Category Archives: California

Garbage Rates Spike As Majority Of Recyclables End Up In Landfills

China phasing out imported waste is driving California recycling rates through the floor.

Carlos Guzman, operations manager at Republic Services, next to “The Pile” in Anaheim, CA, on Friday, May 17, 2019. The Pile is what they call the mound of recyclables waiting to be sorted. (Photo by Jeff Gritchen, Orange County Register/SCNG)

(Orange County Register) The market for recyclables is tumbling, the diversion rate of trash headed to dumps is shrinking and trash bills are going up as the cost of recycling increases.

“We used to pay haulers for recyclables,” said Bob Asgian, assistant department head of Los Angeles County’s recycling and landfill operations.

“Now, they’re paying us (to take them).”

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Federal Railroad Administration Cancels $929 Million In California High Speed Rail Funds

WASHINGTON (Reuters) – The Trump administration said on Thursday it was formally cancelling $929 million in previously awarded funding for California’s high-speed rail program after rejecting an appeal by the state.

FILE PHOTO – California Governor Jerry Brown’s name and others are pictured on a railroad rail after a ceremony for the California High Speed Rail in Fresno, California January 6, 2015. REUTERS/Robert Galbraith

The U.S. railway regulator, the Federal Railroad Administration (FRA), said on Thursday it had canceled the funding awarded in a 2010 agreement after it said the state had “repeatedly failed to comply” and “failed to make reasonable progress on the project.”

In a statement, the FRA said it was still considering “all options” on seeking the return of $2.5 billion in federal funds the state has already received.

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Millions Of Californians Will “Plunge Into Darkness” As PG&E Commits To Cut Power During Wildfire Season

As a result of a new plan to cut power on high wind days during wildfire season, millions of Californians could wind up unprepared and in darkness, according to Bloomberg.

Now bankrupt PG&E proposed the precautionary plan after a transmission line that snapped in windy weather likely started last year‘s Camp Fire – the deadliest wildfire in state history. The plan addresses the problem of wildfires, but creates another one in the process: blindsiding Californians with days of blackouts.

This has caused some California residents to turn to home battery systems and alternative means of power in their homes. However, the number of these systems in use is relatively small when compared to the 5.4 million customers PG&E currently services. Governor Gavin Newsom has said that he’s budgeting $75 million to help communities deal with the threat.

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Gavin Newsom Wants To Fix California’s Housing Crisis. So What Are His Options?

Gov. Gavin Newsom says California’s housing affordability crisis is so severe that he wants a bit of everything to solve it.

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California Governor Gavin Newsom and Megan Colbert compare notes on raising toddlers as she shares her struggles as a single parent while talking about affordable housing issues on Tuesday, March 26, 2019 in Sacramento. Newsom held a round table discussion to address housing affordability and rising rents. Renée C. Byer rbyer@sacbee.com

That means seeding construction for millions of new residences, opening the door to a new rent control law and finding ways to protect low-income families from eviction.

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Is This A Solution To California’s Housing Crisis, Or Threat To Single Family Homes?

Could this be the end of single-family zoning in California?

Changes to the comprehensive housing measure Senate Bill 50 – already hotly debated – allow property owners broad rights to turn single-family homes and vacant lots into two-, three- and four-unit homes and apartments.

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What Happened To The $1 Billion Tax Revenue Expected From Licensed Marijuana Sales In California?

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A customer shows his receipt for recreational marijuana in Berkeley (KTVU.com).

$1 billion: that’s how much California initially anticipated receiving in annual tax revenue by legalizing the sale of recreational marijuana. Here’s what actually happened:

  • CA will likely bring in just under $500 million in marijuana tax revenue this fiscal year.
  • That’s lower than the $630 million forecasted in former Governor Jerry Brown’s budget.
  • Current Governor Gavin Newsom’s new budget projects the state will generate $355 million in marijuana excise taxes by the end of June according to press accounts.

That is worse than underwhelming. Consider that Washington State received $319 million in legal marijuana taxes and license fees in fiscal year 2017, while Colorado collected $247 million in 2017. They have populations of just 7.5 million and 5.7 million respectively. California is the largest US state with nearly 40 million people.

Why is this important? There was a wave of Democratic gubernatorial candidates that ran on legalizing recreational marijuana to boost state tax revenue in the last midterm elections. Many of them won and are trying to pass a bill through their state legislatures as soon as this year. These include: New York, Illinois, Connecticut, Minnesota, New Mexico, and New Jersey.

If new states want to legalize retail cannabis sales and meet their respective tax revenue goals, they need to heed the lessons of California and public equity investors in the space likewise should understand the issue as they assess the size of the addressable market here. Marijuana legalization in the US is far more complex than either group likely realizes.

With that said, there’s three major issues at play in California:

#1 – The taxes are too high, allowing the black market to remain relevant. Fitch predicted this consequence in 2017: “California’s high cannabis taxes will encourage black market sales and limit potential local government revenues from this new market… Effective tax rates on nonmedical cannabis will be as high as 45% when accounting for both state and local levies… By comparison, Oregon taxes nonmedical cannabis at approximately 20% and Alaskan taxes range from 10% to 20%.”

The upshot: Colorado, Washington and Oregon all had to reduce their marijuana tax rates after legalization to better compete with the black market. California should follow suit, but other states should learn and get it right out of the gate.

#2 – California may have legalized the sale of retail cannabis, but most cities still prohibit it. Fewer than 20% of cities in the state allow stores to sell recreational marijuana (89 out of 482). For example, 93% of Los Angeles County’s 88 cities ban retail sales. One solution that’s supposed to go into effect: businesses will be allowed to deliver anywhere in the state aside from public land in the hopes that people use those services rather than buy from the black market in communities where they don’t have access to legal adult-use sales.

#3 – The regulations are too onerous and complicated. There are a lot of problems here, so we’ll just highlight a couple.

  • The Bureau of Cannabis Control has issued about 550 temporary and annual licenses to marijuana retail stores compared to initial projections of upwards of 6,000 in the first few years. To put this in perspective, the Los Angeles Times reports that “some 1,790 stores and dispensaries were paying taxes on medicinal pot sales before licenses were required starting Jan. 1.”
  • Why haven’t they issued more licenses? Marijuana businesses need a local license before getting one from the state. That’s tough to do when retail sales are banned in most cities. Obviously, this is not an issue for the black market, which is not restricted by location or burdened by regulatory and compliance costs.
  • Moreover, California’s marijuana market is still governed by a slew of emergency regulations. The Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture have tweaked these regulatory provisions over the past year, and are still working on final non-emergency regulations to adopt. In the meantime, marijuana businesses have been left confused and forced to adapt to regulatory changes, such as different labeling requirements on marijuana products.

To sum up, we’ve covered the legal retail marijuana industry since its infancy five years ago and remain enthusiastic about its prospects. That said, California is a key example of how the same regulations that made the recreational cannabis market possible can also hurt its growth. The right deregulation will ultimately drive growth rates for the industry and valuations for public pot companies over time. This is why it is taking so long for New Jersey, for example, to legalize retail marijuana sales through its state legislature. Lawmakers have the benefit of learning from states like California that missed the mark, even with the tailwind of an entrenched medical market with existing infrastructure and a distribution pipeline.

The bottom line for investors in public pot stocks: pay attention to state and local tax rates and regulations as new markets open up because this under appreciated factor will profoundly affect the industry’s total addressable market.

Source: ZeroHedge

The “Failing Angels” Are Back

Lehman, WorldCom And Now PG&E

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(ZeroHedge) One week ago when we wrote that with PG&E facing a threat of an imminent bankruptcy (which we now know will soon be realized), the most bizarre development in this latest corporate fiasco was that until the first week of January, both S&P and Moody’s had rated the California utility with over $30 billion in debt as investment grade even as its bonds and stocks were cratering ahead of what investors deemed to be an imminent Chapter 11 filing.

And while we have extensively discussed the multi-trillion threat posed by “falling angel” companies, or those corporations rated BBB – the lowest investment grade equivalent rating – as they slide into junk territory, the recent events surrounding PG&E highlight an even greater blind spot in the corporate bond arsenal: that of the failing angel.

As Bank of America’s Hans Mikkelsen wrote in a recent research note, Investment Grade defaults – defined as defaults within one year of being rated IG – are “rare and unpredictable” (even if in the case of PG&E, its downfall was quite obvious to many) as globally in more than half of years historically there were no HG defaults at all.

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As such, Monday’s pre-announcement by The Pacific Gas and Electric Company (PCG) that it intends to file Chapter 11 by January 29th…

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… is a singular event and if the company follows through, it will become the third largest IG default since 1999, behind Lehman and Worldcom, with $17.5bn of index eligible debt.

The chart below lists all US index defaults since 1999 that occurred within one year of being included in ICE BofAML benchmark US high grade index. The three largest defaults in terms of index notional were Lehman ($34.9bn), WorldCom ($22.9bn) and CIT Group ($12.4bn).

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In fact, as BofA adds, if PG&E does file before the end of the month the company will become a member of a much more exclusive group of “Failing Angel”, formerly-IG companies consisting of Enron, Lehman and MF Global that defaulted directly out of IG, before making it into the HY index as Fallen Angels.

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Ironically, as Mikkelsen adds, until recently he had looked at PCG as set to become a large Fallen Angel from BBB accounting for 1.4% of the HY market. Now it appears the company plans to bypass the HY market, and proceed straight to default.

So as the world obsesses over the risk of “falling angels”, just how many other “failing angels” are hiding in the shadows, waiting for their moment to wipe out billions in stakeholder value as the economy continues to slowdown to what is now an inevitable recession, and just what will the knock-on effects of this “historic” default be? We will find out in less than two weeks.

Source: ZeroHedge