The United States is trying out a revolving fund as a new way to help city and state governments pay for climate resilience and adaptation projects, but the program is running into some early bumps in the road.
In the first year of the Safeguarding Tomorrow Revolving Loan Fund, the U.S. Federal Emergency Management Agency (FEMA) is distributing US$50 million to the District of Columbia, Louisiana, Maryland, Michigan, New Jersey, New York, South Carolina, and Virginia—all jurisdictions in coastal areas, Resources Magazine reports.
The grants will enable state governments to issue low-interest loans to local governments, with interest rates set no higher than 1%. “The loan fund is ‘revolving’ because the loan repayments, including payments of interest, recapitalize the loan fund over time, which ensures that the loan fund remains a sustainable source of capital for new projects,” Resources explains.
State governments are required to provide at least a 10% match for the federal funding, the news story states.
Beyond delivering a steady flow of cash for future projects, the program design provides “a potential freedom from reliance on congressional appropriations for sustainable funding over time,” Resources writes. In similar programs run by the U.S. Environmental Protection Agency (EPA), interest payments make up a growing share of the available funds over time, while the requirement for cost sharing “has created a shared commitment in the new program to investing in resilience across all three branches of government (federal, state, and local) and a shared approach to managing risks that are associated with these investments.”
While high hopes surround the revolving fund model, there are challenges, beginning with the disconnect between the amount of funding on offer and the work to be done. The total of $500 million available under the U.S. Infrastructure Investment and Jobs Act “is only a small drop in the resilience bucket” compared to the estimated cost of seawall construction for coastal cities—$2.6 billion for Norfolk, Virginia, $6 billion for Miami, and $52 billion for New York City.
There’s also concern that resilience projects won’t generate revenue that cities can use to pay their debts. “For wastewater and drinking water services, local governments and water utilities charge fees to customers; the revenue from these fees is used to repay loans for water infrastructure projects,” Resources writes. “But for resilience projects, local governments will have to figure out where to get the money.”
The news story also points to the complexity and uncertain future benefits of many resilience projects and suggests the program “may be challenging for small, low-income, and underserved communities. Government agencies in smaller communities often do not have the technical know-how to evaluate and prioritize resilience projects. These smaller agencies may not even know where to begin. Low-income communities also may not have the tax base to cover the costs of loan repayment.”
So “time will tell whether the new revolving loan fund will be a game changer for resilience,” writes author Margaret A. Walls, a senior fellow and program director at Resources for the Future. “The impact of the fund may be minimal without more generous federal funding. But if initial outcomes look promising, the program could become a staple of resilience financing.”