California Gov. Gavin Newsom’s administration has been taking heat for reducing the amount for wildfire prevention contained in the budget bill by a half billion dollars as firefighters battle three large wildfires in California.
A stream of Republicans and even one Democrat questioned the changes to wildfire allocations Monday before approving “budget bill Jr.,” a measure that arose from compromises between the governor and lawmakers after they approved their framework budget bills June 15.
“Most concerning is the insufficient funding to fight wildfires,” Assemblymember Vince Fong, R-Bakersfield, said ahead of Monday’s floor vote. “When it comes to wildfire prevention, the rhetoric isn’t matching the reality.”
Wildfire risk has become so heightened in California that S&P Global Ratings listed environmental risk in a June 16 ESG report card as “elevated” with analysts adding that the state no longer has a fire season because it faces year-round risks from wildfires.
Since 2015, the U.S. has experienced, on average, roughly 100 more large wildfires every year than the year before, and this wildfire season is already outpacing last season in terms of the number of large fires to date, according to the Biden administration.
President Joe Biden and Vice President Kamala Harris held an online briefing Wednesday with Western state governors, including Newsom, to discuss joint efforts to deal with the wildfires that have been ravaging the West in recent years.
In California, eight of the 10 biggest fires have happened in the past 10 years, half of which came in 2020, destroying 10,000 structures at a cost of $12.1 billion, according to the S&P report.
The criticism of the budget’s wildfire funding amounts comes on top of a
Newsom faces a recall election this year, of which the timing has yet to be decided. Democrats introduced a bill to pull it forward to August.
Department of Finance Spokesman H.D. Palmer said Wednesday that Senate Bill-129/Assembly Bill-129, the "budget bill Jr., actually contains $250 million more for wildfire prevention than what the governor proposed in his May budget revisions — just split over three years.
The amount for wildfire prevention has not been reduced, Palmer said; it’s $250 million more than the $1.2 billion proposed to be split between this fiscal year (2020-21) and next (2021-22) in the governor’s May revise, but the funding stretches into three fiscal years, rather than two.
Assemblymember Al Maratsuchi, D-Torrance, said before voting for the budget bill that there are some points of concerns that cross party lines.
“I do wish there was more funding to address wildfire prevention,” Maratsuchi said. “I hear the concerns from my colleague who represents Paradise,” Maratsuchi said. That town was destroyed by the Camp Fire in 2018.
The administration had suggested more money be allocated in the third year because that is when the California Department of Forestry and Fire Protection said it would need it for projects, Palmer said.
In response to all the concerns about the amount spent on protection, the administration will be proposing language to allow “the $500 million currently on our books for 2022-23 to be spent in 2021-22 should circumstances warrant it,” Palmer said. “That will be a new proposal that goes beyond what was approved yesterday evening. But we are more than willing to do that to further clarify and codify the administration’s intent.”
This budget discussion comes during a year in which the National Interagency Fire Center has forecast above normal fire potential for much of the West, driven by severe drought conditions impacting nearly 90% of the region.
Oregon Gov. Kate Brown declared a state of emergency Tuesday due to the imminent threat from wildfires.
More than one million acres burned in the state last year, a figure twice Oregon’s annual amount over the past decade, according to the Oregon Department of Forestry.
All of the rating agencies are incorporating the likelihood of natural disasters into the analysis of municipal credits through systems that take climate change into account.
S&P cited droughts and sea level rises as well as the threat of wildfires in labeling environmental risks as elevated for California in its ESG score card.
The report was only the rating agency’s second ESG score card. It also did one on the tri-state area in the northeast, but more of the ESG score cards, which were well received by issuers and investors, are planned, said Jenny Poree, an S&P senior director who is one of the primary credit analysts on the report.
“The prevalence of wildfires across the state has increased even in recent wet years,” S&P analysts wrote.
Factors that compound wildfire risk such as drought, invasive insects that have killed millions of trees in recent years, forestry management practices and new development that continues encroaching on risk-prone areas lead to “our view that there is no longer a wildfire season, but instead it’s a year-round phenomenon,” S&P analysts wrote.
The risks in that category are also considered “elevated,” because of the liability risk to the utilities from the state’s inverse condemnation law, Poree said. The state’s law means that an electric utility can be held responsible for damages to property owners if it’s found to be the cause of a fire whether it was found to be caused by negligence, or not.
Poree called the ESG report card a lens through which S&P views ratings. Though California received an “elevated” risk designation in both the environmental and social categories, it doesn’t change the rating, because the ESG factors are already considered in the rating, she said.
The state holds ratings of AA, Aa2 and AA-minus from Fitch Ratings, Moody’s Investors Service and S&P. All assign stable outlooks.
“ESG might heighten the overall credit profile, but we look at how they manage those risks through their governance policy, financial position and a general mitigation or adaptation efforts,” Poree said. “It’s definitely an input or a lens that we use to view the credit.”
Though ESG has always been a part of S&P’s analysis, as ESG risks increase in importance and magnitude, they are increasing in importance in the rating agency’s analysis, Poree said.
For instance, S&P has always considered housing affordability, which is a social risk, when it considered a credit’s economic environment, Poree said. In terms of wildfire risk, Poree said, the agency considers whether an issuer maintains its infrastructure, what kind of liquidity it has, what its insurance plan is, and whether it does power shutoffs.
The state received a neutral ranking on governance, because it has a long history of policy making aimed at preserving natural capital that mitigates or reduces climate risks, and improves socioeconomic inequities.
“California has been at the forefront of recognizing the impact of climate change on the environment, and the increased risk it adds to drought and wildfire conditions,” Palmer said. “Which is why Gov. Newsom’s budget expands the state’s commitment to a comprehensive wildfire and forest resilience strategy that’s designed to reduce wildfire risks to vulnerable communities and critical habitats.”
