As extreme weather events become more frequent and intense, states are facing a significant backlog in public infrastructure maintenance. To address this, they are turning to innovative financing approaches to ensure the resilience of vital systems.

States' Quest for Resilient Infrastructure in the Face of Climate Change

Making Use of Existing Borrowing Tools: Climate Bonds and Federal Funding

Climate bonds have emerged as a popular way for states to fund climate programs. By issuing bonds and selling them to investors, states can raise upfront capital for long-term projects like infrastructure resilience improvements. For instance, in California and New York, climate bond proposals have been enacted. New York's 2022 bond proposal is being used for various climate projects, including water system upgrades. California residents recently passed a $10 billion bond to protect water infrastructure from extreme heat.States are also leveraging federal funds. The IIJA's PROTECT program allows states to use grants for surface transportation improvements. In 2022, California allocated PROTECT funds to develop a local transportation climate adaptation program. This helps pay for climate-resilient improvements to roads, bridges, and highways.

"Cap-and-Invest" Programs for Resilience Financing

"Cap-and-invest" programs set a limit on greenhouse gas emissions and create a market for emissions allowances. California was the first to introduce a cap-and-trade program in 2012, and now other states like Washington are exploring a shift to a cap-and-invest approach. Washington's program raised $1.8 billion in its first year and is investing in public transportation projects. New York estimates its 2024 cap-and-invest program could generate $6 to $12 billion annually by 2030, with $4 to $8 billion available for investments.Proponents say this strategy provides a new revenue stream for resilience while potentially offsetting costs for low-income residents. However, there is a need for improved data collection and reporting on its effects on greenhouse gas emissions.

Climate Superfund Models for Funding Climate-Related Costs

Climate superfund models hold polluters accountable for hazardous waste contamination to fund cleanup costs. Vermont was the first to enact such legislation in 2024 and issues "cost recovery demands" to polluters. New York has passed similar legislation that has not been signed yet, while California, Massachusetts, and Maryland are considering proposals. Each state has different estimates of the funds they expect to accrue over the next 25 years.Despite these efforts, new approaches face significant implementation challenges. Vermont's Superfund legislation may face legal challenges from fossil fuel companies, and California's cap-and-trade plan has been challenged by the federal government. Delays in implementing climate disclosure requirements also make getting accurate numbers more complicated.Despite these impediments, the need for proactive resilience funding is urgent. Upgrades to ensure road resilience could cost $20 billion annually by the end of the century, and water infrastructure resilience needs are estimated to be between $448 billion and $944 billion over the next 20 years.Elijah Gullett is an associate and Fatima Yousofi is a senior officer with The Pew Charitable Trusts' state fiscal policy project.