Joseph Krist

Publisher

________________________________________________________________

NYC CULTURAL SIGNALS

The return to pre-pandemic levels of activity central to the NYC economy at venues for the arts have been mixed. On one hand, three established Broadway shows could point to weekly box office revenues at levels only 50% of pre-pandemic levels. That is not enough to sustain those shows and consequently they will soon go dark. Broadway has become such a tourism dependent industry now. Lingering hurdles to travel based on the economy, status of the pandemic, and a more difficult economic environment than hoped appear to be holding back tourism.

On the other side of the coin, the New York Philharmonic announced that it has taken in better-than-expected revenues since its reopening. In 2020, the season was canceled and the musicians received 25% pay reductions. Now, revenues are such that the orchestra announced it would lift the musicians’ salaries back to pre-pandemic levels in September. The pandemic cost the orchestra more than $27 million in anticipated ticket revenue. Cuts like those to the musicians saved some $20 million.

The Philharmonic is a major component of the Lincoln Center For The Performing Arts along with entities like the Metropolitan Opera and State Ballet among others. The LCPA credit has been under pressure from the pandemic. The positive attendance news should bode well for the overall credit in terms of the pandemic as an issue. LCPA debt went on negative outlook as the impacts of the pandemic became clear.

The negative outlook reflected the possibility of credit deterioration if the impact of the coronavirus and the deteriorating global economic outlook place prolonged downward pressure on key revenue sources including event income, investment income, and philanthropy. As we see venues return to pre-pandemic levels of attendance, the outlook and perhaps the rating could improve as well.

GIG WORK

The issue of how transportation network companies (TNC) classify their employees has been the subject of ballot initiatives and court battles but once the pandemic took hold, the issue dropped off everyone’s radar. In those days, the industry pledged to put significant resources behind a ballot initiative in Massachusetts which would have granted the wishes of Uber, Lyft, and the other TNC.

The constitutional provisions allowing ballot initiatives in Massachusetts have been very specific. An initiative can only deal with one question. Here, the Massachusetts Supreme Judicial Court found that while one question was “buried in obscure language” that it was indeed a separate question. “Petitions that bury separate policy decisions in obscure language heighten concerns that voters will be confused, misled and deprived of a meaningful choice,” the court wrote.  

In 2020, the state’s attorney general (and current gubernatorial candidate), Maura Healey, sued Uber and Lyft, arguing that they were misclassifying their workers by treating them as independent contractors rather than employees. That lawsuit is pending in court. In the meantime, the TNC spent over $17 million on the initiative.

The Court took was clearly troubled by a provision of the measure that said drivers were “not an employee or agent” of a gig company. Opponents of the initiative were successful in highlighting that as an attempt to limit Uber and Lyft from liability in the case of an accident or a crime. That provision was deemed by the court to be unrelated to the rest of the proposal, which was about the benefits drivers would or would not receive as independent contractors. 

SEC ENFORCEMENT

The City of Rochester, New York, its former finance director, and former Rochester City School District CFO with misleading investors in a $119 million bond offering. They had help as the Commission also charged Rochester’s municipal advisor. The SEC alleges that in 2019 the defendants misled investors with bond offering documents that included outdated financial statements for the Rochester City School District and did not indicate that the district was experiencing financial distress due to overspending on teacher salaries. In September 2019, 42 days after the offering, the district’s auditors revealed that the district had overspent its budget by nearly $30 million, resulting in a downgrade of the city’s debt rating and requiring the intervention of the state of New York.

The School District CFO was also charged with lying to the rating agencies. The SEC’s complaint filed in the U.S. District Court for the Western District of New York, charges violations of the antifraud provisions of the securities laws. The complaint also charges the advisors with violating the municipal advisor fiduciary duty, deceptive practices, and fair dealing provisions of the federal securities laws. The Commission is seeking injunctive relief and financial remedies against all parties.

The School District CFO has settled with the SEC. He agreed to settle the SEC’s charges by consenting, without admitting or denying any findings, to a court order prohibiting him from future violations of the antifraud provisions and from participating in future municipal securities offerings, and to pay a $25,000 penalty. 

INDIAN GAMING COURT DECISION

The US Supreme Court ruled that the State of Texas does not have the right to regulate the operation of bingo games at two tribal gaming sites. (MCN 2.28.22) The Texas Attorney General’s Office has been arguing for many years that the 1987 Restoration Act gave Texas the authority to regulate Tribal gaming on these reservations. Texas only permits activities like bingo to be conducted by non-profit entities for charitable purposes (Wednesday night bingo at the local church remains safe).

The case revolved around the fact that the reservations were restored to federal trust status in 1987 under the “Ysleta del Sur Pueblo and Alabama and Coushatta Indian Tribes of Texas Restoration Act.” However, the Restoration Act contained a provision that barred these two tribal nations from conducting gambling activities that are prohibited by the state of Texas. The tribes argued since Texas does not outright ban bingo, they can operate gaming facilities that offer bingo on their reservations. 

It’s not like the two tribes would be the first to operate a casino in the state. The Kickapoo reservation near Eagle Pass operates the Lucky Eagle casino near El Paso. That made Texas’ case a bit harder to argue. The court’s view was quite clear – “we find no evidence Congress endowed state law with anything like the power Texas claims,”.

AUTONOMOUS VEHICLE REALITIES

Over the last ten years, the notion that transportation would be provided through increasing numbers of autonomous vehicles in a relatively short time frame seemed to predominate. Whether it was commercial trucking, buses, or autonomous transport as a service NHTSA also collected data on crashes or incidents involving fully automated vehicles that are still in development for the most part but are being tested on public roads.

For the TNC providers, the answer to many of their personnel related issues seemed to rely on automation. That would require significant investment in “smart” transit infrastructure. How and when to undertake that change is a significant forward policy issue that the municipal bond market is in good position to finance.

New data released by the National Highway Traffic Administration (NHTSA) will help to stir that debate. The data covered the period from July 1, 2021 to May 15 of this year.  NHTSA documented 392 incidents in that period. There were six fatalities and five were seriously injured. Teslas operating with Autopilot, the more “advanced” mode of driver assistance were in 273 crashes. Five of those Tesla crashes resulted in fatalities.

The rest of the crashes were split among Honda (90) and Subarus in 10. Ford Motor, General Motors, BMW, Volkswagen, Toyota, Hyundai and Porsche each reported five or fewer. Tesla is by far the most prevalent electric car consequently the data is not surprising.

As for the TaaS sector, this is where completely autonomous vehicles are making some headway. NHTSA also collected data on crashes or incidents involving fully automated vehicles that are still in development for the most part but are being tested on public roads. These were involved in 130 incidents with only one serious injury, 15 in minor or moderate injuries. Those events were primarily fender benders or bumper taps reflecting the fact that autonomous public transit is a low-speed affair.

SCHOOL AID REALITIES

The enactment of a NYC budget for FY 2023 is shining a light on one of the impacts of the pandemic on school district finances. Most of the big city school districts around the country have seen declines in average daily attendance since the onset of the pandemic. This year, reductions in revenues tied to attendance-based state aid are putting pressure on districts to reduce spending. That need to control spending is generating some political heat.

In New York, the enacted budget includes $221 million less than in the prior FY. That money was generated from city revenues rather than state aid under a formula tied to attendance. The Mayor argues that the “cut” is formula driven and that it actually should be larger. The use of federal pandemic funds to reduce the school budget gap held the reduction to $221 million.

It is a scenario facing districts like the LAUSD in California and the City of Chicago. Education advocates are looking for ways to reduce the dependence of aid levels on attendance.

MEDICAID DEMOCRACY

Voters in South Dakota will have the opportunity later this year to vote on an initiative which would expand Medicaid eligibility in the state. In those states where the voters have a direct say on the issue, proposals to expand Medicaid are successful. It is estimated that some 42,000 South Dakotans would be eligible under the changes proposed in the initiative.

In states where initiatives pass, it often requires enabling legislation in order for the goals of the vote to occur. Opponents of Medicaid expansion use their legislative advantages to obstruct expansion. In South Dakota, opponents turned to “Constitutional Amendment C” which was up for a vote this week. The proposal would have applied only to measures that “raise taxes or require $10 million or more from the state over the next five years. It would have required a supermajority of 60% in order for it to take effect.

In addition to the 90% federal matching funds available under the Affordable Care Act for the expansion population, states also can receive a 5-percentage point increase in their regular federal matching rate for 2 years after expansion takes effect. The new incentive is available to the 12 states that have not yet adopted the expansion as well as Missouri and Oklahoma.

ELECTRIC CAR OBSTRUCTION

Electric car owners across the country are seen as receiving an unwarranted benefit from the fact that electric car owners do not have to pay gas taxes. Vehicle mileage fees which would be the same for internal combustion vehicles and electric vehicles are one current alternative. Many states already levy higher annual registration fees against electric vehicles. It is clear that there are ways to generate revenues from electric car owners which would address the “equity” concerns of legislators. Nevertheless, those seeking to slow the shift away from internal combustion are attempting new ways of obstruction.

Four legislators in North Carolina have introduced legislation designed to hinder the development of charging infrastructure in the state. The Equitable Free Vehicle Fuel Stations Act would require that an equal number of free gas pumps be installed anywhere there are no-cost chargers on municipal, county and state property. That would include public parking lots, parks and government-owned facilities. The bill also would force businesses with free electric vehicle chargers to disclose on customers’ receipts what percentage of their purchase goes toward paying for them.

The bill is ostensibly designed to eliminate a perceived “subsidy”. A 2019 study by the N.C. Clean Energy Technology Center at N.C. State University found electric vehicle owners would have paid an average of about $100 a year in gas taxes if they instead were driving a traditional vehicle of similar size and model year. The higher registration fee collected from EV owners is $130.

On another favored front in the battle over electric vehicles is West Virginia. The state is trying to “punish” financial institutions who will not bank the fossil fuel industry. The West Virginia State Treasury is slated to blacklist six of the nation’s largest financial firms from accessing state contracts, in view of perceived lending discrimination against the fossil-fuel industry. The six – BlackRock, Wells Fargo, JPMorgan Chase, Morgan Stanley, Goldman Sachs and U.S. Bank – will be given 30 days to provide the treasury with proof they have not stopped banking the coal, oil and natural gas industries. 

They would be placed on West Virginia’s restricted financial institution list within 45 days if they cannot satisfy the Treasurer’s issues. The action highlights one aspect of the irrationality of much of the debate over climate change. Whether it is laws like this or acts attempting to override local regulation, the opponents of efforts to move from fossil fuels are coming to rely more and more on legislative obstructions. Those efforts only serve to highlight the effort to substitute emotion for logic as the country moves towards electrification.

West Virginia’s treasurer has been a leader in the effort to “punish” financial institutions over climate change. He calls the move to electrification a “radical social agenda”.

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.