By Quincy Midthun and Eric Murphy
This blog post is a collaboration between the State Smart Transportation Initiative and the Mayors Innovation Project, both programs of the High Road Strategy Center at the University of Wisconsin-Madison.
Climate change threatens livelihoods, infrastructure, and local finances
More frequent severe weather continues to devastate cities and states across the country, harming the health and well-being of residents and causing millions of dollars in damage. And it’s only projected to get worse.
Local governments can often be on the hook for repairing and rebuilding. In North Carolina late last year, hurricane damage far inland killed hundreds and washed out a miles-long stretch of I-40, closing the key freight route for months. Repairs carried out by the state DOT will take years and cost billions of dollars. The storm also destroyed homes and businesses in Asheville, including 80% of its River Arts District. Asheville, historically touted as a climate haven, is in Buncombe County, where less than 1% of property was covered by flood insurance when the hurricane struck. Matt Posner, a public finance expert at The Resiliency Company, told MIP and SSTI that when residents lack insurance, the burden often falls on state and local governments.
The threat to local governments from climate change goes beyond direct damage from more severe storms: insurers are pulling out of markets where they’re no longer likely to turn a profit. In 2023, insurance nonrenewal rates rose in 46 states. Insurers retreating not only makes it harder for current residents to find coverage and remain in their homes, but it can deter people and businesses from moving in. People who are unable to find or afford insurance for their property may move, depleting a city’s tax base over time. The problem could compound in the future if lenders believe that climate risk will impact a city’s ability to pay back its bonds. This can decrease a city’s bond rating, making it even more expensive to borrow money for resilient infrastructure upgrades needed to withstand climate risks.
Carolyn Kousky, founder of Insurance for Good and longtime researcher on climate impacts and insurance markets, told MIP and SSTI widespread insurance protects local economies, as well as lenders and mortgage markets. “As a warming planet increases the risks of weather-related extremes, insurance becomes harder to get and more expensive. The only long-term solution is serious investments in risk reduction and climate adaptation,” Kousky said in an email.
Setting strategic priorities is key despite uncertainty of federal support
Historically, cities and states have counted on the federal government to support disaster relief and contribute to preventative, resilient infrastructure projects. Changing federal priorities have left that support in doubt.
On April 4, the Trump administration canceled FEMA’s Building Resilient Infrastructure and Communities (BRIC) program which provides millions of dollars to communities so that they can make infrastructure improvements before disasters strike. A study from the US Chamber of Commerce shows that for every $1 in climate resilience spending, $13 is saved, about half from preventing property damage and clean-up costs and the other half from preventing a loss in economic activity. Investing in green infrastructure before the next disaster strikes is more cost efficient for taxpayers and supports the financial health of local governments.
Additionally, the U.S. House of Representatives Budget Committee has proposed repealing tax exemptions for municipal bonds. According to the US Conference of Mayors Metro Economies Committee, this would raise borrowing costs for cities, making resilient public infrastructure more expensive.
Solutions
To prevent a spiral of rising costs and declining revenues, cities and states must invest in strategies to mitigate climate risk. Local governments have no control over insurance companies, but they can control their land use plans and encourage responsible development in low-risk areas. That often means relaxing zoning constraints and incentivizing more compact, transit-oriented development in areas with less risk. States have more control over how to direct larger investments and infrastructure.
Norfolk, VA’s Vision 2100 plan shifts development to low-risk areas while focusing on a sustainable transportation system. The plan overlays flood risk data with population density and accounts for community assets such as schools and hospitals to steer development out of high-risk areas and towards low-risk areas. Analysis by Smart Growth America found that building permits in low-risk areas increased under the plan, and home sale prices didn’t significantly change.
States can play a role by leveraging state-owned land for development like in Maryland, where the state DOT has identified state-owned land near transit where it wants to encourage dense local development. Our previous work shows that these policies support safer, more sustainable communities.
Local governments can also mitigate risks with more resilient infrastructure. Using federal PROTECT formula funds, Vermont’s transportation agency developed a Resilience Improvement Plan that uses comprehensive planning to identify infrastructure vulnerabilities and systematically develop and prioritize improvements that boost resilience. After Hurricane Sandy, Hoboken, NJ invested heavily in parks that provide community greenspace and are able to hold millions of gallons of stormwater. These investments have reduced the impacts of storms and allowed the city to recover faster.
Photo credit: Wes Warren on Unsplash. License.