Joseph Krist

Publisher

RESILIENCE AND A NEW REALITY

In communities participating in the federal flood insurance program, any home that has been “substantially damaged” must be rebuilt to the latest flood-resistant standards or demolished. Under the rule, “substantial damage” means the cost of repairing the home would exceed half its market value, as determined by local officials. FEMA estimates that buildings constructed to floodplain management standards sustain, on average, 80 percent less damage during floods.

In Pinellas County, where Gulfport is, officials have processed about 250 demolition permits for homes in unincorporated areas since October — about four times the number issued during the same period last year. A Republican whose district includes most of Pinellas County, has pushed to waive the rule, calling it an “overreach” by the federal government.

The potential for problems extends beyond Florida. Recent reporting has found that there are huge discrepancies between what higher income households receive and what lower income individuals receive from FEMA. It’s the product of many factors but for those who receive lower amounts of assistance, it can be a real barrier to rebuilding to the new standards.

MEDICAID WORK RULE REALITIES

Fiscal conservatives have pushed for years for work requirements be applied to Medicaid recipients. In October 2020, Georgia received federal approval to test Medicaid work requirements for an initial 5-year period. Its program, called Georgia Pathways to Coverage, is available to people between the ages of 19 and 64, with incomes at or below the federal poverty level, who would not otherwise qualify for Medicaid. Georgia originally planned to begin enrollment in July 2021, but legal challenges delayed implementation until July 2023.

As of May 2025, Georgia reported that 7,463 people were enrolled, far fewer than the 25,000 the state had expected to enroll during the first year of the program. No surprise there since one of the unstated aims of the program is to make enrollment and reporting more difficult. The low number of enrollees qualifies as mission accomplished for the idealogues. For the pure fiscal hawks, the Georgia experience could easily be a cautionary tale for states implementing work rules.

The Government Accounting Office (GAO) has released a report documenting the Georgia program’s operations. Between 2021 and June 2025, Georgia spent $54.2 million on administrative costs, compared with $26.1 million on providing medical care, according to GAO. About $50.8 of the administrative spending went toward changing the state’s system for determining people’s eligibility and enrolling them. In addition, the state used $20 million it received under the American Rescue Plan Act of 2021 to advertise the program.

STATES

The first quarter for most states ended this week so we will soon get an opportunity to see what the impact of all of the economic and policy uncertainty will be on state budgets. We are starting to see signs that states face an increasingly difficult time in recent budget analyses in several of them.

Florida faces significant budget gaps going forward. The legislators chose to put off hard decisions until after the 2026 gubernatorial elections. This has resulted in several multibillion dollar projected budget gaps for the fiscal years beginning in July of 2026. Add on the uncertainty that many important sectors of the state economy rely on and you have a formula for negative credit pressures.

There was one piece of good news. The Federal Emergency Management Agency gave the state $608 million to pay for the construction and management of Alligator Alcatraz and Deportation Depot, which Florida officials say are totally state-run facilities.

Kentucky has been embarking on a program of tax cuts even as it faces long standing budget issues like pension funding. The Commonwealth recently released tax collection data for July and August which show declines in tax revenue beyond any projected by the legislature. In Colorado, state economists projected that the general fund, which covers most day-to-day operations in the budget, would be about $841 million in the hole if state spending continues on the current trajectory into next year. 

Federal cuts to states of $911 billion over 10 years would represent 14% of federal spending on Medicaid over the period. The spending cuts vary by state; Louisiana, Illinois, Nevada, and Oregon are the most heavily affected with spending cuts of 19% or more over the period.

SHUTDOWN COSTS

Ports will be one of the first sectors to see the impact of the federal government shutdown. Customs and Border Protection (CBP) inspects import shipments at maritime centers, airports and land border crossings with Mexico and Canada. The most recent government shutdown lasted 35 days from December 2018 to January 2019, and saw 800,000 federal workers furloughed or forced to work without pay.

CBP remained operational but lower staffing levels led to slower inspections and longer dwell times for shipments moving through major ports. Delays grew by as much as 15% to 20% through the Port of Los Angeles-Long Beach, while importers of regulated goods such as perishables and pharmaceuticals faced shipment holds.

NEBRASKA CLIMATE REPORTS

A 312-page report authorized by the Nebraska Legislature in 2022 was released. It  predicts increased stress on the state’s water resources, particularly increased irrigation demand as growing seasons expand and more water evaporates from the soil and crops. The State Climatologist said “Reputable climate scientists worldwide continue to be in near unanimous agreement (greater than 99%) that human influences have warmed the atmosphere, oceans and land.”

The report was initially scheduled to be completed by the end of 2024 but was delayed by “editing concerns”. In this most conservative state, this raised suspicions about political pressure. Nonetheless, the report cites some pretty clear data regarding changes to Nebraska’s climate over some three decades. It was authorized by a conservative legislature under a very conservative Governor. That makes it a bit harder to politicize the findings.

PENNSYLVANIA MASS TRANSIT FUNDING CRISIS

The budget stalemate dragging on in Pennsylvania has been over the issue of state funding for agencies like SEPTA. Now in the midst of that fight, the National Transportation Safety Board urged Philadelphia’s regional transit authority to suspend use of more than half of the rail cars that serve the transit agency’s regional lines, saying the aging trains pose an “unacceptable” risk of fires. Urged is the important word as the NTSB has no direct authority to order such a move.

NTSB said SEPTA should lay out a plan within 30 days to replace or retrofit rail cars. There have been several fires since February of this year. They have occurred on its Silverliner IV fleet, which has been in service since the mid-1970s. It numbers some 225 cars. It will be interesting how this safety matter is treated under the current federal transit regime given the demographics of the passenger base.

The issue will highlight the problems that SEPTA has faced over the years in terms of capital spending. The agency has been a favorite target of Pennsylvania lawmakers. But, fifty year old railroad cars?

ELECTRIC VEHICLES

The expiring tax credits which drove EV sales were seen as the primary worry for electric vehicle producers. The issue raised concerns about planned new manufacturing development designed to support the electric vehicle industry. It’s clear that the momentum behind some of these projects has slowed although the car companies insist that they will move forward. What we have not seen are impacts on existing EV production.

That has changed since General Motors’ announced that it would indefinitely delay a second shift to support Chevrolet Bolt production in Kansas City, Kansas. The next news was more indicative of the pressure on EVs as the company laid off 900 local workers to facilitate a retooling. The plant had ended production of the Chevrolet Malibu sedan and recently stopped making a small Cadillac SUV. Fairfax had been slated to produce the revamped electric Chevy Bolt.

GM plans to bring gas-powered Chevrolet Equinox production to Fairfax beginning in 2027 as part of a plan to increase domestic production designed to limit losses from tariffs. Bolt production is on schedule to begin later this year for the first shift of workers. The retooling of the rest of the plant will be for gas powered models.

Colorado is increasing the amount of money offered through the state’s electric vehicle rebate program in November as a response to the elimination of federal tax credits for the same purchases. The Colorado Energy Office announced that the state rebate for new EV purchases will increase to $9,000 from $6,000, and the rebate for used EV purchases will increase to $6,000 from $4,000. The rebate increases commence on November 3, one month after the federal tax credit for purchases ended on Sept. 30.

NEW ORLEANS

Moody’s has downgraded the City of New Orleans, LA’s issuer rating, general obligation unlimited tax (GOULT) and general obligation limited tax (GOLT) ratings to A3 from A2. At the same time, it revised the outlook to negative from stable. The numbers tell a story of significant liquidity pressure.  Available fund balance and liquidity declined to -2% and 41.5% respectively in fiscal 2024, a material and unexpected shift from 6.1% and 56.9% in 2023. While additional restricted reserves are available and increase fund balance to 7.9% of revenue, management reports further decline in the city’s financial position thus far in fiscal 2025 driven by revenue declines and increased expenses due in part to unplanned, one-time events. 

In the end, governance is a key driver of this rating action, reflecting budget management practices that have led to escalating reliance on reserves beyond planned levels and ongoing narrowing of the city’s financial position. 

SHELBY COUNTY

While the City of Memphis deals with troop deployments, the county it is the seat of is struggling with basic financial operations. The Comptroller of the State of Tennessee has rescinded their approval of the Shelby County budget for the fiscal year beginning July 1. The County noted that in its approval for last year’s budget, “it outlined very specific future requirements that the County had to meet in order to receive an approved budget from our Office.”

“Because the County failed to meet those requirements, we are unable to approve the County’s fiscal year 2026 budget as explained below. Pursuant to state law, outside of an emergency, the County may not issue debt or financing obligations without an approved budget from our Office. Our Office has statutory authority to waive this limitation for emergency financial transactions.”

The problems are pretty basic. “First, the detailed budgets for Memphis-Shelby County Schools were not included. Second, the detailed budgets were not consistent with state law that requires presentation consistent with generally accepted accounting principles.” In addition, cash projections were incomplete and no explanations of negative balances was provided. This all information required under state law.

BRIGHTLINE WEST COST UPDATE

Brightline West’s 218-mile railroad will now cost $21.5 billion, according to the United States Department of Transportation, The initial projection was $16 billion. The higher cost has led the projects’ ultimate sponsor and “deep pocket” Fortress Investment Group to seek a $6 billion loan from the Trump administration for its “privately financed” project. The increases are driven by construction costs were increasing due to rising labor and material costs.

The federal loan will take the place of a $6 billion bank facility in Brightline West’s original financing plan. The company plans to raise equity to cover most of the $5.5 billion increase in construction costs. It initially targeted an equity raise of $1 billion. Given the steadily increasing costs, private financing was just not effective enough. The loans are being made under the Railroad Rehabilitation and Improvement Financing program. A loan can fund as much as 100% of a railroad project with repayment periods of as long as 35 years and interest rates equal to the cost of borrowing to the government plus a premium to account for credit risk.

We continue to be amused at best by the way the Brightline projects continue to tout themselves as private enterprises. Both the East and West Brightlines received significant advantages in terms of favorable right of way situations as well as tax- free debt financing. Now, the managers of Brightline West have admitted that a subsidized loan from the federal government is key to the success of the project.

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