Sometimes, its like municipal bond issuers either have memory loss, or expect others to have memory loss and to lack the capability to use the Google machine. This week, we’re focusing our attention on some pretty egregious climate risk non-disclosure from the Village of Freeport, NY. The Official Statement for this $33.5M strip of bonds, out to a 2031 longest maturity, can be found here.
Lets cover off the risQ climate risk basics first. The village is in the 98th percentile of cities, towns and villages nationally in terms of Property Value at Risk (VaR) and 96th percentile in terms of GDP Impairment Risk. Of the 54% equivalent value property losses expected to 2031, 85% of it is expected to come from coastal flooding. Even a 100 year coastal flood is projected to cause 37% equivalent property value loss in just one go. In parallel, more than 70% of the village’s GDP that climate events will impair comes from the coastal flood. The remainder is derived from expected inland flood events.
Looking at the OS, “flood” is not mentioned once. Neither is “climate”. “Mitigate”, or variants thereof, register but only in the context of COVID-19, cybersecurity and retirement plans. Buried deep in two financial tables in the appendix you’ll find “Hurricane Sandy”, but nowhere else. Good that Sandy popped up somewhere given the many years if took to recover (as discussed in https://longislandreport.org/news/freeport-remembers-sandy-three-years-later/21766), but the OS does not recognize and disclose the impact of such long tail events moving forward. Its also not just long tail events that drive risk for Freeport. Every year there are multiple flooding events reported that impact properties and businesses – just do a search for “freeport ny flooding” to satisfy yourself – but none of this information appears to be material to the village, let alone any discussion of efforts to mitigate. Even more bizarrely, the village has recognized and (partially) acted in the past based on a small 1998 FEMA grant (discussed in https://www.nytimes.com/1998/09/27/nyregion/higher-ground-for-freeport-s-nautical-mile.html). Given the lack of focus and execution since, and the clear consistency and severity of flooding still being experienced, mitigation is not keeping up with the flood risk either in action or in thought. Supporting this, no positive change has been made to the village’s rating in the NFIP’s Community Rating Survey since 2009 so the years since are a taste of what’s to come with nothing being done about it.
Some other data to support a legacy problem and how it flows through to obligor health. NFIP claims/capita/per year in Nassau County as a whole are at the 99th percentile nationally. That said, FEMA maps still underestimate flood risk by close to 40%. Insurance won’t keep things whole as the the flood insurance take-up rate for the county is only 39%. All of this will flow through to property value eventually. For now, its teetering. Finally, from a population perspective, climate events have caused a 5% drop in population across the county in the 2012-2018 period, in the worst 8% of counties nationally. Given the lack of mitigation and the impacts of climate change, the next 10 years to maturity of the full series will be interesting to watch, setting aside the acute financial implications climate events carry in their own right.
We’re hoping the data in the risQ platform, along with cursory level searching that it should spark, would catalyze a closer look and some questions of the issuer. We’re happy to provide such background data for any such issuer you would like to be better prepared for as they come to market. The gaps between what you’ll see in an OS and what you can easily pull from risQ’s data continue to alarm us as we monitor the muni universe.