Joseph Krist

Publisher

COLORADO RIVER WATER

The Bureau of Reclamation announced annual operational guidelines for the Colorado River basin and the seven states that comprise it. The guidelines were developed through a 24-month study of the Colorado River basin and will apply to the 2025 water year, which extends from October 1, 2024, through September 30, 2025.

Based on projections in the study, Lake Powell will operate in a Mid-Elevation Release Tier in water year 2025 and Lake Mead will operate in a Level 1 Shortage Condition with required shortages by Arizona and Nevada. Those “required water shortages” are the reductions in the amounts of water each state can withdraw from the system. The reductions in Arizona:  512,000 acre-feet of water, which is approximately 18% of the state’s annual apportionment. The reduction for Nevada:  21,000 acre-feet of water, which is 7% of the state’s annual apportionment.  

The important news is that there is no further reduction from last years’ levels required for those two states. The Colorado River System continues to face low reservoir storage with Lake Powell and Lake Mead at a combined storage of 37% of capacity. The guidelines stem from the Supplement to the 2007 Colorado River Interim Guidelines, in all Lake Mead operating conditions, the three lower division states will target a cumulative Reservoir Protection Conservation volume of 3 million acre-feet or more of additional conserved water in total for calendar years 2023 through 2026, with a minimum of 1.5 million acre-feet physically conserved by the end of calendar year 2024. This conservation volume of 1.5 million acre-feet has already been achieved.

CALIFORNIA WATER

We have regularly observed the cyclical nature of the weather and its impact on water supplies in California. Lake Oroville has been a symbolic center of the state’s ever changing water supply conditions. During the most recent drought years, levels at the Oroville Dam plunged to under 30% of capacity. This followed a year of damage at the dam as water supplies exceeded the capacity of the lake creating significant overflows and damage to the dam’s spillways.

At the beginning of the decade, Lake Oroville was far below its capacity of 900 feet mean sea level (MSL). In May 2020, the water level was at 800 feet. However, by the end of the year, it had gone down to 700 feet. By September 2021, it was near the bottom, sitting below 650 feet. sitting below 650 feet. The atmospheric river storms of early 2023 brought the Lake out of drought and Lake Oroville literally went from below 30% capacity in the winter of 2022 to 100% capacity by the Spring.

The State has announced that for the second consecutive year that Lake Oroville is at 100% capacity.

INSURANCE

The Texas Windstorm and Insurance Association’s nine-member board voted for a 10% rate increase after a staff analysis found that the insurer has for years been unable to cover expected costs, which include paying claims on damage from storms. TWIA is governed by Chapter 2210 of the Texas Insurance Code. TWIA provides a source of insurance used as a last resort for property owners that have been denied windstorm and hail property insurance coverage in the private (voluntary) market.

It insures Texas’ 14 coastal counties and a corner of Harris County. The number of TWIA policies has grown significantly by 38% since 2020. The increase in risk exposure has driven the need for reinsurance. The cost of reinsurance has also increased driving the need for a rate increase. Reducing TWIA’s reliance on reinsurance, either by using state reserves to fund the nonprofit’s catastrophic reserve fund or otherwise propping up a state-sponsored reinsurance fund, would help lower rates. 

The consideration of legislative fixes to the problem of rising rates and reduced availability reflects the inability of the state to limit these increases. Unlike many states where the insurance industry and its rates are regulated, Texas is a file-and-use state, which means that insurance companies need only to file their rate increases before they can go into effect. The regulatory structure which might enable some state insurance regulators simply does not exist in Texas.

COLORADO TAX INITIATIVES

Colorado is no stranger to long-term opposition to taxes from conservative taxpayers. Government has long functioned under the limits of the TABOR amendment which was enacted in 1992. TABOR requires voter approval for tax increases and limits the growth of government revenues and spending. Any revenue generated over the set limit, which is calculated each year based on inflation and state population growth, must be returned to taxpayers unless they vote to let the government keep it. 

Voters have loosened TABOR restrictions on most local governments in the state. Fifty-one of Colorado’s 64 counties have chosen to waive TABOR’s strict government spending limits along with 177 of Colorado’s 178 school districts and  over 200 municipalities . Notwithstanding, anti-tax advocates have managed to place two items on the ballot – Initiatives 108 and 50 – designed to significantly limit government revenues.

Initiative 50, which would amend the state constitution, might be the more consequential of the two. It would limit property tax revenue growth to 4% statewide, with no flexibility for local governments or their voters to opt out without a statewide referendum. Initiative 108 would limit assessments to 4% of value from 6.7%. That is estimated to reduce revenues statewide by some $2.4 billion.

Now the Colorado Legislature will hold a special session to consider a new proposal designed to address initiative sponsors concerns and motivate them to ask for the ballot initiatives to be off the ballot. The proposal under consideration includes: In the 2025 tax year for taxes owed in 2026, the residential assessment rate for local government taxes would drop an additional 0.15% to 6.25%. Today the rate is 6.7%, It is scheduled to fall to 6.4% in the 2025 tax year for taxes paid in 2026. This proposal Residential assessments for schools would remain separate from those of local governments, and would fall to 7.05% from 7.15%. 

In the 2026 tax year, the residential assessment rate for local governments would rise to 6.8%, but the increase is offset by a tax break that kicks in that year, exempting up to $70,000 of a home’s value from taxation. Under current law, it is scheduled to rise to 6.95%. The school assessment rate would remain at 7.05%. Local government revenue would be limited to 10.5% growth over two years, instead of 5.5% annually under Senate Bill 233. School districts would be limited to 12% growth over two years, a new cap.

If this all can be enacted, the initiatives are expected to be removed and the sponsors must agree not to try again for 10 years. The deal would have to be completed before Sept. 9, when the November ballot is required to be certified by the Colorado Secretary of State’s Office. 

ELECTRIC VEHICLES

According to a recent survey by AAA Northeast, just 14% of more than 1,700 respondents across Rhode Island, Massachusetts, Connecticut, New York and New Jersey “definitely” plan to buy or lease electric when looking at their next vehicle. By comparison, 42% are “not interested at all.” AAA found that leading causes of EV anxiety stem from fear of driving an electric vehicle, operational differences that create “a different feel” when driving, and concerns about public charging station locations, charging times and safety. The survey did not ask if cost was a concern.

Among those surveyed who don’t own and never plan to buy an electric vehicle, 65% said they had concerns about the availability of charging stations. Sixty-six percent of respondents in this group also said they were concerned about charging station reliability; 67% were concerned about price; 65% were concerned about safety; and 61% had concerns about charging station speeds.

CARBON CAPTURE

A recent federal court decision has at least temporarily delivered a setback to the carbon capture industry. The $18.4 billion Rio Grande LNG export terminal project is currently under construction near Brownsville, TX. In 2021, the company added a carbon capture facility onto the project. That was in response to a decision in the D.C. Circuit Court of Appeals which found that FERC had failed to properly consider the project’s climate impact.

Specifically, the D.C. Circuit found regulators failed to properly consider how that terminal and another proposed LNG project nearby would impact environmental justice communities in Cameron County, Texas. FERC also hadn’t properly reviewed the impacts of the carbon capture element of the project. In light of the renewed need for approvals and cancellations of contracts for LNG due to the carbon footprint of its production, the Company has decided not to pursue approval of the carbon capture for this project.

TAX CREDITS AND ALTERNATIVE ENERGY

The US Treasury marked the second anniversary of the enactment of the Inflation Reduction Act with some data regarding the use of tax credits associated with the law. More than 1.2 million American families have claimed over $6 billion in credits for residential clean energy investments – such as solar electricity generation, solar water heating, and battery storage, among other technologies – averaging $5 thousand per family. 2.3 million families have claimed more than $2 billion in credits for energy efficient home improvements – such as heat pumps, efficient air conditioners, insulation, windows, and doors – averaging $880 per family.

Solar electricity investments accounted for the largest number of residential clean energy credit claims. In total, more than 750,000 families reporting a total of more than $20.5 billion in qualified solar electric property costs in 2023. For reported investments in energy efficient home improvements, more than 250,000 families claimed investments in electric or natural gas heat pumps, more than 100,000 families claimed investments in heat pump water heaters, and almost 700,000 families claimed investments in insulation and air sealing.

SMALL COLLEGE BLUES

Centre College of Kentucky is a small, liberal arts college situated in Danville, Kentucky, approximately 35 miles south of Lexington. Established in 1819, Centre serves an entirely undergraduate student population of 1,346 full-time equivalent students and generated fiscal 2023 operating revenue of $68 million. This week, Moody’s downgraded the College’s rating from A3 to Baa1. The usual suspects were cited for the change in the ratings’ outlook to negative.

Operating deficit in fiscal 2023, the college’s financial projections reflect expectations of further significant operating deficits through fiscal 2025. The potential for further credit pressure as ongoing student market challenges will continue to limit net tuition revenue growth and could lead to weaker than expected operating results in fiscal 2025 and beyond. At the same time, the college’s revenue diversity, with nearly half of its operating revenue derived from investment income and philanthropy, provides it with relatively more flexibility than for other similarly sized institutions.

Manhattan College today announced that, effective immediately, it will change its name to Manhattan University in order to better recognize its more than 100 majors, minors, graduate programs, and advanced certificates and degrees, and attract a more globally diverse student body. It’s that last item – globally diverse – that as much as anything drives the move. Enrollment is down to 2,800 from a peak of 3,300 before the pandemic. Much of that is attributed to recruiting difficulties related to COVID 19 travel restrictions. Those restrictions hurt many institutions which counted on demand from international students.

As we have pointed out before, international students are a much sought after demand cohort. They typically pay full fare to attend. A university is seen as a more attractive option for those students. That accounts in part for why a 2022 study in the journal Economics of Education Review said that 122 four-year colleges morphed into universities between 2001 and 2016.

FOR PROFIT HOSPITAL SALE

Santa Clara County, CA has announced its intent to purchase Regional Medical Center from its for profit owner/operator. Over recent months, the hospital has been reducing the level and range of services it provides. Its status as a trauma center was downgraded from Level III to Level II. The overall decline in services created pressure for the County to find a way to preserve the facility and maintain/restore its prior service levels.

This is not the first time that the County has stepped in to add a facility to its overall health system. This will be the county’s fourth hospital purchase since 2019, when it bought O’Connor and St. Louise Regional hospitals and De Paul Health Center in Morgan Hill that were poised to close. In 2004, HCA closed San Jose Medical Center, the city’s only downtown hospital. In 2020, the corporation shut down the maternity ward at Regional, which had an immediate effect on East San Jose residents. In 2023, HCA ended its acute care psychiatrist services and neonatal intensive care unit at Good Samaritan Hospital in San Jose.

County officials announced their intent to buy the hospital from HCA Healthcare, the nation’s largest hospital corporation, for $175 million. The deal enables HCA to walk away from a population it does not want to serve and frees it to increase its facilities serving wealthier areas in the City of San Jose. The funding is coming from a one-time reimbursement of Federal Emergency Management Agency (FEMA). The county and HCA are aiming to complete the transaction in the first quarter of 2025. Once the deal goes through, the county intents to restore prior service cuts including the trauma center and maternity.

BACK TO THE FUTURE FOR TRANSIT FARES

The Transit system which serves the Seattle-Tacoma metropolitan area is dealing with many of the issues holding back full returns to pre-pandemic passenger levels. Now, Sound Transit is proposing returning to a fare structure which any New Yorker would recognize. Currently, fares are based on distance – which range from $2.25 to $3.50. New construction expanding the Link light rail system would create new lines out into the suburbs. This created a potential for those lines to require a $5 fare based on the current fare system.

Starting Friday, Aug. 30, the regular adult fare for Link light rail will be $3. The price for an Adult ORCA day pass will drop to $6 from the current $8 as part of a six-month promotional period. The price for a reduced- fare pass will drop from $4 to $2. Youth 18 and under continue to ride free.

The change to flat fares coincides with the opening of the Lynnwood Link Extension on Aug. 30. This extension to the 1 Line will add 8.5 miles and four new stations, including the first ones in Snohomish County. Link 2 Line service to Downtown Redmond is expected to open early next year, followed later in the year by the rest of the 2 Line. The Federal Way extension is set to open in early 2026.

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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.