Joseph Krist

Publisher

IT BEGINS

While there was no way to anticipate the scale and timing of the asylum problem in New York City, it was not so outlandish to wonder when the reliance on style from the Adams administration would catch up with the City. That time appears to be now. While it is fair to point out the unprecedented scale of the asylum problem, it has not been helped by the City’s response. Coupled with poor relationships with the State legislature and the Congressional delegation, the Mayor’s reliance on a small circle of advisors has left it unable to cope with the problem.

The Mayor’s announcement of 15% across the board cuts to departmental expenditures is clearly a piece of theater. By proposing such a number, the Mayor is relying on creating a sense of despair and even panic over city service levels to drive support for increased federal and state aid. By creating a specter of reduced police, fire, ambulance, and school services the City hopes to effectively shame Congress and the State into supplying funding for the City’s asylum problem.

The asylum problem has done one thing to help the Mayor by effectively obscuring problems related to his management style. Attention has been diverted by the upheaval in the top ranks of Police and Fire Departments, the lack of a head of the City’s housing authority, and the ongoing likelihood of federal supervision of the City’s prison system. The school system faces overcrowding from asylum children. Safety on the transit system remains a concern.

The lagging return to the office continues to weigh on the City. While the tourist trade continues to recover, not all of the businesses which might be expected to benefit have. There continue to be layoffs at cultural and entertainment venues and the hospitality industry experiences uneven results. Those businesses which rely on residents rather than tourists are having a harder time. Healthcare providers continue to be under pressure as the result of uneven utilization.

This all supports a view that the outlook for the City’s credit over the next 12-24 months is at best, uncertain. So long as additional funding help is lacking, the outlook can only be negative. At the same time, the Mayor’s rhetoric is not helpful. He has in many ways put himself on an island in terms of the politics of the situation. It is important to remember that the right to shelter requirements impact the city. The rest of the state is not under any such order. It is the City that declared sanctuary city status not the State.

MASS TRANSIT

The continuing impact of remote work on the San Francisco economy continues to manifest itself. Now that is has become clear that the impact has become more permanent, some agencies are deciding to alter their operations to the new realities. One of the best examples is changes in operations at BART. Weekday ridership is only about 40% of what it was before COVID-19, according to BART. Weekend ridership is only about 65%.

This week BART implemented service changes to reflect new usage patterns. The reduction is use by workers heading downtown to offices and the businesses which serve them has generated new demand patterns. This week, BART announced changes designed to smooth out the availability of trains throughout the day as opposed to traditional rush hours. The changes will involve shorter trains running more frequently. This will address issues like over 20-minute wait times.

The result will be more frequent service designed around the idea that the status quo is a much more likely reality. It will reduce reliance on commuters and orient towards movement within the City.

The Chicago Transit Authority has announced that the Biden administration pledged $1.95 billion to help fund the extension of the CTA’s Red Line from 95th Street to the city’s southern border near 130th Street. Like the full Second Avenue extension in New York, this CTA extension was originally promised in the early 1970’s. The federal funds would cover half of the projected project costs. The remainder is planned to be funded from revenues collected in a Transit Tax Increment Financing District.

The District would collect taxes based on the incremental increase in property taxes generated. The new tax-increment financing district is Chicago’s second Transit Tax Increment Financing District. The first Transit TIF was created in 2017 to fund the reconstruction of the Red, Purple and Brown lines on the North Side with little controversy. 

CARBON CAPTURE

The South Dakota Public Utilities Commission decided to rule in favor of a staff attorney’s motion to deny Summit Carbon Solutions’ permit application for their $5.5 billion Midwest Carbon Express pipeline. The attorney requested an order from commissioners at the end of last week to deny Summit Carbon’s permit on the grounds the company’s carbon dioxide pipeline currently does not comply with “all applicable laws and rules” under South Dakota Codified Law.

The Commission made it clear to Summit.  “Without … preemption, you’ve made crystal clear in your profiled testimony that various county ordinances make this an impossible project at this time.” Summit Carbon will have to reapply for a permit if it intends to build its pipeline in South Dakota. This means that Summit is faced with essentially restarting their application process at square-one and further pushing back the earliest day they could receive a permit.

Summit Carbon filed its own motion to withdraw its prior request for an order to preempt local county ordinances adopted by Brown, McPherson, Minnehaha and Spink counties. Summit initially intended to argue setback ordinances were superseded by federal regulations with smaller buffer zones.

CALIFORNIA AND AUTONOMOUS VEHICLES

The autonomous vehicle industry faces another test in California. As we go to press, the Governor is deciding whether to sign into law AB 316. The law requires a trained human safety operator to be present any time a self-driving, heavy-duty vehicle operates on public roads in the state. The California Department of Motor Vehicles, the agency tasked with providing testing and deployment permits for AVs in the state, currently has a ban on AVs weighing more than 10,001 pounds in the state.

The bill passed in anticipation of an end to that ban. It requires the DMV to provide evidence of safety to policymakers. By January 1, 2029, or five years after testing begins (whichever is later), the DMV will need to submit a report to the state to evaluate the performance of AV technology and its impact on public safety and employment in the trucking sector. After approval, the DMV will have to wait another year before issuing permits. 

The bill passed both houses of the Legislature by overwhelming margins which could override a veto. Nonetheless, the tech industry will press the Governor hard on this issue. He is seen as more sympathetic to the tech industry.

ROAD TAXES

Georgia Gov. Brian Kemp signed an executive order suspending taxes on gasoline and diesel fuel, declaring a legal emergency over higher prices. The suspension of the taxes, at 31.2 cents per gallon of gasoline and 35 cents per gallon of diesel fuel, began on September 13 and lasts through Oct. 12. The state had suspended the taxes from March of 2022 through the end of that year.

It is estimated that the State gave up some $1.7 billion of fuel revenues during that suspension. This puts the estimated loss from the latest suspension at $170 million for the month. Under state law, Kemp can keep suspending taxes as long as state lawmakers ratify the action when they next meet. The 2022 suspension was originally passed by lawmakers, with Kemp extending it seven times

South of the Border, legislation has been filed for consideration in 2024 by the Florida legislature to establish new fees for electric car registrations. The legislation would impose a yearly registration fee of $200 on electric vehicles that would be in addition to regular registration fees. The cost would go up to $250 starting in 2029. An annual fee of $50 a year would be imposed on plug-in hybrids. A similar bill made it out of the State Senate in 2023 but did not make it through the House.

BRIGHTLINE

The operators of Florida’s high speed train line announced that Brightline will launch service from Orlando International Airport on Friday, September 22.  The system will now provide service extending from Orlando all the way through to Miami.

For the month ended July 31, 2023, service between West Palm Beach and Miami carried 156,478 passengers and generated total revenue of $4.3 million. Ticket revenue in July 2023 increased 49% compared to July 2022 to $2.8 million, with ridership up 40%. For the year-to-date period, compared to the same period last year, ridership was up 71%, ticket revenue was up 89% and total revenue was up 122%. For the year-to-date period through July 2023, we carried 1,112,598 passengers and generated total revenue of $34.5 million.

POWER TERRORISM

Utilities reported 60 incidents they characterized as physical threats or attacks on major grid infrastructure, in addition to two cyberattacks. Nine of this year’s attacks led to power disruptions. No single agency keeps a complete record of all such incidents. That makes it likely that 60 is not the real number but only a portion. And that is for larger scale equipment.

Nearly half of the 4,493 attacks from 2020 to 2022 targeted substations, making them the most frequent targets for perpetrators over that period. Those result in what are considered minor incidents which tends to limit the distribution of knowledge about them which could prove helpful to other providers. It is said that federal level regulators concentrate on “big” incidents and this results in incomplete reporting.

This complicates the efforts to hold perpetrators accountable. In an unusual case in Washington State, two men plead guilty to having damaged four power substations on Dec. 25, 2022.  Both face up to 20 years in prison. Another 2022 incident in North Carolina was prominent for its impact and duration of the resulting blackout for 45,000. In that case, law enforcement admits that it is having difficulty finding suspects.

It is a tough risk for the utilities to manage given the large number of facilities and often remote locations in which they need to be located. Typically, cyclone fencing is the only obstacle.

TRANSIT SUBSIDIES

We have been tough on the City of New York and its heavily subsidized passenger ferry system. Riders on the ferries pay the normal fare one would pay for the bus or subway. The reality is that each ride actually costs the City some $12. All this while the MTA struggles to return to historic patronage levels on its bus and subway system.

It turns out that New York was not alone. The Los Angeles Metropolitan Transportation Authority is evaluating whether to extend the life of its Metro Micro program. The program started as an experiment in on-demand service. Metro’s program was launched in 2020 after federal dollars became available to experiment with on-demand service. It began in eight zones near 14 fully or partially eliminated bus routes. It uses vans which can carry eight passengers and was intended for trips within a 30 square mile area. 

Here is the issue with the program. Users pay $1 for the service. In spite of its low price, only about 2,000 riders board Metro Micro vans on an average weekday compared to 877,000 bus and rail passengers — numbers which are still below pre-pandemic levels. This then drives a truly unfavorable cost/revenue situation. Metro estimates that each ride requires a subsidy of some $43 per ride.

The primary customer base seems to be lower income working class folks especially females. The issue of safety relative to the regular Metro system is cited as a primary reason although the low fare is clearly aimed at the current passenger base. The MTA will have to figure out a balance between the politics supporting the service and the realities of a $20 million annual subsidy benefitting a small number of people.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.