Joseph Krist

Publisher

By the time you read this, the President may have gotten up on a different side of the bed and half of this week’s MCN may be out of date. Such is the world of Trump 2.0. Is it infrastructure week, yet?

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NON PROFITS UNDER PRESSURE

The recovery from the pandemic has been longer and harder than many of these institutions hoped. Lower attendance and revenues are pressuring financial operations. The Solomon R. Guggenheim Museum announced that it was laying off 20 employees across the museum — or 7 percent of its staff — starting immediately.

The museum cited other efforts – growing the endowment, programming fewer exhibitions and ticket price increases – but said that they had not done enough. Earlier this month, the Brooklyn Museum said that it was facing a projected $10 million deficit, planned to cut 40 employees, and would mount fewer exhibitions.

Those are the kind of cuts that people notice. In reality, the non-profits under the most pressure are smaller niche service providers. The freeze on federal funding is forcing significant layoffs and projections of potential closures at these small providers. For many of these providers, the fact is that federal money is key to their ability to provide services and provide a relatively secure revenue stream to secure debt issued for capital costs at these facilities.

COLORADO RIVER

“All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022.” The 2022 Inflation Reduction Act, or IRA, allowed Biden to designate $4 billion for Colorado River programs, funding farmers, cities, and Native American tribes to conserve Colorado River water by leaving it in those reservoirs. The payments are compensation for lost income.

The giant reservoirs of the Colorado River, Lake Mead (the largest reservoir in the U.S. in terms of water capacity) and Lake Powell, remain far below their capacities. The lakes, which provide the water that 40 million Americans depend on, are now only about 35% full.

The Bureau of Reclamation’s California office has lost 10 percent of its staff due to buyouts and orders by Elon Musk’s so-called Department of Government Efficiency. Among those fired are employees who were working on a power plant upgrade near Shasta Dam in Northern California. That facility, which helps move water through the federal system, has been sitting disassembled for weeks after the Trump administration froze funding for it under an order halting spending tied to the bipartisan infrastructure law. That funding may soon be released, but now key staffers hired to do the work have been fired.

Local water agencies — funded by water sales to individual farmers — pay for the Bureau of Reclamation’s services through contracts for water deliveries — not federal taxpayers. Power production at the dams also generates significant revenue for the federal Treasury Department.

WHERE THE CUTS COULD HURT

The proposed workforce reductions from the DOGE would have varying impacts on employment in the states. Maryland has the largest proportion of federal employees in its workforce at 5.3%. Hawaii (3.9%), Alaska (3.4%), Virginia (3.4%), New Mexico (2.5%), West Virginia (2.4), Oklahoma (2.4%), Wyoming (2.2%), Montana (2.0%), Utah (1.9%) and Maine (1.9) make up the ten largest exposures. Federal civilian jobs make up 21% of all nonfarm employment in Washington, D.C. — far more than any state.

The percentage of people who report having Medicaid is 21% nationally, but ranges from 11% in Utah to 34% in New Mexico (Figure 1). The percentage tends to be higher in the 41 states that expanded Medicaid under the Affordable Care Act (ACA), which includes 21 states that voted for Trump and 20 that voted for Harris. Rates of Medicaid coverage are also higher in states with lower average incomes and lower rates of health insurance offered through employers.

Stanford University announced a freeze on staff hiring, citing concerns about the Trump administration’s plans to cut funding for scientific research. the freeze does not apply for faculty positions, temporary and casual employees and student workers. Other significant research universities will face similar pressures.

HOSPITALS AND MEDICAID

Hospital care accounted for about one third of Medicare and Medicaid spending in 2023 (37% and 32%, respectively). For purposes of comparison, hospital care represented a larger share of Medicare and Medicaid spending (37% and 32%, respectively) than physician and clinical services (25% and 14%) or retail prescription drugs (14% and 6%). From 2010 through 2023, more hospitals closed than opened. Over this 14-year period, 300 hospitals closed and 192 hospitals opened, or 108 more hospital closings than openings. 

It appears that the budget proposals moving through Congress cannot achieve their expenditure reduction goals without hitting Medicaid. Even if the only real change is the imposition of work requirements, fewer people will be covered by Medicaid. That means lower revenues for hospitals with an expectation of higher levels of unreimbursed charity care.

CARBON PIPELINES

The South Dakota legislature considered two bills designed to limit the ability of developers to build pipelines to transmit sequestered carbon from out of state ethanol plants for storage in North Dakota.  Senate Bill 198, is a proposed measure requiring individuals or companies to meet certain requirements before attempting to condemn private property. The legislature did enact House Bill 1052, which outright prohibits carbon capture companies from using eminent domain — the process of taking private property for public services.

Summit Carbon Solutions launched a first tranche of lawsuits pursuing eminent domain in April 2023. The number of cases later grew to include about 160 landowners, as the state Supreme Court ruled in an August opinion that Summit Carbon had not proven it qualifies as a common carrier, a necessary designation to utilize the right to eminent domain.

S.F. SEWER DECISION

By a 5-4 vote, the U.S. Supreme Court sided with San Francisco in its challenge to the terms of a federal sewer and wastewater system permit that the city challenged as too vague and difficult to comply with. The court said that the Clean Water Act does not support the non-quantifiable water quality standards that the U.S. Environmental Protection Agency imposed in the permit for a combined sewer system and wastewater treatment facility.

The decision overturns a divided Ninth Circuit panel’s 2023 ruling that the Clean Water Act allows the EPA to include certain narrative water quality standards as part of a National Pollutant Discharge Elimination System permit for San Francisco’s Oceanside Water Pollution Control Plant. The issue revolved around combined sewage outflows (CSO) and how they must be treated. These occur in times of heavy rain when water volumes could easily overwhelm treatment capacities.

The issue of CSO is not limited to San Francisco. It has come up in all of the major treatment expansions or developments undertaken by major cities. There has always been a tension between utilities and the EPA over the issue. The cost of treatment to address small incremental improvements in effluent quality. As has been pointed out the most pristine source of a river has some level of “pollutants”. Fish and animals eat and excrete even in those waters so are they ever 100% clean?

The ruling marks the court’s first ruling on a case pertaining to EPA authorities since it struck down the long-standing Chevron doctrine, which held that federal agencies rather than courts have broad latitude in interpreting ambiguities in the language of the law.

ETHANOL

The U.S. Environmental Protection Agency upheld an April 28 implementation date in response to a request from eight Midwest governors to allow year-round sales of gasoline containing 15% ethanol, a blend known as E15. States had until February 26 to seek a one-year delay. EPA said it would delay an action by one year to expand sales of higher ethanol blends of gasoline in South Dakota and Ohio at their request.

The EPA’s implementation will now only apply to Illinois, Iowa, Minnesota, Missouri, Nebraska, and Wisconsin. The EPA’s expansion is meant to enable both E15 and the more widely available E10 fuel blends to be sold during the summer, where the existing policy often keeps E15 out of the market. It also could be a bailout for farmers who lose market share as the result of tariffs on their corn products.

FARM TARIFFS

China’s Ministry of Finance said it would add tariffs of as much as 15 percent on a wide range of agricultural imports from the United States, including chicken, wheat, corn and cotton. Beijing’s retaliation for escalating American tariffs on Chinese-made products also includes 10 percent tariffs on imports of sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.

China accounted for 14 percent — roughly $24.7 billion — of all agricultural goods exported from the United States in 2024, according to data from the Department of Agriculture. Mexico and Canada imported even more: about $30.3 billion worth of goods for Mexico and $28.4 billion for Canada.

China started to buy more soybeans from Brazil during Mr. Trump’s first term. China bought less pork. Soybeans accounted for about half of U.S. agricultural exports to China last year. About 85 percent of potash, a key ingredient in fertilizer, is imported from Canada, according to the American Farm Bureau Federation.

During Mr. Trump’s first term in the White House, China responded to his administration’s tariffs on Chinese goods with retaliatory tariffs ranging from 5 to 25 percent on many U.S. agricultural products. Those tariffs reduced U.S. agricultural exports by nearly $26 billion, according to a research report by the Agriculture Department.

Canada is the largest supplier of lumber to the U.S. Nova Scotia will immediately limit access to provincial procurement for American businesses. The U.S. will no longer be able to bid on provincial contracts while the province actively explores options to cancel existing contracts and reject current bids. The province will double tolls at the Cobequid Pass for commercial vehicles from the United States, effective immediately.

ECONOMY

This week’s tariff whiplash and the uncertainty it has caused in markets highlights the economic situation facing budget makers as the season unfolds. The Fed released its latest Beige Book summarizing current economic conditions across the country. You will note some common themes across regions which are a direct reflection of the policy changes being rolled out by the Trump administration and their potential impact on economic activity.

Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers. However, most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.

Prices increased moderately on average as wholesale food prices spiked, and contacts expressed concerns that tariffs would contribute to more intense pricing pressures moving forward.  Many businesses noted heightened economic uncertainty and expressed concern about tariffs. Half of the districts note a contraction in consumers spending and only two districts, in fact, saw a boost in consumer spending.

These all indicate higher prices and dampened demand may be as much of a result of the tariff scheme as would the alleged prosperity which will result. We are already seeing the signs – slower job growth, declining yields. That doesn’t include the price uncertainty arising from the President’s erratic trade policy announcements. That is raising the specter of higher car prices (average new car is nearly $50,000) even before the impact of eliminating tax credits for electric vehicles.

SOLAR

In 2024, solar photovoltaic sources accounted for more than 6.8% of all electricity generated in the U.S., up from 5.5% in 2023, a 24% year-over-year increase, according to the U.S. Department of Energy’s Energy Information Administration (EIA). A terawatt-hour (TWh) is a unit of energy that is equal to 1,000,000,000 kilowatt-hours (kWh). Total solar photovoltaic generation surpassed 300 TWh, an increase of 64 TWh from the prior year. This 27% growth was the largest absolute increase in solar generation since 2016.

Utility-scale solar expanded by 32%, while distributed solar grew by 15.3%, according to the EIA. As a share of total U.S. generation, utility-scale solar now accounts for nearly 5%, while distributed solar contributes just over 1.9%. Three states—Iowa, South Dakota, and Kansas—now generate more than 50% of their electricity from wind and solar. Maine and New Mexico surpassed 10% solar generation for the first time. 

The growth threatens to slow as the legacy generation companies fight  very hard to make solar less financially attractive especially to individuals. In California, the Public Utilities Commission is proposing more change to the state’s net metering structure. Under the CPUC’s previous net-metering regimes, customers are paid full retail rates for solar power they send back to the grid for 20 years.

CPUC proposes shortening those legacy periods, which could reduce costs for utilities but also undermine the economic calculations that made rooftop solar worthwhile. The Commission also proposes adding a ​“grid-benefits charge” to the bills of existing rooftop solar owners — in essence, charging them extra for having solar panels.

One approach the utilities have been slow to employ is to charge new sources of bulk demand (like data centers) the incremental costs of supplying those customers. That can offset some of the “lost” income from residential solar users. That would lower the need for new generation to meet the new bulk demand. That is a form of cost shift which makes more sense.  

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