Will climate change affect local government spending in the coming decades?

A recent New England Public Policy Center report indicates rising temperatures are likely to increase costs for New England municipalities and ultimately taxpayers. The report is called “The Effects of Weather on Massachusetts Municipal Expenditures: Implications of Climate Change for Local Governments in New England.”

The study’s author, Federal Reserve Bank of Boston economist Bo Zhao, spoke with the Six Hundred Atlantic podcast about the potential financial impacts of climate change on Massachusetts municipal budgets. He explains how increases in temperature can lead to increases in spending, and how data from Massachusetts can help inform other states in the region. Zhao also discusses what some municipalities are already doing to prepare for climate change.

AMANDA BLANCO:

Hello, and thank you for joining us on this episode of Six Hundred Atlantic. I'm your host, Amanda Blanco. And today we're talking about something that's been all over the news, climate change. I'm here with Bo Zhao, he's a senior economist in the Boston Fed’s Research Department. And his new study focuses on the financial impacts of climate change in New England, specifically how changing weather patterns may cost cities and towns in the region more money in the coming years. And for this paper, he took a close look at Massachusetts weather data. So welcome, Bo, and thank you for joining us today.

BO ZHAO:

Thank you. Thank you for inviting me. I'm very glad to be here.

AMANDA BLANCO:

Great. So let's get right into it. So why did you choose to focus on Massachusetts weather data in this report?

BO ZHAO:

Well, I think Massachusetts is a great setting for this study because we get all kinds of weather here. Heat, rain, snow, cold, storms, you just name it, we have everything here. And in the summer, you can have days with temperatures over 100 degrees, just like last year. And in the winter, you can have a polar vortex. Remember polar vortex? And the temperature can drop to below negative 20 degrees. And we also get a lot of variation year over year here in terms of weather patterns. For example, we have had some winters that downed more than 100 inches of snow in some parts of the state. While other years, we might get very little snow. So, Massachusetts is really a great source for weather data compared with places like Florida, if you want to have a wide range of temperatures and consider effects of all kinds of weather.

AMANDA BLANCO:

Got it. And when you looked at this data, did you see any changes in Massachusetts weather patterns over the past few decades?

BO ZHAO:

Oh, yeah. Definitely. The data show that Massachusetts has become hotter and wetter with increasing average temperatures and annual precipitations over time. And I found from 1990 through 2019, the annual average temperature increased 0.04 degree per year across the state's municipalities, and annual precipitation increased 0.08 inch per year. Meanwhile, days with extremely hot temperatures or extreme precipitation have become more common here. Between 1990 and 2019, the share of days in each year that reached or exceeded 90 degree rose 0.015 percentage points per year across Massachusetts, and the share of days with at least one inch of precipitation rose 0.017 percentage points per year. That may not sound a lot, but actually if you think about over this 30-year period, that's big changes.

AMANDA BLANCO:

So, what did your study find out about how and why these changing weather patterns are affecting municipal spending?

BO ZHAO:

Well, that's the fun part. That's what I do as a researcher. I use the statistical model or method to analyze the relationship between weather and the government spending among Massachusetts municipalities over the last three decades. I found temperature and precipitation have a significant impact on municipal expenditures here. On average, a one degree increase in average temperature results in a 3.2% increase in per capita municipal expenditures, and a one percentage point increase in the percentage of days with at least one inch of snowfall raises municipal expenditure by 0.4%. I also found that among all the government functions, public works and general government administrations are the most affected by weather. And I think this is because these two government functions are directly involved in snow removal, road maintenance, and heating and cooling of public buildings. And we know hotter or more snowy weather can increase the cost of these services.

AMANDA BLANCO:

And going off that, I know you mentioned in your report that other scholars' research has shown that weather affects many different parts of our society and the economy as you were saying. But why did you choose to focus on municipalities?

BO ZHAO:

Because I think municipal governments play a really important economic role in New England. And I'm going to talk about the differences between New England and the rest of the country. Here, we don't have powerful county governments like counties in other regions. If you think about county government in New York State, if you're from New York, you know that municipalities here (in New England) provide a very wide range of public services that are provided by county governments in other regions. For example, snow removal, road maintenance, police and fire services, and general government administration. These services are really critical for maintaining residents' quality of life and business’ smooth operations.

So it's really important to understand how weather affects spending on these local services. And also, as a researcher, I think there are also advantages in studying municipalities from a data perspective. Because here, we have a lot of cities and towns here. We have 351 cities and towns in Massachusetts, and different towns get hit by different weather and may respond differently to the weather changes. You can think about Western Mass and Cape Cod, they really have different weather patterns. So they may respond to weather changes in different ways. And this gives us more analytical and data analysis power in making the estimates in the sense that we get to have 351 case studies instead of just one or only few.

AMANDA BLANCO:

So what might these projected temperature changes mean for municipal spending in future decades?

BO ZHAO:

Well, this report suggests that rising temperatures will drive up municipal expenditures considerably in the coming decades. Depending on the assumption about global emissions, NOAA projects that the average temperature in Massachusetts will likely increase four to nine degrees by the end of the century. And based on what I found about the historical relationship between temperatures and local spending, this would result in probably 15% to 30% increase in per capita local spending in Massachusetts. These increases could have a significant impact on fiscal health on local governments. You can think about they may be difficult or impossible to accommodate, to be absorbed, without cities and towns significantly increasing their taxes and the fees.

While these are really important policy implications, I do want the audience to keep in mind these are projections, and there's a big caveat in these projections in terms of methodology because the relationship between temperatures and local spending was estimated using historical data. So when I use that to make projections, I essentially make assumption that this relationship will remain the same over time and will carry forward into future decades. But it may not be the case, especially if states and municipalities adapt to climate change.

AMANDA BLANCO:

So what should we be doing about this? What steps, if any, are municipalities already taking to account for the weather changes we've seen and changes that are projected to come?

BO ZHAO:

I think it is really important for policymakers to take actions now to address and to be prepared for the projected climate change because there are a lot of studies have shown early policy actions are often more cost-effective than later ones. And this report recommends that municipalities should account for climate change in their long-term financial planning. For example, they should invest in improvements to public infrastructures, so that they become more adaptive and resilient to climate change. And this is particularly urgent for New England to think about how dated the region's infrastructure systems are.

And I think it is encouraging to see that in recent years, New England states and municipalities have actively pursued ways to address the challenges presented by climate change. We have seen examples that states and municipalities have accelerated weatherizing public buildings, improving their heating and cooling system and improving their energy efficiency. And meanwhile, we also see state governments in the region have set up grant programs to help cities and towns evaluate their climate risk level and funded many local projects to protect against climate change. And these are all promising initiatives and could potentially serve as models to states and cities and towns elsewhere in the country.

AMANDA BLANCO:

Why should people in other New England states pay attention to these findings, which focused mostly on Massachusetts data?

BO ZHAO:

Well, even if you don't live in Massachusetts, I think you may still want to read this report because I think the findings can apply to other parts in the region. Reason number one, the climate is generally similar across the region, and New England states have experienced similar changes in weather patterns. The average temperature in each state has risen three to four degrees since 1900, and annual precipitation has generally increased since 1895. New England states are also all projected to see higher temperatures and more extreme precipitation events in future decades. The second reason is that all the New England states have similar fiscal structures. They all have either no or extremely limited county governments. So municipal governments provide almost all local public services. Given these similarities, I think this report's finding can be useful for policymakers and interested citizens throughout the New England region.

AMANDA BLANCO:

Well, that's all the questions I've got for now, Bo. I really appreciate you taking the time to talk to us today about this.

BO ZHAO:

Thank you. I'm very glad to have this conversation. Thank you.

AMANDA BLANCO:

As always, you can find more information on everything discussed today on our website. Don't forget to check out bostonfed.org/sixhundredatlantic, where you can listen to interviews as well as our podcast seasons. You can also subscribe to our email list to stay up to date on new episodes. And don't forget to rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app. I'm Amanda Blanco, signing off on another episode of Six Hundred Atlantic. Thanks for listening.