To address the huge costs of stormwater management, communities across the nation are creating new programs to attract investment. But what are the key conditions and governing structure needed to encourage higher private investment in localized stormwater management? The EFC at UNC recently examined this question with a group of stormwater professionals from 31 states and Washington DC. Hosted by SESWA, the discussion focused on different communities’ approaches to folding incentives into a stormwater management plan. We took the perspective of a downtown parking lot owner, weighing our financial options as we sought to mitigate stormwater effects on our property. Would we install green infrastructure on our parking lot?
The webinar started by framing the basic public-private challenge of green infrastructure (GI):
Since the goal of a GI program is to treat the rain as close to possible to where it falls, GI BMPs are by nature scattered across a jurisdiction. This scattered nature makes installation, as well as operation and maintenance (O&M) more difficult. Perhaps more difficult though is the fact that many of the most ideal sites for GI projects are on private property. Convincing private landowners to take actions for the public good creates the need for credits and incentives.
One overarching question that was posed seems worth mentioning early: “What are some of the best online resources for city planners to quickly browse financing case studies and models?” The EFC at UNC has been compiling such a catalog.
Specifics on Green Infrastructure Case Studies
After the above overview, we moved into presenting case studies from Philadelphia, the District of Columbia, Durham, NC and the Ramsey-Washington Metro Watershed District, MN. Some of these are well documented programs, but the slides describing each program can be accessed here.
One early question was about the source of funds for the Philadelphia grant program. As in most similar programs, 100% of the grant funds came from the city’s stormwater utility fee, highlighting how instrumental such utilities can be in generating the revenue needed for stormwater management.
A more general question that arose was how stormwater utilities handle exemptions for properties that do not discharge into the MS4. Like other aspects of credit programs, data on this is not easy to find. From personal conversations with utility managers, some do not charge a fee to these types of entities. The burden of proof of no discharge is often left to the property owner though.
Related to the Ramsey-Washington Metro Watershed District, a webinar attendee wondered whether the green infrastructure installation at the Maplewood Mall parking lot project raised the important issue of potential conflicting codes by asking “how did the reduction of parking conflict with parking codes? How well did the different departments come together to allow this reduction?” Cliff Aichinger with the District answered this question for us later by confirming that “parking was a major concern of Simon Property Group and the major mall tenants. … The mall actually had excess parking. Even though we ended up taking about 80 parking spaces on the project, we did not put the mall below the parking requirements. We have discussed this issue with the City. We were presenting the hypothetical case where we work with a business to retrofit a project and it results in the loss of parking and they end up below the parking ratio requirement. The City planning staff … agreed to consider each case and allow for a variance if a case could be made for a lower standard. We have not had the situation present itself where we have followed through with this variance request. We are planning to begin a project where we are going to approach each of our cities with a request to modify their parking requirement to allow for installation of LID practices.”
Low Subscription Rates for Credit Programs
This topic received the most input, perhaps indicating its importance to stormwater utility professionals and decision-makers. A credit/discount on the stormwater utility fee is a reduction in the (monthly) fee due to installation of BMPs. While there is a lack of data on the rates of participation in stormwater utility credit programs for the 1,400 utilities nationwide, two surveys which did address the topic indicated participation rates as low as less than 1%. Based on the examples we provided from Philadelphia and Washington DC, the first comment we heard was that the low subscription rates for these types of programs in general was “not surprising.” Even though our hypothetical parking lot owner had some avoided cost due to the credit for installing the GI, there were now O&M costs for the GI that needed to be taken into account. Another participant offered a relevant suggestion that “maybe the way to move forward is to make the credit match the cost of maintenance. There may be not payback for a business case, but after construction, the credit would match the maintenance for no net operation loss.”
Another question was “how can people be convinced that stormwater fees are worth the money?” Perhaps the customers who do not take advantage of the credit programs are demonstrating that they feel the stormwater fees ARE worth the money! In other words, the fees are not yet high enough to warrant a project that will lead to a fee reduction. Most likely though, this question was referring to “people” who object to the creation of a stormwater utility in the first place, or refuse to pay the fee even after it is created. Here, the answer has seemed to be unhurried, participatory public education, focusing on the “level of service” that will come from these fees. Since education on stormwater and the water cycle is so key in getting public support for programs like green infrastructure, it was pertinent to have one utility share, “we have been most successful in getting educational facilities interested in our credit for education outreach – this has caused us to focus on opportunities for these facilities to implement a ‘learning’ environment as part of a GI upgrade to their site.”
Even when we add benefits such as rainwater harvesting for reuse on landscaping and in toilets, the financial payback of credits alone is not usually enough to convince private entities to invest in GI. One comment that highlighted this was “without the grants from the city (of Philadelphia) the payback period for a landowner who invests funds to construct BMP is between 15 and 20 years. There are few industries that participant without the grant.” Other “triple bottom line” reasons, which come from being educated on the issue, are what motivate most GI subscribers. As a fictitious parking lot owner, we will probably not install GI if financial payback is the only goal.
Suggestions from Participants
DC Water is expecting voluntary GI installations to increase drastically with the “stormwater retention credit trading” program that the City is preparing to roll out. Likewise, participants from Chattanooga shared that they are planning to establish an open market for stormwater credits in December, 2014. Beyond the “public good,” such trading programs help address the central question of “How do you encourage a private property owner to pay for a BMP if the cost exceeds the stormwater fee credit?”
One suggested permutation on the credit design was that the improvement in water quality from the BMP be measured. Then the credit amount could be correlated to the “cost per volume of cleaner water.” If such measurement is occurring, someone else asked “would a credit be revoked if properties failed to perform inspections and maintenance of the practice?” While inspecting BMPs to make sure that they are functioning properly is important, many local governments would cringe at the idea of inspecting large numbers of BMPs on private property. Indeed, a Southern California participant shared that “our local governments are generally against residential BMPs because they’re hard to oversee maintenance on.”
Beaufort County, SC seems to have found a median between inspecting individual residential GI BMPs and incentivizing customers. This county “has an on-lot volume control requirement for single residential lots. This can be a challenge to build on a site, so the neighborhood associations are proposing regional, neighborhood scale BMPs to address runoff. We provide credits to all customers that benefit from the BMP. Has proved to be a good incentive.” This type of approach seems to have great potential for green streets, for instance.
In terms of the relative costs to install GI, one comment was “it seems that if we market the credit to NEW developments so that they are aware of the financial benefit as the site is designed, perhaps that would provide higher rate of successful subscription.” The literature does suggest that installations in new development are generally cheaper than retrofitting built sites. However, the latter can be cost effective as well.
In addition to GI costs being lower for new development, some types of GI are generally cheaper than others. For example, one comment pointed to the relative high cost for green roofs: “The numbers for green roof payback never work for the landowner. A company would rather invest the money back into their company.”
Since this webinar focused on private property, we were asked if there was more coming on GI on public property. Upcoming materials will be posted here, and SESWA’s fall preconference workshop will also address this topic.
A final comment from a state stormwater regulator was “I think I might recommend the local stormwater permittees might get a lot from watching the video of this.” A recording of the webinar can be accessed here.
[The EFC at UNC thanks SESWA for the opportunity to present this material on incentive programs. We would also like to acknowledge EPA for funding our time for the research and presentation.]
Stacey Isaac Berahzer is a Senior Project Director at the Environmental Finance Center at UNC Chapel Hill.