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Climate Risk (pseudo-)Disclosure of the Week: 6/19-6/25

By July 9, 2020 No Comments

Brazoria County is one of a handful of counties that makes up a region known as the Texas Coastal Bend. Directly adjacent to and northeast of Brazoria is Harris County, the area hardest hit by Hurricane Harvey. The 2017 Category 4 hurricane caused $125 billion in losses across Texas and Louisiana, tying the previous record set by Hurricane Katrina for costliest hurricane on record (source: NOAA — Costliest U.S. tropical cyclones tables updated). Brazoria County’s climate risk profile mirrors that of Harris County’s in many respects, especially in the coastal areas.

There are over two dozen Municipal Utility Districts (MUDs) scattered throughout Brazoria. This week’s climate risk pseudo-disclosure distinction goes to:

Brazoria County Municipal Utility District No. 39 (Unlimited Tax Bonds – Series 2020) — $2,090,000 

MUDs range in size, and many of them are rather small-scale. The Brazoria MUD 39 for instance is just 554 acres in area, providing water, sewage, drainage and other utility-related services within the MUD’s boundaries. The debt is payable from direct ad valorem taxes levied by the MUD against all taxable property located within the District. The Series’ maturity date schedule runs from 2021 out to 2045 annually. 

The cumulative property value at risk in Brazoria County MUD 39 by the year 2045 is 99%, in the 94th percentile nationwide. On an individual peril level, it is at the 96th percentile for inland flood and 98th percentile for hurricane flooding.

Brazoria MUD 39 is more diligent than most in describing the risks posed by natural disasters to its tax base. However, ambiguous and unactionable information is used throughout the disclosure documents. Phrases of pseudo-disclosure are prevalent, such as “Hurricane Harvey made landfall…and severely impacted numerous localities in the region” and “there is no assurance that the District will not suffer damages from such destructive weather events in the future.” (Hurricane Harvey, pg.49).

The disclosure reads the same in its Potential Impact of Natural Disaster section: “The District is located approximately 40 miles from the Texas Gulf Coast and, as it has in the past, could be impacted by high winds, heavy rains, and flooding caused by a hurricane, tornado, tropical storm, or other adverse weather event. In the event that a natural disaster should damage or destroy improvements and personal property in the District, the assessed value of such taxable properties could be substantially reduced, resulting in a decrease in the taxable assessed value of the District or an increase in the District’s tax rates.” (Potential Impact of Natural Disaster, pg. 48)

Nothing we don’t know already, but credit where credit is due.

The Brazoria MUD 39 outperforms on natural disaster disclosure, but is silent on how Brazoria’s natural disaster risk is being exacerbated by climate change (the only mention of “climate” in the entire POS is in the context of “regulatory climate”…). On the other hand, information is provided on flood metrics and adaptation efforts: “approximately 174 acres within the District are located in the 100-year flood plain. Approximately 96 acres of flood plain will be filled in connection with future development and a Letter of Map Revision based on Fill will be filed to remove the future developed areas from the flood plain…Generally speaking, homes must be built above the 100-year flood plain in order to meet local regulatory requirements and to be eligible for federal flood insurance. (100 Year Flood Plain pg. 27). It should be noted that Brazoria County is not enrolled in the NFIP Community Rating System as of the most recent enrollment list, meaning no discounts to residents on flood insurance available via that program, and local regulatory requirements are less beholden to oversight and any reliance on enforcement and future retention of said regulations.

Remember, however, in the three years spanning 2015-2017, the neighboring Harris County-Houston area experienced three 500-year storm events, which brings into question whether design criteria around 100 year flood plains will be sufficient. Also important to place MUD 39 in the context of Brazoria County as a whole, wherein this MUD has 18% higher inland flooding risk and 9% higher hurricane flooding risk, the two key drivers of damage in recent climate events. The annual probability of any hurricane event impacting MUD 39 will increase between 34% – 88% between now and 2045, based on RCP45 and RCP85 scenario assumptions, respectively, only heightening the relative flooding risk profile.

Brazoria’s MUD 39 2045 debt is currently priced with a yield-to-maturity of 2.5%. The 2045 debt has been given a rating of Baa3 and AA from Moody’s and S&P, respectively.

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