Joseph Krist

Publisher

NEW YORK CITY

The results of this week’s mayoral primary in New York have the press hyperventilating over the potential for the City to have a socialist mayor. In the midst of all of the tumult, it is important to emphasize some of the security features supporting the City’s general obligation debt. Those features were adopted in the wake of the City’s 1975 financial crisis.

Primary among them is the procedure for securing the property tax revenues supporting general obligation bonds. Property tax revenues are accumulated monthly and can only be applied to general obligation debt service before any other use. Collections of those taxes are annually well in excess of the City’s annual general obligation debt service requirements.

The City could also lose control of its financial operations in the event that balanced budgets are not adopted. Should the City budget for a deficit of $100 million or more, a control board can be established by the State to oversee the City’s budget. There are powerful incentives for the City to keep its fiscal house in order and for a Mayor to keep control.

This will be one of the weirdest elections for Mayor the City has seen for some time. Currently, there are four candidates for the November ballot including the current mayor Eric Adams. How serious all of the candidates are is subject to debate. The next four months provides an opportunity for candidates like the socialist candidate to explain how they would implement policies consistent with their politics.

At the same time, the tumult around the election could create a buying opportunity. The situation is reminiscent of the first bond issue under the Dinkins administration. Many of the same concerns expressed then are being expressed now. When the City sold bonds in February, 1990 those concerns generated an 8% coupon on thirty year general obligations callable in ten years. The resulting 8% plus annual return over ten years from those bonds until they were refunded looked good in one’s portfolio.

ELECTRIC VEHICLES

Ford Motor said that it was committed to completing and opening a battery plant in Michigan, even if Congress and President Trump make the project ineligible for tax incentives. The $3 billion plant, in Marshall, Mich., 100 miles west of Detroit, is planned to use battery and manufacturing technology that Ford licensed from a Chinese company, Contemporary Amperex Technology Ltd., known as CATL. The announcement comes as Congress considers a budget plan which would eliminate or severely slash tax incentives of electric vehicle production.

If the credits survive, they could offset about a quarter of the cost of the plant. The House version of the Republican bill would eliminate credits for plants that were built with materials or technology from China, Iran, North Korea or Russia. In Georgia, U.S. battery plants use technology from suppliers based in South Korea or Japan, which are not targeted by the bill. The Michigan plant is scheduled to start production next year and is supposed to create 1,700 jobs. The plant has already been affected new tariffs that Mr. Trump has imposed. The manufacturing machinery for the plant is in transit from China and will be subject to higher tariffs.

This week, LG Energy Solution, a division of the major Korean battery manufacturer, is now producing battery cells for grid-scale energy storage at a site in Holland, Michigan. The company spent $1.4 billion to expand the factory, which previously made electric vehicle batteries. Lithium iron phosphate chemistry (LFP), offers fire-safety benefits, durability, and lower costs compared to the typical electric vehicle chemistries.

Until now, American battery customers had to rely on Chinese suppliers.. LG’s facility appears to be the largest giga-scale LFP production in the U.S. Japan’s AESC recently launched LFP production at its factory in Smyrna, Tennessee. The company initially intended to install these manufacturing lines in Arizona, but by shifting the LFP equipment to the space in Holland, LG could open commercial production a full year earlier than originally planned. The Holland manufacturing space covers the area of 42 football fields, and will employ 1,700 people when fully staffed. 

NUCLEAR REVIVAL

Governor Kathy Hochul announced that New York is planning to build a nuclear power plant which would produce half as much power as the Indian Point complex north of New York City that was shut down four years ago. Since then, that power has been replaced largely by natural gas as New York no longer has operating coal generators. New York derives about one-fifth of its electricity from three nuclear plants operated by Constellation Energy on Lake Ontario.

The plan articulated by the Governor is short on basic details – cost, schedule, location. The New York Power Authority will manage the project but the expectation is that it will be built through private entities. In January, Constellation and the New York State Research and Development Authority sought federal funding for their effort to obtain permits for one or more advanced reactors at the Nine Mile Point Clean Energy Center in Oswego.

The U.S. Supreme Court, by a 6-3 vote, reversed a federal appeals court ruling that invalidated the license granted by the Nuclear Regulatory Commission to a private company for the facility in southwest Texas. The licenses would allow the companies to operate the facilities for 40 years, with the possibility of a 40-year renewal. It is estimated that some 100,000 tons of spent fuel, some of it dating from the 1980s, has been held at current and former nuclear plant sites nationwide and growing by more than 2,000 tons a year. 

The NRC granted the Texas license to Interim Storage Partners, based in Andrews, Texas, for a facility that could take up to 5,500 tons (5,000 metric tons) of spent nuclear fuel rods from power plants and 231 million tons (210 million metric tons) of other radioactive waste. The facility would be built next to an existing dump site in Andrews County for low-level waste such as protective clothing and other material that has been exposed to radioactivity. 

STADIUM DEALS

It has been a busy Spring in the world of stadium deals as governments use the budget process to create financial support for professional sports stadiums. The legislation comes as two Major League Baseball teams play in minor league stadiums. One, the Tampa Bay Rays, may be sold to interests which may or may not wish to keep the team in greater Tampa Bay. In the interim, repairs to the existing stadium in St. Petersburg are underway with the hope of being ready in Spring 2026. The other, the A’s, broke ground on a new $1.75 billion stadium in Las Vegas, expected to be completed in time for Opening Day 2028.

The Arizona Diamondbacks (MLB) are in position to secure up to $500 million with extensions to existing state taxes to help fund renovations to Chase Field.

The Arizona legislature voted to approve the recapture of sales taxes from the stadium and other adjacent buildings over the next 30 years to update infrastructure at the retractable roof facility which has been home to the D-backs since 1998 and is owned by the Maricopa County Stadium District. The Diamondbacks say they will also contribute $250 million of the team’s money to help fund renovations. 

Missouri lawmakers enacted legislation that includes hundreds of millions of dollars of financial aid intended to persuade the Chiefs and Royals to remain in the state. Lawmakers in Kansas voted to authorize bonds for up to 70% of the cost of new stadiums in their state. The Royals have bought a mortgage for property in Kansas. The offer from Kansas is scheduled to expire June 30. The Chiefs and Royals currently play at the Truman Sports Complex where Arrowhead Stadium and Kauffman Stadium share parking facilities. Their leases with Jackson County, Missouri, expire in January 2031.  

The Royals property acquisition comes in the wake of Jackson County voters’ defeat of a sales tax extension that would have helped finance an $800 million renovation of Arrowhead Stadium and a $2 billion ballpark district for the Royals in downtown Kansas City. That opposition led to the inclusion of items not related to stadium finance in the legislation. When Kansas Gov. Mike Kehoe called lawmakers back into session earlier this month to consider stadium legislation, he agreed to allow an amendment requiring most counties to put a hard cap on increases in property tax bills.

In 75 counties, tax bills would not increase more than 5% per year from a base amount, or the rate of inflation, whichever is less. In 22 others, no increase in the basic bill would be allowed. That has raised questions as to the constitutionality of the plan as the Missouri Constitution requires that property taxes be “uniform upon the same class or subclass of subjects.” That may require reconsidering of the plan in the legislature this fall.

Then there is the situation in Cleveland. When Cleveland was awarded a franchise to be reestablished as the Browns, state legislation was enacted which included provisions limiting where the franchise could relocate in the future out of its stadium. The Art Modell Law (he moved the original Browns to Baltimore) keeps the Browns from moving out of downtown Cleveland or so it was thought. The Browns are in the midst of purchasing a suburban Cleveland site for an enclosed stadium. There is pending litigation over exactly what the limits were under the law. Now, the state budget includes provisions which establish the law allows Ohio pro sports teams who play in tax-supported facilities to move within Ohio when their leases expire.

And oh yes, the legislation included $600 million in funding from the state for the Browns new stadium by creating a new Sports and Culture Facility Fund through the escheatment of $1.7 billion from the state’s unclaimed property fund, which has grown to $4.8 billion in size. The plan leaves an additional $1.1 billion for future stadium construction asks from Ohio’s other pro sports franchises.

The Hamilton County commissioners voted to approve the framework of a new lease keeping the Bengals downtown in Cincinnati through at least 2036. The new agreement calls for a $470 million renovation of Paycor Stadium, of which the county will contribute $350 million and the Bengals/NFL will contribute $120 million, as well as agreeing to begin paying rent for the first time. They will pay $1 million over the next three years and then $2 million each year of the final eight years of the agreement, as well as for any extension years. The improvements are expected to take two to three years and currently involve no state funding. 

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.