Climate Risk (non-)Disclosure of the Week: 5/11-5/15

By May 14, 2020 No Comments

For this week’s Preliminary Official Statement, we’re down in Texas where the Gulf Coast is on annual alert for hurricanes, and 2020 will be no different based on current predictions. Always interesting to see how this annual and growing risk is communicated by bond issuers.

This week’s climate risk non-disclosure distinction goes to:

        Point Isabel Independent School District, TX

the OS for which can be found here.

The district lies within Cameron County, an area that has been affected by flooding for the last two summers, and where hurricanes like Dolly in 2008 (which also caused a delayed start to the school year) and Alex in 2010 both made landfall, although the latter occurred at low tide, mitigating much of the damage.. Our analysis has Point Isabel in the worst 1% of school districts nationally in terms of overall climate risk on property value, and in terms of GDP impairment risk:

Within the Official Statement, “hurricane” is mentioned once, although curiously in the “Cybersecurity/Coronavirus Disclosure” and specifically in regard to safety of employees. Page 15 has language that provides for necessary increases in tax rates to fund hurricane damage without needing to wait for the next election. However, neither the extent of potential damage nor any efforts to mitigate or proactively invest in resilient infrastructure at the city, district or county level are mentioned.

A key metric that risQ has directly correlated to climate risk is change in overall population. The Official Statement documents a decrease of 9% in daily average attendance over the prior 10 years, and an 8% drop in district population over the prior 5 years. Notably, Cameron County is at the 90th percentile in terms of annual NFIP claims per capita for Texas counties, and at the 91st percentile nationally. Rather than being independent of climate risk and the resulting serial recoveries and rebuilds, population movement is overtly influenced when accounting for other variables, especially at the extremes of low and high climate risk. As with prior examples where we have pointed this out, project out the aforementioned population changes given the climate trajectory we’re currently on.

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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