Joseph Krist

Publisher

OAKLAND – WHAT’S WRONG WITH THIS PICTURE

In late September 2023, the City of Oakland, CA received an AA+ rating from Standard and Poor’s. The City proudly publicized that upgrade and the Mayor took credit for it citing “Oakland’s commitment to prudent financial policies and sound fiscal management,”. The City noted then that “Both credit ratings agencies point to challenges ahead for the City, among them rising costs to provide services and substantial long-term liabilities for retiree pensions and health care. The stable outlook assigned by both credit rating agencies signals their expectations that the City will be able to meet these challenges through continued prudent financial management and ongoing economic growth.”

Some 14 months later, the situation has apparently changed and declined so rapidly that municipal officials are openly talking about Chapter 9. The Mayor was recalled on November 5, as Oakland residents faced significant crime issues, a perceived decline in general services and quality of life. City officials are faced with an apparently surprising budget shortfall of $93 million for the upcoming fiscal year. Almost all this overspending will be by the police and fire departments. OPD is projected to overspend its 2024-2025 budget by $52 million, mostly due to overtime.

On June 26, 2024, the City Council approved Ordinance No. 13801 authorizing the City Administrator to negotiate and enter into a Purchase and Sale Agreement (PSA) with the African American Sports and Entertainment Group (AASEG) for the sale of the City of Oakland’s (City) 50% interest in the Oakland Alameda County Coliseum Complex property (Coliseum Complex). This follows the departure of MLB’s Oakland A’s after 57 years at the Coliseum.

On August 31, 2024, and as amended effective September 23, 2024, the City of Oakland (City) entered into the PSA, also known as the Real Property Sale Agreement, with Oakland Acquisition Company (OAC), an affiliate of AASEG. The Purchase and Sale Agreement between the City and AASEG provides for $110 million to be paid during the City’s fiscal year ending June 30, 2025. The budget passed by City Council includes $63 million in revenue from the sale.  

The problem is that not all of the parties to the transaction are ready to close. The County has not delivered its approval yet and there are questions about the resources behind the AASEG proposal. In the interim, the finance department forecasts an annual structural deficit of $120 million from 2025 to 2027. The Finance Department has strongly advised against incorporating the anticipated Coliseum sale proceeds into future budget measures until those funds have materialized and the transfer of property title has been executed.

All of this led S&P Global Ratings to placed its various ratings on Oakland, Calif.’s outstanding general obligation bonds, non-ad valorem bonds, and lease revenue bonds on CreditWatch with negative implications. “There is at least a one-in-two chance of a lower rating, potentially by multiple notches, in the next 90 days, given the material and rapid deterioration in the city’s financial position, largely driven by overspending, as well as what we view as potential governance weaknesses that could complicate fiscal decision-making under challenging circumstances,”.

CHICAGO

S&P Global Ratings placed its rating on the city of Chicago, Ill.’s outstanding general obligation (GO) debt on CreditWatch with negative implications, while affirming the ‘BBB+’ rating. The move comes after a unanimous rebuke of the Mayor’s proposal to raise property taxes by the City Council. “”The CreditWatch placement reflects our view that there is at least a one-in-two chance of a lower rating in the next 90 days, pending the passage of the city’s fiscal 2025 budget and our assessment of whether its credit quality has deteriorated due to heavy reliance on one-time budget-balancing measures, perpetuating a large outyear structural imbalance,”.

The 50-0 vote on the tax increase was telling. The Mayor has been reluctant to take on the forces driving the budget. The best example is his plan to finance a school system without addressing many of the issues facing CPS. Borrowing for current pension expenses and reliance on a politically untenable tax to cover the cost of maintaining underutilized buildings and staff just doesn’t cut it. It is unrealistic to expect support for a general tax increase designed to support the Mayor’s relationship with the teachers union.

The new fiscal year begins on January 1 so time is fleeting. The Mayor’s latest proposal is getting a frosty reception. The tax on sale of liquor that is 20 percent or more alcohol by the volume would increase to $3.62 cents a gallon, up from $2.68. The tax on beer sales would climb ten cents to 39 cents.  Many of the effected establishments were crushed during the pandemic. It will face heavy opposition. Our expectation is that the City will not have achieved a comprehensive solution through the current budget process. The Mayor is essentially refusing to do what everyone knows he must do and make significant cutbacks. That should make it easy to see a downgrade soon after New Year’s. 

CALIFORNIA WATER

The Biden administration and eight California water agencies have reached an agreement to share in the costs of raising a dam to expand San Luis Reservoir. A plan would raise B.F. Sisk Dam which would enlarge the reservoir near Los Banos to enable it to hold more water during water suppliers in parts of the Bay Area and the San Joaquin Valley.

Local California agencies that have agreed to help fund the project include urban suppliers such as the Santa Clara Valley Water District, which serves San Jose and other Silicon Valley cities; San Benito County Water District; and the city of Tracy. Also participating are agricultural water suppliers such as Westlands Water District, Del Puerto Water District and Pacheco Water District. The federal government has so far contributed $95 million toward the construction.

The dam is now undergoing a retrofit that will raise its crest by 10 feet and fortify the dam for earthquake safety. The Bureau of Reclamation and local agencies have agreed in principle to raise the dam an additional 10 feet to expand the reservoir’s storage capacity, making it a total of 20 feet taller than its original height. The reservoir will gain an additional 130,000 acre-feet of storage space.  

San Luis Reservoir’s more than 2 million acre-feet of storage space is divided between the State Water Project and the federally managed Central Valley Project. It is owned by the federal government and operated by the state’s Department of Water Resources. The Bureau of Reclamation said its endorsement of the project last year was the first approval of a major water storage project in California since 2011.

FLORIDA INSURANCE

Citizens Property Insurance in Florida paid homeowners’ claims less often than any other insurer in the state last year — with over half of claimants receiving nothing. It is an emerging phenomenon as it occurs in the private sector as well for storm-related claims. Overall, Floridians filing a homeowners insurance claimhad the lowest chance in the 50 states of getting a check from their insurer in 2022, with more than a third of claimsgoing unpaid. In 2022, Florida had the second-highest rate of claims paid after 60 days. Only Louisiana had a higher rate.

CARBON CAPTURE

Summit Carbon Solutions said it resubmitted its permit application to South Dakota regulators with what the company described as “major reroutes.” Summit is highlighting reroutes in Spink, Brown, McPherson and Lincoln counties — areas where local siting laws played a role in state regulators’ denial of Summit’s first permit application. 

Many of the new South Dakota legislators who will take office in January are opponents of the project’s potential use of eminent domain. Fourteen incumbent state legislators were defeated in the June primary election, and the incumbents’ support of a controversial pipeline law was a factor in many races. In August, the South Dakota Supreme Court ruled that Summit had not yet proven its status as a “common carrier,” a designation necessary to the eminent domain process. The court sent the lawsuits back to lower courts, where Summit said it would try to prove its case.

SALT RIVER PROJECT

Salt River Project (SRP) and Flatland Storage LLC, a subsidiary of EDP Renewables North America LLC (EDPR NA) have entered into an agreement to provide 200 megawatts (MW) of new energy storage. The Flatland Energy Storage Project will be a 200 MW/800 megawatt-hour battery energy storage system located near Coolidge, Arizona. The project will utilize lithium-ion technology, designed and manufactured in the U.S. by Tesla.

Scheduled to be online in 2025, the facility will have enough capacity to power up to 45,000 homes for four hours during peak electricity demand periods. SRP currently has nearly 1,300 MW of storage and nearly 3,000 megawatts of carbon-free resources online and serving customers. 

AFTER BERKELEY

When a 2023 federal court decision against the City of Berkeley, CA and its ban on the installation of gas infrastructure in new buildings took effect, environmental advocates looked for new ways to achieve that goal. Now some Silicon Valley municipalities are taking another swing at modifying building codes to influence builders not to use natural gas.

They are adopting “policies” rather than outright restrictions. Cupertino chose to implement a policy that requires new buildings to meet rigorous energy efficiency standards by incentivizing all-electric builds, but left room for a mix of electricity and gas. prohibits the installation of nitrogen oxide-emitting equipment such as water heaters, furnaces, ovens, stoves and dryers in new construction or substantial remodels. 

WILL TRUMP TANK THE D.C. ECONOMY?

One thing for sure is that if a second Trump Administration follows through on its promise to eliminate whole swaths of government, the District of Columbia would face real economic difficulties. “A drastic reduction in federal regulations provides sound industrial logic for mass head-count reductions across the federal bureaucracy,”. If they can’t fire people, the plan is to move agencies out of the District.

It is a tactic which was tried on the Bureau of Land Management during the first Trump Administration. The move did drive a significant majority of the D.C. staff to leave the Bureau. It made the move much more difficult and was generally seen as not successful. The first step in the expected process would be an end to remote work for the Federal workforce. The hope would be that this would drive people to give up their jobs. Then we’ll see if the next step is moving agencies.

MEDICAID

After a period of relative calm, the expansion of Medicaid under the ACA will be coming under pressure. No matter who oversees the Medicaid program, the goal will be to reduce eligibility. In the Southeast, several states will be expected to seek authorization to impose work requirements and more stringent record keeping rules on recipients. During the first Trump administration, it was clear that some of the reporting systems especially in areas of low or no internet penetration were really designed to make reporting very difficult.

Should those requirements be imposed (it will be done at the state level but federal approval is needed) the hospital sector will be under pressure. That will drive pressure on states to go back to the days of uncertain indigent care funding. In rural states, it will only increase the pressure on small rural hospital facilities.

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