Joseph Krist

Publisher

NOVEMBER 5 AND MUNICIPALS

The election results and initial announcements of cabinet nominees have set everyone about the task of trying to figure out what the impact of the federal elections will be on municipal bonds. There are certainly plenty of tea leaves to examine in the process. One thing making analysis harder in this case is the history of wild inconsistencies in terms of policymaking and implementation we saw in the first Trump administration.

The prime example is the experience with Trump’s infrastructure policies. It’s easy to chuckle and remember that Infrastructure Week never happened. The massive support for public/private partnerships initially expressed quickly withered. The Gateway Tunnel project sat unfunded. In the time between 2016 and now, many significant P3 projects have been completed even in places like New York State. But they were locally driven.

Then there is the STAR deduction. Repealed by the 2017 Tax Act, it reflected real regional animus towards states like NY and CA. Now, the President purports to support reinstatement of the deduction. Considering his election performance in many of the states (even where he lost) it would not seem to be a high priority. Someone should tell that to the President of the NYMTA who is suggesting that congestion fees can be paid out of the lower tax bill due to a reinstated STAR deduction.

What exactly does an RFK Jr. leadership at HHS mean if it actually happens. There is plenty of reason to believe it won’t. Will he try further cuts to Medicaid and Medicare? Will an effort be made to repeal the ACA? Does he continue efforts to defund rural healthcare? What is the outlook for a hospital sector given all of these uncertainties? How will all of this impact health costs for states?

For big city credits with significant migrant related impacts, the outlook is really cloudy. If there is a serious effort to deport illegal migrants, a number of ancillary costs and impacts will be borne by localities. NYC is still taking care of some 60,000 migrants. Chicago is undertaking a plan to close migrant-only housing facilities and house homeless migrants in its existing homeless housing system.

What will the final shape of the expected tax cutting plan look like and how it will impact municipal bonds isn’t clear no matter what anyone tells you. Turnover leads to a need to constantly educate Congress about municipal finance. With different seniority rules, it’s harder to find legislators with enough detailed knowledge to advance the cause. Something on private activity bonds could be positive. I would be surprised if favorable changes to advance refunding rules emerge. I would be happily surprised if SALT was preserved.

One policy change likely to be implemented is the end of the $7500 electric vehicle purchase subsidy. Trump needs to repay fossil fuel industry supporters and his ally. Mr. Musk thinks that the end of the credit will be worse for his competitors. Tesla does not rely heavily on the tax credits as some Tesla models do not qualify for them because of several requirements, including that the vehicles be free of Chinese-made components. According to the International Energy Agency, the global rollout of electric vehicles could reduce oil demand by nearly six million barrels a day by 2030.

CONVENTION CENTER REALITIES

In 2023, Orlando will host the largest number of the top 250 conventions, followed by Chicago, New Orleans, and San Diego. The South/Southeast region will host 38% of the top 250 conventions in 2023, followed by the West/Pacific region at 31%. Within individual states, California will host 17% of the conventions, followed by Texas at 12% and Florida at 8%.

Dallas is spending $3.7 billion to build a new 2.5 million square foot convention center next to an existing one built in 1973. In Orlando, Fla., the Orange County Convention Center will be expanding at a cost of $560 million. The City Council in Los Angeles approved a $1.4 billion plan this year to add nearly 350,000 square feet to the city’s aging convention center as well as to renovate an adjacent plaza. The project is expected to be completed ahead of the 2028 Summer Olympics.

In recent years, Las Vegas, Denver and San Francisco invested hundreds of millions of dollars to expand and update their convention centers. The Javits Center in New York completed a $1.5 billion expansion in 2021. It is far from clear that these facilities achieve anywhere near the financial results initially projected in support of associated debt. The number of large conventions has declined even though available space is growing.

CONGESTION PRICING

Governor Kathy Hochul announced that she was supporting congestion pricing but at a lower charge. The originally planned rollout featured a $15 charge. The Governor proposes a $9 charge. The move is motivated by the fact that the elections are over for now and that it is highly unlikely that a Trump administration would give the required federal approval. The Governor’s goal is to have the charges begin before January 20.

It’s not clear that a $9 fee generates the level of revenues demanded by the authorizing legislation supporting the charge. The idea was to establish a charge at levels sufficient to generate some $1 billion annually. Advocates are already contemplating longer amortization of debt planned to be supported by fee revenues.

State officials believe that they will not need to repeat the lengthy environmental review process because the previous review accounted for a range of tolls from $9 to $23. The state and city must sign an agreement with transportation officials in the Biden administration. The proposed reduction would apply to all types of vehicles including trucks. Press reports indicate that state officials say privately that with a $9 fee instead of $15, more motorists may decide to drive into Manhattan, at least partially offsetting the loss in revenue from the lower toll.

Under a revised plan with a 40 percent toll reduction, cars would pay an off-peak rate of $2.25 from 9 p.m. to 5 a.m. on weekdays, and from 9 p.m. to 9 a.m. on weekends. Trucks would be charged $14.40 or $21.60 during peak hours, depending on size. And passengers would see an extra per-ride surcharge of 75 cents in taxis and $1.50 in Ubers and Lyfts. Passenger cars would also receive a discount for entering the congestion zone through four Manhattan tunnels — the Lincoln, Holland, Hugh L. Carey and Queens-Midtown — during peak hours, with a proposed credit of up to $5 going down to $3.

Advocates for congestion pricing are going along with the new plan. They have already expressed an intent for steadily increasing rates while settling for an initial lower rate. There will be many questions regarding the implementation of the plan although we note that the physical infrastructure is in place. The rollout of the program will likely provide lots of fodder for both sides of the debate surrounding the fees.

We will see if the program actually produces all of the traffic and environmental benefits promised or it becomes just another way for the MTA to get revenues.

PUBLIC TRANSIT CUTS

The San Francisco Municipal Transportation Agency (SFMTA) says it is looking at an annual deficit of $240 million to $320 million starting in 2026. It has been presented with several proposals to align service with available revenues. They are said to include cuts to three cable car lines; the F Market streetcar; cuts to undetermined buses and light rail lines; eliminating some nighttime service; and shutting down buses on hilly routes. Muni ridership reached a post-pandemic high in September, with more than 520,000 weekday boardings. The problem is that’s still under 75% of 2019 levels.

AUSTIN ELECTRIC

Austin Energy said that it will bring a new geothermal project online in 2025, and that it will add five megawatts of carbon-free energy to the local grid. It is a pilot project to be located at an existing Austin Energy generation plant. Scottish company Exceed Energy Inc. partnered with Austin Energy on the project.

TAMPA BAY STADIUM

The pictures released after Hurricane Milton hit Florida’s west coast made this week’s announcement that the Tampa Bay Rays would be unable to play the 2025 season at their current home stadium unsurprising. The fabric roof was completely torn off and substantial damage was incurred inside the stadium. It was estimated that repair of the roof and the other damage would be a $55 million proposition.

So, the Tampa Bay Rays will, for the first time, play home games in Tampa. They will utilize the stadium at the NY Yankees spring training complex in Tampa. Steinbrenner Field is the largest minor-league stadium in Florida, with 11,206 seats and 13 skyboxes. Steinbrenner Field is the largest minor-league stadium in Florida, with 11,206 seats and 13 skyboxes.  The Rays’ average attendance in 2024 was 16,515, among the lowest in MLB.

The irony is that this is the second MLB team to plan to play in a minor league ballpark in 2025. The Rays join the A’s in that category. The A’s will play in Sacramento in a triple-A ballpark.

DALLAS

Moody’s Ratings has revised the City of Dallas, TX’s outlook to negative from stable. It affirmed the A1 issuer rating and A1 general obligation limited tax (GOLT) rating. The negative outlook stems from the approval of Proposition U by the electorate. Proposition U requires the city to maintain a police force of about 4,000 and use at least 50% of new revenue for public safety (including pension contributions).

The city will annually increase its pension contributions starting this fiscal year to the Dallas Police and Fire Pension System (DPFP) and the Employee Retirement Fund (ERF) in order to amortize the unfunded liabilities within 30 years, as mandated by state law. Pension funding has been a continuing credit drag on the City for some time. Proposition U is expected to result in the eventual hiring of many additional officers (a force of 4,000 is mandated by the proposition) and an increase in officer starting salaries, both of which will increase the DPFP liability. 

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