The Government Accountability Institute undertook a yearlong study of 40 major cities to find out if mayors’ apocalyptic projections about climate risks are factored into the interest rates on the municipal bonds their cities issue. We published this report as “Green Fog: The Coming Climate Change Bond Crisis — the Narrative vs. The Numbers.”
The results revealed a gulf between the words municipal leaders speak and the disclosures cities make.
Politicians in many American coastal cities pull no punches about the threats posed by rising sea levels due to climate change. At times they even seem to read from the same script, repeating the phrase “existential threat” to describe the rising sea levels that menace their ports and coastlines.
But when they authorize selling municipal bonds to pay for local development, do they mention any of these risks to investors? Bonds are rated and their coupon interest rates are determined by financial officials in these cities who must disclose all significant risks to the value of the bonds, by law. Do bonds floated by cities at the greatest risks from climate change pay higher interest than bonds from cities at no
risk?
Often, the answer is no.
For example, the City of Oakland, the City of San Francisco, and San Mateo County, in filing individual lawsuits against ExxonMobil, Chevron, and other major oil companies, made specified claims of damages to their cities due to the impacts of climate change caused, they claim, by the knowing actions of these companies. The statements made by Oakland in its official lawsuit are so definitive as to claim that
“global warming has caused and continues to cause accelerated sea level rise in San Francisco Bay and the adjacent ocean with severe, and potentially catastrophic, consequences for Oakland.” The city claimed the threats were so real that “by 2050, a ‘100-year flood’ in the Oakland vicinity is expected to occur… once every 2.3 years … and by 2100 … once per week.” Further, the lawsuit filing said, “Oakland is projected to have up to ‘66 inches of sea level rise by 2100,’ which, along with flooding, will imminently threaten Oakland’s sewer system and threaten property, costing the city as much as $38 billion.
However, language used to disclose risks to investors in a 2017 bonds document states, “The City is unable to predict when seismic events, fires or other natural events, such as sea rise or other impacts of climate change or flooding from a major storm, could occur, when they may occur, and, if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the City or the local economy.”
San Mateo County made similar claims of certain environmental destruction, including the likelihood of “a 93% chance that the County experiences a devastating three-foot flood before the year 2050, and a 50% chance that such a flood occurs before 2030.” Yet, a bond disclosure from 2016 issued in San Mateo County expressed almost identical sentiments as Oakland did. “The County is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur, when they may occur, and if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the County and the local economy.”
This disconnect between describing dire climate-related consequences to a city in great detail when a payout is on the table, versus downplaying the same issues when these cities’ own funding is on the line holds true for not just these two counties but for six other California cities or counties seeking legal payouts. San Francisco, the County and City of Santa Cruz, Marin County, and the City of Imperial Beach all used very similar language in their own statements.3
The disconnect applies to bond rates as well.
Bonds are rated and their interest rates are determined by financial officials in these cities who must, by law, disclose all significant risks the bonds entail. Are the bonds floated by cities with the greatest risks from climate change paying a better interest rate than bonds from cities on higher ground?
To answer these questions, the Government Accountability Institute (GAI) reviewed bond disclosures from 40 cities. Twenty of these were cities in areas at high risk from rising sea levels or flooding, while the other 20 were mostly inland and freshwater cities not considered at such risk. We wanted to explore whether these threats affected the investment offerings of the cities claiming the highest risks.
GAI also reviewed official statements and policy actions in several of the cities we reviewed. We found:
- There was no statistical difference between the interest rates and bond maturity terms for high-risk cities versus low-risk cities overall.
- New York City and its own Port Authority barely mentioned climate change or rising sea levels in any of their bond disclosures, despite Mayor Bill de Blasio’s dire warnings that it is an “existential threat” and a “dagger aimed straight at the heart” of the city.
- Boston Mayor Marty Walsh has repeatedly railed against the dangers of climate change, yet has presided over the permitting of multiple buildings that would flood if his own predictions about climate change were correct, while the City of Boston mentioned “climate change” just once in its disclosure statements.
- Three California coastal cities—San Francisco, Los Angeles, and San Diego—failed to mention “climate change” or “sea level rise” even once in the disclosure statements for their bonds.
- The city of Oakland said in its 2017 bond disclosure statement that it could not predict when (or even whether) sea level rise or other natural events “will have a material adverse effect on the business operations or financial condition of the City or the local economy.” At the same time, Oakland joined a lawsuit against several major oil companies in which it claimed a projection of up to “66 inches of sea level rise by 2100” that “will imminently threaten” the city’s sewer system and property with a “total replacement cost of between $22 and $38 billion.”
- Low-lying Miami and Miami Beach paid lip service to sea level rise, but did not let it get in the way of lucrative building in flood-prone areas, especially where the mayor owns property. Miami Beach Mayor Philip Levine specifically built his campaign for Florida’s governor on fighting sea level rise, yet has presided over recent permitting of numerous buildings that would be threatened by it.
- Miami and Boston invoke the threat of “climate change” to their cities when they seek “climate change” grant funds from the federal government that can be used for other purposes.
- New Orleans continues to face nature’s severest hurricanes with flood prevention technology that is obsolete and woefully inadequate. Yet the city fails to budget sufficiently to fix its problems.
- The City of Honolulu and King County (Seattle) provided the most complete statements disclosing the risk of rising sea levels or climate change to their bond issues. But it did not affect their bond coupon rates in any way.