Joseph Krist

Publisher

The next issue of the MCN will be dated July 3. There are things to take care of even more important than municipal credit if you can believe it. When we are back, we will summarize what comes out of the remaining state legislative sessions as well as Supreme Court decisions bearing on municipal credits – colleges and affirmative action, e.g.

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PREEMPTION

The Texas Regulatory Consistency Act bars municipal governments from enacting policy that goes beyond state law in eight areas: agriculture, business and commerce, finance, insurance, labor, natural resources, occupations and property. Any local laws that currently do, such as tenant and worker protections, will be voided.

In Florida, a bill actually named Local Ordinances authorizes businesses to sue municipal governments over any law they deem “arbitrary or unreasonable”. While a speedy “rocket-docket” court deliberates the case, in most circumstances the government will have to suspend the rule in question. And if the challenger wins, the city must repeal it.

In Arizona, a decades-old sales tax that funds transportation projects in Maricopa County requires periodic legislation to extend the collection of the tax. The current deadline is 2025. The half-cent sales tax has been in place since 1985, and voters approved its extension for 20 years. Now the Republican legislature has passed Proposition 400.

It would lower the overall half-cent sales tax, increase freeway allocation to 46% and prohibit light rail expansion. The Arizona Freedom Caucus says their project would have cut sales tax for voters by over $3 billion, and prioritize building freeways and roads while cutting down commute times and traffic congestion. So much for local control.

Most of the preemption laws have been occurring in red states and they are in response to efforts to decarbonize. One recent exception is in California. A California state law, AB 205 took effect last summer. It is a change in regulatory practices which shifts approval for projects such as wind farms. The state has always had a role in determining whether a project is supported by a complete application. Now under AB 205, once an application is deemed complete, responsibility for approving a project lies with the state’s Energy Commission rather than with the County Board of Supervisors.

In this case, Shasta County has rejected prior applications for wind farms. Shasta County banned large wind energy systems in an ordinance last year, but the state could still approve this project under the new law. It is a form of turnabout is fair play. Just as the enactment of preemption laws is used by conservative legislatures to overcome local opposition to their energy policies, more liberal legislatures are finding that overriding local control can be effective in achieving their goals.

The gas stove issue is become one large pile of something. The Santa Cruz City Council voted unanimously to suspend a natural gas prohibition ordinance it passed in 2020 after an April ruling by the Ninth Circuit Court of Appeals struck down a similar ordinance in Berkeley that was enacted in 2019. The city of Berkeley filed an appeal to the decision May 31.

Because there is an outstanding decision in another federal District Court in favor of local control, the litigation is likely to reach the SCOTUS. While the process plays out, Santa Cruz County continues to enforce an ordinance that went into effect this year requiring electricity as the sole energy source for new residential construction in certain  unincorporated regions. 

WEST COAST PORT SETTLEMENT

The year long negotiation between shippers and the longshoremen who handle their freight at ports up and down the West Coast has finally achieved a settlement. the International Longshore and Warehouse Union and the Pacific Maritime Association announced a tentative agreement on a new contract that covers 22,000 workers at 29 ports from San Diego to Seattle. The announcement comes after pressure was put on the parties to reach a settlement. Recent weeks have seen a variety of labor disruptions at several of the ports.

The slowdown at the ports came just before the onset of the back to school and holiday shipping seasons. The major retailing and manufacturing trade groups went public with their concerns about the delays and exporters – especially agricultural – were concerned about the impact on their businesses. The negotiations followed a familiar pattern as federal pressure has been required to resolve prior disputes with port labor, most recently in 2015.

The resolution comes as throughput trends at the Port of Los Angeles improve. For the third consecutive month, cargo volume at the Port of Los Angeles increased in May, with the Port handling 779,140 Twenty-Foot Equivalent Units (TEUs) for the month. While that is a drop of about 19% compared to last May, it represents a 60% increase in cargo since February. During the first five months of 2023, the Port handled 3,304,344 TEUs, a 27% decline compared to the same period in 2022.

Now that an agreement has been reached, we will see how much of the cargo being diverted to East Coast ports returns. The uncertain labor situation has been cited as a driver of the cargo diversions. The numbers from L.A. are clear evidence of the problem.

ELECTRIC VEHICLE FEES

The issue of how to replace lost gas tax revenues has been the basis for legislative moves to increase or impose annual fees for the operation of an electric vehicle. The fees have created some strong feelings on both sides of the issue. What has been interesting is that the politics of the opposition has not fit conventional pigeon holes.

In Wisconsin, it is Republicans who say that it’s not fair to allow electrics to operate on roads that they are no longer paying for. Equity. It is Democrats who are advancing the view that the improvement to the environment is enough to offset the fact that one’s individual vehicle still uses the road. After all, those EVs are expensive. Virtue signaling. It’s the Republicans who hold the Legislature so the fee is expected to be increased from $100 to $175.

In Pennsylvania, the Legislature is considering changes to the Commonwealth’s current scheme for taxing “alternative vehicles.” Under the existing regime, each alternative fuel is converted to a gasoline gallon equivalent. The basis of this conversion is statutorily set at 114,500 Btu. The tax rate applied to the gasoline gallon equivalent equals the current oil company franchise tax applicable to one gallon of gasoline. Alternative fuels dealer-users must remit this tax.

It is as cumbersome as it sounds and the result is significant non-compliance. As a result, proposed legislation would simply impose an annual fee on vehicle operators. The sticking point will be the $290 projected fee. That would make Pennsylvania’s fee at or among the nation’s highest. Lawmakers say the fee was calculated based on the average annual gas taxes paid by owners of gas-powered vehicles at the pump in Pennsylvania.  In 2022, there were 42,785 EVs registered in Pa. compared to the 7,694 electric vehicles registered in 2018.

THE EV BELT EMERGES

As more and more announcements of new manufacturing investment are made, a clear “electric vehicle belt” has emerged. Start at the eastern border of Illinois and draw a straight line down to the Gulf Coast. Extend that strip eastward to the Atlantic. There you have the area receiving the overwhelming majority of investment in both vehicle and battery manufacturing. If you think about it, it is really no surprise.

It actually reflects many of the same factors which supported the expansion of US domestic production by manufacturers of smaller more fuel-efficient cars. Those foreign producers found available land and workers supported by governments with tax and regulatory policies. It also helped that those producers did not immediately face unionized labor.

The industry which resulted dispersed production from the industrial north to the south to the detriment of many cities and towns. Ironically, the availability of manufacturing infrastructure which resulted has allowed some of those communities to participate in current development. It has resulted in a bit of role reversal but it hasn’t been a zero-sum game.

The Inflation Reduction Act has been the catalyst for a slew of announcements of new manufacturing plants. Since the enactment, Georgia has emerged as a big winner. Multiple manufacturing plants for vehicles and batteries are in development and the development of local parts manufacturers to support those projects is underway as well. At the same time, some existing manufacturing infrastructure in places like Michigan and Ohio is being redeveloped and redeployed.

PUBLIC/PRIVATE CHARGING DEBATE

The issue of who will develop the nation’s infrastructure for charging electric vehicles created a real debate in legislatures this Spring. Two clearly different strains of thought have emerged. One view holds that utilities should be the ones to buildout charging networks and that the ratepayers of those utilities should pay the costs. That is what is happening in Florida where Florida Power and Light is building a network under those circumstances. That has drawn opposition from retailers (a lot of soon to be former gas stations) who feel unable to compete.

Concerns like that created legislative debates and different outcomes. Recent legislation in Oklahoma, Georgia and Texas  imposes limits on utilities using ratepayer money for charging networks. The Georgia legislation passed this year restricts utility ownership of charging stations to a single program that allows the dominant electric utility in the state, Georgia Power, to provide chargers in remote and rural areas, with private retailers offered a right of first refusal. 

Retailers in Colorado and Minnesota lead opposition which reflects concerns similar to those of their counterparts in other states. In those two states, Xcel Energy has a significant presence.

STRIKE TWO IN OAKLAND

The effort by the owners of the Oakland A’s MLB franchise to Las Vegas crossed another hurdle this week. The Nevada Legislature approved a $330 million package to support the development of a 30,000-seat baseball stadium. The vote came at the same time as the Vegas Golden Knights of the NHL were about to win the Stanley Cup. The timing was propitious.

Now, the hopes of A’s fans in Oakland come down essentially to the vote of the owners of the other teams. The A’s need 75% of the owners to approve the move. Oakland’s Congresswoman Barbara Lee is threatening to introduce federal legislation to require payments to cities by franchises which wish to relocate. It is the latest in a long line of Senators and Congress people trying to use federal law to influence franchise relocation efforts. It is easy to forget that Oakland is the third home city for the A’s franchise.

The city hopes to avoid the loss of its last major league franchise. The NBA Warriors moved back to SF, the NHL Seals left for Cleveland, and the NFL Raiders left not once but twice. The history at the existing stadium results in a facility which is agreed to be below standard. The effort to replace the Coliseum has been stymied numerous times by numerous factors local and regional. There may be a number of potential “bad guys” in this instance but the City as much as any shares blame.

As we write, the A’s are playing The Tampa Bay Rays. Hmmm..another team playing to below average crowds in a stadium no one has liked since it opened in the mid-80s? That has cities expressing interest? That is for another edition.

GUAM POWER

Moody’s has announced that it has its Guam Power Authority revenue bonds’ Baa2 rating on review for a possible downgrade following damage from Typhoon Mawar. Guam took a direct hit and damage to the physical infrastructure was extensive across the island. The Authority hopes to have 95% of the customer base restored to service by the end of the month. The credit implications are obvious for Guam and the Authority in particular. It will take time for demand to come back given the widespread damage. Moody’s did note that significant mitigation investment lowered overall damage to the power system.

One factor which cannot be discounted is the significant defense role filled by Guam. The increasing geopolitical pressures in the Pacific region make Guam a strategic focal point. The significant military infrastructure presence that strengthens and grows also will drive demand for restoration of housing and commercial stock needed to support a significant military presence. This will help the island to sustain an extended period of recovery especially in the tourism sector.

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