Joseph Krist
Publisher
PIPELINE PAUSE
“The development of Navigator CO2’s pipeline project has been challenging. Given the unpredictable nature of the regulatory and government processes involved, particularly in South Dakota and Iowa, the Company has decided to cancel its pipeline project.” And so, Navigator CO2 announced it is halting its plans for a 1,300-mile pipeline to take carbon dioxide from ethanol plants across five states to be sequestered in Illinois.
On Oct. 10, Navigator withdrew its application for a certificate of authority before the Illinois Commerce Commission, needed to allow the company to use eminent domain for the pipeline route within Illinois. Navigator had only 15% of the agreements with residents it would need to pursue the route without eminent domain. In late September, the company had officially paused its permit-seeking process in Iowa, following a permit denial in South Dakota.
Navigator first proposed to sequester carbon dioxide in Christian County, Illinois, even though Christian County passed a moratorium on such projects. Navigator’s latest application also had a spur leading to a sequestration site in Montgomery County, Illinois.
According to DOE, Biden’s goal of a net-zero U.S. economy by 2050 will require capturing and storing 400 million to 1.8 billion million metric tons of CO2 annually through CCS and carbon removal technology such as direct air capture. DOE estimates 30,000 to 96,000 miles of pipeline could be needed to link capture sites with geologic storage. There’s only about 5,000 miles of CO2 pipeline in operation today in the United States.
One of the other major pipeline companies – Summit Carbon Solutions -has formally extended the in-service date for its unapproved carbon pipeline network from 2024 to 2026. It blamed regulatory delay. In North Dakota, the Public Service Commission has agreed to reconsider Summit’s permit request with an adjusted route. A hearing to consider whether to overrule two county ordinances that restrict pipeline placements is expected to be scheduled for no earlier than December. In South Dakota, Summit plans to adjust its route and reapply for a permit. In Iowa, Summit’s final evidentiary hearing is set to resume in November.
HONOLULU MASS TRANSIT
The Honolulu Authority for Rapid Transportation (HART) announced that the Federal Transit Administration (FTA) will begin the process to restart funding for Honolulu’s expanding rail system. The goal is to finalize a new grant agreement with the city by the end of this year. That would lead to an immediate grant of $125 million. More importantly, it would enable a process to release funds which had been earmarked for the Honolulu project.
The FTA has withheld $744 million in federal funds since 2014 as the city struggled to resolve cost overruns and a long series of construction delays. The original funding plan was established in a 2012 agreement. That plan called for the federal government to contribute $1.55 billion to help fund construction of a 20-mile elevated line originally expected to cost $5.1 billion. It was supposed to be open for business by 2020.
The city ultimately decided shorten the line by one mile and eliminate the construction of a large parking garage. It cancelled plans for two stations. Those changes to the rail project triggered a new environmental review process and required a new grant agreement with the federal government. Completion of the shortened rail line is now scheduled for spring of 2031. HART estimates the system will now cost $9.93 billion including finance charges.
It is expected that the FTA will release $125 million in federal funding once the new full funding grant agreement is finalized, and will provide an additional $250 million after HART awards a contract for construction of the rail line and stations in the city center. The first 11 miles of the rail system opened on June 30, but ridership on the half-built system has been limited.
HEALTHCARE
Westchester County Health Care Corporation (WCHCC) operates the only tertiary and quaternary provider between New York City and Albany. WCHCC is also the majority corporate member (60%) of Bon Secours Charity Health System with hospitals in Rockland and Orange Counties, and the sole member of HealthAlliance with hospitals in Ulster and Delaware Counties. This creates a large service area with unfavorable demographics and economics.
Like many other systems, WCHCC experienced significant utilization impacts during the pandemic from which it has been slow to recover. Now those impacts have hit WCHCC’s ratings. Moody’s just lowered its rating on WCHCC debt as well as that of institutions which WCHCC guarantees to Ba1 from Baa3. Lower than expected operating performance and thin liquidity that will result in high operating and balance sheet leverage for several years was cited. Uneven state funding sources and equity contributions toward a planned capital project will further strain cash.
CA HITS THE BRAKES ON AV
The California DMV today notified Cruise that the department is suspending Cruise’s autonomous vehicle deployment and driverless testing permits, effective immediately. The DMV has provided Cruise with the steps needed to apply to reinstate its suspended permits, which the DMV will not approve until the company has fulfilled the requirements to the department’s satisfaction. This decision does not impact the company’s permit for testing with a safety driver.
Based upon the performance of the vehicles, the Department determined the manufacturer’s vehicles are not safe for the public’s operation. It found that the manufacturer has misrepresented any information related to safety of the autonomous technology of its vehicles. The ongoing investigation centers on an incident we reported last week that killed a pedestrian. The federal government announced its own probe last week which is focused on two reports to the NHTSA and a further two incidents the regulator identified on “public websites.”
TECH HUBS
The creation of hydrogen hubs has grabbed attention as a potential source of carbon mitigation. The focus has been on developing the technology versus just economic development. This week, the Biden Administration announced a hub plan for “tech” development in fields like autonomous systems, quantum computing, biotechnology, precision medicine, clean energy advancement, semiconductor manufacturing.
The U.S. Department of Commerce’s Economic Development Administration (EDA), announced the designation of 31 Tech Hubs in regions across the country. The Tech Hubs program is “an economic development initiative designed to drive regional innovation and job creation by strengthening a region’s capacity to manufacture, commercialize, and deploy technology that will advance American competitiveness.” Each designated Tech Hub can now apply to receive between $40 million and $70 million each for implementation funding, totaling nearly $500 million.
Like many other job creation programs, it managed to achieve buy in by spreading out the projects across the country. These Tech Hubs are located across 32 states and Puerto Rico, and represent a cross-section of urban and rural regions. For Puerto Rico it could become a case of remember the future. The PRBio Tech Hub would center on biopharmaceutical and medical device manufacturing in Puerto Rico. The irony is that the project could take PR back to its Section 936 days when it was a significant pharmaceutical manufacturing center. Once the 936 tax benefits were fully phased out, the pharmaceutical industry on the island declined significantly.
Other hubs reflect some already established investments. The Intermountain-West Nuclear Energy Tech Hub centers around small modular reactors and microreactors in ID and WY. Those two states were already pursuing nuclear generation technologies.
SPORTS DEFAULT
The high yield market is watching another speculative sports related bond issue default. In May, the operators of a 320-acre destination sports facility in Mesa, AZ declared bankruptcy. Over the summer, the owners hoped to be able to sell the facility via competitive auction. Unfortunately, that never came to fruition and the pressure to sell the facility increased. The judge presiding over the Chapter 11 proceedings was pressuring the parties to get the project sold.
Now, Legacy Park will sell for $25.5 million with the buyer Burke Operating Partners to provide $19.5 million and $6 million to come from the landlord Pacific Proving LLC. A sale hearing to close the deal with the judge’s approval will be scheduled for Nov. 20 with the expectation to close by Nov. 30. Some $19.1 million will go to pay the mechanic lien claimants, who were roughly owed $30 million.
That just leaves the little detail as to what happens to the holders of the approximately $283 million of bonds issued through the Arizona Industrial Development Authority. If this deal is approved, bondholders will get $2.2 million and 11% of equity in the buyer. It is another pelt on the wall of failed sports bond credits. And it even had literally dozens of pickleball courts. What could’ve gone wrong?
FREE TRANSIT
Free transit fares are just one of several progressive ideas being tested out when the opportunity arises. Given the impacts of the pandemic on transit ridership, these efforts are being undertaken to attract and reattract riders. The results of these efforts have varied with the programs in smaller cities being perceived more favorably. In the big cities, the testing of the concept has been more limited and the results have varied.
The Mayor of Boston is a big proponent of free fares on the T. This summer, the closure of a tunnel was accompanied by free fares on the T’s Blue Line. It was thought that a combination of free fares and the closure would provide a good test for the impact of fares. For proponents of the idea, recent results from the T experience over the summer was not especially encouraging.
The Sumner Tunnel connects Logan Airport to I-93 in Boston. It was closed on July 5 for rehabilitation. According to MBTA estimates, 40,000 cars travel through the Sumner Tunnel on a typical weekday. The MBTA estimates the riders of 3,900 cars, or nearly 10 percent of the total, shifted to public transit, while 5,500 cars just stopped coming in to Boston. The T estimates three-quarters of the cars just traveled a different route – 10,200 used the Ted Williams Tunnel, 10,400 used the Tobin Bridge, and 10,000 used other roads.
The tunnel reopened August 31. Weekday ridership dropped 3% on the Blue Line and 58% on ferries after the reopening. Fares were maintained on the Orange Line but increased service seemed to have attracted riders. Orange Line ridership weekdays was up 14% and commuter rail posted a 1% gain. We expect that such experiments will continue but we do not see fare free transit in the big cities taking hold in the near term.
LOUISIANA REJECTS A P3
The Louisiana legislature voted to reject a proposed private-public partnership that would have replaced the Calcasieu Interstate 10 Bridge. The $2.1 billion project would have relied on state and federal funding along with tolls. It was the proposed use of tolls that killed the plan. Now, the recently elected governor will have to come up with a plan to replace the bridge without tolls. The opposition to tolls is reflective of the current state of Louisiana politics.
The final vote on the plan fell mostly along party lines, with Republicans largely voting to reject the deal, and Democrats voting to approve it. The trucking industry was the main source of opposition. The plan called for tolls on vehicles across four categories: 25 cents for local cars, $2.50 for nonlocal cars, $2.55 for medium trucks and $12.50 for large trucks equipped with toll tags. Some $800 million in state and federal money for the project had been committed, with the other dollars set to come from toll collections.
The truckers prefer that the project be funded with much more federal funding so as to allow the bridge to remain toll free. In 2017, a bill to raise the state’s fuel tax in part to fund the bridge failed. These deals have been an especially tough sell in the South. Bridge and prison P3s in Alabama fell to political winds as has this one.
RELIGIOUS CHARTER SCHOOLS
Oklahoma’s Attorney General sued to stop a state board from establishing and funding what would be the first publicly funded religious charter school after the board ignored his warning that it would violate both the state and U.S. constitutions. The Oklahoma Statewide Virtual Charter School Board was sued after three of the board’s members signed a contract for the St. Isidore of Seville Catholic Virtual Charter School, which is sponsored by the Archdiocese of Oklahoma City.
Oklahoma’s Constitution specifically prohibits the use of public money or property from being used, directly or indirectly, for the use or benefit of any church or system of religion. Nearly 60% of Oklahoma voters rejected a proposal in 2016 to remove that language from the Constitution. Nevertheless, the school “participates in the evangelizing mission of the Church and is the privileged environment in which Christian education is carried out.”
The AG’s lawsuit also suggests that the board’s vote could put at risk more than $1 billion in federal education dollars that Oklahoma receives that require the state to comply with federal laws that prohibit a publicly funded religious school.
MEDICAID WORK RULES
Georgia remains the only state permitted to impose work requirements on Medicaid recipients. Those sorts of regulations have been challenged and overturned in the courts. Georgia’s Pathways to Coverage was conceived as the replacement program. The Georgia Department of Community Health has projected up to 100,000 people could eventually benefit from Georgia Pathways to Coverage.
That outlook is clouded by the fact that the new health plan for low-income adults has enrolled only 1,343 people through the end of September. As has been the case in other states where work rule efforts failed it is the reliance on individuals to use computers to document work. That assumes that recipients (among the nation’s poorest) have access to a computer to submit information. Many low-income people struggle to document the required 80 hours a month of work, volunteer activity, study or vocational rehabilitation.
During the pandemic, states were not allowed to reduce their Medicaid rolls. That time period ended earlier this year and many states began a process to force those who had qualified during the pandemic to resubmit qualification data. The state launched Pathways on July 1 coincident with its review of Medicaid eligibility following the end of the COVID-19 public health emergency. In addition to imposing a work requirement, Pathways limits coverage to able-bodied adults earning up to 100% of the poverty line — $14,580 for a single person or $30,000 for a family of four.
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