Stormwater management has become one of the most expensive infrastructure challenges facing cities and counties. The combined impacts of aging infrastructure, urbanization, heavier rains, stricter regulations, and insufficient revenues have pushed the responsible public agencies (typically stormwater/ wastewater utilities or municipal departments of public works) to the tipping point. They often deploy centralized gray infrastructure solutions based on modeled data, with no resources to measure effectiveness or compare alternatives. And in most cases, public agencies retain all the risk for managing projects. They pay someone to design the project and someone else to build it and finance the work on the public balance sheet. If the project fails, the public still has to pay back the money it borrowed.
In the face of these challenges, cities and counties are beginning to look to innovative solutions as they stretch limited funds to meet stormwater mandates. Already there is a growing recognition that Green Infrastructure (GI) approaches that allow precipitation to infiltrate into the ground and prevent runoff can be more cost-effective than traditional gray infrastructure. There is also a focus on new procurement and financing models—from the environmental impact bonds developed by Quantified Ventures in Washington, DC, and Atlanta, GA, to public-private partnerships in Prince George’s County, MD, and Chester, PA.
Awareness that there is a better way to manage stormwater runoff is a major step forward; yet more innovation is available that allows the public and their representatives to stretch every dollar even further. This article outlines an innovative Stormwater Performance Partnership (SPP), which delivers the lowest cost and risk to public agencies and, ultimately, ratepayers. Under this approach, teams of developers, financiers, engineers, and contractors work with private property owners to identify, finance, and deliver stormwater retention projects on private property.
Constructing GI projects on private property is typically 50% less expensive than the equivalent projects on public property due to reduced need for traffic management and coordination with underground utilities, less red tape, and differences in labor costs. Early innovators in GI have also discovered that there simply isn’t enough public property to implement needed retention projects; private property has to play a role. However, implementing projects on private property involves a number of financing and management risks. While some cities such as New York and Philadelphia provide incentives for stormwater retention on private property, none have combined that approach with private financing or real-time monitoring in a way that resolves these challenges and shifts risk to private parties.
The performance-based SPP model fundamentally alters the traditional design-bid-build approach by challenging the private sector to propose more cost-effective solutions and assume all major risks. This is a complement to—not a replacement for—traditional GI projects on public property, and it has the potential to significantly expand what a public agency can accomplish with every available dollar of funding.
Creating a Stormwater Performance Partnership
Three key elements define the SPP:
- Best value selection: The public agency issues a request for proposals (RFP) for private GI projects to teams of private developers made up of financiers, designers, contractors, and technology providers. These teams identify and contract with willing private landowners who have significant impervious areas on their property and come to an agreement on how revenues are shared. The development teams aggregate multiple private projects and bid them into the RFP through a reverse auction, under which the public agency selects the lowest cost projects (per greened acre or per volume of stormwater captured) that meet a predefined set of criteria. Selection criteria may include factors such as geographic diversity or the potential to reduce flooding in addition to cost. If the project bids do not produce sufficient cost savings, the public agency can revert to traditional delivery.
- De-risked delivery: For any selected projects, the winning development teams retain full responsibility for designing, delivering, financing, and maintaining the project. The development team retains these risks, and the property owner only needs to provide an easement for ongoing maintenance of the retention project in exchange for a reduction in annual stormwater fees. The public gains the benefit of shifting retention projects to lower-cost private properties—without having to manage or source projects across a wide range of landowners.
- Performance-based payments: The public agency pays nothing upfront for the selected projects; all payments are made over the life of the project (15 to 30 years) according to performance. The public agency uses low-cost flow monitoring technology offered by companies such as StormSensor to monitor stormwater flows in real-time, allowing them to ensure that projects deliver the promised reductions in runoff, decreases in sewer overflows, improvements in water quality, and/or other contractually defined benefits. This payment structure ensures that projects have the needed long-term maintenance, which is a common cause of failure for GI projects and public infrastructure in general.
The private sector would be eager to respond to such an innovative solicitation: Ample capital is ready to invest in water projects; designers and contractors are eager to deliver innovative GI projects; and technology companies are already building the sensors and software that will enable a true pay-for-performance model.
Stormwater Performance Partnership Structure
It is important, however, that public agencies design the program properly if they want to invite a robust response. The payment structure is particularly important. In most cases, a stormwater bill credit won’t be enough to incentivize participation, not only because it will typically not be sufficient to support project costs but also because it presents credit challenges for capital providers. Ideally, the public agency would create two revenue streams: first, an availability payment backed by the agency that would pay back capital and financing costs and second, a stormwater bill credit that would pay for maintenance and compensate property owners for participating. It is also important that public agencies establish and maintain a clear and consistent set of rules for the program so that developers can be confident they will be fairly compensated for successful projects. More detail on finance considerations of private property stormwater programs can be found “Financial Innovations for Green Infrastructure: A project Finance Perspective on Distributed Stormwater Projects.”
Innovative public agencies have the opportunity to move past the old procurement and financing models that have failed to solve growing stormwater challenges. They can get the most for every dollar of ratepayer money—if they’re willing to think big.
References
Hewes, Will. “Financial Innovations for Green Infrastructure: A Project Finance Perspective on Distributed Stormwater Projects.” Table Rock Infrastructure Partners, Sausalito, CA. www.tablerockpartners.com/financial-innovations-for-green-infrastructure
