The plethora of bonds issued by counties, cities and school districts in climate-risk focal areas – Texas, Louisiana, California, Long Island, etc. – shouldn’t be taken as indication that risks aren’t materials elsewhere in municipal bonds, either geographically or by sector. Other municipal bond sectors are much more prone to impairment overall, and off-the-beaten track locations don’t have the same rainy day funds and backstops in place making their climate events of greater relative impact. In that spirit, this week we’re focusing on a recent Maine Health and Higher Educational Facilities Authority issuance ( the OS for which can be found here). Inside this $12 million strip with maturities out to 2040 are three obligors, Down East Community Hospital (DECH), Mount Desert Island Hospital (MDIH), and St. Joseph’s College of Maine (SJC).
Plenty to process when looking at three facilities across three different counties in Maine. DECH is in the 98th percentile of climate risk to hospitals nationally (assuming a 45-60 minute drivetime service area typical for isolated hospitals), it sits in the Town of Machias (93rd percentile nationally), but draws from the greater Washington County area (96th percentile nationally, and Maine’s highest risk county). MDIH is not dissimilar: 93rd percentile for hospitals (using a 30 minute drivetime service area), located in Bar Harbor (86th percentile for cities) and serving the central coastal and main island within Hancock County (91st percentile for counties). In both cases, the risk is a mix of coastal and inland flooding. SJC is inland in Cumberland County, removing any coastal flooding risk, but still carrying 77th percentile risk across all higher ed campuses, driven entirely by inland flood risk. Even for those in Maine overall, the risks are apparent: “roughly 3,500 miles of tidal shoreline, an aging population, slow economic growth, high healthcare costs, a seasonal economy, crumbling infrastructure, reliance on tax revenues from waterfront properties, and dependence on one primary marine resource”.
Focusing on the two higher risk locales, coastal areas are often invoked as high risk in mainstream climate risk channels given sea level rise considerations, and these discussions are often future-facing with mentions on 2050, 2080 or even 2100. Coastal flooding is a much more contemporary event that that, and especially in the Gulf of Maine where sea levels are rising faster than most other areas. Just do a quick search for “Machias” and “flood” and see what you find, including this year where one event resulted in the Machias Wastewater Treatment plant overflowing event and seeping waste into the river and closing lucrative clamming flats in Machias, East Machias, and parts of Machiasport for 21 days. We focus on these aspects as the revenue streams of a hospital (or a higher education campus) are intimately tied to the size and economic welfare of the population they serve. Flood, both inland and coastal is the biggest current climate driver of population loss and loss of property value. So, while the OS mentions flood risk twice it is only in the context of risk to the facilities and entirely ignores the climate risk and implications thereof to the populations they need to serve to survive. We’re not talking single year tax anticipation notes here. There is some length to some these bonds.
Even if the populations stay, the discretionary income they’ll need to dedicate to flood repair will swallow what they might have spent on elective healthcare procedures. In Hancock County, 89% of the flood risk to property is uninsured while that number is 91% in Washington County. When flood damage (inevitably) occurs, and at an increasing rate, healthcare expenditure will drop. The cities and counties that the hospitals serve are doing little to help in this regard, with none of Machias, Bar Harbor or Hancock or Washington counties engaging with the NFIP in such a way to reduce flood insurance rates. The FEMA maps for these residents isn’t exactly helping with the counties having 2.5-3 times the flood risk that is captured in the FEMA 100 year flood plains.
The residents these hospitals serve are essentially flying blind and on their own with respect to their abilities to prepare for and recover from floods. The hospitals are no more aware and have made the buyers of their bonds no more aware that there are risks to their customers and those risks have material impact on their spending decisions and capabilities.