Joseph Krist

Publisher

FLORIDA AND CHARTER SCHOOLS

Broward County Public Schools (FL) claims to have more than 49,000 vacant classroom seats this year. That is almost equal to the number – 49,833 – of students attending charter schools in the area. The school district has been experiencing steady declines in enrollments since 2010. Over the period since. enrollment in charters increased by nearly 27,000 students since 2010, according to Broward school officials.

Private school enrollment across Florida rose by 47,000 students to 445,000 students from 2019-20 to 2022-23, according to the latest data available from the state. Enrollment declines for Broward, Duval and Miami accelerated during the Covid-19 pandemic, which sent parents seeking new education choices for their children. Homeschooling increased significantly as this population grew by nearly 50,000 students between 2019-20 and 2022-23, totaling 154,000 students in the latest Florida Department of Education data.

Traditional public schools in the area are projected to enroll some 10,000 less students in 2024-25, compared with five years ago, according to Duval County Public Schools. Enrollment in traditional public schools across the state decreased by 55,000 students from 2019-20 to this year, state data shows. This is leading to a growing inventory of unused space and facilities. This at the same time that Florida schools are at the center of many of the cultural war disputes one sees in many places.

MILLIONAIRE TAX

An additional 4% charge on any income over $1 million a year and was approved by Massachusetts voters in 2022. The Tufts University Center for State Policy Analysis, in January 2022, released a report that found the tax would apply to less than 1% of Massachusetts households in any given year. The approval generated the usual cries of doom and gloom about the likelihood of taxpayer flight among those who might be impacted. The argument is raised just about any time now that an effort is made to raise rates for the highest tax brackets.

That notion is being revisited in light of the first year of income tax collections including the new higher top bracket. The Commonwealth Department of Revenue said that Massachusetts is on a course to collect some $1.8 billion from the surtax on the state’s highest earners through the first nine months of the fiscal year. That is some $800 million above prior estimates. Surtax collections must be used on education and transportation needs under the constitutional amendment that voters approved in 2022.

The fiscal 2024 state budget included agreements that any surtax revenues above the budgeted threshold would be placed into one of two accounts established as part of the tax approval. Fifteen percent of the overage is deposited into a savings account, set aside to maintain investments if surtax collections decline in future years. The other 85 percent goes into an “Education and Transportation Innovation and Capital Fund.”

Those funds are directed to several purposes “including, but not limited to, pay-go capital” or one-time projects “related to quality public education and affordable public colleges and universities and for the repair and maintenance of roads, bridges and public transportation,” 

SAN FRANCISCO SCHOOLS

Over the last few years, the San Francisco Unified School District has been best known for its role in the school renaming debate that was a part of the country’s post- George Floyd reckoning. Arguments over historical inaccuracies, name removals, and a host of other social concerns seemed to the main points of contention. They led to resignations and change to the school board. Given this and the other pandemic related problems which took such a toll on the City as a whole, it was inevitable that something would fall through the cracks.

On September 15, 2021, Fiscal Experts were assigned to the SFUSD by the California Department of Education. Recently, these CDE overseers drew attention to the SFUSD and its continuing financial decline. The State Superintendent noted that the SFUSD is projecting deficit spending in the unrestricted general fund for the current and two subsequent fiscal years. Without budget adjustments to bring the expenditures in line with revenues, the SFUSD will be unable to meet its financial obligations in the 2024–25 fiscal year. That creates a negative finding which supports state supervision.

In December 2023, the SFUSD adopted a Budget Balancing Solution Plan with the 2023–24 First Interim Report that included unrestricted general fund one-time reductions, $103.1 million of ongoing reductions for 2024–25, and an additional $88.8 million of unidentified ongoing reductions for 2025–26.

As a component of the oversight process, a Second Interim Report was issued which reflects that of the $103.1 million in expenditure reductions identified at First Interim for 2024–25, $28.3 million were not achieved and were added back to the unrestricted general fund for 2024–25. At the First Interim Report, the SFUSD projected estimated ongoing savings of $40 million from eliminating vacant positions in the 2023–24 fiscal year. As of the Second Interim Report, $15.8 million of the vacant positions were eliminated.

The SFUSD plans to achieve $29 million of savings in 2024–25 through changes to their staffing model for elementary, middle, and high schools. The SFUSD stated that these reductions would be achieved through layoffs and attrition. The SFUSD Board of Education adopted a resolution to issue layoff notices that included $14 million in estimated savings for certificated staff. The CDE has been informed that the SFUSD will no longer pursue these layoffs.

Statutory restrictions on debt issuance for school districts that have qualified or negative interim report certifications have their debt issuance limited. SFUSD may not issue, for the 2023–24 and 2024–25 fiscal years, certificates of participation, tax anticipation notes, revenue bonds, or any other debt instruments not requiring the approval of the voters, unless the State Superintendent of Public Instruction (SSPI) determines that repayment of that indebtedness is probable.

In spite of the report, SFUSD is expected to approve a ballot initiative for this November’s ballot to approve an $800 million bond sale.

MORE HOSPITAL BAD NEWS

Massachusetts-based Tufts Medicine confirmed plans to lay off 174 of its employees. Persistent capacity issues, high contract labor expenses and rising supply chain costs were the primary items cited by management. Tufts Medicine recorded a $171 million operating loss and 71 days of cash on hand at the close of its most recent fiscal year, which ended Sept. 30, 2023. This was an improvement over the prior year, when it recorded a $399 million operating loss. In February Fitch Ratings downgraded Tufts Medicine from “BBB” to “BBB-.

Pittsburgh-based UPMC is an integrated health system and one of Pennsylvania’s largest employers. Its provider, insurance and other business arms logged $27.7 billion of revenue across 2023 as volumes rose and insurance membership grew. In spite of the increases in utilization, the nonprofit reported a $198.3 million operating loss (-0.7% operating margin) last year as insurance claims expenses jumped 13.6% and labor costs rose 6.4%. It had posted a $162 million operating gain (0.6% operating margin) the year before.

Now it has brought in McKinsey as a consultant to help manage its “transformation”. If you’ve ever been in a McKinsey reimagination, you’re not shocked to see 1,000 layoffs announced. (1% of its 100,000-person workforce) It is after all what they do. UPMC is a $27 billion annual operation with operating revenues roughly split between its 40 hospital health services division, and its 4.2 million-member insurance services group. A third segment runs a division supporting development of commercial venture enterprises and an investment portfolio.

The system’s operations have been losing money. For the 2023 fiscal year, ended Dec. 31, the organization logged a $198.3 million operating loss (-0.7% operating margin) on revenue of $27.7 billion due in part to rising health plan utilization and insurance claims expenses. Its bottom line showed a $31 million loss, reflecting investment returns.

Relying on the investment portfolio and the risks which result were reflected when UPMC had recorded a $162 million operating gain across 2022 but a $1 billion net loss due to that year’s investment markets. It reported a $103 million operating loss (-1.4% operating margin) for its first quarter of 2024 and 103 days of cash on hand as of March 31.

Last week we documented the cyberattack on Ascension Health. Going into its fourth week, IT operations have been minimally restored but there remains no estimate as to full restoration. Systems that are currently unavailable include some electronic health records systems, some patient portals (which enables patients to view their medical records and communicate with their providers), some phone systems and various systems utilized to order certain tests, procedures and medications.

The cyberattack comes as the system faces an exodus of providers as the result of changes to Ascension’s structure which includes an investment vehicle and ownership of for-profit entities to provide for staffing and other services. It is a phenomenon that is increasingly shaping the industry as private equity takes an increasingly large position in the ownership of physician practices and other providers. These takeovers often lead to significant disruption to the provider base with expected negative impacts on service.

HIGHER EDUCATION MERGER

Marymount Manhattan began as a two-year women’s college in 1936, became a four-year school 12 years later and awarded degrees to its first male graduates in 1973. The college had about 1,450 students last fall, down from 1,915 in 2017. MMC has run annual deficits of more than $1 million a year since 2020 after posting a surplus of roughly $900,000 the year before. The board has cited declining enrollments and rising operating costs for an outlook that was “not sustainable”. The school has a $28 million endowment. 

Northeastern University (NU or NEU) is a private research university with its main campus in Boston. Established in 1898, it was founded by the Boston Young Men’s Christian Association as an all-male institute before being incorporated as Northeastern College in 1916, gaining university status in 1922. With more than 38,000 students, Northeastern is the largest university in Massachusetts by enrollment. Management has been pursuing a policy of expansion across the country through the absorption of smaller local institutions. It currently has “satellite” campuses in six U.S. cities and one each in Toronto and London.

Rather than close Marymount, that school decided that a merger represented the best chance of keeping it open. “Recognizing the significant headwinds facing small liberal arts colleges, MMC’s Board decided to pursue this path to ensure the continuation of MMC’s student-centered approach to education for generations to come,”.  The “path” is a merger with Northeastern.

Students enrolled and in good standing at the time of the merger will be eligible for automatic enrollment at Northeastern and can continue working toward completion of their intended degree program. MMC’s full-time faculty members at the time of the merger will become Northeastern faculty, receive one-year contracts, and be considered for available tenured, tenure-track and non-tenure-track positions. All staff employed by MMC upon the effective date of the merger will become Northeastern employees.

In 2022, Northeastern merged with Mills College in Oakland, California, providing the university with a comprehensive campus in the Bay Area.

PUBLIC TRANSIT’S CHALLENGE

Public transportation agencies kept many buses and trains running during the height of the pandemic, especially to support the travel of “essential workers,” but ridership and fare revenues plummeted. Public transportation agency budgets, particularly operating expenses, were supported by federal supplemental appropriations in FY2020 and FY2021 totaling $69.5 billion. This amount was about five times the annual federal public transportation support of $12 billion in 2019, the final full year before the pandemic, and more than three times the $19 billion coming from fares and other operating revenue.

In a survey of its members, the American Public Transit Association (APTA) found that about half of transit agencies and more than two-thirds of large agencies said they would experience severe budget problems (a so-called “fiscal cliff”) in the next five fiscal years (FY2024-FY2028). After declining through the late 1990s, the average operating cost per vehicle mile increased slightly from a low in 1999 through 2019. The operating cost per passenger trip (a measure of service consumed), however, has more than quintupled over this 50- year period.

Ridership rebounded to 79 percent of pre-pandemic levels in March 2024, according to the latest data from the American Public Transit Association (APTA). Public transit ridership was 7.1 billion total trips in 2023, a 16 percent increase from 2022 to 2023. Current data remains limited, but indicators in several metro regions point to transit recovery being led by trips to and from residential and commercial areas as opposed to office/work centers. According to the Federal Highway Administration, travel on U.S. roads and streets in 2023 was higher than 2019 levels by one tenth of one percent.

CARBON CAPTURE LEGISLATION

Illinois has enacted legislation regulating carbon capture pipelines. The final bill would establish a moratorium on new pipeline construction until July of 2026. The moratorium would expire on July 1, 2026, if the U.S. Pipeline and Hazardous Materials Safety Administration doesn’t finalize safety rules by then. The bill requires monitoring of injection wells for at least 30 years after they close, a process that must be approved by the state and federal government. It also grants the Illinois Commerce Commission expanded authority to impose fees and require certain safety models to be used during permitting for carbon sequestration and transportation projects.

The Illinois Farm Bureau, an interest group representing farmers and other large landowners, and the Illinois Soybean Association opposed the final bill, largely because of how it handles eminent domain. Under the proposal, the state’s Department of Natural Resources can issue a binding order on “nonconsenting” landowners to force them to let carbon sequestration companies use their land – specifically, the “pore space” thousands of feet underground – to store carbon dioxide. Companies would be required to give “just compensation” in exchange.

BATTERIES ON THE BALLOT

It’s pretty well agreed that a future electric grid which depends on renewables depends on storage. Storage requires batteries. Therein lies the rub. A series of incidents involving battery fires – large batteries for grid storage and small lithium ion batteries for electric bikes – has stoked fear over battery storage. This has sparked significant community opposition to efforts to site these facilities. It is a debate being played out in communities large and small.

The latest example is in California. Vistra Corp. has proposed a 600-megawatt battery storage project on a portion of the former generation site in Morro Bay, CA. It is already an industrial site even if it is on the coast including its three large smokestacks still standing at the generation plant. All of that would be removed and replaced by the battery storage. Project opponents say they’re concerned about its impacts on tourism and the potential for fires at the facility.

The project is currently in the draft environmental impact report stage, with that document open for public comments through this week. The project is awaiting consideration by the city’s planning commission and city council. Opponents want to take that approval power away. A ballot initiative on this November’s ballot would do just that.

It could all be for nought. Recent legislation that allows large battery storage facilities to opt in to an approval process from the California Energy Commission (CEC), instead of going through a local process, could provide a backup pathway to Vistra. 

In 2021, the city changed the land-use designation of the site of the power plant from “Industrial” to “Visitor Serving/Commercial”. The energy storage project is considered industrial so the city council would need to vote to change the designation to again allow industrial uses. The ballot measure proposes to freeze the current land-use designation of the property and a few others in the area. It would then require a majority of voters to approve another change in the land-use designation. 

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