Trend in the Region

Storms a Bad Omen in Northeast

While Northeast states are still cleaning up and totaling the damage, the recent string of devastating storms has also triggered long-term worries about infrastructure needs, levels of federal funding, and even changing weather patterns.

The Federal Emergency Management Agency’s suspension of long-term projects in tornado-ravaged Joplin, Mo., and Tuscaloosa, Ala., to pay for Hurricane Irene-related repair in the Northeast underscores an uncertainty about FEMA’s funding level that resonates nationwide.

In Washington, the Senate and House began the weekend at loggerheads over how much to replenish the cash-strapped agency.

“Because there were a lot of storms, funding from FEMA is low and there’s a fight over more appropriations. In the past, it was automatic. But places like Tuscaloosa, Joplin, and Vermont are realizing there’s a new paradigm,” said Natalie Cohen, a senior analyst for Wells Fargo Securities LLC.

Increasingly bizarre storm patterns, meanwhile, are turning financial managers into Weather Channel junkies.

“It’s not just the coastal areas, which draw a lot of attention because people are attracted to their panoramic views. This time the storms were slow moving and heavy that affected a lot of inland areas,” Cohen said in an interview.

Moody’s Investors Service said in a recent report that the municipal market weathered the storm with limited credit deterioration. Still, widespread damage from Irene and Tropical Storm Lee pummeled states and communities that range from prosperous to teetering.

Vermont, a triple-A rated state, is scrambling to fix bridges in time for fall foliage and winter skiing, both tourist magnets. To complicate matters, “tremors” from Irene produced such safety concerns as sink holes and slope failures, especially across the state’s southern tier.

Transportation Secretary Brian Searles told the Legislature’s Joint Fiscal Committee last week that repairing damaged infrastructure could cost up to $500 million, in a state with a $1.24 billion general fund budget for fiscal 2012.

Vermont’s representative in the U.S. House, Democrat Peter Welch, helped lead a bipartisan group that pushed for $7 billion in emergency funding for FEMA. That measure passed the Senate on Thursday, but a battle awaits in the Republican-controlled House, where leaders favor about half that amount in disaster relief as part of a broader government funding measure.

New York costs related to Hurricane Irene and Tropical Storm Lee are approaching $100 million, state officials said Wednesday after meeting with Gov. Andrew Cuomo in Albany, though as in other states, New York will finalize its total after waters recede.

That estimate does not consider the state’s share of aid to towns and villages, for which the state could be on the hook.

FEMA reimburses up to 75% of governments’ costs, and separate funds through the Federal Highway Administration can cover between 80% and 100% of repair costs to arterial roads.

The New York State Canal Corp. could access an emergency bonding account of up to $20 million to pay for Erie Canal repair. Flood damage to locks has interrupted traffic along the Albany-to-Buffalo waterway.

“The water’s receded enough to allow engineers to go in and ascertain the damage. We hope to have a fiscal estimate soon,” the corporation’s fiscal officer, John Bryan, said in an interview. The canal agency is part of the New York State Thruway Authority.

Cuomo on Thursday announced an emergency loan program for local governments to help rebuild critical infrastructure such as drinking water and wastewater treatment facilities. The Hurricane Emergency Loan Program, or HELP, would provide up to $1 million in no-interest loans for critical assessment and repair.

Even before the storms hit, Pennsylvania’s General Assembly session was going to face critical questions about infrastructure. A panel appointed by Gov. Tom Corbett reported in August that much like the rest of the nation, “Pennsylvania transportation infrastructure is aging significantly due to decades of under-investment.”

Corbett, speaking on a radio show in Philadelphia on Thursday, reiterated his support for an “impact fee” on companies that use hydraulic fracturing to extract natural gas from the Marcellus Shale region, which would cover any damage to roads and bridges from heavy truck traffic and other negative impacts.

Pennsylvania’s Senate will reconvene Monday, with the House following on Sept. 26. Though the Republican Corbett campaigned and won the governor’s office in 2010 on a pledge to rein in spending, legislative leaders may see an opportunity for some kind of transportation funding package that would ease the increasing backlog of repairs.

“This is about more than potholes — the issues at hand affect safety, our economy and the environment, all of which shape the quality of life and ease of commerce in Pennsylvania,” the report said.

Corbett reportedly wants to raise more than $2.5 billion annually to finance the repairs and operate mass transit.

Flooding in Pennsylvania left the Susquehanna River valley under siege. Especially affected were Wilkes-Barre and financially strapped capital city Harrisburg, which faces a likely state takeover due to $300 million of incinerator-related debt and struggled in September to make its general obligation bond payment and pay city employees.

No preliminary cost estimates for total storm damage were available from Pennsylvania. “We’re projecting into the hundreds of millions, surpassing Agnes,” said Cory Angell, a spokesman for the Pennsylvania Emergency Management Agency. Agnes, a rare June hurricane, battered Pennsylvania and New York’s southern tier in 1972.

Marti Kopacz, a restructuring professional at Grant Thornton LLP, admonished local governments to think long term. “It really begs the question of how do you prepare and fund the types of emergency services at all levels of government,” said Kopacz, whose consulting firm is working with the Nassau Interim Finance Authority, a state-appointed board overseeing the finances of Long Island’s Nassau County.

“We’re in a bad macroeconomic situation. There’s just not enough cash the way there was coming into 2008,” Kopacz added. “Governments have to create some kind of cushion so that God forbid, we have another huge snowfall of 10 feet or something like that. You’ve got to plow it, and you need to dip into some kind of funding.”

Wells Fargo’s Cohen said investors should scrutinize sectors related to “hot” or active areas. They include tax-allocation bonds, standalone hospitals, housing, small-issue development bonds, and revenue-based bridges.

She said bonds typically insulated from natural disasters risk fall into sectors secured with a broad geographic pledge, and include GO bonds; water, sewer and electric systems; sales tax, franchise and excises taxes; and hospital systems with geographic and financial diversity.

“A sales-taxbacked security is, in our view, less risky in that the points of purchase are generally numerous and geographically dispersed,” Cohen said.


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