Joseph Krist

Publisher

THE VOTE

It will be hard to know the true implications for federal infrastructure policy of the election until control of the Senate is established. On the House side, it shapes up as a lot of investigating and media stunts so nothing gets done. That leaves the local results to give us clues. Our 10.31.22 edition outlined many of the issues on the ballot.

The NY legislature supermajority was lost. That will temper some of the zeal on the left which has implications for a variety of programs. Congestion pricing and cannabis regulation are two which come to mind.

Speaking of cannabis, Missouri and Maryland passed legalization initiatives. The other three states where weed was on the ballot saw it go down to defeat. Arkansas and North Dakota were not a surprise but South Dakota hasd already legalized in 2020 only to see the courts overturn legalization. Opposition was much better organized this time around and it was not an off-year election so the environment was less favorable.

Millionaire’s taxes resulted in a split decision. California rejected its plan while Massachusetts voters approved their proposal. Efforts to make it harder for ballot initiatives were defeated in Arkansas.  

Medicaid expansion continued its broad support. South Dakota voters approved a constitutional amendment that would extend Medicaid eligibility under the Affordable Care Act. Anybody making less than 133 percent of the federal poverty level (about $18,000 for an individual or $36,900 for a family of four) would qualify for Medicaid coverage. An estimated 45,000 South Dakotans would be covered by the expansion including some 14,000 Native Americans.

Taxes to support efforts by municipalities to decarbonize were supported in Denver and Boulder, CO. Taxes to fund transit projects had mixed results. In California, transit taxes were supported in San Francisco and Sacramento but they failed in three other counties. Arizona saw Pinal County’s tax proposal defeated. In Florida, three counties saw tax increase proposals go down to defeat. One was the Hillsborough County referendum which has been the subject of numerous legal efforts to keep the item off of the ballot. (MCN 10.31.22) Transit related initiatives were supported in Texas and the Carolinas. In Michigan, metro Detroit voters supported three transit tax increases. Ann Arbor voters supported a tax increase to fund climate change adaptation.

NATIVE AMERICAN WATER RIGHTS

The Supreme Court agreed to hear a dispute between the Navajo Nation, the Biden administration and the states of Arizona, Nevada and Colorado. The Navajo tribe is asking the federal government to determine that it has the right to waters from the Colorado River. In 1964, the Court issued a decree partially apportioning the waters of the Colorado River among several states and five Indian tribes, not including the Navajo Nation, represented by the United States as trustee. The Navajo Reservation stretches into Arizona, New Mexico, and Utah, and is located almost entirely within the Colorado River Basin. The Colorado River forms a large part of the Reservation’s western border.

The United States both failed to assert a claim to the Colorado’s mainstream on behalf of the Nation and successfully opposed the Nation’s attempt to assert such a claim on its own behalf. The Court thus did not adjudicate the Nation’s rights to the Colorado. Now, the Navajo are seeking to have its claim to water rights from the Colorado. The litigation brings together the already pressured position of the three states which comprise the lower basin and those of the Navajo Nation. It will be heard amid the ongoing efforts by the Federal government to reach agreements with lower basin water consumers in the face of the two-decade old drought drying out the Colorado.

The questions presented are: Whether the lower courts had jurisdiction over the Navajo Nation’s breach-of-trust claim seeking an order requiring the United States to assess and develop a plan to meet the Nation’s water needs, but not a judicial quantification of the Nation’s rights to Colorado River water, or whether this Court has exclusive jurisdiction under the Consolidated Decree. And whether, given the United States’ promise to provide the Navajo Nation sufficient water by entering into the treaties establishing the Navajo Reservation, coupled with the government’s nearly exclusive statutory and regulatory control over the Colorado River, the United States owes the Navajo Nation a fiduciary duty to assess the Nation’s water needs and develop a plan to meet them.

Given the ongoing “negotiations”, the opposition to the suit by the Lower Basin states is not surprising. They are already under pressure and an “additional” straw in the river would only cause losses for other users. The Colorado has begun a less than zero sum game. It is more an issue of limiting lost resources.

NATIVE AMERICANS AND CLIMATE CHANGE

The Bureau of Indian Affairs has announced that it will give money to five Native American tribes to help them relocate away from rivers and coastlines. The funding will go to three tribes in Alaska and two in Washington State. It is distinguished from other relocation programs in that it is not tied to a disaster event. Rather, it is a limited test of the concept of managed retreat.

One tribe will get $2.1 million to help replace its aging health clinic with a new building on higher land, farther from the Pacific. Other payments to other tribes will provide funding to move between 15 and 20 homes in their villages. It was a popular plan with some 11 tribes applying for relocation funding under the new $130 million program.

While small in scope, the program provides a test of the managed retreat theory. If it is seen as successful, managed retreat will likely become part of overall disaster response and management. As flooding becomes more frequent and serious, the ability of property owners to rebuild on site will be limited. Relocation will become more cost efficient than paying claims on federal flood insurance claims. It is all part of a comprehensive approach to disaster management comprising prevention, remediation, and relocation.

MUNI UTILITIES, RATES AND GOVERNANCE

Municipal utilities across the country have long been seen as sources of revenue for municipal governments. That tactic causes utilities to set rates which generate surplus utility revenues to keep residential property tax rates lower than they would be. That is how the practice is justified when it requires what should be a cost-based utility to levy rates in excess of needs. That trade off has made the practice acceptable to many ratepayers. When municipal utilities generate excess revenues for purpose other than to support general government, it raises issues.

The latest example comes from Clearwater, FL. Municipally owned Clearwater Gas is the only option for residents and businesses in north Pinellas and west Pasco counties for gas water heaters, cooking ranges, dryers and other appliances. It operates as a monopoly under state law. With wild fluctuations in natural gas prices, utilities like Clearwater Gas get more attention than they generally experience. That attention has been focused recently on Clearwater Gas’ use of customer revenues to “promote” the utility.

The Florida Public Service Commission the commission prohibits using funds from rates for promotions related to “image enhancing,” according to state statute. A Tampa Bay Times analysis found that Clearwater Gas spends substantially more on activities which could be considered by some to be “promotional” than any of the other 26 municipally-owned utilities in Florida. It includes “charitable” contributions tied to promotions of the utility as well as the use of facilities like suites at spring training games. Clearwater Gas has paid the Philadelphia Phillies $359,000 since 2015 in exchange for the stadium suite, food and drinks, and the Clearwater Gas logo displayed on the scoreboard and pamphlets.

The problem is that Clearwater Gas has taken the promotional effort to levels well beyond those of the other six municipal utilities in the state which fund “sponsorship” programs. How far beyond? Try eight and a half times the total spending on promotion by the next most profligate utility. It’s $2.2 million. Now, Clearwater Gas returns a dividend each year to the city’s general fund which is required by policy to be at least 50 percent of net income. Clearwater Gas has returned to the city an average of $3.3 million every year since 2015.

The ongoing issues around natural gas prices and their increasing role in higher utility rates has focused attention on utility rates, spending, sources of supply. At the same time, climate pressures in Florida are driving demands for non-fossil fuel generation. The promotional efforts by Clearwater Gas to drive more natural gas use and less electrification fly in the face of climate mitigation efforts. It competes with those who wish to use residential solar but face pressure from utilities who are trying to lower net metering payments.

Now, the mayor of Clearwater has sought to exert more oversight over the utility’s promotional activities. Clearwater Gas cannot provide information on who benefits from things like the suite, tickets to cultural events and golf tournaments. That is a governance issue which should concern all stakeholders.

NYC AND COVID FUNDING

Just over $13.5 billion in federal Covid-19 stimulus funds have been made available to New York City. This is comprised of $5.9 billion in unrestricted State and Local Fiscal Relief Funds from the American Rescue Plan Act of 2021 (ARPA-SLFRF) and $7.2 billion in restricted education aid. Of the dedicated education funding, $4.8 billion is authorized through ARPA (ARPA Education) and $2.4 billion is through the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA).

The education stimulus is mostly earmarked for spending by the city’s Department of Education (DOE), with some funds restricted for the City University of New York (CUNY). The city has also received some smaller awards, totaling around $380 million for transportation, remote learning technology, and Section 8 housing vouchers.

As of the close of fiscal year 2022, the city has claimed more than $6.9 billion in these stimulus funds to cover costs, per the city’s Financial Management System. This includes $1.2 billion in FY 2021, and $5.7 billion in FY 2022. Of the nearly $6.2 billion remaining, $4.1 billion are earmarked for educational purposes (from ARPA Education and CRRSAA) and $2.0 billion are unrestricted ARPA-SLFRF funds.

As of the release of the 2023 Adopted Budget, the city had budgeted $4.7 billion—across these stimulus funding sources—from 2023 through 2025. This means that $1.5 billion of the city’s federal stimulus award has neither been claimed nor is currently budgeted for spending in this or future fiscal years, and therefore, is available to be allocated to agencies’ budgets in the city’s upcoming financial plans.

NYC HEALTH AND HOSPITALS

Health + Hospitals (H+H), New York City’s public hospital system, is the largest and one of the oldest public hospital systems in the country. H+H is the largest provider of emergency room care, care for mental health diagnoses, and uninsured care in the city. It was arguably at the center of efforts to address the COVID-19 in NYC. This was an obvious result given the demographic and economic profile of the majority of potential demand for these hospitals. It expanded bed and staffing capacity at the start of the Covid-19 surge and launched new temporary initiatives such as the Test & Trace Corps and staffing vaccination sites across the city, as well as built three new Covid-19 community health centers, and expanded its telemedicine offering.  

The New York City Independent Budget Office (IBO) estimates that the city will provide a total of $2.3 billion in operating support to H+H in 2023 (all years refer to city fiscal years). This is in addition to the $564 million the city has budgeted to provide to H+H for delivering services on its behalf. City operating support planned for H+H is similar to what the city provided in 2022. However, city support has been growing in recent years; its subsidies to H+H averaged $1.5 billion per year from 2018 to 2021.

The primary source of city operating support for H+H is through supplemental Medicaid payments. H+H serves a disproportionate share of Medicaid and uninsured patients and it is receiving additional Medicaid (DISH) funding. By providing these supplemental payments, the city triggers an equal amount of funding from the federal government. The city plans to provide $1.5 billion for its share of the supplemental Medicaid payments in 2023.

There are cash flow risks which could result from the reliance on these funding sources as policies change and COVID aid goes away. DSH cuts were originally required by the Affordable Care Act to begin in federal fiscal year 2014, but have been continuously postponed, most recently due to Covid-19 and then by the 2021 Consolidated Appropriations Act.

Cuts are now forecast to resume in federal fiscal year 2024 (beginning October 1, 2023). DSH cuts were originally required by the Affordable Care Act to begin in federal fiscal year 2014, but have been continuously postponed, most recently due to Covid-19 and then by the 2021 Consolidated Appropriations Act. Cuts are now forecast to resume in federal fiscal year 2024 (beginning October 1, 2023).

If all the H+H reserves are depleted as a result of the cuts, then the system would be in a very precarious situation and would either need to drastically cut expenses and services (likely through layoffs or closures), or require a city bail-out. This situation could be averted by spreading out expense cuts over time. The system may continue to incur unreimbursed Covid-19 related costs after federal funding and the public health emergency period end.

If that is the case, H+H or the city would have to absorb the cost. Indeed, this has already begun to happen. Covid-19 federal relief for the uninsured and programs for Covid-19 testing and treatment ended in March 2022; in April 2022 for funding for vaccine administration was shutdown. The city’s latest adopted budget included $200 million of city funds for Test and Trace in 2023. Test and Trace was a temporary program.

COVID SPENDING FOR TRANSIT

Due to the COVID-19 public health emergency, ridership decreased 24.7 percent from 2020 and Federal assistance for transit (2021 constant dollars) increased 18.2 percent. Report Year 2021 fare revenues decreased by 30.4 percent due to the COVID-19 public health emergency. Federal funding increased 4.2 billion dollars to fill the funding deficit.

Beginning in RY 2020, transit agencies received funding from Federal programs such as the Coronavirus Aid, Relief and Economic Security Act (CARES), Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA), and the American Rescue Plan (ARP). In RY 2021, 852 transit agencies spent over 13.1 billion dollars from these programs, mostly on operating expenses. This represents a 95% increase in the amount of Federal funding expended from the three programs collectively compared to NTD Report Year 2020.

In 2021, for each dollar spent on operating costs per trip across all modes and all transit systems, 12.8 cents are recovered through fares. This is a 30 percent decrease from the 2020 fare recovery ratio of 18.4 cents per dollar spent on operating expenses, resulting from the COVID-19 public health emergency. That is a trend which is difficult to reverse. Ridership trends have been negative for some time. Total urban transit ridership has decreased significantly from 2012 to 2021, going from about 10.36 billion passengers to 4.40 billion passengers.

On average, directly generated revenues, including passenger fares, fund 17.4 percent of public transit operating expenses for urban agencies in the U.S. Local and State sources together fund less than 50 percent of operating expenses, at 25.6 percent and 20.8 percent respectively. Federal Government sources fund the remaining 36.2 percent of total operating expenses.

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