KBRA Releases Research – As U.S. Drought Conditions Persist, Municipalities Face Greater Credit Risk

KBRA releases research examining the relationship between drought conditions and municipal credit risk in the U.S., the cost of these types of natural disasters, and the potential implications for state and local government credit quality.

Prolonged drought conditions in the U.S. have, to date, largely been addressed by municipal governments through the implementation of water conservation, efficiency, and recycling measures to preserve resources. However, as drought conditions in the West persist, there lies a fundamental risk that prospects for economic development and tax base appreciation in certain parts of the country may be negatively impacted.

Notably, some municipal issuers have applied innovative approaches like sourcing alternative water resources, recharging and replenishing groundwater aquifers with recycled water, and constructing a growing number of relatively costly municipal-owned desalination plants. Still, in KBRA’s opinion, the length and severity of extreme drought conditions—such as those being realized in the Southwest—has the potential to change future migration, development, and tax base appreciation patterns in the years to come.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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