Joseph Krist
Publisher
NEW YORK STATE BUDGET
The process of enacting a budget for fiscal year 2024 beginning April 1 is underway with the release of the Governor’s budget proposal. All funds spending is $227 billion, which represents an increase of 2.4 percent. Deposits to reserves that had been planned for FY 2024 and FY 2025 will be completed by the end of the current year — two years ahead of schedule – for a total of $24 billion in budget reserves.
An eight-year phase-in of personal income tax cuts for middle class taxpayers commenced in Tax Year 2018. It was scheduled to be completed with the 2025 Tax Year. This budget will allow for the full implementation of the tax relief to take effect this year.
New York State will suspend the state sales tax on motor fuels, the separate motor fuel tax, and the metropolitan commuter transportation district sales tax imposed on motor fuels from June through December, providing an estimated $585 million in relief. Transfers from the General Fund to the dedicated funds to offset the estimated revenue lost from suspension of these taxes is designed to ensure no negative financial impact for the MTA.
The State Budget also creates a new property tax relief credit, the Homeowner Tax Rebate Credit for eligible low- and middle-income households, as well as eligible senior households. Under this program, basic School Tax Relief (STAR) exemption and credit beneficiaries with incomes below $250,000 and Enhanced STAR recipients are eligible for the property tax rebate, where the benefit is a percentage of the homeowners’ existing STAR benefit.
The MTA is a prominent concern. The Governor’s proposal includes some $400 million of “efficiencies”. More usefully, the budget includes increasing the top rate of the Payroll Mobility Tax (PMT), generating an additional $800 million annually. Increasing New York City’s share of funding for paratransit services, providing students with reduced fare MetroCards, and offsetting foregone PMT revenues for entities exempted from paying the tax, is estimated to generate nearly $500 million annually. In addition, $300 million in one-time State aid to address the extraordinary impact on MTA operating revenues is included. The governor also proposed diverting revenues from three planned casinos in the New York City region to help the authority, and called on the city to pitch in nearly $500 million, all of which could add up to $1.3 billion in additional yearly funding for the subway system.
And then there is the environment which is already moving to the center of debate. The Executive Budget also includes building decarbonization proposals that will prohibit fossil fuel equipment and building systems in new construction, phase out the sale and installation of fossil fuel space and water heating equipment in existing buildings, and establish building benchmarking and energy grades. The new construction proposal includes certain exemptions such as commercial kitchens. The existing equipment phase out proposal does not impact stoves.
The asylum issue is front and center as the City of New York deals with the influx of 40,000 undocumented immigrants. Under the Governor’s proposal, the State would commit more than $1 billion in the coming year on initiatives to support asylum seekers, including: $767 million to pay 29 percent of city shelter/HERRC costs for asylum seekers, consistent with existing State shares for Safety Net Assistance, which already supports City shelters. In addition, the budget plan would fund $162 million for logistical and operational support provided by the National Guard, which has deployed more than 900 service members for this mission.
Other sources of aid would include $137 million for health care to support the City of New York, $25 million in resettlement funding for asylum seekers through the Office of Temporary and Disability Assistance; $10 million in legal services funding through the Office of New Americans; $6 million to support the shelter site at the Brooklyn Cruise Terminal and $5 million for enhanced migrant resettlement assistance.
STATE BUDGET PROPOSALS
Tax cuts are being advanced as many states are finding that pandemic aid and a recovering economy have generated large surpluses. In Nevada, the Governor has proposed a one year suspension of gas taxes and reductions in some business taxes. The proposals include a 12% raise for state employees. This at a time when the state reports a 24% vacancy rate. West Virginia’s Governor has proposed a 50% reduction in the personal income tax rate. The cuts would phase in over three years with a 30% cut in year 1 followed by two more 10% reductions. ARPA dollars are still on hand in the amount of $677 million. The Governor would put $500 million into an economic enhancement fund and put the remainder towards water and sewer infrastructure funding.
Gov. Josh Green of Hawaii has proposed a new climate impact fee of about $50 per tourist to raise $500 million to $600 million per year. Proposed legislation would also include raises fees on visitors to state parks, including charging for parking.
POWER AND TERROR
More information has been made public which highlights the growth of attacks on the physical infrastructure in the electric power industry. We have previously discussed the phenomenon but new information has come to light which increase concerns. These attacks have up to now been primarily on transformers and distribution substations located in rural areas. They have impacted both investor-owned and municipal utilities.
Now we see evidence that the current risk is concentrated geographically and that this will increase the exposure of municipal utilities as a result. Two news outlets in Oregon have obtained information from the FBI which confirm what many thought. The attacks are politically motivated (right wing extremism). “The individuals of concern believe that an attack on electrical infrastructure will contribute to their ideological goal of causing societal collapse and a subsequent race war in the United States.”
In the Northwest – there have been 15 since June, more than in the previous six years combined. Much of the electric infrastructure outside of the cities is susceptible given their remote natures. The attacks appear to follow manuals disseminated online by neo-Nazis and other far-right extremists such as “accelerationist” groups that advocate, however implausibly, that taking down the grid will hasten the demise of the federal government and start a race war.
In Oregon, the rural electrical grid is largely operated and maintained by public utility districts. So, the geographic concentration of the attacks creates a higher municipal utility exposure to the phenomenon. The efforts to make the fossil fuel industry face financial penalties and requirements to compensate governments for the costs they incur from climate change. There are several actions pending in federal courts across the country which will likely go to the US Supreme Court for final adjudication. In the meantime, state legislators in New York are pursuing a legislative approach.
A bill – The Climate Change Superfund Act – has been offered which is modeled on the concept of superfunds as they have been developed to address more specific instances of pollution. The model is based on the polluter-pays model which has been used to effect funding for the clean up of waste generated by industrial activities. In those cases, the pollution is more obvious – oil spills and chemical spills are examples.
CLIMATE LEGISLATION
The Climate Change Superfund Act is designed to raise money for infrastructure projects across the state to protect against extreme weather events caused by climate change. Damage costs would vary from fossil fuel company to company and wouldn’t apply to companies operating outside of New York. The New York State Department of Environmental Conservation would use a formula for each fossil fuel company to calculate their emissions and the percentage they would have to pay.
One major difference between federal Superfund laws and the state proposal is a requirement that negligence on the part of a polluter must be found for the polluter to pay. The NY law has no such requirement.
There is no language in federal law which would preclude state action in connection with pollution remediation. The trickiest argument for New York state to have to make would be proving a company’s jurisdiction. So, to find that a fossil fuel company emitted greenhouse gases in the region, the state would have to prove that the company operated in the state. The complex nature of the distribution chain in the industry will make this difficult.
PREPA
The Puerto Rico Electric Power Authority (PREPA) has announced an agreement with Genera PR is a subsidiary of New Fortress Energy (NFE) to operate the island’s electric generation system. The company is a liquefied natural gas company which builds LNG import facilities. The contract term is 10 years. The news came as the Authority’s bankruptcy’s mediation process has been extended to April 28 by the district judge for the U.S. District Court of the Southern District of New York hearing the bankruptcy case.
The decisions being made by the Commonwealth covering the management and operation of the electric system are disappointing. The reliance on what are best described as legacy providers as opposed to entities with expertise in renewables and microgrids is creating more and more of a missed opportunity to provide Puerto Rico with an affordable and reliable electric system.
WESTERN WATER
Starting on December 26, 2022, a series of 9 atmospheric rivers (ARs) brought significant amounts of rain, snow, and wind to California and other parts of the western United States over a 3-week period. 80% of a full seasonal snowpack was deposited in California during these storms. Statewide, precipitation over these 3 weeks was 11.2 inches, which is 46% of a full water year. Recent storms improved drought conditions by increasing soil moisture throughout much of the West, especially in California. The amount of water stored in many reservoirs increased, but some are still well below historical averages for this time of year.
The first estimates of water conditions in the American West in 2023 became available at month end. This does provide for at least some of the impact of the recent intense weather events in the West to be reflected in current conditions. The review covers the 54 storage reservoirs operated by the US Bureau of Reclamation. The average percentages are based on three decades of data. The resulting comparisons show why the recent atmospheric river events must be viewed with caution.
Two examples in California – New Melones Lake – New Melones Dam storage on 1/29/2023 was 978,413 acre-feet. This represents 72% of typical storage level for this date, based on the last 30 years of data. Trinity Lake – Trinity Dam storage on 1/29/2023 was 761,242 acre-feet. This represents 55% of typical storage level for this date, based on the last 30 years of data. These are two of the four reservoirs in the most distress. The actual levels at these two are 40% and 31% of capacity.
Other facilities are central to the Colorado River debate. On the Utah-Wyoming border, Flaming Gorge Dam And Reservoir storage on 1/30/2023 was 2,498,769 acre-feet. This represents 81% of typical storage level for this date, based on the last 30 years of data. This storage is the lowest value observed on January 30 in the last 30 years. Gibson Dam And Reservoir storage on 1/30/2023 was 9,386 acre-feet. This represents 34% of typical storage level for this date, based on the last 30 years of data. This storage is the lowest value observed on January 30 in the last 30 years.
To begin to alleviate long-term hydrologic drought and contribute to spring and summer runoff, snow needs to continue to accumulate during the winter. Above-average precipitation over the next 3 to 5 years, combined with water conservation-focused resource management, would be needed to completely alleviate long-term hydrologic drought. Groundwater levels across the western U.S. remain low. Storage in many reservoirs also remain low, especially Lakes Powell and Mead in the Upper and Lower Colorado River Basins, which are important for water supplies in southern Nevada, Arizona, and southern California.
Reservoirs in eastern Oregon, southern Idaho, and eastern Idaho are much lower than typical for this time of year. In particular, the upper Snake River basin (which contains more than 60% of the agricultural land in Idaho) is short of water, and it seems more likely than not that drought will continue for a third year in that basin. the NOAA Seasonal Drought Outlook is showing drought removal in some parts of central and northern California, drought remaining but with improvement in other parts of northern California and central Oregon, and drought remaining but improving in Idaho. Drought persistence is expected for the remainder of southern California, Nevada, Utah, Colorado, and western and eastern Wyoming.
TEXAS RENTAL PROJECT
A new project in Texas lies at the nexus of several trends in the economy. One of those is the conversion of former military facility near San Antonio, TX to civilian uses. Another is the role of private equity in the municipal finance space. Another trend is the development of portfolios of traditional single-family housing by private equity interests. All of these interests have converged on the site of the former Brooks Air Force Base.
Preston Hollow Community Capital provided the $185 million in tax-exempt bond financing to Brooks Development Authority for the construction of a build-to-rent residential community called Los Cielos. The project is like many small residential developments built for ownership. It will include 492 for-rent, single-family homes that will be built with attached two-car garages and backyards. The community will feature an amenity center, working center, pool, dog park, gathering areas and pickleball courts.
The site’s former life as the Brooks Air Force Base came to an official end in September 2011. The project is part of an overall mixed-use development at the base. Private equity has been steadily increasing its home purchasing activities for the purpose of converting the properties to ownership status. The construction of single-family housing for the purpose of operating it as a rental is an extension of the trend.
INSURANCE STORM
When Hurricane Ian roared into Southwest Florida last September, it caused the second-biggest insured loss in history with damage estimated at between $50 billion to $65 billion; only Hurricane Katrina in 2005 caused more destruction. More than a half dozen private insurers have already been declared insolvent in the past year and several more are on the edge. In Louisiana, more than 20 companies have gone under or withdrawn from the state over the last two years.
If the trends are not reversed, pressure will grow on the established state insurers of last resort to fill the void. Citizens Property Insurance Corp. already insures some 1 million homes (but not for floods) in Florida. At the same time, Florida is attempting to tighten provisions regarding litigation against insurers. Florida accounts for just 9% of overall insurance claims in the U.S. but 79% of all home insurance lawsuits.
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