Weekly Preliminary OS Climate Risk Review (6/17/21)

By June 24, 2021 No Comments

Question: how should a state agency conduct a cost-benefit analysis when considering whether to invest in a climate adaptation project? Three options:

  1. proactively employ a climate-conditioned loss modeling framework to obtain a view of natural hazard risk, and model the preventable property damage costs as well as mitigated local GDP impairment under various flood defense assumptions
  2. hire an engineering and/or catastrophe risk modeling firm (i.e. risQ…) to do (1)
  3. sit on your hands until taxpayers in a flood-prone area file a multi-million dollar lawsuit against you

According to the Texas Department of Transportation, the answer here is … (3).

Although this week’s climate risk non-disclosing issuer is not TxDOT, the failure to properly disclose its climate risk certainly leaves it open to a similar litigious fate. This week we’re looking at:

Chambers County, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2021, $47,650,000

Chambers is the second least populous of nine counties comprising the greater Houston area. The large southwestern section of the County is squeezed between the Trinity, Galveston and East Bays and covered in Gulf Coastal Plain. Aside from trees and water (31% of County area), Chambers contains 7 incorporated communities; the County seat is Anahuac, which the Texas Legislature designated as the “Alligator Capital of Texas” in 1989, given the annual alligator festival hosted there each year.

The certificates are direct obligations of the County payable from and secured by an annual ad valorem tax levied against all taxable property located within the County, as well as a limited pledge of the surplus revenues generated by the County’s solid waste disposal system.

The certificates are currently dated out to 2051, with over $24 million expected to mature after the year 2040. The proceeds from the sale will be used for the design, construction, and improvements to recreational facilities, certain mechanical systems, as well as drainage facilities, roads and highways located within the County.

The largest highway Interstate-10 in Chambers runs east-to-west along the northern section of the County, and has been the focal point of controversy in recent years. In May 2020, local homeowners sued the State of Texas, claiming that the poor design of a stretch of I-10 caused repeated flooding of thousands of acres of property, homes and businesses. According to a memorandum filed in Galveston district court this past February, the plaintiffs in the lawsuit comprised 45 individuals and one limited liability company who own property on the north side of I-10, seeking more than $1 million each for the “alleged taking of their property in violation of the Texas constitution and 5th amendment of the US constitution. Plaintiffs in the case claimed that both Hurricane Harvey (2017) and Tropical Storm Imelda (2019) caused excessive flooding to their properties given the design of the I-10 barrier, which they alleged burdened Plaintiffs’ properties with a ‘permanent flowage easement’, putting Plaintiffs’ property to public use without their consent or just compensation. Plaintiffs further alleged that the State was at least substantially certain that the concrete barrier along I-10 would cause flooding on the northside of the highway.

The State of Texas filed a motion to dismiss the plaintiffs’ complaint, but the motion was denied. Less than two weeks after the motion was denied, the Texas Department of Transportation (TxDOT) awarded a $2.8 million contract to Ragle Construction Inc. to install a new flood protection barrier along 22 sections of I-10 in both Chambers and Orange County. Of course, it’s impossible to determine whether the $2.8 million flood defense investment from TxDOT was already planned to help protect the State’s taxpayers, or have any baring on avoiding payment of > $45 million to residents of Chambers County. It has a sniff of parking the ambulance at the bottom of the cliff.

The Chambers County residents vs. State of Texas lawsuit (which is about the same dollar value as the principal amount of this issuance) isn’t cited once in the issuer’s preliminary official statement. The issuer does a lackluster job of disclosing its natural hazard risk, and then puts up a goose-egg for climate change risk disclosure.

(WEATHER EVENTS pg. 24) The County is located near the Texas Gulf Coast. Land located in this area is susceptible to high winds, heavy rain and flooding caused by rain events, hurricanes, tropical storms, and other tropical disturbances. If a weather-related event were to significantly damage all or part of the improvements within the County, the assessed value of property within the County could be substantially reduced, which could result in a decrease in tax revenues and/or necessitate an increase the County’s tax rate. Further, there can be no assurance that a casualty loss to taxable property within the County will be covered by insurance (or property owners will choose to carry flood insurance), any insurance company will fulfill its obligations to provide insurance proceeds or that insurance proceeds will be used to rebuild or repair damaged improvements with in the County. Even if insurance proceeds are available and improvements are rebuilt, there could be a period of time in which assessed values within the County would be adversely affected.

The disclosure section above can basically be distilled down to 6 words: “we’re hoping it all works out.” Another section with light, sugar-coated hurricane risk disclosure is provided in Appendix B…

(ECONOMIC FACTORS AND NEXT YEAR’S BUDGET Appendix B-10) Economic conditions continued to improve in the County in fiscal year 2019…The County suffered a major flood event with Tropical Storm Imelda in September, but the financial impact was minimal compared to other disaster events over the last decade. No long-term financial hardship is expected as a result of this storm.

Nice to know that Hurricane Imelda hasn’t caused any “long-term financial hardship” for the County. How about for the residents of the County, the same ones that the State of Texas is actively trying to swindle..?

Residents of Winnie TX in Chambers County were washed out of their homes and businesses following Tropical Storm Imelda. Many residents whose homes flooded during Hurricane Harvey two years earlier had just recently returned home before Imelda hit (source: CBS News)

Tropical Storm Imelda’s flooding turns deadly as southeast Texas is swamped by rain (September 19 2019)

  • “What I’m sitting in right now makes Harvey look like a little thunderstorm,” Chambers County Sheriff Brian Hawthorne told ABC13.

‘It’s bad’: Water rescues begin as Imelda soaks east Texas (September 19 2019)

  • “It’s as bad as I’ve ever seen it. Right now I’m in an absolute deluge of rain,” Hawthorne told the AP on Thursday morning as he took cover under a carport at an auto dealership in Winnie. The town “looks like a lake.” “Right now, as a Texas sheriff, the only thing that I really want is for people to pray that it will quit raining,” he added. 

Up to 800 homes in Winnie flooded during Imelda: Sheriff (September 24 2019)

  • Officials said the biggest need in the wake of the storm is volunteers who can help muck out homes.

One of the reasons that Imelda hasn’t caused a “long-term financial hardship” for Chambers could be attributed to the fact that a decent portion of the County’s flood losses are being socialized via U.S. taxpayer-funded insurance subsidies. Our team analyzed FEMA claims data and determined that NFIP claims for Chambers County during the period of 2000 – 2020 were approximately $158 million (Hurricane Harvey accounted for ½ of that total), ranking in the 98th percentile nationally in per capita claims. Approximately ⅓ of claims during that time frame came from unnamed storms and are attributed to severe weather events such as coastal and precipitation flooding. We estimate that only 27% of Chamber County’s flood risk is within a FEMA special flood hazard area (SFHA), meaning that much of the County is uninsured yet still exposed to catastrophic flooding from hurricane or inland storms. Assuming the roll-out of NFIP’s Risk Rating 2.0 (“RR2.0”) — an initiative intended to calibrate insurance premiums with actual flood risk — both the cost of insurance for Chamber County residents and the financial burden carried by the U.S. taxpayer would rise materially in the near future.

The table above shows the likelihood of various hurricane intensities striking Chambers County by a given year, as well as the resulting property value-at-risk. Under greenhouse gas emissions scenario RCP 8.5, where emissions continue throughout the century, our modeled outputs show a 6.4% probability that Chambers will experience a Cat 4 or greater hurricane event by the year 2031, and an 37% probability of a Cat 4 or greater by 2051, which would result in ~40% property value loss in the County. (***Imelda weakened to just a Tropical Storm by the time it hit Chambers County, and still inflicted over $5 billion in total losses across the southeast U.S.). These numbers are high, both in absolute and in relative terms. Chambers ranks in the 97th, 83rd, and 94th percentiles nationally for expected hurricane-induced wind, storm surge and flooding property value losses, respectively. Sprinkle in some inland and coastal flood events (Chambers ranks in the 80th percentile statewide for property losses from both perils) and it’s no wonder the County receives a Flood risQ Score of 3.8.

Residents in the County have been hit with a string of financial hardships in recent years, caused by events like Hurricane Harvey and Tropical Storm Imelda, as well as State-level incompetence and negligence. As climate change increasingly worsens both nuisance and catastrophic flooding events in the Texas Gulf, taxpayers in Chambers may only become more and more discontent. To be clear: we did not come across any evidence that the Chambers County government is directly or indirectly responsible for the barrier construction issues along I-10 — the lawsuit in question is between Chambers County taxpayers and the State of Texas. However, if the County has failed to properly disclose its weather and climate risks, so can the County competently protect its taxpayers over the 30-year horizon of this debt series? You be the judge..

Honorable Mentions

Pharr City, TX (risQ Score 3.2; Flood risQ Score 3.4)

It certainly feels like this issuer was trying to sneak under the radar this week by not disclosing any climate risk: no mention of flood, climate, or hurricane even. This is truly surprising for a town that sits at the Southern tip of Texas, has some of the worst anticipated hurricanes impacts in the U.S, and just last year issued a disaster declaration following Hurricane Hanna. For the record, the probability of a hurricane occurring in a given year is some of the highest in the U.S., and there’s also significant inland flood risk in the area — a 1 in 100 year inland flood would put 16% of property value at risk in the City.

Louisiana Stadium and Exposition District, LA (risQ Score 2.3; Flood risQ Score 3.5)

This issuer collects hotel occupancy tax revenues from Jefferson and Orleans Parish and acknowledges that revenue streams are dependent upon a lively tourism industry in the area. Time and time again, areas impacted by climate events typically experience downturns in tourism revenues, as New Orleans for one is quite familiar with. The Issuer provides a broad and brief disclosure on Storm Risk on page 29, and digs into some of the gory details of the impacts of Hurricane Katrina, noting that “flooding…inundated approximately 80 percent of the city with water up to 20 feet deep in some places” within the City.” Sadly, no mention of “climate change” in the POS.

It’s no question that both Jefferson and Orleans Parishes sit in risky areas. Jefferson Parish Coastal Strategic Action Plan states that the Parish has lost 30% of its land since 1960 due to subsidence, saltwater intrusion, and sea level rise and may loss an additional 42% of land area over the next 50 years without action; that’s why the Parish has sent forth a Coastal Action Plan with projects aimed at hazard mitigation. Orleans Parish is at risk as well, ranking in the 93rd percentile nationally for GDP disruption from all hazards, however New Orleans isn’t sitting idly by. The Big Easy has a Climate Resiliency Plan which includes the motto “Adapt to Thrive”. The hope is that these actions are enough to mitigate the damage to property, impairment to GDP, and keep the tourism alive and well in the area. 

Hodges University – Fort Myers, FL (risQ Score 4.4; Hurricane risQ Score 3.7)

Hodges University sits in the 100th percentile for both GDP impairment and property value at risk. A Cat 4 Hurricane Storm Surge threatens 80% of property value. You’d think this risk would be a catalyst for stellar climate disclosure. Think again. The POS doesn’t mention climate change once, nor flood or hurricane outside the context of insurance coverage. The University’s home county, Lee County, released a Climate Change Resiliency Strategy and Climate Change Vulnerability Assessment, but there has not been a progress report or update since its publication in 2010. 

Flooding and hurricane risk in the surrounding area isn’t Hodges University’s only concern. Enrollment has steadily decreased in the past five years—including a 50% decline from April 2019 to April 2021 (pg B-11). 52% of the University’s students identify as Hispanic (the School is one of twelve designated Hispanic Serving Institutions in Florida) and primarily serves older-adults (pg B-1). Ergo, it’s student population is particularly vulnerable to changes in economic conditions and anti-immigration policy. Florida has enacted several anti-immigration policies including the Federal Immigration Enforcement, which prohibits state and local governments from having sanctuary policies and requires cooperation with federal immigration enforcement, the use of E-Verify for certain jobs, and restricted access to driver’s licenses. The percent of the Hispanic population with a bachelor’s degree is less than half of the non-Hispanic whites population. The State is hindering access to high education opportunities, such as Hodges University, and in doing so widening the racial achievement gap. Let’s call that a trickle-down negative “S” and “G” impact, and leave it at that.

Middletown, RI (risQ Score 1.2; Flood risQ Score 1.7)

Rhode Island issuers are top end in terms of climate risk disclosure, and Middletown is no exception. Even though it “only” ranks around the 60th percentile nationally for property and GDP value at risk, the middle-of-the-road risk hasn’t deterred the Issuer from proactively talking about and mitigating the threats posed by climate change. 

The POS provides a forthcoming statement on climate change impacts and identifies neighborhoods that are of particular concern (pg 8).The Town’s extensive 2019 Hazard Mitigation Plan (referenced in the POS) discusses community health risks from extreme heat, road closures from coastal flooding, and the adverse effects of climate change on the tourism economy, to name a few. In response, the Town is implementing a variety of hazard mitigation projects which they evaluate based on the project’s effectiveness, economic impact, and social equity (Hazard Mitigation Plan pg 83). Included in the plan are incentives for property owners to reinforce their structures against flooding, improvements to storm drains & water system infrastructure to prevent road flooding, limiting development in watershed areas, and developing emergency response plans for vulnerable populations such as the elderly (pg 86-97).

The Town is currently an 8 out of 10 ranking (with 1 the best score) on FEMA’s Community Rating System; it’s a voluntary program with over 1,500 communities and offers flood insurance discounts to municipalities that engage in flood mitigation projects. 

Pasco County, FL (risQ Score 3.5; Flood risQ Score 3.2)

The POS serves a boilerplate climate disclosure no doubt borrowed from other Florida issuers. Here’s what the disclosure failed to mention: the County sits in the 96th percentile nationally for property value at risk and GDP impairment thanks to a helping of both flood and hurricane risk. The County spent upwards of $9 million in preparation of Hurricane Irma in 2017, but even this wasn’t enough; nearly 400 homes and 96 businesses were impacted, 83% of addresses lost power, and around 48,000 people registered for individual household assistance through FEMA. The County’s Hazard Mitigation Plan confronts flooding and hurricane risk, but fails to account for climate change.   

Miami-Dade Water & Sewer, FL (risQ Score 4.7; Hurricane risQ Score 3.9; Flood risQ Score 3.7)

It’s no secret that Miami-Dade County is one of the most vulnerable counties in the US. Rising sea levels have made sunny day flooding an increasingly common event. It’s only going to get worse: by 2040, sea level is projected to rise 10 to 17 inches above 2000 mean sea level. A 2 ft sea level rise would render over 100,000 septic tanks, mainly owned by middle class residents, inoperable. The county estimates that building out a sewer system would cost $3 billion. As a water & sewer system this issuer also must be mindful of precipitation-induced flooding that can overwhelm the system and lead to stormwater backup. The service area is the 99th percentile nationally for hurricane precipitation flooding, but the POS doesn’t mention how the Issuer is addressing this risk. Additionally, saltwater intrusion—openly invited through Miami-Dade’s porous limestone rocks—can lead to well water and aquifer contamination which increases water treatment costs and can overwhelm water systems. The County monitors these changes through its Salt Water Front Monitoring program. 

Rather than retreat, the county is building walls, elevating roads, and pumping the water out. The POS is very forthcoming with its adaptation plans (pg 45) including Sea Level Rise Strategy, GreenPrint, Resilient305, and the Southeast Florida’s Regional Climate Change Compact’s Climate Action Plan. However, the County’s “build on fill” and “build like the Keys” strategies understate coastal hazards while the use of grey infrastructure applies inflexible and temporary solutions to an evolving problem. These strategies also don’t confront the county’s vast racial and economic inequities; investment has largely concentrated in wealthy neighborhoods while the battle for higher grounds will exacerbate climate gentrification

Vicar’s Landing, FL (risQ Score 3.3; Flood risQ Score 4.5)

The area within a 6 minute drive time of Vicar’s Landing is the 99th percentile statewide for coastal flood property VaR, which is quite an accomplishment in Florida. The Issuer acknowledges that adverse weather and natural disasters may drive their clientele away (pg 42) and even name-drops climate change in a long list of potential risks, which is better than most CCRCs bother to do in their OS documents. St Johns County’s Local Mitigation Strategy does a decent job of outlining emergency preparedness and stormwater management strategies. 

Hillsborough County, FL (risQ Score 3.7; Hurricane risQ Score 3.0)

Hillsborough County’s climate disclosure is broad and hypothetical, but bonus points for going beyond the usual Floridian issuer spiel (we’re looking at you, Pasco County). The POS acknowledges the threat of sea level rise and flood, but perhaps more notable (which the POS coincidentally didn’t explicitly mention) is hurricane risk. The county sits in the 98th percentile nationally for hurricane flood and hurricane wind property value at risk. Following Hurricane Irma in 2017 FEMA approved almost $5 million for the State of Florida to help Hillsborough County pay for the costs of debris removal. The County partnered with the University of South Florida (USF) to investigate issues surrounding climate change (pg 77) which will inform a climate action plan. Better late than never.

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