Joseph Krist

Publisher

NUCLEAR START UP

An entity backed by several venture capital investors announced plans to develop a fleet of traditional nuclear generating plants. The Nuclear Company will initially target sites with active combined operating licenses (COL), early site permits (ESP) or limited work authorizations from the Nuclear Regulatory Commission. The Company is looking at locations in the southeastern U.S., the PJM Interconnection and the Midcontinent Independent System Operator territory.

One example – active COLs for Turkey Point units 6 and 7 in Florida and William States Lee III units 1 and 2 in South Carolina. They use the same basic technology which was used at Plant Votgle’s recent expansion. The idea is that lessons from previous plants will be applied to prevent significant delays and cost increases. As for new sites, the Company targets former coal-fired generation sites for potential conversion.

The development of generation at existing sites is also one way to overcome the issue of transmission capacity. Existing generation plant has the benefit of significant transmission connection capability. It might also make future plants more attractive to utilities which need to replace the coal power but would like to avoid the clear financial risks associated with nuclear construction. Repurposing also avoids transmission upgrades associated with new plants. The Company has also said that it is open to developing plants on a turn key basis.

We’ll see if this approach works any better than have prior efforts to learn from past mistakes to gain efficiency or cost savings.

COLLEGE TUITION

Michigan is the most recent of at least 30 states to offer a version of free community college. Those eligible for Michigan’s program must enroll in college full-time and fill out federal student aid forms. The program is not dependent on a student’s household income. The Whitmer administration estimated that its free community college program will save money for over 18,000 students, up to $4,800 per student each year.

The idea is gaining support across the country. In addition to Michigan, Minnesota and New Hampshire will begin free community college tuition programs in FY 2025. Colorado will begin its program in FY 2026. Ironically, it is some of the more populous states which do not have such programs. Those include Texas, Ohio, Pennsylvania, Illinois, Wisconsin and Florida.

A 2020 study produced by the Federal Trade Commission found free community college increases enrollment by 26 percent, welfare for all students, and degree completions by 20 percent. Programs that only cover tuition after accounting for other sources of grants increase enrollment by 10 percent and degree completions by 10 percent, but provide no benefit to low-income students. Need-based programs that make community college free for low-income students increase enrollment by 12 percent.  

OAKLAND CHILDRENS HOSPITAL

The Regents of the University of California recently approved a major expansion of one of Oakland’s primary medical facilities, the Oakland Children’s Hospital. The hospital is a level 1 trauma facility as well as a “safety net” hospital. That is reflected in the fact that the hospital derives 70% of its revenues from Medi-Cal. The hospital had struggled financially for years before it merged with UCSF Benioff Children’s Hospital in San Francisco in 2014 following a $100 million gift from billionaire Salesforce founder Marc Benioff.

UCSF plans to pay for the construction through a combination of $891 million in debt financing, $350 million in gifts, $163 million in hospital reserves and $87 million in grants, according to the plan approved by the regents. The project will double the safety net facility’s emergency department space and triple the number of single-patient hospital rooms. 

Parkview Health System is a regional hospital system, anchored by a tertiary facility in Fort Wayne, Indiana. In total, Parkview operates 14 acute and specialty service hospital campuses, several ambulatory sites, and numerous physician offices throughout its market in northeastern Indiana and northwestern Ohio. In fiscal 2023, the organization reported $2.8 billion in operating revenue and saw over 59,000 admissions.

This week, Moody’s changed its outlook on some $800 million of outstanding debt from Parkview to negative from stable. The Aa3 rating had benefitted from a more stable operating environment in terms of reimbursements from the states under Medicaid. Now, the system is facing reduced cash flow which is always key to a rating. Moody’s notes that “lower cash flow will keep debt to cash flow elevated at about 3.0x after years of measuring 2.0x – 2.5x, and the rising expense base will constrain days cash to under 250 days, down from over 300 days prior to current financial challenges.”

A RELIC

Simmons University is a private, nonsectarian university with an all-women’s undergraduate college and coeducational graduate programs. That single-sex tradition and orientation has been a financial stumbling block for many schools of that category. Simmons reflects that trend. Located in Boston’s historic Fenway district, Simmons currently serves around 5,103 FTE students and generated roughly about $172 million of operating revenue as of fiscal year end 2023. 

The university had approximately $264 million in debt outstanding as of fiscal year end 2023. Moody’s recently downgraded Simmons from Baa2 to Baa3. That move was not enough to stabilize the outlook which was held at negative. The downgrade to Baa3 also considers the university’s material debt burden, up 88% over the past five years, exacerbated by declining operating revenue, down 13% over the same period. 

The near-term answer from management is to rely on reserves but that can only be sustained for so long. The hope is that draws on reserves can continue through fiscal 2027. That is a red flag for the rating.

STADIUM DEAL

Pinellas County and the City of St. Petersburg have reached an agreement over how to fund the construction of a new baseball stadium for the Tampa Bay Rays. The stadium is expected to cost about $1.3 billion, of which the Rays will cover $700 million. This week, Pinellas County approved some $300 million of support for the facility. The key to that is based in the effort to tie the stadium to the revitalization of the surrounding community.

The concept of a stadium anchoring a larger real estate development scheme is increasingly the go to tactic employed by teams seeking new stadia. Successful examples are to be found in St. Louis and Atlanta. In this case, the Rays also envision year-round non-baseball events at the stadium, as well as a planned mixed-use development in the area that will include 5,400 residential units, 750 hotel rooms, 1.4 million square feet of office and medical space, 750,000 square feet of retail space, a new Woodson African American Museum of Florida, a concert/entertainment venue of 4,000 to 6,000 seats and 14 acres of green space.

BAY AREA TRANSIT

An initiative that would place a new tax on Uber, Lyft and Waymo to fund the San Francisco Municipal Transportation Agency has qualified for the November ballot. The Community Transit Act, the proposed ordinance would the revenues earned by these companies from their rideshare and robotaxi services in San Francisco. It would be levied at a graduated rate that would rise from 1% to 4.5% as that revenue increases.

The measure would use the money raised — which its authors estimate to be $20 million to $30 million annually — to maintain or expand Muni service and the agency’s discounted-fare programs. The ride share customers are already paying for transit as the result of the passage in 2019’s Proposition D, which placed a 1.5% to 3.25% tax on all ride-hailing fares in The City. Muni is facing a massive deficit as ridership and fares haven’t recovered to the levels they were at before the COVID-19 pandemic and also to the end of federal pandemic-related financial support.

In Santa Clara, the Santa Clara Valley Transportation Authority (VTA), the transit agency designing and building the BART extension to San Jose and Santa Clara, announced the federal government will contribute $5.1 billion to complete the long-awaited project. The award from the Federal Transit Administration (FTA) is the second largest transit-related grant from the agency in history and the largest amount of federal money ever given to a West Coast transportation project.

Phase I of the BART extension brought service into Santa Clara County from Alameda County, with stops in Milpitas and North San Jose opening in 2020. The grant is for a four-station BART extension that will run from the Berryessa Transit Center in North San Jose through downtown and up to Santa Clara. The estimated cost of the project was originally $4.4 billion and scheduled to begin service in 2026. The opening date for this segment of the extension has now been extended to 2037.

P3 GOES PUBLIC

The Texas Transportation Commission voted to authorize spending more than $1.73 billion to terminate a 52-year agreement with Blueridge Transportation Group, which began constructing the 10-mile stretch of toll lanes in 2016. That segment of State Highway 288 opened in 2020 and has since been managed by the private operator. The operator sets the fluctuating toll rates.

It is the only such public-private partnership for a toll road in Houston. The agreement calls for TxDOT to take ownership of the tollway in early October, after which point TxDOT will be able to set its own toll rates and use the revenue along the south Houston corridor and for other infrastructure projects in the region.

“The agency believes the cost of the ‘buyout’ provision in the contract is substantially below the value of future toll revenues on the corridor. It is expected that the ‘buyout’ payment would be repaid with future toll revenue bonds, but would allow future toll rates to be significantly less than what are allowed under the current concession agreement.” Drivers currently pay up to $29.23 round trip during peak commuter times on a weekday, which is more than double the cost when the toll lanes opened in 2020.

After the takeover, TxDOT would be able to expand the road without imposing tolls on the new lanes. Under the existing agreement, any expansion would require that tolls be imposed on those lanes.

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