Financing the Building and Maintenance of the Climate-resilient Cities and Infrastructure (CPE)

Transcription:

Niyala Harrison (00:08):

Good afternoon everyone, and welcome to the after lunch session. So I still see a few people in the room, which is good. Thank you. I hope you stay. So I'm Niyala Harrison, an attorney in the Miami office of Greenburg Shore, and I am fortunate to represent many of the cities and the counties here in South Florida and many of them are dealing with the topic at hand of today's conversation. And so if I'm not in one of those roles as or disclosure council, then I have the privilege of serving as underwriters council. And I'm joined here this afternoon by a really well curated panel I would say, of practitioners in the public finance and infrastructure space. And so I'm really excited to have this conversation. It's definitely timely. I don't think there's a question about that. So I'd like to ask them each to tell you a little bit about themselves and we can do this elevator style if that's okay. So first is that to my right or to my left, I've got, I've got Daniel Prentice, CFO at Charleston County School District.



Daniel Prentice (01:16):

Good afternoon, happy to be here this afternoon and share some perspective as an issuer. I'm Daniel Prentice, I'm CFO with the Charleston County School District. I've been with the school district for about a month now, and so I join you with a lot of perspective from my prior role as the Deputy County Administrator and CFO of Dorchester County, which is just one county Inland from Charleston County. So that's what a lot of what you're going to hear this afternoon from my perspective is going to be driven from. So the school district piece doesn't necessarily come into play as much at this point in time with the thoughts on this conversation and climate change and some of the infrastructure development that I've been involved in, but have had the unique opportunity to be a part of a county that's grown rapidly over the last 10 years and has seen a lot of positive advancement in terms of the political climate for an aptitude to build infrastructure and finance infrastructure in ways that we weren't considering in the 10, 15 years prior. So have some examples that I'd like to share with you this afternoon and look forward to any question and answer that y'all might have for us. Thank you.



Niyala Harrison (02:14):

Great, thanks. And next we have Kristin Stephens, Managing Director at Oppenheimer.



Kristin Stephens (02:18):

My name is Kristin Stephens. I've had my whole entire career has been in municipal finance in one capacity or another, but always with a focus on credit analysis. So that's the angle I'm going to bring to this conversation today. I recently joined Oppenheimer, very excited about that, to run the Northeast banking effort for public finance. So that's been a really exciting opportunity to join a firm that's growing its public finance capabilities at a time like this and building on its longstanding commitment to the business.



Niyala Harrison (02:49):

Great. And finally, we have Mr. Leonard Jones, Executive Director and Head of Public Finance at Blaylock Ban.



Leonard Jones (02:59):

Hello. Thanks a lot for having me. Glad you guys stay. You see these last couple of panel. I have been in my whole career starting at Morgan Stanley and Smith Barney and Rice Financial Products Company. Before I came to Blaylock about a year ago, I was at Moody's for eight years where I managed local government ratings, managed DSG and cybersecurity, all in public finance there. So hopefully we can add some value and tell you what's going on with DSG in Florida.



Niyala Harrison (03:36):

Great, thanks. So cities for a number of years have really taken a multi-pronged approach to the issue of climate change. And on the one hand, they've implemented mitigation strategies to help reduce their carbon footprint, meet energy savings and low emissions targets with the end goal really being to stop climate change in its tracks. But on the other hand, and by all accounts, climate change is irreversible. And so cities and counties are trying to find ways to be resilient in the face of more frequent rain events and tornado events and stronger hurricanes with higher storm surges. Extreme heat as we experienced last year, droughts and wildfires caused by that extreme heat warming oceans and sea level rise and also coastal flooding, which we are very familiar with here in the southeast due to higher tides and king tides. And just as a statistic and a point of reference, the prior year 2023 was recorded as the warmest year since global records began in 1850 and this year is probably going to be just as hot.



(04:49):

So with all of that, climate change has really touched every corner, frankly, of the globe and of the United States in different ways and depending on geography, industry and existing infrastructure. But really what we're talking about is on predictability factor and how doing nothing's not an option. And so what are our municipalities doing to deal with it? So I thought what might be good to start off with is what have we seen, what are maybe some innovative infrastructure projects that the panel has been a part of or if there's anything that really jumped out to you as really a shining example of what cities are doing to retrofit themselves? And I'll open it to everybody and anybody.



Leonard Jones (05:43):

Sure, sure. I can start. Climate change is a real issue across the whole USA and I think everybody recognizes that and are doing things to fix it. In spite of Florida not really wanting to leave. Florida has been great in dealing with the climate change that's happening and trying to become more resilient. I think it was probably 10 years ago that the cities in southeast Florida formed the Florida Regional Climate Change Compact. They went and got a lot of federal grants and have really been active in improving the resilience in climate change. Right here where we are in South Florida, they've raised the streets, raised the roads, put in a bunch of storm pumps, so a lot of places have really been dealing with climate change for quite a while. You can go on up the coast up in the Hampton Roads region where the Department of Defense bills a lot of things. So they've been funding from a federal basis, climate change issues for a long time raising some of the roads there, particularly the trains going in and out. And I live in New York City and New York City has a couple of programs that they're working on the East Side Coastal Resilience Project and they have a battery coastal project. And so most places throughout the US are really dealing with on the climate change issue.



Kristin Stephens (07:33):

I'm happy to. Yeah. I'll step in with a more specific example of a financing that I've worked on in the past, and that's actually with David Moffitt, who was the lead banker on this one sitting right in the front table. But it was a financing for the New Orleans Exhibition Hall Authority. And I think that was a terrific example. New Orleans is a wonderful case of a city that is focused on adaptation measures to address their exposure to physical climate risks. And rightly so, I believe it's between 2001 and 2021. The frequency of weather events increased 150% in Louisiana over the prior two decades. So that meant an increase from 10 to 25 according to the National Centers for Environmental information. But I think more significant is that at the same time the cost of those events increased by over 600%, so to over $650 billion. So when you work with an entity like the convention center there, obviously all of this was very much top of mind for them and certainly they were very focused on the city's response to climate change and their discussions and their disclosure and also their conversations with rating agencies and investors.



Daniel Prentice (08:53):

So a little bit of perspective thinking about things that we've experienced in South Carolina, coastal South Carolina, I'm sure many people know the geography of Charleston and very coastal and experience with hurricanes quite frequently, whether they're severe, like something that happened in the eighties with Hurricane Hugo or the more recent severe events that have been more frequent. But even in Dorchester County, it's not a coastal county, but it's subject to what's called the critical line. So we have flood zones and evacuation zones even that are subject to significant flooding during major rain events. And that's been a focus that I've spent a tremendous amount of time on in my time working in Dorchester. One project that I was involved in recently before I left the organization was water and sewer treatment facility. And we kind of called ourselves a county that operated like a city because we had a full wastewater water treatment plant, full fire service.



(09:45):

We did everything that a municipality did, but pick up your trash. And so a lot of unique opportunities to get involved with financing infrastructure projects, but because of the growth that we were experiencing, the treatment plant that we had in operation just was not sustainable for the long term. And we tried to figure out how to balance the existing rate payers and the growth that we were seeing on the needs to expand that system. And the issue with is the treatment plant and the property that we own very close to a major river where the affluent from the treatment plant was released into the river after it had been treated by our system. And as we started to get into that project, we realized that the water in the affluent that was in the system was the only thing holding the basins in the ground.



(10:26):

There's so much groundwater that has kind of percolated through the issues that we've experienced over the last several years with major rain events and just the way that impervious surfaces have been driven by the development that we've seen in the area. And the project that we designed and priced ended up not being the project that we were able to build. And it doubled in cost as a result of some of the concerns that were driven by the geography and the desire to make sure that the system for the long range was going to be sustainable and healthy for the environment and that we were able to treat the waste that we were bringing in and discharge within both permit regulations and just general expectations for putting things back into our rivers and waterways that were healthy for the environment as a whole. So we ended up having to quadruple our impact fees to be able to balance the cost of infrastructure on the backs of developers without impacting our rate payers substantially as a result of needing to finance the cost of building this plan.



(11:28):

So it's under construction right now, and actually as of the last week, we've been able to increase our capacity from the 8 million gallons per day that we were permitted to treat to 10 million gallons per day. And eventually it'll go up to a 16 million gallon plant. But the overall project essentially took an existing operating plant and built a new plant right there in its place. And it would've been a very easy, straightforward project if it weren't for the environmental concerns and the overall sustainability concerns and just the geography of where it was being constructed. And so had to face that problem head on and deal with the developer community, which later in this conversation I want to share some context of some of the experiences that we've had working with our major home builders as we've seen so much residential growth in our area that kind of feeds into that. But it's been an interesting experience dealing with some of those challenges and trying to figure out how to both build sustainably but also build capacity just on the demands that we're experiencing in the Charleston metro region with all the growth that we've seen over the last 15 years, which is just so much higher than we saw in the 15 to 20 years before that.



Niyala Harrison (12:35):

And capacity is a big thing. And when we're really talking about climate resilience, that's a lot of what we're talking about. And I'll offer one project that as bond council for the city of Fort Lauderdale, so it's homegrown and it's local. And so in 2023 last year, the city of Fort Lauderdale issued 98 million of stormwater special assessment bonds. And so that project really was, in my estimation, first of its kind project, and I say first of its kind because of the revenue source that was tapped in. So special assessments you don't normally think of municipalities necessarily issuing special assessment bonds. A lot of times that is relegated or used by special districts and it's meant for a specified area. But in the case of the city of Fort Lauderdale, and I'll also go ahead and say that just before we were able to actually close on those bonds, the city experienced what's known as a hundred year storm.



(13:42):

And if you were in the area or maybe heard about it, about 26 inches of rain fell in about a 12 hour period in the city of Fort Lauderdale widespread flooding that impacted the airport. And so even before that, the city knew that something needed to be done about stormwater capacity. And so that project in and of itself, by the end, we'll do two tranches of it, 500 million of bonds was validated. The first issuance, as I said was 98 million, and then also coupled, so 98 million. And what I would say is that in terms of the actual financing of it, interesting because it was an assessment area essentially spread over the entire city, which as I said, you don't usually see, but the idea there was to go ahead, residents are paying this already in their stormwater fees, but the idea there to couple that with a new type of methodology, so assessments plus an impervious calculation about how many trips each lot was using.



(14:54):

And so that's how the methodology came into place. And I think that is certainly something that could be modeled or could be used going forward other than other one in the city of Fort Lauderdale. And please excuse me, but they're a favorite issuer here. And I think a really good example is again, it's special assessments and so it was undergrounding and it was in one area. And I think if we're talking about more frequent storms and wind storms that are going to be impacting overhead power lines, undergrounding is also I would think a project that a lot of cities are going to want to take forward. And then so did you want to add?



Daniel Prentice (15:42):

Sure. I've just to tap one of the undergrounding confident, that's something that we've experienced a lot of recent interest in South Carolina, and I'm not sure what other states have by way of programs with this, but we have seen a major shift in interest in undergrounding projects. And so our utilities for those that may be familiar with the VC Sumner nuclear plant issue that happened back in 2017 in South Carolina and the ultimate buyout of South Carolina electric and gas with Dominion Energy, the cities in South Carolina that levy a franchise fee on the utility bills are able to tap into a non-standard service fund that's administered by the utilities and use that to offset the cost of undergrounding utilities by 50%. So the local jurisdictions only have to foot 50% of the bill for undergrounding, and the utility pays for the other 50% through that fund that's accrued by their offset essentially from the franchise fee that's collected. But that has been a very positive benefit in South Carolina in particular in terms of being able to get utilities underground and to advance those projects because it was so prohibitive from a cost standpoint without that assistance from the utilities. And it's made a big impact



Niyala Harrison (16:53):

Without a doubt. Cities are definitely cash strapped. They've got their existing credit programs. And so the question is really how to finance some of this. And so I think the special assessment type of bonds, that's a way to ensure that people who are impacted are paying their fair share for the benefit of the entire program. But maybe if we talk a little bit about the actual financing and the costs of some of this. So have you all seen some kinds of different financing scenarios or structures in terms of financing these infrastructure projects?



Leonard Jones (17:36):

Yeah, I've seen lots of different structures. I know you just described kind of a special assessment about the whole city. You see that in parts of cities sometimes in the full city, but they're both public and private ways to finance climate resilience. Some places will just use direct taxes, the local sales taxes and know that part of it needs to go for their water resilience or weather resilience. I've seen some places set up tiffs specifically to deal with an environmental issue. Then there's private sources of funds. There's been some innovative p threes done between the public and the private to set up entities to provide fresh water or help with the climate. And then there's philanthropy. There are several big organizations for Rockefeller Foundation and other big philanthropic organizations that have a focus on providing cities help with financing some of these climate change issues. And we like to sell bonds though, and they're always impact investors that we hope will buy them.



Kristin Stephens (19:02):

And I guess I'd add, I mean one of the marquee projects that closer to home that I think is landmark is of course congestion pricing in New York City, which ultimately when it gets going, should certainly reduce congestion and hence pollution across the city. But that's could be a panel that in and of itself, I think some more tangible quick and easy ones here. As the popularity of electric vehicles continues to increase, you are starting to see a lot of states considering gas tax alternatives. I would highlight Hawaii. It was the first of the first to implement a per mile fee for vehicles for electric vehicles that became law in July of 2023 in Massachusetts, they are also, they've created a task force to study gas tax replacements. And in Colorado there is a 27 cent retail delivery fee now on all deliveries by motor vehicle and they dedicate that revenue to transportation. So I think the point is I could go on a bunch of different examples. I won't bore you with the minutia, but you're starting to see creative new taxes come up that down the line we'll see how they're used to support these kinds of projects.



Niyala Harrison (20:20):

And that one you mentioned the delivery fee. I mean, when you think about just in your own life, I mean I know for myself the number of deliveries that I have coming my way between Amazon and all of that comes at a cost in terms to the environment and the way that it impacts infrastructure.



Daniel Prentice (20:41):

Yeah, I mean from an issuer perspective, and I'm sure a lot of you see this in your states as well, we have to be good delegates to our local legislations. I mean, the legislature in South Carolina has traditionally been somewhat uncreative in some of the solutions that have come about and also resistant to some of the things that have been proposed because there was such this anti-tax mandate that existed over the years. And so the thought of suggesting something new with the word tax in it kind of fell flat on its face. And a lot of the laws in the South Carolina code of laws tend to contradict each other. And so just based on when they were written or when they were amended, we found ourselves in a situation with stormwater funding. And I think a lot of municipalities and municipal government find that to be an issue.



(21:31):

It's one thing to operate a stormwater utility, keep it cleaned out, keep it maintained. It's another thing to actually figure out how to finance the infrastructure, the resources that exist and the laws that are out there that allow them to exist. And we found a loophole in the law and worked with our bond council locally to actually write an amendment to the statute and floated it to our legislative delegation. And after three years of kicking and screaming and trying to get it across, found a co-sponsor in the upstate of South Carolina, actually one of the legislative delegation representatives in Anne Hardy's area in Rock Hill, if you had an opportunity to meet her, she was here earlier as the CFO of Rock Hill Co-sponsored it, made some amendments to it, we got it through. And so it allowed counties that had one of the multiple types of 1 cent sales tax that were offered to have the other type without, as long as they didn't have more than 9% total.



(22:19):

But previously it was a mutually exclusive program where you could only have one or the other for anywhere between seven to 25 years. So you might have really good roads, but you'd have really terrible public facilities and other types of infrastructure because you can only have one of those things at a time. And through that amendment to the statute, you can now have both capital projects, sales tax and a transportation sales tax simultaneously. And in my case, locally, we were able to get a referendum passed in November of 22. Shortly after that legislation was amended for a 15 year tax implementation. And kind of circling back to the climate change and sustainability, we were able to tie as stormwater infrastructure is embedded in transportation systems so frequently, and so we're able to tie the funding of our stormwater infrastructure to the improvements to our roads to be able to create more sustainable stormwater flows that more accurately represent the needs of the community and the development of the community.



(23:14):

And that kind of became the boon for fixing a lot of the stormwater issues that we've experienced in the past. But if it wasn't for the ability to get the legislature to buy in and figure out that this is not a tax increase, this is a voter choice option, and locally can determine if that's a need that the community needs by voter representation. And then implementing that, it created for us 750 million in revenue resources over 15 years, which are going towards transportation infrastructure predominantly. But we also added a greenbelt component for conservation preservation of open space as well as stormwater infrastructure improvements in conjunction with the roads being developed. And so there's just this major offshoot of infrastructure improvement that creates a sustainability pattern that we had never seen before because all we were doing was just building asphalt on the ground out.



Niyala Harrison (24:06):

So talking about new revenue sources, I was reading an article, and I think Leonard, you mentioned this earlier or alluded to it a little earlier, but in the city of Portland, they actually, voters actually passed a 1% tax on essentially the gross revenues of big box retailers. And so the monies that are accumulated from that fund are actually going to be used put into this clean energy fund, and they're going to be used for various initiatives towards lowering greenhouse tax emission, greenhouse gas emissions, et cetera. And the city of Denver approved a similar fund. So at this point, it seems like the monies in that fund are really going to be used for pay as you go projects and neighborhood and community-based projects. But what about, are you seeing where those kinds of specifically climate taxes essentially are springing up and in the future may be used or are currently being used as security for bonds and securities? Anybody seeing that?



Leonard Jones (25:16):

Yes, we're seeing that in quite a lot of places, particularly where the climate issues are smaller and more local. Like thinking along the Mississippi River, there are a lot of places that flood and a lot of those smaller cities are instituting those types of taxes to be able to build some resilience against the river flooding three times every year causing a lot of problems. And I think a lot of those places are also worried about insurance costs, something we'll probably talk about later, but risk companies have pulled out of Florida because of some of the climate change issues. A lot of inland entities are very concerned about that.



Niyala Harrison (26:07):

Yeah, and I don't want to go off too far, but at my table during lunch, we will talk a little bit about the limited and dwindling property insurance market in some of our southeastern states. But someone at our table had mentioned that municipal bond insurers are actually, at least maybe in one instance, pulling out of markets are not insuring just because of the risk that's involved. So I think maybe I want to turn our conversation to the risk to some of the cost of borrowing. I think ratings risk may be one of them. It sounds like potentially bond insurance risk to the extent bonds are insured. So maybe anyone, but maybe Kristin, if you could maybe just tell us to what extent do you think climate vulnerability is playing a role in the ratings?



Kristin Stephens (27:02):

Sure. And to build on your prior point, I think debt is definitely going to be part of the solution here, and I think we're going to see more of it. And as we do, I think you're going to see rating approaches start to really place more of a positive emphasis on those issuers who are able to demonstrate proactive planning and investment. And I think that will ultimately start to offset to a degree the related higher debt metrics in comparison to those issuers that fail to act. And it's not like this is the first time we've seen this. Think about the pension challenges, for example, that some issuers are still recovering from. But if you think about it like that, failing to act now could then cause higher costs in the future and possibly damage the tax base along the way. So when I think about this, I do it in a three-pronged approach, where we've been, we're now and where we're going.



(28:04):

And there's so much there because if you think about where we've been, I think the financial markets have tended to misprice climate risk because the perceived timing of those risks, it's far out there in the future and it's beyond the just a normal investment horizon for most investors. But now, and first of all, we have to think about Munis are a longer duration investment, number one, but they historically Munis have not commanded this. So-called climate premium. And that makes sense to me too because the cost of these natural disasters, it's generally been offset by federal disaster aid relief and the impact on local governments and local economies, also often been stimulative. I mean, it's turned out to be a good thing, but the question's really going to be, and this is the bet, will this continue or not? And I have two conflicting points. Number one is the federal government going to stay there In these instances, the CBO projects, that interest on federal debt will grow to 1.6 trillion in 2034 from 870 billion.



(29:20):

Currently that's up almost 90%. That's equal to 22% of all tax revenues and 116% of GDP. Not that I'm counting, but that's the number. Now we also know that the incidents of these major climate events, it's increased. I'm not going to get into the data nationally, but we also know that the exposure varies by region. And here in the southeast, some of the bigger concerns are going to be extreme heat that can impact productivity, it can impact the energy grid and the grid reliability, but also rising sea levels. I mean, there's research out there showing that by mid-century we're expected in the southeast for the Gulf States, the frequency of the one in a hundred year flood is actually supposed to come into one in 15 years. I mean, think about that. And with that, you have the related infrastructure damage, property value loss, and changes to economic activity.



(30:25):

So looking ahead against that, how could we not think about climate vulnerability and adaptation measures in the rating process? Now, physical risks, they have always been factored into ratings and no bulk rating actions have occurred in the past, nor do they. I expect them to occur in the future because of them. But what is changing, and we saw this with pension analysis too, what is changing is that the data that helps analysts determine these risks, it is improving and it's improving a lot and pretty quickly. And for a real recent wonderful example, I'd encourage you all to read s and p's latest report on this. It is really a great body of research. It's called Navigating uncertainty, US governments and physical climate risks. You could read the report, you could watch the webinar. We had the author here for this conference until recently. So anyway, it's going to give you a wonderful discussion of how that rating agency is. One example uses data and scenario analysis to inform a view of credit worthiness. They do that alongside consideration of how a government imparts a long-term planning effort. And I think what you'll see happen is that all of that's going to end up helping ratings withstand the impact from these events more than you wanted. Right.



Niyala Harrison (31:54):

No, that's great. No, thank you for that. And Leonard, I know you've spent a considerable amount of time at a rating agency. So what's your sense about how that's climate change and vulnerability is factoring in



Leonard Jones (32:06):

Rating agencies will tell you that they've always factored in climate change into their ratings. It's just a matter of one point investors became more interested and started saying, well, exactly how do you do that? And that's when they started trying to come up with measurements. The measurements just didn't work. It was too difficult because there are so many variables. You have two cities next to each other in the same weather pattern. One of 'em has $5 million houses, one has $30,000 houses. They react different to what's happening, and it's hard to change some sort of climate change or environmental metric and get people to understand it. So I think what they've realized is that, yeah, the investors were asking for more granularity, but they really don't want you to try to figure it out like a black box rating. Like you get everything and come out with a rating. Now you did that for the credit ratings, but don't do that for climate change. What we'd rather do is have you give us data and then let us take that data. We'll decide where to invest and how much of a risk we see. And so a lot of the rating agencies have bought climate data companies, cyber companies, all kinds of companies provide data. They will sell to the market and then investors themselves and set up their own funds in what they think is important and manage their investments that way.



Daniel Prentice (33:55):

I'll just add, and I'll concur with the statement that was made about in the face of natural disasters with the federal government stepping in and often sometimes creating a more positive scenario than you had before you even experienced that event. We had eight federally declared disasters in the eight years that I spent in Dorchester County, which averaged out to about one a year. And they weren't as severe as what you might've experienced in Florida with recent hurricanes or back in the eighties in South Carolina with some of the major events that impacted the area. But all of them in their own had damages that we incurred as a unit of local government and then went through the process of seeking reimbursement for those things over time. And I think that there's two components to that. One is it takes years to get that money back and the federal government moves at a snail's pace when it comes to being able to seek reimbursement for things that happen.



(34:45):

And so having strong reserves to be able to front those flows whenever the damages do occur is really important. And then recouping those dollars on the backend, but then also thinking about the notion that there's only so much absorption that the federal government can really take on when it comes to providing 75% reimbursement for damages depending on the severity of an event that happens. And that what if scenario if one day they decide that there's too much loss associated with a natural disaster, that they're unable to support the full mitigation effort down the road. I mean, that just really kind of come in the last 20 years, this federal reimbursement program through FEMA for natural disasters. And so it's not really tested as a long-term initiative. And so my perspective has always been to calculate in my case what the property loss risk is from a major natural disaster, and to keep reserves aside that account for the deductible on top of our insurance premium or our insurance policy to be able to mitigate those risks if we weren't going to be able to receive any federal support.



(35:49):

And then at the end of the day, that just becomes a bolstering effect of the federal support that we do have. But we've always looked kind of at what that worst case scenario could be, but also in the fact that those dollars come out very quickly and just from an issuer perspective have had a lot of those conversations being a coastal community over the last five to 10 years in terms of how we're mitigating risks from climate change, especially because a lot of our projects were either climate or climate risk related in terms of what we were building or what we were improving with the dollars that we were issuing to finance those projects.



Niyala Harrison (36:28):

Yeah. And Daniel, do you have, in terms of just from an issuer perspective, in terms of logistics and the planning and really what goes into trying to plan for some of these projects, can you sort of speak to that and how climate change has impacted that?



Daniel Prentice (36:47):

So when I started with Dorchester County, we didn't really have a long range capital planning initiative. And so that was one of the biggest things that we put into place was just to really understand where we were going because we have so many different systems and funding sources, having a stormwater utility and an order and sewer utility, and then just general transportation infrastructure needs. And so we really mapped that out. We brought in consultants to help us understand the sustainability and the overall profile of the direction that we needed to take, and then costed all of those things and built our financing models around them, oftentimes in silos because you can't use one funding source universally for all those different elements. That was a major part of it. And then understanding the growth and development trajectories of the community was really important because we wanted to make sure that we leveraged opportunities to work with developers to build some of this infrastructure so that it wasn't just done by the unit of local government and not in coordination with what was happening from a development standpoint.



(37:49):

So in my time there, we established two separate assessment districts, and we'd never done anything like that before. I think our local governing body would've probably lost their reelection 15 years ago if they had even contemplated doing something like this. But I think the community understood the necessity for moving forward with something that was proactive and modern. And so we were able to ultimately get them to unanimously support implementing these assessment districts. And we worked predominantly with Lennar as the home builder that was the master developer for one of the major assessment districts. And were able to use the dollars that that assessment district generated through doing the rate and method studies and putting together a fee-based assessment on the tax bills, how to finance major sewer infrastructure improvements and major stormwater infrastructure improvements in the areas where that development was coming so we could offset our capital plans with those programs.



(38:42):

And so ultimately they built it and built it to our specifications. And then when it was completed and placed in service as public infrastructure, we reimbursed them dollar for dollar on the pay applications that they submitted with the bond proceeds that we issued as conduit debt were backstop by the assessment. So we actually worked with co underwriters with FMS and Wells Fargo and Dorchester County for two different series of assessment backed revenue bonds over the last five years for about 35 million in water and sewer and stormwater infrastructure. And that was a huge win. And now there's more of them coming. There's two more assessment districts that are under consideration that I'm working on kind of as a consultant in my legacy and leaving Dorchester to try to get them on their feet. And that's going to do a major service in terms of offsetting the cost of infrastructure development to the taxpayers and really kind of levy it on those that are coming into the community and not those that have been in the community.



Niyala Harrison (39:40):

Thanks. Were you going to add something, Leonard? Okay, so well, I am coming to you next, you and Kristen, because I want to ask, I think we were getting there a couple minutes ago, but a lot of times when we come to these conferences, we talk about the labeling of bonds, green social sustainable climate, and I think it changes depending on the market and maybe depending on the year, but maybe a couple quick thoughts about how much of an impact that makes. Does it matter? Does that impact subscription? Truly,



Leonard Jones (40:16):

I don't think it matters. We talk about climate resistant cities here, climate change is real and everybody understands it is, and there's not much of a difference in how you want to label it. It becomes more political when you're talking about social issues or governance issues. And I'm not sure we're supposed to talk about that at this panel, but as far as the environmental side of it, there are all kinds of labels. They don't really matter. Everybody sees the weather changing, they see the climate changing and know that we have to do something about it if we're going to continue to live in the places where people live. Now,



Kristin Stephens (41:07):

I guess I would add at a prior firm, I was fortunate enough to work with Beth Coolidge. We were joint senior manager on the 740 million sales tax securitization corporation sales tax securitization bonds, which actually won the 2023 bond buyer deal of the year award. And there was a social bond piece to that financing. The transaction financed a number of progressive investments such as affordable housing, vacant lot rehabilitation, and a variety of environmental initiatives. In there. We did see the social bonds garner the largest pricing differential for ESG bonds in the market, and that was for a differential of three to five basis points.



Niyala Harrison (41:52):

So it sounds like we're at the same place we were, which is there's a difference of thought and maybe it matters and it's market dependent. So Okay, I thought I would ask. So I think we're coming close to the end, and Daniel, I wasn't sure if you wanted to add anything there just a minute ago. Okay. So one of the things that this session was meant to talk about as well, and we talked about just a little bit, was the issue of fleeting or disappearing property and casualty insurance. And in recent years, states like Florida, Alabama, the Carolinas, and throughout the region, they've experienced property and casualty insurers leaving the market. And really what they say is after several years of storms and claims, it's no longer profitable to be in the business. So what do you do about that? Certainly I know what Florida is doing, and since I guess for the last 30 years, since hurricane Andrew, Florida has put in place a state insurer, state reinsurer, a guarantee agency for insurers that go out of business. But what are you seeing really, and what effect does property insurers leaving the market have on properties and their ability to pay property taxes for operations, et cetera?



Daniel Prentice (43:29):

I can talk about this all day. Yeah,



Niyala Harrison (43:31):

Sorry we left so little time at the end for this.



Daniel Prentice (43:34):

No, I was excited to see this as part of the overall conversation, even if it's just a small part, just the disparity in my experience working in a county that's not coastal to a county that is, I've spent some time in my first couple of months in my new role looking at just the overall insurance program for our own assets as the school district. And so I mean, we have 2.9 billion in fair market value of assets on the books for property. It's considered to be buildings and contents. And so a significant portion, I would say about 700 million of those sit in flood zones. And the rest of them are still substantially exposed to windstorm and hail risk based on their proximity to the coast as the entire county is exposed in its own way. But just because of the changes we've seen in the market over the last couple of years.



(44:26):

So first off, we're the only school district in the state of South Carolina that is not insured by the Insurance Trust that's established for school districts in South Carolina. They just can't handle the values. So we actually go out and broker our own insurance for property purposes and have to deal with that in the commercial market. And so we have kind of major layered policy with 12 to 14 different insurers at the lowest level that provide us coverage through a brokerage. And just in the last three years, our premiums have doubled. So we pay about $13 million a year in property premiums for our buildings and have done a lot of risk analysis on what the probability of losses in particular looking at the thousand year, 500 year, a hundred year storm type scenarios, and to the points that were made earlier, have seen the frequency of occurrence and the probability of those events increasing dramatically, particularly that a hundred to 500 year range that we've seen so much more in the last 10 years. So it's a major impact and a major point of discussion that I'm really just starting to dig into in the numbers of my current role. But I've seen an impact all throughout the state, especially the coastal communities.



Kristin Stephens (45:48):

Touch on Louisiana as an example. If you want six hurricanes over the 20, 20 and 20, 21 seasons there contributed to, like you saw in Florida, a number of the insurers going insolvent or leaving the state, you had more people turning to Louisiana citizens, property insurance rates, then surged flood insurance costs also increased. But what has been, I think, really interesting to watch is the steps the state is taking to make the insurance market more homeowner friendly. And I think you'll see more of this, but there they've set up the 55 million insurer Louisiana Incentive Program, and that aims to diversify insurance options and really enhance affordability. So reducing in turn the number of policies underwritten by citizens. And another is a program that incentivizes residents to reinforce their homes, particularly roofing. And then for doing that, they get a discount on their insurance premiums. So there'll be tools probably that'll evolve along the way too.



Leonard Jones (46:51):

And you're even seeing more of that. California is doing the same thing. They've had a couple of private insurance companies that have just pulled out and states are trying to come up with programs to keep people in their state as best they can. But



Niyala Harrison (47:08):

Yeah, no, that's a good point. I mean, if there's no insurance, then people you may leave and then you've got more of a hit on the property tax base, so well, so I want to open it up to any questions or comments if there are any out there. Okay. Well, excellent. Well, I thank you all for this session and thank you for the panelists. We have a real issue ahead and I think with the folks on this panel, what I'm going to call the financial engineers of it all, I guess we're in good hands, so thank you. Thank you.