Joseph Krist

Publisher

It’s time to take some time to enjoy the summer here in the mountains. To that end, we will publish our next issue dated September 1. Enjoy the weather and the long Labor Day weekend!

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CHICAGO

The budget season is officially under way in Chicago as the two major entities – the City and CPS- begin their budget processes. CPS has an earlier deadline for submitting its budget – this month versus mid-October for the City. As things stand in Chicago, a budget gap for fiscal 2026 has been forecast for the City’s budget of $1.1 billion. This most recent estimate comes as the Chicago Public Schools face near term deadlines for the development and enactment of a budget. CPS also faces a significant budget gap but it also is dealing with requests by the City that CPS pick up additional pension costs currently funded by the City.

The funding of those pensions has been a core source of dispute between the Mayor and the City. The last school CPS CEO left after disagreeing with the Mayor’s plan for CPS to issue debt to fund annual pension requirements. So, it came as a bit of a surprise when the replacement CEO also did not want the pension hit on their budget or balance sheet. That major dispute needs to be worked out.

The City faces a range of unsavory choices in taking steps to fill the projected budget gap. Among them are raising garbage collection fees from the current $9.50 a month to as high as $52 could net $296.9 million a year, according to the mayor’s list of ideas. Others include reviving a head tax, under which big companies pay $4 a month per employee, which could raise $25.6 million; reinstating a property tax escalator that pegs annual property tax increases to the rate of inflation.

New items could include charging a professional services tax on things like haircuts, lawn care and car repair which could yield an estimated $305 million for the city. That would require approval in Springfield, making any effort too late for the FY26 budget. The Mayor is considering asking universities, churches and other nonprofits to make a payment in lieu of property taxes (PILOT) which could raise $52 million annually.

WIND

Recently, it was estimated that as much as $317 billion in lost investment could result from efforts by the Trump administration to stop wind generation development. That figure is based on the 790 projects totaling 213 gigawatts that developers plan to build in the years to come — all of which are at risk of delay or even cancellation under the administration’s policies.

One approach is that the US DOT has proposed a 1.2-mile setback in a country with as many highways and railroads as ours would restrict development on a huge swatch of the country’s land. Even just accounting for the Interstate Highway System and the network of U.S. highways, this would go a long way to stopping many projects in their tracks.

The New Jersey Board of Public Utilities delayed offshore wind power transmission infrastructure in the state by more than two years. The BPU said the decision follows President Donald Trump’s move to block plans for offshore wind development. The board also canceled its approval of the Atlantic Shores wind project, a two-phase wind farm between Atlantic City and Barnegat Light. The developer had requested that the contract for the project be cancelled this past June.

Orsted, the large Danish renewable energy developer, said that it would issue new shares worth 60 billion Danish kroner, or about $9.4 billion. The company said it was issuing the new shares because it was unable to carry out plans to sell a portion of Sunrise Wind, a large offshore wind project it is building 30 miles off Montauk Point in New York. Orsted expects Sunrise to begin operations in 2027.

Ørsted originally planned on building three projects serving New England and New York with Eversource Energy, a New England utility. However, Eversource sold its shares in those projects in 2023. Ørsted purchased complete control of Sunrise Wind for $625 million.

The Town of Nantucket has agreed to extend deadlines in its approval process for the Vineyard Wind project. The Town has made 15 demands of the operator after pieces of a wind turbine washed up on shore after an accident. The town’s demands fall into three broad categories: adequate communication, lighting, and emergency response planning. 

MTA

S&P Global Ratings raised its long-term rating and underlying rating on Metropolitan Transportation Authority (MTA), N.Y.’s transportation revenue bonds (TRBs) outstanding to ‘A’ from ‘A-‘. The upgrade reflects New York State’s decision to increase the payroll mobility tax for MTA’s capital programs, the initial financial success of MTA’s Manhattan congestion pricing program, ongoing recovery in ridership levels, maintenance of healthy liquidity levels, clarity regarding funding sources of the recently approved 2025-2029 capital program, and manageable projected out-year deficits.

BRIGHTLINE

This week brought the second S&P downgrade of the year for debt issued to finance the Brightline high speed rail project in Florida. S&P Global Ratings lowered to ‘BB-’ from ‘BB+’ its issue-level rating on the unenhanced bonds issued by the Florida Development Finance Corp. for the benefit Brightline Trains Florida LLC (Brightline). Brightline is looking to refinance some $985 million of project debt.

As we go to press, new bonds were offered with a 10% coupon with a mandatory put on June 15, 2026 at $104.25, putting the approximate yield on the put date at 14.891%. The $985 million Aug. 13 redemption is for Brightline Florida’s commuter bonds, which carry an 8.25% coupon and a $104.25 mandatory put on Aug. 13. 

That reflects the limited market for the debt as well as the guarded outlook for improved operating results. S&P highlighted several areas of decline relative to its own projections for ridership and revenues. Long- and short-distance ticket revenue fell short of S&P’s previous base-case forecast (April 2025) by about 28% for the trailing-12-month period ending June 2025. The ability to raise prices despite year-over-year ridership increases has stalled, particularly for long-distance trips, which account for 75%-80% of ticket revenue. Year-to-date 2025 long-distance fares have declined by 2.4% compared to the same period for 2024.

The existing right of way which helped this project avoid significant environmental and land ownership issues may now be posing a problem. The Florida East Coast Railway last month sued Brightline saying the commuter service violates existing agreements and threatens its freight operations. The next 12-18 months will be a key period for Brightline to establish reasonable operating results.

TARIFFS AND PORTS

July was the busiest month on record in the 117-year history of the Port of Los Angeles. The Port handled 1,019,837 Twenty-Foot Equivalent Units (TEUs), 8.5% more than last July. Retailers and manufacturers brought in goods at an elevated pace due to concerns of higher tariffs later this year. July 2025 loaded imports came in at 543,728 TEUs, 8% more than last year and the most imports ever in a month at the Port. Loaded exports landed at 121,507 TEUs, a 6% improvement from 2024. The Port processed 354,602 empty container units, 10% more than last year.

Seven months into 2025, the Port of Los Angeles has handled 5,975,649 TEUs, 5% more than the same period in 2024. The most recent 90 day delay in some tariffs on China will help to drive higher than average handlings but we expect some moderate slowdown to reflect the acceleration (especially from China) of shipments to beat the August 1 deadline.

FRACKING AND THE ECONOMY

About this time two years ago, we commented on the results of a report put out by the Ohio River Valley Institute regarding the impact of fracking on the economies of counties in Appalachia. (See 8.28.23) The data from that report showed that the benefits of fracking on local economies are often overstated. The project included 22 counties which produce 90% of fracked gas. The region is nicknamed Frackalachia.

The Institute has now released findings including two additional years of production. It also includes 8 additional counties which allows the report to cover 95% of the production in the area. Frackalachia is now a 30-county region in the Ohio River valley and northeastern Pennsylvania that is home to one of the world’s richest natural gas fields. The Marcellus and Utica shale plays produce nearly a third of US natural gas, an amount equivalent to 3% of global natural gas consumption. 

Between 2008, prior to the start of the Appalachian natural gas boom, and 2023, GDP in the 30 principal gas-producing counties of Ohio, Pennsylvania, and West Virginia grew nearly 13% faster than that of the nation. The Frackalachian counties, which are clustered in north-eastern Pennsylvania and in the greater Ohio River Valley, have a combined population of 1.85 million people as of 2024. If Frackalachia were a state, it would rank 39th in population just behind Idaho and ahead of West Virginia.

So that’s been good for residents, no? Apparently not. When measured by growth in population, jobs, and other measures of prosperity, Frackalachia would be one of the poorest and fastest declining states in the nation. The number of jobs based in Frackalachian counties fell by one percent even as it grew 14% nationally. Incomes in the Appalachian natural gas counties grew at a rate that was only three-quarters that of national income growth. The Appalachian natural gas counties’ population declined by 3% while the nation’s population grew by 10%.

The report comes out in the wake of ongoing efforts to push natural gas as the fuel of choice for large industrial uses. Just this year, the Ohio legislature enacted Senate Bill 2 and House Bill 15 4, which encourage the development of gas-fired power generation, particularly in conjunction with the construction of data centers, and reduce the power of local governments to regulate such development.

The Pennsylvania Senate has passed Senate Bill 102, which would prevent any municipality that imposes limits or requirements on natural gas development that are more onerous than those contained in state law from receiving any share of Act 13 impact fee revenues paid to the state by the gas producers. And West Virginia recently enacted House Bill 2014 5, which is designed to encourage the development of data centers powered by coal and natural gas.

When measured by growth in population, jobs, and other measures of prosperity, Frackalachia would be one of the poorest and fastest declining states in the nation. The findings mesh with similar shortfalls in overall economic benefits of energy development in other parts of the country. Increases in drilling in existing traditional oil fields has not increased despite the increased activities. Technological advances have enabled producers to increase production without increasing employment.

NUCLEAR

The U.S. Department of Energy (DOE) announced that 11 advanced reactor projects will participate in the Nuclear Reactor Pilot Program to move their technologies towards deployment.  The goal of the Reactor Pilot Program is to expedite the testing of advanced reactor designs that will be authorized by the Department at sites that are located outside of the national laboratories. Each company will be responsible for all costs associated with designing, manufacturing, constructing, operating, and decommissioning their test reactors. 

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.