We are looking for municipalities in Pennsylvania, Maryland, and Virginia to assist in developing alternative Pay for Success models to finance green infrastructure projects, using the first-of-its-kind Environmental Impact Bond issued by DC Water as an example.
Our objective: Create a model for funding green infrastructure that, where appropriate, can be duplicated in small-to-mid-size cities to help the cities meet federal and state Clean Water Act requirements.
What is green infrastructure?
Under the federal Clean Water Act, municipalities are required to address polluted runoff and antiquated sewage systems—some of which dump sanitary waste and raw sewage into local rivers and streams when moderate to heavy storms hit. Meeting clean-water goals in cities, towns, and urban counties is often difficult and expensive. Polluted runoff is a major source of pollution in the Bay that is still increasing, causing from 17 to over 20 percent of the nitrogen pollution to the Bay.
Newer runoff management techniques that address these issues include so-called green infrastructure—such as vegetated trenches, green roofs, and raingardens—that mimic natural processes, may be more cost-effective, and can provide other community benefits. But because of unfamiliarity, these practices may be seen as riskier and more difficult to finance.
What are Environmental Impact Bonds?
An Environmental Impact Bond is an innovative financing tool that uses a Pay for Success approach to provide up-front capital for environmental programs. In its most basic form, a municipality or municipal entity (such as a municipal utility) issues Environmental Impact Bonds and sells them to private investors to obtain funding to pay the cost of environmental capital projects (steps 2 to 3).
The municipal issuer is required to pay interest on the bonds and to repay the principal amount of the bonds on scheduled payment dates. In addition, at the end of an evaluation period (for example, five years), the municipal issuer will pay the investors an outcome payment if the project performance exceeds a specified threshold (effectively increasing the return to the investors) and the investors will pay the municipality a risk-sharing payment if the project performs below a lower threshold (effectively decreasing the return to the investors) (step 4). There are no payments in addition to scheduled principal and interest from either the municipality or the investors if the project performs within a range between the two thresholds.
In our program, we will help jurisdictions structure an Environmental Impact Bond issuance or other Pay for Success model tailored to their community's financial and environmental needs in order to realize green infrastructure solutions.
DC Water used an Environmental Impact Bond structure to finance infrastructure to manage stormwater runoff.
Why does this make sense for a local jurisdiction?
CBF and Quantified Ventures will provide assistance without charge to up to four communities to help them develop a Pay for Success financing model for green infrastructure projects.
Depending upon local circumstances, green infrastructure projects may also help a municipality meet other critical needs, such as:
- Reducing the risk of local flooding;
- Increasing local climate resiliency;
- Enhancing the overall aesthetics of a community; and
- Improving the local economy by providing employment opportunities to design, build, and maintain these projects
CBF held webinars in September 2017 introducing the Green Infrastructure and Environmental Impact Bonds project. Watch the video below.
The Green Infrastructure Environmental Impact Bond project being conducted by CBF, with our contractor Quantified Ventures, is supported in part by a generous grant from The Kresge Foundation. The Kresge Foundation is a $3.5 billion private, national foundation that works to expand opportunities in America’s cities through grantmaking and social investing in arts and culture, education, environment, health, human services, and community development in Detroit. In 2016, the Board of Trustees approved 474 grants totaling $141.5 million, and made 14 social investment commitments totaling $50.8 million. For more information, visit www.kresge.org.
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