How Texas plans to protect its economy in hurricane season

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Two years after Hurricane Harvey inundated the Texas coast with record rainfall, the state is taking a larger financial and management role in shielding the economically powerful region from future destruction.

Under legislation signed by Gov. Greg Abbott in June, state government will increase funding for measures to prepare for flood scenarios while state agencies gain a greater role in planning and response.

In a Houston signing ceremony, Abbott called the legislation “a sign of Texas' commitment to improving the way we respond to natural disasters."

The centerpiece legislation, Senate Bill 7, authorizes two funds that would receive $1.6 billion from the state’s rainy day fund to mitigate flooding. The Texas Infrastructure Resilience Fund (TIRF) is designed to match funding from cities, counties and districts for flood-control projects. The Flood Infrastructure Fund (FIF) will finance statewide infrastructure protection against future flooding.

SB7 is funded through appropriations under Senate Bill 500.

The original SB 7 would have provided more than $3 billion from the state's rainy day fund, but the amount was reduced through final negotiations over budget proposals.

House Joint Resolution 4, by state Sen. Brandon Creighton, R-Conroe, and sponsored in the House by state Rep. Dade Phelan, R-Beaumont, calls for voter approval of the measure in November.

The TIRF would consist of four accounts. The Federal Matching Account would add state money to local governments seeking partial federal funding for projects. The Hurricane Harvey Account would supplement federal dollars for flood projects related to the 2017 storm.

Phelan called the legislation “critical for creating a more resilient Texas,” amid rapid population growth.

Abbott also signed House Bill 5, which requires the Texas Division of Emergency Management to develop a catastrophic debris disposal plan and establishes a work group to make recommendations on how local governments and property owners’ associations can aid recovery efforts.

House Bill 7 requires the governor’s office to develop a list of waivers that could be used after a disaster, and requires TDEM to develop a plan to help local communities with disaster preparation contracts for services.

Senate Bill 6 requires TDEM to develop a disaster response model guide and a wet debris study group for local communities. SB 6 also creates a disaster recovery loan program within TDEM for communities that suffered significant infrastructure damage.

Abbott said the combined laws "are rebuilding Texas in ways that will be far better than before Hurricane Harvey struck."

According to the 2019 State Flood Assessment, at least 2.8 million people, or 11% of Texas’ population, are exposed to high or moderate flood risk from rivers. The FIF is designed to provide grants and low-cost financing options for drainage and flood projects to communities that might not be able to afford it otherwise.

The 2019 Legislature put the Texas Water Development Board in charge of the state’s first state flood plan, which will be adopted in 2024. Previously, the TWDB, one of the state’s top issuers of general obligation and revenue bonds, only provided loans to local governments and utilities for water development and conservation projects.

The FIF will begin with a one-time, $793 million transfer from the Economic Stabilization Fund, also known as the Rainy Day Fund, if voters approve.


Analysts at Moody’s Investors Service called the legislation a positive credit factor for local governments that face severe weather risk.

In Southeast Texas, Hurricane Harvey caused $125 billion of damage, according to the National Oceanic and Atmospheric Administration, making it the second most costly hurricane in U.S. history behind the 2005 Katrina.

“Immediate recovery was swift, aided by state and federal aid as well as charitable donations, with few municipalities reporting a decrease in assessed property values as of Jan. 1, 2018,” Moody’s analyst Adebola Kushimo noted. “However, the area’s rebuilding will unfold over a longer period, and its ability to improve its defenses against future storms will require a significant amount of resources, with a focus on planning and infrastructure projects.”

Hurricanes account for over half of the estimated $1.7 trillion in U.S. economic losses from severe weather events recorded since 1980, according to Moody's.

"Negative channels of impact include the costs of repairing destroyed property, lost revenue, and a potentially weaker local operating environment," analysts said. "These factors can lower margins, pressure liquidity and lead to increased leverage for affected issuers."

Hurricane Katrina, the costliest hurricane on record, resulted in the downgrade of more than 30 issuers across multiple sectors in the year following the 2005 storm.

"However, beyond this particularly destructive event, hurricanes have had only a limited direct impact on the ratings of affected entities," Moody's wrote. Few local credits were downgraded in fast-growing Texas after Harvey.

In August 2018, Harris County, seated in Houston, won voter approval of $2.5 billion of flood bond authority. The special election was held one year after Harvey made landfall in Texas. County leaders wanted the bond authority in place to attract matching federal funds when they became available.

In June, the U.S. House of Representatives passed a $19.1 billion disaster relief bill that provided $4 billion in relief aid for Texas.

Houston Mayor Sylvester Turner called the federal funds and the state financial assistance "another important step" in Houston's long-term recovery.

"We knew if we were going to recover, we needed to have more resources, in this case the state’s rainy day fund," Turner said.

Kushimo said that the city’s ability to protect existing property and future investments, coupled with strong economic performance, will be key to maintaining its credit profile.

“While regionally important, Houston’s economy is also critical to the state’s performance because the region's economic output accounts for almost 25% of the state’s GDP,” she said. “The ability of the city’s economy to continue its strong growth trajectory will drive assessed valuations (currently more than $231 billion) and resulting property tax revenue, the city's largest source of operating revenue and debt repayment.”

In a separate report, Moody’s assessed the risk to densely populated areas of the U.S. with the onset of the six-month hurricane season on June 1.

“While federal disaster assistance shields states from the bulk of cleanup and reconstruction costs, they face unanticipated costs to meet federal spending matching requirements, undertake supplemental recovery and mitigation projects, and assist local governments where necessary,” the team of analysts led by Marcie Van Wagner wrote. “Many states' exposure to negative credit effects from hurricanes is increasing as larger portions of their economies are concentrated in counties at risk of flood damage.”

Louisiana’s economic concentration on the coast declined due to population loss in New Orleans after Hurricane Katrina in 2005, analysts said of the state it rates Aa3.

By contrast, the triple-A states of Florida and Texas “have seen robust economic growth overall but especially in inland counties, reducing the relative share of coastal cities Miami and Houston.”

While Louisiana issued general obligation debt to help its local governments after hurricanes Katrina and Rita, analysts said New Orleans, 348 miles east of Houston, has still not fully recovered its lost population.

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Flood control bonds State budgets Hurricane Harvey Texas Water Development Board Texas
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