REDUCINGCLIMATERISKANDCREATINGECONOMICOPPORTUNITY 1

RegionalClimateActionPlanWorkshop#9oftheSoutheastFloridaRegionalClimateChangeCompact

ReducingClimateRiskandCreatingEconomicOpportunity

REDUCINGCLIMATERISKANDCREATINGECONOMICOPPORTUNITY 2

Acknowledgments

ThispublicationoftheSoutheastFloridaRegionalClimateChangeCompact(TheCompact)isbasedonthefindingsoftheRegionalClimateActionPlan(RCAP)Workshop#9heldatFloridaInternationalUniversity'sFloridaClimateInstituteonApril28,2016.Thiswell-attendedworkshopsparkeddialogueamonglocalleadersingovernment,riskmanagement,finance,technology,buildinganddevelopment,andacademia,andfocusedonriskreduction,regionaleconomicsandcoordinatedleadership.Theconceptsthatemergedfromtheworkshopandarepresentedinthispaper,addressthefinancial,economic,andphysicalchallenges–aswellasthesignificantopportunities–inSoutheastFlorida'schangingclimate.Wethankallofourattendeesandthefollowingfeaturedspeakersfortheirinsights:

DeepakBadoni,JohnBurkholder,MatisCohen,SamanthaDanchuk,MichaelDaniels,WendellGaertner,DorothyGjerdrum,BerthaHenry,JenniferJurado,AlexKaplan,EdwardMarquez,JimmyMorales,JackOsterholt,ScottRobins,MarkB.Rosenberg,SusanneM.Torriente,LeonardVialpandoandTonyVu.

ThisdocumentwaswritteninJune2016byKarlaEbenbach,AICPonbehalfoftheInstituteforSustainableCommunities,whichprovidesimplementationsupporttotheSoutheastFloridaRegionalClimateChangeCompact.

Viewvideosfromtheworkshopat:http://bit.ly/ECONresilience

“Inourchangingclimate,theriskmanagement,finance,andbuildinganddevelopmentsectorsareofvitalimportancetotheworkthatisneededforastableandresilientfutureinourregion.Professionalsinthesesectorssharedthefollowinginsightsand

innovativeideas.”

– JenniferJurado,DirectorofEnvironmentalPlanningandCommunityResilience,BrowardCounty,andFoundingMemberoftheCompact

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TableofContents

Acknowledgments..................................................................................................................2

AbouttheSoutheastFloridaRegionalClimateChangeCompact.............................................4AtaGlance:CurrentandFutureClimateRiskinSoutheastFlorida...................................................4OurWorkSince2010........................................................................................................................5

ManagingClimateRisk...........................................................................................................6RiskManagement:TheTraditionalandtheInnovative.....................................................................7

EnterpriseRiskManagementinAction................................................................................................7ManagingClimateRiskResources....................................................................................................8

TechnologicalTools..............................................................................................................................8PolicyGuidanceandPeerSuccesses....................................................................................................8HumanResources................................................................................................................................8

RecommendationsfromRiskManagerstoLocalGovernment..........................................................9ManagingClimateRiskbytheNumbers...........................................................................................9

EconomicsofaChangingClimate..........................................................................................11TheMunicipalBondMarket...........................................................................................................11

ChallengesinFundingMunicipalProjects.........................................................................................11MunicipalFinancialToolstoWatchandUse.....................................................................................12ExamplesofRiskandBondManagement..........................................................................................13

TheResidentialMortgageMarket..................................................................................................13TheGreatRecession’sOngoingEffectonResidentialMortgageMarkets.........................................14ResidentialFinancialToolstoWatchandUse...............................................................................14

BricksandMortar:BuildingtheFuture.................................................................................16TheCostlyEffectofFluctuatingBFEStandards...............................................................................17RecommendationsfromBuildingProfessionalstoLocalGovernment............................................17

FormoreontheSoutheastFloridaRegionalClimateChangeCompact:www.southeastfloridaclimatecompact.org

FormoreontheInstituteforSustainableCommunities:www.iscvt.org

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AbouttheSoutheastFloridaRegionalClimateChangeCompact

AtaGlance:CurrentandFutureClimateRiskinSoutheastFlorida

♦ SoutheastFlorida,thefastest-growingregionintheUnitedStates,hasexperiencedincreasedrainevents,beacherosionandfloodinginrecentyears.Theregionisparticularlyvulnerabletosealevelrise,whichisaffectingcoastalpopulationseverywhere.

♦ Severalwell-regardedindependentmodelsforecastthatourregion,withitsdensecoastaldevelopmentandflat,low-lyinglandscape,willfacesealevelrisingtobetween6–10inchesby2030andthen14–26inchesby2060.

♦ Thischangingrelationshipwithwaterinourbuiltenvironmentrequiresthattheregionadaptorrebuildsubstantialportionsofitspublicinfrastructureandprivateproperty.Therewillbesignificantcoststoprivatecitizens,privateenterpriseandgovernmentalike.Justonefootofsealevelriseisestimatedtoput$4billionoftaxablepropertyatriskinthefour-countyregion,and$31billionbythetimethereisthreefeetofrise.

♦ Ourcommunitiesneedeffective,comprehensivesolutionstoreducewatercominginandmanagebetterthewaterthatdoescomein,encompassingpublicinfrastructureandprivatedevelopments.

“Ourcommunitieshaveveryintimatestoriesfromthislastyearaboutthegreatdramaticimpactsofprolongedflooding.Tropicalstormsarelargelypredictedtobemoreintense.Withgreatercoastaldevelopmentwehavetheriskofgreaterlosses[from]higherwindintensityanddamage,extremerainfallincreasingly.We'reseeingintensestormsoccurringduringhistoricdrywintermonths[and]more100-yearrainfalleventsand500-yearrainfallevents.Twoyearsago,theStateofFloridahadtwoone-in-a-thousandyearrainfallevents,andmorethan20inchesofraininasingleday.”–JenniferJurado,BrowardCounty

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OurWorkSince2010

TheSoutheastFloridaRegionalClimateChangeCompact(theCompact),avoluntaryandcooperativepartnership,wasformedin2010amongPalmBeach,Broward,Miami-DadeandMonroeCountiestofosterunifiedmitigationandadaptationstrategies,developcommonplanningtools,andcreateaRegionalClimateActionPlan(RCAP),whichwascompletedin2012andwillbeupdatedin2017.

TheRCAP,adoptedbyallfourcountiesandbymanymunicipalities,provides110actionablerecommendations,includingrecommendationsrelatedtoreducingvulnerability,makingplansconsistent,developingstrongcodesandenactingregion-wideprograms.TheRCAPsupportsadaptationstrategiesfortheregionwhilealsoservingtoprotectitseconomyandqualityoflifeandrespectingtheautonomyoftheregion'smanygoverningbodies.

TheCompactadoptedaUnifiedSeaLevelRiseProjectionin2015,mergingindependentscientificprojectionsintoonepracticalandcoherentmodelforourregion,inanefforttofacilitatecoordinatedaction.TheCompactsuccessfullyprevailedonthestatetoadoptAdaptationActionAreas(AAAs)andgainedfederalrecognitionofthesameforinfrastructurefunding.TheCompacthassupportedcross-regionallearningandactionthroughworkshops,resources,andoutreach–toadvancerecommendationsoftheRCAP.

LearnmoreabouttheCompactat:http://southeastfloridaclimatecompact.org

“ThefactthattheCompacthascometogether,[evenby]justsupportingthescience[aroundclimatechangeforecasting]–and[bytheway]ourCityCommissionhasrecentlyadoptedthat[forecast]andwillmodelourstormwaterprogramonitandbuilditintoourcodes–helpsbecausenoonecityhastheresourcestodealwiththescienceandtocreatethatkindofawareness.Wecanlearnfromeachotherandbuildcollectiveresources.”

-JimmyMorales,CityManager,CityofMiamiBeach

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ManagingClimateRisk

TheNationalFloodInsuranceProgramandtheprivateinsuranceindustryareintrinsicallylinkedtohowcommunitiesrecoverfromsevereweatherevents,astheseentitiesdeterminenearlyallthefactorsaroundpaymentforreplacement(e.g.who,when,andhowmuch).Tofacilitatequickandfullrecovery,counties,municipalitiesandpropertyownersmustadvocateforriskevaluationsthataccountforclimatefactorsfromtheoutset,butadvocacyisnottheironlyoption.Technologyalsoenablescommunitiestoproactivelyputapricetagontheclimateriskwithintheregionandengageinstrategicallyselectedmitigationandadaptationprojects.ThisisespeciallycriticalasFEMAdoesnotprovidedisasterassistanceforthesecondaryhomemarket,amajoreconomicdriverinSoutheastFlorida.

“Thefederalgovernmentisgoingtobestressedoutandwe’regoingtohavetobeonourown.Wearegoingtobeactingasalittlecity-state.”–EdwardMarquez,DeputyMayorofMiami-DadeCounty

“Thenumberoffederallydeclareddisastershasincreaseddramaticallyinthelastfourdecades.FEMAisbecomingspreadwaytoothin...Themessageis:youcannotdependexclusivelyonFEMAandthefederalgovernmenttorespond.Youmustownyourriskandtakeactionslocallyandregionally.

Governmenttraditionallyraisesfundsfortheselossesbyraisingtaxes,raidingthebudget,orgoingtothecapitalmarketsandissuingbondspost-event...Whywould[we]usethesethreeinefficientmethodstopayforthingsthatweknowaregoingtooccur?Solet'spre-financethedisaster,doouradaptationmeasuresandputafinancialplaninplacetoensurethatwecanabsorbthoseshocksovertime[and]alsoprotectoureconomictrajectory.”-AlexKaplan,SeniorVicePresidentofSwissRe,specializingininnovativerisktransferstrategies.

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RiskManagement:TheTraditionalandtheInnovative

RiskManagementinthissectionisdefinedastheadvisoryservices,insuranceprogramsandregulatoryprocessesthatsurroundweatherandclimateriskinourregion.

EnterpriseRiskManagementinAction

AfterSuperstormSandy,NewYorkCity'sMetropolitanTransportationAuthority(MTA)createdafirst-of-its-kind$200millioncatastrophebondwhentraditionalreinsurancebecamedifficult,employingtidalgaugesinitssubwaysystem(monitoredbyUSGAandNOAA)to“trigger”thereinsurancefollowingafloodevent.Pensionfunds,hedgefundsandotherinvestorslookingforwaystodiversifytheirportfoliosarepotentialfundersofcatastrophebondsandothersecondaryinsurance.

InafuturesecondaryorcatastrophebondmarketinSoutheastFlorida,measurableweatherimpactsonports,airportsorconventioncenters–someoftheregion’skeyeconomicengines–couldbethetriggerforthistypeofinsurancefollowingaweatherevent.

TraditionalRiskManagementhasatransactionalfocus,primarilyaddressingfloodingandrebuildinginresponsetoevents...andonlydealswithabout20%ofthefullarrayofriskexposures.

EnterpriseRiskManagement(ERM)isanewerapproachthataddressesthefullspectrumofanorganization'srisksand,asitrelatestoclimaterisk,includestheuseofsecondaryinsurance(collateralizedre-insurance),intheformofinstrumentssuchas“catastrophebonds”or“parametricinsurance”fundedthroughthecapitalmarkets.Thesetoolskickintoprovideaidafterahigher-than-usualchosenthresholdofweatherimpacthasbeenreached.ERMdefinesriskastheeffectofuncertaintyonanorganization'sobjectivesandspreadsresponsibilityformanagingittoallaccountable,ortothe“riskowners.”

“StandardandPoor’srecognizedERMasapositivecreditenhancementto[theUniversityofCalifornia's]program.ThesamethingwithBenton,Arizona'sPublicUtilityDistrict.So,theyarelookingatentitiessuchasourselves[e.g.BrowardCounty],makingsurethatwearedoingERM,thatwearethinkinginthelongterm,thatweareaccountingforclimatechangeand...otherriskexposuresthatarebeyondthe‘traditional.’”-JohnBurkholder,Director,RiskManagementDivision,BrowardCounty

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ManagingClimateRiskResources

TechnologicalTools

Incontrasttomanytraditionalriskanalyticstools,newnon-proprietarytoolsareemergingthatpromisegreaterspeed,detail,accessibility,universality,adaptabilityandcollaboration.Examplesofthistypeoftoolinclude:

♦ EigenRisk,ariskanalyticsandsoftwaredevelopmentfirmstartedin2014,hasdevelopedanopensourcetoolbythesamename,whichisaprimeexampleofthisnewbreedofsoftwaretools.Itempowersuserstomaintaincontrol–andhavetheabilitytoadjust–assumptionsthatgointoanalyses,projectingdecadesintothefutureandeasilyexaminingeconomicimpactsofadaptationinvestmentsattheaggregatelevelorparcel-by-parcel.

♦ PreventionWebofferstheopensourceEconomicsofClimateAdaptationtoolcalledClimada,whichprovidesdecision-makerswithafactbasetounderstandtheimpactofclimateontheireconomiesandtoidentifyactionstominimizethatimpactatthelowestcosttothecommunity.

♦ ISO31000isafamilyofriskmanagementstandards,adoptedbypublicandprivateentities(including43countries)acrosstheworldthatprovidesbenchmarkstomeasureourownstandardsagainst.There24standardsrelatingtosecurityandresilience.

PolicyGuidanceandPeerSuccesses

TheCompactprovidesaformalframeworkforpolicydevelopment,implementationandevaluationthatalsoenableslearningovertime.The110recommendationsoftheRegionalClimateActionPlan(RCAP),theRCAPImplementationGuide,andalibraryofresourcedocumentsaboutotherinitiatives,casestudiesandplanscanbefoundontheCompactwebsite.

HumanResources

TheseatingofaChiefResiliencyOfficer(CRO)ineachcountyandinseveralmunicipalitieshasallowedbettercoordinationofriskmanagementandpublicsectoractions.TheCRO'sroleistotakealong-rangeviewofaginginfrastructure,housingstock,andpublictransportationsystems–inadditiontofast-emergingthreatsinourchangingclimate.WhileCRO’sarethelatesttrendinriskmanagement,municipalandcountysustainabilityofficesremainamajorregionalresiliencebackbone.Forexample,theWestPalmBeachOfficeofSustainabilitywascreatedinthePublicUtilitiesDepartmentin2008byMayorLoisFrankel,andin2014,withMayorJeriMuoio'semphasisontheimportanceofresiliencyandsustainability,thesustainabilityofficemovedintotheMayor’sOffice,providingincreasedaccessandinvolvementincityactivitiesandinitiatives.

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RecommendationsfromRiskManagerstoLocalGovernment

“Thecostsofdisastersareincreasingovertime...It'snottherisingcostthat'stheconcern;it'sthedivergencebetweentheinsuredanduninsuredportions–ortheinsuredportionversusthetotaleconomiccostofthedisaster.Globally,onaverage,30%of[all]disastersareinsured.Theother70%fallsonthebackoftherestofsociety.Overwhelmingly,that[means]citizensandthepublicsector.”–AlexKaplan,SeniorVP,SwissRe

♦ Securemulti-yearinsurancepackagesthataddpredictabilitybysmoothingoutbudgetaryfluctuationsandproviderebateswhenlosseshavebeenaverted.

♦ UseERMinsuranceinstrumentswhereandwhenpossible,togainfullercoverage.

♦ Collaborateacrossriskmanagement,planningandbudgetdivisionsoflocalgovernmenttocoordinatestrategicinvestments.

♦ Utilizeinnovativetechnologicaltoolstoputapricetagonprojectedrisksandpossibleadaptationscenariosinyourcommunity.

ManagingClimateRiskbytheNumbers

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♦ EconomicimpactofclimatechangeinMiami-Dade,BrowardandPalmBeachCountiesin2030willbe$25billionannually(atourcurrenteconomicgrowthrateofabout2-1/2%).

♦ Equivalentto4xMiamiDade'scurrentbudget.

♦ Inthemaximumclimatechangescenario,thatfigurewillbe$46billionannually.

♦ Equivalentto10%oftheTri-Countyarea'scurrentGDP.

♦ Inotherwords,$1outofevery$10madeintheTri-Countyareawashesouttosea,quiteliterally.

(FromAlexKaplanandSwissRe'sClimateChangeandResilienceBuilding:AReinsurer'sPerspective,whichincludesfindingsoftheEconomicsofClimateAdaptationWorkingGroup)

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EconomicsofaChangingClimate

Themunicipalbondandresidentialmortgagemarketsareanintegralpartoftheeconomichealthofourcommunity.Partneringwithmarketprofessionalstomaintainbondratings,makesoundinvestments,andsupporttheregion’shomeownerbaseiscriticaltosocialandeconomicstabilitythroughthecomingchallengesofachangingclimate.

SoutheastFlorida'srobusteconomyhasprovenitrecoverswellfromeconomicsetback–suchasaftertherecessionof2008–butisalsohighlydependentontourismandsecondhomeownership,whichraiserealestatevaluesandwhichmayprovesensitivetothereductionsinqualityoflifepossiblyincurredviaincreasesinmajorstormeventsandsealevelriseiftheregionfailstocontinueadaptingtoclimaterisk.Onemajordisastercanchangeitall,aswasseeninNewOrleansafterHurricaneKatrinaleft80%ofthatcityunderwater.

TheMunicipalBondMarket

Considerationofsealevelriseandfloodrisksinthemunicipalbondmarketiscurrentlylow.Disclosurerequirementsdonotyetincludetidalflooding.Giventhatbondingisoneoflocalgovernment'sprimarymeansofsecuringprojectfunding,itisimportantthatclimatefactorsbecomereflectedintheprocesssothatmunicipalitiesareencouragedtoselectstrategicinvestmentsandmaintainstrongbondratingstomeetfutureneeds.

ChallengesinFundingMunicipalProjects:TheCurrentMunicipalBondMarket

Thebondmarketisnotyetattunedtolong-rangeclimateconcernsanddoesnotadequatelysupportthenecessarylong-rangeviewofinvestments.

♦ Inpractice,30-yearmunicipalbondsarereallyviewedonafive-yearhorizon.

StructureoftheMarket

TheMunicipalBondMarketiscomprisedof:

1. Bondissuers,sellingtheirdebt.2. Bondinvestors,buyingthedebt.3. Investmentbankers,makingadeal

betweenthetwo.4. Ratingagencies,providingoutside

oversight.

“In2005,beforeHurricaneKatrina,NewOrleanswasratedBBB+byStandard&Poor’s.Afterthestorm,theyweredowngradedtoBB,whichisbelowinvestmentgrade,veryunusualforaU.S.municipality.Theyspentfouryearsbelowinvestmentgrade...once[astorm]happens,therearesignificantcostsandlongtermimplicationsfor...borrowingcostsgoingforward.”–WendallGaertner,SeniorMarketingDirector,PublicResourcesAdvisoryGroup

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♦ Bondratingsfluctuatefollowingamajorweatherevent.

♦ Undercurrentmunicipalbondanalytics,thereisanincentivetoholdontocashratherthantospendonriskreduction,sinceliquidityisvaluedasastrengthforcatastrophes.

♦ Ratingagenciesrecentlybegantoemploynewstandardcriteriafortheirevaluations,thoughthusfar,thosecriteriahavelittletodowithchangingclimateconditions.Thenewcriteriainclude:

o Liquidityforshort-termlosses.

o Strengthoftaxbasetosupportlong-termstability.

o Municipalplans,thoughthislastitemispresentlylackingarobustlong-rangehorizon.

GovernmentFundingStreams

Thelongrange,cross-disciplinarynatureofmitigationandadaptationinvestmentcallsforacollaborativeapproachtoplanningandfundingprojects.Yet,governmentfundingstreamsareoftensiloedanddifficulttoleverageacrossdivisions.

MunicipalFinancialToolstoWatchandUse

♦ TraditionalMunicipalBonds:Althoughthere'snothingnewaboutthesebonds,someprojectscanbedoneonatax-exemptbasissuchasrevenuebondsorgeneralobligationbonds.

♦ CatastropheBonds:Thesebondsareeffectivelyaninsurancepolicyobtainedthroughthecapitalmarkets,asdescribedintheRiskManagementsection,andmayattractinvestorsbecausetheyarenotcorrelatedtootherfinancialrisks.

♦ GreenBonds:Moreprevalentinternationallyuntilrecently,thesefinancialtoolsappealtoinvestorsseekingenvironmentallybeneficialinvestmentsandwhoarewillingtoearnlessonan“enlightened”investment.OneU.S.ratingagencyhasannounceditwillcertifybondsas“green”asaservicetoinvestors.WashingtonD.C.ledthewayforgreenbondfinancingintheUnitedStateswithits“100-yearTunnel,”builtaspartofthewaterandsewersystem:D.C.Waterissued$350millionintaxable,greencenturybonds.The100-yearfinalmaturityisthefirstmunicipalcenturybondissuedbyawater/wastewaterutilityintheU.S.Itisalsothefirst"certified"greenbondintheU.S.debtcapitalmarketswithanindependentsecondpartysustainabilityopinion.

“Governmentshistoricallyhavebeensiloed.Computerizationishelpingusbreakdownthosesilossothatwecanmanageinformationbetteracrossdepartments.However,ourfundingsourcesareallsiloed...Overtime,weneedtotalkabouthowwemakeourmoneymorefluidbetweenprojects.”–EdwardMarquez,DeputyMayor,Miami-DadeCounty

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ExamplesofRiskandBondManagement

♦ Example#1:Miami-DadeCountyenjoysaAAbondratingduetoitscashonreserveanditswellmanagedprogramsandplans.TheCountyhasa$13.5billionMulti-YearCapitalImprovementPlanforwater,includingsealevelrise,butalsofacilitiessuchastheairport.DeputyMayorEdwardMarquezcharacterizesthisas“settingglobalprioritiesonalocallevel.”

♦ Example#2:InNorfolk,Virginia,wherethere'sbeenmassivefloodingcoupledwithchallengesofpovertyandinfrastructuredeterioration,theCityCouncilvotedtodevoteasizableportionofitsbudgetsurplusfrom2015toriskreservesaswellasstrategicinvestmentsincommunityandinfrastructureprojects.TheCitywasabletoattainabondratingofAA+inthefallofthatyear,duetoongoingeconomicdiversificationintheCity'sdowntownarea,soundfinancialperformance,moderatelongtermdebtburdenandtheeconomicstabilityofamilitarypresence.

TheResidentialMortgageMarket

TheeconomicstrengththatSoutheastFloridaderivesfromitsappealtovacationersandhomebuyers–coupledwithconfidentforecastsofcontinuingpopulationgrowth–giveshopethattherewillbeongoinginterestininvestinginourregion.However,ourpositiveeconomicgrowthtrajectorydependsonourattractivequalityoflife,whichisderivedfromboththedesirable,coastalenvironmentaswellastheperceptionofsocialandeconomicopportunitytobefoundhere.

ThecurrentresidentialmortgagemarketinFloridadoesnotfullyaccountfornear-termfloodingrisks,letalonethelonger-termrisksofsealevelrise.Onlyfloodzonelocation,nottidalflooding,isarequireddisclosurethroughthehomefinancingprocess.Intheprocessforobtainingtherequiredinspection,appraisal,surveyandtitle,therearemissedopportunitiesforamorecompleteaccountingofclimate-relatedrisk.Futuremajorweathereventswilllikelytriggergreaterattentiontotidalfloodingandotherwater-relateddisclosures.

Volatilityinfloodinsurancerates,andFlorida'smajorpresenceintheNationalFloodInsuranceProgram–asabout35%(1.8outof5.1million)ofallfloodpoliciesintheUSarewritteninFlorida–mayserveasawarningthatasubstantialamountofourrealestatevalueisvulnerabletoclimateimpacts.Florida

“Itisimportant[tounderstand]riskandhavetherightassociationwithprice.”–MichaelDaniels,MortgageLoanOriginatoratChristensenFinancial

“ThetotalamountthatFloridahaspaidintothe[NationalFloodInsuranceProgram]couldveryeasilybewipedoutwithonegooddirect“hit”downhereinMiami-Dade...soIthinkit'shardtocompareittotheactuarialtablesthatweuse,say,forlifeinsuranceorhomeowner’sinsurancewhicharealot[easier]tocalculate.”–ThomasRuppert,CoastalPlanningSpecialist,FloridaSeaGrant

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floodinsurancerateshaverisendramaticallyrecently,raisingconcernsaboutthedecreasedaffordabilityoffinancinghomepurchases(FEMAprogramchanges).Asthecostsofprotectingagainstriskcontinuetoriseandbuildingstandardschange,itmayonlybecomehardertoaffordtobuyandretainahomeinourregion.Homeownerswillincreasinglyfacea“rebuildvs.relocate”dilemmafollowingaweatherdisaster.Itmaybeunfeasibleforsometorebuildahometonew,morestringentstandardsandalsoinsureit.

TheGreatRecession’sOngoingEffectonResidentialMortgageMarkets

Thegreatrecessionof2008resultedintheexpulsionoflessresponsiblehomemortgagecompaniesfromthemortgagemarket,butmostoftheremainingcompaniesarenotwell-versedinclimaterisk.Regardlessofamortgagebroker’sfocusonclimaterisk,theriseofcashpurchasesintheresidentialmarketismovingsomeofthedecision-makingfrombrokerswhoaretrainedprofessionalsinriskassessmenttothosewithapotentiallymorespeculativefocus.

Whenpropertyvaluedropsinaneconomicdownturn,manypropertiesgointoashortsaleorforeclosure,attractingcashbuyerschoosingtoinvestinproperty.Banksoftenfavorcashbuyers,evenifthesalepriceislower,becausetheycansettlein10days,comparedto45daysforaFHAloanhomebuyer.

Duetothe2008recession,cashbuyerscurrentlyrepresentapproximatelyhalfofallresidentialsales,edgingoutbuyersusingfinancingbecauseoftheshortertimeframeandeaseofacashsale.

Theprevalenceofcashbuyerscouldbeinterpretedasapositiveindicatorinthebondmarket,ifnotforprivatehomebuyersinthemortgagemarket,becauselikelysignifiesmoneyflowingintothecommunity.

ResidentialFinancialToolstoWatchandUse

♦ FannieMaepresentsanalternativetothelow-tomiddle-incomehomebuyer,calledtheHomeReadyMortgage,whichfinancesahomepurchasewithlowdownpaymentsandflexiblefundingsources,privatemortgageinsurance(PMI),homeownershipeducation,andunderwritingflexibilitythatincludesextendedfamilyandothermembersofahousehold.Perhapsindirectresponsetothecashbuyermarket,FannieMaestatesonitswebsite:“Aforeclosedpropertycanrepresentagreatopportunityandagoodvalue—butaHomePathpropertycanofferevenmore.”

♦ TheFloridaPACEProgram:PACEisarelativelynewStateofFloridaprogramthroughwhichhomeownerscangetspecialassessmentsfrominvestinginenergyefficientimprovementsinthehouse.TherationaleforPACEistoprovideauniformprogramthatachieveseconomiesofscale

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andcreatesmarketswithlittleornocosttolocalgovernmenttreasuries.Miami-DadeCountyexpectstojointhisprogramsoon.Atpresent,qualifyingimprovementsarelimitedtoenergyefficiency,renewableenergyandwindresistanceimprovements,anddonotincludeadaptationmeasuresforflooding.

InnovativeWork:TheFinancialStabilityBoard'sTaskForceonClimateRelatedDisclosures,aninternationalgroupofcentralbanksandtreasuriesformedinearly2016,isexamininghowtoinstitutedisclosuresofclimaterisk.TaskForceFounderandNewYorkCityMayorMichaelBloombergsays:"TheworkoftheTaskForceonClimate-RelatedFinancialDisclosureswillhelptoaccelerateglobalinvestmentsintechnologicalinnovationandcleanenergybyincreasingtransparency.And,indoingso,itwillhelpmakemarketsmoreefficient,andeconomiesmorestableandresilient."

TheTaskForceidentifiedsevenfundamentalprinciplescentraltoaneffectivesystemofclimate-relatedfinancialdisclosure:

1. Presentrelevantinformation

2. Bespecificandcomplete

3. Beclear,balanced,andunderstandable

4. Beconsistentovertime

5. Becomparableamongcompanieswithinasector,industry,orportfolio

6. Bereliable,verifiable,andobjective

7. Beprovidedonatimelybasis

WhiledisclosurerequirementsinpublicandprivatetransactionsmaynotchangedramaticallyuntilthereisStateorfederalintervention,alocalgovernment'sfinancialresiliencetolosses,bothshortandlongterm,canbebolsteredbymaintainingfinancialliquidityandpracticingsoundfinancialmanagement.Strongbondratingsmaybemaintainedbykeepingriskreservefundsanddemonstratingstrongfinancialoversightofoperationsandinvestments.

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BricksandMortar:BuildingtheFuture

Realestatedevelopers–togetherwithbuildersofpublicinfrastructure–aremanufacturingourbuiltenvironmentofthefuture.Whetherourcommunitieshavelastingvalueandphysicalandeconomicresiliencedependsonwhatisproducedbythebuildingsector,ontheprovisionofcoherentstandardsandguidelinesforconstruction,andonnewdesignstandardsformanagingwaterintrusion.

Incorporatingsealevelriseforecastsintolongrangebuildingandlanddevelopmentstandardswillassureamoresoundfuture,aswillanevolutionamongthebuildingcommunitytowardsmeetingamarketdemandforresilientstructuresanddesignthatwillonlygrowovertime.

Whilemanybuildersoperateunderafive-yearbuild-and-selltimehorizon,withlittleconcernforlongtermrisk,therearesomewhoownandoperatetheirproperties(thesemayincludepublicsectorentitiesaswellasprivate)andtakealongrangeviewrisksassociatedwiththeirproperty.Theyareinvestedintheongoingcharacterandstabilityofthecommunity.

RealEstateBuildersandDevelopers...

♦ Mustquantifyallcostsandreduceuncertaintyinbuildingprojects.

♦ Workbestunderclearlyarticulatedrulesappliedconsistentlytoallbuildersandprojects.

♦ Arenotallthesame...

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TheCostlyEffectofFluctuatingBFEStandards

ChangesinBaseFloodElevation(BFE),setbyFEMA,overthelifetimeofexistingbuildingshasdrasticallyalteredtherequirementsandinsurancecostsbornebypropertyowners.AstheBFEhaschanged,somebuildingsthatwereabovetheBFEwhenbuiltarelaterbelowitandsubjecttoagreaterinsuranceburden.EveryfootofelevationbelowFEMA'sBFEresultsinadoublingofinsurancerates.

RecommendationsfromBuildingProfessionalstoLocalGovernment

♦ Accountforsealevelriseintheofficialplanningdocumentsofthecommunity.

♦ Developmapsshowinglongrangeelevationrequirementsinourcommunities,asina50yeartimeframe,thataccountforsealevelriseandstormeventincreases,andthatcreateastandardofnewbasefloodelevationsthatwillprotectnewconstructionduringitslifecycleandprovidecleardirectionforthebuildinganddevelopmentsector.

♦ Assurethatbuildingstandardsaddressthepotentialfunctionalbarrierscausedbydifferingelevationsinadjacentpropertiesbuiltaccording

BrowardCountywasunusualinhavingwhatiscalledtheBrowardCounty100-YearMap,createdinthelate1970s(withinformationfromthewatermanagementdistrict)andshowingprojectedbuildoutoverfuturedecades.ThisdocumentwasusedinconjunctionwithmapsfromFEMA(alsonewlycreatedatthattime)andguideddevelopmentintheCountytoBFEstandardsoftenthreeorfourfeethigherthanFEMA'sformanyyears.Thesemapshavenowoutlivedtheirusefullifeandnevertooksealevelriseintoconsideration.

“[Previously,]FEMAgrandfatheredeverythinginandaslongasyouingoodfaithbuiltatwhatthenumberswerewhenyourhousewasconstructedtheywouldletyoupaytheregularrate...Andyouseewherethatgotthem:$24billionindebt.Sonowwe'removingtoactuarialratesanditwon'tmatterthatyourhousewasbuiltinaccordancewiththestandardifthe[BFE]changes–[itis]projectedtochangeatleasteverytenyears.Then,you'regoingtobesubjecttowhateverthatnewriskisandpaythatsubstantiallyhigherpremium...Itmaybeinthelongtermaresiliencyissuejustforaffordabilityintheregion.

InBroward,wedohaveafairlyrobustFEMAmodelnow...ButI'mnotsure[we'll]evergettothepointwheretheFEMAmapfullyincludessealevelrisesimplybecauseoftheeconomicimpactonthepremiumbeforetheriskis[fully]realized.”

-LeonardVialpando,DirectorofEnvironmentalRegulationsandBuildingPermitting,BrowardCounty

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todifferentstandards.

♦ Determinethedesiredrelationshipofprivatelybuiltprojectswithpotentialinfrastructureadaptationprojects.

♦ Identifycomprehensivesolutionstoreducewatercominginandtomanagebetterthewaterthatdoescomein,whileprotectinginfrastructure.

♦ Reviewbestpracticesofsimilarcommunitiesforbuildingstandardsandtechnologiesthatsuityourcommunity'sdensityandtopography.

♦ Considerhowtoprotecthistoricstructures.Bemindfuloftheinfluenceofinsuranceandfinancialmarketsuponwhetherandhowhistoricandculturalresourcesarepreserved.

InnovativeWork:MiamiBeachismakingstridesinpartnershipwiththebuildingcommunitytorespondtosealevelriseandremainvibrant.MayorPhilipLevine'sBlueRibbonPanel,ledbyScottRobins,PresidentofScottRobinsCompanies,isstrivingtoaddresswaterflowdesignwithelegantdrainagesolutionsencompassingthebuildingsiteandstreetasonesystemaswellaslookingatnewstandardsforelevatingmechanicalequipment.Robinsbelievestheregionandbeyondarelookingtotheexampletheyset.

InnovativeIdea:Buildintothecodearequirementforengineeringthatwouldenablenewsinglefamilyhousestoberaisedwhenfutureneedsdictate.(FromScottRobins,PresidentofScottRobinsCompaniesduringworkshop)

InnovativeIdeas:WithsupportfromtheKresgeFoundation,theUrbanLandInstitute(ULI)publishedReturnsonResilience:TheBusinessCasein2015,areportfeaturingtenrealestateprojectsaroundthecountrydesignedtoperformwellinthefaceofclimate-relatedthreats.Thereportilluminateshowtheseinvestmentsinresiliencestrategiesprovidefinancialandotherreturns.TwoofthecasestudiesarelocatedinSouthFlorida.

Someofthekeybuildingstrategiesforhurricaneandtropicalstormresiliencefoundinthereport'scasestudiesincludeimpactresistantglass,desalinationunitswithundergroundwaterstorage,andon-sitebackuppowercapacity.Forstormsurge,sealevelriseandfloodingresilience,theseincludelocatingabuilding'spowercenterabovestormsurgeelevation(asonanupperfloorortheroof),backupgeneratorswithfuelreserves,andlandscapefeaturessuchasbermsandwetlands,toblockandabsorbwater,respectively.

“[Designingforriskreduction]notonlymakessense,but...alsomakesmoneyfordevelopersandowners.Resilienceplaysoutnotjustinmanagingrisk,butalsoinmaintainingvalue...Thepayback...canbemeasuredincostsavingsfrompreventingdamagesandreducingoperatingcosts,aswellasrevenueenhancementsfromimprovedmarketing,companybrand,andprojectimage.”

(FromReturnsonResilience:TheBusinessCase,2-3)

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Finally,ReturnsonResiliencefoundthesefiveuniversallyapplicablethemesinitsprofiledprojectsandpresentsthemasadvicetobuilders:

1. Codeisnotalwaysadequate–beinnovative.

2. Learnfromyourownandothers'experiences.

3. Takingalong-rangeviewchangesyourperspectiveandactions...butalongholdperiodisnotrequiredforresiliencestrategiestogeneratevalue.

4. Sustainabilityandresiliencearegoodpartners,asinaccomplishingLEEDcertificationaswellasclimateresilienceinonedesign.

5. Resiliencemakesapropertymoreattractiveandvaluable.

“As[theBFE]keepsmovingup,[theproperty]ownerisgoingtobeinaveryhardeconomicsituation...ThereisgoingtobeapointwhenwecreateastandardforSouthFloridaandwhoeverdoesn'tmeetthatstandardisnotgoingtobeinsurable.”–MatisCohen,CEOofKahunahProperties,basedinNorthMiamiBeach

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Advocacy & Leadership Center Implementation support to the Compact is provided by:

With funding support from:

RegionalClimateActionPlanWorkshop#9oftheSoutheastFloridaRegionalClimateChangeCompact

ReducingClimateRiskandCreatingEconomicOpportunity

Formoreinformationvisit:

www.southeastfloridaclimatecompact.org