"Drought is set to pose a greater risk to the $4 trillion municipal bond market than floods, hurricanes, and wildfires combined."
"The city of Clyde sits about two hours west of Fort Worth on the plains of north Texas. It gets its water from a lake by the same name a few miles away. Starting in 2022, scorching weather caused its levels to drop farther and farther. Within a year, officials had declared a water conservation emergency, and on August 1 of last year, they raised the warning level again. That meant residents rationing their spigot use even more tightly, especially lawn irrigation. The restrictions weren’t, however, the worst news that day: The city also missed two debt payments.
Municipal bond defaults of any kind are extraordinarily rare, let alone those linked to a changing climate. But with about 4,000 residents and an annual budget of under $10 million, Clyde has never had room to absorb surprises. So when poor financial planning collided with the prolonged dry spell, the city found itself stretched beyond its limits.
The drought meant that Clyde sold millions of gallons less water, even as it imported more of it from neighboring Abilene, at about $1,200 per day. Worse, as the ground dried, it cracked, destroying a sewer main and bursting another quarter-million dollar hole in the town budget. Within days of Clyde missing its payments, rating agency Standard & Poor’s slashed the city’s bond ratings, which limited its ability to borrow more money. Within weeks, officials had hiked taxes and water rates to help staunch the financial bleeding."
Tik Root reports for Grist October 27, 2025.
