Joseph Krist

Publisher

A Happy Thanksgiving to one and all. This most unique holiday in America – not based on a religious holiday or to recognize one ethnic group over another – allows everyone to share in the day and experience a common cultural phenomenon. Not even Christmas or Easter can manage that. So, enjoy the day and those you’re with.

The MCN takes this week off. The next issue will be dated December 8. Travel safely.

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CHICAGO BUDGET (NEWYORK PREVIEW?)

One of the issues which has held back significant budget improvement for the City of Chicago is the Mayor’s ideological approach. It’s not that it has been a surprise given his campaign and his sources  of support but, it has nonetheless made annual budget negotiations and politics all the more difficult. The latest manifestation of this is the current budget process.

This week, the Chicago City Council’s Finance Committee has rejected Mayor Brandon Johnson’s proposed head tax. The vote was 25 to 10. Mayor Johnson is asking City Council to recess until the first week of December as negotiations continue. The City Council has until Dec. 31 to pass a spending plan which closes a projected $1.9 billion budget gap.. The mayor needs 26 votes to get his budget passed.

Johnson first proposed requiring companies with more than 100 employees to pay $21 per month per employee – a head tax. The resulting lack of support for that plan lead to revision of the idea to target companies with more than 200 employees. His administration estimates the plan would generate $82 million for violence prevention programs. Johnson’s $16 billion spending plan avoids a property tax hike. It relies on expansion of the revenue base by expanding the rideshare surcharge zone, adding a social media tax, increasing the cloud tax and borrowing nearly $2 billion for infrastructure projects.

We see parallels in the upcoming administration of Zohran Mamdani in New York. The attitude towards corporate taxation, the belief in government as a cure all, an elected school board, government grocery stores are virtually the same as those held by Mayor Johnson. It will be interesting to see how the New York situation unfolds given the lack of success in Chicago.

KEY BRIDGE

In a news release, the Maryland Transportation Authority said the cost will likely be anywhere from $4.3 billion to $5.2 billion. The change marks a stark contrast after the Associated Press reported in May 2024 that the initial cost was estimated to be between $1.7 billion and $1.9 billion. After initially saying the new bridge should be reopened by fall 2028, officials revised the estimated opening date to be in late 2030. “The Francis Scott Key Bridge and the Port of Baltimore are critically important to our nation’s economy. Preliminary cost and project time estimates were made less than two weeks after the initial crash and before any engineering or design studies were conducted.”

In August 2024, the Maryland Transportation Authority Board approved a $73 million contract for the first of two phases of the rebuilding process. In December 2024, Congress passed a government spending bill that included full funding for the rebuild.

COLORADO RIVER

This week, the deadline for an agreement among the seven states in the Colorado River basin on how to distribute the river’s dwindling flows of water passed with no settlement. Current guidelines are expiring and a new finalized agreement must be put in place by October 2026, the start of the 2027 water year. Final details are due by February 2026.

Interior, the Bureau of Reclamation and the states — Arizona, California, Colorado, New Mexico, Nevada, Utah and Wyoming — issued a joint statement saying “Collective progress has been made that warrants continued efforts to define and approve details for a finalized agreement,”. Neither Interior nor Reclamation responded to questions about how much additional time states will be granted to continue their negotiations.

The Trump administration had previously threatened that if the seven states that share the river did not come to a deal, the Interior Department could step in to decide how to impose cuts to water use. State officials explained that they were coalescing around the concept known as supply-driven planning, or just “natural flow.” Under a natural flow system, the states would rely on a supply-driven calculation of how much water would be in the Colorado River were it not diverted to farms, stored in massive reservoirs or otherwise used by humans.

The acting chair of the Upper Colorado River Commission explains that “the concept under discussion is that (Lake) Powell would release a certain percentage or volume of the average of the last few years of natural flow, as measured at Lee Ferry.” The Bureau of Reclamation already studies the natural flow of the Colorado River, providing annual estimates drawn from data at 29 points on the waterway and its tributaries.

Reclamation examines the flow of water in the Upper Basin’s river system while also adding back in any water diverted for use in cities and farms. That data is used to calculate how much water would be found in a hypothetically free-flowing river at Lees Ferry, Arizona, a point south of the Glen Canyon Dam.

The process of calculating natural flow will intensify the already bright spotlight on the conflict between agricultural and human water consumers. Water used for agriculture can account for 70 percent of the water used in the four Upper Basin states, and how much of that is consumed, rather than returned to the river system, is an important data point. The states are weighing an agreement that would rely on the average of the three most recent years of flows.

Reclamation reports show that the Upper Basin consumed 4.7 million acre-feet in 2023, the most recent data available. That same year, the Lower Basin reported using 5.8 million acre-feet. By comparison, in 2021, the Upper Basin used 3.9 million acre-feet while the Lower Basin used nearly 7.1 million acre-feet.

NYC

Mayor Adams released his last Financial Plan Update. The plan update brings the Fiscal Year (FY) 2026 budget to $118.2 billion. The FY 2027 budget gap is now $4.7 billion, a reduction of $353 million, or nearly 7 percent, driven by pension and labor savings. The FY 2028 and FY 2029 gaps are both now $6.3 billion.

The Financial Control Board provides an excellent overview of the conditions facing the City for the Mayor-elect. The majority of new jobs were in lower wage sectors, such as health care (average annual wage of $67,893), social assistance ($39,440), and food services and drinking places ($40,493). In contrast, high paying sectors like finance, professional and business services, and information experienced job losses.

The Financial Control Board’s (FCB) risk analysis of the Plan shows a gap of $515 million in FY 2025, and larger gaps of $5.7 billion in FY 2026, $6.7 billion in FY 2027 and $8.2 billion in FY 2028. The larger gaps stem from higher expenditure estimates in each year, which exceed the Plan by $1.3 billion in FY 2025, $1.9 billion in FY 2026, $2.6 billion in FY 2027, and $3.3 billion in FY 2028.

Partially offsetting these higher expenditures estimates is the FCB’s more optimistic tax revenue forecast which exceeds the Plan forecast in each year, resulting in net risks to the budget of $515 million in FY 2025, $216 million in FY 2026, $1.1 billion in FY 2027, and $1.9 billion in FY 2028.

The economic outlook is mixed. Manhattan’s office vacancy rate in the third quarter of 2024 reached 23.5 percent, a negligible improvement from the record-high 23.6 percent in the previous quarter. The demand for office space is expected to remain relatively low as hybrid work has become the norm.

PUBLIC POWER AND BATTERIES

EPB of Chattanooga, originally was known as the Electric Power Board of Chattanooga. It is an electric power distribution and telecommunication company owned by the city of Chattanooga, Tennessee. EPB serves some 500,000 people across 600 square miles. The public power company currently has a 45-megawatt fleet of batteries, almost all of which were built this year. The battery building was stimulated by a December 2022 blackout. Chattanooga had already used batteries to expand and backup electric supplies to the Chattanooga airport.

That airport experience encouraged more development of batteries for the entire electric system. Until now, they had been employed as supplemental power for the City’s system. Recently, the potential for batteries to reduce blackouts or facilitate repairs to the local grid was demonstrated. An outage on a service line serving some 400 homes was damaged in a storm. While the damage was assessed and repaired, a local battery installation recently installed was able to provide power to the impacted homes. It was the first use of batteries to offset a loss of capability on another system component while repairs were made.

Away from any climate considerations, the battery plan makes economic sense. When EPB buys power from TVA, it pays a demand charge for the hour of highest consumption each month. By discharging the batteries when it looks like a peak hour is approaching, EPB can shave its monthly charge. That lowers the rates it pays to TVA with the savings going to retail. So, it improves redundancy, increases reliability, and lowers costs.

PHILADELPHIA SCHOOL DISTRICT

Philadelphia School District is coterminous with the City of Philadelphia and is the largest public school district in Pennsylvania. The district operates more than 200 schools with enrollment of 120,148 as of the 2024-2025 school year. Moody’s upgraded Philadelphia School District, PA’s issuer, general obligation unlimited tax (GOULT) and non-contingent lease backed by GOULT ratings to Baa1 from Baa2. 

The upgrade reflects the fruits of efforts over many years to maintain the District’s finances while facing real competition in addition to the pressure the COVID epidemic imposed. Moody’s referenced the district’s materially improved reserve position after the receipt of extraordinary federal coronavirus aid. While the district will draw down reserves over the next three years, its financial position will remain stronger than historical levels. Available fund balance reached a historic high of 27% of revenue in fiscal 2024. structural balance is expected to be achieved by fiscal 2029. 

The District faces significant pressures. Charter schools have been long-term competitors to the traditional models and now cyber learning is growing. Significant charter and cyber school tuition costs now account for approximately 35% of the district’s annual budget. Nonetheless, the longstanding trend of enrollment loss has ceased. Enrollment have grown by a compound 0.5% annually, on average, over the last three years.

SOME QUICK NOTES

AFTER THE FIRE – The Palisades and Eaton fires destroyed 13,000 homes. More than 2,500 property owners have filed full rebuilding applications in Los Angeles County and the city of Los Angeles, the two largest jurisdictions affected, with 1,100 permits approved. A two-bedroom, 630-square-foot accessory dwelling unit in Altadena received a certificate of occupancy on Monday, Los Angeles County records show. This makes that unit the first to be built in the wake of the fire.

THREE MILE ISLAND – The Energy Department announced that it would make a $1 billion loan to help restart Three Mile Island Unit 1, which shut down in 2019. The other unit at the site near Harrisburg, Pa., shut down in 1979 after its well documented operating disaster. Last year, Microsoft and Constellation, Unit 1’s owner, announced a deal to restart the plant. Under the deal to revive the plant, Microsoft would buy as much power as it can from the plant for 20 years in an effort to add carbon-free electricity to the grids that power its operations.

TARIFFS AND PORTS – The Port of Los Angeles processed 848,431 Twenty-Foot Equivalent Units (TEUs) in October. October 2025 loaded imports came in at 429,283 TEUs, 7% less than last year. Loaded exports landed at 123,768 TEUs, 1% more than 2024. The Port handled 295,380 empty container units, 8% less than last year. The numbers reflect the impact of tariffs and highlight that the decline in imports isn’t being offset by export growth.

PUBLIC TRANSIT – Two USDOT funding proposals recently sent to the White House budget office would eliminate the Mass Transit Account of the Highway Trust Fund and prohibit States from using their highway funds for public transit.

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