After the Storm: Hurricane Ian’s Potential Impact on Municipal Credit in Florida
Municipal bond issuers are often linked to tangible, physical assets directly exposed to the effects of climate change. Over the long term, we believe municipalities will increasingly have to contend with the effects of this exposure, such as preparing for rising sea levels, managing constraints on local water supply, or rebuilding infrastructure after a hurricane or wildfire. This series explores how various climate-related risks and policy responses could impact municipal issuers and describes our approach to assessing those risks.
Hurricane Ian made landfall in southwest Florida with devastating effects on the region and its people. It is impossible to measure the human cost, but insured property damages are currently estimated at $63 billion.[i] As municipal investors, we have been keenly aware of the risks of a storm like this and the potential impact on Florida. You might be surprised to learn that despite the devastation, we do not expect material credit impact in the municipalities affected by the storm. Below, we share why we believe the state and its municipal issuers are well positioned to rebound from Ian.
A history of resilience
Florida has been through hurricanes before, and we believe past examples illustrate the state’s economic resilience. Though you might expect property values to take a hit after a hurricane, our research has shown that property values typically recover within a few years. Hurricane Michael was a category five storm that made landfall on Florida’s Bay County in October 2018, causing an estimated $25 billion in damage.[ii] After an initial decline in 2019, assessed property values in Bay County recovered and by 2021 had reached 119% of 2018 (pre-hurricane) levels.[iii] Similarly, Monroe County, which covers a good portion of the Florida Keys, was directly impacted by Hurricane Irma in 2017. The category four hurricane was the strongest to strike the County in decades, and yet the county saw no impact to assessed property values and its tax base continued growing in the subsequent years.[iv]
Regions impacted by hurricanes also often see a flurry of new economic activity spurred by rebuilding and recovery. In the 18 months following Hurricane Andrew, a category five hurricane that hit Florida’s southwest coast in 1992, recovery-related activity drove a $3.8 billion increase in regional spending.[v] Later, in a two-year span from 2004-2005, Florida experienced eight hurricanes rated category three or higher. Despite extensive damage, a 2006 study found that local economies affected by the storms generally rebounded quickly, benefiting from reconstruction efforts, federal assistance and private insurance payouts.[vi]