Joseph Krist

Publisher

DETROIT PROPERTY TAX EXPERIMENT

As a city with a significant amount of vacant land, Detroit has always faced difficulties in maintaining property tax revenues. Taxed according to traditional property tax valuation methods, the relationship between land and development could not have been clearer. As the City tries to continue its recovery, the abundance of underutilized land has driven moves to try to derive value from those lots commensurate with their location, size and development potential.

Under the current system, vacant land and blighted buildings are taxed at a much lower rate than land with single-family homes and other structures. The Mayor would see land and structure values taxed separately. Detroit would have the ability to increase the tax millage on land and reduce the tax millage on structures like homes and buildings. That means property taxes on land will go up while the taxes on structures like homes and buildings would go down. 

According to the Mayor, ninety-seven percent of Detroit homeowners would see a reduction in their property taxes while the remaining 3% would see no change at all. The median homeowner will save 27% on their tax bills. The average $50,000 home in Detroit will see a $450 tax cut, while a $100,000 home will see a tax cut of $900.

The goal has been to qualify an amendment question on the ballot in February, 2024. The Legislature needs to approve enabling legislation and it has been a slow-going process. If approved, the Land Value Tax Plan would be phased in over three years beginning in 2025.

MEDICAID

In August we noted concerns regarding the potential loss of Medicaid benefits by those whose removal had been halted by pandemic regulations. In the states where the opposition to expanding Medicaid under the Affordable Care Act has been the strongest, aggressive moves were made to remove thousands of patients out of the program. Florida was particularly proud of its efforts in this area. Advocates had cited the potential for these removals as a real source of concern.

The initial data indicates that those concerns were not assuaged. Just before Labor Day, federal officials notified states that there were problems with the eligibility certification process. The Centers for Medicare & Medicaid Services (CMS) worked with states on the return to regular eligibility operations following the end of the Medicaid continuous enrollment condition. In that time, it identified issues where states are out of compliance with renewal requirements.

This issue most commonly affects children in households with at least one adult enrolled in Medicaid. Medicaid and CHIP eligibility levels for children are generally higher than those for adults. While the Medicaid income eligibility limit for adults is 133% of the federal poverty level (FPL), the median Medicaid/CHIP eligibility level for children across states is 255 percent FPL. Children’s eligibility levels range from 170% of FPL to 400% of FPL with all but two states covering children at or above 200% FPL.

CMS also determined that due to incorrect systems programing or other operations, some states are requesting information or documentation for individuals for whom the state has completed a renewal and are terminating coverage for individuals if other members of the household do not provide requested verification.

CLIMATE DISCLOSURE

California Gov. Gavin Newsome signed off on the Climate Corporate Data Accountability Act, or SB-253, and the Climate-Related Financial Risk bill, or SB-261. SB-253 will require all public and private firms that operate in California — and whose annual revenues surpass $1 billion — to disclose both direct and indirect greenhouse gas emissions. If companies fail to adhere to the demands of the law, they will face fines of up to $500,000 a year.

SB-261, meanwhile, will require companies that generate more than $500 million in annual revenue to publish climate-related financial risk reports biennially, beginning in 2026. Failure to comply with SB-261 will result in administrative penalties of up to $50,000 in a reporting year.

Federal rules proposed by the U.S. Securities and Exchange Commission are not as stringent as the California rules. Those proposed rules would require publicly traded companies to disclose both direct and indirect emissions, while the California legislation includes private corporations as well. The laws do not impose any additional reporting requirements for municipal bond issuers. At least, not yet.

SCOTUS AND CLIMATE CHANGE

The U.S. Supreme Court agreed to hear an appeal from fossil fuel industry entities who are being sued by the State of Minnesota. Like so many cases filed by other jurisdictions, the suit charges that the defendants knowingly concealed evidence of the impact of their businesses on the environment. Like all of the other litigation, the case being made is that the issues at hand are federal rather than state issues.

In its last session, the Supreme Court declined to hear challenges to climate cases from Hawaii, Colorado, Rhode Island, Baltimore, Maryland, and San Mateo County, California, that were all seeking to have the cases moved to federal court. 

LABOR AND HEALTHCARE

Given its outsized role in the healthcare ecosystem serving the western U.S., the settlement of negotiations this week between Kaiser Permanent and its non-provider workforce are a sign of the challenges many systems face in the post-pandemic world. As we discussed last week, some 75,000 employees at Kaiser Permanente health facilities staged a three-day job action. The strike was designed to move negotiations on expired contracts.

The strategy seems to have paid off. As we go to press, Kaiser has announced an agreement with the striking workers. A proposed four-year contract would include significant wage increases. The contract would set a new minimum of $25 an hour in California for the healthcare workers. That creates a new tier of minimum wage, $5 an hour higher than the new raise approved for fast food workers. It is about $10 an hour above the state’s basic minimum. The agreement would raise the hourly rate to $23 in other states and would stagger a 21 percent increase in wages over four years in all locations. 

Along with general inflation, labor costs have been and likely will continue to be a pressure on finances. The fact that this contract covers a large multi-state employer reflects at least one sign that size and consolidation are not providing much relief from the current wave of cost pressures.

In the Midwest, it is the provider class which is moving towards organizing in the face of recent trends. Some 400 primary and urgent-care providers across more than 50 clinics operated by the Allina Health System in Minnesota and Wisconsin have voted to unionize. The group is estimated to be the largest group of unionized private-sector physicians in the United States. More than 150 nurse practitioners and physician assistants at the clinics were also eligible to vote and will be members of the a local of the Service Employees International Union.

The issues were not just compensation based. In many areas and systems, staffing levels are a huge bone of contention between providers and hospitals. Allina say that staffing was a concern before the pandemic and that staffing has never fully recovered to its prepandemic levels. Others point to relatively low pay for clinical assistants and lab personnel. These factors appear to have contributed to the staffing issues.

NUCLEAR LITIGATION SETTLEMENT

Georgia Power is moving closer to settling litigation over the cost overruns associated with the expansion of the Votgle nuclear plant. A 2018 agreement was arrived at when the parties were at odds over who would pay for the rising costs from building the new units. That agreement gave Oglethorpe Power and the new units’ other co-owners — MEAG Power and Dalton Utilities — a one-time chance to cap their liability for construction costs. The utility partners believed that once a certain cost level was breached, the agreement permitted them to effectively cap their ultimate liability.

Georgia Powert already settled similar claims with the Municipal Electric Authority of Georgia. MEAG owns a 22.7% share in the new Vogtle reactors. A lawsuit filed by Dalton Utilities, which holds a 1.6% stake in the units, is still pending. Georgia Power said that it could have to pay another $17 million to resolve that dispute.

Now, a settlement between Georgia Power and partner Oglethorpe Power has been announced. Oglethorpe Power claimed that costs had moved past the trigger point of $19.2 billion agreement established in the 2018, affording the co-op the opportunity to limit its exposure to the rising costs, in exchange for forfeiting a share of its ownership in the new units. Georgia Power argued costs hadn’t yet reached that level.

Georgia Power said it will pay Oglethorpe $308 million to cover its share of construction costs that were already incurred. Georgia Power will also pay an estimated $105 million for Oglethorpe’s portion of the costs needed to complete Vogtle’s expansion, and will cover 66% of any additional cost overruns. Oglethorpe will maintain its 30% ownership in the new Vogtle units and has agreed to dismiss its lawsuit. 

The settlement comes as Georgia Power disclosed last week that it is facing another technical setback with Vogtle’s second new reactor. The problem at Vogtle Unit 4 involves a faulty motor inside one of the reactor’s four coolant pumps, which keep temperatures at safe levels inside the reactor core. Georgia Power said the issue was discovered during start-up testing and that the entire pump will have to be replaced. That pushes the expected commercial operating date into 2024.

SAN ANTONIO ELECTRIC

The Electric Reliability Council of Texas (ERCOT) issued a notice on Oct. 2 requesting as much as 3,000 megawatts of additional capacity — enough to power 600,000 homes during periods of peak demand — for the coming months. As part of that request, ERCOT cited several shuttered coal-fired plants which could be restarted to address the need. One of those plants is owned by the San Antonio electric utility, the J.T. Neely plant. Deely represented 40% of the 2,100 megawatts of capacity that would be eligible for a special contract this winter if it could come back online, ERCOT said in its notice. 

San Antonio will not be reopening the plant. The utility cited the short amount of time before the onset of winter relative to the time frame for getting the plant back in operation. The plant has been closed for five years. Supplies that are eligible for special contracts under ERCOT’s request include plants that have been or are about to be mothballed, new gas plant projects that may be accelerated and programs that pay big power users to curtail their usage during emergency conditions. 

GUARANTEED ADMISSION

The increasing pressure faced by colleges in an environment of declining demand is generating a variety of different approaches to the problem. As the demographic trends depressing college demand continue, the competitive environment for attracting students is driving a variety of different responses. The latest is guaranteed admissions.

Virginia Commonwealth University in Richmond, Virginia, recently announced a guaranteed admission program for first-year freshman applicants who have a GPA of 3.5 or higher and are in the top 10% of their high school graduating class. Last spring, the State University of New York notified some 125,000 graduating high school students that they had been automatically accepted. Undergraduate enrollment in the U.S. peaked at about 18 million students over a decade ago. Today, there are more than 2.5 million fewer students enrolled.

Cost continues to be a huge factor. Tuition and fees plus room and board for a four-year private college averaged $53,430 in the 2022-23 school year. At four-year, in-state public colleges, it was $23,250. When you put that together with the declining view of the worth of a college education held by many for whom cost is a huge issue, the pressure on enrollments should not be a surprise.  

CHICAGO – HOPE VS. REALITY

Chicago Mayor Brandon Johnson unveiled his proposed budget for the city of Chicago for the fiscal year beginning January 1. The much-anticipated plan followed significant campaign promises from the Mayor. Many of his plans included higher taxes to fund increased spending on social services-related needs. Those plans were made before it became clear that the projected budget gap for 2024 was some $580 million. Total spending is set at $16.6 billion.

The new promises and revenue requirements have driven some tried and true tactics to balance the budget. The Mayor declared a tax increment financing surplus of about $434 million, Chicago’s highest in 15 years. By closing five TIF accounts and siphoning $100 million from the La Salle Street TIF, he’s generating roughly $100 million for the General Fund and more than twice that amount for Chicago Public Schools. The city again will refinance city bonds, generating $89.2 million and carrying over $50 million from last year’s unspent balance.

The signs of a cash-strapped city remain as the Mayor relies on some old school special moves to present a “balanced” budget. They include $41.5 million in unspecified “personnel savings”. There was no detail as to whether the savings will come from closing out vacant positions or the elimination of other jobs. At present, it is estimated that there are 1,700 police vacancies. At the same time, Johnson’s plan includes 311 new positions and an overall city workforce of 36,729, the highest in years. 

The Johnson administration is relying on “improved revenue projections” to generate $186.8 million and stronger “revenue enforcement collections” to add $35 million. The plan however, does not include any of the local tax increases — on jet fuel, hotel rooms and business employment — which the Mayor promised during the campaign. It also maintains property tax rates and eliminates the automatic escalator that increases property taxes to match the rate of inflation.

The budget does seek to address some well-established concerns. $303 million is allocated for a pension prepayment and $53 million for lead pipe replacement which has been a significant ongoing issue. There’s a “slight increase” in the police budget, to $1.74 billion, from the corporate fund. But some vacant police positions will not be filled. Nevertheless, spending on police will exceed 10% of the total budget.

WIRES VERSUS PIPES

There has been so much attention paid to the efforts of carbon pipeline builders to obtain approvals for their proposed projects that it has taken attention away from efforts to develop other energy infrastructure. One such sector is that of new electric transmission projects. One of the largest new projects is the Grain Belt Express. It is designed to move wind generated power from Kansas to Illinois through Missouri. It had received approvals from regulators in Kansas and Illinois but it was a harder process in Missouri.

The project would have traversed the whole state of Missouri but would have provided only a minor share of the power from the line within Missouri. Local Missouri utilities made an effective case that given the physical impact of the line on the state, that it made more sense to provide a more substantial share of the power travelling through the line to their customers. Now, the Missouri Public Service Commission has approved a revised plan for the line and the distribution of its power.

Previously, state utility regulators approved a line that would have brought only 500 megawatts of energy to the state. Now, five times as much electricity will be delivered to the state some 2,500 megawatts as compared to earlier plans. The project sponsor – Invenergy – must either sign voluntary deals with landowners or use its power of eminent domain to build on the property of landowners.

The fight against the use of eminent domain failed last year in the Legislature. Instead, the legislature compromised and legislated that in the event of future large transmission lines, greater compensation for landowners be provided. The laws also set a seven-year time limit for companies to build transmission lines after obtaining their easements.

As this goes to press, Invenergy said it had acquired 95% of the easements it needs in Kansas and Missouri.

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