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Climate Risk (non-)Disclosure of the Week: 11/30 to 12/4

By December 10, 2020 No Comments

We’re now getting in front of sales dates with our look inside specific Preliminary Official Statements with the help of MuniOS. Plenty of good candidate POS’s have been posted with upcoming sales dates, but we’re focusing on next Wednesday’s Competitive Sale of $39.4 million of special obligation bonds by the City of Sunrise, FL. The POS for this series of bonds with maturities out to 2050 can be found at https://www.munios.com/munios-notice.aspx?e=I5FN5. 

Sunrise sits around 10 miles inland from Florida’s Atlantic coast, so the main perils are inland flooding and hurricane flooding from extreme precipitation. Those two alone are plenty to drive substantial risk though. The overall Property VaR is 96th percentile across cities nationally and 68th percentile for cities in Florida. Perhaps just as importantly, given that this special obligation bond specifically excludes the ad valorem tax base, the GDP numbers are even worse at 98th percentile nationally and 78th percentile for Florida cities. For hurricane flooding specifically, the city is 86th percentile for GDP risk among Florida cities.

Generally, few Florida issuers would have to audacity to not mention climate-related risks in an OS, but there is a grey-scale of quality that can be layered onto that initial binary construct. In Sunrise’s case, this language can be found on pages 56-57 of the POS. There is a (not so subtle) attempt to position this as a distant worry on page 56 (“such effects can be exacerbated by a longer term shift in the climate over several decades”). In the next paragraph, a statement of how far the city is from the coast when the risk discussed is too centered on sea level rise (which makes no sense as the real risks are from inland flood and extreme precipitation). Finally, the specifics on the Sunrise Sustainability Action Plan in the POS are weak, so we went ahead and looked at the document ourselves (which you can find at https://www.sunrisefl.gov/home/showpublisheddocument?id=5194). To Sunrise’s credit, there is a lot of discussion on measuring and mitigating carbon emissions and Resource Management from pages 44-71, but then little in terms of real data and concrete action to address Vulnerability from pages 72-79. There is a reference to FEMA SFHA flood maps, which we know to be a poor tool for understanding the full scope of flood risk to a city. The above represents the sum total of climate risk discussion. “Flood” is mentioned twice, and “hurricane” only four times across a 376 page document.

Lets go a bit deeper on the risks to the city and how they’ll compound out to the final 2050 maturity. Even though Florida dodged a lot of 2020’s hurricane season, Sunrise wasn’t immune. November’s Tropical Storm Eta caused extensive flood damage to the city, with Sawgrass Mills Mall being one of the greatest revenue streams affected by the storms. According to Wikipedia, the mall is the 10th largest shopping mall in the United States so certainly important for the revenue streams of the city. The parking lot was submerged, cars included. 2017’s Hurricane Irma also closed Sawgrass Mills with extensive damage and, again, with cars submerged. While approximately 10 percent of the land area in the City of Sunrise is located in a Special Flood Hazard Area (SFHA) we know that flood maps, but for Broward County as a whole the FEMA maps only capture 44% of the flood risk. Perhaps even more alarmingly, insurance uptake rates are only around 10% for the county as a whole, so a severe flood event will leave a meaningful gap on discretionary income and on the population overall.

Looking ahead, hurricane probabilities are only going to increase out to 2050. Specifically, in an RCP8.5 scenario, the probability of a hurricane of any category impacting Sunrise is 3.7% in 2020 but climbs to 8.4% by 2050. Even in a Bidenesque, RCP4.5 world the 2050 probability climbs to 5.6%. Those relatively glancing blows struck by Eta and Irma are a portend of things to come with greater severity and frequency, and certainly enough to make that 15% reserve fund mentioned on page 56 of the POS look awfully light. In the absence of any real vulnerability projects the revenue needed to support these bonds is going to become increasingly more demanding. In that sense, the City of Sunrise is in the NFIP’s Community Rating Survey with a Rating Class of 7. Such a score can be achieved without taking any actual physical steps to improve flood infrastructure, and of particular note is that Sunrise’s rating has not changed since 2002 according to current CRS documents.

Whether in the cities own Sustainability Action Plan or in 3rd party mechanisms like the CRS, physical climate risk remains a clear gap and the POS does little to outline any substantial change in that.

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