Joseph Krist

Publisher

NEW YORK STATE BUDGET

It took a month after the start of the fiscal year but a roughly $254 billion state budget agreement was announced this week. The budget was delayed while the Legislature debated several non-financial issues. Primary among them was changes to New York State’s very strict limits on involuntary psychiatric commitment. Another was an all-day ban on students having cellphones in schools. The agreement also eases so-called discovery requirements on how prosecutors hand over evidence to criminal defendants in the pretrial phase.

The budget proposal called for New York to spend $17 billion more than last year, made possible in part after state officials disclosed that tax revenues and the state’s general fund closed the fiscal year with billions more dollars than expected. The framework agreement with the Legislature included the governor’s proposed child tax credit of up to $1,000 for families with a child under 4, but the refund was scaled back. Now about $2 billion will be devoted to the program, with New Yorkers receiving between $200 and $400, depending on their income. The budget agreement maintains the tax cut but includes an increased payroll levy on companies with more than $10 million in revenue.

The Metropolitan Transportation Authority will get $68.4 billion over the next five years as part of a state budget agreement. Full details on how the state intends to pay for the plan — largely with an increased rate on an unpopular business tax — are not yet clear. Some $30 billion of the capital plan will be paid for with an increase to the payroll mobility tax, an unpopular levy on businesses in New York City and surrounding counties that use mass transit. Companies with a payroll of over $10 million will shoulder a higher rate while the tax on smaller businesses will stay the same or decrease.

The M.T.A. expects to spend $10.9 billion to buy roughly 2,000 new rail cars, an order that will include 1,500 subway cars and more than 500 for the Metro-North and Long Island Rail Road.  $3.3 billion will buy and support 2,261 new buses.

It will spend $1.1 billion to install modern fare gates at 150 stations to prevent fare evasion. The M.T.A. said it lost close to $800 million in fare and toll evasion last year.

About $1.2 billion that would have been used for the reconstruction of Pennsylvania Station will instead be applied to other transit projects, now that the Trump administration has declared it will take the responsibility to manage and finance the Pennsylvania Station project.

STATE OF THE STATES

The effort to enact a budget for Federal Fiscal Year 2026 is likely to hinge on one or two items which Congress will attempt to offload onto the states. Primary among them is Medicaid. There will be efforts to lower the federal share of Medicaid expansion under the ACA. If the cut is large enough, some 10 states would see participation in the expansion cut back as automatic triggers related to the size of the federal share would kick in.

The moves to cut Medicaid will not just seek to reduce fiscal pressures on states. In several cases, states where Medicaid expansion occurred did it pursuant to voter initiatives. It is a clear effort to override the popular will. If it succeeds, states will benefit in the narrow sense that fewer people will be covered requiring less expenditure. What it also brings is a return to a model that everyone acknowledges was broken in terms of healthcare for the uninsured. This will increase demand for more assistance to institutions for care of the indigent from the state to the healthcare system.

The federal drama will unfold just as most of the states begin a new fiscal year. The potential for difficulty is clear. NY Gov. Hochul acknowledged the uncertainty associated with ever changing federal policy in announcing the budget agreement. That is a factor that many states will have to anticipate. The key to state budgets in fiscal 2026 will be flexibility. If the federal cutbacks go through and the economy continues to underperform, midyear adjustments will be required.

NEW YORK CITY BUDGET

It takes a while to get past the campaign literature portion of Mayor Eric Adams’ proposed FY 2026 budget. The “biggest, best budget ever” is $115.1 billion, with gaps of $4.6 billion in FY27, $5.8 billion in FY28, and $5.7 billion in FY29. Tax revenue is expected to have increased by nearly 8 percent in FY 2025, driven by growth in income and business taxes. As the economy slows, growth is forecast to decline to around 1 percent in FY 2026. This results in an upward revision over the FY 2026 Preliminary Budget of $1.7 billion in FY 2025 and $1 billion in FY 2026.

The FY 2026 Executive Budget maintains $8.5 billion in reserves, including $1.2 billion in the General Reserve, $5 billion in the Retiree Health Benefits Trust Fund, $250 million in the Capital Stabilization Reserve, and a record level of $2 billion in the Rainy-Day Fund. This represents no increase in reserves to offset the potential impacts of federal funding reductions.

Given the erratic nature of federal policymaking observed over the first 100 days, the assumption that that process has reached a conclusion is a bit dangerous. “In addition to rising recession risk, the city has not changed its assumptions for the receipt of federal funding to reflect the potential impact of recent federal actions, as many of these actions are litigated, leaving it vulnerable to choices made in Washington,” said Thomas P. DiNapoli, the state comptroller. 

PRIVATE EQUITY AND HOSPITALS

The role of private equity in the not for profit healthcare sector is receiving increasing negative attention as the impacts of its management of facilities, especially hospitals is resulting in financial turmoil. Last week, we discussed the end of operations of two hospitals in PA which were “turnaround situations”. They resulted in neither improvement nor asset sales.

Steward Health Care is another PE entity that thought it could build a better mousetrap and turnaround regional hospitals that did not offer all acute care services. They did it while also loading debt on to the balance sheets. Steward operates 31 hospitals across eight states — Arizona, Arkansas, Florida, Louisiana, Massachusetts, Ohio, Pennsylvania and Texas. One of its Pennsylvania hospitals – Sharon Regional Medical Center closed in January and was only recently reopened by its new owners Tenor Health Partners.

Tenor is owned by R2 Power Investments, a private equity firm headquartered in Pasadena, California. Tenor bills itself as a turnaround firm for financially struggling hospitals. Steward continued to work with Tenor to finalize a deal after the hospital shut its doors. The health system received court approval to purchase shuttered Sharon Regional Medical Center for $1.9 million on Jan. 10.

Steward had gained notoriety for the financial distress at Massachusetts hospitals purchased from the Catholic Church in Boston. Steward Health Care closed some facilities after what can only be described as a failed buyout strategy in acquiring hospitals. Other facilities are being sold. St. Elizabeth Medical Center in Brighton has been rebranded as Boston Medical Center — Brighton, while Good Samaritan Medical Center in Brockton is now Boston Medical Center — South. BMC Health System assumed operations of the two hospitals on October 1, 2024, after Steward Health Care sold the facilities.

CLIMATE LITIGATION

The Maryland Supreme Court will decide whether three climate change lawsuits are preempted by federal law. The Court will review Baltimore City, Annapolis and Anne Arundel County’s lawsuits against more than two dozen fossil fuel companies, agreeing to hear a host of issues in the consolidated appeal that previously had been rejected by federal courts. Primary among them is that some of the companies’ production occurred on federally regulated areas offshore which would preclude state regulation.

The Court is set to decide four issues from appellants’ petition. They are whether the U.S. Constitution and federal law preempt and preclude state law claims seeking redress for injuries allegedly caused by the effects of out-of-state and international greenhouse gas emissions on the global climate; whether Maryland law precludes nuisance claims based on injuries allegedly caused by the worldwide production, promotion and sale of a lawful consumer product.

It will also decide whether Maryland law precludes failure-to-warn claims premised on a duty to warn every person in the world whose use of a product may have contributed to a global phenomenon with effects that allegedly harmed the plaintiff; and whether Maryland law precludes trespass claims based on harms allegedly caused by global climate changes arising from the use of a product by billions of third parties around the world outside of a producer’s control.

In January, an Anne Arundel County Circuit judge dismissed a pair of lawsuits by Annapolis and Anne Arundel County, citing the reasoning presented in a July 2024 Baltimore City Circuit Court ruling that determined similar claims by Baltimore City are preempted by federal common law and therefore cannot survive. That decision is an outlier.

But federal courts have so far ruled there was no valid basis to remove the cases to federal court. In February 2024, a panel of 4th Circuit judges in the Annapolis and Anne Arundel County cases found federal removal was not proper; in April 2022, a 4th Circuit panel found the same in the Baltimore City case. In April 2023, the U.S. Supreme Court denied the city’s petition for certiorari.

The U.S. Department of Justice in a pair of lawsuits argued that recent laws New York and Vermont adopted requiring oil companies to contribute billions of dollars into funds to pay for damage caused by climate change were unconstitutional. The Justice Department filed those cases one day after it launched two preemptive cases seeking to stop Hawaii and Michigan from filing planned lawsuits against major oil companies over climate change, cases the administration said would imperil domestic energy production. DOJ cited an executive order that the President signed on his first day back in office on January 20, declaring a national energy emergency to speed permitting of energy projects

GRANT CUTS

The scale of the continuing effort by the Trump administration to dictate university conduct through the withholding of grant monies for research is becoming clearer. A recent analysis at the Kaiser Family Foundation (KFF) shows how significant and comprehensive the effort has been.

KFF Health News found that the NIH terminated about 780 grants or parts of grants between Feb. 28 and March 28 KFF Health News found that the NIH terminated about 780 grants or parts of grants between Feb. 28 and March 28 of this year. Some grants were canceled in full, while in other cases, only supplements — extra funding related to the main grant, usually for a shorter-term, related project — were terminated.

Among U.S. recipients, 96 of the institutions that lost grants in the first month are in politically conservative states including Florida, Ohio, and Indiana, where Republicans control the state government or voters reliably support the GOP in presidential campaigns, or in purple states such as North Carolina, Michigan, and Pennsylvania that were presidential battleground states. An additional 124 institutions are in blue states. Columbia University had more grants terminated than all organizations in politically red states combined.

Montana is one of 23 states, along with Puerto Rico, that are eligible for the NIH’s Institutional Development Award program, meant to bolster NIH funding in states that historically have received less investment. Congress established the program in 1993. The NIH’s grant terminations hit institutions in 15 of those states, more than half that qualify, plus Puerto Rico.

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

COLLEGES

The fight between Harvard and the President is gaining the most attention but the efforts of ICE to round up international students and withdraw visas is a concern to many other schools, especially state universities. Increasingly, reports grow regarding the revocation of visas and subsequent detentions of some international students. If that results in reduced enrollments by foreign students, it is raising financial concerns. This represents an escalation of efforts to restrict foreign students dating to the first Trump administration.

The fear is that even if restrictions on student immigrants are relaxed, that there will be less demand from this cohort. It is of great interest to the universities reflecting the fact that these students are typically “full fare” paying customers. It also is a way to put pressure on public universities where strictly financial measures would have less impact. Those schools are also under enough pressure as the federal funding for research is under siege.

PUERTO RICO BLACKOUT REDUX

On April 16, the electric system serving Puerto Rico once again managed to blackout the entire island. Luma Energy, the private operator of the system asked for three days to identify the likely cause. Among the possibilities are something wrong with a protective system intended to keep a breakdown on a single line from shutting down the entire power grid, and that a transmission line in western Puerto Rico might have been affected by overgrowth.

Luma warned in March that the system’s power supply would probably not be sufficient to meet peak demand over the summer. The government has solicited bids for an additional operator or operators to provide more power on the island. Until contracts are awarded and progress made on generation infrastructure, Puerto Rico will have to rely on some luck to avoid additional negative impacts primarily related to hurricanes.

POLITICS AND EDUCATION

The Texas legislature is on its way to enacting one of the largest taxpayer-funded school voucher programs in the country. The program would provide about $10,000 to students for private school tuition, or up to $30,000 for disabled students. It would also offer up to $2,000 for home-schooling costs. If demand exceeds funding, priority for the money will go to children with disabilities and those from low-income and middle-class households who were previously enrolled in public schools.

The money could eventually become available to any child, including those already enrolled in private education. The Texas program is expected to reach up to 90,000 students in its first year. An amendment to put the measure to a popular referendum was voted down. The program would be capped at $1 billion in its first year, but could grow quickly, potentially reaching an estimated $4.5 billion annually by 2030. The funds can be used for private school tuition and for costs associated with home-schooling, including curriculum materials and virtual learning programs.

Texas public schools have not seen their budgets increase along with inflation. As part of the negotiations to win over the Texas House, lawmakers also approved nearly $8 billion in additional funding for public schools.

MAYORS, BUDGETS AND ELECTIONS

One is running for reelection after being bailed out of criminal charges by questionable decisions by the Trump administration, one just won election, and one faces reelection pressures in 18 months. They have in common potential budget problems which will require hard choices as well as candidates available to challenge incumbents.

Since our last issue, the City of New York has seen the race for mayor attain some level of clarity. The issue is not whether there will be a new mayor but rather who. Mayor Adams is haunted by a trail of questionable ethical and managerial issues. He has weak campaign funding. And the real estate industry, the oil that moves the gears of New York’s political engine, has clearly coalesced around Andrew Cuomo. This follows strong union support for Mr. Cuomo.

For the current budget process, neither side of City Hall is dealing with a strong hand as the combination of term limits and a looming November election. So many of the players in the budget process are running for other offices that there are many distractions. The recent financial market volatility will make budget assumptions that much harder to develop. The impact of declining international tourism could be significant.

In Oakland, the new mayor is the City’s long time Congresswoman Barbara Lee. She inherits ongoing budget difficulties and the aftermath of the recall of the prior mayor and subsequent indictment. Lee has inherited a budget deficit of $87 million, rooted in revenue shortfalls, continued growth in spending, and the rising costs of pensions and insurance. The budget is approved on a two year cycle so this is the only chance the Mayor will be able to address the budget. Her term will end six months before the end of the budget biennium.

Los Angeles sees both the City and County facing significant budget issues. They are not just the result of the fires. The County is looking at a $2 billion shortfall. This week, the Mayor of Los Angeles released her proposed budget. The starting point was a $1 billion projected budget gap. The budget proposes 1,600 layoffs which would represent nearly 5 percent of the 32,405 positions currently in the city’s workforce. The Mayor also proposed the elimination of around 1,000 vacant positions.

NEW YORK BUDGETS AND FEDERAL MONEY

The ongoing battles between New York and the federal government will only complicate the City’s effort to enact a balanced budget. The various threats to reduce federal funding and the continuing possibility of arbitrary “take backs” of previously transferred funds introduces a level of risk heretofore not associated with federal funding.

Some City agencies rely heavily on direct federal funding. For instance, according to the Mayor’s Office of Management and Budget (OMB), federal funding totals over half of the budget of the Department of Housing Preservation & Development and more than 40% for the Administration for Children’s Services. Separate from the City’s budget, federal funding is also critical to the New York City Housing Authority, Health + Hospitals, and the Metropolitan Transportation Authority.

Governor Hochul recently indicated the federal Department of Homeland Security has revoked hundreds of millions of dollars in infrastructure resiliency programs, including millions of dollars that flow to the City. The news comes as the state budget has yet to be adopted despite a March 31 deadline. The good news is that the holdup has nothing to do with fiscal matters but rather a contentious debate over proposed changes to criminal justice policies. The Legislature continues to fund state operations and there is no likelihood of any impact on the State’s bonded debt.

NUCLEAR

In Arizona, a proposed bill would have let large industrial energy users build a “small modular nuclear reactor” in their facility without having to get a certificate of environmental compatibility. And in rural Arizona, they would also be exempt from local zoning restrictions. In Indiana, HB 1007 incentivizes the creation of SMRs in Indiana by adding a state tax credit for any developmental expenses. lawmakers removed a provision that gave utilities a tax credit for investing in SMRs. The legislative analysis estimates that the 20% tax credit, at a minimum, will cost $280 million.

The Palisades nuclear plant restart project in Michigan received some more financial support from the trump administration. The project has received about 10% of $1.52 billion in U.S. financing that was to be made available under the IRA. It was the second disbursement by the administration to Palisades with more than $151 million of the original loan guarantee having been disbursed.

CARBON CAPTURE

South Dakota regulators determined Summit Carbon Solutions’ pipeline route as proposed in its permit application is “not viable, Summit Carbon Solutions’ pipeline route as proposed in its permit application is “not viable.”  Summit submitted new documentation with the commission this month stating that it would rather work with its current application.

Restarting the approval process could force Summit to effectively start the whole process over. At a previous meeting, the commission denied Summit’s request for a pause in permit proceedings. Since then, a law was enacted to halt Summit’s ability to use eminent domain. The company recently told the commission this month that it would rather work with its current application and route than seek court orders or refer the ban to the voters.

In Iowa, the Senate is debating the first measure on pipelines to become eligible for floor debate in the Senate in several years. The Iowa House has been consistent in the last few years in passing legislation to address farmer concerns about eminent domain. In the Senate, an attached amendment makes significant changes to the bill. It is not a partisan issue in that the House efforts over the last few years have been bipartisan. The Senate has a Republican super majority so partisanship is not the hurdle which needs to be overcome.

PORTS

There has been a significant drop in container vessel traffic headed to Los Angeles and Long Beach due to tariffs on Chinese goods. Estimates of scheduled arrivals for the week ending May 3, show the number of freight vessels leaving China and headed to the Southern California ports, the main U.S. ports receiving Chinese freight and other Asian trade, The number is down 29% week-over-week. That is not a surprise given the rush to ship before effective tariff dates.

Year-over-year, the data shows a 44% drop in vessels scheduled to arrive the week of May 4-May 10. The Gemini alliance between Maersk and Hapag Lloyd has a cancellation rate of 24.39%; followed by the Ocean Alliance, comprising CMA CGM, Cosco Shipping, Evergreen, and OOCL, at 18%; and the Premier Alliance, comprising Ocean Network Express, Hyundai Merchant Marine, and Yang Ming Marine Transport, at 15%.MSC and ZIM currently have a 10% rate of canceled sailings.

HOSPITALS

The signs of continuing pressure on operating results are driving cutbacks and closures at hospitals. The latest examples come from Pennsylvania as Crozer Health properties have begun a process to shut down on Wednesday after a bankruptcy judge approved closures of the Crozer-Chester Medical Center in Chester and Taylor Hospital in Ridley Park. The closure will result in the loss of 2650 jobs.

Along with diverting emergency patients to other hospitals, the order requires Crozer-Chester and Taylor Hospital to cease all elective inpatient admissions, post notices of the impending closures and cease all trauma, surgical, obstetrics and gynecology, burn, behavioral health, oncology and outpatient services. Prospect first filed to close the Pennsylvania hospitals on March 6, citing ongoing losses and lack of a buyer to take over in bankruptcy.

The University of New Mexico Hospital has cut 53 positions as the state’s largest public health system faces deepening financial pressures and federal funding cuts. Some, but not all, of the positions were vacant and emphasized that the eliminated positions were executive positions, not roles like floor nurses and others who provide patient care. According to testimony given to legislators by the New Mexico Hospital Association in 2024, two-thirds of New Mexico’s hospitals had higher expenses than revenue during that same year.

Providence Health, a major multi-state system in the west is also facing financial pressures. It also is pursuing lawsuits against insurers it says are delaying and shorting payments and will explore selling or contracting out for some of its programs. During the California wildfires, Providence was forced to temporarily close some outpatient clinics and halt non-emergency surgeries at some hospitals. One of its clinics in Pacific Palisades also burned down.

The health system has cut costs by restricting hiring and cutting back on expenses like sports sponsorships. Sports sponsorships have long been a staple of stadium and arena advertising. The designation as the official medical provider or hospital of a team is a longstanding practice. Nevertheless, new ground was broken this year. When the A’s moved out of Oakland and took up residence in Sacramento, they moved into Sutter Health stadium. This makes the stadium the first to serve as a home for an MLB team and have its naming rights assigned to a non-profit hospital.

LIFE AFTER FEMA

Disaster survivors in Arkansas left homeless by recent tornadoes have been blocked from receiving federal recovery aid after President Trump rejected the state’s request to declare a major disaster in March. The request followed a series of tornados across three states which killed 40 people. The denial follows executive orders signed by Trump seeking to shift the burden of disaster response and recovery from the federal government onto states.

The Trump administration had “determined that the damage from this event was not of such severity and magnitude as to be beyond the capabilities of the state, affected local governments, and voluntary agencies. Accordingly, we have determined that supplemental federal assistance is not necessary.” The State is appealing the decision. The governor, Sarah Huckabee Sanders was undoubtedly shocked that her state was the first target of the new policy.

If this is going to be the way things are done going forward, natural disaster risk should become an even greater factor when analyzing state credits.

WORKING ON THE RAILROAD

A renovation or replacement of New York’s Penn Station has gone through many iterations, governors and mayors over the 60 years since the original terminal was razed. Now the Trump administration is trying to move the most recent renovation project along. Amtrak, the legal owner of the station is replacing the Metropolitan Transportation Authority as the lead for the current renovation project. According to the US Department of Transportation, the switch will cause a savings of $120 million on a budget of $7 billion.

It is not clear what the expanded federal role will do to overcome concerns with land use that have held up the project. It also is not clear how this change will alter the debate over the potential relocation of Madison Square Garden. In the short run, the move potentially takes the Governor and the MTA off the hook in terms of managing and funding the project. It comes at the same time the federal government’s latest deadline to end congestion pricing has come and gone.

In Texas, the news for the proposed high speed rail line from Houston to Dallas was not good. The Secretary of Transportation called Amtrak’s high-speed rail project between Houston and Dallas “risky.” He also made the point that “the Texas Central Railway project was proposed as a private venture. If the private sector believes this project is feasible, they should carry the pre-construction work forward, rather than relying on Amtrak and the American taxpayer to bail them out. 

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

Late budgets and New York State are not an unusual couple but this year is different since the failure to enact a budget has nothing to do with budgets. It’s not clear how long either side of the issues causing contention – criminal discovery rules and restrictions on the wearing of masks – are willing to hold out to achieve their goals.

As the state process plays out, attention turns to the NYC budget. That process will occur as the mayoral primary process plays out. The Mayor is no longer under indictment or the threat of one. The Council Speaker is challenging the Mayor in the June primary. The federal government keeps up efforts to take money from the City in regard to immigration issues. Recent announcements of actual and anticipated takebacks of federal funding from the City over its sanctuary city policies have grown to nearly $750 billion.

It will be an unsettled period for the City but we do not expect that significant credit issues will arise over that time.

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CONGESTION FEES GET A REPRIEVE

The federal government and New York transit officials have agreed to allow congestion pricing, to continue until at least midsummer, and very likely into the fall. A schedule of hearings has been established that would extend the existing legal proceedings between the MTA and the federal government well into the fall. In its first two months, the program billed about $100 million in tolls. In March, about 2.5 million fewer vehicles entered the congestion pricing zone, compared with the historical average — a 13 percent decline in traffic, according to M.T.A. data. 

The court also spoke to the issue of what it sees as coercion by the Secretary of Transportation to force a halt to congestion pricing. It noted that Secretary Duffy also “appeared to suggest that the Administration may consider improperly withholding federal funds from the State of New York, as the Trump Administration has done in many other recent cases, in order to coerce compliance with its demands.”

The MTA and TBTA specifically asked whether the Secretary is contemplating taking any unilateral action on or after April 20 that might require them to seek expedited injunctive relief. The federal side did not have information to provide, but did state that, at present, they do not intend to seek preliminary injunctive relief themselves.

NEVADA ROAD FUNDING

Clark County, NV has long used fuel revenue indexing — FRI — to adjusts the county’s portion of fuel tax to inflation. The tax has been a major source of funding for roadway projects in Southern Nevada since going into effect in 2014. FRI is currently scheduled to sunset at the end of 2026 unless voters approve an extension next year. RTC currently receives 24.6 cents of the total 75.8 cents per gallon fuel tax

The Regional Transportation Commission of Southern Nevada (RTC) has warned that ending fuel revenue indexing will decrease roadway funding by two thirds — from $300 million to $100 million annually. RTC has proposed legislation which would allow the Clark County Commission, by a two-thirds vote, to extend FRI an additional decade beyond its current sunset date. Continuation beyond 2036 would require voter approval. The practice was first authorized by the Commission for the period 2014-2016.

Voters in 2016 approved a ten year extension. That ballot measure passed with nearly 60% support. A 2023 FRI bill that passed the Legislature with bipartisan support would have allowed the Clark County Commission to extend FRI indefinitely without a direct vote of the people. It was successfully vetoed by the Governor.

PURPLE LINE

The long anticipated, much delayed Purple Line light rail system in Maryland has moved one step closer to actual operation. The Maryland Transit Administration has announced that a Purple Line train is being tested on tracks using the overhead electrical wires that give it power. The plan is to test braking, propulsion, electrical, signaling, and communication systems on a fully fitted out one mile stretch of tracks. The combined design and construction process for the Purple Line is 76% finished. Track installation is 35 percent complete. The target operating date remains December 2027. That is well beyond the 2022 target date originally envisioned.

TOURISM

Recent reports show that foreign arrivals fell over 20% year-over-year at the 10 busiest U.S. airports, based on a seven-day rolling average. A slight recovery was observed, but the numbers were still down 18.4% as of March 28, 2025. Meanwhile, U.S. citizen returns increased by nearly 14% during the same period. The drop in foreign arrivals is reflects uncertainty, trade tensions, political volatility, and concerns over possible detainment or harassment for international travelers. Travel advisories issued by key American allies, including Canada, France, and Germany, have also contributed to the decline.

As of late March, international airlines have reported a softening of demand for U.S. travel, with some routes experiencing cuts. In tourist dependent New York, the Port Authority found that in February that international passenger counts at its network of airports were 1.1% lower than for February, 2024. The number of international flights was lower by some 6.3%. In anticipation of tariffs, international freight tonnage increased in that period.

HOSPITALS ON THE BRINK

The board of the Rhode Island Health and Education Building Corporation approved $165 million in debt to facilitate a sale of Our Lady of Fatima and Roger Williams Hospitals. The two hospitals are set to shut down without a sale to the nonprofit Centurion Foundation. Prospect Medical Holdings, a for profit entity which owns CharterCARE and operates Roger Williams and Fatima hospitals in Rhode Island, filed for bankruptcy in January.

One contentious issue which remains unresolved is that of property tax losses to Providence and North Providence. PILOT agreements to replace some of the lost revenues may yet be executed with the new non-profit owner but the bankruptcy proceedings did not make such an agreement required to close the transaction. North Providence estimates that it could cost the owner of an “average” home between $250 and $420 more each year in property taxes if no PILOT agreement can be reached.

In New York, Mount Sinai was finally allowed to close its east side Manhattan location. The closure had been held up by a variety of legal actions which have appeared to have run their course. Losses related to Beth Israel will decline with the reduction in services that has already occurred and the final closure now approved by the courts. The action coincides with Moody’s action to revise the outlooks for Mount Sinai Hospital’s (MSH) (NY), Icahn School of Medicine at Mount Sinai’s (ISMMS) (NY) and Mount Sinai South Nassau’s (MSSN) (NY) to stable from negative. That keeps the credits in the investment grade category.

WIND

It could likely be the exception rather than the rule over the next four years, but construction of a new offshore wind farm in NY has begun. Empire Wind is an 810-megawatt wind farm effectively breaking ground less than 20 miles from New York City. It is the first U.S. project to start at-sea wind turbine construction under a Trump second term.

On Inauguration Day, the President issued an executive order that effectively froze all offshore wind permitting and leasing pending a federal review. Empire Wind 1 is one of nine projects which had their federal permits in hand before the order. Empire Wind 1 is scheduled to finish construction by 2027. A new Brooklyn-based substation will connect wind-generated electricity to the city’s grid. which is a first. The project is advertised as being adequate to power 500,000 New York homes.

In the Atlantic, four other commercial-scale projects actively under construction are Coastal Virginia Offshore Wind, Massachusetts’ Vineyard Wind 1, New York’s Sunrise Wind, and Revolution Wind, which is shared between Rhode Island and Connecticut.

ILLINOIS COAL

The Chicago suburb of Naperville, Illinois is the largest of the 30 municipalities which purchase power for their distribution utilities from the Illinois Municipal Power Agency. The City’s purchase contract expires in 2035 and IMPA would like very much to extend its agreement with Naperville for twenty more years. IMEA has given the city until April 30 to decide if it wants to extend its contract out to 2055. A majority of IMEA participants have extended contracts.

Some 80% of the energy IMEA delivers to Naperville comes from coal-burning power plants. IMEA owns a 15% stake in the Prairie State Generation Station, a massive coal-fired power plant in southern Illinois that in 2023 released 12.4 million tons of heat-trapping carbon dioxide into the atmosphere. If Naperville chose to determine its own electric supply, it could buy energy directly from the market, contract out for power generation, or possess and operate its own generation assets — or some combination of all three.

CARBON CAPTURE

The Environmental Protection Agency has approved Occidental Petroleum’s application to capture carbon dioxide from the atmosphere and inject it underground. The facility would be the first of its kind to be approved in Texas where the oil/gas industry has great hopes for its success. Located 20 miles southwest of Odessa, the project could start storing 500,000 metric tons of carbon dioxide in deep, non-permeable rock formations 4,400 feet underground as soon as this year. 

The technology for the plant is direct air capture, or DAC. It pulls the carbon dioxide from the atmosphere and separates it from other particles in the air by incinerating them. The equipment then compresses the gas to a brine before transporting and storing it permanently underground. The Texas Railroad Commission, the state agency regulating oil and gas companies, has applied to the EPA for the power to issue similar permits. The EPA is currently accepting public testimony.

Ohio legislators are considering bills that would bar local governments from having a say in permitting projects that capture carbon dioxide emissions and inject them underground. The legislation could even force some landowners to let their property be used for carbon dioxide storage. Carbon capture and storage projects would follow a process similar to what’s used for oil and gas drilling, in which property owners must allow development on or below their land if enough neighbors support it.

Ohio’s House Bill 170 and Senate Bill 136 would give the state Department of Natural Resources ​“sole and exclusive authority to regulate carbon sequestration,” a power the agency also has over oil and gas production via existing law. The Ohio Supreme Court has interpreted the oil and gas law’s language to block local government regulation of drilling, even though general zoning rules that apply to other businesses.

The bills would also authorize a ​“consolidation” process that operators can undertake to force landowners to allow carbon dioxide storage in their property’s subsurface ​“pore space” if owners of 70% of the remaining area for an injection project have signed on. The bills call for compensation, but it’s subject to adjustments for the developer’s expenses. Neither HB 170 nor SB 136 requires any minimum payment to landowners.

The South Dakota Public Utilities Commission voted 3-0 to deny Summit’s request to put its application on hold. The PUC directed Summit Carbon Solutions to present a plan during its next meeting illustrating how the company can move forward — or not — under recently enacted legislation barring its use of eminent domain. It comes as a review shows that Summit brought 232 lawsuits against landowners across South Dakota, North Dakota and Iowa – including lawsuits seeking access to property for surveys. All 156 of the eminent domain actions were brought in South Dakota.

Iowa’s permit, which allows Summit to use eminent domain, is conditioned on the company getting permits to build its pipeline in the other states, including South Dakota.

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

Where to begin? If you are a budget maker in capital gains states like New York, California, Massachusetts and Illinois you have to take a serious look at revenue projections. Add to that the policy whipsaws from the White House. If Trump is to be believed, disaster recovery and healthcare will all become primary state responsibilities. Really, every state will have their own FEMA? You want states to increase taxes but you won’t allow those newly self sufficient state taxpayers to deduct those taxes? You want to give more responsibility to state and local government but you want to take away the exemption that makes it easier and cheaper to finance?

Maybe the market comes back. Maybe there are capital gains to be paid instead of losses to be deducted. Maybe a President shouldn’t tank the markets based on his own stubborn ignorance? Then again, should anyone listen to Peter Navarro?

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TRANSIT

According to the American Public Transportation Association, American transit systems have about 80 percent of their prepandemic passenger counts. Some have recovered better than others; the Metropolitan Transportation Agency in New York has roughly 85 percent of its prepandemic passengers, while the numbers for systems in Chicago and Boston hover around 70 percent. At the same time, the USDOT is threatening to withhold federal assistance to systems it perceives as not safe enough.

Bay Area Rapid Transit has lost more than half of the ridership it had before the pandemic, more than any other major system in the nation. BART is facing such difficulty that its leaders have warned of not only ending weekend operations and reducing train frequency, but also ending service altogether. This week, California legislators introduced a bill to put a sales tax measure on local ballots. It will be a hard sell especially if the economy turns sour. The region was already being held back by the difficulty in reestablishing prepandemic office attendance and associated economic activity.

GAS BANS

Last week, a federal judge dismissed a lawsuit brought by plumbing and building trade groups against a New York City ban on natural gas in new buildings. The decision is the first to explicitly disagree with a previous ruling that struck down the first in the nation ban on natural gas enacted by Berkeley, CA.. 

In 2021, New York City adopted Local Law 154, which sets an air emissions limit for indoor combustion of fuels within new buildings. The law bans the burning of “any substance that emits 25 kilograms or more of carbon dioxide per million British thermal units of energy”. That standard effectively bans gas-burning stoves, furnaces, and water heaters, and any other fossil-fuel powered appliances. To comply, developers have to install electric appliances, like induction stoves and heat pumps. The policy went into effect in 2024 for buildings under seven stories, and will apply to taller buildings starting in 2027.

Last year’s denial of a rehearing included a detailed dissent by eight of the 29 judges on the 9th Circuit, who argued that the court’s ruling had been decided “erroneously” and “urge[d] any future court” considering the same argument “not to repeat the panel opinion’s mistakes.” 

The unios argued that the city’s electrification law is preempted by energy efficiency standards under the federal Energy Policy Conservation Act of 1975, or EPCA. This law sets national efficiency standards for major household appliances like furnaces, stoves, and clothes dryers. Under the law, states and cities can’t set their own energy conservation standards that would contradict federal ones. The trade groups argued that EPCA should also preempt any local laws.

Regulating fuel use within certain buildings is standard practice in states and cities, she noted: New York City, for example, has banned the indoor use of kerosene space heaters for decades. 

PENSIONS AND CLIMATE

In a unanimous 5-0 ruling, the appellate division of the New York State Supreme Court dismissed a lawsuit that challenged the city’s decision to divest from investments in fossil fuels. The case was brought by four current and former city employees who claimed that the pension funds — representing teachers, public employees, and Board of Education staff — violated their fiduciary duties by shifting away from fossil fuel investments. It’s a tired tactic in an effort to encourage fossil fuel divestment. It is usually easy to refute.

ELECTRIC VEHICLES UNDER TRUMP

Michigan had to ‘decouple’ its first mega-subsidy deal to allow General Motors to sell one of two factories that shared a $600 million incentive. GM is transferring $120 million in incentives to LG Energy Solutions. Both companies say they’ll still reach the goals of a combined 3,200 new hires between the two plants. The state allowed General Motors to transfer $120 million in state funding and the incentive terms for its former Ultium Cells EV factory near Lansing to factory buyer LG Energy Solution Michigan.

This will enable LG to complete its purchase of the 2.8 million square foot battery factory that GM built in Delta Township. The two companies are still obligated to deliver the jobs in exchange for the already-spent $600 million in state funding awarded in January 2022. Under the terms of a revised agreement, GM will need to hire 1,840 workers at Orion Assembly. Wages originally were to be about $27 per hour, but will be set by United Auto Worker contracts. LG Energy Solution will need to hire 1,360 at the former Ultium site near Lansing. The company estimates wages of about $55,000 per year for manufacturing workers.

EV sales in February increased 10.5% from a year earlier, but they represented an overall market share of under 8%. That is one element behind Hyundai’s announcement that its new production facility near Savannah, GA will build hybrid models in addition to straight electronic vehicles. Ford, GM and Volvo have all slowed some EV plans and focused more on hybrids. The demand just has not been there. Trump’s policies against tax credits for electric vehicles are another headwind.

GAS TAXES

A MassINC Polling Group survey published last week found fifty-one percent of respondents in the Bay State said they would somewhat or strongly support replacing the gas tax with a “fee based on how much people drive, whether they drive a gas car or an electric car,”. A more specific question found a nearly identical split for eliminating the gas tax and instead deploying “tolls on more Massachusetts roads”: 52% support, 32% opposition and 16% who said they did not know. 

Gas tax revenues increased from $603 million in fiscal 2023 to $615 million in fiscal 2024, according to the Department of Revenue. Asked if Massachusetts should study the use of congestion pricing in and around Boston, 48% said yes and 35% said no.

In Oregon, a proposal has been put before the legislature to raise more than $1.9 billion in new taxes and fees every two years once fully implemented. Oregon would raise its gas tax by 20 cents, create a new 1% tax on cars sales and require electric vehicles to pay an entirely new “use charge”. Democrats have a three-fifths supermajority in both the House and Senate, meaning they can theoretically pass anything they want.

The details include: A staggered 20-cent increase to the state’s 40-cent-per-gallon gas tax. The tax would increase by 8 cents at the outset of next year, and another 4 cents in 2028, 2030, and 2032. It would be indexed to increase with inflation afterward. A new tax equal to 1% of the sale price of all cars sold in Oregon, new or used. Oregon is one of just five states without such a charge.

A new “road usage charge” that electric and highly fuel efficient vehicles would pay – either as a flat fee or based on actual miles driven in Oregon. Existing electric vehicles would be subject to that still-undefined charge beginning in July 2026. New EVs, plug-in hybrids and cars with fuel economy of 30 miles-per-gallon or better, would be added in subsequent years.

Additionally, there would be a separate usage charge for delivery vehicles used by companies with at least 10 such vehicles. The fee is meant to impact corporate delivery services like Amazon. An additional $66 onto Oregon vehicle registration fees would accompany adding $90 to vehicle titling fees, which currently range from $90 to $190. It would increase the state’s weight-mile tax on heavy vehicles by 16.9%.

Other components of the funding plan include a 3% tax on tire sales that would send $25 million a year to rail operations, safe highway crossings for wildlife and improving salmon habitat; an increase to an existing tax auto dealers pay for the “privilege” of selling cars in Oregon. The tax would be raised from 0.5% of the price of a vehicle to 0.8%. It would add $9.50 to an existing $15 tax on sales of new bicycles that cost at least $200. Funding from the tax goes to bike and pedestrian facilities. It would also increase a tax dedicated to transit service that Oregon workers pay from their paychecks from 0.1% to 0.18%. 

CHICAGO PUBLIC SCHOOLS

The Chicago Teachers Union (CTU) will vote this week on a proposal for a new contract. The deal is the product of a year’s worth of negotiations. It gets so much attention because of the Mayor’s history as a lawyer for CTU and its role in the Mayor’s campaign for office. Funding for CPS was also a major issue in the negotiations over the City’s own budget.

The offer includes teacher raises of 4% the first year and up to 5% over the next three; class-size limits of 25 in kindergarten and an average of 29 in most other grades, down from 36 or 32; doubling the number of bilingual teachers; 90 more librarians over the life of the contract. If ratified, the median CPS teacher salary would be $95,000, according to CPS. CPS says the contract will cost $1.5 billion over four years, down from an initial CTU proposal that it said would have cost $10 billion over that period.

If this contract settles the labor dispute, it still leaves the funding needs of CPS front and center as an issue for the City’s GO credit as well as for its own.

HIGH SPEED RAIL

In light of the efforts by the Trump administration to weaken mass transit and federal funding for it, much has been made of the “success” of the Brightline project in Florida as a private rail provider. The thrust of recent press has been that the project shows that high speed rail can’t be developed by the public sector. The California high speed rail project is considered to be the posterchild for inefficient government infrastructure development and is cited regularly by proponents of other projects.

That project as well as the Brightline West project were conceived to utilize existing right of way as much as possible. In Florida, the trains max out at 70 miles per hour (Acela on the Northeast Corridor top 100 mph) and they operate on existing tracks. They pass over grade crossings. Those are not what people think they are talking about when they talk about high speed rail.

As for true high speed rail projects, hurdles continue to arise in Texas where opponents of a proposed Houston-Dallas line have fought its development for more than ten years. Now the Texas legislature will consider legislation designed to impede that project. House Bill 1402 would prevent the use of state or local funding to alter roadways for the construction of high-speed rail. It has attracted a cross section of supporters.

The opposition is not just from small individual landowners. So long as potential right of way issues remain unaddressed, some developers cannot move forward with projects. As for the sponsor of the project – Texas Central – its position is that the route wasn’t chosen by them and that the current plan is the most environmentally friendly that they could come up with. As for the issue of right of way acquisition, the over 500 homes which would have to be removed are compared by Texas Central to the number of homes some Houston road projects expect to move.

That raises the whole issue of how private projects like these actually are. No one likes moving residential properties to make way for projects. There is a history of law in this country which establishes clear boundaries between public and private projects. Arguments like that of Texas Central unwittingly focus attention on the private structure and weaken support for eminent domain when it is used to facilitate private profit.

Are they reliant on the government? Here are the words of the Texas Central CEO. “I mean, obviously, we don’t have the financing put together. We don’t have all the right-of-way acquired. We’ve acquired approximately 25% of the parcels that are needed. … We’re not asking the taxpayers to pay for this project right now. What we’re saying is we have to ultimately partner with the State of Texas and with TxDOT [Texas Department of Transportation] to figure this out.”

LIFE AFTER COAL

The site of what was once Pennsylvania’s biggest coal-fired power plant will be repurposed into a $10 billion natural gas-powered data center campus. The former Homer City Generating Station, about 50 miles (80 kilometers) east of Pittsburgh, will host seven gas-fired turbines to power data centers on site with up to 4.5 gigawatts of electricity. It would be the nation’s largest gas-fired power plant and the nation’s third-largest power generation facility after the Grand Coulee hydroelectric dam in Washington and the new Plant Votgle nuclear power plant in Georgia.  

Construction is expected to begin this year and power could start flowing by 2027. Much of the critical infrastructure for the project is already in place from the former Homer City power plant, including transmission lines connected to the mid-Atlantic and New York power grids, substations and water access. That sort of infrastructure is difficult to relocate or replace at current costs. The ability to show that coal plant repurposing is viable will be through successful projects.

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

AFTER THE FIRE

The city of Los Angeles has approved permits to rebuild three homes in Pacific Palisades after January’s wildfire. As of last week, 72 property owners had submitted applications to the city. An additional 98 have filed with L.A. County for rebuilding in unincorporated areas after the Palisades and Eaton fires. We point this out to highlight the realities of recovery from natural disasters.

The City and L.A. County leaders committed to streamline permitting procedures for property owners who want to rebuild. The Eaton fire, which ignited the same day, displaced 6,900 households from Altadena and nearby communities. The city and county have opened one stop permitting centers for fire victims and waived discretionary hearings and other zoning reviews for those who want to build new homes that are roughly the same size as they were before.

The regulatory framework is a work in progress at all levels of government – city, county, state. The City has established that new accessory dwelling units would qualify for streamlined permitting and issued another order with plans to further expedite reviews for homeowners who choose to rebuild with all-electric systems and appliances.

The obstacles to rebuilding center on the need to clear the debris. To this end, some of the delay can be attributed to residents. For example, there are more than 1,000 property owners who have not opted in or out of the federal government’s free debris removal service. Permits are not being issued to properties which have yet to clear debris. The issue of toxicity from firefighting foam used to fight the fires is an additional complication.

These are the real life factors that make recovery a much more time consuming process than anyone would hope. The sheer scope of the recovery – 16,000 structures – and the limitations on resources especially skilled tradesmen create significant hurdles. Only so many structures can be built at one time. Concurrently, rebuilding is impacted by the reality that the true replacement cost of a house is often significantly higher than the insured value.

BRIDGES

The headlines made it sound like the Brooklyn and Golden Gate Bridges were about to be toppled by ships. The National Transportation Safety Board (NTSB) completed a vulnerability assessment which identified 68 other bridges frequented by ocean-going vessels that were constructed before American Association of State Highway and Transportation Officials (AASHTO) standards were updated in 1991. The Board issued a report with the release was timed to hit the first anniversary of the Key Bridge disaster in Baltimore. 

The Board urged the FHWA, Coast Guard, and Corps of Engineers to form a dedicated, interdisciplinary team that provides guidance and assistance to bridge owners on evaluating and reducing the risk of a bridge collapse from a vessel collision. It also urged the owners of the 68 identified bridges to calculate whether the probability of a bridge collapse from a vessel collision is above the acceptable risk threshold established by AASHTO.

The FHWA requires that new bridges on the National Highway System be designed to minimize the risk of a catastrophic bridge collapse from a vessel collision given the size, speed, and other characteristics of the vessels navigating the channel under the bridge. The Board found that the 30 owners of 68 bridges over navigable waterways frequented by ocean-going vessels are likely unaware of their bridges’ risk of catastrophic collapse from a vessel collision and the potential need to implement countermeasures to reduce the bridges’ vulnerability.

So, is a wave of financings and borrowings coming on to implement lots of updates to the bridges? We don’t think so. There is no requirement that the owning agencies conduct the recommended review let alone perform any of the proposed fixes. We note the wide variation in terms of type of bridge and age of bridge. Several are constructed after the AASHTO standards were established. One of the “vulnerable” bridges is the Sunshine Skyway over Tampa Bay which was built to replace a bridge which was damaged by a ship collision.

POLICY AND PORTS

The Port of Los Angeles processed 801,398 Twenty-Foot Equivalent Units (TEUs) last month, which was 2.5% more than last year and marked the Port’s second-busiest February on record. At the same time, the results acknowledge the uncertainty associated with White House trade policy. “Many retailers and manufacturers have been importing their products through Los Angeles earlier than usual as a hedge against tariffs. Given the substantial inventory already here, and the uncertainty of tariffs, it’s possible we could see a 10% volume decline in the second half of the year.”

What isn’t mentioned is a new non-tariff policy. President Trump is drafting an executive order that would rely on funding from a U.S. Trade Representative proposal to levy fines of up to $1.5 million on China-made ships or vessels from fleets that include ships made in China. Those potential port fees have limited the availability of ships needed to move agriculture, energy, mining, construction and manufactured goods to international buyers. Vessel owners have already refused to provide offers for future U.S. coal shipments due to the proposed USTR fees.

Industry groups have been consistent in their response. Among the groups fearing restricted exports are the West Virginia Coal Association, the American Petroleum Institute, and shipping associations. The shippers contend that very few maritime operators will be able to document that their annual share of U.S. exports meets the required 20% carried on U.S. built, U.S flagged vessels.

The USTR proposal also seeks to shift domestic exports to ships that are both flagged and built in the United States. The current fleet of U.S.-flagged cargo vessels numbers less than 200, and not all are U.S. built. To completely avoid the fees, vessel operators must be based outside of China, have fleets with fewer than 25% of ships built in China, and have no Chinese shipyard orders or deliveries scheduled within the next two years

The proposed shipping restrictions come as the US agriculture sector is already dealing with the impact of tariffs. The inability to secure ocean freight transportation from May and beyond has restricted their ability to sell bulk U.S. agricultural products like corn, soybeans and wheat because exporters are unsure what the final cost would be.

The United States exported more than $64 billion in bulk crops, bulk animal feed and vegetable oils in 2024, according to U.S. Census Bureau Trade data. Bulk agricultural exporters could face an additional $372 million to $930 million in annual transportation costs from the fees.

BLAME CANADA

Nearly 500,000 fewer travelers crossed the land border from Canada into the U.S. in February compared to the same month last year, according to data from U.S. Customs and Border Protection (CBP). The number of travelers entering the U.S. in a passenger vehicle — the most common way to make the trip from Canada — dropped from 2,696,512 in February 2024 to 2,223,408 last month. The number of travelers driving over the U.S. land border is the lowest it’s been since April 2022.

The number of cross-border travelers headed for the U.S. in October, November, December and January were all well above the numbers reported for the same month the year before. All categories of transit have declined beginning in February. That even includes those who walk across to shop or visit. CBP reported the number of walkers fell from roughly 117,000 in February 2024 to 99,000 last month. 

The anecdotal evidence is that fewer Canadians are maintaining their historic presence in Florida this year. I can tell you that the sentiment in Canada is strong. I see a lot of broadcasts of Canadian NHL teams. The advertising is telling. Companies are flooding the airways with ads emphasizing Canadian products. The political ads shifted in tone quickly last month and no longer focus on getting along with the U.S.

That has real implications for those businesses with significant demand from Canada. Small businesses nearer to the border all already taking a hit. Large entities are vulnerable as well. One credit that comes to mind is the Destiny USA mall in Syracuse. It derives approximately 20% of its visitors from Canada.

CLIMATE BALLOT IN COURT

Initiative 2066 which is viewed as protecting natural gas as an energy choice in Washington state was approved by the voters in November, 2024. A King County Superior Court Judge ruled that the scope of I-2066, approved by voters in November, was too broad and violated the state Constitution’s single-subject requirement.

I-2066 was in response to HB 1589, which was passed during the 2024 legislative session. The bill directs “large combination utilities,” or combination gas and electric companies that serve more than 800,000 customers, to plan for the development of specific actions “supporting gas system decarbonization and electrification” in alignment with the state’s goals to move toward 100% clean energy. I-2066 was aimed at resisting some of these moves.

The judge ruled the ballot measure’s title may have confused voters who could have voted “yes” to support the choice of natural gas but did not realize building codes would have to be amended or that there could be climate impacts as a result. Here is where the situation becomes amusing. Over the years we have covered laws and regulations on the conservative end of the spectrum often written by organizations like ALEC on the right. Now, the gas industry is complaining specifically about the involvement of the Pacifica Law Group. The gas industry is charging that the Group essentially wrote the judge’s decision for her.

Did they? Who knows and it’s not our point. We hate the ideological approach to governing on either end of the spectrum. We see fewer and fewer rational reactions to legal outcomes which is bad in an environment where legislation is almost impossible. It does no good to rely on the courts to do the work of citizens if we’re going to undermine the courts. There will be a motion supporting a direct appeal to the state Supreme Court.

NEW YORK STATE BUDGET AND FEDERAL MONEY

The New York State budget process is supposed to wind up on March 31 with the new fiscal year starting April 1. The already complex process was further complicated by the latest cuts being made by the DOGE. Two New York State agencies working on addiction services and mental health care told nonprofit providers that two federally funded state grant programs, which totaled about $330 million and were supposed to run through the end of September, had been halted.

In the fiscal year ending this month, New York State received an estimated $96 billion from the federal government, with roughly $57 billion going to the state’s Medicaid program. About $10 billion went to schools, about $4 billion to law enforcement and public safety and $2.5 billion to transportation programs.

Ms. Hochul had based her initial $252 billion state budget proposal for the coming year on the assumption that almost $91 billion would flow from Washington.

The budgetary meat ax being waved around by the DOGE reflects a complete lack of understanding as to how Medicaid works and how it covers people. There is a discussion to be had over whether all of the things that Medicaid in New York covers can continue to be supported. For some services, the states have longed relied on a private non-profit infrastructure network to provide many of the specialized services Medicaid covers like those provided by mental health providers. These abrupt cuts will leave many of those providers unable to operate.

FEDERAL FUNDING AND THE STATES

I have no doubt that the squad of boy wonders in D.C. has no understanding of the role of these funds and the non-profit service providers in the provision of addiction and mental health services. There is no way to provide these services privately in the sense that the providers would be hard pressed to self-fund. At the same time, governments would never be able to go back to what was another form of mass incarceration. So, the effort to reduce spending here is just going to cause more problems than it solves. 

Some research from the Pew Charitable Trusts published in September, 2024 provides a backdrop for the actions currently underway to cut and hold back federal funds to the states. It provides some clues as to what is currently going on. There are some caveats. The data covers 2019-2022, a time of extraordinary circumstances which are certainly not sustainable.

Nationwide, states received 60.8% more in federal grants in fiscal 2022 than they did just before the pandemic—ranging from 130.5% more in South Dakota to 32.8% more in California. The federal government awarded states more than $800 billion in COVID-19 relief. Fiscal 2022 was the first year states were eligible for the more than $760 billion authorized through the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. 

Federal funds, rather than state tax dollars, accounted for the largest source of revenue in 16 states, up from five states in fiscal 2019 and 15 in fiscal 2021. In fiscal 2020, federal funds made up the largest share in 18 states, the most on record. California and Montana were the only states where the federal share of state revenue was lower in fiscal 2022 than in fiscal 2019. 20 states reported their largest share of revenue from federal funds of any year in the past 50 years.

South Dakota experienced the biggest annual percentage-point growth in the federal share of state revenue, up 11 percentage points from fiscal 2021. This swing was related to the timing of receiving and spending federal pandemic aid. North Dakota experienced the biggest annual percentage-point decline, with the federal share falling 17.5 percentage points from fiscal 2021.

So where does this matter? Louisiana reported the highest percentage of revenue from federal funds (50.5%). North Dakota reported the lowest percentage (22.2%). The percentage of state revenue from federal funds in states with the largest federal shares—Louisiana (50.5%), Alaska (50.2%), and Arizona (49.7%)—was roughly double what it was in those with the lowest shares: North Dakota (22.2%), Hawaii (25.9%), and Virginia (27.6%).

REALLY?

The United States Department of Agriculture has moved to cancel $13 million in funding for Pennsylvania farmers who provide products for food banks. The funding came from the Local Food Purchase Assistance Program established in 2021. The purpose was to help both farmers struggling during the COVID-19 pandemic, as well as food banks that may not have a budget for fresh food. Since the program began, Pennsylvania has received over $28 million.

This move comes after Pennsylvania succeeded in a legal action against the effort to cut off $2 billion of federal funding for Pennsylvania by the Trump administration. Those funds are now being restored while a lawsuit against the cuts is still standing despite the fact that the specific cuts which are the subject of the suit have been restored. The congressionally-approved money for Pennsylvania saw most of those dollars be used for environmental programs like plugging abandoned oil and gas wells, building out clean-water infrastructure, and helping low-income households retrofit their homes to lower utility bills. 

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

CONGESTION PRICING

The Trump administration appears to be using its Canadian playbook to manage its opposition to congestion pricing. March 21 was supposed to be the date by which the MTA stopped collecting congestion fees. Given pending litigation, MTA has continued to collect the fees and plans to keep doing so until it is legally stopped. Like it did with tariffs, the administration has now delayed taking action against the MTA for 30 days. MTA now has until Easter to collect fees.

Whether this indicates a clear softening in the administration’s position remains to be seen. The extension of congestion fees was accompanied by threats to withhold federal operating aid to the MTA. Ostensibly, this is supposed to lead somehow to reduced crime on the City’s subway system. While it was presented as a move against more than one transit agency regarding the issue of crime, its pretty obvious that the threat was designed to accompany the fee delay.

AFTER THE FIRE

The credit impact of the wildfires in January in California has begun to take shape. The placement of a negative outlook for the City of Los Angeles and other impacted municipalities was not unexpected. Now, the ratings impact is expanding to the utilities. This week, S&P placed seven municipal power agencies on negative outlook.

They are Lassen Municipal Utility District (‘BBB’); Modesto Irrigation District (‘A+’); Transmission Agency of Northern California (TANC; ‘A+’); Sacramento Municipal Utility District (SMUD; ‘AA’ senior lien and ‘AA-‘ and ‘AA-/A-1’ subordinate liens); San Francisco Public Utilities Commission (SFPUC; Hetch Hetchy Power Enterprise; ‘AA’); Truckee Donner Public Utility District (‘A+’); and Turlock Irrigation District (TID; ‘AA-‘, including bonds issued by the Walnut Energy Center Authority [WECA] and the Tuolumne Wind Project Authority [TWPA] that are payable as an operating expense of TID).

S&P noted “The negative outlooks reflect our assessment of the heightened longer-term credit pressure from the rising potential for future liabilities and operating and infrastructure costs associated with wildfires, which have grown more frequent and intense in California in recent years given the region’s increasing susceptibility to these events.

“The negative outlook also reflects our view that there is a one-in-three chance that we could lower the ratings on these various utilities within the next one-to-two years by one or more notches should we determine that wildfire mitigation measures combined with liquidity and wildfire liability insurance coverage are no longer commensurate with current ratings in light of the changing environmental conditions increasing wildfire vulnerabilities, particularly given California’s interpretation of inverse condemnation, or if infrastructure hardening costs materially pressure rate affordability,”.

As for the City of Los Angeles, the budget news gets bleaker. The city’s administrative officer testified before the City Council. He compared the city’s financial straits to the aftermath of the 2008 financial crisis and said the budget gap estimated for the fiscal year that starts in July represented an eighth of the $8 billion general fund. Los Angeles is facing a projected shortfall of nearly $1 billion next fiscal year, and significant cuts and “thousands” of layoffs are “nearly inevitable,”.

Preliminary estimates of the city’s costs from the January wildfires are more than $282 million just for expenses such as firefighter and police officer overtime and infrastructure replacement. The city controller estimated that city revenues would remain flat or decline next year, partly because of fire losses and the soaring costs of disaster insurance and partly because of “uncertainty generated by the new presidential administration’s radical policies on tariffs, federal spending cuts and immigration.” 

At the same time, the Controller reported that salaries and benefits this year had added more than $343 million to the city’s obligations as a result of new labor agreements, police and fire overtime and retirement and sick payouts. The city had spent more than $246 million on liability payouts for legal claims this fiscal year, roughly three times the $82 million the city had budgeted for such obligations. 

NUCLEAR

The U.S. Department of Energy on Monday announced a second loan disbursement to Holtec toward restarting its decommissioned Palisades nuclear power plant in Michigan. The action released nearly $57 million of an up to $1.52 billion federal loan guarantee for Holtec. The Palisades plant, if restarted, would generate 800 megawatts of electricity. Holtec officials last month announced plans to install the first U.S.-built small modular reactors on the Palisades property in Covert by 2030, in co-location with the restarted plant. The proposed two new modular nuclear reactors, dubbed SMR-300s, would each generate approximately 300 megawatts of energy.

WIND

The 1.5-GW Atlantic Shores 1 wind energy project in progress offshore New Jersey had its Clean Air Act permit from the Environmental Protection Agency remanded by the agency’s Environmental Appeals Board. The decision reflects the freeze on funding underway from the Trump administration. The permit remand comes a month after EDF Renewables, one of Atlantic Shores’ developers, booked a $980 million impairment associated with the project. Shell, EDF’s partner in the joint venture, booked a $1 billion impairment associated with the project in January, which EDF referred to as a “withdrawal” in its annual financial report.

REGULATION LITIGATION

Hearings were held this week before the Ohio Supreme Court on whether The Ohio Power Siting Board was within its rights to reject a permit application for a solar power facility merely on the basis of local governmental opposition. In , the Board rendered a decision denying Vesper Energy the right to build a 175-megawatt solar facility in Greene County, OH. The company claims the siting board failed to follow state law in its analysis of whether its project (Kingswood Solar) is in the public interest — one of eight criteria that power generation projects must meet to receive a site permit.

A 2021 law lets counties block most new utility-scale wind and solar energy projects before they even get to the Ohio Power Siting Board. Others, like Kingwood Solar, have been denied based on local opposition, even though they are exempt from that part of the law because they filed permit applications or got in the grid operator’s queue prior to the legislation’s passage.

In 2022, the board found that the proposed Kingwood Solar facility met all the other legal requirements for a permit, yet it concluded ​“that the unanimous opposition of every local government entity” bordering the project was ​“controlling” on the public interest question. The board denied the permit. Another part of Ohio law that says local governments can’t require their own consent for the construction of power facilities. 

A decision will come later this year. In the meantime, large scale solar will slow down in the Buckeye State.

EV POLICY REALITIES

A Princeton University study has evaluated the potential impact of Trump administration energy policies on the emerging electric vehicle industry. The report notes that the plans to eliminate tax credits and other federal support will have significant negative impacts especially in states considered to be Trump states. Through executive orders, President Trump has indicated intentions to eliminate federal regulations aimed at reducing greenhouse gas emissions from cars and trucks, repeal subsidies supporting electric vehicle (EV) purchases, and halt or redirect federal grant programs designed to expand EV charging infrastructure.

Their findings: If EPA tailpipe emissions regulations and federal clean vehicle tax credits are repealed: Sales of battery electric vehicles could drop about 30% in 2027 and 40% in 2030 relative to a scenario where current policies are continued. The share of battery electric vehicles in new light vehicle sales could drop from about 18% to 13% in 2026 and 40% to 24% in 2030. Cumulatively, 8.3 million less EVs and plug-in hybrids could be on U.S. roads in 2030.

As much as 100% of planned construction and expansion of U.S. electric vehicle assembly and half of existing assembly capacity could be at risk of cancellation or closure. Between 29% and 72% of battery cell manufacturing capacity currently operating or online by the end of 2025 would also be unnecessary to meet automotive demand and could be at risk of closure, in addition to 100% of other planned facilities. There would be further (unquantified) impacts on U.S. materials, parts, and component suppliers upstream of EV and battery assembly. 

POLICY REALITIES – NEW YORK

A report from State Comptroller Thomas DiNapoli reviewed the impact of the withholding of funds under current federal policies. The Inflation Reduction Act (IRA) of 2022 contained significant provisions related to taxes, health care, energy and the environment. Specifically, the IRA provided roughly $400 billion in clean energy investments to mitigate the causes and effects of climate change and air pollution in the form of rebates, tax credits, grants and loans. New York State agencies and authorities, municipalities, businesses and non-profit organizations have been awarded nearly $2 billion in grants to date.

Two projects will clearly be impacted by the withholding of grant monies under current Trump administration policies “pausing” these programs. The first is $451.6 million for the Port Authority of New York and New Jersey to reduce air pollution from port activities. Federal spending information indicates that there have been no outlays of funding from this grant. The second is $180.0 million for the New York State Department of Transportation’s I-81 Connecting Syracuse Project. It is not clear if there have been any outlays from this grant.

The latest congestion pricing twist and turn was the announcement that the secretary of transportation had extended the deadline for the State to end its collection of the fees by 30 days.

MISSISSIPPI

The Mississippi legislature is trying to reach agreement over competing plans to reduce if not eliminate the state income tax. The effort comes as the nation’s most federally dependent state – for every dollar paid to the federal government the state receives three – faces the risks of significant cutbacks in federal spending. The state Constitution requires a three-fifths majority of lawmakers to approve tax bills. There are significant gaps between the plans passed in the respective houses of the legislature.

The House would fully eliminate the state income tax by 2037. It would cut about $2.2 billion from the state’s current $7 billion general fund while it would increase the state’s net sales tax from 7% to 8%. It would also include an additional 15-cents-a-gallon excise tax on gasoline. The tax increase would be phased in at 5 cents a year over three years. This would be added to the current 18.4-cents-a-gallon. The plan would also transfer $100 million per year from the state lottery system into the public employee retirement system. 

The Senate would decrease the 4% income tax rate by .25% each year from 2027 to 2030 and leave it at 3% in 2030. The plan would reduce the sales tax on groceries from 7% to 5%. It would also increase the 18.4-cents-a-gallon gasoline tax by 9 cents over three years, for a total of 27.4 cents. Going forward, the tax would increase automatically based on the cost of road construction. To address pension funding, the Seante would change benefits for government employees hired after March 2026 to a “hybrid” retirement that includes part-defined benefit and part-defined contribution.

The likely result is that the state’s tax structure will be more regressive. That in a state with some of the highest poverty levels.

BABY BONDS IN NEW MEXICO

Legislation in New Mexico is being considered which would provide that each child born in New Mexico would receive a state-funded trust fund at birth. The bill estimates that a $6,000 award at birth could result in $20,000 at age 18. At that point, the funds could be accessed for higher education, homeownership, business ventures, or investments.

The recipient must maintain residency in New Mexico until they turn 18. To access the funds, they must graduate from high school or earn an equivalent diploma. The money can only be used for specific purposes, including: Higher education (tuition, books, or related expenses); Purchasing a home; Starting or investing in a business; Other approved investment opportunities.

ALASKA PERMANENT FUND DIVIDEND

For 2025, the Alaska Permanent Fund Dividend was set at $1,702 per person.  The Alaska Department of Revenue announced that the dividend will begin to be distributed on Oct. 3. The $1,702 includes a special energy relief bonus to help with high fuel costs. The Alaska Legislature allocated about $914 million for the 2024 PFD distribution, with more than 600,000 people eligible for the payment. This means roughly two-thirds of the state’s population will receive a cash infusion, collectively injecting nearly $1 billion into the economy. The 2024 dividend is $390 higher than 2023.

It can be argued that the Permanent Fund Dividend is essentially a basic guaranteed income plan. There are obvious differences. As opposed to a monthly check, the payment is one time a year. This tends to encourage spending on less essential things versus a monthly payment. The University of Alaska Anchorage’s Institute of Social and Economic Research found that spending was concentrated over approximately one quarter.

The research found that after receiving their PFD, “Alaskans spend significantly more on non-durables (such as cosmetics, cleaning products, food, fuel, and other consumables) and services in the month when they receive the dividend payment. Other studies by the University have documented that “the PFD has resulted in substantial poverty reductions for rural Alaska Natives,” with particularly pronounced benefits for elderly residents​. 

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

COLLEGE PRESSURES

Harvard University announced a hiring freeze. It comes in the wake of the announcement that the federal government was nullifying $400 million in grants and contracts from Columbia University over accusations that the school had failed to protect Jewish students and faculty from antisemitism. Harvard is one of 10 schools the Trump administration identified last month as subject to review over accusations that it had not done enough to curb antisemitic behavior on campus during protests over the war in Gaza.

At the University of Pennsylvania, administrators have asked departments in the School of Arts & Sciences, the university’s largest school, to cut incoming Ph.D. students. North Carolina State University announced that it was freezing most hiring. Stanford University announced it was freezing staff hiring, citing “very significant risks” to the community. The University of Louisville in Kentucky, announced an “immediate pause” on faculty and staff hiring until July. 

As the week opened a new list of target schools was announced by the Department of Education. They include American University, Arizona State, Boston University, Brown, Cal State-Sacramento, Chapman University, Columbia, Cornell, Drexel, Eastern Washington, Emerson College, George Mason, Harvard, Illinois Wesleyan, Indiana, Johns Hopkins, Lafayette, Lehigh, Middlebury, Muhlenberg, Northwestern, Ohio State, Pacific Lutheran, Pomona College, Portland State University.

The remainder on the list include Princeton, Rutgers, Rutgers-Newark, Santa Monica College, Sarah Lawrence, Stanford, SUNY-Binghamton, SUNY-Rockland, SUNY-Purchase, Swarthmore, Temple University, The New School, Tufts, Tulane, Union College, UC-Davis, UC San Diego, UC Santa Barbara, Cal-Berkeley, Cincinnati, University of Hawaii, UMass-Amherst, Michigan, Minnesota, North Carolina, South Florida, USC, University of Tampa, Tennessee, Virginia, University of Washington, University of Wisconsin, Wellesley, Whitman College, and Yale. They all made the grade.

While these institutions fight the ideology battle, others are fighting for their financial lives. The board of trustees for New Jersey City University voted to approve the pursuit of a merger with Kean University, a state school. NJCU was directed to find a partner by a state-appointed monitor after a new law was passed in 2023 to backstop the struggling institution and others in the future. The school serves a population primarily composed of first time and minority students.

D.C. DOWNGRADE REVIEW

It did not take long for the first “victim” of the DOGE and the President to emerge. Unsurprisingly, Moody’s Ratings has placed the District of Columbia’s ratings on review for possible downgrade. The outlook has been changed to rating under review from negative for all debt classes. Currently, the District is a Aaa credit with much of the support for ratings coming from the federal government’s dominant role in the District economy.

Placement of the District of Columbia’s ratings on review for possible downgrade is prompted by drastic cuts to the federal workforce. The large proposed reductions in federal employment- anticipated by the District to decline by 40,000 workers, or 21% compared to its previous forecast for the next four years will have significant impacts on both the public and private sectors.

The District’s downtown office real estate market also continues to experience high vacancy rates, leading to lower assessed values and property tax collections. According to the DC Office of Revenue Analysis, between 2020 and 2024, vacant office space increased by 8.4 million square feet, a 46.2% rise. The negative valuation trends are likely to be accompanied by potential reductions in the federal share of Medicaid funding. This is also highly credit negative for the District.

CLIMATE LITIGATION

The Supreme Court declined to hear arguments in a suit launched by 19 states (all red ones) who were trying to prevent other states, led by Democrats, from pursuing lawsuits against the oil industry. Those states include California, Connecticut, Minnesota, New Jersey and Rhode Island. It’s all part of a continuing effort to get climate litigation out of state courts and into the federal system. All attempts to date have failed.

In January, the Supreme Court denied review of a Hawaii Supreme Court decision rejecting oil industry requests to do so. That allows the state’s climate deception lawsuit to go to trial. This latest decision is consistent with those rendered in other request by the industry to take climate litigation out of the state courts..

ELECTRICITY TARIFFS

The U.S. is Canada’s only trading partner for electricity. In 2023, net electricity exports from Canada to the U.S. were 27.6 terawatt hours and came mostly from the provinces of Manitoba, Ontario, British Columbia and Quebec. Now, the power from Ontario will come at an increased cost of 25%. The Midcontinent Independent System Operator, which runs the regional electric grid in parts of 15 states including Minnesota and Michigan imported less than 1 percent of its total energy from Canada last year. The New York Independent System Operator said that 2023, New York imported a net 3,976 gigawatt hours from Ontario. That power represents almost 3 percent of the total energy usage across its bulk electric system.

AFTER THE FIRE

It has been estimated that 13,000 households were displaced by the Palisades and Eaton fires. They came from nearly 9,700 single-family homes and condominiums, almost 700 apartment units, more than 2,000 units of duplexes and bungalow courts and 373 mobile homes that Cal Fire determined were either destroyed or heavily damaged. That creates substantial demand for items necessary to a rebuild. Those items generally are subject to sales tax and one of the unintended consequences of natural disasters is a sharp rise in sales tax revenues as recovery occurs.

Just one example. It is being reported that sellers of furniture and other home decor around L.A. are seeing an unexpected rise in sales.  About two weeks after the start of the Palisades and Eaton blazes, Ikea stores in Los Angeles County began noticing an uptick in sales for sleep and kitchen basics. There should be plenty of demand. It will be a boost to consumer spending for residential furniture and bedding which fell 3% last year to $116.1 billion, according to the American Home Furnishings Alliance. The number of production workers for furniture and related products fell to 235,500 people from 244,800 in 2023.

TARIFFS AND LAYOFFS

Signs are emerging that even the threat of tariffs in North America is taking its toll on business.  Layoffs, closures and furloughs have impacted workers and companies tied to the manufacturing, distribution and freight sectors in the U.S., Canada and Mexico. Since Jan. 20, there have been 14,357 job cuts, according to Worker Adjustment and Retraining Notification (WARN) Act notices. Cargill Inc., Archer-Daniels-Midland Inc., Foster Farms, and Perdue Farms all reported significant job cuts.

Detroit-based Harvest Sherwood Food Distributors is shutting down all its operations across the U.S. and laying off about 1,500 workers by April 21. Cargill Inc. will close a Springdale, Arkansas, turkey processing plant with 1,100 workers on Aug. 1, the company announced. Production is being shifted to processing plants in Missouri and Virginia. The threat of tariffs is leading to automotive layoffs. Goodyear Tires plans to cut about 850 jobs at a plant in Danville, Virginia, by the end of the year. Bridgestone Tires plans to close its truck and bus radial tire plant in LaVergne, Tennessee, by July 31. The closure will impact 700 workers.

WATER WARS

Among the funding frozen by the Trump administration are payments from a $4 billion pot in the Inflation Reduction Act that has been going to pay cities, farms and tribes to forgo water deliveries and funding major infrastructure projects that conserve water over the long term. Much of this funding is designed to address the long-term impacts of the drought which has slowly drained the Colorado River. The freeze has motivated some entities to fire some initial shots across the bow of the administration and they may have worked.

The rights to approximately 40 percent of the water in Lake Mead are held by cities, farms and tribes. Recently, the Gila River tribe sought reimbursement for some $105 million of infrastructure costs under the IRA. Those monies had been applied to things like fixing leaks in irrigation system which lowered the amount of water that needed to be withdrawn. In the face of the administration’s cuts, the tribe told the Feds to either pay up or the tribe would exercise its full water rights. The Feds paid. Interior unfroze the tribe’s funding Feb. 19.

The federal drought dollars were a crucial component of those negotiations on a new agreement to divide the Colorado’s waters. Those monies offer compensation to users, especially farmers to reduce their usage and withdrawal requirements from the river. They are considered a key component of any deal to revise water allotments from the Colorado. Now, the lack of funding is throwing a huge wrench into the negotiations.

CARBON CAPTURED?

Summit Carbon Solutions filed a motion with the South Dakota Public Utilities Commission to suspend its permit application and extend the regulator’s deadline to issue said permit “indefinitely.” The company said “With the passage of HB 1052, the Applicant’s ability to obtain survey permission has changed. However, the project must survey the route completely in order to inform the Commission of the constructability prior to obtaining a permit. The surveys which are necessarily required to inform the route decisions as to right of way will be significantly delayed.”

Survey law requires Summit to have a permit application and the legal authority to condemn property. The company said its request to change the permit schedule would allow staff more time to buy easements. Summit Carbon’s permit application had a one-year window. This “pause” would effectively stop the clock on that deadline. The company indicated it could resume the process at a later date. Iowa’s permit is conditioned on Summit receiving a permit from South Dakota.

STADIUM FOLLIES

The Tampa Bays Rays announced Thursday that they are backing out of a $1.3 billion deal for a new stadium in St. Petersburg. Had the original plan gone through, the new ballpark would have been set to open in 2028. By backing out now, the Rays are able to seek approval to negotiate with locations outside of the Tampa-St. Petersburg market, though they’d have to get approval from the league. Recent press reports indicate that Major League Baseball would prefer to see new ownership which would build a stadium in Tampa.

The situation is complicated by the fact that the proposed St. Petersburg stadium was to be the centerpiece of redevelopment of the city’s Historic Gas Plant District. The mayor indicated that the city will move forward with the development of the Historic Gas Plant District. In the meantime, the Rays will play this year in Tampa at the NY Yankees spring training home. The team is committed to playing at the Trop through the 2028 season.

CALIFORNIA MEDICAID SHORTFALL

California will need to borrow $3.44 billion to close a budget gap in the state’s Medicaid program. That’s the maximum amount California can borrow, and will only be enough to cover bills for Medi-Cal — the state’s Medicaid program — through the end of the month. Gov. Gavin Newsom’s current budget proposal estimates the state will shell out $8.4 billion to cover undocumented immigrants in Medi-Cal in 2024-2025, and $7.4 billion in 2025-2026. California has been covering undocumented children on Medi-Cal since 2016. Under Newsom, the program has slowly expanded, to young adults in 2020, older adults in 2022 and then all ages in 2024. The state anticipates spending around $42 billion on Medi-Cal in 2025-26, a $4.5 billion increase over the last budget.

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

By the time you read this, the President may have gotten up on a different side of the bed and half of this week’s MCN may be out of date. Such is the world of Trump 2.0. Is it infrastructure week, yet?

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NON PROFITS UNDER PRESSURE

The recovery from the pandemic has been longer and harder than many of these institutions hoped. Lower attendance and revenues are pressuring financial operations. The Solomon R. Guggenheim Museum announced that it was laying off 20 employees across the museum — or 7 percent of its staff — starting immediately.

The museum cited other efforts – growing the endowment, programming fewer exhibitions and ticket price increases – but said that they had not done enough. Earlier this month, the Brooklyn Museum said that it was facing a projected $10 million deficit, planned to cut 40 employees, and would mount fewer exhibitions.

Those are the kind of cuts that people notice. In reality, the non-profits under the most pressure are smaller niche service providers. The freeze on federal funding is forcing significant layoffs and projections of potential closures at these small providers. For many of these providers, the fact is that federal money is key to their ability to provide services and provide a relatively secure revenue stream to secure debt issued for capital costs at these facilities.

COLORADO RIVER

“All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022.” The 2022 Inflation Reduction Act, or IRA, allowed Biden to designate $4 billion for Colorado River programs, funding farmers, cities, and Native American tribes to conserve Colorado River water by leaving it in those reservoirs. The payments are compensation for lost income.

The giant reservoirs of the Colorado River, Lake Mead (the largest reservoir in the U.S. in terms of water capacity) and Lake Powell, remain far below their capacities. The lakes, which provide the water that 40 million Americans depend on, are now only about 35% full.

The Bureau of Reclamation’s California office has lost 10 percent of its staff due to buyouts and orders by Elon Musk’s so-called Department of Government Efficiency. Among those fired are employees who were working on a power plant upgrade near Shasta Dam in Northern California. That facility, which helps move water through the federal system, has been sitting disassembled for weeks after the Trump administration froze funding for it under an order halting spending tied to the bipartisan infrastructure law. That funding may soon be released, but now key staffers hired to do the work have been fired.

Local water agencies — funded by water sales to individual farmers — pay for the Bureau of Reclamation’s services through contracts for water deliveries — not federal taxpayers. Power production at the dams also generates significant revenue for the federal Treasury Department.

WHERE THE CUTS COULD HURT

The proposed workforce reductions from the DOGE would have varying impacts on employment in the states. Maryland has the largest proportion of federal employees in its workforce at 5.3%. Hawaii (3.9%), Alaska (3.4%), Virginia (3.4%), New Mexico (2.5%), West Virginia (2.4), Oklahoma (2.4%), Wyoming (2.2%), Montana (2.0%), Utah (1.9%) and Maine (1.9) make up the ten largest exposures. Federal civilian jobs make up 21% of all nonfarm employment in Washington, D.C. — far more than any state.

The percentage of people who report having Medicaid is 21% nationally, but ranges from 11% in Utah to 34% in New Mexico (Figure 1). The percentage tends to be higher in the 41 states that expanded Medicaid under the Affordable Care Act (ACA), which includes 21 states that voted for Trump and 20 that voted for Harris. Rates of Medicaid coverage are also higher in states with lower average incomes and lower rates of health insurance offered through employers.

Stanford University announced a freeze on staff hiring, citing concerns about the Trump administration’s plans to cut funding for scientific research. the freeze does not apply for faculty positions, temporary and casual employees and student workers. Other significant research universities will face similar pressures.

HOSPITALS AND MEDICAID

Hospital care accounted for about one third of Medicare and Medicaid spending in 2023 (37% and 32%, respectively). For purposes of comparison, hospital care represented a larger share of Medicare and Medicaid spending (37% and 32%, respectively) than physician and clinical services (25% and 14%) or retail prescription drugs (14% and 6%). From 2010 through 2023, more hospitals closed than opened. Over this 14-year period, 300 hospitals closed and 192 hospitals opened, or 108 more hospital closings than openings. 

It appears that the budget proposals moving through Congress cannot achieve their expenditure reduction goals without hitting Medicaid. Even if the only real change is the imposition of work requirements, fewer people will be covered by Medicaid. That means lower revenues for hospitals with an expectation of higher levels of unreimbursed charity care.

CARBON PIPELINES

The South Dakota legislature considered two bills designed to limit the ability of developers to build pipelines to transmit sequestered carbon from out of state ethanol plants for storage in North Dakota.  Senate Bill 198, is a proposed measure requiring individuals or companies to meet certain requirements before attempting to condemn private property. The legislature did enact House Bill 1052, which outright prohibits carbon capture companies from using eminent domain — the process of taking private property for public services.

Summit Carbon Solutions launched a first tranche of lawsuits pursuing eminent domain in April 2023. The number of cases later grew to include about 160 landowners, as the state Supreme Court ruled in an August opinion that Summit Carbon had not proven it qualifies as a common carrier, a necessary designation to utilize the right to eminent domain.

S.F. SEWER DECISION

By a 5-4 vote, the U.S. Supreme Court sided with San Francisco in its challenge to the terms of a federal sewer and wastewater system permit that the city challenged as too vague and difficult to comply with. The court said that the Clean Water Act does not support the non-quantifiable water quality standards that the U.S. Environmental Protection Agency imposed in the permit for a combined sewer system and wastewater treatment facility.

The decision overturns a divided Ninth Circuit panel’s 2023 ruling that the Clean Water Act allows the EPA to include certain narrative water quality standards as part of a National Pollutant Discharge Elimination System permit for San Francisco’s Oceanside Water Pollution Control Plant. The issue revolved around combined sewage outflows (CSO) and how they must be treated. These occur in times of heavy rain when water volumes could easily overwhelm treatment capacities.

The issue of CSO is not limited to San Francisco. It has come up in all of the major treatment expansions or developments undertaken by major cities. There has always been a tension between utilities and the EPA over the issue. The cost of treatment to address small incremental improvements in effluent quality. As has been pointed out the most pristine source of a river has some level of “pollutants”. Fish and animals eat and excrete even in those waters so are they ever 100% clean?

The ruling marks the court’s first ruling on a case pertaining to EPA authorities since it struck down the long-standing Chevron doctrine, which held that federal agencies rather than courts have broad latitude in interpreting ambiguities in the language of the law.

ETHANOL

The U.S. Environmental Protection Agency upheld an April 28 implementation date in response to a request from eight Midwest governors to allow year-round sales of gasoline containing 15% ethanol, a blend known as E15. States had until February 26 to seek a one-year delay. EPA said it would delay an action by one year to expand sales of higher ethanol blends of gasoline in South Dakota and Ohio at their request.

The EPA’s implementation will now only apply to Illinois, Iowa, Minnesota, Missouri, Nebraska, and Wisconsin. The EPA’s expansion is meant to enable both E15 and the more widely available E10 fuel blends to be sold during the summer, where the existing policy often keeps E15 out of the market. It also could be a bailout for farmers who lose market share as the result of tariffs on their corn products.

FARM TARIFFS

China’s Ministry of Finance said it would add tariffs of as much as 15 percent on a wide range of agricultural imports from the United States, including chicken, wheat, corn and cotton. Beijing’s retaliation for escalating American tariffs on Chinese-made products also includes 10 percent tariffs on imports of sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.

China accounted for 14 percent — roughly $24.7 billion — of all agricultural goods exported from the United States in 2024, according to data from the Department of Agriculture. Mexico and Canada imported even more: about $30.3 billion worth of goods for Mexico and $28.4 billion for Canada.

China started to buy more soybeans from Brazil during Mr. Trump’s first term. China bought less pork. Soybeans accounted for about half of U.S. agricultural exports to China last year. About 85 percent of potash, a key ingredient in fertilizer, is imported from Canada, according to the American Farm Bureau Federation.

During Mr. Trump’s first term in the White House, China responded to his administration’s tariffs on Chinese goods with retaliatory tariffs ranging from 5 to 25 percent on many U.S. agricultural products. Those tariffs reduced U.S. agricultural exports by nearly $26 billion, according to a research report by the Agriculture Department.

Canada is the largest supplier of lumber to the U.S. Nova Scotia will immediately limit access to provincial procurement for American businesses. The U.S. will no longer be able to bid on provincial contracts while the province actively explores options to cancel existing contracts and reject current bids. The province will double tolls at the Cobequid Pass for commercial vehicles from the United States, effective immediately.

ECONOMY

This week’s tariff whiplash and the uncertainty it has caused in markets highlights the economic situation facing budget makers as the season unfolds. The Fed released its latest Beige Book summarizing current economic conditions across the country. You will note some common themes across regions which are a direct reflection of the policy changes being rolled out by the Trump administration and their potential impact on economic activity.

Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers. However, most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.

Prices increased moderately on average as wholesale food prices spiked, and contacts expressed concerns that tariffs would contribute to more intense pricing pressures moving forward.  Many businesses noted heightened economic uncertainty and expressed concern about tariffs. Half of the districts note a contraction in consumers spending and only two districts, in fact, saw a boost in consumer spending.

These all indicate higher prices and dampened demand may be as much of a result of the tariff scheme as would the alleged prosperity which will result. We are already seeing the signs – slower job growth, declining yields. That doesn’t include the price uncertainty arising from the President’s erratic trade policy announcements. That is raising the specter of higher car prices (average new car is nearly $50,000) even before the impact of eliminating tax credits for electric vehicles.

SOLAR

In 2024, solar photovoltaic sources accounted for more than 6.8% of all electricity generated in the U.S., up from 5.5% in 2023, a 24% year-over-year increase, according to the U.S. Department of Energy’s Energy Information Administration (EIA). A terawatt-hour (TWh) is a unit of energy that is equal to 1,000,000,000 kilowatt-hours (kWh). Total solar photovoltaic generation surpassed 300 TWh, an increase of 64 TWh from the prior year. This 27% growth was the largest absolute increase in solar generation since 2016.

Utility-scale solar expanded by 32%, while distributed solar grew by 15.3%, according to the EIA. As a share of total U.S. generation, utility-scale solar now accounts for nearly 5%, while distributed solar contributes just over 1.9%. Three states—Iowa, South Dakota, and Kansas—now generate more than 50% of their electricity from wind and solar. Maine and New Mexico surpassed 10% solar generation for the first time. 

The growth threatens to slow as the legacy generation companies fight  very hard to make solar less financially attractive especially to individuals. In California, the Public Utilities Commission is proposing more change to the state’s net metering structure. Under the CPUC’s previous net-metering regimes, customers are paid full retail rates for solar power they send back to the grid for 20 years.

CPUC proposes shortening those legacy periods, which could reduce costs for utilities but also undermine the economic calculations that made rooftop solar worthwhile. The Commission also proposes adding a ​“grid-benefits charge” to the bills of existing rooftop solar owners — in essence, charging them extra for having solar panels.

One approach the utilities have been slow to employ is to charge new sources of bulk demand (like data centers) the incremental costs of supplying those customers. That can offset some of the “lost” income from residential solar users. That would lower the need for new generation to meet the new bulk demand. That is a form of cost shift which makes more sense.  

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

NEW YORK AND TRUMP CUTS

The New York City Independent Budget Office (IBO) publishing its independent analysis of the Mayor’s Preliminary Budget. New York State receives $93 billion, and New York City receives $9.7 billion in federal funds for programs through various agencies that support New Yorkers. The Department of Government Efficiency (DOGE) has clawed back $81 million in FEMA FUNDS Appropriated by Congress, money that was legally appropriated and dispersed to New York City for migrant shelter services. 

The report also notes some emerging trends in terms of the City’s ability to withstand revenue losses. New York City has been able to balance its annual budget by paying next year’s expenses with current year surpluses. In recent years, the amount of surplus the City applies to the following year have decreased. Thus, despite the City being projected to have a $3.8 billion surplus this year, its fiscal position is tightening. Last year, the surplus was $4.4 billion and in 2023, it was $5.4 billion. 

The City’s financial challenges extend beyond federal policy and reliance on past surpluses. Other financial management challenges include chronic underbudgeting, rising overtime costs, and funding ongoing education programs with time-limited COVID-19 funds that have expired. Last year, IBO reported that it had found a $605 million shortfall in the Fiscal Year 25 Executive Budget due to unaccounted overtime. than $840 million than budgeted in 2025.

Persistent budgeting issues—such as underestimated program costs, excessive overtime spending, and imprudent budgeting—combined with potential federal funding cuts and economic uncertainty, put the City’s ability to weather near-term shocks and maintain long-term fiscal stability at risk.

CONGESTION FEE RESULTS

New York’s congestion pricing plan raised $48.6 million in tolls during its first month. The first month’s revenue will pay for $11 million of expenses related to setting up tolling cameras and other parts of the system, and environmental projects to address concerns about urban pollution that might arise because of changing traffic patterns. That leaves about $37.5 million that can be applied toward financing a slew of major transit repair projects.

Congestion pricing is projected by the MTA to generate about $500 million per year during its first three years, $700 million per year after the first toll increase, and close to $1 billion a year after the next one. The tolls are expected to increase for most drivers to $12 in 2028, and to $15 in 2031. Some 68 percent was charged to passenger cars, while 9 percent was billed to commercial trucks, and 1 percent to buses and motorcycles. Roughly 22 percent of the tolling revenue came from taxis and for-hire vehicles, which are charged a smaller, per-trip fee that is added to the fare and paid by passengers.

CHICAGO BORROWS FOR TODAY

The Mayor’s proposed $830 million bond issue has been approved. The idea of bonding to meet budget shortfalls is not new, certainly not in Chicago. What is different is that the amortization schedule for the bonds does not contemplate any principal repayment for 20 years. It may be the ultimate “kick the can down the road” use of bonding for operations. Effectively, the City is operating under the strains of prior mismanagement which has driven up the City’s debt burden. Now, another generation will find itself paying for the mistakes of the past.

The approved issue comes with some strings. The Mayor had to agree that the money could not be used to cover controversial non-teacher Chicago Public Schools pensions. He continues to push for another bond to pay off those expenses. The Mayor says the City is facing the imminent prospect of closing out the 2024 budget with a deficit if the Board of Education doesn’t agree to make a $175 million pension payment by March 30. If the Board doesn’t, the City will have to reach into reserves to cover the shortfall.

That would increase the downward pressure on the ratings of both the City and CPS. CPS has $9.3 billion in long-term debt. The proposed bond for CPS would be some $242 million. The city is facing the March 30 deadline because its 2024 fiscal year ended Dec. 31 and it has 90 days to close out its books. The city is legally obligated to make the contribution and did so through 2020.

The debt and pension issues will likely cap the City’s ratings where they currently are at best.

BUDGETS IN THE MIDST OF DISRUPTION

This time of year is always interesting, sometimes fraught and always dramatic as the states undertake their annual budget process and rituals. The process always entails more than money as session lengths are tied to fiscal deadlines so this is the opportunity to continue or reverse policies. This year the normal pressures associated with budget making are being ratcheted up by the fiscal uncertainty being driven by the Trum administration.

First, what is the employment/economic impact of proposed cuts to the federal workforce. Take Virginia, where some 144,000 residents in the greater Arlington area are federal employees. Will those cuts also wind up impacting employment in the private sector jobs tied to the federal government – advisers and consultants from contractors? That’s where the fired today/rehired tomorrow moves currently underway are so damaging.

The same questions can be asked of any locality with a substantial civilian but federal employment base. Many communities benefitted from the location of federal offices both large and small. Regional offices for things like the Social Security Administration, Veterans Affairs have supported communities effectively in lieu of other economic development. Another is the importance of federal leased buildings in many places.

Federally leased office space under long-term leases has often been seen as a stabilizing factor for some development projects. The musings from the DOGE point to the potential savings associated with mass layoffs and breaking leases for things like offices.

FEDERAL FUNDING ROULETTE

In fiscal year 2024, Maine received and spent about $4.8 billion in federal funding, not including funds distributed to nonprofits, the state university system or quasi-state entities such as MaineHousing, according to the Maine Department of Administrative and Financial Services. In education alone, the state is distributing $250 million in federal funds to school districts in the current fiscal year. Academic programs for disadvantaged students and English-language learners, special education, nutrition, and career and technical education are what tend to be funded from those funds.

DISASTERS

Interstate 40 is set to open to traffic on Saturday for the first time since Hurricane Helene. The repairs have been complied such that there is one lane in each direction extending approximately 12 miles from Cold Springs Creek Road (Exit 7) in North Carolina to Big Creek Road (Exit 447) in Tennessee. Speeds are limited to 35 mph. Standard 18-wheelers allowed; no wide loads are permitted.

It was a massive job. The hurricane washed away about 3 million cubic yards of dirt, rock and material from the side of I-40. Crews installed 90,000 square feet of soil-nail walls across the 10 different damage locations in less than 130 days. They also drilled nearly 2,100 feet of nails and fortified 4 miles of the shoulder for truck traffic.

The project was executed as a P3. NCDOT entered a CMGC (Construction Manager/General Contractor) contract for the permanent reconstruction of I-40. 

PORTS

The threat of a longshoremen’s strike at the East and Gulf Coast ports is now gone with the latest settlement between the ship and port operators. This follows settlement of a strike at West Coast ports in mid-2024. Now the shadow over ports and their workers relates to tariffs. Will tariffs actually happen and if they do what will be the impact on shipping volume? Whatever declines happen they will be compared to a robust base of recent operating data.

The Port of Los Angeles reported record volumes for the month of January, processing 924,245 industry-standard containers compared with 855,652 a year earlier. This also follows an exceptionally busy 2024 — the port handled more than 10.3 million units, marking its second-best year. The Port of Long Beach also reported its strongest January on record, as well as its second-busiest month ever. The number of containers processed increased 41.4% to 952,733 containers from 674,015 last year. The port said the results largely were driven by retailers moving cargo ahead of the anticipated tariffs on goods from China, Mexico and Canada.

The Northwest Seaport Alliance said combined January container volumes from the ports of Seattle and Tacoma, Wash., increased 25.4% year over year to 264,869 TEUs from 211,283. Port Houston volume increased 7% year over year to 356,407 containers from 332,961. Those volumes were also 5% higher than the 340,418 containers processed the previous month. This follows a record-breaking year with the port processing 53,066,219 tons of cargo in 2024.

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

SPLITTING THE BABY

Governor Hochul announced that she would not be taking steps at this time to remove Mayor Eric Adams from office. Instead, she will ask to legislature to enact a variety of changes to increase state “oversight” over the City’s operations. She said that she had spoken to leaders of the City Council and the State Legislature and made clear she intended for the special provisions to expire at the end of 2025, when Mr. Adams’s first term expires, with the potential for renewal.

The proposed changes included creating a new state deputy inspector general focused on New York City’s operations; establishing a fund for the city comptroller, public advocate and City Council speaker to hire outside counsel to sue the federal government if the mayor is unwilling to do so; and granting additional funds for the state’s comptroller to scrutinize city finances.

The announcement comes as proceedings to determine whether the DOJ will succeed in its efforts to drop their case against were continued. The judge has appointed his own investigator to review the arguments for and against dismissal. Lost in all of this is that the requested dismissal of charges would be with prejudice. That would allow the charges to be brought again at a later date.

HOSPITAL LAYOFFS

Mass General Brigham will eliminate many management and administrative positions within its hospital network. The layoffs are due to an anticipated budget shortfall of $250 million over the next two years that the hospital is attempting to close. The healthcare system has more than 82,000 employees. Massachusetts General Hospital and Brigham and Women’s are among the top seven largest employers in the state.

The budget gap of $250 million is around over 2% of the hospital system’s yearly employee compensation costs, according to MGB. The system reported a loss from operations of $72 million or a -0.4% operating margin in 2024. The prosed cuts – the number of which is as yet undetermined – are centered on managerial and administrative roles rather than clinical positions.

CONGESTION PRICING

Only 45 days in to its life, the process to end congestion pricing is being undertaken by the Trump administration. It’s not a surprise and people were fooling themselves if they thought the fees would be maintained. Now, there will be issues regarding what is done with the revenue collected to date, any refunding mechanism will have to be determined and how to fund the MTA’s capital program. The transportation secretary cited the cost to working-class motorists, the use of revenue from the tolls for transit upgrades rather than roads and the reach of the program compared with the plan approved by federal legislation.

There were 1.2 million fewer vehicles south of 60th street between Jan. 5 and Jan. 31, a 7.5% drop, according to the MTA. The end of congestion pricing would force the state to come up with another way to raise $1 billion a year to fund the M.T.A.’s capital plan, and would leave the state with little way to recoup the half-billion dollars spent to prepare the city for the program. 

In the immediate future, the MTA plans to keep collecting the fees until they are legally stopped from doing so. MTA filed suit immediately and there are several arguments to be made that would lead the court to find against the President. All this as the State faces a fairly contentious budget process with the 2026 state elections hanging over the process. 

SCHOOLS AND TEACHER COSTS

People often assume that people who work in NYC by definition make more than folks everywhere else for the same work. That hasn’t been true for some time in areas like education and law enforcement. The NYC Independent Budget Office recently developed data on teacher salaries in NYS to give us something objective to look at.

The median teacher salary for traditional public school teachers in New York City is higher in nominal terms than in many other districts in New York State, including Buffalo, Rochester, Syracuse, and Yonkers, and in neighboring districts in New Jersey. New York City’s nominal median salary is lower, however, than that in suburban districts in Hudson Valley and Long Island.

Charter school teachers in New York City earned the lowest median salary, in nominal terms, among the school districts IBO studied. Salary differences, however, are observed when IBO looked at teachers with Master’s degrees and less than 5 years of teaching, whom IBO classified as novice teachers. When adjusting for education and experience, median salaries in New York City traditional public and charter schools were higher than those in other groups, even including the neighboring suburban areas.

However, the higher median salaries of novice teachers with a Master’s degree disappeared when the nominal salaries were adjusted for variation in similar professional occupations and the cost of living. Adjusted salaries became similar across New York State, and the adjusted salaries in New York City were even lower than in the large cities.

Median nominal salaries have consistently increased across school districts in New York State and New York City charter schools since the 2017-2018 school year. In New York City, traditional public school salaries were relatively flat in the 2021-2022 and 2022-2023 school years, after rising during the previous four years. This partly relates to contract negotiations between the City and the teachers’ union, as well as shifts in teacher composition.

The (nominal) median teaching salary in New York City traditional public schools ($98,699) was higher compared to the median salaries of other districts in New York State ($94,582), other four large urban school districts ($84,923), and neighboring New Jersey ($80,299). However, the median teacher pay in the City was smaller than those in school districts in Hudson Valley and Long Island ($112,182). Also, New York City’s charter schools had the lowest median teaching salary ($77,073) among the groups.

The City’s charter schools had the lowest median salary among all teachers studied but a salary among novice teachers similar to the City’s public schools. This suggests that charter school teachers generally have less education and teaching experience, which accounts for salary differences. About 51% of teachers in charter schools had less than five years of teaching experience and held either Bachelor’s or Master’s degrees.

It matters because the City faces stringent restrictions on class size. By definition, this will require more teachers. The City presents a number of daunting challenges not the least of which is housing. It will make it hard for the City to meet its needs in the classroom.

MEDICAID

Medicaid has long been a target of Republican lawmakers as well as President Trump. The goal has been to reduce both the cost of the program as well as limiting participation in the program. This is especially true in the light of the Medicaid expansion provisions associated with the Affordable Care Act. Throughout the first Trump administration, numerous attempts were made to allow states to impose work requirements through waivers granted by CMS (the agency overseeing Medicaid). Those programs were rejected in the courts.

Georgia is the only state implementing an 1115 Medicaid waiver that determines an individual’s eligibility for Medicaid coverage based, in part, on their ability to demonstrate participation in qualifying employment or educational activities. On October 15, 2020, the Centers for Medicare and Medicaid Services (CMS) approved the State of Georgia’s Section 1115 waiver demonstration project, “Georgia Pathways to Coverage.”

Georgia Pathways offers healthcare coverage to residents who meet program requirements and are not otherwise eligible for traditional Medicaid. Implementation of the demonstration was postponed, resulting in a demonstration period of July 1, 2023, through September 30, 2025. To be eligible for Pathways, applicants must satisfy, and continue to maintain, a qualifying hours and activities (QHA) requirement of 80 hours per month.

The qualifying activities include various types of employment, job training, vocational rehabilitation, community service, and education. During the first 13 months of implementation, approximately 26,000 individuals applied to Pathways. A majority of applicants (83%) were determined to be ineligible for Pathways, either due to general Medicaid requirements, or to the Pathways-specific QHA requirements.

How is all of this working out? In the original 2019 waiver application, the state projected enrollment of 25,000 individuals into Pathways in the first year of the
program; actual enrollment during the first year of implementation was approximately 4,300 individuals. QHA requirements also had a significant impact on program enrollment, particularly for older adults (aged 50-64). Older adults were less likely to be eligible for Pathways and more likely to be ineligible due to failure to meet QHA requirements compared to younger applicants. Of the nearly 6,000 individuals who met all requirements other than QHA, approximately 1,700 were ineligible only because of the QHA requirement.

So, what did researchers conclude? QHA requirements had a significant impact on Pathways enrollment. The QHA requirement had a particularly pronounced impact on older adults, who were less likely to be eligible for Pathways and more likely to be ineligible due to QHA requirements. Without the QHA requirement, enrollment for older adults would have increased by 65%. The Pathways program requires beneficiaries to report their QHA monthly. Allowing beneficiaries to report an annualized number of QHA hours (instead of 80 hours per month) would accommodate month-to-month fluctuations in QHAs such as seasonal work or academic calendar-based educational opportunities.

As of July 2024, fewer than 5,000 Georgians have received coverage through Pathways, indicating that the program is not currently serving as a significant avenue to health coverage in the state.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.