Joseph Krist

Publisher

Can we pick a week to take off or what? It never fails. New York doesn’t have a budget and its all to do with housing. While most magnified in NYC, housing is increasingly a statewide issue. Even in the rural counties. Its going to take a complex deal to settle things and then the budget will move forward. The project to clear the shipping channel in Baltimore is underway and funding for that is not a problem. The replacement bridge – who knows in the current Congressional environment. Opening Day in MLB sees in the official departure from Oakland. Voters in Jackson County, MO sent a message to the ownership of both the NFL and MLB by a huge margin. D.C. will keep its teams.

PORT OF BALTIMORE

The port handled more than 444,000 passengers and 52.3 million tons of foreign cargo valued at $80 billion in 2023 – including 750,000 automobiles. Over 30,000 vehicles cross the Francis Scott Key Bridge on a daily basis. The port accounted for 28% of coal exports in the United States in 2023, according to census data, second only to Norfolk, Virginia.

According to the U.S. Energy Information Administration, there are two full-service terminals that receive, store, and load coal onto oceangoing vessels at the port: the Curtis Bay Coal Piers served by the CSX Railroad, and the CONSOL Energy Baltimore Marine terminal, served by both the CSX and Norfolk Southern Railroads. Baltimore primarily exports coal from the northern Appalachia coal fields in western Pennsylvania and northern West Virginia.

About half of the 28 million short tons of coal exported from the port in 2023 went to India, according to the administration. Baltimore primarily exports coal from the northern Appalachia coal fields in western Pennsylvania and northern West Virginia. About half of the 28 million short tons of coal exported from the port in 2023 went to India, according to the administration.

The beneficiaries: the Port of New York/New Jersey and the Virginia ports. CSX has already announced that it is rerouting coal to New York given its rail track ownership in that area.

D.C. KEEPS ITS TEAMS

Ted Leonsis, the principal owner of the NBA Wizards and NHL Capitals signed a letter of intent formalizing an agreement between his parent company, Monumental Sports and Entertainment, and the District of Columbia. The deal would keep the two franchises at their current downtown location through 2050. The teams had tried to reach an agreement with the Commonwealth of Virgina and the City of Alexandria for an arena/real estate deal. That plan required approval from the Virginia legislature.

That was the rub. The Governor was a huge backer of the plan but it did not have the broad political support that was needed in the Commonwealth. Local government in D.C. was much quicker to coalesce around a plan in response which supported local opposition to moving the teams. There was no disagreement about the role of the arena in development in the District’s Chinatown. Nevertheless, the agreement does not come cheaply.

Monumental would receive $500 million in cash from the city to renovate twenty seven year old Capital One Arena; another $15 million would go to improve a street connection that connects the arena to the adjacent Gallery Place building. The team will also get control of scheduling at the arena and a guaranteed police presence from the City. 

Now the question is whether the City is willing and able to put a package together to support a new stadium for the Washington Redskins. That remains to be seen.

The move to Virginia ran into significant opposition. The owner admits that he completely misread local sentiment. He based his move on the idea that the metro area was one big entity and found to his surprise that “a large share of residents of the District, Virginia and Maryland consider those areas different entities.”

K.C. STADIUM VOTE

The owners of the K.C. Royals and the Chiefs are going back to the drawing board after Jackson County, MO voters delivered a stunning rebuke to their threats to move out of Missouri across the river to Kansas. A ballot initiative to extend an existing 3/8 of one cent sales tax for twenty five years was defeated by a 16 point margin. In the current environment, a 16 point loss is a landslide. Now the owners are left to either act on their threats to move or come up with financing with a much smaller share of government funding.

The vote was driven by the potential for the Royals to move from their suburban location to a downtown site. There was a case to be made for a new baseball stadium to be a redevelopment driver. Ownership however, could not come up with a firm plan and could not even articulate a preferred location. On the Chiefs side, ownership saw an opportunity to piggyback on the baseball project to get fun ding for renovations to Arrowhead Stadium

It did not help that the Chiefs’ owner undertook a tone-deaf campaign that undermined his case. He is seen as a classic case of second generation wealth. He also wasn’t helped by the release of an NFL Players Association poll which sought player attitudes towards the stadium itself but also of Mr. Hunt as an owner. The stadium was rated as among the league’s worst and the owner was cited for underinvestment in facilities. He came off looking like a cheapskate who was now looking for a government handout.

OAKLAND

Construction has not yet begun on the Oakland A’s new stadium in Las Vegas. It is not expected to be complete until the 2028 season. The A’s lease at the Oakland Coliseum is set to expire after the 2024. This week, the City of Oakland offered a five year extension to the lease. It would have provided for an opt-out clause after three seasons and requires the team to pay $97 million as part of an extension fee.

The offer came as the city has dropped previous requirements that called for MLB to keep the A’s name and colors in Oakland, as well as a demand that MLB guarantee the city a future expansion team. Staying in Oakland, or playing in Sacramento, would enable the team to retain their rights to their local broadcasting money. 

That is a major factor behind the latest announcement that the A’s have reached an agreement to play in Sacramento while a new home is constructed in Las Vegas.

This week, the Tropicana Las Vegas closed its casino for the last time along with its hotel. The demolition will open up a 35 acre site for which 9 acres will be dedicated to a new ballpark for the A’s. The current season will be the last for the A’s in Oakland.

TRI STATE LOSES ANOTHER

Tri-State Generation and Transmission Association is set to lose another participating distribution customer. La Plata Electric Association (LPEA) is obligated to purchase at least 95% of its power from Tri-State through 2050. Its customers want more electricity from renewable sources. The situation mirrors that of the other participants who have withdrawn from Tri-State. The formal decision by LPEA triggers a two-year exit period.

The move occurs pursuant to an agreement between the Federal Energy Regulatory Commission, Tri-State and LPEA. LPEA wants out of its contract with Tri-State because it has been unable to have direct control over its own rates or ability to seek clean energy opportunities. As has been the case with other withdrawn participants, the size of the exit fee required is a point of major contention. Tri-State’s initial price of exit: $209.7 million.

COAL REVERSAL

One year ago, Rocky Mountain Power announced the planned early closure of two coal fired power plants in Utah. The plan was to employ modular nuclear generators to replace the coal based power. Since then, a number of developments have impacted that decision. One has been the difficulty of getting modular nuclear started. The other is the impact of federal court decisions on the ability of the U.S. EPA to enforce regulations which limit the operations of coal plants to reduce or eliminate air pollution impacts on neighboring states.

The courts have significantly hindered the ability of the EPA to limit coal plants based on their generation of pollution into other states. Now, in light of the limits on EPA regulation, Rocky Mountain Power has decided to abandon its efforts to close the plants early. A new integrated resource plan submitted by Rocky Mountain Power reverses plans to greatly increase renewables and develop new nuclear. The changes are significant.

The plan being replaced called for 17 gigawatts of solar and wind power and more than eight gigawatts of battery storage over the next two decades. The updated plan reduces by more than 13 gigawatts the amount of renewable energy the company had planned to add by 2034. That includes cutting more than four gigawatts of solar power and another four gigawatts of battery storage. The coal plants being held open produce 2.5 gigawatts.

The Warren Buffet owned generator has benefitted greatly from newly enacted legislation in Utah designed to skew regulation in favor of coal. That legislation makes the coal plants the state’s “preferred” energy source. It provides for a self-insurance fund for Rocky Mountain. Under the bill, every Utah customer will pay a surcharge on their bill that will go to a Rocky Mountain fund that can be used to pay wildfire claims in the state. 

That is a direct reaction to PacifiCorp’s potential exposure in states like Oregon where it has significant wildfire-related risk exposure. Buffet has complained about this risk and regulation and now characterized his investment in generation to be “a costly mistake”. Recently, he even suggested that the electric generation, transmission and distribution utility may not actually be suited for investor ownership. Public power advocates have long agreed with those sentiments. It is a view which advocates would be wise to seize upon in their efforts to build the case for public power.

NUCLEAR LOAN

The timing around the holiday for a resurrection story could not be made up but just before Easter we were provided with one. The U.S. Department of Energy announced that it would loan $1.5 billion to the owners of the closed Palisades nuclear plant in MI. If the plant is successfully restarted, it would be the first nuclear plant to do so in the U.S. The Diablo Canyon nuclear plant in CA received federal assistance but that was to extend operations at a functioning plant.

The state had previously pledged $300 million toward the Palisades restart, contingent on the federal investment. It was all part of legislative actions which requires all state electricity to be from carbon-free sources by 2040. Nuclear was classified as “clean” but not a renewable but as a no-carbon resource it fits the goals of the legislation. This is just the start of the process.

The repowering plan must be approved by the Nuclear Regulatory Commission, which will require approval of multiple pending licensing requests for the project. The hope is to extend the life of Palisades through 2051 providing 800 megawatts to the electrical grid. The loan will serve as a bridge financing until operations activate long-term power purchase agreements are already in place with two rural electric cooperatives with customers in Michigan, Illinois, and Indiana.

ANOTHER ONE BITES THE DUST

Birmingham-Southern College, a private liberal arts school in Birmingham, Ala., is set to close at the end of May. The decision comes after it failed to secure a multimillion-dollar loan from the state. Alabama lawmakers last year approved a new loan program that could lend Birmingham-Southern as much as $30 million. The state treasurer twice denied the loan last year, citing concerns about the school’s ability to pay its debts.

The legislature sought to change the loan program this year to move the responsibility of approving loans from the state treasurer to the Alabama Commission on Higher Education and further specified the terms of the loan. That legislation could not make it through the Alabama house so the school decided to cease operations. It has a long history of financial weakness and mismanagement which has not helped its cause.

MANSION TAXES

The concept of a tax on the sale of homes above a certain price (usually a minimum of $1 million) is not new. Attempts to create one in NY state were unable to make it through the legislature. Earlier this year the voters in Chicago defeated a ballot item which would have created such a tax. These votes transpired in the wake of the establishment of a mansion tax in Los Angeles via a vote in November of 2022. We now have a year’s worth of data from Los Angeles to analyze to see if such a tax has the desired effect.

Measure ULA, levies a 4% charge on all property sales above $5 million and a 5.5% charge on sales above $10 million, with proceeds funding affordable housing and homelessness initiatives. It is more expansive than other proposals in that not just luxury home sales, but also multifamily developments and commercial properties, since the tax applies to all property sales above $5 million.

Initially, proponents of Measure ULA estimated the tax would raise some $900 million per year. Last March, a report from the City Administrative Office lowered that number to $672 million. According to the L.A. Housing Department, Measure ULA has raised roughly $215 million in its first year. In the first three months of Measure ULA, the tax raised $15 million, only $5 million per month. The trend of collections has more recently been positive.

But from July 2023 to February 2024, the tax raised roughly $200 million, or $25 million per month. Projections for the city’s fiscal year, which starts on July 1 and ends on June 30, would be around $300 million. This has not slowed efforts to overturn the tax. Opponents focus in on data showing that from April 2022 to March 2023, the year before Measure ULA hit, L.A. had 366 single-family home sales of $5 million or more. In the 12 months since, there were just 166 — a drop of roughly 68%. They cite much lower rates of sales slowdowns in neighboring cities which have not imposed a mansion tax.

In November, Californians will vote on a statewide ballot initiative called the “Taxpayer Protection Act.” If passed, the act would require special taxes to be approved by two-thirds of the vote instead of a simple majority, applying to all measures adopted after Jan. 1, 2022. Since Measure ULA was adopted in 2023 and only received 57% approval, it could require another vote or potentially be repealed.

RECREATIONAL CANNABIS AND THE SUNSHINE STATE

Medical marijuana was approved in 2016 to become legal in Florida. Since then, efforts have been ongoing to get recreational marijuana approved. They have been stymied by court decisions which kept earlier efforts off the ballot. Now, the Florida Supreme Court has approved a ballot initiative to legalize recreational use which will appear on the November ballot.

Amendment 3 will legalize the “non-medical personal use of marijuana products and marijuana accessories by an adult” 21 or older if approved by 60% or more of statewide voters. It would take effect six months after the election. Prior efforts in 2021 to advance such an initiative failed to pass muster with the Court. Observers note that the decision represents a clear reversal of positions on the Court as both decisions were issued under significant majorities. Medical marijuana got a 71% vote in 2016.

SMALL POTATOES

The Idaho Legislature is taking up the battle against ESG investment management that is regularly occurring in so-called “red states”. House Bill 669 would ban the largest banks and credit card companies from financial “discrimination” against any person or entity on the basis of “social credit scores” that consider their views on religion, climate targets or gun regulation. The bill would only apply to banks with more than $100 billion in assets and to payment processing companies that handle over $100 billion annually. The Idaho attorney general would have authority to investigate and enforce the law and to allow private lawsuits.

What is useful about this particular exercise is the fact that the sponsors of the legislation have been very open about the fact that they did not write the law. It was written for them by a group of conservative thinktanks. In this case it was written by a Christian nationalist organization. After all, we’re talking about Idaho.

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.