Financing Climate Resilience in Boston:

Engaging and Incentivizing Developers

and Private Property Owners

Carolyn duPont
cmdupont@mit.edu
carolyn_dupont@hks16.harvard.edu

May 18, 2016

The research for this paper was conducted as part of an independent study at the MIT Sloan
School of Management under the guidance of Prof. Gita Rao. Carolyn duPont is a 2016
graduate of a dual MBA/MPA program at MIT Sloan and the Harvard Kennedy School.

Electronic copy available at: http://ssrn.com/abstract=2838269

Table of Contents
Executive Summary ................................................................................................. 3
Introduction: Boston’s Need for Climate Resilience Investments .............................. 4
Barriers to Investing in Resilience: Stakeholder Mapping .......................................... 7
From Barriers to Solutions: Incentive Ideas ............................................................. 11
Conclusion & Next Steps ......................................................................................... 18

Appendix: Experts Consulted ........................................................................................................................ 20

Appendix 1: Building Resilience Toolkit (A Better City, 2015) ....................................................... 21
Appendix 2: Resiliency Measure Cost Estimates (A Better City).................................................... 22
Bibliography ......................................................................................................................................................... 25

Electronic copy available at: http://ssrn.com/abstract=2838269

Executive Summary
Boston is in the midst of a period of significant growth, visible every day in the many
ongoing real estate development projects and the ever-rising real estate prices. At the
same time, in the coming decades, Boston will face the challenge of adapting to climate
effects in the form of rising sea levels, increasing precipitation, and the threat of
catastrophic weather events as weather patterns shift.

The City has the opportunity to frame this period of growth as a period of opportunity
for preventative investments to protect the future of our City and our real estate. This
paper intends to contribute to the conversation about how Boston will pay for these
investments. In particular, the paper focuses on how Boston can engage and incentivize
developers and property owners to invest in climate resilience measures on privately-
owned land and buildings.

Key barriers to investment for private property owners include evolving regulatory
requirements, lack of a business case for making the investments, uncertainty as to the
possible extent of climate effects and the economic value of resilience investments, and a
short time horizon for development and ownership.

Given these barriers, the paper outlines possible financial and non-financial incentives.
For financial incentives, the paper explores 11 potential new revenue streams to finance
these investments, as outlined in the table below. The paper also discusses ways to
leverage these revenue streams with outside capital through a green bond or
environmental impact bond, as well as mechanisms for deploying financing to
developers and property owners, such as a revolving loan fund.

Finally, the paper outlines next steps for developing these incentive programs, including
1) developing better estimates of the cost of climate impacts if resilience investments do
not occur, 2) assessing the viability of tapping these revenue streams and establishing
these programs, and 3) engaging relevant stakeholders in the City and beyond.

Potential Revenue Streams to Tap for Climate Resilience Investments

Resilience Zone – 1. Tax Increment Financing

Neighborhood Programs 2. Special Assessment
3. Resilience Improvement District
4. Neighborhood Association
Stormwater Fees 5. Stormwater Bank
6. Stormwater Credit Trading Market
Other State & Local 7. Community Preservation Act
Initiatives 8. PACE + Resiliency
9. Establish a City Insurance Pool
10. Work with Insurers and Reinsurers to Generate Capital Pool
11. Tolls / User Fees (Roads, Parks, MBTA)

3
Introduction: Boston’s Need for Climate Resilience Investments
Boston faces significant challenges in coping with the effects of climate change in the
decades to come. This paper focuses on how Boston will deal with water: the most
recent projections show that Boston may experience sea levels rising by one to two
meters feet by 2100, and the city is also already experiencing increased precipitation.1

The Green Ribbon Commission has led a process of understanding what Boston will
need to do to cope with these increases in water. The Commission will be releasing a
report in mid-2016 outlining a unified set of sea level rise and precipitation projections
that can be used for planning purposes, and will also highlight the most critical projects
that Boston must conduct in order to harden against these climate change effects.
Further, A Better City has released several reports on what resiliency investments will
be required on individual buildings, such as their 2015 “Enhancing Resilience” report
which outlines resilience measures and costs for large building owners.2

However, there has not been a coordinated effort to date to focus on how Boston will
make these necessary investments – that is, who will pay for the climate resilience
measures and how. The approach cannot come solely from existing City and State
budgets – for instance, the City’s 5-year capital budget of $1.9B currently only mentions
climate once in relation to potential cost savings from LEED-certified buildings.3 As a
result, the City must consider how to look beyond existing resources into creative ways
to raise and deploy capital for climate resilience.

This paper aims to build on the work of the Green Ribbon Commission and A Better City
to provide an initial set of ideas for the City and relevant stakeholders to consider in
terms of finding a way to pay for these investments. In particular, this paper focuses on
how the City and other public sector stakeholders can incentivize developers and
private property owners to invest in preventative climate resilience measures on their
property, in order to avoid more significant “clean-up” costs down the road in the event
of a catastrophic event or significant climate-related property damage. This paper is
aimed to be a starting point for a conversation about approaches to financing climate
resilience. Next steps are outlined at the end of the paper.

The research for this paper draws primarily on interviews with 22 experts and
practitioners in the field, as well as a review of existing literature on climate and
resiliency efforts in Boston and beyond.

This paper is structured in the following manner:

1) A stakeholder map outlines the varied incentives (and disincentives) for
stakeholders to invest in climate resilience on property in Boston.
2) The stakeholder map surfaces a set of common barriers to investment.
3) These barriers in turn point to a set of possible solutions in the form of financial
and non-financial incentives.

1 For instance, the City has already experienced a 21% increase in precipitation in the last 60 years. Bud Ris, “Climate
Ready Boston - Boston Green Ribbon Commission.”
2 A Better City, “Enhancing Resilience in Boston: A Guide for Large Buildings and Institutions.”
3 “City of Boston - FY2015 Adopted Budget.”

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 4) This paper focuses on solutions to three key barriers to investment: a) lack of
regulatory incentive, b) cost/lack of resources, and c) short-term time horizons.
5) The paper outlines next steps for the City and its partners in determining how to
encourage resilience investments on private property.

The Case for Engaging Developers and Private Property Owners

Climate change effects will not conform to property boundaries – so preventative
resilience investments will be required on both public and private property, as outlined
in Exhibit 1. The City has the ability to pursue investments on its own property, which
will likely be financed by traditional public finance approaches (e.g., a bond issuance).
Utility agencies such as MassPort and the Boston Water and Sewer Commission also
have bonding authority and revenue models that support their operation, so they are
pursuing their own planning processes around protecting critical infrastructure and
assets.4

This paper focuses primarily on climate resilience investment on privately-owned

property, with an emphasis on managing water – flooding, sea-level rise, and increased
precipitation – though the findings may also help support resilience initiatives around
other climate effects such as urban heat islands. Private property owners fall into two
groups that are not necessarily mutually-exclusive: developers and private property
owners. Developers could include firms building large-scale commercial and residential
projects or smaller residential or commercial projects. Developers could also include
institutions such as hospitals or universities that are pursuing new building
construction. Private property owners can similarly be broken down into segments,
from real estate companies that hold building assets in Boston, to institutions, to
individual homeowners.

4“Massport - Resiliency and Climate Change”; John P. Sullivan, “Climate Adaptation Challenges for Boston’s Water and
Sewer Systems.”

5
 Exhibit 1:
Exhibit 1: Framework
Framework forfor
Necessary Climate
Necessary Resilience
Climate Investments
Resilience in Boston in Boston
Investments
Solutions for
Absorption and
Rising Seas

Public Land/
Private Land/
Property
Property
(Government)

Open Space for New Existing Assets

Infrastructure
Green Development (Property
Retrofits
Infrastructure (Developers) Owners)
Stormwater Parks, Sewer Line Repair and
Creating Wetlands Expansion, Pervious
Pavement, Open Space for
Sustainable Building
Bolstering Sea Walls, Green
Building Reinforcing Central
Design Retrofits
Infrastructure
Retrofits Artery and MBTA
Tunnels/Stations Stormwater Parks, Lifting Critical Lifting Critical
Pervious Surfaces, Infrastructure Infrastructure
Lifting Critical
Green Roofs Above Ground Above Ground
Infrastructure
Floor Floor
Above Ground
Floor
Sample solutions for absorption of increased precipitation
Sample solutions for managing rising seas / land subsidence
Sample solutions for both absorption and managing rising seas / land subsidence

Necessary Resilience Investments on Private Property

Exhibit 1 provides a high-level illustrative overview to the types of resilience
investments that are required to absorb increased precipitation and manage rising seas
and land subsidence. A 2015 report by A Better City outlines in greater detail building-
level resilience measures, sorting these measures into three broad categories:
permeable pavement, dry floodproofing, and permanent flood barriers. These measures
are detailed in Appendix 1. The report also outlines a cost range for each of these
interventions to developers and property owners, which are outlined in Appendix 2.
These measures are aimed at mitigating the impacts of storm damage within and outside
the floodplain, sea level rise, increased stormwater, and urban heat islands.

6
Barriers to Investing in Resilience: Stakeholder Mapping
Understanding the case for preventative resilience investments requires understanding
which stakeholders are incentivized to make those investments –broadly, those
stakeholders who would be obligated to pay for clean-up costs in a “do-nothing”
scenario in which those measures were not taken. These clean-up costs could relate to
repairing damage to buildings and infrastructure from gradual sea-level rise or from a
catastrophic weather event such as Hurricane Sandy in 2012. They could also entail
costs related to the disruption of business and the City’s economy.

To this end, the stakeholder maps in Exhibits 2 and 3 provide a high-level, generalized
overview of some of the most salient barriers to investment for stakeholders in the
public sector as well as the private sector. A report by the Urban Land Institute further
details these barriers to investment.5

Exhibit 2: Stakeholder Map: Public Stakeholders

5 Urban Land Institute, “Developing Resilience: Living with Water Strategies for Greater Boston.”

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Exhibit 3: Stakeholder Map: Private Stakeholders

A handful of stakeholders stand to lose significantly in the event that Boston’s buildings
are not properly hardened. The City could experience significant direct costs – of
cleaning up destruction due to weather, and on infrastructure failures – as well as
indirect costs of the economic impact on Boston companies and, by extension, the tax
base. The State may also have to pitch in to support storm clean up or hardening, and
FEMA would have to step in an extreme weather event. Finally, insurance and
reinsurance companies stand to lose money if the properties they insure are harmed.
These costs have not been recently quantified with updated climate impact projections.

Notably, developers and property owners – the ones who have the power to decide
whether to invest in hardening their buildings and property against climate change
effects – are not among those who stand to lose significantly in a “do-nothing” scenario,
as their losses would likely be insured.

As a result, this paper focuses on how to address barriers to investment on private

property, primarily through financial incentives. The paper recommends ways to
identify new revenue streams to finance climate resilience investments, as well as how
to leverage financial resources from private investors and then deploy the funds to
private property owners. The paper does not focus on possible regulatory changes,
though clearly strong regulation around climate resilience measures is vitally important
as well.

Focusing on the private stakeholders set, a few themes emerge from this stakeholder
map, highlighting key barriers to investment:

1. Evolving regulatory requirements mean there is no “stick” for enforcing investment in

climate resilience measures, particularly in existing buildings.
For new development in the City of Boston, regulation consists of Articles 80B (large
project review) and Article 37 (green buildings and the Climate Change Preparedness
8
and Resiliency Checklist).6 While these processes do require large new developments to
consider potential climate impacts, these codes do not require significant investments in
resilience by developers. There are also other priorities such as provision of affordable
housing and public infrastructure that “compete” for developer attention and resources,
and developers perceive that resiliency is less important to the City than these other
priorities.

There are no resilience retrofit requirements for buildings that are already constructed.
Therefore, there is little regulatory incentive for resilience retrofits. There may be
possibility for revising regulations for when a property changes ownership.

2. The cost of climate resilience measures – and the lack of expected return from those
investments – leads property owners not to invest.
In many cases for new development or large Class-A commercial space, it is not a lack of
access to capital that is the problem: it is the lack of a business case for investing in
resilience. Developers also express a concern that margins are already thin, so adding in
additional costs around climate resilience investments is not compelling to them in the
absence of strong and clear regulatory requirements.

For smaller building owners, lack of capital might be more of a direct concern. Resiliency
retrofits compete for investment among other more immediate capital expenditure and
maintenance requirements.

3. Uncertainty – about climate impacts and costs – stalls investment.

Tied to the barrier of lack of capital is uncertainty around the return on investment
(ROI) for resilience projects. Developers and owners are uncertain as to the cost of doing
nothing (either due to recurring rising sea level impacts or interruption and clean-up
due to a catastrophic event), the incentives for resilience investments in the form of
insurance premium breaks, and the market value of these investments (or lack thereof)
when a property is resold on the market. Given these multiple layers of uncertainty, it is
difficult for developers and owners to justify resiliency investments from a financial
standpoint.
4. Short time horizons for project development, ownership, and insurance prevent long-
term planning.
Developers are already subject to long review processes, and time is money: the ability
to get a project started as soon as possible and move toward completion is a high
priority. Therefore, additional requirements or design processes that extend the project
development process are likely to be unwelcome. Further, developers generally use a
10-year pro forma to project costs and revenues from the building, meaning that they
are unlikely to consider climate-related costs that are expected to occur several decades
in the future. There are some developers who do plan to build and hold, such as Boston
Properties and Samuels & Associates, so these types of developers may be more
interested in long-term climate costs – though these costs (if calculable) would be
heavily discounted back to present values.

6 Interactive, “Article 37 Green Building Guidelines | Boston Redevelopment Authority,” 37.

9
For existing buildings, many owners have a similar holding timeline of 10 years or
under, and would plan to exit the market should their investment start to lose value.

Finally, insurance companies – despite being responsible for covering some percentage
of losses due to weather and flooding – operate by renewing their policies generally
every 12-18 months with building owners.7,8 As a result, these companies say they will
also exit the market if it becomes too costly and risky to provide insurance in the Boston
market, similar to what happened in California with Earthquake insurance after the
1989 Loma Prieta earthquake. This effect has already started to occur along the Florida
Gulf Coast line as some insurance companies are becoming unwilling to cover coastal
properties.9 Reinsurance companies have a slightly longer time horizon and their
business is built around providing coverage for catastrophic events where significant
damage is incurred. However, reinsurance companies may over time choose to limit
their exposure to particular geographies should climate effects make coverage in those
areas increasingly risky.

7 PWC, R!SE, Boston Green Ribbon Commission, “Climate Finance Series - Insurance Roundtable Executive Summary.”
8 “Climate Finance Series - Insurance Climate Change Roundtable Dialogue.”
9 Solovitch, “How Miami Beach Is Keeping the Florida Dream Alive—And Dry.”

10
From Barriers to Solutions: Incentive Ideas
These four barriers in turn point to potential solutions – and, indeed, a narrative of
opportunity around investing now in resilience versus paying for more costly retrofits
or clean-up later as climate effects escalate. As noted above, this paper focuses not on
the “stick” side of the equation (regulation and enforcement), but rather the “carrot” –
providing financial and non-financial incentives for investment. Exhibit 4 provides an
overview of these barriers and potential solutions.

Exhibit 4: Barriers to Investment and Potential Solutions

Two Solution Approaches: Financial and Non-Financial Incentives

The two overarching solutions provided here are aimed at using incentives to address
these key barriers of cost, uncertainty, and time horizons. The City and its partners can
1) provide financial resources, and 2) provide non-financial incentives.

Solution 1: Provide Financial Resources

These are three steps to get financing for climate resilience investments to private
property owners:
1. Tap existing and new revenue streams
2. Leverage those streams by attracting private investors
3. Deploy funds to private property owners

1. Tapping existing and new revenue streams

The first step in providing financial resources is to identify revenue streams that can be
channeled toward climate resilience investments. Broadly, there are two categories of
resources that the City has the ability to tap: a) existing pools of public capital and b)
new revenue streams that can be generated with public involvement.

11
In terms of existing pools of capital, A Better City’s 2015 report outlined potential
financing options, incentives and rebates that could be employed for various resilience
investments.10 These options are listed in Exhibit 5. Further work will be required to
determine how each of these public capital sources could be leveraged for particular
City-led resilience financing programs.

Exhibit 5: Potential Existing Public Capital Sources

Existing Public Capital Sources
Federal Section 319 – Clean Water Act11
604b Water Quality Management Grant12
FEMA Hazard Mitigation13
Section 406 Stafford – Hazard Mitigation14
Business Physical Disaster Loans15
HUD Rebuild by Design Funds16
State Clean Water State Revolving Loan Fund17
Coastal Pollutant Remediation Grant Program18
Drinking Water Supply Protection Grant Program19
Utility Energy Efficiency Funds20
Municipal Municipal Stormwater Abatement Fees21

In addition to those listed above, several experts consulted for this project suggested
that the City could consider drawing on proceeds from the Regional Greenhouse Gas
Initiative (RGGI), thereby linking mitigation efforts with adaptation measures.

The City can also consider facilitating the creation of new revenue streams to create
financial incentive programs. Exhibit 6 provides a non-exhaustive list of 11 possible
approaches to generating these revenue streams, along with a short description. Again,
further work will be required to determine how each of these options complies with
existing zoning and regulation requirements, as well as how palatable these solutions
would be to key stakeholders in the Boston area.

It should be noted that a number of the revenue streams suggested below involve the
creation of a “resilience zone” – a concept that has been explored by Ceres, The Next
Practice, and the University of Cambridge.22 Designating resilience zones in the City may
have several benefits. First, these approaches could create a pool of capital that would
allow for investment in neighborhood-level interventions rather than just building level.

10 A Better City, “Enhancing Resilience in Boston: A Guide for Large Buildings and Institutions.”
11 US EPA, “319 Grant Program for States and Territories.”
12 DEP, “Grants & Financial Assistance.”
13 “Hazard Mitigation Grant Program | FEMA.gov.”
14 “9526.1 Hazard Mitigation Funding Under Section 406 (Stafford Act) | FEMA.gov.”
15 “Business Physical Disaster Loans | The U.S. Small Business Administration | SBA.gov.”
16 “Rebuild by Design.”
17 DEP, “Clean Water State Revolving Fund | MassDEP.”
18 Mass.gov, “Coastal Pollutant Remediation (CPR) Grant Program.”
19 Mass.gov, “Drinking Water Supply Protection Grant Program.”
20 “Energy Incentive Programs, Massachusetts | Department of Energy.”
21 “Stormwater Management.”
22 A Better City, “Enhancing Resilience in Boston: A Guide for Large Buildings and Institutions.”

12
Further, this approach allows the City to acknowledge that private property in
particularly flood-prone areas such as the Seaport may be more at risk for climate
impacts, and therefore can create district-specific financial and tax approaches. The
options below include scenarios in which these resilience zones would be City-
administered (similar to a Business Improvement District), and others where it would
be property-owner-led (parallel to the model of the MASCO neighborhood entity in the
Longwood Medical Area).23

Exhibit 6: Creating New Revenue Streams

Potential New Description
Revenue
Streams
1. Resilience Projecting the belief that resilience investments will increase property values
Zone + Tax and therefore tax income to the City, the City designates a portion of the
Increment expected additional tax revenue to repay resilience investments within a given
Financing designated “Resilience Zone.” This approach may be most applicable for green
infrastructure that create public green space, though as the market increasingly
puts value on resilience there may be further opportunities for projecting
additional tax revenue.
2. Resilience This approach would also require establishing a resilience zone in a particular
Zone + Special vulnerable area (such as the Seaport). An additional “resilience fee” would be
Assessment assessed on property owners on an annual basis, contributing to a fund that
could be invested in neighborhood-level resilience investments in that area, or
made available on a loan or grant basis to businesses in the zone.
3. Resilience Parallel to a voluntary Business Improvement District, this would be an
Zone + organization in which building owners and developers in an area could
Resilience contribute to projects that have shared benefits, such as neighborhood-level
Improvement resilience investments.
District
4. Resilience This approach could entail establishing a resilience zone. Similar to the
Zone + approach taken by the hospitals in the Longwood Area in establishing the
Neighborhood Medical Academic and Scientific Community Organization (MASCO) for joint
Association purchasing and infrastructure investment efficiency, this would be a voluntary
neighborhood association of commercial property owners in a vulnerable area.
Dues paid to the Association could be used to finance infrastructure resilience
projects and other neighborhood-level resilience initiatives.
5. Stormwater Assuming the Boston Water and Sewer Utility passes a Stormwater Fee
Fees – (currently under consideration), the proceeds from this fee could be used to
Stormwater fund green infrastructure projects on private property on a loan or grant basis.
Bank This approach assumes it would be cheaper or more impactful for BWSC to
promote the deployment of those projects on private property rather than on
public property.
6. Stormwater Assuming the Boston Water and Sewer Utility passes a Stormwater Fee and
Fees – allows trading of stormwater retention credits between property owners,
Stormwater developers can be incentivized to build green infrastructure and resiliency on
Credit Trading their property in order to be able to sell the credits to other property owners.
Market Similarly, existing owners may be incentivized to pursue retrofits for green

23 “Welcome to MASCO | MASCO.”

13
 infrastructure if the cost could be offset through sale of stormwater retention
credits.
7. Community Assuming CPA is passed by the City of Boston (expected to be on the ballot in
Preservation 2016), 10%+ of an estimated $13M raised per year can be made available for
Act environmental and open space projects, including green infrastructure
projects.24
8. PACE + Property Assessed Clean Energy Financing and Resiliency, or PACE, is currently
Resiliency pending legislation in the Massachusetts House.25 If passed, PACE could provide
off-balance sheet, low-cost capital for energy efficiency and resiliency
improvements in existing buildings via a betterment lien on the property.26
9. Establish a The City could establish an insurance authority to provide low-cost insurance
City Insurance coverage to property owners in the event of a catastrophic weather event. This
Pool approach may be more appropriate in the event that insurance companies start
to withdraw from the Boston real estate market if climate-related weather risks
increase. This insurance authority could be based on the California Earthquake
Authority model.27 The challenge with this approach would be figuring out the
appropriate amount of risk for the City to take on, and also how it could work
collaboratively with insurance providers in Boston and not undermine the
existing insurance market.
10. Work with The City could work in partnership with insurance companies or reinsurance
Insurers and companies to capitalize a fund to be deployed for resilience investments, given
Reinsurers to that both could share responsibility for costs in the event of a catastrophic
Generate weather event. Given the short time horizon of insurance companies and the
Capital Pool frequent turnover of policies, it is currently unlikely that this approach would be
appealing to them.
11. Tolls / User The City could identify ways to assess tolls or user fees on services in the Boston
Fees (Roads, area that could finance climate resilience, such as toll roads, the MBTA, or
Parks, MBTA) parks. However, given the current budgetary environment particularly for the
MBTA, this approach may not be politically viable.

These ideas are preliminary and intended to provide a starting point for conversation.
Next steps include assessing these options in terms of feasibility, as well as how much
revenue each approach could generate.

2. Leveraging Revenue Streams and Capital Pools with Outside Investment

Once revenue streams have been identified, the City may choose to try to leverage or
augment those capital pools by drawing in outside capital. Several approaches for doing
so are listed in Exhibit 7.

24 “The Community Preservation Act in Boston - Fact Sheet Provided to Mayor Walsh by Trust for Public Land.”
25 “PACE & Resiliency.”
26 “Bill S.1774.”
27 “CA Earthquake Authority.”

14
Exhibit 7: Leveraging Revenue Streams
Mechanism Description

Green Bond The City or State could issue a green bond backed by the full faith and credit of
the issuer, or backed by one or multiple of the revenue streams listed above. A
bond issuance could allow the City to access large amounts of capital for up-
front investments, to be paid back over time. The State of Massachusetts has
already completed several green bond issuances so there is precedence for this
approach.28,29
Environmental Parallel to a Social Impact Bond, an Environmental Impact Bond allows the City
Impact Bond to share the risk of a given project with private investors. The investment could
be backed or financed by public revenue streams. This approach makes the
most sense for a pilot project where investors are uncertain about the
outcomes of the intervention (such as the efficacy of green infrastructure
investments in stormwater retention). The EIB could be backed by philanthropic
or public capital in the event that the expected outcomes are not achieved.

In addition to these ideas, the City can also explore Public Private Partnerships to pass
some costs and operational requirements to private sector partners, such as to build and
maintain green infrastructure in the City. The City could also explore raising funds
through Catastrophe Bonds to provide additional insurance against the impacts of a
severe climate weather event.

3. Deploying funds through a financing mechanism

Once the revenue streams are in place and perhaps leveraged through a green bond or
Environmental Impact Bond, the City will need to find ways to efficiently deploy the
funds to building owners and developers. Some approaches for this deployment of funds
are outlined in Exhibit 8.

Exhibit 8: Deploying Funds

Mechanism Description

Revolving Loan The City could capitalize a revolving loan fund that provides low or no-cost
Fund financing for climate resilience investments. This would be a similar structure
to the City’s Renew Boston Trust, which provides financing for energy
efficiency investments.30

The City would need to determine how these loans would be repaid. There are
several options. First, the grants could be repaid as a part of the owner’s
property taxes – either part of the current amount or an additional fee
assessed. Second, if insurance companies were willing to give an insurance
premium break for these investments, it might be possible that a portion of
this premium break could be redirected toward the City until the loan was fully
repaid. Finally, if the Boston Water and Sewer Commission were seeking to
fund projects on private property, they may be willing to repay the loans to
these properties from stormwater fees or their own funds. Other alternatives

28 “Massachusetts Goes Greener With Latest ‘Green Bond’ Sale.”

29 duPont, Levitt, and Bilmes, “Green Bonds and Land Conservation.”
30 “About Us | Renew Boston.”

15
 for repayment likely exist, and the City would need to engage relevant
stakeholders to find an arrangement that was compelling to all parties.
Grant Pool Rather than expecting repayment, the City could elect to channel these
revenues to property owners as a grant. The City would need to articulate how
the projects being deployed in buildings or in neighborhoods would benefit the
whole city so as to avoid the appearance that particular developers or
property owners were being favored in the process. It’s likely that this
approach makes the most sense for residential buildings, and possibly in
lower-income areas where these funds could be packaged with investments in
affordable housing.
Fund a City Another way to deploy the capital gathered from these projects is to earmark
Insurance Pool the funds for capitalizing a public City-controlled insurance pool. This
approach could be an alternative to setting up a City-run insurance pool selling
policies to building owners. Instead, this pool of resources would be funded
from other sources and could be tapped in the event that the city suffers a
catastrophic event or damage that requires funds to be deployed. In this
sense, resources from this pool would provide a buffer against the City bearing
the brunt of clean-up and repair costs. This “last resort” fund approach could
be paired with other efforts aimed at preventative resilience investments.

Exhibit 9 demonstrates a potential flow of funds for a deployment mechanism. In this

case, the City would issue a green bond to capitalize a revolving loan fund. Loans would
be delivered to property owners for resilience retrofits and repaid over time. Eventually,
the loan fund would be closed and funds would be returned to investors.

Exhibit 9: Illustrative Flow of Funds

Looking at the possible mechanisms for deploying capital to developers and private
property owners, the City would need to evaluate which of these approaches is most
appropriate given the existing regulatory environment and the relative ease of
implementation of these approaches. It’s possible that multiple approaches could be
employed in order to target different end users - such as a program for small residential
owners versus another program for larger commercial building owners.

Solution 2: Provide Non-Financial Incentives

This paper focuses primarily on financial incentives for developers and property owners
to invest in climate resilience measures. However, non-financial incentives can also be
employed to address two key barriers for developers in particular – lack of regulatory
requirements, and the desire to avoid delays in the development phase.

16
To address the lack of regulatory requirements, the City could consider providing zoning
incentives to developers, such as density / Floor Area Ratio (FAR) bonuses to
developers who incorporate resilience measures into their development plans. The
additional income possible from increased density could offset the costs of designing
and building resilience measures.

If time is a primary constraint, the Boston Redevelopment Authority could consider

offering expedited review to developers who involve resiliency measures in their
projects.

The City could also consider tax-based measures, such as providing an accelerated
depreciation schedule for buildings that incorporate climate resilience measures. In
this case, the City would need to evaluate trade-offs in terms of lost tax revenue to the
City.

Determining whether these non-financial incentives are feasible and appropriate

requires evaluating integration with current review processes and regulation. Further,
the City would need to engage developers to ascertain under what circumstances these
non-financial incentives would be compelling enough to compel them to incorporate
resilience measures into the design process.

17
Conclusion & Next Steps
This paper serves as an initial step in the process of determining the best way forward
for the City to support private property owners in accelerating the deployment of
climate resilience investments. Next steps for this process are outlined below.

1. Conduct a cost study of potential climate impacts

Currently many stakeholders involved in this problem do not have a strong sense of
what the financial and economic consequences would be of a “do-nothing” scenario in
which climate resilience investments were not undertaken. FEMA broadly uses the
statistic that $1 invested in resilience generates $4 in avoided costs, though this has not
been applied specifically to the City of Boston.31 The City and its partners should use the
most current climate projections in order to establish at least an order of magnitude
understanding of the costs of rising sea levels, increased precipitation, and a potential
catastrophic weather event. These cost estimates should provide numbers at the City,
neighborhood, and building level. With a better understanding of these potential costs,
developers and property owners will be able to model in potential costs that currently
go unaccounted for in pro formas, thereby resolving some of the uncertainty that
developers experience around what climate effects are likely to mean for their property.
As a result, it may be easier to convince relevant stakeholders that preventative
resilience investments now make more financial sense than risking larger clean-up and
mitigation costs down the line.

This study could also build on the A Better City report on Enhancing Resilience to help
developers understand the cost of making resilience investments during the design
phase rather than pursuing retrofits later on.32

2. Explore viability of the revenue streams, leveraging, and deployment mechanisms

outlined in this paper
This paper suggests a set of possible ideas for creating new revenue streams, leveraging
those revenue streams with outside capital, and deploying the funds to property owners
and developers. The City and its collaborators should explore these options to ascertain
the feasibility of each option, as well as how attractive it is to a range of relevant
stakeholders. Feasibility criteria may include but are not limited to the following:
 Cost-effectiveness: How much revenue would each option raise? What
administrative costs would each option entail?
 Matching with proposed projects: What projects actually need to be financed,
according to the work of the Green Ribbon Commission and others? How do
these financial options match and support priority projects?
 Appeal to developers and property owners: Does the proposed solution actually
address barriers to investment of property owners? Would it be easy for
property owners and developers to engage? What kind of outreach and
engagement would be required to ensure that funds raised would be effectively
deployed?
 Equity: Do some options favor some communities in Boston more than others?
How can the City manage concerns about private benefit – that the City is

31 A Better City, “Enhancing Resilience in Boston: A Guide for Large Buildings and Institutions.”
32 Ibid.

18
 channeling funds to private developers and owners? Who are winners and losers
of each option?
 Political viability: What support would each option require from political
stakeholders in the City? How much alignment is there between the option and
current political priorities in the City? Will the option have to compete with
other priorities?

It is possible that further segmentation of developers and property owners would be

required to create a compelling financial or non-financial incentive program. For
instance, academic institutions such as Boston University and UMass Boston who have a
longer ownership horizon, or hospitals that need to be able to operate in the event of a
catastrophic weather event, would require a different incentive program than private
real estate development companies who plan to sell their building assets within a 10-
year time horizon.

3. Engage additional stakeholders for creative solutions

This report focuses primarily on engaging developers and private property owners. The
City should consider working with other stakeholders in this system who may have a
longer-term time horizon or whose interests might align more closely with the City’s.
For instance, the City could engage:
 Banks that provide underwriting to large development projects or real estate
financial transactions
 Large development investors such as institutional investors like pension funds
who exert influence over development plans
 Insurance companies seeking to maintain a presence in the Boston market
 Reinsurance companies with exposure to Boston real estate assets

The City may be able to work with these stakeholders who also will bear some of the
cost burden in the event of significant climate impacts on Boston’s buildings. These
stakeholders may also have the ability to work with and exercise influence upon
developers and property owners more directly as projects are designed, developed, and
executed.
Conclusion
There is clearly more work to be done as Boston determines its priorities for hardening
the City against climate impacts in the coming years and decades. This paper serves as a
an early step in the process of understanding not just what the City and its partners need
to do, but how they are going to do it from a financing perspective. Beginning this
conversation early will ensure that the City is able to move forward as quickly as
possible on preparing the City and its property owners to thrive in the face of increasing
climate effects.

19
Appendix: Experts Consulted
The following individuals graciously offered their time, expertise, and guidance in this
research process. Gita Rao, Professor of Finance at MIT Sloan School of Management,
provided research oversight and thought partnership. Bud Ris of the Barr Foundation
provided guidance over the course of the research on outreach and current climate
planning efforts in Boston.

Name Organization
Andrea Chegut MIT Center for Real Estate
Andrew Grace MassPort
Brad Swing City of Boston
Brian Swett Arup
Bud Ris Barr Foundation
Chris Dempsey Masabi
Chris Osgood City of Boston
Doug Criscitello MIT Sloan
Ed Marchant Harvard Kennedy School
Jane Silfen Encourage Capital
Joel Sklar Samuels & Associates
John Dalzell Boston Redevelopment Authority
John Fitzgerald Boston Redevelopment Authority
John Sullivan Boston Water & Sewer Commission
Laura O'Connor MassPort
Maeve Bartlett AECOM
Michael Alperin MIT Sloan
Ned Codd WSP | Parsons Brinckerhoff
Robbin Peach MassPort
Roger Grenier Liberty Mutual
Rowan Spivey Ceres
Tom Nally A Better City
Travis Sheehan Boston Redevelopment Authority
Yve Torrie A Better City

20
Appendix 1: Building Resilience Toolkit (A Better City, 2015)33

33 Ibid.

21
Appendix 2: Resiliency Measure Cost Estimates (A Better City)34
Note: Only measures addressing water and stormwater management are included in the
below table, though the A Better City report outlines costs for measures that mitigate
urban heat islands as well.

Measure Cost Estimate

Dry Floodproofing –  Small/mid-size buildings (e.g. laundromats, small
Backflow Valve manufacturers): $3,000–$5,000
Preventers  Mid-size buildings (e.g. office complexes, dept. stores):
$7,500–$13,000
 Large buildings (e.g. high rises, hospitals): $14,000–$34,000
Bioswale $58 per linear ft.; $20–30 per sq. ft.
Bound Recycled $8.50-18.00/sf – FilterPave
Glass Porous
Pavement
CHP Generator Reciprocating engine: $1400–$1800/kW
 Gas Turbine: $1300–$1900/kW
 Microturbine: $2500/kW
 Fuel cell: $5600–$7500/kW
 Backup controls/switchgear add approx. ~$175/kW
Cool Roof  Low slope: Coating—$0.75–$1.50 per sq. ft.; Membrane—
$1.50–$3.00 per sq. ft.
 Steep slope: Metal – $1.80–$3.75 per sq. ft.;
Tiles – $0.60–$6.00 per sq. ft.
Elevation of Building Expensive and site-dependent. 5% to 25% additional cost for
on Fill new construction. The fill itself is a major additional cost
associated with this measure. Additional site landscaping costs
can be built into design of new buildings.
Building accessibility issues from elevation in urban areas may
also add additional costs. A retaining wall may also be necessary.
Costs may be offset by reductions in insurance rate.
Elevation of Building Expensive and site-dependent—5% to 25% additional cost for
on Piles new construction. Elevating a detached 1–2 family home can
range from $45,000 to $200,000. Costs stem from pile-
driving/new foundation, wet floodproofing measures, relocation
of mechanical/electrical systems, and addressing potential
accessibility issues from elevation in urban areas. Elevating
existing buildings may require addressing other building code
issues prior to elevation.
Costs may be offset by reductions in insurance rate
Elevation of $1–$20 million for elevating equipment in commercial buildings
Mechanical and (NYC). Elevating building systems in isolation will not influence
Electrical Equipment FEMA premiums—must be paired with other measures
Floating Buildings An additional $60 per sq. ft. in construction costs
(International Marine Flotation Systems, Inc.)
Flood Shields $180–$250 per ft. (by width). Price increases for taller shields

34 Ibid.

22
Fuel Tank Anchoring $300–$500 to anchor a 1,000 gallon tank to a concrete base.
Cost will be lower for smaller tanks and for tanks anchored to
the ground
Green Roofing Extensive: $5–25 per sq. ft.; Intensive: $25–$40
per sq. ft. Annual maintenance costs range from
$0.75–$1.50 per sq. ft.
Permanent Flood  Levees/berms: 2 feet: $60/linear foot; 4 feet: $106/linear
Barriers: Levees and foot; 6 feet: $170/linear foot
Floodwalls  Floodwalls: 2 feet: $92/linear foot; 4 feet: $140/linear foot; 6
feet: $195/linear foot
Permeable Clay Brick $10.00–$12.00 per sq. ft.
Pavers
Permeable $2.50-$10.00 per sq. ft.
Interlocking Concrete
Pavers
Pervious Concrete $2.00–$6.50 per sq. ft., typically 15% more expensive than
conventional concrete and four times more expensive than
porous asphalt
Plastic Grid $1.50-$5.75 per sq. ft
Dry Floodproofing: $3.00-7.00 per sq. ft.
Polished Concrete
Floor
Porous Asphalt $0.50–$2.50 per sq. ft. (EPA), typically 10%–15% more expensive
than conventional asphalt (FHWA)
Raingarden /  Rain gardens: $3.00–$40.00 per sq. ft.
Bioretention Cell  Bioretention: $2.22–$30.00 per sq. ft.
Rainwater Dependent on size and material
Harvesting  Galvanized steel: $950 for 2,000 gal.
 Polyethylene: $1,100 for 1,800 gal.
 Fiberglass: $10,000 for 10,000 gal.
 Fiberglass/steel composite: $10,000 for 5,000 gal.
Resin-bound / $3.00–$12.00 per sq. ft.
Bonded Paving
Permanent Flood Project dependent
Barrier: Retractable
Barriers
Dry Floodproofing: Sealants: $2.50 per linear ft.; Membranes: $3.50 per sq. ft.; $5.70
Sealants and per linear ft. (Estimates based on floodproofing for floods of
Impermeable approx. 3 feet)
Membranes
Sump Pump / Wide range depending on quality and pumping rate.
Internal Drainage Pump cost ranges from $282.50 for 75 gallons/min to $2,970 for
System 160 gallons/min
Temporary Flood  Tigerdam (inflatable)—$80/linear ft. for 50 ft.-long and 19-
Barrier inch-diameter tube. Replaces 500 sandbags at a fraction of
setup time and similar cost and can be interconnected
indefinitely. One tube can be filled in 90 seconds with a
hydrant and 3 minutes with a standard pump. 17-year

23
 service life.
 Eco-Dam (inflatable)—Price varies by size (for 10m sections:
$133/linear ft. for 5 ft. high, $63/linear ft. for 2 ft. high,
cheaper for longer sections). 1 tube can be deployed in
under 10 minutes. 15-year service life.
 Rapidam (membrane)—$145/linear ft. for 1m high x120m
long barrier (significant cost reductions for larger orders).
Multiple sections can be joined together. Each 120m section
can be deployed by 3 people in 30 minutes. 15-year service
life.
 Aquafence (modular)—~$300/ft. for 4 ft. high, ~$750/ft. for
8 ft. high. 8–10 people can assemble 150 linear ft. of 4ft-high
panels in <1 hour. 50 year service life, can be reused over a
dozen times.
Wet Floodproofing Dependent on building size and site requirements, modifications
that reduce flood insurance premiums should be considered
 Cost estimates for wet floodproofing retrofits range from
approx. $100,000 for a detached 1–2 family house to $1.5
million for a high-rise residential or commercial building.
 Costs of elevating a building’s mechanical and electrical
systems above BFE range from approx. $85,000 for a
detached 1–2 family house to anywhere from $1 million to
$20 million for a high rise commercial building, depending on
whether additional retrofits are needed to reinforce floors or
roofs for additional weight or meeting fire codes.

24
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