Financing Climate Resilience: Mobilizing Resources and Incentives to Protect Boston from Climate Risks
Financing Climate Resilience was developed by the University of Massachusetts Sustainable Solutions Lab to help the City of Boston identify proactive strategies for financing investments in flood protection and other climate-related risks. The report details the scale of the climate resilience investments needed to reduce climate risks in Boston, estimating that between $1 and $2.4 billion in investment will be needed in the medium-term to protect the City from climate change impacts. The report examines a range of financing mechanisms that the City could use including bonds, taxes, resilience fees (e.g., stormwater fees), risk-based insurance products (e.g., catastrophe bonds), Business Improvement Districts, and Property Assessed Clean Energy and Property Assessed Resilience programs.
Chapter 3 of the report details the challenges that cities face in financing adaptation and resilience investments, including inadequate information on costs and benefits, incorrect pricing of risk, collective action challenges, capital budget constraints, and misaligned incentives.
Chapter 4 of the report describes a variety of financing mechanisms that cities could explore and the different scales (region or citywide, district level, or building or parcel level) for financing resilience projects.
The following Financing Mechanisms are discussed along with the scale and purpose, the process, and the strengths and challenges of using the financing mechanism.
- Bond financing - general obligation bonds and green bonds.
- Climate resilience fees - state-wide carbon tax and insurance surcharges
- District level financing - Business Improvement Districts, Tax Increment Financing, and stormwater fees
- Building or parcel-level financing - resilience loans, property assessed clean energy (PACE) and property assessed resilience (PAR) programs.
- Risk pricing and transfer - catastrophe bonds, the Community Rating System as a way of reducing flood insurance premiums under the National Flood Insurance Program, and ways to ensure the buildings built to enhanced designed standards (like LEED or FORTIFIED structures) are receiving lowered insurance premiums.
The report also includes Case Studies of different funding and financing strategies, such as:
- The Community Preservation Act passed in Boston to assess a 1% property tax surcharge to generate $17 million for affordable housing, historic preservation and recreation and open space.
- I-Cubed (Infrastructure Investment Incentive) Program in Massachusetts designed to finance infrastructure improvements at the parcel level. Investments are financed with bonds and backed by future revenues generated by the project. The bond is repaid through special assessments levied on the developer. One project funded through the program was the Boston Landing project in Allston-Brighton that included a commuter rail station, New Balance headquarters, retail, office space, and 1.4 acres of public open space.
- The Shore-up Connecticut loan program to finance flood retrofits to homes and businesses after Hurricane Sandy.
- The catastrophe bond purchased by the New York Metropolitan Transportation Authority to repair MTA facilities after Hurricane Sandy.
The report also includes a summary of Key Principles for Climate Resilience Finance:
- tap revenue generation potential;
- ensure the economic effectiveness of the mechanism;
- consider administrative effectiveness and feasibility, such as staff capacity and track record implementing the financing mechanism;
- ensure fairness and equity and that the cost burden of the investments reflect the distribution of benefits and that cost burdens do not exacerbate inequalities;
- align incentives to ensure that insurance costs, property prices, interest rates, discount rates reflect climate risks and the benefits of resilience investments; and
- capture the co-benefits of a project such as greenhouse gas reductions, public amenities, and reduced risks of business interruptions.
Chapter 6 outlines Existing Federal Funding Sources for supporting investments in resilience, including discussion of the Hazard Mitigation Assistance programs, Coastal Zone Management grants, disaster recovery funding, and water quality programs. This list provides more information about federal funding programs that can be used to support resilience investments in the coastal sector.
The report concludes with Recommendations for the City of Boston on how to pay for the investments needed to enhance the City's resilience including: working to create incentives for more accurate pricing of risk; developing common metrics and standards for resilience from the building to city scale; aligning multiple funding and financing mechanisms for projects; spreading the cost burden and making sure that the costs are not unduly burdensome on residents; creating mechanisms to capture the value of resilience investments; ensuring the new and redeveloped infrastructure projects and buildings are designed with resilience; creating new revenue streams to pay for needed investments; making the business case for why resilience investments are needed; ensuring the investments are equitable and fair; and leveraging insurance as a way for financing resilience investments.
The report was developed by the Sustainable Solutions Lab at the University of Massachusetts in partnership with the Boston Green Ribbon Commission with support from the Barr Foundation.
Publication Date: April 2018
Authors or Affiliated Users:
- David Levy
- Rebecca Herst
- University of Massachusetts, Boston
- Boston Green Ribbon Commission
- Funding program