In 2011, just west of Albany, New York, Tropical Storm Irene dumped 16 inches of rain on the Schoharie Valley in just 24 hours. The storm caused ~ $130 million worth of property damage – an estimated 47% of homes in Schoharie village were destroyed, while between 75 and 85% of homes and essentially all businesses were impacted by the flooding.1,2 Ten days later, Tropical Storm Lee further damaged roads, bridges, and stormwater systems in the area, causing sewage to wash downstream and contaminate drinking water sources.3 As schools reopened after the storms, ~150 of the district’s students remained displaced from their homes.4

The damage and displacement caused by flooding had financial implications for the Schoharie Central School District. Over time, the loss of residential and commercial taxpayers eroded the district’s tax base and led to a decline in property taxes.5 In the financial statements for Schoharie Central School District’s 2013 fiscal year, they disclosed that there was a decrease in student enrollment attributed to Tropical Storm Irene, whose flooding had rendered many of those students homeless. According to district officials cited in the Official Statement of a 2014 Schoharie Central School District bond issuance, enrollment dropped from 914 students in the 2010-2011 school year to 847 students in the year following the storm.6 The financial statements note that any decrease in student enrollment causes a proportionate decrease in student aid, while separately mentioning that the district had to use money to fund the installation of emergency generators for each school building after the tropical storm.7

New York state has experienced a myriad of coastal flooding events in recent history, including Hurricane Sandy, which hit the Northeast of the United States in October 2012 and led to an estimated $85.9 billion in damages and 159 deaths.8 What has received considerably less attention is the increasing risk of inland flooding to the interior of the state. The disparity in attention and media coverage between coastal and inland flooding can be seen in post-flooding updates made to infrastructure. After Hurricane Sandy, many buildings in low-lying coastal areas were updated, but the same attention was not given to inland housing: after Hurricane Ida, two years ago, residents in inland affordable housing were left without heat or hot water for weeks.9

In July 2023, inland flooding caused by severe storms in portions of the Northeast made headlines due to the record-breaking amount of rainfall and subsequent damage; there was over $100 million in flood damage estimated in West Point, New York.10 Inland flooding can occur when moderate precipitation accumulates over several days, or when intense precipitation falls over a short period of time and causes flash flooding.11 For low-lying communities like Schoharie village in landlocked areas, heavy rainfall can have an enormous impact – according to ICE climate models, by 2050, the cumulative expected property value at risk due to inland flooding across New York state is estimated at over 2.5% and the cumulative expected GDP impairment due to inland flooding projected to be over 6.5%, tenfold increases from 2023. To try and combat the increasing amount of flooding, in November 2022, New York voters approved a ballot measure known as the ‘Clean Water, Clean Air, and Green Jobs Environmental Bond Act,’ a $4.2 billion general obligation bond. The bond states that no less than $1.1 billion of this funding will be dedicated to protecting communities from flood risks, naming property buyouts, coastal rehabilitation, and raising flood-prone infrastructure as a few of the intended projects.12

Inland flood risks across New York state have implications for the municipal bond market and are likely to become increasingly relevant for investors. The total outstanding amount of municipal debt issued in the state of New York is over $446 billion, the third highest of any state behind California and Texas. Almost $30 billion of this debt was issued by New York school districts, a number that excludes any issuances from the Dorm Authority of the state of New York (DASNY), which often issues municipal debt on behalf of school districts. School districts in New York issue debt frequently – in the first 8 months of 2023 alone, there have been over 1,000 issuances from New York school districts, totaling over $5.5 billion. Over $750 million of this debt is obligated to school districts with moderate or high inland flood risk (in the top 25th percentile nationally).13 State school aid intercept programs that exist in New York and several other states provide protections against default, but investors may still face bond liquidity challenges, ratings downgrades, and headline risk.

Inland flood risk – and climate risk more generally – poses challenges for all municipal bond market stakeholders. Schoharie Central School District has an ICE Flood Risk Score of 4.2 out of 5, and an ICE Social Impact Score of 47, meaning that it is close to the countrywide median in terms of its socioeconomic vulnerability. Our analysis shows that other school districts have similarly high flood risk and are more socioeconomically vulnerable.14 Municipal government entities issuing debt must grapple with increasing costs associated with climate-related damage and adaptation, while investors must balance climate risk with impact. Challenges related to inland flooding across New York state are not going away; if anything, our analysis shows they will likely become more apparent in coming decades (e.g., Figure 1).