California appears to be on track for a fire season nearly as devastating as last year’s — the worst fire season in the state’s history.

So far this year, Cal Fire has battled nearly 3,800 wildfires that have burned more than 292,000 acres, a sharp increase from previous years and far above average for this time of year, according to the state's fire agency.

Though natural disasters wreak havoc causing property damage and loss of life, the hit to local economies — and their bonds — tends to be ameliorated by money from the states, the federal government and insurance companies, according to rating agencies.

Napa wildfire
California Gov. Jerry Brown issued an emergency proclamation Saturday for Lake, Mendocino and Napa counties due to the effects of the River, Ranch and Steele fires. Devastating wildfires also struck California's wine country last year as depicted in the photo. Bloomberg News

California Gov. Jerry Brown has declared a state of emergency in several areas of the state, a move that triggers federal funding. He also sent the National Guard into one area to help extinguish the fires.

Firefighting costs, covered by the California Department of Forest and Fire Protection are at $114.7 million for 2018-19, which began on July 1, according to Cal Fire. Last year's fires cost an estimated $505 million.

Brown allocated money in the 2018 budget to cover the cost of last year's fires and a reserve fund to cover this year's. The state also has an estimated $8 billion surplus in this year's budget.

California Gov. Jerry Brown
California Gov. Jerry Brown set aside money in a reserve fund in the recently passed 2018-19 budget to cover fire suppression costs. Bloomberg News

S&P Global, the first of the three agencies to release a report on this summer’s fire, has identified nearly a dozen bond issuers with roughly $268 million in debt outstanding whose facilities could be damaged or destroyed by the Carr Fire in northern California. The Carr Fire is the largest of nearly a dozen fires burning throughout the state.

Based on past experience, credit deterioration from the Carr Fire is unlikely, S&P analysts wrote in a Friday report.

“While it's too early to know what the extent of physical and economic damage will ultimately be, the recent history of municipal obligors in areas that experienced fire damage suggests to us that credit deterioration is unlikely,” S&P Analysts Chris Morgan and Benjamin Geare wrote.

It was also too early to comment on whether the Napa Valley — one of the areas devastated by fire last year — can overcome a second year of fires.

Municipal budgets are most vulnerable to the loss of property taxes when houses burn. The tax assessor’s offices in the areas devastated last year were busy reassessing property values in areas where people lost their homes, to reflect the decreased value. But it takes several months after fires are extinguished to assess the reduction in property taxes. Insurance companies and federal agencies come to the aid of homeowners in areas declared a natural disaster.

California also has always approved legislation to provide funding to municipalities that take a hit to their tax base in a natural disaster, according to the rating agencies.

S&P Global will continued to track the affect of California's fires on credits it rates, said Chris Morgan, an S&P analyst.
S&P Global will continue to track the affect of California's fires on credits it rates, said Chris Morgan, an S&P analyst.

“U.S. local governments generally exhibit a high level of financial resilience given their jurisdiction over key revenue sources, spending priorities and available reserves which, in concert with federal and state recover aid, mitigates credit risk to natural disasters,” Fitch analysts said in a May 29 report.

Last year was the most destructive wildfire season in state history, according to the governor’s office.

So far, the Carr Fire in northern California’s Shasta County and the blaze near Yosemite National Park in Central California have consumed the greatest acreage, while smaller fires have ignited in areas through the state.

The Carr Fire broke out during exceptionally dangerous fire weather conditions, including extremely hot temperatures, low humidity and erratic winds, according to the governor's office. These conditions, he said, have caused the Carr Fire to grow uncontrollably, causing widespread destruction and at least two fatalities.

To date, the Carr Fire has burned more than 44,000 acres and is only 3% contained. The fire has already forced more than 30,000 residents to evacuate their homes.

The Yosemite blaze, also being called the Ferguson fire, had only been 17% contained as of this weekend, according to fire officials. Another fire in Mendocino County has consumed more than 30,000 acres.

The only bond issuer S&P rates with facilities that could be damaged by the Ferguson Fire is the Mariposa School District, which has $8.5 million in general obligation debt, said Morgan. S&P hasn't had a chance to review credits that may be vulnerable to the other fires that broke out this weekend, Morgan said.

San Diego and Los Angeles have also been battling fires this summer, but nothing as extensive as those burning in central and northern California.

Past history, including the rash of fires that devastated regions in northern and southern California last fall, demonstrated to S&P analysts that federal and state programs and fiscal backstops have helped local communities respond to immediate disaster conditions and recover over the long term, Morgan said.

“For example, the California Department of Forestry and Fire Protection coordinates emergency response to fire events and the state chose to backfill $53 million in lost property tax revenue associated with fires in 2017 as part of its fiscal 2019 budget. We will continue to monitor the situation,” according to the S&P report.

Fitch and Moody's have been tracking the impact on the investor-owned utilities they cover, like Southern California Edison — which were deemed liable in some cases in last year's fires. Investor-owned utilities don't issue municipal bonds.

Brown issued an emergency proclamation Saturday for Lake, Mendocino and Napa counties due to the effects of the River, Ranch and Steele fires, which have destroyed homes, threatened critical infrastructure and caused the evacuation of residents.

Brown declared a state of emergency in Shasta County Friday and deployed California National Guard assets to bolster the state’s response to the fires and support local evacuations. The Governor’s Office of Emergency Services has also activated the State Operations Center in Mather, California to its highest level and is coordinating with other local, state and federal emergency response officials to address emergency management needs.

Brown also announced that the state has secured a presidential declaration providing direct federal assistance to further support the communities impacted by the Carr Fire, following an emergency proclamation issued for Shasta County. The Governor has issued emergency proclamations for Riverside and Mariposa counties this week due to fires.

“Our thoughts are with the loved ones of the two firefighters we lost fighting the Carr Fire and with the many Californians who have lost their homes,” Brown said.

Though S&P's report only covered potential damage to credit ratings for issuers affected by the Carr Fire, Morgan said they are “monitoring the other fires and could issue additional reports.”

Obligors in or near the evacuation area for the Carr Fire have approximately $268.6 million in governmental debt outstanding, according to S&P.

The obligors that fall in the areas devastated by the Carr Fire include:

• Cascade Union Elementary School District, with $9.2 million GO debt

outstanding as of fiscal 2018);

• Cottonwood Union Elementary School District, which has $760,00;

• Gateway Unified School District with $32.8 million;

• Grant Elementary School District with $1.7 million;

• Happy Valley Union Elementary School District with $4.0 million);

• Redding with $29.4 million [general fund obligations only])

• Shasta Union High School District with $30.3 million);

• Shasta-Tehama-Trinity Joint Community College District with $88.8 million;

• Successor Agency to the Anderson Redevelopment Agency with $6.9 million;

• Successor Agency to the Redding Redevelopment Agency with $27.7 million; and

• Successor Agency to the Shasta Lake Redevelopment Agency with $3.1 million.

The following obligors are near the evacuation areas for the Carr Fire: Columbia Elementary School District ($6.4 million); Enterprise Elementary School District ($19.7 million); Mountain Valley Unified School District ($3.3 million); and Pacheco Union Elementary School District ($4.5 million).

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