New York is listing climate change as a risk for bondholders after Hurricane Sandy caused more than $US40 billion ($38 billion) in damage in the state and Governor Andrew Cuomo said better preparations are needed.
The state may be the first US state to inform investors of the danger posed by rising sea levels, flooding and erosion tied to climate change, said Rich Azzopardi, a Cuomo spokesman. The citation first appeared in budget documents in January and has since been included among fiscal risks mentioned in bond offering statements, Azzopardi said.
Sandy caused the worst flooding in the more than 100-year history of the New York City subway system, which is run by the state, and devastated coastal areas. The October hurricane knocked out power to more than 2 million residents and followed two 2011 tropical storms that caused severe flooding upstate.
“The extreme weather events of the last two years highlighted real and potential costs from extreme weather events,” Azzopardi said. “The state determined that the effects of climate change presented economic and financial risks.” Other stated risks include federal budget cuts and unsettled labor negotiations.
Cuomo, a 55-year-old Democrat, said after Sandy that the state needs to be better prepared for extreme weather. He has proposed a $US400 million program to buy waterfront homes to reduce the amount of property exposed to potential storm damage.
Offering statements on risk say investors should note the potential costs of storm-related preparation and rebuilding.
“Significant long-term planning and investment by the federal government, state and municipalities may be needed to adapt existing infrastructure to the risks posed by climate change,” the risk statement says.
Businesses have been taking climate projections into account when assessing risk for at least a decade and it's “astonishing” that more public entities haven't done so, said Steven Cohen, executive director at Columbia University's Earth Institute in New York.
“These are the kinds of things that prudent investors pay attention to and prudent governments set aside funds for,” said Cohen, a former US Environmental Protection Agency official. “This needs to be a part of your financial planning.”
Fitch Ratings doesn't take climate change into account when grading state- and local-government debt, said Amy Laskey, a managing director at the New York-based company.
“We don't tend to see a deleterious impact on credit quality from these major storms,” she said. “The whole issue of what the future is going to hold, we haven't commented on.”
Empire State issuers aren't forced to pay higher borrowing costs because of a changing climate, said Clark Wagner, fixed- income director at First Investors Management Co. in New York, which oversees $US1.6 billion of municipal securities.
“New York State is a pretty big state,” Wagner said. “Even in New York City, people aren't asking for additional yield because of Hurricane Sandy or climate change.”
The Cuomo administration's note to investors about climate change “seems far-fetched, almost a political statement,” Wagner said.
New York state and its municipalities sold $US44.5 billion of bonds in 2012, the most since at least 2003, according to data compiled by Bloomberg.