Borrowing costs

Florida towns crushed by Ian face highest borrowing costs in decade

(Bloomberg) – Florida cities looking to rebuild after the devastation of Hurricane Ian will fund their efforts in the worst municipal borrowing environment in more than a decade.

The washed out roads and bridges are just the most egregious examples of urgent infrastructure repairs the state and its localities are grappling with after the storm passed, leaving insured losses approaching $60 billion. Debt to fund the recovery will likely start hitting the municipal market as early as this quarter, according to Barclays Plc, which said local leaders will have to compensate for declines in Florida’s vital tourism and agriculture sectors.

Federal and state aid will likely soften much of the financial blow. But officials looking to issue debt to rebuild and also strengthen infrastructure against the risk of increasingly severe weather will do so during brutal bond market conditions: Benchmark ten-year municipal yields are near higher since 2011, and the Federal Reserve is signaling further interest rate hikes to combat runaway inflation.

Local authorities may have no choice but to factor in this additional expense, although some may choose to wait for bond market stability and tap into federal or state funding first before investing. issue debt in 2023, said Clare Pickering, city strategist at Barclays Plc.

“At the end of the day, they have to rebuild, especially the assets that were completely destroyed,” she said. “The market timing may not be the best for this given the higher issue cost.”

Latest Event

Hurricane Ian is just the latest punishing weather event to force municipalities to tackle an infrastructure overhaul focused on rebuilding roads, airports, bridges and utility systems. Houston-area voters approved $2.5 billion in debt for flood control measures in 2018, the year after Hurricane Harvey hit the area. And New York City is embarking on a $1.5 billion project to build a system of walls and gates to protect against rising seas after Super Hurricane Sandy hit in 2012.

These projects and the latest storm underscore how crucial the $4 trillion municipal bond market will be for cities in Florida and across the country to bolster their infrastructure to prepare for inclement weather, said Tom Doe, president of Municipal Market Analytics. .

“The muni market is on the cusp of a massive number of projects to defend against climate change,” he said. “With higher rates, it’s going to be much more difficult.”

Florida localities will not be starting from scratch. Last year, Republican Gov. Ron DeSantis created the Resilient Florida program to provide grants to local governments to deal with flooding, intensifying storms and the threat of rising sea levels.

The initiative was expected to fund approximately $400 million in the fiscal year through June for a slew of projects, such as raising roads in Miami-Dade County and improving drainage in the city of St. Augustine. The state’s most recent budget allocated more than $500 million for resilience, including for statewide flooding and the sea level rise plan.

Still, with infrastructure already stressed by Florida’s booming population, new costs from the latest storm could lead to higher taxes, said Jesse Keenan, associate professor of sustainable real estate at Tulane University.

Most of the roughly 70 Florida cities and counties assessed by Moody’s Investors Service and affected by Ian “have strong reserves and cash available” to support recovery work until they receive state and federal reimbursement, said the rating company in a report.

He highlighted some entities that will face more severe pressure, including the toll authority that manages the partially collapsed bridge stretching to Sanibel Island on Florida’s southwest coast. This roadway generates one third of the entity’s toll revenue.

S&P Global Ratings has placed some of the transportation debt issued by Lee County, which includes Cape Coral and Fort Myers, on negative watch due to pavement damage. Typically during severe weather events there is a temporary suspension of services and storm damage, but the destruction Ian has caused to infrastructure like the roadway is in a different category, Joe Pezzimenti said. , director of S&P.

“It’s not something that will be settled in a few weeks,” he said. “It will take months, even years.”

–With the help of Prashant Gopal.

© 2022 Bloomberg L.P.