Hurricane Ian’s path of destruction—from Cuba to Florida and then on to South Carolina—wiped out $67 billion-worth of real estate and infrastructure. As residents of the hardest-hit areas assess the damage and clear away debris, what’s undoubtedly on the minds of many of them is how to rebuild stronger and better. Living in a low-lying coastal area prone to storm surges and high winds means there’s a good chance they’ll face more hurricanes and similar challenges.
Homeowners aren’t the only ones with an eye on the future. Municipalities that oversee the building of roads, bridges, utilities, and schools are changing the ways these big-ticket items are designed and financed. In decades past, municipalities tended to be reactive rather than proactive when it came to natural disasters. Whether it was the city of New Orleans assessing its system of levies after Hurricane Katrina or Midwestern states thinking about how to rebuild in response to devastating tornados, it was usually the event itself that caused them to rethink how they planned municipal infrastructure projects. Part of that phenomenon could have been that people typically don’t want to allow worst-case-scenario thinking to direct their lives.
But in our experience, we’ve seen enough natural disasters during the last couple decades to conclude that communities would do well to plan for extreme weather events in the way they plan developments and expand infrastructure. Many school districts in hurricane and tornado zones, for instance, are now adding bunker-style safe rooms to their building and renovation projects. The idea is that if a catastrophic storm is headed their way, members of a community can hunker down in relative safety. We’ve helped many municipalities finance these facilities through bond issuances.
When Hurricane Ian hit last month, one of our clients, a large, low-lying resort community, had a comprehensive evacuation plan already in place (luckily it didn’t have to be put into effect). The plan, along with recent upgrades to their water utilities, came about largely because ratings agencies have been very clear over the last few years about what kinds of precautions this county has taken to prepare for future storms. It used to be that disaster planning wasn’t something a municipality discussed from a reporting and ratings standpoint. Today, however, an agency typically wants to know about detailed plans that might even include proof that the municipality have at least six months of cash set aside for a major disaster as well as carry the necessary business insurance.
Assessing environmental risk
Theories on climate change and global warming continue to be debated, but these issues have nevertheless become one of the factors that ratings agencies could use to negatively assess a municipality’s credit rating. If a city occupies, say, a barrier island or coastal flood zone, a ratings agency might report that “rising sea levels” or “perennial environmental risks” are credit challenges for that community. A general rule of thumb is that if a municipality is an hour’s drive or closer to a coastline, it should build a storm response and evacuation plan because ratings agencies will expect to see it.
As public finance specialists, we’ve seen this trend develop largely because of the two distinct roles we play. We serve as an underwriter to public entities like cities, counties and school districts, offering bonds to the public in order to provide those entities the resources they need to build and plan. We also serve as municipal advisors in a completely separate role. When a client seeks to build some type infrastructure improvement, we advise them as to what we think is the best way to go about financing it—as well as the best way to achieve the most favorable rating associated with that financing.
Of course, we might also serve as underwriters on different projects, but it’s through our role as advisors that we help strategize on how to get the highest possible rating from the ratings agencies. Doing so reduces the cost of capital, which in turn translates into less impact on things like tax revenues and utility system fees.
We were working with a South Carolina public service district when Hurricane Ian made landfall in the Myrtle Beach area, less than a couple hundred miles away. We were in close contact with the district manager, who was relieved that Ian had mostly spared that particular area but who was also quite aware of the rising costs of the precautions needed to prepare the community for future storms. This district is taking steps to ensure that its water system can withstand saltwater intrusion. They need to build their wells deeper and with stronger materials—and we’re going to underwrite bonds to help pay for the project.
More people, more infrastructure to devastate
Hurricane Ian’s path of destruction reminded municipal leaders that population growth over the last few decades has given natural disasters more opportunities for devastation. Of the Top 10 deadliest hurricanes that struck the United States, for example, only one—Hurricane Katrina—occurred this century. Yet of the country’s Top 10 costliest hurricanes, all but two have occurred since 2000. That’s because low-lying coastal areas of Georgia, the Carolinas, and the Gulf Coast are now home to tens of millions of year ‘round residents. When it comes to the impact of severe storm surges, surfaces that are covered by building foundations and pavement exacerbate the effects of flooding. In recent years there have been reports of homeowners who live three or more miles from the coastline seeing sharks swimming in flooded areas of their driveways and lawns.
When there’s less ground to absorb water, flooding spreads inland. To respond, governments are issuing storm water bonds aimed at encouraging infrastructure like retention ponds that can hold water from hurricane surges and run-off flooding. The City of Atlanta’s older water and drainage infrastructure was typical of the 19th and 20th centuries. Any major run-off from storms could overwhelm the sewers. Rather than draining untreated sewer water into nearby rivers, the city worked with the Environmental Protection Agency to build a series of massive tunnels to collect the excess water from, say, the torrential rains of a hurricane. Then, after the storm, the collected run-off is piped to a wastewater treatment facility.
The storm water retention pond is an innovative and efficient choice. The alternative plan would have been to build an underground storm water drainage and collection system separate from the existing sewage system. Municipalities are constantly looking for building and engineering innovations that help deal with occasional natural disasters but don’t break the bank. Indeed, another innovation popular with municipalities that can experience severe flooding from hurricanes is so-called grey water. That’s when wastewater is treated and filtered so that it can be used to water municipal golf courses and hose down dusty construction sites. Creating potable water is a relatively expensive endeavor, especially if that water will be used for nothing more than a sprinkler system.
Every time a community has to pick up the pieces from a major natural disaster, the hope is that it’s a fluke. It’s not uncommon to hear the term “100-year storm,” for example, to describe the very worst hurricanes. In the world of municipal planning and infrastructure, the best programs, designs, and projects are moving forward with the realization that these weather events could happen a lot more frequently.
The 30 Deadliest U.S. Mainland Hurricanes
Rank |
Name/Area |
Year |
Category |
Deaths |
1. |
1900 |
4 |
8,000 |
|
2. |
1928 |
4 |
2,500 |
|
3. |
2005 |
3 |
1,200 |
|
4. |
1893 |
4 |
1,100-1,400 |
|
5. |
1893 |
3 |
1,000-2,000 |
|
6. |
GA/SC |
1881 |
2 |
700 |
7. |
1957 |
4 |
416 |
|
8. |
1935 |
5 |
408 |
|
9. |
1856 |
4 |
400 |
|
10. |
1926 |
4 |
372 |
The 20 Costliest U.S. Hurricanes[1]
Rank |
Name |
Year |
Category |
Damage (USD)* |
1. |
2005 |
3 |
$153.8 billion |
|
2. |
2012 |
1 |
$67.7 billion |
|
3. |
1992 |
5 |
$46.2 billion |
|
4. |
2008 |
2 |
$33.3 billion |
|
5. |
2004 |
3 |
$26 billion |
|
6. |
2005 |
3 |
$23.4 billion |
|
7. |
2005 |
3 |
$22.8 billion |
|
8. |
2004 |
4 |
$21 billion |
|
9. |
1989 |
4 |
$17.4 billion |
|
10. |
2011 |
1 |
$14.3 billion |
Source: National Hurricane Center and Central Pacific Hurricane Center, National Oceanic and Atmospheric Administration
[1] Current estimates indicate that Hurricane Ian caused about the same amount of damage as Sandy ($67 billion).
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