Impacts of hurricanes Helene, Milton linger in Southeast

The recovery of Florida, North Carolina, and Tennessee local governments and utilities from hurricanes Helene and Milton continues but the outlook for next season and beyond is troubling.

Many localities and public utilities are emerging from the storms’ aftermaths financially hit but stable, but a few are struggling, notably Asheville, the largest North Carolina city walloped by Helene in September.

S&P Global Ratings said Jan. 23 that it resolved 14 negative CreditWatch statuses stemming from September’s Hurricane Helene with eight of the issuers getting affirmed ratings with stable outlooks, five getting negative outlooks, one utility downgraded and the Asheville water utility remaining on CreditWatch negative.

S&P assigned negative outlooks to Asheville’s AAA general obligation rating, the AAA rating of Buncombe County, North Carolina, of which Asheville is the seat, and Unicoi County, Tennessee’s AA-minus general obligation bond rating.

The negative outlooks broadly reflect “our view of the economic pressure these entities might face in the aftermath of the storm, which could impair revenue generation and weaken our view of their finances,” S&P said.

The agency was more negative about the four utilities it had on negative watch.

It affirmed Erwin Utilities Authority, Tennessee, water and sewer bonds at A but assigned a negative outlook, while downgrading the Erwin utility’s electric system revenue bonds to A-minus rating from A and assigning a negative outlook.

“The downgrade and outlook for EUA’s electric system revenue bonds reflects the utility’s recent weak financial performance coupled with projections of further declining financial metrics, along with uncertainties as to whether industrial customers will relaunch their storm-damaged business operations once electric service is restored,” S&P said.

It assigned a negative outlook to Greeneville, Tennessee, water and sewer utility bonds.

Finally, S&P kept the CreditWatch negative on Asheville’s AA-plus-rated water revenue bonds.

That “reflects a one-in-two chance that we could lower the rating over the next three-to-six months, depending on the outcome of the city’s fiscal 2026 budget process and clarity regarding the city council’s near-term rate plans for the water system.”

Moody’s Ratings this month resolved negative watches on Asheville’s Aa1 water enterprise bonds by confirming the rating.

“The confirmation of the system’s rating reflects the rapid restoration of system operations following severe damage to its largest water treatment plant and reservoir,” it said of the water bonds.

Moody’s affirmed the city’s Aaa issuer rating in October.

Asheville had 95,000 people in 2023 and is the largest city in western North Carolina, which Hurricane Helene hit hard after making landfall on Florida’s Gulf Coast.

Moody’s said this fall it expects Florida to issue more bonds, after Helene and October’s Milton to replenish the Florida Hurricane Catastrophe Fund that backstops residential property.

Ben Watkins, director of the Florida Division of Bond Finance, told The Bond Buyer Tuesday bonds weren’t going to be sold imminently. The state plans to publish an update on the insurance market and the three Florida insurance entities soon, he said.

Joseph Krist, publisher of Muni Credit News, said he expected “more pressure” on states with catastrophe bond programs to “cover more property the private [insurance] industry won’t touch.”

The federal government has approved substantial amounts of Federal Emergency Management Agency assistance for Florida’s hurricane recovery, he said. Nearly $900 million in National Flood Insurance Program disbursement have been made, he added.

For the immediate future, President Trump’s suggestion he might eliminate FEMA and put each state in charge of its own disaster relief is the biggest concern, Krist said. “FEMA has many weaknesses but without it, my guess is that recovery would be a much more difficult undertaking.”

Scientists say climate change will bring stronger and more frequent hurricanes to the Southeast. Human-caused climate change made Atlantic Ocean hurricanes about 18 miles per hour stronger in the last six years, said a study in the journal Environmental Research: Climate released in November.

In coming years, the short-term aftermaths of severe storms hitting the Southeast may affect sales and hotel taxes, said Karen Daly, head of Kroll Bond Rating Agency public finance ratings group.

Property tax and water and sewer collections could also see disruptions, she said. “Over the medium term, property tax valuations would reflect the extent of damage experienced to real property,” Daly said.

In the aftermath of storms, some government and public utility expenditures won’t be reimbursed by FEMA and will need to be borne by them or incorporated into revised capital plans, Daly added.

“More frequent damage and economic interruption from weather events could have negative implications for population migrations, property values and tax revenues,” said Howard Cure, director of municipal bond research at Evercore Wealth Management.

After extreme weather events, local governments confront needs to finance recovery and rebuilding activities and sometimes issue new debt for capital expenses, said Amy Bailey, director of climate resilience and sustainability at the Center for Climate and Energy Solutions.

Depending on whether the particular government has “enough insurance or reserve funds to maintain fiscal health, it could see impacts to its creditworthiness, resulting in costlier borrowing when incoming revenues are at their tightest,” she said.

Daly said for areas prone to inland flooding, KBRA “will continue to consider preparedness and resiliency.”

Small communities have the most fiscal exposure to hurricanes, Krist said. “If the damage is extensive, a loss of one or two commercial centers or most of the residential base would be crippling. The island communities off Sarasota and Fort Myers (Florida) are good examples of that vulnerability.”

Meanwhile, inability to gain insurance, gain good insurance coverage, or affordable property and flood insurance are affecting the entire Southeast region. In some states these are affecting property values and the economy and analysts are concerned about the future.

Increased storm activity will “continue to put stress on the homeowners and flood insurance markets of the Southeast,” Daly said. “Insurance companies must contend with the compound effects of inflation, higher home prices and rising reinsurance expenses as they reprice policies and adjust terms. Availability and affordability challenges could have knock on economic effects in affected areas which could generate additional pressure for municipalities.”

Krist said Florida has “been at the forefront of the insurance squeeze.” It had by far the greatest number of counties with rate increases between 80% and 100% from 2020 to 2023. North Carolina’s increases have been less but the recent experience with Helene will change that, he said.

Florida and North Carolina along with California had the highest levels of non-renewal rates on property insurance policies in the country in 2023, according to research published by the U.S. Senate Budget Committee in December. “What our new data reveal is that the failure to deal with climate change is also affecting whether families can even get homeowners insurance, which threatens their ability to get a mortgage, which spells trouble for property values in climate-exposed communities across the country,” said Sen. Sheldon Whitehouse, D-R.I., the committee’s chair at the time.

The recent Los Angeles fires may lead to higher insurance rates in the Southeast, said Peter Giacone, head of the KBRA insurance rating group. However, because state agencies regulate rates, “to compensate for losses in one state, insurers can’t raise rates in other states.”

However, in California for two years the insurance commissioner wasn’t approving rate increases. Many insurers responded by stopping issuing new policies and non-renewing existing ones. This made it difficult for many property owners to get insurance and many were left without coverage.

“In the aftermath of the fires, these property owners have lost their homes and don’t have insurance to help them rebuild,” Giacone said. Some may rely on FEMA money but this will take time and has caps.

“Regulators in the Southeast have observed this and will need to consider how to adapt their policies to allow rates to increase in line with risk, as to avoid a similar situation,” Giacone said.

Florida is an example of a state that has been allowing its insurers to charge more and has recently benefited from a growth in insurers offering insurance, thereby providing more options for homeowners and businesses to obtain the insurance coverage they need, Giacone said.

Cure said Florida’s government had made changes to discourage lawsuits against insurers. “We will see if this legislation will end up lowering insurance premiums for Florida residents,” he said.