While cities, school districts and smaller utilities are often the focus of our OS deep-dives, when more sizable high risk issuers like counties come to market they deserve the spotlight. They’re generally going to have larger populations and asset values, and they should generally be expected to more on top of any climate mitigation efforts either in-progress or in planning.
In that spirit, this week we’re taking a look at Beaufort County, SC, the Preliminary OS for which can be found here. As a coastal Carolina county, it’s little surprise that the overall risk is high – 98th percentile nationally for property and GDP risk – and that is comprised of high percentile coastal flood, hurricane storm surge, hurricane flood and inland flood contributors.
Within the OS itself, you won’t find “flood” mentioned at all, while any mention of “hurricane” is with respect to payments received – with a year or three of lag – in the aftermath of Hurricane Matthew in 2016. Not telling you much as you consider any current or forward-facing risks. Its not that the county haven’t recognized the risks elsewhere. In a 2015 report (you can access here), page 27 states “The largest threat to buildings is flood damage. Beaufort County currently requires all buildings to have their lowest floor at base flood elevation, or the elevation at which there is a 1% annual probability of a flood. The current FEMA Flood Insurance Rate Maps do not incorporate calculations of future sea level rise, nor does the upcoming map update, which is scheduled for 2016. Therefore, flood risk may be higher than what base flood elevations suggest and wider than what the current special flood hazard zones suggest.” As of today, updates to flood maps are still preliminary, so new construction that has occurred in the interim will be based on out of date information. Even with that, FEMA flood maps miss vast amounts of actual flood risk leaving regulatory and insurance gaps you can drive a bus through. Since the aforementioned report, other reports and events have reinforced the problem. In 2017, Tropical Storm Irma brought several feet of flooding to Beaufort city’s historic ‘The Point’ neighborhood, $6 million of funding was garnered for efforts to make the city more resilient to future storms, but more funding will be necessary in the future. To aggregate all of this up, the county is at the 96th percentile in terms of NFIP claims per capita per year over the last 30 years. None of this seemed relevant to the county as it came to market with this ~$37 million strip of bonds with maturities out to 2040.
So lets do the math on the compounded risks facing Beaufort County to a 10 year call date (2030) and all the way to a 2040 maturity. To 2030, the aggregated probability of a hurricane strength event of any category impacting the county is 10%. Assuming an RCP8.5 scenario the probability of a hurricane increases by 35% by 2040 versus present day, so that aggregated risk ramps up even faster with time. In terms of impact, even a Category 1 hurricane carries with it a 21% property VaR from storm surge given the concentration of property value on the coast, and this jumps to 40% for a Category 2 event, and 61% for Category 3. Even lesser storms, which drive more “garden variety” coastal flooding have a 21% VaR for a 100 year event, so you can compound the probabilities of those two distinct event types and the need for flood mitigation or accepting outsized risk to property and population becomes glaringly obvious.
In terms of observable indicators of climate resilience or adaptation, there have been precisely zero properties bought out because they’re serially flooded and otherwise financially untenable. We can assure you that’s not because those properties don’t exist in Beaufort County. The county, as well as the cities of Beaufort and Hilton Head individually, have been part of the NFIP Community Rating Survey program since the early 1990’s and have reached tangible levels indicating awareness, paper plans and projects, but these are premised on FEMA data and maps and recent evidence supports that severe flooding is far from mitigated even now, let alone for future scenarios.
There may indeed be active efforts focused on flood mitigation and climate adaptation by Beaufort County, but the level of actual risk, the slowness of collective action, and lack of discussion of the risk let alone what actions are being taken in the OS itself raise tangible doubts.
Note: With respect to COVID-19, the workplace demographics suggest some out-sized economic risks in the short term. Of the 58,000 jobs in the county, 35% derive from Accommodation/Food Services, Arts/Entertainment/Recreation, or Retail Trade. The county is just above the 90th percentile nationally in terms of reliance on these sectors suggesting robust economic exposure of jobs and economic activity most impacted by COVID-19.