Joseph Krist

Publisher

RECENT STATE DEMOGRAPHICS

According to the US Census Bureau, Forty states and the District of Columbia saw population increases between 2018 and 2019. Ten states lost population between 2018 and 2019, four of which had losses over 10,000 people. The 10 states that lost population were New York (-76,790; -0.4%), Illinois (-51,250; -0.4%), West Virginia (-12,144; -0.7%), Louisiana (-10,896; -0.2%), Connecticut (-6,233; -0.2%), Mississippi (-4,871; -0.2%), Hawaii (-4,721; -0.3%), New Jersey (-3,835; 0.0%), Alaska (-3,594; -0.5%), and Vermont (-369  ; -0.1%). 

To be honest, these numbers just tell a story from 50,000 feet up so much detail and nuance is lost. We are more interested in things like the incomes and ages of the people moving. States with decreasing but aged populations present one set of issues while growth can still dictate increased demand for capital facilities (especially schools). Both present challenges.

The point is that much will be made of the data depending on where an individual state falls in the rankings. Critics of fiscal policies in Illinois and New York will make much of the negative data while states which grow will likely take a different view. By the way, here are the eight growing states and the numerical increases – Washington (612), Utah (293), Nevada (232), Arizona (175), Idaho (166), Montana (66), Vermont (44), and Colorado (30).

That is not a large number but he direction is still positive. Four states had more deaths than births, also called natural decrease: West Virginia (-4,679), Maine (-2,262), New Hampshire (-121) and Vermont (-53). The top states with net domestic migration loss were California (-203,414), New York (-180,649), Illinois (-104,986), New Jersey (-48,946), Massachusetts (-30,274) and Louisiana (-26,045). We note that the top 5 all are negatively impacted by the loss of the SALT deduction.

MICROMOBILITY

Micromobility advocates will have to wait before they can legally deploy electric bicycles and scooters on the streets of New York’s cities. Legislation legalizing their use was vetoed by the Governor. One of his primary stated issues is the law’s lack of a helmet requirement for users of the bicycles. The legislation would have allowed cities and towns around the state to set local rules for electric scooters and bicycles. Scooter rental companies like Bird and Lime would not have been allowed to operate in Manhattan.

The deployment of these vehicles raises significant safety issues on both sides of the transportation transaction. In Elizabeth, NJ, a 16-year-old boy became the first person killed while riding a shared electric scooter when he collided with a tow truck in November. Another NJ city – Hoboken – started a pilot program in May and stopped it last month while the City Council is considering whether to renew the program.

Leave it to the micromobility advocates to treat this not as a transit safety issue but in terms of race, inequity, and general social policies. That ignores the reality of the real time use and speeds of the bicycles delivering your food and the danger to the unprotected. Of course, these advocates tend to ignore the use of these vehicles on sidewalks, for example. The point is that this clouds the debate and the lack of common sense does not advance development.

SUTTER HEALTH BURIES SETTLEMENT UNDER CHRISTMAS WRAP

Sutter Health, the dominant haelthcare provider in northern California agreed to pay $575 million to settle claims of anti-competitive behavior brought by the California state attorney general as well as unions and employers. The details were not expected to be made public until the first quarter of 2020. Sutter will also be prohibited from engaging in several practices including “all or nothing” agreements which made insurers choose between servicing all of Sutter’s hospitals or none of them.

Sutter will be required to limit what it can charge patients for out-of-network services. These are a leading cause of “surprise medical bills”. The chain was not helped by the fact that there was lots of data available to document the rise in prices Sutter was able to drive through ownership of an increasing number of facilities.

The news ironically followed the release by the California Health Care Foundation of a report documenting the disparity between health costs within the state. It found that various inpatient and outpatient services cost more in California than in other states, and they cost more in Northern California than in Southern California. A critical factor in the fast growth of prices in California compared with the rest of the country is market concentration. The percentage of physicians in practices owned by a hospital/health system has increased dramatically. For specialists, the increase has been even faster.

In 2016, Northern California wage-adjusted prices were on average 24% higher than in Southern California. In the end, the data spoke for itself and the various explanations offered simply did not carry the day.

P3s

Denver International Airport has paid $128 million to Great Hall Partners as part of its divorce from the consortium, which had been hired to redesign and renovate the airport’s main terminal.  When all is said and done, DIA will pay between $170 million and $210 million. DIA moved to terminate the contract after the revelation that bad concrete is laced throughout the terminal. The termination also followed big cost disagreements with the consortium, which claimed the project would cost $1 billion — not $650 million, the agreed-upon figure.

DIA officials expect to propose a contract with the new builder, Hensel Phelps, in January. Construction should resume in January but the completion date has been pushed back to 2024.

St. Louis has decided not to pursue a P3 arrangement for its airport after taking initial steps towards such a financing. The announcement came as the four member working group was reviewing 18 submissions to a request for qualifications from firms and working to finalize which firms would be invited to participate in a request for proposals. The city was seeking “to structure a transaction that meets the city’s primary objectives: improvement of the airport for all stakeholders, including incremental uses of the airport’s significant excess capacity and net cash proceeds to the city, upfront and/or over time for non-airport purposes.” 

Support for the project was less than universal. The politic s behind the proposed expansion reflect the status of the City as the owner of the airport which actually serves a significant population outside of the city which drives facility demand. The clash between those interests has come to the fore in the form of proposals to reconstruct regional governmental structures. These were defeated at previous elections with concerns about how those changes would shift power and economic benefits throughout the St.Louis metropolitan area. Support for a public vote was growing and in light of the regional politics, such a vote would have been problematic.

In New York, recent successful public/private partnerships has supported an environment for increased use of the concept. Now, Gov. Cuomo approved legislation Tuesday granting New York City the power to issue a single request for proposal and contract for the engineering and construction of capital projects. The bill also forces private contractors to cover any extra costs that come with unexpected changes or delays to a project. Design-build can also be applied to most undertakings of the Department of Design and Construction, Department of Environmental Protection, Department of Transportation, Health and Hospitals Corporation, School Construction Authority that costs more than $10 million. The legislation sets the threshold for the Parks Department or the Housing Authority at $1.2 million.

CYBER ATTACK NETS RANSOM

A December cyber attack on the Hackensack Meridian Health system resulted in the payment of a ransom to the hackers. The attack brought down the system’s computer network for two days, during which facilities were forced to reschedule some non-emergency procedures and revert to using paper—rather than electronic—medical records. Hackensack Meridian said that, “due to the frequency with which healthcare organizations are targeted by cyber criminals,” it had a coverage plan in place to cover the costs associated with the cyber attack, including payment and recovery efforts. 

Hackensack Meridian did not immediately comment on which parts of the system were not operational and for how long. there was no initial information provided regarding how much time the system expects it to take to bring those applications online.

The system ran the risk of paying up and then not seeing their systems back on line. It also, by going against broad recommendations from law enforcement that ransoms not be paid, risks encouraging other attacks on Hackensack Meridian but other providers as well.

CANNABIS

In its annual draft report, the California Cannabis Advisory Committee cited high taxes, overly burdensome regulations and local control issues posing significant obstacles to the legal marijuana market in California. Those pressures are reflected in tax revenue about a third of what was expected and with only about 800 of an anticipated 6,000 licensees open for business.

The report estimates that California is expected to generate $3.1 billion in licensed pot sales in 2019. As is so often the case, that would make the Golden State the largest market for legal cannabis in the world. But nearly three times as much — $8.7 billion — is expected to be spent on unlicensed sales. It was originally estimated the state would take in $1 billion annually in tax revenue from cannabis. In reality, the fiscal year that ended in June saw just $288 million collected. The current state budget projects $359 million in tax collections.

An increase in taxes on cannabis cultivation is scheduled for Jan. 1, including a bump tied to inflation that will raise the levy on cannabis flower from $9.25 per ounce to $9.65. The Legislative Analyst’s Office recommended that lawmakers consider overhauling how cannabis is taxed, including a possible potency-based tax to reduce harmful use and eliminating the cultivation tax. 

Meanwhile, the Massachusetts Cannabis Control Commission marked the end of one year of legal recreational cannabis sales in the Commonwealth. The first two Marijuana Retailers commenced operations in Massachusetts in November, 2018. Since then, 33 total have opened statewide. Another 54 Retailers with provisional or final license approval were in the process of completing the Commission’s inspection and compliance procedures towards that end. In total, the Commission has licensed 227 Marijuana Establishments, including Cultivators and Product Manufacturers.

ANOTHER PRIVATE COLLEGE IN TROUBLE

Just before the new year, another longstanding private college saw its finances result in a downgrade. This time it’s Hartwick College in Oneonta, NY. The institution’s origin is rooted in the founding of Hartwick Seminary in 1797. That history and tradition has noit been enough to balance the College’s finances. Moody’s Investors Service has downgraded Hartwick College’s bond rating to Ba3 from Ba1, affecting $38 million of debt. The outlook continues negative.

In Moody’s view,” The downgrade is driven by Hartwick’s materially increasing and now very deep operating deficits that will persist through at least fiscal 2020 and most likely beyond. The college is relying on supplemental endowment draws to fund operations which will result in further reductions in liquidity. This weak financial performance is largely driven by a challenging revenue environment with a small scale of operations, $49 million expense base, and a high cost education model. While the college has incrementally trimmed expenses over the past five years, reductions have fallen well short of the 20% decline in operating revenue during this period. The college confronts a difficult student market environment reflected in declining net tuition revenue, which accounts for about 81% of total operating revenue, a business condition which is likely to persist for the foreseeable future.

Hartwick College is a small, tuition dependent private liberal arts and sciences college with fall 2019 enrollment of 1,180 students and fiscal 2019 operating revenue of approximately $39 million. That is not nearly enough to cover some $10 million of expenses over and above that revenue stream. For four consecutive years through fiscal 2019, the college’s calculated annual debt service coverage under the covenant was below 1.0x. The negative outlook acknowledges the college’s structurally unbalanced operating performance driving continued liquidity declines. Absent a significant increase in philanthropy, it will be difficult for the college to restore fiscal balance.

Declining net tuition revenue accounts for about 81% of total operating revenue, a business condition which is likely to persist for the foreseeable future. Over the last five years, operating revenue has declined some 20%.

The news on Hartwick comes as government datat continues to reflect demographic trends which bode ill for college credits which are tuition dependant. declining net tuition revenue, which accounts for about 81% of total operating revenue, a business condition which is likely to persist for the foreseeable future.

The news on Hartwick’s worsening credit were accompanied by government datat reinforcing demographic trends which bode ill for tuition dependant private colleges. According to the U.S. Census Bureau’s national and state population estimates released, forty-two states and the District of Columbia had fewer births in 2019 than 2018, while eight states saw a birth increase. With fewer births in recent years and the number of deaths increasing, natural increase (or births minus deaths) has declined steadily over the past decade. The Northeast region, the smallest of the four regions with a population of 55,982,803 in 2019, saw population decrease for the first time this decade, declining by 63,817 or -0.1%. 

NYC BUDGET OUTLOOK

Just before the end of the year, the NYC Independent Budget Office delivered its outlook for the NYC budget as we enter 2020. IBO expects the city to end the current fiscal year with a surplus of $635 million that will be used to prepay expenses for next year, leaving a gap of $2.9 billion for fiscal year 2021, which begins on July 1, 2020. IBO’s outlook for the local economy is for the expansion underway since the end of the Great Recession to continue, although at a slower pace. IBO continues to project relative strength in the growth of city tax collections—thanks largely to the property tax—at rates that exceed planned expenditures. However, as personal income tax revenue grows more slowly and the business income and property transfer taxes see actual declines in revenue, IBO expects tax revenue growth in 2020 to fall sharply from 4.0% in 2019 to 1.9%.

Looking at the economy, the growth of New York City’s economy has also slowed in 2019. IBO projects employment growth of 65,000 for the year (4th quarter to 4th quarter), compared with an average of 98,000 jobs a year from 2010 through 2018. IBO forecasts slower employment growth of 50,100 in 2020, and even smaller job gains in the following years. Slower employment growth coupled with slowing growth in the labor force is expected to increase the unemployment rate but only slightly—from a projected 4.2 percent in 2019 to no more than 4.5 percent during the forecast period. Health care and social service employment is expected to grow more slowly but this sector will continue to provide more new jobs than any other.

QUICK THINGS TO LOOK FOR IN 2020

The year opens with a mediator’s recommendation that settlement talks continue in the Commonwealth’s debt restructuring case of debt including commonwealth general obligation, Highways and Transportation Authority, and Public Buildings Authority bonds. The outcome of this process will raise as many questions as it answers about any comparable action. On Dec. 23 the Mediation Team Leader Houser described the ongoing mediation talks as being “productive.” She said if the parties reached further progress, she would have to add other parties to the discussions and that coming to an agreement would take additional time.

The judge managing the case  extended the deadline for the team to submit a report to Feb. 10 from Jan. 10. She extended the planned hearing on the report and any possible further extension of the stay on litigation to March 4 from Jan. 29. She also extended the stay on litigation to March 11 from Jan. 31.

Annual appropriation debt will have its day in court as the trustee for $29 million of debt sold through Platte County, MO’s industrial development authority for the Zona Rosa Shopping Center project has been granted of an appeal of a decision rendered against the Trustee in May, 2019.

The county argued that the pledge provided on the bonds was not a promise to pay, but a pledge that the auditor could request coverage of a shortfall with the decision resting with the county on an annual basis. Platte County sued the bond trustee UMB Bank NA in November 2018 to secure a legal determination that it was not legally on the hook to make the appropriation.

The Zona Rosa bonds are repaid with a dedicated 1% sales tax in Zona Rosa, but the revenue doesn’t fully cover debt service. It is another reminder of the need to evaluate economic viability along with project documents.

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