Stormwater Finance: The Status of Federal Funding and the Future Role of Private Capital

Water Infrastructure and Resiliency Finance Center

Jim Gebhardt, Director

Maine Stormwater Conference, Portland, Me. October 23-24, 2017

Topic Areas

• The Federal Funding and Project Eligibility

Landscape

• National Stormwater Utility Trends

• The Emerging Role of Private and Social Capital

• What Can We Expect From Washington Now?

Federal Funding and Project Eligibility Landscape

Is there a seat at the table for Stormwater?

• The CWSRF program provides low-cost financing for a wide

range of water quality infrastructure projects - $118.7 Billion

thru 6/30/17.

• State implemented and operated program

• Flexible authority for states to incentivize projects

• Type of assistance: loans, refinancing, guarantees

• Loan terms: interest rate, projects funded

• Additional subsidization (negative interest, principal

forgiveness or grants)

• Non-point source projects account for $4.8 billion of the

$118.7 billion in total assistance

• There is been substantial effort made to boost NPS

projects, including Green Infrastructure ( “GI”)

• From 2010 thru 2017, EPA required states to set aside

dollars for dedicated GI projects (the “Green Project

Reserve”).

• President’s FFY 2018 Budget maintains prior funding levels

for the CW and DWSRFs at $2 bn and $1 bn, respectively.

Clean Water State Revolving Fund (CWSRF)

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Clean Water State Revolving Fund Green Infrastructure PolicyGreen Infrastructure Policy for the CWSRF (January 2016) to increase financing of green infrastructure projects nationally through actions including prioritizing projects, marketing the program and providing financial incentives, such as additional subsidization.

Financing Green Infrastructure: A Best Practices Guide for the CWSRF (2015) - illustrates incentives states can use to encourage financing of green infrastructure and foster sustainability within their programs.• Innovative financing mechanisms

• Co-funding - with other federal or state programs• Sponsorship – POTW project paired with GI project• Conduit Lending - pass-through and linked deposit loans • Guarantees

See: www.epa.gov/cwsrf/clean-water-state-revolving-fund-cwsrf-resources#policy

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Clean Water State Revolving Fund

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EPA WRRDA Guidance 2015

Water Resources Reform and Development Act (WRRDA) of 2014 – amended Clean Water Act (“CWA”)

• Expanded Eligibilities for Green Infrastructure - amended CWA, Section 603(c)(5) - publicly and privately owned, permitted and unpermitted projects that manage, reduce, treat, or recapture stormwater or subsurface drainage water are eligible

• Up to 30 year loan terms or the useful life of the project (the lesser of the two)

• Additional subsidization - permanent authority to offer principal forgiveness, negative interest loans, and grants

See: www.epa.gov/cwsrf/clean-water-state-revolving-fund-cwsrf-resources#policy

Water Infrastructure and Resiliency Finance CenterClean Water State

Revolving Fund

New Report: Financing Options for

Nontraditional Eligibilities in the CWSRF

This paper (May 2017) developed by the EPA HQ

CWSRF Branch focuses on how varied types of

financial assistance available to the CWSRF

program can fund eligibilities such as privately

owned green infrastructure, privately and publicly

owned projects for reusing or recycling

stormwater, and watershed projects.

https//www.epa.gov/cwsrf/clean-water-state-revolving-fund-cwsrf-resources

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Water Infrastructure and Resiliency Finance CenterWater Infrastructure Finance and Innovation Act (“WIFIA”)

• Water Infrastructure Finance and Innovation Act program authorized under WRRDA was funded in December

2016.

• WIFIA is a loan and guarantee program that was underwritten by an administrative appropriation to EPA ($5

million) and a loss reserve ($25 million).

• The Act allows EPA to leverage the loss reserve to originate loans funded by the U.S. Treasury or to provide

guarantees for eligible projects and to eligible project sponsors.

• $25 million loss reserve will be leveraged approximately 60 x resulting in initial program capacity of $1.5 billion.

• Value Proposition: provides project sponsors with access to cost of funds at the U.S. Treasury rate with flexible

repayment terms and security requirements.

• Project thresholds are: $20 million for large communities and $ 5 million for communities under 10,000.

• The Act allows WIFIA assistance for up to 49% of eligible project costs.

• Loan Process runs in three stages:

• Notice of Funding Availability issued in January 2017 ( called a “NOFA”)

- Letter of Interest, which provides information that EPA reviews to determine who it will invite to submit a

loan application.

- Loan application which comes with processing fees 8

Water Infrastructure and Resiliency Finance CenterWater Infrastructure Finance and Innovation Act

(WIFIA) Water Infrastructure Finance and Innovation Act program invited 12 entities (including the

Saco River Water Treatment Project in Biddeford, Me.) with projects in 9 states to apply for

more than $2 billion in WIFIA loans.

Selected projects that include stormwater:

• City of Baltimore, MD will repair, rehabilitate, replace, and upgrade its wastewater

collection and treatment, water treatment and distribution, and stormwater management

systems.

• City of Omaha, NE will construct a new retention treatment basin to address combined

sewer overflows in the Saddle Creek Basin.

• King Co., WA treatment station, conveyance pipelines and outfall structure to treat

combined sewer overflows to the Lower Duwamish Waterway.

• Saint Louis, MO replace parts of the sanitary sewer to address combined and sanitary

sewer overflows to Deer Creek.For more Information see: www.epa.gov/wifia

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National Stormwater Utility Trends

635

9231002

11121175

13141400

15001600

0

200

400

600

800

1000

1200

1400

1600

1800

2007 2008 2008 2010 2011 2012 2014 2015 2016

Number of Stormwater Utilities NationwideWestern Kentucky Stormwater Survey

Emerging National Response to the Stormwater Challenge

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*According to Western Kentucky University Stormwater Survey 2016https://www.wku.edu/engineering/civil/fpm/swusurvey/swus2016.pdf 12

New England Stormwater UtilitiesCommunities Name Year

Created2000 Population

Type ERU (sq ft imp)

Fee Annual Revenue

MA ChicopeeFall River GloucesterNewtonNorthamptonReadingWestfield

1998200820112006201420062010

54,65391,93830,27383,82928,59224,14541,094

ERUERUFixed RateTwo-LevelFixed RateTwo- LevelFixed Rate

2,0002,800

3,100

3,210

$8.33$11.67$4.42$2.08$5.00$3.33

$1,000,000$4,660,000

$575,000$1,980,000$357,000$600,000

ME LewistonAugusta BangorLong Creek WatershedPortland

2006

201220102015

35,69018,56033,011

Two-LevelERUERUTwo-LevelERU

2,7003,00043,56012,0001,200

$4.17$7.54$1.83$6.89$6.00

$1,400,000

VT BurlingtonSouth BurlingtonWilliston

200920052014

38,88915,8148,698

TieredTieredERU

1,0002,7004,000

$1.69$5.94$4.25

$1,500,00

NH

RI

CT

*According to Western Kentucky University Stormwater Survey 2016https://www.wku.edu/engineering/civil/fpm/swusurvey/swus2016.pdf

Two – Level System (commercial/ residential) 13

Why are Stormwater Utilities Gaining Traction?

Historically the cost of stormwater management has been funded through taxes paid into a general fund or thru a community’s dedicated water and wastewater enterprise fund.

• In the competition for dollars, stormwater management has typically been low priority unless the municipality is reacting to a recent major storm or regulatory action.

• As a component of a water and wastewater budget, fees collected for stormwater are generally based on meter flow which bears no relationship to the amount of stormwater generated on a parcel.

Stormwater Utilities are designed to address these challenges by establishing a dedicated operating platform and revenue stream yielding:

• More equitable cost distribution: Cost is based on the amount of stormwater a property contributes to the system due to impervious cover or other metrics (“Polluter Pays” Model)

o Can include tax-exempt properties, such as government properties, schools, colleges and universities, which can be major contributers of stormwater.

• Financial resources for long term planning for capital projects and O&M.

• Stable revenues that can attract investment capital and foster partnerships. 14

The Emerging Role of Private and Social Capital

Three Active Models That Are Leveraging Public, Private & Social Capital

• Community-based Public Private Partnerships• Prince George’s County, MD

• City of Chester, PA

• Stormwater Volume Retention Credit Program• Washington DC – Department of Energy and Environment

• Environmental Impact Bond• Washington DC – DC Water

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Water Infrastructure and Resiliency Finance CenterCommunity-Based Public Private Partnership (CBP3)

A Performance-Based, Community Economic Development Program designed to:

• Design, Finance, Build and Operate large-scale green infrastructure through aggregated, integrated development.

• Drive down costs of green infrastructure, while providing multiple community benefits, including small business and job growth for the local population.

• Accelerate the pace of green infrastructure implementation.

• Provide for high-value investments and smart, resilient infrastructure.

• Create long-term Performance Partnership that expands local capacity to improve the community and its water resources.

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The Community Based Public-Private Partnership: the Value Proposition

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Cost Savings and Project Acceleration

✓Gain economies of scale to reduce costs and accelerate delivery

✓Long-term operations and maintenance plan ensuring sustainable

infrastructure program

Community Benefits

✓Improvement of quality of life through opportunities for local small

businesses and residents

✓Increased affordability through innovation and standardization

✓New revenue source for the community

✓Strategic land development benefiting the environment and the

Community

www.epa.gov/waterfinancecenter/community-based-public-private-partnerships

Municipality/Public Entity

CBP3 Entity

Private Entity

Design/Build Operate/Maintain

Traditional P3 Value Proposition• Lower life cycle costs

• Project delivery time

• Transfer of risk

• Long term O&M commitment

• Shared economic and social goals

• Alternative private financing option

CBP3 Adds to the Value Proposition• Community is priority

• Mixed public/private financing can reduce financing costs, (SRF

loans or guarantee can be a factor)

• Municipality has high degree of control/input

• Savings reinvestment into project

• Fixed-fee; Performance goals

Integrated program services that lowers

delivery costs and incentivizes private

sector delivery to be outcome based.

Focus on lower procurement barriers

and procuring local disadvantaged

businesses and jobs.

Ownership and Control retained by the

public partnerProvides surety of execution and adopts shared

goals managed through performance metrics

Community Based P3 Model

Performance-

Driven Contract

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Water Infrastructure and Resiliency Finance CenterPrince George’s County, MD

Urban Stormwater Retrofit CBP3

Pay for performance service delivery model to

improve water quality through implementation of high

impact stormwater control measures.

- The approach delegates project selection, design, construction,

operation, and maintenance responsibility to a team of private

partners. The agreement also requires the development and

implementation of social and economic development programs.

- The County relies primarily on stormwater utility fees to back

debt issuances for the initial installations and to cover ongoing

operation and maintenance costs.

Highlights- Driven by Chesapeake Bay

TMDL- 30 year partnership - County

invests $100 million contract to Corvias for the initial 3 year retrofit of 2,000 acres,

- County plans to retrofit 8,000 acres focusing on green infrastructure

- EPA Region 3 Leadership to develop the partnership

- Maximize Local Benefits- Business Development- Jobs- Community Wealth

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EPA – as Demo Partner –Provided:• Background Review of

Regulatory, Technical, and Community Needs

• Stakeholder Engagement

• Development of Triple Bottom Line RFQ/RFP for Chester SW Authority CBP3 program

• Technical Assistance with SRF/Pennvest GI Projects ID & Planning/Design Application

CBP3 Demonstration Partnership launched June 2017:• City of Chester (population 34,000, severe financial distress)• Stormwater Authority of Chester (formed in Oct. 2016)• EPA Region 3

To plan, finance, build and maintain up to $50 million in green stormwater infrastructure over the next 20- 30 years on approximately 350 acres to address significant pollution and flooding issues; improve neighborhood quality of life; assist small, minority-owned businesses; drive economic growth.

Financial Support for Planning:• Chester Water (Regional Drinking Water Authority)- Cosignatory for

Pennsylvania SRF $$ with newly created Stormwater Utility• Pennsylvania SRF Program (PENNVEST) provided $1MILLION pre-

construction grant due to large-scale delivery/O&M capacity of the CBP3

Chester, PA Community Based Public Private Partnership (CBP3)

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Chester, PA Community Based Public Private Partnership (CBP3)

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Goals: to make strategic and impact investments in the City of Chester’s stormwater infrastructure that will:

• Revitalize the community and create low barrier to entry jobs and economic growth opportunities for Chester residents and businesses

• Increase property values and promote development opportunities in key community corridors

• Provide public education and outreach opportunities around water quality and more sustainable development and preservation

• Comply with Federal and State Clean Water regulatory compliance requirements as outlined in the City’s MS4 permit

Chester, PA Community Based Public Private Partnership (CBP3) • CBP3 Program Solicitation

– September 2016: Request for qualifications & proposals (RFQ/P) for establishing a CBP3 for the Stormwater Authority of the City of Chester, PA issued

– November 2016: Evaluations of proposals submitted in response to the RFP/Q completed (Corvias selected as primary, prospective partner)

– January 2017: Award made

– March 2017 : Impervious Cover and Stormwater Fee Study Completed

– March 2017: Project Screening and Ranking Completed

• Community Based Public-Private Partnership Formation

– Under a partnership approach, the private party (Corvias) and public party (the Stormwater Authority of Chester) have entered into a 30-year partnership to improve the stormwater infrastructure and make a commitment to impact the local economy with the following key transitions from prior approaches:

– Private Sector Involvement; Social Value Creation; Long Term Sustainability; Site Flexibility

http://www.chestercity.com/wp-content/uploads/2016/09/Chester_CBP3RFQ-P_FINAL.pdfFor RFP/Q:

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• Properties generate Stormwater Retention Credits (SRCs) for voluntary green infrastructure that reduces stormwater runoff.

• Owners trade their SRCs in an open market to others who use them to meet regulatory requirements for retaining stormwater.

• Revenue creates incentives to install green infrastructure that protects rivers and provides other benefits.

Stormwater Retention Credit ProgramWashington D.C. Department of Energy and Environment

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Stormwater Retention Credit ProgramWashington D.C. Department of Energy and Environment

5,000 gallons

Strict On-Site Trading

5,000 + 5,000 = 10,000 gallons

Credit Program can increase retention by allowing off-site mitigation –Greater retention for smaller storms (90% of DC storms are less than 1.2”)

To learn more go to : www.epa.gov/waterfinancecenter/leading-edge-stormwater-financing-webinars

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DC Water Environmental Impact Bond (EIB)

▪ DC Water structured their EIB to finance first two of eight GI projects

▪ The express purpose of the EIB is to mitigate DC Water’s risk of financial loss associated with a failure of GI

▪ Investors will be repaid, in part, based on GI’s measured effectiveness

▪ EIB follows Contingent Pay “Pay for Success” Models

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DC Water Environmental Impact Bond (EIB)

Performance Outcome PaymentExpected

LikelihoodDC Water & GI

GI Over Performs

Runoff reduced > 41.3%

DC Water makes “outcome Payment” of $3.3 million to investors

2.5%

Cost savings – less GI neededand future GI projects downsized. ORAccelerate scale, deployment of GI

GI as Expected

Runoff reduced as expected 18.6% < reduction < 41.3%

Neither party makes a contingent payment

95%Continue original GI plan with confidence

GI Under Performs

Runoff Reduced < 18.6%

Investors make “Shared Risk Payment” of $3.3 million to DC Water

2.5%Scale back GI, remediate GI ordeploy gray infrastructure

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Water Infrastructure and Resiliency Finance Center

Pay for Success White Paper

New Report: DC Water’s Environmental Impact Bond: A First of

its Kind (April 2017)

The Center developed an in-depth technical report of the first

Environmental Impact Bond. This new “Pay for Success”

financing structure was developed by DC Water to privately

fund the construction of green infrastructure to manage

stormwater runoff as part of DC Water’s Clean Rivers Project.

See : www.epa.gov/waterfinancecenter/dc-waters-environmental-impact-bond

And the webinar at:www.epa.gov/waterfinancecenter/leading-edge-stormwater-financing-webinars 28

Environmental Impact Bonds (EIB)

Rockefeller Foundation is Sponsoring an Initiative to Pilot the DC Model in Two Additional

Locations

Project Scope and Eligibility

• Applicants should identify green infrastructure or other resilience projects that are already in the

planning stages and could be construction-ready by Fall of 2018. The applicant may propose

one project or a bundle of projects. Projects should be large enough to warrant an EIB issuance,

ideally amounting to $5 million or above.

• Projects should provide benefits to poor and vulnerable communities.

Project Timeframe

May 1, 2017 to September 31, 2018

• Phase 1: Select Municipalities (May – Oct 2017)

• Phase 2: Provide Technical Assistance for EIB Issuance (Oct 2017 – Sept 2018) underwritten by Rockefeller

Application Process

• Notice of Intent to Apply was due August 25.

• Webinar available at: www.quantifiedventures.com/rockefeller-eib.

• Proposal Submission Deadline: September 15

• Selection: October

http://www.payforsuccess.org/sites/default/files/opportunity-files/EIB%2BChallenge%2BFull%2BRFP_2.pdf 29

Water Infrastructure and Resiliency Finance Center

Stormwater Finance Webinar Series

Upcoming Webinars

• Financing Stormwater & Green Infrastructure with the CWSRF (Date TBD)

• Presenting (TBD): San Francisco Public Utility Commission, CA; Dubuque, Iowa; Syracuse, NY

• Stormwater Fee / Utility Community Successes (Date TBD)

• Presenting (TBD): Northeast Ohio Regional Sewer District, Cleveland, OH; Abilene, TX;

Hampton, PA

Past Webinars

• DC Water’s Environmental Impact Bond, May 11, 2017 (Recording on our website)

• DC’s Stormwater Retention Credit Program, May 23, 2017 (Recording on our website)

• Clean Water State Revolving Fund: Flexible Funding for Urban Tree Canopy, March 29, 2017,

(Recording on CWSRF website).30

Water Infrastructure and Resiliency Finance Center

Stormwater-Focused Regional Finance Forums

Region 1: Stormwater Finance Forum Durham, NH, Nov. 15-16, 2016

Agenda:

• Water as a Resource – Opportunities and Challenges

• Understanding Your Costs

• Harnessing Technical Assistance and Tools to Access and

Plan for Stormwater Funding

• State Sources of Funding

• Innovative Public Funding Approaches

• Integrating Public-Private Investment

Workshop: Setting a Financially Healthy Stormwater Fee for a

Resilient Future

Panel: Public Consensus-Building

Region 9: Stormwater Finance Forum Alhambra, CA, April 3, 2017; Oakland, CA, April 5, 2017

Agenda:

• Framing the Challenges & Opportunities in Funding Stormwater

Programs

• Planning for Success – What Program Managers Need to do to

Win Financing

• Engaging the Public and Decision- Makers to Market Your

Program

• Public Grant/Loan Programs to Fund Stormwater Projects

• Fee Programs and Other Ongoing Local Funding Sources

• Unconventional Funding Sources

https://www.epa.gov/waterfinancecenter/water-finance-webinars-and-forums#forums

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Water Infrastructure and Resiliency Finance Center

An easily navigable web-based portal to

help communities locate information and

resources that will assist them in making

informed decisions for their drinking water,

wastewater, and stormwater

infrastructure needs.

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Environmental Finance Center Network Operate in EPA Regions

University of Southern Maine

Syracuse University

University of Maryland

University of North Carolina at Chapel Hill

Michigan Technological University

University of New Mexico

Wichita State University

California State University at Sacramento

Rural Community Assistance Corporation

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The Environmental Finance Centers deliver targeted technical assistance to, and partner with states, tribes, local governments, and the private sector in providing innovative solutions to help manage the costs of environmental financing and program management.

Water Infrastructure and Resiliency Finance Center

The EFC at The University of Southern Maine – Current Activities

• Doing work in RI and MA to help communities use BMP resources in practical ways, and with how to pay

for climate adaptation in a landscape of increasing extreme weather events and Sea Level Rise.

• Doing work with the State of Maine Drinking Water Program to leverage available SRF's for source water

protection.

• Networking with water utilities, land trusts, municipalities and others who have a shared goal to protect the

natural landscape around water sources.

The New England EFC will be making a presentation tomorrow at 8:30 on resources they developed

for a model to assist New England communities enact stormwater utilities. It is based on Portland’s

experience creating the most recent stormwater utility in New England, which was approved

unanimously by the Portland City Council. It is entitled “Moving From Contemplation to

Implementation of Your Stormwater Management Plan”.

Contacts: Martha Sheils: martha.sheils@maine.edu. Ed Suslovic: ed.suslovic@usm.maine.edu

https://usm.maine.edu/muskie/environmental-finance-center 34

Water Infrastructure and Resiliency Finance Center

Products in The Works:

Finance Learning Module

The Center is developing several learning modules in conjunction with the Clearinghouse including:

• Stormwater Finance (Contact us if you are interested in helping to develop this module!!)

• Water Loss Finance

• Disaster/Resiliency Finance

• Septic Finance

• Municipal/Animal/Ag Finance

• DWSRF/CWSRF

• Conservation Finance

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What Can We Expect From Washington Now?

There is the Outline of an Infrastructure

Investment Plan

Administration is Looking at Four Focus Areas:

• Rural Infrastructure Needs

• Projects that are “Transformative”

• Increasing size and scope of existing lending

programs

• Revising federal tax law and policy to “equalize”

capital costs for privately owned projects that serve

the public 37

There is the Outline of an Infrastructure

Investment PlanThe Administration is Looking to leverage up to $200 billion in federal dollars

over the next 10 years to incentivize state and local investment/revenue creation.

Looking to use these dollars to reverse auction project selection relying on the

following:

• Intent of applicant to apply alternative procurement methods (“P3 models”)

• Advancement of “state-of-the-art” technologies

• Plans that demonstrate sustainable lifecycle operations (“asset management”)

• Anticipated social and economic return on investment

• The % non-federal investment share of the project (the greater the non-federal

share, the greater the project score)

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Contact

Jim Gebhardt, Director

US EPA Water Infrastructure and Resiliency Finance Center

https://www.epa.gov/waterfinancecenter

gebhardt.jim@epa.gov

APPENDIX

Global, U.S. and Regional Precipitation Trends

Key Points

• The world’s average temp is 0.6 – 0.7°C higher than in 1979. Each one degree Centigrade rise in temperature increase the moisture carrying capacity of the atmosphere by 7%. (“the Clausius-Clapeyron Equation”)

• On average, total annual precipitation has increased over land areas in the U.S. and worldwide (see Figures 1 and 2). Since 1901, global precipitation has increased at an average rate of 0.08 inches per decade, while precipitation in the contiguous 48 states has increased at a rate of 0.17 inches per decade.

• Some parts of the U.S. have experienced greater increases in precipitation than others. A few areas, such as the Southwest, have seen a decrease in precipitation (see Figure 3). Not all of these regional trends are statistically significant, however.

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GlobalPrecipitationTrends

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U.S. PrecipitationTrends

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Change in Precipitation in the U.S., 1901 - 2015

Alaska data started in 1925NOAA National Centers for Environmental Information. Accessed February 2016. www.ncei.noaa.govU.S. EPA “Climate Change Indicators in the U.S. www.epa.gov/climate-indicators 44

U.S. Decadal Precipitation Trends1900 - 2010

U.S.PrecipitationTrends

46