Joseph Krist

Publisher

The signing of the hard infrastructure bill is as much a beginning as it is the culmination of a process. Now, state and local governments and agencies have choices to make. Some will wish the money to fund real expansions of facilities, some will devote most to rehabilitation. As we discuss, some are looking at the funding as a source of “free” money to be applied to already determined projects which can now allow governments to undertake them without raising revenues of their own.

Those decisions will determine what the ultimate result of the infusion of federal infrastructure dollars is in terms of new facilities will be.

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BROADBAND AND CARBON CAPTURE GET FEDERAL SUPPORT

Broadband and carbon capture are two clear winners in terms of the federal infrastructure legislation. The law introduces qualified broadband projects as a new category of exempt facility of private activity bonds (PABs) under federal Tax Code. Qualified broadband projects include facilities for the provision of broadband internet access to census tracts in which a majority of households lack broadband access prior to the date of issuance of qualifying bonds. Additional support stems from the fact that this new category of PABs enjoys a 75% exemption from the volume cap requirements for privately owned projects and a 100% exemption from volume cap for government-owned projects.

Qualified carbon dioxide capture facilities were included in a new category of exempt facility PABs. Qualified carbon capture facilities include key clean energy technologies such as eligible components of industrial carbon dioxide emitting facilities used to capture and process carbon dioxide, and direct air capture facilities. An eligible component is further defined by the Act as any equipment that is used to capture, treat, or store carbon dioxide produced by industrial carbon dioxide facilities or is related to the conversion of coal and gas byproduct into synthesis gas. 

We have previously discussed carbon capture and its potential for use of the municipal bond market to finance its development and expansion. This legislation is another significant step in that process.

BRIGHTLINE RETURNS

The high-speed rail line serving Florida’s east coast between Miami and West Palm Beach has resumed full service after being shut down for the pandemic. The Brightline is encouraging rides with a variety of special fares and an offer of a free first ride. That promotion will last thru the end of 2021. The resumption is one more potential object lesson in the process of recovery from the pandemic. We note that Brightline will use federal regulation for its COVID staff and passenger protocols. Brightline required all staff to be fully vaccinated prior to the reintroduction of service and staff and guests will be required to wear masks in stations and onboard all trains. 

The resumption comes as the Sunshine State’s cruise industry undertakes its slow climb back to pre-pandemic levels of demand. There will be plenty of chances to gauge demand but at least some operators are taking a cautious approach. Port Canaveral recently said at an annual update that it expects to see 779 cruise ships with the potential of a 6.6 million passenger capacity in 2022. However, the port budgets actual passenger traffic in the range of 4.1 million as ships ramp back up.

Compare those projections with the experience just before the pandemic shutdown the economy. In 2019, Port Canaveral saw 689 ships with a total passenger capacity of 5 million berth at its facilities serving a total of 4.7 million passengers. That means 2022 may see a 13% increase in ship activity and a 12.7% decrease in actual passengers compared to 2019. Some of that reflects a trend towards bigger ships. Port Canaveral is the home port to 11 ships of which 9 have passenger capacities in excess of 4,000.

A successful cruise industry is key to Brightline’s long term plans to serve Disney World. It is expected that cruising passengers would be a fertile source of potential demand.

PRIVATE TOLL SUBSIDIES

The Elizabeth Crossing tunnel project in Hampton Roads has been financed and developed as a public private partnership. In order to develop support for the project and its tolls, provisions had to be made to alleviate the impact of tolling on low income workers. A program was developed serving a small number of drivers – the Toll Relief Program.

Now that program is being expanded. Annual funding will increase six-fold in the program in 2022 to more than $3.2 million and then grow 3.5% annually. The 2022 Toll Relief Program is open to Portsmouth and Norfolk residents who earn less than $30,000 a year. The enrollment period begins December 1, 2021, and closes February 15, 2022. Toll reimbursements for the new program begin on March 1, 2022. Current participants must re-enroll to receive the 2022 Toll Reduction Program benefits. 

The funds will allow for the following changes to be implemented in 2022: provide participants with a 50 percent toll discount on up to five round-trips a week to reduce the cost of commuting to and from work; more than double the number of drivers, up to 4,300, eligible for the program; eliminate the minimum number of trips required before discounts become available; and, apply the rebate for the discount on a daily basis instead of monthly. 

The toll rate increase that was scheduled for 2021 and suspended due to the COVID-19 pandemic will now be spread out over the next three years.

TRANSIT FUNDING CONTRAST

The long-term debate over transportation funding in the Commonwealth of Pennsylvania has taken yet another turn away from a solution. Earlier this year we discussed a plan to rehabilitate nine bridges throughout the state by means of a public private partnership. (MCN 9/27) That plan would have required the establishment of tolls on those bridges which are currently free. Pushback was to be expected.

Now, the pushback has come legislatively. The State House representatives voted 125 to 74 for requiring legislative approval of specific proposals to add tolls. The bill would require PennDOT to publicly advertise toll proposals, take public comment and seek approval from both the governor and the Legislature. The tolls would be put in place from the start of construction in 2023 and could last for 30 years. The fact that the projects impact the four corners of the State meant that the tolls could have a more widespread economic impact. This did not help politically.

The other factor is the impact of the recent federal infrastructure legislation. The availability of that money eroded support legislatively as well. One has to wonder if this is one potential downside of the legislation. Many lower levels of government might look at the federal funds as a convenient excuse to avoid difficult or creative transit plans. It’s a fact of life under a federal system that the ultimate application of federal funds may disappoint or limit the total amount of funding which might be possible. The problem will not be unique to the Commonwealth.

One opposite response is seen in Oregon where the federal legislation is not changing plans to expand and upgrade to bridges in the state. Two of them are being undertaken funded by tolls. That expansion of I-205 project in the Greater Portland metro area is estimated to cost about $700 million. By comparison, Oregon is only receiving $400 million in flexible federal funds under the legislation.

Side by side these two contrasting attitudes shine a light on the realities of many programs. The federal money is not necessarily the blank check which many think it is. Grants have conditions, other funding has requirements for funding from states as well, and some of the programs are meant to support state infrastructure revolving funds.

BRIGHTLINE RETURNS

The high-speed rail line serving Florida’s east coast between Miami and West Palm Beach has resumed full service after being shutdown for the pandemic. The Brightline has resumed with a variety of special fares and an offer of a free first ride. That promotion will last thru the end of 2021. The resumption is one more potential object lesson in the process of recovery from the pandemic. We note that Brightline will use federal regulation for its COVID staff and passenger protocols. Brightline required all staff to be fully vaccinated prior to the reintroduction of service and staff and guests will be required to wear masks in stations and onboard all trains. 

The resumption comes as the Sunshine State’s cruise industry undertakes its slow climb back to pre-pandemic levels of demand. There will be plenty of chances to gauge demand but at least some operators are taking a cautious approach. Port Canaveral recently said at an annual update that it expects to see 779 cruise ships with the potential of a 6.6 million passenger capacity in 2022. However, the port budgets actual passenger traffic in the range of 4.1 million as ships ramp back up.

Compare those projections with the experience just before the pandemic shutdown the economy. In 2019, Port Canaveral saw 689 ships with a total passenger capacity of 5 million berth at its facilities serving a total of 4.7 million passengers. That means 2022 may see a 13% increase in ship activity and a 12.7% decrease in actual passengers compared to 2019. Some of that reflects a trend towards bigger ships. Port Canaveral is the home port to 11 ships of which 9 have passenger capacities in excess of 4,000.

SALTON SEA LITHIUM DRILLING

We recently discussed the potential for the Salton Sea (MCN 7.9.21) to be a source of lithium for electric car batteries. The developer of the project (backed by investment from GM) began drilling its first lithium and geothermal power production well this month.  The geothermal portion of the plant is designed to produce steam to drive turbines. The Imperial Irrigation District, meanwhile, has agreed to buy most of the 50 megawatts of power that the plant would initially generate.

The geothermal project is the first new such project undertaken in California in 30years. It is unfolding as efforts to extract lithium from the ground is raising significant environmental concerns. Mining efforts are being challenged in the federal courts. 

ENERGY POLITICS

It has not taken long for the pressures of high gas prices to make its way into the political process. South Carolina will have a gubernatorial election in 2022 and it is already generating some controversial ideas. One candidate is now proposing to suspend the state’s gasoline taxes as an answer to high current gas prices. The SC Department of Transportation has made its case that this would be a bad idea. The proposal would suspend the tax for eight months. SCDOT estimates a $625 million revenue loss.

“The legislative process to consider – much less approve – such a measure as dedicating replacement funds to SCDOT will not take place until next year. This means that state funding would not be accessible to pay for projects and other roadworks until after July 2022 or eight months from now.  That’s eight months with no state funding to pay for new paving projects, new bridge projects, no ability to pay for day-to-day maintenance work on South Carolina’s extensive roadway network, and financially the biggest blow would be to SCDOT’s ability to provide the matching funds to draw down $1 Billion in federal infrastructure dollars. “

States will have to be careful as they navigate the infrastructure legislation. It is not simply a question of accounting for funds passing through from the federal government. Many of the funding sources are tied to maintenance of effort requirements on the part of states or are intended to serve as a source of funding to be leveraged to support other funding and financing mechanisms.

WINTER RAISES ENVIRONMENTAL QUESTIONS

The colder weather (it is supposed to have snowed as we go to press here at the mothership) has already begun to impact retail electric bills. With natural gas prices seeing explosive cost increases, those costs will pass down to retail. One example is the experience of the Maine Public Utilities Commission which opened bids for the default, standard offer electricity supply for customers served through the Canadian power supplier Versant’s utility lines. The lowest bid for forward supply next year was 89% higher than this year. Residential customers who take standard offer supply can expect bills to rise as much as $30 a month. 

In New York State, the impact of a changing energy landscape has shifted the State’s power grid from nuclear with the final shutdown of Indian Point. From an environmental perspective the replacement of that power has led to more carbon dependance not less. The power generated from the nuclear plants is being replaced largely by natural gas fired generation.

This highlights what may be a central dilemma as the power generation industry moves away from fossil fuels. Many utilities want to use natural gas as a bridge a low or no emission future. While cleaner than coal, gas clearly has its own environmental flaws and there has been much opposition to its increased use. It is the easier short-term alternative for many utilities so we expect that the natural gas debate continues.

FIRE AND UTILITIES

This summer the extraordinary wildfire season refocused attention on the role of utility equipment as a source of fire risk. That discussion always leads to Pacific Gas and Electric whose equipment and maintenance policies have led to several fires. This has raised righteous indignation about private utilities and their profit motive and the lack of maintenance spending.

This week, we saw evidence that it is not just investor-owned utilities which find themselves in PG&E’s predicament as it relates to equipment maintenance and fire. Estes Park Power and Communications, the municipally-owned electricity provider for Estes Park, CO has confirmed that one of its power lines sparked a fire burning outside the town. A preliminary investigation by the Larimer County Sheriff’s Office found the fire was likely sparked after a tree fell onto an electric distribution line amid high winds. 

The municipal connection stems from the fact that Estes Park draws its power from the Platte River Power Authority, the wholesale electricity provider also serving Fort Collins, Loveland and Longmont. Estes Park has apparently tried to deal with tree trimming. The city trimmed vegetation around the distribution line a month ago and it spent more than $900,000 on fire mitigation projects in 2020 and is on track to spend a similar amount this year. 

CREDIT REBOUNDS

S&P announced that it had revised its U.S. airport sector view to positive from stable based on improving aviation industry conditions. This improvement is reflected in the strong rebound of U.S. domestic passengers in recent months, stabilization of airline credit conditions, massive federal assistance provided to the sector, and recovery in airports’ revenue-generating capacity and rate-setting flexibility.

Laredo, TX is the third busiest port by trade in 2021, and number one busiest inland port, in the United States. Over 50% of northbound commercial trucks crossing the Texas-Mexico border come through Laredo, a market share that has been consistent for many years. This heavy bias towards commercial vehicles being such a large source of revenue allowed the World Trade Bridge to generate revenue as limits on commercial vehicle traffic were less stringent than for private passenger vehicles. Now, that the restrictions on individual cross border travel have been lifted, the outlook for revenues at the Bridge remains bright.

That has filtered into the ratings for the bonds issued to finance capital costs at the bridge. Moody’s Investors Service has upgraded the ratings on the Laredo International Toll Bridge System’s senior and subordinate lien revenue bonds, respectively, to A1 and A2 from A2 and A3. It cited consistent strong cash flow and the expected boost from increased border traffic.

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