Joseph Krist

Publisher

TRANSPORTATION

The increasing prevalence of e-bikes and other lithium-ion battery powered vehicles is leading to calls for increased regulation. The issues range from the use and storage of vehicles powered by lithium-ion batteries, to where they can be ridden, parking and insurance. It’s become clear that in today’s urban landscape, the explosion of the food delivery business ensures that the vehicles are here to stay.

The latest city to look at regulation is San Francisco. The City and County Board of Supervisors voted to create safety standards for some devices powered by lithium-ion batteries. Since 2017, the number of fires in the city associated with a lithium-ion battery has increased every year with a high of 58 in 2022. The data for 2023 is still being compiled. During that six-year period one person was killed and eight others were injured.

In New York City, the batteries are controversial as they tend to be owned by residents of large buildings. Fires attributable to the batteries pose a greater threat in those environments. Recently, the FDNY asked Congress to adopt national standards for the batteries. In 2023 alone, the city saw 268 fires caused by the batteries. The fires killed 18 New Yorkers, and left another 150 injured. 

SOUTH CAROLINA PUBLIC SERVICE

The South Carolina Public Service Commission unanimously approved Santee Cooper’s long term Integrated Resource Plan. After it’s ill-fated involvement in the failed Sumner nuclear expansion, the Authority moved away from nuclear going forward. The plan is controversial nonetheless as it includes the expansion of natural gas as a fuel of choice.

Santee Cooper is looking to partner with Dominion Energy on a gas plant that would be located on the Edisto River at the former site of a coal plant. The real controversy arises over the fact that it would require new pipeline projects that have not been disclosed to the public. The plan puts new focus on Santee Cooper’s management and its efforts to recover politically from its nuclear difficulties.

An independent consultant retained by the Commission also warned that Santee Cooper did not meaningfully evaluate alternatives to the gas plant and recommended that the utility accelerate solar and storage builds in the near term.

HOUSING AND TRANSIT

Two issues – climate change and housing shortages – are increasingly seen as two sides of the same issue. Climate advocates continue to advocate against cars and for mass transit. At the same time, the accessibility of mass transit remains an issue as there continues to be a disconnect between the location of transit relative to housing. Ironically, the role of local planning and permitting agencies is increasingly seen as one of obstruction.

This first became an issue in California. The expansion of BART farther away from the Bay Area has increased accessibility but expected housing development has not occurred as hoped. Efforts to revamp zoning restrictions to facilitate the development of housing near BART stations were stymied by local opposition driven by fears of gentrification. Those fears drove opposition to legislation which would have addressed those concerns and the effort failed in the legislature.

Now, the effort to link transit and development is spreading. In Colorado, a new bill (HB24-1313) has been offered which would authorize a new process for approving development. It would provide for the state to analyze cities to determine where they have current or future transit lines as well as how much developable property is within a half-mile of rail lines and a quarter-mile of most high-frequency bus lines. The state would then set “housing opportunity goals,” or “HOGs,” for the cities. 

Such a designation would require a city would have to allow an average of 40 units per acre across all of its transit-adjacent areas, with exemptions for certain properties. It would also provide for denser housing within areas designated as transit centers (typically adjacent to a station) by allowing cities to allow higher densities of up to 300 units per acre in a transit center — in the range of eight to ten floors. 

If local governments don’t cooperate, the state could withhold millions of dollars in transportation funding. Cities that don’t participate could lose out on funding from the Highway Users Tax Fund which is a major source of funding for localities to maintain roads.

The Connecticut legislature is considering legislation to encourage development around transit facilities as well. A bill would follow up on legislation adopted last year which established a state development entity to operate programs to encourage transit adjacent development. It provided for Transit Oriented Community Districts which are designed to accommodate transit adjacent development.

A municipality can choose to create such a district and in doing so would be in place to receive financial assistance from the state.

LITIGATION

Earlier this month, a Contra Costa County Superior Court Judge California Attorney General Rob Bonta’s petition to link the state’s climate accountability case with lawsuits brought by the counties of Marin, San Mateo, and Santa Cruz, and the cities of Imperial Beach, Richmond, and Santa Cruz. Oakland and San Francisco’s climate lawsuits have been the subject of separate legal proceedings but after a ruling by the U.S. Ninth Circuit Court of Appeals the case will be sent back to the state courts. The Oakland and San Francisco suits will be merged into this suit.

CYBERSECURITY

Fulton County, Georgia is the latest victim of malicious hacking activities. A ransomware attack interfered with the county’s processing of certain taxes and water bills, property transactions, communications, and operations of its court system. The County is fortunate in that the bulk of revenues which could have been impacted by the event had already been collected. This includes taxes collected by the County for underlying levels of government.

This attack follows a 2018 event which impacted the county’s largest city, Atlanta. The City experienced some $17 million of additional costs related to recovery. The County has not released a cost estimate related to recovery.

This news coincides with an announcement of a successful criminal prosecution of the perpetrator of a 2020 hack against the University of Vermont Medical Center. That event significantly impacted the facility’s ability to provide services. It wasn’t just about financial and records information. It impacted the provision of things like chemotherapy for nearly one month. It had a huge impact on the over 1.1 million people across multiple states who are served primarily on the hospital.

UNIVERSITIES

Moody’s Investors Service has placed University of Idaho’s (ID) A1 issuer and revenue bond ratings under review for downgrade. The action affects approximately $130 million in rated debt outstanding as of June 30, 2023. The outlook has been changed to rating under review from stable.

The placement of University of Idaho’s (U of I) ratings under review for downgrade is prompted by the potential proposed purchase of the University of Phoenix by Four Three Education, Inc. in the next two to four months. The Regents of the University of Idaho is the sole member of Four Three Education, Inc. Four Three Education is planning to issue $685 million in bonds to finance the purchase through separately secured debt. 

Given the proposed substantial increase in financial leverage, uncertainty regarding Four Three Education’s operating performance prospects and exposure to potential future legal action from the United States Department of Education, a multi-notch downgrade is possible. There are a ton of questions associated with the plan. Away from general operating risks, there are issues specific to the University of Phoenix which could create significant financial liability risk.

It is not clear what, if any, financial entanglements with the University’s general revenue backed credit. Ther are concerns that a host of potential legal and regulatory actions could create additional risk. It seems that the UI credit could ultimately be available to support repayment of debt to finance the purchase. The lack of detail is a major source of downgrade pressure.

Moody’s downgraded Roosevelt University’s (IL) (Roosevelt) issuer and revenue bond ratings to B2 from B1. Roosevelt is a moderate sized private university offering undergraduate, graduate and professional degree programs at its campuses in downtown Chicago and in Schaumburg, a northwest suburb of Chicago, and online. The university enrolled 3,585 full-time equivalent students in Fall 2023, with operating revenue of approximately $92 million.

A period of declined enrollments and strained finances are the primary weaknesses. The concern is that the University might violate debt service and liquidity covenants supporting outstanding debt. Primary among them is an unrestricted cash and investments to MADS covenant that is tested twice annually. Roosevelt must maintain coverage of no less than 150% through fiscal 2024, no less than 162.5% in fiscal years 2025, no less than 175% in fiscal 2026, no less than 187.5% and 2027 and no less than 200% in fiscal 2028 and beyond.

Moody’s downgraded Robert Morris University’s (PA) issuer and revenue bond ratings to Ba1 from Baa3. The outlook remains negative. Robert Morris University is a private university with its main campus in suburban of Pittsburgh. The university enrolled 3,555 full-time equivalent students across its undergraduate and graduate degree programs in fall 2023 and generated $110 million of operating revenue in fiscal 2023.

The concerns are that the university will continue to take elevated draws on financial reserves as the result of material operating deficits over the next two to three fiscal years as it pursues a strategy to grow net tuition revenue and return to fiscal balance. The negative outlook also incorporates uncertainty over fall 2024 enrollment and fiscal 2025 net tuition revenue results.  

ILLINOIS BUDGET

Governor J.B. Pritzker proposed a FY 2025 budget totaling $52 billion. It comes as the issue of asylum seekers and migrants has moved to center stage in the state’s fiscal debate. Chicago has received nearly 36,000 asylum seekers who have arrived since 2022 primarily as the result of being shipped there from Texas. Illinois has spent some $638 million on services for migrants over the same period.

Chicago enacted a budget which increased spending on migrants by some $182 million in the current FY. The proposed state budget would include additional funding for migrant services. Overall, the budget proposal increases spending by 2%. Spending for K-12 education is increased by about $450 million. Pensions continue to be a concern. The Governor proposes increasing the funding target to 100% from 90% while extending the proposed full funding date to 2048.

To fund proposed increased spending for asylum seekers and education, the proposal includes tax increases. Primary is an increase in the sports wagering tax — paid by casino sportsbooks — to 35% from 15%, generating an estimated $200 million. Pritzker also wants to cap a deduction that allows corporations to reduce their taxable income for $526 million in savings.

CALIFORNIA WATER

The California Department of Water Resources on Wednesday announced an increase in its projected statewide water allocations for 2024. California’s snowpack currently stands at 86 percent of the average for the current date and 69 percent of the average for April 1. Forecasts anticipated the agency would be able to fulfill 15 percent of supplies requested from the State Water Project, up from an initial 10 percent allocation predicted in December. The projected 15 percent of fulfillment, which is subject to reevaluation this spring, would translate to about 200,000 acre-feet of additional water. Lake Oroville, the State Water Project’s largest reservoir, stands at 134 percent of its average for the current date.

L.A. PORT RECOVERY

The benefits of the end of the pandemic and the settlement of outstanding labor issues had the expected salutary effect on the finances of the Port of Los Angeles. The Port of Los Angeles handled 855,652 Twenty-Foot Equivalent Units (TEUs) in January, the second-best start to the year on record. January 2024 loaded imports landed at 441,763 TEUs, up 19% compared to the previous year. Loaded exports came in at 126,554 TEUs, an increase of 23% compared to last year. The Port processed 287,336 empty containers, up 14% over 2023.

The potential labor problems at the Port did drive significant volume to U.S. East Coast ports. Much of that was facilitated by moving freight through the Panama Canal. A severe drought has made travel through the Canal much more difficult and expensive. This has significantly reduced the attractiveness of the East Coast ports.

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