Joseph Krist
Publisher
This week we celebrate the nation’s 248th birthday. Enjoy whether you’re off for the week, long weekend, or just the day. We will take a mid-year break next week. The next issue will be dated July 15.
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CARBON PIPELINES
The Iowa Utilities Board gave its approval for the controversial Summit Carbon Solutions pipeline and for the company to use eminent domain to acquire landowners’ property. In giving its approval to the project, the Iowa Utilities Board ruled that Summit cannot begin construction in Iowa until the necessary permits are secured in South Dakota and North Dakota.
The Iowa House approved legislation the past two sessions that would have given landowners more leverage over pipeline negotiations. In 2023, the House passed a bill requiring pipeline companies to obtain voluntary easements for 90% of their routes before they could use eminent domain for the rest. This year, the House voted to allow landowners who are subject to eminent domain requests by carbon dioxide pipeline companies to challenge the legitimacy of those requests in court earlier in the permit proceedings. Neither bill advanced in the Senate.
COAL REGULATION
The Supreme Court temporarily put on hold an Environmental Protection Agency plan to limit air pollution that drifts across state lines. The “good neighbor” plan would require factories and power plants in Western and Midwestern states must cut ozone pollution that drifts into Eastern ones. Under the Clean Air Act, states are allowed to devise their own plans, subject to approval by the E.P.A. In February 2023, the agency concluded that 23 states had not produced adequate plans to comply with its revised ozone standards. The agency then issued its own.
Resulting litigation ultimately left 11 states subject to the new rules. Ohio, Indiana and West Virginia, along with energy companies and trade groups — challenged the federal plan directly in the United States Court of Appeals for the District of Columbia. When a three-judge panel of that court refused to suspend the rule while the litigation moved forward, the challengers asked the Supreme Court to step in.
That is the basis of the suspension of the rules. It comes as a larger case is due to be decided on the larger issue of whether courts must defer to the reasonable interpretations by agencies like the E.P.A. of ambiguous statutes enacted by Congress. It was a true split decision with the liberal wing aligning with Justice Barrett in a strong dissent. “The court today enjoins the enforcement of a major Environmental Protection Agency rule based on an underdeveloped theory that is unlikely to succeed on the merits.” She notes that the plans “have been temporarily stayed,” and, “no court yet has invalidated one.”
TAXES AND TRANSIT
The decision to stop the implementation of congestion pricing in Manhattan drove quick consideration of replacing the revenue to be generated with taxes on business. That alternative was just as quickly rejected. Now, the MTA is left with threatening projects designed to comply with the ADA and other projects. The idea that those benefitting from the transit system should help pay for it has fallen on deaf ears in Albany.
In the meantime, New Jersey is showing New York how to do it. An agreement has been reached with the 600 corporations in the state that make at least $10 million a year in profits. Those firms will pay a 2.5% tax on all earnings for five years. The state in turn will not pursue restoring the sales tax to 7% from to 6.625%.
The announcement comes after a difficult couple of weeks for NJ Transit commuters who come into NYC through Penn Station. Power was lost on tracks (owned by Amtrak) which forced thousands to be stranded in the excessively hot conditions plaguing the region last week.
CALIFORNIA BALLOT
The California Supreme Court issued a ruling to invalidate the Taxpayer Protection Act, which would have made it harder to pass or raise taxes in California. The Act was part of a proposed ballot initiative scheduled for November. The ruling comes as the deadline for removing ballot initiatives occurs this week. A second announcement concerned a 2004 law which allowed workers to sue their employers on behalf of the state and other employees. An agreement between organized labor and business groups will remove the initiative to repeal the Act.
The Bay Area Housing Finance Authority (BAHFA) today adopted a resolution to place a general obligation bond measure on the November 5 general election ballot in each of the nine Bay Area counties to raise and distribute $20 billion for the production of new affordable housing and the preservation of existing affordable housing throughout the region.
The proposed bond measure calls for 80 percent of the funds to go directly to the nine Bay Area counties (and to the cities of San Jose, Oakland, Santa Rosa and Napa, each of which carries more than 30 percent of their county’s low-income housing need), in proportion to each county’s tax contribution to the bond. The remaining 20 percent, or $4 billion, would be used by BAHFA to establish a new regional program to fund affordable housing construction and preservation projects throughout the Bay Area.
Most of this money (at least 52 percent) must be spent on new construction of affordable homes, but every city and county receiving a bond allocation must also spend at least 15 percent of the funds to preserve existing affordable housing. Almost one-third of funds may be used for the production or preservation of affordable housing, or for housing-related uses such as infrastructure needed to support new housing.
The BAHFA bond measure currently would require approval by at least two-thirds of voters to pass. Voters throughout California this November will consider Assembly Constitutional Amendment 1 (ACA 1) — which would set the voter threshold at 55 percent for voter approval of bond measures for affordable housing and infrastructure. If a majority of California voters support ACA 1, the 55 percent threshold will apply to the BAHFA bond measure.
AUTONOMOUS AND ELECTRIC VEHICLES
When GM’s Cruise autonomous taxis were forced off the streets of San Francisco, it led to questions about the division’s management. Now, a new CEO has been appointed. Since the California AV operation was halted, Cruise has since laid off a quarter of its work force and removed nine executives. As much as there were issues with the technology, good old fashioned management execution failures shared at least equal blame.
In the interim, AV competitors have had more favorable if limited experiences. Waymo, a subsidiary of Alphabet, has had driverless taxis operating in the Phoenix area since 2020 and San Francisco since late 2022 without serious incidents. It recently began service in Los Angeles. Zoox, an Amazon subsidiary, has been testing a steering-wheel-free robot taxi in Las Vegas since last June.
Cruise currently conducts limited testing of its supervised autonomous testing, with two safety drivers per vehicle. Those tests are underway in Phoenix.
The electric car movement has had a rocky time lately. Slowdowns in new electric car sales and announcements of delays in the development of planned production facilities had raised concerns. One example of the phenomenon is Georgia. Rivian the electric truck maker planned to construct a new production facility with substantial state support including subsidies. Rivian already had a production facility in Illinois.
Earlier this year, Rivian announced a pause in the development of its Georgia plant. Because it reflected lower than expected sales, there was a concern that the delay might be a sign of greater problems which could threaten the existing plant space. Amazon is still a significant Rivian shareholder and is one of its biggest customers.in Normal, IL. This week, a deal was announced which served to dampen those fears.
Volkswagen announced that it would invest up to $5 billion in Rivian and that the companies would cooperate on software for electric vehicles. Volkswagen said it would initially invest $1 billion in Rivian, and over time increase that to as much as $5 billion. If regulators approve the transaction, Volkswagen could become a significant shareholder. Rivian said the cash from Volkswagen would help the launch of a midsize S.U.V. called the R2 that will sell for about $45,000, and to complete the factory in Georgia.
This represents more big money coming into the electric vehicle space. Amazon retains a significant ownership piece in Rivian and is Rivian’s largest truck customer.
WIND
The Vineyard Wind 1 project is now delivering more than 136 megawatts (MW) to the electric grid in Massachusetts. (New York’s South Fork Wind, the US’s first complete utility-scale offshore wind farm, is 132 MW.) This makes Vineyard 1 the largest operating offshore wind farm in the U.S. In February 2024, Vineyard Wind delivered approximately 68 MW from five turbines to the grid.
Vineyard Wind 1 now has 10 turbines in operation, enough to power 64,000 homes and businesses. The installation of a 22nd turbine is underway. Once completed, the project will consist of 62 wind turbines. It began offshore construction in late 2022, achieved steel-in-the-water in June 2023, and completed the US’s first offshore substation in July 2023.
OPIOIDS
It took years of painstaking negotiations to achieve a settlement to resolve the bankruptcy of Purdue Pharma and its owners, the Sackler family. One of the main features of the bankruptcy proceedings was the agreement that the Sacklers themselves would be protected from personal liability related to opioids. That resulted in $6 billion being pledged to states, local governments, tribes and individuals.
This week, the Supreme Court decided that the federal bankruptcy code does not authorize a liability shield for third parties in bankruptcy agreements. As a result, members of the Sackler family, who controlled Purdue Pharma, the maker of the OxyContin, will no longer be subject to a condition of the deal that granted the Sackler family immunity from liability in opioid-related lawsuits, even as they had not declared bankruptcy.
The first opioid lawsuits were filed against Purdue Pharma a decade ago. In 2019, Purdue filed for bankruptcy restructuring, which ultimately paused the lawsuits. The ruling effectively prevents the release of billions of dollars to plaintiffs from that settlement. That hold up has generated division within the ranks of plaintiffs. Some believe that the immunity provisions were worth the availability of payments. Now, what was seen as the longstanding primary obstacle to a deal has been placed at the center of any negotiation.
HOSPITAL TAXES
The Denver City Council approved putting a 0.34% sales tax increase on the Nov. 5 ballot to aid Denver Health, Colorado’s sole safety net healthcare provider. Uncompensated care totaled $140 million last year. That was an increase from $120 million in 2022 and $87 million in 2021. Those costs coincide with the arrival of migrants shipped into Denver primarily by the State of Texas.
The tax increase is estimated to produce $70 million annually. Under an annual operating agreement with Denver, the health system was allocated $73 million in funding for fiscal 2024. Colorado lawmakers this year passed $5 million in one-time funding, the same supplemental payment provided to the health system last year.
STADIUMS ARE BACK
The City of Charlotte has decided to continue to apply hotel and restaurant generated sales taxes to support the home of the NFL Carolina Panthers. It approved some $650 million of financing supported by existing hotel and restaurant taxes. The normal controversies around stadium renovations were in play here. They centered around the Panthers’ eccentric and impetuous owner. A combination of some poor public conduct choices and a poor won/loss record during his ownership tenure pressured the approval process.
In the aftermath of a failed referendum item to support taxes in greater Kansas City, MO to fund a new baseball stadium and improved foot ball stadium, proponents are looking west across the Missouri River for alternatives. The Kansas Legislature held a quick session to debate a financing package to join the Kansas Speedway as major sports venues in the state.
STAR Bonds are used to assist the development of major entertainment or tourism destinations in Kansas. State and local sales tax revenue generated by the attraction and associated retail development are used to pay back the bonds. In metropolitan areas, STAR Bonds can be used only for projects with an anticipated capital investment of $75 million and with at least $75 million in projected gross annual sales.
The professional sports facilities STAR bonds, which could be issued by a city, county, or the Kansas Development Finance Authority, will be backed by the incremental increase in sales taxes collected in a district created for the project and up to 100% of liquor sales within that district. The law also includes the potential for shares of sports betting and state lottery revenue. Besides expanding STAR bond-financed project costs to 70% from the current 50%, the law extends the maturity of the debt to as much as 30 years, up from 20 years.
The economic rivalry between the Kansas and Missouri sides of the KC metropolitan area is longstanding. Tax policy and business locations have been flexible to say the least over the years as taxpayers tried to keep up the with the best deals. The situation with the two pro sports franchises just highlights the phenomenon at a significantly larger scale.
No professional sports franchise in the U.S. should ever ‘need’ public money for their stadia. The incredible appreciation of value of sports franchises continues as evidenced by recent team sales. We again are about to embark on a new cycle of stadium finance. We are already seeing the irrationality of the whole process. One difference now as opposed to the last cycle is that the cost of sports attendance is out of control. Now, the public is being asked to pony up funds for facilities they will likely never attend due to cost.
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