Among the large cohort of Preliminary Official Statements posted on MuniOS as the year started was that of Cameron Parish School District (No. 15), only a $18 million series but one which most certainly warrants some attention. Although we’re in a new year, the severity of both the hurricane and wildfire seasons of 2020 are still fresh, and the criticality of addressing climate risk is only becoming more financially and politically overt.
Cameron Parish is coastal and sits at the extreme west of state, which means its high risk overall and across a range of individual perils. Focusing on Property VaR, across school districts nationally it is 100th percentile overall, with only Monroe County, FL having a worse risk profile. It is at least 98th percentile for each of hurricane flood, hurricane storm surge, hurricane wind and coastal flood, and 93rd percentile for inland flood. Exactly half of the absolute risk is from coastal flooding, and an additional quarter of the risk from hurricane storm surge. The tail risk metrics are also extreme. For example, a 100 year coastal flood has a 74% Property VaR. The average storm surge from “just” a Category 2 Hurricane has a 78% Property VaR, the average expected precipitation from any hurricane has a 17% Property VaR. Keep in mind, the climate change conditioned probability of a hurricane impacting the Cameron Parish between now and 2030 is 36%, and for Category 2 or worse it is still 25%. In a year like 2020, even these numbers seem conservative.
Looking at the OS, there is a entire 4 paragraph section on page 10 focused on Hurricane Laura as it caused $40 million in damage the school district’s facilities and property, and temporary closures of the schools themselves. The district carries insurance, but with a deductible that doesn’t keep them whole. There is further detail of expected reduction of assessed valuation of taxable property across the district – 70% reduction for residential property, and 30% for commercial property – and that there’ll need to be a (yet to be quantified) increase in the millage rate to account for this gap. Of course this is not the first major hurricane to touch up the parish in recent times. Hurricane Rita (2005) carried 17 foot storm surge while Hurricane Ike (2008) had 12 foot storm surge and damaged 90% of the properties in Cameron CDP itself. The OS mentions that Rita and Ike caused significant damage to the School’s facilities page B-54. What goes unstated is that between 2000 to 2010 1/3 of Cameron Parish’s population declined. During that time the area experienced hurricanes Rita and Ike, both of which were catastrophic to the Parish. Parish administrators said increased cost of flood and wind insurance is keeping some former residents away — in some cases three or four times higher than what they use to be. Now, consider that not only Laura, but Hurricane’s Beta and Delta also impacted the area in 2020 and you can do the math on potential implications. Note that there is no mention of climate change in the OS, which seems like it might have some merit on a strip of bonds out to 2040 maturity, and no mention of climate risk mitigation projects in the parish or involving the district either.
Not surprisingly, given all the above, the other risk indicators and implications are in full effect. NFIP claims/capita/per year for the Cameron Parish are at the second highest of any county or parish in the country at an astounding $547,566. Problematically, and despite the repeated damage done by past events, only 38% of the flood risk in the parish is insured. Only two property buyouts have occurred via the FEMA program, but this is one jurisdiction where such managed migration initiatives are likely to be needed. A range of flood mitigation projects for Cameron can be found on https://coastal.la.gov/, and specifically here for Cameron. Most of the completed projects have been small in size and impact, and focused on marshland restoration and maintenance. The key project in “Engineering and Design” stage is the $4 billion Southwest Coastal Louisiana Project the link for which is https://cims.coastal.louisiana.gov/outreach/Projects/SWCoastal. This is a key project for any meaningful hurricane risk mitigation but the current status is that “Federal Construction funds have not been received from Congress. The Project was not funded in the Federal fiscal year 2020 (October 2019-September 2020) nor was it funded in the 2021(October 2020 – September 2021) President’s Budget. The next opportunity to receive Construction funding will be in the fiscal year 2022 President’s Budget (October 2021 – September 2022) which is currently being developed”. None of this is a good sign for the future viability of the district and the safety of its population.
As an ESG aside, it should also be noted that CITGO Petroleum is the largest ad valorem taxpayer in the district and the state of Louisiana as a whole has a noted economic reliance on oil and gas and the petrochemical industry. While the OS discusses corporate ownership implications of the US and Venezuela entities, there is no discussion or reference to potential carbon transition risk.
As a general premise, smaller issuers like school districts and/or the counties and parishes with less resources they tie to are always going to have a challenge keeping up with climate risks and the quantification that is now possible. The onus is really on the states and the larger centers to provide resources that smaller issuers can draw from. Larger issuers and jurisdictions need to lead and help the smaller issuers that are within their jurisdiction to follow when it comes to climate risk disclosure. That said, smaller issuers need to use the resources that are made readily available to them.