How states, cities bolster credit health by addressing climate change

Register now

State and local governments with effective climate change plans will be best positioned for long-term credit health, according to a report from Kroll Bond Rating Agency.

“A key takeaway from this report is that governments, and specifically state and local governments, are addressing climate change challenges in light of an historic year of disaster,” said KBRA Managing Director Andrew Clarke, one of the authors of the report.

In 2017, there were 16 different climate events in the U.S. that caused damage greater than $1 billion. Last year’s damage totaled $306.2 billion, exceeding 2005’s previous record of $214.8 billion in the aftermath of Hurricane Katrina.

Since 1980, the U.S. has experienced 219 weather-related disasters, whose cost is estimated at over $1.5 trillion.

And climate change is further compounded by data that indicates the rate of sea level rise is accelerating.

While the report said governmental action is needed to address the problems, the issue is fraught with political risk because it’s expensive to plan for or fix.
“While government action is needed, we want to emphasize that there is not one single solution. The solution is not coming from one person,” said Clarke. “There needs to be a raised awareness [of the issues] without being overly negative so as to get political support [for a solution.]”

KBRA said that since the solutions are expensive, support from the public is vital when taxpayer dollars are being spent.

The report said that cities need public awareness to successfully implement and justify spending related to climate change.

Public attention is greatest after a climate disaster. After Hurricane Sandy, New York City announced a $20 billion plan to address climate change, while in Boston public interest in building a $10 billion seawall increased after this year’s storms.

"Partnerships and collaborative efforts targeting different stakeholders will help get some of the efforts in place,” said KBRA Director Patty McGuigan.

While multiple solutions are needed and state and local efforts will vary, KBRA said it “views proactive efforts by states and localities as a credit positive.”

It’s KBRA’s belief that governments which address needed infrastructure or proactive land use planning with climate change in mind enhance their long-term economic health.

“So, despite additional capital spending, places that have implemented adaptive strategies will likely be more attractive to people and businesses and better positioned to generate more robust property, sales and income taxes,” the report said.

“There can be a perception that California is the only state taking action on the climate change front,” but KBRA's research showed that ogher states and cities are moving forward, said Senior Managing Director Karen Daly.

In addition to enacting local initiatives, mayors across the nation are joining climate change compacts with other local governments.

After the federal government pulled out of the Paris climate agreement, many mayors signed commitments to pursue the accord’s goals anyway.

Chicago’s Mayor Rahm Emanuel led an effort to create the Chicago Climate Charter, which got 67 cities to quantify, track, and publicly report the progress made toward reaching their individual commitments.

Mayors now often talk about climate change in their state of the city addresses.
In Texas, three months before Hurricane Harvey, Houston Mayor Sylvester Turner said that “…drainage and flooding … continue to be and will always be a major, major priority.”

In Los Angeles, Mayor Eric Garcetti said, “if the White House pulls out of the Paris Climate Agreement, we’re going to adopt it right here in L.A.”

In Phoenix, Mayor Greg Stanton said “…communities that fail to prepare for the impact of a changing climate will face the consequences.”

In New York, Mayor Bill de Blasio cited a pledge to combat global warming, including a plan to divest $5 billion of pension assets from fossil fuel companies.
U.S. states are also taking action.

States have been setting renewable energy goals, directing transportation spending, providing public charging stations for electric cars, enacting fuel emission laws and implementing market-based approaches like cap and trade and carbon use programs.

In response to Paris Agreement withdrawal, several states have signed the U.S. Climate Alliance, which commits them to reducing greenhouse gas emissions [GHG]. And 29 states have adopted renewable portfolio standards.

One leader has been North Carolina, KBRA said, which is second in the nation for installed solar capacity.
California also has made great efforts in reducing transportation sector emissions by adopting standards that are more restrictive than the Federal government’s.

“States that are addressing their GHG emissions are not only helping to mitigate climate disasters, but also better positioning themselves for future federal measures to control emissions. KBRA views proactive efforts by states as credit positive,” the report said.

For reprint and licensing requests for this article, click here.
Green bonds Bond ratings