Prepared for Impact

In extreme event is a time and place in which weather, climate, or environmental conditions—such as temperature, precipitation, drought, or flooding—fall outside a certain threshold, typically within the upper or lower 5 to 10 percent of historical measurements. Extreme events can create fiscal shocks that increasingly test the resilience of governments’ budgets. In recent decades, natural disasters have severely impacted state economies across the United States. Southern California wildfires caused $250 billion in damages; Hurricane Milton, $85 billion; and Hurricane Helene, $120 billion. In 2024 alone, 27 extreme events resulted in more than $1 billion in losses each, affecting structures, infrastructure, and agriculture, with lasting economic consequences. Catastrophic events often overwhelm the immediate capacity of local governments, requiring state governments to step in to coordinate large-scale response, recovery efforts, repair infrastructure, and manage intergovernmental transfers. Through sound budgeting and financial management practices, state policymakers can better prepare for, respond to, and recover from these shocks. But how exactly do extreme events affect public finances? And how can states properly prepare for and respond to such extreme circumstances?