A transportation project serving a location with affordable housing issues and high wildfire risk, as well as a climate risk disclosure clause in it’s POS that can be found verbatim in disclosure documents previously published by a slew of different California issuers.
This week’s wildfire risk non-disclosure third-degree burn:
Riverside County Transportation Commission (RCTC 91 Express Lanes)
- $146,870,000 Toll Revenue Senior Lien Refunding Bonds, 2021 Series A
- $408,315,000 Toll Revenue Senior Lien Refunding Bonds, 2021 Series B-1
- $[TBD] Toll Revenue Senior Lien Refunding Bonds, 2021 Series B-2
- $82,530,000 Toll Revenue Second Lien Refunding Bonds, 2021 Series C
2021 Series Bonds
The Riverside County Transportation Commission (RCTC) 2021 Series Bonds are being issued to refinance a portion of the outstanding RCTC Toll Revenue 2013 Bonds as well as repay a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan made by the Department of Transportation Build America Bureau. Both that 2013 Series and TIFIA loan were originally secured as a means of financing a $1.4 billion project that extended the Route 91 Express Lanes from Anaheim into the City of Corona and down Interstate 15 towards El Cerrito. The Project ran from 2014 to 2017 and created 16,200 jobs during that period (source). The 2021 Series is payable from toll revenues generated from the RCTC 91 Express Lanes extension.
Emerging Risk Along the Corona Wildland-Urban Interface
The official statement that was published back in 2013 as part of the issuance funding the RCTC 91 Express Lanes extension provides exactly zero mention of wildfire risk. This 2021 preliminary official statement does a marginally better job, albeit still leaves much to be desired.
Fires. In recent years, portions of California have experienced wildfires that have burned thousands of acres and destroyed thousands of homes and structures, even in areas not previously thought to be prone to wildfires. Such areas affected by wildfires are more prone to flooding and mudslides that can further lead to the destruction of property and road and freeway closures. The Commission cannot predict the potential impact of any particular fire incident on the RCTC 91 Express Lanes.
Upon pasting the first sentence (verbatim) of that boilerplate wildfire disclosure into Google, we’re hit with over a dozen results — official statements published over the past couple of years, all including either the same exact languages or slight variations thereof from a basket of California issuers:
– Menifee Union School District (2019) — Wildfire risQ Score 3.8
– Glendale Municipal Financing Authority (2019) — Wildfire risQ Score 3.8
– Santa Cruz County Capital Financing Authority (2020) — Wildfire risQ Score 2.3
– Sacramento City Unified School District (2019) — Wildfire risQ Score 0.0
– Murrieta Valley Unified School District Community Facilities District No. 2014-3 (2019) — Wildfire risQ Score 4.4
– City of Oxnard Financing Authority (2019) — Wildfire risQ Score 0.0
The levels of wildfire risk disclosure provided across the OSs from the basket of issuers above have no correlation whatsoever with the actual level of wildfire risk specific to each obligated area. For instance, the wildfire-prone Murrieta Valley CFD’s section on wildfire risk could (with a few word changes) easily be dropped into any OS imaginable, while the low wildfire risk City of Oxnard goes a step further in providing disclosure of a specific wildfire event that burned the encompassing County of Ventura in 2017, as well as the fact that the County’s exposure to wildfire risk increases materially during periods of prolonged drought. All that for a Wildfire risQ Score of 0.0 … Bravo.
The cities sitting in the Route 91 Express Lanes coverage area also have varying levels of wildfire exposure, with much of that risk heavily concentrated in the City of Corona:
– City of Orange — Wildfire risQ Score 1.9
– City of Anaheim — Wildfire risQ Score 2.0
– City of Corona — Wildfire risQ Score 3.9
– RCTC 91 Express Lanes — Wildfire risQ Score 2.1
We realize these issuers are burdened with covering a bunch of different risk topics — operating risk, cybersecurity, COVID-19, etc — but the act of merely checking-off the climate and wildfire risk disclosure box is honestly just a waste of time.
Anyways, letting bygones be bygones, turning our attention back to the issuance in question. The cities sitting on the RCTC coverage area are no stranger to wildfire activity. The 5-mile stretch of Route 91 that comprises the western half of the Express Lanes extension slices between wildfire-prone Chino Hills State Park and the Santa Ana Mountains. Wildfire activity has gravitated towards the City of Corona in recent years, which at present would see 44% property losses from a 500-year wildfire event, and 25% from a 100-year event, ranking 99th percentile nationally and 90th statewide.
The Riverside County Transportation Commission issuer should know better, given the fact that Riverside County ranks #2 in the State of California for wildfire risk…
2066 Revenue Easier to Predict than Transition Risk
From a carbon transition standpoint, the area covered by the Route 91 Express Lanes project has relatively low per capita on-road transportation emissions, ranking only 34th percentile nationally. The cities of Corona. Anaheim, and Orange all rank low as well — 34th, 42nd and 15th percentiles, respectively. Still, we were drawn to the section on Climate Change Issues and Economic Impact of Possible New and Increased Regulation on pg. 64 given RCTC’s blatant indifference in providing any level of useful carbon risk disclosure.
Key takeaways include:
- impacts are difficult to observe (re: increasing price of gasoline)
- difficult to predict (re: effects on economic activity and transportation sector)
- unable to predict (re: state and local legislation and emissions regulation)
- effects, while unknown, could be material (re: carbon transition risk)
We get it, it’s difficult to make predictions, especially when we’re considering multi-decadal time horizons. That said, RCTC exhibits oracle-level abilities when forecasting it’s future toll road traffic and revenue OUT TO 2066 (Table 6-1: RCTC 91 Express Lanes Traffic and Revenue Forecast, Base Scenario). RCTC provides annual projections of revenue and proposes a steady increase in revenue over the next 45 years — toll revenue growth of 6.85% in the 20s, 5.52% in the 30s, 4.37% in the 40s, 3.58% in the 50s and 3.50% in the 60s with (non-inflation adjusted) revenue increasing from $47,710,000 in 2021 to $137,180,000 in 2066.
Wow, that’s some incredible precision for an entity that also claims it “cannot predict the potential impact of any particular fire” and that the “[California Global Warming Solutions Act’s] effects on economic activity and transportation … are difficult to predict.”
The revenue numbers are partially informed by a toll estimation model (Figure 5-1: Modeling Tool for SR 91 Toll Estimation) that ingests rosy assumptions and projections about the stability of California population and household growth within the vicinity of this stretch of Route 91. One consideration RCTC is (obviously) not accounting in its modeling tool is the risk of wildfire activity driving population outflows from the area, especially as increasing drought continues to exacerbate the risk of major burn events in years to come.
The Route 91 Corridor coverage area has a particularly high exposure to drought risk. Historical drought metrics for the coverage area — constructed using historical (1979 – 2010) United States Geological (USGS) river gauge observations of daily temperature and precipitation — are all relatively low, with the historical percentile for percentage of months during that 30 year period with drought of any severity ranking in just the 9th percentile nationally. Extreme drought risk in the area has increased dramatically in the past couple decades, currently ranks in the 95th percentile and is projected to reach the 98th percentile by 2050 under an RCP 8.5 scenario. The City of Corona is expected to rank in the top 1% of cities for extreme drought risk by 2050. The increasing risk of drought is (of course) undisclosed in the RCTC POS, despite its potential to have a material impact on population growth within the area and 2066 toll revenues. (2066? Really?)
Affordable Housing Funding and Wildfire Risk
California should be working to fund more equitable and denser housing and public transit options not in the wildland-urban interface (WUI) — and this bond is quite literally doing the opposite. One could argue that $1.4 billion in financing partially secured from pledges of American taxpayer dollars could have been better spent on something transit- or housing-related in California that isn’t just encouraging more sprawl, more risk, and more emissions. If California is serious about dealing with climate change, more incredibly expensive road transit that encourages more development in the WUI is counterproductive. It just exposes more value and more people to more wildfire risk, more reliance on fossil fuels, and more suburban spread that is unsustainable.
This past June we published a piece — Wildfires, Housing Affordability and Climate Change: Virtuous Cycle or Death Spiral? — where we explored some climate impact cavities that this RCTC issuance appears to chew on directly:
– Increasing wildfire activity: Catastrophic wildfires are expected to be ~15% more likely on average across the U.S. by 2060.
– On-road transportation emissions: California has a hidden liability of more than $8B on its balance sheet from on-road emissions alone, and those emissions contribute to the climate change that makes its own wildfire risk worse.
– Wildland-urban interface: Driven in large part by constricted housing supply, human settlement in wildfire-prone areas has increased significantly over the past several decades.
– Climate gentrification in California: constricted housing supply is pushing more single-family development into the Wildland Urban Interface, necessitating even more dependence on cars and consequently carbon emissions. Los Angeles is a visually clear-cut case, showing a stark contrast between the intensity of on-road emissions downtown, with many communities on the periphery sitting in high-risk wildfire zones.
From a Social Impact perspective, this highway is serving primarily Latino and Asian populations who spend a high percentage of income on housing (Nonwhite/Minority Population Score 87; Percent of Income Spent on Housing Score 91). These socioeconomic attributes align with the findings embedded in our June publication, wherein we show that populations in high wildfire risk locations are disproportionately Latino, Native American, and Asian, and these same populations live in communities where housing is less affordable, exacerbating automobile dependence and carbon emissions.
Don’t get us wrong: the Route 91 Express Lanes extension project has value. People need to get from Point A to Point B, and Anaheim and Corona are two rather critical ‘points’ within the Greater Los Angeles Area. That being said, the blatant lack (i.e. copy and paste) of wildfire risk disclosure language plus apparent audacity to forecast revenue out to 2066 does not instill much confidence in this issuer’s decision-making competence. We realize that quantifying and disclosing climate risk isn’t the funnest thing in the world, but at least have the decency to make an attempt if you’re going to be bold enough to forecast revenue out more than 4 decades into the future. It’s irresponsible to consume a sleeve of cookies without eating some vegetables first…
Public funding may be better spent on effective urban densification centered on affordability, which can mitigate wildfire exposure and reduce transportation emissions, as well as advance climate and social justice. That’s an idea we should all be able to get behind; well, that is, unless your sole purpose for existing is to finance inter-county transportation infrastructure.
Goose Creek Consolidated Independent School District, TX (risQ Score 3.3, Flood risQ Score 3.7) $59,335,000
This week Hurricane Nicholas made landfall along the Texas and Louisiana coastline as a Category 1 storm and dumped several inches of rain, ranging from 5-8” in Houston to a whopping 14” in Galveston. Ahead of the storm, our UI Current Storm Alert picked up the Hurricane Center’s projected pathway; among the places in Nicholas’ forecasted path was Goose Creek School District. Users can explore the estimated storm impacts via the Download All Affected Locations feature. Here we see that in Goose Creek wind damage from a Cat 1 storm leads to 0.22% GDP impairment and 0.25% property value loss; storm surge from a Cat 1 leads to 1.5% GDP loss and 0.65% property value-at-risk. However, the big ticket item is Hurricane Flooding (i.e. precipitation-induced flooding). Hurricane Flooding leads to ~25% GDP loss and puts 7% of property value at risk. In this way, users can explore locations that may be affected by the hurricane forecast — with an eye on which type of peril would be most impactful. This week Nicholas was primarily a rainfall event and unfortunately for Goose Creek that is also its greatest vulnerability.
Goose Creek School District sits in the 94th percentile nationally for property VaR from combined risks and is the 97th percentile for property VaR from hurricane flooding. The District has experienced multiple storms exceeding a 500-yr return period since 2015 (pg. 3), including Hurricane Harvey in 2017. Harvey engendered significant damage to the District (pg. 3) and stunted economic growth (pg. 10 of Goose Creek Consolidated Independent School District CAFR). Repeated extreme weather events supercharged by climate change threatens economic resilience in the area as well as the School District’s tax revenue. Hurricane isn’t the only risk on the horizon; the percent of months in extreme drought in 2050 under RCP 8.5 conditions ranks in the 88th percentile nationally.
Furthermore, per capita total carbon emissions rank in the 96th percentile nationally. The District has a substantial concentration of taxable assessed valuation in the oil refining industry, with Exxonmobil as the leading taxpayer and employer (pg. A-5). A decline in oil prices in 2014 slowed economic growth (pg. 10 of Goose Creek Consolidated Independent School District CAFR) and the POS concedes that future price drops would adversely affect both the State’s ability to fund schools and the property values in the District (pg. 4). The combination of Carbon Transition Risk and climate risk spells trouble for the School District.
The District’s Social Impact Score of 67 is on the higher end, mainly driven by a high Nonwhite/Minority Population Score (75), Low Prestige Employment Score (69), and Low Education Attainment (78). The POS notes that around ⅔ of the District’s students are Hispanic and nearly ¾ are economically disadvantaged (pg. 6 of Goose Creek Consolidated Independent School District CAFR). Extreme weather events or economic downturns, without proper preparation, could perpetuate the racial achievement gap and financial stress.
Miami-Dade County School District, FL (risQ Score 4.6, Hurricane risQ Score 3.8) $450,000,000
Florida is a frequent target of our weekly commentaries. Physical risk is inevitable for the state, particularly the southern sections which include the Miami-Dade area. Historically, a POS that puts a location within Miami-Dade County includes a reasonable amount of climate disclosure that not only recaps past incidents, but also mentions future plans for mitigation. For these reasons, we usually opt to feature other locations for closer examination. Miami-Dade County School District, however, decided not to copy and paste the County’s disclosure notes into their hefty 320-page POS.
The School District is coterminous with the County, which means that it carries all associated burdens of extreme climate risk within the region — 99th percentile nationally for property losses driven by combined physical risk and 100th percentile for GDP impairment. A Cat 4 storm surge event drives 23% property losses Property value-at-risk rises to over 31% from a Cat 5 event. Heat Stress is also a cause for concern with the heat index ranking in the 95th percentile by 2030 and over 200 days above 95o F. Additionally, Transition Risk ranks in the 90th percentile nationally for CO2 emissions per capita due to electricity production. Unfortunately, none of these factors are spelled out within the POS. The School District gives climate change a paltry 4 sentences (pg. 43) and buries their financial losses from Hurricane Irma ($21.3 million) in the Appendix (C-93).
The $450 million bonds are secured by ad valorem personal property taxes for the purpose of operating expenses (pg 1). 19% of the District lives below the poverty line (Poverty Concentration Score 70) and almost half (49%) are stressed renters (40%+ rent-to-income ratio). These socioeconomic disparities are compounded among the “minority-majority” Latino and Black demographics (Nonwhite/Minority Population Score 72). Furthermore, these stressors factor into the high Persistent Health Obstacles Score (90). Neglecting to address these issues is to the detriment of both the community —334,000 students across 482 schools— as well as the District’s fiduciary responsibilities.
AcadeMir Charter School West, FL (risQ Score 4.6, Hurricane risQ Score 3.9) $14,140,000
AcadeMir Charter School West is nestled in the Miami-Dade County School District and is issuing this series to finance additional student facilities on campus. AcadeMir operates 7 charter schools throughout Miami-Dade, however only the West campus is obligated in this issuance (pg.3). Enrollment at the West campus is ~750 students – making it one of the largest schools that AcadeMir operates in the County (pg. A-4). AcadeMir West is designated as a High Performing Charter School (pg. 10) and the school’s motto is “Expect Excellence”, but we wouldn’t exactly describe their disclosure as top-notch. The POS mentions hurricane risk and climate change, but stops short of discussing the impact of past storm events. Most of the spotlight is shone on the hurricane risk (and rightfully so – there’s over a 7% probability of a hurricane event occurring in Miami-Dade County in any given year). The POS points out that hurricanes not only damage facilities and utilities services but can lead to population and employment losses (pg. 48-49). This risk of population and employment disruption is especially true for AcadeMir West which ranks in the 99th percentile nationally for property value-at-risk and GDP disruption from all combined hazard perils. Any losses in population could ultimately feed back into the charter school’s revenue streams as their funding is dependent upon State and School Board allocations based on student enrollment (pg. 8).
One risk you won’t find mentioned in the POS is Heat Stress. Under RCP 8.5, a greenhouse gas scenario where emissions continue business-as-usual, Miami-Dade is expected to have an average of 200+ days a year with a heat index above 95o F (95th percentile, nationally). The area also has Drought concerns and ranks in the 99th percentile for moderate drought risk. While AcadeMir acknowledges their exposure to hurricane risks, they could’ve gone further to discuss the impact of past events and there’s no discussion on physical risks such as heat stress and drought which could also disrupt revenue streams.