Wildfires in Los Angeles aren’t just a climate crisis—they’re a financial one. Every year, flames rip through communities, consuming homes, businesses, and billions of dollars. And here’s the thing: that destruction doesn’t just disappear once the smoke clears. It lingers, buried in budgets, destabilizing municipal credit ratings, and quietly making it more expensive for cities to borrow money for critical infrastructure and services.
Municipal credit ratings, the invisible forces determining a city’s cost of borrowing, hinge on a mix of economic stability, tax revenues, and financial management. And increasingly, as wildfires become an annual fixture of life in California, credit rating agencies are taking notice.
The Direct Financial Toll of Wildfires
Let’s start with the basics: Wildfires cost a fortune. In the moment, you’ve got firefighters, emergency responders, and evacuation efforts that demand immediate, massive spending. But the real financial pain sets in after the flames die down. Roads, bridges, power grids, and public utilities get battered, and rebuilding them costs billions.
Consider the 2018 Woolsey Fire, which tore through Los Angeles and Ventura counties, racking up more than $6 billion in damages. If this were a one-off, the financial system could absorb the blow. But it’s not. Wildfires are getting bigger, more destructive, and more frequent, forcing cities to dig deeper into their budgets just to keep up.
The 2017 Tubbs Fire, which devastated Santa Rosa, is another example of how destructive these disasters can be. It resulted in over $8 billion in damages and destroyed more than 5,600 structures. The fire had a severe impact on Santa Rosa’s tax base, forcing the city to reassess its financial strategies and rebuild an entire portion of its community. The costs associated with recovery further highlight the burden that municipalities face when attempting to maintain credit stability.
Tax Revenues and Economic Disruption
Wildfires don’t just burn homes; they burn tax bases. When homes and businesses go up in flames, so do property values, shrinking the city’s property tax revenues. Tourism—a major economic engine for Los Angeles—also takes a hit. Who wants to visit a city with unbreathable air and the constant threat of evacuation orders?
Then there’s the workforce. Businesses close, jobs disappear, and some people leave permanently. Every lost resident is a lost taxpayer, and in a city already grappling with housing shortages and affordability crises, that’s a problem. A shrinking tax base means less money for public services, making everything from schools to infrastructure harder to fund.
Santa Rosa faced this reality after the Tubbs Fire. The loss of housing forced residents to relocate, some permanently, reducing the tax base and putting pressure on city budgets. Like Los Angeles, Santa Rosa had to balance recovery with maintaining essential services while dealing with uncertain revenue streams.
Credit Ratings, Borrowing Costs, and Earthquake Parallels
For cities like Los Angeles, municipal bonds are lifelines. They fund transit projects, affordable housing, and the basic infrastructure that makes a city function. But here’s the catch—bond investors hate instability. And credit rating agencies, which assess risk, are starting to weigh climate disasters like wildfires in their assessments. The more frequently LA gets hit, the riskier it looks, and the higher the interest rates the city has to pay to borrow money.
Take Paradise, California. After the devastating 2018 Camp Fire, its municipal credit rating was downgraded. While Los Angeles has a more diversified economy, the same fundamental risks apply: if wildfires become too frequent and expensive, lenders will charge more, and the city will be left paying billions more in interest over the coming decades.
Santa Rosa managed to avoid a major credit downgrade, but it did face increased financial scrutiny from investors and rating agencies. The city had to secure funding for reconstruction while proving its financial resilience, offering another cautionary tale for larger cities like Los Angeles.
There’s a precedent for understanding these risks: earthquakes. Los Angeles has long been aware of its seismic vulnerability and has incorporated extensive retrofitting requirements, stricter building codes, and emergency preparedness funding into its financial planning. Credit rating agencies have historically factored seismic risks into their assessments of California municipalities, rewarding proactive mitigation efforts with greater financial stability.
Wildfires should be treated with the same level of seriousness. Just as earthquake retrofitting has helped cities like San Francisco and Los Angeles maintain credit stability despite being in a high-risk zone, proactive wildfire planning—such as fire-resistant infrastructure, stricter zoning laws in fire-prone areas, and well-funded emergency response systems—could help insulate Los Angeles from financial penalties in the bond markets. The lesson from earthquakes is clear: investors reward preparation and foresight.
State and Federal Aid: A Double-Edged Sword
In theory, federal and state aid should act as a buffer against these financial shocks. But as wildfires become more frequent, that aid isn’t guaranteed to keep pace. FEMA and state relief funds help, but they don’t cover everything, and they come with delays. A city relying too much on uncertain external funding looks weaker to credit agencies, putting its rating at further risk.
This is another lesson from earthquake preparedness. Following major seismic events, state and federal assistance often falls short of covering long-term recovery costs, placing the onus on cities to create their own financial resilience. In the same way, Los Angeles must recognize that relying on federal disaster aid as a primary backstop for wildfire recovery will not be enough to maintain long-term financial stability.
Can LA Adapt Before Creditors Lose Confidence?
There’s a way out of this, but it requires serious investment in climate resilience. That means tougher zoning laws, better building codes, and aggressive fire prevention strategies. It means diversifying revenue sources so the city isn’t overly dependent on property taxes. It means keeping reserve funds strong enough to absorb financial shocks without resorting to emergency borrowing.
Santa Rosa, in response to its fire-related financial strain, has started integrating fire-resilient planning into its rebuilding efforts. Los Angeles must do the same, but on a larger and more urgent scale. Proactive adaptation is the only way to maintain credit stability in an era of worsening climate disasters.
The model for this already exists. Earthquake preparedness has shown that cities willing to invest in resilience upfront can maintain credit stability even in high-risk environments. Los Angeles has a choice: Treat wildfires as seriously as earthquakes now, or wait until credit downgrades and rising borrowing costs force its hand. Because if the bond market loses faith, it won’t just be the city’s budget that burns—it’ll be its future
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