Joseph Krist

Publisher

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RATINGS

CHICAGO PUBLIC SCHOOLS

Moody’s Investors Service has upgraded the Chicago Board of Education, IL’s (CPS) issuer rating and debt ratings to Ba1 from Ba2. It has long been a troubled credit but never lost market access. That is reflected by the district having approximately $7.8 billion of general obligation unlimited tax (GOULT) debt outstanding in total. Moody’s based the upgrade on improvements in the CPS operating fund net cash and improved cash flows as reflected in part by reduced cash flow borrowing.

Moody’s also cited material increases in operating fund net cash, which is estimated to have reached about 13% in fiscal 2023 from under 5% five years prior. Enrollments are always a concern in aid-dependent urban school districts. This year, the actually increased by 1,000. It is a modest increase for sure but a welcome interruption to long-term trends. This will generate a small aid increase but also provides a higher base for adjustments if enrollments drop again.

The positive news doesn’t stop there. Moody’s maintained its positive outlook as a reflection of a trend of strengthening fund balance and net cash. At the same time, it’s less than investment grade current rating is weighed down by the fact that the district’s operating fund net cash remains the lowest of large school districts. Its limited available liquidity with a general fund net cash balance of less than 5%, and a high leverage ratio of nearly 500% of revenues are significant hurdles.

WMATA

The last few years have not been kind to the Washington Metropolitan Area Transportation Authority. Maintenance issues as well as issues with service and safety had put the Authority in a difficult spot. The pandemic led to extended stay at home provisions for many Federal government workers who mad up a good portion of ridership. Ridership and passenger revenues remain well below the pre-pandemic peak. Average daily rail and bus ridership experienced annual gains in 2023 but remain at approximately 60% of 2019 levels. Passenger fare revenues have also been negatively affected by a higher proportion of shorter-distance flat fare trips.

At the core of the problem is the fact that there is no predominant established reliable revenue stream to support operations. Farebox revenues cover only about 20% of expenses. This makes the system reliant on funding from state and local governments served by it. The District of Columbia, Montgomery and Prince George’s counties in Maryland, and in Virginia the cities of Alexandria, Fairfax, Falls Church and the counties of Arlington, Fairfax and Loudoun) are legally obligated (subject to certain restrictions) to cover the operating and capital costs of the transit system from their respective legally available funds, subject to annual appropriation.

WMATA has put up a budget for FY 2025 which covers a $750 million budget gap. Without additional funding subsidies from those governments, WMATA projects service cuts, which include the elimination of rail service after 10pm, the closure of 10 rail stations, increasing rail headway on all lines (ranging from 17% to 67%), and a one-third reduction in bus service. Subsidy increases from participating jurisdictions are subject to a 3.0% annual statutory cap under the terms of a 2018 dedicated capital funding agreement.

All of this contributed to Fitch Ratings’ move to put the Authority’s AA and AA- ratings for its two credits on negative outlook. It comes in the midst of the budget processes of all of the relevant governments including the States of Maryland and Virginia. Cutting service and raising fares is a recipe for trouble.

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SOCIAL

CHILD FOOD BENEFITS

The U.S. Department of Agriculture (USDA) administers a new program which provides funds to families with children who are enrolled in school breakfast and lunch programs will begin this summer. Summer EBT provides grocery-buying benefits to low-income families with school-aged children when schools are closed for the summer. Through this new program Summer EBT, states will provide families with $120 per eligible child for the summer to buy food at grocery stores, farmers markets or other authorized retailers – similar to how SNAP benefits are used. Native American tribes will utilize the WIC program.

Funding in the form of grants was authorized by Congress in 2023. An initial “test” for the current proposal was deemed a success leading to the rollout of the plan nationwide. Yet another time, a veritable list of usual suspects among the states has declined to participate in the program. They are essentially the same states who are ideologically opposed to any expansion of health or social services spending. Even when the Feds are covering costs with free money. Which states said no? AL, MS, ID, IA, GA, TX, SD, NE, WY, VT, AR, LA, FL, OK. They all have conservative Republican governors.

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GOVERMENT

NYC BUDGET

Mayor Eric Adams proposed a $109 billion budget for fiscal 2025. The mayor announced that the city would be receiving $2.9 billion more in expected tax revenues over the 2024 and 2025 fiscal years than initially expected. The City Council had projected some $1.5 billion of unanticipated tax revenues. The new number is good news but the Mayor’s handling of the issue of migrants and the budget is creating a whole other range of problems.

Since the first of the year, the Mayor has been announcing proposed draconian cuts in services in an effort to garner support for state and federal assistance. In the recent run-up to the budget, he has backpedaled on several of those proposed cuts to education, sanitation, and police and fire services. The Mayor’s lessening credibility on the City’s financial position and outlook will make his budget process much more difficult.

It has become clear that there will be no federal windfall for the city. This puts Albany center stage in the Mayor’s efforts to get the State to cover more of the costs of the migrants. He does not have a lot of credibility with the State Legislature already and this budget will not enhance his position. After the efforts to export the migrant problem to upstate communities, his “discovery” of new money will create a higher hurdle to overcome.

The proposed city budget comes on the heels of Gov. Kathy Hochul’s budget proposal for the State that included $2.4 billion to help New York City manage its migrant crisis — a $500 million increase over last year’s allotment. Nevertheless, the Mayor is holding out for more. Mr. Adams said that if the city received enough funding from the state, he would cancel further budget cuts that were planned for April. In the meantime, city agencies have reduced management and planning flexibility until the funding level is established. It is leading to worsening provisions of public services.

The Mayor comes into this budget cycle with lower credibility and an increasingly problematic federal investigation into his campaign financing practices. His relationship with an increasingly assertive City Council is poor and his budget plan is not helping his credibility with that body. It also does not help to find that the City has been providing inaccurate data regarding migrants and homelessness to make the situation look more favorable.

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ELECTRIFICATION

CHARGING INFRASTRUCTURE

So far only New York and Ohio have opened charging stations using bipartisan infrastructure law funding, and a handful of other states have broken ground on their EV projects. Now, the U.S. Department of Transportation announced the selection of 47 EV charging projects to receive nearly $623 million in funding under the 2021 bipartisan infrastructure law. As of last January, there were only about 20,000 publicly accessible, high-speed Level 3 chargers across the country.

The National Renewable Energy Lab estimates the country will have another 40 million EVs on the road over the next 25 years. It estimates that there would be a need for at least 182,000 Level 3 chargers across the country by 2050 to accommodate them. The issue gains greater currency as EV purchases grow and the pool of driving and operating issue increases. Currently, the press is full of reports from unhappy EV owners who forgot that batteries of any kind do not do well in sub-freezing conditions. That will increase the demand for charging at less distances between them.  

GENERATION

The U.S. Energy Information Administration released its most recent Short Term Energy Outlook. EIA projects solar power to be the leading source of growth in electricity generation in both 2024 and 2025 as 36 gigawatts (GW) and 43 GW of new solar capacity come on line, respectively. the solar share of total generation is expected to rise to 6% in 2024 and 7% in 2025, up from 4% in 2023. This will occur as overall U.S. electricity generation will grow by 3% in 2024 and be unchanged in 2025. 

EIA expects that electricity generation from coal will decline by 9% in 2024 and by 10% in 2025, due to a combination of higher costs compared with renewables and another 12 GW of coal-fired capacity retiring over the next two years. U.S. coal production will decline by more than 90 million short tons (MMst) to less than 490 MMst in 2024 and then fall below 430 MMst in 2025, the least coal produced in the United States since the early 1960s.

Electricity generation from natural gas will be unchanged in 2024 and 2025 compared with 2023. U.S. production of dry natural gas is estimated to increase between 1% and 2%, or about 1.5 billion cubic feet per day (Bcf/d) in 2024 and 1.3 Bcf/d in 2025, down from growth of 4.0 Bcf/d in 2023. The slowing growth reflects a drop in natural gas production associated with oil drilling in the Permian Basin.

Something to think about is after all of the efforts and ink spilled on the changing climate and the role of fossil fuel, EIA forecasts crude oil production in the United States reaching 13.2 million barrels per day (b/d) in 2024 and more than 13.4 million b/d in 2025, both of which would be new records.

SALT RIVER PROJECT VS. ROOFTOP SOLAR

Arizona’s Salt River Project is a public utility which has been less than enthusiastic about the adoption of rooftop residential solar. The use of solar in the Valley of the Sun has seemed to be a no-brainer but utilities have done all they can to make rooftop solar less economically attractive to its retail customers. The key to the situation lies in the methodology SRP has adopted to determine how much it pays for solar generated power.

Now, two customers and an advocacy group are challenging SRP’s current rate structure. They claim that the current scheme violates regulations because customers who buy some power from SRP but have rooftop solar are charged a different price for SRP generated power than those customers who do not have rooftop solar. They are asking the Federal Energy Regulatory Commission (FERC) to find that SRP’s current rate structure violates the Public Utility Regulatory Policies Act (PURPA).

The challengers contend that through the fixed charges, SRP’s solar customers with service at 200 amps or less pay $12.44 more a month than non-solar customers for the same amount of SRP-provided electricity. The challengers also claim that PURPA requires SRP to buy electricity from qualifying facilities at the utility’s system-wide marginal cost. Instead, the contention is that the price established by SRP is based on one particular low-cost generator.

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ENVIRONMENTAL

CLIMATE ON THE BALLOT

Washington voters will have the chance to repeal or uphold the Climate Commitment Act. The climate law requires the state’s biggest polluters, such as power companies and oil refineries, to start paying for their greenhouse gas emissions through buying allowances in auctions. So far, the auctions have raised roughly $1.8 billion. Organizers of an effort to repeal the 2-year-old climate act collected more than 400,000 signatures to put an initiative on the ballot.

Revenue from the program is earmarked to go back into green state programs such as buying electric school buses and making public transit free for children. Opponents blame the state’s cap and trade scheme for rises in gasoline and food. The initiative is technically an initiative to the Legislature. This means that the legislature can adopt the initiative as written, reject it or refuse to act on it. Voters will get a chance to vote on the initiative if the Legislature rejects it and refuses to act on it.

PREEMPTION CUTS BOTH WAYS

A lot of the efforts at preemption have been directed at overriding local ordinances and regulatory processes which have limited the use of fossil fuels. In those instances, legislation has generally been directed at localities and zoning and siting regulations which fossil fuel supporters feel limit their ability to extract their various substances and produce fuels and other products. Those efforts were always decried by environmentalists.

Now, the shoe is on the other foot. This time it is green energy advocates who are upset over efforts to move the regulation of renewable generation assets to the state level. The efforts reflect the perceived need to develop renewables to meet promised deadlines for carbon neutrality which have been made at the state level. The latest example is in Michigan where the legislature is considering bills which would put the authority for siting renewable energy projects with the State.

This would enable the State to effectively override local zoning ordinances which have been used to slow the adoption of solar and wind. In many cases, willing sellers or lessors who hope to retain their farm land are facing local limits on energy development. Michigan has adopted a plan committing to carbon neutrality by 2050. They won’t get there without solar and wind power.

INSURANCE

The Florida Senate Banking & Insurance Committee unanimously passed two bills that would allow pricier homes to be covered by Citizens Property Insurance, a state-run company, and to provide $100 million for a grant program to improve homes’ protection against windstorm damage.  SB 1106, raises the cap on homes that can be covered by Citizens from $700,000 to $1 million. The bill would place a surcharge of up to $2,500 on homes above $700,000 to keep Citizens from competing with private carriers. 

SB 7028, puts $100 million toward the My Safe Florida Home Program. That program offers up to $10,000 in matching grant funds to homeowners who make windstorm mitigation improvements, such as roof, windows and door upgrades. It’s clear that the insurance market continues to reflect a worsening perception of risk and the continuing withdrawal of major private insurers from the Florida market.

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