Credit Quality in U.S. Governments Exposed to Heat Stress

As climate change increasingly leads to costly disasters, municipalities face challenging choices around rebuilding, preparing proactively and raising funds for these goals. Local governments face different challenges based on their size, economy, resources and geographic location. In this analysis, Moody’s Investor Service looks at Four Twenty Seven’s data on exposure to heat stress in U.S. jurisdictions alongside information on outstanding debt and credit quality.

The analysis found that 21% of outstanding debt that Moody’s rates is exposed to high or very high heat stress. Almost 80% of the roughly $190 billion in debt that’s issued in areas with high exposure to heat stress is in the central U.S. and Florida. The Midwest is projected to experience the most significant rise in extreme temperatures by mid-century. The Southeast, on the other hand,  is expected to have a higher number of extreme heat days.  However, its residents and infrastructure are more acclimated to hot conditions, which can help alleviate some of the physiological and structural impacts of extreme heat.

Heat stress can lead to increased costs due to infrastructure damage, energy demand and resilience investment and can also threaten public health and economic productivity. However, many jurisdictions in the Southeast and Midwest have characteristics that reduce credit risk. The Southeast tends to have large, diversified economies, as well as large tax bases and growing populations. Meanwhile, the Midwest tends to have strong cash balances alongside median family incomes that help to buffer risk. The credit risk to extreme heat in these regions is largely balanced out by these credit-positive characteristics.

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Four Twenty Seven’s municipal climate risk data assesses the exposure of U.S. cities above 50,000 in population and all U.S. counties to floods, heat stress, hurricanes, sea level rise and water stress. To learn more read our analysis, Assessing Exposure to Climate Risk in U.S. Municipalities or explore our data products.