How states, cities can budget for climate change
Funding climate resilience is an increasing challenge for cities, states and other municipal issuers, including many in a budget squeeze.
Since 2000, flood-related disasters have cost the U.S. more than $845 billion. According to the National Institute of Building Sciences, every dollar spent on risk-reduction measures saves $6 in disaster costs on average.
“The federal government is overwhelmed by the frequency and expense of flooding,” said Matt Fuchs, an officer with Pew Charitable Trust’s flood-prepared community initiative. “States and localities are infrequently looking for their own solutions to make communities more resilient.”
They do so under greater scrutiny from bond-rating agencies.
“This topic, the climate risk factor, is something we’re going to be talking about a lot more in the bond community,” Tim Blake, a managing director at Moody’s Investors Service, said at a conference in New York that Pew and Regional Plan Association co-hosted.
“Obviously the concept of one-in-500-year flood events is changing pretty dramatically,” Blake said.
Hurricane Harvey two years ago dumped a full year’s worth of rain on Houston, inflicting $125 million in total property and infrastructure damage. Parts of Key Largo, Florida, went 82 days under water; there, Monroe County sustainability director Rhonda Haag said elevating one-third of the county’s 300 miles of roads could cost $1 billion.
Issuer strategies of late, according to Pew, include redirecting revenue and spending from existing budgets, creating revenue sources for mitigation; and smarter regulations to guide safer development.
Water-exposed Norfolk, Virginia, for example, updated its zoning ordinances to account for sea-level rise rather than reliance on historical data and crafted a scoring system that encourages development in safer areas.
Brevard, North Carolina, requires a no-adverse-impact certification while Fort Collins, Colorado, limits the amount and type of development in flood plains for the Cache la Poudre River.
In New York, Mayor Bill de Blasio on Dec. 23 announced a leadership team for the fourth New York City Panel on Climate Change. Deborah Balk, Christian Braneon, Robin Leichenko, Richard Moss and Joel Towers will oversee the selection of the panel and lead the development of an assessment report.
The panel is an independent body that analyzes climate risks to the city and advises on resiliency and adaptation.
Justin Elicker, mayor-elect of New Haven, Connecticut’s second-largest city, said his incoming administration must balance waterfront resilience with development.
“We need to make sure we’re not investing in property that will be under water in 50 years,” said Elicker, citing Tweed-New Haven Airport — which the city owns and which straddles New Haven and East Haven — and other parcels within the city. “We can look at different sections of the city to see if we can change our development approach and improve our infrastructure.”
James Lee Witt, the Federal Emergency Management Agency administrator under President Clinton for eight years, warned against riding solo.
“There’s no way that every state or local community — counties and cities — can do this on their own,” he said. ”They’ve got to have a partnership to minimize that risk.
“The risk factor is way up, and I think that the states and local governments have a tremendous challenge to be able today to look at 10 years down the road, and what you are going to have to do between now and then.”
Florida has been ahead of the curve with reinsurance, according to Howard Cure, director of municipal bond research for Evercore Wealth Management.
“You want to make sure that the cities and states don’t use money or can recoup some of the development,” Cure said. “So in Florida you have a reinsurance aspect, an insurer of last resort and an aspect of making sure insurers that go insolvent are still covering their policies.”
Political fragmentation makes regional approaches difficult in New York City’s tri-state region.
“We need cross-jurisdictional approaches and one of the things we’ve been doing is trying to get all the right people in the room -- that’s from grass roots to FEMA -- and really thinking about solutions that transcend those boundaries,” said Kate Boicourt, director of resilience for the Waterfront Alliance.
“If we don’t do that, the converse is having islands of protection and segments of vulnerability, otherwise known as haves or have-nots.”
Preparation varies by region, according to Cure. “But overall it’s fair. Nothing great.”
In New York City alone, 23% of total wages are generated in flood zones; 12 of 27 power plants and 16% of all hospital beds are in a flood plain. Yet thousands of commuters come to New York daily from New Jersey and Connecticut.
According to Cure, the Gateway tunnel project, a politically stalled overhaul of decaying tunnels that connect New York and New Jersey under the Hudson River, underscore the need for regional cooperation.
“New York needs the commuters coming in from New Jersey and the access to NJTransit and the Amtrak system, so you need a regional approach and frankly you don’t have that very often,” he said. “You have Port Authority but if you know how the Port Authority works, you have these little fiefdoms and there’s always a tradeoff and these projects aren’t always necessarily prioritized.”
Fragmentation even exists within the city, Boicourt said.
“Here in New York City, you’ve got 10 different agencies managing a road and whether or not to elevate it, where to invest in infrastructure and where to plan it,” she said. “And sometimes that plays out where you have an elevated culvert, no raised road and an affordable housing development all in the same zip code.”
According to a report by the BlackRock Investment Institute in April, investors need to rethink their assessments of asset vulnerabilities. BlackRock said 58% of U.S. metropolitan areas face more than 1% of annual climate-related gross domestic product losses by 2080.
Moody’s in August acquired Four Twenty Seven, a Berkeley, California, firm that assigns scores to the physical risks associated with climate-related factors and other environmental dynamics. They include heat stress, water stress, extreme precipitation, hurricanes and typhoons and sea level rise.
“What I’ve learned about Four Twenty Seven’s approach is that the main focus of their data and their risks for it appropriately is on their projected rates of change in various climate-risk factors,” Blake said. “So it’s not so much where you are today, as the projected change, and that differs by location.
“For example, Phoenix today may be one of the places with the highest score for heat stress. But looking out 20, 30 years it’s actually not … and so the degree of adaptation for heat purposes, the economic adaptation, will be less in Phoenix than in other places, mainly in the Midwest.”
Stacy Swann, president of Washington, D.C., consultancy Climate Finance Advisors, favors educating public issuers about available financing options.
“We’ve seen a lot of very good strategies including bond issuances, including the use of the public toolbox. There could be more, to be honest,” she said.
Citing her organization’s work with the Natural Resources Defense Council, Swann cited the use of revolving funds for water infrastructure.
“One observation that we’ve made is that not a lot people understand what they can do with those types of resources,” she said.
“That’s one tool in a pretty rich toolbox that can be leveraged, but people on the front lines in communities don’t always know what they can do with the public [funds], certainly the federal dollars but potentially with the state dollars that can help them address this.”