Joseph Krist

Publisher

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PRISONS

Throughout he 1990’s, the State of California was a leader in the effort to deal with violent crime. As it enacted three strikes and you’re out laws the inmate population skyrocketed. The issues of incarceration, race, and class are well documented. In the Golden State, the reaction included a massive program of prison construction. California was issuing debt in the early 2000’s to expand facilities. The last time California closed a state prison was the Northern California Women’s Facility in Stockton in 2003. Legislation enacted in 2012 limiting capacity and mandating reductions in prison populations began to put a halt to the trend of expansion. The legislation hoped to reduce the need for more capacity and remove California prisoners from private for profit prisons.

In 2019, CDCR took the major step of successfully returning all people incarcerated out-of-state in private, for-profit prisons, in addition to closing the Central Valley Modified Community Correctional Facility (MCCF), a contracted in-state private, for-profit prison. In 2020, CDCR ended its final three contracts with private, for-profit prisons, including Desert View MCCF, Golden State MCCF, and the McFarland Female Community Reentry Facility. Additionally in 2020, CDCR exited two of its three publicly contracted facilities, including Delano MCCF and Shafter MCCF. The department will exit the Taft MCCF by May 31, 2021.

Now the CDCR has announced the upcoming deactivation of California Correctional Center (CCC) in Susanville by June 30, 2022.  The rural county in northeastern California transitioned over the years from a lumber and farm based economy and jobs became hard to come by. In a pattern reflected in rural areas across the country, employment in Susanville centered around prisons. It is estimated that this facility and one other state as well as a federal prison employ half of the adult population of Susanville.

For the state, it estimates that its prison closing programs will yield annual expense reductions of nearly $170 million annually. Susanville  is the second prison slated to close in the coming year, with Deuel Vocational Institution slated to be deactivated by September 30, 2021. In all cases, the closing facilities are substantial employers. That is the dilemma faced by many state legislators as it is difficult to justify keeping unneeded prison cells available. A year ago, the inmate population in the state prison system was about 120,000. That population is down to 95,223 as of April 7, according to the corrections department.

Alabama is in different place than California in terms of overcrowding and legal requirements. It is in many ways where California was 30+years ago. It has older facilities housing inmate populations far in excess of design capacity. And the cost will be significant. To remedy its capacity and physical infrastructure the State of Alabama issued debt to finance the construction of two replacement facilities. At completion, the two prison facilities will represent about 40-50% of the state’s rated bed capacity. The State is calling it a P3 in that the construction is being undertaken pursuant to a design/build contract and that the facilities will be leased by the State DOC.

Under the Lease Agreements, ADOC retains responsibility for the day-to-day operations of the facilities, including security and managing the inmates and employees. Maintenance and lifecycle services will be subcontracted. Construction risk is mitigated by incentives and a year’s worth of liquidated damage payments from the design/builder. After completion, the ADOC will make monthly payments from amounts appropriated by the legislature each year.

IS WYOMING SPITTING INTO THE WIND?

In the aftermath of the suspension of new federal leases for oil and gas development, Wyoming’s political leadership went to the mattresses to protect the fossil fuel interests. In the current legislative session bills have been enacted to make the move away from fossil fuel industries as hard as possible.

Wyoming Gov. Mark Gordon signed three energy-related bills into law. House Bill 166 requires Wyoming utilities planning to close coal-fired power plants to prove to the state’s Public Service Commission (PSC) that the closure will not impact reliability and will result in a cost savings to customers, while Senate File 136 authorizes the PSC to take the potential economic impact of coal plant closures into account while making that analysis. The third bill, House Bill 207, creates a $1.2 million fund the Wyoming Office of the Governor may use to litigate coal plant closures or laws accelerating the closure of coal plants, such as renewable portfolio requirements, in other states.

Even supporters admit that the laws can’t save the industry in the state. Coal employment is down to 5,000 employees even now.  Wyoming made a choice to go all in economically on a natural resource extraction base. The state has no income tax, no corporate tax, and very low property taxes. In the case of Wyoming it is less about its historic energy reliance but the lack of political will (willingness to govern) in the face of the clear peril resulting from energy reliance.

With all of the focus on retaining obsolete assets, it’s easy to miss what corporate actions are actually telling us. While legislatures in Wyoming and Montana seek

ways to keep the coal fired generating industry alive, the owners of those assets are taking a different approach. It emerges through regulatory filings that the owners of the huge Colstrip coal generating plant in Montana which is under pressure to shut down are planning a wind farm adjacent to the site of the plant.

So one has to ask exactly who or what are the legislatures are fighting for when they seek to override the realities of the marketplace?

GREEN JOBS KEEP SPROUTING UP

It’s a measure of how bad a selling job the environmental movement has done in responding to the cries of legacy power generators that the issue of jobs vs. the environment continues. While the issue of environmental impacts on the economy are debated, argued, and unresolved we look at the steady flow of positive economic headlines one encounters dealing with climate change.

The aforementioned Colstrip wind farm is one example as it will mitigate much of the economic impact of closure of a coal generator. Tennessee has become a hub of the electric vehicle industry. Volkswagen and Nissan are locating U.S. electric vehicle production there. GM just announced a joint venture between General Motors and LG Energy Solutions to build a $2.3 billion battery production facility next to the GM plant in Spring Hill, Tennessee, and add 1,300 new manufacturing jobs. This the second such venture between these two partners in the U.S.

Rivian, the startup electric vehicle maker is launching production in June from a converted Mitsubishi factory in Normal, IL.  The Mitsubishi plant closed six years ago. The Rivian plant will have 1,800 employees by its June launch and 2,500 by year’s end, along with 1,000 robots to help build vehicles. Along with plants owned by GM which have been or are being converted electric vehicle production, they show how changes in the transportation industry can positively impact established vehicle manufacturing based local economies.

The sites of former fossil fueled generating facilities are being seen more and more as potential solar and/or wind power sites. A continued “industrial” use allows for brownfield development versus more expensive remediation and maintains the value of the site for property taxes. It also addresses some of the resistance being seen to the location of new commercial solar on farms and other currently open spaces.

The latest example can be found in Buchanan County, VA in the heart of that state’s coal belt. A reclaimed surface coal mine site will be the location of a 70 MW solar generation array on 700 acres. The County noted that the project will generate taxes if not full long term employment.

MTA PAYROLL TAX BONDS

The MTA is in the middle of marketing one of its bonds secured by dedicated taxes. In this instance, the pledged revenues will come from proceeds of the Payroll Mobility Tax (PMT) collected within the MTA’s service area. The tax is collected from employers by the State who are in New York City, Nassau and Suffolk Counties on Long Island, the northern suburbs of Westchester and Dutchess Counties, and the northwestern suburbs of Orange and Rockland counties.

The tax is imposed on the total payroll expense for all covered employees at a rate of 0.34% of those expenses. The tax is collected quarterly by the State and is distributed to the bondholders and the Authority without a requirement that the Legislature take action to appropriate the monies.

Other efforts to tax employment by levying a tax based on the number of employees to generate revenues for a variety of reasons have met with strong well funded political resistance regardless of the use of the proceeds. The efforts to levy what could be characterized as a head tax have been at the center of those disputes. The PMT has weathered several challenges since its legislation in 2009. These culminated in a State Court of Appeals review upholding the tax and its collection in 2018.

PANDEMIC CASUALTIES – RATINGS IMPACTS

As the pandemic unfolded we noted that certain credit sectors would be hard pressed to avoid credit troubles in the face of restrictions on activities. Two of those vulnerable sectors we airport and student housing facilities. As the pandemic plays out and fiscal year reports issued, the impact on ratings continues to emerge.

Moody’s has downgraded to Baa2 from A3 the Philadelphia Parking Authority, PA’s Airport Parking Revenue Bonds, Series 2009. Moody’s feels that gross revenue from operations of the airport parking facilities will be just sufficient to provide for required debt service payments in the near term. Credit quality is reflects materially weakened revenues that are insufficient to support ongoing operating expenses. The credit now reflects substantial reliance on liquidity from the Philadelphia Parking Authority to avoid even more significant credit pressure. The authority operates approximately 839 short-term and 10,984 long-term garage parking spaces on the airport premises as well as approximately 7,117 economy parking spaces off-site, which compete with private off-site lots. 

Another Moody’s downgrade involved debt issued for Bayview Student Living at Florida International University. The facility is located at a satellite campus in Biscayne Bay some 30 miles from the main campus. That in conjunction with the limitations of Covid 19 restrictions led the project to achieve only a 49%  occupancy rate. That simply was not enough to cover expenses and debt. The resulting draws on a debt service reserve fund could continue if the recovery of demand in a post-Covid world is insufficient.

FEDERAL LIFE BOAT FLOATS NYC

By most measures, the impact of the pandemic was negative. Employment, earnings and wages, and real estate sales, contracted in 2020. One measurement was however, positive and that was total personal income. The City of New York has been able to analyze data and develop a measure of personal income. Personal income is the sum of several principal sources. Earnings and wages, other labor income, proprietors’ income, and dividends and interest (excluding capital gains)—plus government transfers.

After accounting for the impacts of commuters and deducting City residents payments for Social Security and Medicare, IBO estimates that total personal income in New York City grew from $682.0 billion in 2019 to $701.8 billion in 2020, an increase of $19.8 billion.1 The 2.9 percent growth rate in 2020 is far lower than the 5.5 percent increase in personal income in 2019 and the average annual growth of 5.3 percent over the preceding decade. But it also stands in contrast to the experience of decreases in personal income during the previous two recessions, in 2002 and again in 2009.

The largest positive contributor to personal income growth in 2020 was a sharp rise in government transfers, which includes stimulus payments, expanded entitlement benefits, and unemployment insurance. This increase more than offset the decline of $32.0 billion in the private income categories. One category of income for which data was not available was the contribution to personal income of capital gains so the impact of a generally favorable trend in the financial markets does not show up in these estimates.

GREEN ENERGY DILEMMA

As the effort to decarbonize continues and expand, land use issues are emerging as the biggest obstacle. In many cases, transmission lines and solar panels are being opposed by landowners. This opposition is emerging when large scale renewable projects are proposed. Whether it be noise issues from turbines, esthetic issues such as the loss of unrestricted views significant transmission projects tied to the delivery of power from renewable generating sources.

One example is opposition to a large transmission line in Maine which is needed to deliver hydroelectric power to New England. Opponents are suing in court and intervening in the regulatory process. Another is opposition in Missouri to the Grain Belt Express transmission project. That high voltage line is designed to transmit wind generated power from Kansas through Missouri to achieve connections to the Midcontinent Independent System Operator, called MISO; the PJM Interconnection; and the Southwest Power Pool.

These conflicts between the interests of the environmental movement and those of landowners and others impacted by transmission projects will continue play out. In 2020, the Missouri Supreme Court ruled against plaintiffs  seeking to overturn the public service commission’s 2019 approval of the project. Now the Missouri Legislature is considering legislation HB 527, which would ban the use of eminent domain for above-ground utility projects like the Grain Belt Express.

Land use and zoning issues are emerging as potential obstacles to the development of renewable generation and the transmission infrastructure needed to deliver renewable power. The opposition to the line is driving consideration of companion legislation which would prohibit local governments from blocking any energy sources. The implications of this particular case for utilities across the country are clear. If the bill passes, it could set a precedent for overturning land use and zoning decisions throughout the country. That would have implications for a wide variety of projects.

MUNICIPAL MICROGRIDS

EPB, formerly known as the Electric Power Board of Chattanooga, is the  electric power distribution and telecommunications company owned by the city of Chattanooga, Tennessee. Recently, the City stepped to the forefront of the renewable energy debate with its announcement that EPB and the City were partnering to develop a microgrid for its public safety functions. The microgrid will be one of the first of its kind anywhere in the country to ensure reliable power for a police and fire agency.

The “Power to Protect,” microgrid will be paid for with more than $1.1 million of city taxpayer funds and $732,000 from EPB ratepayers. The microgrid will use solar panels on the roof of the police services building to generate up to 430 kilowatts of solar generation. EPB also plans to install a 175-kilovolt diesel generator, a 100-kilowatt natural gas generator and up to 1,100 kilowatts of battery storage to backup the solar units, as needed. As weather events proliferate in terms of frequency and intensity, the City finds its utility infrastructure to be at risk.

The project is scheduled for completion by the end of October.

GRNE Solar has completed installation and powered on a 2.1-MW solar project for Kendall County, Illinois. The project is located on a vacant 7.4-acre parcel at the Government Center Complex in Yorkville, Illinois. It will be owned, operated and maintained by GRNE and will provide power to the Kendall County Public Safety Center, County Judicial Center and Public Health Department.

PREEMPTION UPDATE

An Indiana bill seeking to preempt local zoning officials from having jurisdiction over solar developments was not enacted in the Indiana Legislature. The localities were able to fend off the effort. So this good for solar, right? Not really as the opposition was based on local political interests who oppose solar development. They cast it as an issue of local land rights and best economic uses of land. So solar development may have just become harder.

A bill moving through the Florida legislature would preempt certain regulations of gas stations and their infrastructure to the state, but local governments could still regulate things like zoning, building codes and necessary transportation issues. A local government, under the bill, would not be able to require a gas station to include electric vehicle charging stations.

It is a less expansive bill than what was originally proposed. That version included provisions that would prevent local governments from prohibiting natural gas fracking, as well as nullify solar-promoting ordinances and eliminate county authority over pipelines along roadways.

MYRTLE BEACH TAX SETTLEMENT

Litigation over the status of a hospitality fee in Horry County, SC has been settled in favor of seven municipal plaintiffs. Myrtle Beach and six other communities filed suit to challenge the county’s authority to unilaterally repeal the sunset of a countywide hospitality fee.

Horry County historically used the countywide hospitality fee to service state infrastructure loans, which were paid off in 2019. The municipalities sued to attempt to get a portion of the revenues generated by the fee given that the prior use of the funds no longer existed. The settlement comes after Myrtle Beach dealt with the impacts of the pandemic on tourism and related business. under the settlement, the county will receive revenue generated only in unincorporated areas (approximately $13 million).

Collections in incorporated areas (approximately $30 million) will be by the county but paid to the municipality in which they were generated. For Myrtle Beach, the benefits of the settlement are clear. City officials estimate Myrtle Beach will likely receive around $18 million of ongoing annual revenue, equal to approximately 11% of the city’s governmental revenue. The city estimates it will also receive a $22 million windfall under the agreement, mostly to account for its share of hospitality fees that accumulated since the onset of the lawsuit in 2019.

Myrtle Beach plans to use the new hospitality fee revenue to partially offset revenue losses incurred during the pandemic. Officials also plan to use a portion of the settlement money to replenish a debt service reserve fund (DSRF) for Myrtle Beach Convention Center Hotel Corporation’s Series 2015 hotel revenue bonds. The DSRF has been tapped to help cover debt service since the onset of the coronavirus. The city has a moral obligation pledge to replenish the DSRF after a tap, a pledge it intends to honor in its upcoming budget cycle.

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