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The fiscal challenges of climate change

Municipalities depend on the revenue of coastal development. That has to change.

Major redevelopment proposals in Metro Boston. Hatched circles indicate proposed nodes of development in Boston 2030 vision plan.Linda Shi and Andrew Varuzzo

As sea levels rise, water increasingly pours into Boston’s Seaport District during king tides and laps at the $18 billion in public funds invested there. And it isn’t just Boston that’s facing existential threats from climate change. Communities up and down the coast are grappling with how to respond to sea level rise.

The threat is clear to state leaders, but a simple reality remains for coastal cities and towns: passing a balanced budget. Even with new requirements that municipalities assess climate risks and incorporate climate projections into local plans, cities continue to build on vulnerable areas because they need money to fund local services. This is most obvious for coastal places experiencing permanent inundation, but communities facing inland flooding and wildfires face similar conundrums.


Statewide, 40 percent of local revenues come from property taxes; along the coast, 60 percent; in some coastal suburbs, 70-80 percent. State expectations that local governments self-finance most of the services they provide inevitably incentivize continued development wherever possible, placing coastal sites and cities on a collision path with rising seas.

If this dilemma is to be solved, efforts to promote climate-sensitive planning in vulnerable areas must address fiscal policies that currently force municipalities to maximize development.

In Greater Boston, recent or proposed major redevelopments like Suffolk Downs, Encore Boston, Chelsea’s FBI headquarters, Fresh Pond/Alewife, and five out of Imagine Boston 2030’s six proposed growth nodes lie within 6 feet of sea-level rise. Hull recently tried to diversify its budget by bidding out (unsuccessfully) its last big vacant site, which sits on Nantasket Beach.

These municipalities all have or are doing climate vulnerability assessments, and many have adopted climate adaptation plans. Yet their development choices continue to place ever more people and investments in at-risk areas. At best, new developments incorporate aspects of resilient design that buy them more time.


This trend of dense new developments along the coast is worrisome because it commits taxpayers to protecting these investments down the road — stressing the very budgets that town leaders and city planners hope to balance by building the developments in the first place. Other coastal towns that developers bypass face an even greater challenge — how to maintain services as insurance rates increase and property values decline.

Municipalities by percent of total property tax revenues eliminated given six feet of sea level rise

Percent of total municipal revenue jeopardized.Linda Shi and Andrew Varuzzo

In our research, we estimate the amount of property taxes that would be impacted by 6 feet of sea-level rise (projected to take place by 2100 or sooner under current emissions trends). We find that 6 feet of sea-level rise threatens 12.5 percent ($946 million) of the total property taxes currently collected in 99 coastal municipalities. Most of this comes from Boston and Cambridge. This figure gives a sense of how much falling property values (due to rising insurance premiums, market internalization of climate risks, or government buyouts) could affect local tax rolls. Falling tax rolls mean less money to maintain roads and drainage infrastructure, among other services, which in turn can worsen vulnerability to climate impacts.

These risks aren’t spread evenly across cities and towns. Most places — 63 upland or inland municipalities — have 5 percent or less of current revenues coming from properties within 6 feet of sea level. Sprinkled among these are eight municipalities — Boston, Cambridge, Hull, Mattapoisett, Provincetown, Revere, Salisbury, and Winthrop — with 10-25 percent of current revenues at risk. Another 29 suburbs — including Newbury, Chelsea, Scituate, and Barnstable — have 5 percent to 10 percent of current revenues at risk. Although city boundaries help contain fiscal risks, declines in these communities will impact the entire region’s infrastructure, housing provision, and economic and social well-being.


There are ways to reverse these negative cycles. First, cities and states could incorporate fiscal considerations into vulnerability assessments. We explored the impacts of one hazard on one aspect of the budget, but a full evaluation is needed to understand the impact of diverse hazards on local expenditures and revenues.

Second, regional land-use planning agencies and nongovernmental organizations can help evaluate how climate change affects local budgets, how fiscal vulnerability and adaptation choices impact the region, and vice versa. There is enough land to go around. The question is where to site future growth, how to fund it, and how to share risks and wealth to minimize the rise of resilient enclaves and climate slums.

Finally, we see a significant opportunity for creative policy-making at multiple levels of government. Just as cities like Boston have been open to blue-sky design options, so too should they evaluate radical policy solutions involving land use regulations, fiscal policy, service expectations, land ownership, and government administration. Doing so may reveal new solutions that address longstanding causes of regional inequality and that help cities get out in front — before federal and state governments move to impose rules that limit their own fiscal risks from cities’ climate woes.


Linda Shi is an assistant professor in Cornell University’s department of city and regional planning.