Bonds

California storm underscores infrastructure, climate disclosure questions

A four-day atmospheric river-fueled storm that walloped California caused estimated damages of up to $11 billion and put the state’s aging infrastructure to the test.

The preliminary damage estimate of up to $11 billion by AccuWeather accounts for damage to homes, businesses, infrastructure, facilities, roadways and vehicles, as well as over 900,000 reported power outages statewide at the height of the storm, according to its analysis provided to The Bond Buyer.

It also includes disruptions and costs to businesses from travel impediments including blocked roads, train delays, flight cancellations, rerouting, and shipping interruptions and negative economic impacts expected through the week.

A firefighter surveys mudslide damage in Los Angeles Monday. The city experienced more than 400 mudslides during four days of torrential rainfall.

Bloomberg News

Such damage isn’t going to help the state’s developing property insurance crisis, which is driving up rates for homeowners if they can find coverage at all.

“We saw backyards destroyed and cars swept down driveways,” Los Angeles Mayor Karen Bass said during a media briefing, describing a tour she took with Kristin Crowley, the city’s fire chief.

Firefighters and city workers in Los Angeles responded to reports of 562 mudslides, 527 fallen trees, damage to 46 buildings, of which 15 were red-tagged, and cleared 1,332 stormwater and catch basins by Wednesday night, according to the mayor’s office. It also received reports of 1,009 potholes across the city’s 6500 miles of roadways, and on the upside was able to capture 7 billion gallons of water for use.

Bass said she was speaking with President Biden about getting Federal Emergency Management Agency relief for homeowners, whose homes were destroyed, and housing vouchers for homeless people displaced when one of the city’s tiny home villages flooded.

Even after the rain slowed on Wednesday, muddy hillsides will continue to remain a threat as intermittent rain was expected throughout the week, said Ariel Cohen, chief forecaster for the National Weather Service office in Los Angeles.

The storm dumped from six inches to a foot of rain leaving the ground so “super-saturated” that it will take very little additional rain to trigger further landslides and debris flows, Cohen said.

As the nation continues to grapple with what California Gov. Gavin Newsom frequently refers to as the hotter hots and wetter wets of climate change, Municipal Market Analytics is in the early stages of a project investigating why there is such a wide range of disclosure in bond offering documents around natural disasters and climate change.

“What perhaps is most telling is the absence of adherence or reference to the Government Finance Officers Association “best practices” for climate disclosure published in 2021,” said MMA President Tom Doe in an interview about the findings published so far in three of his company’s newsletters, including Tuesday’s edition.

The failure of issuers and their counsel to adhere to best practices recommended by the leading and largest issuer trade association “reflects the idiosyncratic and independence of the municipal issuer community—characteristics that have impeded the efficiency and timelines of financial disclosure in the industry throughout its history,” Doe said.

In MMA’s weekly newsletter, Doe pointed to a New York Times article in which the Urban Ocean Lab stated that while a third of U.S. cities have climate plans, implementation has been slow, largely because cities underestimate how much climate change will transform their communities. He concluded that it’s that underestimation that leads to inconsistent disclosure of climate impacts as advisors, bond counsel and issuers downplay risks for fear of the market’s negative consequences.

Thus far, MMA has reviewed the climate disclosure for three counties, and dozens of other issuers in each state. The counties reviewed were Maricopa County, Arizona, Harris County, Texas, and San Diego County, California.

MMA analysts have looked at bond documents for 2023 sales finding that Maricopa County disclosed extreme weather risk for 28% of sales, climate change risks in 8%, and made no mention of such risks 64% of the time. Harris County disclosed climate risks 8% of the time, extreme weather risks 79% of the time, and made no mention of either risks 13% of the time. San Diego County disclosed climate change risks 71% of the time and extreme weather 29%.

Doe noted that incidents like a late-January storm that transformed large swaths of San Diego county into disaster zones underscore why better investor disclosure about natural disasters is needed. San Diego has estimated $2 billion in repairs are needed to its outdated storm water drainage system, but the money has not yet been budgeted, he said.

Floodwaters rush over a closed road Tuesday in San Bernardino, California.

Bloomberg News

Much of the stormwater infrastructure constructed in California was built prior to the 1940s, according to the American Society of Civil Engineer’s most recent report from 2019. It gave California a C ranking overall for infrastructure conditions, and a D-minus for stormwater. The ASCE estimated that Los Angeles County needs to spend $20 billion and San Diego $5 billion over the next 20 years to achieve its water quality objectives.

Even with San Diego County, which has done a good job on disclosure from Doe’s perspective, he said it needs to take it a step further and increase spending on what he calls adaptation projects that would protect the county better. He has argued — even in testimony before Congress earlier this year — that municipalities need to tap municipal bonds to build infrastructure that would lower the risks from climate change.

For San Diego, this week’s storm brought a one-two punch, flooding streets, uprooting trees and causing mudslides as the county was drying out from what some termed a 1,000-year storm that struck the region Jan. 22.

San Diego City Council President Elo-Rivera responded by announcing plans during a Rules Committee meeting held Jan. 31 — between the two storms — that he would craft a tax measure for November’s ballot to increase funding for maintenance and repairs to the city’s storm water system.

“The need for this has been clear for years, well before last week’s storm,” Elo-Rivera said during the hearing. “We are relying on an underfunded, outdated 20th century storm water system to meet 21st century challenges and protect lives and property, and it’s getting worse every year.”

A spokesperson said Elo-Rivera planned to release details of his tax plan in a month. He introduced a similar measure a year ago, but pulled it when polling indicated there was not enough support from voters.

San Diego Mayor Todd Gloria asked the City Council for $10 million to cover the cost of the January storm. City workers had to clear several miles of storm channels and clogged debris that flowed downstream during the storm. He estimated that city crews picked up more than 9,000 tons of debris and discarded items from flooded homes, cleared streets of mud and helped relocate evacuated residents to local hotels.

“This is the wettest three-day stretch since we started recording weather in the 1870s,” Cohen said. “Our heartfelt sympathies go out to everyone who has been negatively affected by this storm and has experienced loss.”

Lighter rain expected throughout the week after the onslaught eased Tuesday was expected to exacerbate existing problems, according to AccuWeather. Some of the hills where landslides occurred remained unstable, according to city officials.

More than 125,000 people across the state remained without power Tuesday night, according to poweroutage.us. The Los Angeles Department of Water and Power had restored power to more than 60,000 who lost power at the height of the storm, according to the utility.

Fallen trees and flooding in multiple underground vaults, the latter of which needed to be pumped, resulted in longer power outages for some customers, Marty Adams, LADWP’s CEO said, during a media briefing.

Downed trees were a factor for the roughly 200,000 people who lost power in the San Francisco area, where wind gusts of 60 to 85 miles per hour were observed, according to AccuWeather.

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