Joseph Krist

Publisher

STATE BUDGET GRIND

The annual state budget process has been a difficult one in many states. Economic uncertainties and federal policies on aid to states and immigration were already issues in an increasingly partisan environment. Add to that the economic impacts of the war with Iran and the ground has shifted underneath legislatures to the extent that late budget adoptions are already occurring.

In Florida, the legislature failed to pass a budget in the regular session. Now, a special session will be held to address the budget on its own. Strong pressure to reduce property taxes across the state have complicated matters. The lack of consensus around both revenue and spending levels between the two houses of the legislature has been a significant stumbling block. And there is that matter of the gubernatorial election in November and ballot initiatives on property taxes which is a real source of uncertainty.

Virginia lawmakers could not reach a budget agreement during the regular session of the legislature. This will force a special session in late April. Data centers are at the center of the process. The Commonwealth is considered to be one of the most impacted states because of the large and growing presence of data centers in Virginia.

New York has only one week to go before the end of fiscal 2026. Two issues have come front and center in this debate. One is the negative economic impact of the state’s climate and energy policies. This winter has been a disaster for residents who have faced 25% higher electricity costs. That according to the utilities, not off the cuff estimates by consumers. Given the fact that the Governor is up for reelection, there is significant pressure to adjust the State’s climate policies.

An additional factor is the pressure on New York City’s budget and bond ratings resulting from Mayor Mamdani’s refusal to acknowledge current political realities. Increasing taxes is not apolitically practical option. The Mayor seems oblivious to the reality that he has three plus more years of his term but that the entire state political structure is on the November ballot. We believe that as much as anything, the four negative outlooks assigned to the City’s bonds reflect a lack of confidence in the Mayor’s executive abilities.

PUERTO RICO AND OIL

One big loser from the impacts of the war in Iran is Puerto Rico, where oil-fired plants make up about 60% of generating capacity. Puerto Rico relies on fossil fuels for more than 90% of its electricity, with liquefied natural gas as its next-biggest source after oil. It gets most of its LNG from Trinidad and Tobago and from a facility in Mexico that is fed by U.S. pipeline imports.

Every three months, the island’s electricity regulator adjusts prices for fuel costs, a process that is set to happen next at the end of March. That means higher rates would kick in starting in April.  Jenniffer González-Colón, the Trump-allied governor of Puerto Rico elected in 2024, has supported plans to boost the island’s gas generation and weakened a 2019 law that commits it to ending the use of fossil fuels by 2050.

HOSPITAL MERGER

Minnesota’s Allina Heath announced it’s being acquired by northern California’s Sutter Health.  Allina Health would become the Upper Midwest Division of Sutter Health, maintaining the Allina Health name, brand and regional headquarters in Minneapolis. Allina Health includes 12 hospitals across Minnesota and western Wisconsin, including Abbott Northwestern in Minneapolis, United Hospital in St. Paul and Mercy Hospital in Coon Rapids. The health system also includes hospitals in Buffalo, Cambridge, New Ulm, Owatonna and Shakopee, along with more than 80 clinics and urgent care centers across the region.

The combined organization, including Sutter Health’s California operations, would have 18,000 aligned physicians and 88,000 team members serving more than five million patients. The system will include 39 hospitals and more than 400 primary and specialty care sites. Allina, rated A1 negative by Moody’s, has been looking to invest in its system but it has had trouble generating sufficient cash to do so. This deal is designed to fund some $2 billion of investment by Allina.

Sutter is rated A1 stable and this is a non-cash transaction. We see that as minimizing the potential ratings impact of the proposed transaction.

SOUR NOTE AT THE OPERA

We have previously noted the operating difficulties of the nation’s most famous and prominent opera company as it navigates changing economic and cultural realities. (MCN 2.2.26). Those issues have now taken their effect on the outstanding debt ratings of the company. Moody’s has downgraded the Metropolitan Opera Association’s (NY) debt rating to Caa1 from B3.  As of July 30, 2025, total debt outstanding was $178 million. The outlook is negative.

The primary reason is reliance on non-recurring revenues to balance its operations. The organization’s liquidity position is minimal, leaving it vulnerable to operational volatility and includes full reliance on a bank line that has remained drawn for several years. Extraordinary endowment draws have totaled $120 million. Absent a material cash infusion-such as through the major licensing agreement or the receipt of a sizeable bequest that are currently anticipated -the Met is likely to confront a substantial budgetary shortfall in fiscal 2026, potentially requiring further unsustainable endowment draws.  

ELECTRIC ECONOMY

The new Lansing-area plant originally built to supply EV batteries for General Motors in Michigan will soon supply battery cells for massive Tesla batteries capable of storing power for utilities. The plant is now producing no batteries for GM which sold its ownership share of the $2.5 billion, 2.5 million-square-foot Delta Township facility in late 2024. LG Energy Solutions, the original partner with GM. LG Energy Solutions – the original partner with GM – has recently signed a $4.3 billion deal to build batteries for Tesla’s grid-scale energy storage systems at the plant.

The changes throw into question the status of the $120 million of tax incentives provided to the plant. Those incentives included headcount requirements. To fulfill the terms of its state subsidy agreement, LG needs to hire 1,360 workers at the Delta Township site by 2031. So far, hiring stands at 408. The US Department of Interior this week made an announcement that falsely claimed the two companies would build a $4.3 billion facility in Lansing. LG said that the company will establish “dedicated production lines” at its existing Lansing area facility to produce the Tesla battery cells.

LG has shifted focus from EVs to battery energy storage systems at several of its North American facilities. GM ⁠and LG, through their joint venture Ultium Cells, will recall 700 laid-off ​workers to start production of lithium-iron phosphate batteries at their plant in Tennessee in ​the second quarter. Ultium in January laid off workers at the Tennessee plant and at another facility in Ohio through mid-2026 due to slower EV sales.

COLLEGE RATINGS

Moody’s has downgraded The New School’s (NY) issuer and revenue bond ratings to Baa1 from A3. The outlook is changed to stable from negative. For fiscal year 2025, The New School recorded total outstanding debt of $1 billion. Multi-year enrollment declines and deficit operating results that will continue through at least fiscal 2026. A comprehensive restructuring plan that involves significant workforce reductions, a gradual shift from leased to owned space and academic reorganization aimed at better aligning the cost structure has been developed.

Like so many other niche institutions, The New School continues to have a high dependence on student charges, an elevated leverage position and increased short-term borrowing. Those pressures are offset somewhat by ownership of highly valuable and marketable real estate in a prime Manhattan location. The Parsons School of Design remains a core draw for students.

WIND

Under proposed settlements, the Interior Department would cancel the leases for two offshore wind projects, while the Justice Department would pay more than $928 million to the developers to reimburse them for their winning bids in lease sales. settlement agreements that would pay nearly $1 billion to TotalEnergies, the French energy company behind two wind farms off New York State and North Carolina. The Interior Department would cancel the leases in federal waters for the two projects, known as Attentive Energy and Carolina Long Bay.

In exchange, TotalEnergies would abandon its plans to begin building the wind farms. It would also commit to investing in natural gas infrastructure in Texas. If the company refuses the offers, the Trump administration would still cancel the leases, the documents show, leading to costly litigation that both sides might be eager to avoid. Given its track record in court on these matters, the funding offer reflects the failure of the Administration’s policies and legal tactics in the wind energy sector.

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