Joseph Krist

Publisher

The dog days of summer are here. The weather is hot, the benches are clearing for fights over beanballs, and traffic to the shore is outrageous. All of that is offset by the fact that it’s state and county fair time. The heck with spreads and basis points. How about you guess which goat, sheep, or pig is going to win the 4H competition. It’s your chance to see cars crash into each other on purpose. And you can do it while eating something off of a stick and likely excessively fried. If you can’t find joy in funnel cakes and ice cream and fresh corn on the cob, I can’t help you. Put your cell phone down and try to win a stuffed toy!

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PENNSYLVANIA BUDGET

The Commonwealth is into week four of a standoff between the Legislature and the Governor. Education funding – especially the issue of vouchers – is at its center. Specifically, $100 million was to be allocated for school vouchers, just 0.2% of the spending plan. Republicans believe that the funding of $300 million in Democrat priorities was the basis of the agreement to fund vouchers. Pennsylvania has a hard core of constituents who support either faith based small private schools or home schooling. The result is a split legislature with one house substantially more conservative than the other and newly elected Governor.

The immediate issue is that the lack of final budget action precludes the Commonwealth from making certain aid payments to school districts and localities. It’s bit of gamesmanship that has the potential to disrupt lower levels of government and force them to borrow to cover anticipated funding shortfalls. The interim process is a bit messy as the State Treasurer decides what does and does not get paid. She has laid down a narrow range of acceptable expenses for payment.

As is almost always the case in a state budget impasse, school aid and payments to social service providers are the first entities to be impacted. The state Senate isn’t slated to reconvene until Sept. 18. It is that body which must ratify the budget.

SALT ON THE MENU?

The issue of the state and local tax deduction limitation is back on the agenda. Since the limit was passed as part of the 2017 tax cut, various efforts have been undertaken to increase or eliminate it. While the impact on decisions by individuals to stay or move from New York is individual, the change did stimulate real estate activity in some of NYC’s old-line suburbs. It has just been hard to truly quantify the impact.

Now, a new effort is underway to change the limit. A group of moderate Republicans has formed the “SALT Caucus” to press for a tax cut for residents of their largely blue states. Republican House members from those states are threatening to vote against a tax package approved in June by the House Ways and Means Committee unless a provision is added to raisethe SALT cap. The package is centered around maintaining Trump tax cuts which run out in FY 2025.

SOLAR AND AQUEDUCTS

The idea that California’s extensive aqueduct and irrigation systems and canals could provide a site for the use of solar panels has been kicking around for a decade. The discussion over the potential of deployment of solar panels over the canals had not been accompanied by any sort of objective data. That lack of evidence was seen as an obstacle for support for implementation of such an idea.

While water is abundant in the short run currently, the drought experience of the last decade has encouraged reconsideration of the idea. One municipal entity – the Turlock Irrigation District – decided to encourage a study of the issue by one of the state’s universities. The University of California, Merced did such a study which was completed in 2021. It estimated that 63 billion gallons of water could be saved by covering California’s 4,000 miles of canals with solar panels that could also generate 13 gigawatts of power. 

The study allowed the various interest groups and governmental entities to have some objective evidence to point to. This led to the formation of a public-private partnership between the State, the District, and a solar panel vendor. This resulted in Project Nexus. The Project, supported by $20 million in public funds, is turning the pilot into a three-party collaboration among the private, public and academic sectors. About 1.6 miles (2.6 kilometers) of canals between 20 and 110 feet wide will be covered with solar panels between five and 15 feet off the ground.

There are numerous potential benefits above the generation of power. The drought focused attention on the open nature of much of the aqueducts’ infrastructure. This leads to water loss through evaporation which can be mitigated by the cover from the panels. Case studies of over-canal solar photovoltaic arrays have demonstrated enhanced photovoltaic performance due to the cooler microclimate next to the canal. 

CONGESTION FEES – THE BATTLE IS ON

In a completely unsurprising move, the State of New Jersey is suing the U.S. Department of Transportation (USDOT) and the Federal Highway Administration (FHWA) over their approval of New York City’s congestion pricing plans. With the filing of the litigation, the waves of hyperbole have begun washing ashore with charges that mass transit will be subject to “irreparable harm.”  The suit calls for a more exhaustive study than the M.T.A.’s assessment saying that the authority did not do an adequate job of studying whether the tolling program would harm people in disadvantaged communities. It is an argument raised by residents of the Bronx as well so it is not just a New Jersey thing.

As controversial as it is, congestion pricing seems to be a lighter political lift than many other alternatives. Manhattan is a double-parking nightmare primarily due to commercial vehicles. Various solutions to this problem have been proposed – commercial delivery hours and commercial parking zones are two examples. Drop off/pickup zones reduce cruising by empty Uber cars.

The fact is that while congestion pricing may not be supported by commercial interests, they can price the cost into their systems. Car drivers do not have the same pull as commercial interests and so that resistance is seen as being easier to overcome. Consequently, the burden is likely to fall on individuals. This raises issues of equity at a time when the MTA is already operating low-income fare programs.

The issue has gotten to this point as the result of a lack of creativity and a failure to address many of the issues related to congestion. The DeBlasio administration caved to the presence of some 100,000 transportation network vehicles often cruising empty. A deal which accepts flat annual fee payments from delivery companies in lieu of enforcement against things like double parking makes that problem permanent. It reflects the political cowardice of the 1990’s when short-term parochial interests destroyed the usefulness of the MTA commuter tax.

It is the combination of all those factors that generates the opposition to the charges. That and the MTA’s long record of cost overruns and construction delays breed a lack of faith that the money will actually be spent on capital rather than operating expenses. The plan puts the one agency with one of the poorer reputations at the center of this fight.

EV ROLLOUT SPEEDBUMPS

The corporate world generated some sobering news about EV sales. While the infrastructure universe debates things like where to put charging equipment or how to charge for the power, the rate of production for EVs has been disappointing. While the manufacturing base is built out, especially for batteries – there is a shortfall in some batteries that is delaying production. This week’s case in point comes from GM.

In the first half of this year, G.M. built just 50,000 electric vehicles, and about 80 percent were Chevrolet Bolts that use an older battery pack made by a supplier. In the United States, G.M. sold fewer than 2,800 vehicles that used its new, modular Ultium battery packs, which are made at an Ohio factory that the company owns with LG Energy Solution. Two other Ultium factories are under construction, in Tennessee and Michigan.

G.M. was sticking with a previous forecast that it would make 400,000 electric vehicles in North America from 2022 to 2024, and it is expected to make 100,000 in the second half of this year. G.M. currently offers only a few vehicles that use Ultium batteries. They include the Cadillac Lyriq S.U.V.; the GMC Hummer a $90,0000 vehicle; and large delivery vans made by a new division called BrightDrop. This summer and fall, G.M. is supposed to add three electric Chevrolets — the Blazer and Equinox S.U.V.s and an electric Silverado pickup. 

MILEAGE FEES

With the rollout of electric vehicles proceeding, the issue of how to pay for roads without the benefit of a tax on motor fuels takes on greater urgency. The Georgia Department of Transportation is looking for 150 volunteers to take part in a federally funded pilot project that will replace gasoline and other motor fuels taxes with a tax based on the number of miles driven. 

A legislative study committee formed last year to look for ways to accommodate an expected increase in electric vehicles plying Georgia highways recommended making any future mileage-based tax the state adopts comparable to what drivers of gasoline-powered vehicles pay in fuel taxes.

The pilot project will include both GPS and non-GPS options to keep track of the miles the volunteers drive. The GPS option will determine how many miles a volunteer drives inside of Georgia compared to outside of the state, which is important for taxing purposes.

I-81 ON THE MOVE

After much legal wrangling, the project to dismantle the I-81 viaduct in Syracuse, NY is finally underway. The project is one of the first to support the dream of many urban planners to remove barriers to movement and access which resulted from a spate of 1960’s highway projects which split many communities in half. The $2.25 billion project will create a Community Grid to reconnect downtown neighborhoods severed by the I-81 viaduct’s construction. 

The Community Grid design will reconnect neighborhoods that have been separated since the viaduct’s construction. The project will upgrade a portion of Interstate 481, which would be re-designated as I-81, and construct the new Business Loop 81 along Almond Street to improve connections to downtown and other business districts.

DROUGHT CONTINUES OUTSIDE CALIFORNIA

The freakish winter weather in California has rightly captured much attention but that only serves as a diversion from the realities of water in the rest of the West. Upstream from the Colorado River Basin, low snow and rain levels in places like Montana have contributed to a deteriorating supply situation.

SKQ Dam, located up stream from a generation facility on Montana’s Flathead River, is the only hydropower dam in America owned by an Indian Nation. The level of lake water is down almost two feet below what’s considered full pool. That’s never happened during the summer months since the lake’s SKQ hydroelectric dam was built on the southwest end in the 1930s.

Like many other dams, a license from the federal government requires the dam to release a minimum amount of water downstream for endangered species protection.  The rate of releases under the license currently exceeds the rate of replenishment. Efforts to increase available supplies from dams farther upstream were unsuccessful. A request to add more water from the Hungry Horse Reservoir upstream was denied, with the Columbia River Basin Technical Management Team (TMT) citing concerns over impacts on fish and water levels next year. 

The limits on flow through to the generation station have caused hydropower to be about 60% of what is normally generated this time of year for electricity. At the same time, in Colorado the U.S. Drought Monitor last week reported that 20% of the state is back in drought, just two weeks after its July 6 finding that the state was drought-free for the first time since 2019. The areas in question include river cities like Gunnison and Durango.

ANTI-ESG REALITIES

We come across two examples of what happens when ideologically generated legislation collides with the realities of implementation. The first example is Florida where House Bill 3 was enacted. HB-3 is designed to prevent companies like commercial banks and investment banks from doing business in the state if such companies are perceived as boycotting or otherwise discriminating against certain industries or other companies that are not aligned with their particular environmental, social and governance (ESG) or diversity, equity and inclusion (DEI) policies.

In this case, the law goes beyond a generalized state ban. It includes all state and local issuers in Florida from issuing ESG bonds. Under HB-3, ESG means simply “environmental, social, and governance” and “ESG Bonds” means bonds designated or labeled as being used to finance a project with an ESG purpose. The definition of “issuer” is defined so as to encompass all state and local bond issuers.

On June 29, the Florida Division of Bond Finance released a notice intending to clarify the impact of HB-3 on Florida issuers, rating agencies and other market participants. The notice is meant to clarify the intent of HB-3 which apparently is to prohibit the issuance of any ESG-designated or labeled bonds, whether the designation or label comes from an issuer or a third-party. Such prohibition includes paying or using a third-party verifier to certify any such designation or label. So, in the end, it’s all about labeling. Not a substantial issue. That is clear from the qualifiers in the law.

HB-3 permits financial institutions (including federal or state banks) to circumvent its anti-boycott provisions in connection with the purchase or underwriting of bonds (other than ESG Bonds) issued in Florida. does not prevent or prohibit licensed financial institutions from underwriting bonds issued within the State. The law bans Florida issuers from entering into contracts with rating agencies whose ESG scores have a direct, negative impact on the issuer’s bond ratings. Rating agencies may continue to assess the risks posed by hurricanes and other natural disasters, for example, or other risks deemed relevant to an issuer’s overall credit rating.

In the end, it may amount to much ado about nothing.

In Oklahoma, State Treasurer Todd Russ released the list of banned companies in early May. The 13 companies include BlackRock Inc., JP Morgan Chase & Co., Wells Fargo & Co., Bank of America and State Street Corp. The list came out of the Oklahoma Energy Discrimination Elimination Act, which lawmakers passed in 2022. 

The reality is that the law is already raising issues on two fronts over the cost of compliance. One is the fact that localities are finding themselves having to select a bid which is more costly for a capital project. The lack of clarification from the state as to how to balance low bid requirements versus the limits of the Act is delaying contract awards due to financing uncertainty.

At the state level, the state’s seven pension systems combined manage more than $47 billion in assets. The Oklahoma Public Employees Retirement System, or OPERS, has the largest exposure to companies on the treasurer’s restricted financial companies list. More than 60% of its assets are managed by companies on the list. 

At the same time, counties and localities cite the fact that the law as written seems to apply to only state entities. The pension systems run by Tulsa and Oklahoma counties and the systems run by Oklahoma City and Tulsa aren’t covered under the Oklahoma Energy Discrimination Elimination Act. 

PIPELINE LEGISLATION

The leadership of the House Energy and Commerce Committee has released its draft of The Pipeline Safety, Modernization, and Expansion Act of 2023. The proposed law would enable the Federal Energy Regulatory Commission (FERC) to issue any federal permit required for the construction, modification, expansion, inspection, repair or maintenance of a pipeline. It would also enable individuals to request FERC make a final decision on a permit if the federal agency tasked with permitting a pipeline fails to complete a proceeding within one year.

The next provision is where the bill wades into the weeds of local regulation. It would also prohibit a state or local jurisdiction from banning transportation of an energy source like natural gas that are sold in interstate commerce using a pipeline regulated by the federal Pipeline and Hazardous Materials Safety Administration (PHMSA).  The bill would further require PHMSA to finalize safety standards for carbon dioxide transportation pipeline facilities no later than one year from the date of enactment. It also clarifies the authority of the Environmental Protection Agency to identify areas suitable for underground sequestration of carbon dioxide.

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