October 28, 2019 – In a Wall Street Journal opinion piece published yesterday, Peter Schweizer – President of a conservative think tank backed by the Mercer family – accused blue state issuers in California and New York of being hypocrites on climate change.
According to Mr Schweizer:
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. The results revealed a gulf between the words municipal leaders speak and the disclosures cities make. There was no statistically significant difference in the interest rates for bonds issued by cities in high-risk locations for climate-change devastation versus those issued by low-risk cities.
While Mr. Schweizer cited New York City and Port Authority of New York and New Jersey as examples of issuers that fell short on their climate disclosure, his criticism of Oakland, California was particularly acerbic, noting that in its lawsuit against Exxon, the city claimed future climate-related damages of up to $38 billion, even as the city’s “bland” bond prospectus made scant mention of the impact of climate change.
BuyMuni’s ESG analyst, Wiley Smith, disagreed with the Institute’s methodology that sought to quantify the theoretically higher risk premium on high-risk cities in coastal states. Mr Smith said: “the traditional wealth base and economic strengths in New York and California far exceed the anticipated future costs – even if they run in the hundreds of billions – needed to fortify major cities from the impact of climate change“.
The second issue raised in the Opinion piece involves municipalities under-disclosing climate related risks in their bond official statements.
Specifically, the Government Accountability Institute study noted that out of 4,361 pages of disclosure statements for 20 at-risk cities, phrases like “climate change” and “sea-level rise” appeared fewer than 100 times.
Mr. Smith concurred that this was a “thorny issue that the Californias and New Yorks have to confront sooner than later, or risk future litigation from activist municipal bond investors”
“In many ways, some of the anticipated future costs needed for resiliency fortification are already being slowly included in long-term capital plans for sophisticated issuers like New York City”, he said.
Contact Caren Moses at CMoses@buymuni.com.
