Conservation Innovation Grant to CBF Will Help Municipalities 'Pay-For-Success' in Meeting Clean Water Requirements

(HARRISBURG, PA)—The Chesapeake Bay Foundation (CBF) will receive an innovative federal grant designed to put conservation practices on farms that will allow municipalities to satisfy stormwater pollution reduction requirements and return profits to capital investors.

The Conservation Innovation Grant (CIG) of $415,000 from the Natural Resources Conservation Service (NRCS) of the U.S. Department of Agriculture is to be matched by CBF and multiple partners for the three-year project.

With the CIG, CBF and partners will apply an innovative pay-for-success (PFS) approach.

"Pay-for-success can be a win-win-win for the environment and the economy," said CBF's Pennsylvania Executive Director Harry Campbell. "Farms get practices that reduce the amount of polluted runoff entering our rivers and streams, municipalities get credit toward their MS4 (Municipal Separate Storm Sewer System) requirements and save money doing it, and investors make a profit."

The MS4 program was created by Congress in order to reduce the amount of polluted runoff from urban/suburban areas that enters local storm sewer systems. Where there is inadequate infrastructure and stormwater management, runoff creates flooding and carries untreated polluted runoff into local rivers and streams.

Under the PFS approach, select municipalities contract to pay a financial intermediary, if specific agricultural pollution reductions are achieved. With capital from private investors, the intermediary contracts with service providers to install pollution reduction measures on farms. If the desired pollution reductions are achieved, the municipality can apply the results to satisfy its urban/suburban stormwater compliance requirements. The municipality will then pay the intermediary, which in turn repays investors, with interest.    

Private investors for the project have not yet been identified.

The pay-for-success project supported by the new grant, "represents an innovative approach to joining the Commonwealth's agricultural and urban stormwater sectors mutual pursuit of clean water," Pennsylvania Secretary of Agriculture Russell Redding wrote in support of PFS. "It offers Pennsylvania enormous potential to achieve substantial and cost-effective nutrient and sediment pollution reductions by infusing private capital in the implementation of agricultural best management practices."

The project hopes to contract with MS4 municipalities in York or Lancaster to participate.

Polluted runoff from agriculture and urban/suburban sources are among the leading sources of pollution to roughly 19,000 miles of rivers and streams in Pennsylvania. Urban and suburban polluted runoff is the only source of pollution that continues to increase within the Chesapeake Bay watershed.

"There is a big cost differential between doing stormwater controls in urban/suburban areas versus doing pollution controls on agricultural land. It can be 10- to 100-fold more expensive in urban areas," said Dr. Beth McGee, CBF's director of Science and Agricultural Policy.

"With this project, we get practices in the ground sooner because a big investor might be able invest quickly and get paid back over a longer period of time," Dr. McGee added. "They are assuming the risk. The municipality is only going to pay if the project is performing as it was designed. The investors expect to make money because of the large cost differential."

CBF's partners on this project are organizations with experience and expertise working with municipalities in stormwater compliance, agricultural production, and design and development of pay-for-success transactions. They include Red Barn Consulting of Lancaster, RETTEW Associates Consulting of Lancaster, Land O'Lakes, Inc., and Quantified Ventures of Washington, D.C.

"We're excited to partner with the CBF on this first-of-its-kind project employing outside-of-the-box thinking to work with all parties to improve water quality in a sustainable way, economically and environmentally," said Matt Carstens, senior vice president at Land O'Lakes, Inc. "By incentivizing outcome-based conservation financing, there's a great opportunity for partners to work with farmers and agricultural retailers to invest and grow. Farmers are always eager to enhance their operations to lead the way on conserving resources on their farms and in their communities."

Land O'Lakes, Inc., a farmer-owned food and agriculture cooperative, will provide outreach and technical assistance on the project.

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