Joseph Krist
Publisher
NYC
The realities of the current situation with the Office of the Mayor of the City of New York and his merry band of long time “associates are in full view. He stood as a lonely and forlorn figure at this week’s Tuesday with Eric, alone at the podium. He didn’t get to enter to his walkup music. Yes, the Mayor had walkup music as if he was coming to bat at Yankee Stadium. It reflects the reality that since our last issue, the Governor has reminded Mr. Adams of her power to remove him.
It is clear that his survival depends on a reshuffle at City Hall. Two of his most influential and long-time associates left and it’s clear that hanging on is not a strategy. It would not be a surprise to see additional administration insiders depart sooner rather than later. The implications that more charges could be filed will likely generate some more reflection and action.
We still remain sanguine about the City’s willingness and ability to pay debt service. From the point of view of consumers of public services, the next 15 months will be rocky at best. There are significant vacancies in the city’s civil service ranks with many spots vacated in the face of the pressure from the City to return to work quickly during the pandemic. Many of the job “cuts” announced by the City over recent financial plans are actually just acknowledgement that many of those positions have become unfillable under current conditions.
Still think the rating is stable?
HOSPITAL CONVERSION
The Lee Health System operates 6 hospitals in Southwest FL, numerous specialty and service centers, and employs over 15,000 people. The healthcare system first opened its doors in 1916 as a community-centered nonprofit. In 1968, Lee Health began operating as an independent special healthcare district created by the State and governed by an elected Board of Directors. Now, the system wants to convert into a private nonprofit healthcare provider.
Moody’s announced that the proposed conversion of Lee Memorial Health System (LMHS) from a governmental unit to a private, nonprofit corporation would not, in and of itself and as of this point in time, result in a reduction, placement on review for possible downgrade or withdrawal of its current rating of A2. Lee Health System, Inc. will the sole remaining member of the Obligated Group under the existing Master Trust Indenture and solely responsible for the repayment of the outstanding bonds.
Management has desired the change to enable the System to expand its footprint into neighboring counties. Some 20% of patients are from out of the county. This change would for example, allow the system to own and operate physician practices and the like in adjacent counties.
AUTONOMOUS VEHICLES
Cruise, the autonomous driving unit of General Motors, has agreed to pay a $1.5 million penalty for failing to properly report an accident in which one of its self-driving taxis severely injured a pedestrian last year. That accident was largely responsible for Cruise vehicles to be taken out of service in San Francisco. Cruise will also face increased oversight of its activities as it restarts testing of its technology in Phoenix, Houston and Dallas, the regulator, the National Highway Traffic Safety Administration
Waymo continues to offer autonomous rides in San Francisco, Los Angeles and Phoenix. The company is also testing its service with human drivers in Austin, Texas. Zoox, a subsidiary of Amazon, is also testing a self-driving taxi service that uses a car with no steering wheel or driver’s seat. Humans monitor vehicle operations from a remote command center. Cruise has resumed autonomous driving operations in Phoenix and Dallas, but with humans at the wheel who can intervene.
Prior to October 1, New Jersey residents who purchased an electric vehicle did not have to pay state sales tax on that purchase. This week, legislation took effect that reduces that subsidy by half. Now, a sales tax of 3.3125% will be included in the purchase price of the vehicles. The establishes that the state’s full sales tax of 6.625% is to be levied on transactions involving zero-emission vehicles, beginning July 1, 2025.
The NJ Office of Legislative Services estimates that the phaseout of the sales-tax exemption is expected to bring in $75 million in new revenue for the budget’s general fund during the 2025 fiscal year.
HELENE
The hurricane has moved on but the impact is likely to be around for a long time. We’ve been asked what we think the credit impact might be on communities damaged. In terms of debt repayment, we are not concerned in the near term. We see the greater pressure reflecting the role that local and county governments will play in any recovery going forward.
Even under these circumstances, a process needs to be followed. As issuers and overseers of a variety of regulations and procedures, localities and counties will bear the brunt of the demand for services. Managing building on this scale within a limited amount of time will create bottlenecks in the system. Government workers will be torn between their jobs and their need to rebuild and/or relocate.
The storm will also focus attention on transportation, particularly the road and bridge infrastructure. A number of local bridges were not just damaged but destroyed, and floated away In the short term, I-40 and I-26 suffered significant damage and were closed. The barriers to workers and goods moving about to respond are significant. The situation calls out for quick solutions but some of the damage points to longer term issues.
In total, according to data from PowerOutage.us, about 1.3 million electric customers remained without power on Wednesday morning, almost a week after Helene struck Florida as a Category 4 storm. About 500,000 of the outages were in South Carolina; North Carolina and Georgia each had more than 300,000 outages remaining.
FEMA can spend as much as it needs to on disaster recovery thanks to a provision Congress approved a few days ago and special caveats for emergencies. The stopgap spending bill enacted last week, which keeps the federal government running through Dec. 20, included a provision allowing FEMA to spend money from its Disaster Relief Fund at a faster rate than would have otherwise been allowed. Provisions covering “immediate needs funding” or INF are designed to facilitate recovery. INF restrictions do not affect individual assistance, or public assistance programs that reimburse emergency response work and protective measures carried out by state and local authorities.
The role of insurance is always important in the process of recovery from natural disaster. In dozens of counties in Georgia, North Carolina and South Carolina that were flooded by Helene, less than 1 percent of households have flood insurance through the federal program that sells almost all of the nation’s flood policies. In South Carolina, just 0.5 percent of the 770,000 households in disaster counties have FEMA insurance. In North Carolina, 0.8 percent of households in disaster counties have FEMA insurance.
In Georgia, 8.5 percent of properties in disaster counties have FEMA insurance, though the figure is inflated by a large number of policies in coastal Chatham County, which includes Savannah. Excluding Chatham, 0.7 percent of households in disaster counties have FEMA insurance. In Florida, which has one of the highest rates of FEMA coverage, 24 percent of households in disaster counties are covered.
Arguably, flooding has been a greater destructive force than have wildfires. As more of these events become likely, the more attention will be paid to the issue of flood insurance. The lack of insurance purchases for flooding along with the increased likelihood of more flooding going forward may drive demand for some government insurance program for natural disaster losses. Flood insurance is something the industry has little stomach for especially in light of its recent storm and fire payout experience.
CLIMATE HAVENS
I have always been amused by the notion that climate change could drive migration to areas perceived as cooler and less exposed to things like rising seas. That things would get sufficiently difficult in Florida or North Carolina that millions would seek to relocate from say, Miami to Buffalo. Over the last few years, the strength of that notion has been tested. The storm will only stir more debate. It does remind us of some instances in that time which might rebut the concept.
One of the communities which was often mentioned by supporters of the concept was Buffalo, NY. Its location on a Great Lake was both a positive (supply of fresh water) and a negative (rising lake levels) but the lower average temperatures seemed to tip the balance. And then winter returned to explain why its so hard to live in a climate haven like Buffalo. A couple of moved or delayed Bills playoff games only highlighted extraordinary conditions which can prevail in that climate haven.
In New York, voters approved a ballot item in November, 2022 creating a “right” to a safe environment. They enshrined it in the constitution. It was meant to drive the transition to a green environment. The electric industry and cars were its primary target. Then fast forward to June of 2023 when you couldn’t walk outside up here in the climate haven mountains I live in and one needed a mask just to walk along the road because our neighbors to the north were on fire.
Now, Asheville, NC is being tested as a “climate haven”. The mountainous area and inland location were seen as being shielded from the potential worst impact from storms. The winters weren’t too bad snow wise. It was hundreds of miles from an ocean coastline. It’s easy to underestimate the flood risk in mountain communities (like theirs and mine) but every large storm leads to more “water events” in these areas.
They drive more damage to land which then undermines infrastructure. Roads quickly become unpassable and alternatives limited. Infrastructure for power tends to be more vulnerable and the distances covered make rebuilding that much harder. Water and sewer infrastructure is significantly damaged. Not much of a haven.
NUCLEAR
The Supreme Court agreed to review a ruling by the 5th U.S. Circuit Court of Appeals that found that the Nuclear Regulatory Commission exceeded its authority under federal law in granting a license to a private company to store spent nuclear fuel at a dump in West Texas for 40 years. The outcome of the case will affect plans for a similar facility in New Mexico.
The NRC contends that the states forfeited their right to object to the licensing decisions because they declined to join in the commission’s proceedings. A second issue is whether federal law allows the commission to license temporary storage sites. Texas and environmental groups, unlikely allies, both relied on a 2022 Supreme Court decision that held that Congress must act with specificity when it wants to give an agency the authority to regulate on an issue of major national significance.
On the first issue, two other federal appeals courts, in Denver and Washington, that weighed the same issue ruled for the agency. Only the 5th Circuit allowed the cases to proceed. In its ruling for Texas, the 5th Circuit agreed that what to do with the nation’s nuclear waste is the sort of “major question” that Congress must speak to directly.
HOSPITAL PRESSURES CONTINUE
In the aftermath of the pandemic, demand for hospital services has been negatively impacted. Utilization rates remain behind where they were and this has had the expected impact on revenues. It has put many of these facilities in retrenchment mode regarding staffing. Many of those positions are visible if administrative. Nevertheless, finances remain tight at many facilities. The latest example is in Oklahoma.
Norman Regional Hospital Authority (NRH) is a regional hospital system located in Cleveland County, Oklahoma (south of Oklahoma City) with 387 licensed beds and $566 million of operating revenues. NRH operates as a public trust and operates Norman Regional Hospital, Norman Regional HealthPlex, Norman Regional Moore facility, and recently opened Norman Regional Nine facility, as well as numerous outpatient locations.
This week, Moody’s announced that it had downgraded NRH’s rating to B1 reflecting a material and precipitous decline in liquidity well in excess of projections. Cash and liquidity are king in hospital ratings. A short-term line of credit is currently fully drawn, and ongoing cash flow losses continue. This and an outlook which seems unimproved over the near term keep the credit under review for further downgrade. The line of credit renewal needed to carry the status quo and failure to achieve it will further damage the rating.
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