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Climate change demands a long-overdue reform of the property tax system

January 17, 2025


  • Because localities rely heavily on property taxes, it will become increasingly difficult to raise regular and adequate revenue for local governments where climate change is taking a heavy toll.
  • Global warming injects increasing uncertainty into home ownership as a basis for local government finance.
  • For places with the resources to rebuild despite climate shocks—for example, many major cities—the current structure of the property tax encourages gentrification and, often, additional risky development.
Highland Terrace residents look upon a water drop made by Coulson water tanker helicopter. The Mountain Fire blazes through Camarillo with help from the Santa Ana winds.
Highland Terrace residents look upon a water drop made by Coulson water tanker helicopter. The Mountain Fire blazes through Camarillo with help from the Santa Ana winds. Jon Putman / SOPA Images via Reuters Connect

The wildfires in California have destroyed thousands of homes and businesses and displaced tens of thousands of people—and the crisis is far from over. Man-made climate change is already provoking mass migration, and as environmental conditions worsen, tens of millions of Americans will likely respond by moving. The United States must do much more to prepare our political institutions for the domestic displacements that will result from climate change—as we will discuss at our upcoming event “How to prepare for climate migration in the U.S.”

One urgent area for action is fiscal policy. Climate change will destabilize local property taxation. What is more, the fiscal system built upon the housing market—already a major source of inequality in America—will, unless reformed, be a primary mechanism by which climate change exacerbates economic injustice.

Because localities rely heavily on property taxes, it will become increasingly difficult to raise regular and adequate revenue for local governments where climate change is taking a heavy toll. The massive dysfunction in the market for home insurance should serve as a bellwether for this looming fiscal threat. The U.S. local tax structure is built around homeownership. Nationally, property taxes make up nearly half of local own-source general revenue, and nearly three-quarters of local tax revenue. This percentage has declined slightly over the last 50 years, but American government remains exceptionally dependent on property taxes compared with other OECD countries.

Global warming injects increasing uncertainty into home ownership as a basis for local government finance. Property destruction, and the outmigration associated with rising climate risk, will undercut property tax revenue, making it harder for communities to provide quality schools and other public services. Declining tax revenue also raises the costs of borrowing, so localities will struggle to make major infrastructure investments, including those necessary for climate rebuilding, mitigation, and adaptation. As climate change reduces property values, these pressures can easily become a downward spiral.

Localities will not bear these burdens equally—and not only because already-marginalized communities are also more exposed to environmental risk. Racism in the housing market and in local fiscal systems will continue to shape how communities can respond to the climate risks they face. Already, poorer communities struggle to raise public funds; their challenges will multiply as climate pressure grows. Localities hit by hurricanes find it harder to finance debt, but the fiscal costs are far heavier for places with a larger non-white population. Poor communities risk seeing their communities written off as not worth the investment to rebuild—an especially unfair outcome because these communities did not see the profits of the high-carbon-pollution economy that is now endangering their homes.

For places with the resources to rebuild despite climate shocks—for example, many major cities—the current structure of the property tax encourages gentrification and often, additional risky development. As urban planners Linda Shi and Andrew M. Varuzzo have said: “The fiscalization of land use has driven and is driving cities to continue building on the waterfront, despite clear evidence that this is a bad idea in the long-term.”

Climate change will also encourage in-migration in some places. Analysts often suggest the Great Lakes region as a place where population may boom as Americans move away from wildfires, heat waves, droughts and hurricanes. Towns seeing a burgeoning population will find themselves in a comparatively rosy fiscal situation, if they choose to welcome and incorporate newcomers. One potential stumbling block is the political power of existing homeowners, who resist new housing development—another way that the American privileging of homeownership threatens the reforms essential to address climate migration.

The good news is that the local property tax is immensely overdue for reform. The spread of property tax limitations and tax competition between fragmented localities has made this source of revenue particularly constrained and inflexible. California’s property tax cap, for example, provides a huge windfall to longtime property owners by tightly constraining assessment increases. A study of California’s wildfires between 1990 and 2015 found that property tax revenue actually increased after the disasters, even though many homes had been damaged or destroyed. Why? Because more properties were sold, and it is only at sale that property assessments are adjusted to their actual market value. That’s right: Property taxes were so absurdly low that wildfires raised revenue. These kinds of distortions in the tax code are well worth revising, even if climate change were not endangering the stability of local public finance.

Reforming the property tax is a decades-long project—but of course, so is responding to climate change. As communities develop their climate adaptation plans, part of those plans must be a fiscal strategy that can weather the coming storms.

Watch a recording of our event here

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