Joseph Krist

Publisher

CALIFORNIA FOREVER BUT NOT NOW

The sponsors behind the California Forever proposal have run into some obstacles in terms of public support. The entity had planned to qualify a measure for the upcoming November ballot to allow the project to advance outside of the usual development approval process. (see MCN 6.17.24) The hope was that the initiative would be approved for the ballot this week.

Now, California Forever has announced that it would instead be taking the normal route of going through an Environmental Impact Report and then seeking approval.  “…announcing last year that California Forever would seek a vote on the November 2024 ballot, without a full Environmental Impact Report and a fully negotiated Development Agreement, was a mistake.”

It is no longer seeking to place an item on the 2024 ballot. California Forever will now apply for a General Plan & Zoning Amendment, and proceed with preparation of a full Environmental Impact Report and the negotiation and execution of a Development Agreement. The project would still have to go before voters to win final approval.

AUTONOMOUS VEHICLES

General Motors said that it has restarted test operations in three Sun Belt cities, using self-driving cars (Cruise robotaxis) with human safety drivers. Cruise is now providing autonomous ride services in Dallas, Houston and Phoenix. Different vehicles are being used versus the models used in San Francisco. The stoppage of test operations in California was implemented after some well publicized incidents in San Francisco.

As a result of the suspension, there were major management changes at Cruise. Cruise booked a loss of $500 million before taking into account interest and taxes, an improvement from the $600 million it lost in the same period a year earlier.

CHICAGO PUBLIC SCHOOLS

Mayor Brandon Johnson suggested a plan for Chicago Public Schools to borrow up to $300 million to help pay for increased salary and some pension costs next year. CPS is in negotiations with the Chicago Teachers Union over a new contract. The Mayor has strong ties to CTU and there was always concern that negotiations would be a problem given that CTU is among the more militant unions in the country. Now, the Mayor’s idea is being exposed to significant scrutiny and support has been slow to coalesce.

An internal CPS memo outlines the risks of borrowing to pay for hypothetical 4% raises for teachers and principals and cover a $175 million pension payment that was shifted to the school district as part of the City of Chicago’s effort to stabilize its finances. If the district financed those raises and pension payments with debt, the district’s projected deficit would grow to $933 million for next fiscal year.

CPS has approved a $9.9 billion budget for 2025. The proposed budget does not include any new borrowing, or factor in the costs of new bargaining agreements that are being negotiated now, including with CTU. The proposal would close a $505 million shortfall — driven largely by the end of federal COVID money — through cuts at the district’s central office and staffing, as well through restructuring some existing debt and federal grants.

When the district faced deficits between the 2014 and 2017 fiscal years, CPS borrowed money to cover operating expenses since administrations at the time didn’t want to cut costs. The district owes $3.7 billion in principal and interest payments for that borrowing. The CPS credit will be mired in sub-investment grade territory for a long time.

BAY AREA WATER

The Bay Area’s five largest water agencies — the Contra Costa Water District (CCWD), the East Bay Municipal Utility District (EBMUD), the San Francisco Public Utilities Commission (SFPUC), the Santa Clara Valley Water District (SCVWD) and Zone 7 Water Agency (Zone 7) — are jointly exploring a regional desalination project that would provide an additional water source, diversify the area’s water supply, and foster long-term regional sustainability.

The project concept relies on available capacity in an extensive network of existing pipelines and interties that already connect the agencies, as well as existing wastewater outfalls and pump stations in the region. The only new infrastructure envisioned for the project would be a treatment plant and connections to the network of interconnections that would already be in place.

The goal is to provide a reliable water supply source available during contract delivery reductions, extended droughts, and emergencies such as earthquakes or levee failures. It would also allow other major facilities such as treatment plants, water pipelines, and pump stations, to be removed from service for maintenance or repairs.

The biggest issue facing this and any other desalinization project is the high cost per gallon of producing the water. Desalinization is the most expensive alternative by far producing a cost per gallon roughly double versus other ways to maintain and develop water supplies.

FOSSIL FUEL TAX ON THE BALLOT

An initiative placed on the Richmond, CA ballot in November would tax the Chevron refinery, one of the largest in the state, $1 for each barrel of oil processed within city limits. The City estimates that the tax would generate some $90 million and would be available to the City’s General Fund. As a general tax, the initiative would only require a majority of the vote not a supermajority.

Carson, California, enacted its own refinery tax in 2017 that helped move the city’s finances the city into surplus by adding tens of millions of dollars to its annual budget.

PUERTO RICO AND ELECTRIC RESILIENCE

The U.S. Department of Energy (DOE) has announced a $325 million funding opportunity for the new Programa de Comunidades Resilientes (Community Resilience Program). The funding is derived from DOE’s Puerto Rico Energy Resilience Fund (PR-ERF). It is designed to provide funding for solar and battery storage installations in community healthcare facilities and subsidized multi-family housing properties.

The plan calls for between $70 million and $140 million to be allocated to federally qualified health centers, dialysis centers, and diagnostic and treatment centers to improve their energy resilience. The loss of power for extended periods to facilities such as these had significant negative impacts on health on both long and short term bases.

Other funds of between $93 million and $185 million will be dedicated to enhancing energy resilience in community centers and common areas within public or privately owned multi-family housing properties subsidized by the U.S. Department of Housing and Urban Development. This includes powering shared building infrastructure and common spaces, such as elevators, in addition to community centers located on public housing properties in Puerto Rico.

That dedication of funds for public housing projects is a neat way to get around historical Congressional hostility to funding public housing on either a new construction or maintenance basis. In December 2022, a law providing $1 billion for the PR-ERF was signed. It is part of an overall effort to invest in renewable and resilient energy infrastructure in Puerto Rico. in February 2024, the DOE launched the Programa Acceso Solar on the island. It is designed to connect low-income Puerto Rican households with subsidized residential solar and battery storage systems.

NEW YORK STATE

The State Legislature ended its session in late June finally bringing an end to an extended budget cycle. The fiscal year started April 1. The ultimate stumbling block was not transportation or migrant related costs. Rather it was the issue of affordable housing. A long standing program known as 421-a had been the main tool used in NYC to generate new affordable housing.

421-a was created in 1971 as a 10-year as-of-right tax break (plus three years during construction) for new multi-family residential construction.  It went through many iterations during its half century of existence. They were all designed to enhance a program which many contend did not actually achieve its goals. One thing was certain – the cost to NYC in terms of lost tax revenue associated with the program was a larger amount than any other single New York City housing budget item.

The New York City Independent Budget Office (IBO) found that developments already under the 421-a program would receive $25.7 billion from fiscal year 2023 through fiscal year 2056, when the last of the 421-a exemptions would cease (all amounts are in 2022 dollars). In fiscal year 2024, the Department of Finance reported that the City provided almost $1.9 billion in tax breaks to 421-a properties. At the same time, the issue of affordable housing in the state became more difficult.

In 2022, there was a consensus that 421-1 a was no longer appropriate. In an atmosphere of upended Albany politics and poor City-State relations, the program was allowed to expire. This year’s budget was seen as a point of leverage by housing advocates and that came to pass. The Legislature and the Governor were able to agree on a new plan.

In the 2025 State Enacted Budget, the 421-a program was revised, renamed Affordable Neighborhoods for New Yorkers, and placed under a different part of the tax law, 485-x. The 485-x program was made retroactive back to June 15, 2022, when 421-a expired, and applies to all qualifying new construction residential housing with construction starting by June 15, 2034. There are substantial differences in the benefits and requirements in comparing 421-a with 485-x. 

There are substantial differences in the benefits and requirements in comparing 421-a with 485-x. 485-x limits affordable units to 100% Area Median Income (AMI) while 421-a allowed affordable units up to 130% AMI. Most rental buildings under 485-x will be required to set aside 25% of units as income-tested affordable units, compared with 25% to 30% of units under the 421-a.

485-x requires permanent rent stabilization for affordable rental units but does not require any rent stabilization for market-rate units. The prior 421-a program required both affordable and market-rate units to be rent stabilized for the duration of the compliance period, limiting how much rents could increase year-to-year for all units.

To help make office-to-residential conversions more financially feasible, the 2025 State Enacted Budget includes a new tax exemption for office-to-residential conversion projects, called the Affordable Housing from Commercial Conversions Program, housed in Section 467-m of the Real Property Tax Law. This is the first tax incentive program for office-to-housing conversions since the 421-g incentive program, which from 1995 through 2006 specifically benefited conversions in an area of lower Manhattan.

467-m offers a full property tax exemption during construction, and a partial property tax exemption for up to 35 years after completion. The exemption is more generous for projects located south of 96th Street in Manhattan (referred to in the legislation as the Manhattan Prime Development Area). To receive benefits, at least 25% of the rental units must be affordable, with the affordability levels of those units averaging at 80% AMI or lower.2 These units are subject to permanent rent stabilization.

NUCLEAR

Terra Power, the Bill Gates backed entity, announced groundbreaking in Kemmerer, Wyoming on the nation’s first advanced nuclear reactor. The company is building the nuclear facility at the site of an abandoned coal generating plant. The new technology uses liquid sodium as a coolant instead of water, which can absorb much more heat and doesn’t require pumps to circulate. 

The plant is a public-private partnership with the U.S. Department of Energy’s (DOE) Advanced Reactor Demonstration Program (ARDP). The plant will also include a molten salt energy storage system. This is designed to enable higher output and provide an ability to operate on a dispatchable rather than a base-load schedule. It is projected to commence commercial operation in 2030 reflecting an extended testing period and approval process.

On the traditional side, the restart of Michigan’s Palisades nuclear plant seems to be proceeding apace. This week, the outlook got a boost when the Chair of the Nuclear Regulatory Commission told Congress that the plant is on track to restart in August 2025. This assumes completion of the environmental review process by May, 2025.

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