Joseph Krist

Publisher

GAS BANS

The California Supreme Court ruled that Monterey County cannot enforce a voter-approved ban on new oil and gas wells. The state Supreme Court said the state, not the county, has the authority to regulate certain methods of oil production that would have been banned by the measure. The initiative, known as Measure Z, set out to ban fracking, as well as new oil and gas wells; and another practice known as wastewater injection.

In 2022, Central Coast’s Monterey County was the third largest oil producer in the state, producing 5.1 million barrels annually. The Los Angeles City Council voted last year to ban new oil and gas drilling. In San Benito County, which is south of the San Francisco Bay Area, residents voted to ban fracking in 2014. The Supreme Court did not issue a decision on the measure’s ban on fracking.

California enacted a law last year to ban new wells within 3,200 feet (975 meters) of homes, schools, parks and other community sites. the oil industry qualified a referendum to ask voters to overturn it in November 2024.  The California Independent Petroleum Association is behind the referendum to ask voters to overturn the law. Environmental advocates launched a campaign in the past week to put a separate measure on the ballot to try to keep the law.

In Washington State, Gas and building industry groups on Thursday asked to dismiss a lawsuit they had filed to block new Washington state building codes, which require heat pumps in new residential and commercial construction to reduce greenhouse gas emissions. The lawsuit argued the codes harm the industry groups’ business, interfere with consumer energy choice and don’t comply with federal law. The lawsuit came shortly after a federal appeals court overturned Berkeley, California’s first-in-the-nation ban on gas in new buildings for bypassing the same federal law.

In this case, the industry groups’ dismissal of the lawsuit follows a federal judge’s July denial of their request to vacate the codes. The issue could easily end up back in court as the dismissal request was since the Washington State Building Code Council’s pushback of the codes’ effective date from July to late October provided an opportunity for revisions. The Council is considering modifications of the code in light of the Berkeley decision. One important distinction has been emerging through the process of court review of the bans.

Washington used building codes to try to effect the changes it sought. Berkeley’s ban was based on the city’s use of its police powers. It is an important distinction in that opponents of these bans like to cite the existence of federal regulations which would prevent enforcement based on police powers versus codes. The law supporting federal regulation, the Energy Policy and Conservation Act, contains a statutory exemption preventing it from preempting state and local building codes.

CLIMATE COSTS AND WATER

A report by the National Centers for Environmental Information, a division of the National Oceanic and Atmospheric Administration (NOAA) finds that a total of 15 billion-dollar weather and climate disasters have been confirmed this year. This is the largest number of such events since 1980 for the January-July period. These consisted of 13 severe storm events, one winter storm and one flooding event.

This year the reporting of events has been geared towards worst ever, largest ever types of commenting. The average temperature of the contiguous U.S. in July was 75.7°F, 2.1°F above average, ranking 11th warmest in the 129-year record. July precipitation for the contiguous U.S. was 2.70 inches, 0.08 inch below average, ranking in the middle third of the historical record. None of this year’s data reflects historical peaks. For this year-to-date period, the first seven months of 2023 rank highest for disaster count, ahead of 2017 with 14 disasters. The total cost of these events exceeds $39.7 billion, and they have resulted in 113 direct and indirect fatalities.

According to the August 1 U.S. Drought Monitor report, about 28.1% of the contiguous U.S. was in drought, up about 1.2% from the beginning of July. Moderate to exceptional drought was widespread across much of the Great Plains, with moderate to extreme drought in much of the Midwest and Florida Peninsula. Moderate to severe drought was present in parts of the Northwest, Southwest, southern Mississippi Valley, Mid-Atlantic, Michigan and Puerto Rico as well as moderate drought in parts of the Northeast and Alaska.

NYC STABLE?

The reaffirmation of NYC’s general obligation rating with a stable outlook seems to fly in the face of current realities. We understand that the City benefits from the use of rolling five-year averages to determine property tax rates so that declines in valuation and property tax revenues are effectively phased in. We understand that the segregation of property tax revenues to be applied to debt service provides a level of certainty of repayment.

What we also understand is that the idea that the commercial real estate sector is healthy is not realistic. The realities of the mass transit situation in the City generate huge uncertainty. There seems to be no end to the stream of immigrants to the City or to the growth in cost estimates associated with their absorption. That was confirmed by Mayor Adams this week when he released a revised estimate of those costs – $12 billion. The city is currently housing 107,900 people in shelters, including 56,600 migrants.

The City does not know the magnitude of its problem. An influx of children into the school system likely needing extra support in language if nothing less demand resources. The system is already facing a teacher shortage. Those students will also create strains on the healthcare system likely funded through the municipal hospital system. The one known factor in solving any or all of these is increased expense requirements.

Those are uncertainties. We consider something which is uncertain to be destabilizing. We are not advocating a downgrade or getting rid of your City GO bonds. We just do not see a stable situation in the City.

CARBON CAPTURE

The North Dakota Public Service Commission denied the permit for Summit’s Midwest Carbon Express pipeline, which planned a 320-mile (515-kilometer) route through North Dakota. Summit proposed the $5.5 billion, 2,000-mile (3,219 kilometer) pipeline network to capture carbon dioxide from more than 30 ethanol plants in Iowa, Minnesota, Nebraska, North Dakota and South Dakota.

“The Commission felt that Summit has not taken steps to address outstanding legitimate impacts and concerns expressed by landowners or demonstrated why a reroute is not feasible,” the regulators said in a statement. “The Commission also requested additional information on a number of issues that came up during the hearings. Summit either did not adequately address these requests or did not tender a witness to answer the questions.”

Sangamon County, IL is the proposed home of a carbon capture storage site to be operated by Navigator CO2. The County has filed a Motion to Intervene with the Illinois Commerce Commission (ICC) in order to have a voice in the approval process. The ICC is expected to rule on the project in early 2024. 

CYBER ATTACK AND SECURITY

The White House held a “summit” to highlight the growing targeting of public schools in ransomware attacks. According to private researchers, 48 districts have been hit by ransomware attacks this year — already three more than in all of 2022. The Government Accountability Office found that more than 1.2 million students were affected in 2020 alone. Nearly one in three U.S. districts had been breached by the end of 2021.

It is a thorny issue because it deals with the issue of information related to minor children being held hostage. Medical issues, psychological information and the like make it especially hard for victims to take a firm stand. For many districts, cybersecurity is just one of many competing demands on resources. The Consortium for School Networking conducted a survey which found that 16% of districts have full-time network security staff, down from 21% last year. Half of the districts devoted 2% or less of their budget on protection.

A cyberattack has disrupted hospital computer systems across the United States, forcing emergency rooms in several states to close on August 3. The issues resulted from a hack on the systems of the management company which operates 16 hospitals across the country. In Connecticut, two facilities closed their emergency departments for hours and outpatient care was not available into the weekend. In Pennsylvania, Crozier-Chester, Moses Taylor and Delaware County Memorial hospitals saw disruptions in service. The holding company was still restoring full capability at the beginning of the week.

Just this week, the New Haven, CT school district reported that it been the victim of hackers who stole some $6 million. The hackers appear to have gained access in late May to the email account of the school system’s chief operating officer and began to monitor conversations among the school official, vendors and the city’s finance office. The F.B.I. has since recovered $3.6 million and has been able to freeze some of the remaining funds. 

Unintentionally, the mayor of New Haven may have revealed more about the mindset of public officials than he meant. “It is shocking to me that someone is so greedy that they would steal money from public school children.”  It shouldn’t be shocking that people who would hack the operations of chemotherapy units would hack a school district account.

PUERTO RICO

Puerto Rico Industrial Development Company (PRIDCO) has reached a tentative restructuring agreement with its bondholders and the Oversight Board. PRIDCO’s bonds have not paid since the passage of the Puerto Rico Oversight, Economic Stability, and Management Act in 2016. According to the terms of the deal, the current taxable bond claim of $186.3 million plus $22,411 a day of interest, minus a $30 million cash payment, is to be made the principal of new bond paid at 100%.

The new bond’s coupon would be 7% for three years and 8.75% thereafter. The weighted average interest rate of PRIDCO bonds on July 2, 2016, was 5.4%. The restructured bonds would not mature until 2053. The five CUSIPs affected by the restructuring had originally been scheduled to mature 2018 to 2028. The restructured bonds would be callable at par for the first three years, 104% for the following three years, and then for 0.5% less per year thereafter. 

The Puerto Rico Oversight Board sought and received another deadline extension for filing its debt adjustment plans. The attorneys asked Judge Swain to extend the deadline for its filing a proposed plan of adjustment to Aug. 11 from Friday and to extend the deadline for filing a joint status report with a proposed litigation schedule to Aug. 16. PREPA debt remains the last to be restructured under bankruptcy. The settlement of the PRIDCO debt is seen as creating a more favorable potential settlement of PREPA’s debt.

P3 NEWS

LAX Integrated Express Solutions, LLC (“LINXS”) finds itself in a dispute with the Los Angeles airport over purported changes in the people mover project at LAX. LINXS has stopped work on portions of the project and is contending that it can due to an inability to obtain government permits. The argument is rooted in changes adopted by the airport which the developer contends are outside the scope of the project.

LAX has declared the developer to be in default under its project agreements. Under those agreements, no LAWA Change shall constitute a breach of the Contract Documents, invalidate the Contract Documents, or release any Surety from any liability arising out of the Contract Documents or the Payment Bond or Performance Bond. Developer agrees to perform the Work, as altered or changed by any LAWA Change, as if it had been a part of the original Agreement.

It’s all about money. The developer is obviously not getting the return on its investment that it hoped for and is looking to generate additional revenue from the airport. Concession termination is one of the remedies available to LAWA if the developer default is not cured within 30 days. The date that the people mover would be placed into service which has now moved further by 109 days to Oct. 17, 2024, from June 30, 2024. The arguments are over the meaning of clauses in the project agreement and whether they put the airport in the position of having to pay more due to a change order.

Louisiana has announced a P3 for the replacement of the Calcasieu River bridge on Interstate 10. The selected consortium includes Plenary Americas US Holdings, Inc., which holds a 40% equity stake, and Sacyr Infrastructure USA LLC, and Acciona Concesiones S.L., each with a 30% stake. The project had two bidders. It will replace the nearly 70-year-old existing bridge, which has been deemed structurally deficient, and widen the interstate along a 5.5-mile corridor. The Calcasieu River project includes design and construction of a new eight-lane bridge, reconstruction and relocation of existing roads and interchanges, demolition of the existing span, implementing a tolling system and building several adjacent ramps and structures.

The concession will be backed by tolls which will range from $0.25 for local cars to $2.50 for an auto and $12.50 for a large truck for those with toll collection tags. Without tags, the rates will range from $3.75 for a car to $18.73 for a large truck. It is a $2.1 billion project. Governmental funding would include $240 million from motor vehicle sales tax fund transfers; $150 million in federal discretionary grants; $150 million in American Rescue Plan Act funds; $100 million from the state general fund, $85 million in state general obligation bonds, and $75 million from highway priority program federal funds.

HIGH SPEED RAIL

It is fashionable to believe that the private sector would be the key to the development of high-speed rail. For many, that translates to private financing for these projects. Private financing has been a selling point in the effort to generate support for the projects. In reality, the projects to date show that they may not work without government support.

The latest example of a private project transitioning to one supported by governmental financing is the Texas Central project which seeks to link Dallas and Houston. Texas Central announced this week that they are working with Amtrak to apply for federal grants to conduct “advance planning and analysis work” associated with the proposed rail line, “to further determine its viability.”

Amtrak and Texas Central have submitted applications to several federal grant programs to further the study and design work for the Dallas to Houston line including the Consolidated Rail Infrastructure Safety and Improvements (CRISI) grant program, the Corridor Identification and Development program, and the Federal-State Partnership for Intercity Passenger Rail (FSP-National) grant program.

The change in financing strategy comes after the management of Texas Central was replaced. A new CEO and a new board of directors has been put in place. The move to look for public funding is the first major strategy change to come from the new board. There remain significant issues over right of way acquisition and funding. Texas Central has given no timeline for when construction or operation will begin. 

STATE BUDGETS

Pennsylvania, Wisconsin, and North Carolina make for an interesting triumvirate of late state budget adopters. In Pennsylvania, the fight is over school funding. In North Carolina, votes to override line-item vetoes has delayed enactment of a two-year budget for the biennium which began on July 1. Several issues are seen as stumbling blocks and the delay is also seen as beneficial by opponents of Medicaid expansion. Massachusetts passed its budget a full month after the end of the fiscal year and it was signed into law this week, some 6 weeks after the start of the fiscal year.

MEDICAID CONTRACTION

As a part of the initial response to the pandemic, Congress ordered states to halt requirements that Medicaid enrollees renew their coverage each year, ensuring poor Americans would remain continuously insured throughout the Covid crisis. The Medicaid population swelled to a record 93 million as a result — with 1 in 4 Americans insured by the program. In anticipation of the end of the declared public health emergency this past Spring, Congress ended that protection in April.

Now the same sort of difficulties which drove opposition to work rules for Medicaid recipients – primarily rooted in paperwork and documentation issues – have arisen again. The “great Medicaid unwinding” has seen Florida remove more than 400,000 people out of Medicaid in its first three months. Texas dropped over half-a-million people in a single month. In Arkansas, more than 300,000 have lost coverage. Georgia and Nevada have among the top 10 highest disenrollment rates.

This even though the Centers for Medicare and Medicaid Services has worked with 14 states to pause terminations for some or all Medicaid recipients over compliance issues.

DREAM ON

The difficulties at New Jersey’s American Dream mall continue to impact debt service coverage. The Reserve Account was previously drawn to make debt service payments on the Wisconsin PFA Bonds on August 1, 2021 and February 1, 2022. Draws on the Reserve Account are not required to be replenished. As a result, the balance of the Reserve Account is $900.93. The semi-annual interest payment of $8,762,500, which was due to be paid on the PFA Bonds on August 1, 2023 was not paid due to insufficient funds. As of July 1st, 2023, the American Dream Project is 85% leased, which includes the self-operated space, and together with leases under negotiation, is approximately 90% leased.

HOSPITALS

On May 23, 2023, the San Benito Health Care District dba Hazel Hawkins Memorial Hospital filed a voluntary petition for relief under chapter 9 of title 11 of the United States Code. The San Benito Health Care District (District) and Hazel Hawkins Memorial Hospital (HHMH) announced that they received a Letter of Intent (LOI) from American Advanced Management (AAM) which is intended to lead to a strategic partnership. AAM currently operates 6 hospitals and numerous other medical facilities across the state.

The plan proposes AAM to “lease to own” assets of the District for several years prior to purchasing them outright. The hospitals finances have been poor as is the case with so many facilities of this size and service array and rural service area.  Located in the county seat, the 25-bed facility is the only one in town and San Benito County. That role generates support for it. The bulk of the District’s debt is tax backed but an operating facility is the county’s primary concern.

In Iowa, On August 7, 2023 (the “Petition Date”) filed voluntary petitions for relief under chapter 11 the Bankruptcy Code” in the United States Bankruptcy Court for the Northern District of Iowa (the “Bankruptcy Court”). Holders (primarily one) of the debt have accelerated the repayment of bonds issued five years ago for the hospital. The hospital said the voluntary bankruptcy will allow it to implement a plan for the University of Iowa to acquire substantially all its operating facilities and key assets. Outstanding principal totals $62.145 million as of July 31

The Iowa Board of Regents Tuesday unanimously agreed to pay $20 million for real estate and business assets in a deal under which it would not assume Mercy’s debt obligations. The bondholders had sought to put the hospital into receivership. That request was denied. It’s quite a fall for a credit which was originally rated A2 in 2011. and most recently downgraded the debt to Caa3, withdrew the rating due to the bankruptcy filing. The hospital cited local concerns over ownership by a private equity entity.

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