CBF, Quantified Ventures to Help Baltimore City Try a New Idea: "Pay For Success" Environmental Projects

(BALTIMORE, MD)—In a first of its kind project in Maryland, the City of Baltimore and the Chesapeake Bay Foundation (CBF) will pioneer a strategy for improving neighborhoods and reducing water pollution. CBF will help Baltimore create innovative Environmental Impact Bonds (EIB) to help pay for more than ninety stormwater management projects planned by the Baltimore City Department of Public Works (DPW) throughout the city. The city's repayment of the bonds would be based on the effectiveness of the projects.

"I'm proud that DPW is at the forefront of a creative, results-oriented approach to funding projects that improve the health and beauty of our communities," said Mayor Catherine E. Pugh. "We need to explore new ways of paying for investment in our cities."

With help from CBF and its expert partner, impact investment advisor Quantified Ventures, Baltimore will use EIB to help fund construction of so-called "green infrastructure" in more than three dozen neighborhoods and more than a dozen public schools. On the surface, these projects often look like gardens or grass areas, but underneath use sand, mulch, gravel, or other materials to help filter polluted runoff.  

Baltimore will issue up to $6.2 million worth of EIB financing. The key feature of the initiative will be its "pay for success" feature. Traditionally, local governments pay contractors to build the gardens with little accountability for how the devices perform. With EIB, investment is recouped with interest, depending on the level of achievement of specified social or environmental indicators. Altogether, these projects will cost $10.3 million.

"Results matter. Local governments want a solution to this thorny problem of polluted runoff, but they also want to spend tax dollars wisely," said CBF President Will Baker. "The use of this unique instrument for private investment offers better insurance that this expensive work will result in cleaner water, and the achievement of other community benefits in cities and towns."  

DC Water and Quantified Ventures partnered to make Washington, D.C. the first city in the country to use an EIB for reducing polluted runoff into its combined sewer system. It issued EIB bonds in 2016 for the work.

"Environmental Impact Bonds make our communities stronger, healthier, and more resilient, and I applaud the Chesapeake Bay Foundation and Baltimore City for their leadership in this larger movement to bring fresh, creative financing solutions to serious environmental and social challenges," said Eric Letsinger, CEO of Quantified Ventures. "This is the work of innovators who believe in creating a marketplace for outcomes-based transactions that address society's toughest problems."

"The work we are doing will change Baltimore for the better, and this new funding tool will help us diversify our financing portfolio," said DPW Director Rudy S. Chow, P.E. "We need to always be mindful of affordability while building infrastructure that will last for generations."

Polluted runoff is one of Baltimore's leading causes of water pollution. Rainwater flowing off streets, roofs, and other hard surfaces picks up contaminants like nitrogen, phosphorus, and sediments and flushes these into streams and the Inner Harbor. These pollutants can cause excess algae growth, smother aquatic vegetation, and kill fish and other wildlife.

Experts have found a viable natural solution to the problem: strategically-placed stormwater projects and other practices whose plants, trees, and green spaces soak up and filter polluted runoff. The term green infrastructure contrasts this new approach to traditional pipes and culverts that simply drain rain water from the landscape, or hold it for a time, rather than filter the polluted runoff.

While many such landscaping projects have been installed throughout the region, the work needs to be scaled up significantly to be most effective. Local government leaders, however, often are hesitant to spend tax dollars to implement the work on a large scale.  It's also expensive, and EIBs are another tool in the financial toolbox that can get important projects built.

Financing and constructing the roughly ninety projects is only one step in Baltimore's much larger effort to green the city. That broader initiative has two goals: meet clean-water regulations as part of the City's Municipal Separate Storm Sewer System (MS4) Permit and improve the quality of life in Baltimore's neighborhoods. If successful, it could dramatically clean up the Inner Harbor, reduce localized flooding, make neighborhoods cooler and healthier, provide local jobs, and potentially even reduce crime and improve property values.

In all, Baltimore is required by state and federal law to reduce and treat polluted runoff on over 4,000 acres by 2019. The projects partially funded through EIB are an important first step.

CBF is supported in the project in part by the Kresge Foundation.

"We are thrilled to support CBF's work to help make Baltimore—and particularly the city's neighborhoods of color and residents with limited resources—more resilient to flooding through green infrastructure solutions," said Dr. Jalonne L. White-Newsome, senior program officer with The Kresge Foundation's Environment Program. "The innovative financing and cost-effective projects can be a model for other cities to follow."

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