Climate Risk (non-)Disclosure of the Week: 4/27-5/1

By April 29, 2020 No Comments

As part of risQ’s efforts to quantify climate risk and enable informed climate adaptation, we analyze the Preliminary Official Statements on the MSRB EMMA site to identify most notable differences between the risks disclosed and the risk revealed in our comprehensive coverage of all the issuers of municipal bonds.

This week’s distinction goes to:

        Saint Clair Area School District, (Schuylkill County, PA)

the Preliminary OS for which can be found here.

First, a quick review of recent events. As recently as 2018, the county suffered from severe flooding, but beyond anecdote, the county is also in the highest echelons of NFIP claims on a dollars per capita basis between 2000-2019 (almost $9M in inflation-adjusted NFIP payouts from 2000-2019, i.e., more than $3,000 per capita per year). The risQ analysis of the school district is consistent with heightened climate risk, and especially as it corresponds to residential property which underpins so much of the revenue streams that support a General Obligation bond. Our analysis places Saint Clair Area School District in the worst 7% of school districts nationally in terms of overall climate risk on residential property value, and in the worst 4% nationally when isolated down to inland flooding risk:

A review of the 144 page document reveal the words “flood”, “climate”, “natural” or “disaster” do not appear once, and “risk” appears only in the context of the possibility of purchasing bond insurance.

But who cares, right?!? Climate risk isn’t actually material to the financial health of a given issuer, so no harm, no foul. Well, not so fast.

Note that there is disclosure of slight population loss across the county (0.5% between 2010 and 2015) and about the same loss of both market value and assessed value of property (0.54% and 0.56%, respectively) for the school district between 2014-2018. Our data puts Schuylkill County’s property value “growth” in the bottom 3% of all counties nationally, and based on American Community Survey data, the population change from 2012-2018 was -3.4%, also in the heavily under-performing cohort of counties nationally. These decreases in population and taxable property value aren’t an anomaly. They are exactly what has been observed across the US for areas with high inland flooding risks over the last decade, and exactly what can be expected to continue and accelerate with increasing quantity and severity of climate events moving forward.

There is a placeholder in the Preliminary Official Statement out to a 2041 maturity. Do the math on the aforementioned 3.4% population change in 6 years and accelerating loss of property value versus that already observed in the 4-5 year window disclosed. Given statistically significant correlation between historical flooding metrics versus property value and population change, risQ’s comprehensive universe of obligor and issuer flooding models can then be used to project out likely changes in these same two indicators of future financial health. Saint Clair ASD is just one such case among a wider swath of 55,000 bond issuers.

Official Statements are tasked with disclosing information that is material to the securities being brought to market. Absent of robust climate adaptation plans, all qualitative and quantitative evidence indicates high levels of flooding risk, and resulting high levels of future risk to lead key financial health indicators, in the lifetimes of maturities indicated in the Saint Clair ASD disclosure.

We’re looking forward to working with issuers, bond insurers, sell-side, and buy-side market participants in disclosure, discussion and action on climate adaptation.

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