Cities and Climate Risk: a Q&A with the City of Pittsburgh

November 19, 2020

Carolyn Kousky and Ben Thomas

Municipalities are facing increasing financial and operational pressure from the impacts of climate change. As mentioned in a previous Risk Center Q&A with Breckenridge Capital Advisors, climate risks may impact the creditworthiness of municipalities in a way not currently being accounted for. In addition to bond ratings, these risks may hamper cities’ ability to continue providing essential services and may delay improvements to existing infrastructure. To learn more about how cities are thinking about and reacting to these risks, the Risk Center reached out to Melany Arriola, Grant Ervin, and Rebecca Kiernan from the City of Pittsburgh. Their responses to our questions are below.

Over the past few years, there has been increasing concern about the adverse financial impacts climate change may impose on municipalities. Much of this conversation has been focused on risks to the municipal bond market (for example, BlackRock’s “Getting Physical” report and a Risk Center Q&A with Breckinridge Capital Advisors). The financial risks to local governments from climate change could in principle be broader, impacting a range of revenue sources and changing needed expenditures. How is Pittsburgh thinking about these risks? Are these risks being felt at all yet by the City?

Pittsburgh is already seeing these climate risks and has begun the process of identifying where these risks exist. Unlike many coastal cities, for inland cities like Pittsburgh, the threats of climate change are seen more as stressors on existing systems and less as a result of a ‘shock’ event like a hurricane or sea-level rise. This nuance doesn’t make the challenge of climate ‘easier.’ In many cases it is making it more difficult to bring attention to the issue because events are smaller or more acute in duration, but their frequency or intensity is increasing. In the last couple of years, this has been extremely evident in our budget. Following the wettest year on record, the City had to allocate an unprecedented $6.8M for slope remediation in the 2019 Operating Budget to address the influx of landslide events. In 2019, slope remediation represented more than 5% of the city’s total operating budget and more than double the costs spent the previous year. These events are only expected to increase. Currently, the city has no formal climate risk management process and is ‘self-insured’, making our efforts more important. We are now working to address these risks in four major ways:

  1. identifying physical risks and associated cost exposures,
  2. launching a pilot program for outcome-based budgeting, which will help us incorporate climate change into the budget process,
  3. adopting ESG performance standards for our institutional investments, and
  4. beginning discussions around an Adaptation Plan to set baselines, identify vulnerabilities, and provide actionable recommendations.

Even though climate risks can clearly have a large impact on municipal finances and operations, it’s often hard for municipalities to account for these risks in their planning and budgeting. What do you think generally stands in the way of accounting for and addressing these risks?

Budgeting for climate risk and climate preparedness is a new frontier that we are embarking upon. As it is, there is no central location in our budget where we can clearly see the negative fiscal impacts of climate risks. Despite there being exponential increases in our flooding and slope remediation costs over the past 5 years, there are many indirect costs from clean up, vegetation management, etc., that never appear on the balance sheet. To be clear, these are investments that we need to make, but they create displacement of planned projects and accelerate deferred maintenance, causing difficult decisions.  This makes it difficult to make an argument that preparing proactively for climate risks would actually save costs in the long run. For example, currently, there are a lack of internal controls in our departments or in bond rating agencies for valuation of our financial exposure to climate risks. One item that we are considering is a variation of Environmental Impact Statements, where each department would have to prepare a climate risk assessment before any budget or project proposal.”

We know from our prior conversations and from what the city has published (such as the City’s Preliminary Resilience Assessment) that Pittsburgh has been a leader in thinking about—and attempting to mitigate—the impacts of climate risks. Could you tell us a bit about this work and how you’ve approached it?

Resilience planning in Pittsburgh was initiated by our involvement in the 100 Resilient Cities program, which established the ONEPGH team by hiring dedicated City staff, which we have since retained and grown. The city has also received planning and research assistance from the RAND Corporation. Since 2015, we’ve embarked on a process to:

  • Identify our shocks and stresses profile (Preliminary Resilience Assessment)
  • Plan for strategies to address the stressors so we’re better situated to handle the shocks (ONEPGH Resilience Strategy)
  • Understand where the disparities lie among Pittsburghers to better target resources (Equity Indicators Reports)
  • Estimate the cost of Pittsburgh’s most necessary resilience-building projects and establish interdisciplinary and multi-sector teams to fundraise and deliver on those projects (forthcoming ONEPGH Investment Prospectus and ONEPGH Fund)

How has Pittsburgh identified and assessed the risks it faces? 

Our first task was to understand Pittsburgh’s shocks and stresses profile: shocks are one-time, large scale events that often come by surprise, and stresses are those slow burning issues that erode the capacity of the city on a daily basis. We hosted multiple community engagement events, workshops and roundtables, and conducted significant research to develop this list.

Shocks: climate change and extreme weather; infrastructure collapse; hazardous materials incident; economic collapse; landslide and subsidence; pest and disease outbreak.

Stresses: economic and racial inequity; fragmentation; aging infrastructure; environmental degradation.

One of our largest challenges we uncovered in this process is fragmentation- an endemic stress that tends to strain resources in this region. What we mean by fragmentation is topographical, social, political and financial. For example, we have 90 neighborhoods in the City of Pittsburgh, 130 municipalities in Allegheny County, and roughly 2,300 nonprofit organizations operating in city limits. This system of fragmentation breeds a lot of overlap and competition for limited resources, which prevents services from being delivered efficiently to those who need them. A lot of the work we do seeks to break down barriers and seed collaboration towards achieving outcomes.

What is next on your agenda? Where are you looking to expand Pittsburgh’s efforts?

Next on our agenda is to continue gathering more data to show the acuteness of risks and establish a clear baseline of risks Pittsburgh is already experiencing and will be continuing to in the coming years. We are also working on continuing our efforts with outcome-based budgeting to integrate climate preparedness into the budgeting process.

Having done a fair amount of work in this space, are there any primary lessons you’ve learned for other cities that may be interested in following your lead?

Through our efforts, I’ve learned is there are very limited tools and financing opportunities for inland cities experiencing climate risks. Moreover, when addressing climate risks, we really need an integrated approach, where climate risks are front and center of all financing and program development in municipal operations. Cities need to have climate risks in their day to day decision making process.