Joseph Krist

Publisher

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NYC HOUSING

With the State budget out of the way, the second calendar quarter is usually a time for significant policy issues to be debated in the NY Legislature. One of the key issues facing the new administration in NYC is the issue of affordable housing. The limits of the pandemic and lingering damage to the local economy have focused even more attention on the issue. Recent proposed rent increases for regulated units in the city have raised an outcry. All the while, the existing stock of public housing continued to deteriorate in the face of ever declining federal funding for maintenance and rehabilitation.

The federal debate over public housing funding leaves public housing operators at the confluence of all of the factors which bedevil public housing. So, they feel left to their own devices. The problem is biggest in the City of New York, the largest provider of public housing by far. NYCHA needs over $40 billion to fully restore and renovate all its buildings. NYCHA has a 250,000-waiting list.

A main goal of the Adams administration is increased funding for NYCHA’s capital needs. This week, the New York City Housing Authority (NYCHA) Public Housing Preservation Trust legislation, A7805D/S9409A  passed the New York State Senate on 38-25 vote, after passing the Assembly on a 132-18 vote. The Public Housing Preservation Trust would be a new, entirely public entity. It is designed to facilitate access to billions of dollars in federal funding to accelerate repairs.  

Under the legislation, leasehold interests for each development would be transferred to the Trust. This would allow for changes in the source of federal revenues able to be generated by each unit. NYCHA estimates that a typical unit would receive $1,900 under the Section 8 Tenant Protection Vouchers compared to just $1,250 per month under currently available funding sources. The median monthly rent for NYCHA apartments is about $500, and the median household income is around $18,500 per year, compared with $1,500 and $50,000 citywide. More than 43 percent of NYCHA households have at least one person employed, according to city estimates.

NYCHA would retain ownership of the land and buildings, and residents would continue to have the same protections they do under the current regulations, including a cap on rent payments set at 30 percent of a household’s income.

Within those parameters, the idea is to enable the Trust to pledge some of those dollars from a revenue stream seen as more reliable than that available under the current system. Those pledged revenues would be the source of repayments on bonds issued to fund the needed capital repairs.

While a fix for public housing was taking shape, another longstanding source of funding for “affordable“ housing was being allowed to whither on the vine. The 421-a property tax exemption—which grants up to 35 years of property tax benefits to newly built multi-unit buildings—will expire on June 15, 2022, after the state legislature did not renew the program during its session that ended last week. It has been a more and more controversial issue as the local hosing crunch became more severe.

The debate has always been whether the level of tax expenditure in the form of abatements is offset by the volume of desired housing produced. The City’s Independent Budget Office (IBO) has estimated the future cost of the program under the scenario that no new exemptions would be granted after fiscal year 2022, which ends in June.

The existing 421-a exemptions will cost the city a projected $25.7 billion from fiscal year 2023 through fiscal year 2056, when the last of the current exemptions would cease (all amounts in 2022 dollars). Existing 421-a exemptions will cost the city over $1 billion a year from fiscal year 2023 through fiscal year 2033. The annual cost falls below $1 billion in fiscal year 2034 and eventually diminishes to $6.8 million in fiscal year 2056.

RENEWABLES IN NY STATE

The NY State Legislature will not take up a bill which would have loosened financing restrictions on the New York Power Authority. The Build Public Renewables Act was intended to enable NYPA to advance the development of renewable generation in the State. The pace of renewable generation development has been slow. The bill easily passed through the state Senate last week and it is generally agreed that there were enough votes to get the bill through the Assembly and to the governor’s desk for signing.

The biggest hurdle now is the Speaker of the State Assembly. As has been the case in states like Ohio and Illinois, the private utility industry has been successful in financially supporting legislators who back those corporate interests. In 2019, the Climate Leadership and Community Protection Act, requiring New York generate 70% of its energy from renewables by 2030 was enacted. The new bill would have been one of the first pieces of legislation which would have driven public investment in renewables.

The public blowback from the decision to block the Legislation has already generated some backtracking. Public competition would likely motivate more overall investment and that lower cost competition could upend some very carefully laid plans. If NYPA is in a position to develop competing facilities with the benefit of tax-exempt financing, that would throw a serious wrench into those plans.

Case in point: the IOU which serves our location is owned by a foreign owned power company that is looking to move into the industrial scale renewables space. Their business plan is based on an IOU service area monopoly model. The plan is to develop an array of primarily wind generation facilities and sell it to their distribution utilities.

The Speaker also effectively killed a proposed ban on natural gas connections for new construction. While no improprieties are implied here, supporters of the bills noted that the Speaker gets significant financial support from the private industry. Attempts to influence legislation have already claimed speakers of the House in Illinois and Ohio. In NY, the reaction was so strong that the Speaker is trying to have hearings held in July on the legislation. It is a step in a process which could result in a special session of the Assembly to have a vote on the bill.

EMINENT DOMAIN

Missouri has enacted legislation which would require that landowners be paid 150% of fair market value for land taken through eminent domain for electrical transmission projects.  The legislation is seen as a compromise between the Grain Belt Express transmission line’s developers and landowners. The bill also requires that developers start construction within seven years of getting easements or their rights to the property would expire. It would also require that court-appointed commissions tasked with determining the fair market value of a farmer’s land during eminent domain proceedings include a farmer who has lived in the area for at least a decade. 

The Grain Belt Express is designed to transmit wind energy from Kansas to Illinois and beyond. It was not initially intended to provide power in Missouri. This was one of the main sources of opposition – the idea that the line would damage Missourians without providing any power in Missouri. Eventually, project supporters convinced local utilities to obtain power from the project. This softened opposition and led to the resulting compromise.

Significant issues around eminent domain continue to play out in neighboring states. It’s clear that this is less an environmental issue for opponents than it is one of property rights.

BRIGHTLINE

The private high speed rail project in Florida continues to move forward. Recent management comments indicated that a goal is the operation of trains (without passengers) for testing by the end of this year on the extension of existing service to Orlando. The railroad has said the extension to Orlando from Miami would open to passengers in early 2023. Brightline estimates that a trip between Miami and Orlando will take a little over three hours. The same trip by car takes some 3 hours and one-half hours.

That reinforces the ultimate dependence of the success of this project on foreign-based tourism. Landing in Ft. Lauderdale, one could go to either South Beach or Disneyworld. The hope is that less auto dependent and more train friendly visitors will drive utilization and revenues.

There was also an update on the Brightline West project linking southern California and Las Vegas. Construction is now tentatively scheduled for Christmas. Management said Brightline West could begin carrying passengers roughly three years after construction begins, or as early as 2025.

CALIFORNIA DROUGHT DRIVES NEW LIMITS…

The California State Water Resources Control Board is making “significant, very deep cuts” for water users, primarily in the San Joaquin River watershed. The San Francisco Public Utilities Commission as well as East Bay Municipal Utility District are among the retail municipal suppliers facing supply restrictions. Others with supplies subject to limits include agricultural water districts such as Merced Irrigation District, Oakdale Irrigation District, Turlock Irrigation District and El Dorado Irrigation District.

The state sent curtailment notices to a larger group of about 4,500 water Some 10% rights holders in August.  A total of ,571 water rights and claims are being curtailed in the Sacramento-San Joaquin Delta watershed. Those rights and claims are held among an estimated 2,000 water rights holders. Some 10% of those holders are 212 public water systems that supply drinking water. The real pressure is on agricultural users to use less water. That sector is by far the biggest consumer of water in the state.

Almonds, pistachios, grapes, alfalfa for cattle and other crops all being grown in a desert. It is the long-term issue which will not go away when viewing California over the long term. The current imbalance between agricultural and non-agricultural use is not sustainable.

..BUT WATER CREDIT HOLDS UP

Moody’s Investors Service has assigned a Aa1 rating to the Metropolitan Water District of Southern California’s Water Revenue Refunding Bonds. It also affirmed the Aa1 ratings on Metropolitan Water District of Southern California’s (“MWD”) approximately $2.5 billion in outstanding parity senior lien water revenue bonds and the Aaa ratings on MWD’s $20.2 million in outstanding general obligation unlimited tax (GOULT) debt.

MWD is the largest provider of drinking water in the US, serving as a water wholesaler to a 5,200 square mile service area with nearly 19 million residents. The district serves exclusively as a wholesale supplier, with no direct retail customers. It sells its water to a base which includes 26 member agencies including 14 cities, 11 municipal water districts and one county water authority. MWD provides supplemental water to its member agencies that represent a critical portion of the members’ water supply mix, with these supplies projected to represent roughly 50% of member agencies’ water supplies over at least the next 25 years.

Moody’s notes a potential benefit of usage limitations at least for the wholesaler. While member retail agencies continue to develop their own water supplies including recycled and desalination supplies, reliance on MWD remains stable and in some cases will increase as a result of water quality regulations, underscoring the essentiality of MWD water to the region.

WASHINGTON STATE DAMS

The long-running debate in the Pacific Northwest over the role of the federal dam system along the Snake River is moving in to a new phase. Advocates for native fishing interests have long advocated removing the dams which are a major contributor to the continued decline of salmon in the river. Advocates for keeping the dams have long worried about the economic costs of removing some of the dams.

Now, a report released by the Washington Governor and one U.S. Senator introduce some hard data into the debate. The report released last week estimates that breaching the dams and mitigating the loss of energy, irrigation and transportation benefits would cost $10.3 billion to $27.2 billion. The direct costs of the process of breaching the dams and the inevitable cleanup are estimated to cost between $1.2 billion to $2 billion. The rest of the costs reflect the loss of shipping capacity on the river and the replacement of that method of shipping by road and rail.

The report estimates that significant improvements to rail lines and roadways would be needed, and compensation for increased transportation costs, infrastructure maintenance and loss of jobs would need to be considered. Those improvements could cost between $542 million and $4.8 billion.  Those costs will be cited by opponents of breaching the dams.  The timing may not be good as well in that those previous efforts to get the breach plan funded through federal dollars came up short and were not included in federal infrastructure legislation. This would shift the costs to the State of Washington.

RETAIL CHOICE UNDER SCRUTINY

Legislation is under consideration which would make Massachusetts the first state to reverse course on retail electric choice after allowing it. The bill would prevent retail suppliers from creating new contracts or renewing contracts after 2023. The bill reflects the results of studies undertaken by, among others, the Massachusetts Attorney General which found higher costs for customers who left municipal or investor-owned utility service. 

This has been an issue in the state since the first Attorney General review in 2018. Polling shows high support for retail choice as individual customers try to eliminate their individual carbon footprints. The reality is that there is still a shortfall in terms of “green” energy supplies available for Massachusetts. This legislation actually spotlights the pressures in the region over the proposed transmission line through Maine to bring hydroelectric power from Quebec to Massachusetts.

MEMPHIS POWER

Memphis, Light, Gas and Water (MLGW) customers could see the utility save between $25.7 and $55.3 million annually, according to data from private sector bids released this week. An MLGW study published in 2020 originally projected savings of more than $100 million a year.  That difference is being seized upon by advocates for the status quo. The projected savings versus initial estimates (dating back to 2018) reflect increased solar and natural gas energy costs relative to when the utility released its integrated resource plan in 2020. 

That 2020 analysis estimated annual savings of $100 to $150 million a year if MLGW left TVA and received power through local natural gas plants, solar farms and purchasing energy through the Midcontinent Independent System Operator. The debate is about more than just cost. It comes as other municipal utility customers of the TVA call on it to move away from fossil-fueled plants rather than replace coal with natural gas.

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