Drawing Private Capital to Green Infrastructure Clean Water America Alliance October 2012

Presented by:

Larry Levine and Alisa ValderramaNatural Resources Defense Council

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The U.S. Water Alliance has met the standards and requirements of the Registered Continuing Education

Program. Credit earned on completion of this program will be reported to RCEP at RCEP.net. A certificate of completion will be issued to each participant. As such, it does not include content that may be deemed or construed to be an approval or endorsement by RCEP.

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Conference Learning ObjectivesAt the end of this presentation you will be able to:

Define the range of benefits of green infrastructure practices

Identify barriers and costs to implementation of these practices

  Evaluate options and opportunities for funding, financing, and valuing

green infrastructure

  Develop practical actions that government, communities, and others can

implement to promote adoption of green infrastructure solutions

Purpose

To promote the national dialogue on resource recovery and green infrastructure

Presentation Objectives

 

• Understand the role of impervious area-based stormwater charges in stimulating private investment in green infrastructure

 

• Identify challenges that must be addressed to realize the investment potential

 

• Explain pro-active strategies that municipalities (and others) can use to overcome these challenges  

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Objectives

 

• Understand the role of impervious area-based stormwater charges in stimulating private investment in green infrastructure

 

• Identify challenges that must be addressed to realize the investment potential

 

• Explain pro-active strategies that municipalities (and others) can use to overcome these challenges  

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Overview

• Deploying green infrastructure at a citywide or regional scale can help meet Clean Water Act goals for stormwater (MS4) and sewage overflows (CSOs).

• Major, long-term investment is required to green the existing built environment in our cities.

• Need to take advantage of both public and private funding sources.

• Cities can leverage private investment through policies that:

(i) Establish design/performance standards for redevelopment projects;

(ii) Drive private property owners to retrofit existing developed parcels; and

(iii) Create or enhance opportunities for private capital to underwrite up-front costs of retrofits.

• With appropriate public policy and financial toolkits, private capital investment can enable and accelerate green infrastructure retrofits.

• Philadelphia provides an excellent test case!

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$2.4

Billion

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Philadelphia’s Green City Clean Waters Plan

• Relies on green infrastructure for a majority of the required reductions in sewage overflows

• City can claim credit for “greened acres” on private property

• Greened acres through redevelopment standards

• Greened acres through voluntary retrofits on existing developments

• Stormwater fees and credits incentivize private property owners to retrofit existing development

Philadelphia’s parcel-based stormwater rate structure

• Previous stormwater fee based on water usage (measured by water meter)

• New fee based on: impervious surface area + gross area + min. parcel charge:

For fiscal year 2014 (proposed):

Impervious area= $4.50 per 500 sf

Gross area rate= $0.56 per 500 sf

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The new fee structure may also improve the “financeability” of green infrastructure retrofits:

• Substantial discount on fee available for owners who manage first inch of stormwater on their parcel.

• Parcel owners need to re-apply for the credit every four years.

• Over time, retrofits will pay for themselves through avoided stormwater fees.

Example: Under Philadelphia’s current rate and fee, for example, project costs should fall below $36,000 per acre ($0.82 per square foot) if the project is to pay back within 10 years.

Limited data to generalize about retrofit costs

Value of credit will go up over time as stormwater rates increase

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Many parcel owners lack the cash to pay the upfront costs of retrofits and will likely seek financing

• Traditional financing mechanisms are likely unavailable because of:

Existing leverage on assets and lack of collateral

No track record of repayment for such loans

• As a result, many property owners are unable to respond to the incentives created by the credit and fee structure

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Government actions can help overcome the barriers to private investment in retrofits (1 of 2)

• Credit enhancement

• On-bill financing

• Tax lien financing

Credit enhancement, such as a loan loss facility

o Lenders are reluctant to take risks in an unproven market.

o Creating a cash reserve that acts as a guarantee against some or all investment losses can stimulate investment.

o The source of capital for the loan loss can come from either public or philanthropic source.

o Benefits:

o Can improve private financing terms or enable project financings which otherwise may not have succeeded.

o Can create a track record of investment performance and lay groundwork for a functioning market in retrofit finance.

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Government actions can help overcome the barriers to private investment in retrofits (2 of 2)

• On-bill financing

o Lenders work in coordination with stormwater utility.

o Utilizes existing stormwater bill collection process to disburse funds for retrofits and collect repayment.

o Benefits: increases ease of participation by property owners and reduces cost of capital by lowering risk of non-repayment.

• Tax lien financing, such as Property Assessed Clean Energy (PACE) programs

o Utilizes municipal authority to issue special revenue bonds to raise capital, which is then disbursed to property owners to pay for qualifying retrofits.

o Municipality collects repayment in the form of tax assessments.

o Benefits: provides dedicated source of upfront capital available for lending; attractive to investors because tax lien stays with property in event of sale or transfer.

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Recommendations for Local/Regional Utilities

1. Establish and publicize appropriate fee and credit structure

• Adopt stormwater charges based on impervious area, often known as “parcel-based billing”

• Provide a “credit” (i.e., fee reduction) for installing stormwater retrofits, commensurate with avoided costs to the stormwater utility and generous enough to provide a return on investment to those relying on avoided fees as a “cash flow”

• Publicize information about the availability of credits, their value, and the process for obtaining them

• Invest in further research into the costs of stormwater retrofits and make that data publicly available, to facilitate more robust cost-benefit analyses of stormwater projects

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Recommendations for Local/Regional Utilities (cont’d)

2. Implement, support, and/or explore public policy interventions that can catalyze private investment:

• Credit enhancement facilities

• On-bill financing

• Tax lien financing

• Help bring individual projects together, to reduce “transaction costs” and achieve economies of scale

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Recommendations for Fed/State Governments

For USEPA:

• Update Clean Water Act regulations to include strong stormwater retention standards for new development and redevelopment, as well as retrofit requirements for existing developed areas.

• Promote parcel-based billing as part of a strategy for enhancing financial capability to pay for green infrastructure investments (e.g., as part of the “Integrated Planning” initiative).

• Encourage the use of SRF funds to underwrite credit enhancement facilities that leverage additional private investment, in local jurisdictions with stormwater fee-and-credit systems.

For state governments:

• Issue municipal stormwater and CSO permits with strong standards for stormwater retention for new development and redevelopment, as well as retrofit requirements for existing developed areas.

• Provide financial incentives to municipalities to implement parcel-based billing practices and/or on-bill financing programs.

• Authorize and encourage local jurisdictions with fee-and-credit systems to use state infrastructure funding to underwrite credit enhancement facilities that leverage additional private investment.

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Looking Ahead…

Large scale potential for private investment in green infrastructure retrofits

• Nationwide:

o About 1,000 communities already have impervious area-based stormwater fees;* many of those offer credits for property retrofits that reduce runoff

o 770 CSO communities, over 7,000 MS4 communities

• Philadelphia is an incubator for green infrastructure financing ideas

o Philadelphia has one of the most enticing stormwater fee reductions available

o NatLab (Natural Infrastructure Financing Laboratory)

NRDC, TNC, & EKO Asset Management Partners

Working with the City to develop and implement financing strategies

*http://www.wku.edu/engineering/civil/fpm/swusurvey/

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Report Links and Contacts

Contacts:

Alisa Valderrama | Senior Project Finance Attorney, Center for Market InnovationOffice: 212-727-4438 | 40 West 20th Street, New York, NY 10011avalderrama@nrdc.org | www.nrdc.org

Lawrence Levine | Senior Attorney, Water Program Office: 212-727-4548 | 40 West 20th Street, New York, NY 10011llevine@nrdc.org | www.nrdc.org

Report Links:

Financing Stormwater Retrofits in Philadelphia and Beyondhttp://www.nrdc.org/water/files/StormwaterFinancing-report.pdf

Rooftops to Rivers II: Green Strategies for Controlling Stormwater and Combined Sewer Overflowshttp://www.nrdc.org/water/pollution/rooftopsii/files/rooftopstoriversII.pdf