Joseph Krist
Publisher
Where to begin? If you are a budget maker in capital gains states like New York, California, Massachusetts and Illinois you have to take a serious look at revenue projections. Add to that the policy whipsaws from the White House. If Trump is to be believed, disaster recovery and healthcare will all become primary state responsibilities. Really, every state will have their own FEMA? You want states to increase taxes but you won’t allow those newly self sufficient state taxpayers to deduct those taxes? You want to give more responsibility to state and local government but you want to take away the exemption that makes it easier and cheaper to finance?
Maybe the market comes back. Maybe there are capital gains to be paid instead of losses to be deducted. Maybe a President shouldn’t tank the markets based on his own stubborn ignorance? Then again, should anyone listen to Peter Navarro?
__________________________________________________________________
TRANSIT
According to the American Public Transportation Association, American transit systems have about 80 percent of their prepandemic passenger counts. Some have recovered better than others; the Metropolitan Transportation Agency in New York has roughly 85 percent of its prepandemic passengers, while the numbers for systems in Chicago and Boston hover around 70 percent. At the same time, the USDOT is threatening to withhold federal assistance to systems it perceives as not safe enough.
Bay Area Rapid Transit has lost more than half of the ridership it had before the pandemic, more than any other major system in the nation. BART is facing such difficulty that its leaders have warned of not only ending weekend operations and reducing train frequency, but also ending service altogether. This week, California legislators introduced a bill to put a sales tax measure on local ballots. It will be a hard sell especially if the economy turns sour. The region was already being held back by the difficulty in reestablishing prepandemic office attendance and associated economic activity.
GAS BANS
Last week, a federal judge dismissed a lawsuit brought by plumbing and building trade groups against a New York City ban on natural gas in new buildings. The decision is the first to explicitly disagree with a previous ruling that struck down the first in the nation ban on natural gas enacted by Berkeley, CA..
In 2021, New York City adopted Local Law 154, which sets an air emissions limit for indoor combustion of fuels within new buildings. The law bans the burning of “any substance that emits 25 kilograms or more of carbon dioxide per million British thermal units of energy”. That standard effectively bans gas-burning stoves, furnaces, and water heaters, and any other fossil-fuel powered appliances. To comply, developers have to install electric appliances, like induction stoves and heat pumps. The policy went into effect in 2024 for buildings under seven stories, and will apply to taller buildings starting in 2027.
Last year’s denial of a rehearing included a detailed dissent by eight of the 29 judges on the 9th Circuit, who argued that the court’s ruling had been decided “erroneously” and “urge[d] any future court” considering the same argument “not to repeat the panel opinion’s mistakes.”
The unios argued that the city’s electrification law is preempted by energy efficiency standards under the federal Energy Policy Conservation Act of 1975, or EPCA. This law sets national efficiency standards for major household appliances like furnaces, stoves, and clothes dryers. Under the law, states and cities can’t set their own energy conservation standards that would contradict federal ones. The trade groups argued that EPCA should also preempt any local laws.
Regulating fuel use within certain buildings is standard practice in states and cities, she noted: New York City, for example, has banned the indoor use of kerosene space heaters for decades.
PENSIONS AND CLIMATE
In a unanimous 5-0 ruling, the appellate division of the New York State Supreme Court dismissed a lawsuit that challenged the city’s decision to divest from investments in fossil fuels. The case was brought by four current and former city employees who claimed that the pension funds — representing teachers, public employees, and Board of Education staff — violated their fiduciary duties by shifting away from fossil fuel investments. It’s a tired tactic in an effort to encourage fossil fuel divestment. It is usually easy to refute.
ELECTRIC VEHICLES UNDER TRUMP
Michigan had to ‘decouple’ its first mega-subsidy deal to allow General Motors to sell one of two factories that shared a $600 million incentive. GM is transferring $120 million in incentives to LG Energy Solutions. Both companies say they’ll still reach the goals of a combined 3,200 new hires between the two plants. The state allowed General Motors to transfer $120 million in state funding and the incentive terms for its former Ultium Cells EV factory near Lansing to factory buyer LG Energy Solution Michigan.
This will enable LG to complete its purchase of the 2.8 million square foot battery factory that GM built in Delta Township. The two companies are still obligated to deliver the jobs in exchange for the already-spent $600 million in state funding awarded in January 2022. Under the terms of a revised agreement, GM will need to hire 1,840 workers at Orion Assembly. Wages originally were to be about $27 per hour, but will be set by United Auto Worker contracts. LG Energy Solution will need to hire 1,360 at the former Ultium site near Lansing. The company estimates wages of about $55,000 per year for manufacturing workers.
EV sales in February increased 10.5% from a year earlier, but they represented an overall market share of under 8%. That is one element behind Hyundai’s announcement that its new production facility near Savannah, GA will build hybrid models in addition to straight electronic vehicles. Ford, GM and Volvo have all slowed some EV plans and focused more on hybrids. The demand just has not been there. Trump’s policies against tax credits for electric vehicles are another headwind.
GAS TAXES
A MassINC Polling Group survey published last week found fifty-one percent of respondents in the Bay State said they would somewhat or strongly support replacing the gas tax with a “fee based on how much people drive, whether they drive a gas car or an electric car,”. A more specific question found a nearly identical split for eliminating the gas tax and instead deploying “tolls on more Massachusetts roads”: 52% support, 32% opposition and 16% who said they did not know.
Gas tax revenues increased from $603 million in fiscal 2023 to $615 million in fiscal 2024, according to the Department of Revenue. Asked if Massachusetts should study the use of congestion pricing in and around Boston, 48% said yes and 35% said no.
In Oregon, a proposal has been put before the legislature to raise more than $1.9 billion in new taxes and fees every two years once fully implemented. Oregon would raise its gas tax by 20 cents, create a new 1% tax on cars sales and require electric vehicles to pay an entirely new “use charge”. Democrats have a three-fifths supermajority in both the House and Senate, meaning they can theoretically pass anything they want.
The details include: A staggered 20-cent increase to the state’s 40-cent-per-gallon gas tax. The tax would increase by 8 cents at the outset of next year, and another 4 cents in 2028, 2030, and 2032. It would be indexed to increase with inflation afterward. A new tax equal to 1% of the sale price of all cars sold in Oregon, new or used. Oregon is one of just five states without such a charge.
A new “road usage charge” that electric and highly fuel efficient vehicles would pay – either as a flat fee or based on actual miles driven in Oregon. Existing electric vehicles would be subject to that still-undefined charge beginning in July 2026. New EVs, plug-in hybrids and cars with fuel economy of 30 miles-per-gallon or better, would be added in subsequent years.
Additionally, there would be a separate usage charge for delivery vehicles used by companies with at least 10 such vehicles. The fee is meant to impact corporate delivery services like Amazon. An additional $66 onto Oregon vehicle registration fees would accompany adding $90 to vehicle titling fees, which currently range from $90 to $190. It would increase the state’s weight-mile tax on heavy vehicles by 16.9%.
Other components of the funding plan include a 3% tax on tire sales that would send $25 million a year to rail operations, safe highway crossings for wildlife and improving salmon habitat; an increase to an existing tax auto dealers pay for the “privilege” of selling cars in Oregon. The tax would be raised from 0.5% of the price of a vehicle to 0.8%. It would add $9.50 to an existing $15 tax on sales of new bicycles that cost at least $200. Funding from the tax goes to bike and pedestrian facilities. It would also increase a tax dedicated to transit service that Oregon workers pay from their paychecks from 0.1% to 0.18%.
CHICAGO PUBLIC SCHOOLS
The Chicago Teachers Union (CTU) will vote this week on a proposal for a new contract. The deal is the product of a year’s worth of negotiations. It gets so much attention because of the Mayor’s history as a lawyer for CTU and its role in the Mayor’s campaign for office. Funding for CPS was also a major issue in the negotiations over the City’s own budget.
The offer includes teacher raises of 4% the first year and up to 5% over the next three; class-size limits of 25 in kindergarten and an average of 29 in most other grades, down from 36 or 32; doubling the number of bilingual teachers; 90 more librarians over the life of the contract. If ratified, the median CPS teacher salary would be $95,000, according to CPS. CPS says the contract will cost $1.5 billion over four years, down from an initial CTU proposal that it said would have cost $10 billion over that period.
If this contract settles the labor dispute, it still leaves the funding needs of CPS front and center as an issue for the City’s GO credit as well as for its own.
HIGH SPEED RAIL
In light of the efforts by the Trump administration to weaken mass transit and federal funding for it, much has been made of the “success” of the Brightline project in Florida as a private rail provider. The thrust of recent press has been that the project shows that high speed rail can’t be developed by the public sector. The California high speed rail project is considered to be the posterchild for inefficient government infrastructure development and is cited regularly by proponents of other projects.
That project as well as the Brightline West project were conceived to utilize existing right of way as much as possible. In Florida, the trains max out at 70 miles per hour (Acela on the Northeast Corridor top 100 mph) and they operate on existing tracks. They pass over grade crossings. Those are not what people think they are talking about when they talk about high speed rail.
As for true high speed rail projects, hurdles continue to arise in Texas where opponents of a proposed Houston-Dallas line have fought its development for more than ten years. Now the Texas legislature will consider legislation designed to impede that project. House Bill 1402 would prevent the use of state or local funding to alter roadways for the construction of high-speed rail. It has attracted a cross section of supporters.
The opposition is not just from small individual landowners. So long as potential right of way issues remain unaddressed, some developers cannot move forward with projects. As for the sponsor of the project – Texas Central – its position is that the route wasn’t chosen by them and that the current plan is the most environmentally friendly that they could come up with. As for the issue of right of way acquisition, the over 500 homes which would have to be removed are compared by Texas Central to the number of homes some Houston road projects expect to move.
That raises the whole issue of how private projects like these actually are. No one likes moving residential properties to make way for projects. There is a history of law in this country which establishes clear boundaries between public and private projects. Arguments like that of Texas Central unwittingly focus attention on the private structure and weaken support for eminent domain when it is used to facilitate private profit.
Are they reliant on the government? Here are the words of the Texas Central CEO. “I mean, obviously, we don’t have the financing put together. We don’t have all the right-of-way acquired. We’ve acquired approximately 25% of the parcels that are needed. … We’re not asking the taxpayers to pay for this project right now. What we’re saying is we have to ultimately partner with the State of Texas and with TxDOT [Texas Department of Transportation] to figure this out.”
LIFE AFTER COAL
The site of what was once Pennsylvania’s biggest coal-fired power plant will be repurposed into a $10 billion natural gas-powered data center campus. The former Homer City Generating Station, about 50 miles (80 kilometers) east of Pittsburgh, will host seven gas-fired turbines to power data centers on site with up to 4.5 gigawatts of electricity. It would be the nation’s largest gas-fired power plant and the nation’s third-largest power generation facility after the Grand Coulee hydroelectric dam in Washington and the new Plant Votgle nuclear power plant in Georgia.
Construction is expected to begin this year and power could start flowing by 2027. Much of the critical infrastructure for the project is already in place from the former Homer City power plant, including transmission lines connected to the mid-Atlantic and New York power grids, substations and water access. That sort of infrastructure is difficult to relocate or replace at current costs. The ability to show that coal plant repurposing is viable will be through successful projects.
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.