To begin with, anything that strains the state or municipal budget will limit their ability to fund new projects.  That’s not good news.  But, there is another tie in here that will severely limit localities access to capital.

As I mentioned a few days ago, Florida suspended its issuance of Build America Bonds (BAB) because of the potential that the IRS would reduce their subsidy amount by any amounts owned from other programs.  The new healthcare reform will significantly increase the costs to the states for Medicaid expenses.  If they are unable to cover the increased costs, the IRS will start taking from their BAB subsidy to get whole.  That puts even more pressure on the states and compounds the issue.  Florida estimates that the new healthcare reform law will add $1.6 billion of Medicaid expenses and force them to hire an additional 1,000 employees.  That’s $1.6 billion that they won’t have available to build schools, maintain roads, or repay bonds.

In a time when the states and municipalities are being hit financially as hard as ever, I struggle to understand the rational behind increasing the burden on them.  Maybe someone can explain it to me…

Florida, however, has some concerns about how that 35% subsidy will be paid and has put its $255 million upcoming issuance on hold.  In a recent call with the Internal Revenue Service, the IRS reiterated that any subsidy due to the locality will be reduced by any amount that the issuer owes the federal government for other programs, including Medicare.  This is not a new provision of the BABs and has been a condition since their inception.  However, many of the localities are just now catching on to the fact that they may not get the full subsidy they have been expecting.

This becomes especially relevant as Congress seeks to pass the Healthcare Reform that could dramatically increase an issuers payments to the federal government for Medicare and similar type programs.  Should an issuer not be able to make its Medicare payments, the IRS will still get “theirs” through the BAB subsidy, leaving the locality in a death spiral of interest obligations.

According to the article, the largest issuer of BABs, California, is aware of the IRS claw-back provision and is continue to utilize BABs as a viable funding source.  It will be very interesting to see how many other states join Florida in taking a wait and see attitude.

“You’re getting a snapshot of what Jacksonville can be,” said Rick Ferrin, the Jacksonville Port Authority’s executive director.

As large as the MSC Catania is, she is still medium size by today’s standards.  The MSC Catania is 300 meters long and 37.8 meters wide, drawing 14 meters.  As a comparison, the Emma Maersk, one of the largest container vessels in the world, is 397 meters long and 56 meters wide and draws 15.5 meters.  Even today, larger ships are being built.  Even with the additional dredging, Jacksonville has a long way to go before the Emma Maersk graces their terminals.

The decision was met with significant opposition from Virginia lawmakers who vow to continue the fight to keep the carrier fleet in Virginia.  They claim that this is a politically motivated last minute effort by the Bush administration to push this through before they leave the office.  Consequently, they have begun to pressure the incoming Obama administration to reconsider the decision.  As you would expect, Florida lawmakers support the decision and call it critical to the security of America.

To compound the issue, the decision comes at a time when the Naval has its own budgetary issues to contend with and moving a carrier isn’t cheap.  In the five years that it will take to complete the move, the Navy would have to spend over $550 million to prepare the Mayport facility and channel for a ship of this size.  In addition, it will remove 11,000 jobs and $600 million in annual income from the Hampton Roads economy.

If the safety of the fleet is truly the primary concern, I would think the $550 million could buy some significant surface to air defenses for the Hampton Roads area.  Plus, any spending on protecting the fleet in its current location could be allocated across the entire fleet, not just one carrier.