Weekly Preliminary OS Climate Risk Review (1/6/22)

By January 13, 2022 No Comments

This week we’re taking a closer look at Galveston Community College on Texas’ Gulf Coast. The region is hurricane-prone and the island city of Galveston has a lot to consider when it comes to rising sea levels. Galveston College is light on its acknowledgement of these issues, so we’re shedding additional light on the impacts of past hurricane events and projections for future impairment in the region.

Grab your notepad, this week’s non-disclosure:

Galveston Community College District Combined Fee Revenue Bonds $28,920,000

About the District and the Bond Series

Galveston College is located on the northeast portion of Galveston Island a half-mile from the Gulf of Mexico beachfront. The District’s taxing jurisdiction is coterminous with Galveston Independent School District and includes all of Galveston Island, Crystal Beach, and Port Bolivar. Between 2018-2020 the College enrolled ~2,000 students each year (pg. 7). This bond series is being issued to cover the cost of facility operations and the construction of a nursing and health science building on the District’s existing campus. The bonds are payable from pledged revenues comprising revenues generated from tuition as well as other fees collected from the student population. According to the Independent Auditor Report, during the 2018-2020 period approximately 55% of students enrolled at Galveston College originated from within the District’s boundaries (Independent Auditor Report pg. 93). 

Coastal Vulnerabilities 

Although the preliminary official statement lacks sufficient context around the weather-related impacts the District faces, the disclosure does provide some warning to investors. On page 26: The District is susceptible to and has experienced on several occasions in its history high winds, heavy rain, and flooding caused by rain events, hurricanes, and tropical storms. In 2008, Hurricane Ike produced 12-15 foot storm surge which flooded and damaged or destroyed a significant amount of property on Galveston Island, including certain District facilities. The occurrence of future natural disasters, including hurricanes and floods, may damage the facilities of the Districts and impair the operations and generation of revenues.

Hurricane Ike was certainly impactful but it’s not the only hurricane event that has impacted the area in recent years. In 2017 Hurricane Harvey led to over $1 billion in FEMA National Flood Insurance Program claims in Galveston County (by comparison, Ike resulted in $1.5 billion in claims for the residents in the County). Beyond these two major events, since 2000, the area has seen extreme rainfall events cause more than $70 million in claims and at least 3 additional hurricanes that caused more than $1 million in property damage. 

Damage resulting from these major hurricane events is expected to increase substantially as sea surface temperatures continue to warm and sea levels continue to rise. And—for a slender landmass like Galveston Island surrounded by water—rising sea levels could translate to hurricane-induced storm surge events an order of magnitude more severe than we’ve seen historically. Under RCP 8.5, a climate change scenario where greenhouse gas emissions continue business-as-usual, the median projected sea level rise in the Galveston area is approximately 8” between 2020-2040 and approximately 16.5” by 2060. With higher sea levels the risk of coastal flood damage becomes more pervasive. After damaging floods the assessed property value in the District can diminish; at the same time, the District collects maintenance funds by levying ad valorem taxes on property within the district (pg. 14). If less revenues are available through taxation, the District may need to reallocate funds for other sources, e.g. tuition fee, to replace lost tax revenues. We project that cumulatively over the next 10 years the property value loss in the District due to coastal flooding is ~8%, while a rarer 1-in-100-year flood would drive losses to ~15%. 

The Issuer does a decent job of drawing attention to its extreme weather exposure, but the POS is light on its discussion of hurricane risk (only 4 mentions), climate change (zero mentions), and sea level rise (zero mentions). All of this is a bit insufficient, especially considering the gravity of the past events and future risks threatening the student population living and learning on an island in the hurricane-prone Gulf of Mexico.

Galveston College’s risQ Profile

A 6-minute drivetime radius from Galveston College has a total risQ Score of 4.0. Cumulatively, over the next 10 years, the projected property value-at-risk in this area is ~15%, with hurricane storm surge driving a significant portion of the expected losses.

We provide a couple different views in our UI of Galveston College’s exposure to climate risk, one of which is the Galveston Community College District (taxing district). However, the series in question is not secured by tax revenues, but rather student revenues stemming from enrollment; assessing climate exposure within the area surrounding the Galveston College campus serves as a more appropriate method for analyzing both facility risk and future impairment to revenues streaming from student enrollment at the College.

If a weather-related event were to significantly damage all or part of the District’s facilities, the District’s ability to offer coursework and collect tuition comprising the Pledged Revenues could be negatively affected (pg. 26). 

We use a 6-minute drive time radius as a proxy for measuring facility-level risk and operations impairment — within this catchment, the annual probability of a hurricane event is 1.9%, and a Category 1 event is projected to drive 8% property losses from a combination of hurricane wind, storm surge, and precipitation-induced flooding. Stretching the drivetime catchment radius out to 20-minutes (as a way to better approximate the exposure of the student population), the risk profile increases to an expected ~13% property losses and ~37% GDP impairment. At a 20-minute radius, the campus ranks 97th percentile nationally for GDP impairment and 99th for property value-at-risk. 

How is Galveston preparing for such events? One mitigation strategy is dune restoration which serves to curb the brunt of storm impacts when seas inundate the coastline. Through the City’s Erosion Response Plan, officials have prioritized dune restoration on the island, including allocating $1 million annually toward beach nourishment projects. Beyond that, the City has established Dune Conservation Areas and prohibits construction in those areas to better preserve existing dunes. In addition to preparing ahead of the storm, the City also has Disaster Recovery Plans in place to help rebound following events — including established practices for temporary/emergency housing, debris removal, and communication. 

Carbon Transition Risk

Beyond the physical risks the District faces, there is also the potential for economic disruption if federal and/or state governments implement a tax on carbon emissions (similar to one of the current proposals) in an effort to disincentivize emissions. Galveston Community College District’s taxing jurisdiction ranks in the 98th percentile nationally for industrial sector CO2 emissions and in the 85th percentile for per capita emissions from electricity production.

According to the Independent Auditor Report, approximately 67% of students are part-time students enrolled in less than 12 semester credit hours (Independent Auditor Report, pg. 93). Presumably, part-time students often hold jobs while attending college. In a scenario where a carbon tax is implemented, the operating costs to industrial employers would increase and could have a material impact on business’ production and employment levels. This in turn could negatively impact the availability of jobs for students seeking part-time employment, and students’ ability to finance their education. 


Galveston Community College faces significant risks stemming from its exposure to hurricanes and sea level rise. The District ranks amongst the top in its muni sector nationally in terms of GDP and property value-at-risk; at the same time, the Issuer fails to deliver a comprehensive disclosure to support informed decisions about hazard risk mitigation. Mixed in with its physical risk is the potential for economic disruption to the District’s industrial sector given high carbon emissions. These risk factors and lack of disclosure leave much to further consider for those interested in this series.

Honorable Mentions

Department of Water and Power of the City of Los Angeles, CA (risQ Score 1.6, Wildfire risQ Score 2.2) $375,000,000

Los Angeles Department of Water and Power (LADWP) is the largest municipal utility in the US and services around 1.5 million customers in the City of Los Angeles (Minority/Nonwhite Population Score of 88.7, Percent of Income Spent on Housing Score of 97). The service area faces wildfire (pg. 85) and drought risk. The Department sits in the 84th percentile nationally for property VaR from wildfire. As per California State Law, the LADWP maintains a Wildfire Mitigation Plan to minimize the risk of wildfire posed by electrical lines and equipment (pg. 67-68). Similarly, the percentage of months within a 30-year period wherein the service area experiences extreme drought under an RCP 8.5 scenario ranks in the 96th percentile, nationally. LADWP is already grappling with drought; last August, the LADWP urged customers to double down on water saving efforts due to a water shortage affecting California. In November, one of the Department’s main suppliers, the Metropolitan Water District of Southern California (MWD), declared a regional drought emergency. The OS mentions drought just once and fails to disclose the aforementioned drought emergencies. The State does require water suppliers to maintain an Urban Water Management Plan (UWMP) which includes a drought contingency plan, water demand forecasting, and water conservation strategies. 

Aside from physical climate risk, the area’s per capita emissions from electricity production and industry — which rank in the 89th and 80th percentile nationally — suggest the Department faces sizable Carbon Transition Risk. Fortunately, the Department, City, and State are proactively preparing for transition risk. Guided by State legislature and standards, the Department has heavily invested in energy efficiency; in the past 21 years, LADWP has invested $1.5 billion in energy efficiency programs (pg. 49). In 2020, renewable energy comprised 37% of the LADWP’s total energy mix (pg. 39) and the Department has several solar and wind projects to further develop renewable energy resources in Los Angeles (pg. 39-43). The Department partnered with the National Renewable Energy Laboratory to perform the LA100: Los Angeles 100% Renewable Energy Study; the study analyzes various scenarios that allow the LADWP to achieve a 100% renewable energy portfolio by 2045 or earlier (pg. 38). The City’s Clean Grid LA plan aligns with the LA100 study and aims to achieve 80% renewable and 97% GHG-free resources by 2030 (pg. 46). In September 2021, however, the City instructed LADWP to develop a plan to achieve 100% carbon free energy by 2035 (pg. 46). Portions of the proceeds will enhance and expand transmission lines and enable greater access to renewable resources (pg. 56). 

Checotah Public Schools, OK (risQ Score 1.5, Wildfire risQ Score 2.3) $6,000,000

Four schools make up Checotah Public Schools (CPS), located in Checotah, a small town in McIntosh County, Oklahoma. The School District is made up of ~12,000, with an enrollment of 2,495 (pg. 17). The $6 million in proceeds are slated for facility repairs, remodeling, new furniture, LED lighting, and other improvements which include the construction of safe rooms (pg. 9). These improvements align with sound ESG practices and should contribute to a boost in the overall scholastic health of the School District (Low Educational Attainment Score 79), which could potentially help alleviate poverty rates (Poverty Concentration Score 72) and bolster access to stronger job opportunities in the future.

Potentially exacerbating socioeconomic issues (Social Impact Score 77) within the District, Checotah  also has substantial exposure to worsening wildfire risk (Wildfire risQ Score 2.3). The School District ranks 88th percentile nationally for property losses from wildfire events, with a 500-year event driving ~14% property losses. During the final days of 2021, runaway grass fires destroyed over 1,000 homes in Boulder County, Colorado (Wildfire risQ Score 1.8). Residents of Louisville (Wildfire risQ Score 1.6) and Stigler were forced to evacuate. The aftermath of this event left tens of thousands cut off from emergency officials and at least 3 people missing. The probability of a 500-year event in those Colorado towns is approximately even with that of CPS. While it is disheartening to see CPS provide no mention of wildfire in its 150-page POS, the District’s proposed use of proceeds is indeed a step in the right direction towards achieving ESG goals and affording its community with the resources to enable societal progress.

North Charleston, SC (risQ Score 2.5,Flood risQ Score 3.3) $43,300,000

North Charleston is ranked third-largest city in South Carolina, home to more than 113,000 people. Charleston County is the largest business and financial center for the southeastern section of South Carolina, and relies heavily on tourism, equating to an $8 billion economic impact (pg. A-19). The $43 million in proceeds will be used for acquiring and contracting improvements to a redevelopment area within the city, which includes a pool complex and community center (pg. 1). It’s unfortunate that climate isn’t mentioned anywhere besides the 3-sentence paragraph under tourism in the 180+ page POS because a climate event could potentially tank investments in the City and spike the high Social Impact Score (89) toward its upper limit. The City has a Flood risQ Score of 3.3, ranking 92nd percentile statewide for property losses from combined physical hazards and 93rd percentile in terms of expected impairment to GDP. Heavy storms back in November sent tides in Charleston above 8 feet, similar to hurricane storm surge. Water levels peaked at 8.6 feet, the highest level since Hurricane Irma in 2017. Fortunately the City has a Climate Action Plan geared towards both climate adaptation as well as mitigation initiatives. The City plans to reduce emissions 56% by 2030 and net zero by 2050. These carbon reduction measures will go a long way in protecting the city’s economic prospects considering North Charleston’s relatively high exposure to Carbon Transition Risk — 92nd percentile ranking for per capita emissions from its electricity production sector.

The City also suffers from societal issues such as poverty (Poverty Concentration Score 77) and health problems (Persistent Health Obstacles Score 77). These issues disproportionately affect Black residents (Nonwhite/Minority Population Score 91) and lead to higher rates of crime. For example, the median income for Black families in 2015 was less than half the median income for White families, while the unemployment rate is three times higher for Black residents (8.5%) than it is for White residents (3%). Another key finding shows that North Charleston also leads the nation for eviction rates at 16.5% according to data from 2016. It’s hard to discern if these proceeds will bring measurable positive change; however, we can all agree that the issuer could do a better job of alerting stakeholders on potential risks.