Joseph Krist

Publisher

COLLEGES

The fight between Harvard and the President is gaining the most attention but the efforts of ICE to round up international students and withdraw visas is a concern to many other schools, especially state universities. Increasingly, reports grow regarding the revocation of visas and subsequent detentions of some international students. If that results in reduced enrollments by foreign students, it is raising financial concerns. This represents an escalation of efforts to restrict foreign students dating to the first Trump administration.

The fear is that even if restrictions on student immigrants are relaxed, that there will be less demand from this cohort. It is of great interest to the universities reflecting the fact that these students are typically “full fare” paying customers. It also is a way to put pressure on public universities where strictly financial measures would have less impact. Those schools are also under enough pressure as the federal funding for research is under siege.

PUERTO RICO BLACKOUT REDUX

On April 16, the electric system serving Puerto Rico once again managed to blackout the entire island. Luma Energy, the private operator of the system asked for three days to identify the likely cause. Among the possibilities are something wrong with a protective system intended to keep a breakdown on a single line from shutting down the entire power grid, and that a transmission line in western Puerto Rico might have been affected by overgrowth.

Luma warned in March that the system’s power supply would probably not be sufficient to meet peak demand over the summer. The government has solicited bids for an additional operator or operators to provide more power on the island. Until contracts are awarded and progress made on generation infrastructure, Puerto Rico will have to rely on some luck to avoid additional negative impacts primarily related to hurricanes.

POLITICS AND EDUCATION

The Texas legislature is on its way to enacting one of the largest taxpayer-funded school voucher programs in the country. The program would provide about $10,000 to students for private school tuition, or up to $30,000 for disabled students. It would also offer up to $2,000 for home-schooling costs. If demand exceeds funding, priority for the money will go to children with disabilities and those from low-income and middle-class households who were previously enrolled in public schools.

The money could eventually become available to any child, including those already enrolled in private education. The Texas program is expected to reach up to 90,000 students in its first year. An amendment to put the measure to a popular referendum was voted down. The program would be capped at $1 billion in its first year, but could grow quickly, potentially reaching an estimated $4.5 billion annually by 2030. The funds can be used for private school tuition and for costs associated with home-schooling, including curriculum materials and virtual learning programs.

Texas public schools have not seen their budgets increase along with inflation. As part of the negotiations to win over the Texas House, lawmakers also approved nearly $8 billion in additional funding for public schools.

MAYORS, BUDGETS AND ELECTIONS

One is running for reelection after being bailed out of criminal charges by questionable decisions by the Trump administration, one just won election, and one faces reelection pressures in 18 months. They have in common potential budget problems which will require hard choices as well as candidates available to challenge incumbents.

Since our last issue, the City of New York has seen the race for mayor attain some level of clarity. The issue is not whether there will be a new mayor but rather who. Mayor Adams is haunted by a trail of questionable ethical and managerial issues. He has weak campaign funding. And the real estate industry, the oil that moves the gears of New York’s political engine, has clearly coalesced around Andrew Cuomo. This follows strong union support for Mr. Cuomo.

For the current budget process, neither side of City Hall is dealing with a strong hand as the combination of term limits and a looming November election. So many of the players in the budget process are running for other offices that there are many distractions. The recent financial market volatility will make budget assumptions that much harder to develop. The impact of declining international tourism could be significant.

In Oakland, the new mayor is the City’s long time Congresswoman Barbara Lee. She inherits ongoing budget difficulties and the aftermath of the recall of the prior mayor and subsequent indictment. Lee has inherited a budget deficit of $87 million, rooted in revenue shortfalls, continued growth in spending, and the rising costs of pensions and insurance. The budget is approved on a two year cycle so this is the only chance the Mayor will be able to address the budget. Her term will end six months before the end of the budget biennium.

Los Angeles sees both the City and County facing significant budget issues. They are not just the result of the fires. The County is looking at a $2 billion shortfall. This week, the Mayor of Los Angeles released her proposed budget. The starting point was a $1 billion projected budget gap. The budget proposes 1,600 layoffs which would represent nearly 5 percent of the 32,405 positions currently in the city’s workforce. The Mayor also proposed the elimination of around 1,000 vacant positions.

NEW YORK BUDGETS AND FEDERAL MONEY

The ongoing battles between New York and the federal government will only complicate the City’s effort to enact a balanced budget. The various threats to reduce federal funding and the continuing possibility of arbitrary “take backs” of previously transferred funds introduces a level of risk heretofore not associated with federal funding.

Some City agencies rely heavily on direct federal funding. For instance, according to the Mayor’s Office of Management and Budget (OMB), federal funding totals over half of the budget of the Department of Housing Preservation & Development and more than 40% for the Administration for Children’s Services. Separate from the City’s budget, federal funding is also critical to the New York City Housing Authority, Health + Hospitals, and the Metropolitan Transportation Authority.

Governor Hochul recently indicated the federal Department of Homeland Security has revoked hundreds of millions of dollars in infrastructure resiliency programs, including millions of dollars that flow to the City. The news comes as the state budget has yet to be adopted despite a March 31 deadline. The good news is that the holdup has nothing to do with fiscal matters but rather a contentious debate over proposed changes to criminal justice policies. The Legislature continues to fund state operations and there is no likelihood of any impact on the State’s bonded debt.

NUCLEAR

In Arizona, a proposed bill would have let large industrial energy users build a “small modular nuclear reactor” in their facility without having to get a certificate of environmental compatibility. And in rural Arizona, they would also be exempt from local zoning restrictions. In Indiana, HB 1007 incentivizes the creation of SMRs in Indiana by adding a state tax credit for any developmental expenses. lawmakers removed a provision that gave utilities a tax credit for investing in SMRs. The legislative analysis estimates that the 20% tax credit, at a minimum, will cost $280 million.

The Palisades nuclear plant restart project in Michigan received some more financial support from the trump administration. The project has received about 10% of $1.52 billion in U.S. financing that was to be made available under the IRA. It was the second disbursement by the administration to Palisades with more than $151 million of the original loan guarantee having been disbursed.

CARBON CAPTURE

South Dakota regulators determined Summit Carbon Solutions’ pipeline route as proposed in its permit application is “not viable, Summit Carbon Solutions’ pipeline route as proposed in its permit application is “not viable.”  Summit submitted new documentation with the commission this month stating that it would rather work with its current application.

Restarting the approval process could force Summit to effectively start the whole process over. At a previous meeting, the commission denied Summit’s request for a pause in permit proceedings. Since then, a law was enacted to halt Summit’s ability to use eminent domain. The company recently told the commission this month that it would rather work with its current application and route than seek court orders or refer the ban to the voters.

In Iowa, the Senate is debating the first measure on pipelines to become eligible for floor debate in the Senate in several years. The Iowa House has been consistent in the last few years in passing legislation to address farmer concerns about eminent domain. In the Senate, an attached amendment makes significant changes to the bill. It is not a partisan issue in that the House efforts over the last few years have been bipartisan. The Senate has a Republican super majority so partisanship is not the hurdle which needs to be overcome.

PORTS

There has been a significant drop in container vessel traffic headed to Los Angeles and Long Beach due to tariffs on Chinese goods. Estimates of scheduled arrivals for the week ending May 3, show the number of freight vessels leaving China and headed to the Southern California ports, the main U.S. ports receiving Chinese freight and other Asian trade, The number is down 29% week-over-week. That is not a surprise given the rush to ship before effective tariff dates.

Year-over-year, the data shows a 44% drop in vessels scheduled to arrive the week of May 4-May 10. The Gemini alliance between Maersk and Hapag Lloyd has a cancellation rate of 24.39%; followed by the Ocean Alliance, comprising CMA CGM, Cosco Shipping, Evergreen, and OOCL, at 18%; and the Premier Alliance, comprising Ocean Network Express, Hyundai Merchant Marine, and Yang Ming Marine Transport, at 15%.MSC and ZIM currently have a 10% rate of canceled sailings.

HOSPITALS

The signs of continuing pressure on operating results are driving cutbacks and closures at hospitals. The latest examples come from Pennsylvania as Crozer Health properties have begun a process to shut down on Wednesday after a bankruptcy judge approved closures of the Crozer-Chester Medical Center in Chester and Taylor Hospital in Ridley Park. The closure will result in the loss of 2650 jobs.

Along with diverting emergency patients to other hospitals, the order requires Crozer-Chester and Taylor Hospital to cease all elective inpatient admissions, post notices of the impending closures and cease all trauma, surgical, obstetrics and gynecology, burn, behavioral health, oncology and outpatient services. Prospect first filed to close the Pennsylvania hospitals on March 6, citing ongoing losses and lack of a buyer to take over in bankruptcy.

The University of New Mexico Hospital has cut 53 positions as the state’s largest public health system faces deepening financial pressures and federal funding cuts. Some, but not all, of the positions were vacant and emphasized that the eliminated positions were executive positions, not roles like floor nurses and others who provide patient care. According to testimony given to legislators by the New Mexico Hospital Association in 2024, two-thirds of New Mexico’s hospitals had higher expenses than revenue during that same year.

Providence Health, a major multi-state system in the west is also facing financial pressures. It also is pursuing lawsuits against insurers it says are delaying and shorting payments and will explore selling or contracting out for some of its programs. During the California wildfires, Providence was forced to temporarily close some outpatient clinics and halt non-emergency surgeries at some hospitals. One of its clinics in Pacific Palisades also burned down.

The health system has cut costs by restricting hiring and cutting back on expenses like sports sponsorships. Sports sponsorships have long been a staple of stadium and arena advertising. The designation as the official medical provider or hospital of a team is a longstanding practice. Nevertheless, new ground was broken this year. When the A’s moved out of Oakland and took up residence in Sacramento, they moved into Sutter Health stadium. This makes the stadium the first to serve as a home for an MLB team and have its naming rights assigned to a non-profit hospital.

LIFE AFTER FEMA

Disaster survivors in Arkansas left homeless by recent tornadoes have been blocked from receiving federal recovery aid after President Trump rejected the state’s request to declare a major disaster in March. The request followed a series of tornados across three states which killed 40 people. The denial follows executive orders signed by Trump seeking to shift the burden of disaster response and recovery from the federal government onto states.

The Trump administration had “determined that the damage from this event was not of such severity and magnitude as to be beyond the capabilities of the state, affected local governments, and voluntary agencies. Accordingly, we have determined that supplemental federal assistance is not necessary.” The State is appealing the decision. The governor, Sarah Huckabee Sanders was undoubtedly shocked that her state was the first target of the new policy.

If this is going to be the way things are done going forward, natural disaster risk should become an even greater factor when analyzing state credits.

WORKING ON THE RAILROAD

A renovation or replacement of New York’s Penn Station has gone through many iterations, governors and mayors over the 60 years since the original terminal was razed. Now the Trump administration is trying to move the most recent renovation project along. Amtrak, the legal owner of the station is replacing the Metropolitan Transportation Authority as the lead for the current renovation project. According to the US Department of Transportation, the switch will cause a savings of $120 million on a budget of $7 billion.

It is not clear what the expanded federal role will do to overcome concerns with land use that have held up the project. It also is not clear how this change will alter the debate over the potential relocation of Madison Square Garden. In the short run, the move potentially takes the Governor and the MTA off the hook in terms of managing and funding the project. It comes at the same time the federal government’s latest deadline to end congestion pricing has come and gone.

In Texas, the news for the proposed high speed rail line from Houston to Dallas was not good. The Secretary of Transportation called Amtrak’s high-speed rail project between Houston and Dallas “risky.” He also made the point that “the Texas Central Railway project was proposed as a private venture. If the private sector believes this project is feasible, they should carry the pre-construction work forward, rather than relying on Amtrak and the American taxpayer to bail them out. 

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