Joseph Krist

Publisher

We are breaking for the Easter holiday. The Muni Credit News will next publish on April 8. We think that it is even money at best that the NYS budget will be done by then.

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MIGRANTS

The two cities most prominently impacted by the influx of migrants – Chicago and New York – have announced changes in their shelter policies to reflect the ongoing pressures resulting from the problem. Chicago has received more than 37,000 migrants since August 2022. Nearly 11,000 migrants are living in 23 homeless shelters. The city began an eviction process for longer term residents. It is anticipated that some 2000 individuals will be moved out of city provided shelter by May 1.

Case reviews will provide exemptions for pregnant women, people with certain medical issues and migrants who are already in the process of securing housing. Families with children can receive renewable 30-day extensions. Chicago is a sanctuary city but it is not a right to shelter jurisdiction so these sorts of changes do not have to overcome legal hurdles that right to shelter provides.

In New York, an agreement has been announced that will grant the city some relief from court-imposed requirements that there is a right to shelter. It is this concept that has left NYC particularly vulnerable to the types of tactics used by the governors of Texas and Florida to “export” immigrants. Under the new plan, adult migrants will be allowed to stay in shelters for only 30 days under the agreement, city officials said. Some would be allowed to stay longer if they met certain conditions, including having a medical disability or an “extenuating circumstance”.  

The city would have liked to have done this earlier but it operates under a consent decree (won in 1985) requiring the city to satisfy the right to shelter. The new plan is the result of months of negotiations. Under the agreement, adult migrants ages 18 to 23 would have at least 60 days in the shelter system before having to move out, unless they meet the exceptions. Migrant families with children would not be affected. The settlement also does not apply to people who are not migrants and staying in city shelters.

The situation is still critical. There are 65,000 migrants still under the city’s care, 22 percent of whom are single adults or adult families without children, according to city officials. 

HOUSTON PENSION SETTLEMENT

The City of Houston has announced an agreement with its firefighters union over issues related to back pay and pensions. The firefighters and the City had been unable to negotiate a labor agreement and some firefighters had been working for eight years without a contract. The $650 million settlement to finally resolve the city’s looming liability addresses longstanding pay issues dating back to 2017.

Under the terms of the agreement, all current firefighters, retired firefighters, and the families of firefighters who have died since 2017 will receive lump sum payments for the wages owed back to 2017. In addition to the back pay, the agreement makes permanent the temporary 18% pay increases awarded to firefighters in 2021 and mandates additional raises of 10% on July 1, 2024. With the subsequent pay hikes specified through 2029, total firefighter pay will increase by up to 34% over the life of the contract.

The costs of the settlement will be financed with the issuance of judgment bonds. This is tax backed debt issued by an entity to fund a large near term payment while spreading its costs over a long period. It’s not an uncommon municipal bond practice but this case creates a much larger than usual amount to be funded and financed.

NEW YORK CANNABIS

This week NY Governor Kathy Hochul made it official – the rollout of the recreational cannabis regulatory mechanism in New York is officially a “disaster”. She ordered a full review of review of the state’s licensing bureaucracy. The main goal of the review is to shorten the time it takes to process applications and get businesses open. Disaster is one of the kinder words used by all sides of the industry – doctors, retailers, medical dispensaries. Some of the problem is blamed on the equity provisions of the rollout. The reality is more complex.

For whatever reason, the social and political goals of the program were allowed to overtake the nuts and bolts work of establishing and implementing a regulatory program. The state Office of Cannabis Management, which recommends applicants to the board for final approval, received 7,000 applications for licenses last fall from businesses seeking to open dispensaries, grow cannabis and manufacture products. But regulators have awarded just 109 so far this year. 

The agency has been plagued by staff as well as management turnover. It is led by a well meaning attorney who doesn’t have executive experience. The head of the equity side of the program had to resign over accusations of favoritism. This has all gotten in the way of a structured plan to award licenses. This had led to proliferation of illegal unlicensed retail sites including an estimated 1500 in New York City alone.

The emphasis has been on the social and economic equity goals enshrined in the legalization law. Its goal is to have half of all licenses go to people harmed by anti-cannabis policies; women; racial and ethnic minorities; distressed farmers; and disabled veterans. Much of the criticism of the office has been rooted in the role of equity concerns as an impediment to licensing. Along with a lack of enforcement in NYC, the botched rollout is actually increasing illegal activity.

BALLOT RESULTS

It took some two weeks to find out but in California Proposition 1 was approved by the voters with a razor thin majority. With just 50.2 percent of voters approving, the gap was less than 30,000 votes out of more than 7 million cast in the race. Only about a third of registered voters cast ballots in the California primary. There was a clear divide between the urban areas and the rest of the state. The vote authorizes over $6 billion of debt issuance capacity to address the issues of homelessness and mental health.

In Chicago, a referendum that would change the city’s real estate transfer tax and raise rates on high-value properties to fund homelessness programs appeared to be failing in the tabulated vote. Only 20 percent of registered voters in Chicago cast ballots. The vote is a huge political defeat for the Mayor as neither the voters nor the Council have provided support for higher taxes. The result puts the Mayor and the City in a weakened position as they confront the need to reach a contract agreement with the Chicago Public Schools teachers union.

TEXAS AND ESG

The Texas Association of Business Chambers of Commerce Foundation (TABCCF) released a new economic impact study illustrating the financial impact of Texas’ Fair Access law, passed in 2021. In the 87th Session of the Texas Legislature in 2021, lawmakers passed Senate Bills 13 & 19, barring any Texas municipality from contracting with banks if they are found to be restricting funding to oil & gas companies or discriminating against firearms companies based on their line of business.

In a 2023 study entitled Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies, Dr. Dan Garrett of the University of Pennsylvania and Dr. Ivan Ivanoff of the Federal Reserve Bank of Chicago examined the consequences. Their study found that competition in the public finance market was indeed reduced due to these laws, and that interest costs were 0.144 percent higher as a result. This new study builds on that work. Further examination of transaction costs associated with issuing debt, specifically the underwriters spread, shows a sharp increase in the fiscal years 2022-23 in the wake of the laws’ implementation. Applying the historic average from fiscal years 2015-21 implies excess costs of $270.4 million.

The real issue is at what level of government is the cost of anti-ESG policies borne. The move in Texas has been primarily driven at the state level. That isn’t where the cost is being borne. There is little sign of any external impact on underwriters spread at the State level post-2021. The situation appears to change locally, however, as the underwriters spread more than doubled from fiscal year 2021 (the last year before the anti-ESG laws were implemented) to fiscal 2023.

The study sums it up well. “In simple terms, when government attempts to mandate values (no matter what kind) to business, the market loses, and taxpayers bear the consequences.”

COAL

A joint resolution that passed the Kentucky House natural resources committee this week would direct the state’s environmental authority to defy federal rules for fossil fuel power plants. House Joint Resolution 121 says the U.S. Environmental Protection Agency is “overreaching” its regulatory power. It would also prohibit the state’s environmental cabinet from enforcing federal air quality standards related to power plants. The lead sponsor of the resolution stated that “actually enacting the measure could lead to a federal government takeover.” It’s not clear quite what he meant.

The legislation is designed to plan for Kentucky’s energy needs into the future through the creation of an “independent” energy commission that would review all requests to shut down existing power plants. That would be an added step on top of the existing Public Service Commission approval process. The bill is opposed by the state’s investor owned utilities Louisville Gas & Electric and Kentucky Utilities, and Duke Energy.

The sponsors want the state to declare itself a “sanctuary state” for fossil fueled electric generation. The IOUs believe that it would lead to higher energy costs and could force them to keep open ineffective and uneconomical plants. The irony is that the party of free markets is the one hoping to legislate against efforts to respond to market forces. This comes as Utah’s Governor signed legislation designed to keep the Intermountain Power Project alive as a coal fired generation plant.

It’s part of an effort to “nullify” federal laws and regulations governing the operation of generating facilities. Kentucky still gets about 68% of its electricity generation from coal and another 23% from natural gas, according to the resolution. Less than 1% comes from wind and solar power. The other side of the argument was best expressed by one legislator – “I’m not comfortable with going down the road of nullifying federal laws that we don’t like. It sets a dangerous precedent. It didn’t work out well 170 years ago.”

STILL MICKEY MOUSE TIME IN FLORIDA

Attorneys for the Central Florida Tourism Oversight District filed a motion for a protective order that would stop the board members of the District from having to give videotaped depositions to Disney attorneys. District attorneys cite the “apex doctrine,” to support a view that high-level government officers shouldn’t be subject to depositions unless opposing parties have exhausted all other means of obtaining information. Florida is one of a minority of states which recognize that doctrine.

The board members who claim that being forced to give depositions would “impede” their ability to fulfill their duties and divert resources and attention away from overseeing the district. Depositions are a basic part of the discovery process in almost any civil litigation. If you’ve ever been deposed you know the process is annoying at best. That does not do anything to mitigate how poor a look for the District this all is from a governance point of view. The good news is that debt service payments of the District’s debt continue to meet made smoothly.

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