Joseph Krist

Publisher

ROAD FUNDING

Oklahoma’s Department of Transportation is inviting drivers to take part in a six-month pay-per-mile pilot program set to launch this July. The Fair Miles program is designed to address emerging impacts on funding as electric car use grows. Drivers who volunteer to be part of the pilot will have several mileage reporting options (MRO), including an onboard device (OBD-II) and telematics, if provided by the vehicle manufacturer.

Oklahoma joins Oregon, Utah, Virginia and Washington in conducting similar pilot studies. In Oklahoma, the state is looking for 500 diverse participants, who will each be paid $50 for taking part. The project was authorized in 2021.

Indiana is taking a different approach while it figures out a long-term source of funding for roads which does not include a gas tax. In 2017, a state task force recommended several provisions which became law. They included raising the gas tax by 10 cents, indexing the tax to inflation with a cap of one penny, and directing revenue from a separate gas sales tax to a dedicated road improvement account rather than the state’s general fund.

Under current law, the annual inflation adjustment to the gas tax, which is limited to a penny, was set to end in 2024. Lawmakers in the budget agreed to an extension, pushing the expiration date out to 2027. 

CALIFORNIA TRANSIT FUNDING

The issue of state funding for transit usually plays out in places like New York and Illinois where the use and demand for mass transit is quite concentrated. There debates over state revenue assistance to transit agencies is taken for granted. It’s usually not an issue of whether to subsidize or not. This year, the issue of operating subsidies for local mass transit is coming to the state budget negotiations in California.

The California Transit Association which represents 85 public transit systems has proposed that the state appropriate some $5 billion to subsidize operating revenues to fill in projected shortfalls in local transit revenues.  The systems anticipate a cumulative budget deficit of around $6 billion over the next five years, according to the association. The state has never done this before.

The agencies are hoping for additional funds from the state’s sales tax on diesel fuel and unallocated revenue from the state cap-and-trade program. They’re also asking to use some existing capital funding to support operations over the next several years. How badly is the money needed? The agencies say they’re willing to give more operating oversight of transit operations to the state, and respond to demands for “accountability” in the form of safety and service improvements.

CONGESTION PRICING

The Federal Highway Administration tentatively approved an updated draft of a report commissioned by the Metropolitan Transportation Authority that identified ways to mitigate the potential harm of congesting pricing on disadvantaged communities. This opens a 30-day comment period after which FHA is expected to give its final approval. The M.T.A. says the tolling program could begin as soon as spring 2024.

That assumes that a toll level will be agreed upon in spite of continued strong suburban resistance. Other critics include taxi drivers, as well as Lyft and Uber drivers. The M.T.A.’s own research has shown that fare increases triggered by the tolls could slash demand for taxis and for-hire rides by up to 17 percent.

ASYLUM COSTS

Last week we discussed the budgets for the State and City of New York. One result was that the City was not going to receive financial aid from the state to reduce the costs of the asylum surge into NYC in the amounts the City had hoped for. The recently adopted New York State Budget included funding to reimburse New York City for 29 percent of costs associated with sheltering asylum seekers, up to $1 billion in reimbursement over two years. 

As the budget process moves to the City side, the NYC Council commissioned the City’s Independent Budget Office (IBO) to examine city expenses associated with serving asylum seekers that were included in the Executive Budget. A most frequently cited figure by the Mayor is $4 billion. IBO modeled a baseline cost scenario which assumes variation in the influx of asylum seekers in line with current trends. It also studied a lower-cost and higher-cost scenario.

What did IBO find? All three IBO cost scenarios are based on the assumption that the volume of asylum seekers utilizing city services will fluctuate. When this is combined with varying cost models, the resulting total costs are between $600 million and $1.7 billion lower than the Executive Budget projection of $4.3 billion for fiscal years 2023 and 2024. How did the difference come to be?

Baseline-cost scenario ($3.07 billion) – IBO estimates that the asylum-seeking population in 2024 will continue to follow trends of arrivals, stays, and exits seen in 2023, and that the current cost of providing shelter and food and other city services for asylum seekers will remain constant. This scenario totals $3.1 billion across 2023 and 2024, $1.2 billion lower than the Executive Budget.

Lower-cost scenario ($2.67 billion) – assumes that, while the asylum-seeking population will continue to grow over the course of 2024, the city will find cost efficiencies next year, lowering the per-household cost of providing shelter and food for asylum seekers.

Higher-cost scenario ($3.728 billion) – assumes that the asylum-seeking population will continue to grow over the course of 2024 and that the cost to shelter and care for asylum seekers will be higher than current rates as the city continues to ramp up emergency spending.

Across each of IBO’s three cost scenarios, the city will not receive the full $1 billion it might get from the State. The findings will give ammunition to those City Council members who did not support budget cuts for things like libraries.

WATER, MICHIGAN, BANKRUPTCY

Stop me if you think you have heard this before but another Detroit suburb is having trouble with its water system. For ten years, the City of Highland Park and what is now the Great Lakes Water Authority have been in litigation over unpaid water bills. Last month, a Wayne County Circuit Court Judge ordered Highland Park to provide a payment schedule which would resolve the outstanding $24 million debt due to GLWA.

The court case against the city resulted in at least three mediations, with the last one being overturned by the court of appeals resulting in its reversal after DWSD/GLWA agreed to settle and pay Highland Park $1,000,000 for overcharges. Instead, the parties find themselves at this crossroads. Highland Park’s City Council voted to petition Michigan Governor Gretchen Whitmer requesting she authorize the city to go into Chapter 9 municipal bankruptcy. They had hoped that this would happen by April 20.

In 2014, the city chose a neutral evaluation process under state law which was a pre-bankruptcy mediation. The order of a payment program is actually a stick to get the parties to some agreement. In fairness, it is likely a burden for the majority of Highland park’s ratepayers to make their full payment. It is also symptomatic of the fiscal problems which have seen the city run under the State emergency manager laws – once for six years and again for two years between 2001 and 2015.

FLORIDA

In 1882, the US passed the Immigration Act. That law was enacted primarily at the behest of California where Chinese immigrants were accused of taking jobs and holding down wages. The law excluded merchants, teachers, students, travelers, and diplomats. It was renewed after its original ten-year term expired and after two renewals was replaced by the Chinese Exclusion Act. That law made the restrictions permanent and they stayed in place until 1943.

Now, in preparation for his Presidential campaign Florida Governor signed his state’s version of restrictions on Chinese individuals. The new law is structured to prevent “governments or agents” from “countries of concern” – China, Russia, Iran, North Korea, Cuba, Venezuela and Syria from buying farmland or any property within 10 miles of any military installation, seaport, airport, power plant, water treatment facility or any other location deemed critical infrastructure.

The law bans citizens from those countries of concern who are not lawful permanent US residents from owning any real estate in Florida. Those knowingly selling property in violation of the new regulations may be subject to civil and criminal penalties, and the new laws allow the state to seize property improperly obtained by foreign nationals.  The legislation also prohibits state colleges and universities from soliciting or accepting gifts and grants from foreign countries of concern and bans private schools from being owned or controlled by adversarial nations. 

While the language does not limit the law to exclusively Chinese interests, the Governor made it clear in the signing ceremony that the law targeted Chinese interests. The “CCP threat” is a popular talking point among the conservative voters being targeted by The Governor and his campaign. Whether it will have any practical effect on the issue is another thing. It is a continuation of some very noisy efforts to use the law and the courts to score cheap political points.

On that note, the state has enacted legislation which purports to overturn the development agreement adopted by the Reedy Creek District and Disney at the old board’s last meeting in February. The litigation related to this is piling up with suits and countersuits flying. While we do not believe that the legal battles will impact the payment of outstanding debt from Reedy Creek, we are troubled by the willingness of the Legislature to support an unnecessarily disruptive politicization of a municipal bond credit.

P3 DEFAULT

Eastern Michigan University is considered a commuter campus with only 17.5% of enrolled students living on campus. To facilitate the attendance of its commuter students, the University had operated an extensive parking system on campus. Part of that system included a garage for 740-odd vehicles. To facilitate the management and refurbishment of the garage, the University entered into a public-private partnership for the maintenance and operation of the garage. The term of the agreement was 35 years.

The project was financed through the issuance of bonds by the Arizona Industrial Development Authority, a conduit issuer. The proceeds of the Bonds were used to, among other things, refinance the Project by prepaying a Prior Loan and redeeming Prior Notes and finance certain costs of the Project. The debt service on the bonds would be paid from repayments under a loan agreement with the operator.

The Borrower failed to make at least the Loan Payments required under the Loan Agreement that became due on May 1st, 2021, November 1st, 2021 and May 1st, 2022. In addition, the Borrower failed to make the complete Loan Payment that became due on May 1, 2023 (together with the earlier missed Loan Payments, the “Missed Loan Payments”). Those were defaults under the loan agreement. The Borrower’s failure to timely make each of the Missed Loan Payments constitutes a Loan Default Event under the loan agreement and creates a default under the Indenture securing the bonds.

In the meantime, the garage is closed so there are no revenues generated. The dispute between the University and the operator has been in the courts. Provident EMU has sued EMU twice in both federal and Michigan court. The federal case was thrown out quickly. In litigation to date, Provident accused EMU of underselling the cost of repairs needed on a 784-space parking structure and either undercharging or reserving more spaces than planned in the garage. The parties have been in disputes resulting from pandemic restrictions which limited operations.

It is part of a pattern of disputes between Universities and private housing and parking providers. The attraction of the P3 model for universities is that it shifts risk off their balance sheet. If they had wanted to guarantee the debt, they could have issued traditional parking revenue bonds. The whole point of these transactions is to shift risk. So, when revenues do not meet expectations, relying on universities to suddenly step up and backstop debt which they worked very hard not to be responsible for may be a fool’s errand.

HOCKEY ON THE ARIZONA BALLOT

On May 16, the voters in Tempe, AZ will have their chance to cast votes for or against a proposal to issue debt for the development of a mixed use commercial and residential community anchored around a new arena for the NHL Arizona Coyotes. The Coyotes have been in the Valley of the Sun for a quarter century without ever being able to lock down a permanent home. Multiple ownership groups and continuing interest in moving the franchise have not helped.

The team now plays on the Arizona State University campus. It is designed for college and while its ice was rated the best in the league, the building holds only 5,000 people. It is not a viable long-term solution. After the Desert Dogs were kicked out of the arena in Glendale, a long-term solution had to be found before the pressure to move the franchise only grew.

The project was approved by the council to become a referendum on Nov. 10, 2022, and on Nov. 29, the proposed use of land and development that would be the entertainment district was unanimously approved. The team has agreed to pay the City under the terms of a 30-year Government Property Lease Excise Tax, which allows developers to build in Arizona by paying an excise tax instead of property taxes for a set number of years. 

A robust debate has unfolded with two sides offering what can only be described as the usual arguments. It is fair to say that a failed vote would result in enormous pressure to be placed on the NHL and its other owners to move the team to where it could have a permanent home.

PUERTO RICO

Beginning in 2016, CPI—a nonprofit media organization that has reported on Puerto Rico’s fiscal crisis—asked the Board to release various documents relating to its work. When CPI’s requests went unfulfilled, it sued the Board in the United States District Court for Puerto Rico, citing a provision of the Puerto Rican Constitution interpreted to guarantee a right of access to public records. The Board moved to dismiss on sovereign immunity grounds, but the District Court rejected that defense. The First Circuit affirmed. The case moved to the US Supreme Court.

The court began by citing Circuit precedent that Puerto Rico enjoys sovereign immunity, and it assumed without deciding that the Board shares in that immunity.

The question presented is whether the statute categorically abrogates (legal speak for eliminates) any sovereign immunity the board enjoys from legal claims. The Court held it does not. Under long-settled law, Congress must use unmistakable language to abrogate sovereign immunity. Nothing in the statute creating the board meets that high bar. Lacking that language, this Court assumed without deciding that Puerto Rico is immune from suit in United States district court, and that the Board partakes of that immunity.

In short, nothing in PROMESA makes Congress’s intent to abrogate the Board’s sovereign immunity unmistakably clear. The statute does not explicitly strip the Board of immunity or expressly authorize the bringing of claims against the Board. And its judicial review provisions and liability protections are compatible with the Board’s generally retaining sovereign immunity. The standard for finding a congressional abrogation is stringent. Congress, this Court has often held, must make its intent to abrogate sovereign immunity “unmistakably clear in the language of the statute.”

In short, nothing in PROMESA makes Congress’s intent to abrogate the Board’s sovereign immunity “unmistakably clear.” The statute does not explicitly strip the Board of immunity. It does not expressly authorize the bringing of claims against the Board. And its judicial review provisions and liability protections are compatible with the Board’s generally retaining sovereign immunity.

MAINE TRANSMISSION

Maine’s highest court ruled today that a 2021 ballot initiative seeking to block construction of a 145-mile transmission line was unconstitutional. It ruled that the ballot measure could not retroactively ban New England Clean Energy Connect, or NECEC as the project is known. They noted the proposed transmission line had received a certificate of public convenience and necessity from state utility regulators.

The decision still requires adjudicating the issue of whether Avingrid, the project sponsor and CMP owner had completed enough work on the project that it could not be stopped. The applicability of the decision on the initiative in this case depends on what a county jury decides in litigation currently ongoing to resolve that question. 

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