Cities Know How to Climate-Proof Themselves. They Just Can't Pay For It

The Chief Resilience Officers are not alright.

A cohort of these still relatively novel public officials descended on Miami this week for the Resilience 365 conference, bringing with them tales of woe about the financing gap standing between them and effective climate-proofing of their jurisdictions.

Jennifer Jurado, Chief Resilience Officer for Broward County in Florida — an oceanside region with over two million residents — offered a particularly grim horror story. Her team had spent months modeling a US$28bn flood resilience plan for the county, to be paid for via state and local financing, that would produce an estimated US$40bn in economic outputs, reduce annual average damage losses by up to US$4bn, and preserve some US$30bn in property values.

The local business community had said publicly they’d stand behind the plan. Jurado’s team were confident in the modeling. But it wasn’t enough to move from concept to implementation. “We could not get, at that time, past the sticker shock of what these numbers meant,” she told the conference. “There is an absolute lack of appetite for anything that would raise property taxes … it’s just absolutely off the table,” she explained. 

Boxed in by tax politics, Jurado had to put the plan on ice. Instead of billions, all she could extract from the county budget last year was U$1.5mn for culvert improvements.

Hers was just one example of local governments’ struggles to fund climate resilience. While risks are being quantified and returns on adaptation calculated, public officials are finding it hard to get decision-makers — usually politicians — to get to ‘yes’ on financing necessary interventions. 

At the same time, some conference delegates hinted at a certain hidebound mentality across local authorities, one that could be holding jurisdictions back. They argued that the tools to fund resilience at scale largely exist already, but are underused. Others touted the promise of financial innovation, if only public-private relationships could be broadened and deepened. 

Victoria Salinas, a former Deputy Administrator for Resilience at the Federal Emergency Management Agency (FEMA) and now Climate Leader in Residence at Duke University, was one attendee who believes a failure of imagination across government is part of the problem. She gave the country a C- grade on using existing financing tools to promote resilience.

“The cheapest money cities can get is municipal debt… and when you look at the number of cities that have maximized their ability to access the cheapest form of capital there is… it is a hugely underleveraged tool,” she said. While US$4.4trn in municipal debt is outstanding already, huge inflows to the asset class suggest there is ongoing demand that is not being tapped.

Of course, not all governments can go on a bond binge. Broward County, for example, has precious few revenue streams to leverage — and most of those are politically toxic. Without cash flows to pay back the debt, ‘bonding out’ is infeasible. This is, in part, a local problem. While the county is home to 31 municipalities, it cannot tap those cities for dollars directly. Nor does the county own infrastructure or utilities that throw off cash flows.

Authorities in other parts of the country show what’s possible with a little bit of ambition and a favorable electorate. The Chief Resilience Officer for the City and County of San Francisco, Brian Strong, offered one success story.

“Our capital plan and our bond programs have been … aggressive. Since 1990, which is when we had our last big earthquake in the San Francisco Bay Area, we’ve invested over US$20 billion [and] we’ve been able to tackle some of these big problems using mostly general obligation bonds, [plus] other sources,” he told the conference. 

The city and county has issued US$2.5bn of bonds in the past five years alone for resilience and other priorities, made possible by an enthusiastic populace, which has voted time and again to approve the issuances. There’s a ‘but’, though. The rapid pace of issuance now means San Francisco is coming up against a property tax limit policy established in 2006 that sets the annual level of bond debt repayment. This means its capacity to sell more instruments will be extinguished soon.

Beyond bonds, San Francisco has bankrolled resilience via financial innovations, including Tax Increment Financing (TIFs) — a mechanism that lets local governments borrow against future tax revenues to fund upgrades in predefined areas today. TIFs have been rolled out in Connecticut, Colorado, Rhode Island, and other states to finance hardening measures in risk-prone regions. 

What makes them attractive is taxes don’t have to be raised immediately to fund the borrowings, as the repayments come from the higher taxes on increased property values expected down the line. But they still have their limitations. “The challenge is that you’re giving up future tax revenue,” says Strong. “How much of that future tax can you give up?” 

San Francisco policymakers agreed to cap the amount of future revenue that could be reserved for TIF schemes at 5% of total annual property tax revenue — a ceiling the authority has already bumped up against. Aggregate future revenues from the approved TIFs linked to San Francisco’s Infrastructure Financing Districts are estimated to be US$5.5bn, a helpful amount, but one dwarfed by the US$13.6bn in climate resilience needs identified by the city’s capital plan.

If public dollars are hard to come by, perhaps private dollars can be coaxed in. This was a popular theme at Resilience 365 — and by no means a novel one. Still, it seems one with few clear routes to success. 

Public-private partnerships (PPPs) have long been floated as a fix for climate-resilient infrastructure, but they keep running into the same political wall. As Sadek Wahba, Chairman and Managing Partner of infrastructure investor I Squared Capital, put it: “Why is the private sector not coming in? Because at the end of the day, no-one is willing to say to the consumers: ‘I’m sorry that the price has grown’, because the consumer is fed up with paying taxes, of having bad service, having bad health services, and so on and so forth. The result is, when you come and tell them: ‘I need to increase the water bill’, people are not happy about it.” The problem, in short, is that people resist the higher costs PPPs require — even when better service is the promised return.

Beyond PPPs, finding ways to package resilience deals into investable assets is challenging. In some ways, it’s a case of round pegs and square holes. “We’re seeing a lot of things get hung up because … it doesn't necessarily fit into the right box,” said Christopher Ratti, ESG Credit Analyst at Bloomberg. “A high yield investor is looking for a little more yield. The investment grade person [thinks] it’s a little too risky. The institutional investors, they say we want to invest in climate resilience bonds — but don't understand what climate resilience bonds are.”

On what's blocking greater resilience financing, two factors kept surfacing at the conference: time horizons and political will.

“The infrastructure our society needs is like 30 to 75 year time horizons, yet we have municipal debt passed at the state legislature level [for] three years, maybe 40, [and in] most places 20. And so those are structural issues — even if we have figured out how to validate the value [of resilience], there’s going to be business model challenges that we will encounter on the back end, which keeps our communities and our businesses still struggling to close this disaster cycle,” explained Salinas.

Moreover, this disconnect prevents large capital pools — like those held by pension funds — from getting in on climate-resilient infrastructure projects, as the investments aren’t structured in ways that make sense to them.

Andrew Salkin, Founding Principal at the Resilient Cities Catalyst, pointed to a deeper mismatch: the gap between infrastructure timelines and political ones. “What we’re stumbling into is something that just government isn't good at doing … governments are tied to four-year election cycles, but most governments are forced to do one-year budgets, and one-year budgets don't solve 30-year problems.”

He wants governments to invert their priorities — treating climate resilience not as a line item to be trimmed, but as the bedrock of local budgets. “Should it be debated whether we’re going to hire a new police officer or not versus … should we protect the whole community from climate risk? We’re not there yet. We haven’t figured out how to do that, and the politicians aren’t quite there.”

In fact, some are moving in the opposite direction. Florida Governor Ron DeSantis, for example, is pushing the legislature to all but abolish the state’s property tax — which would cost the state’s local governments US$13.3bn annually in lost revenue, and effectively prevent any meaningful spending on climate resilience infrastructure from public coffers.

One solution many attendees craved: pricing the value of resilience into qualifying investments before the fact. This would transform how private and public investors evaluate climate-proofing investments, and — all things being equal — make them more attractive propositions than they are today.

But pricing resilience has proved elusive. As conference convenor and Executive Director of the Climate Resilience Institute at the University of Miami, Michael Berkowitz, put it: we know an ounce of prevention is worth a pound of cure — we just can’t seem to put a dollar figure on that ounce. At least not yet.

Market participants are trying, though. “People are looking at resiliency projects now and trying to quantify the avoidable climate risk — like what value those have and how they can generate returns,” said Ratti. “We’re starting to see, number one, the data get better. Number two, the models are starting to get better … we’re starting to see a lot more come together.”

It may be the case, then, that the resilience financing gap isn’t a dollar gap at all, but a capabilities gap. Public actors routinely underutilize the tools already at their disposal — hemmed in by institutional inertia, fiscal constraints, or political opposition. Private investors, for their part, have yet to genuinely reckon with resilience value. And patient capital, however abundant, can’t flow toward municipal infrastructure when those needs aren’t being structured or communicated in terms that make sense to the market.

For Jurado at Broward County, it’s in everyone’s interest to find a way forward: “There’s 31 municipalities, 24 drainage and water control districts. Nobody has the money— [but] we’ve said collectively, there’s this reputational interest, there’s an economic interest. The residents deserve a plan. Do we want to guess that [resilience work] happens haphazardly and hopefully in time, or can we come together and do something novel to organize the funds and incentivize the projects that accelerate the installation to get ahead of the issue?”

Thanks for reading!

Louie Woodall
Editor