Photo Credit: shutterstock.com/Michael Vi
This is the third installment in a blog series from CA FWD and Insurance for Good. CA FWD and Insurance for Good have partnered to develop an actionable guidebook that outlines replicable funding and financing strategies for risk reduction and resilience.
By Nuin-Tara Key, Carolyn Kousky, Joel Martinez
In January 2025, wildfires tore through Los Angeles and generated an estimated $76–$131 billion in economic losses. The disaster was unprecedented in scale—but the financial warnings signs it revealed were not. California faces a recurring and widening gap between the scale of investment needed to reduce climate risk and the revenue available to sustain that investment. With the state’s Legislative Analyst Office projecting structural deficits of roughly $35 billion annually starting in 2027–28, that gap is growing harder to close—and a recent study commissioned by the Legislature and Governor has made clear that addressing it will require new approaches to funding catastrophe resilience. Climate disasters compound the problem, driving up costs for households, governments, and businesses while eroding the state’s ability to pay for schools, housing, and essential services. The bottom line: California cannot keep pace with the costs of climate risk without a more stable and sustained approach to resilience investment.
The Cost of Under-Investment
The National Institute of Building Sciences finds that every dollar invested in mitigation saves up to $13 during recovery. When resilience investments fall short of the scale needed, the costs do not disappear—they multiply. The fiscal consequences of under-investment show up across multiple channels: wildfire smoke generated $60 billion in California income losses between 2017 and 2021; the 2025 Los Angeles wildfires resulted in $297 million in lost wages; extreme heat imposes approximately $1 billion in additional healthcare costs annually; and in the most disaster-exposed ZIP codes, rising insurance costs have reduced home price growth by an average of nearly $44,000 per property—eroding household wealth and local property tax revenues.
These impacts cascade into government budgets. As private insurers retreat from high-risk areas, the California FAIR Plan—the insurer of last resort—absorbs the exposure. By December 2025, the FAIR Plan’s total liability had reached $724 billion, a 230% increase in just three years. A single catastrophic wildfire event could threaten its solvency, passing costs on to policyholders throughout the state. Climate risk is also repricing the $4 trillion U.S. municipal bond market: S&P Global’s February 2025 downgrade of the Los Angeles Department of Water and Power signaled a broader reassessment that will raise borrowing costs for communities statewide—reducing capacity for schools, housing, infrastructure, and public safety.
Building Resilience on a Volatile Budget
California has made meaningful investments in resilience—including a $3.7 billion Climate Resilience Package during the 2021–2022 budget surpluses. But the state’s budget structure makes it difficult to sustain these commitments over time. When revenues fall short, long-term investments in risk reduction compete with immediate service needs—a structural tension that political will alone cannot resolve.
Understanding why requires a brief look at how California funds its government. The state’s General Fund relies heavily on personal income tax and capital gains revenues—sources that are highly sensitive to economic cycles and market swings. In good years, surpluses create opportunities for one-time investments; in lean years, those commitments are among the first to be cut. This boom-and-bust dynamic makes it structurally difficult to sustain long-term investments in resilience, no matter the level of political will. A California Forward (CA FWD) sample analysis of 31 state adaptation and resilience programs illustrates why: nearly two-thirds of these critical programs rely on funding sources that are not durable—bonds that run out, General Fund appropriations that don’t recur, and grant programs that operate as one-time efforts.The average program lifespan is about 2 funding cycles, with nearly a third operating as one-time investments. The result is a layered patchwork—not a durable investment framework—that leaves California unable to scale resilience investment to match the challenge it represents.
What Sustained Revenue Would Change
Other states are exploring instructive models: Hawaii enacted the nation’s first climate-specific tourist tax to generate approximately $100 million annually for climate adaptation. Vermont and New York have enacted Climate Superfund laws establishing a polluter-pays framework, requiring fossil fuel companies to contribute to a dedicated fund based on their historical emissions. And Alabama has funded home wind mitigation grants of up to $10,000 through its insurance industry rather than the state’s general budget — demonstrating that resilience investment models can draw on a range of revenue sources.
Each approach reflects a different path toward the same goal: dedicated and sustained revenue that aligns with a state’s economic priorities that helps lower future losses. Dedicated resilience revenue can support multi-hazard infrastructure, deferred maintenance, community planning, and long-term monitoring — working alongside, not replacing, existing General Fund dollars, bonds, cap-and-trade revenues, and federal assistance. California has its own distinct fiscal, legal, and political context that will shape which tools, or combination of tools, make the most sense here.
A Moment for Strategic Action
California has an opportunity to advance a more strategic and durable approach to resilience. Proactive investment reduces emergency response costs, protects the state’s tax base, stabilizes insurance markets, and preserves local governments’ capacity to deliver essential services. These are not abstract state-wide benefits—they are the conditions that make California’s economy and public finances work.
The question is not whether California can afford to invest in resilience. The question is whether California can afford not to. Through our partnership with Insurance for Good and a cross-sector expert workgroup, California Forward is doing exactly that work — evaluating which funding and financing approaches best fit California’s own set of opportunities and constraints, and what a durable strategy for sustained resilience investment could look like. More to come from our collaboration.
