The New York Fed’s Community Development Team has adopted a new strategy, focusing its energies on three key areas: health, climate, and household financial wellbeing. Our goal is to identify emerging solutions — especially those focused on fostering racial equity and improving life for underserved communities. In this post, we look at the economic effects of climate change and the importance of fostering resiliency. We also invite you to an event on June 3 at which we will outline our approach to these focus areas.
On the night of October 29, 2012, the East River surged seven and a half feet above the high-tide line in Lower Manhattan. Floodwaters lashed the office buildings, shops, and restaurants not far from the doors of the New York Fed, turning a historic neighborhood into a disaster area. The resulting maze of gutted buildings, dumpsters, and stacks of garbage bags would endure for months.
The damage estimate for Hurricane Sandy: $50 billion.
The economic effects of climate change are profuse. In 2020, natural disasters — including hurricanes, floods, wildfires, and tornados — cost the U.S. a combined $95 billion, double the tally of the year before.
The rising frequency of catastrophic storms has been devastating and costly to the Federal Reserve’s Second District, which encompasses New York State, Northern New Jersey, Connecticut’s Fairfield County, Puerto Rico, and the U.S. Virgin Islands.
In Puerto Rico it took 11 months to restore power to communities after Hurricane Maria devastated the island (estimated damage: $96.3 billion). In Prattsville, New York, the flooded Schoharie Creek tore houses from their foundations and sent them smashing into each other following Hurricane Irene. That same storm damaged more than 200,000 homes and buildings in New Jersey (estimated damage: $15.8 billion).
Communities Face Disparate Impacts
The economic costs of climate change threaten to exacerbate inequality. A widely cited article in Science estimated that climate change outcomes will be felt unevenly across the United States. Under business-as-usual emissions scenarios, the poorest third of U.S. counties are projected to experience economic damages between 2% and 20% of gross county product, a localized measure of GDP, by the end of the century.
The National Climate Assessment, a congressionally mandated report drawing on research by 13 federal agencies and 300 scientists, is the nation’s most comprehensive assessment of the science of climate change. In 2018, it concluded that climate risks are highest for those that are already vulnerable, including low-income communities, communities of color, children, and the elderly.
As climate change intensifies, communities will be forced to repeatedly repair and rebuild. The McKinsey Global Institute finds that physical assets like housing, transportation equipment, and infrastructure are particularly vulnerable to natural disasters resulting from climate change. In addition, certain geographies may become less habitable, leading to widespread economic loss.
While families with enough financial resources might be able to seek safer housing or access insurance and assistance to cope with losses, those lacking a financial cushion will continue to face the financial, emotional, and physical effects of climate-related disasters.
Vulnerable populations already are more likely to experience housing insecurity; have higher rates of serious health conditions, including heart disease and respiratory problems like asthma; are more exposed to environmental hazards; and take longer to recover from natural disasters. Climate change threatens to exacerbate these existing vulnerabilities by hitting struggling areas the hardest. The potential impact in communities of color is particularly acute due to a legacy of underinvestment and discriminatory practices such as redlining.
Resiliency Investments Generate Returns
Given the harm climate change inflicts on vulnerable communities and infrastructure, long-term investments are key for protecting the people and economy of the United States. The Brookings Institution finds that for every $7 spent on helping a community rebuild from a disaster, only about $1 is spent on resilience against future hazards. Meanwhile, the same study shows that money spent on resilience has vast economic returns, with up to $6 of benefit for every dollar spent.
For more than a decade, the New York Fed’s Community Development team has worked to support communities in the Second District as they recover from climate disasters. A few examples:
- Immediately after Hurricane Sandy, we centralized hard-to-find legal, insurance, and tax assistance information into a single hub. We also made available timely economic analysis and sponsored free Sandy Relief Clinics to provide one-on-one assistance to affected communities in Staten Island, Brooklyn, and New Jersey.
- In the years following Hurricane Sandy, we analyzed the impact of additional natural disasters on small businesses across the country, which helped inform disaster recovery efforts elsewhere in the country. We found that firms affected by natural disasters had difficulty covering their sizable losses, as indicated by increased financial challenges, insufficient or nonexistent insurance holdings, and elevated applications for financing and emergency aid. As a result, we offered recommendations to support small business recovery, including ways to rapidly deploy capital and incorporate natural disaster risks in business planning.
- After Hurricanes Irma and Maria, our team worked across Puerto Rico, engaging with local stakeholders to organize a series of assistance forums for small business owners and homeowners. In partnership with local stakeholders, we published a series of small business reports based on the Fed’s Puerto Rico Small Business Survey to understand the impact of hurricanes on this vital sector. We also gave technical assistance to local capital providers on how to utilize the U.S. Treasury Department’s CDFI Fund, which awarded grants throughout the area.
Today, we aim to contribute beyond post-disaster recovery efforts by identifying solutions that improve resilience in the most vulnerable communities.
One goal of the New York Fed’s Community Development team is to convene experts to address specific questions about household finances and business viability amid a changing climate. Topics of discussion will include adaptation of housing and commercial spaces, such as making physical dwellings — including single-family, multifamily, and mobile homes — more climate resilient; funding adaptive infrastructure, including flood mitigation investments; and making health investments that reduce the negative impact of extreme heat, poor air quality, and reduced food and water quality. We also are doing research to assess the specific climate risks facing different communities, evaluating solutions, and fostering public and private investment to help the most vulnerable communities in the Second District get ahead of disasters before they hit.
By bringing together diverse partners dedicated to climate action — including neighborhood leaders, nonprofits, businesses, and other stakeholders — and focusing research on what climate change means for communities, we aim to address resiliency challenges and foster equitable solutions.
Virtual event: Capital Quest: Connecting Capital to Communities
This article was originally published by the New York Fed on Medium.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
