Joseph Krist
Publisher
TAR HEEL MEDICAID EXPANSION
North Carolina has become the 40th state to expand Medicaid under the provisions of the Affordable Care Act. Advocates have estimated that expansion could help 600,000 adults. The legislation includes nearly all adults who make less than 133 percent of the federal poverty level. The provisions of the bill will go into effect at the start of 2024, and county social services departments can begin accepting applications from eligible individuals beginning as soon as December of this year.
The expansion of Medicaid is especially important in states with significant rural populations. Between 2010 and 2021, 136 rural hospitals have closed. The bulk of rural hospital revenue comes from government payers, of which Medicare comprises nearly half. Medicaid expansion is one policy that has helped rural hospitals remain viable. Rural hospitals received COVID-19 relief funds from the Coronavirus Aid, Relief and Economic Security (CARES) Act and the American Rescue Plan Act. With those funding sources running out, the pressure increases on their finances and ability to stay open.
The majority (74%) of rural closures happened in states where Medicaid expansion was not in place or had been in place for less than a year. The holdout states are: Wyoming, Kansas, Texas, Wisconsin, Tennessee, Mississippi, Alabama, Georgia, South Carolina and Florida.
I FOUGHT THE MOUSE AND THE MOUSE WON
We have been clear that the effort by Florida Governor Ron DeSantis to politicize the operations of the former Reedy Creek Improvement District was poor governance. This week, we see that it may just be incompetence on the part of the Governor. While the Governor was busy renaming the district (the Central Florida Tourism Oversight District) and assembling a board to run it, Disney was busy quietly putting together a plan to effectively maintain control over the District for as long as it wanted.
In the final meeting of the Reedy Creek board, a new development agreement between the District and Disney was approved and executed. This agreement cements Disney’s role in the development of the District. One important change is the duration of the agreement. “Shall continue in effect until twenty one (21) years after the death of the last survivor of the descendants of King Charles III, King of England living as of the date of this declaration.”
That contractual language is known as a “royal lives” clause. The use of this language is not uncommon. It seems to leave the Governor with no ability to interfere in the new development agreement. It also limits the District’s ability to use Disney’s name, Mickey Mouse and other characters without the company’s approval. The board knows its position. In the words of one new director “The board loses, for practical purposes, the majority of its ability to do anything beyond maintain the roads and maintain basic infrastructure,”.
It isn’t as if the royal lives clause is some obscure trick. It is a staple of first year law classes so it should not have been a surprise. Let’s just say that we have a strong view of which dwarf the Governor is after this conclusion to his effort.
NAVAJOS AND THE COLORADO RIVER
The Supreme Court of the United States ruled in a 908 case called Winters that when the government creates an Indian reservation, it accepts an obligation to deliver water to that reservation for agricultural use. The Navajo tribe has limited access to water from a few Colorado River tributaries. It does not have rights to the Colorado directly even though much of the reservation borders the Colorado River’s main stem. The tribe argues that it should have rights to use that water.
The Navajo have been able to get their legal quest to obtain Colorado River water to the Supreme Court. The question before the Supreme Court is whether the United States’ treaties with the Navajo Nation requires it to find more water for the tribe. In 1849 and 1868, the Navajo Nation signed two treaties with the United States which created a reservation that would serve as a “permanent home” for the Navajo so long as the tribe allowed settlers to live on most of its traditional territory, which include much of what is currently New Mexico, Arizona, Utah, and Colorado.
The case sets up a dispute between the seven states in the Colorado River basin and the tribe. This reflects that the reality is that water from the Colorado is the most likely source of water for the tribe. The Biden administration is taking the side of the states. This based on the concern that giving the Navajo water rights would further increase the difficulty in allotting the Colorado’s diminishing supply.
A decision in favor of the Navajo would allow the tribe to pursue its interests in court as the states continue their process of reallocating water from the Colorado River basin. That process was supposed to be settled in the summer of last year but those negotiations have been contentious and non-productive. Ultimately, a settlement could be imposed. The federal government already would prefer for the states to work things out amongst themselves.
WASHINGTON STATE CAPITAL GAINS TAX
The Washington Supreme Court found the state’s capital gains tax constitutional. The 7-2 ruling was over a contentious bill previously overruled by lower courts and passed into law in 2021. Two opponents challenged the law by saying that the tax was a property tax on income, which violated the privileges and immunities clause of the state constitution and the dormant commerce clause of the U.S. Constitution.
The law provided for a 7% tax on an individual’s long-term capital gains exceeding $250,000 while imposing no tax for individuals with capital gains below the $250,000 threshold. Opponents claimed that the levy based on the amount of gains violated the state constitution’s uniformity requirement. The Court found that “The capital gains tax is a valid excise tax under Washington law. Because it is not a property tax, it is not subject to the uniformity and levy requirements of article VII, sections 1 and 2 of the Washington Constitution,”.
Collections on the tax will proceed as planned. The tax went into effect on Jan. 1, 2022, and the first payments for 2022 are due on or before April 18. The legislation provided for the deposit of the first $500 million of each tax year to a legacy trust account to support K-12 education for early learning and childcare programs. All additional revenue collected after would be donated to a school construction account funding the construction of school facilities.
Washington becomes the only state to levy a capital gains tax without taxing earned income.
CLIMATE LITIGATION SONG REMAINS THE SAME
The latest jurisdiction to opine on the proper venue for climate litigation against oil companies is the US District Court for the Eighth Circuit. Just as was the case with the Tenth Circuit in Colorado’s case against fossil fuel companies, the Eighth Circuit said that the proper venue for these cases is the state courts. This makes the sixth court to reach that conclusion.
The states have been careful to base their actions on issues of state rather than federal law. In the case, the appeals court was clear that Minnesota’s suit rests solely on state law, including claims of common law fraud and violations of various consumer protection statutes. They were clear that “there is no substitute federal cause of action.” “Minnesota is not the first state or local government to file this type of climate change litigation. Nor is this the first time that the Energy Companies … have made these jurisdictional arguments. But our sister circuits rejected them in each case. …. Today, we join them.”
The companies continue to work to find a way to get the issue before the US Supreme Court. They got there once but the case was sent back to the lower court with instructions as to how wide a range of issues must be considered by the lower court. This decision comes in the wake of those concerns.
WEST VIRGINIA HOSPITAL DOWNGRADE
Cabell Huntington Hospital is a regional referral center with over 300 beds and serves as the primary teaching hospital for the Marshall University Joan C. Edwards School of Medicine in Huntington, WV. It is part of a two-hospital obligated group which includes St. Mary’s Medical Center, a tertiary care hospital with 393 beds. In addition to the hospitals, the system owns various outpatient sites, and is the largest healthcare system in the primary service area. The combined system saw 40,169 inpatient admissions in FY 2022 and over 33,000 surgeries.
Huntington is the hub of a declining rural area at the connection of WV, KY and OH. Like many hospitals it faced significant strains during the pandemic. When those pressures abated, the system was in a weaker position with a declining balance sheet. Then it experienced a month-long strike of the services workers union in November 2021. Like so many others, the issues of labor costs, general inflation and a slow recovery of utilization levels pressured results.
All of this has resulted in a downgrade of the system’s ratings on its $334 million in outstanding debt at fiscal year-end 2022. Moody’s took their rating to Baa2 from Baa1. It maintained a negative outlook on the new rating. The outlook reflects an expectation that Cabell will face difficulties achieving substantial margin improvements in 2023 given ongoing and significant labor challenges and related costs.
FUNDING A NORTHWEST PASSAGE
Proposals to replace the crucial I-5 bridge between Washington and Oregon all rely on uncertain funding of the $6+ billion cost. Each of the states is committed to fund $1 billion of the cost. To date, the funding for Oregon’s share has been uncertain. Now, the legislature will get to debate and vote on a plan.
The latest proposal would see the State issuing $300 million of bonds backed against Oregon’s general fund and $700 million backed by the highway user tax program used by the Oregon Department of Transportation. Concerns are around funding that debt service versus the trend of declining revenues. Proponents would be happy to move to a mileage tax and that is part of the debate.
Participation in the state’s mileage tax experiment has been a disappointment. The failure to act in years prior to this plan are coming back to haunt this as well as many other projects. The impact of inflation, supply chain problems and shortages in the workforce – all issues we’ve cited before – accounts for a recent increase in the estimated cost of the project to upwards of $7 billion.
It is a trend that is emerging as infrastructure providers negotiate the application process for federal funding. Various local matching funds requirements must be met at the state and/or level to qualify for funding. In many cases, the situation is competitive so there is a real incentive to solidify commitments to facilitate applications.
RENEWABLES
Last year, the U.S. electric power sector produced 4,090 million megawatt hours (MWh) of electric power. In 2022, generation from renewable sources—wind, solar, hydro, biomass, and geothermal—surpassed coal-fired generation in the electric power sector for the first time. Renewable generation surpassed nuclear generation for the first time in 2021 and continued to provide more electricity than nuclear generation last year.
Natural gas remained the largest source of U.S. electricity generation, increasing from a 37% share of U.S. generation in 2021 to 39% in 2022. The share of coal-fired generation decreased from 23% in 2021 to 20% in 2022 as a number of coal-fired power plants retired and the remaining plants were used less.
The share of nuclear generation decreased from 20% in 2021 to 19% in 2022, following the Palisades nuclear power plant’s retirement in May 2022. The combined wind and solar share of total generation increased from 12% in 2021 to 14% in 2022. Hydropower generation remained unchanged, at 6%, in 2022. The shares for biomass and geothermal sources remained unchanged, at less than 1%.
More wind-generated power was produced in Texas than in any other state last year. Texas accounted for 26% of total U.S. wind generation last year, followed by Iowa (10%) and Oklahoma (9%). One of the largest wind farms in the United States (nearly 1,000-megawatt capacity [MW]) came online in Oklahoma in 2022.
In 2022, California ranked first in utility-scale solar generation, producing 26% of the country’s utility-scale solar electricity. Texas was the second-largest producing state (16%), followed by North Carolina (8%). Several of the largest solar plants built in the United States in the last three years are located in Texas, including the 275 MW Noble solar plant, which started operations in 2022.
NUCLEAR HURDLES
It is becoming clear that the Biden administration supports nuclear power.
Recently, the Department of Energy (DOE) released “roadmaps” to guide industry and policymakers about new energy technologies. Nuclear was one of the three highlighted sources of carbon-free energy. According to DOE, advanced nuclear could become a major contributor to net-zero goals in 2050, accounting for around 200 gigawatts of the firm power capacity necessary to meet the deadline. But the department said that within the next few years, at least one specific nuclear design needs to emerge as a clear leader by winning contracts to build anywhere from five to 10 reactors.
Here’s what DOE says about modular nuclear and its context. Small modular reactors (SMRs) can provide more certainty of hitting a predicted cost target and are likely to play an important role in the early scale-up of nuclear power; scaling the industry toa full 200 GW of new nuclear capacity may require large nuclear reactors as well. DOE also describes where the market is in terms of the development of nuclear right now. While the estimated first of a kind (FOAK) cost of a well-executed nuclear construction project is ~$6,200 per kW, recent nuclear construction projects in the U.S. have had overnight capital costs over $10,000 per kW. Delivering FOAK projects without cost overrun would require investment in extensive upfront planning to ensure the lessons learned from recent nuclear project overruns are incorporated.
Subsequent nuclear projects would be expected to come down the cost curve to ~$3,600 per kW after 10-20 deployments depending on learning rate; this cost reduction would largely be driven by workforce learnings and industrial base scale-up. However, the nuclear industry today is at a commercial stalemate between potential customers and investments in the nuclear industrial base needed for deployment—putting decarbonization goals at risk.
The risk of delay is clear. Rapidly scaling the nuclear industrial base would enable nearer-term decarbonization and increase capital efficiency. If deployment starts by 2030, ramping annual deployment to 13 GW by 2040 would provide 200 GW by 2050; a five-year delay in scaling the industrial base would require 20+ GW per year to achieve the same 200 GW deployment and could result in as much as a 50% increase in the capital required.
EL PASO BALLOT
On May 6, voters in El Paso, TX will be asked to vote on one of the most detailed and complex voter initiatives we have seen in a long time. The initiative will ask voters: Should the City Charter be amended to create a climate policy requiring the City to use all available resources and authority to accomplish three goals: to reduce the City’s contribution to climate change, invest in an environmentally sustainable future, and advance the cause of climate justice.
The initiative would require the City Council to employ a Climate Director, who shall report directly to City Council; create a Climate Department to be directly overseen by the Climate Director; create a nine member climate commission appointed by City Council, create an annual goal for climate jobs and the adoption and implementation of a policy that will transfer current City employees to climate work and provide a preference for contractors who are able to advance the City’s climate policy.
The City would be required to create an annual Solar Power Generation Plan for the City of El Paso and to require the City Manager to establish and maintain policies that encourage the development of rooftop solar power generation capacity within the City of El Paso using existing City facilities and require both new buildings and retrofitted buildings to include solar power generation capacity.
The initiative would establish goals of requiring (1) 80% clean renewable energy by 2030 and (2) 100% clean renewable energy by 2045. The initiative calls for the City of El Paso to employ all available efforts to convert El Paso Electric to municipal ownership; to require the City to undertake all necessary efforts to prepare City infrastructure to withstand extreme weather conditions and ensure uninterrupted provision of basic services and utilities to City residents.
It would require the City to ban the use of City water for fossil fuel industry activities, defined to include El Paso Electric, outside of the city limits and prohibit the City from selling or transferring any water for purposes of fossil fuel industry activities outside of the city limits, or otherwise allow any City water to be used for such purposes. It would prohibit the City from imposing any fees, fines, or other financial or nonfinancial burdens that limit the purchase, use, or generation of renewable energy and nullifying any such fees, fines, or other burdens in existence at the time the charter amendment takes effect.”
The complexity of the initiative is what happens when one tries to legislate through the ballot. Complexity will not necessarily translate into support. It often leads to people either not voting on it or voting no simply because it is so complex.
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