In October, for the first time, Charleston County officials were asked by a bond assessing company how the coastal government is responding to climate change.
The questions from ratings agency Moody's came as the county was seeking $100 million for various projects.
While such a query might have been unheard of 10 years ago, it was the first sign of what could become a sobering future reality: Rising seas, stronger storms and a warmer Earth could make it harder for Lowcountry governments to borrow money.
And it's important that cities can borrow, City of Charleston finance chief Amy Wharton said, because "being able to leverage bonds allows us to get stuff done.”
Municipal bonds have long been considered a relatively safe investment because taxpayers are on the hook to help pay them back. They're part of the invisible financial infrastructure that lets governments make large, multi-million-dollar investments, whether they're replacing the roof of town hall or constructing a new recreation center.
The agencies that give these bonds ratings are paying more attention to whether cities and towns face specific risks as the planet gets hotter. The ratings give investors a signal about the financial health of a jurisdiction issuing a bond and often contribute to the interest rate that has to be paid back.
Moody's, in particular, signaled it was looking closely at various aspects of climate change with the purchase last year of a controlling stake in climate data firm Four Twenty Seven, which tracks sea level rise, threats to water supply and other issues associated with warming. Those projections are already being incorporated into ratings.
In the Lowcountry, Charleston County, which has 75 miles of Atlantic Ocean coastline plus more along waterways, has had the most recent experience talking to rating agencies of four local governments contacted, and had faced the most specific questioning so far.
Overall, analysts with Moody's said the economic picture is rosy enough in the Lowcountry that municipal bonds remained top-tier investments.
The county, the city of Charleston and Mount Pleasant maintain AAA bond ratings, the highest option issued by Moody's and Standard & Poor's, another leading rating agency. North Charleston's ratings stand just a few notches lower, at AA2 from Moody's and AA from S&P.
But, in rare examples, large environmental shocks, like hurricanes, have rocked towns' credit ratings. The effects have been most severe in places where much of the population does not quickly return, said Moody's analyst Mike Wertz, such as New Orleans after Hurricane Katrina.
And, by the time many of the bonds issued today are paid back, scientists project the climate will look significantly different.
Bonds essentially function as a loan for a local government. The borrowing city will send the debt holder regular interest payments for a set period of time, such as 20 years, until the bond "matures" and the original amount has to be paid back.
For a city facing a big capital expense, like improved drainage, they're a crucial source of funding. The rating applied determines how much extra cost the interest rate will add as it's paid back.
"Our bond rating is everything," said Wharton, of the City of Charleston. "We don't have $50 million in cash laying around."
That's roughly how much the city asked for in a 2012 round of stormwater bonds, which are funding drainage improvements. Most recently, Charleston issued $15 million in bonds in 2018 for broader projects, including a new recreation center on Daniel Island.
Because bonds take so long to be paid back, many cities will be facing what may seem like far-off climate scenarios when the check comes due.
The last of Charleston's 2018 bonds will mature in 2032. Norm Levine, who studies tidal flooding at the College of Charleston, has said in analyses that flood protections need to be in place throughout Charleston County by roughly that time in order to make sure that businesses are not routinely disrupted by rising water.
Projections in the most recent National Climate Assessment, additionally, say that high tides could spur flooding every other day by 2045.
In reality, Moody's ratings are only supposed to apply for a year or two. The agency checks on its ratings annually and will either re-affirm, upgrade or downgrade a designation based on whether financial conditions have changed.
But, even within a few months, credit analysts may refine their questions, Wharton said.
Charleston County faced the latest iteration as it was looking for millions to fund a new recycling center, relocate a juvenile detention facility and other capital work. Moody's wanted to know what climate risks were biggest and what was happening to address them, said Corine Altenhein, the finance director for the county.
"We let them know that being here in the Lowcountry, that the flooding issue is the biggest thing for us, and we've got various government agencies in the Lowcountry doing things to alleviate the (problem)," she said.
In North Charleston, which also issued debt in 2019, Finance Director Warren Newton didn't remember specific questions about climate change, but said he was asked about the city's flooding issues and drainage plans.
Planning for climate change
When it comes to a large financial shock like a hurricane, a long-lasting drop in population is one of the biggest threats to credit worthiness. That's because cities need to maintain their tax base, and if people are moving away or businesses are closing, tax revenues may drop.
After Category 4 Hurricane Hugo in 1989, that didn't happen, said Frank Mamo, lead Moody's analyst for Charleston, Charleston County, North Charleston and Mount Pleasant. Robust rebuilding after that storm has served as a signal to analysts that the region can bounce back from big events.
It's not clear how the region would respond to a similar event today. The Post and Courier has reported that almost twice as many people and homes would be in danger from a similar hurricane. The federal safety net for such events, including the National Flood Insurance Program, is stressed from several successive years of natural disasters.
But the growth since Hugo is a sign to ratings agencies that the local economy is strong. Analysts have long asked about cities' recovery after hurricanes. They want to see that a local government has money in reserves to pay for emergency services, debris removal and other costs during and after a storm.
In that regard, larger Lowcountry towns are doing well, Mamo said.
"For most Charleston-area local governments, planning for extreme weather, planning for a hurricane is just another central public service that they are very used to providing," Mamo said.
Governments are working on planning for more gradual sea level rise-driven events as well. Mount Pleasant is creating a standing flooding and resilience committee on Town Council, said administrator Eric Demoura. The move "will make ratings agencies see that we that we plan for (climate change)," he said.
And the City of Charleston, in particular, has already impressed analysts with its sea level rise strategy.
It's unclear what questions the city will face as it goes out for another round of bonds this month. While Charleston has a defined list of flood-proofing projects it wants to complete and some already in progress, it's no easy task. City officials have pegged the total cost at $2 billion in the past.
"It'll be interesting" to see what Moody's and other agencies ask this round, Wharton said.