Natural Disasters - Municipalities on the Frontline


Houston under Harvey

Municipalities will bear the brunt of natural disasters

2017 was one of the three most expensive years in modern history vis-à-vis losses from natural disasters, globally. The financial losses from earthquakes, hurricanes and wildfires amount to $306 billion in 2017, a 63% increase from the $188 billion lost in 2016. In addition, global insured losses from disaster events in 2017 totaled about $136 billion, more than double that of last year which was tallied at $65 billion. These statistics are provided by the re-insurance firm Swiss Re, that calculates global economic losses from natural and man-made disasters every six months. 

US was ravaged by natural disasters of enormous proportions in the past year. Hurricanes Harvey, Irma and Maria devastated the southern coast and the Caribbean islands, while California fires that raged incessantly in the last quarter of the year, is tauted to be the most destructive wildfire season on record. Then there is Hurricane Maria. It is estimated that Puerto Rico will face $30 billion in total damages -  $20 billion in physical damages (both insured and uninsured) and $10 billion in lost economic productivity.  

Businesses do bear economic losses as a result of natural disasters, but recent research from Four Twenty Seven, the findings of which were published in May 2018,  proves that cities and counties bear the brunt when it comes to 'footing the bill' of extreme weather events. The report Assessing Exposure to Climate Change in U.S. Munis, shares key findings from scoring of (all) 3,142 U.S. counties and the 761 cities over 50,000 in population. The research considers five major climate categories: cyclones/hurricanes, sea level rise, extreme rainfall, heat stress, and water stress.

“This new dataset provides a comprehensive suite of risk scores to better inform ratings and pricing decisions,” said Emilie Mazzacurati, Founder and CEO of Four Twenty Seven. “The risk scores will be very helpful for all market participants, including muni bond investors, local governments, and ratings agencies.”

Besides the one time restoration and insurance payment costs post a disaster, there are longer term costs for municipalities, which are of graver concern. Municipality revenues come from property taxes, and municipalities often offer property tax relief following natural disasters, which then leads to a decline in revenue and a concomitant increase in credit risk. With impoverished residents who have lost their property, temporary or permanently out of a job or relocated, local governments can experience a more permanent reduction in their tax base mostly due to migration. It has been estimated that Puerto Rico’s population could decline between 9.1% and 38.2% by 2060 if Puerto Rico is ravaged by another hurricane of equal or greater intensity as Maria. A dwindling tax base can have long-term implications, affecting the quality and costs of public services such as education or local water utilities.  

Key Findings of the Report

This report highlights specific cities and counties most exposed to each climate hazard on a percent scale and also discusses regional trends and economic sensitivities that may exacerbate a muni’s vulnerability.

Sea Level Rise 

The mid-Atlantic, particularly New Jersey, Virginia, North Carolina and Florida, has the highest exposure to coastal flooding in the United States, with the Bay Area and Pacific Northwest also highly exposed in several of their coastal cities and counties.

Cyclones/Hurricanes

The majority of cyclone risk in the United States is concentrated in the Southeast, given its geographic proximity to the Gulf of Mexico and the tropical Atlantic Ocean. The coastal Mid-Atlantic and Northeast are also exposed to cyclones, but they tend to be less frequent than in the Southeast and somewhat weaker on average after interacting with land or cooler ocean waters.

Extreme Rainfall

The Midwest is particularly exposed to heightened flood risk due to changing rainfall patterns. Recent advancements in attribution science show extreme rainfall to be the main driver of recent floods rather than 20th century agricultural practices, as was largely believed to be the case until recently.

Heat Stress

The highest heat stress scores tend to be centered in the Southeast and Midwest, concentrated in Missouri and western Illinois and fanning out to the Great Plains, Mississippi River Basin, and Florida.

Water Stress

Key watersheds for agricultural production such as the Central Valley aquifer system in California and the Ogallala Aquifer in the Great Plains are highly exposed to water stress. The agriculturally-dominated areas of Bakersfield, Delano, and Visalia, CA along the Central Valley Aquifer are among the ten cities most exposed to water stress. Similarly, municipalities along the Ogallala Aquifer in the Great Plains also rely heavily on agriculture and are among the most exposed to water stress.

It is clear that natural disasters - their occurrences and costs - are on the rise. Cities and towns stand on the frontline during the onset and aftermath of any natural disaster. Risk modeling reports like the one published by 427 are critical for municipalities in creating awareness, forging collaborations on disaster prevention efforts, invest in disaster preparedness initiatives and plan for disaster recovery.

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