CFB: "Markets Mis-price Home Values" - Nobody

When the right hand and the left hand belong to the same person but they don’t act like it is what this looks like.

Property insurance companies have been changing their behavior rather dramatically in the face of climate change. Their bottom line demands it. Mortgage providers, which have an underlying asset that is identical to that of the insurance company, are not changing their behavior.

This is problematic for a lot of reasons. For our communities, however, it could damage local government capacity significantly.

Read about this here.

CFB: Two Point, Oh

The post-election discussion around community finance is underscored by a lack of precedent that is the new precedent for the incoming Administration. With obvious downsides to unknowns lets focus on the upside: public finance has an opportunity to define itself and we suggest it is done through resilience. We are not alone but we could suggest readers comb through the posts over the last 18-months where this theme is properly vetted.

Now we know what the headline is so its time to think on implications. This is the first of several series looking at various components of 2025.

For decades, municipal bonds have funded the infrastructure that underpins our communities. By embracing adaptation and resilience, public finance can prepare state and local governments for the challenges ahead while reinforcing the value of our asset class.

This focus on resilience isn’t just practical—it’s strategic. With tax reform looming and the tax-exemption status of municipal bonds potentially at risk, demonstrating the role of municipals in protecting communities and minimizing future federal bailouts is vital. By investing in resilient infrastructure, public finance can showcase its ability to not only drive economic growth but also mitigate risks posed by climate change and natural disasters. This approach positions our market as an indispensable tool for the future.

Resilience is the natural evolution of public finance, blending fiscal responsibility with forward-thinking investment.

American Banker: We Are All Green Banks

The newspaper, American Banker, published a CSG commentary earlier this week and we’ve posted the language here. Given yesterday’s election, this piece holds an interesting place in time. The growth of CDFIs and green banks is largely the result of the Biden Administration’s push to elevate non-profit lenders and we do not see this reversing, but it most definitely will stall. The rapid growth of the last few years will not continue at the same clip. Community Development Banks, state bond banks, infrastructure banks are the natural Darwinian selection here over a ‘green bank’ under a Trump Administration as it pays tribute to states rights without an emphasis on green and climate issues that have been politicized. Most of what is written here, the credits etc…, these are not likely to be clawed back.

AB: Thanks to the Inflation Reduction Act, all banks are 'green' banks now

Two years ago, the Inflation Reduction Act (IRA) marked a significant shift in the U.S. economy, catalyzing green projects nationwide through the Greenhouse Gas Reduction Fund (GGRF). This fund aims to reduce greenhouse gas emissions and enhance economic equity by providing disadvantaged communities with access to clean energy capital. With $27 billion allocated, the fund must attract private capital, turning billions into trillions over the next decade. However, success depends on whether commercial and investment banks fully engage in this green transition.

The rise of green banks and Community Development Finance Institutions (CDFIs) in clean energy is remarkable, with their roles expanding rapidly. Green banks have leveraged public funds to attract private investment, while CDFIs provide capital to underserved communities. The GGRF amplifies these efforts, but without broader financial sector support, the potential impact will fall short. The success of the GGRF could determine the future of the financial sector in the coming decade.

CDBs & CDFIs

Green banks—referred to here as Community Development Banks (CDBs) to preempt anti-ESG backlash—and CDFIs address gaps in traditional lending, particularly in clean energy and economic development. CDBs, usually public or nonprofit, use limited public funds to reduce investor risk and make clean energy projects scalable. CDFIs, mission-driven nonprofits, historically provide capital for affordable housing and small businesses in underserved communities. While they traditionally focus on economic equity, recent years have seen CDFIs enter the green space, blending affordable housing with clean energy initiatives.

Impact of the GGRF

The GGRF has elevated non-profit lenders onto a national stage by selecting CDBs and CDFIs to underwrite and originate clean energy loans. This influx of funding creates opportunities for innovation, but also demands rapid scaling, new expertise, and navigation of complex regulations. A White House official recently stated, “We want CDFIs and green banks to become an asset class just like any other,” signaling high ambitions but acknowledging the need for foundational development.

Broader Implications

For the financial industry, the GGRF presents an opportunity to engage in a federally de-risked sector and to invest in historically underserved communities. Commercial banks must recognize that their involvement is no longer just corporate social responsibility—it is essential to their core business strategies. This shift may lead to systemic changes in clean energy project financing, with public-private partnerships and innovative financial instruments becoming central to reducing investment risk in emerging technologies.

However, commercial banks and CDBs/CDFIs traditionally operate in separate silos. CDBs focus on clean energy policy, while CDFIs target affordable housing and minority-owned businesses. The GGRF forces a convergence of these sectors, making broader financial sector engagement critical for success.

Public Policy Implications

The GGRF could set a precedent for future government interventions, using public funds to mobilize private capital. This model may influence policies in infrastructure investment and economic development, promoting a collaborative and market-driven approach to solving national challenges. However, without careful design, these efforts risk widening existing inequalities.

Green and the Wealth Gap

The link between clean energy initiatives and economic inequality is profound. Low-income communities, particularly communities of color, are disproportionately affected by climate change and are often excluded from the benefits of the green economy. “Energy poverty,” where households spend a significant portion of income on energy costs, is a critical issue. Without equitable policy design, programs like the GGRF could exacerbate economic disparities.

Brookings Institution warns of "green gentrification," where rising property values displace low-income residents from sustainable neighborhoods. If the green transition is not made equitable, historically marginalized communities may miss out on the jobs and opportunities promised by the green economy, perpetuating cycles of poverty.

We Are All Green Banks

For investment and commercial banks, the GGRF offers a chance to integrate green finance into their core strategies, blending financial returns with social benefits. While CDBs and CDFIs focus on mission-driven impact, commercial banks can bring capital and market reach. The collaboration between these sectors is essential for scaling green finance initiatives and ensuring broad economic impact.

Where the Focus Should Be

1. Co-Funding Green Projects: Investment banks can partner with CDBs and CDFIs to co-fund projects, combining capital with mission-driven goals for equitable impact.

2. Pooling and Securitizing Loans: Banks can pool green loans from CDBs and CDFIs into asset-backed securities, attracting investors and providing liquidity for continued lending.

3. Credit Enhancements: Commercial banks can reduce investor risk by offering credit enhancements, making green projects more attractive and scalable.

4. Tax-Credit Advisory Services: Banks can help maximize tax credits for clean energy projects, driving more investment and ensuring equitable distribution of benefits.

5. Leveraging Local Knowledge: CDFIs have deep community ties, allowing banks to deploy capital effectively while promoting equity and financial returns.

6. Scaling Impact: By collaborating, banks can ensure that GGRF funds reach the communities most in need, helping to close historic income gaps.

The Role of Technology and Automation

Technology and automation will play a key role as green banks (CDBs) and CDFIs scale their operations under the GGRF. Fintech solutions, cloud-based platforms, and AI-powered underwriting can reduce friction in clean energy project financing. Automating loan processes will speed up approvals, enabling capital to flow more efficiently. AI tools can also improve risk assessment in underserved communities, tailoring financing products to their unique needs.

By embracing these technologies, commercial banks, CDBs, and CDFIs can bridge the gap between mission-driven objectives and the need for scalability, making green finance more inclusive, efficient, and impactful.

In conclusion, the GGRF provides a critical opportunity for banks to integrate green finance into their core strategies. Collaboration between commercial banks, CDBs, and CDFIs will be essential in driving large-scale green projects and ensuring that the benefits of green finance reach historically marginalized communities. The future of the financial sector depends on its ability to adapt to this new landscape, where social and environmental impact are as important as financial returns.

CFB: A Harris Win and What It Means for Public Finance

This brief assumes a Harris win and we explain why. Bias is an amazing force especially when financial incentives are so rewarding in keeping this “a close race.”

Because, why not? CSG is by no means a political forecaster and have no data points that are not publicly available but we think it will be Midwestern sensibility and Puerto Rican rage that moves the needle. Trump is crass to an extreme never seen before at a national level. This turns most people off. Women vote at a much higher rate than men. Whist significantly louder than Harris supporters, it just doesn’t add up that the MAGA electorate are gaining in the areas that are historically needed and where common sense leads us.

Amid the fanfare around what shoe will drop around the bend on social media, a quiet force is making moves, we think. After making that case, we offer what this means for public finance through the end of this decade and beyond and its, we think, generally good for the asset class and America.

Read about Why Harris Wins and What it Means for Public Finance.

Thoughts on AI, Unions and The Election

The upcoming presidential election will be a turning point for America’s workforce, with artificial intelligence (AI) set to redefine work as we know it. Unlike past technological shifts, AI’s rapid scale and potential to automate tasks across all sectors—from manufacturing to finance—pose both risks and opportunities. The next administration will need to make critical policy decisions on labor protections, regulations, and worker training to prevent AI from becoming a tool that deepens economic divides and exacerbates job insecurity.

Organized labor should be at the forefront of this discussion, yet many unions have remained hesitant to endorse a candidate. This silence is striking, given the contrasting labor stances of the two leading candidates.

The stakes couldn’t be higher: the next president’s decisions will shape how AI impacts America’s workforce for generations.

CFB: Push Things Forward With Public Pensions

U.S. infrastructure is a familiar target —graded a C-minus by ASCE, dismissed as 'a garbage can' by Trump, battered by hurricanes and ridiculed for massive carbon emissions. However you view it, the issue is non-partisan. While the majority of infrastructure funding flows through municipal bonds—a uniquely American, generally effective model—the constant complaints means it could be better. Yet, access to capital isn’t the problem with $450 billion available annually.

We propose that certain public assets could benefit from new ownership and management structures—ones that prioritize strategic, sustainable upkeep over short-term gains. While some may point to failed public-private partnerships, we see an opportunity for public-serving capital pools like pensions or endowments to engage in infrastructure finance.

While this approach may seem politically challenging, with resistance to expanding public pension roles and a preference for local over privatized ownership, there is a balanced path forward. Involving public capital pools in infrastructure ownership via municipal bonds could address deferred maintenance, resilience needs, and decarbonization more effectively than the current model.

The case for allowing public-serving capital pools to own and operate U.S. infrastructure through municipal bonds is not only viable—it’s necessary. Read the case here.

CFB: Piloting The Future To Enhance Local Lenders

In the face of increasing climate risks and disasters, Community Development Financial Institutions (CDFIs) and Community Development Banks (formerly green banks) have an opportunity to drive resilience through innovative financial tools. Policy makers have elevated these local capital provider significantly in recent years but have yet to consider how they can engage the resilience/adaptation finance space. Lets change that.

Four pilots for policy makers to consider: First, a Mutual Insurance Policy Pilot would provide funding for risk mitigation projects like fireproofing homes, with insurance savings repaying the loans over time. This model would incentivize communities to take proactive steps toward reducing risks while benefiting from long-term financial savings.

Next, a Resilience Bond Pooling Pilot would allow CDFIs to bundle smaller resilience projects—such as flood barriers and stormwater management—into one larger investment package, similar to state bond banks. This approach could attract institutional capital while addressing localized infrastructure needs. A Credit Enhancement Pilot would further de-risk resilience projects by offering guarantees or reserve funds, making it easier for CDFIs to participate in large-scale initiatives. This mirrors successful models like LOCUS Impact Investing, which has used pooled guarantees to unlock community investment capital.

Lastly, the Insurance Premium Reduction Pilot links risk mitigation investments to reductions in insurance premiums, encouraging homeowners and small businesses to invest in resilient upgrades. By tying financial savings directly to disaster risk reduction, this pilot would provide immediate incentives while driving long-term community resilience. These four pilots collectively address the scaling, affordability, and risk challenges that have limited the role of CDFIs in resilience financing, paving the way for more innovative approaches.

Read the full brief here.

CFB: Resilient Recovery Starts Now

Earlier this week, public finance agencies called on Congress to create disaster recovery bonds, offering communities access to low-cost capital. This response continues a costly, reactionary pattern. Instead, the federal government should use this moment to introduce resilience-focused guidelines, ensuring that rebuilding efforts make communities more sustainable for future generations—not just reconstructing what was lost.

Read about the limits to this proposal but importantly a framework to resilient recovery in the U.S.

CFB: Hurricane Helene Exposes Muni Credit Flaws

With the Caribbean just a few tenths of a degree warmer than historical norms, a supercharged Hurricane Helene ripped though the Southeastern United States causing loss of life, communities in shambles, and untold financial damages. Upon reflecting on the financial paradigm of this natural disaster, we have small, rural communities looking at hundreds of millions, if not billions, of damages in places that were sought out by some as a refuge from climate volatility.

In tracking the less noticed impacts of changes in the property insurance over the last two years, we’ve written about that industry’s changes as a leading indicator for muni credit. This storm offers clarity to the argument that muni ratings do not take climate seriously with negative implications for homeowners, bond investors and prudent policy.

“At the end of the day, homeowners are bound to their local government. For any property owner, the local government is at the center of place-based risk. The ability of a local government to respond to disasters, maintain infrastructure, and provide public services is critical to both property values and the broader economic health of the community. This is why rating agencies, as entities that influence municipal borrowing costs, have both a fiscal and ethical reason to change their behavior.”

Read the full brief here.

Dallas Fed Resilient Capital Stack Roundtable

CSG was invited to speak at a roundtable recently and took the opportunity to put the focus on state and local governments when it comes to resilience finance. While the quote below highlights one of red flags discussed, we offered our view point on where the state of play will be a year from now if we approach resilience with a public finance focus.

“Let’s address one of the current darlings of the resilience finance space or at least where I see public finance and resilience overlapping: CAT bonds have come up as a cure-all for the insurance issue. While they offer improvement over other federal programs like the National flood program or FAIR Act related programs, they are not the solution. CAT bonds represent an extension of the public balance sheet at taxpayers' expense. This is not sustainable. What we’re really seeing is a fluffing of the capital stack without addressing the core financial and structural issues at hand. I say this well knowing many in this room disagree - and I want to be clear - they represent an incremental step of what should be a bigger solution - but it seems the markets, policy advisors and lawmakers can only agree on that small step - and after taking 5 or 6 small steps with no comprehensive plan, a state finds itself  billions in debt through the CAT mechanism. This is not fiscally sound or sustainable.” - Matt Posner

The webinar mentioned can be found here.

Read the full remarks here.

CFB: New Utility District Formula For Resilience

Governments across the U.S. have begun establishing specialized resilience-focused jurisdictions, from Napa Valley to the Chesapeake Bay. However, a scalable, consistent financing mechanism for these efforts remains absent. Resilience Utility Districts (RUDs) offer a solution, moving the focus from reactive disaster relief to pre-disaster resilience planning.

RUDs empower municipalities with the autonomy and resources to build resilient infrastructure and mitigate climate risks before disaster strikes. These districts could leverage federal and state support, in the form of grants, tax incentives, and technical expertise, to create sustainable financing frameworks.

A major benefit of the RUD model is its potential to unlock private capital and insurance participation in resilience projects. By establishing a structured approach—supported by Resilience Revolving Funds (RRF)—RUDs can ensure continuous reinvestment in future projects, creating a self-sustaining cycle of resilience investment.

Read the full Brief here.

CFB: Shifting Paradigms In Resilience

Ahead of a series of webinars around resilience, we found ourselves thinking about why the local government perspective has been missing from the conversation around resilience. Most agree that climate change is increasing the impact of disasters on our communities but the solution conversation is heavily dominated by the private sector. A U.S. Chamber of Commerce meeting this Spring about resilience featured zero local government officials. This started the wheel…

While the American Red Cross was founded in 1891, it was the 1906 earthquake in San Francisco that spurred a largely documented process of local companies with footprints in the area to lead relief efforts. In this case it was the Southern Pacific Railroad that provided emergency transportation services while financial institutions - local banks that grew from various natural resources plundering- contributed heavily to rebuilding efforts.

It really was not until the 1980s that we saw an institutionalization of relief, but it is no surprise to see the pre-disaster conversation led by the private sector. This brief discusses how a paradigm shift to local government can occur.

CFB: Balancing Labor and Climate

As the United States accelerates its efforts to tackle climate change, Democrats face a crucial dilemma: how to balance their strong support for organized labor with the urgent need for swift decarbonization. Recent legislation like the Inflation Reduction Act (IRA) and initiatives such as the Greenhouse Gas Reduction Fund (GGRF) have tied green energy investments to labor mandates, ensuring that union workers benefit from the clean energy transition. But these partnerships come at a cost.

Labor provisions like Build America, Buy America and prevailing wage requirements have raised the price tag of clean energy projects, delaying implementation and slowing progress at a time when speed is essential. While Democrats have championed unions and passed pro-labor policies, it’s time to recognize that these mandates may be standing in the way of decarbonization goals.

Read the latest here.

CFB: Local-Driven Networks for Investments

We dig into why local, how to empower local, and then how to engage private capital into projects this week.

“From Ashby Monk ofStanford University: "Standardization in financing terms and project design is key to attracting institutional capital, which seeks scale and predictability.” A town of 50,000 people in one state will face similar infrastructure needs as another town of the same size elsewhere, enabling the development of a template for resilience investment. This template could include pre-defined financing terms, loan structures, and project management guidelines that can be replicated across regions, creating economies of scale and reducing administrative burdens for both local governments and investors.”

Read the latest Community Finance Brief here

CFB: A Balance for Net Zero and Resilience

The push for a zero-carbon future, with its focus on solar panels, wind farms, and electric vehicles, has captured public and political imagination. These projects are visible, marketable, and offer clear financial returns, making them attractive to investors and policymakers alike.

However, while transitioning to net-zero is crucial, we must not overlook the importance of resilience. Projects that strengthen infrastructure to withstand climate impacts may not generate immediate revenue or visual appeal, but they are vital for long-term safety and economic stability. The cost of inaction is high—natural disasters cause billions in damages every year, and every dollar spent on resilience can save up to six dollars in recovery costs.

Resilience and net-zero efforts are complementary; both are needed to ensure a sustainable and safe future. As we continue to build towards a cleaner world, it’s essential to balance emissions reduction with investments that prepare communities to withstand the growing impacts of climate change.

Broad federal policy recommendations in this week’s Community Finance Brief.

CFB: Land for the Resilient Win

“We, the collective public, are the world’s wealthiest ‘we,’ holding vast reserves of land through our governments. This shared treasure is not just a symbol of our collective power but a powerful tool to finance resilience for our communities.”

In an era where the need for resilience is increasingly urgent, the vast reserves of public land held by governments present a unique opportunity. By strategically monetizing these assets, communities can either directly enhance the resilience of the land itself—through projects that mitigate climate risks and bolster sustainability—or leverage the value of the land to finance resilience initiatives in other critical areas. This approach is not just innovative; it aligns perfectly with broader discussions on resilience financing, offering a sustainable way to fund the infrastructure and programs necessary to protect our communities from climate change and systemic threats.

Read the latest Community Finance Brief on public land here.

CFB: From Grants to Growth

The Biden Administration’s funding programs have sparked an unprecedented boom in grant opportunities. The IIJA alone has introduced over 450 unique funding streams, funneling more than $306 billion into state and local projects within its first two years. This influx has also led to a surge in grant-writing and advising services as organizations scramble to navigate the complex landscape of federal applications.

The current landscape raises critical questions about the sustainability of relying heavily on federal grants for community projects. Grants, while providing necessary initial capital, often lack the mechanisms to support scalable, long-term investments. This short-term focus can prevent projects from growing beyond their initial phases and achieving lasting impact.

Moreover, the data shows a troubling trend: federal grants, even those aimed at historically disinvested communities, are more likely to end up in areas with the capacity to self-fund. This reality underscores the need for a more strategic approach to funding, one that prioritizes financial resilience and long-term stability.

Read a discussion on moving beyond grants here.

CFB: The Value of Community Development Banks

In a world increasingly fraught with climate uncertainties, the capacity to build resilient communities is paramount. Financial constraints and a lack of stakeholder engagement often stymie these efforts. However, state-level, quasi-public banks (aka Community Development Banks) offer a promising solution to these capacity issues, enabling communities to leverage efficient capital and consistent program execution. While many of these banks were established in the last five years with a focus on transitioning to a net-zero economy, their potential to enhance community resilience remains largely untapped.

The integration of these state-level financial entities into the resilience framework offers a transformative approach to community finance. By merging economies of scale with diligent state oversight, these banks can overcome the inconsistencies that deter large investors from local government-run projects. Establishing clear frameworks for resilience, beyond just flood mitigation, could create models worth replicating nationwide. This holistic approach, potentially leading to lower property insurance premiums and more resilient communities, embodies a coup in public finance.

Read the entire Brief by clicking here.

CFB: Paying for Government Resilience Projects

The rise of public awareness around resilience in where we live has created a wave of interest in the science and policy behind fortifying our communities for the future but there needs to be more discussion on the ‘who pays for this’ thread.

This Community Finance Brief examines how exactly projects can be paid for when it is a local or state government making decisions and who the investor base is in such projects in a continuation of our summer series on resilience.

CFB: Muni Bonds Lay a Resilient Foundation

The uneven distribution of American prosperity becomes starkly evident when examining the resilience of our infrastructure and communities. The term "resilience" spans various sectors such as infrastructure, energy, water, agriculture, healthcare, and financial systems. However, defining and investing in resilience poses significant policy and political challenges due to the complexities of present-day calculations and the lack of immediate political rewards. Despite these challenges, investing in communities vulnerable to natural disasters and underinsurance through municipal bonds offers a strategic approach to address immediate financial needs and long-term benefits.

We make the case for resilience through municipal bonds as part of a resilient action plan for state and local governments in this Community Finance Brief as part of a Summer series on resilience leading up to Fall workshops on resilience, local governments and public-private partnerships.