What’s stifling city climate action? Municipal finance practices, one report says – GWC Mag

Claudia Diezmartínez wants city officials to be more curious about how local climate programs are funded. The funding process is shaping which projects cities pursue and who they benefit, according to a February 2024 Nature Climate Change paper co-authored by Diezmartínez, a Ph.D. candidate at Boston University.

“What happens in the budget office or with people who are making decisions about municipal bonds, all of those things are very opaque,” she said. 

Based on interviews with 34 municipal officials and other urban climate policy and finance professionals, the paper highlights three ways municipal finance practices constrain urban climate action.

1. Money-saving or revenue-generating projects get priority.  

Projects that reduce or prevent greenhouse gas emissions often “create tangible revenues or savings that enable cities to frame them as ‘investment opportunities,’” the paper says. Thus, cities can more easily make the financial case for them. On the other hand, projects that help communities adapt to climate change impacts are “perceived as ‘not bankable’ or lacking a ‘clear business model,’” the paper says.

That means that adaptation work often depends on funding sources that are inaccessible for some cities, such as grants or earmarked revenue from sources such as stormwater fees and climate taxes, the paper says.

Climate adaptation may also be hindered by cities looking to bring in property tax revenue by allowing development in areas prone to climate risks such as floods and wildfires, the paper says. 

2. Time-limited funding can hinder justice-centered climate action.

Time constraints on municipal spending include budgetary cycles, spending deadlines or timelines for return on investment. That can create “a tension between the need to get money out the door and democratic participation,” according to one participant in the research. Rushed projects can prevent trust from being built between governments and marginalized communities, the paper adds. 

Another respondent gave the example of the federal COVID-19 assistance grants, which some cities are using on climate action and which must be spent by December 2026.

3. Other financial actors, like credit rating agencies and philanthropies, influence whether and how city governments invest in climate action. 

Many cities rely on having high credit scores to borrow the capital needed for large projects. That incentivizes local governments to make financial decisions these agencies reward, the paper says. “Several respondents noted that this can include starving climate budgets or cutting maintenance budgets for critical climate infrastructure, including green spaces,” the paper says.

On the other hand, justice-oriented climate projects can be bolstered by institutions when they explicitly require funded projects to incorporate a justice lens. Requirements set by Bloomberg Philanthropies, the Barr Foundation and state and federal governments are among those that study participants said led to the creation of justice-oriented projects. 

Cities with dedicated climate funds

Some cities the paper highlighted are taking matters into their own hands to set aside money for justice-centered climate projects. Denver raised its local sales and use tax to create a Climate Protection Fund, which raises $40 million each year, according to the city.

Portland, Oregon, uses surcharges on large retailers to support grants for local climate and justice work. A resident-led committee has the power to recommend how Portland’s Clean Energy Community Benefits Fund gets used. One respondent said that the release of some power by the city is particularly important from an equity perspective. 

Portland’s fund has raised more money than expected, and some city leaders proposed diverting some of the funds to support other city needs — a request rejected by the volunteer committee that makes spending recommendations. 

Notably, both Denver and Portland’s funds originated with voter-approved ballot measures, Diezmartínez said.