Joseph Krist

Publisher

This is the final MCN of 2024. We make no prediction as to the impact of a return to the Presidency by Mr. Trump on the municipal bond market. The level of disruption anticipated to occur is impossible to understate given the involvement of idealogues and the wildcards posed by the involvement of Messers. Musk and Kennedy. We’re already seeing it in the inability of Congress to pass a continuing resolution to fund the government. It will be important for investors to look beyond the billowing clouds of smoke and dust which we are bound to see in the first 90 days of Trump2.0.

It comes at a time of weak leadership especially at the local level. The list of indictments in New York City grows almost daily. The mayor of Chicago may have gotten a budget passed but it came at a huge political cost leaving the Mayor significantly weaker. In Los Angeles, the deputy mayor for public safety is under investigation for making bomb threats against the building he works in. None of this inspires confidence.

The pending campaign for Mayor in New York will be disruptive enough but it will come as the Governor faces significant headwinds. Congestion pricing is turning into a lose-lose for the Governor as it may be stopped by the Trump administration. A plan to change school funding in NYS was dropped last year in the face of strong opposition. The gubernatorial election in New York is 2026 but it will complicate this year’s budget negotiation.

But that is next year. Now, it’s time to enjoy the holidays and take a bit of rest. So, Merry Christmas to you and best wishes for a Happy New Year. We’ll be back for the January 6, 2025 issue. Be well, be safe, and be good to yourselves.

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CHICAGO GETS A BUDGET

The Chicago City Council voted to pass Mayor Brandon Johnson’s final budget proposal calling for $17.3 billion of spending.  The plan represents quite a retreat from the Mayor’s original plans which relied on the revenue side of the budget to achieve balance. They called for a $300 million property tax increase. The budget proposal approved by the Council included no property tax increase. Instead of increases in property taxes, a variety of other taxes would be increased. They are designed to be paired with some small expense cuts.

One key takeaway: there were no layoffs. The city used a series of one-time fixes to help close the gap that are unlikely to be accessible next year. From the start, that included $139.6 million from using surplus revenues from prior years, a TIF surplus that will bring in $54 million more than in 2024, and improved debt collections. It is clearly a stop gap budget reflective of the City’s political divide and poor management by the Mayor of the politics of the budget.

The expense “reductions” include some $286.3 million have come from planned “operational efficiencies,” which the mayor’s budget team has not fully detailed. Personnel savings — in this case, getting rid of vacant positions — total about $42.7 million. Johnson’s initial proposal cut the city’s headcount by 743 positions. Instead, the Mayor proposed $1 million in staff reductions at the mayor’s office, $2.8 million in “middle management cuts” and $1.1 million in shifting costs from Business Affairs and Consumer Protection to a “cable TV origination fund.” 

On the revenue side, $165.4 million will come from raising various city taxes and fees including the city’s lease tax charged on things like car leases and software licenses, the tax on streaming services, parking and valet rates and plastic bags, the added speed cameras, and a mix of other smaller fee and service increases. Streaming taxes will rise from 9% to 10.25%, and lease taxes will go from 9% to 11%. Taxes on garage and valet parking will climb to 23.25%, up from 22% on weekdays and 20% weekends. The plastic bag tax would climb to 10 cents.

One assumption sticks out as likely unrealistic: $215.4 million in “structural” fixes came from changes in how the city assumes revenues will come in next year. The biggest was the hope that CPS would make good on its promise to pay the city for a $175 million pension bill for non-teacher employees. With its own longstanding fiscal problems and a shared tax base, that would seem to be a shaky assumption. Another is a provision to levy a fee to cover the cost of large events like Lollapalooza and NASCAR races.

At the end of the day, the budget barely made it through and it did nothing to truly address the concerns about structural balance and the City’s poor pension position. Our view is that the ratings should carry a negative outlook in that it is likely that a similarly difficult budget environment will prevail going forward with the Mayor’s bucket of good will steadily leaking.

IRA FUNDING

One of the immediate concerns stemming from the results of the November elections was how loan funding under the Inflation Reduction Act would be accomplished before a change in the Presidency in January, 2025. The fear is that agencies counting on approved but not closed loans for a variety of projects might never receive the money under a Trump administration. Some notable projects for manufacturing were seen as being at risk.

Recently, a couple of loan closings were affected to enable substantial manufacturing projects to continue to move forward. the U.S. Department of Energy’s (DOE) Loan Programs Office (LPO) announced the closing of a direct loan of up to $9.63 billion to BlueOval SK LLC (BOSK) for the construction of up to three manufacturing plants to produce batteries for Ford Motor Company’s future Ford and Lincoln electric vehicles (EVs).

Together, the plants, one located in Tennessee and two in Kentucky, would enable more than 120 gigawatt hours of U.S. battery production annually. The three facilities created more than 5,000 construction jobs as the plants were being built and will create up to 7,500 BOSK operations jobs. BOSK is a joint venture between Ford Motor Company (Ford) and SK On, a world leading Korean EV battery manufacturer. 

The U.S. Department of Commerce awarded Micron Technology up to $6.165 billion in direct funding under the CHIPS Incentives Program’s Funding Opportunity for Commercial Fabrication Facilities. The loan is part of a projected $100 billion investment to develop manufacturing facilities outside Syracuse, NY. Micron is the only U.S. manufacturer of memory chips. A four factory production complex is promised to create 9,000 manufacturing jobs in an area which has seen manufacturing jobs disappear.

INSURANCE

In early 2023, the Senate Budget Committee began a series of hearings examining the risks that climate change poses to insurance, mortgage, and property markets in coastal and wildfire-exposed communities. Florida has the highest average statewide non-renewal rate; Texas is not even in the top ten. Southern New England, the Carolinas, New Mexico and counties in the Northern Rockies, Oklahoma, and Hawaii. In 2023 alone, all 10 of the top 10 states ranked by insurance non-renewal rate were either coastal states or states with counties that experienced an average annual loss of $10 million or more from wildfire damage.

The states where nonrenewal rates are the highest are California, Oklahoma, Louisiana, Mississippi, Florida, North Carolina, and Massachusetts. In the case of North Carolina, non-renewals were already an issue before this year’s hurricane disaster. In 2023, it had the third highest non-renewal rate of any state, and in 2018 it was the highest by a significant margin. Those numbers are expected to spike in the aftermath of Hurricane Helene. Likewise in California where wildfires continue as we go to press.

The report highlights the fact that it is not just coastal areas susceptible to climate change risks. Land-locked Oklahoma ranked 7 of 10 by non-renewal rate in 2023 and 5th among states with the highest growth in non-renewal rate from 2018 through 2023. High rates of non-renewal in Oklahoma are likely explained by increasing winds and hail from severe convective storms. Fire risk is driving non-renewals in New Jersey and Montana.

The long-term implications – sky-high insurance premiums and unavailable coverage will make it nearly impossible for anyone who cannot buy a house in cash to get a mortgage and buy a home. Ultimately, house prices and values will drop with an accompanying impact on local revenues. Much has been written about the potential impact of a second Trump administration on regulations and the climate. That debate is unlikely to alter the current trends in residential insurance. In the end, insurance may be what drives responses to climate change rather than rhetoric or even legislation.

TAMPA STADIUM VOTE

The Pinellas County Commission voted 5-2 to approve its $312.5 million share of bond financing for the Tampa Bay Rays’ proposed $1.3 billion ballpark in St. Petersburg, Florida. The vote follows the approval received from the City of St. Petersburg for its share of the planned financing. The County was lobbied heavily prior to the vote. The most prominent lobbyist was the MLB Commissioner.

Pinellas County commissioners voted in July to approve $312.5 million in public financing for the stadium using tourist taxes to pay off the debt. The commission voted 6-1 in October to delay votes on issuing bonds due to uncertainty over where the Rays would play the 2025 season after Hurricane Milton tore off the roof at Tropicana Field. Since then, the makeup of the Commission has changed. It is impossible to understate the role of the MLB Commissioner.

One prior vote in opposition was flipped as a result of that effort. “While I do not trust the owner of the Rays [Stu Sternberg], I trust Mr. Manfred,” that commission member said. “He is the reason I am voting yes. MLB is aware of the several instances where the Rays organization has intentionally tried to sabotage the very deal they agreed to. As a result of this vote, it is my hope that the Tampa Bay Rays will finally have an owner that our other wonderful local franchises have.

WATER WARS

Arizona Attorney General Kris Mayes filed a nuisance lawsuit against Saudi Arabia-based Fondomonte Arizona LLC, which has farming operations in La Paz county on the state’s border with California. Its operations consist on growing water-intensive alfalfa for use as feed for cattle in Saudi Arabia. These operations date back only 10 or 15 years but they are having a measurable effect on local water sources. There are currently no limits on the amount of water which the farm can consume.

According to a hydrology report commissioned by the Attorney General’s office, Fondomonte pumped 31,196 acre feet of water in 2023, enough for over 90,000 homes in the state, and uses more than 80 percent of the Ranegras Plain Basin’s water pumped each year. The State has already cancelled leases with Fondomonte covering state owned land. The goal of the lawsuit is for Fondomonte’s other operations to be declared a nuisance, its “excessive” groundwater pumping curtailed and an abatement fund established to address the damages it has caused, such as draining local wells. 

RISING FARES AND TOLLS

The Bay Area Toll Authority (BATA) will increase tolls at the region’s seven state-owned toll bridges by $1 on Jan. 1, 2025. This will be the third of the three $1 toll increases approved by the California Legislature in 2017 through state Senate Bill 595 and by voters through Regional Measure 3 in June 2018. The first of these toll hikes went into effect on Jan. 1, 2019 and the second on Jan. 1, 2022. The new toll will be $8.00. BATA also approved a plan which is projected to raise tolls to $10.00 in 2030.

Starting on January 1, toll rates on roads in Ohio, Oklahoma, Pennsylvania, New Jersey and New York are set to rise anywhere from 3% to 15% for passenger and commercial vehicles. The lowest increase is for drivers on the New Jersey Turnpike and Garden State Parkways at 3%. In Ohio, toll rates will rise an average of 7.7% for passenger vehicles as well as most commercial vehicles. Oklahoma will see the highest increases. Toll fares will rise 15% across the entire system of the Oklahoma Turnpike Authority, which operates 12 turnpikes. An automatic 6% increase every two years starting Jan. 1, 2027, to account for inflation has been authorized. 

New York’s MTA announced that it expects to raise bus and subway fares by $0.10 in 2025 to $3.00. Coming right after congestion pricing takes effect, the fare increase is alienating riders and drivers. It comes in the midst of negotiations between NYS and NJ to try and settle litigation against the congestion fees.

DEMOGRAPHICS

According to U.S. Census Bureau data released this week, the country’s population grew by almost 1 percent this year to surpass 340 million people, marking the fastest annual growth rate since 2001. Net international migration, which refers to any change of residence across U.S. borders (the 50 states and the District of Columbia), was the critical demographic component of change driving growth in the resident population.

With a net increase of 2.8 million people, it accounted for 84% of the nation’s 3.3 million increase in population between 2023 and 2024. This reflects a continued trend of rising international migration, with a net increase of 1.7 million in 2022 and 2.3 million in 2023. With a population gain of nearly 1.8 million — a change of 1.4% between 2023 and 2024 — the South added more people than all other regions combined, making it both the fastest-growing and largest-gaining region in the country. Within the South, Texas (562,941) and Florida (467,347) had the largest numeric gains, and the District of Columbia grew the fastest (2.2%) from 2023 to 2024.

In the West, California (232,570) and Arizona (109,357) had the largest numeric gains between 2023 and 2024, while Utah (1.8%) and Nevada (1.7%) grew the fastest. Just over 57.8 million people lived in the Northeast between 2023 and 2024. During that time, the number of residents increased by 0.76% — a gain of almost 435,000. Growth in the Northeast largely stemmed from net international migration (567,420).

The number of people moving from the Northeast to other parts of the country continued to slow as the region lost fewer residents via net domestic outmigration (192,109) in 2024 than in 2023 (278,245). Within the Northeast, New York (129,881) had the largest numeric gains, and New Jersey (1.3%) had the fastest-growing population.

The population in the Midwest increased by over 410,000 (0.6%) to a total population of 69,596,584 in 2024. The region had a net domestic migration loss of 49,214, far fewer than the net domestic outmigration of 89,787 in the previous year. The Midwest gained 406,737 people through net international migration and experienced a net gain of 52,741 from natural increase. Within the region, Illinois (67,899) and Ohio (59,270) had the largest population gains, while North Dakota (1.0%) and Iowa (0.7%) were the fastest-growing states. 

Three states saw their populations decrease slightly between 2023 and 2024: Vermont (-215), Mississippi (-127) and West Virginia (-516), up from two states that lost population between 2022 and 2023. Puerto Rico had a population of 3,203,295 in 2024 — a 0.02% decline over the prior year. Though Puerto Rico’s population declined, it did so at a much slower pace than in recent years, having experienced drops of 1.3% and 0.5% in 2022 and 2023, respectively. The U.S. territory did experience positive net migration (15,204), although this gain was offset by natural decrease, as there were far fewer births (18,219) than deaths (33,920). 

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.