Headwaters Economics is facilitating a working group of NOAA RISA network members to discuss interactions of fiscal policies and climate adaptation. The purpose of this scoping project is to generate research questions for future work.

During online working group meetings from December 2020 through September 2021, the participants will identify research questions focused on how fiscal policy enables and/or constrains local and state governments’ abilities to adapt to climate change.

Project Background

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 for advancing climate adaptation includes:

1. funding and financing preventative measures (i.e., grey and green infrastructure) and recovery from climate-related disasters;
2. planning for unexpected changes in revenue caused by impacts from extreme events;
3. diversifying revenues to support more fiscal resilience; and
4. 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 would be negatively affected 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.

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