California wildfire disaster could bring local fiscal pain for years


Years of drought conditions in the state have left dry brush and dead trees that have helped fuel the fires. The drought ended in most areas of the state this year after heavy rains in the winter and spring, but that also produced abundant grass adding to the fire risk.

Timber production is significant in some of the wildfire areas, particularly Mendocino County. And some of that wood could end up going to rebuild homes lost to the fires.

“While we anticipate rebuilding to take place within two to four years, supplies of workers and other resources can affect rebuilding, as resources can become scarce given the magnitude of the fires and other recent natural disasters,” said S&P.

Despite short-term challenges in the rebuilding process, there could be positive impacts longer term on property tax revenues for impacted communities. California cities and counties rely on property taxes for revenue as well as sales and other taxes.

Historically, major fires in the state have had a favorable impact on assessed value trends since rebuilt parcels end up having “equal or higher value than the structures lost,” according to S&P.

Meantime, the ratings firm said it is “currently identifying issuers with the highest risk of immediate credit deterioration, which primarily include those that have relatively low liquidity or a weaker financial position, or those where the fire has had an acute impact on the ability to collect revenues. We are also examining past fire and disaster scenarios to estimate the disasters’ long-term economic effect.”

It singled out the city of Santa Rosa, saying it is “one of the most damaged cities within the active fire area; it has lost thousands of homes, several commercial properties, and two hotels.”

Finally, the ratings agency didn’t provide an estimate on the economic damages statewide from the current California fires but pointed out the 1991 Oakland fire produced damages as high as $3.4 billion, based on 2017 dollars. The Oakland fire destroyed more than 3,000 structures and also caused at least 25 fatalities.

“Given the current damage and low levels of containment, we expect the current fires to exact at least similar levels of economic damage, and likely significantly more,” S&P said.

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