Joseph Krist

Publisher

JACKSON, MS WATER

In October we documented the issues contributing to the unacceptable situation confronting the City of Jackson, MS and its efforts to run a municipal water system. Now, the US Department of Justice (DOJ) has announced an agreement with the city in litigation it had launched against the city over the management and operations of the water system. DOJ proposed appointing an outside expert to oversee operations until the system is reorganized and major repairs can be made. This is something which was done in Birmingham, AL when its water and sewer system dealt with bankruptcy.

Earlier this year, $5 million was provided by the U.S. Army Corps of Engineers through the Infrastructure Investment Jobs Act (IIJA). The state’s congressional delegation successfully included $20 million in supplemental appropriations in Congress’ Continuing Resolution on September 30. These funds will come directly to the city of Jackson for water infrastructure projects along with $4M in State and Tribal Assistance Grants through the Environmental Protection Agency (EPA).  The city also has applied for funding under the American Rescue Plan Act (ARPA) and match funding through the Mississippi Municipality & County Water Infrastructure Grant Program (MCWI) totaling over $71 million.

The outside manager has been appointed. Under the agreement, the interim manager would operate the city’s public drinking water system to bring it into compliance with federal and state laws, oversee the city agency responsible for billing and carry out improvements to the system.

MOBILE TRANSIT PROJECT

The Alabama Department of Transportation (ALDOT) will move forward with the Mobile River Bridge and Bayway Project, a project which has been mired in controversy over the funding of the project and costs to drivers. Now, ALDOT is moving forward with this project, utilizing funds from the $125 million federal INFRA grant as well as a commitment of at least $250 million in State funding. ALDOT will continue to pursue funding opportunities with the U.S. Department of Transportation but will not delay moving forward pending future grant awards.

The project will employ the design/build strategy. Those seeking the contract will have to provide a new Mobile River Bridge and a new Bayway. The project will have to provide for four non-toll alternatives.

This project will rise and fall over toll revenues from this facility. The plan will be based on electronic toll options of $2.50 or less for passenger vehicles, and $18.00 or less for trucks. An unlimited use option for $40 per month, which is under $1 per trip for daily commuters between Mobile and Baldwin Counties will tamp down opposition to the project. Tolls would significantly higher for customers paying in cash.

While the project will be constructed by a private entity, it will be owned and operated by the State of Alabama, with no private concessionaire. The project, as proposed, includes the construction of a new 215-foot-tall Mobile River bridge, and a new 7.5-mile Bayway between downtown Mobile and Daphne, along with the demolition of the existing Bayway. The entire project, without receiving additional grants, relies heavily on financing that includes $1.2 billion through bonding and another $1.1 billion through federal loans under the TIFIA program repaid through revenues generated by tolling.

The movement on the plan represents a turnaround in the state consensus which existed in 2019 when a proposed P3 for this project was proposed. Opposition weakened support at the statehouse but the access to federal funding and limitation of tolling to this facility has led the Governor to reverse and announce support for the project.

For bidding purposes, the project is in two parts – the bridge and the highway. Bids are due on December 21.

INFRASTRUCTURE TERROR

For half a century, the electric power grid has presented a real source of concern to those concerned with terrorism. The very essentiality of those physical assets combined with their locations in remote areas raise the level of concern. Fortunately, there have not been many incidents and the impacts have been limited. Recent events however, have heightened concerns about the vulnerability of the nation’s electric grid. As the country moves towards greater and greater dependence upon electricity, that vulnerability becomes more and more of a serious issue.

Two power substations in Moore County, NC were damaged by gunfire on last weekend in what they believe was an “intentional” attack on the power grid. The damage to the transmission equipment cut power for some 45,000 customers. The attack comes some 30 years after the issuance of reports from the federal government detailing the concerns about grid vulnerability. The equipment in question is the type of facility which one finds all over rural America.

The incident in North Carolina will raise a variety of questions about the location of these facilities and their true level of vulnerability. This incident follows on the heels of news that the federal government has acknowledged that “Power companies in Oregon and Washington have reported physical attacks on substations using hand tools, arson, firearms and metal chains possibly in response to an online call for attacks on critical infrastructure.  The attacks are attributed to “violent anti-government criminal activity.”

These events are the latest iteration of a long-term conflict based on the issue of federal land management.  That discontent has manifested in other violent confrontations with law enforcement but the new tactics of shooting out necessary electric infrastructure are problematic.

NYC FINANCIAL PLAN

The New York City Independent Budget Office testified this week about its analysis of the Mayor’s November Financial Plan update. IBO’s Fiscal Outlook finds the city will have a budget surplus for 2023 of $2.2 billion, a negligible deficit in 2024, followed by deficits of $3.5 billion in 2025 and $4.5 billion in 2026. (Years refer to city fiscal years unless otherwise noted.)

This incorporates IBO expectations of weak tax revenue growth, albeit higher than the mayor estimates, offset somewhat by expenses that it expects the city will incur, which are not included in OMB’s spending plan. The outyear gaps, although smaller than those estimated by OMB, are substantial and will require action by the mayor and the City Council unless revenues recover faster than expected.

The economic assumptions behind the projections are as follows. For calendar year 2022, IBO projects the New York City economy to add about 205,200 jobs as our recovery from the unprecedented job losses in the 2020 recession continues, although IBO projects that the city will still be 105,540 jobs (or 2.3 percent) below its pre-pandemic level at the end of this year. For calendar year 2023, gains slow to 44,600 jobs before bouncing back somewhat to 90,500 in 2024, 85,900 in 2025, and 82,400 in 2026. The employment recovery remains uneven among the sectors. Industries such as construction, retail trade, and leisure and hospitality are all estimated to be at less than 90 percent of their 2019 level at the end of this year. Others such as information, professional services, and health care have fully recovered to their 2019 levels.

After accounting for new needs, other adjustments, and PEG reversals, the administration, however, only achieved reductions of $705 million and $554 million in fiscal years 2023 and 2024, respectively. Out of roughly 55 mayoral agencies, only 18 achieved their PEG target in each year of the November plan.

Other findings raise concerns. Our concerns from the start of the Adams administration were about his management style and how engaged the Mayor would be with those management details. This report does not assuage these concerns. This past September, the administration issued savings targets to all mayoral agencies of 3.0 percent in fiscal year 2023, and 4.75 percent in fiscal years 2024 through 2026. The targets, known as the Program to Eliminate the Gap or PEG, were set to yield savings of $1.4 billion in 2023 and $2.2 billion in fiscal years 2024 and later. However, the administration did not meet these goals.

After accounting for new needs, other adjustments, and PEG reversals, the administration, however, only achieved reductions of $705 million and $554 million in fiscal years 2023 and 2024, respectively. Out of roughly 55 mayoral agencies, only 18 achieved their PEG target in each year of the November plan. Some of that reflects the Mayor’s approaches towards management of the workforce. The pandemic exposed how antiquated the City’s information system was (and still is) and the effort to force workers back to the office earlier than was the case for many in the private sector seems to have backfired.

The use of attrition to manage headcount is something we’ve criticized the administration for in the recent past and the impact of that method is emerging. Many of the positions which are not being filled were vacated by experienced workers. The crucial core of workers between thirty and fifty (young enough to be still engaged or too close to retirement and a pension to make a major shift) is steadily being hollowed out.

This comes as the potential budget threats from the reliance on COVID money to fund programs becomes clearer. IBO cites two examples. The Department of Education is expected to need $764 million in 2025 and $966 million in 2026 above what the mayor has currently budgeted for programmatic costs. This includes $678 million in 2025 and $881 million in 2026 if it wants to maintain services launched with federal Covid relief funds that will run out during fiscal years 2024 and 2025, such as expanded 3K. In total, these repricings result in IBO estimating higher city-funded expenditures in each year of the financial plan: $228 million in 2023, $1.1 billion in 2024, $829 million in 2025, and $928 million in 2026.

The other issue is less complex. The financial plan includes a reserve for future collective bargaining settlements as contracts with most of the city’s unions having either already expired or scheduled to do so by the end of calendar year 2023. The amount in the reserve is sufficient to provide for a settlement with a raise of 2.5 percent annually. However, given the steep rise in inflation over the past year, it is likely the unions will hold out for higher settlements, which would add to the budget gaps.

PORT AUTHORITY OF NY/NJ

Moody’s maintained a Aa3 rating with a stable outlook for the Port’s Consolidated Revenue Bonds. The rating reflects Moody’s expectation that “the Port Authority’s operating revenue will remain on a positive trend in 2023 despite a weakening economic environment supported by an expected increase in aviation revenue and a potential CPI-based toll rate increase in January 2023.”

We note that operating trends are positive as reflected by the fact that preliminary 2022 operating revenue exceeds pre-pandemic 2019 levels. The port segment has surpassed 2019 levels in 2022, traffic volumes at its bridges and tunnels have come back to 2019 levels and aviation was approaching of 2019 levels as of September 2022. The port segment has already surpassed 2019 levels in 2022, traffic volumes at its bridges and tunnels have recovered to 2019 levels and aviation is approaching 2019 levels as of September 2022. 

PATH remains the money pit it has always been although the move to hybrid and/or remote work has impacted ridership which was still only at around 58% of 2019 levels as of September 2022. Moody’s estimates that the PATH system will likely continue to generate negative EBITDA of over $300 million per year (-$382 million in 2021).

SALT RIVER PROJECT

The Salt River Project (SRP) is the largest electricity provider in the greater Phoenix metropolitan area, serving approximately 1.1 million customers. It has found itself over the last year at the center of a number of controversies including net metering, the location and expansion of gas fired facilities, and the general issue of equity. Now the utility plans to move forward in the renewable generation space.

The SRP Board of Directors announced that it approved the second phase of continued development at the Copper Crossing Energy and Research Center in Florence, AZ, which includes a utility-scale advanced solar generation facility capable of generating up to 55 megawatts (MW) of solar energy.

Historically, SRP has contracted generation from renewable resources through power purchase agreements with developers, as these entities have access to tax credits. Now with the passage of the Inflation Reduction Act, not-for-profit public power utilities like SRP are allowed to directly receive federal incentive payments for renewable projects.  As a result, this will be the first utility-scale solar asset in SRP’s portfolio that SRP self-develops, owns and operates.

Development will not occur overnight. Detailed engineering, material procurement and construction activities for the solar facility are expected to take approximately 24 months. Next year, SRP hopes to be able to move forward with a battery storage project complimenting the existing and proposed solar generation on site.

GAS TAXES

California Republican state lawmakers are offering legislation to try to temporarily suspend the state’s gas tax for a year. At 54 cents it is the highest state gasoline tax levy in the country. Bills were filed in both houses of the legislature for consideration during either a Special session or in regular session. The sponsor in the House has proposed backfilling those funds with money from the state’s general fund. That proposal comes soon after the Legislative Analyst for the state warned of a likely $25 billion budget shortfall which would effectively absorb all of the general fund’s reserves. That raises the question of whether this is a serious proposal or just grandstanding.

Hawaii’s Department of Transportation recommends “moving forward with a minimally disruptive transition to road usage charging.” Its proposal comes with a low price in comparison to some other proposals under consideration elsewhere. HDOT suggests the rate of .8 cent per mile be charged since that amount is equal to what the average gas vehicle in Hawaii pays through the gas tax. Currently, EV owners pay a $50 flat fee for registration. The mileage charge would be odometer based with calculation of the fee incorporated into the state’s annual vehicle inspection process. After California, Hawaii has the second-highest EV adoption rate in the nation. Hawaii collects 16 cents for every gallon of fuel sold, which amounted to $83 million in 2019. HDOT estimates that by 2045, the .8 cent-per-mile rate could generate over $65 million on all EVs or $100 million if levied on all vehicles.

MEMPHIS AND THE TVA

The Board of the Memphis, Light Gas and Water Board of Commissioners voted against a proposed 20 year, rolling contract with the Tennessee Valley Authority for the purchase of electricity. The contract provided for TVA base rates to decline by 3.1% and allowed MLGW to produce up to 5% of electricity independent of TVA.  The utility will continue to purchase power from TVA under an existing agreement. The proposed 20-year term appears to be as much of a stumbling block as anything else. The vote allows for new management to be in place to influence an ultimate long-term decision. New management starts in January.

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