The Trump administration is dismantling FEMA's biggest climate adaptation program

America's cities are facing increasing climate risk and decreasing capacity to cope

Cities in America face a high-heeled climb: How do you pay for climate adaptation efforts—updating stormwater infrastructure, retrofitting existing buildings to meet modern building codes, moving homes out of harm's way—in the absence of federal assistance or local political support? The picture grew gloomier this week with news that one of the few federal programs supporting pre-disaster work will be shuttered. And there's more: Pressure for continued federal tax cuts is increasing due to the current global trade war. That could lead to trims to the federal tax exemption currently applied to municipal bonds—which would substantially diminish investors' appetite for bonds used to fund infrastructure projects.

None of this helps cities already coping with the reality that rising insurance costs will erode property values in risky areas. When those property values decline, that will reduce the property taxes on which cities depend. Result: A nightmarish scenario driven by a self-reinforcing, amplifying feedback loop of ever-increasing physical risk and ever-decreasing capacity to cope.

The news this week that FEMA's Building Resilient Infrastructure and Communities (BRIC) program will be dismantled is significant. BRIC was hopelessly oversubscribed, a contest in which thousands of state and local applicants fought for partial grant funding of planned projects. But the more than $5 billion it gave out over the last four years accounted for most of the money the federal government has spent on adaptation. Research shows that spending money to reduce physical climate risks pays off many times over—$8-$13 for every dollar spent—and if the administration actually wanted "Efficiency Through State and Local Preparedness," surely reducing risk would head the list.

New York City will lose tens of millions in flood protection funding. Hundreds of other cities, in every state in the country, were counting on this assistance.

Now they'll be scrambling for money from other sources. Should they borrow money from the bond markets to pay for projects? Well, perhaps. But alerts are sounding: There is great volatility in the bond market right now, with a thirty-year low hitting as trust in government solvency and reliability erodes. And the municipal bond ecosystem is threatened by the impulse to keep federal taxes low by finding other ways to fill federal coffers.

Here's The Wall Street Journal editorializing today: "The Country Needs a Tax Cut, and Soon." To sum up their argument: Given the damage and recession risk created by proposed tariffs, making the 2017 tax cuts permanent is crucial "for the investment and growth that lifts incomes"; Republicans need to slow the growth of Medicaid and avoid "green subsidies" to ensure those tax cuts stay in place. Indeed, the Journal opines, an even bigger "supply-side tax cut" is needed to "offset the damage" of the tariffs.

What's on the list to fill the deficits left by all this cutting? Among other things, the exemption from federal taxation for interest paid to investors in municipal bonds. Congress may or may not have the authority to eliminate that tax exemption altogether—there may be an argument that driving up borrowing costs for states and local governments would be "indirect requisition" from states, in violation of the 10th Amendment—but cutting it back seems possible. And cutting it back would wreck or dampen investors' enthusiasm. They are in bonds for tax strategy and risk-reward reasons, both of which may be undermined by the extreme uncertainty this spring.

All of this is hitting cities at the same time physical climate risks are climbing. These risks are affecting cities of every size, driving insurers to increase rates or exit unprofitable markets.

5-year average homeowners non-renewal rate by state (2019-23), from "Weathering the Storm"

Research shows that when insurance premiums go up or home insurance becomes less available, property values go down (Oh, Sen, Tenekedjieva (2022); You, Kousky, Atreya (2024)). We don't have much of this research because insurance industry data is hidden from the public, but that doesn't mean the effect isn't real. Cities in America know this is happening, and they're worried. Most of them rely almost entirely on property tax receipts to run their operations, but they have little insight into what's going on with their insurance market or what to do to keep it functioning.

So, faced with this downward spiral of increasing risks coupled with lack of resources, what's a city to do? It's time for state and local leadership, right now.

If not now, when?