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Chesapeake_Bay_BridgeJust in case you aren’t up on your stormwater finance acronyms, the long version of today’s blog post is A Municipal Separate Stormwater System (MS4) uses a Public Private Partnership (P3) to address a Total Maximum Daily Load (TMDL) Regulation. Still confused? Put in terms of environmental goals, the punch line of this story might be: County partners with a private company to improve the quality of water in the Chesapeake Bay!

There are many ways that local government stormwater programs work with private property owners and private companies, but few if any arrangements are as large and comprehensive as what was entered into by Prince George’s County, Maryland last month.  Prince George’s signed several agreements with a private company to oversee a massive stormwater management retrofit program involving 2,000 acres of County owned property (with an option to increase to 4,000 acres). Under the agreement, the County agrees to pay the company $100 million dollars to oversee all aspects of design and implementation of stormwater best practices including planning, public involvement, procurement, and construction management. The agreement includes a host of financial incentives for environmental success and local economic development that are part of the overall concept of employing the strengths and profit motive of a private company to more efficiently achieve public goals.  

While private environmental service providers currently own and/or manage drinking water and wastewater treatment plant assets throughout the country, they have typically not been engaged in the long term management of entire stormwater systems/assets. For these reasons, many water quality regulators and program managers are likely to closely watch how this effort unfolds.   There is a lot of optimism that agreements that include incentives and allow for flexible design and procurement can achieve environmental goals in a more timely and efficient manner than pure government programs. While the focus of most of the press releases issued after the deal focused on what the deal brings to the community, it is important to remember that certain key finance responsibilities will remain with the government. Other communities should be aware that while agreements like this that involve work on public land can bring new expertise and streamlined program management, ultimately local governments will need to provide:

Local oversight. Under MS4 programs, the County cannot contract away their ultimate regulatory responsibility for reducing pollutant load off their properties. The agreement includes numerous performance targets and management milestones that will require careful oversight by County.

Regulatory drivers. The initiative in Prince George’s County has been driven and shaped by regulatory requirements placed on the County by the Maryland Department of the Environment and the US Environmental Protection Agency. The agreement is structured around getting MS4 treatment credits. While the private sector may be nimble at assessing and implementing technical options for meeting regulatory requirements, it falls to government to establish the regulatory goals.

Access to inexpensive capital. Local governments investing in public assets on public property have an array of long term tax exempt debt options that are the envy of the world’s capital market. Even large fiscally strong private companies generally pay more for their debt than a local government with an average credit rating.  Under the agreement, the County will fund most of the projects with municipal bonds.

Revenue source. The press release issued by the County’s private partner calls attention to the $100 million that will be invested in the program by the County. The County still had to go to the effort of establishing community funding sources, in this case a Clean Water Act Fee of approximately $40-50 per household. All of this investment is clearly coming from the public side of the public private partnership. This is different from other stormwater finance programs that try to encourage leveraged direct investment by private property owners. In other words, this model does not create new funds or revenue – the local government still has to do that. The agreement may reduce what is needed or achieve more environmental benefits than other models for the same cost, but carrying out the ambitious water quality improvements that are envisioned will still require a tremendous amount of new revenue regardless of who carries out the work.

Local governments looking for creative options to address regulatory requirements would do well to watch how this program progresses. However, while programs like this may lead to smarter, more efficient investments that lessen the financial burden of environmental improvements, it does not mean that local governments will escape taking financial responsibility for paying for programs, particularly programs that occur on their property.