Joseph Krist

Publisher

TEXAS POWER

There has been a flurry of Texas legislation seeking to erect or maintain barriers to renewable projects. S.B. 388 requires every new megawatt of renewables to be matched by a megawatt of new gas power. It would require at least 50 percent of power generation installed after January 1, 2026, to come from “dispatchable” energy sources, which include natural gas and coal.

S.B. 819 would use “the police power of the state” to restrict landowners from leasing their properties to wind and solar companies. The bill would make it harder to permit renewable energy projects. The bill invokes the “police power of [the] state” to “increase electric generation” and “mitigate unreasonable impacts of renewable energy generation facilities on wildlife, water, and land” in Texas. The legislation would require new renewable energy projects that generate over 10 megawatts—enough to power about 10,000 homes—to obtain permits from state regulators before connecting to the power grid. 

The Texas Senate passed S.B. 715 which would require all renewable projects — even existing ones — to buy backup power, largely from coal or gas plants. It would require solar plants in particular to buy backup power to “match their output at night. The usual reliability arguments are being made by coal/gas advocates. This isn’t about daytime reliability (that’s not an issue). The bill would also force renewable projects to pay an annual “environmental impact fee” to fund site cleanups of these projects. Greenhouse gas-emitting energy projects in the state, including oil and natural gas, are not subject to similar dues. 

A study by the Texas Association of Business (TAB) concluded the laws would cost the state $5.2 billion more per year — and cost individual consumers $225 more each year. The irony is that Texas is a leader in installed wind and solar capacity. It has been established that shortages under a variety of weather situations have not been the result of renewable generation. Nevertheless,

the state’s oil and gas lobby continues to push against renewables.

NEW YORK STATE BUDGET

The State of New York finally has a budget some five weeks after the beginning of fiscal year 2026. The budget faced some thorny issues such as funding for the MTA in the face of threats to federal funding. Fiscal issues weren’t the source of the delay, however. Rather it was non-fiscal policy issues that held up enactment. Primary among them were changes made to recently enacted legislation which was seen in the criminal justice system seen as more favorable to defendants. Others were changes to the state’s involuntary commitment standards and a bell-to-bell cellphone ban in schools.

The fiscal side did include items such as an inflation rebate check program ($2 billion to provide direct cash assistance to more than 8 million New Yorkers with checks of up to $400 per family), a child tax credit (a $1,000 credit for kids younger than 4 years old and a $500 credit for kids ages 4-16) and middle class tax cut ($1 billion). 

Gov. Kathy Hochul signed new legislation as part of the FY26 Enacted Budget to fully fund the MTA $68.4 billion 2025-29 Capital Plan. The funding plan that also includes cuts to the regional Payroll Mobility Tax (PMT) for roughly 10,000 small businesses and an elimination of the PMT for self-employed individuals earning $150,000 or less. The plan will also eliminate the PMT for all local governments outside New York City. 

In addition to providing $8 billion in total operating aid for the MTA, the FY 2026 Budget will give a $3 billion State capital appropriation to support the MTA capital plan. The FY 2026 Budget also requires the City of New York to provide $3 billion toward the MTA capital plan and requires the MTA to find $3 billion in efficiencies. 

In the end, this budget might not matter that much. All of the major players in the process agree that proposed changes to federal budgets could substantially reduce funding and create gaps which would need to be addressed.

CALIFORNIA MAY BUDGET REVISION

Governor Newsom proposed a $322 billion state budget for fiscal 2026. According to the Governor, Washington’s imposition of tariffs has driven a downgrade in both the economic and revenue forecasts. Combined with increased expenditure growth above the Governor’s Budget—most notably in Medi-Cal—the state must now close an estimated shortfall of $12 billion to balance the budget.

Market volatility since tariffs were imposed has resulted in a substantial downgrade to the S&P 500 forecast in the second quarter of 2025. The impact of tariffs on financial markets was seen in significantly reduced stock prices of the largest California-based technology companies. The May Revision forecast assumes stock-based compensation to their employees is projected to decrease in 2025.

This is contributing to a downgrade in projected personal income tax revenues in 2025-26 that will reverse the positive trends in personal income tax withholding cash results through April 2025. In addition, personal income tax revenues from capital gains were significantly downgraded in 2025-26 due to the stock market decline.

Expenditures in the Medi-Cal program—the state’s health care program for low-income individuals—have increased significantly and continue to outpace revenues. In Spring of 2025, a cash flow loan of $3.4 billion was executed and an additional $2.8 billion General Fund was appropriated to support Medi-Cal expenditures of $37.6 billion General Fund in 2024-25. The major drivers of these increases are higher overall enrollment, pharmacy costs, and higher managed care costs.

It is the source of proposed cuts to deal with the budget gap which is getting much attention. Most prominent is an enrollment freeze for Full-Scope Medi-Cal Expansion for Undocumented Adults, Adults 19 and Older. Others include imposing Medi-Cal Premiums on Adults 19 and Older and Asset Test Limits.

The May Revision maintains the planned withdrawal of approximately $7.1 billion from the Budget Stabilization Account (BSA). That would leave total reserve balances of approximately $15.7 billion at the end of 2025-26. This consists of $11.2 billion in the BSA and $4.5 billion in the Special Fund for Economic Uncertainties.

IOWA EMINENT DOMAIN

Iowa senators voted 27-22 to pass a bill to limit the ability of carbon sequestration pipelines to use eminent domain. House File 639 comprised a number of bills passed by the House aimed at eminent domain. As written, the bill changed definitions of a common carrier, increased insurance requirements to cover any damages to property and reimburse landowners for increases in premiums due to the pipeline. It set requirements for the Iowa Utilities Commission (IUC) and expanded who can intervene in IUC proceedings.

This is the first time that the Senate took a vote on a bill associated with eminent domain after three other attempts. As is often the case with potentially difficult policy decisions, the budget process offered the best vehicle for progress on the issue. By refusing to vote on a budget for the State, supporters of the legislation were able to force consideration of the bill. This year, debate was contentious and efforts to amend the bill in favor of the Summit Carbon Solutions failed.

The effort to amend the bills focused on provisions designed to protect the Summit project. It was led by a former managing director (now a sitting State Senator) of a related entity Summit Agricultural Systems. Opposition to the Summit pipeline regularly hovers around 75%. It actually was in issue in the 2024 Iowa caucuses.

One interesting issue arises from the legislation. Does enactment language in the bill open the door to lawsuits from Iowans who have already signed an easement contract with the state when Summit is no longer able to uphold that contract without eminent domain to complete the project? It’s not clear how many land owners took the money out of fear of eminent domain but clearly many did. Will they be able to get out of their agreements and, if so, at what price?

Summit faces other challenges. The North Dakota Supreme Court heard arguments in a case where landowners are suing the state of North Dakota and the state Industrial Commission over a state law that can force landowners to take part in an underground CO2 storage project. Under that law, landowners can be forced to allow carbon dioxide storage beneath their property if 60% of the landowners agree to a storage project. The argument is that the law is unconstitutional because it doesn’t allow landowners to use the court system to argue for just compensation. 

The Northwest Landowners Association is the lead plaintiff in this case. It successfully challenged a 2019 North Dakota pore space law at the state Supreme Court, with justices finding it unconstitutional.

IS THIS LIFE AFTER FEMA?

Recently, North Carolina received a $1.4 billion grant from the U.S. Department of Housing and Urban Development for disaster recovery—including the repair or reconstruction of single-family homes, rental housing and infrastructure—as well as economic revitalization and mitigation. The grant administration is a state responsibility. The N.C. Department of Commerce on May 9 awarded a project management contract to Horne LLP, worth $81.5 million over the next three years to run North Carolina’s disaster recovery program in western counties flattened by Hurricane Helene.

The contract was awarded despite the fact that Horne was the prime contractor for the N.C. Office of Recovery and Resiliency, also known as ReBuild NC, providing case management and other services from 2019 to 2022, when the firm’s contract was not renewed after many disaster victims complained about poor case management. Here is how privatization gets a bad name. The western North Carolina disaster recovery advisor to Gov. Josh Stein, worked for Horne until April 2024. He was one of six people who authored the RFP.

The state noted in the RFP that this ranking method “may result in an award other than the lowest price or highest technically qualified offer.” In Louisiana, the state auditor investigated Horne in November 2022 after several company employees allegedly received COVID-related relief funds they were administering. Earlier that year the state of Alabama had to return more than $42 million in pandemic aid to the U.S. Department of Treasury after Horne failed to distribute emergency rental funds on time. In April, in West Virginia, Horne agreed to pay $1.2 million as part of a settlement agreement with the federal government over alleged improper billing for services related to disaster recovery in the state.

CALIFORNIA FIRE INSURANCE

The California FAIR Plan Assn., the state’s insurer of last resort, assessed its member carriers $1 billion on Feb. 11. The plan, operated and backstopped by the state’s licensed home insurers, said it has made $2.75 billion in claims payments as of last week and expects its costs for the fires will total $4 billion, which it could not cover with its limited surplus and reinsurance funds.

Under a plan approved by the state’s insurance regulator, insurers are filing applications with the state Department of Insurance seeking to surcharge their policyholders statewide for half the costs of that assessment. Ten home insurers and their affiliates have filed applications for surcharges, with the fees ranging from about $6 or less for some rental policyholders, $20 or $30 for condo owners and typically $40 to $60 for a standard homeowners policy. A bill working its way through the Legislature would authorize the California Infrastructure and Economic Development Bank to issue bonds on behalf of the FAIR Plan to help pay its claims and increase its liquidity.

State Farm is estimated to cover some 1,000,000 homes which means that one in five homes in the state are State Farm customers. Given that dominant position, it’s not a real surprise that the company has been the target of criticism from customers trying to navigate the insurance process. In spite of a 20% rate increase granted in 2024, the January fires have driven even higher insured losses. The State Insurance Commissioner has now approved State Farm for a “temporary” 17% increase in premium rates. The interim rates go into effect on June 1. 

S&P Global Ratings downgraded State Farm’s California subsidiary from an “AA” to an “A+” rating. The action reflected “a significant deterioration” in the company’s capital position over the last five years. The Commissioner’s order does require State Farm’s parent company to provide an infusion of $400 million in cash to the California subsidiary.

CLIMATE LITIGATION

In 2021, the most destructive fire in Colorado history, the Marshall Fire, burned more than 1,000 homes in Boulder County and caused more than $2 billion in damages. That was some three years after Boulder County and the City of Boulder began litigation against fossil fuel producers. Like so many other cities and states, the Boulder lawsuit claims taxpayers shouldn’t bear the full cost of disasters like floods and wildfires. It argues the two defendant companies should share the financial burden after knowingly contributing to climate change and misleading consumers about the risks of burning fossil fuels.

As is the case everywhere else, the companies argue that the cases belong in federal court where they believe they will have a more sympathetic audience. Like everywhere else, the Colorado Supreme Court ruled the lawsuit could proceed within Colorado. The decision returned the case to a lower district court, which had already ruled the lawsuit wasn’t preempted by federal law and belonged in the state legal system. 

BRIGHTLINE RATINGS DIM

Fitch downgraded $2.219 billion of Brightline Florida LLC’s senior secured private activity bonds to BB-plus from BBB-minus and cut Brightline East LLC’s (BLE) $1.1 billion senior secured taxable notes to CCC-plus from B. Both securities have been placed on rating watch negative. It follows news that S&P lowered its outlook on its BBB-minus underlying rating on Brightline Trains Florida LLC’s (OpCo) bonds to negative from stable. Of the $2.2 billion in tax-exempt bonds, $1.13 billion is insured by Assured Guaranty (AGO) and rated AA.

Fitch said “The downgrades to OpCo and BLE debt reflect the weaker than expected ridership ramp up, lower fares, elevated operating costs, and significant spend down of the project’s liquidity accounts. The rating further reflects a number of unanticipated expenses that were not previously reported to Fitch that resulted in material draws on cash balances. Ramp-up is expected to be comparatively longer for Brightline than for other new transportation development projects.

Ridership data to Orlando is limited, complicating the validation of consultants’ long-term forecasts, and initial fares are high relative to competing alternatives particularly to Orlando. Due to slower ridership ramp up, lower fares, and higher operating expense, Brightline ended the year with an operating loss of $63 million.”

S&P notes that “ticket revenue is ramping slower than we anticipated, causing year-to-date revenues as of third-quarter 2024 to lag our base-case forecast by 20%. Notably, for the same period average long-distance fares were 19% lower than our forecast, long distance ridership revenue accounts for about 70% of total ticket revenues in 2024 under our base case. OpCo expenses reported through the third quarter of 2024 are higher than our base case by 7%. We understand additional costs have been incurred in fourth quarter 2024, impairing the balance of the reserves. 

Both agencies see the potential for a serious liquidity crunch in the next 18-24 months.

NEW YORK CITY – RIKERS ISLAND

Federal Justice Laura Taylor Swain (yes, the same judge handling Puerto Rico’s bankruptcy) ordered the City of New York to appoint an outside official to make major decisions regarding the operation of the City’s prison complex on Rikers Island. The official, called a remediation manager, would work with the New York City correction commissioner, but be “empowered to take all actions necessary”. The official would report directly to the judge and would not be a city employee.

The decision comes some ten years after the City settled litigation over conditions at the jails. That settlement resulted in the appointment of a federal monitor who reported on operations. That position was not empowered to make decision, whereas the “manager” is. It is an extraordinary step. Since 1974, federal courts have put only nine jail systems in receivership, not counting Rikers order. In November, the judge found the City found the city to be in contempt for failing to stem violence and excessive force at the facility.

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