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River City Science Academy, FL: Climate Risk (non-) Disclosure of the Week (1/21/21)

By February 5, 2021 No Comments

Relatively speaking it is easier to analyze the climate and socioeconomic profile of jurisdictional areas such as counties, school districts, cities and the like. It is more challenging to understand a given facility’s risk when that facility draws from the population within a subjective catchment area. With all that complexity, we’re focusing this week on the River City Science Academy – a four campus charter school system – that has come to market with a $35 million strip via the Florida Development Finance Corporation.

The four campuses – Elementary, Mandarin, Innovation and Intracoastal – are all in Duval County, FL, but with sufficient geospatial separation that there are distinct climate risks. Intracoastal is the highest risk campus with a 2030 Cumulative Property VaR of 20% for the campus, and 94th-95th percentile Property VaR for charter schools, regardless of the size of catchment area from which the likely student base would be drawn. For the campus, inland flood and hurricane flood are the two key perils, but any reasonable catchment area carries in substantial hurricane storm surge and coastal flooding risk. In contrast, the Elementary campus ranges from 84th percentile using a 6 minute drivetime area but this increases to 87th percentile for a 20 minute drivetime catchment area. Note also that it has 1/7th the risk of Intracoastal at the campus level (3% Cumulative Property VaR to 2030). The specific risks to Elementary are inland flood, with a lesser contributing from hurricane flood. The likely catchment area captures little or no coastal exposure which keeps the onset of any coastal or storm surge damage much lower than for Intracoastal. These represent the two extremes of climate risk for the four campuses.

The OS has one paragraph of any substance discussing physical climate risk on page 63. Substantially boilerplate language that can be found across Florida issuer documents, although with a throw in at the end that none of the campuses experienced flooding in the past 5 years. Critically, according to page A-7 in the appendix, Intracoastal is only set to open for the 2021-2022 school year which means the implication of a 5 year history is misleading. Again, this is the highest risk campus of the four by a factor of 2, with Mandarin the next highest. That just happens to be the last to open its doors in 2016-2017, so not a generous history to invoke there either. The two oldest campuses are factors of 5 and 7 lower risk than Intracoastal. Rather than being aware of climate risk and choosing sites through that lens, the River City Science system is massively amplifying the overall climate risk with its campus additions. Setting this rather important oversight aside, climate risk to the surrounding area from which the student population comes has to be considered as well, and the OS fails to appropriately discuss the heightened risk the four school system has versus the legacy campuses. Using 15 minute drivetime catchment areas for all four, Intracoastal has twice the risk of Elementary and Innovation. By every measure, the system is worse now than it was for climate risk, but there is no discussion or disclosure of this heightened risk in the OS. If they open a fifth campus one can only imagine where it might be given current trajectories. Compound that with the trajectory of climate change and you’re mixing a really potent cocktail.

Its not like the issuer shouldn’t be aware that flooding from various causes isn’t a known problem. Duval County is in the highest 9% of counties nationally for NFIP claims/capita/year at $6,700 over the last 20 years and the county has even engaged in property buyouts, being in the highest 6% of counties in this regard. On the flipside, our data indicates an 89% flood insurance gap in the county and that the actual flood risk is more than 5 times what would be inferred from FEMA’s 100 year flood plains. History indicates flooding is a problem. Current indications of readiness and awareness indicate the problems aren’t being financially mitigated, and we’ve talked about what trajectories indicate for the future.

With regard to other social factors, the most recent additions to the system have increased the overall affluence of the populations being served. Intracoastal’s 15 minute catchment has the lowest percentage of population below the poverty line, highest percentage of high income young home owners, highest household income, all while having the same percentage of children under 18. Across these same metrics, the next most affluent is the Mandarin 15 minutes catchment area, the next most recent addition to the system. Combined with the climate risk developments, there is plenty to consider with respect to River City Science’s ESG momentum.

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