Joseph Krist

Publisher

FEDERAL INFRASTRUCTURE GRANTS

Since 2017, the idea that there was a new and better way to finance infrastructure seemed to always be just around the corner. As infrastructure day dragged into infrastructure week and month through the Trump administration, those ideas languished. Or maybe they never existed. Yet recent months have shown that good old fashioned federal funding for these large projects is emerging as the main catalyst for execution of some of these projects.

The biggest example is the federal grant funding for the Gateway Tunnel project in the NY metropolitan area. While initially stalled by New Jersey state action, the project received no support from the Trump administration. Once new administrations took over in NY and NJ, federal funding emerged.

Alabama Gov. Kay Ivey announced the U.S. Department of Transportation has awarded a $550 million grant to the Mobile River Bridge and Bayway Project. Initially conceived in the late 1990’s, the project had previously suffered from local objections to user-based funding. According to a 2019 public hearing survey conducted by U.S. Department of Transportation and ALDOT, 86% of people said they did not believe there is a need for this project, mainly because of a proposed toll.

The money comes from the Bridge Investment Program, which Congress created in 2021. It is a discretionary program of the U.S. Department of Transportation allowing states to compete for projects of national importance.  The Alabama Department of Transportation has acquired all of the land and completed preliminary steps, such as environmental impact statements and archaeological reviews. That put the project in a favorable competitive position.

The cost is now estimated at between $3.3 and $3.5 billion. The state already has $125 million from a grant awarded in 2019 under that Nationally Significant Multimodal Freight & Highway Projects program. The state has pledged at least $250 million, which is on top of $200 million already spent on preliminary measures. The latest federal grant brings the committed funding total to $1.075 billion. The state will apply for a TIFIA loan from the federal government as well.

The federal money does not mean that there will not be tolls on the new bridge. There is however, a pledge from the state that tolls will be limited to $2.50 for “frequent users”. The toll revenue will pay off any TIFIA loan as well as any additional borrowing undertaken by the State.

The Mobile project is the fifth such to be a grant recipient since the enactment of the IRA. It joins grants of $1.35 billion to the Brent Spence Bridge project to rehabilitate and reconfigure the existing span between Kentucky and Ohio over the Ohio River; $400 million to increase the Golden Gate Bridge’s resiliency against earthquakes; $158 million to for the Gold Star Memorial Bridge, which is part of the Interstate 95 corridor over the Thames River between New London and Groton in Connecticut and $144 million to rehabilitate four bridges over the Calumet River in Chicago.

Another grant will benefit two states with one project. The Tennessee Department of Transportation announced in May of this year that they were studying plans for a new bridge to replace the current 75-year-old bridge that connects Memphis and Arkansas. The current I-55 bridge is “not designed for modern interstate standards.”

The Tennessee and Arkansas Departments of Transportation have now been granted over $393 million by the federal government for the new I-55 bridge. It will be combined along with the Tennessee Department of Transportation, and the Arkansas Department of Transportation which have each committed up to $250 million to the project.

CLIMATE LITIGATION

A Baltimore Circuit Court Judge dismissed the City of Baltimore’s lawsuit against the big oil companies saying that the case belongs in federal rather than state court. The decision is at odds with how other courts have ruled in similar cases, including a Maryland state court that allowed climate deception lawsuits that the city of Annapolis and Anne Arundel County separately brought against fossil fuel companies to proceed to trial. 

The U.S. Court of Appeals for the Second Circuit issued a similar ruling in a case called City of New York v. Chevron. Courts in Hawaii, Massachusetts, Colorado ruled the opposite and said that the cases could move forward. The US Supreme Court declined to hear in January of this year an appeal of a decision by the St. Louis-based 8th U.S. Circuit Court of Appeals. That court found that Minnesota’s lawsuit accusing the energy industry of engaging in decades of deceptive marketing to undermine climate science and the public’s understanding of the dangers of burning fossil fuels belonged in state court, where it was originally filed.

Eight U.S. appeals courts have affirmed lower court decisions remanding similar climate cases to state courts, finding generally that the lawsuits exclusively raise state law claims and thus federal courts do not have jurisdiction.

HOUSTON CLIMATE TROUBLES

The last decade has been tough on the City of Houston. There was Hurricane Harvey in 2017. The state’s electrical grid failure during the winter of 2021. Nearly one week without power in May of this year. Now, over a week without power from Hurricane Beryl. More than 2.2 million customers of the local utility, CenterPoint Energy, were without power at the peak of the outages last week.

Before the storms, Harris County, which includes Houston, had been experiencing net negative migration from other parts of the country.  Since 2016, according to U.S. census data, more people have left Harris County for other counties than have moved in from elsewhere. That trend continued after 2017 when Hurricane Harvey flooded large areas of the city.

STATE BUDGETS

In June, Hawaii Governor Josh Green (D) signed into law the largest income tax cut in that state’s history—totaling $5.6 billion in lost revenue by 2031. Meanwhile, the Kansas Legislature went into a special session to decide on tax relief, ultimately passing property and income tax cuts totaling $2 billion over five years. Nebraska is headed into a special session later this month to debate property tax cuts. Arkansas passed its third income tax cut in less than two years, lowering top corporate and personal rates by half a percentage point each and making the cut retroactive to the beginning of 2024.

FY 2024 is the last to see any more fiscal help related to the pandemic. Now, the impacts of policy decisions made during the pandemic when there was a lot of extra money sloshing around government budgets are becoming clear. Revenue growth is slowing but so are expenditures. One area receiving attention is employee compensation. It has been markedly harder for governments to adequately meet their staffing needs both through recruitment and retention.

Thirty-one states, the District of Columbia (DC), and Puerto Rico reported proposed across-the-board (ATB) pay increases for at least some employee categories in fiscal 2025. Additionally, 14 states, DC and the U.S. Virgin Islands proposed at least some merit increases. These moves come as thirty-three states reported that general fund collections for fiscal 2024 from all revenue sources (including sales, personal income, corporate income, and other revenues) were coming in higher than original estimates used in enacted budgets.

Collections were on target with original estimates in seven states and lower than projected in ten states. Compared to fiscal 2024 current estimates, fiscal 2025 revenue forecasts in governors’ budgets project 2.4 percent growth in sales and use taxes, 2.9 percent growth in personal income taxes, a 0.8 percent decrease in corporate income taxes, and 2.0 percent decrease in all other general fund revenue.

DATA CENTERS AND POWER

According to the Energy Information Administration, U.S. commercial sector electricity use grew 1% last year from 2019 levels. That is the headline. The reality is that the growth in commercial demand for electricity is concentrated in a handful of states experiencing rapid development of large-scale computing facilities such as data centers. Electricity demand has grown the most in Virginia, which added 14 BkWh (billion kilowatt hours), and Texas, which added 13 BkWh.

Commercial electricity demand in the 10 states with the most electricity demand growth increased by a combined 42 BkWh between 2019 and 2023, representing growth of 10% in those states over that four-year period. By contrast, demand in the forty other states decreased by 28 BkWh over the same period, a 3% decline.

Virginia has become a major hub for data centers, with 94 new facilities connected since 2019 given the access to a densely packed fiber backbone and to four subsea fiber cables. Demand for electricity by the commercial sector in some large states such as New York, Illinois, and California has been flat or has declined compared with 2019.

Nationally, EIA projects that U.S. sales of electricity to the commercial sector will grow by 3% in 2024 and by 1% in 2025.  The South Atlantic and West South Central census divisions together account for 40% of U.S. commercial electricity demand. EIA now expects that commercial consumption in the South Atlantic will increase by 5% in 2024 and 2% in 2025 and in West South Central by 3% this year and 1% next year. 

The U.S. electric power sector generated 5% more electricity in 1H24 than 1H23 because of a hotter-than-normal start to summer and increasing power demand from the commercial sector. EIA expects a 2% increase in U.S. generation in 2H24 compared with 2H23, with solar power, the fastest growing U.S. source, generating 36 billion kilowatt hours (BkWh) more electricity in 2H24 than in 2H23 (an increase of 42%).

Solar power is the fastest growing source of electricity in the United States. We expect 36 billion kilowatt hours (BkWh) more electricity to be generated in the United States from solar in 2H24 than in 2H23, an increase of 42%. We forecast 6% more U.S. wind generation during 2H24–12 BkWh more than in 2H23—driven by more wind turbines coming on line, and we forecast 4% (5 BkWh) more hydropower, as a result of slightly improved water supply conditions this year.

ELECTRIC VEHICLES

Electric vehicles, including plug-in hybrid vehicles are taken into dealerships at a rate three times higher than that of gas-powered cars. That comes from the J.D. Power 2024 Initial Quality Survey. According to the study, battery electric vehicles averaged 266 problems per 100 vehicles, about 48% more than gas- and diesel-powered vehicles, which averaged 180 problems per 100 vehicles. The good news is that the issues do not reflect electric cars breaking down as much as they reflect issues with the technology inside the vehicle.

The failures tended to involve things like issues with infotainment systems, which was the most problematic area in the study. Issues with in-vehicle features and controls like windshield wiper or turn signal display buttons, false warnings from advanced driver assistance systems, difficulty connecting to the vehicle with popular apps like Apple CarPlay and Android Auto drove negative ratings.

These findings won’t help to reverse current sales trends in the electric vehicle space. General Motors said it now expected to make 200,000 to 250,000 battery-powered cars and trucks this year, about 50,000 fewer than it had previously forecast. In Oakville, Ontario, a production facility recently stopped making the gasoline-powered Ford Edge S.U.V.

It was slated to shift to new electric versions of the Ford Explorer and Lincoln Aviator, both three-row S.U.V.s. Instead, Ford will turn the factory in Oakville into a third production location for its Super Duty pickup trucks, which are among its most profitable models. It also positions Ford and the others to mitigate against likely Trump administration moves to eliminate tax breaks currently benefitting EV sales. It would seem to increase concerns (if not doubts) about projects announced but as yet undeveloped.

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