Joseph Krist

Publisher

COOL PAVEMENT

Cool Pavement is a process which coats street surfaces in an effort to reduce road temperatures. Beyond the impact on the road itself, the hope was that the effect would impact so-called urban heat islands. With environmental and social concerns intersecting, there has been a real press on municipal officials to address “environmental equity” issues. Cool Pavement is the latest iteration of the phenomenon.

The city of Phoenix, AZ began testing Cool Pavement in certain neighborhoods to combat the effects of the urban heat island.  The city has been installing more than a hundred miles of the special coating.  Now, the project has been temporarily halted, the second time that this has been required. The products and materials the department and its contractors use to pave and maintain city streets are routinely tested to ensure they meet department specifications. As a result of that testing, the Cool Pavement application schedule was recently temporarily paused as the department and its contractors work to resolve a concern about the thickness and texture of the Cool Pavement product. 

It seems that the road may be a bit cooler but that benefit is apparently not moving much beyond the curb. ASU’s researchers found that just 6 feet from the pavement, the air temperature was only .3 degrees cooler during the day and only half a degree cooler in the evening. Some studies have questioned the technology noting that it reflects more sunlight back off the road and that this could make the immediate surrounding areas actually hotter – as much as 5 degrees hotter. 

While Cool Pavement is three times more expensive, early findings show it holds up to wear better and protects the infrastructure under the road. Whether that is enough to justify the increased cost remains to be seen.

LONE STAR FLOOD RISK

Hurricane Harvey led the Texas Legislature to enact laws requiring the Texas Water Development Board to develop Texas first statewide flood plan. An initial risk assessment was released in mid-summer.  It showed that some 6 million Texans, or about 20% of the population, live in an area susceptible to flooding. More than 2.4 million Texans live in areas that have a 1% chance of flooding each year, known as the 100-year floodplain, the analysis found. Another 3.5 million people live in areas with a 0.2% chance of flooding each year, known as the 500-year floodplain. One-fifth of the state’s land — roughly 56,000 square miles — now fall within the 100-year floodplain.

The analysis identified how many buildings, homes, people, hospitals, roads and agricultural areas are in a floodplain. The San Jacinto region, which includes Harris County and Galveston, has the most people living in a floodplain: almost 2.5 million people are in a 100- or 500-year floodplain. The Lower Rio Grande region, which spans much of Texas’ southern border and includes the Rio Grande Valley, is next with about 1 million people at risk.

This will cause some concern. Sixty-three of Texas’ 254 counties had no existing flood hazard information prior to the planning effort according to the Board. As for the risk on the Texas Gulf Coast, between 2000 and 2019, rising sea levels caused the Texas coastline to retreat about 4 feet per year on average, according to a 2021 University of Texas Bureau of Economic Geology report for the Texas General Land Office.

CONGESTION PRICING

The long process of determining the appropriate level of New York City’s pending congestion fees is under way. Already, the panel appointed to determine the fee has released some potential adjustments to the fee schedule in response to obvious sources of opposition. This week, the first list of proposed adjustments and exemptions has been put up for discussion.

Before determining the base fee, the panel established that there will be “substantial” discounts for entering the congestion zone during overnight hours. Taxis, black cars, and TNC vehicles will not be charged directly rather a fee of between $1 to $2.75 would be added to the fare. Drivers would be charged just once a day even if they drive all day within the zone or enter and exit it multiple times.

CARBON CAPTURE

Navigator CO2 wants to suspend its pipeline permit process in Iowa until utility regulators in Illinois approve the project. Navigator filed a motion with the Iowa Utilities Board on Friday to cancel a scheduling conference that was set for Oct. 9, withdraw its motion to establish a procedural schedule and to pause its permit proceedings. The company plans to file an update on its project with the board by the end of March. Illinois regulators are expected to make a final decision on the project by the end of February.

In another example of the federal effort to drive carbon capture, the Bureau of Land Management is seeking public comment on a proposal to permanently store carbon dioxide in underground rock formations on public land in Carter County, MT. The BLM issued a revised policies in June 2022 allowing for the geologic sequestration of carbon dioxide on public lands. The project would store carbon dioxide in more than 100,000 acres of subsurface pore space.  

ONE TIME VERSUS RECURRING

We take no happiness from the fact that some of our previously expressed fears about government finances are coming true. The majority of those fears were based on one of the fundamental sound tenets of public finance. That is that programs with long-term time horizons must be funded with dependable recurring revenue sources. That has been true regardless of the source of the non-recurring revenues – intergovernmental aid, one-time windfalls, bond refinancings. The risk of one- time revenues has always been clear.

The latest example is from NYC where the potential impacts of 15% across the board cuts are focusing attention on the city’s finances. It is clear that the proposal is a political ploy but nonetheless the potential effect of those cuts is already driving debate. The prime area of concern is the schools. Expanding 3-K was former Mayor Bill de Blasio’s signature achievement. Unfortunately, his administration did not secure long-term funding.

Funding for disabled child education has relied on stimulus funds. The City is required to pay tuition to a private school for a child who cannot be served by the Board of Education. Students with disabilities make up a fifth of all pupils. Now, both 3K and the disabled tuition requirement rely heavily on stimulus. The City Comptroller noticed in a recent report that before this fall, school budgets were not slashed for low enrollment. If the proposed cuts to budgets are actually imposed, some 45 schools where stimulus dollars make up a significant portion of their budgets could each lose more than $630,000, on average.   

PUBLIC FACILITIES AND PROPERTY

Texas property owners flooded by Hurricane Harvey and Tropical Storm Imelda sued the Lone Star State after their land flooded for days following the storms. One group of landowners has alleged that the flooding impacting their properties was the result of a state-led highway elevation and expansion project. Ironically, the roadway was meant to serve as an evacuation route during emergencies. The plaintiffs contend it also prevented floodwaters from receding into the Gulf of Mexico.

Richard Devillier v. Texas is meant to determine whether the negative impact on property as the result of a project constitutes a taking under the Constitution. Texas, meanwhile, has fought the property owners’ claims for compensation, saying it was immune from the lawsuit, and in the case of Harvey, the challenge came too long after the 2017 storm. A 5th U.S. Circuit Court of Appeals ruling that found property owners could only sue for damages if Congress passed a law allowing it.

The case would impact general governmental projects like roads but it would also address concerns around the impacts of private utility infrastructure development on adjacent private property. It is based on a theory that the impact on a property owner of one of these projects constitutes an “inverse takings” situation. Inverse condemnation challenges can include suits against utilities operating outside their easements, or those allegedly at fault for sparking wildfires.

Four years ago, the Court ruled in a 5-4 decision to undo long-standing precedent requiring that takings claims be raised first in state court before being raised in federal court. If a plaintiff was unsuccessful in the state courts, they were barred from bringing their suit to federal court. The plaintiff property owners had first brought their challenge under the takings clauses in the United States and Texas constitutions to state court. Texas successfully shifted the case to the U.S. District Court for the Southern District of Texas, where it was consolidated with other cases into a single lawsuit including 77 property owners.

The case could have implications for projects like transmission lines for utilities or carbon capture pipelines.

LABOR ACTIONS AND MUNICIPALS

The last 40 years have seen the power of unions decline. With fewer members strikes had become more infrequent and major industries in what were highly unionized environments located in what were effectively right to work states. The idea that significant labor actions could actually impact credit was significantly diminished.

That is changing in 2023. The West Coast port credits saw pressure as prolonged negotiations with port labor drove business away amid fears of long-term impacts. Workers at UPS threatened to strike and received significant compensation improvements as their strike deadline drew near. Workers at several higher education institutions also struck. Between the lack of actual strikes and quick resolutions to others, labor negotiations have not been as impactful as they might. That could be changing.

Throughout the year, different segments of the hospitality industry have faced contentious contract negotiations and strikes. A strike in L.A. became a real political issue when Taylor Swift came to town. In the latest example, hospitality workers in Las Vegas have voted overwhelmingly to authorize a strike against major resorts along the Strip.

Contracts for an estimated 40,000 housekeepers, bartenders, cooks and food servers at MGM Resorts International, Caesars Entertainment and Wynn Resorts expired on Sept. 15, after being extended from a June deadline. Other workers remain on extended contracts that can be terminated at any time. A total of 60,000 workers could be included.

The UAW strike continues to expand and continues to highlight the challenges of the transition to electric vehicles. As it drags on, local economic interests will be impacted. Taxes based on economic activity will decline. The strikes in the entertainment industry clearly impacted the economies in the cities where these activities are concentrated like NY and LA.

The next strike threat is credit specific. Kaiser Permanente provides care for 13 million people in eight states, including California, Colorado and Washington, and the District of Columbia. This week, some 75,000 Kaiser Permanente employees undertook a three-day job action to protest the lack of a new contract. The previous contract expired on Saturday. Union leaders say this could be the largest strike by health care workers in recent U.S. history.

The strike does not include doctors or nurses but most of the technical, clinical support, and maintenance staffs are participating. Patients could experience delays in getting appointments, or elective procedures that are not considered urgent could be postponed. Like many other hospital providers, Kaiser has had to face the reality of rising costs for supplies and equipment while also accommodating the fact that the pandemic drove many employees out of the business.

It was workers in the medical field that were impacted the most during the pandemic and the people striking at Kaiser were exactly the ones who could not work remotely, had to take public transit and by and large came from groups or circumstances that placed them at greater health risk. Unsurprisingly, while dealing with inflation themselves as well, they would like to get paid too.

WATER AND GEOPOLITICS

One of the features of the debate over water in the western U.S. is the impact of agriculture on water supplies. As supplies of water have declined attention focused on how land was used in terms of how water intensive certain crops were. It is not an accident that nut growers have significantly increased their marketing efforts. In order to maintain historic water allocations, many farmers switched crops in order to maximize their yield from a gallon of water.

One of the most water intensive crops is alfalfa. A surprising amount of irrigated land in places like the Imperial Valley in CA and areas of southern Arizona is devoted to alfalfa. It is a contentious point because the alfalfa supports meat production primarily in other states while drawing down local – often groundwater -sources. It has been difficult to persuade legislators to take actions which might hurt their agriculture supporters.

One formula to address the problem is unfolding in Arizona. It has taken the confluence of water conservation advocates, domestic agriculture interests and geopolitics to create a unique situation. The State of Arizona has announced that an Arizona farm owned by a Saudi Arabian company that grows alfalfa for export is set to lose its access to state land. The farm is allowed to pump unlimited amounts of groundwater, free of charge, to irrigate its crop. 

The alfalfa is shipped to Saudi Arabia for use in its domestic dairy industry. Arizona is moving to immediately terminate one lease held by the farm owner and will not renew three other leases that are set to expire in February. Ironically, Saudi Arabia banned growing alfalfa and other green fodder crops within its own borders in 2018 in a bid to relieve pressure on the kingdom’s water resources.

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