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Weekly Preliminary OS Climate Risk Review (6/24/21)

By July 1, 2021 No Comments

“We don’t know what Mother Nature is going to wallop at us,” joked the Nassau County Executive earlier this month when discussing the upcoming hurricane season. Unsurprisingly, the climate risk (non-)disclosure section in Nassau’s preliminary official statement says as much.

This week we’re walloping the area with a non-disclosure distinction, specifically for:

Nassau Health Care Corporation Bonds, Series 2009 (Nassau County Guaranteed), $150,580,000

Proceeds from the issuance will finance capital projects in the County as well as refinance bond anticipation notes that were issued in 2020. Over $17 million in this Series’ debt is scheduled to come due in 2029. While the Corporation is the primary obligor for the Series, the faith and credit of the County is being pledged.

While the word “wallop” doesn’t appear once in the POS, the Issuer does provide a feeble Environmental section. Looking back at previous official statements, Nassau County (Flood risQ Score 3.7) has historically done a poor job of disclosing its climate risk. The first time the term “climate change” popped up in one of it’s official statements was in August 2020, and the same nothing-burger risk disclosure language has been used in every OS since then in the Issuer’s Environmental section ever since: 

  • “Environmental factors, including climate change, pose significant risks to the region and the County.Yep… although, historically, environmental factors within the County have posed a more significant risk to the wallets of state and federal taxpayers that continue to bailout Nassau following flooding events.
  • “The magnitude of the impact on the County’s operations, economy and financial condition of rising sea levels, coastal flooding and more frequent and extreme weather events is indeterminate and unpredictable.” Okay…
  • “No assurance can be given that the County will not encounter natural disaster risks, such as hurricanes, tropical storms, heatwaves or catastrophic seal level rise in the future, or that such risks will not have an adverse effect on the operation, economy or financial condition of the County. Isn’t this sentence essentially saying the exact same thing as sentence preceding..?

(There’s also a section provided on Superstorm Sandy, however it provides no mention of the specific social, economic or financial impacts that the event had on the County…)

The County ranks in the 93rd and 98th percentiles nationally and statewide, respectively, for property value-at-risk driven primarily by coastal flooding events. Nassau sits squeezed between the Borough of Queens, Suffolk County, the Long Island Sound to the north and Atlantic Ocean to the south, and is home to a handful of risQy municipal issuers that have recently popped up on the Competitive Sales calendar. Freeport Village (week of 4/12/2021, Flood risQ Score 4.8) had 3,500 homes flooded and fifteen thousand tons of personal property destroyed due to Superstorm Sandy, according to Mayor Robert Kennedy. Massapequa (week of 4/19/2021, Flood risQ Score 4.9) was also hit hard by Sandy, which damaged 4,000 homes and flooded several major roads as well as disrupted power transmission and utility infrastructure (approximately $26 million in federal aid was administered to Massapequa). Island Park (week of 5/17/2021, Flood risQ Score 5.0) watched as Sandy caused damage to 95% of housing stock within the community. The County’s southern barrier island of Long Beach (Flood risQ Score 5.0) alone suffered more than $150 million in damage from Sandy. All told, Nassau County incurred $6.6 billion in recovery costs, primarily for repairing critical infrastructure such as roads, water systems, and school facilities.

Many homeowners living in Long Island communities chose to rebuild and fortify their homes following the catastrophic damage sustained from Sandy. Others decided to move on-and-out by participating in a State-financed program called New York Rising — backed by the State of New York, the program purchases storm-damaged properties. Via the Rising program, the State spent upwards of $240 million following Sandy on purchases and repurposing of flood- and storm surge-exposed properties, many of which were located in the hardest hit Borough of Staten Island, which witnessed entire neighborhoods completely totaled by Sandy. Officials in Nassau County, on the other hand, chose not to participate in the buy-out programs, claiming that doing so would result in less tax revenue. Nassau’s non-participation is especially aggravating, given the fact that over the past 20 years, residents of Nassau filed $3 billion in FEMA National Flood Insurance Program (NFIP) claims, ranking in the 99th percentile nationally. During the same period, the County ranked in the top 2% nationally with $59,500 annual NFIP claims on a per capita basis.

Oh, okay, you don’t want to lose housing stock and property tax revenues? And, you want us to pick up the tab for you? Got it. Superstorm Sandy rips through Nassau County, resulting in $6.6 billion in recovery costs which were covered by state and federal taxpayers, and the County says “cool, thanks!” Then the State offers a community reconstruction program, to spare Nassau County residents the pain of another Sandy-sized event, as well as spare non-Nassau taxpayers the pain of subsidizing Nassau’s flood coverage, and the County says “hm, no thanks…”

As aggravating as the Nassau County government’s approach towards mitigating flood losses has been, anyone who knows Nassau County’s background should not be surprised. The County historically has an egregious track record of governance and an air of entitlement when it comes to requesting and receiving State-financed bailouts. In 1999, Nassau achieved the distinction of ranking fourth wealthiest county in the country, while at the same time teetering on the brink of financial collapse. The next year, the New York State Legislature granted more than $100 million to bailout Nassau, a decision that was widely criticized given the relatively high value of Nassau’s tax base (median household income ranks 100th percentile, statewide and nationally) and apparent mismanagement of the county budget in past years. The financial problems for Nassau have persisted since then, with the New York state oversight board seizing control of Nassau’s finances in 2011, following the County’s failure to balance its budget. In 2019, a Nassau County Executive was convicted of corruption charges — in that same year, when the Nassau County government requested $200 million in state-spending in tax credits, one member of the Nassau Interim Finance Authority was quoted as saying “these bailouts have to be taken in context..I never saw these as bailouts, but a return of taxpayers’ money to Nassau.”

Nassau County’s Long Beach was one of the hardest-hit New York communities by Tropical Superstorm Sandy, sustaining more than $150 million in damage from the event (Courtesy Andrea Booher/FEMA)

Hey, can someone return some of my tax money too? Maybe, the tax money that ended up restoring coastal property in Nassau County? Why the heck would state taxpayers want their money funneling into a County with as rotten of a governance track record as Nassau? While the words “climate” and “flood” each pop up once in the County’s POS, both “corruption” and “bailout” are conveniently omitted…

Nassau County can’t have its cake and eat it too. It can’t rely on state and federal taxpayers to continue to shore up its chronically-eroded balance sheet as its shoreline continues to erode from rising sea levels, while also dismissing the notion of flood-prone property buy-outs. Fortunately, there is an ongoing effort taking place at the federal level that could shift some of the flood risk burden back onto flood-prone areas such as Nassau County. Reformative measures to the FEMA National Flood Insurance Program (NFIP) in the form of NFIP Risk Rating 2.0 (“RR2.0”) — which would calibrate insurance premiums to actual flood risk — are scheduled to go into effect on October 1 2021. For years, political friction played a mitigative role in the roll out of this new and improved actuarial system. Senate Majority Leader Chuck Schumer has continuously balked at the premise of RR2.0, claiming that the program’s impacts on property values would severely impact New York residents living on the coast. At a 2019 news conference in Nassau’s Long Beach, (now) Senate Majority Leader Chuck Schumer had called for a “halt” to the plan, given the implications for coastal homeowners would consequently be priced out of the flood insurance market.

Unfortunately, for Nassau County and Schumer’s constituents, systems-level changes are coming quickly and will materially alter the ‘who’ and the ‘how much’ of bag-holding following catastrophic flooding events. The County’s credit hasn’t fared well in the past, even with the luxury of its wealthy tax base; we’re curious to see how the County manages in an environment where risk is allocated equitably, and where its affluent coastal homeowners start feeling the pressure to either move up, or move out.

Honorable Mentions

San Diego Unified School District, CA (risQ Score 1.5; Wildfire risQ Score 2.0)

California’s second largest school district sits in the 85th percentile nationally for wildfire property value at risk. San Diego County saw seven wildfires in 2020, including one which affected more than 1,000 acres. The POS discloses various hazards facing the county (pg. A-24) including wildfires, drought (the county is currently designated a Primary Natural Disaster Area due to drought conditions), and sea level rise. 

The District’s finances teeter on property taxes and state funding, the latter of which contributes to ~⅓ of the District’s overall budget (pg. A-4). Disruptions to revenue streams such as changes in legislature, reduced economic activity, and climate change threaten to inhibit the District’s operations. Ill preparation for COVID impacted state revenues and thus the timing and amount of funding to the school (pg. 4). Fortunately, the State, San Diego County, and the City of San Diego have taken strides to mitigate and adapt to climate change hazards. California’s climate action plan and cap-and-trade model aim to reduce GHG emissions and transition the State to renewable energy. The State also adopted stringent statewide flood and wildfire building codes. San Diego County has adopted its own Brush Management Policy, considers wildfire risk in both its Hazard Mitigation Plan and General Plan, and has released a wildfire hazard map. The City of San Diego’s climate action plan aligns emission targets with the State, but tailors strategies to the City. Three shields of defense at each level of government…not too shabby!

Little Cypress-Mauriceville Consolidated Independent School District, TX (risQ Score 3.2; Flood risQ Score 3.0)

Astute observers will notice that this district is a stone’s throw from last week’s featured issuer, Chamber County — both located on Texas’s southeastern coast. This Issuer truly faces a gauntlet of perils: inland and coastal flooding, hurricanes, even property value at risk from wildfire ranking in the 87th percentile nationally. Fortunately, the Issuer isn’t shy talking about it’s exposure to natural hazards. 

The POS lays out the unfortunate toll that hurricanes have had on the region in the last 5 years. Harvey in 2017 caused millions of dollars in damage to the District’s facilities and as of 2020 the District is still seeking reimbursements from FEMA. The fall of 2019 brought Hurricane Imelda, another damaging storm, and in 2020 Hurricane Laura caused school closures lasting three weeks. The barrage of storms has left the District with insufficient financial relief, as neither FEMA reimbursements or their insurance payouts have been enough to cover all the damages. Even the District’s taxable assessed value is tied to hurricane activity — the POS notes how assessed value fluctuates following hurricane events and during rebuilding phrases (POS Independent Auditor’s Report pg. 11). 

Aside from the natural hazard risk the area faces, the District’s wellbeing could be disrupted by economic changes as the U.S. shifts away from fossil fuel use, given the region’s dependency on the fossil fuel industry. The POS discusses how adverse conditions in the oil and gas industry can have downstream effects that include job layoffs and business closures, both of which ultimately affect the taxable property value within the district (pg. 36).

Maine Municipal Bond Bank (risQ Score 1.9; Flood risQ Score 3.6)

Maine boasts the highest Flood risQ Score in New England, and 3rd highest nationally. That’s not all that’s noteworthy: climate change resiliency makes its debut on page 12! The dedicated resiliency section mainly revolves around renewable energy integration, electrification, resilient water infrastructure, and coastal flood hazard planning — good thing too because Maine ranks 96th percentile nationally for GDP impairment from coastal flooding.

Maine’s current climate action plan (CAP), Maine Won’t Wait, provides data-driven mitigation and adaptation strategies. Recent investments in renewable energy and other climate related projects reflect Maine’s earnest commitment to climate resilience. Maine’s CAP outlines specific metrics to measure progress and the state publishes annual emissions inventory updates. And it pays off: Maine is the leading state in emission reductions, even beating out California.

The School Board of Martin County, FL (risQ Score 3.6; Flood risQ Score 4.3)

The School District sits in the 97th and 99th percentile nationally for property value at risk from hurricane precipitation flooding and wind, respectively. Between 2000 – 2020, Martin County residents filed over $40 million in FEMA NFIP claims, ranking in the 88th percentile nationally on a per Capita basis. The POS however, does not reflect the gravity of the implications of this in terms of physical and economic damages for the County.

The POS offers a boilerplate description of climate change (pg. 77), “The economic impacts resulting from such extreme weather events could include a loss of revenue, interruption of service, and escalated recovery costs.” However, there’s no specificity regarding the infrastructure assets that are at risk, fiscally responsible action plans and in general, any proactive mitigation measures.

Resilient Martin”, the County’s adaptation and resilience plan does provide some hope of addressing future stressors. The program looks at modeling sea level rise, performing vulnerability assessments, mangrove habitat restoration, and more. Martin’s Emergency Management department also keeps a list of “Local Mitigation Strategy” project proposals that are put forth for grant funding as FEMA and Florida Division of Emergency Management funds become available. 

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