Restoration and protection of wetlands is one of the four core elements of a wetland program, as defined by the U.S. Environmental Protection Agency.  Some restoration and protection takes place through wetland regulatory activities, such as during the 401 certification of a development project that disturbs a wetland.  In other cases, wetland restoration and protection is voluntary—restoring and protecting the wetland is not tied to a specific regulatory activity but is desired to achieve overall water quality goals.  If that wetland is on public land, the unit of government that owns the land can, if funds are available, protect it.

But what about wetlands and other water quality features that are on private property?  How can a unit of government encourage the voluntary protection of those crucial water quality features?

One way to promote voluntary restoration and protection is to offer some type of financial incentive to the landowner such as tax credits, conservation easements, or grants like those that have been offered by USDA’s Natural Resource Conservation Service.

Another strategy is for units of government to offer loans to private landowners that have more favorable terms (interest rate or length of loan repayment, for example) than the landowner would get from traditional lenders.

Several states have lending programs to encourage the conservation of wetlands and other water quality features including Colorado, Idaho, Iowa, Minnesota, and Virginia.  These loan programs often supplement, rather than replace, other sources of funds to encourage water quality measures on private property.

Loan programs don’t come in just a few sizes and shapes, but rather they are constructed from a series of decisions about program structure, staffing, and funding.  To start a loan program, a unit of government needs money to initially fund, or “seed,” the loan pool, a defined scope of projects to fund, and expertise in underwriting, loan collection, and program marketing.

Seed funding for the loan pool can come from many sources.  General fund revenues—the money governments collect in property, sales, and income taxes for general government purposes—could seed a loan pool, as it did for the Water Project Loan Program in Colorado.  Minnesota uses the proceeds of a special sales tax, in part, to fund its Agriculture BMP program.  Virginia has two water quality programs—one for farmers, the other for local governments—funded by its Clean Water State Revolving Fund proceeds.

Regardless of the seed funding source chosen, units of government can increase the impact of that investment by setting up the loan program as a revolving fund, where the principal and interest payments on loans are reinvested into the program to cover administrative costs and future loans.

In defining the scope of projects to fund, units of government should examine what types of landowners within its service boundaries hold priority water quality features.  For many states, that will be agricultural producers, so many loan programs, such as the Iowa State Revolving Loan Fund, will cover both land conservation as well as farming practices that cause less impact on water quality such as terraces, grade stabilization structures, and water and sediment control basins.

Finally, successful government lending programs must operate in much the same way as traditional lenders, judging the creditworthiness of borrowers (“underwriting”), collecting on unpaid loans, and generally promoting the lending offering.  Often, units of government will either hire staff with experience as bank lenders (as Idaho did) or partner with banks and other lenders to administer the program.  In general, smaller local and regional banks, credit unions, and farm service bureaus tend to be more interested in partnering with units of government on these lending programs than do larger commercial banks.  Smaller banks are often looking to expand their universe of borrowers in order to improve their ratio of money loaned to money deposited.  Membership financial institutions such as credit unions and farm service bureaus can help with marketing, and local banks often have existing lines of credit with agricultural producers.  Iowa’s program, for example, has hundreds of local banking partners.

Especially for state programs, local units of government and soil and water conservation districts can be key partners in both promoting the lending program and in ensuring the projects financed deliver the desired water quality benefits.  And other community-based organizations such as watershed groups and local non-profits can also help promote the loan program.

However constructed, these lending programs can be a valuable way to encourage private landowners to help restore and protect wetlands and promote water quality.


Glenn Barnes is a senior project director at the Environmental Finance Center at The University of North Carolina and is director of the Sustainable Finance for Wetland Programs project.