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Climate Risk (non-)Disclosure of the Week: 8/31 to 9/4

By September 17, 2020 No Comments

When heading into the heart of both wildfire and hurricane seasons, its only natural to gravitate towards recently impacted issuers with Official Statements that weren’t as robust as they could have been in terms of disclosure. This week we’re focusing on the West Sonoma County Union High School District, the Official Statement for which can be found here.

Although only at the 80th percentile nationally in terms of overall Property Value at Risk, it is 91st percentile nationally for wildfire risk, and 80th percentile for inland flood risk. Within the cohort of California school districts, it is 69th and 85th percentile on these same perils. 

The OS can best be described as nebulous, evasive or standard CA issuer boilerplate in terms of climate risk disclosure. “Flood’ is mentioned sparingly and generically in the OS. There is the usual boilerplate language in the appendix about state-level money being deployed on wildfire risk mitigation, but no specificity for Sonoma or the school district itself. More specifically, Page 22 documents that “wildfires have occurred in recent years in different regions of the State, and related flooding and mudslides have also occurred. Although the recent natural disasters do not include territory within the District’s boundaries, the District cannot predict or make any representations regarding the effects that wildfires, flooding, mudslides or any other natural disasters and related conditions have or may have on the value of taxable property within the District, or to what extent the effects said disasters might have had on economic activity in the District or throughout the State.” That’s just not true:

  • in 2019, the Sonoma County Office of Education announced school district closures for Oct. 28 due to the power shutoff, fire threat from the Kincade Fire, evacuations orders, and air quality concerns. The Kincade Fire prompted mandatory evacuations in Sonoma County and forced 90,000 people to leave their homes, and burned in excess of 25,000 acres.
  • earlier in 2019, flooding caused $155 million of damage to residential and commercial property as well as public infrastructure, with Guerneville and other such towns within the West Sonoma High School District taking an outsized proportion of the damage.
  • in 2018, heavy smoke from the 20,000 acre ‘Camp Fire’ in Butte County, closed certain schools across Sonoma County, including West Sonoma.
  • devastating and unprecedented fires that swept through Sonoma County in October 2017. Two public schools burned and one working school farm site was destroyed. Tragically, nearly 250 public school employees and close to 1,500 children lost homes

These seem pretty tangible in terms of financial disruption and directly impactful to the district. Less we forget that West Sonoma County USD also showed up on the recent risQ wildfire alert with > 4% of the district inside the LNU Lightning Complex area, a fire that started in Sonoma and Napa counties and destroyed hundreds of structures in Sonoma.

Areas with overlaid wildfire and inland flood risk are especially important to monitor and understand. The likelihood of floods increases in the months after a wildfire, including the prospect of mudslides, as the burned area is less permeable and capable of absorbing extreme rainfall creating higher volumes of run-off to lower lying (and often more populated) areas. Both in terms of our models for the West Sonoma County USD as well as the above events, the area clearly has this risk overlay. To reinforce this overlay note that the county as a whole is:

  • in the worst 0.1% nationally in terms of historical wildfire insurance costs versus overall county property replacement value
  • in the worst ~ 15% of counties nationally in terms of NFIP claims/capita/per year.

None of these risks will decrease over time with climate change as long term drought increases. Note that insurance regulations that had previously prevented providers from exiting the market or ramping up insurance premiums are set to expire. At the same time, extreme precipitation events will grow more intense but flood insurance premium and take-up rates are already going in the wrong direction. Note also that FEMA’s flood maps for Sonoma underestimate the total flood risk by close to 500%.

Put all this together and there is most assuredly evidence of climate risk, and enough of it quantitative in nature to not gloss over in a disclosure document.

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