What Extreme Heat Means for State Budgets

Throughout the U.S., average temperatures are rising and intense heat events are becoming more frequent and persistent, prompting states to confront the consequences for communities, essential services, and state finances.

In summer 2025, the National Weather Service issued heat advisories for every region of the continental U.S.—and for the first time, Alaska—with high temperatures causing an array of disruptions to essential services, including transit delays and power outages, and straining physical and healthcare infrastructure. Based on current trends, experts predict that the number of extreme heat days could double or even triple over the coming decades.

Should those projections prove accurate, the effects seen in 2025 are likely to persist, putting growing pressure on public balance sheets. Throughout the country, state policymakers are increasingly acknowledging extreme heat as a growing risk and looking for ways to reduce its harms and plan for its long-term implications on budgets and economies.

The fiscal impacts of extreme heat

The wide-ranging effects of extreme heat events are felt across critical economic and public service sectors, putting pressure on state budgets and creating complex policy challenges for decision-makers. Extreme heat puts pressure on state budgets by driving up healthcare needs, reducing agricultural output, and accelerating infrastructure deterioration, among other effects, which translate to higher public expenditures and lower revenue.

Health

States cover a range of public health and healthcare-related expenses to address individual and community needs during periods of extreme heat, including emergency response services, medical assistance for the uninsured or underinsured, and prevention measures, such as heat awareness campaigns and cooling centers.

Prolonged exposure to high temperatures can lead to illnesses such as heat exhaustion and heat stroke, which increase overall demand for medical services. For example, a 2023 study of the summers of 2016 and 2020 in Virginia found that, on average, extreme heat days led to 59 more emergency care visits and 25 additional hospitalizations compared with other days. And certain groups—such as outdoor workers, people experiencing homelessness, the elderly, young children and infants, pregnant women, and people with preexisting health conditions—are especially vulnerable. As heat-induced emergencies become more common, demand for medical services is likely to rise, placing additional financial pressure on healthcare systems.

Agriculture

Extreme heat, especially when coupled with drought conditions, can threaten agricultural production, which weakens crop and livestock revenue and may curtail farmers’ investments in land and equipment. In the early 2020s, above-average temperatures in California exacerbated the state's driest three-year period in history, reducing crop yields and causing a $3 billion decline in agricultural industry revenue. Lower crop yields also tend to drive up food prices locally or nationally. And as prices rise, more households may turn to state-run or funded public assistance programs, such as the Supplemental Nutrition Assistance Program or the Minnesota Food Assistance Program, placing additional stress on government resources.

At the same time, extreme heat can drive up requests for agricultural relief. As federal relief programs face growing demand, producers may also turn to states for support. A Duke University analysis found that heat-related crop insurance payments have steadily increased over the past two decades, and in some states, are costing millions to hundreds of millions of dollars annually.

Infrastructure

Rising temperatures also strain critical infrastructure, such as roadways, transit systems, and electric grids. Most infrastructure is not designed to withstand prolonged extreme heat, which can cause materials to soften, crack, or expand, leading to mechanical failures, such as the buckling of New York City’s Third Avenue bridge during a 2024 heat wave and the delays and derailments that have occurred across Washington, D.C.’s Metrorail system.

As higher temperatures strain essential systems, states could face rising and unplanned construction, repair, and maintenance costs from shortened infrastructure lifespans and emergency needs. For example, in 2024 power outages during a hurricane and heat wave event contributed to $13 billion in infrastructure damage in Texas. And California has estimated that, over the past decade, extreme heat has caused $3.8 million to $35 million in infrastructure damage per event.

How states are responding

State officials are seeking a better understanding of risks and vulnerabilities and are beginning to plan for a hotter future, including anticipated fiscal impacts.

To identify where extreme heat poses the greatest threat, some states are using climate data and mapping tools that analyze vulnerabilities across populations and critical infrastructure:

• California’s Climate Change and Health Vulnerability Indicator, for instance, is an interactive climate and health dashboard that overlays extreme heat projections and tree canopy cover with demographics to identify at-risk populations throughout the state.
• Wisconsin’s Department of Health Services Heat Vulnerability Data Explorer calculates the heat vulnerability index statewide to pinpoint areas of greatest risk for negative health impacts.
• New York’s Extreme Heat Action Plan publishes heat exposure maps to support regional and local health emergency planning and recommends improvements to building codes and planning standards.

States are also quantifying the economic impact of heat on key revenue streams and services:

• New Jersey’s Extreme Heat Resilience Action Plan highlights broad costs to labor productivity, agriculture, and infrastructure.
• California and Delaware have commissioned detailed studies of heat response costs—such as for cooling centers, wellness checks, and transportation and emergency services—and lost revenue from power outages and declines in manufacturing productivity.

Several states, including Arizona, California, New Jersey, New York, and North Carolina, have begun developing and implementing heat action plans. These plans outline an array of recommended risk reduction measures, such as publishing exposure data for public awareness, strengthening energy and water systems, updating building codes and planning standards, and supporting local and regional heat emergency operations.

Together, these efforts reflect a growing awareness that extreme heat can threaten public health and safety, disrupt essential services, depress revenue, and increase costs. States can build on these early actions to identify their specific heat-related risks, analyze how those risks translate into budget pressures, and take proactive steps, including learning from effective practices in other states, to prepare for the impacts of extreme heat.

Andrea Snyder works on The Pew Charitable Trusts’ managing fiscal risks project.