RISA working group:
Fiscal policy for advancing climate adaptation
Headwaters Economics led a 2021 working group of NOAA Regional Integrated Sciences and Assessments (RISA) network members to discuss interactions of fiscal policies and climate adaptation. The working group identified research opportunities and solutions needed to stabilize local revenue and direct climate resilience resources to underserved communities.
Workshop 1: Vulnerable Revenue
Held on March 12, 2021
How are local and state government revenues vulnerable to climate change? The working group’s first workshop summarized current research on how climate risk destabilizes state and local budgets and constrains access to lending markets. The presentations focused on promising solutions for “climate-proofing” budgets.
Workshop 2: Why Geography Matters
Held on June 4, 2021
Geography and fiscal policy shape the extent to which different places are able to fund and finance climate change adaptations. In the second workshop for the working group, we focused on the opportunities and constraints facing rural areas.
Rural areas deserve attention for several reasons:
- Rural adaptation has an outsized impact on metro resilience.
- Rural areas have unique attributes and economic constraints.
- Given these differences, rural communities need different solutions.
Workshop 3: Equity
Held on October 1, 2021
Fiscal policies are a powerful tool for economic development. Unfortunately, fiscal policies can fail communities by creating entrenched inequities. In the working group’s third workshop, we explained the connections between fiscal policy, climate adaptation, and equity. We provided examples of how fiscal policies can exacerbate inequality, locking people into a downward spiral. We reviewed strategies that could result in more equitable access to climate resilience funding.
By “fiscal policy” we mean the ways that governments generate revenue from economic activity (e.g., taxes, fees for services, and royalties on resource extraction) and how governments use these revenues to pay for infrastructure and services such as roads, schools, police, and hospitals.
In general, the role of fiscal policy in advancing climate adaptation includes:
- funding and financing preventative measures (i.e., grey and green infrastructure) and recovery from climate-related disasters;
- planning for unexpected changes in revenue caused by impacts from extreme events;
- diversifying revenues to support more fiscal resilience; and
- addressing equity among people and places exposed to impacts from climate change.
Practitioners, foundations, and community leaders need a clear understanding of adaptation costs, funding sources, and the appropriate scale of funding (local vs. regional). They also need to understand the opportunities and constraints of fiscal policies. For instance, local governments are often mandated to balance their annual budgets, limiting their ability to save for unexpected disasters. They can also be hampered by state and constitutional limits on revenue and spending capacity.
Finally, state and local governments are often dependent on revenue streams that may be reduced by climate adaptation and mitigation strategies. Many rural community budgets are reliant on federal, state, and local revenue from fossil fuel extraction, for example. Governments that are heavily reliant on high-value (but at-risk) properties for tax revenue are also vulnerable to climate change (e.g., houses built on coastlines may generate less revenue if their value declines due to flooding).
Understanding where revenue comes from and the risks associated with policy change is essential for planners, economic developers, and climate activists. Revenue dependence, if unaddressed, can generate opposition to climate policies and limit the benefits of economic diversification and climate adaptation.
Patty Hernandez is co-founder and Executive Director of Headwaters Economics. Patty has 18 years of experience in researching economic development, building partnerships, and developing technology solutions to help communities plan and adapt to a changing world.