Joseph Krist

Publisher

IDEOLOGY AND ORLANDO UTILITIES

The U.S. Department of Energy, ordered Orlando Utilities Commission to continue running its 465-MW, coal-fired Stanton Unit 1 instead of placing it in “cold shutdown” to address what the department deems to be an energy emergency in Florida. That puts OUC in the position of being the first municipal electric utility to be impacted by President Trump’s ideological approach to electric utilities. OUC plans to fully comply with the order and will delay placing its Stanton Unit 1 in cold shutdown. No cost estimates of either operation or fuel procurement were provided by OUC.

One of the whole points of public versus investor owned electric utility credits is the freedom from regulation especially of rates. While we don’t see this phenomenon ultimately diminishing ability to pay, it is a troubling one nonetheless. The continued use of coal for generation is increasingly difficult to justify especially in light of the increasing non-competitiveness of coal generation.

ILLINOIS BUDGET

The Illinois legislature passed an FY 2027 budget. The $55.9 billion budget does not increase state income taxes or sales tax. The spending plan included an $830 million supplemental current-year spending plan, meaning the upcoming fiscal year 2027 budget is essentially flat. The measure freezes corporate net operating loss and enacts taxes on social media companies, digital assets, fantasy sports, tobacco and sports betting on prediction market websites. There is also a sales tax holiday on school supplies when families go back-to-school shopping in August, and pauses a previously planned increase to the state gas tax.

Now the State can turn its attention to the truly pressing issue facing the State and its largest city – getting the Bears to stay in Illinois.

MEDICAID WORK RULES PRESSURE STATES

Regulations issued June 1 by the Centers for Medicare & Medicaid Services dictate many granular details about how the new work requirements mandated to roll out under the OBBBA will play out. They cover how states should check whether Medicaid enrollees are following the rules, and how people can claim an exemption so that their health benefits don’t hinge on work, community service, or going to school. The rules take effect beginning July 1.

The impact is to cause states to have to spend much more on certification as these functions are largely carried out by private vendors. The first example of the problem is Nebraska. Nebraska launched its Medicaid work requirement on May 1. Nebraska handles decisions on medical frailty differently than the Trump administration does. It’s not for lack of effort that this conservative state administration has tried to comply.

State officials had already released an extensive 300-odd page list of medical conditions that qualify as exemptions, such as types of cancer, dementia, autism, epilepsy, HIV, and Parkinson’s disease. The state currently relies on government workers to check Medicaid eligibility, and doesn’t require a person to prove how sick they are. That is not atypical for states. But under Trump’s rules, people will have to show their qualifying illness is impeding their ability to work.

ACA CREDITS AND INSURANCE 

Another source of uncertainty facing states is the ultimate impact of the end of federal tax credits which offset ACA premiums. The concern was that the end of the credits would make ACA coverage too expensive. This would lead to people dropping coverage which would ultimately put pressure on states to increase financial support for indigent care.

A study from Georgetown University has shown the initial effect of the changes. Federal regulators have so far released data on initial sign-ups during open enrollment, which include people whose coverage was automatically renewed at the end of 2025. However, enrollment is not complete until the first month’s premium is paid.

Unprecedented net premium hikes in 2026 have prompted some people who signed up for coverage to drop it. This year, sign-ups during open enrollment declined by an estimated 1.2 million, a 5 percent drop from the prior year, the largest decline in any year since the marketplaces opened in 2014. Sign-ups dropped in 41 states, declining by 1 percent to 22 percent. 

Several state-based marketplaces have released early data indicating that plan cancellations rose sharply between January and March this year — up 24 percent above last year. Maryland, for instance, saw a 13 percent drop between January and April, compared with 3 percent last year. Arkansas saw a 16 percent decrease, double the amount from 2025. Massachusetts experienced a 14 percent decline, compared with 6.7 percent last year, while New Mexico experienced a more than 8 percent decrease, compared with just 0.5 percent in 2025. 

GAS TAXES

In Illinois, the gas tax increases on July 1. On July 1, 2026, the tax was set to increase by 1.3 cents, but that increase will be paused for six months under the State’s budget agreement. Each year, the gas tax increases at the beginning of the fiscal year to provide funding for transportation and infrastructure projects around the state. This year’s increase will be paused for six months.

In April, Indiana Gov. Mike Braun suspended both its fuel tax and its sales tax on gasoline purchases, a move he said has saved residents nearly $0.60 per gallon in fuel taxes. Kentucky Gov. Andy Beshear has extended an executive order that reduced the state’s gas tax by 10 cents. The order was extended to 33 cities and counties that requested an extension.

Georgia is moving in the other direction. It reinstated the state’s gas tax as of this week. The suspension was giving motorists a tax break of 33 cent a gallon on gasoline and 37.3 cents on diesel. Governor Kemp’s initial suspension took effect in March and was set to last 60 days, but the outgoing governor extended it last month.

PROPERTY VS. SALES TAXES

In the Southeast, a major effort to reduce or eliminate property taxes has been underway in the region’s state legislatures. The latest comes from Georgia. SB 33 was designed to enact enacts broad property tax reform by establishing a new Local Homestead Option Sales Tax aimed at providing homeowner tax relief and improving local fiscal management according to sponsors. Many are concerned at the shift from a property to a sales tax base will increase the regressive nature of a non-income tax base.

HB 463 lowers Georgia’s state income tax rate from 5.19% to 4.99%, beginning Jan. 1, 2026. It includes provisions for further annual reductions of the state income tax rate as well as increases of the standard deduction. It raises the retirement income exclusion to $70,000 beginning in 2027 and introduces temporary tax exclusions for qualified overtime compensation and cash tips through 2028. It also repeals some tax credits and sales and use tax exemptions.

DATA CENTER BANS

The threat many see posed by the development of vacant land for data centers continues to generate intense opposition at their development at the local level. In many communities, local legislators have enacted moratoria against the issuance of permits and/or licensing for new data center developments. They are an effort to hold developers and their litigation at bay while regulations can be developed and appropriate legislation be enacted. Unsurprisingly, several wealthy southern California communities are among them.

For several months, the City of Monterey Park was among them. In January, the Monterey Park City Council passed a 45-day moratorium on data centers. The city unanimously extended its moratorium for 10.5 months in March. Residents there weren’t satisfied with a temporary limit. So, the city’s voters approved a ballot initiative which effectively bans data centers in the city. It was approved with over 70%of the vote. It is the first city to do so in California.

New York became the first state to enact a statewide moratorium on data centers. The Responsible Data Center Development Act would create a one-year pause on certain new permits for large data centers, defined as facilities with a peak demand of 20 megawatts or more. The moratorium would not apply to previously issued approvals or projects that began construction before the law takes effect.

The measure would also require large data center operators to hold at least one in-person public hearing in a host community at least three months before receiving state approval. Residents would have to receive at least 30 days’ notice, including information on the project’s location, expected energy use, water and wastewater impacts, and any state or local incentives sought or awarded.  Electric, gas, water and municipal systems would have to create separate service classifications for large data centers, assigning costs such as infrastructure upgrades and commodity price increases to those facilities.

Even in Texas, Gov. Abbot released regulatory recommendations on data centers for the Legislature to pass in the 2027 session. It is an extensive list – requiring new facilities to add power generation to the state’s power grid; requiring data centers pay for their own grid interconnection and infrastructure costs; mandating the use of “closed-loop” water systems, which draw a large amount of water at the start but reuse it over some period of years; require annual reporting by all data centers on electricity and water use; establishing best-practice standards to address community concerns like noise; repealing data center sales tax exemptions and “other outdated or unnecessary incentives for data centers”.

A Republican in the Pennsylvania House introduces a bill that would require data center developers to build or buy their own power supply to keep them from racking up charges for residential customers. Democratic Delaware state legislators are working on similar legislation that would mandate data center developers supply their own power and pay for necessary transmission upgrades. 

DALLAS

Moody’s has revised the outlook to stable from negative for the City of Dallas, TX issuer rating. The rating was affirmed at A1. The revision of the outlook to stable reflects Moody’s expectation that the city will make increases in pension contributions to its Police and Fire Pension System (DPFP) and Employees’ Retirement Fund (ERF) plans in line with its updated funding plan while maintaining structural balance. 

The city has begun to make annual pension increases to its DPFP and ERF plans in order to amortize the unfunded liability within 30 years, as mandated by state law. Dallas was one of several Texas cities which faced significant funding shortfalls in pensions for both uniformed and non-uniformed employees in the prior decade. Given Dallas’ economic strength, the issue of pension funding has become central to support for the City’s ratings.

It was made clear that weakening of the uniformed or non-uniformed plans’ non-investment cash flow on an actual or projected basis, and/or a decline in the funded status of either plan would put the ratings on a negative path. Multi-year execution of pension funding plan resulting in improved pension risk indicators, combined with balanced operations would put the credit on a positive path.

HOSPITAL MERGER

West Virginia University Health System (WVUHS) and Independence Health System (IHS) announced they signed a definitive agreement for Independence to join WVUHS and are currently awaiting regulatory approvals. The two systems currently are planning for approval sometime this fall.  Independence Health’s five hospitals would become part of WVUHS’s now 25-hospital system. The usual benefits of consolidation in healthcare are cited in support of this one. It does raise the overall level of care available to patients of IHS.

From a credit perspective, the merger is projected by Moody’s to only generate a benefit for the IHS credit while not hurting WVUHS’s rating.

ELECTRIC ECONOMY

Georgia has been at the center of the debate surrounding electric vehicles as the industry has found it to be hospitable to their industry. Several proposed manufacturing facilities designed to produce both batteries and vehicles hoped to operate there. As the Trump administration has undertaken its efforts to undercut electric vehicle production, it raised questions about the state’s approach to the emerging electric economy.

So, it was a piece of good news to see new manufacturing emerge in Georgia supporting clean energy. Qcells has officially begun commercial production of silicon solar cells at its factory in Cartersville, Georgia. The factory is the largest of its kind in the country. Qcells will be able to manufacture 3.3 gigawatts at its cell factory, which would more than double the current operational U.S. solar-cell capacity. It joins an existing facility in the state.

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

WESTERN WATER

According to Arizona state water officials, the federal government has proposed a plan for the drought stricken Colorado River that could cut up to 40% of current supplies to Arizona, California and Nevada. Under the 10-year plan, which will be finalized in June, the annual amount of water delivered to Arizona, California and Nevada could be reduced by as much as 3m acre-feet.

The actual level of water cuts across the three lower-basin states would be based on the “priority of the law of the river”. That law, the 1922 Colorado River Compact, gives California the highest priority for water use. Two weeks ago, California, Arizona and Nevada announced their own proposal for voluntary water reductions up to 3.25m acre-feet through 2028. Under their offer, Arizona’s water flow would be slashed by 760 acre-feet, California by 440 acre-feet and Nevada by 50 acre-feet.

Hoover Dam is receiving approximately $52 million for investments in critical infrastructure. A significant portion of the funding will be used to purchase and replace up to three older turbines with wide-head turbines, which are designed to operate at lake elevations below 1035’. These turbines are expected to restore at least 160 megawatts of hydropower capacity and will help mitigate impacts caused by the ongoing drought. Due to the unprecedented drought, generation has decreased by about 30 percent.

The impacts of the drought are not only impacting human demand for water. In order to preserve endangered fish populations downstream, Glen Canyon Dam in northern Arizona is proposing to do what is known as a “cool mix flow,” where cold water is released from deep in its reservoir to cool the river downstream. If the cool water release is approved, it would likely happen from June to October through jet tubes, bypassing the turbines near the warmer surface.

Significant power generation is lost during the cooling process. During the cool water releases in 2024, nearly 900,000 acre-feet of water bypassed the generators, costing $19 million in replacement energy costs, according to the Bureau of Reclamation. Those costs are spread among a customer base of some 155 electric utilities across the Southwest and California.

ALASKA TAX PROPOSAL

In Alaska. a special legislative session is underway to consider tax incentives for a long-proposed pipeline to carry natural gas from the North Slope to Gulf of Alaska ports. The governor has called lawmakers into a special session to pass a bill imposing major changes in the property tax system that has been the main source of revenue for several Alaska local governments.

Under his proposal — which lawmakers took up but failed to approve before the end of the just-concluded regular session — the state and local governments would eliminate 90% of the property tax that would be levied on pipeline-related infrastructure. In exchange, the bill would replace state and local petroleum property taxes with an “alternative volumetric tax” on natural gas that would eventually flow through the pipeline.

The proposal is being driven by one corporate interest – a pipeline developer. The project is presented as being a quite profitable venture but that is only if the project does not have to pay the taxes. The claim is that potential investors would not be attracted if the project had to pay property taxes. What is glossed over is the shift of risk to the local governments in that if the tax is paid based on flow volumes and there is no flow, there are no revenues. It replaces a level of certainty with real risk to the governments.

DATA CENTERS

In 2024, a state sales tax exemption for data centers cost Ohio about $555 million in revenue. For facilities that cost $100 million or more to build, the exemption allows developers to avoid up to 100% of Ohio’s 5.75% sales tax for up to 15 years. It had been previously estimated that the amount of revenue foregone would be $136 million. Now, data centers are multiplying across the state. In 2025, the exemption cost $1.6 billion. That is according to the state Department of Taxation.

In the most recent budget legislation, lawmakers voted to end the data center tax break to help finance another round of income tax cuts. Gov. Mike DeWine vetoed the proposal, insisting the tax exemption is needed to lure data center developers to the state.  After the veto, the Governor suspended the tax exemption for new data centers. He directed the chair of the Ohio Tax Credit Authority to temporarily halt consideration of new data center tax exemption requests while the Ohio General Assembly “studies the growth” of data centers in the state.

Use of the exemption started in 2016. It was in a period when states thought they were taking care of the problem. Unfortunately, development at this scale and volume was not anticipated. Local sales taxes – another $166.8 million in lost revenue in 2024 – are a direct hit to host localities. Many states facing efforts to limit these tax breaks fall into that category or to declare a moratorium on new data center approvals.

BAY AREA TAX BALLOT

A proposed regional sales tax measure for public transit collected 305,895 signatures across five Bay Area counties. That is well in excess of the 186,000 required to place it on this year’s ballot. Voters in the counties of Alameda, Contra Costa, San Mateo, San Francisco, and Santa Clara will vote this November on the sales tax measure Senate Bill 63 — more commonly known as the Connect Bay Area Act.

In California, a voter-approved regional measure for a new sales tax would normally require a two-thirds majority approval if the Legislature directly places it on a ballot. Transit advocates, however, chose to collect signatures to make the sales tax a citizen-initiated ballot measure that would lower the threshold to a simple majority of votes cast.  

FLORIDA PROPERTY TAXES

The Florida legislature has been considering a series of bills to limit, if not lower, local property taxes. Final legislation has been difficult to enact so now the Governor is asking for a special legislative session to consider his proposals to lower property taxes. As proposed by Governor DeSantis, the Save Our Homes proposal includes five major components to provide immediate and permanent relief.

The plan exempts the first $250,000 of a homestead’s value from taxation and requiring, through law, a schedule for full elimination; requires local governments to use remaining property taxes solely for core public needs including public safety, education and schools, infrastructure, and natural resources.

It also limits future property tax assessments on businesses and creates a more stable tax environment for local businesses; requires any person who establishes Florida residency after January 1, 2027, to maintain Florida residency for up to five years prior to receiving the increased homestead exemption; establishes a trust fund to provide grants to local governments to assist with the continuation of core local services.

DETROIT

S&P Global Ratings raised its long-term rating to ‘BBB+’ from ‘BBB’ on Detroit’s previously issued unlimited tax general obligation bonds. The outlook is stable. The stable outlook reflects a view that Detroit’s strong fiscal discipline and robust planning efforts, coupled with its strong budget position, capacity to cut costs, and substantial reserves, will help sustain the city’s credit conditions in line with the ‘BBB+’ rating against a backdrop of an uncertain federal policy and geopolitical environment that could lead to weaker economic trends over the outlook period.

Moody’s has upgraded the City of Detroit, MI’s issuer and general obligation unlimited tax ratings to A3 from Baa1. The outlook was maintained at stable. They said the upgrade to A3 reflects the city’s strengthened financial resilience on par with A3 peers, supported by consistently solid operating performance, strong reserves, low leverage and good governance practices. These characteristics will provide financial flexibility amid slow revenue growth in fiscal 2026 and heightened economic uncertainty.

Both ratings also acknowledge the continuing trend of population declines and high levels of poverty. They also cite concerns about the auto industry. Those have been highlighted by the federal efforts to slow if not halt electric vehicle production. Nevertheless, the improvement in the City’s financial condition continues.

NEW YORK STATE BUDGET

Some 57 days into the 2027 New York State fiscal year, a budget has finally been enacted. It includes record spending of some $269 billion. The budget includes a tax on second homes in NYC with values in excess of $1 million market value. It also includes pension funding changes which will cost NYC more in the future than is saved currently. It effectively reverses pension reforms enacted some 15 years ago.

It is clearly a budget which reflects the reality that 2026 is a particularly contentious election year in NY. Lawmakers set aside $1 billion to send relief checks to New Yorkers in order to help residents cope with the state’s high gas and electric bills this past winter. They also eliminated the income tax on tipped wages and created a 100 percent property tax exemption for disabled veterans.  

Lawmakers agreed to scale back some of the state’s climate mandates under the Climate Leadership and Community Protection Act. It comes after the State’s difficult winter where substantially lower daily temperatures drove spikes in customer bills. A bill would eliminate regulatory mandates related to New York’s 2030 emissions goal and it would push previously set deadlines to enact additional clean energy requirements.

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.