Joseph Krist
Publisher
BIG BUT NOT SO BEAUTIFUL
The Big Beautiful Bill has stumbled across the finish line and as far as municipal credit sectors are concerned, two stand out especially. The first is higher education which was already facing demographic headwinds. Now a combination of culture war politics and immigration law are combining to result in some serious hits to revenues. The sector really under the gun will be healthcare. The expected loss of medical insurance by some 12 million people is incredibly negative. Many of those were enrolled under the ACA in time to receive care during the pandemic.
Then there is the issue of Medicaid provider taxes. These taxes the state levies on various health care providers, such as hospitals, nursing homes, managed care organizations and even ambulances. Cutting the rate of the tax is good, right? These taxes are considered to be a contribution to a state’s total spending on Medicaid. The federal government matches state spending at a rate between 50% and 80%, with no upper limit, higher provider taxes can mean higher state spending, which results in a higher federal contribution. That money can then ultimately go back to providers in the form of increased Medicaid payment rates.
By cutting the rate of the tax, the Federal government effectively makes a smaller payout to the state. That means that Medicaid reimbursement rates will decline while now uninsured patient numbers will likely increase. The math simply does not work if you want to strengthen balance sheets and liquidity. The rules date back to the Reagan administration. States have been taxing health care providers since the 1980’s to pay for the non-federal portion of Medicaid programs. Congress restricted the use of these taxes in 1991, establishing rules still in place today for how states implement them.
The must apply equally to all providers equally within a specific class, such as hospitals or nursing homes. States also must not directly or indirectly guarantee that the money will go back to providers — a concept referred to as “holding harmless.” However, the federal government currently exempts states from the hold harmless requirement on taxes up to 6% of revenues from treating patients. That limit is called the “safe harbor” limit and 38 states have provider taxes higher than 5.5%. Georgia is the only state with provider taxes below 3.5%, and Alaska is the only state that has no provider taxes.
The other component of the healthcare funding issue is the role of the industry as a major employer. Healthcare writ large is the largest source of employment in the U.S. going from 9 percent of the total workforce in 2000 to 13 percent today. In 38 states, the industry is now the biggest employer. In big cities, healthcare is a major entry level job provider to immigrants and non-college graduates. In rural areas, hospitals and physician practices are often the largest employers.
GRAIN BELT EXPRESS
The Grain Belt Express would carry electricity produced by wind farms in Kansas across Missouri and Illinois all the way to Indiana. The Missouri attorney general opened an investigation into Grain Belt Express and requested that the state’s Public Service Commission reconsider its approval. The AG claims that developers of the transmission line fraudulently inflated the number of jobs it would create, overstated cost savings to consumers, and misled landowners. He said his intention was “ultimately killing this project.”
The Biden administration in November offered a $4.9 billion conditional loan guarantee to help finance the project. And Invenergy awarded $1.7 billion in contracts to construction firms, saying work would begin next year.
CALIFORNIA
The California Environmental Quality Act, or CEQA, requires government agencies to review and disclose the environmental impact of any public project, including new housing developments. It is often cited as a significant contributor to the State’s housing shortage. Now several factors have come together to drive the legislature to approve the first major reform of CEQA after some four decades of its impact. The Los Angeles fires were just a final straw that turned CEQA into an obstruction to development.
This time, the Governor tied his signing the budget to the approval of the legislation required to relax CEQA rules. Those bills reduce the number of documents that projects must provide for their environmental reviews; eliminates the reviews entirely when cities rezone neighborhoods to meet their state-mandated housing goals, as well as for building farmworker housing, sewer systems in disadvantaged communities, broadband internet, public parks and trails, rural health clinics, food banks, advanced manufacturing facilities, day care centers and stations for the high-speed rail project.
ROAD USAGE FEES
The Hawai‘i Department of Transportation implemented its Hawaiʻi Road Usage on July 1. On the next registration renewal received after July 1, eligible EV owners will have the option to pay a state per-mile road usage charge (RUC) of $8 per 1,000 miles, capped at $50, or a state flat annual state RUC of $50. Both options replace the state’s current $50 EV registration surcharge. By 2028, the state per-mile RUC will become mandatory for EVs, and by 2033, the program is expected to expand to all light-duty vehicles.
NEWARK AIRPORT
Air traffic control problems that plagued Newark Liberty Airport were blamed for a 20% reduction in passenger volume this May than in May 2024. The reduction at Newark drove down the overall volume number at the three metro airports handled by the Port Authority. “May passenger volume at the airports overall was 7% below May 2024 which was driven by a sharp monthly decline at Newark Airport”.
The Federal Aviation Administration (FAA) ordered reduction in flights at the airport in May. The FAA mandated flight reduction brought the total to 56 flights an hour until a scheduled major runway repaving was completed. John F. Kennedy airport “broke a record set last year” for the busiest May on record at 5.54 million passengers, the PANY/NJ said. JFK topped the 2024 number by 1%. Volume at LaGuardia airport was “extremely strong” but slightly below the 3.01 million record set in May 2024.. May 2025 was the third busiest May on record at the airport.
CHICAGO PUBLIC SCHOOLS
Interim CPS CEO Macqueline King adjusted the district’s estimated deficit last week to $734 million, $200 million more than it was under her predecessor. CPS announced it was laying off 161 employees, including 87 crossing guards, and cutting 209 open positions. CPS enrollment has dropped from 402,000 in 2010 to about 324,000 today in 634 schools. About 150 of those schools are half-empty and 47 operate at less than one-third capacity. A current CPS’ closure moratorium lifts in January 2027.
Chicago Public Schools’ budget for the 2025-26 school year, normally released in June, is delayed until at least late July. The district’s new fiscal year starts on July 1 and schools received their budgets for the coming school year in May, based on the assumption that the district would have just a $229 million deficit to close. It was assumed the school district would receive an additional $300 million in new revenue that did not materialize from the state and has not yet come from the city. Those projections also assume that the district will not reimburse the City $175 million to fund part of a City pension payment that covers some school staff.
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