Municipal supply has been running very high. Why is this happening?
On March 28, President Donald Trump signed an executive order directing the Environmental Protection Agency (EPA) to suspend and revise the Clean Power Plan and change course on climate change rules promulgated by the Obama administration. Trump’s proposed budget, released in mid-March, includes $2.6 billion in federal EPA cuts (-31 percent) and $6.2 billion in cuts (-13 percent) to the Department of Housing and Urban Development (HUD), among other reductions.1
As certain federal grants for climate research and infrastructure resilience are put at risk, many state and local governments are expected to step up and bear more of the costs associated with climate change. Preparing for climate change can be complicated and expensive, and undertakings such as elevating roads or replacing stormwater infrastructure are increasingly becoming unavoidable near-term capital spending priorities for certain communities.
Over the past three years, the EPA and HUD funded an average of $4.1 billion and $10.7 billion, respectively, in grant aid to state and local governments.2 This includes initiatives related directly and indirectly to climate resiliency. Under Trump’s proposed budget, cuts potentially include:
- Eliminating HUD’s Community Development Block Grants, which totaled $3 billion in 2017. These block grants aided communities after Superstorm Sandy, as well as other climate-related initiatives;3
- Eliminating HUD’s $190 million Flood Hazard Mapping Program, which partners with states and communities to identify risks and help guide flood mitigation actions; and4
- Cutting EPA programs related to climate protection (which targets lowering greenhouse gas emissions), research and sustainability, as well as air quality, all of which are generally funded through state grants.5
Over the long term, a stingier federal posture toward climate-related research and grant funding may contribute to greater dispersion in municipal credit fundamentals. Communities that are better able to independently finance climate-related mitigation efforts may prove more resilient.
The following examples from Florida and Louisiana suggest that proactive climate-related spending may be beneficial for credit health.
Due to their low-lying nature, four counties in Florida – Miami-Dade, Monroe, Broward and Palm Beach – are particularly susceptible to sea level rise. These counties are home to more than 37 percent of statewide economic output, and the upper estimates of aggregate current taxable property value are $230 billion for Miami-Dade, $23 billion for Monroe, $224 billion for Broward and $165 billion for Palm Beach.6 Protecting the local tax base and economy from encroaching seas is likely to bolster economic development efforts and ensure long-term credit stability.
In 2009, these counties formed the Southeast Florida Regional Climate Change Compact7 to leverage each other’s resources and create synergy in addressing the most pressing needs related to threats from climate change.
Notably, the city of Miami Beach, located in Miami-Dade County, is investing between $400 million and $500 million in stormwater solutions that include constructing seawall barriers, elevating sidewalks and roads and building infrastructure to prevent saltwater intrusion into freshwater aquifers.8
In 2006, the New Orleans legislature created the Coastal Protection and Restoration Authority (CPRA)9 in response to hurricanes Katrina and Rita. The CPRA recently published its Coastal Master Plan, which would cost $50 billion and is projected to mitigate as much as $150 billion in potential damages over 50 years. Roughly 20 percent of this plan would be funded by settlement money from the BP Deepwater Horizon spill. Other funding is expected to come from federal grants and the state’s share of oil and gas revenues. However, the remaining necessary funds will hinge on Congress to provide. Louisiana’s receipt of such resources could prove difficult given the recent budget cuts to the EPA and HUD. In turn, this could increase potential future costs, as the state would not be able to fully fund the current coastal master plan, creating greater exposure to future potential storm related damages.10
President Trump’s policy prerogatives are more likely to compel state and locally-led efforts to promote climate resilience. Today’s spending may increasingly forestall more expensive repairs and mitigation strategies in the future, which could lead to greater credit dispersion.
 United States Office of Management and Budget
 “USA Spending,” https://www.usaspending.gov/Pages/Default.aspx
 Jose A. DeReal, “Trump budget asks for $6 billion in HUD cuts, drops development grants,” The Washington Post, March 16, 2017, accessed April 5, 2017, https://www.washingtonpost.com/politics/trump-budget-asks-for-6-billion-in-hud-cuts-drops-development-grants/2017/03/15/1b157338-09a0-11e7-b77c-0047d15a24e0_story.html?utm_term=.8659588b3fc5.
 Robert Freedman, “HUD programs Trump’s budget would cut,” Realtor Magazine, March 17, 2017, accessed April 5, 2017, http://realtormag.realtor.org/daily-news/2017/03/17/hud-programs-trumps-budget-would-cut
 Juliet Eilperin, Chris Mooney and Steven Mufson, “New EPA documents reveal even deeper proposed cuts to staff and programs,” The Washington Post, March 31, 2017, accessed April 5, 2017, https://www.washingtonpost.com/news/energy-environment/wp/2017/03/31/new-epa-documents-reveal-even-deeper-proposed-cuts-to-staff-and-programs/?utm_term=.1a2faeb90788.
 As of September 30, 2016 via the latest audit filings.
 The Southeast Florida Regional Compact is an ongoing collaborative effort among the member counties to foster sustainability and climate resilience at a regional scale.
 Joey Flechas and Jenny Staletovich, “Miami Beach’s battle to stem rising tides,” Miami Herald, October 23, 2015, accessed March 29, 2017. http://www.miamiherald.com/news/local/community/miami-dade/miami-beach/article41141856.html.
 The Coastal Protection and Restoration Authority is a single state entity mandated to develop, implement and enforce a coastal protection and restoration Master Plan for the state of Louisiana.
Christopher Flavelle, “Trump wants to downplay global warming. Louisiana won’t let him,” Bloomberg, January 26, 2017, accessed March 27, 2017. https://www.bloomberg.com/news/articles/2017-01-26/trump-wants-to-downplay-global-warming-louisiana-won-t-let-him.
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