This week we’re looking at Oceanside Library located in Long Island, New York. The library improvements are being funded through property taxes assessed in Oceanside Union Free School District, however severe flood risk and recent changes in FEMA’s flood insurance program calls into question the District’s positive outlook.
Dormitory Authority of the State of New York, Oceanside Library Revenues Bonds ($30,500,000)
The Bonds and the District
These bonds are being issued to finance the costs of facility improvements to the existing Oceanside Library, which is maintained for the benefit and free use of the residents of the school district. The bond series is secured by a loan agreement with Oceanside Library which is pledging revenues including property tax assessments on property located within the District.
Home values in Oceanside School District are among the highest in the U.S. Looking at the UI demographics tab, we see that the Average Owner Occupied Housing Value is $472,087 which ranks at the 95th percentile nationally and 84th percentile statewide. Specifically related to the taxes levied on the properties in the District (revenue securing the bonds), the Average Owner occupied housing unit Real Estate Taxes are $3,278, ranking 70th percentile nationally, and Real Estate Taxes as Percentage of Home Value also ranks relatively high at 74th percentile nationally.
On one hand the District benefits from high home values and real estate taxes which support its library, but on the other hand there is flood risk and flood insurance mispricing which could throw a curve ball into an otherwise booming situation.
Coastal Flood Hazards
Oceanside Union Free School District has a jarring Flood risQ Score of 4.9, driven almost entirely by its exposure to coastal flooding. Cumulatively, by 2031, the estimated property value-at-risk from coastal flooding is 24%, with a 100-year coastal flood event expected to drive ~24% property losses and impair the equivalent of ~21% of annual GDP. Under RCP 8.5, a greenhouse gas emissions scenario where emissions continue business-as-usual, the projected sea level rise for the region is ~6.5” by 2040 and ~10” by 2050. Ultimately, higher sea levels will only amplify the District’s already disruptive coastal flood risk.
While the probability of a hurricane in any given year is relatively low (<0.2%), if the area were to experience a hurricane the impacts would be significant. The potential impacts of hurricanes are worth considering especially since the Long Island region (home to Oceanside School District) experienced multiple hurricanes in 2021: with Hurricane Elsa, Henri, and Ida all sweeping through the region and bringing precipitation-induced flooding. We project that if Oceanside School District experiences a Category 1 hurricane, the combination of storm surge, wind, and precipitation-induced flooding could drive property losses to ~23% and impair ~47% of annual GDP.
Despite the area’s exposure to coastal flooding hazards and hurricanes, no mention of ‘flood’ or ‘hurricane’ makes it into the Issuer’s POS, leaving potential investors unaware of potential disruptions to tax revenues if properties are damaged by any of the above mentioned hazards.
The Great Repricing
Under the former FEMA National Flood Insurance Program (NFIP) structure, all property owners paid similar flood insurance premiums and in effect those living in lower-risk areas were subsidizing people living in highly flood-prone areas. Facing years of deficits and an insolvent program that required $16 billion from Congress to payout hurricane claims for Harvey, Irma and Maria, in October 2021 FEMA sought to correct the insurance mispricing though Risk Rating 2.0 by restructuring insurance premium rates. Under the new framework, individual property owners pay a premium that “better reflects an individual property’s unique flood risk,” said a FEMA spokesperson.
With Risk Rating 2.0, the majority of homeowners can expect to pay the same or less than they currently do for FEMA’s flood insurance, while the highest-risk and often high-value homes will see the largest increases. “Under the new approach, 23 percent of households with flood insurance would see their rates fall right away, by an average of $86 a month, according to data provided by FEMA, because the updated formula shows they have been overpaying based on their risk. Another 73 percent would see either no change or an increase of no more than $20 a month… some households would face that maximum annual increase for 10 years or more. As a result, their rates could increase at least fivefold over that time… Those big rate increases would mostly apply to higher-cost homes, which under the current formula tend to underpay for insurance. Many of the people that would see a decrease live in lower-cost homes” (Overhaul of Flood Insurance Program NYT). While some have protested the updated rate structure because of the impact it can have on insurance affordability, this view fails to acknowledge that the restructuring increases the program’s financial stability and equity — where the most flood-prone properties (the same properties that are most likely to tap into FEMA’s disaster relief funding wallet) carry the appropriate slice of risk. Risk Rating 2.0 is sending a clear message to people living in high-risk flood areas: move elsewhere, or pay for the actual risk your property faces.
The Oceanside School District is in the crosshairs of Risk Rating 2.0 by being both 1) highly flood-prone and 2) well stocked with high-value homes that are costly to rebuild. For example, some homeowners seeking new flood insurance policies on Long Island, NY are seeing flood insurance rates double. This phenomenon isn’t only playing out in flood-prone NY regions, but elsewhere in the U.S as well. In Florida, some homeowners have referred to premium increases as “absolute insanity”. One example is a resident of Treasure Island, FL who currently has an NFIP policy with a $2,710 annual premium; come renewal time, that annual cost is set to start climbing to a full rate of $5,415. The (un)affordability of insurance has some people in flood-prone areas questioning, “How difficult will it be to sell my home?” Frank DellAccio, owner/broker of Century 21 AA Realty says, “The increase in rates may affect the ability to purchase a home. There’s a possibility that as their premiums go up prospective homebuyers can’t afford to pay that home price because they don’t qualify for the mortgage. If the flood insurance rate was $1,500 a year and it goes to $3,000 a year, now you went from $125 a month to $250 a month, which is certainly going to affect the buying power of the buyer.” Oceanside School District (98th percentile for property value-at-risk nationally) is among the high-risk flood areas that is likely to see flood insurance rate increases, and as mentioned, the repricing of insurance rates has tremendous implications on the property in the District’s taxable boundary.
Conclusion
Oceanside Union Free School District faces material flood risk and potential economic disruptions resulting from the updated FEMA NFIP program which seeks to better aim premiums with actual flood risk. The District ranks among the highest home values in the US which is generally a good indicator for a bond series that is secured by property taxes; however, severe flooding risk and disruptions stemming from insurance affordability call into question just how stable that outlook is.
Honorable Mentions
Gulf Coast Authority (Bayport Area Water System), TX (risQ Score 4.0, Flood risQ Score 3.7) $8,885,000; Galveston County WCID No. 1, TX (risQ Score 4.0, Flood risQ Score 4.3) $5,710,000
Bayport Area Wastewater Treatment Plant treats industrial wastewater from 70 manufacturing plants and two municipalities (pg. 15). These bonds will fund capital improvements and are secured by the System’s revenue. The System’s revenue stream, however, is highly concentrated; nearly all of its industrial customers are focused on petrochemicals and 59% of the net revenues are derived from just five customers (pg. 22). Therefore, circumstances that impact the price of natural gas or the petrochemical industry adversely affect the System. Winter Storm Uri last February did just that; the System itself faced power loss and natural gas outages while damages faced by customers resulted in a decreased flow to the Treatment Facility (pg. 22). Despite having a Freeze Protection Plan the Utility incurred ~$200,000 in unplanned expenses (pg. 22). Furthermore, per capita emissions rank in the 99th percentile nationally. These emissions in tandem with the System’s dependency on the petrochemical industry spells carbon transition risk.
There is more. The Facility is located near Texas’ coast in a hotbed of climate risk. Harris County, where the Plant is located, saw considerable damage and financial losses from Hurricane Harvey in 2017. A Category 3 hurricane threatens more than 30% of property value. There is also heat stress and Drought risk on the horizon; under RCP 8.5 the percent months in a 30 year period with severe drought ranks in the 97th percentile nationally. Flooding, sea level rise, and hurricanes could all adversely impact the System or its customers in the same way that Winter Storm Uri did. The POS notes that hurricanes and flood events may disrupt operations and thus jeopardize revenues (pg. 22). Furthermore, all are menaces to water infrastructure. Excessive flooding can overwhelm systems and lead to contamination into waterways.
There is a similar story for Galveston County WCID 1, located ~10 miles south of the Bayport Area Water System. The District boasts a similar climate risk profile, with lower per capita total emissions. Unlike Bayport, however, the District, however, sources its revenue from property taxes within the District (pg. vi). The POS notes that hurricanes may engender decreases in population, taxable assessed valuations, and require system repairs (pg. 12).
Hillsborough County Aviation Authority (Tampa International Airport), FL (risQ Score 3.7, Hurricane risQ Score 3.0) $710,750,000
The POS notes that Federal and State legislation related to emissions may adversely affect the Airport’s operations (pg. 101). Indeed, with per capita emissions from electricity production and industry ranking in the 95th and 76th percentiles respectively, the Aviation Authority faces sizable carbon transition risk. Furthermore, ozone levels and PM 2.5 exposure—both airport pollutants—rank in the 71st and 62nd percentile respectively. These emissions pose serious health concerns for the neighboring communities (Persistent Health Obstacles Score of 79). The Aviation Authority, however, has maintained a Sustainable Management Plan since 2013, which sets goals related to the Airport’s GHG emissions, energy use, and waste management (pg. 57). Additionally, the Airport is a participant of the “Reduction Level” of the Airport Council International’s Airport Carbon Accreditation Program which requires carbon management and progress towards a reduced carbon footprint (pg. 57).
Though these measures are undoubtedly necessary, the airport still faces considerable physical climate risk. Located just a stone’s throw from Tampa Bay—a mere 26ft above sea level (pg. 101)—the Airport is vulnerable to sea level rise, flooding, and hurricanes. The POS notes that the Airport is vulnerable to flooding, but refrains from explicitly divulging the Airport’s risk and instead hides behind a claim of scientific uncertainty to dampen concerns (pg. 101). By a stroke of luck, Tampa has evaded a major hurricane in recent years, however, storm surge from a category 3 hurricane could drive around 20% of property losses. Tampa Bay Climate Science Advisory Panel estimates the region could see up to 8.5 ft of sea level rise by 2100. Fortunately, the Authority is proactively resiliency planning; in 2022 along with an update of the Sustainable Management Plan, the Authority will develop a Resiliency Action Plan. Additionally, the Authority does maintain both hurricane and flood insurance (pg. 78).
The Airport is an origination-destination airport (pg. 2), with the tourism industries representing one of the larger service categories in the Air Trade Area (pg. A-70). The impact of coastal hazards on the Tampa region may alter tourists’ demand—making the success of the Airport liable to the region’s climate risk and resiliency planning. Unfortunately, both Tampa and Hillsborough County sport risQ Scores above 3.5 and neither has an active climate action plan.
The Moorings Inc., FL (risQ Score 4.8, Hurricane risQ Score 4.0)
Located in Naples, Florida, Moorings Park Communities began in 1977 as a non-profit corporation originated by members of Moorings Parish Church. Today, The Moorings Inc. operates three facilities that consist of 594 Independent living units, 98 assisted living units, 16 memory care units, and 106 skilled nursing beds (pg. 2). The $47 million in proceeds will be used to acquire and improve two new buildings at the Grand Lake (Hurricane risQ Score 4.0) location. Considering the proximity of each facility to one another along with their identical risQ Scores, we will reference the Grand Lake location while addressing climate vulnerabilities.
Within a 6-minute drive time radius, the Community ranks 100th percentile nationally for both GDP impairment and property value losses from combined climate perils. A majority of the risk comes from hurricane storm surge, which ranks 99th percentile nationally. The 300-page POS lacks emphasis on climate change as a whole, however, it acknowledges that Hurricane Irma left The Moorings Inc with over $1 million in damages in 2017 (pg. A-27). With storm surge from Cat 4 storm surge driving ~52% of property losses within the radius, they should prepare for future losses, which begins with disclosure. Spending millions for new infrastructure that could be potentially damaged or destroyed by climate change should be transparent and at the forefront of planning. For retirement communities, the lifestyles of most residents take place completely within the facilities’ boundaries. The loss of one building could devastate the Community and lower the quality of life (Social Impact Score 25). Instead of being blindsided, more disclosure can be done to ensure a better retirement community.
