Joseph Krist

Publisher

OHIO CONVICTION

A federal jury convicted former Ohio House Speaker Larry Householder and the ex-chair of the state Republican Party of conspiring in a $60 million bribery scheme to save a pair of power plants then owned by FirstEnergy Corp. with a taxpayer-funded bailout package. He becomes the only speaker expelled from the Legislature and then convicted in a federal corruption case in Ohio history. The case revolved around the passage of House Bill 6 in 2019 which was designed to fund nuclear operations at two generation plants and was seen by many as a blatant bailout of First Energy.

The case had a bit of everything – dark money groups, payments through a web of vehicles, friends wearing wires, plea deals. In July 2021, FirstEnergy admitted it bribed Householder and a state regulator and agreed to pay a fine of $230 million. It is the largest public corruption conviction in Ohio history. Racketeering conspiracy carries with it a maximum term of 20 years.

Everyone knows that the emerging “clean energy economy” involves a titanic struggle between huge and well-funded interests. This crime lays bare the depths to which that struggle can sink.

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AMAZON TAX INCENTIVE REVISITED

The effort by Amazon to receive significant tax incentives from New York City to locate a 25,000 job second headquarters generated heated debate at the time it was being considered. While there were a variety of issues that created hurdles, it was clear that the project would have been a net job producer. When Amazon finally decided to take an offer from Arlington, VA to locate and build there, it seemed like an obvious win for VA and a loss for NYC.

News this week will partially vindicate those in NYC who did not back the deal. Amazon will pause construction of some buildings at the second headquarters it is building in Arlington. Amazon has hired more than 8,000 of the 25,000 employees it projected to add in Arlington and plans in June to formally open the first phase of construction. A second larger phase has now been put on indefinite hold.

It is not unlike any number of corporate decisions regarding office space in the post-pandemic era we see across the country. It is important to remember that many projects falling into that category were planned just prior to the pandemic. The resulting and likely permanent change in office attendance and utilization has produced a glut of supply. Amazon announced last month that it would require workers to work from the office at least three days per week. This coincided with a plan to move 2,000 employees within Seattle to vacate leased space.

DIABLO CANYON EXTENSION

The Nuclear Regulatory Commission announced that it has granted PG&E an exemption that could allow California’s last nuclear power plant to continue running after the expiration of its federal operating licenses. Currently scheduled for closure in 2025, the exemption would allow the plant to operate while the NRC reviews an application for an extension of the operating license.

It is not unusual for a plant to operate while its operating license extension is considered. If a nuclear plant files for a license extension at least five years before the expiration of the existing license, the existing license remains in effect until the NRC’s application review is complete, even if it technically passes the expiration date.  That five-year requirement is what had to be overridden in the process. The company has said it intends to submit an application to extend the plant’s life by the end of this year. 

OIL AND PRIVATE ACTIVITY BONDS

The developers of a rail project designed to transport heavy crude oil products from Utah’s Uinta Basin oil fields to the national railroad network have announced their intention to seek some $2 billion in private activity bond capacity.   Utah’s Seven County Infrastructure Coalition was formed nearly nine years ago for the express purpose of supporting an oil export project.  The timing of the announcement, in the shadow of the East Palestine train wreck has drawn attention to the project and the material it will transport.

The Uinta Basin’s yellow and black waxy crude is laden with paraffin and notoriously difficult to move.  The rail cars would have to heat the material while it moves. Opposition existed prior to recent developments which will likely increase opposition now. The project would extend some 88 miles and cross into Colorado along the Colorado River.  It received approval in 2020 from the Trump administration.

The oil industry in Utah has been seeking a variety of alternatives to transporting its oil to refineries. The industry is fighting restrictions on coastal terminal facilities. Those barriers have concentrated support on a plan to access existing Gulf Coast oil infrastructure.  

FLORIDA AND STATE REGULATION OF MUNICIPAL UTILITIES

Newly filed legislation in the Florida State House and Senate would alter the way municipal utilities can operate, charge customers, and transfer money. The House Bill would cap the surcharges a municipal utility collects from people living outside of the boundaries of the government that runs it at 10 percent. The percentage must also be based on the number of customers outside the municipality’s boundaries. The Senate Bill, if passed, would redefine the legal definition of a public utility and empower the Florida Public Service Commission to regulate the utilities for five years.

The bill would also require voters to approve the amount of money that can be transferred from a utility to the municipality that runs it.  Customers who live outside of the boundaries of the municipality which owns and operates a public utility system often find that they cannot vote for the officials who run them. In this case, Gainesville Regional Utilities runs an electric utility which serves the greater metropolitan area. GRU has been at the center of a number of issues including rates and the siting of generating facilities.

It is not clear how much support the legislation has.

A SUCCESSFUL P3

On 28 February, the Kansas City, Missouri Airport Enterprise opened its new single terminal. The new terminal was completed within the $1.5 billion project budget and as originally scheduled. The project was developed through a public-private partnership (P3). The city entered a development agreement with private developer Edgemoor to design and construct the terminal for a guaranteed maximum price (GMP) of $1.36 billion. The airport enterprise retained risk for potential increased costs from events beyond the developer’s control, such as the COVID-19 pandemic. On budget completion has fully mitigated that risk.

The project addressed several concerns that the old terminal building’s unique design which made it difficult to satisfy security requirements. In addition, the new terminal will facilitate more connecting service. At one time, KCI had been a major hub.

CA HIGH SPEED RAIL

The California High Speed Rail Authority is required to update the state legislature regarding progress on the high-speed rail line designed to provide intercity service between SF and LA. The project has been plagued by delays and overruns. The project has achieved environmental clearance for all segments between San Francisco and Palmdale (Los Angeles County) and between Burbank and Los Angeles – 422 miles out of 500.

Construction is well underway on the first 119-mile section in the Central Valley, which will initially serve as a test track for high-speed trains, and additional advanced design is proceeding on stations and the 52 miles of extensions into the downtown Merced and downtown Bakersfield. The latest schedule calls for completion all environmental documents for the entire 500-mile system connecting San Francisco and Anaheim by the end of 2025. 

By 2028, complete and begin train testing on the first 119-mile, double-tracked and electrified high-speed rail test track between Madera and Poplar Avenue. Between 2030 and 2033, begin high-speed passenger service between Merced, Fresno and Bakersfield. By 2030, advance Northern and Southern California sections to 30% design so that construction can continue to progress if and when funding is provided

It is clear that the full project is significantly short of resources for the full train line to be completed. The Authority is looking to rely on significant federal grant funding and is looking to the Legislature to establish a clear source of funding after 2030. In addition, cost estimates have been raised. The new estimate no longer represents a “single-track” phased implementation approach to delivering the Merced to Bakersfield project – it includes double-track and fully built out facilities including stations and maintenance facilities rather than phasing them in. Compared to the 2022 Business Plan, the updated estimate has increased by between $6.5 billion to $9.7 billion.

The Authority has developed a new ridership forecasting model. It takes into account changes in travel and work wrought by the pandemic. In line with nearly all other surveys of mass transit demand, for the Merced-Bakersfield segment — which includes construction now under way in the central San Joaquin Valley — the expectation for overall train ridership in the Valley dipped from almost 8.8 million passengers per year forecast in a 2019-2020 financial plan to about 6.6 million in the 2023 project update. Ultimate annual demand is projected at 31.3 million in 2040, down from the 2020 estimate of 38.6 million.

OKLAHOMA AND RECREATIONAL CANNABIS

Oklahoma may be the medical marijuana capital of the US – the state counts 2,890 active licenses for medical dispensaries – but that did not translate into support for legalized recreational cannabis in an election this week. Proposition 820 was defeated by a significant margin – 62% to 38%. The measure would have, in addition to legalizing the use of marijuana for those 21 and over, would also have set up a process for expunging criminal convictions for certain past marijuana offenses. 

The initiative was set up for failure following an old script. By scheduling an election just on this issue outside of the normal voting schedule, a low turnout was assured and skewed towards those likely to oppose the measure. The vote took place while the Oklahoma legislature debates a bill introduced in this legislative session which would place new restrictions on ballot initiatives, including barring them from even-numbered years, when turnout is higher. 

The state’s approach has been somewhat scattershot. The number of dispensaries is high because of policies enacted which offered licenses at reduced rates compared to those of other states. That led the state legislature to pass a two-year moratorium on new medical marijuana business licenses last year. 

NYC MUNICIPAL WORKFORCE

The DeBlasio administration ramped up hiring by city government and brought it to its historical high headcount of some 330,000. It was to be expected that a new administration might slow that growth but the pandemic and some policy choices have put the City in a difficult place. One of those policy choices was to require in person attendance on a full-time basis by city employees. That has been a serious barrier to the retention and attraction of city employees.

Now a report from the NYC Comptroller has documented the impact of the Adams administration policies on not just headcount but also on the provision of services. The report notes that agencies which are at the front lines of the recovery from the pandemic – the Department of Small Business Services (SBS), Department of Health and Mental Hygiene (DOHMH), Housing Preservation and Development (HPD) and Department of City Planning are also consistently failing to meet or improve on the performance goals set for them.

The report notes a correlation between the inability to meet service provision goals and vacancy rates at the agencies charged with providing those services. SBS has a 32% vacancy rate, for example. Small businesses took the brunt of the impact of the pandemic so the vacancy rate is troubling. Similarly, agencies impacting some of those most vulnerable to the pandemic and its aftermath are facing clear limits on their ability to provide services.

One potential change to address vacancies was included In the recently-announced tentative agreement between the NYC Office of Labor Relations and DC 37 (the City’s largest municipal labor union), the parties agreed to establish a “Flexible Work Committee” to discuss options to provider greater flexibility and enhance employee morale, including remote work, compressed and flexible work schedules, and improve transit benefits. The parties’ goal is to begin a pilot program that includes remote work no later than June 1, 2023.

AMERICAN DREAM NIGHTMARE

East Rutherford, NJ is the home of the American Dream mall in New Jersey and the issuer of significant debt payable from payments in lieu of taxes paid by the developer. The financial problems of the project are well known. Now those problems are having real effects. East Rutherford has commenced legal action to recover some $7.6 million due from the developer. The payments are due under a payments in lieu of taxes agreement between the borough, the mall, and the New Jersey Sports and Exhibition Authority.

The developer has taken the position that the mall is not “fully open” as it still has some vacant space. If the mall is not “fully open”, the developer maintains that it does not owe anything on the parcels in question. East Rutherford’s suit argues that PILOT payments for those parcels were due once the mall and its associated entertainment venues opened in 2019.

The lawsuit highlights a concern that investors saw when the bonds were sold for the project.  “The defendants would prefer not to pay the borough because American Dream opened shortly before the COVID-19 pandemic, closed for a matter of months, and, according to widely circulated reports in the press, has struggled financially in the more than two years since it reopened post-pandemic.”

The action comes as the developer has received some covenant relief on its $1.7 billon of private debt. We are not surprised that the project has not met its demand projections which we never believed in. Debt-service reserves have been drawn down to make payments due on $800 million of PILOT backed bonds issued though the Wisconsin-based Public Finance Authority. Payments are also being missed on grant anticipation debt.

ZONING AND HOUSING

Affordable housing advocates have been increasingly focusing on zoning restrictions as a major impediment to the expansion of the affordable housing stock. In particular, the role of single-family housing zoning is a primary target. The idea is to promote both better land use and flexibility in terms of creating new housing on existing sites. Think two family houses or apartments over free standing garages.

Now, the Washington state legislature is moving a bill which would require cities between 25,000 and 75,000 people to allow two units per lot anywhere and four units on lots within one half-mile of a bus stop. Cities with more than 75,000 people or with a continuous urban area with more than 275,000 people would have to allow four units per lot anywhere and six units per lot within a quarter mile of a bus stop.

The bill also eliminates parking requirements for developing middle housing on lots within a half-mile of a major transit stop. For those lots smaller than 6,000 square feet, cities will not be able to require more than one off-street parking space per unit. For those lots greater than 6,000 square feet, cities can’t require more than two off-street spaces.

Some jurisdictions are revising local zoning ordinances. The Spokane City Council approved a temporary zoning ordinance to allow duplexes, triplexes, quadplexes and townhomes on all residential zones citywide for a year. It is all part of the movement towards density and proximity to transit and work. It is also a reminder that preemption goes two ways. Efforts to limit local regulation have been fought. Now, the proponents of zoning changes seek to use the same tactic to advance their goals.

It is what makes the debate over how best to implement policies so difficult to resolve.

CARBON STORAGE

Pore space is the open spaces in rock or soil. These are filled with water or other fluids such as brine. CO2 injected into the subsurface can displace pre – existing fluids to occupy some of the pore spaces of the rocks in the injection zone. The sequestration companies are undertaking to obtain easements on several such rock formations which cover large areas under predominantly agricultural land. The latest example of the problem is unfolding in Illinois.

Navigator CO2 Ventures’ is undertaking to get two sequestration sites approved in Illinois. It hopes to store up to 15 million metric tons annually of carbon dioxide. It is not clear how much fluid will be displaced at these sites and where it will go. This has raised the issue of potential groundwater contamination such as the acidification of local water. That occurs when CO2 and water mix and form carbonic acid.

In January, the Illinois Commerce Commission received a recommendation from its staff to deny a project permit because a sequestration site had not been acquired. Navigator then withdrew its initial permit application with the Commission. Illinois law does not address the use of eminent domain above underground pore space. Some believe that Navigator may need to get every landowner living over the sequestration area to agree to sell off a portion of their land rights.

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