Weekly Preliminary OS Climate Risk Review (3/18/21)

By March 25, 2021 No Comments

Do you know what you’re having for breakfast tomorrow? Neither do I.

Still, I’m confident we can both make educated guesses. If you’re lactose intolerant, it’s probably wise to avoid eggs benedict. If you’re in a rush most mornings, it probably makes good sense to just grab an orange on your way out the door. We’re just making informed projections here, that’s all. Let’s be clear: no one can predict the future with 100% accuracy. But we can make informed projections about the future, based on historical precedent and statistical trends.

In that vein, if you live in a low lying coastal county, it’s safe to assume that you’ll see more coastal flooding as a result of climate change. Unfortunately, Bryan County School District isn’t interested in making informed projections. This week’s climate risk non-disclosure (misleading-disclosure?) distinction goes to:

Bryan County School District (Georgia) General Obligation Bonds, Series 2021 (risQ Score 3.7; Flood risQ Score 4.5)

Bryan County is located in southeast Georgia, just below Savannah. One end of the boot-shaped County is wedged between Blackbeard Creek and Ogeechee River, and the County stretches approximately 30 miles from the marshlands of Ossabaw Island inland towards Claxton. Population growth in Bryan County has exploded in recent decades, growing 69% during the period from 2000-2019, from approximately 23,000 residents to just shy of 40,000 (POS, pg. 45). This rate of population growth is more than double that of the State of Georgia’s, which was 31% during the same period. The County has a relatively young and affluent population, ranking high in total children under 18 (99th/97th, statewide/nationally) and in high income young homeowners (99th/97th), as well as median monthly housing costs (97th/94th) and median household income (95th/93rd).

Above, shots of Richmond Hill, Bryan County’s largest city and home to over half of the School District’s enrolled student population. Much of the city’s affluent population is situated on the marshland coast of Georgia (Source, left: Michelle L Morris Photography; source, right:  GolfPass)

This debt offering — currently estimated at $18,870,000 — is payable via general obligations of the Bryan County School District (BCSD), and constitutes a pledge of the full faith and credit of the District. The District is ensconced within the County, sharing its southeastern and northwestern boundaries, though absent the County’s inland midsection (POS, pg. 1). The bonds are dated 2022-2043, with over $4.5 million worth of debt maturing after 2030 (POS).

Let’s dive right in…

POS, pg. 55, on Climate Change: “Planning for climate change in the County, its impact on the School District and the operation thereof is an unknown challenge. The County’s climate is exceedingly variable and projections of future conditions range significantly. While projections in the County indicate rising average temperatures, precipitation projections are much less clear and often contradictory. Other potential impacts include changes in the length, intensity, and frequency of droughts and floods. The financial impact of the climate change is not yet known and therefore its future impact cannot be quantified reliably at this time.”

Hey, thanks for that. Someone tell the County that climate change causes more coastal flooding, please. In all seriousness, ‘non-disclosure’ doesn’t even begin to define how feeble the County’s attempt is here. Climate apathy? Anti-disclosure? Kick-the-can-down-the-road-then-sweep-it-under-the-rug-disclosure?

And, for Bryan County, worsening flooding events are not an “unknown challenge,” they are very much a clear, present and well-known challenge. Some headlines from recent years:

  • Flooding still a concern in Bryan County (Source: Savannah Now, September 11 2017)
    • While most of the wind and rain associated with Hurricane Irma has abated in Bryan County flooding remains a concern.
  • Richmond Hill residents seeing heavy flooding near Hwy. 144 project (Source: WTOC, December 23rd, 2019)
    • Rain and flooding in south Bryan County, is putting a damper on many residents’ Christmas spirit. 
    • “This is my happy place, but not anymore,” said [Margaret] Taylor.
    • “We’ve never had flooding like this before,” said Cindy White.

(Hm, seems like Margaret and Cindy both have a pretty good idea of just how challenging the climate can be in Bryan County…)

Bryan County has a history of severe and/or serial flooding. Above, in 2012, a police officer helps two Richmond Hill residents push a stalled car to drier ground (Source: WTOC, photo by Julia Harison)
  • Northern Bryan County neighborhoods flooded, people using boats to get home (Source: Fox 28, February 27th, 2020)
    • “It’s crazy, no one was expecting it to get this bad,” said Shreve. “It’s the craziest I’ve ever seen it, the highest it’s been since ’98, it’s all the way up to the front of the road.”
    • Bryan County Fire Chief and Emergency Management Director Freddy Howell … says flooding happens in this area, but this is some of the worst ever.
  • High Ogeechee River levels causing flooding (Source: WTOC, February 23 2021)
    • Most homes along the water sit high off the ground to be ready for floodwaters like this. Residents who were home Tuesday say the river got this high last year at the end of February.
risQ projects that by 2030, Bryan County School District’s cumulative GDP impairment will be 69% (98th percentile nationally, 98th statewide) and property value-at-risk will be 29% (97th percentile nationally, and 98th statewide). The School District is split into two distinct areas, both  embedded within the County.

risQ can’t predict the future. However, we can say with a high level of confidence that Bryan County will feel financial impacts from climate change. And, these impacts can be quantified reliably — that’s our bread and butter. It’s all relative, remember, that’s why we love dealing in percentiles. risQ projects that by 2030, Bryan County School District’s cumulative GDP impairment will be 69% (98th percentile nationally, 98th statewide) and property value-at-risk will be 29% (also 97th percentile nationally, and 98th statewide). This risk is primarily driven by inland and coastal flooding which leads to a cumulative absolute value at risk of over 23% by 2030. The area also is susceptible to hurricane-induced flooding, wind damage and storm surge as it saw during Hurricane Matthew in 2016 and Hurricane Irma in 2017.

Fortunately, at least a handful of people in Bryan County are making an effort to address these issues. City officials in Richmond Hill, Bryan County’s largest city and home to over half of the School District’s enrolled student population, have met in recent years to discuss potential strategies for mitigating flood losses (Source: Bryan County News). Proposed solutions have included widening drainage ditches and building retention pools; however, these solutions have been deemed insufficient to provide an adequate level of flood risk mitigation. Council members have been told by engineers that the flood problems are not directly caused by poor drainage infrastructure, but rather by the city’s low elevation, and that “rising sea levels and the increasing frequency of storms which are also becoming more intense are complicating the situation.” In other words: this is a much tougher problem to fix than was originally anticipated. Recent studies conducted by a local civil engineering firm concluded that Richmond Hill’s “options are few and likely to cost tens of millions of dollars — and even then may not work.

The only certainty in life is that nothing is certain — uncertainty should never equate to denial or inaction. BCSD isn’t only responsible for protecting its residents, but for protecting its investors. It’s unfortunate that the District is failing to proactively address and disclose its flooding and climate risk. Frankly, the District’s labeling of “the climate change” as an “unknown challenge” is even worse than non-disclosure, it’s blatantly misleading and irresponsible.

Honorable Mention

Brazosport Independent School District, TX (risQ Score 4.7; Notable Peril Scores: 4.9 (Flood), 4.5 (Hurricane))

Certainly a disparity between severity of climate risk and disclosure of that risk here given that this is the 4th risQiest school district in Texas and “flood” gets one mention in a short “Impact of Recent Hurricane’ paragraph on page 40. This piece of text is actually a discussion of 2017’s Harvey event versus anything that might have happened since, and in 2020 in particular. It doesn’t take a lot of sleuthing to find more recent flooding events in the area. We were expecting more background on hurricanes given the table of contents lists a section on “Potential Impact of Hurricane Harvey on the PSF” but that didn’t actually make it into the POS proper. In addition, the discussion of any risk of flood, or hurricanes, for that matter focuses only on damage to school property with no acknowledgement of how such events impact property value and growth/loss of population which are also the life blood of school district financials. In fact, right above the hurricane impact section on page 40 are the enrollment numbers in which a 4.3% drop  – 1.4% annually – can be seen over 3 years since Hurricane Harvey. This isn’t all about competitive charter schools, as they might have you believe, as the 2 year period after Harvey (the most recent stats available) show a 0.8% drop annually in overall population. For the nth time, population growth/loss can be correlated to flood risk, and Brazosport ISD fits that pattern. In terms of evidence that floods are leaving other financial marks, NFIP flood claims/capita/year check in at over $48,000 over the last 20 years for Brazoria County, in the worst 2% of counties nationally. Buy-outs have been occurring of a small number of the serially flooding properties – which retires that property from the ad valorem tax base – with the county again showing in the highest 2% nationally. Unfortunately, the POS has no discussion of future climate risk, the potential impact climate change might have, or any climate risk mitigation/adaptation efforts. We can’t find evidence elsewhere either. Neither Brazoria County nor Freeport – the main city in Brazosport ISD – are part of the NFIP’s Community Rating Survey (CRS). This also means there are no flood insurance discounts being passed through to residents that can accrue from being part of the CRS. All signs are bad signs, but the POS does a poor job in documenting this.

Manatee County Port Authority, FL (risQ Score 4.3; Notable Peril Scores: 4.4 (Flood), 4.0 (Hurricane))

Noteworthy in the POS is a section titled “Force Majeure; Climate Change: Hurricanes” from page 46-48 that covers a range of past events and efforts to mitigate future damage. Rightly so, as a port in Florida is going to have inherently high risk from both hurricanes and flooding, as our risQ Scores appropriately quantify. None of the events described in the above were “direct hits” of a hurricane on the port so the financials are far from a worst-case outcome. The storm surge from a Category 3 hurricane is expected to cause 54% property loss for the port and its immediate ingress/egress area, and grows to 75% for a Category 5 event. What should also be noted is how little of the repair costs that were incurred were covered by FEMA. For example, 78% of the uninsured costs of damage from Hurricane Irma in 2017 came out of the port’s pocket with only the remaining 22% coming from FEMA. A further key point to highlight is the implied relative focus on sea level rise for the port. This is understandable – it’s a port after all – but the immediate ingress/egress areas around the port also have precipitation-based risQ via hurricane flood and inland flood that equal or exceed the sea-derived flood risks. For those of you still clinging to the idea that hurricanes are great for the local economy and its issuers, the POS also states that Hurricane Irma drove some increase in ship-related revenue from the importation of oranges due to Irma affecting local supply. That’s a silver lining to the port, but would also indicate a negative result on the local economy as the local citrus crop was clearly impaired. Its tough to argue that the POS hasn’t fairly laid out aspects of the issuer’s climate risQ. That said, the first paragraph on page 48 discusses a plan to make a plan in terms of reducing that risQ. If the mitigation/adaptation actions being taken will be significant enough soon enough is questionable, at best.

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