Joseph Krist

Publisher

PREEMPTION

Michigan’s new Clean Energy Future legislation takes effect this November. The law includes a provision that moves final authority for the permitting of large-scale renewable energy projects over to the Michigan Public Service Commission. Before that, such decisions were decided at the local township level. State legislators were concerned that local permitting hurdles would make the state’s efforts to achieve net carbon neutrality unachievable.

The Sabin Center for Climate Change Law at Columbia University reports that as of last year, the center counted nearly 300 projects that have faced serious opposition, and at least 228 local governments that either place onerous restrictions on wind and solar projects or ban them outright. The report calculates the number of challenged projects increased 39% and the number of local restrictions increased by 35% during the period of March 2022 to May 2023.

A new law passed by the Illinois General Assembly last year set statewide standards for wind and solar projects. It is a good example of the other side of the preemption issue. Most of what we have seen to date have been efforts by localities to adopt policies within their own jurisdictions. Those localities bridle at the idea that the state could override for those policies (usually social issues) but are happy to use the technique for climate goals.

Which leads us to…

PIPELINES

In South Dakota, legislation was rejected by a House committee which would have prohibited the use of eminent domain by carbon dioxide pipelines if more than half of the transported carbon dioxide is intended for sequestration rather than commercial uses such as carbonated beverages or enhanced oil recovery. The committee rejected a bill that would have required the pipeline project to have voluntary easements with landowners on 90% of the route before attempting to use eminent domain for the rest.

What drove the votes?  Two-thirds of corn grown in South Dakota is sold to ethanol plants, and ethanol producers have said they need the project to stay viable in markets that require fuels to reduce their environmental impact. Additional legislation has now advanced to the State Senate which would prevent counties from enacting local zoning rules strict enough to regulate gas or liquid pipelines out of existence. To offset the loss of local control, it provides

for counties to levy a per-foot surcharge on pipeline companies and codify certain landowner protections for things like disrupted drain tile.

In Missouri, the Missouri House approved legislation that will block cities and counties from requiring developers to install electric vehicle charging stations in new construction projects. the measure is aimed at preventing local governments from “overly burdening businesses with regulations”. The legislation came in response to a 2021 decision by the St. Louis County Council requiring developers to add electric car charging stations to parking lots. 

Under the terms of the bill, any city or county that requires the installation of charging stations in new construction projects must pay all of the costs and provide maintenance of the unit once installed. The measure also prohibits cities and counties from requiring more than five electric vehicle charging stations per parking lot in parking lots of less than 30 parking spaces. The measure now goes to the Senate, which has previously failed to advance earlier versions. 

House Bill 1034, a bill requiring hydrogen pipelines to be permitted by the South Dakota Public Utilities Commission, was passed by huge majorities. In Florida, legislation (SB 1084) advanced by the Florida Senate would preempt local governments from requiring a higher number of parking lot spaces to be reserved for electric vehicles. Sponsors made clear the measure would outlaw extra spaces even if developers want to put them in. The Florida Department of Agriculture and Consumer Services will have control over setting thresholds. They would be able to determine what percentage of spaces could be set aside for electric car charging. It would be against the law to exceed the limits.

NEW YORK CITY BUDGET

We know that there are many steps in the process of establishing a final budget but nevertheless the analysis of the Mayor’s proposed budget for FY 2025 from the Independent Budget Office (IBO) is useful. IBO starts with updated FY 2024 numbers which project a Current Year Surplus of $2.8 Billion more than the Adams Administration’s estimate. This higher surplus results from IBO’s forecast of approximately $900 million more in anticipated tax revenues in 2024 than the Administration’s estimates, coupled with IBO’s estimate that City-funded spending will total about $1.9 billion less than presented in the Preliminary Budget financial plan. 

A $3.8 billion surplus is projected for FY2025. The surplus is driven by IBO’s forecast of $2.0 billion more in anticipated tax revenues than the Administration’s estimate and the use of this year’s $2.8 billion surplus to prepay some of next year’s expenses but is tempered by IBO’s estimates of $1.5 billion in additional spending over the Administration’s projections. Although the outyear budgets are not balanced, IBO’s projected gaps are well within the range that the City has closed in the past. The City could roll forward some of the 2025 projected surplus to help close the gap in 2026.

On the spending side, IBO expects spending to come in notably lower than Preliminary Budget levels in two areas. IBO anticipates the City will spend $1.6 billion less on salary and fringe resulting from civilian, non-pedagogical vacancies in 2024. Current active full time headcount is approximately 285,000 positions, which is 5% lower than the peak of 300,000 positions in 2020.

IBO also estimates $2.4 billion less in spending on asylum seekers than what is reflected in the Administration’s estimates across 2024 and 2025. In addition, IBO forecasts lower charter school enrollment than the Administration, estimating $91 million in savings from 2026 through 2027 for charter school tuition costs. Spending continues to grow. In the current FY, spending has risen 7% since the adoption of the budget. City funded spending is up 3%.

As for the economy of the City, the sector that has gained the most jobs since the pandemic (nearly 138,000) is Health Care and Human Services. Most of that growth is concentrated in the low-wage ambulatory care subsector, which includes home health aides. Other sectors that have surpassed pre-pandemic levels include some of the highest wage industries in the City— particularly the finance and insurance sector and professional, scientific, and technical services. Employment in many low-wage industries continues to trail well behind pre-pandemic levels, notably retail trade and leisure and hospitality.

What drives spending? The Department of Education, Department of Social Services, and centrally budgeted costs such as fringe benefits, pension costs, and debt service, have the largest budgets by agency, in line with past years. As of the Preliminary Budget, they comprise nearly two-thirds of the City’s total expense budget.

TWO SIDES OF ENVIROMENTAL REVIEW

Two situations were reported this week which reflect different approaches to environmental laws and reviews. It may surprise you when you see which entities are taking the approach they are taking in regard to development. They both serve to undercut stereotypes about attitudes towards environmental regulation and both have potentially significant impacts on development.

The first is San Francisco where a State senator will introduce legislation which would effectively end environmental reviews for proposed developments in a large piece of San Francisco. The law would amend the California Environmental Quality Act (CEQA) to remove requirements for review to a 150 block area in downtown SF. It comes as 35 percent of office space remains empty four years after the onset of the pandemic in the city.

The proposal would limit reviews and the rights of individual entities to intercede in the environmental approval process. It highlights the contradictions in the concerns of advocates and interest groups. On one side are those who believe that the environmental process needs to continue to stymie “gentrification”. They are many of the same arguments made against prior proposals to encourage development around suburban transit facilities.

On the other side are the housing advocates who look at empty buildings and masses of homeless individuals and see a potential to significantly impact the supply of affordable housing. Those advocates find themselves to some degree on the same side as developers they historically oppose. Labor interests are also allied with the proposal. The law will waive environmental review for only projects that pay a prevailing wage. It would still require environmental review for hotels and waterfront property, as well as for the demolition of any building that housed tenants within the past decade.

In Montana, a state judge ruled that state officials have failed to impose adequate limits on the construction of new homes that rely on groundwater. At issue, was a proposed small housing development in ranch country. The project would have relied on new wells in an area where aquifer levels have been steadily declining. Nonetheless, the project received both county and state approval. The judge found that Montana’s policy for approving new developments violates state law.

BAD WEEK FOR AUTONOMOUS VEHICLES

Waymo announced a voluntary recall of its self-driving car software following two incidents involving its vehicles in Phoenix, Arizona. Waymo said the company chose to do the voluntary recall after consulting with the National Highway Traffic Safety Administration and its internal review of two incidents which took place in Phoenix on Dec. 11, 2023, in which two robotaxis crashed into the same towed pickup truck within minutes of each other.

Last week, a driverless Waymo car collided with a cyclist in San Francisco, causing minor injuries and the incident is now being reviewed by the state’s auto regulator. Tesla’s autonomous vehicle software was involved in a recent accident while being employed by the driver. The California DMV has filed formal accusations against Tesla saying that the company’s marketing and advertising is deceptive.

And then there is Cruise, the driverless car company owned by General Motors. Already under restrictions in SF, the company faces new charges. The California Department of Motor Vehicles is investigating allegations that a self-driving vehicle operated by Cruise nearly hit a 7-year-old boy after it failed to yield to him and his family while they crossed the street in San Francisco last year. The National Highway Traffic Safety Administration is investigating at least four incidents involving Cruise vehicles and pedestrians.

TURNPIKE KEEPS ON ROLLING

The pandemic was hard on New Jersey’s overall transportation systems. Low ridership on trains hurt revenues on New Jersey Transit and the PATH. So long as remote work predominated, toll revenues were hurt. Private bus services which had been a lynchpin of the New York metropolitan area transit in some cases found themselves out of business. One entity which has done just fine in the period of recovery from the pandemic has been the New Jersey Turnpike Authority (NJTA).

The Authority owns and operates the New Jersey Turnpike (NJT) and the Garden State Parkway (GSP). They serve as a key link in the I-95 corridor and are the gateway to the NJ shore, respectively. The system has established a history of continued demand for the roads through large rate increases, economic recessions, and other negative shocks like the recent pandemic. 

The Authority also has shown a much better record of toll adjustments. Historically, tolls were a very highly politicized issue. Now, under a state approved plan an annual toll indexation policy to ensure financial metrics has been established. There is still a potential for politicizing tolls as the Governor approves NJTA’s budget and toll rates. It is in a governor’s interest to support increases as excess Authority revenues can be transferred to the State.

Moody’s affirmed the Turnpike Authority’s senior revenue bond rating at A1 with a stable outlook this week.

COLLEGE CREDITS CONTINUE TO WEAKEN

Moody’s downgraded Allegheny College’s (PA) issuer and revenue bond ratings to Baa3 from Baa2 and maintained a negative outlook. One of the oldest private liberal arts colleges in the United States served 1,168 full-time equivalent students in fall 2023 and generated $67 million of operating revenue in fiscal 2023. Demand has been a problem and is not projected to improve.

Moody’s also downgraded Webster University’s (MO) issuer and revenue bond ratings to B1 from Ba3. The ratings have been placed under review for possible downgrade, previously the outlook was negative. A going concern opinion in the fiscal 2023 audited financial statement was an obvious issue as liquidity has dwindled. This has led the University to rely on through $40 million of outstanding lines of credit at fiscal end 2023 adds elevated credit risk. The lines are due on demand and collateralized by endowment funds. 

Another pressure source– employee costs. This week, the California State University system and the union representing 29,000 professors, lecturers, librarians, counselors and coaches reached an agreement which would immediately increase salaries for all faculty members by 5 percent, retroactively to July 1, 2023, with another 5 percent raise scheduled for July 1, 2024, if the state does not cut funding for the university system. The salary floor for the lowest-paid faculty members would immediately rise by $3,000 a year, and paid parental leave would grow to 10 weeks from six.

ROCKY MOUNTAIN HOMELESS

Denver, a city of 750,000, had received nearly 40,000 migrants, the most per capita of any city in the nation. Denver has spent more than $42 million on the migrants. If expenditures continue at the current pace of $3.5 million a week, the crisis could cost the city about $180 million in 2024, or 10 percent or more of its annual budget. The City has received only $9 million authorized in federal reimbursements. 

Denver does not allow local law enforcement to detain undocumented immigrants solely on the basis of their status and does not turn them over to federal authorities unless a judge has issued an arrest warrant. To become eligible for work permits, migrants must apply for asylum, a cumbersome process, and then wait 150 days. After pausing discharges of migrants in November because of the cold, Denver recently reinstated time limits for migrants in city-provided hotels. Stays will be up to 14 days for adults without children and 42 days for families. 

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.