equity markets are positioned to cause problems on both sides of the state revenue equation. In the states where capital gains are significant and the highest rate income taxpayers reside, revenues could take an unexpected hit. The longer the markets perform poorly, the greater the risk. The markets had been generating above expectation investment results for state pension funds. Shortfalls in returns could require higher annually required contribution levels.

Months ago, the City of Chicago offered the fact of a potential $867 million budget gap in 2023 if a new casino would not be approved for the City. Now, the City has updated data reflecting tax season driven receipts which indicates that the gap is much smaller – some $560 million smaller than the earlier estimate. One sector cited was the real estate market which produced revenues related to real estate transactions of some $201 million of better-than-expected revenues. The City now projects a year end balance of $250 million.

FLORIDA GOVERNANCE AND DISNEY

The latest chapter in the increasingly ridiculous story of Florida Governor Ron DeSantis’ effort to punish the Disney Corporation for politically opposing him unfolded this week. It was already clear that the legislation orchestrated by the Governor was not well conceived and that little if any planning had gone into the actual execution of a process to take over the District while assuring that the District’s debt would be paid.

Investors have already figured out that Disney already pays for the debt, as well as the operating costs of the District. So, it’s clear that the move is a stunt. That’s reflected in the fact that the enactment of legislation to effect this change will not occur until after the elections in November when the Legislature and Governor are on the ballot. 

There is that little issue of the non-impairment clause that accompanies many bond issues. The one that says that the State will not take any actions which would deny bondholders any remedies which might result. It’s not clear what benefit might accrue to bondholders as the result of a cheap political stunt but once you go down this route it can quickly become a rabbit hole.

These moves are akin to efforts like the one in Texas to “punish” potential underwriters associated with institutions which have taken a position that they will no bank the fossil fuel industry. At least Texas is following through by using the new stance to exclude a significant number of potential underwriters from participating in new issue transactions.

The governance issue is that since it’s government so politics have to be involved. But when they fly in the face of logic and clearly inevitable trends, it raises questions as to the real level of commitment to investors on the part of the political establishment.

DROUGHT ALL OVER

Much of the attention focused on the ongoing drought in the American West might make one feel that it is the only region with a problem. This week, it was announced that due to low runoff into the Missouri River basin, the U.S. Army Corps of Engineers predicts power production from the six main stem dams will be about 77% of normal this year. The hydropower is supplied to Montana, North and South Dakota and parts of Minnesota, Iowa and Nebraska. The distributor of that power is the federal Western Area Power Administration (WAPA). To make up the shortfall, WAPA needs to acquire access to additional sources.

That power will be more expensive and it will lead to costs rising for customers already under pressure from higher agricultural input costs, overall inflation, and higher fuel prices. It will likely focus even more attention on transmission issues. While closed legacy generation gets the most attention, transmission project proposals are garnering significant skepticism and outright opposition from landowners over the scale and location of those pieces of infrastructure.

At the more local level of the power distribution and supply chain, the need to upgrade existing connectivity to the overall transmission grid is obvious. One of the major barriers to the use of solar power is the inability of existing lines to absorb the new power. It’s more an issue for small commercial and municipal customers but it limits the climate impact of solar development.  

SUPERVISION IN CONNECTICUT

As is the case in many states, Connecticut has a program of oversight and remediation of the finances of local governments.  The Nutmeg State’s vehicle for this is the Municipality Accountability Review Board (MARB). The MARB is a state board that was established in 2017 for the purpose of providing technical, financial, and other assistance and related accountability for municipalities experiencing various levels of fiscal distress. Municipalities experiencing degrees of fiscal distress and in need of technical or other assistance may be designated into one of four tiers, which is based on several factors, including fund balance, bond rating, equalized mill rate, and levels of state aid.

The City of West Haven was referred to the MARB in December 2017 following the City’s issuance of approximately $17 million of deficit bonds. Based on Connecticut General Statutes, the issuance of deficit bonds by a municipality automatically results in its designation as a Tier III municipality and its referral to the MARB. The City had accumulated a large General Fund deficit, as well as deficits in the Allingtown Fire Fund and the Sewer Fund. The negative Fund Balances were largely the result of recurring operating deficits caused in part by unsustainable budget practices.

The City has a five year plan approved in 2018 but as the board notes since then, the City has revised and updated its 5-Year Plan three times. Under its Tier III status, the City received some $16 million of state funding which is largely the basis of the City’s somewhat more stabilized fiscal position. An additional factor is the City’s record over the years of erratic fiscal management.

The Board notes that severe fiscal distress, evidenced by a large General Fund deficit, led to the creation of a State oversight board in 1992. Shortly after restoring solvency to the City, the oversight board disbanded in 1995. After a period characterized by positive reserve levels, the City fell back into a deficit position in 2005 which continued until its designation as a Tier III municipality.

There are also issues associated with the City’s annual reporting and its manipulation of filled and unfilled positions to drive desired fiscal results for reporting purposes. It has had to restate results in prior years. And now the Board notes that the City’s plan was to rely on financial assistance in the form of MRF to stabilize its Fund Balance and to bide time until previously issued pension obligation bonds were retired in FY 2022. From that point forward, the City reasoned, a significant decline in required debt service payments would allow for significant and rapid increases in General Fund Balance without any additional financial assistance from the State.

The Recommended FY 2023 Budget that was recently submitted to the MARB does not direct the reduced debt service requirements to building Fund Balance. Rather, the Recommended FY 2023 Budget redirects those funds to operations resulting in minimal funding devoted to increasing fund balance. Thus, a key component of the City’s plan for amassing General Fund Balance appears to have been abandoned. The intervention is not a surprise.

PUERTO RICO

The Puerto Rico Oversight Board reported that efforts to restructure debt issued by the Puerto Rico Highways and Transportation Authority (HTA) are moving forward. 85% of the owners and insurers of the HTA 68 bond claims and more than 67% of the owners and insurers of the HTA 98 bond claims support the plan. The hope is that a disclosure document can be made available in June in support of a Plan confirmation hearing in August. The fact that the debt of the Authority was secured not just by tolls but also by taxes made for a more complicated resolution.. The kicker was always that the tax revenues could be “clawed back” by the government for general purposes.

The resolution of the general government’s restructuring was a necessary procedural issue for the HTA restructuring. It was through the resolution of the general government process that the issues associated with the “clawback “could be addressed. Once it was established how much was available to the HTA, a division of those assets could be made. This current hearing and the procedures which will occur over the summer are a necessary mechanical element to the resolution the restructuring. 

While the HTA moves forward, the Electric Power Authority (PREPA) continues to stagger along. It is being crushed by its dependence on fossil fuels and its performance remains poor. Recent blackouts have increased opposition to PREPA’s operating structure. The orientation of the contractor running the system seems driven towards the sort of centralized large-scale generation and distribution system that has failed the island so often.

The utility is estimating losses in the current fiscal year due to the increased price of fuel. PREPA projects a total fuel expense spend in the three-month period from April 10 to July 8 of $883.5 million. That against the Puerto Rico Oversight Board budget which allocated $1.968 billion for full year fuel expense. The situation reinforces our long-held view that the island needs a much more diverse and localized energy grid.

On a third front, the federal appeals court with jurisdiction over issues involving Puerto Rico has decided that the Oversight Board overseeing Puerto Rico’s financial recovery is not entitled to sovereign immunity. The Board has been fighting media requests for information in a dispute dating back to 2017. The court said that it agreed “with the district court that, by including § 106, Congress unequivocally stated its intention that the Board could be sued for “any action . . . arising out of [PROMESA],” but only in federal court. Congress was unmistakably clear that it had contemplated remedies for constitutional violations and that injunctive or declaratory relief against the Board may be granted.

The Board can appeal or it can work out an agreement with media plaintiffs. It is hard to know if the release of the information requested would be harmful or helpful to the Board’s efforts at oversight. The Board had had to maneuver through an essentially hostile environment created by both sides of the Commonwealth’s fiscal problems. Potentially, the information could blunt or reinforce some of the many suspicions which have characterized the relationships between the Government, the citizenry, and the Oversight Board. It’s not clear who has the most to lose with an information release on the scale of that requested.

We are well-known disclosure advocates. We have never understood the resistance to disclosure on the part of governmental entities, They are public entities so their activities should be a matter of public disclosure.

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

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PURPLE LINE

The long-awaited light rail project between Prince George’s and Montgomery Counties is moving forward under the recent agreement between the State of Maryland and the private consortium constructing the Purple Line (4.25.22 MCN). Now the contractors have given more detail in an interview with the Washington Post. It includes new estimates as to the schedule for completion and the likelihood that it will be achieved. We are struck by a couple of items sprinkled amongst the rest of the interview.

Obviously, the level of due diligence undertaken by any of the potential contractor groups would be a major component contributing to a more solid and likely completion estimate. “We had an opportunity [to inspect the work done by the initial contractor] during the proposal phase but only for those things that we could actually see above ground. Now it’s a question of having a look at, understanding and feeling confident with those things that are below ground, things that we have to uncover.”

We note this because of our comment just last week about a Virginia P3 that had contract issues related to soil composition along the project route. That is one potential risk to the date. The contractor did note that there is a $200,000 daily penalty for a late project. It would still be a surprise if the current completion date holds.

PENN STATION

One of the Bloomberg administration’s primary successes (in its view) was the development of Hudson Yards. The formerly industrial area was rezoned and developed into office and residential space. The development was supported in part by debt issued through city and state agencies and debt service on some of that debt was supported by annual appropriations by the City.

Now, just one block east of the Hudson Yards area a new development is being proposed to generate tax dollars for the reconstruction of Penn Station. There is 

no need to belabor the present state of the station and the continuing inability to bring the project to fruition. The scale of the proposed project and the need for it to meet projected revenue expectations have raised concerns among many that the plan as it exists could turn into a fiscal issue for the State and City.

The NYC Independent Budget Office was recently asked to review the current plan advanced by the Sate’s Empire State Development Corporation (EDC). The project, announced by then Governor Cuomo and now being continued under the current Governor, ESD would take title to eight sites surrounding Penn Station and allow private developers to build greater density than city zoning currently permits, bypassing the city’s normal land use processes. The expected property tax revenues and fees from the new development would be applied to the repayment of the debt funding Penn Station’s improvements and nearby public space upgrades.

Here are the conclusions of the IBO review. They raise some red flags. The total cost of the Penn Station improvement project and, therefore, the revenue needed to cover those costs remains unclear. ESD estimates the total public cost of the transit improvements, including the Hudson River Tunnel, to be $30 billion to $40 billion, with costs shared by the federal government, New York State, and New Jersey. New York State estimates its share of the cost from $8 billion to $10 billion, and thus far has authorized $1.3 billion in capital funding for the project.

Bond or other debt financing is expected to cover most of the remainder, although ESD has yet to provide details on how exactly this debt would be structured. ESD would use value capture financing, where payments in lieu of property taxes (PILOTs) and fees from the development sites are used repay the debt funding the station project costs. Because the Land would technically be owned by the state, it is exempt from city property taxes. This makes the funding mechanism the payment of PILOTs to ESD, not property taxes to the city.

The state has not released any revenue projections for these PILOTs, nor has it specified how the PILOTs would be structured, including, importantly, to what extent any property tax discounts would be offered. 

Currently, there are 55 property tax lots on the eight sites slated for new development. In fiscal year 2022, the city collected $60 million in property taxes on these sites, a very small share of the city’s more than $29 billion in total property tax revenue. ESD has indicated that it intends to reimburse the city for this lost tax revenue (with annual escalations), although this also has yet to be formalized.

Did the City learn anything from the Hudson Yards experience? Apparently not. The report clearly notes that ESD’s plan would finance near-term station improvements with revenue from future private development, posing a timing risk. The station reconstruction and expansion projects are expected to be completed by 2032, but the development sites would not be fully completed until 2044. When there was a similar timing issue for the nearby Hudson Yards development—financed by the city in a similar manner—the city provided hundreds of millions in debt service payments from its own coffers until adequate revenue was available.

NYC OFFICE CHALLENGE

The Partnership for NY, the entity which represents the major New York business interests released a survey covering the return to the office. In this case, it’s more like the lack of it. The Partnership surveyed 160 businesses and found that only 8% of full time return to the office has occurred. On the average weekday, 38% of Manhattan office workers are in the office. Respondents reported that employers expect that the number will rise to 49% by September. 

That would be the level projected to already be achieved by this April when the same questions were asked in January. Before the pandemic, 6% of businesses were operating under “hybrid” models. Now, that number has grown to 78%. Those changes grow in importance daily, as reduced office attendance shows up in mass transit use and general economic activity in central business districts.

It is clear, at least in Manhattan, that the local economy is a long way from full recovery. The small businesses which drive much first time and less educated employment to the benefit of those are still reeling. This has reduced employment and threatens to prolong and dampen the recovery.

It all matters because the City has baked in a fair amount of permanent increased spending and must make some difficult capital spending decisions. The speed and magnitude of the recovery will go a long way to determining the long-term credit outlook for the City.

SEC AND ESG

The Securities and Exchange Commission has extended the comment period for its proposed disclosure requirements related to climate change issues. Issuers would have had to be able to provide more disclosures regarding their carbon footprints. The rules were seen as requiring companies (and municipal bond market issuers) to be able to provide information even as it relates to actions by suppliers. The Commission received much criticism for an initially short comment period and this extension is in response.

The proposals have not exactly generated a rational response. One Utah state official likened the effort to a form of financial terrorism and at the federal level Republican House members called it an attempt at a scorched earth regulatory policy.

MILEAGE FEES

The Pennsylvania Department of Transportation (Penn DOT) is working with the state legislature on a proposal to enact alternatives to its gasoline tax. A series of proposed revenue sources are being examined with a mileage- based fee being the most likely alternative. The process is a reflection of the complex set of issues that make road finance and funding reform such a contentious issue in the Keystone State.

It’s easy to forget that the first commercial oil well in the U.S. was in Pennsylvania. The Commonwealth’s reliance on coal production and products which relied on coal like steel have long driven energy policies. This was only reinforced through the introduction of fracking which accessed vast natural gas supplies. That’s 175 years of reliance on fossil fuels.

So, Pennsylvania is using the tried and true process of identifying a question to be answered by a commission. Legislatures use this to try to fend off opposition to contentious provisions of legislation. In this case, the Governor formed a commission and that group has now made two primary suggestions for hybrid or electric vehicle owner fees: a flat annual fee or a fee based on actual miles driven.

The process has yielded data which has been used to serve as a base for estimating and comparing fee alternatives. PennDOT research found that the average passenger vehicle driver pays 2.9 cents per mile in gas taxes. For hybrid drivers it’s 0.7 cents per mile. An electric vehicle operator would pay nothing. Current driving habits show the median number of miles driven by passenger vehicles is about 9,000 a year.

Approximately one in four drivers travel account for in excess of 14,000 miles a year. The data showed that a 14,000-mile driver generated gas taxes of $400 per year. That number could serve as a jumping off point for calculating a fee which would generate revenues while being publicly acceptable. The amount of the fee will be one hurdle. The next will be the ever present issue of “privacy”.

Privacy concerns have always been raised when it comes to the introduction of technology which generates location information. Urbanites can laugh at those issues but it was a real issue when electronic payments were introduced into urban metro systems. It comes up with electronic tolls and is an issue with congestion fees. Now it comes to the issue of mileage fees.

There is data on what attitudes really are. The Eastern Transportation Coalition (the former 17 state I-95 Coalition) has produced research which weakens some of the claims of fee opponents. The tests conducted in Oregon and Utah have used plug-in equipment to monitor mileage. There are two plug-ins: one with GPS and one without. It matters if one drives a lot out of state as the fees only apply to in state use.

The Coalition’s 2020-2021 State Passenger Vehicle Pilot provided participants with two mileage reporting options, both of which utilized a plug-in device that inserts into the vehicle’s on-board diagnostic (OBD-II) port: plug-in device with GPS and plug-in device without GPS. How important was “privacy”? The vast majority of participants (80%) chose the plug-in device with GPS. This option used GPS technology to differentiate mileage by the state where the miles were accrued. The state-specific per-mile rates were applied to the mileage driven in each state, less a fuel tax credit based on the fuel consumed in each state and the state-specific fuel tax.

We think that the long-term answer is mileage-based fees collected with electronics and GPS. This will enable states to levy different rates reflecting their unique transit profiles.

PORTS

During the pandemic we commented on the impact of the pandemic, capacity issues, and the economy in general on port revenues. Whether it was revenue constraints due to pandemic limitations on operations or pressures associated with cargo backlogs at the major commercial ports Los Angeles and Long Beach, ports have been a good indicator of what was happening in the economy as a whole. In the Fall of 2021, those ports threatened the imposition of fees for containers not promptly moved to address trucking-based backlogs. Recently, after a period of more regularized operations, the waiting time for ships entering those ports was approaching one week.

Now, labor issues at the ports may be the next stumbling block. This past week, negotiations between the major West Coast ports and the unions representing dockworkers commenced. The existing contract expires July 1. The International Longshore and Warehouse Union (ILWU), represents dockworkers at the more than two dozen ports on the West Coast. They have long been aggressive negotiators very willing to use strikes. The ports include the Los Angeles Harbor Department, CA, Long Beach Harbor Department, CA table), Port of Seattle, WA and Port of Everett, WA (A2). The Alameda Corridor Transportation Authority, CA), a rail project jointly owned by the ports of Los Angeles and Long Beach, would also be affected.

Pressure will come from the effects of the pandemic and the potential for more future automation. After the development of containerization and its resulting crushing impact on port employment some 60 years ago, automation is a key component of every dockworker negotiation. Wages and salaries may be the easiest issue. It will be hard to argue that the ports aren’t busy and generating revenue. Maintenance of staffing requirements will likely be a key source of contention as the ports and shippers seek to speed the process of unloading in an effort to help the supply chain.

VOUCHERS

Vouchers have been a favorite of many conservatives to address a range of issues. It has been more acceptable to them than direct housing development as it also allowed proponents to claim racial integration benefits. In much the same way, voucher programs to address education inequality have been a favorite solution for “school choice” advocates. Now, in Connecticut we see vouchers offered as a solution to some environmental justice and equity issues.

The omnibus Connecticut Clean Air Act was enacted this week. The legislation significantly expands funding for an existing electric vehicle rebate program. The program – the Connecticut Hydrogen and Electric Automobile Purchase Rebate, or CHEAPR – offers rebates of $750 to $2,250 on the purchase of battery-electric vehicles and plug-in hybrid electric vehicles. Higher incentives are available for fuel cell electric vehicles.

Before the legislation, the program was funded by the first $3 million in greenhouse gas reduction fees paid every year on car registrations. As of July 1, all of those fees will be directed to the rebate program. It is estimated that this could increase funding by as much as $5 million annually. The program will be required to give the highest priority to residents of environmental justice communities, residents with incomes at or below 300% of the federal poverty level, and residents who participate in state or federal assistance programs, including the Operation Fuel energy assistance program.

COAL REALITIES

Even in a friendly regulatory environment there is only so much one can do to fight the market. The news that the owner of one of Montana’s major generating facilities will shut down last a large coal plant as a part of the bankruptcy of its owner. Talen Energy specifically cited the non-competitive nature of coal generation versus primarily natural gas. The Colstrip plant in Montana is not being converted from coal by Talen.

The closure affects the last of three units at the site. In 2020, Talen and Puget Sound Energy, which evenly split ownership of Colstrip Units 1 and 2, closed the units because the generators were no longer profitable. The situation highlights the ability of regulators in one state to influence the operations of a facility in another even though it is operated under its home state’s regulations. Oregon and Washington have set firm dates for their investor-owned utilities to stop using coal. Those utilities own 70% of Colstrip 3.

As the company’s filing said ““The previously low price of natural gas has meant that coal-fueled assets are no longer economical to run or keep updated. “

EMINENT DOMAIN UPDATE

There seem to be constant developments in the effort by the sponsor of a proposed carbon pipeline to move carbon dioxide from ethanol plants toa storage facility. The South Dakota regulators have noted that they have received more comment on proposed regulatory actions involving carbon capture pipelines than any other issue in memory. Five North Dakota counties have issued resolutions (albeit non-binding) against eminent domain use to acquire pipeline right of way.

The issue still remains on a larger scale in Iowa. Legislation to halt its use for one year was passed in its lower chamber but ultimately did not make it out of the Senate. With both carbon capture and transmission line developers seeking easements from landowners in the state, it remains a significant issue.

In Missouri, legislation was enacted that requires companies to pay landowners 150% of the fair market value on their land; would require that developers start construction within seven years of getting easements. If that did not occur, their rights to the property would expire. Court-appointed commissions would be established to undertake the process of determining the fair market value of a farmer’s land during eminent domain proceedings. They would be required to include a farmer who has lived in the area for at least a decade. 

Prior Grain Belt legislation required that at least 50% of the power carried by a transmission line be kept in the state for use by Missouri customers. Under this overriding bill, it would be required that transmission lines be set up to provide an amount of power to the state proportional to the length of the line running through Missouri. 

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

Joseph Krist

Publisher

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THE TRANSMISSION BOTTLENECK

Researchers at the US Department of Energy’s (DOE) Lawrence Berkeley National Laboratory surveyed seven electric grid operators and 35 major utilities, which together cover 85 percent of the US power load. They found that 1,300 gigawatts of wind, solar, and energy storage projects had been proposed as of the end of 2021, enough to meet 80 percent of the White House’s goal of carbon-free electricity generation by 2030. That is the good news.

Then there is the key issue of transmission capabilities. The researchers found that only 23 percent of the renewable generation projects seeking grid connection between 2000 and 2016 have actually been built. That is a result of the failure of transmission development to keep up with generation development. DOE found that the number of newly built high-voltage transmission lines has declined from an annual average of 2,000 miles in 2012-2016 to an average of just 700 miles in 2017-2021.

This gets us to where we are today. Renewable generation expansion is outpacing transmission expansion. Transmission expansion creates real issues over land use and right of way. Iowa’s Grain Belt Express is a perfect example. The issues over transmission are potentially working in favor of offshore wind generation. Coastal utilities would not need the sort of transmission infrastructure that other utilities might to access this source of power.

TRANSIT ISSUES POST-PANDEMIC

The City of San Diego currently permits seven operators permitted for 11,050 devices. The rapid increase in the availability and use of scooters has returned certain issues associated with their use back to the fore. Many of those issues concern the use and storage of these devices outside of the street setting. Riders on sidewalks and the predilection of users to leave the scooters all over have raised concerns.

Now the City is considering a plan which would reduce the number of devices by almost 4,000. Currently, devices must be permitted every six months. Through that permitting process, the City is proposing to use the permit renewal process to achieve the reductions. The proposals under evaluation by the City Council would see companies chosen through a request for proposal process, and then be contracted by the city. Chosen companies would be required to pay an annual $20,000 fee in addition to $0.75 a day per device. The number of devices would be capped at 8,000.

The importance of a revenue stream not dependent upon farebox revenues has been reinforced. New York’s MTA debt is supported by farebox revenues and the ongoing declines in ridership attributable in part to fear of crime have caused some to be concerned about the credit long term. Other systems across the country also see ridership under pressure but given that their funding for debt service is not farebox related it is less of an issue.

Case in point – the Chicago Transit Authority (CTA). The CTA is the second largest transit system in the US and provides service within the City of Chicago and several neighboring communities. Its debt is secured by the authority’s Sales Tax Receipts Fund (STRF), to which the Regional Transportation Authority (RTA) transfers both regional sales taxes and allocations of the state’s Public Transportation Fund (PTF) matching payments. Moody’s announced that it has upgraded to A1 from A2 the rating on approximately $2.1 billion of outstanding senior lien sales tax bonds of the Chicago Transit Authority, IL.

The upgrade reflects good recovery of pledged sales tax revenues from the impacts of pandemic restrictions. The pledge of sales tax revenues reduces significantly the Authority’s exposure to ridership pressures. The upgrade accompanied the upgrade of the RTA, the holder of the senior lien on some of the taxes pledged to the CTA bonds.

The same sales tax recoveries which bolstered the CTA are also positively impacting the RTA. An additional RTA factor is an assumption that state funding will remain stable and timely given improved fiscal conditions of the State of Illinois. In past years, the authority’s receipt of state public transportation funds had been subject to months of delay as the state faced its own fiscal challenges. The state is currently making distributions in a timely manner. 

ILLINOIS

Over the last decade as the State of Illinois’ credit and its ratings steadily deteriorated. Those declines also impacted the credits of the many issuers who receive significant resources from the State like the transit agencies we mentioned. The other sector which clearly saw downgrades related to the State’s difficulties was public university credits. Now that the State’s ratings have stabilized, the positive impacts are finally reaching bonds for facilities in the state university system.

This week Moody’s reflected that in several rating actions. The upgrade “reflects continued strengthening of the State of Illinois’ (Baa1/stable) fiscal condition with positive downstream effects to the university contributing to an improving operating environment. The state’s recently enacted fiscal 2023 budget increases direct operating appropriations to the university by 5%, as well as increased monetary assistance program (MAP) funding which provides financial aid for students.

Both are favorable for the university’s operating environment, aiding greater budget predictability and supporting student affordability. Increased pension contributions by the state lessens the risk of the state shifting future pension liabilities and associated contributions to the university.”

VIRGINIA P3 OUT OF NEUTRAL

The expansion in Virginia of the 95 Express Lanes to the Fredericksburg area is scheduled to be complete late next year. Construction of the new toll lanes is now 60 percent complete. That leads to a scheduled opening in December 2023. That would represent a delay of more than a year behind the existing schedule. Work on the 10-mile extension began in 2019 and was scheduled to be complete in October. 

Work was slowed while issues over the composition of the soil along the construction route were assessed and negotiated over. Transurban, the operator of the project and its contractor recently settled a dispute over the costs and timeline of the project. In an arbitration hearing last October, the contractor successfully argued that geologic conditions in the construction zone affected their ability to keep the project on schedule. An arbitrator ruled that it was entitled to a price adjustment and more time to complete the project. 

The ultimate cost of the needed mitigation required to deal with the soil challenges will increase the original cost of $565 million by about $100 million. Transurban is financing the project including the increased costs.

NATURAL GAS

Central Electric Power Cooperative, Inc. is the largest customer of the South Carolina Public Service Authority (Santee Cooper). Central, through its member co-ops serves about 1/3 of the Palmetto State’s population. That puts it at the center of the problems facing Santee Cooper especially those

related to the ill-fated Sumner nuclear expansion. That has raised the ire of co-op customers regarding the future course of their utility.

Now that discontent has been manifested in the decision by Central on behalf of its member distribution co-ops to oppose efforts by Santee Cooper to replace coal-fired generation with natural gas-fired generation. Central is supporting efforts to expand the renewable resources available for clean power generation. In 2021, Santee Cooper contracted for its share of 425 megawatts (MW) of new utility-scale solar power that will be added to the utility system in 2023. Central Electric Power Cooperative has finalized contracts with the same developers for the remaining share.

In Connecticut, the state has decided to end a program which provided cost incentives for homeowners to switch to natural gas. The program began in 2013 and was originally scheduled to be in place for ten years. The spike in natural gas prices and the growing sentiment that natural gas is not as clean as advertised led state regulators to conclude that the incentive program “no longer furthers the state’s overall climate and energy goals …. (and) is no longer in the best interest of ratepayers.” Connecticut’s Public Utilities Regulatory Authority has given the state’s three natural gas utility companies 90 days to end the conversion incentives.

SOLAR SPRING

Solar electricity generation has been a hot topic of legislative debate. Most of the argument is over the issue of net metering whereby a homeowner still on a distribution line from a utility generates power from their solar panels and then distributes any excess power back to the utility. The total monthly usage is calculated and the homeowner is billed for the amount of power used net of the solar power generated by the customer. The payment due is effectively a number net of the value of the solar power distributed to the utility.

The arguments to date have been based on differing views of how the value of a kilowatt hour generated by solar is established. It is becoming a significant political issue. Legislation in Florida which would have significantly reduced the value of solar power for net metering was vetoed by the Governor. Legislative efforts seek to both limit the period of time during which the more favorable net metering rates would impact a customer’s bill for solar generation. North Carolina regulators are considering Duke’s plan to add a $10 monthly charge for customers who install solar panels and to reduce what they get paid for excess electricity sent to the grid. 

TEXAS AND SYMBOLIC LEGISLATION

Much ado has been made over an effort by the State of Texas to “punish” financial firms which will not bank the fossil fuel industry. The State hopes to develop a list of offending firms and prohibit their participation in transactions such as bond issues from the State. The State is particularly focused on institutions which have made public pledges not to invest or run mutual funds which state that they will not invest in fossil fuels.

The State’s actions got a lot of attention but a closer reading indicates how merely symbolic they are. Companies that want to work with Texas can still avoid investing in fossil fuels as long as they are doing so for strictly financial, rather than ethical or environmental reasons. The ridiculousness of such a stance is clear. While a given institution may decide that fossil fuel investment is bad business, is it not reasonable to assume that the environmental and political factors behind the demand for ESG investments are what make it bad business.

A recent report by NPR cited comments from the state treasurer of West Virginia on the issue. They show the contortions that these state’s go through to create symbolic efforts. “(If) they’re saying we, as a financial institution, will not lend money to coal, for instance. That is a blanket statement that is a problem for the state of West Virginia.” “If they’re making a business decision somebody comes in for a loan for a coal company, and they decide that it’s a big credit risk, and they don’t want to do it, then that’s fine.” Why do they think it’s a credit risk?

It was also pointed out that for firms managing and investing money who have a strong ESG orientation, being put on the Texas list of ineligible firms might actually be a beneficial marketing tool. Back in the day, a theatrical production which had been “banned in Boston” often benefitted from that as it drove curiosity and ticket sales. This isn’t much different.

VIRGIN ISLANDS

This week Moody’s commented on the credit of the US Virgin Islands in light of the recent bond sale which sought to shore up the territory’s funding for its pension system. Some observers hoped that the outstanding Caa3 rating on the territory’s debt might be raised as a result of the refinancing. Those investors will be disappointed as the rating agency maintained the rating at its current level.

In maintaining the rating Moody’s noted that “Whether the government’s
statutory contributions plus dedicated matching fund revenues will be
sufficient to maintain the retirement system’s solvency will depend not
only on the performance of matching fund revenues, but also on the
retirement system’s investment returns.” Moody’s is rightfully concerned about investment performance. We have seen other pension funding deals fail to deliver their expected benefits when markets turn unfavorable. Ask New Jersey about that.

We agree that more is needed to produce real credit improvement. The move to refinance the retirement system is clearly a positive relative to no action. Nevertheless, the underlying economic problems continue and the infrastructure problems especially at the water and power authority continue to be a drag on economic improvement. Moody’s was right to hold the rating until more sustainable trends can be established especially in light of the redirection of rum tax revenues away from general revenues.

The USVI remains exposed to oil-related risks which have helped to destabilize the power system. It obviously is exposed to hurricane risk. So, it remains a highly speculative credit.

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

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WHY REEDY CREEK MATTERS

The effort on the part of Florida Governor Ron DeSantis to punish Disney becomes more embarrassing by the day. This week, the Governor’s office admitted that there is no plan to actually implement on a practical basis the dissolution of the Reedy Creek Improvement District. There needs to be a resolution of the emerging conflict between the goals of the Governor and the Legislature and state law.

Disney points out that “Pursuant to the requirements and limitations of Florida’s Uniform Special District Accountability Act, which provides, among other things, that unless otherwise provided by law, the dissolution of a special district government shall transfer title to all of its property to the local general purpose government, which shall also assume all indebtedness of the preexisting special district.”  That would be mostly Orange County and some to Osceola County. That is something the counties do not support. DeSantis’ office released a statement Friday saying it does not expect any tax increases for any residents from this new law. Without additional implementing legislation, the details of any transfer are unknown.

What is clear is that the concept of non-impairment whereby an entity like a state covenants not to take any actions which would impair the ability of another debt issuer to meet its obligations is now subject to question in Florida. It is a view shared by Fitch Rating’s which said that Florida’s move to dismantle Reedy Creek “heightens bondholder uncertainty” and if the state doesn’t find a way to resolve the debt issue it “could alter our view of Florida’s commitment to preserve bondholder rights and weaken our view of the operating environment for Florida governments.”

ILLINOIS

Two years ago, Illinois was the only state to borrow from the Federal Reserve Bank’s Municipal Liquidity Facility. Now, with the recovery from the pandemic underway the State’s financial position is much improved from that time. Between better than expected revenues and a windfall of aid from the Federal government, the State’s fiscal position is clearly sounder. This set of circumstances has manifested itself in a rating upgrade from Moody’s.

Moody’s Investors Service has upgraded the issuer rating of the State of Illinois to Baa1 from Baa2. This change supports the following upgrades: to Baa1 from Baa2 the rating on the state’s outstanding general obligation bonds, to Baa1 from Baa2 the rating on the state’s outstanding Build Illinois sales tax bonds. Moody’s has affirmed the Baa3 rating on outstanding Metropolitan Pier & Exposition Authority bonds that are partially paid with state appropriations. The outlook is stable. The upgrade reflects continued progress towards paying down accounts payable. The state is also increasing pension contributions, indicating increased commitment to paying its single-largest long-term liability.

The stable outlook balances the financial progress being made by the state with the uncertainty of the present economic climate. The state’s lean financial reserves, and heavy long-term liability and fixed cost burdens make it more vulnerable than other states to a negative shift in the national or global economy, which presently limits the probability of further rating improvement.

UTAH AND ESG

The State of Utah is emerging as the lead dog in an effort to discourage the use of ESG factors in determining creditworthiness. In March of this year, the SEC proposed new disclosure requirements for securities issuers regarding climate factors and their exposure to them. This will include municipal bond issuers as well as corporations. As one might expect, the proposal has generated some strong responses.

The most recent example comes from the State of Utah. The State’s political establishment authored a letter to S&P signed by Gov. Spencer Cox, Treasurer Marlo Oaks, other state constitutional officeholders, legislative leaders, and Utah’s Congressional delegation, stated their objection to any ESG ratings, ESG credit indicators, or any other ESG scoring system that calls out ESG factors separate from, in addition to, or apart from traditional credit ratings. The State considers ESG issues to be non-financial and therefore of no consequence to investors. It implies that environmental concerns are a leftist plot against the fossil fuel industry.

Here is what the SEC proposes to be included in financial statements and other disclosure from issuers. They will be expected to address how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; the registrant’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes.

If the registrant has adopted a transition plan as part of its climate-related risk management strategy, a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks; if the registrant uses scenario analysis to assess the resilience of its business strategy to climate-related risks, a description of the scenarios used, as well as the parameters, assumptions, analytical choices, and projected principal financial impacts; if a registrant uses an internal carbon price, information about the price and how it is set; the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as the financial estimates and assumptions used in the financial statements.

Some of the details will be harder for governmental issuers. Those items include the registrant’s direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2), separately disclosed, expressed both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute terms, not including offsets, and in terms of intensity (per unit of economic value or production); indirect emissions from upstream and downstream activities in a registrant’s value chain (Scope 3), if material, or if the registrant has set a GHG emissions target or goal that includes Scope 3 emission, in absolute terms, not including offsets, and in terms of intensity.

It is a lot for issuers to deal with and it is likely that the requirements will be modified. Nonetheless, the knee jerk ideological reaction in Utah is not realistic either. The State has had a hard time as proposals for “inland coal ports” and efforts to establish facilities in West Coast states for the export of coal have been rejected. The large Intermountain Power Agency is converting its massive coal generating facility in Utah. So, it is a tough time for coal in Utah.

In many ways, the effort to reject ESG considerations in the investment process is a case of closing the barn door after the horse has left. The Commission began efforts to provide investors with material information about environmental risks facing public companies in the 1970s and most recently provided related guidance in 2010. Over that time, ESG investing grew from a niche position and increasingly has become a major driver behind the investments of large institutional investors. In the case of fund groups, retail mutual fund investors are driving the demand for more ESG investment.

Ironically, the letter was released as Utah’s Intermountain Power Agency was issuing revenue bonds. And what are the proceeds being applied to? The new debt issued by Intermountain Power Agency (IPA) will finance the construction of a new 840 MW natural gas generator with up to 30% hydrogen burning capability power plant (the new Intermountain Power Project or new IPP) and a new natural gas pipeline connection. This is the first of three expected bond issuances for the new Intermountain Power Project with the others expected to close in 2023 and 2024 for a total estimated par amount of about $1.5 billion to $1.7 billion depending on market conditions.

The project received a big boost with the announcement this week by the US Department of Energy (DOE) that the proposed source of hydrogen for the plant would be the beneficiary of a loan guarantee for $500 million. DOE said the project would include “one of the largest deployments in the world” of electrolyzers, which can use wind and solar power to split hydrogen from water molecules, in a zero-emissions process.

REGULATION

Washington State is the first to establish regulations requiring builders to install electric heat pumps for space and water heating in most new commercial buildings and multifamily residences with four or more floors. The Washington State Building Code Council (SBCC) also sent several proposals requiring heat pumps in residential buildings to technical advisory groups for review. The SBCC is the entity which could ultimately regulate residential fossil fuel use. Cities do not have the authority to amend the state residential energy code, which covers single-family homes and multifamily buildings with up to three floors.

In California, Carlsbad is considering an ordinance that would require all-electric residential construction as part of the 2023 update of its Climate Action Plan. It would join 54 other governments in California which require water heaters, clothes dryers, space heaters and other appliances in all new construction to be electric instead of natural gas.

Tennessee has enacted legislation which would preempt lower levels of government from regulating oil and gas facilities especially pipelines. One source of power which the law would reserve to localities – regulation of solar energy projects. The legislation was driven by the Tennessee Chamber of Commerce and the Tennessee Fuel and Convenience Store Association supported the legislation.  It comes after community opposition in Memphis halted a pipeline development.

In the Midwest, carbon sequestration and capture proponents are pushing for legislation which would transfer the liability associated with carbon capture and storage to governments. Four states have passed laws over the last year that allow companies to transfer responsibility for carbon storage projects to state governments after the operations are shut down. The concerns over carbon capture liability parallel the situation facing states with abandoned oil and gas wells.

Supporters say the legislation establishes certainty for investors who may have concern with liability issues. Opponents fear that the liability shift from operator to government will encourage less stringent operating conditions and allow the industry to walk away from its damage. It is legitimate to ask if the technology is so safe, why is the industry so afraid of potential liability?

CANNABIS TAXES

The Institute on Taxation and Economic Policy has released a study of trends in the growth of revenues associated with legal recreational cannabis sales. The study focused on 11 states where cannabis sales have been in place for several years. In 2021, the 11 states that allowed legal sales within their borders raised nearly $3 billion in cannabis excise tax revenue, an increase of 33 percent compared to a year earlier. Seven of those states that allowed cannabis sales last year raised more revenue from cannabis excise taxes than from alcohol excise taxes and profits (in the case of state-run liquor stores). In total, cannabis revenues outperformed alcohol by 20 percent by this measure.

Michigan, Oregon, Alaska, and Maine still collect more taxes from cannabis than from alcohol. The relationship between the two sources can be influenced by the divergence in tax policies governing pot and alcohol which yield some surprising results. Colorado has the biggest proportional disparity. Yes, it’s the home of Coor’s but Colorado also has among the lowest alcohol tax rates in the nation at 2.7 cents per shot of liquor, 1.3 cents per glass of wine, or 1 cent per pint of beer. Those taxes raised a total of $53 million last year. Colorado’s cannabis taxes are levied at higher rates per serving (a 5-milligram edible might incur around 16 cents of state tax, for example) and raised $396 million. 

The growth remains consistent. It is enough that in more established jurisdictions, King Tobacco is no longer the source of the most “sin tax” collections. Cannabis revenue outperformed tobacco by 17 percent in Colorado and 44 percent in Washington State last year.  As rates of tobacco use continue to decline, it becomes more likely that cannabis will become the leading source of these excise taxes. 

NYC BUDGET

New York City Mayor Eric Adams presented New York City’s $99.7 billion Executive Budget for Fiscal Year 2023 (FY23). It projects increased revenues from the mayor’s first Financial Plan update in February. Revenues of $1.089 billion would provide additional monies for programs as well as increased deposits to the City’s general reserves and rainy day funds. The budget will undergo significant review and debate but, in the end a balanced package will result.

We are more interested in where the relative spending occurs and how it relates to the budget as a whole. The Plan submission shows that the City will spend more on pensions than it will on debt service. The City will spend $8.1 billion on public assistance including its share of Medicaid. That is 7.5% of the budget. Debt service is a manageable 6.1%. Personal income taxes project to some 22% of tax revenues. Federal and state transfers to the city comprise some one-quarter of proposed city spending.

FY 2023 is balanced but the ensuing years follow a fairly traditional pattern by showing expected budget gaps of $3.3 to $3.9 billion in fiscal years 24, 25, and 26.  One concern is the size and timing of projected gaps. The great influx of federal aid to states and localities effectively dries up after 2024.

DECARBONIZATION

The process of decarbonizing Colorado’s electricity grid continues to unfold. We have been following the ongoing saga of the tax-exempt borrower Tri-State Generation and its disputes with its members over their desire to decarbonize. This week, The Federal Energy Regulatory Commission (FERC) rejected United Power’s attempt to provide Tri-State Generation and Transmission Association with a non-binding, conditional withdrawal notice. FERC agreed with Tri-State’s position that conditional withdrawal notices are not permitted under the contract termination payment (CTP) tariff that the federal regulator accepted in November 2021.

While seen as a reprieve, other pressures could force Tri-State to decarbonize faster. The State’s other major investor-owned generator is moving in a different direction. Xcel Energy submits an electric resource plan every four years to regulators. It projects the amount of electricity the utility will need and the sources it will use. The latest iteration of the plan speeds up the timetable for the retirement of coal generation and the full termination of the last unit in Pueblo, Co. That plant has been often inoperable adding to the pressure to close.

If approved as is, Xcel projects it will meet more than 80% of its customers’ energy needs with renewable sources by 2030 and cut carbon dioxide emissions by at least 85% from 2005 levels by 2030. Pueblo County will receive 10 years of property tax payments to compensate for the earlier retirement of Comanche 3.

DROUGHT

The Metropolitan Water District of Southern California declared a water emergency. The declaration allows the District to impose usage restrictions. The first takes effect on June 1. It would restrict outdoor watering to one day a week in parts of three counties – Los Angeles, Ventura and San Bernardino. A population of 6 million is covered by the limits. The MWD’s board has never done this before. Cities and smaller water suppliers that get water from the MWD are required to start restricting outdoor watering to one day a week, or to find other ways to cut usage to a new monthly allocation limit.

The latest projections for water levels in Lake Powell show they may get as close to 11 feet away from the hydropower cutoff in less than a year, even with the new round of releases. The decline has been the subject of much concern. (See MCN 3/28/22) Now, four impacted Colorado River states have agreed to the release of 500,000 acre-feet of water from the Flaming Gorge Reservoir, located on Utah – Wyoming border.

This follows a proposal from the US Department of the Interior that would cut back on allocations to California, Arizona and Nevada. The water would instead support the retention of some 480,000 more acre-feet of water in Lake Powell. The two moves could support hydrogeneration at the Glen Canyon Dam. Snowpack in the Colorado River basin is largely near or below average. Water storage in the Colorado River reservoirs is at a historic low with Lake Powell at 25% capacity, and Lake Mead at approximately 35% capacity. Releasing less water from Lake Powell has the potential to reduce Lake Mead by about another seven feet in elevation.

The Southern Nevada Water Authority draws its supply from Lake Mead. The Authority was scheduled to turn on a low lake level pumping station to a full operational status instead of its current testing status. Designed to draw water from the lake bottom, this pumping facility would be unaffected by the decline in water levels. SNVA has three intakes. One is now above the water line, the second is close to its required line.

NET METERING VETO IN FLORIDA

Florida Governor DeSantis has gotten plenty of publicity for his efforts to punish Disney for opposing legislation. Now the Governor has delivered an unexpected veto of legislation backed by Florida’s largest investor-owned utility. The Governor vetoed legislation which would have sharply reduced the benefits to customers of installing rooftop solar.

Was it a policy issue that drove the veto or was it a short-term political consideration? “Given that the United States is experiencing its worst inflation in 40 years and that consumers have seen steep increases in the price of gas and groceries, as well as escalating bills, the state of Florida should not contribute to the financial crunch that our citizens are experiencing.” The initial bill would have eliminated net metering. It was amended to instead call for solar panel owners to get a decreasing rate over time until 2029, when no more subsidies would be allowed. Solar panel owners also would have been grandfathered in under the bill for 20 years.

BUDGET TRENDS

While non-financial issues are getting much attention during the budget season, a number of trends in terms of taxes and gas prices are emerging. New York enacted its budget with gas tax reductions beginning July 1. Connecticut will enact a $24 billion state budget that features nearly $600 million in tax cuts, including up to $750 later this year for families with kids, and an extended gasoline tax holiday running through Dec. 1. More than half of the nearly $600 million in tax relief in the plan is guaranteed for just one year.

In Virginia, Gov. Glenn Youngkin’s proposed three-month gas tax suspension did not make it out of committee.  The plan would have taken 26 cents off each gallon for consumers – and cost the state about $437 million. The debate over the issue came in the wake of the end of a one-month gas tax holiday in Maryland.

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