Joseph Krist

Publisher

NYC BUDGET

Mayor Mamdani presented his preliminary budget – emphasis on preliminary – and it includes a $5.4 billion budget gap. The presentation was all over the place. The City apparently cannot survive without new taxes but there is $14 billion of new spending. The Mayor laid out two approaches both of which would saddle state legislators with the job of increasing taxes. They either raise taxes on million dollar earners in the City and get the blame directly or they “force” the Mayor to raise property taxes while being blamed by him for having to do it.

This after the Governor found some $1.5 billion of new aid that reduced the projected gap to be closed. Nevertheless, the Mayor continues to ask for increased aid from the State citing the mismatch between State revenues from the City and state aid to the City. It’s an old argument and it will play poorly upstate. It certainly did not attract a lot of support when the Mayor’s made his first “Tin Cup Day” visit in Albany to the State Legislature. 

The expense side of the budget is problematic. The plan spends some $121 billion. Some 40% of City spending will be on the Board of Education. The potential for savings there is likely low. The budget would  provide for an FY26 draw down of $980 million from the Rainy Day Fund. In FY27another draw down of $229 million from the Retiree Health Benefits Trust is projected. At the same time, the Mayor proposes to fund a new Department of Public Safety. The projected year 1 cost – $1.1 billion. The source of revenue? To be determined doesn’t cut it.

Income taxes on the wealthy are a central tenet of the Mayor. Recently, the NYC Independent Budget Office (IBO) released data on the City’s personal Income tax collections and the wealthy. In 2023 (the last year for which data has been released by the State) , about 3.9 million New York City residents filed income tax returns.  The typical (median) filer reported about $42,700 in income, and most filers earned less than $170,000 for the year. Income is defined as filers’ adjusted gross income on their tax return. More than two-thirds of New York City income came primarily from wages and salaries, rather than investments. 

The top 1% of the New York City income distribution began at $906,677 and tops out at more than $5 billion in 2023. IBO defines millionaire filers as filers with an AGI of at least $1 million. Although not quite as high as in 2021, when the count of millionaire filers went over 35,000, the number of millionaire filers hovered around 34,000 in 2022 and 2023.

The shares of overall income (measured through AGI) and overall Personal Income Tax liability attributable to millionaire filers hit a high in 2021 at 43% and 48%, respectively, driven largely by realized capital gains income from the strong stock market in that year. These shares declined to 35% and 39% in 2022, and 33% and 37% in 2023. Though on the lower end relative to recent past years, 2023 values of millionaire filers are in line with historical trends.

It has always been our view that ideologically driven approaches to municipal finances always run into reality. It’s not the ideology itself. It’s the fact that ideologically driven policies often don’t fit the realities on the ground. There is little or no appetite for tax increases in either the City Council or in the State legislature. The Governor is trying to get reelected. Increasing taxes is not a practical approach especially if it hits “middle class” homeowners rather than “the rich”.

The discussion of the potential property tax hike highlights the problems with the City’s property tax system. The system is riddled with inequalities and single family homeowners in the outer boroughs are rightfully upset with it. It is a long standing problem, and the Mayor is right to say that it needs to be addressed. Nevertheless, that reform will not occur in the next two months which is when the City can find out how much state help it will receive.

The capital side of the budget carries some impressive numbers, but the City faces enormous capital needs just in areas like housing. It will be interesting to see the politics of housing play out. The Mayor has clearly targeted landlords in his initial actions. Private landlords. Quietly, the City’s status as the largest landlord through its housing authority will create political roadblocks as the deteriorating physical plant of NYCHA facilities continues as a problem.

We’ve seen what can happen as the result of ideological approaches. Putting city council members in difficult positions initially has made Brandon Johnson’s life in Chicago quite difficult. Last minute budgets and budgets constructed solely by the local legislators have characterized a rough two years. Chicago’s credit remains under pressure as many of the long term issues pressing down on ratings go effectively unaddressed.

We know that the starting credit point for Chicago and New York differs significantly. If nothing else, the pension situations facing each city are not comparable. Nevertheless, we believe that even with balanced budgets that New York’s rating will be under pressure. As much as one would like to separate politics from the numbers, in the current environment they matter greatly. Hopefully, Mayor Mamdani embraces reality more quickly than Mayor Johnson has.

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.

Joseph Krist

Publisher

PREPA’s SUPER BOWL MOMENT

The sparking utility poles in Bad Bunny’s Super Bowl halftime show are not the optics Puerto Rico’s electric utility could have wanted. Eight and a half years after the legacy power system was wrecked, the effort to develop a modern reliable power system continues to face obstacles imposed from the outside. Service continues to be inadequate and unreliable. Utility customers in Puerto Rico experienced an average of 27 hours of power grid interruptions not related to major events like hurricanes per year between 2021 and 2024. By contrast, people living on the U.S. mainland lacked power for an average of just two hours per year, according to federal data.

In January, the Department of Energy canceled $450 million for grid resilience programs in Puerto Rico. The clawback effectively marks the end of the $1 billion Puerto Rico Energy Resilience Fund that the Biden administration launched in 2023. President Donald Trump’s DOE had previously redirected $365 million of that funding meant for rooftop solar and battery storage projects toward ​“practical fixes and emergency activities.” As of June 2025, 1.2 gigawatts of grid-connected rooftop solar were installed on homes and businesses, supplying more than 10% of the total energy used, according to the Institute for Energy Economics and Financial Analysis. 

WIND

Offshore wind in the Atlantic can move forward again after it was victorious in its challenge of the suspension of approvals. Dominion Energy‘s Coastal Virginia Offshore Wind (CVOW) project was the latest. Once operational, CVOW will consist of 176 wind turbines generating up to 9.5 million megawatt-hours per year, or enough energy to power up to 660,000 homes.

Total project costs for CVOW, inclusive of contingency and excluding financing costs, have increased from approximately $11.2 billion to approximately $11.5 billion. That $300 million change reflected the impact of the withdrawal of approvals. The offshore wind farm is now 71% complete. Dominion said that $9.3 billion has already been invested in the project as of Dec. 31, 2025.

On land, a federal judge has allowed the SunZia Wind project in New Mexico to resume construction. It is designed to generate 3,000 megawatts of wind power. To date, the focus of opposition has come from plans to construct a high voltage transmission line to distribute power from the project. The project had completed its Bureau of Land Management environmental impact statement and received its Record of Decision prior to the announcement of the new policies of the new administration. The SunZia Transmission project is a 550-mile transmission line which will connect New Mexico’s wind resources to Arizona and California markets.

OHIO POWER GAMES CONTINUE

Ohio has become notorious for its legislative actions to try and save the coal industry. Previous efforts led to the conviction of, among others, the Speaker of the Ohio House. As a matter of fact, the former Speaker is facing another trial this summer on corruption charges linked to efforts to support coal generation. Two First Energy executives are on trial for bribery as this goes to press. That isn’t stopping the consideration of a bill (S.B. 294) written by the conservative American Legislative Exchange Council (ALEC).

The bill declares it to be Ohio’s public policy to ensure affordable, reliable, and clean energy in all applications for a utility facility certificate. It requires the Power Siting Board, when reviewing applications for electric generating facilities, to consider the use of affordable, reliable, and clean energy sources; prioritize domestic energy production (i.e., using a fuel source that is primarily produced in the United States); and minimize reliance on foreign adversary nations for critical materials or manufacturing.

It may increase the likelihood of approvals for future applications for a certificate from the Power Siting Board, particularly for projects using energy generated from sources such as natural gas, biomass, nuclear reaction, hydrocarbons that meet Environmental Protection Agency air quality standards, and renewable energy. SB 294’s definition of a reliable energy source would require it to be ​“readily available” with minimal interruptions during high-usage times and for it to have a 50% capacity factor. That’s the ratio of its actual power output to the potential maximum. This condition would exclude virtually all land-based wind and solar generation.

DATA CENTERS

In Virginia, legislation has been introduced which would allow the State Corporation Commission (SCC) to determine if it is in the public’s interest for large-load customers instead of residential ones to cover the cost of distributing power to data centers. If the SCC approves, those costs could shift to new and existing data centers through 2033. The SCC estimated that typical residential customers will see their rate reduced by 3.4%, about $5.52 monthly, and the data center customers’ rate will increase by a projected 15.8%. 

In Kentucky, proposed legislation would only allow large data centers to have electric service from a public utility if they sign a contract agreeing to cover any transmission or infrastructure costs attributable to serving that data center. State regulators at the Public Service Commission would also have to approve the terms of the contract and related tariffs. The data center must certify that it will comply with all local and state requirements related to its operation if it is to remain eligible for the existing state tax incentives, which grant a 50-year exemption to all sales and use taxes on computer equipment at large data center developments.

In West Virginia, a different approach is being suggested. There, a proposal would allow businesses investing at least $2.5 million or creating 10 jobs to receive a tax credit, or reduction in their state tax bill for a decade. But job creation is not a requirement. And the bigger the investment, the larger the credit. This proposal follows legislation which was enacted in 2025 effectively stripping away the ability of local government to regulate data centers. In that legislation, lawmakers sought to bolster state revenues by seizing the property tax revenue that data centers generate (which normally gets directed to local public services and school districts) and diverting it to a state fund to help replace the state’s income tax.

A bill has been introduced in the Colorado legislature which would require large data center operators to build or purchase enough renewable energy to cover their annual electricity usage beginning in 2031. By the same year, those developers must enter formal contracts with utilities lasting at least 15 years to cover the cost of any grid upgrades necessary to deliver reliable power to the facilities. 

In Washington, a pending bill requires utilities to establish a tariff or policy for data centers by 2027, to ensure the centers cover the costs utilities face in supplying them with enough power. The idea is that those added costs aren’t passed on to other ratepayers. The legislation also calls for data centers to curtail electricity use when the grid is strained, and to take other steps to manage the demand they put on the grid. Additionally, data center operators would be required to share a sustainability report, information on server cooling technology and data on water and energy use and emissions. 

NEW ORLEANS

Moody’s has downgraded the City of New Orleans, LA’s issuer rating, general obligation unlimited tax (GOULT) and general obligation limited tax (GOLT) ratings to Baa2 from A3.  The outlook was changed to negative from rating under review. Moody’s cited the city’s very limited financial position, supplemented by cash flow borrowing, with additional declines in reserves projected for fiscal 2025. 

The downgrade comes as a new Mayor took office. It is acknowledged that the new administration has budgeted for balanced operations in fiscal 2026 supported by the implementation of various staffing reductions, the projection of additional revenues, and receipt of pending receivables. The downgrade so early in efforts to undertake what will clearly be a multi-year process of fiscal recovery complicates recovery efforts. It is as much a statement on the faults of the outgoing administration as it is on their comfort level with city government going forward.

MASS TRANSIT

The Dallas, TX City Council approved a proposed governance framework that would shrink the city’s voting power on the Dallas Area Rapid Transit (DART) board to at least 45%. That would mean that for the first time in the agency’s more than 40-year history that Dallas would no longer hold majority control. The plan also would guarantee each of DART’s 13 member cities at least one board seat, replacing a structure that now gives only Dallas, Irving, Garland and Plano dedicated single-city representation, and would likely expand the current 15-member board.

The goal is to try to persuade six cities – Addison, Farmers Branch, Highland Park, Irving, Plano and University Park – to end an effort to hold May elections that could let voters decide whether to withdraw from DART. The six cities have until late February to finalize their special ballots and until March 18 to rescind their election plans altogether. It’s a split between suburban users of systems – transit and utilities – and users within the jurisdiction of the city which owns or sponsors a utility seen in many places.

ESG WIN IN COURT

A federal district judge declared a 2021 law restricting state investments in companies boycotting the fossil fuel industry unconstitutional, calling it “facially overbroad” and citing First and Fourteenth Amendment concerns. The law requires the comptroller’s office to maintain a list of financial firms that refuse, terminate or penalize business with a fossil fuel company “without ordinary business purpose.” The Texas Comptroller’s office maintains a publicly available list of more than 300 companies they identified as boycotting energy companies, which was last updated in June.

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.

Joseph Krist

Publisher

CLIMATE TAXES

Hawaii was the first state to impose a tax on tourists which was designed to generate revenues to address climate related issues in the state. (MCN 1.5.26) Those efforts were challenged in court, but the State succeeded in defending them. This has emboldened legislators in another state to undertake efforts to generate revenues from visitors to fund climate related projects.

In Oregon, the 1% for Wildlife bill, sponsored on a bipartisan basis, would increase the state’s current hotel and lodging taxes by 1.25 percent, creating a new revenue stream for the Oregon Department of Fish and Wildlife to support long-neglected habitat conservation programs. Last session, the bill passed the House, but two Republicans blocked it in the Senate. Oregon’s Fish and Wildlife Department receives some state funding, most of its budget comes from hunting and fishing licenses and federal taxes on guns and ammunition.  

If the bill passes, Oregon’s statewide hotel tax rate would be 2.5 percent—the third-lowest rate in the US. The current 1.5 percent tourism tax funds the $45 million annual budget of Travel Oregon, which promotes the state’s tourism industry. 

CLIMATE LEGISLATION

In Oklahoma, a newly introduced bill would bar most civil lawsuits against oil companies over their role in the climate crisis, unless plaintiffs allege violations of specific environmental or labor laws. A similar proposal in Utah would block lawsuits over climate-warming emissions, unless a court finds the defendant violated a statute or permit. Oklahoma’s bill seeks to block claims alleging fraud, misrepresentation, deception, failure to warn or deceptive marketing, all of which are central to existing climate lawsuits against oil companies. Utah’s proposal is narrower, targeting only emissions-based claims.

In Florida, SB 1628 provides a legislative finding that net-zero policies, carbon taxes or assessments, and carbon emissions trading programs are detrimental to the state’s energy security and economic interests. The bill prohibits governmental entities from adopting net-zero policies, including through comprehensive plans, land development regulations, transportation plans, or any other government policy or procedure.

WESTERN WATER

The current rules governing the Colorado River expire at the end of the year, and the Department of Interior faces an Oct.1 deadline to set water deliveries for 2027. If the states don’t reach an agreement by that point, Interior will have to decide for itself how to divide up the shrinking volumes of water. Snowpack in the river’s headwaters, which provides the lion’s share of the waterway’s flows, is off to a dismal start this winter, with temperatures in Utah, Wyoming and Colorado averaging more than 10 degrees Fahrenheit above their 20th century average for the month of December, according to the National Oceanic and Atmospheric Administration.

Snowpack above Lake Powell in Utah and Arizona is currently at 65 percent of median level — a situation that could be expected to produce just 50 percent of the typical runoff in the spring and summer. Interior’s latest projections for the Colorado River show that water levels behind Glen Canyon dam at Lake Powell could fall low enough to endanger hydropower production and downstream water deliveries as soon as September.

In Colorado, the snowpack is “the lowest on record for this point in the season,”. In Utah, “We’re in uncharted territory right now, and we’re headed toward the lowest snowpack we’ve ever had on Feb. 1,”. The snowpack in California  is in better shape, particularly in the southern Sierras, where several basins have above-average accumulations.

BAY AREA TRANSIT LIFELINE

The Office of Governor Newsom, the California Department of Finance and the Metropolitan Transportation Commission (MTC) announced an agreement on a $590 million loan for Bay Area transit agencies that will avert major service cuts at AC Transit, BART, Caltrain and San Francisco Muni during the 2026-27 fiscal year that begins July 1. The state loan provides a fiscal bridge until the sales tax dollars potentially could be available.

A regional funding measure authorized by the Legislature last year via state Senate Bill 63, authored by senators Scott Wiener of San Francisco and Jesse Arreguín of Berkeley, may appear on the November 2026 ballot in Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara counties. If the measure qualifies for the ballot and is approved by voters, it would establish a temporary 14-year sales tax to support transit operations. But these funds would not begin flowing until around July 1, 2027.

The loan agreement includes a clearly defined repayment structure, a guaranteed revenue source to secure the loan and an agreed-upon interest rate: 12-year repayment term, with interest-only payments during the first two years. Repayment secured by the “revenue-based” portion of State Transit Assistance (STA) that goes directly to the transit agencies. Variable interest rate tied to the state’s Surplus Money Investment Fund, ensuring the state is fully repaid at the same rate it would have earned had the funds remained in state accounts. 

IMMIGRATION AND MUNICIPAL FINANCE

A group of chief financial officers from 16 states sent a letter to President Trump highlighting the negative economic and fiscal impact of federal immigration enforcement policies on state and local government. The letter focused only on fiscal issues. The message was clear.

“The economy fundamentally depends on people producing goods, providing services, and participating in commerce as workers, consumers, and business owners. For an economy to function, people must feel safe to go to work, operate businesses, travel to commercial districts, and engage in everyday economic activity. When fear disrupts these basic conditions, production slows, consumption declines, and the economic system that supports public revenues begins to break down.”

The letter comes as data begins to slowly emerge regarding the costs of immigration policies in the Biden administration. the Congressional Budget Office estimates how the surge in immigration that began in 2021 affected state and local budgets in 2023. In addition to estimating the direct effects of the surge, CBO calculated an alternative measure that includes the potential broader or longer-term effects and costs that were borne without adding to spending—such as crowding in public schools and public transportation systems. By either measure, the surge imposed a net cost.

The surge led to a direct increase in revenues of $10.1 billion, primarily from sales taxes, and a direct increase in spending of $19.3 billion, chiefly for public elementary and secondary education, shelter and related services, and border security. The result was a direct net cost of $9.2 billion in 2023, amounting to 0.3 percent of state and local spending (net of federal grants-in-aid).

In addition to those direct effects, CBO’s alternative measure accounts for expected increases in property tax revenues, additional tax revenues from greater economic activity, and nonbudgetary costs associated with greater demand for government services. By that measure, the surge in immigration had the potential to increase revenues by $18.8 billion and spending by $28.6 billion, resulting in a potential net cost to state and local governments of $9.8 billion in 2023.

POLICY REALITIES

Money from the Federal Transit Administration’s rural ferry program pays for almost half of the Alaska Marine Highway System’s operating expenses, but the Trump administration failed to open its annual grant process in fiscal year 2025, which ended Sept. 30. The ferry system’s budget runs according to the calendar year. Last spring, the Alaska Legislature and Gov. Mike Dunleavy budgeted $171 million for the 2026 ferry budget. Of that, almost $78 million was supposed to come from the rural ferry program.

Now, Alaska’s state ferry system is at risk of a partial or total shutdown this summer due to the failure of the federal government to issue make that annual grant. Alaska, secured almost $1 billion in the 2021 Infrastructure Investment and Jobs Act bill for the rural ferry program, which was written in a way to steer much of the money to Alaska. That billion dollars was to be spread across five years, and the program disbursed more than $252 million nationwide in FY22, $170 million in FY23 and $194 million in FY24. Alaska received more than five-sixths of the total distribution in that time

TRI STATE CAN’T WIN

Last week, the cooperative utilities Tri-State Generation and Transmission Association and Platte River Power Authority filed a petition asking the Department of Energy to reconsider its December order demanding that they keep running Craig Generating Station’s Unit 1, a jointly owned coal plant in Colorado, for the next 90 days. Forcing them to operate it past December will require their members to bear unnecessary costs, which constitutes an ​“uncompensated taking” of their property in violation of the Constitution, the petition argues.

Keeping Craig Unit 1 running for 90 days has been estimated to have a cost at least $20 million, and that running it for a year could add up to $85 million to $150 million. It will also disrupt the use of long-planned replacement resources that can provide power more cheaply and reliably than Craig Unit 1 — including the 145-megawatt Axial Basin solar farm, which may be forced to curtail its electricity generation because of grid congestion due to keeping the coal plant online.

The cooperative structure which historically allowed rural utilities to capture benefits of large scale resources is now working against them through no fault of their own. The petition from Tri-State and Platte River marks the first time a utility has publicly contested a Trump administration must-run order. There is no other end user or owner to pass the excess imposed costs to. The rate base must absorb it all.

NUCLEAR

The Trump administration has created an exclusion for new experimental reactors being built at sites around the U.S. from a major environmental law. The Department of Energy announced it would begin excluding advanced nuclear reactors from major requirements of the National Environmental Policy Act (NEPA). 

The Energy Department cited the inherent safety of the advanced reactor designs as the reason they could be excluded from environmental reviews. “Advanced reactor projects in this category typically employ inherent safety features and passive safety systems,”. The Energy Department’s Reactor Pilot Program is seeking to begin operations of at least three advanced test reactors by July 4 of this year.  

Some 15 sites across 5 states are under consideration for these developments.

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.