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Climate Risk (pseudo-)Disclosure of the Week: 6/1-6/5

By June 12, 2020 No Comments

Toms River Township suffered major damage in 2012 as a result of SuperStorm Sandy, including hurricane wind and storm surge which resulted in >$2 billion in lost tax ratables. While the issuer explicitly recognizes the effects of Superstorm Sandy on its finances, there is little mention of the potential impacts of future climate events.

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

      Toms River Township, New Jersey General Improvement Bonds Series 2020

The Bonds are general obligations of the Town. The proceeds will be primarily used to permanently finance various capital improvements by the Township (more below).

The Series’ maturity date schedule runs from 2021 out to 2034 annually. risQ projects that the cumulative property value at risk in Toms River by the year 2034 is 56%, and the cumulative GDP at risk by the year 2034 is 61% — 97% and 88% national percentile ranks, respectively.

Toms River Township was severely impacted by Superstorm Sandy, which was a Category 1 post-tropical cyclone when it made landfall on the Atlantic Coast of New Jersey on October 29th, 2012. The impacts were devastating — the Town lost approximately $2.4 billion in tax ratables as a result of Sandy, which was more than half of the $4.3 billion in total tax ratables lost statewide in New Jersey as a result of Sandy.

Toms River Township mentions the financial risks posed by extreme weather, but only with a backward-looking view to the 2012 Superstorm Sandy event, and no mention of climate risk or resilience:

  • Public Expenses Resulting from the Storm (pg. 7) — “The Township estimates that Super Storm Sandy resulted in approximately $24 million in damages to Township-owned facilities and infrastructure on the barrier island and the mainland, including roads, storm sewer systems, bulkheads, the dunes/beach area, the boardwalk and Township-owned buildings…To address these emergent expenses, the Township applied for and received federal funding in the form of a $5 million Community Disaster Loan from the Federal Emergency Management Agency…In addition to the above- referenced loan, FEMA has provided reimbursement (at either a 90% or 100% level) for certain eligible expenses related to debris removal, emergency protective measures, repairs and reconstruction of roads, bridges and utility systems and governmental buildings, and restoration of parks.”

The Town, fortunately, received disaster relief funding from FEMA. A portion of this relief funding came in the form of a federal disaster loan — the type that has since been forgiven for most of the municipalities in Ocean County, NJ that were impacted by Sandy. Unfortunately, this past April, Toms River officials were told by FEMA that the Town’s loan would not be forgiven, and the Town would be required to payback $5 million that was provided by FEMA.

  • Impact upon Tax Assessments and Tax Collections (pg. 8) — “As a result of widespread damage to private property resulting from Super Storm Sandy, the Township Tax Assessor prospectively reduced the assessments for properties that sustained damage. These adjustments reduced the overall valuation base for 2013 by approximately $2.025 billion…The reduction in assessed valuation due to Super Storm Sandy represented approximately 12.41% of the Township’s ratable base. Since that time, the Township has experienced a recovery of a large portion of the ratable base, and tax collection rates have been strong. The Township estimates that as of October 2019 it had recovered approximately $1.55 billion (or approximately 76%) of its pre-Sandy ratable base, and that approximately 87% of the properties that were substantially damaged (i.e., damage greater than 50% of the value of the property) have either been reconstructed or were in the process of being reconstructed. The Township estimates that it will take an addition two to three years for the private property tax base to fully recover from the damage sustained from Super Storm Sandy.”

It took 7 years for the Town to recover 75%, and, in the end, could take over a decade for the Town to recover completely.

Toms River Township finds itself in this awkward position where it is still dealing with the impacts of a climate event that took place almost a decade ago, while having to consider the climate risk that may materialize over the coming decade. A 100 year event coastal flood – think a severe nor’easter – is projected to cause over 28% loss of equivalent property value. Extending this 1% probability to 2034, the final maturity date for this series, there is over a 13% probability of such an event occurring. For context, Superstorm Sandy was around a 700 year event, so there is a much higher cadence time threshold event still projected to cause significant damage.

Given the possibility of future storms negatively impacting this region again, some consideration should be given to infrastructure projects designed to protect the Town’s assets. According to the AUTHORIZATION AND PURPOSE OF THE OBLIGATIONS (pg. 3) section of the POS, $10,325,200 (!) of the proceeds derived from the sale of these Bonds will go towards “Superstorm Sandy Rehabilitation”, equating to one-third of the total proceeds. However, there is no explicit mention of climate disaster mitigation investments.

Yield-to-maturity for the 2034 Toms River bonds is currently priced at 1.83%. S&P has provided a AA rating for the 2034 paper.

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