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ESG U.S. Public Finance Report Card: Texas Governments And Not-For-Profit Enterprises


U.S. Local Governments Credit Brief: California Counties And Municipalities


Pension Obligation Bond Issuances Continue To Increase In 2021


U.S. Not-For-Profit Health Care Rating Actions: September 2021 And Third-Quarter 2021


COVID-19 Impact: Key Takeaways From Our Articles

ESG U.S. Public Finance Report Card: Texas Governments And Not-For-Profit Enterprises

In this report, we analyze the environmental, social, and governance (ESG) credit factors for select U.S. public finance (USPF) government and not-for-profit enterprise issuers in Texas. Our ESG report cards explore the relative exposures of USPF issuers to ESG credit factors, including how and why they may have a more positive or negative influence on an entity's credit quality compared to sector peers. These comparative views of ESG credit factors are qualitative and established by analysts during analytic discussions and described in issuer-level credit reports, with the goal of providing more insight and transparency. Select ESG paragraphs from Texas issuer-level research are reproduced in the Appendix.


ESG In Credit Ratings

ESG risks and opportunities can affect an entity's capacity to meet its financial commitments, including debt service. S&P Global Ratings incorporates ESG considerations into its ratings methodologies and analytics, which enables analysts to integrate the qualitative and quantitative impacts throughout our credit analysis. Chart 1 shows an example of how we incorporate the most prevalent ESG risks and opportunities into our criteria frameworks. Strong ESG credentials do not necessarily indicate strong creditworthiness (see "Through the ESG Lens 2.0: A Deeper Dive into U.S. Public Finance Credit Factors," published April 28, 2020, and "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," published Sept. 12, 2019, both on RatingsDirect).

Chart 1


(from "Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020," published April 28, 2020, on RatingsDirect)

Environmental - Elevated

At roughly 267,000 square miles, larger than all Western European countries, Texas' environmental risks vary across is vast geography. Along its Gulf coastline, communities have a long history of severe and costly tropical storms and hurricanes. As reported by the National Oceanic and Atmospheric Administration's National Centers for Environmental Information (NCEI), three of top 10 most damaging tropical cyclones in the last 20 years hit Texas. Harvey (2017) with damage estimated at $136.3 billion (inflation adjusted) ranks second only to Katrina ($176.3 billion); Ike (2008) caused $38.4 billion in damage (ranked seventh); and Rita ($26.1 billion), ranks tenth among named storms. NCEI also reports Texas leads the nation in most billion dollar disasters at 124 since 1980.

Table 1

Top 20 Costliest Tropical Cyclones (Since 1960)
(2021 CPI adjusted costs)
Tropical cyclone Damage (mil. $)
Katrina (2005) 176,300
Harvey (TX, LA, 2017) 136,300
Maria (2017) 98,100
Sandy (2012) 77,400
Irma (2017) 54,500
Andrew (1992) 52,700
Ike (TX, LA, 2008) 38,400
Ivan (2004) 29,700
Wilma (2005) 26,800
Rita (SW LA, N TX, 2005) 26,100
Florence (2018) 25,700
Charley (2004) 23,200
Hugo (1989) 20,000
Laura (LA, SE TX, 2020) 19,700
Irene (2011) 16,500
Frances (2004) 14,200
Agnes (1972) 13,600
Allison (N TX, 2011) 13,100
Betsy (1965) 12,100
Matthew (2016) 11,400
Names of hurricanes that affected Texas are in bold. Source: National Oceanic and Atmospheric Administration’s National Centers for Environmental Information, July 2021.

Hurricanes, flooding, and extreme weather.  The assessment of severe weather events within our credit rating analysis reflects the relative magnitude and persistence of events that interrupt economic activities or damage assets that support the willingness and ability to repay debt obligations. (See "Extreme Weather Events: How We Evaluate The Credit Impacts In U.S. Public Finance," published Nov. 2, 2020.) Severe weather events and protracted extreme temperatures (hot or cold) can lead to chronic ancillary outcomes that damage infrastructure and cause disruption to power supply. Such events could also result in modifications to building codes that aim to harden assets against future events. These operational outcomes may dictate different remediation and recovery efforts that flow through to higher insurance premiums and increases in property tax rates or utility costs.

The effects of severe storms or extreme temperature conditions can also extend well beyond the monetary costs. For example, in addition to the near $1 billion in damage to traditional public and charter school facilities, the Texas Education Agency (TEA) reported that Harvey displaced over 110,000 students, even if just temporarily. Of the state's 20 regional education service centers, the largest--region four--is along the coast and headquartered in Houston, serving over 1.2 million students or nearly 23% of the state's total. In the last decade, region four enrollment growth has been 11.5%, according to TEA. To the extent that more frequent and severe weather events hit the coast, particularly at or near major population hubs, the costs to recover and remediate may escalate and present additional risks for public schools, their students, and the state.

Furthermore, charter school operations are largely dependent on state funding revenue sources, but they receive less per-pupil state funding than traditional public schools and lack the ability to levy property taxes. As a result, Texas charter schools along the Gulf coast could be challenged with enrollment declines and revenue weakness should hurricanes and flooding result in permanent student displacement or property damage. Partly mitigating the costs associated with physical risks is maintenance of weather-related insurance, which covers potential flood-related facility damages.

Chart 2


Chart 3


With its extremely cold temperatures, a severe winter event slammed much of the state for an atypical amount of time in 2021, resulting in various credit actions. In fact, it had been a decade since the state experienced such a far-reaching winter storm and this one proved it was far more consequential for the utilities sector. (See "Winter Storm In Texas Will Continue To Be Felt In Utilities' Credit Profiles," published March 15, 2021.) While the state recently addressed some of the issues arising following the storm through its policy and regulatory framework during the 2021 legislative session, we will continue monitoring whether these policy measures sufficiently mitigate future collective electricity generation failures, including infrastructure preparedness and administrative concerns.

Longer term, the evolution of resiliency efforts from responsive to preventative by the state, local governments, and not-for-profit enterprises will be a key consideration within our credit rating analysis for entities in Texas. Furthermore, we anticipate regional solutions will emerge with oversight supported by state efforts.

Drought.  Besides the state's severe tropical storms and flooding, it is also susceptible to varying periods of drought. As reported by the U.S. Drought Monitor (USDM), the most recent prolonged period of drought lasted from early May 2010 through early July 2015, with the state in the "moderate drought" (D1) to "exceptional drought" (D4) categories. During the week of Oct. 4, 2011, roughly 88% of the state was experiencing "exceptional drought," according to USDM data.

Drought may affect entities differently and the scope can stress operating environments of governments, schools, utilities, transportation infrastructure assets (e.g., airport runways and toll roads), and businesses alike. (See "Could The Western U.S. Drought Threaten Municipal Credit Stability?" published Aug. 18, 2021.) Furthermore, drought can exacerbate wildfire risks, particularly where arid conditions already permeate certain regions (see Chart 2).

Climate transition risk.  Texas' outsized energy sector, relative to its peers, can generate economic volatility (as shown in Chart 4), but also creates elevated transition risk for the state, as noted earlier. This risk largely stems from the economic activity generated by the oil and gas sector, including for property taxes, jobs, and excise taxes that have largely bolstered the state's substantial rainy day and state highway transportation funds. In January 2021, S&P Global Ratings revised its industry risk assessment for corporate and infrastructure ratings for the oil and gas exploration and production and integrated industry sector to moderately high from intermediate. This change reflected the increased environmental threat posed by greenhouse gas (GHG) emissions, evolving government policies and emission standards, and the rising share of renewables, supported by their cost-competitiveness. (See "ESG-Driven Industry Risk Assessments Update For Corporate And Infrastructure Ratings," published Jan. 27, 2021.)

Chart 4


In our view, the shift to renewable and sustainable forms of energy production will accelerate as the focus on net-zero carbon initiatives continues. Indeed, much of the country depends on and benefits from Texas' energy output, which fuels the broad economic output from various industries, including transportation, textiles, semiconductors, pharmaceuticals, and heating feedstock, among others. However, as the energy transition makes progress in the U.S., we view the state's leadership in renewable energy production and distribution as an avenue to provide economic opportunities in the developing green economy. For example, to expand the state's wind generation potential, Texas statutorily created the Competitive Renewable Energy Zones (CREZs) with the goal of effectively moving electricity from windy rural West Texas to consumption hubs near metro areas. Legislatively authorized in 2005, CREZ distribution lines could accommodate an estimated potential of 18,500 megawatts (MW) of wind generation across 3,600 circuit miles, according to the Texas Public Utility Commission. As reported by the U.S. Department of Energy, "Land-Based Wind Market Report: 2021 Edition," Texas installed capacity at roughly 32,686 MW in 2020, exceeded all but four countries--China, U.S. (with Texas), Germany, and India. Though wind still accounts for less than one-quarter (23%) of the state's fuel mix within ERCOT, the independent system operator covering roughly 90% of the state's electrical load, it continues gaining against natural gas (46%) and coal (18%).

Natural capital.  Counties in Texas face the greatest change in water stress over the next 30 years, posing a challenge for economic development and municipal infrastructure as discussed in our article "Better Data Can Highlight Climate Exposure: Focus on U.S. Public Finance," published Aug. 24, 2020. However, the state has been a national leader in water policy dating back to at least 1917 with the Conservation Amendment to its constitution, which provided a framework for effective management and development of its natural resources, including its water supply. We believe these planning initiatives may help rated entities in Texas maintain credit rating stability despite water stress concerns. For example, the Texas Water Development Board (established by constitutional amendment in 1957) is responsible for the implementation of the state's water plan and has provided nearly $32 billion in funding since its inception through various water infrastructure programs. In addition, local government entities like the El Paso Public Service Board (El Paso Water Utilities) are also national leaders in water conservation, evidenced by holding total annual water consumption nearly flat since 1990, even as the population increased by nearly 50% (see our "El Paso, Texas" Water Utilities-Public Service Board summary analysis, published March 4, 2021). In our view, the state and local efforts have helped mitigate, though not eliminate, the risks associated with water scarcity, but may serve as best practices in the U.S.

Chart 5


Social - Neutral

Social capital.  The state's demographic trends, outpacing the U.S. over the past decade, are a social opportunity in part given Texas' population growth that generates economic activity; consistent enrollment growth for public schools, colleges, and universities and stable state appropriations for higher education institutions; and supports demand activity for transportation infrastructure assets across the state. In the last year alone, the state added roughly 1,000 new residents per day. As reported by the U.S. Census Bureau, since 2010, Texas led the nation, adding roughly four million new residents, a 16% bump in a decade. Among the top 15 growing counties (numeric growth) in the country, eight were in Texas (see table 2).

Table 2

Top 15 U.S. Growing Counties (2010-2020)
2010 2020 10-year growth 10-year growth (%)
Maricopa County, AZ 3,831,041 4,587,882 756,841 20
Harris County, TX 4,117,135 4,743,967 626,831 15
Clark County, NV 1,954,108 2,319,467 365,358 19
King County, WA 1,942,549 2,276,329 333,780 17
Tarrant County, TX 1,820,834 2,125,879 305,044 17
Bexar County, TX 1,726,886 2,029,920 303,034 18
Riverside County, CA 2,204,367 2,491,195 286,828 13
Collin County, TX 789,803 1,073,953 284,149 36
Travis County, TX 1,034,782 1,305,038 270,256 26
Hillsborough County, FL 1,235,102 1,499,873 264,771 21
Dallas County, TX 2,379,590 2,640,520 260,930 11
Orange County, FL 1,151,736 1,405,800 254,065 22
Denton County, TX 668,614 920,939 252,326 38
Fort Bend County, TX 591,614 840,719 249,105 42
Sources: IHS Markit, U.S. Census Bureau.

While population growth alone does not lead to economic prosperity, it's a supportive ingredient to sustain economic output and productivity. Although positive demographic trends can result in greater service demands, particularly for education, the costs are somewhat offset by economic development opportunities as evidenced by Texas' growth in state domestic product and employment, both of which consistently exceed the national level.

Chart 6


On the other hand, social capital risks for public schools, public utilities, and not-for-profit health care providers stem from their ability to absorb and effectively manage growth while maintaining budgetary balance. For charter schools, which rely primarily on per-pupil funding rather than property taxes, a key aspect of our credit rating analysis is management's ability to balance enrollment growth with facility expansion and operational expenditures. Whereas for public school districts that have the capacity to raise property taxes that generally account for half of a resident's total property tax bill, practical political limits may exist as overlapping taxing entities also issue debt to accommodate growth requirements, resulting in a fairly steep tax burden for homeowners. Even when rates do not change, rapidly appreciating property values result in the same outcome for taxpayers: higher tax bills that ultimately may squeeze affordability for state residents.

Growing property taxes, particularly resulting from property value appreciation, together with the state's higher dependent population, may raise social capital risks relative to utility bill affordability that could lead to revenue-raising constraints for public power utilities required to invest in infrastructure to transition to renewable energy sources. In addition, those utilities may need to fund deferred maintenance while keeping pace with increased consumption costs stemming from population growth. Furthermore, the American Water Works Association states that utility bill affordability is linked to home affordability. While Texas remains below the U.S. in terms of this metric, as home prices evolve, credit rating profiles for public utilities may be challenged, particularly absent payment assistance programs that support vulnerable populations.

Finally, for not-for-profit health care providers, the social capital risk leans more toward the challenges of serving the state's comparatively large uninsured population. To the extent that the payer mix in certain regions of the state is largely Medicaid or uncompensated care, operating margins may be weaker than if commercial insurance or if the state's various supplemental programs do not make up the difference. (See "Not-For-Profit Acute Health Care State Snapshot: Texas," published May 26, 2021.)

Governance - Neutral

We view Texas' governance as neutral within our credit rating analysis given its history of maintaining a strong management and policy framework to respond to developing risks, including a well-established record of identifying and executing on policy initiatives to address emerging risks. These are governance attributes we believe management teams for highly rated states typically exhibit. (See "The Top 10 Management Characteristics of Highly Rated State And Local Borrowers: Through the ESG Lens," published June 29, 2021.)

Risk management, culture, and oversight.  Previously, we viewed the state's poor funding discipline associated with its largest pension plans, the Employee Retirement System of Texas (TRS) and the Teachers Retirement System of Texas (ERS), as a risk management credit concern. However, as outlined in our "Pension Spotlight: Texas," published Feb. 25, 2020, the legislature implemented meaningful changes to limit TRS liability growth through phased increases in contribution rates. Furthermore, following the 2021 legislative session, the state enacted legislation requiring actuarially determined contributions necessary to amortize ERS' unfunded accrued liability by Aug. 31, 2054 (30 years) while maintaining the state's standing 9.5% statutory contribution. Additionally, employees hired after Sept. 1, 2022 are required to participate in a defined-benefit structure akin to a 401(k) plan known as a "cash balance plan." In our view, these actions provide a path to curb ERS' growing liability and eventually result in stronger funding discipline and actuarial soundness.

However, with respect to electric cooperatives and municipally owned utilities that participate in the ERCOT market, we believe certain entities continue facing inherent challenges to respond to market disruptions. In our view, ERCOT's market design creates the potential for power price volatility related to scarcity pricing for real-time and day-ahead market purchases, insufficient incentive to add reserve capacity to meet demand surges, and a lack of interconnectivity to neighboring states' power grids. In our view, recently enacted governance reforms for ERCOT are insufficient to completely eliminate these risks. However, these risks are not shared equally among market participants. Due in part to their comparatively smaller and singular footprint within the state, certain municipally owned utilities and cooperatives may not have the substantial financial resources that some investor-owned utilities may have to manage around market risks.


Table 3

Texas ESG Risks And Opportunities -- Selected Paragraphs From The Most Recently Published Issuer-Level Reports
Obligor Sector Rating/Outlook ESG paragraph
El Paso Water Utilities Water/Sewer Utility AA+/Stable Our ratings incorporate our view of the health and safety risks due to the COVID-19 pandemic. The utility has had customer assistance bill pay programs for years, such as payment programs, and has doubled down on its outreach and efforts to work with those of its customers that are delinquent, even as it lifted the moratorium on disconnections in February 2021. Absent the implications of COVID-19, we consider the utility's social risk when compared with peers as heightened, based on its weaker economic indicators, which carry outsize weight on management's rate-setting decision-making. While we also note that environmental risks are elevated, given the desert climate and general water stress, we also note that El Paso Water has for decades had among the best in class water conservation programs that have held total annual water consumption nearly flat since 1990, even as the population has increased by nearly 50%, and has consistently kept nonrevenue water at or below 10%. We view governance as in line with our view of the sector because of strong management planning and practices. This is reflected in management's focus on long-term water resource management and adoption of a drought management plan. With a forward-looking water supply and asset management plan, management feels it has adequate supply and treatment capacity to meet the city's near-term needs.
City of Denton Combined Utility A+/Negative February's severe winter event has brought into sharper focus a spectrum of ESG-related risks that may inform our credit analyses and ratings over the longer term. In our view, the specter of climate change may weigh more heavily as a credit risk factor for Texas utilities. In particular, we expect to consider the adequacy of management's counterbalancing measures to plan for, mitigate, or adapt to risks associated with extreme weather conditions that have the potential to disrupt power generation and transmission, as well as gas supply. Among these considerations are exposures under hedging arrangements, plans relating to power plant weatherization and gas line redundancy, and capital and liquidity sufficiency. The combined utility has taken steps in recent years to reduce its carbon footprint and meet potential greenhouse gas emission regulations, given that its power supply centers on renewables and natural-gas-fired peaking generation and has shifted away from coal. In February 2018, the city council adopted the Denton Renewable Resource Plan, which set a goal to have under contract 100% of the city's annual electricity from renewables by 2020. Assuming its intermittent assets perform, management reports that close to 100% of energy consumed each year will be renewable energy. We believe Denton's exposure to social factors could present elevated risk given below-average income indicators and above-average weighted average revenue per kilowatt-hour as a percentage of the state average for which Denton has used or will use reserves to manage affordability. In addition, almost half of its potential service territory, currently undeveloped, can be served by two other transmission/distribution utilities, with one offering retail choice. The city has not opted into customer choice so existing customers cannot switch. Overall, we have not seen competition manifest as a material credit risk to Denton. In our view, governance risk is heightened given that the environment in which Denton operates increasingly requires stronger liquidity, proactive planning, hedging, and financial flexibility, which come at a cost, versus utilities in other regions where these risks are lower.
State of Texas State Government AAA/Stable We consider Texas to have higher environmental risk compared to others in the U.S. states sector. Environmental risks are primarily two-fold: energy transition and physical risks stemming from severe weather events and sea-level rise. The state has a comparatively greater penetration of energy-related activities from the oil and gas sector, which could lead to increasing regulatory challenges or costs as some sectors of the global economy focus on reducing greenhouse gas emissions through renewable energy. In addition, Texas' location along the U.S. Gulf Coast exposes it to rising sea levels and climate-related events like hurricanes. While infrequent today, winter storms similar to the type in February could add credit pressure should the state overlook inclusion of adaptation and mitigation initiatives in its long-term planning activities. In addition, we view extreme heat, particularly in the more arid portions of the state, as potentially adding stress to the state's environmental risks. We note that the state's demographic trends contribute to lower social risk given that population growth over the past decade has well exceeded the national level, which we view favorably as it can provide for greater economic development potential relative to its peers. We view Texas' governance risks as being in line with the sector, given its history of maintaining a strong management and policy framework to respond to developing risks. Longer term, the state's capacity to evolve its resiliency efforts from responsive to preventative will be a key credit consideration.
Karnes County Independent School District Public School District AA-/Stable We believe that the local economy's heavy dependence on oil and gas production exposes the district to outsized environmental risks relative to its peer group, insofar as factors such as future changes in federal regulations pertaining to carbon emissions and the transition to renewable energy could adversely affect the oil and gas industry, which could in turn pressure the local economy and revenue performance. While we view governance risks as consistent with that of the sector as a whole, we believe the district is mitigating its elevated environmental risks by maintaining very strong reserves and rapid repayment of debt from excess tax collections. Social risks, including health and safety risks associated with the COVID-19 pandemic, are in line with the sector.
Woodlands Township Local Government AA+/Stable We have analyzed ESG risks relative to Woodlands' economy, management, financial measures, and debt-and-liability profile. We think the township faces somewhat elevated environmental risk due to the potential for flooding during hurricanes that originate in the Gulf of Mexico. We think very strong reserves could help mitigate immediate damage or disruption following a storm until Woodlands receives federal aid. We consider social and governance risks in-line with our view of the sector standard.
Frisco Independent School District Public School District AA+/Stable We analyzed the district's ESG risks relative to its economy, budgetary outcomes, management, and debt and long-term liability profile. We view the district's strong population growth over the past 20 years as a social opportunity, as it provides underlying economic strength to drive employment opportunities when compared with areas of the country experiencing population stagnation or loss. Overall, we consider the district's environmental and governance risks relative to its credit factors in line with our view of the sector standard.
University of Houston Higher Education AA/Stable In our view, UHS like other higher education institutions, faces elevated social risk due to the uncertainty of the duration of the COVID-19 pandemic. Due to the pandemic, UHS' management team moved to implement remote learning in spring 2020 and is currently operating under a hybrid learning environment for the academic year to protect the health and safety of its students, faculty, and staff, and limit social risk associated with the community spread of COVID-19. We view the risks posed by COVID-19 to public health and safety as a social risk under our ESG factors. Despite this risk, we acknowledge that UHS benefits from favorable demographic trends including a growing population with its location in the State of Texas, which we believe is a social opportunity when compared with many other institutions, supporting its market position over the long term. We believe UHS' location near the Gulf Coast, with potential for rising sea levels and severe weather events that could damage facilities, elevates the system's environmental risks above those without this exposure. The university carries property insurance coverage for tropical weather events and is self-insured for environmental liability exposure. Despite the elevated social and environmental risks, we believe governance risk is in line with our view of the sector as a whole, as the system has historically maintained healthy management and governance controls.
Dallas County Hospital District (Parkland Health and Hospital System) Not-for-profit Healthcare AA-/Positive We consider Parkland's social risk to be higher than the sector as a whole given its relatively elevated Medicaid exposure, although its payer mix is more typical when compared with other safety net providers. In addition, the core mission of health care facilities is to protect the health and safety of communities, which is further evidenced by responsibilities to serve surges in COVID-19 patients while also maintaining clinical capacity for other emergent cases. We believe this exposes the district and its peers to additional social risks, although we acknowledge the system has weathered this pressure, including the recent rise in delta variant hospitalizations, quite well to date. We also analyzed the district's environmental and governance risks and determined that they are in line with our view of the sector standard, although we note the system was affected by the unprecedented winter storm event in February 2021. In addition, the district is governed by a board of managers, the members of which are appointed by the Dallas County Commissioners Court; we do not view this as an additional governance risk.
City of Dallas Water/Sewer Utility AAA/Stable In addition to enhancing the long-term water supply with the joint project with TRWD, Dallas has proactively engaged in preserving its existing supplies by way of aggressive water-conservation measures--most recently revised in 2019--including public education and a number of supporting ordinances and practices aimed primarily at curbing outdoor watering. Based on consumption use patterns in 2001 across all customer classes, DWU management estimates that the water-conservation measures have extended the life of existing reservoirs by two-three years, as well as reducing per capita per day consumption by 30% even as the population has increased by 10%. The city reports no regulatory mandates or environmental enforcement actions among its well-prioritized CIP. Because of the complexity--and massive capital investments--required for bringing a new reservoir into commercial operations, we view this as comparably strong environmental stewardship relative to that of 'AAA' peers. The city is also sensitive to affordability concerns, even as city council has a long history of as-necessary rate adjustments; we understand that a low single-digit adjustment could be proposed for consideration for fiscal 2022. As a health and safety measure, a suspension of shutoffs and disconnections that began in March 2020 remains in place. DWU does not have a formal bill-pay-customer-assistance program, but it does have payment plans and other ancillary services such as in-home leak detection and free repairs of certain fixtures to qualified customers to help them reduce water use and, therefore, lower their monthly bill. Dallas did receive some federal assistance from the December 2020 stimulus package related to rental and bill pay assistance. Dallas will also receive $377 million from the federal American Rescue Plan Act, although it is not yet fully defined as to if DWU will benefit from the first tranche as initial indications reflect rental and housing assistance as priorities. Similarly, neither timing nor eligibility for federal low-income-household water assistance has been fully defined by the federal government, but it could eventually be another source of assistance for qualifying DWU customers. It is our view that the good overall governance, in which immediate- and long-term operational needs are aligned with intended financial resources, also lend to our stable outlook. The city has for years used its financial management performance criteria (FMPC) to establish required financial metrics for all of its major operating funds, including DWU. The FMPC speaks to desired DSC, minimum required reserves, and other guidelines that we typically observe in our Financial Management Assessment that we would characterize as strong.
IDEA Public School Charter School A-/Watch Negative The CreditWatch placement follows IDEA Public Schools disclosing the termination of two top executives after a materially adverse finding from an independent financial audit initiated by the IDEA school board, covering 2015 through 2019 revealed significant employee misconduct. The CreditWatch reflects our view of elevated governance risk under our environmental, social, and governance (ESG) factors, stemming from inadequate risk management and internal controls. Furthermore, we believe the finding offsets our highly favorable view of management conveyed in previous reports.
New Hope Culture Education Finance Corp. Housing BB-/Negative We have analyzed the project's environmental, social, and governance (ESG) risks relative to its coverage and liquidity, management and governance, and market position. Our rating action incorporates our view regarding the health and safety risks posed by the COVID-19 pandemic, which have affected all affordable housing developments. Specifically, the risk of increasing expenses and decreases in rental revenue related to the social risks of the pandemic have been evaluated in our rating. We view the obligor's governance risk to be higher than average compared with the sector, based on its history of bond payment defaults on two other transactions, which leaves the projects vulnerable to operational volatility. Environmental risks are in line with that of the sector, as there are no elevated environmental threats present in the area in which the project is located.
City of Austin Local Government AAA/Stable We have assessed the city's environmental and social risks relative to the economy, financial management, fiscal performance, and debt and liability profile, and determined that they are in line with our view of the sector standard. We view the city as having an elevated long-term governance risk associated with high pension and OPEB expenditures and large unfunded liabilities because we think costs will likely increase over time and the city has a history of funding the plans below actuarial determined rates.
Harlandale Independent School District Public School District A/Negative We analyzed Harlandale ISD's environmental and social risks relative to the district's economy, management, budgetary outcomes, and debt and liability profile and determined that they are in line with the sector standard. Although we have revised our outlook to stable, we still consider the district's governance risk factors higher than the sector standard due to the continuation of the conservator and lack of strong oversight in the past. However, we believe the district is making strong efforts to strengthen practices that will bring its governance risk back in line with the sector standard.

This report does not constitute a rating action.

Primary Credit Analysts:Oscar Padilla, Dallas + 1 (214) 871 1405;
Nora G Wittstruck, New York + (212) 438-8589;
Secondary Contacts:David N Bodek, New York + 1 (212) 438 7969;
Geoffrey E Buswick, Boston + 1 (617) 530 8311;
Suzie R Desai, Chicago + 1 (312) 233 7046;
Kurt E Forsgren, Boston + 1 (617) 530 8308;
Jenny Poree, San Francisco + 1 (415) 371 5044;
Jane H Ridley, Centennial + 1 (303) 721 4487;
Jessica L Wood, Chicago + 1 (312) 233 7004;
Marian Zucker, New York + 1 (212) 438 2150;

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