The majority of U.S. infrastructure is funded, built, and maintained by city councils, county boards, and state legislatures. But aging infrastructure, escalating climate risk, and other factors are converging to leave local communities less prepared to absorb their growing risk.
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The majority of U.S. infrastructure is funded, built, and maintained by city councils, county boards, and state legislatures. But aging infrastructure, escalating climate risk, and other factors are converging to leave local communities less prepared to absorb their growing risk.
By Matt Posner, Contributing Author for The Epicenter and Head of Public Finance for The Resiliency Company
For more than a century, the U.S. infrastructure system has been quietly managed by a set of invisible hands: local governments. From roads and bridges to water systems and public buildings, the vast majority of infrastructure in this country is funded, built, and maintained not by Washington or Wall Street, but by city councils, county boards, and state legislatures.
The financial engine powering this work is the municipal bond market, a uniquely American institution. With nearly $4 trillion in outstanding debt and default rates below 0.1%, it has been a resounding success in mobilizing capital for essential services. Local governments issue bonds, backed by future taxes or user fees, and investors receive stable, tax-advantaged returns. Despite uneven disclosure standards and a self-regulator often criticized for being too cozy with Wall Street, the system has endured. It works. Until it doesn't.
Today, the pressures on this model are multiplying. Aging infrastructure, escalating climate risk, a retreating federal government, and the collapse of private insurance in key markets are all converging. The result: a growing share of risk is falling back on local communities, precisely when those converging factors leave them less prepared to absorb it.
It’s time we acknowledge that the model of yesterday cannot meet the needs of tomorrow. Local governments will remain central, but they can’t go it alone.
Roughly 80% of U.S. infrastructure is financed and managed by state and local governments. Whether through general obligation bonds paid for with property taxes or revenue bonds supported by tolls, water bills, or parking fees, the premise has remained constant: those who benefit from public infrastructure pay for it. And historically, that has meant local residents.
This decentralized model has largely worked for decades. Many cities across the country have built world-class transit systems and utilities without federal help. Small towns in every county and state have harnessed the muni bond market to finance schools, libraries, and public safety buildings.
The logic is simple: local governments borrow, and they repay over time using local revenues. This creates direct accountability between taxpayers and public investments. But it also creates fragility, especially in an era when the threats to those assets and to the residents who depend on them are increasingly shaped by forces outside of local control.
For decades, the unspoken deal in American governance has been that while local governments fund and manage the day-to-day operations of public infrastructure, the federal government and private insurance markets would step in when disaster struck.
This informal division created a system where risk was effectively transferred: local governments paid for long-term infrastructure, while emergency relief and catastrophic coverage were someone else’s job. But that deal is breaking down.
Historically, the federal government has absorbed the lion’s share of disaster costs. In federally declared disasters, the Federal Emergency Management Agency (FEMA) typically covers 75% to 100% of eligible recovery expenses through Public Assistance grants. As a result, from 2005 to 2019, the federal government shouldered approximately 60% to 75% of total disaster costs. FEMA’s Disaster Relief Fund has swelled accordingly, growing from about $2 billion in annual spending in the 1990s to over $20 billion in recent years. Meanwhile, federal insurance programs like the National Flood Insurance Program (NFIP) have paid out over $70 billion in claims since 1978, and the federal crop insurance program pays more than $10 billion annually to mitigate agricultural losses.
Private insurance has long served as the complementary buffer, covering over $20 trillion in insured property value in the U.S. alone. In some years, insurers have absorbed more than 60% of total disaster losses. For many homeowners, businesses, and utilities, insurance was the first and most reliable line of defense.
Today, with 80% of public infrastructure financed and maintained by state and local governments, as previously cited by the Brookings Institution, those same governments are being asked to manage a growing share of climate risk. Their budgets, reliant on property taxes for at least 75% of local fiscal capacity, are now strained by compounding threats. All told, local governments now spend an estimated $800 billion annually on weather and infrastructure-related repairs, a figure that represents over one-third of local economic output in some jurisdictions, according to research from The Resiliency Company.
The promise of external relief has been replaced by a slow-motion transfer of risk back to the bottom rung of government. Without intervention, the fiscal backbone of American infrastructure—our cities, counties, and states—will be forced to bear the full weight of a problem they did not create and cannot manage alone.
Over the last many decades, disasters have become more frequent, more expensive, more disruptive, and harder to insure.
In 2023, the United States experienced 25 separate weather and climate disasters that each caused over $1 billion in damages. That’s up from an average of just three such events per year in the 1980s. But not all damage is dramatic. Chronic “nuisance flooding,” rising heat indexes, and intensifying freeze-thaw cycles are straining pipes, roads, and buildings in ways that don’t make headlines but wreak havoc on municipal budgets.
All the while, insurers are backing away. Major carriers have exited high-risk markets like Florida, California, and Louisiana altogether. In some cases, residents are seeing premiums double or triple—if they can get coverage at all.
At the same time, the federal government is shifting. Under the Trump administration, many federal climate commitments were rolled back. Key datasets were removed or defunded, and programs aimed at climate resilience were deprioritized or politicized. With a non-traditional federal government changing budget priorities, local governments can’t afford to assume that Washington will be there when disaster strikes.
The once-reliable backstops of FEMA and the private insurance market are eroding. Risk is drifting back to where it began: the local level.
Local governments are now being asked to do more with less: maintain existing infrastructure, prepare for emerging risks, and adapt to long-term climate change. All obligations within budgetary frameworks designed for a different era.
Most communities lack the data, tools, and staff capacity to evaluate climate risk in a meaningful way. Even fewer have the authority or political cover to raise taxes or issue debt to address it.
Further complicating matters, national free tools for understanding and communicating risk are being hollowed out. Federal sources like the National Climate Assessment and various FEMA datasets have been downsized or made less accessible. Without reliable information, it becomes nearly impossible for a mayor or city manager to build a consensus around long-term resilience investments.
The truth is, local governments alone can’t manage the risks they now face. But they also shouldn’t have to.
This is the crux of the matter: Why are local governments expected to foot the entire bill for resilience when the consequences of inaction ripple in so many directions? Consider:
Everyone stands to gain—or lose—from the adaptation choices made today. Yet the financial tools available to share in that burden remain limited and disjointed. The capital stack for resilience is fragmented, underdeveloped, and uncoordinated.
It doesn’t have to be this way.
If the last century was defined by local self-reliance in infrastructure, could the next be defined by shared responsibility in resilience?
As climate hazards accelerate, public infrastructure and local government leaders will experience an increased need for:
One emerging blueprint to address many of these challenges is Resilient America, a national platform designed to help local governments manage physical risks by empowering their own decision-making capacity and bringing others to the table.
Resilient America is not positioned as a nonprofit offering free technical assistance, nor as a grant program supporting predevelopment work or pilots. Rather, through its place-based chapters, Resilient America helps communities:
America’s local governments have carried our U.S. infrastructure system for 150 years. They’ve borrowed prudently, spent carefully, and maintained a level of trust that is the envy of public finance systems around the world.
But now they face a challenge unlike any other. One that grows more complex with each passing year, each warming degree, each insurance pullout, each political reversal.
They are still the front line. But they don’t have to be the only line.
Over the last 200 years, the U.S. has been able to fund and finance amazing works through local government leadership–from the Erie Canal, to railway expansion through the Rockies, and even the Golden Gate Bridge. These infrastructure investments were local financial feats as much as engineering ones. The next few decades will require local, municipal, and state governments around the nation to meet the growing financial needs that accelerating weather hazards will require.
Have thoughts to share on this piece, or want to add your voice to the conversation? Reach out!
Historically, strong federal environmental regulations drove government action to manage water resources -- that’s changing as more communities experience flooding and see the benefits of nature-based solutions to mitigate those impacts.
Municipal leaders have an opportunity to lead their communities to a resilient future and mitigate flood risk. A case study from Algonquin, IL highlights resiliency investments that have fundamentally transformed how flooding affects the community and have yielded significant cost savings.
A smart transition of FEMA toward state and local disaster responsibility would encompass 1) reform to the Stafford Act to rebalance federal and state contributions, 2) a restructuring of state disaster relief funds, and 3) a shift toward regionalization of disaster response.
The muni bond market presents an opportunity to finance resiliency in a way that aligns policy-makers, community stakeholders, business interests, and investors. By strengthening local infrastructure to render assets less vulnerable to climate shocks, it can reduce disaster costs for communities.
