Texas issuers are never too far from the worst in terms of climate risk force rankings in any given week of (preliminary) Official Statements posted on EMMA, and especially given the vast numbers of MUDs, PUDs and WCIDs across the southern part of the state. This week’s climate risk non-disclosure distinction goes to the Galveston County Water Control & Improvement District No. 1 the preliminary OS for which can be found here.
Across all utilities nationally Galveston WCID No. 1 is at the 96th percentile for property value at risk and 95th percentile for GDP impairment risk. Drilling down by peril, the national percentiles for property value at risk are 86th, 97th and 92nd for inland flood, hurricane flood, and hurricane storm surge, respectively.
Its not hard to think back to recent climate events impacting the Galveston area. The WCID itself is still feeling the effects of Hurricane Harvey, with fiscal year revenues (October 1, 2019-September 30, 2020) missing projections by ~424K due to lower than expected consumption. This is per the WCID’s own documents found here. A year after Harvey, Governor Greg Abbott issued a disaster declaration due to flooding from another severe flooding event. As additional context, across all counties nationally, Galveston has had the 10th highest NFIP claims at an astounding $205,724/capita/year. This is close to 4 times the claim rate of Harris County. That’s not good and, contrary to popular opinion, actually doesn’t make the corresponding property owners whole.
That would all seem pretty material in terms of discussing climate risk in an Official Statement, but no mentioned of “Harvey” or “climate” can be found in the document. There is boiler plate language on page 14 including “As a result of the damage caused by the hurricanes, the District has had to make significant repairs and replacements to its systems.” but there is no statement that those investments have considered climate resilience for today or for a future climate changed world. in the same paragraph the general warning follows that “Additional hurricanes striking the area of the District in the future could result in decreases in population, taxable assessed valuations and require additional system repairs.”
So with ample evidence of recent risk and impacts on revenue but no mention of past events or planned risk mitigation in the OS a forward look at projected impacts of climate events from risQ’s model seems logical. The climate changed conditioned probability of another hurricane impacting the WCID by 2030 is a robust 21-22%, with the average precipitation from such an event projected to cause equivalent value property losses of 39% of the aggregate property value in the district. The probabilities drop as the hurricane severity increases, so a Category 2 or higher event is only 14% probability over the same time period. That threshold starts bringing hurricane storm surge into play however, with the equivalent loos property risk being 19.6%, a 10x increase from the same metric for a Category 1 event. Needless to say, higher severity hurricanes only amplify this storm surge risk.
So if the climate cracks are already starting to form can we find any evidence of awareness of mitigation (given the POS was silent on it)? Looking at the NFIP’s Community Rating System enrollment list, we can look to the City of Dickinson which is substantially overlapped with Galveston WCID No. 1. Dickinson shows up is on there, and has been since 2012, but a score of 8 out of 10 (where a 10 is the lowest/least action taken) is not robust. This enables up to 10% savings on flood insurance premiums for the residents of Dickinson. As we have noted before, however, a lot of property in flood-prone locations is not insured at all and that gap is growing.
In summary, plenty of climate risk to point to, ample evidence that the issuer is aware of the specific past impacts of climate events on the revenue line, and no evidence of mitigation or resilience efforts. With a strip of bonds extending out to 2034, that’s a bad mix.