Joseph Krist

Publisher

CHICAGO BUDGET

The budget process in Chicago was already frought with issues related to the upcoming mayoral election in 2027. As expected, the Mayor has announced that he will run for a second term in spite of very low approval ratings. Those factors and the history of fractious budget negotiations between this Mayor and the City Council had already contributed to increased pressure on the Mayor to deliver a budget.

Now an additional pressure comes from this week’s announcement by S&P that is had lowered its outlook on the City’s general obligation bond rating to negative. The negative outlook reflects S&P’s view that there is at least a one-in-three chance of a lower rating within the remaining year of the outlook horizon. They will wait to see what the Mayor proposes and what the resulting budget looks like before making their assessment.

The factors which will influence the decision are those we have grown accustomed to. They include a lack of structural balance, delays in pension funding, reliance on overoptimistic revenue projections and increased short-term borrowing needs. Property value trends have seen modest growth in overall values. The real issue is the decline in commercial/industrial values while residential values continue to sharply increase.

The City’s budget process will play out against the impacts of optimistic budgeting on the budget at Chicago Public Schools (CPS). The Civic Federation has commented on the school budget for the FY which began on July 1. “The budget closed a $748 million deficit. However, it did so in part by assuming $150 million in State revenue that has not yet been secured or pledged.

This may lead to a mid-year budget gap that will necessitate greater cuts than would have otherwise been required under the CEO’s original proposal. Further complicating the situation, the City of Chicago released a lower TIF surplus projection than anticipated after the Board of Education adopted the FY2027 CPS budget, which could widen the budget gap by another $100 million.”  

Amazingly, the budget includes $61 million increase in expenditures, driven primarily by contractual increases in salaries and benefits. In spite of steadily declining enrollments, headcount at CPS shows an increase of over 1,000 despite citywide cuts to balance the budget.

MBTA

The Federal Transit Administration (FTA) has closed its final directive to the Massachusetts Department of Public Utilities (DPU), which had been operating under federal oversight of its safety supervision of the Massachusetts Bay Transportation Authority (MBTA) safety oversight for seven open federal directives. This effectively places safety supervision clearly in the Commonwealth’s hands.

In August 31, 2022, the FTA released the findings of a 2022 safety management inspection at the Massachusetts Bay Transportation Authority (MBTA). It set the DPU nine required actions under four findings. They covered the regulator’s use of resources for field inspections and its independence from the MBTA. The findings also dealt with its review of MBTA fatigue management and its ability to act on the inspection’s results.

The closure does not cover the directives addressed to the MBTA itself. Seven of them are still open, including issues of track maintenance, securing disabled trains, the MBTA Operations Control Center, workforce demands, safety management information, safety communication and operating conditions, procedures and training.

THE WIND BLOWS

The $6.2 billion Revolution Wind farm has installed its 65th and final turbine. It will be able to deliver up to its full 704-megawatt capacity ​“later this year”. It is one of the projects that President Trump tried to stop in-progress projects in the Atlantic. The Interior Department issued a stop work order to Revolution Wind in August 2025 due to unspecified national security threats. That order was vacated by a federal judge one month later.

In late December, the Trump administration issued new stop work orders intended to put a halt to all of the five projects underway. Project developers and state attorneys general challenged each one in court, and beginning in January, judges consistently vacated the orders on a case-by-case basis. Along with Revolution Wind, two other large-scale offshore wind projects are fully complete in the U.S.: the South Fork Wind project near New York and Vineyard Wind 1 off the coast of Martha’s Vineyard. The Coastal Virginia Offshore Wind installation — a 2.6-GW project — began to deliver power to the grid in March of this tear and expects construction to be complete next year. Two others, Empire Wind and Sunrise Wind, are both expected to be fully operational in 2027.

ELBOWS UP

Canada is the largest foreign buyer of American wine. In 2024, Canada represented 36 percent of U.S. wine exports, with $460 million in annual shipments. According to a report by the Wine Institute, that percentage is more than the total combination of E.U., U.K., and Chinese markets. the cumulative estimated loss in export value since the restrictions began is now roughly $522 million.

The news follows on the heels of continuing trends decreasing consumption of wine. It is leading to significant disruptions in the California wine economy. Even scale isn’t enough to overcome the trend. Gallo earlier this year shared plans to lay off more than 90 employees by the end of January 2027 and close a major Napa Valley winemaking facility.

In February, Constellation Brands announced plans to lay off 212 workers at its Mission Bell Winery in Madera. The company, which owns Robert Mondavi wines and Modelo and Corona beers, has set a goal of $200 million in cost savings by 2028 and is shifting away from wine to focus more on its growing beer business. That month, Santa Rosa-based Foley Family Wines & Spirits wound down operations at its Chalone Vineyard in Monterey and laid off the facility’s entire winemaking staff.

So, it was no surprise when the oldest family-owned vineyard in the state filed for Chapter 11 protection it was no surprise.

SMALL COLLEGE DOWNGRADE

Allegheny College, founded in 1815, is one of the nation’s oldest private liberal arts colleges. Located in western Pennsylvania, the college has several unique programmatic characteristics, including a senior project and a requirement for students to declare a minor from a different division of knowledge than their intended major. In fiscal 2025, Allegheny generated operating revenue of $77 million and enrolled 1,053 full-time equivalent (FTE) students as of fall 2025.

Moody’s has revised Allegheny College’s (PA) outlook to negative from stable. It also affirmed the Ba1 issuer and revenue bond ratings. The rating reflects the college’s difficult student market, incorporating a highly competitive landscape and unfavorable demographics. Absent ongoing significant fundraising, financial operations remain unbalanced, and strained student demand poses further challenges with suppressed pricing power.

Though the college missed Fall 2025 enrollment targets, the improved Fall 2026 class will increase total FTE around 8% year-over-year. Rising discounting will continue to pressure net tuition revenues, which are expected to decline in fiscal 2026 and could extend, increasing Allegheny’s timeline of elevated endowment spending to fund operations. Although unrestricted liquidity remains adequate, deficit operations and endowment spending will place pressure on liquidity over time.

PHILADELPHIA OUTLOOK

Moody’s announced that it was maintaining the city’s A1 issuer rating and the A1 ratings on its outstanding general obligation bonds. The outlook is positive. Moody’s called the City’s financial position “at its strongest level in many years.” The city’s available fund balance of 14.3% in fiscal 2025 was close to the level it has cited as a potential upgrade trigger, so sustained reserves at that level could apply upward pressure on the rating in the near future.

Philadelphia’s biggest credit weakness is its challenging demographic profile, and it lags most other big cities in economic growth and income levels (resident income is 75% of the US median, the third-lowest among the 20 biggest cities by revenue). The dynamic of an employment hub with a significant eds and meds presence that also faces a challenging demographic profile will persist for the city indefinitely.

Moody’s also highlights Philadelphia’s commitment to funding its pension plan which has contributed to the city having among the lowest leverage burdens of any big city.

PUBLIC POWER VOTE?

A coalition of environmental and youth groups, Public Power St. Pete is collecting signatures to place a proposed city charter amendment on the November 2028 ballot that would allow voters to decide whether St. Petersburg should establish its own municipal electric utility and replace Duke Energy as the city’s electricity provider. In January, St. Petersburg issued a request for proposals for a feasibility study examining the financial and legal implications of establishing a city-owned utility.

The city is currently served under interim agreements established after its long-term power supply agreement with Duke expired over the summer. Unsurprisingly, a preliminary analysis commissioned by Duke Energy and released in September estimated that acquiring Duke’s operations within the city could cost between $2.75 billion and $4.1 billion, depending on the assumed transaction date. The Florida Municipal Electric Association reported in June 2025 that average bills among Florida’s public-power utilities were $33.79 lower than the average bills of other utilities at 1,000 kilowatt-hours

Some updates:

BRIGHTLINE RESTRUCTURE

Brightline announced that it has reached an agreement on financial restructuring that will bring $490 million in new financing commitments while significantly reducing debt. Under the Restructuring Support Agreement, Brightline will receive $140 million in additional senior debt and $350 million in new junior debt from existing stakeholders. Brightline Trains Florida LLC, which operates the train service, will not file for bankruptcy and will continue normal operations.

The pre-packaged bankruptcy plan includes $258mn of financing to fund the case, which will be provided in part by Assured Guaranty, a municipal bond insurer. Brightline has separately secured $490mn of post-emergence funding from some existing bondholders. The company did not immediately disclose how much of its debt balance it would cut in the case.

FLORIDA AMENDMENTS

Amendment 1, which would increase the amount of money lawmakers can put into the state’s key reserve fund. It increases the cap on the balance of the budget stabilization fund from 10% of the previous year’s general fund revenue to 25%. Amendment 1, which would increase the amount of money lawmakers can put into a key reserve fund. It increases the cap on the balance of the budget stabilization fund from 10% of the previous year’s general fund revenue to 25%. Amendment 1 needs 60% of the vote to become law.

Amendment 3, the effort to reduce and limit property taxes is under some heavy fire. In spite of carveouts in the proposal to account for “essential services” like schools and public safety, many uniformed service groups are opposing the amendment. It is emerging that the cost of property insurance is a bigger issue for some 2/3 of voters as opposed to property tax rates.

GAS LITIGATION

The state Supreme Court on Thursday delivered the final blow to a controversial 2024 ballot measure pushed by builders and passed by voters that sought to halt Washington’s shift away from natural gas. In a 6-3 decision, the justices affirmed a lower court ruling, finding Initiative 2066 “unconstitutional in its entirety” because it runs afoul of a provision limiting such citizen initiatives to no more than one subject.

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