Joseph Krist
Publisher
TOWN AND GOWN AND TAXES
Newark, DE is the home of the University of Delaware. It is the dominant property owner in the city and obviously plays an outsized role in the local economy. It also is exempt from property taxes. This has always been an issue as it is in many “college towns”. The university is not ignorant which is why in lieu of property taxes, UD began making an annual payment of $120,000 in 1965. The annual payment level has remained at that level. It has been estimated that adjusting for inflation and enrollment which has quadrupled since 1950, that payment today would be almost $1.2 million since.
The City has been under pressure to find additional revenues and the tax exemption makes it harder to maximize property tax revenues. UD also added an annual police support subvention payment of $60,000 in 2001 but that has remained at that level as well. Newark City Council voted unanimously to advance a resolution seeking a charter change to levy a $50 fee per student per semester on the University of Delaware. The fee would apply to all full-time and part-time students, undergraduate or postgraduate, and would be adjusted annually using the previous 12 month Consumer Price Index.
The city is not requiring the fee be charged to students directly – that decision is up to the university. The next step is legislation in the state legislature to approve the charter change. Two-thirds of state lawmakers in both chambers now have to approve a bill for the city to amend its charter to levy the fee, and the governor would have to sign it. The City Council would then vote on it a final time.
The expected hue and cry from campus touches on all of the current political issues playing out on college campuses. Here’s one example of how the University may be generating its own trouble. The school makes its payments to the city through a credit card. This means that, according to the city, Newark absorbs $400,000 in processing fees a year despite requests asking the school to use a different payment method.
CHICAGO
Chicago’s progressive mayor ran on a platform of raising taxes on the rich. One of his main proposals concerned a levy on real estate transactions valued at $1million or more. Specifically, he proposed increasing one-time real estate transfer taxes on properties over $1 million, while reducing levies on transactions below that. The tax would also be graduated, with properties between $1 million and $1.5 million incurring a duty increase of $10 per every $500, and properties over that facing charges of $15 for every $500.
The tax was going to be submitted to voters on the March 19 primary ballot. Before it could get to the vote, the large real estate interests sued in Cook County Court to have the ballot item declared misleading. As we went to press last week, a County judge found against the ballot item. The Chicago Board of Elections could still appeal. In an interesting twist, it’s too late to remove the item from the ballot. This will allow a vote to occur on the item if the appeals process can reach a conclusion by the date of the vote.
Even if the ballot item is declared ultimately illegal, voters can still cast a vote for it. While the results of the ballot votes will not be publicly released if it is declared illegal, exit polling could generate some interesting insight into what the public thinks.
In the meantime, S&P announced that it has lowered its outlook on the City of Chicago’s general obligation debt to negative. S&P currently rates the City at BBB-. S&P cited rising public safety labor costs, recent legislative changes to pension contributions and the ongoing costs of migrant arrivals. It seems to feel that the city and state have not provided enough clarity as to total cost and funding related to migrants and charged that the City is unwilling to raise revenues.
Are they talking about Chicago or “stable” New York City?
NYC BUDGET
The combination of it being state budget season in NY and the ongoing asylum migrant crisis have led to several cases of whiplash in terms of the public utterances of the Mayor. The swings back and forth have made an analysis of the city’s budget that much more difficult.
The Adams Administration included a second round of reductions to agency budgets in its Program to Eliminate the Gap (PEG) in the Preliminary Budget and Financial Plan for fiscal year 2025. This PEG follows a first round of reductions from the Administration’s November Plan, and totals just over $3 billion for 2024 and 2025, although there were restorations of previous cuts that offset a portion. (All years refer to City fiscal years.)
While the third round of reductions for the Executive budget has been called off, the cuts included in the two most recent plans have the potential to substantially impact the life experiences of New Yorkers. Separately, shortly after the November Plan was announced, the Administration announced a 20% reduction to the estimated cost of providing services for asylum seekers—which was reflected in the Preliminary Budget. Last week, the Administration announced an additional 10% reduction in those costs, which is anticipated to be reflected in the Executive Budget. The NYC Independent Budget Office has taken its shot at explaining what’s going on.
The wild swings in the Mayor’s outlook have caused real tensions with groups facing the largest proposed cuts. Some of the areas proposed for cuts in both plans include those that largely contract with nonprofit organizations for the provision of human services: Department of Education early childhood programs, programs for justice-involved individuals (including criminal justice contracts, re-entry services, and mentorship programs), and older adult centers. There are no ready replacements for the services these entities provide and the impacted populations usually are among the lower income segments.
The Department of Cultural Affairs also received cuts in both plans and has reduced subsidies to the 34 members of the Cultural Institutions Group and grants to over 1,000 smaller organizations through the Cultural Development Fund (CDF) by 13% and 11%, respectively, since the Adopted Budget. IBO analysis of detailed CDF grant data showed that about 80% of this year’s grantees received smaller or no awards than last year, and generally organizations that received smaller awards last year received disproportionately larger cuts to their grants this year.
The Preliminary Budget included cuts from the November Plan that were either partially or fully restored. Partial restorations included one police officer academy class and one year of Summer Rising programming that will provide enrichment for about 100,000 elementary and middle school students this summer. Full restorations included the Parks Opportunity Program (a six-month job training program for thousands of low-income New Yorkers) and litter basket service.
Among new cuts in the Preliminary Budget, the City reduced the overall budget for asylum seekers by 11% in 2024 and by 20% in 2025. The City’s share of the overall costs was also reduced by 36% over 2024 and 2025, partly due to additional State funding. Some cuts have resulted in reductions to full-time headcount at agencies such as the Department of Buildings and the Department of Parks and Recreation, which could contribute to concerns about adequate staffing for service provision.
CONGESTION PRICING – THE COST OF EXEMPTIONS
As the public comment period continues into March, various parties are making their case for their vehicle or class of vehicles be exempt from the charge. This has led to studies of possible results for given vehicle classes. This week, the NYC Independent Budget Office analyzed what the impact on congestion fee revenues would be if yellow cabs were exempted.
According to the MTA, taxis and for-hire vehicles made up more than half of the vehicles in the CBD prior to the Covid-19 pandemic. Under the proposed schedule, taxis and for-hire vehicles such as Uber and Lyft are exempt from the congestion toll, and instead are subject to a per trip surcharge paid by the passenger on any trips entering, exiting, or within the central business district (CBD). The MTA’s proposed surcharge is currently set at $1.25 for yellow taxis, green cabs, and traditional for-hire vehicles such as livery cars.5,6 A higher surcharge of $2.50 is set for high-volume for-hire services such as Uber and Lyft.
Based on current yellow taxi trip data—provided by the New York City Taxi and Limousine Commission (TLC)—IBO estimates an exemption just for yellow taxis would cost the MTA $35 million per year in foregone surcharge revenues, or about 3.5% of the authority’s $1 billion annual revenue estimate. While both industries still have ridership below pre-pandemic levels, yellow taxi ridership has been notably slower to recover. TLC trip data indicates that in October 2023, total yellow taxi trips entering, exiting, or within the CBD were at 49% of prepandemic levels, while high-volume for-hire vehicle trips were at 88% of pre-pandemic levels.
HOUSING AND TRANSIT
The MBTA Communities Law was passed in January 2021. It requires MBTA communities to establish multifamily zoning no more than half a mile from a commuter rail station, ferry terminal, or bus station, and the zoning districts must have no age restrictions and must be sustainable for families with children. In December 2023, Milton Town Meeting voters approved zoning changes that allow for more multifamily housing so that the town could comply with the MBTA Communities Law.
Milton is one of approximately 177 communities subject to the MBTA Communities Law and one of 12 that had a deadline of Dec. 31, 2023, to enact a compliant zoning district. Recently, the Town held a referendum on the plan. The result – 5,115 Milton residents voted “no” while 4,346 others voted “yes.” Now the Town faces consequences. The Massachusetts Attorney General is suing the Town for being out of compliance with the law.
Milton will no longer be eligible for a recent $140,800 grant for seawall and access improvements, which was contingent upon compliance with the law. The town will also not be eligible to receive MassWorks and HousingWorks grants and will be at a competitive disadvantage for many other state grant programs.
NEW JERSEY TRANSPORTATION
Gov. Phil Murphy wants to tax the wealthiest corporations in New Jersey to create a dedicated fund for NJ Transit. His proposed new “Corporate Transit Fee” would tax businesses that earn more than $10 million in profits. The proposal would raise the corporate tax rate to 11.5% for affected businesses, instead of the 9% currently in effect. It would replace a previous fee program which expired at year end.
The original corporate tax surcharge raised about $1 billion annually, and the new one is expected to raise about $800 million. It comes as the state faces a funding shortfall for transit estimated at $1 billion. The Governor is fighting opposition from commuters to an announced 15% increase in fares scheduled to take effect on July 1. It is a reversal from his last budget address, when Murphy pledged to end the previous surcharge on wealthy companies’ taxes.
On another front, the Governor has proposed ending a sales tax exemption for electric vehicles. Since 2004, New Jersey residents were exempt from paying the 6.625% sales tax when buying, leasing and renting new or used fully electric vehicles, based on the zero-emission light duty vehicle tax break. The exemption did not apply to plug-in hybrid cars. Ending the sales tax waiver on electric vehicles over three years is also expected to net about $70 million a year based on current estimates.
Data from the New Jersey Department of Environmental Protection and the state’s Motor Vehicle Commission shows that as of June, 2023 there were just over 123,000 electric vehicles on the road in New Jersey. That represents just about 1.8% of the light-duty vehicles on the roads in the state. The New Jersey Coalition of Automotive Retailers (NJCAR) said in 2023 nearly 80% of car sales were gas-powered vehicles, about 11% were electric cars and roughly 9% were hybrid or plug-in hybrid.
CALIFORNIA PUBLIC POWER SOLAR
The Pasadena City Council unanimously voted on Monday to allow Pasadena Water and Power to enter into a $512.2 million, 20-year power contract with Southern California Public Power Authority for solar photovoltaic and battery energy storage. The City needs to replace its lost share of power from the Intermountain Power Project in Utah. This contract comes on the heels of contracts for 25 MW geothermal energy, and one third share of a 117 MW solar energy project through the Authority.
Beginning on December 31,2027, the contract will cover the daily delivery of a maximum of 105 megawatts of solar photovoltaic energy and up to four hours of dispatchable battery energy storage, not exceeding 55 megawatts. It is a 20-year fixed price contract.
SOONER TAX CUT
Oklahoma has eliminated its sales tax on groceries. The bill won’t go into effect until 90 days after the session adjourns on May 31. The bill also contained language that prohibits cities and towns from increasing the taxes on groceries until June 30, 2025. The state portion of the grocery tax generated $400 million each year. It comes as tax cuts in general are a major topic of the current legislative session. Other proposals would lower income taxes. The politics of the issue drove passage of the grocery cut (lower the regressive tax first) before an income tax cut which has been seen as favoring high income taxpayers.
MORE HOSPITAL CREDIT PRESSURE
Palomar Health is the largest public health care district in the State of California, with over $1 billion of revenues reported for fiscal 2023, and generating over 24,000 admissions. The district operates acute care facilities in the towns of Escondido and Poway, and captures 44.5% of the market share within the district. It’s operations have been under heavy stress but a decline in cash to only 39 days at year end has increased that strain.
The district’s Moody’s ratings were put on negative outlook in mid-2023 so the stress was becoming clear. Now, Moody’s has placed Palomar Health’s (CA) A1 general obligation (GO) rating and Baa3 revenue bond rating under review for downgrade. The change covers approximately $712 million of revenue bonds outstanding and $646 million of GO bonds outstanding.
As is often the case, potential covenant compliance issues are dictating the timing. The current trend of financial results puts financial covenants at risk for a breach at June 30, 2024, which could result in the acceleration of outstanding debt. Obviously, the district will have to articulate a plan to avoid covenant violations to support its ratings.
CARBON PIPELINES
The South Dakota House of Representatives approved Senate Bill 201, a bill which provides new regulations on pipeline transmission infrastructure and also allows counties to charge carbon dioxide pipeline developers $1 for every linear foot of pipe that runs in the county. The bill reinforces language on federal preemption of local ordinances and regulations affecting carbon dioxide pipelines.
Under existing law, if the South Dakota Public Utilities Commission does not determine that a carbon dioxide company’s pipeline route is “unreasonably restrictive,” proposed pipeline routes, like those by Summit Carbon, cannot violate county ordinances and local zoning and building rules. The law has allowed some counties along Summit Carbon’s pipeline project to implement a range of restrictive setback ordinances.
STADIUMS
The Utah legislature will be asked to consider a bill which creates the Utah Fairpark Area Investment and Restoration District. The bill authorizes the district to levy: an energy sales and use tax; a telecommunications license tax; a transient room tax; a resort communities sales and use tax; an additional resort communities sales and use tax; and an accommodations and services tax. It provides for an increase in a car rental tax and provides for how the additional revenue is to be spent. The state would own the stadium and the land underneath it.
The legislation comes following statements from both Major League Baseball and the National Hockey League regarding potential expansion. It is designed to allow the State of Utah to be in a position to fund half of the cost of a proposed stadium for baseball. Salt Lake City is positioned to be the recipient of a hockey team either through expansion or the relocation of the Arizona Coyotes.
Arizona is under tremendous pressure to solve its arena problems soon and there is an existing arena in Salt Lake City. Baseball will take longer to resolve stadium issues in Oakland/Las Vegas, Tampa Bay, and now Chicago. There will be no expansion until those items are resolved. The bill also sets a deadline to get an MLB franchise deal which must occur before 2034.
The issue of public financing and/or funding for proposed facilities in each of these cases has been controversial. One irony of the current cast of characters is that the White Sox ownership threatened to move in the mid 80’s. There was this new domed stadium sitting empty in Tampa Bay that was calling to the Sox to move. That was solved when the State of Illinois stepped up with state tax support for bonds to build the current stadium. Now, the Sox are doing it again.
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