Joseph Krist

Publisher

________________________________________________________________

SANTEE COOPER SEEKS DIRECT REVIEW

South Carolina Public Service Authority (Santee Cooper) has requested a direct review by the South Carolina Supreme Court of a lawsuit filed by 20 electric co-ops representing almost 2 million customers to prevent Santee Cooper from charging them for the costs of the failed nuclear generating expansion. The co-ops want the courts to order Santee Cooper to stop charging them for the unfinished reactors, which Santee Cooper and its partner, SCANA, abandoned last summer after a decade of work and $9 billion in costs. The co-ops filed suit in August to stop the billing and seek refunds.

Santee Cooper argues that the utility has the legal right to charge its customers for debts it incurred to build the reactors even after the project was cancelled, leaving billions in unpaid debt. The chairman of the board of Central Electric Power Cooperative, which buys power for the state’s coops from Santee Cooper, said, “Let’s be clear: electric cooperative consumer-members should not have to pay billions of dollars for two nuclear units that are not producing power.”

Central Electric, Santee Cooper’s largest customer, buys about 60 percent of the power that utility produces and distributes it to the state’s electric co-ops. The co-ops want a “swift resolution to this matter for our members that protects them from footing the bill for someone else’s mistakes.” Central Electric is Santee Cooper’s largest customer. It buys about 60 percent of the power that utility produces. If the co-ops should prevail, Santee Cooper “eventually would be unable to maintain its ongoing operations,”   according to its filing for review.

The Court could take the matter up, hold hearings and, ultimately, issue a ruling on Santee Cooper’s petition. Or the high court could send the issue back to a lower court for hearings, producing a record of the facts and the laws at issue.

HEAD TAX UP FOR VOTE IN NOVEMBER

The Mountain View, CA City Council voted unanimously late Tuesday to place a measure on the November ballot asking residents to authorize taxing businesses between $9 and $149 per employee, depending on their size. If the measure passes, the tax could generate upwards of $6 million a year for the city, with $3.3 million coming from Google alone. The bulk of money raised through the head tax would pay for transit projects, including bicycle and pedestrian enhancements, and 10 percent would go toward providing affordable housing and homeless services.

The effort comes in the wake of the City of Seattle’s recent effort to enact such a tax only to repeal it before it was collected in the face of heavy political pressure lead by Amazon. While the tax in Mountain View would be imposed on a variety of employers, the real target is Google. Unlike Seattle’s proposal, which was primarily meant to ease homelessness, this one would benefit not only his city’s residents but also Google’s employees, who face the same transportation and housing challenges.

Efforts of the City’s business community seem to reflect a belief that the ballot measure would succeed. The city’s Chamber of Commerce, opposed the decision, but says it now hopes to persuade a majority of council members to lower the proposed maximum tax rates before settling on the ballot’s language. The Chamber has originally proposed an alternate tax model that asks businesses with more than 1,000 workers to pay a flat $100 per employee rate.

The model the council ultimately approved would charge the city’s roughly 3,700 businesses a progressive flat rate based on their size and a progressive per employee rate. Businesses with up to 50 employees would be charged a base rate of up to $75 per year and those with more would be charged a base rate plus a per-employee fee that climbs with the work force’s size, up to a maximum of $150 each at Google, which employs a little more than 23,000.

Mountain View’s current business tax has been in place since 1954 and is based on businesses’ square footage. Head taxes are in place in other Silicon Valley communities including San Jose, Sunnyvale and Redwood City.  Cupertino is expected to propose one in 2019. The tax, to be phased in over two years starting in 2020, requires the approval of a simple majority of voters.

GREEN MOUNTAIN BUDGET BATTLE

Vermont Gov. Phil Scott announced that he will allow the legislature’s latest budget plan to become law, a decision that will prevent a July 1 government shutdown. “I’m left with no choice but to allow [the budget] to become law without my signature,” Scott said.

The budget is essentially the same as the one Scott vetoed June 14. The House passed the proposal after allegations of a procedural error. The votes came after a compromise deal that would have ended the impasse fell apart Friday.  The governor has insisted since he took office in 2017 that the state budget should not increase taxes or fees for Vermonters.

The Legislature passed three versions of the state budget which would not prevent an increase in the nonresidential property tax rate, which is is set annually under state law. Scott vetoed the first two but will not veto the latest proposal.

The lawmakers’ goal was to fund shortfalls in the state’s teacher retirement fund. The Governor hoped to do that while preventing a tax increase on nonresidential property tax payers, which includes renters, small business owners, and camp owners. The impasse was all the more frustrating as an adopted budget does not have to be balanced – Vermont remains the only state where that is the case. It would however, have forced the government to shut down if a budget had not been enacted.

KENTUCKY MEDICAID WORK RULES ENJOINED BY FEDERAL COURT

The U.S. District Court for the District of Columbia vacated the Trump administration’s approval of Kentucky’s plan and sent it back to HHS. The Court said that the Trump administration’s approval was “arbitrary and capricious” because HHS did not address how the Kentucky waiver would further the underlying purpose of Medicaid. “The record shows that 95,000 people would lose Medicaid coverage, and yet the [HHS] Secretary paid no attention to that deprivation.”

Gov. Matt Bevin has threatened to cancel the entire Medicaid expansion, which covers more than 400,000 low-income adults in his state, if courts blocked the work requirement or other changes he sought. Kentucky had the biggest improvement in its rate of uninsured residents of any state which expanded Medicaid under the ACA.

The decision continues a streak of losses for the fiscally conservative Governor. Teacher protests earlier in the year led to changes in education funding which he opposed and pension changes championed by the Governor and approved by the Legislature were recently found to be legally deficient in the courts. Now, the plan to restrict Medicaid has failed judicial review.

Effectively, the current credit outlook for Kentucky remains guarded at best as pension continue to weigh on the Commonwealth’s credit and hold down its ratings.

NEW JERSEY AVERTS A BUDGET SHUTDOWN

Gov. Philip Murphy of New Jersey and Democratic legislative leaders reached an agreement on a fiscal 2019 budget to keep the government open and avoid a state shutdown for the second time in two years. The budget agreement increases the income tax to 10.75 %from 8.97 % on those making more than $5 million a year.

The budget includes an annual surcharge of 2 % on companies that earn over $1 million annually that will be in place for four years. Mr. Murphy’s plan to raise the sales tax to 7 % from 6.625 % was not included in the final deal. That outcome reflects the compromises which had to be made by both sides. The Governor gave up a sales tax increase and the legislature allowed the income tax to be raised.

The $37.4 billion budget includes financing for nearly all of the Governor’s proposed investments, including a $242 million increase in funding for New Jersey Transit, an additional $83 million for prekindergarten, an extra $25 million for community colleges and a $3.2 billion payment into the state’s underfunded pension system.

The pension payment is a positive reversing a trend of annual underfunding even after an agreement was reached in the Christie Administration to increase annual payments by the State. The state prevailed in litigation brought by the state’s employees after the Legislature failed to meet the annual appropriation levels agreed to.  New Jersey is an outlier this year as the last state in the country that hadn’t reached some sort of a budget agreement by the fiscal deadline, according to the National Conference of State Legislatures.

PROPERTY VALUES IN CHICAGOLAND

The problems of the City of Chicago in terms of its finances are pretty well known. It is through the prism of these problems that other economic and demographic trends are viewed. For the first time in some years, there may some positive trends emerging in terms of the regional tax base which supports outstanding tax backed debt from issuers in the region.

The full market value of real estate in Cook County was approximately $559.7 billion in tax assessment year 2016 according to an annual estimate released by the Civic Federation. The 2016 total value estimate represents an increase of $30.8 billion, or 5.8%, from the 2015 estimated full value. Tax year 2016 is the most recent year for which data are available. The 2016 estimates represent the fourth year that real estate values in Cook County increased following six straight years of decline in value.

In addition to Cook County as a whole, the report estimates the full market value of real estate in the City of Chicago, northwest Cook County suburbs and southwest Cook County suburbs. The estimated full market value of real estate in the City of Chicago increased by 5.4% in tax assessment year 2016 while the northwest and southwest suburbs experienced increases of 6.4% and 6.0%, respectively.

While the estimated full value of real estate has increased since 2012, the 2016 full value of real estate was still $96.8 billion lower than it was ten years prior in 2007. Between 2007 and 2016 the estimated full value of all classes of property in Cook County as a whole declined by 14.7%. As shown in the chart below, estimated full value decreased from $656.5 billion in 2007 to a low of $414.4 billion in 2012, a decline of 36.9%, then rose to $559.7 billion in 2016.

So in spite of declines in population, the value of property continues to increase. That is the result of a lot of things (the strength of the real estate market is apparent in many regions) but we suspect that the willingness and ability of new residents to afford the higher real estate values is offsetting to some extent the declines in population that may be driven by gentrification and the move out of Chicago by lower income residents in response to higher living costs and a skills gap that keeps those residents from the better paying jobs.

ENJOY YOUR FOURTH OF JULY

Like many of you, the MCN is taking some time off this week as we celebrate the nation’s birth. It will return on July 16. Enjoy the Fourth safely!!

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.