Joseph Krist

Publisher

PUERTO RICO BEGINS THE JOURNEY BACK

Puerto Rico is poised to undertake the first debt sale as part of its ongoing debt restructuring this week. The GO deal next week poses an interesting opportunity. I look at where the old debt was held and ask myself how many of those holders will be able to buy the new bonds. Do the insurers want to go through this again? Do investors have faith in the government without some supervision? Do you believe that the politics of the Commonwealth will change on a sustained basis? Will PR be able to make the kind of timely disclosure going forward? Will as many individuals who owned PR debt as retail buyers be willing to do so again?

It’s still a distressed situation so that will effectively keep many of the old buyers out of the deal. It would be surprising to see the level of retail ownership that existed prior to the default if only because the vehicles for retail ownership (bond insurance and bond funds) will face limits on their participation.

If the sale is considered a success, it would weigh positively on the PREPA restructuring but the PREPA debt remains in its own category as opposed to tax backed debt.

As for whether I would want to invest, there is no way to go longer than 10 years. I don’t believe that the government is committed to real fiscal reform and the resistance to oversight will continue. This is a credit for speculators and hedge fund type investors. At a price, they will be there. It’s time for mom and pop to move on.

PREPA RESTRUCTURING HITS A ROADBLOCK

The Governor of Puerto Rico and AAFAF’s executive director announced that the government of Puerto Rico has exercised its rights to terminate the restructuring agreement (RSA). The Governor characterized the Commonwealth’s objective as “conversations with all stakeholders to achieve a restructuring agreement that can be implemented.” The Ad Hoc Group asked the Court to appoint a nonjudicial mediator. The group hopes to retool the RSA to be able to be implemented without legislative action by the Commonwealth. It proposed that this specific creditor group be allowed to negotiate with PREPA.

The Court denied the Ad Hoc Group’s Motion insofar as it seeks an order requiring the Oversight Board to participate in, and PREPA to provide unlimited financing for, mediation focused on the interests of a particular subset of creditors under the provision of an RSA that AAFAF has purportedly terminated. The Court noted that “the RSA termination announcement presents the risk of a major setback in progress toward readjustment of PREPA’s liabilities.” Nonetheless, the effort to restrict the group of negotiating creditors raised issues of equity.

Overhanging all of this are deadlines looming in the fourth quarter of 2022. To address those deadlines, the Court ordered that the Oversight Board shall promptly meet and confer with AAFAF, the Ad Hoc Group, and all other major stakeholders and interested parties whose collaboration it believes is necessary to construct a viable basis for a plan of adjustment, to consider whether a consensual mediation arrangement can be entered into promptly to resolve key plan-related issues.

The Oversight Board shall file, by May 2, 2022, a proposed plan of adjustment, disclosure statement, and proposed deadlines in connection with consideration of the disclosure statement, plan-related discovery, solicitation and tabulation of votes, objection period in connection with the confirmation hearing, and proposed confirmation hearing schedule for the PREPA Title III case; or a detailed term sheet for a plan of adjustment or a proposed schedule for the litigation of significant disputed issues in PREPA’s Title III case, or a declaration and memorandum of law showing cause as to why the court should not consider dismissal of PREPA’s Title III case for failure to demonstrate that a confirmable plan of adjustment can be formulated and filed within a time period consistent with the best interests of PREPA, the parties-in-interest and the people of Puerto Rico.

It is not a surprise that the resolution of PREPA’s debt issues would be the most contentious. Only when an RSA can be completed and implemented will the real impacts of a restructured entity become clear. For now, the lack of a resolution holds off the worst fears of management and the workers for at least a little while. The Legislature needs to step up and be part of the solution.

PIPELINES

The Texas Supreme Court heard arguments in a case to determine whether a company has eminent domain authority to build a pipeline across private land to carry a product other than crude petroleum. In this case the substance is polymer-grade propylene (PGP). The issues are whether the pipeline would be a public use as required by the constitution, whether the pipeline company has statutory authority to condemn the property, and finally if the property is condemned, how it should be valued.

The dispute is as much economic as anything else. This not an environmental fight. The landowners have a history of successfully selling easements. Much of the argument centered on valuation issues. That said, it may be decided on non-economic issues by the court with a decision in favor of the landowners seen as a major weapon against eminent domain.

These cases are unfolding as the Tennessee legislature is considering bills which would limit the ability of localities to regulate the location of pipelines within their boundaries.

SOLAR BACKLASH

The effort to impose what are effectively economic penalties for customers who wish to install solar panels to generate energy. The ability of solar owners to sell excess power they produce to the legacy utilities which serve their area under so-called net metering arrangements have been crucial to development in the industry. A number of utilities across the country have made varying efforts to use economic disincentives to discourage or eliminate net metering even in sun drenched states like Arizona and Florida.

Now in Florida, legislation has been passed which would limit and then eliminate net metering. The legislation requires that solar customers pay all fixed costs of having access to transmission lines and back-up energy generation as determined by the Public Service Commission. Florida businesses and homeowners will have until December 2028 to install rooftop solar and receive any financial credit for selling excess energy back to their electric utilities

Starting in 2029, the PSC will impose new rules for how much solar users will be paid when they sell excess energy back to the grid, and how many fees they are charged to stay connected to the grid. That may require additional legislation as the newly passed legislation establishes no standard to guide that decision.

MUNICIPAL UTILITY PRICES

One of the arguments in favor of municipal utilities is their cost of service-based business model rather than a model designed to generate returns for investors. The theory is that the only “profits” a municipal utility would generate would be to fund necessary operation reserves and meet debt service covenants. According to the January 2022 totals released by the Florida Municipal Electric Association, the average residential bill for 1,000 kWh for a municipal utility in the state is $120.67.

The investor-owned utilities are unsurprisingly at the top of the list. Florida Power and Light Northwest and Duke Energy have average bills approaching $200. There is one exception to the rule – Gainesville, FL Regional Utilities. GRU average bills were some $154. That makes this municipal utility the third most expensive – public or IOU. This comes in the wake of a leadership shakeup at GRU which saw the general manager lose his position and the elimination of the chief operating officer position.

P3 FUNDING

Maryland’s troubled Purple Line project was approved for a $1.7 billion Transportation Infrastructure Finance and Innovation Act (TIFIA) loan through the Build America Bureau. The project had previously been approved for a $874.6 million TIFIA loan in 2016; this loan replaces and restructures the previous loan. The funding announcement follows the settlement of contractor issues for this major P3 project. The project also received an additional $106 million in funding through the American Rescue Plan to keep the project alive through the pandemic and the resolution of the contractor issues.

U.S. Department of Transportation also announced that the Build America Bureau provided a $1.05 billion low interest loan to Capital Beltway Express, LLC to refinance an existing loan for the Capital Beltway express lanes and construction of a northern extension called the 495 NEXT Project. This P3 project will extend the existing express lanes by 2.5 miles from the Dulles Access Road to the George Washington Memorial Parkway near the state line. 

The Bipartisan Infrastructure Law, signed by President Biden in November 2021, expanded project eligibility for the TIFIA credit program and extends maturity of the loans, giving borrowers additional flexibility. 

In Pennsylvania, PennDOT announced that Bridging Pennsylvania Partners (BPP) was selected as the Apparent Best Value Proposer to administer the Major Bridge Public-Private Partnership (P3) initiative to repair or replace up to nine bridges across the state. The Major Bridge P3 Initiative is designed to raise revenue through tolling on nine bridges located on Interstate highways throughout the Commonwealth. The department and BPP will now enter into a pre-development agreement to finalize the design and packaging of the bridges to be built, financed, and maintained.

CYBER SECURITY LEGISLATION

On 1 March, the US Senate passed legislation requiring critical infrastructure owners to report relevant cyberattacks to federal agencies. The proposed legislation would require that critical infrastructure owners and operators disclose a major cybersecurity incident to the Department of Homeland Security’s Cybersecurity and Infrastructure Agency within 72 hours and any ransomware payments to Cybersecurity and Infrastructure Security Agency (CISA) within 24 hours.

The legislation comes as utilities are considered to be vulnerable to possible Russian cyber-attacks in connection with its invasion of Ukraine. There is no one particular standard which governs what a cyber-attack target is required to disclose or to whom such disclosures must be made. One goal of the legislation is to provide a standard to address the inconsistency which flows from the lack of one. The thought is that a standard will encourage more fulsome and timely disclosure of events.

DETROIT CLIMBS BACK

Moody’s Investors Service has upgraded the rating on the City of Detroit, MI’s general obligation unlimited tax (GOULT) bonds to Ba2 from Ba3. The outlook remains positive. The city has about $2 billion of debt outstanding. The upgrade and maintained outlook reflect the real progress the City has made in terms of maintaining fiscal balance. It also follows the defeat last summer of a voter initiative which would have forced the city to incur hundreds of millions of expenses without a source of revenues to fund them.

The upgrade action acknowledges the structural weaknesses in the City’s credit – weak property tax wealth, volatile revenue structure, limited revenue raising flexibility and, the city’s significant leverage from debt and pensions. Pension costs remain the one area over which the City has little control. Moody’s lays out a view of what would drive another upgrade – robust revenue growth that makes rising fixed costs easier to accommodate; strengthening of full value per capita, median family income and population trends; accumulation of additional resources in an irrevocable trust to reduce budgetary risk of rising pension costs.

FRAUD, LOSSES, AND DISCLOSURE

The Fresno Bee reported that the city of Fresno lost about $400,000 in 2020 after falling victim to an electronic phishing scam.  The fraud involved the use of fake invoices which a city employee mistook for a real one and paid it.  There were two such payments. The issue isn’t one of fiscal solvency or short-term budget stress. After all, it’s $600K out of a $1.4 billion budget.

It does raise an issue for investors concerned with governance. The prior administration had been aware of the problem but chose not to disclose it either internally or to the public.  A new mayor was informed by the press.  Here’s the rub. The City reported the fraud to federal authorities but not to its City Council or its investors. It was put in the middle of its obligations to disclose material financial information and comply with requests from law enforcement. When the case was turned over from investigators at the Fresno Police Department to the Federal Bureau of Investigations, FBI officials asked investigators from the City of Fresno to keep the information from being disclosed to the public.

Now, the information was leaked to the press anyway.  More concerning are the comments of the mayor regarding other potential municipal victims.  FBI officials told Fresno City officials that the scam targeted “several municipalities across the United States who were victims” including one that lost twice the amount as that of Fresno.

AIR INDUSTRY CONTINUES TO RECOVER

U.S. airline industry (passenger and cargo airlines combined) employment increased to 733,491 workers in January 2022, 3,411 (0.47%) more workers than in December 2021 (730,080) and 16,848 (2.25%) fewer than in pre-pandemic January 2020 (750,339). The January 2022 figure is the highest industry headcount since the start of the COVID-19 pandemic. U.S. scheduled-service passenger airlines employed 450,065 workers in January or 61% of the industry-wide total. Passenger airlines added 5,285 employees in January for a ninth consecutive month of job growth dating back to May 2021. 

The January industry-wide numbers include 625,753 full-time and 107,738 part-time workers for a total of 679,622 FTEs, an increase from December of 3,765 FTEs (0.56%). January’s total number of FTEs remains just 1.71% below pre-pandemic January 2020’s 691,457 FTEs. U.S. cargo airlines employed 253,262 FTEs in January, up 478 FTEs (0.19%) from December. U.S. cargo airlines have increased FTEs by 18,048 (7.67%) since pre-pandemic January 2020.

ENVIRONMENTAL TAX IN PORTLAND

Measure 26-201 was approved by Portland, OR voters in 2018. Voters approved the tax to create the Portland Clean Energy Fund in 2018 as an ambitious way to tackle climate change and social inequities. It created a 1 percent gross receipts tax within the city limit. The tax would apply to retailers with more than $1 billion in national sales and $500,000 in Portland-specific sales. It would also include large service-based firms, including retail banking services. Supporters estimated the tax would raise approximately $30 million a year. City officials expected revenues of $44 million to $61 million annually. Businesses said it would raise far more than that.

It turns out that the businesses were right. This week, an audit from the City of Portland showed that at the end of the last fiscal year, the tax had generated more than $185 million since its inception.  Actual revenues were $63 million in Fiscal Year 2019-20 and $116 million in Fiscal Year 2020-21. That’s great from the point of view of a “social” investor.  From a governance standpoint, the situation has raised issues. The Portland City Auditor’s Office found the program has still out not finalized methods to track, measure and report its performance, as required by the 2018 ballot measure that created it.

The program had made progress with some elements, but othe­­­rs were not yet fully implemented or needed direction from City Council. The program did not report on whether its activities by grant category were consistent with target proportions in the legislation. The presentation of the recommended grants to Council used descriptions that were a mix of funding category and grant type. 

It is a weakness of several prominent efforts to devote public funding to efforts backed by limited notions of what constitutes accountability and transparency. The Thrive NY program led by former Mayor DeBlasio’s wife faced withering criticism over its lack of accountability and transparency. It is not the first time that Portland has been satisfied with less than adequate disclosure. It has in the past made the case that better disclosure is a choice between better information or public safety. For ESG investors, this stuff should matter.

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

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OPIOID SETTLEMENT

The effort to recover some of the costs of the opioid epidemic has been settled.  The nation’s three largest drug distributors and a major pharmaceutical manufacturer announced a settlement in the litigation against the companies by states and localities across the country. The total cost to the companies: $26 billion.

The settlement will require Janssen, Johnson & Johnson’s pharmaceutical division to pay $5 billion. That payment will be broken into annual payments over nine years. McKesson, Cardinal Health and AmerisourceBergen, the distributors, will pay a combined $21 billion over 18 years. The settlement requires that at least 85 percent of the payments will be dedicated to addiction treatment and prevention services.

While the settlement is the second largest multi-state settlement to be reached, it did not turn into the next tobacco deal. The settlement announcement does indicate that it was approved by at least 90 percent of those governments eligible to participate, and 46 of 49 eligible states for the distributors and 45 for Johnson & Johnson. This settlement comes as additional litigation is either settled or moves closer to settlement.

An agreement arrived at earlier this year produced a tentative settlement with Native American tribes. It will not produce a substantial windfall for any of the tribes. The 574 federally recognized tribes could receive $665 million in payouts over nine years.  There could be more money available from the ongoing Purdue Pharma bankruptcy proceedings. That litigation, focused on the Sackler family, continues. The Sacklers recently increased their dollar offer in negotiations but may plaintiffs remain unsatisfied.

Washington, Oklahoma and Alabama are not participating. Oklahoma’s Supreme Court overturned a lower court’s $465 million verdict that concluded that Johnson & Johnson’s opioid marketing created a public nuisance in the state. Other court efforts have generated a mixed bag of rulings which may lead ultimately to U.S. Supreme Court review. These three states obviously believe that they can do better even though the experience to date might indicate otherwise.

That strategy may be vindicated by the announcement that a reworked settlement between the Sackler family which owned Purdue Pharma and the states had been agreed. That settlement came in the wake of the rejection of Purdue Pharma’s bankruptcy plan in December. The District of Columbia and nine states — California, Connecticut, Delaware, Maryland, New Hampshire, Oregon, Rhode Island, Vermont and Washington had rejected that earlier plan. Mediation talks between that group of plaintiffs and the Sacklers led the family to increase its proposed share of the settlement by $1 billion.

By holding out and conducting their own negotiations, the hold out states did generate increased payout to the states. At the same time, the Sacklers will pay out the new $1 billion over 18 years versus the nine-year timeframe established in the prior rejected settlement. It is well below what many thought would be the required payout and there is a fixed timeframe for payments. The hope that opioids would become the new tobacco in terms of supporting debt issuance will not be realized.

TRANSIT FUNDING

The federal Urban Mass Transportation Act of 1964 was enacted to develop and revitalize the country’s public transportation systems.  This Act, in part, allows state and local transportation authorities to obtain federal grants.  Urban mass transportation authorities created pursuant to this section receive federal grants administered by the Federal Transit Administration.  Receipt of these federal grants requires certification from the United States Department of Labor. 

Now to ensure that public transit agencies in West Virginia are able to continue to receive federal grants, House Bill 4331 has been introduced. The bill tweaks existing state law to make clear that labor unions are recognized by these agencies. To preserve this source of federal funds for urban mass transportation authorities, only for urban mass transportation authority employees whose public authority employer is a recipient of federal funds, the term “deductions,” as used under Chapter 21, Article 5, shall include amounts for union, labor organization, or club dues or fees.

NEW JERSEY UPGRADE

New Jersey continues its journey out of the credit wilderness as it reaps the benefits of federal funding and a recovering economy. This week Moody’s said it has upgraded New Jersey’s general obligation and Garden State Preservation Trust, NJ bonds to A2 from A3, and the state’s related subject-to-appropriation bond ratings also by one notch, to A3 from Baa1 for bonds financing essential-purpose projects and to Baa1 from Baa2 for bonds financing less-essential projects. What is essential? The essential-purpose appropriation financings include bonds issued by the New Jersey Transportation Trust Fund Authority and school construction bonds issued by the state’s Economic Development Authority. Less essential debt is issued by the New Jersey Sports & Exposition Authority. 

Much agency issued debt also benefitted from the State’s upgrade. The program ratings for the state’s aid intercept enhancement programs – the New Jersey Qualified School Bond Program and the New Jersey Municipal Qualified Bond Program -were upgraded to A3 from Baa1. The Liberty State Park Project Bonds issued by the New Jersey Economic Development Authority were affirmed at Baa1. Federal Highway Reimbursement Revenue bonds (GARVEEs) issued by the New Jersey Transportation Trust Fund Authority were raised to A3 from Baa1. The ratings on the bonds issued by the South Jersey Port Corporation were affirmed at Baa1.

The vast majority of the State’s debt is paid from monies that are subject to annual appropriation. That reliance on that mechanism, rather than the use of general obligation debt, has always been seen as a strong source of support for the view that failure to appropriate would be an act of fiscal suicide on the part of the Stater. It would undue all of the benefits of better pension funding which will still be a long term drag on the State’s ratings. The reversal of the trend of inaction during the Christie administration regarding pension funding and its role in the steady declines in the State’s ratings has clearly boosted the outlook for the State.

NYC BUDGET

The NYC Independent Budget Office has released its analysis of the proposed budget for FY 2023 recently offered by Mayor Eric Adams. It is the analysis of the economy that we find most informative. It highlights the benefits as well as the costs of the City’s dependence upon Wall Street and the many associated businesses that benefit from the economic activity the FIRE sector generates for NYC.

The first example concerns wages and personal Income. The city’s recovery in terms of aggregate wages and salaries has been much more robust than its recovery in total employment. The sectors experiencing the slowest recovery, and for which IBO projects employment will not have recovered by the end of 2026, have some of the city’s lowest average wages, while the sectors that are projected to recover the most rapidly have some of the highest average wages.

The leisure and hospitality sector and retail trade sector, for example—which lost the most jobs and are projected to have the slowest expected recovery—have average annual salaries of $54,700 and $57,300 respectively. Conversely, the information and professional services sectors, which have recovered much more quickly, have some of the city’s highest average annual wages, $144,500 and $181,300, respectively.

A second example is that of real estate. After a sharp decline in 2020 in the wake of the onset of the pandemic, real estate sales in New York City rebounded strongly in 2021. The total value of taxable sales rose 81.5% to $111.3 billion compared with 2020, with residential sales up 88.7 %, and commercial sales increasing 71.2 %. Residential sales were $68.1 billion, far exceeding the previous record of $55.4 billion set in 2017. That does not mitigate longer term concerns. the future of the commercial real estate market remains uncertain.

While many observers expect an increase in the number of workers returning to the office as 2022 progresses, the total demand for office space, particularly in “non-trophy” buildings, is likely to remain soft, and the continuing shift to online shopping will weaken the market for retail space. Retail spaces may face the most uncertainty. Storefront vacancies are the most visible sign of the impact of the pandemic. The role of the individually owned small retail business in the employment of non-college graduates in large cities cannot be overstated. The recovery of these sorts of businesses will be a key to resolving issues of unemployment especially at the lower range of the pay scale.

We recently documented the Mayor’s plan to eliminate projected budget gaps through headcount management. That would represent a real reversal from the DeBlasio years. IBO estimates that nearly half of the $5.4 billion in total savings proposed in the Mayor’s Plan to Eliminate the Gap (PEG) for the current fiscal year through fiscal year 2026 are achieved through headcount reductions ($2.5 billion). Headcount reductions of between 3,500 and 6,000 are projected annually. The primary method? Most of the positions proposed for elimination are vacant.

And there are the usual tricks. The reductions occur only with vacant positions, ones that agencies have budgeted for—but do not actually have staffed. In fiscal year 2023, nearly 1,800 of the city-funded positions eliminated in the PEG at DOE are restored with federal funds, with approximately 900 vacancies eliminated in the PEG in fiscal year 2024 restored with federal funds. The expiration of federal Covid-19 relief funds occurs in 2025.

The Preliminary Budget includes a budgeted full-time headcount for fiscal year 2022 of 306,291, a level similar to what it was prior to the onset of the pandemic. In fiscal year 2026, the final year of the Adams Administration’s current financial plan, full-time budgeted headcount drops below 298,000. This would be the lowest budgeted headcount since calendar year 2017.

REGULATION

In North Dakota, the Board of University and School Lands, better known as the Land Board, has been appealing to the North Dakota Supreme Court in a case with issues surrounding royalties from the development of state-owned minerals.  Those issues include deductions oil and gas companies removed from royalties to account for transportation and processing costs. The Land Board has for several years sought to collect those deductions following a favorable Supreme Court ruling in 2019 in a case involving oil producer.

House Bill 1080 was enacted last year. The law limited the length of time for which the state in the future could seek to collect unpaid royalties at seven years. That created a cutoff date of August 2013 that would apply to the money the state is seeking to recover from dozens of companies. Now, the Board has decided not to pursue collections from prior to that date. The Department of Trust Lands has estimated the state is owed $69 million in royalties from production before that date. 

NO TOLLS ON THE OHIO

Kentucky and Ohio plan to seek $2 billion in federal funds to help pay for the overhaul of the Brent Spence Bridge corridor near Cincinnati without using tolls. The money would come from the federal infrastructure bill that Congress passed last year which includes $17.5 billion in national grants for large projects like this project. It would retrofit the Brent Spence Bridge, which carries Interstates 71 and 75 between Covington, Kentucky, and Cincinnati, a nearby companion bridge, and work on approach roads on both sides of the Ohio River.

Unlike another major bridge project – the Ohio River Bridges Project, the Kentucky-Indiana bridges built in Louisville – this one will not use tolls. That would clash with the stated intent of the USDOT to encourage the role of user fees, aka tolls. The Kentucky General Assembly banned tolls on interstate crossings between Kentucky and Ohio in 2016. This will clash with the stated goals of encouraging public/private partnerships in the finance and execution of large transit infrastructure projects.

DETROIT

Michigan law requires that the City of Detroit to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.  The latest forecast predicts a faster recovery for Detroit than the State overall. Resident employment will recover to pre-pandemic levels by the end of 2022. Meanwhile, jobs at establishments within the city boundaries will recover by early 2023. The City’s economy continues to grow through 2026 with blue-collar jobs leading the way. 

Recurring City revenues are forecasted to exceed pre-pandemic levels in the current fiscal year ending June 30, primarily due to stronger income tax collections and the implementation of internet gaming and sports betting last year. The City presented FY2022 General Fund recurring revenues projected at $1.087 billion for the current fiscal year ending June 30, up $23.8 million (2.2%) from the previous estimate in September 2021. General Fund recurring revenues for FY2023, which begins July 1, are now forecasted at $1.147 billion, an increase of $60 million (5.5%) over the revised FY2022 estimates. General Fund revenue forecasts for FY2024 through FY2026 show continued, but modest, revenue growth of around 2% per year on average.  

AIRPORTS

The data is on regarding airport volumes in 2021.  The volume of flights operated in 2021 (6.2 million), although more than 2020, was 78.1% of the volume of flights operated in pre-pandemic 2019 (7.9 million). In 2021, the 10 marketing carriers reported 6.3 million scheduled flights, 78.0% of the 8.1 million scheduled in 2019.  In December 2021, the 10 marketing network carriers reported 580,238 scheduled domestic flights, 13,773 (2.4 %) of which were canceled. In pre-pandemic December 2019, the same airlines reported 679,941 scheduled domestic flights.

At the same time, the industry is applying heavy pressure in light of the new guidance issued by the Centers for Disease Control and Prevention that relaxes many COVID-era policies – including indoor mask wearing. The U.S. Travel Association, the American Hotel and Lodging Association, Airlines for America and the U.S. Chamber of Commerce are appealing to the White House Coronavirus Response Coordinator to replace pandemic-era travel advisories, requirements and restrictions with endemic-focused policies.  

BEIGE BOOK

The Federal Reserve issued its latest view of the economy as the nation moves towards treating COVID 19 as an endemic rather than a pandemic. Several themes were consistent across all regions. Transportation costs (fuel), labor shortages, higher costs, and higher wages were noted across the board. Steady increases in prices are supported by demand. As retail activity increases and inflation remains high, the resulting rise in prices will contribute to higher sales tax revenues.

For NYC, the Fed reported that New York City’s residential rental market has picked up steam in recent weeks, as vacancy rates have continued to edge down and rents have accelerated. Rents have fully rebounded across much of the city. Commercial real estate markets were mixed but, on balance, slightly stronger. Office markets were mostly steady, with both office availability rates and market rents essentially flat throughout most of the District.

ELECTRIFICATION REALITIES

The effort to promote electrification of homes has run into some of the realities of the costs of electrification. Residents who lost homes in the Marshall Fire already faced issues in terms of costs and insurance to replace their lost homes. Many were confronted with the reality that replacing their homes and complying with new electrification requirements left many of the 1,000 impacted homeowners facing costs well in excess of the replacement values included in their homeowner’s policies.

One of the two communities most affected by the fire was Louisville in Boulder County. The Louisville City Council voted this week to direct city staff members to draw up potential changes in its building codes in the wake of the Marshall Fire for future vote. The changes would roll back building codes to the 2018 codes in place well before the fire for those whose homes were lost in the blaze, possible with a three-year time limit. In that process, the city gathered estimates of the costs of meeting the updated codes over what was in place prior to October with the 2018 codes. It found the extra cost for the construction of an average 2,800 square foot home was about $20,000.

The situation focuses attention on the cost of “green” building. As is the case with so many environmental issues, proponents often underestimate the cost to individuals of environmental regulation. It is one thing to require corporations to incur the extra costs, it is proving to be another to get support for imposing costs on individuals.

BERKELEY HOUSING DISPUTE AND COLLEGE ADMISSIONS

After the impacts of the pandemic on the demand for public universities unsurprisingly increased demand, it raised demand for housing as well. To address such increased demand at the University of California, UC proposed construction of additional residential facilities adjacent to its campus in Berkeley. This would have facilitated a student population of 45,000.

Now a local group with a long history of opposing university expansion of its physical plant has stymied the plans in court. The California Environmental Quality Act requires state and local agencies to study the environmental impact of construction projects before approving them. The group has obtained rulings in a suit under the CEQA which say that the existing environmental study is inadequate. UC recently asked for a stay of the initial lower court rulings on the matter while it is under appeal. The request was denied.

The real problem? UC Berkeley plans to begin mailing admissions offers on March 23. The university has said that it would limit those offers to 15,900 applicants if a stay was denied, down from its original allotment of 21,000 admissions offers for the next academic year. It occurs just as California has dedicated funding to expand enrollment by 5,000 full-time students at University of California schools and 10,000 full-time students at the California State University System.  

Pending legislation would exempt certain campus housing developments from the California Environmental Quality Act.  The shortage of housing in California especially “affordable” housing can be blamed on many factors. It is disappointing for advocates of smarter less impactful housing development to be stymied by opposition from the areas which would benefit the most. The university will try to reduce the number of new students it turns away, through encouragement of online enrollment and for some incoming students to delay enrollment until January 2023. California residents and transfer students from within the California Community College system will be prioritized for fall in-person undergraduate enrollment.

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

________________________________________________________________

ENVIRONMENTAL – CARBON CAPTURE AND EMINENT DOMAIN

The issue of carbon capture and its need for expanded pipeline capacity is an issue for landowners in several states. The proposal for three new pipeline projects and the need for those projects to acquire right of way from private landowners has moved the issue of eminent domain to the fore. Iowa has become the epicenter for that debate.

The debate in Iowa is pitting several interests against each other. The differences are highlighted in proposed legislation before the Iowa legislature. One bill would require that commercial solar installations not be placed on land that is rated as having high suitability for farming. It would also bar installations within 1,250 feet of the nearest residence. That bill made it out of committee. Another bill would have removed a portion of Iowa Code allowing utility companies to use eminent domain to condemn agriculture land.  That did not make it out of committee.

A third bill would restrict land purchases by the Iowa Department of Natural Resources and county conservation boards. The proposal, would cap purchase prices between 65 and 80 percent of the fair market value, depending on the parcel’s potential for farming. The underlying issue is that the sponsors of the bill want to delay the move away from fossil fuels thereby preserving the market for ethanol. After all. Iowa is the nation’s largest corn producer. That’s why the bill made it out of committee.

JUST TRANSITION – WHY IT WILL BE HARD

Legislation has been introduced in the California Assembly which would create a state funded program to transition oil industry workers to jobs producing green energy in the state. It seeks to act on the concept known as Just Transition. It is easy to forget that in environmentally conscious California, about 112,000 people are employed in California in fossil fuel-based industries. That was some 0.6% of the total California workforce in 2019. Over 70% of workers in the fossil fuel sector have employer-provided health insurance, 65% receive retirement benefits and union membership levels are at 23%.

Average salary figures in this analysis include all salaries – even that of the CEO – but they still provide a comparable indicator. Fossil fuel jobs have an average overall compensation of $130,000 (including CEOs, lawyers and frontline workers,) compared to $97,000 for solar industry workers, who are the highest paid workers in California’s clean energy sector. The jobs also address one group: Of all workers, 65% have less than a Bachelor’s degree (30% have a high school degree or less, 35% have some college or an Associate degree).

The legislation does not specify a spending figure. Union research has come up with a number of $470 million annually. Their goal is to encourage steady annual reductions in production and jobs versus three specific cut years between now and 2030. They estimate that If the fossil fuel sector should close in three large episodes (for example in 2021, 2026 and 2030) with one-third of job loss each time, then in each episode, 4000 workers would voluntarily retire, 2800 workers close to retirement (age 60- 64) would be provided with a glide-path to retirement, and 12,500 would require re-employment. It would raise average costs $833 million.

The most interesting aspect of the reaction to the bill is that it has split the response from labor. The debate reflects the clash of goals as the climate change response unfolds across the country. The coalition of unions (teachers and municipal workers) which produced the research cited here is opposed by those in the industry directly (Ironworkers, electrical workers and Teamsters). Those unions want the state to provide them employment directly through state financed infrastructure projects. Traditional, big ticket stuff.

VOTGLE DELAYS AGAIN

Southern Co. has announced another delay for the startup date for Plant Vogtle’s first reactor until early 2023 and moved the date for the second one to later that year.  The cause of the delay is paperwork. critical inspection records were missing or incomplete. The volume of missing or incomplete documents is causing a delay of three to six months in the compliance approval process. Southern said. That additional time is costing $920 million.

Based on a 2018 agreement, the extension of the schedule requires the electric other participants companies to officially vote whether the project should keep going. Southern has already approved continuing. Oglethorpe Power Corp., the Municipal Electric Authority of Georgia (MEAG) and Dalton Utilities must decide by March 8. The decision facing these municipal participants is likely to depend on the shape of cost sharing going forward.

The 2018 agreement establishes financial benchmarks which determine how much of the cost of additional delays is to be retained by Southern given its role as project manager. The owners do not agree on two things: whether the monetary benchmark that would let the other developers tender a portion of their ownership share in megawatts in exchange for not paying anymore for Vogtle has been reached, and how much Covid-19-related costs played a role. As to the latter, Oglethorpe is pretty clear – “The co-owner agreement is very clear that force majeure related costs (including COVID) have no impact on [this] provision.”

THE BATTLE AGAINST RENEWABLES HAS A GAME PLAN

The folks at the American Legislative Exchange Council (ALEC) are at it again. The conservative group is known for creating “model legislation” which it provides to supportive legislators across the country. They have campaigned against government employee unions among other things. Now, ALEC is taking its playbook on the road in the fight to stymie the growth and adoption of renewable energy.

Some form of the Affordable, Reliable, and Resilient Electricity Act would require an “electric utility regulatory agency to develop rules and procedures promoting an affordable, reliable and resilient electric grid that meets peak net load and peak demand, including during extreme weather events.” How could that be bad? Well, the legislation goes on to include provisions clearly designed to impede the adoption of renewables.

“Generation resources serving the grid meet continuous operating requirements for summer and winter peaks, including extreme weather events that necessitate on-site fuel storage, dual fuel capability, or fuel supply arrangements to ensure winter performance for several days. Intermittent generation shall be required to provide firming power up to their average output level during periods of peak net load, and the cost of that firming shall be attributed to or otherwise included in the rate structure consistent with cost-causation principles.”

The intent could not be clearer. The bill is also designed to make heretofore uncompetitive fossil fueled generation more competitive by the worst of methods – artificially driving up the cost to competitors.  “Reliable” according to ALEC means that load shedding events are extremely rare and that there are no system wide power shortages or brownouts for more than a few hours once every 10 years. By that metric, the fossil fueled utility that supplies my power fails the test so that must not be the goal.

FARE ENFORCEMENT CHALLENGED IN WASHINGTON STATE

The Washington Supreme Court heard arguments in an appeal from an individual arrested on outstanding warrants discovered through the process of enforcing fare payment on Seattle’s mass transit system.  Fare enforcement is being challenged on grounds that it discriminates against the poor and people of color.

The issue of transit fares and enforcement has risen to the fore through the pandemic. The pandemic has been the basis of decisions to suspend fares, collection, and enforcement as agencies try to help cope with limits and impacts of the pandemic across the country. This litigation argues that enforcement at other than the point of payment is illegal. The system referred to is commonly used across the country requiring either purchase of a ticket (presentable on demand) or through use of one’s smart phone.

While the case will be decided under state law, the implications of a decision against fare enforcement could be far reaching. Advocates for free transit have been hoping that temporary responses to the pandemic will become permanent. Should fare enforcement be found to be illegal, transit systems will face the issue of revenue shortfalls as paying customers would likely soon join with other riders not paying the fare.  The Seattle system has lost some 50% of its patronage during the pandemic. At the same time, it is undertaking a program to address “non-destinational riders”. Predominantly homeless passengers who have mental health or drug problems.

RURAL POWER CHALLENGES

The same economics that impeded the development of the nation’s electric grid in the 20th century continue to play out as rural electric providers deal with their unique costs related to the unconcentrated nature of their customer base. As individuals increase their installation of solar panels and utilities deal with the cost of transmission and maintenance, the utilities are targeting solar power development to generate additional income even though they provide less service.

It is part of what is driving the industry response which increasingly relies on fixed charges for electric service rather than having revenues based on kilowatt hour sales. One recent example raising the ire of customers comes from rural Colorado. The Sangre de Cristo Electric Association in Colorado serves some 13,000 customers across four counties. Many of its customers are low consumers of power and are also installing solar panels. They sell the power they don’t use back into the grid under what is known as net metering.

The vast majority of customers are residential and some 40% are second homes owners so their electricity use is lower than one might expect. If those customers install solar, the base of remaining standard use customers shrinks and revenue is impacted. So, this co-op has decided to raise fixed charges on a monthly basis from $31.83 to $46.15. At the same time, it will reduce the cost of a kilowatt hour by from 1 to 5%. The co-op also plans to commence time of day pricing to raise the cost of electricity in the hours between 5 and midnight.

It is a pretty blatant effort to suppress individual renewable energy production. The $46.15 monthly service charge ranks as the highest among the 24 large and small electrical co-ops in Colorado.  The cutoff point for determining the level of fixed charges in 590 kwh. Members who have solar panels on their homes find themselves pushing energy back onto the grid during the day, but since their use falls below 590 kilowatt hours a month, they will pay more for the power they use at night.

That’s on top of an increased fixed fee for service. Some of this reflects the longtime tension between “natives” and newcomers which have characterized life in Colorado for years. Some natives who use lower amounts of power for economic reasons will be lumped in with second home owners and see their bills actually increase. Is this good policy?

 Colorado’s 2008 net metering law that requires cooperative electric associations to credit solar-paneled homeowners with 1 kilowatt hour for every kilowatt hour they add to the grid. The legislation was designed as an incentive for homeowners considering solar panels.  In contrast, Florida’s net metering law specifies that “public utility customers who own or lease renewable generation pay the full cost of electric service and are not cross-subsidized by the public utility’s general body of ratepayers.”  

STADIUM FINANCE BACK AS AN ISSUE

A March 2020 study published in the National Tax Journal estimated that the federal government had lost $4.3 billion in revenue as a result of tax-exempt municipal bonds used for stadium construction since 2000. Now, those numbers are being cited in support of legislation to deny tax-exempt financing for stadiums. Three long time antagonists in the House have joined together to sponsor the “No Tax Subsidies for Stadiums Act”.  

The tax expenditure number pencils out to an average tax loss (or tax expenditure) of $215 million per year for the twenty-year period. The real reason for the move is in response to the ongoing investigations and scandals regarding sexual harassment at the Washington NFL franchise. It is known that the team’s unpopular owner is considering locations in the greater D.C. metropolitan area.  Many regional politicians seek to make any new stadium project as difficult to accomplish as possible. In the end, the hope is that the owner will sell the team.

It is not a major campaign issue now but the quest by the owners of the Buffalo Bills to develop a new stadium may become one. It is one of the oldest NFL stadiums at nearly 50 years old. The Bills play at the stadium under the terms of a ten-year lease to stay in Buffalo until 2023. Ownership has estimated $1.4 billion for a new stadium in Orchard Park with the majority expected to come from taxpayers.

The hope among Bills fans is that the election of Gov. Hochul to a full term will help drive a deal for the new stadium. She is after all, from Buffalo.

DROUGHT ISSUES

Lake Powell is the second-largest reservoir in the U.S. In order for the hydroelectric generation plant constructed as part of the dam to operate, the lake must maintain a water level that is at least 3525 feet above sea level. At this time last week, the lake elevation was at 3529 feet, just four feet above the critical level. Now, to address the low water condition stemming from the long term drought in the American West, a new plan will be implemented.

The states in the Colorado River drainage area agreed to the Congressionally approved 2019 Drought Contingency Plan. The agreement includes the provision that if Lake Powell is projected to possibly drop below 3,525 feet, the states upstream of the river will have a plan in place to send more water to Lake Powell. That water will likely come from three other reservoirs – Flaming Gorge on the Utah-Wyoming border, Navajo in New Mexico and Blue Mesa in Colorado. 

The process shines an even brighter light on the role of water as an economic development and survival issue in the West. Blue Mesa was significantly drawn down in 2021, and the reservoir — Colorado’s largest — hit its lowest level on record by the end of the year. The data from the U.S. Bureau of Reclamation shows that Lake Powell could pass below the critical 3525 foot level by the fall of 2022 if conditions remain historically dry. The short run impact will be on economic activity related to the reservoir. In the longer run, Blue Mesa wills serve as a real example of the competition among a wide range of water users.

The importance of hydro power is highlighted by data from the California Energy Commission. The CEC estimates that in 2020, 34.5 % of the state’s retail electricity sales were served by Renewables Portfolio Standard (RPS)-eligible sources such as solar and wind. When sources of zero-carbon energy such as large hydroelectric generation and nuclear are included, 59 % of the state’s retail electricity sales came from non-fossil fuel sources in 2020. 

That is a drop from the prior year. In 2019, over 60 percent of the state’s electricity came from renewable and zero-carbon sources. The decrease in 2020 is due to decline in hydroelectric generation caused by severe drought, as well as pandemic-related delays to new renewable energy projects. A nearly 20 percent decline in large hydroelectric generation compared to 2019 was a major driver.

In the Pacific Northwest, the Columbia River Basin contains more than one-third of U.S. hydropower capacity and generates enough electricity to power over 4 million homes. The U.S. Energy Information Administration (EIA) estimates that while some snow conditions remain below normal that 17% more electricity generation from hydropower will be available in the Pacific Northwest in 2022 compared with 2021.

EIA estimated that hydropower generation in 2021 fell by 10% in the Northwest and by 9% in the entire U.S. compared with 2020. In its February STEO, EIA forecast that U.S. hydropower plants would generate 278 million MWh of electricity in 2022, half of which would come from the Northwest. This would be an 8% increase in U.S. hydroelectric generation from 2021. Overall, EIA said it expected hydroelectricity to account for 7% of total U.S. electricity generation in 2022.

INDIAN GAMING AT THE SUPREME COURT

The Restoration Act of 1987 established a federal trust relationship with the two Texas tribes – the Tigua (the Ysleta del Sur Pueblo) and Alabama-Coushatta. The legislation included a provision barring the Tigua and Alabama-Coushatta from conducting gambling prohibited in Texas. The Tiguas own and operate the Speaking Rock Entertainment Center. Games offered include traditional bingo and electronic machines that resemble casino-style slot machines and are based on bingo principles.

The State of Texas has sought to limit the tribe’s casino operations on several occasions gaining favorable rulings from the U.S. Fifth Circuit Court. A 1994 5th Circuit Court of Appeals decision known as Ysleta I held that federal law prohibited gambling on Tigua (also known as Ysleta del Sur Pueblo) and Alabama-Coushatta land. The 5th Circuit rulings have meant that the Tigua and Alabama-Coushatta tribes of Texas are the only Indigenous people in the United States without a recognized legal right to offer gambling. For the Tiguas, the casino is the primary source of funding to the tribe and its provision of services for education, housing, and health.

The Tigua argue that the Restoration Act does not allow the state to regulate tribal bingo, the basis of the games it currently offers. The U.S. Department of Justice has reversed the position of the prior administration that supported the 5th Circuit rulings. Now, DOJ is being asked by the Court to weigh in on the matter. In the immediate term, that allows the entertainment center to continue to operate. The new Supreme Court order does not give the Justice Department a deadline for filing a brief. The step will cause the appeal process to be extended by several months.

HYPERLOOPS

While some localities consider hyperloops or some variation of them for their transit needs, the concept is slower to gain acceptance generally. The latest example comes from Texas. The North Texas Regional Transportation Council (RTC) recently revised its policy on developing a high-speed corridor to focus solely on high-speed rail, eliminating plans to build hyperloop tech into the corridor. The RTC is seeking to build a high speed connection from Dallas to Fort Worth.

The announcement reflected the concerns that many have with the hyperloop concept.  The Commission’s lead planner said “hyperloop is still a developing technology with no clear path to approval, and including it in the corridor’s plans could delay development.”

PUERTO RICO

The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) authorizes the Oversight Board to approve and amend Puerto Rico government spending independent of the legislature’s actions. Those provisions anticipated the delaying tactics and outright noncooperation on the part of the Puerto Rico Legislature. Now that the Legislature has failed to pass the necessary authorizations to balance the budget and pay debt service, the Board must act on its own.

To that end, the Board has approved a $23.5 billion General Fund budget for the current fiscal year. The budget provides some $1.09 billion of current year revenues for debt service. The payments will be used to cover debt service on general obligation capital investment bonds, capital appreciation bonds, Sales and Use Taxes Contingent Value Instruments, and rum cover tax Contingent Value Instruments. Mindful of the politics of pensions, the approved budget includes $1.42 billion to be contributed to the government’s pension trust and $1.3 billion to active and retired government employees who never received their investments in the Systema 2000 pension system.

Other categories of debt remain to be restructured. The Highway and Transportation Authority has some $6 billion of outstanding debt. The Board has recommended that tolls on the Authority’s facilities be raised. The recommended toll hikes would result in increases of 8.3% each year fiscal 2022 to fiscal 2024 and then they should increase by the inflation rate plus 1.5%. That may be a hard political lift given that tolls have not been raised since 2005. The PREPA restructuring remains incomplete. The Board is expected to submit its proposal for a Plan of Adjustment for the PREPA debt by April 15.

UPDATES

Last week, we commented on a proposed bill which would have provided financial incentives to communities willing to adopt state standards for renewables siting. The bill had support from a number of constituents. Nonetheless, the bill is advancing through the legislature without the funding provision. The issue seems to be the lack of a dedicated source of funding for the plan. The bill in its current form establishes minimum statewide standards for commercial renewable energy system siting for communities that choose to adopt them.  It makes no mention of funding.

New York’s MTA reported its highest daily patronage last week as ridership exceeded three million.

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

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P.R. LITIGATION

Challenges to the Plan of Adjustment in the Puerto Rico Title III proceedings have been expected and predictable. Two appeals have been made to the U.S. District Court for Puerto Rico and arguments have been submitted. One is Puerto Rico-based credit unions and the other is the Teachers Union. For arguments, the issues in the two cases have essentially been combined. The teachers and the credit unions want to have the court issue a stay against the implementation of the plan.  They are asking for time to pursue appeals in the Court of Appeals for the First Circuit. While located in Boston, this is the traditional forum for litigation involving the Commonwealth.

The predictability of litigation like this was quite strong. It was a question of which group or entity would file an appeal. In prior decisions, the presiding judge in the Title III proceedings has ruled on claims of illegal takings by the Board. The main thing this accomplishes is delay. We do not see it changing the ultimate outcome of the Title II process. The bondholder creditors and the Oversight Board had hooped to move forward with implementation of the Plan and its refinancing by March 15. This litigation will likely delay that.

In the meantime, the actions of the Puerto Rico Senate in refusing to act on legislation needed to amend the Commonwealth’s budget just reinforce the view that the political establishment still does not understand their situation. The politicians try to portray this as just the normal course of politics when it is actually just another example of why the market remains highly skeptical about the ongoing willingness to pay even its restructured debts.

It’s hard not to look at Puerto Rico as a credit and then look at the ongoing debt problems of Argentina where political will has always been the issue in its IMF debt dealings. That is not a place which Puerto Rico should aim to aspire to.

PLANT BASED BUT NOT GREEN

A study, funded in part by the National Wildlife Federation and U.S. Department of Energy, found that ethanol is likely at least 24% more carbon-intensive than gasoline due to emissions resulting from land use changes to grow corn, along with processing and combustion.  In 2005, Congress enacted legislation creating the U.S. Renewable Fuel Standard (RFS). That legislation requires the nation’s oil refiners to add some 15 billion gallons of corn-based ethanol into the nation’s gasoline annually. The policy was intended to reduce emissions, support farmers, and cut U.S. dependence on energy imports.

That law spurred the issuance of tax-exempt bonds to fund ethanol refineries. These were issued primarily in the high yield market. Those refineries competed to process local corn into ethanol. Corn cultivation grew 8.7% and expanded into 6.9 million additional acres of land between 2008 and 2016. For ESG investors, it is important to note that the study showed corn planted for ethanol increased annual nationwide fertilizer use by 3 to 8%, increased water quality degradants by 3 to 5%, and caused enough domestic land use change emissions such that the carbon intensity of corn ethanol produced under the RFS is no less than gasoline and likely at least 24% higher. 

In reality, the oil companies hate the rule and consumers appear agnostic. In terms of other negative impacts, corn prices have led to higher food prices. RFS increased corn prices by 30% and the prices of other crops by 20%. From many perspectives, the ethanol program looks like a back door subsidy to growers given the new study that shows ethanol to be a net carbon contributor.

The future of ethanol requirements is in the hands of the U.S. Environmental Protection Agency (EPA). As manager of the nation’s biofuels program, it will set the regulations to replace the current standards which expire this year. EPA plans to propose 2023 requirements in May.

HARVEY, ILLINOIS

A long saga comes to an end as the SEC asked the U.S. District Court in Illinois to approve its request to close its case against the City Of Harvey, IL. The economically challenged municipality near Chicago’s South Side has a long history of poor management. In June 2014, the SEC filed a complaint alleging that the City misused municipal bond proceeds and lacked adequate internal controls to prevent this misuse. In December 2014, the City entered into a Consent Judgment that permanently enjoined the City from future violations of the antifraud provisions of the federal securities laws. The Consent Judgment also required that the City hire an Independent Consultant and that the City implement the Independent Consultant’s recommendations.

As is often the case, the entrenched powers at City Hall did not move forward as quickly as the Court had expected.  In October 2020, the SEC filed a Motion to Enforce the Consent Judgment, asserting that the City had not fully implemented the Independent Consultant’s prior recommendations. As part of the Order granting the SEC’s Motion to Enforce the Consent Judgment, the Court ordered the City to re-hire the Independent Consultant and ordered the Independent Consultant to prepare an updated report on whether the City was in compliance with his prior recommendations after re-hiring him.

On January 4, 2022, the SEC filed an updated report from the Independent Consultant which reported that the City had implemented changes resulting in improvement of the City’s internal controls and that the City now was in substantial compliance with his prior recommendations. The SEC then moved to have the case terminated although the Consent Decree remains in effect.

NYC BUDGET

Mayor Eric Adams presented his first budget proposal for FY 23. The budget reduces the FY23 budget by $2.3 billion as proposed by Mayor DeBlasio. The plan reflects the new priorities of a new administration and a different attitude about spending. It also revives a term we had not seen since the Bloomberg administration – PEG. A Program to Eliminate the Gap (PEG) is being relied upon to lower overall spending and is also relied upon to fund programs more in line with the new Mayor’s priorities.

This budget maintains the Police Department at current levels. It also addresses the issue of the size of the City’s workforce. The DeBlasio administration’s standard response was always to increase spending and headcount. The Adams administration reduced the budgeted city headcount by 3,200 in FY22 and 7,000 in FY23 by eliminating vacancies and without laying off a single employee.

This plan also increased budget reserves to a total of $6.1 billion — more than $1 billion more than the FY22 level, and the highest level achieved in city history. There is now $1 billion in the General Reserve, $1 billion in the Rainy Day Fund, $3.8 billion in the Retiree Health Benefits Trust, and $250 million in the Capital Stabilization Fund. The administration has removed $500 million in unidentified labor savings from the FY23 budget and future plan years. That may reflect the likelihood that labor negotiations will lead to higher rather than lower wages.

The new priorities of this administration are reflected by several program proposals. The budget would increase the New York City Earned Income Tax credit (to $250 million in FY23) and it would guarantee annual funding for the Fair Fares program for the transit system ($75 million in FY23) which provides fare relief to low income riders. Child care has become a much bigger issue as lower income workers were impacted by the need to go to work while school openings were in doubt.  

The budget seeks to support the expansion of child care facilities. It would use tax incentives specifically to create more childcare space with a property tax abatement for property owners who retrofit property ($25 million in FY23) and tax credits for businesses that provide free or subsidized childcare ($25 million in FY23). It also seeks to address the need for summer jobs for young people by expanding the Summer Youth Employment Program. The budget would baseline the funding for 100,000 summer jobs for city youth, including 90,000 in the SYEP ($79 million in FY23 for a total baselined investment of $236 million).

The City will still face out-year gaps of $2.7 billion in Fiscal Year 2024, $2.2 billion in Fiscal Year 2025, and $3 billion in Fiscal Year 2026. It also acknowledges the challenges ahead. This plan is submitted when the City faces an unemployment rate of 8.8 percent. While down from 20% at the peak of the first wave, it is still much higher than the state and country overall. The local economy has recoveredjust 55% of the 933,000 jobs lost at the height of the pandemic. This lags behind the state, which has recovered 63%, with the U.S. at 84%.

Return-to-office progress peaked at over 35% in early December, crashed dramatically to just over 10% by January, and still has not recovered. Office vacancy rates are at 20%, a 40-year high. Some offsetting good news is that better than expected Wall Street activity and growth in residential real estate helped fuel a $1.6 billion increase in Fiscal Year 2022 tax revenue projections over November.

MEMPHIS UTILITY BLUES

Last winter saw the Texas power grid implode and the aftermath focused attention on management and governance at municipal utilities impacted. This winter has seen a winter storm create havoc at the utility serving Memphis, TN with customers without power for over a week. Events like this focus attention on the management of a utility. Memphis is no exception.

The storm came as Memphis was in the midst of several controversial issues including a potential termination of its relationship with the Tennessee Valley Authority. The attention on management has shed light on a serious governance issue. It has been acknowledged that the three-year terms of all five members of MLGW’s governing board are long expired. Four of the five ended nearly three years ago.

The most recently appointed commissioner’s term expired more than 18 months ago. It is all legal. A commissioner can continue to legally vote on MLGW matters after their three-year term expires. The mayor said that he made a decision to not appoint or reappoint anyone to the MLGW board until officials closed the bidding process for seeking power suppliers that might replace TVA. The Mayor cites a need for “consistency” in not appointing board members.

MLGW commissioners are nominated by the mayor and confirmed by City Council. Failing to reappoint a sitting commissioner or appoint a replacement means there is no public hearing. There are also conflict of interest concerns involving one commissioner. Commissioners serve “until the expiration” of their three-year terms and “until their successors are elected and qualified,’’ which technically allows a commissioner to serve longer than three years without a reappointment. 

The TVA contract renewal is a huge decision for the utility. It has been the source of much of the concern. In the case of MLGW, it is a real issue. One board member is in a business relationship with the wife of a TVA officer. That job was created after MLGW’s board first voted to seek bids from alternative electricity suppliers some 13 months ago. While it may be legal under Tennessee law, the situation raises serious governance issues which the parties have been unwilling to address to date.

D.C. PENSION INVESTIGATION

The major pension funds servicing the bulk of government retirees from the District of Columbia all have very strong funding positions. While the funding of pensions remains a significant issue nationwide, the District has long been a positive outlier. Consequently, the funds and the Board of Directors who oversee them have not drawn much attention.

That has changed for now as it has been revealed that the US Department of Justice (DOJ) has been investigating the Board with an apparent focus on investment manager compensation. The first subpoena was issued in August, 2021 but the Board did not disclose it. The information came to light in in a whistleblower lawsuit filed in December against the Board by the agency’s general counsel.

At this point, the issue seems to be one of governance. The strong funding status of the funds does not obviate the need for strong ethical standards and oversight. All the pensioners should be worried about is whether the money is there for them.

HIGH TIDE

NOAA is the federal agency tasked with, among other things, monitoring sea level changes. The Sea Level Rise Technical Report provides the most up-to-date sea level rise projections available for all U.S. states and territories. The new report is the first in 5 years. The findings reinforce trends already apparent.

Sea level along the U.S. coastline is projected to rise, on average, 10 – 12 inches (0.25 – 0.30 meters) in the next 30 years (2020 – 2050), which will be as much as the rise measured over the last 100 years (1920 – 2020). Sea level rise will create a profound shift in coastal flooding over the next 30 years by causing tide and storm surge heights to increase and reach further inland.  

Rise in the next three decades is anticipated to be, on average: 10 – 14 inches for the East coast; 14 – 18 inches for the Gulf coast; 4 – 8 inches for the West coast; 8 – 10 inches for the Caribbean; 6 – 8 inches for the Hawaiian Islands; and 8 – 10 inches for northern Alaska.

TRI-STATE COOP RELENTS

At least one local distribution cooperative in Colorado has managed to reach an agreement with Tri-State Generation its wholesale power supplier. Over recent months, Tri-State has been in the spotlight for its efforts to bind its customers to them even though many face mandates to lower fossil fueled energy consumption. Tri State has been exceptionally dependent upon coal.

Now, one distribution coop – La Plata -has reached an agreement with Tri-State which keeps La Plata as a member but provides for the coop to be a partial requirements customer. The historic model was for all requirements contracts. La Plata’s existing contract with Tri-State allows the Durango-based cooperative to generate just 5% of its own power. Members now can choose to obtain up to 50% of their power requirements from their own direct generation or through purchases.

LaPlata will, if the contract gets final FERC approval, begin taking power from private renewable providers to satisfy 50% of La Plata’s requirements.  The partial requirements contract will save La Plata $7 million a year. It will offer an immediate 50% cut in La Plata’s carbon footprint when it begins purchases in 2024. It also supports La Plata’s goal which is to decarbonize 50% by 2030 as compared to 2018. 

As the process unfolds (a FERC hearing is scheduled for May), Tri-State has stopped raising rates and is now lowering them, 2% last year with another 2% reduction schedule for this fall. It is working with La Plata to install a 2-megawatt community solar project. That indicates that Tri-State has realized the benefits of a more flexible approach with its members.

That may not be enough for all of them. One utility with 100,000 customers wants out of its relationship with Tri-State. The FERC determination in the La Plata case will be looked closely by the six other Tri-State members who have indicated they are studying their options.

NUCLEAR

The newly enacted Bipartisan Infrastructure Law created the Civil Nuclear Credit Program (CNC), allowing owners or operators of commercial U.S. reactors to apply for certification and competitively bid on credits to help support their continued operations. Under the law, applications must prove that the reactor will close for economic reasons and demonstrate that closure will lead to a rise in air pollution. DOE must also determine that the U.S. Nuclear Regulatory Commission has reasonable assurance that the reactor will continue to operate safely. 

Proving that nuclear closures contribute to increased carbon emissions may get a lot easier. EPA data has been released for the Northeast. New York passed a law in 2019 requiring the state to eliminate carbon dioxide emissions from power plants by 2040 but over the last two years, CO2 from power plants has climbed nearly 15 %.  In the six New England states, power emissions are up 12 % over the last two years. And in Pennsylvania, emissions from electricity generation have grown 3 %.

That likely reflects the replacement of nuclear with natural gas fired generation. Nationwide, power plant emissions were down 4% between 2019 and 2021, even after accounting for a 7% increase in electricity emissions last year. Nuclear power currently provides 52% of the nation’s 100% clean electricity from the current fleet of 93 reactors.

The emissions problem is expanding the potential audience for nuclear. Some 16 states have passed some form of support for nuclear whether through direct operating subsidies, repeal of limits on nuclear projects, or authorization for small modular reactors (SMR).  After the experiences in Georgia and South Carolina, modular would appear to be the way to go for nuclear advocates.

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

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NOT JUST THE HOUSE WINS IN NEVADA

The Nevada Gaming Control Board announced that the state’s more than 400 largest casinos won more from players in 2021 than in any year in history. Blackjack continues to be the most popular table game in the casino. The No. 2 game is roulette. Statewide, win on all slots was up 0.25% and on tables, up 0.65%. The slot win percentage has decreased only three times in the past 25 years.

The state’s 1,958 blackjack tables won $1.13 billion from players for the calendar year. That was 75.8% more than the prior year. Roulette’s 424 units statewide generated revenues of $428 million, a 103% increase over last year. Roulette hold by the casinos was at 19.87 percent.

Slots are a whole category of their own. The most popular slot machine denomination in 2021 – the penny slot. There were 47,822 units across the state which won some $3.758 billion from players. That is a 59.7% increase over 2020. That produced a win rate for the house of 9.85% of the money put into them. The best slot for players were the nickel slots which the casinos only kept less than 6%.

That is where the state wins, Gaming tax collections are up 31.1% versus the first six months of the 2020-21 fiscal year. The first half of the 2021-22 fiscal year, through January 31, saw the state collect $570.8 million in percentage-fee collections.  For states generally, there is good news in the sports betting market. Nevada sportsbooks generated 5.46% of money wagered in 2021. The state’s books won $445.1 million from the 176 places in operation. Sports betting revenue was up 69.4% over the previous year.

NUCLEAR NORTHERN LIGHTS?

Alaska Governor Mike Dunleavy is asking the legislature to pass S.B. 177. The bill “would allow Alaskan communities to pursue the use of nuclear microreactors in Alaska by excluding local microreactor projects from the legislative designation siting requirement, exempting microreactors from the ongoing study requirement of AS 18.45.030 in recognition of the extensive research taking place both inside and outside of Alaska, and adopting the federal definition of a “microreactor.”  

Proponents are looking at two potential landing spots for micro reactors. One would be owned by Copper Valley Electric Association (CVEA) located in Glennallen, Alaska. CVEA is a cooperative utility that provides electrical and heat services to more than 3,800 business and residential customers stretching north 160 miles from Valdez to Glennallen and spanning 100 miles east to west from the Tok Cutoff highway into the northern reaches of the Matanuska Valley. CVEA is not interconnected to any other electric utility. It is that isolation that makes the concept attractive.

The other potential site would be located at Eielson Air Force Base and could be completed by 2027. There is a history of nuclear power associated with military facilities in Alaska. The SM-1A Nuclear Power Plant is located in central Alaska, approximately 6 miles south of Delta Junction on the Fort Greely Military Reservation. Fort Greely is approximately 100 miles southeast of Fairbanks and 225 miles northeast of Anchorage. The construction of the SM-1A at Fort Greely began in 1958 and was completed in 1962 with first criticality achieved on 13 March 1962. The final shutdown was performed on the SM-1A Reactor in March 1972.   

Ironically, this legislation could be enacted just as final decommissioning of the Fort Greely site begins. It is also accompanied by another bill the Governor seeks approval for which would require 80% of the Railbelt’s electricity to come from renewable sources by 2040, with penalties for electric companies that fail to meet the requirement. That would put the Alaska Energy Authority at the center of efforts to move to renewable power.

Between Homer and Fairbanks there are five interconnected utilities that distribute electricity to customers in six separate service areas in what Alaskans call the “Railbelt.” Four of those utilities also own and operate generation, and all five, plus the State of Alaska, own parts of the transmission system. The Alaska Energy Authority (AEA) owns the Bradley Lake Hydroelectric Project, the largest hydroelectric facility in the state. The proposed bill would also move forward with new hydro sources. In 2011, AEA received authorization to pursue a FERC license for the Susitna-Watana Hydroelectric Project. Financial constraints halted the project.

YOU CAN GO HOME AGAIN

For many years, the Commonwealth of Pennsylvania has run a program for oversight and assistance to municipalities in an effort to avoid defaults or Chapter 9 filings by those entities. Under Act 47 as the authorizing legislation is known, the Department of Community and Economic development provides fiscal management oversight and planning, technical assistance, and financial aid. The program has been successful in achieving those goals. Nonetheless, there has been criticism of the program reflecting the fact that some municipalities seem to never exit the program.

One such city was Scranton, the former railroading and mining center in northeastern Pennsylvania. It was designated as distressed on Jan. 10, 1992. And some 30 years later, the DCED announced the city’s status under the law was terminated on Jan. 25. The city had taken a number of steps under the oversight of the DCED to stabilize the city’s finances. It sold its sewer system in 2026 to generate monies for pension funding. One additional source of support for the city was the fact that support from the American Rescue Plan Act of $68 million could be applied to the City’s fund budget.

The city also benefitted from the resolution of litigation challenging taxes and fee increases imposed by the city. That resolution not only upheld the legality of prior collections but also allowed for their continuing collection, Late in 2021, the DCED audited the city’s finances as part of the process of determining whether the city could leave the program.

The reality is that Scranton is the 16^th city to participate in the program and strengthened and the regional tax base accessed. It came under supervision in 2004. So, the idea that cities check in but don’t check out of the program becomes more of a myth over time.

PUERTO RICO ELECTRIC

The U.S. Departments of Energy (DOE), Homeland Security (DHS), Housing and Urban Development (HUD), and the Commonwealth of Puerto Rico are moving forward on a structure for the development of a 100% renewable energy system for Puerto Rico. The announcement comes amidst continuing service issues with the current system. Reliability and cost remain basic issues for consumers. Labor unions oppose virtually any effort to move away from the current generating base.  The politics of the Commonwealth do not provide a solid environment for change.

Puerto Rico has committed to meeting its electricity needs with 100% renewable energy by 2050, along with realizing interim goals of 40% by 2025, 60% by 2040, the phaseout of coal-fired generation by 2028, and a 30% improvement in energy efficiency by 2040 as established in Puerto Rico Energy Public Policy Act (Act 17). A Memorandum of Understanding (MOU) will bind PREPA to sign contracts for at least 2 GW of renewable energy and 1 GW of energy storage projects. 

The memorandum accomplishes two things in the near term. It establishes a clear role for the expertise of DOE in the process and it kicks starts some needed fixes.  It is expected that at least 138 projects will be under construction bidding or have begun initial construction activities, including island-wide substation repairs, the replacement of thousands of streetlights across five municipalities, and the creation of an early warning system to improve dam safety.

Ratepayers currently pay twice the national average. Microgrids and renewables are achievable goals which will yield tangible benefits from both economic and reliability standpoints. It is something we have been advocating as the only rational response to the entire range of options and challenges confronting the island’s electric grid.

UNDERPOWERED AUTHORITY IN NY

New York State Comptroller Thomas DiNapoli released the results of an audit of the efforts of the New York Power Authority to install electric vehicle (EV) charging infrastructure throughout the state. The Charge NY program was announced in 2013 as a statewide network of up to 3,000 public and workplace charging stations to be ready in five years. It was followed in 2018 by Charge NY 2.0, a plan to install 10,000 public charging stations by the end of 2021. That same year, NYPA also announced EVolve NY, a $250 million project to put high-speed chargers at airports and along major highways. 

As of June 2021, there were 46,608 EVs registered in New York, but NYPA had installed just 277 public EV charging ports, or one for every 168 EVs registered in NY. The shortfalls are across all areas of the state. Suffolk County has 7,916 registered EVs, which is more than any other county and about 17% of the statewide total. It has three NYPA public charging stations, 1.2% of the total and just one charger for every 2,639 electric cars.

Nassau County has 5,947 registered EVs, about 13% of the statewide total, but only five NYPA public charging ports, 1.8% of the total or one port for every 1,189 electric cars. Westchester, where NYPA is based, has more NYPA public ports than any county. It has 4,844 registered EVs, about 10% of the statewide total, and 44 public ports or about 16% of the total.

Erie County has 1,898 registered EVs, about 4.1% of the statewide total, and 42 NYPA public charging ports, or one public port for every 45 vehicles (about 15% of the total). 30 counties with 6,189 EVs have no NYPA-placed public charging ports. There were only 28 high speed chargers at 18 locations as of September 2020. Not one of the EVolve NY’s Phase 1 projects, including installing 200 high speed chargers, were completed by their deadline of the end of 2019. As of March 5, 2021, NYPA had installed only 29 high speed chargers at seven locations, putting it on track to finish more than two years behind schedule.

INDIANA TRIES TO INDUCE PREEMPTION

After efforts last year in Indiana to impose state standards on localities governing the siting of commercial solar and wind generation infrastructure failed, another effort to accomplish the goal is underway. SB 411 establishes within the Indiana economic development corporation (IEDC) the commercial solar and wind energy ready communities development center (center). The center shall create and administer: a program to certify a unit as a commercial solar energy ready community; and a program to certify a unit as a wind energy ready community.

If a unit receives certification as a commercial solar energy ready community; and after the unit’s certification, a project owner submits a commercial solar project to be approved under standards that comply with the default standards; the IEDC shall authorize the unit to receive for a period of 10 years, beginning with the start date of the commercial solar project’s full commercial operation, $1 per megawatt hour of electricity generated by the commercial solar project.

The prior effort took power away from local zoning and land use boards and gave it to the state with no control over the economic benefits. That did not get a lot of support from the local government units. Now, the state would be offering a direct financial consideration to motivate adoption of the state standard.

EMINENT DOMAIN

It is a tool which has long been used throughout the nation’s history to acquire land from unwilling owners to facilitate larger development. The tool of eminent domain has been used to cover a variety of projects in locations large and small, metropolitan and rural. Lost in the debate over infrastructure of all kinds are many of the issues associated with land rights in connection with a variety of infrastructure projects.

This year, eminent domain is at the center of two projects where it may be the issue on which their success stands or falls. One is the issue of whether Texas landowners may face eminent domain over the proposed high speed rail line between Houston and Dallas. The issue is the subject of litigation in the Texas courts.

The other is the proposed network of pipelines to transit carbon captured to proposed storage facilities in North Dakota and Illinois. Three companies have together proposed 3,650 miles of new pipelines to cut across the Midwest and eventually transport 39 million tons of captured carbon annually from ethanol and fertilizer plants to the storage sites. Iowa would get the bulk of pipeline miles – more than 1,600 miles.

One pipeline developer has submitted a request to the Iowa Utilities Board (IUB) which regulates pipelines. Twenty counties in Iowa have filed objections with the IUB opposing the use of eminent domain for the pipelines, including 52% of counties along one pipeline’s proposed route and 41% of the counties along a second proposed route. If carbon capture and storage is to become a real thing, then this issue will be replayed across the country.

The company operating the second pipeline also plans to solidify its final route the rest of this year and apply for a federal permit. If successful, it expects to receive permits in the second half of 2023 and start construction in 2024.

There are currently about 5,000 miles (8,047 km) of carbon dioxide pipelines in the United States, mainly in Texas and Wyoming. It is used by industry to be pumped under oil and gas fields to increase pressure and boost production. One White House estimate says the country would need to build another 65,000 miles for the country to permanently store enough carbon to reach net zero emissions by 2050.

SOLAR AND WATER

The Turlock Irrigation District is poised to be the first water agency in the nation to see if placing solar panels above irrigation canals is a viable option for producing power while also reducing water losses.  It is scheduled to vote to accept a $20 million grant from the California Department of Water Resources to fund a demonstration project. The project would effectively cover existing open aqueducts and irrigation canals. The panels would produce power which could be tied in directly to existing transmission lines which exist along the route.

The panels would be suspended over the canals in a way that does not interfere with operation and maintenance of the water system. The project includes batteries or another means of storing daytime power from the sun for use later. University of California. Researchers said installing canal panels throughout the Central Valley could get the state halfway to its goal for climate-safe power. University of California. Researchers said installing canal panels throughout the Central Valley could get the state halfway to its goal for climate-safe power.

Another California municipal utility is considering using irrigation canals to produce power using the flow of the water. The South San Joaquin Irrigation District provides drinking and irrigation water to Manteca, Lathrop and Tracy. It operates a water treatment facility powered by a combination of solar power and purchases from PG&E. It is considering whether to replace the PG&E power with energy produced by a hydro power company.

The district would buy power from the energy company EMERGY, which would install the turbines at their cost and enter into a 20-year power purchasing agreement with the irrigation district at a rate 30% lower than buying power directly from PG&E. The power would be produced from turbines installed in a main irrigation canal. Water would be directed to a flume which would power the hydro turbines.

CLIMATE LITIGATION

A continuing trend in the climate litigation arena is the finding that lawsuits filed by municipalities against fossil fuel companies in state court should be decided in state court. The latest example comes from Colorado. The city of Boulder, along with Boulder and San Miguel counties, sued Suncor and Exxon Mobil in Boulder District Court. The issues raised are consistent with other suits across the country alleging damage and non-disclosure of risks long after awareness of the risks occurred.

As was the case with the City of Baltimore, the defendant companies sought to have the cases heard in the federal courts. The Colorado case defendants petitioned the U.S. District Court to have the case heard there. That request was turned down. This decision came in the appeal of the District Court decision. Specifically, the Municipalities allege claims of public nuisance; private nuisance; trespass; unjust enrichment; violation of the Colorado Consumer Protection Act; and civil conspiracy. They do not allege any federal claims.

The decision also directly addresses one of the main pillars supporting the argument that federal law should prevail. “By winning bids for leases to extract fossil fuels from federal land in exchange for royalty payments, Exxon is not assisting the government with essential duties or tasks. Critically, the leases do not obligate Exxon to make a product specially for the government’s use,”. The oil companies claim that being allowed to produce oil from the Continental Shelf makes it a federal issue.

REGULATORY ROUNDUP

The week saw a variety of actions by municipal governments in the regulation of buildings and energy. Bellingham, WA joined the cities of Seattle and Shoreline in regulating the use of electrification to limit carbon emissions. Bellingham voted to require all new commercial construction and future residential buildings more than three stories tall to heat water and rooms with electricity. Natural gas for cooking would still be permitted. New buildings must be “solar ready” with enough roof space for future installation of solar panels. 

In CA, legislation is being reconsidered which would have slashed the value of net metering payments to residential customers with solar power. W VA enacted legislation which repealed limits on the siting of nuclear power generation in the state. Senate Bill 61 passed the Ohio Senate by a vote of 32 to 1 last month.  It would limit all but “reasonable restrictions” on solar installations by homeowner associations.

The big battle is underway in Florida. Legislation favored by large utilities to require future rooftop solar panel customers to pay higher rates passed its first vote hurdle in committee. Under current law, solar panel owners can pass excess energy generated by the panels back to the utilities at the retail rate the utilities charge other customers. The bill (HB 741) would require a cheaper wholesale price be charged to the utilities. 

Sponsors had to make some concessions as the committee amended the bill to increase the time current owners of solar panels are grandfathered in and exempted from the rate change from 10 years to 20 years. Homeowners with working solar panels as of Jan. 1, 2023 would qualify for the exemption.

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

We are troubled this week by the initial signs coming out of Puerto Rico in the wake of the acceptance of the Plan of Adjustment in Puerto Rico’s Title III proceedings. An all too familiar mantra is already being quietly recited – no oversight, no disclosure, no accountability but yes, lots of cash please. All that market participants asks for is a level of oversight that many mainland U.S. cities and counties have experienced since the 1970’s in exchange for being funded out of insolvency. Until that changes, the chances for real lasting economic and fiscal success remain much lower than they need to be.

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SOCAL GAS DEBATE

There are several municipalities which find themselves in the center of the debate over the use of natural gas to produce electricity as the result of their ownership of the local electric utility. The latest example is the City of Glendale, CA. The City is a significant participant in a number of power supply agreements providing revenues to back the bonds issued by joint action agencies (JOA). Like many others, Glendale’s municipal utility gains access to the benefits of scale resulting from large baseload generators through JOA membership. Glendale also owns its own generating assets to provide peaking power at times of high demand.

In 2019, the Glendale City Council postponed a final decision on investing in natural-gas-fired generators to replace the city’s aging gas plant. Now the plants are three years older and still need improvement. The utility released a final environmental impact report last week recommending one of two preferred paths for the city to take. One option would to spend $260 million on five new gas engines. Modern gas turbines are relatively less polluting than the ones in place now. The second option would see the city refurbish several existing gas turbines to comply with air-pollution rules, at a cost of $201 million. The City Council is expected to vote on those possibilities on Feb. 8.

Glendale is also expanding non-fossil fueled generation. It plans to install a 75-megawatt, 300-megawatt-hour battery system at the site of an existing plant.

BACK TO THE FUTURE IN N.J.

In many areas, the use of human toll collectors is a blast from the past. A variety of electronic devices have been developed and installed on roads all over the country. In many ways, the technology is considered to be accepted. Even privacy concerns have not stopped its expansion. The latest holdout to begin the move to All Electronic Tolling (AET) is New Jersey.

The South Jersey Transportation Authority is soliciting bids for a vendor to design, develop, install, test, operate and maintain a “fully functional, turnkey all-electronic toll system” for the Atlantic City Expressway. The current schedule calls for a contract to be awarded as early July of this year. The anticipation is that an all-electronic tolling could be operational on the Expressway by spring 2025.

The solicitation makes clear that the system being sought could be extended to the New Jersey Turnpike Authority, which runs the Turnpike and Garden State Parkway. The vast majority of drivers on New Jersey’s toll roads are EZ-Pass customers. How big a majority? Try 85% on the Expressway, 89% on the Turnpike and 88% on the Parkway.

The data would seem to indicate that privacy-based opposition to mileage taxes or fees only extends so far. The reality is that electronic license reading technology is already widely used for a variety of reasons which are likely more invasive of privacy. Unless you go out of your way to avoid it (it’s hard to do) and you turn off your cell phone, you are already dealing with it.

NUCLEAR BOOST IN WEST VIRGINIA

The West Virginia legislature passed a bill to repeal state codes which restrict the use of nuclear power. Existing law states that “the use of nuclear fuels and nuclear power poses an undue hazard to the health, safety and welfare of the people of the State of West Virginia…and the purpose of this article to ban the construction of any nuclear power plant, nuclear factory or nuclear electric power generating plant until such time as the proponents of any such facility can adequately demonstrate that a functional and effective national facility, which safely, successfully and permanently disposes of radioactive wastes, has been developed.

The purpose of this article was to ban the construction of any nuclear power plant, nuclear factory or nuclear electric power generating plant until such time as the proponents of any such facility can adequately demonstrate that a functional and effective national facility, which safely, successfully and permanently disposes of radioactive wastes, has been developed.

SOLAR POWER

For a long time, Arizona was thought to be a perfect place for widespread adoption of solar power. This was especially true for rooftop solar. The only problem seemed to be the complete lack of support on the part of legacy electric generation utilities. There are moves underway in several states to modify the rules which require power companies to take “excess” power and to reflect that in rates. Without such a process (net metering), solar power is less attractive economically.

One of the major players in the efforts to slow solar in Arizona has been the municipal utility, the Salt River Project. Salt River effectively designed a rate structure that was seen as penalizing customers who installed rooftop solar.

Customers sued SRP claiming it was violating federal antitrust laws through its activities. The customers were appealing a trial court ruling in favor of SRP. In a unanimous decision, a three-judge panel of the 9th Circuit Court of Appeals rejected SRP’s contention that its restrictive rates were protected under federal law.

The judges ruled that there is sufficient evidence that can show the price structure was designed to deter the competitive threat of solar energy systems and force consumers to exclusively purchase electricity from SRP. This one case where the effective self-regulation of municipal utilities worked against SRP. Because they make their own rates without state regulation or approval required, SRP could not lean on the argument that the state through its regulators had approved its conduct.

The decision throws the case back to the original trial judge. There a ruling will be made as to the extent of the utility’s conduct and the damages to SRP customers.  The dispute has been going on since 2014 when SRP adopted a new pricing plan which says that solar customers who still need to be hooked up to the utility for times when solar is not available can be charged up to 65% more than prior plans. Yet at the same time rates for non-solar customers went up about 3.9%.

WHILE THE DEBATE CONTINUES

The decision comes in the midst of robust debates over how to support rooftop solar in two big states. Efforts are underway in California and Florida to reduce the impact of net metering requirements. In California, the Public Utilities Commission has proposed significant changes to net metering which would reduce the economic benefit to solar power owners.

Currently, net metering requires utilities to credit customer bills for “excess” power at full retail rates for solar exported to the grid. The plan would also levy monthly fees on customers who install solar power. The utilities are trying to present the issue as one of economic justice claiming that poorer customers are subsidizing solar. That argument is belied by data from Lawrence Berkeley National Laboratory which shows that households earning less than $50,000 a year made up 13 percent of solar adopters in 2019, and those earning less than $100,000 a year made up 42 percent.

THAT DIDN’T TAKE LONG

On January 22, three California assembly persons introduced Assembly Bill 1400 which would create a centralized state-run financing system known as CalCare, a plan that legislative analysts estimated could cost between $314 billion and $391 billion a year. It came in the wake of a proposal by the Governor to extend MediCal to all adults who meet the income limits.

The funding method for the single payer proposal was  CA ACA11 (21R), which would have increased taxes on businesses and high earners. ACA 11 also would need a two-thirds vote in each house as well as voter approval. The bill faced a Jan 31 procedural deadline and sponsors admitted that the votes are not there.

MEAG

The Municipal Electric Authority of Georgia (MEAG) is a participant in multiple large-scale generation projects with Georgia Power.  As a participant, MEAG does not have a final say about which units to operate or close. That is Georgia Power’s call. Among those generation assets are substantial base load generation plants fueled by coal.  In 2021, coal comprised 9% of MEAG’s delivered energy, up from 2% the prior year as an increase in natural gas prices made coal more economical.

Now the Southern Company – Georgia Power’s parent – has submitted its next resource proposal to state regulators. They must approve the plans. In its submission, GP pledged to close a total of 12 coal units by 2028 – representing a loss of 3,500 megawatts, which the utility plans to offset with 2,356 megawatts in natural gas.  Those units include two in which MEAG maintains ownership shares.

The next coal plant scheduled to be retired is Plant Wansley later in 2022.  MEAG has a 15.1% ownership (269 MW) in Units 1&2.  It also owns shares in Plant Scherer with 30.2% ownership in Units 1&2 (489 MW). Some 500 MW of power to replace those losses will be available upon completion of the expansion of nuclear generation which is currently scheduled to become operational in 2022 and 2023.

One potential risk to ownership in these plants is the liability associated with the disposal of coal ash. The U.S. Environmental Protection Agency announced plans in January to crack down on dangerous coal ash waste sites, including the enforcement of an Obama-era rule designed to limit the chances of coal ash toxins leaking into groundwater or waterways. Georgia Power is seeking permits to install a cover over coal ash ponds at five plants, leaving the toxic waste where it sits in unlined pits and submerged at varying depths in the groundwater.

VIRGIN ISLANDS REBOOT

The last few years have focused so much attention on the effort to restructure Puerto Rico’s debt that it is easy to overlook the other perennially troubled U.S. Virgin Islands credit. The underfunding of pensions and long-term operating and financial strains have put the electric utility serving the islands on the edge of bankruptcy and held down the general credit of the government.

Now the Virgin Islands is looking to refinance some $800 million of debt. The debt in question is known as matching fund debt in that it is payable from taxes on the production of rum by the federal government which are then redistributed back to the Virgin Islands to repay debt issued against them. Moody’s rates the existing matching fund bonds Caa2 and Caa3.

The proposed deal would call for debt to be issued with a final maturity of 2039 by a special purpose entity which would sell the bonds and apply matching fund revenues sold by the government to the corporation to repayment of the bonds. The 2039 maturity coincides with the remaining term of the existing agreements between the government and the rum producers which generate the revenues.

The goal is to stabilize the island’s pension system which is woefully underfunded. Government actuarial consultants say the system has $5.8 billion in net unfunded pension liability. The government’s actuary estimates that the transaction would assure the pension system would not run out of assets in the next 30 years. A variety of assumptions underly the transaction including a 6% investment discount rate and maintenance of current levels of rum production.

The proposed transaction provides an excellent opportunity for the market to exert its influence and insist on full and timely financial reporting. Simply restructuring debt without improving some of the conditions which created the need for the restructuring does nothing for the long-term creditworthiness of the USVI. Without it, the U.S. Virgin Islands could be the next Puerto Rico.

ILLINOIS BUDGET

Governor Pritzker has outlined his budget proposal for the State of Illinois for FY 2023. The Governor proposed a $45.4 billion general funds budget for the upcoming fiscal year. The proposed budget is a 3.4% reduction in comparison to the current year. The lower spending is accompanied by proposals for a one-year freeze of the 39.2 cents per gallon motor fuel tax, lifting the 1% sales tax on groceries and a property tax rebate of up to $300 equal to the property tax credit available on income taxes. 

Pension funding was addressed. The state has made its required minimum contributions during the Pritzker administration and the budget proposed continues that. The Governor then proposes an additional contribution above the minimum for fiscal 2023 of some $500 million. The proposal would reflect this would be the first time since 1994 that the state would reduce the pension debt by more than the minimum requirement. 

FOOD DRINK AND RECREATIONAL TAXES

There are numerous credits backed in one way or another by revenues generated from the sale of food and drink. The businesses which generate those revenues directly or indirectly were among the hardest hit during the pandemic. Now, we see evidence of the magnitude of the impact on those businesses and by extension the revenues foregone through the lack of economic activity.

We came across some interesting data from CivMetrics. They recently published data on restaurant booking data. At various points in the pandemic, the review of data from Open Table, the online booking service has been used to pinpoint turns in the perceptions of the pandemic and the removal or reimposition of limits due to the pandemic. The data shows that there is a long way to go for recovery.

The surveys cover bookings in the same week of 2022 versus 2019. Of the 40 large cities in the dataset, only four cities’ bookings are actually up. They are in Florida or Arizona. The increases are in the single digits except for Fort Lauderdale. The real story is the lingering damage to the industry in the largest cities. Philadelphia sees bookings down over 70%. New York remains 66% lower with cities like San Francisco and Seattle still experiencing declines of over 70%. Chicago bookings are down 65%.

FEDERAL FUNDS SUPPORT CREDIT IMPROVEMENT

One of the fiscal problem children in New York State has been the City of Long Beach. The city has a history of poor financial management and performance. It also found itself facing a significant liability from a property tax challenge. That litigation gave rise to an initial award amount from the City to the taxpayer of some $150 million. The city was under enormous pressure to stave off a downgrade to less than investment grade.

Now, the City’s fortunes have improved somewhat. The original property tax award has been lowered by half. The $75 million is still substantial but more manageable. The plan is to issue debt to fund the $75 million (judgment bonds are a tried-and-true method) award. This happens in a period where the City’s unaudited figures for fiscal 2021 show significant improvement in the city’s reserves and liquidity.

Put it all together and it provides a basis for Moody’s to improve the outlook for the City’s general obligation bond rating of Baa3 to positive from negative. A combination of current results improvement and the property tax settlement are the basis for the move.

The long-term fiscal issues which hammered Illinois’ credit bled down to credits dependent upon the fiscal support and condition of the state to maintain their own ratings. Ratings for some units of the state’s university system were under particular stress. Moody’s Investors Service has revised Northern Illinois University’s outlook to positive from stable. It is still a Ba2 non-investment grade credit but fiscal 2021 operations were nearly balanced, with a small deficit to potentially balanced operations projected for fiscal 2022 and beyond. 

Northern Illinois University is a multi-campus public university centered on its main campus in the City of DeKalb, IL Three satellite campuses that primarily serve graduate students. The university has a broad array of undergraduate and graduate academic programs, including concentrations in education, business, engineering, health and human science, law, and visual and performing arts. Fall 2021 total full-time equivalent student enrollment was 13,153.

Running against some trends, NIU has seen five years of enrollment growth. Last year, the growth was in the double digits. It still remains dependent on the state for approximately 40% of its revenue and that limits the available ceiling for rating improvement. The near-term fiscal improvement by the State still limited by the significant liabilities it faces going forward. The ability of NIU to maintain positive results awaits the impact of the loss of non-recurring federal pandemic support.

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

NATIVE AMERICAN GAMBLING SETTLEMENT

The Seneca Nation in upstate New York has been in a long dispute with the State of New York over how much money generated from its casino operations needed to be paid to the State. That dispute resulted in more than $600 million of gaming revenue owed to the state and various local governments being placed in escrow.  This caused the State, and the cities of Niagara Falls (Baa3 positive), Buffalo (A1 stable) and Salamanca, which host Seneca Nation casinos to have to annually adjust their budgets to reflect revenue receipts below what were assumed under the agreements. The ongoing uncertainty acted as a negative weight on those cities’ credits.

Recently, the State of New York and the Seneca Nation of Indians announced a resolution of the contract dispute. The agreement calls for the Seneca Nation release the money held in escrow and begin negotiations on a new gaming revenue compact with the state. This will result in a significant revenue boost as well as reducing the liability side of the City of Buffalo’s balance sheet. In the cases of Niagara Falls and Salamanca, the benefit will be primarily on the balance sheet as opposed to the income statement as the transfers from the State will, net of repayment of the advances, not generate significant new revenues.

The State of New York, along with the local governments, will also benefit from the resolution. In fiscal 2020, the state received $88 million in payments from the Seneca Nation when the budget assumed receipts of $303 million. In fiscal 2021, the state received $60 million when it had projected receipts of $515 million. In the fiscal 2022 financial plan, the state’s estimate as of November for current-year receipts was $663 million. The State was in a better position to handle the shortfalls than were the cities.

In recognition of that fact, the State agreed to advance revenues to the three host cities if needed to achieve balanced budgets. The largest of the three cities, Buffalo, had been able to do that without casino payments. Niagara Falls and Salamanca have needed the funds to achieve balance. All three have availed themselves of the state transfers at some point during the process of resolving the dispute. Niagara Falls and Salamanca relied heavily on state advances and as result will receive a relatively small cash infusion when the escrowed funds are disbursed

The original compact between the State and the Seneca Nation is nearly 20 years old. The settlement also calls for the negotiation of a new compact between the Seneca nation and the State. While the outcome of those talks is uncertain, a major source of uncertainty for the host cities has been alleviated. The dispute had lingered since 2017. The end of the current uncertainty is credit positive for each of the governmental entities involved.

TEXAS POWER MARKET DRIVES A MUNICIPAL DOWNGRADE

One of the municipal utilities that found itself at the center of the Texas energy crisis of 2021 was CPS of San Antonio. The price explosion in the energy market stemming from the winter freeze impacted CPS as much as any of the large utilities. It faces some $1 billion of charges for purchased power during the freeze. It is disputing some 58% of that total. The utility was seen as clumsy in its response to customers. There was also significant management upheaval.

All of that creates a difficult political environment for the municipal utility. It was considered to be an achievement when CPS was still able to obtain approval for a 3.85% base rate increase in January 2022 from the Board and City Council. It is expected that additional increases will be required over the next five years. The absolute level of those increases will depend on the regulatory treatment of the proposed charges.

The unique nature of the Texas power grid and market create specific challenges which CPS does not control. It is widely agreed that state grid remains vulnerable to a repeat of last year’s weather event as meaningful and significant improvement to physical assets of the generation/transmission system has not occurred.  While the uncertainty of the ultimate outcome of the dispute over the gas charges remains an issue, CPS has been able to generate access to outside financing of its cash needs. It has increased its use of a greater set of hedging tools to reduce its natural gas price risk.

This has all led to Moody’s lowering of the City of San Antonio, TX Combined Utility Enterprise’s (CPS Energy) senior lien revenue bond rating to Aa2 from Aa1 and junior lien revenue bond rating to Aa3 from Aa2. It is still a solid credit and there still remains financial flexibility. The retail service area is not open to competition, the utility serves several Federal military installations and there is no major customer dominance. Approximately 90% of customers are residential.

That is why Moody’s emphasizes that. ESG factors are material drivers of this rating action. “Winter Storm Uri’s extreme nature and enduring cost impact to CPS Energy, and the fact that meaningful reliability improvements have yet to be implemented at scale in the ERCOT market and the state’s energy supply chain, are considered in our assessment of environmental risk. Strained customer relations in the wake of the storm and the need to rebuild management credibility after a wave of executive departures also raise the risk profile as it relates to social and governance considerations.”  

ILLINOIS PENSION FUNDING

One approach to the issue of funding pension liabilities is to “buy out” the pension rights of pensioners through a payment to pensioners. Pensions have been a long-time challenge in the State of Illinois and the state has already undertaken a buyout program beginning in 2018. It is one of the few big issues on which there is bipartisan agreement. The existing buyout programs began under the administration of former Gov. Bruce Rauner. Under the Pritzker Administration, the legislature in 2019 extended it to June 30, 2024. The buyouts are funded by $1 billion in general obligation borrowing capacity of which $115 million in authority remains.

The program offers eligible members who no longer work for the State a lump sum payout equal to 60% of the present value of their vested pension benefit to leave the system. For some of those who are still working for the State, they have the option of receiving a lump sum benefit when they retire plus an ongoing annual payment but at a 1.5% non-compounded COLA instead of the compounded 3% COLA they are currently set to receive.

Recent legislation has begun moving through to a vote which would extend the program until June 30, 2026. The plan asks for an additional debt authorization for another $1 billion. The buyout programs cover the three largest of the funds – the Teachers Retirement System (TRS), the State Employees Retirement System (SERS), and the State Universities Retirement System (SURS). The legislation is expected to pass although there is not a lot of hard data for legislators to rely on when evaluating the program. There was testimony in committee that TRS saved $90 in the state’s contribution to pensions.

ENVIRONMENTAL LITIGATION

Last week, oral arguments began in the City of Baltimore’s litigation against BP, Exxon Mobil Corp. and 24 other oil companies which broadly alleges that the companies failed to adequately disclose the impact of their operations on the climate. The oral arguments before a Virginia appeals court will be the first since a U.S. Supreme Court ruling in May found that appellate judges could consider a broader range of factors when deciding whether liability lawsuits should be heard in state or federal court.

A 2019 ruling in federal district court sent the Baltimore case back to state court. In this appeal to the Circuit court, the companies emphasized two grounds for removing the case to federal court that it said the court had not yet considered: that the claims “arise” under federal law and that the city’s “alleged injuries” are connected to the production of oil and gas from the outer continental shelf and are subject to a 1953 federal law that regulates that production. “the causes of action don’t matter as long as the plaintiff’s theory rests centrally on the production and sale of fossil fuels and the use of fossil fuels.” The oil companies argued that “the causes of action don’t matter as long as the plaintiff’s theory rests centrally on the production and sale of fossil fuels and the use of fossil fuels.”

Baltimore has noted that a previous appeals court ruling that found the city’s claims involve the companies’ alleged “concealment and misrepresentation” of the dangers of climate change and “do not implicate any body of federal common law and are unconnected to any operations on the Outer Continental Shelf.”

The companies claim that Baltimore is seeking to upend international agreements and that a decision in the City’s favor would ““undermine national energy objectives, including federal efforts on the climate, energy independence, the stability of the electric grid, and energy affordability.”

The fossil fuel defendants will do all that they can to get their case before the U.S. Supreme Court where they believe that the current justices are more inclined to rule in their favor. This is but one of nine climate liability cases which were sent back to circuit courts across the country after the Supreme Court ruling. If the companies offer the same arguments, the cases will be put before the U.S. Supreme Court. 

OIL/GAS ROYALTY CHALLENGE

The North Dakota State Board of University and School Lands is appealing several 2021 rulings from a lower court in a case about oil and gas royalties. The appeal challenges part of a 2021 law that put a limit on how far back the state can retroactively collect unpaid royalties. Legislation last year that capped the length of time for which the state could seek to collect unpaid royalties at seven years. The defendant is a producer who is challenging the claims.

The Supreme Court has heard other issues in the case already and released a ruling in 2019 favorable to the state, which has since sought to collect what could amount to hundreds of millions of dollars in unpaid royalties from a number of oil and gas companies. This litigation flows from those efforts to collect the payments.

The total amounts in question are about $69 million for the years before August, 2013. So, it is not huge money but obviously the State wishes to secure as much legal support for the royalty charges as a general concept. That puts it closer to an issue of principal.

MICHIGAN LANDS GM EV PLANT

GM finally confirmed that it will build a new factory in the state capital, Lansing and expand capacity at its existing EV plant in Lake Orion outside Detroit. The combined investment by GM is being announced as $7 billion. GM projects that it will create 4,000 permanent jobs at the two facilities. The Lansing plant will produce batteries for EVs and is scheduled for 1,700 jobs. The existing Lake Orion plant will expand by 3 million square feet and build electric pickup trucks. It will add 2,300 jobs.

The announcement came as it appeared that Michigan might be losing out in the race for jobs related to electric vehicles. Many of the production facilities were being announced in less labor friendly states. Now this substantial investment keeps Michigan in the game. The importance of the plants to the State was made clear as some $825 million of incentives and tax breaks were offered to encourage GM to locate in Michigan.

PURPLE LINE CONTRACT

The Maryland Board of Public Works has announced its approval of a new contractor to manage the private public partnership building the Purple Line in Maryland. The new $3.43 billion construction contract is between the P3 consortium and a team led by the U.S. subsidiaries of Spanish construction firms Dragados and OHL. The financial agreement is between the state and the private consortium, known as Purple Line Transit Partners and led by infrastructure investor Meridiam. 

The total cost of the project is now over $9 billion. It was supposed to be complete by this March under the original plan but now full construction will resume in the spring. The new expected completion date is the fall of 2026. The new contract will create a cost increase for the State that will raise its annual payment requirements to the financial partners of an average of $240 million annually. That is $90 million higher per year.

Maryland transit officials have committed federal funding and fare revenue from all state transit systems, including commuter rail to fund the payments. That will require the use of other state funds to replace the “lost” revenue from the state transit system, most likely other taxes and fees.

OPEB THREAT TO NEW JERSEY RATING

The last few years have seen steady progress made in New Jersey as it sought to balance its budget and address long standing concerns about its pension liabilities. The continued efforts under the Christie administration to avoid full funding of actuarily required pension contributions played a substantial role in the series of downgrades to the State’s ratings that impacted the State. While much attention was paid to pension liabilities, other post-employment benefits (OPEB) seem to fall of the radar of many.

Now a recent disclosure by the State has refocused attention on the issue of OPEB. The state disclosed that its reported Education Retired Fund OPEB liability would increase to about $67.8 billion in the 2021 valuation from $41.7 billion the prior year. Faster growth in Medicare Advantage expenses for retirees accounted for about $12.3 billion of the total $26.1 billion increase. The state cited “claim and premium experience, primarily resulting from higher-than-expected Medicare Advantage claims leading to an increase in projected Medicare Advantage premiums for Plan Year 2023.”

The actuary revised projected medical cost increases for fiscal years 2023 and 2024 to 22.6% and 18.5%, respectively, from assumed growth of 4.5% in the preceding year’s valuation. As of the state’s fiscal year 2020 financial reporting, before the latest increase, New Jersey’s OPEBs accounted for 28% of total long-term state liabilities. The state in its 2020 annual comprehensive financial report said that its roughly $1.6 billion contribution (which is made on a pay-as-you-go basis) for OPEBs and its liability had both declined in the year ended 30 June 2020. The State had been relying on Medicare Advantage products to drive cost savings. Clearly, the latest disclosure shows that the effect has not been so positive.

WHILE THE TURNPIKE GETS AN UPGRADE

The New Jersey Turnpike was one credit that seemed poised to be hurt by the limits on economic activity that have resulted from the pandemic. Quickly, it became clear that the road’s role as a major freight conduit was helping to generate higher than expected toll revenues. The initial pandemic shock resulted in a material traffic decline of 22.5% for calendar year 2020 compared to calendar year 2019.

The availability of a vaccine allowed traffic to steadily recover throughout 2021. Monthly traffic levels in 2021 steadily improved to the point where they were only about 4.5% below 2019 levels for the second half of 2021 through the end of November. Remaining concerns on the part of car motorists continues to hold down traffic.

The pandemic did provide an opportunity for the Turnpike Authority to implement its policy of annually indexing tolls to inflation. Over the years, the process of raising tolls became increasingly political and concerns about the ability of the Authority to maintain its financial position hurt its ratings. That concern is mitigated by the indexing policy.

Those factors as well as the improved credit position of the State of New Jersey have led Moody’s to upgrade the Turnpike Authority’s rating from A2 to A1. The improved position of the State reduces pressure on state authorities to upstream increasing amounts from those authorities to the State general fund. The “upgrade reflects the credit positive impact of the implementation of NJTA’s new annual toll indexation policy, the better-than-expected traffic and revenue rebound from the pandemic driven declines, increased clarity on the pace of new debt to be issued to fund new capital investments, and a signed new multi-year subordinate transfer agreement with the state. “

At the same time, the relationship with the state holds down the Turnpike’s rating. Moody’s refers to that relationship when it notes that “NJTA is a component unit of the state, annually transfers funds to the state and the Governor approves NJTA’s budget and toll rates, limiting NJTA’s autonomy and independence. Owing to this relationship, we currently constrain NJTA’s rating to two notches above the state’s general obligation rating.”

TRANSIT AND LABOR SHORTAGES

We continue to see that worker shortages are impacting mass transit systems including ferries. Last week, the Washington State Ferries (WSF) announced that “most” of their routes were placed on reduced, alternate schedules, citing crew shortages brought on by the pandemic and a “global shortage of mariners.” That system has been cancelling trips since the Fall.

Trucking shortages are impacting a whole host of operations. North Dakota Gov. Doug Burgum signed an executive order waiving hours of service requirements for 30 days for truck drivers delivering milk in North Dakota. The emergency measures come after a major milk distributor in North Dakota went out of business, due in part to a lack of certified drivers, putting rural consumers and more than 50 school districts at risk of losing milk deliveries. North Dakota currently has 49,858 drivers with a commercial driver’s license (CDL), down from 52,824 in 2017.

The pandemic provided an opportunity for drivers and mass transit employees to examine their working conditions. The nature of the services lends itself to erratic hours, overtime, and now those issues are causing more to look to other jobs. This will drive pressures on costs.

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

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GAS TAX POLITICS

The high cost of energy is emerging as an issue especially in the case of gasoline. Eight states are currently considering suspensions of both existing taxes and enacted future tax increases in order to provide some relief from higher prices for gasoline. Governor Newsome in CA is pushing a proposal to “pause” scheduled increases in the State’s gas tax. An annual inflation adjustment is set to take effect on July 1. Newsom’s plan is to delay the adjustment for a minimum of one year. The budget proposal could extend the tax freeze for the next two years “should economic conditions warrant it.” The governor’s office said a pause is expected to decrease fuel tax revenues by $523 million in 2022-23 based on an estimated 5.6 % inflation rate.

Maryland law authorizes fuel rates to be adjusted each July based on the consumer price index. Recently introduced legislation would repeal the rule for annual adjustments. A proposed Tennessee House bill would return the tax rates to where they were prior to a 2017 state law that raised the gas tax by 6 cents to 26 cents and increased the diesel rate by 10 cents to 27 cents. A year ago, Missouri Gov. Mike Parson signed into law a bill to raise the 17-cent fuel tax rate by 12.5 cents over five years. Now, a bill would seek to have the law overturned as a violation of the State’s Hancock Amendment requiring voter approval of tax increases above a certain level.

The Colorado legislature passed a significant transportation funding package just last year. That plan would impose a new 2-cents-per-gallon fee on gas and diesel. Annual penny increases to the fee on gas and diesel are set to follow each year through 2028. In Ohio, a pending bill would reverse legislative actions taken in 2019 which provided for raising the 28-cent fuel tax rate to 38.5 cents for gas and from 28 cents to 47 cents for diesel. The bill would return the gas and diesel tax to the 2019 rate. The rate reductions would begin no later than July 1, 2022. The tax rate would remain unchanged for five years.

In Virginia, there are three competing bills to attempt to lower fuel taxes. One would lower the tax rate on gas and diesel on July 1, 2022. The tax rate on gas would be trimmed by a nickel from 26.2 cents to 21.2 cents. The diesel rate would be reduced from 27 cents to 20.2 cents. The rates would be the same as they were prior to a July 1, 2021, rate increase. The tax rates would revert to their current amounts on July 1, 2023, and be indexed to annual changes in the consumer price index beginning July 1, 2024. Another bill would suspend collection of the state and regional taxes on gas and diesel until July 1, 2023. A third would suspend the imposition of any regional fuels tax in the state until July 1, 2023.

NYS BUDGET

Governor Hochul announced her formal fiscal 2023 budget plan as the process of adopting a budget by April 1 begins. The budget builds upon the numbers generated by the most recent Mid-Year update. The Update committed to bringing the State’s principal reserves (the rainy-day reserves and reserve for economic uncertainties) to 15% of State Operating Funds spending by FY 2025. The budget has no predicted budget gaps in the out years of the State’s financial plan through FY 2027. This in spite of significantly higher projected expenditure plans.

Since the Mid-Year Update, forecast revisions to the “baselevel forecast” provided new resources of $5.0 billion in FY 2022, $6.4 billion in FY 2023, $5.3 billion in FY 2024, and $5.5 billion in FY 2025. The improvement reflects strong tax receipts and reduced costs. On the strength of collections experience to date, the estimates for tax receipts have been increased by an average of $4.9 billion annually compared to the Mid-Year forecast.

The budget includes some $7 billion of one-time spending. This includes $2 billion for property tax relief (FY 2023), $2 billion for pandemic recovery initiatives (reserve funded in FY 2022),$1 billion to enlarge the DOT capital plan (deployed over three years, FY 2023-FY 2025), $1 billion for health care transformation (reserve funded from FY 2023 and 2024 operations), $1.2 billion for bonuses for health care/frontline workers (paid in FY 2023), $350 million for pandemic relief for businesses and theater/ musical arts (paid in FY 2023 and FY 2024). The baselevel forecast revisions leave surpluses of $5.0 billion in FY 2022, $6.4 billion in FY 2023, $5.3 billion in FY 2024, and $5.5 billion in FY 2025.

As was the case in California, the budget proposes significantly increased spending for Healthcare. The index the State uses to determine Medicaid spending is being revised. The new index would account for enrollment and population changes, which are significant drivers of costs, and supports additional Medicaid spending growth of $366 million in FY 2023, growing to $3.1 billion in FY 2027. In addition, the budget funds bonuses to aid Healthcare recruitment.

The Financial Plan continues to assume that the Federal government will fully fund the State’s direct pandemic response costs, but timing differences between State outlays and FEMA reimbursements will occur. In addition, COVID expenses related to the purchase of test kits for local governments and schools are assumed to be fully eligible for FEMA reimbursement. Pension estimates reflect the planned payment of the full FY 2023 Employees’ Retirement System (ERS)/ Police and Fire Retirement System (PFRS) pension bills in May 2022.

The Executive Budget proposes using $6 billion of cash resources for pay-as-you-go (PAYGO) capital spending over the Financial Plan to reduce debt service costs, ensure the State stays within the debt limit, and allow for a larger DOT capital plan. The PAYGO will be targeted to primarily avoid higher cost taxable debt issuances.

On the capital spending side, the importance of the Infrastructure Investment and Jobs Act to New York State is clear. The State is projected to receive $13.4 billion in new Federal funding over the next 5 years, of which $5.7 billion is expected to flow through the State budget, primarily for road and bridge projects. $7.7 billion will be disbursed by public authorities, primarily the MTA, and local governments. In total, the State is expected to receive funding for the following programs: Roads, Bridges, and Major Projects ($4.6 billion); Public Transit ($4.1 billion); Clean Water, Weatherization, and Resiliency ($3.2 billion) Broadband ($800 million); and Airports ($685 million).

Education remains at the core of the budget. New York State’s 673 major school districts estimated to enroll 2.4 million children in kindergarten through 12th grade. With total State, local, and Federal spending levels exceeding $75 billion, education is both the largest area of State spending and the largest component of local property taxes. New York State has ranked first nationally in school district spending per pupil for 15 straight years. The budget message refers to that as commitment while local taxpayers may feel otherwise. The Executive Budget increases School Aid by a total of $11 billion over 10 years – a 55% increase over that period.

The State’s unique political landscape is driven by Governor Cuomo’s resignation. The Governor needs to appeal to a variety of constituencies in her quest for election. At the same time, she is dealing with a supermajority legislature which will have its own agenda. The expectation is that the Legislature may have different priorities.

PUERTO RICO

“The agreement, while not perfect, is very good for Puerto Rico and protects our pensioners, university and municipalities that serve our people,” Gov. Pedro R. Pierluisi.

On January 18, Judge Laura Taylor Swain accepted a Plan of Adjustment in the Title III proceedings which have been underway since the Spring of 2017. The plan cuts Puerto Rico’s public debt by 80% and saves the government more than $50 billion in debt service payments. The agreement covers the commonwealth government’s general obligation bonds and its Public Building Authority, Employees Retirement System, and Convention Center District Authority bonds.

That is achieved through the forgiveness of $3 billion of pension bonds and slash $18.8 billion of general-obligation bonds and commonwealth-backed securities to $7.4 billion. Bondholders will receive new bonds in an exchange which will be accompanied by a total $7 billion upfront cash payment and a security, called a contingent value instrument, that pays if sales-tax revenue surpasses projections.

As for the future, there remain many obstacles to long-term success. The island remains climate-vulnerable. It has not been able to effectively use the need to rebuild the electric grid in a way which provides needed resiliency and reliability. It has been a significant squandering of an opportunity. The “favorable” treatment to pensioners shifts their continuing weight on the Commonwealth’s budget. The costs of pensions remain a significant risk as the result of the favorable bankruptcy treatment. Healthcare spending will remain another obstacle. The issue of unequal Medicaid funding remains.

In the end, the Commonwealth now needs to meet the test of governance. We believe that the ultimate risk to Puerto Rico from a credit perspective is the fact that lessons have not been learned from the bankruptcy. It is why so much concern is being expressed about the Commonwealth’s ability to function without some outside oversight.

This is one case where the threat of a significant cost of borrowing may not be incentive enough for Puerto Rico to improve its governance. Throughout this process, I am reminded of Argentina. The second half of the century saw Peronism insinuate itself into the nation’s politics in ways that can still be felt over a half century later. Repeated bailouts and IMF borrowings still weigh on that country’s economy. It also worked off a more solid economic base prior to its populist turn. Do we really want to be back at the debt negotiation table in 2035?

NATURAL GAS REGULATION

In 2021, lots of legislative efforts were undertaken to stem the tide of local natural gas regulations designed to end the use of natural gas in new construction. Those efforts at preemption are designed to shift natural gas regulation to the state level away from localities. With the start of the new year, some localities are undertaking more regulation in an effort to avoid preemption laws.

The 2019 California Energy Code allows local jurisdictions to establish stricter building codes if that local authority finds it necessary because of local climate, geological, topographical, or environmental conditions. The Contra Costa County Board of Supervisors approved an ordinance this week that bans natural gas from being used to power new homes and buildings in unincorporated areas of the county. The ordinance will prohibit the installation of natural gas piping in all new residential buildings and hotels, offices, and retail buildings in unincorporated parts of the county.

The ordinance anticipates a number of potential issues cited by opponents. The ordinance does not apply to future developments already approved before the new law is enacted. The ordinance also won’t prohibit emergency backup power sources, like generators, that run on fossil fuel sources. The new law would have to be approved by the California Energy Commission before being enacted. Staff recommended the county put the new ordinance in effect July 1.

NEW TACTIC IN CLIMATE CHANGE LITIGATION

As several lawsuits filed against oil and gas companies work their way through the courts, a series of decisions which keep much of that litigation in state courts rather than federal courts has led to an interesting change in strategy by those companies. We see the tactic as a sign that the long-term outlook for the defendant oil companies is not favorable in terms of the litigation.

The latest sign comes from Exxon’s response to litigation filed by eight California cities and counties which have accused Exxon and other oil firms of breaking state laws by misrepresenting and concealing evidence, including from its own scientists, of the threat posed by rising temperatures. Exxon is now turning to the Texas Supreme Court in an effort to fight the litigation. The company is headquartered in Texas so now it is using a Texas state law (Rule 202) to seek approval to sue individual California officials for limiting Exxon’s First Amendment right to free speech.

Exxon is contending that its misrepresentation of the impact of its products on the climate are protected free speech under the First Amendment. That’s right, lying is protected free speech. Exxon says that the actions of California governments are what they call “lawfare” – the use of litigation to achieve what it calls political ends. The effort attempts to make the litigation as difficult as possible including travel to Texas for depositions.

The emerging trend in the environmental litigation tied to climate change and the oil companies is that state law is likely to govern the outcome. That makes it more likely that ultimately the cases will be settled as the number of different plaintiff jurisdictions are involved makes the likelihood of an unfavorable (to the defendants) outcome. That does not mean that the cases will be resolved soon.

TRI STATE RESPONDS TO PRESSURE

We have been documenting the difficulties that utilities, especially rural co-ops face as they manage the uncertain landscape stemming from climate change. Over recent months, Tri-State Generation and Transmission Association has been at the center of controversy over its efforts to maintain its members as customers while slowly addressing its coal dependence for generation. It has been facing increasing pressure to either address the climate concerns of its retail distribution customers or to allow them to leave and obtain their electric energy elsewhere.

Now, Tri-State is taking a different approach. It has submitted for regulatory approval its “Responsible Energy Plan” in Colorado. State law requires utilities to provide a detailed plan to regulators as to how to cut carbon dioxide emissions associated with the power it sells by 80% from 2005 levels by 2030 and 100% by 2050.The plan commits Tri-State to reducing emissions from its electricity sales in Colorado (it serves customers in AZ and NM as well) by 80% in 2030, based on 2005 levels. In the near term, the company says it will cut emissions by 26% in 2025; 36% in 2026; and 46% in 2027.

It won’t be an easy process. The news also comes with confirmation that Tri-State will complete a 4% wholesale rate reduction for its members in March. The first 2% of the reduction was implemented in 2021. The effort is clearly in response to the concerns of the member retail distribution customers. It is more positive for the Tri-State credit.

FREE FARES IN L.A.

On the L.A. Metro system, the fare for one ride is only $1.75. Total annual fare revenue funds collected make up only 6 percent of total revenue. In March 2020, the system stopped collecting fares on its buses as a COVID-19 safety precaution. For the next 22 months, Metro waived fares for anyone who wanted to keep riding its buses. Recently, the free fare policy came to an end as ridership levels had improved to 80%.

It is estimated that ridership never dropped to less than 5% of pre-pandemic levels. Given the demographics of the riding public especially for buss customers, it is not surprising that ridership held up better than in most cities.  Now, with the surge of the latest COVID variant and the reinstatement of fares, it will be a real chance to evaluate the role of fares on ridership.

The results could have real implications for systems across the country. According to one study that surveyed which regional transportation investments can most reduce vehicle miles traveled, waiving fares would result in both fewer miles driven and fewer greenhouse-gas emissions, more than any other intervention, including congestion pricing or charging drivers a mileage-based fee. If the reinstatement of fares is shown to depress demand, that puts pressure on transit agencies to find other funding sources.

That has implications for New York’s planned congestion fee plan. Governor Hochul’s budget saw these fees as generating $15 billion for the MTA for capital projects through 2024. Congestion fee opponents look to those findings and can make the case that the congestion plan is what they have always contended it is: just another fee or tax.

COMPUTER CHIPS AND THE FUTURE

Intel announced that it will locate its next chip manufacturing facility in New Albany, OH. The 1,000 acre site is to be located just outside Columbus in adjacent Licking County. The project will represent a $20 billion investment directly employing some 3,000 workers. The announcement comes as legislation passed by the Senate remains stalled in the House holding up some $50 billion of support for the chip industry.

Intel has also expanded facilities in Arizona with a similar $20 billion investment announced there last year. Other projects include one from Taiwan-based T.S.M.C. It began construction last year on a $12 billion complex some 50 miles from Intel’s site near Phoenix. Samsung Electronics is locating a $17 billion factory in Taylor, Texas with construction set to begin in 2022.

The moves come in the wake of a shortage of chips and concerns that the concentration of chip production overseas puts the U.S. at risk. The plant would be the first in Ohio. Intel has stated that its expansion plans are not contingent on the federal assistance package but also cited the fact that geographic diversity increases the number of advocates for legislation supporting the chip industry.

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

________________________________________________________________

CALIFORNIA BUDGET

Governor Gavin Newsome released his 2022-23 state budget proposal — a $286.4 billion budget plan. The budget projects the state will collect a $45.7 billion general fund surplus in the next year, of which $20.6 billion is discretionary. The plan is being called “The California Blueprint”.  The Budget reflects $34.6 billion in budgetary reserves. These reserves include: $20.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies; $9.7 billion in the Public School System Stabilization Account; $900 million in the Safety Net Reserve; and $3.1 billion in the state’s operating reserve. The Rainy Day Fund is now at its constitutional maximum (10 % of General Fund revenues) requiring $2.4 billion to be dedicated for infrastructure investments in 2022-23.

The Budget accelerates the paydown of state retirement liabilities as required by Proposition 2, with $3.9 billion in additional payments in 2022-23 and nearly $8.4 billion projected to be paid over the next three years. And in spite of all of this, the Budget projects the State Appropriations Limit or “Gann Limit” will likely be exceeded in the 2020-21 and 2021-22 fiscal years. Any funds above this limit are constitutionally required to be allocated evenly between schools and a tax refund. The Budget includes total funding of $119 billion for K-12 education. K-12 per-pupil funding totals $15,261 Proposition 98 General Fund—its highest level ever—and $20,855 per pupil when accounting for all funding sources.

The surplus allows the State to restore business tax credits, including research and development credits and net operating losses that were limited during the COVID-19 Recession, and proposes an additional $250 million per year for three years for qualified companies headquartered in California that are investing in research to mitigate climate change. The Budget also allocates $3 billion General Fund over the next two years to reduce the Unemployment Insurance Trust Fund debt owed to the federal government.

The plan also reflects the substantial infusion of federal funding to the State under the Infrastructure Investment and Jobs Act. California is estimated to receive almost $40 billion of formula-based transportation funding for the following programs over the next five years: Existing surface transportation, safety, and highway performance apportioned programs. A new bridge replacement, rehabilitation, preservation, protection, and construction program. A new program that will support the expansion of an electric vehicle (EV) charging network. A new program to advance transportation infrastructure solutions that reduce greenhouse gas emissions.  A new program to help states improve resiliency of transportation infrastructure.  Improving public transportation options across the state, with increased formula funding for transit.

The “Blueprint” is not without controversy. The Budget includes an additional $9.1 billion ($4.9 billion General Fund and $4.2 billion Proposition 1A bond funds) to continue to fund the construction of the State’s high speed rail line. It also includes funding to make California the first state to realize the goal of universal access to health coverage for all Californians by closing a key gap in preventative coverage for individuals ages 26 to 49, regardless of immigration status.

The Blueprint does highlight potential threats to the State’s fiscal position. The COVID-19 Pandemic remains a risk to the forecast. Strong stock market performance has generated a significant increase of volatile capital gains revenue that is approaching its prior peak levels (as a share of the state’s economy) in 2000 and 2007. A stock market reversal could lead to a substantial decrease in revenues.

WATER NOT EVERYWHERE

The first few days of 2022 have generated very mixed news on the water supply crisis in the American West. The U.S. Bureau of Reclamation announced that it plans to adjust management protocols for the Colorado River in early 2022. The plan is to reduce monthly releases from Lake Powell in an effort to keep the reservoir from dropping further below 2021’s historic lows.  this past November was the second-driest on record and inflows came up 1.5 million acre-feet short of the Bureau’s projections from the previous month. 

The current level of the reservoir leaves available water at 27% of capacity. That is a drop of 164 feet from what constitutes full capacity.  Worse, it is just 11 feet above the bureau’s target of a 35-foot buffer before it enters into a zone where the generation of hydropower by water flowing through the Glen Canyon Dam becomes unreliable.

In contrast, the year-end snow and rain storms in California set records for snow in the Sierra watershed and began contributing to increased flows and storage at previously drought impacted facilities.  Lake Oroville, the northern California dam and hydroelectric facility has seen all the extremes of climate impacts over the recent five years. It has gone from effectively overflowing resulting in damage to hydro facilities. More recently, hydro generation was suspended due to the low level of water available in the lake for five months.

The Northern Sierra and Trinity Mountains currently have 128% of their normal snow levels for Jan. 11. That has generated enough water to raise Lake Oroville’s level by 89 feet. That is enough water to meet release obligations to agricultural customers and create enough flow to allow limited hydroelectric generation. Initially, one of three turbines will operate with the other two pending continued increased water levels. When the Lake is full, it provides about 1% of California’s peak statewide electricity demand. As of 9 a.m. Tuesday, the lake was at 730.08 feet and 42% of its total capacity. 

PUERTO RICO

As we go to press, the Financial Oversight Board faced a 1/4/22 deadline to file the latest iteration of the modified Plan of Adjustment in Puerto Rico’s ongoing Title III proceedings. In issuing her latest orders in the case, Judge Swain indicated that a resolution to the proceedings may occur with the next 4-6 weeks. She issued decisions upholding the board’s interpretation of Act 53, the locally enacted debt and pension law associated with the Plan of Adjustment. Act 53 has language saying there will be no cuts to pensions. The Oversight Board has contended that it’s plans to freeze accruals of pension benefits and eliminate cost of living adjustments is necessary to allow the Commonwealth to balance its budgets.

The judge ruled that Act 53 language clearly only bars modifications of the monthly benefit amount, to which board has agreed. It splits the baby in that it slows but does not reverse the impact of pensions on the Commonwealth budget. The other major legal issue overhanging the process is the continuing litigation against the constitutionality of PROMESA which is being brought by two individual bondholders. They object to the use of what are effectively bankruptcy proceedings under law and procedures which do not apply to states versus territories. There had been some thought that Judge Swain might await the outcome of those challenges to the underlying law before approving a Plan of Adjustment.

The judge had prior ruled on the issue of PROMESA legality in its favor as part of the Title III proceedings. The U.S. DOJ is charged with defending the law and it does not intend for proceedings on that litigation until the first week in February. It does not appear that Judge Swain will wait for that issue to be decided.

Regardless of how the proceedings are ultimately solved it is hard to not see this whole mess as a gigantic lost opportunity. The Commonwealth government continues to undermine long-term confidence through its policies and actions. It has continued to be an impediment to a solution. The legislature continues to move in a populist manner denying reality about its short-term economic realities and its true potential.

The actions in regard to pensions reflect the continued stubbornness on the part of the political establishment as the process unfolds. It raises the issue of whether sustained sound financial operations can continue in the absence of outside supervision and/or oversight. Whenever the issue is raised, all sorts of culturally based objections are raised with the citizenship of residents always cited. If the Commonwealth truly wanted to address this concern, the Title III action certainly provided an opportunity for reform. 

NEW JERSEY TRANSIT

This week I had occasion to use subway and commuter train service in the NY Metro area for the first time since the onset of the pandemic. The train line was operated by NJ Transit and ended at a newly remodeled station operated by the NY MTA. It was a reminder of the complexity of financing the region’s mass transit resulting from the number of different entities involved in their provision. For NJ Transit, that funding comes from the New Jersey Transportation Trust Fund Authority (“TTFA”).

The Authority issues Transportation Program Bonds secured under a legal structure that requires annual legislative appropriation of contract payments for TTFA debt service. The legislature could fail to appropriate even though the source of revenues (the Transportation Trust Fund) cannot be used for anything else if not first appropriated for debt service. There would not be much motivation to fail to appropriate. The State secures between 90 and 95% of its state level debt through appropriation mechanisms so non-appropriation is simply self-destructive. In the case of the transit bonds even more so given the essentiality of TTFA-financed projects, the dedication of revenue to transportation and the importance of maintaining market access.

This week, Moody’s raised its outlook on the Authority’s Baa1 rating on outstanding Transportation Program Bonds to positive. In the end, the rating remains tied to that of the State’s GO rating currently at A3. That relationship will remain as bondholders do not have a direct lien on dedicated revenue, and there are no remedies in the event of non-appropriation.

MUNICIPAL SOLAR

The City of Manchester, NH has put into operation the largest solar generation facility in the state to be developed by a municipality. Covering 12 acres at the site, the solar array — the largest municipal array in the state — is expected to offset more than 2,700 metric tons of CO2 per year — equivalent to avoiding the emissions from the burning of 3 million pounds of coal to generate electricity. It is built on the site of a former landfill. This helps to mitigate concerns over aesthetics and siting. It offers an example of how municipal assets – especially stranded assets like landfills and brownfield sites – can be transitioned to environmental uses.

It is a small scale private public partnership. In this case, the design, development, and operation of the project is being undertaken by a private entity. The City was able to provide a site and facilitate approval. Manchester estimates that it is poised to receive energy savings and tax revenue estimated at more than $500,000 over 20 years at no cost to the city.

THE GREEN DEBATE BEGINS

There are signs that 2022 may be the time for the “green” investment market to settle on criteria to objectively answer the question, How Green Is My Investment? The municipal market is beginning to see the use of “green verifiers”, private third parties who offer to “certify” the “greenness” of a given security. At the same time, the analyst community is in the midst of their process of establishing recommended standards and disclosure metrics for use by the municipal market. The issue of disclosure is also tied to the existence of standards.

For much of the green investment boom, it can be argued that Europe has moved ahead of the U.S. in its process of green investing. That process is far from complete by the ongoing effort by the European Commission to develop a “taxonomy” to be used to classify what counts as sustainable investment. The document is not officially released but press accounts claim that nuclear and natural gas generation will be treated positively in the final document.

If that plan were attempted to be adopted in the U.S., the inclusion of natural gas and/or nuclear generation in any plan to address carbon-based climate change would be controversial at best. And that will be the central issue for the municipal utility sector. The entire range of possible approaches are already being followed by municipal utilities.

Some are better positioned than others in terms of their fossil fuel generation. Some are clearly looking at natural gas as a bridge fuel to the post fossil fuel world. Others are going the nuclear route. For some, renewables are more or less feasible than others. There are those utilities which stand to lose some significant segment of supply regardless of the process.

ENERGY, EMPOLYMENT, AND THE ECONOMY

The current debate over the Build Back Better legislation drags on. As the process unfolds, West Virginia Senator Manchin has emerged as everyone’s favorite bogeyman as the effort to legislate significant climate mitigation legislation continues. For many, the process of dealing with climate change seems straightforward. After all, who wouldn’t want to save the planet? Well, if you are employed in the energy industry and the push for renewables continues the question is being asked by workers in that industry in places like West Virginia is what is in it for me economically?

A recent report from a consortium of groups seeking to advance nuclear as a carbon free option sheds light on the economic realities facing workers and policymakers as the debate over the future of generation unfolds. The data does provide fuel for those arguing that renewable energy will not provide the thousands of good paying jobs to offset employment declines associated with reduced fossil fuel use. The data helps show why there is a high level of skepticism

Ohio had the highest number of coal electric power generation workers at the end of 2019 but shed 25 percent of its coal generation workforce—just over 4,000 jobs—between 2016 and 2019.

The median hourly wage for all energy workers in the U.S. is $25.60, 34 percent higher than the national median hourly wage of $19.14. The overall hourly wage for energy jobs is also 95 percent and 120 percent higher compared to the retail and accommodation and food service industries, respectively.

Utility and mining and extraction workers have the highest absolute hourly wages of all industry segments. Utility employees receive a median hourly wage of $41.08—115 % above the national median wage of $19.14 and 10 percent higher than the overall median wage for all utility workers, which is $37.50. At $27.19 per hour, electric power generation workers earn a premium that is 42 % higher than the national median wage of $19.14; this technology sector represents almost 11 percent of all energy jobs.

The nuclear, electric power transmission and distribution, natural gas, and coal industries support the highest wage premiums compared to the national median. These four energy industries support hourly wages that are at least 50 percent higher than the national median hourly wage of $19.14. The nuclear industry in particular supports a high hourly wage; at $39.19, these jobs earn 105 percent more than the national median but account for less than one percent of total energy jobs.

Electric power transmission and distribution jobs comprise about one in ten energy jobs and support hourly wages of $31.80—66 percent above the national median—while natural gas and coal workers earn a respective 59 and 50 percent above the national median (see Table 6). Natural gas jobs represent 7.6 percent of total energy employment while coal jobs account for 2.2 percent of all energy jobs.

Nuclear and coal generation have the highest median hourly wages; these sectors support wages that are a respective 115 and 80 % above the geographically weighted wages. Natural gas electric power generation jobs also support significantly higher wages, with a 77 % wage premium. Solar, oil, and wind electric power generation employees earn wage premiums that are approximately 20 to 35 % above national wages, but below that for gas.

WHILE ENVIRONMENTAL REGULATION CLOSES COAL PLANTS

The U.S. Environmental Protection Agency on Tuesday proposed denying requests from three Midwest coal-fired power plants to continue dumping coal ash in unlined surface impoundments, a move that could lead to the plants’ early retirements. Under a rule finalized in mid-2020, the EPA allowed utilities to continue dumping coal ash from their power plants into unlined basins until April 11, 2021.

Some 57 requests to extend the deadline have been made. Four of those requests have been deemed to be incomplete or inadequate. Two of those four are owned by municipal utilities. City, Water, Light, and Power’s 200-MW Dallman plant in Springfield, Illinois; and, Lansing Board of Water and Light’s 160-MW Erickson plant in Lansing, Michigan. This process is just the beginning of EPA efforts to address issues like coal ash storage and disposal, nuclear operations, and water quality issues related to all fossil fueled generation facilities.

In Michigan the municipal utility in Grand Haven is confronting the realities of coal and reclamation. The Michigan Department of Environment, Great Lakes and Energy (EGLE) and the Grand Haven Board of Light & Power disagree on how to dispose of coal ash and chemical residues left over after the closure of a coal fired generation plant. The issue is how to handle accumulated ash which now sits in ponds. Depending upon the age of a coal ash pond and the material which lines it, serious environmental issues can result. These require significant expenses to clean up.

It is a repeat of many other situations involving waste ponds especially those associated with generation facilities. The EPA has applied a greatly heightened level of attention to these conditions as it was a point of emphasis in the home state of the current EPA administrator. It is not surprising to see heightened state regulatory attention as a result.

LOUISIANA UPGRADE

The last year saw a bit of everything in the Sportsman’s Paradise in 2021 – hurricanes, floods, tornados, a declining oil and gas business, and continued diminished tourism to New Orleans. With all of these issues potentially raising significant obstacles to economic recovery from the pandemic, one might not have put Louisiana at the top of the potential upgrade list.

Nevertheless, the State of Louisiana’s general obligation ratings (Aa3) from Moody’s were assigned a positive outlook. Moody’s cited “the significant progress the state has made restoring its financial reserves and liquidity in recent years by aligning revenue and spending with its smaller oil and gas sector, rebuilding borrowable funds and generating budgetary surpluses in consecutive years.

Moody’s did acknowledge one commonly held concern. “The state’s recovery, however, depends in part on the economic recovery of New Orleans (A2 stable), the state’s largest city and a popular tourism destination.” The current revival of COVID creates a real timing risk for New Orleans with Mardi Gras less than a month away. This just highlights the vulnerability of tourism-based economies so long as the pandemic remains a significant public health issue.

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

THE CHRISTMAS THAT WASN’T

This year the schedule of the holiday’s – Christmas and New Year’s on Saturdays – set up well for those businesses and institutions which had been particularly hard hit by the surge in the latest CO VID variant. And then came reality.

The resurgence of the pandemic is now threatening a real recovery from the economic damage of it. We see limits, postponements, and cancellations of events including cultural as well as sporting events. While tourism had begun to recover, the transit and hospitality industries face great uncertainty again with cruises being shortened and/or altered. The resurgence of the pandemic is already impacting return to work timelines. The resulting economic impacts will increase the already high level of pressure that exist on small businesses fighting for their survival.

The hope is that the current state of the pandemic will be short lived. It is clear that the likelihood of an additional federal stimulus is low. The Biden Administration is taking the position that the states are expected to be the primary source of government action. That will make the governmental response that much more political. That is problematic. The impact on economies will vary as those more dependent upon traditional weekday economic patterns will take an additional blow in the short term.

The Baltimore Museum of Art, closed its galleries through Dec. 29 because of an increase in positive coronavirus tests. The Metropolitan Museum of Art said it would limit attendance to roughly 10,000 visitors per day because of the highly infectious Omicron variant. That would represent a 50% drop from historic daily holiday season averages.  At the start of Christmas week, nearly a third of all Broadway shows were canceled because of positive coronavirus tests among their casts and crews, and several are shut down through Christmas.

The resurgence of COVID as a source of limits on activities is quickly spreading. Initially, hospitality businesses especially restaurants were limited by staffing and supply issues. The sports world saw a host of postponements of games. The NHL dropped out of the upcoming Olympics. It is not clear what additional measures will have to be taken and what the potential economic/financial impact will be.

The real risk is that the virus wave will be prolonged after a major federal stimulus has occurred. It is not likely that another round of robust financial aid from the federal government will be available. That is true of both individuals and businesses. The pandemic has shone a very bright light on the role of the education system as child care provider. It follows that for businesses to open that staff have care for their children. In NYC, the major banks are reversing their insistence on a return to the office during January.

Atlanta opened its schools remotely. Los Angeles delayed vaccination requirements for students which would have taken an estimated 30,000 students out of in person learning. It not always the various districts’ call as Chicago and Philadelphia faced union hostility to return to classroom efforts. New York and Chicago are pinning their hopes on the distribution of home testing kits. The results from Chicago’s effort were discouraging in that some 25,000 tests were improperly used rendering the results useless. That made it hard to meet teacher demands for safety which resulted in a system closure

P3 TROUBLES IN VIRGINIA

The public-private partnership undertaking extension of the 95 Express Lanes in Virginia have announced a delay in project completion. Work on the $565 million project to bring high-occupancy toll lanes to Fredericksburg began in 2019 and was expected to be finished in October 2022. 

Now the project is caught up in a dispute between toll operator Transurban and its contractor Branch Civil and Flatiron Construction (BFJV). BFJV contends that geologic conditions in the construction zone have affected its ability to keep the project on schedule. The issue has gone to arbitration. The initial proceeding before the arbiter called for the Virginia DOT to offer an adjustment of the price and more time to complete the project because of the soil conditions.

In January, the arbiter is expected to decide the amount of the required financial adjustment. That decision will not be subject to appeal. In the interim, construction continues. This section of road is just one part of a multi-facility expansion program being undertaken primarily through P3 approaches. Delays here could have real financial impacts on a several toll-funded projects.

Virginia remains the center of toll financed express lane projects. With some 60 managed tolled lanes already in operation, an additional 35 miles of such roads is under construction. Now, the Commonwealth is proposing another 11-mile expansion of tolled express lanes to connect to the existing and emerging network. Virginia is on track to have 10 percent of the nation’s managed toll lanes as early as next year.

MEDICAID

The Biden administration on Thursday rejected work requirements for Medicaid recipients in Georgia, the last state to have a federal waiver for such restrictions. The waivers were granted to demonstration projects under Section 1115 of the Social Security Act.  The limits on economic activities and the virus itself made compliance with work requirements to not be feasible.

The Department of HHS previously revoked work requirements in the Medicaid programs of Arizona, Arkansas, Indiana, Michigan, New Hampshire and Wisconsin. Kentucky and Nebraska withdrew their applications for work requirements notwithstanding the fact that their requirements had been approved.

Arkansas is the only state currently challenging its revocation in the courts. That litigation remains on hold while the U.S. Supreme Court considers whether or not to hear Arkansas’ appeal. Regardless, Arkansas’s latest application to renew its waiver drops work requirements altogether, substituting in their place incentives aimed at encouraging work and healthier lifestyle choices.

One other outcome of policy change in a new Administration is the end, for now, of Tennessee’s experiment with block funding for Medicaid. Tennessee plan would have called for the State of Tennessee to receive a capped funding amount for its Medicaid program under its Section 1115 waiver. The approval provided that the State would be able to redirect a portion of any resulting cost savings to other health programs.

COLLEGES UNDER VIRUS PRESSURE AGAIN

A growing number of colleges nationally have announced plans to begin classes virtually after the winter break, and a few, including Yale and Syracuse universities, have announced that they plan to delay the start of classes until later in January. Howard University will delay the start of the spring semester until Jan. 18 when it will require everyone returning to campus from winter break to provide a negative PCR test result within four days of arriving. All faculty, staff and students are required to have a booster shot before the end of January if already eligible for one, or within 30 days after becoming eligible.

IS VACCINE POLICY A GOVERNANCE ISSUE?

Arkansas, Florida, Iowa, Kansas and Tennessee have carved out exceptions for those who won’t submit to the multi-shot coronavirus vaccine regimens that many companies now require. Historically, unemployment does not cover those who resign to avoid compliance with a company policy or are terminated for refusing. The action has been received poorly by both employers who will bear many of the costs of mitigation as the result of unvaccinated employees and by other workers.

This represents a reversal from policies followed by some of those same states when they tried to use limits on unemployment benefits to try to force workers back to work before the availability of vaccines. That sort of inconsistency makes a full-scale recovery slower and puts additional businesses at risk.

HIGH SPEED RAIL ON TRIAL

The Texas Supreme Court will hear arguments on January 11 in a case which will determine whether or not the proposed high speed rail link between Houston and Dallas can move forward. Opponents of the project – especially landowners along the proposed route – have been challenging the plans of the Texas Central Railroad Company to acquire land for a right of way. Land rights are a major cultural and political issue in the Lone Star State. The primary issue is that of whether the Company has the legal right to use eminent domain to acquire the needed land.

The State Attorney General has weighed in on the case on the side of landowners. “(Texas Central and an affiliated company) may only make preliminary examinations and surveys of private landowners’ properties for the purpose of constructing and operating a bullet train if they are either railroad companies or interurban electric railway companies. In the state’s view, the respondents are neither. They are not railroad companies because they do not operate a railroad. And they are not interurban electric railway companies because the high-speed train they intend to operate is not the small, localized, interurban railway expressly contemplated by statute.

The case was originally brought in Leon County where a local judge found in favor of the landowner contesting the proposed acquisition of a portion of his land. An appellate court subsequently ruled in favor of Texas Central, saying it is a valid railroad company and could therefore exercise eminent domain.

EDUCATION FUNDING

A bill was introduced in the California Legislature which proposes to tie education funding to annual enrollment rather than average daily attendance records. The move could bring in an additional $3 billion in annual state funding for schools. Supporters say that an enrollment-based policy is less volatile. Opponents see the change as lowering the pressure to address attendance issues.  The thought is that the daily average attendance provisions motivate schools to address truancy.

Twelve percent of California’s 6 million-plus K-12 students were marked “chronically absent” in 2018-19, meaning they missed at least 10% of the school year.  The legislation requires that at least half of any new funds schools receive under the new policy be put toward combating chronic absenteeism and truancy. The bill includes a “hold harmless” provision would maintain current funding levels but allow districts to apply for supplemental funding if enrollment totals are greater than the average daily attendance formula. The bill would go into effect in the 2023-24 school year.

The proposal comes in the wake of data which shows that school enrollments throughout the state declined by some 160,000 students in the 19-20 academic year. Given that the drop occurred during the pandemic, the data may noy be truly indicative of a longer-term trend. It did occur as California saw its population drop for the first time.

In November, the nonpartisan Legislative Analyst’s Office projected that K-12 schools and community colleges will receive more than $102.6 billion in the current fiscal year. The legislation is represented as generating some $3 billion of additional funding statewide.

NYC FISCAL OUTLOOK

We are among those who are concerned that the DeBlasio Administration’s spending – especially in light of the fact that much incremental new spending was paid for with one-time pandemic revenues. The fact that the local economy is still under significant stress at the same time the pandemic once again is spreading does not inspire confidence. It is against that backdrop that we will view the expected budget pronouncements from both the Governor and Mayor.

The NYC Independent Budget Office (IBO) has released its outlook for the City’s financial plan based on its review of the plan update from the DeBlasio administration in November. IBO projects that within the framework of the Mayor’s latest financial plan, the city has nearly enough resources available to balance each year of the plan without the need for tax increases or major cuts to city services. Only 18 months ago IBO and other fiscal analysts estimated that the city’s out-year budget gaps ranged from $4 billion to $6 billion.

At the same time, the IBO does share some concerns. The unprecedented influx of federal dollars enabled the de Blasio Administration to continue, and even exp and, many city services without the need for tax increases, which have been required during previous periods of fiscal upheaval. The receipt of billions of dollars of federal aid over the financial plan period masks much of the underlying fiscal uncertainty that the city faces. billions of dollars of federal aid over the financial plan period masks much of the underlying fiscal uncertainty that the city faces.

Much of that uncertainty reflects the current realities of the City’s economy. New York City’s economy has generally lagged the nation’s, particularly on employment, with only about 35 percent of the jobs lost in calendar year 2020 recovered by the end of 2021. IBO expects employment growth to diminish each year from 2022 through 2025; the city is projected not to recover all of the jobs lost in 2020 until late in 2025. IBO estimates that the city gained a total of 213,000 jobs in 2021, just over one-third of the 615,000 lost in 2020. IBO projects this growth to slow to 175,000 jobs in 2022 and 100,000 in 2023, and that pre-pandemic levels of employment will not be reached until late in 2025.

IBO estimates next year’s expenditures will actually be $1.6 billion less than in fiscal year 2022. Adjusting each year’s expenditures for the prepayment of expenses with prior-year resources as well as for other non-recurring expenditures, IBO estimates that spending in fiscal year 2022 will grow by 10.0 percent from the actual level of expenditure in 2021. Adjusted spending will decline in 2023 to $99.7 billion and then grow slowly over the final two years of the plan period, at an average annual rate of 1.4 percent.

AFTER THE FIRE THE FIRE STILL BURNS

Eric Adams took over as the Mayor of New York City. He inherits a $102 billion budget and the highest headcount in the City’s history. Contracts are expiring for many city workers with the uniformed services the most prominent. Indeed, municipal union contracts will be another early challenge for Mr. Adams. The Independent Budget Office estimates that a 1 percent increase in salaries could cost the city about $600 million in the next fiscal year.

The new Mayor will not be able to look outside to other levels of government to bail out the City budget is the pandemic cannot finally be controlled. The State of New York, like every other state, is being expected to fund the response to pandemic limitations if they are not soon eliminated.

And, by the way, Mr. de Blasio’s final budget also increased spending for the Police Department by $200 million, including a $166 million increase for overtime, bringing police spending to a total of $5.6 billion. 

ELECTRIFICATION REALITIES

The big push to reduce or eliminate fossil fuel use faces many hurdles. Those hurdles raise the cost of electrification and make the cost benefit analysis less favorable in the eyes of many residential electricity consumers. The recent release of a proposed plan to address climate change by New York State’s Climate Action Council focuses attention on the issues.

The use of heat pumps to replace traditional heating and cooling systems is getting a lot of attention. The Council recommends that the state develop codes prohibiting propane, gas and oil equipment from being installed in new single-family homes and low-rise residential buildings beginning in 2024, and adopting zero-emission standards that prohibit the replacement of this equipment in existing homes beginning in 2030.

That raises the issue of cost. Heat pumps are advertised as a more efficient source of heating and cooling but many are put off by concerns over price. One provider notes that 5 percent of people who request air-source heat pump installation were interested in lowering their carbon footprint. The remainder of demand was driven by rebate programs.  The Council acknowledges that it would take five to eight years for consumers to realize the savings from heat pumps versus fossil fuel systems.

Like electric cars, the initial adoption phase relies on rebates and/or tax credits. The argument over whether or not to subsidize electric vehicles was a significant stumbling block in the debate over the Build Back Better legislation. We see subsidies as a key to the move to electrify. Whether it be solar, heat pumps or electric cars, the initial cost in the current environment is a major limiting factor in electrification.

PUERTO RICO

The effort to resolve Puerto Rico’s Title III proceedings took several hits over the holidays. This year’s Feast of the Three Kings did not see any gifts exchanged between the parties. Puerto Rico’s Financial Oversight and Management Board (FOMB) filed a lawsuit against the governor in the U.S. District Court on the island to stop the government from implementing and enforcing pension laws the fiscal panel claims would add “unaffordable” retirement benefits for public employees. Pensions have long been a major source of contention between the Commonwealth and its lenders. Efforts to maintain pension levels have led to pensioners getting more favorable treatment in bankruptcy than bondholders.

Acts 80, 81, and 82 enacted provisions designed to encourage early retirements but at current levels of pension payments. The Board had opposed the new laws and there was thought to be an agreement to delay implementation until challenges to those laws were litigated. Instead, Joint Resolution 33-2021 was signed by Gov. Pierluisi last week to require the partial implementation of Act 80 within 30 days. 

The FOMB reviewed information provided by the administration its own analysis and the fiscal panel determined that Acts 80, 81, and 82 together could increase the commonwealth’s expenses by as much as $8.3 billion over the next 30 years. The oversight board pointed out that these additional costs would be in violation of the commonwealth’s board-certified fiscal plan and the proposed amended POA, which would reduce creditors’ claim by 80% but pay government pensions in full.   

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.