Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
The drivers that make extreme heat so severe were all in play over Independence Day weekend: More people live in areas exposed to extreme heat, existing infrastructure is vulnerable to extreme heat, and cooling is expensive and not universally accessible.
Four New Jersey towns are charging property owners for stormwater runoff and using the money to fund flood repairs.
Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
By Matt Posner, Contributing Author for The Epicenter and Head of Public Finance for The Resiliency Company.
As natural hazards intensify and federal disaster support becomes increasingly uncertain, policymakers, investors, and governments are considering ways to leverage the U.S. municipal bond market to finance resilience and adaptation projects.
Municipal bonds—typically tax-advantaged securities issued by state and local governments to fund public projects—are already the backbone of American infrastructure finance.
Because infrastructure investments are fundamentally resilience investments, the municipal bond market could play a major role in scaling resilience investments. To date, this has yet to happen in a meaningful way.
Resilience finance in the municipal market has generally occurred in two different, yet equally inept ways. On one side are transactions that are too narrow: bespoke, highly-engineered deals that cannot scale. On the other side are transactions that are too wide: general obligation bond issuances, where resilience outcomes become difficult to track or measure. Together, this means fewer bankable projects, higher costs of capital, and a market that can't fund resilience at scale.
The first structural problem is bespoke resilience finance transactions. The power of the municipal bond market, and securities in general, is that they can scale. These are financial instruments that can package millions, if not billions, of dollars into programs and projects. Their scalability, along with the fact that municipal bonds are second nature to many public jurisdictions in the U.S., is why they are increasingly being seen as a real candidate to help finance the infrastructure deficit in this country (a recent Wall Street Journal article reported that there are $1 trillion in needed infrastructure repairs in 2,000 cities across the U.S.). Yet, as the resilience discussion has evolved, many public finance solutions forgo scalability from the get-go by engaging in unique transaction-types.
Environmental Impact Bonds (EIBs), blended capital structures, and a variety of special purpose vehicles are a few examples of resilience finance models that are difficult to scale. While the structures vary, these more bespoke options redistribute risk and reward among participants. Rather than relying solely on a fixed repayment obligation, they incorporate features such as performance-linked returns, subordinated or first-loss capital, contingent payments, and guarantees for milestone-based financings. To encourage investors to come off the sidelines, they leverage targeted credit enhancements, risk-sharing arrangements, and are designed in a way to deliver tax-exempt status of municipal bonds to attract capital. These transactions tend to be project-specific rather than a broader use of a general fund or another traditional method of financing infrastructure.
Such transactions can be attractive because they demonstrate experimentation among governments, philanthropy, and private investors. In theory, they can reduce the public's immediate tax burden by introducing new private elements. A 2014 transaction by the DC Water and Sewer Authority was widely celebrated as the first “green” municipal bond and the beginning of a new era in municipal finance. Yet over a decade later, the model has rarely been replicated (by the author’s count: three times). Why? Because it requires so many project-specific features and systems that cannot scale.
Many resilience-focused bond structures today suffer from similar limitations. Each transaction involves its own legal opinions, measurement systems, governance structures, and definitions of success. That complexity increases transaction costs, reduces investor familiarity, and weakens secondary market liquidity. Investors price that uncertainty into the deal.
Even promising “blended capital” models often encounter the same problem. Take forest resilience bonds developed by Blue Forest: These structures have successfully assembled philanthropic, public, and private capital around watershed and wildfire mitigation projects, but they remain highly customized transactions that depend on local negotiations and bespoke stakeholder agreements.
Many of these projects are valuable concepts, but they’re not scalable across thousands of local governments and do not take advantage of what the muni market can really deliver when it comes to resilience needs. Instead, they tend to cost more for taxpayers due to these complexities.
If the first problem is excessive customization, the second problem is excessive generalization, where broad “green” designations are attached to traditional general obligation bond issuances.
In the mid-2010s, the municipal bond market saw a burst in “green” bond issuance. This was the result of global trends after the Paris Accords, as well as what was done with the aforementioned DC Water and Sewer Authority in 2014.
Because the cost and bespoke nature of that transaction made replicability difficult, states and large issuers began labeling portions of massive bond offerings as “green” or “climate” bonds—applying a green label to what they were already doing. As a result, many of these issuances were simply conventional general obligation (GO) bonds—backed by the full faith and credit of a municipal or state government—that now carried a green designation. In most cases, the bonds did fund verified “green” projects, but because of the funding mechanism, the same bonds could also fund ineligible projects.
This is because GO bonds are intentionally flexible. They can be efficient and liquid because investors know that governments have significant recourse options for repaying debt. But that flexibility comes at a cost: Once proceeds are pooled into large state financing systems, it becomes difficult to track where dollars actually go and whether they produce measurable outcomes.
California, for example, relies heavily on broad GO structures because they provide the simplest path to raising large amounts of capital. But organizations attempting to track where climate bond proceeds ultimately land often encounter fragmented reporting, inconsistent measurement standards, and limited coordination on resilience outcomes. In many cases, the designation of “green” or “climate” says very little about whether projects meaningfully reduce risk or strengthen long-term fiscal resilience.
This helps explain why the anticipated pricing advantages associated with green municipal bonds largely failed to materialize: The market became too broad to measure impact with precision.
The resilience finance conversation often jumps to one of these two extremes. At one end are highly customized transactions that require some sort of philanthropic layer, multiple deal participants, non-traditional bond investors, and complex legal structures to make a single project work. At the other end are broad “green” or “sustainability” financings that raise capital efficiently but rarely distinguish between projects that reduce long-term fiscal risk and those that simply carry environmental benefits.
Municipal finance already has mature systems for evaluating liabilities, issuing debt, managing reserves, building capital improvement plans, and matching repayment sources to public investments. These systems have financed generations of roads, schools, water systems, and economic development. Rather than replacing them, resilience finance should begin by working within them.
The real opportunity is finding better ways to value resilience within the debt instruments we already have.
Traditional municipal finance rewards investments that generate visible economic growth, expand the tax base, and/or produce dedicated revenue streams. Resilience investments operate differently. Their value is preserving fiscal capacity, avoiding future expenditures, reducing volatility, protecting property values, maintaining essential services, and preventing the erosion of the local tax base. Those benefits are real, but they are rarely measured in ways that fit existing underwriting, budgeting, or investment decisions.
This is why municipal resilience finance has yet to take off. The challenge is not a lack of financing tools; municipal governments already know how to issue bonds, operate revolving funds, and levy utility fees. The challenge is adapting those familiar mechanisms so that they finance risk reduction rather than just physical assets.
Here is how this could look with typical muni bond structures:
A resilience district, for example, could issue land-secured bonds to finance neighborhood-wide participation in the Insurance Institute for Business & Home Safety’s FORTIFIED Neighborhood program. The bonds would be repaid through special assessments levied on participating properties, allowing homeowners to spread the upfront cost of hardening improvements over time while benefiting from lower expected losses, reduced insurance costs, and stronger property values.
A stormwater utility could issue revenue bonds backed by its existing stormwater fees to finance resilience projects. Bondholders would continue to be repaid through the same utility revenues that already support stormwater infrastructure. What changes is not the financing structure, but the investment criteria. Rather than selecting projects solely for hydraulic performance or regulatory compliance, utilities could prioritize investments that measurably reduce future flood damages, emergency response costs, infrastructure losses, and other long-term fiscal liabilities.
A general obligation bond can finance resilience investments through a dedicated resilience allocation within a broader capital program, ensuring bond proceeds are tied to clearly defined projects. Bondholders remain repaid through the property tax base, while protecting taxable value becomes an explicit investment objective rather than an incidental benefit.
Although the repayment mechanisms differ—special assessments, utility fees, or broad tax revenues—the underlying principle is the same. Each structure uses an existing municipal finance tool but broadens the definition of what constitutes a financeable public asset. Instead of paying solely for concrete, pipes, or roads, these transactions finance measurable reductions in future fiscal risk. Once governments can consistently demonstrate that connection, resilience no longer requires bespoke financing structures; it becomes another investable category within the municipal market. With that said, the market continues to lack an agreed-upon dataset or a method for measuring those reductions reliably and consistently.
Municipal finance has spent over two centuries perfecting asset financing. The next challenge is financing the reduction of risk.
That requires a common way to measure what resilience actually protects. Today, governments budget for the costs disasters create, but they rarely quantify the fiscal value of investments that prevent those costs from occurring. As long as avoided losses remain invisible, resilience projects will continue to struggle to secure funding against investments with more immediate or easily measured returns.
That is beginning to change. New analytical approaches—including emerging work by the Government Finance Officers Association to quantify hazard-specific fiscal exposure through municipal revenues, expenditures, and reserve policies—are creating a common financial language for resilience.
Rather than asking whether a project is simply “green” or “climate-related,” governments, investors, insurers, and rating agencies are beginning to ask a more fundamental question: How much future fiscal risk does this investment reduce?
Once that question can be answered consistently, resilience no longer requires a bespoke financing strategy. Existing municipal finance tools can support a new class of investments—ones whose primary return is not generating new revenue but preserving the fiscal capacity, tax base, and economic continuity that communities depend on. The capital market that exists today can price risk reduction alongside growth. It just needs the information to do it.
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Four New Jersey towns are charging property owners for stormwater runoff and using the money to fund flood repairs.
Resilience projects become finance-ready by doing the early work of proving who benefits, quantifying the value of avoided losses, and building the partnerships that make private capital possible.
Insurance markets don't become uninsurable overnight. The transition from insurable to uninsurable is the final stage of a sequence that can take years or decades to play out.
Insurance markets don't become uninsurable overnight. But the transition from insurable to uninsurable is the final stage of a sequence that can take years or decades to play out.
