NOTE: On Thursday, March 28 3-4:30, Living Cities will be hosting a webinar with NatLab on the findings of this work described in this blog. To register to participate, please click here.

As Living Cities has written about several times over the past year, urban storm water runoff is a serious problem, causing flooding, overloading sewage treatment plants, and polluting waterways (see our previous blogs here, here, and here). The resulting problems – mold and moisture infiltration, tainted water, and associated health consequences – disproportionately impact the most vulnerable populations – low-income people, people of color, and the elderly. With climate change-related storm events on the rise, without intervention, the problems will only intensify.

In response, many US cities are creating innovative green infrastructure plans – including such initiatives as rain gardens and roadside plantings – that mimic the way nature collects and cleanses water. Cities that are including private land in their green storm water runoff plans can face challenges funding these initiatives through traditional means such as federal or state funds or municipal bonds. To address this challenge, the Natural Resources Defense Council, EKO Asset Management Partners, and the Nature Conservancy jointly created “NatLab” – the Natural Infrastructure Finance Laboratory. NatLab has been analyzing the economics of green infrastructure investment on public and private land in order to identify strategies for cities to leverage private capital to attain their clean water goals.

As mentioned in earlier Living Cities blogs, the City of Philadelphia has adopted one of the most comprehensive green storm water management plans in the country. The city has pledged to “green” over 9,500 acres (nearly one-third of the city’s land that drains into its network of sewers) over the next 25 years. With such a strong commitment to green storm water management, NatLab conducted its initial research in Philadelphia. The city presents a particularly interesting opportunity for testing innovative approaches to organizing and financing green storm water management programs. In addition to its comprehensive plan, the city assesses a storm water fee that correlates to the volume of storm water runoff from a property and offers a rebate or credit for reducing that runoff. The more typical structure is to charge fees based on the amount of water used by a property, which has no relation to the amount of runoff. This fee structure creates an economic basis for private investment by allowing storm water fee reductions for property owners who capture the first inch of rainfall onsite.

In a newly released report, “Creating Clean Water Cash Flows,” NatLab identified multiple strategies governments can pursue to attract private capital to reduce the need for public investment in maintaining healthy waterways. Three practices that Living Cities finds particularly promising include:

1) Reduce regulatory uncertainty: An important consideration for public storm water utilities is the need to create an environment that is conducive to private investment. Uncertainties regarding long-term fee and credit policies, approval and permitting processes, and appeal procedures, create unpredictability that discourage private investment. Every municipality that hopes to attract private investors to its green storm water program needs to address policies and procedures that might discourage private capital involvement.

2) Aggregate small and distributed projects: Projects that reduce runoff are often small and distributed, making implementation challenging. Packaging numerous projects into an aggregate portfolio will reduce transaction and project costs through economies of scale.

3) Implement pay-for-performance public-private partnership structures: NatLab strongly encourages the use of public-private partnerships (P3) to finance and implement a green storm water infrastructure plan. When used appropriately, P3s allocate risks and responsibilities to the partner (city or investor) best equipped to handle them, while maintaining public control. The benefit of the P3 approach is that it has the potential to lower the costs of construction and management, attract new sources of capital, and shift performance risk to private partners when payment is tied to performance. A pay-for-performance structure will allow the private partner to focus on the most cost-effective technical designs and property types, minimize lifecycle costs by combining design and maintenance obligations, and achieve economies of scale by sequencing and organizing a large portfolio of work.

Though the study focused exclusively on Philadelphia, the analytical and strategic framework it presents can also be used by other cities seeking to attract private capital to address their storm water management challenges. It is expected that cities across the country will increasingly look to the private market for assistance given the tremendous gap between funding needs and available public sources.

On Thursday, March 28 3-4:30, Living Cities will be hosting a webinar with NatLab on the findings of this work. To register to participate, please click here.

In order to develop an informed perspective on infrastructure and the potential for
incorporating it into the Living Cities agenda, we are investigating a number of sectors in the infrastructure field. Part of this exploration includes assessing the potential role of impact investment as a new source of capital that can help cash-strapped municipalities fund infrastructure projects. This discovery process has recently led us to look at broadband where some exciting developments are taking place.

A number of cities have invested in high speed broadband, providing the infrastructure to deliver speeds up to I gig – 100 times faster than most available networks in
the U.S. Cities like Chattanooga; Lafayette, LA; and Bristol, VA have installed I gig broadband throughout the City which is owned by the City and built and operated by a public power utility. While many people may not appreciate the benefits of this enhanced broadband capacity, it has the potential to be a strong economic development driver where it’s available. New applications and content that require high speed broadband could significantly change the nature of medical care, education and entertainment, just to name a few. Health care, which has been an early adopter, will use the fiber optic network to diagnose and monitor patients in remote locations. Greater interactive capacity is also leading to new approaches in customized learning
and job training. One report, published by GovTech.com, quoted the COO of the Chattanooga Electric Power Board who suggested that high speed broadband has the potential to be an economic driver on the order that the interstate highway system and air travel was generations ago.

According to some reports, Chattanooga, which used stimulus money to install its high speed fiber optic network, was the first to initiate gigabit broadband service. Originally intended as a means of improving the reliability of the electric grid, the benefits have grown far beyond expectations. Not only are they now able to detect and fix power outages almost instantly, they have also improved power delivery overall. The City is using its high speed capacity to improve public services across the board, most notably in the area of public safety. In the private realm, the availability of high speed internet is attracting new businesses and residents to Chattanooga, and it’s also causing young people to stay in the City, circumventing the “brain drain” of the past. And Chattanooga is but one example. Over 130 community-owned fiber networks are operating across the
country.

While these stories are very appealing, it’s challenging to identify suitable investments
for impact investors. The costs of installing fiber networks are high, and the work takes a considerable amount of time. Undoubtedly there are issues of access and equity involved, but there appears to be an active movement to address those challenges.

More investigation is warranted in the area of broadband. It’s exciting and compelling and clearly an engine for economic opportunity.

Recently, I had the opportunity, on behalf of Living Cities, to sit in on the quarterly call of the Stormwater Funders Group. This group of funders, hosted by the Funders Network, shares a common interest in supporting and advancing stormwater management and green infrastructure initiatives. This was my first call with the group, so I'm not familiar with its history, but I found the discussion extremely helpful and relevant to the planning process that Living Cities is engaged in relative to infrastructure in general, and stormwater management in particular.

Stormwater runoff is a significant contributor to pollution in urban waterways. It causes flooding, impacts water quality and aquatic systems and poses serious risks to public health. Traditional stormwater management systems are designed to collect stormwater and transport it to another location for treatment. It is expensive and inefficient. Green stormwater management captures and recycles stormwater onsite through the deployment of green roofs, rain barrels, rain gardens, permeable surfaces and other mechanisms. It is a cheaper and more sustainable approach to stormwater management.

There is much to get excited about when it comes to green stormwater infrastructure (GSI). The potential for managing sewer overflows and flooding is just the beginning of what makes it so appealing. As one studies it further, it becomes clear that GSI impacts the environment in a myriad of ways, from reducing heat island effects to replenishing the water table, cleaning the air, beautifying neighborhoods, and according to one study, even reducing crime. It also creates economic benefits (job creation and improved property values) and social benefits (enhanced recreational opportunities, improved public health and greater equity). Find more on the challenges of stormwater management and the benefits of a GSI approach here.

A number of cities around the country are experimenting with GSI as a way to address their obligations under the Clean Water Act. Some, like the City of Philadelphia, are being particularly innovative and ambitious in their approach to planning, implementing, and financing GSI. Most of the localities engaged in these programs are still at the planning and early implementation stages. But in a report presented by Diane Schrauth, a good case is made for the need to think beyond implementation and plan ahead for ongoing operation and maintenance of this infrastructure. As Diane noted, when the infrastructure is below ground, no one notices when it begins to deteriorate. When it's above ground, everyone notices. Beyond not serving its intended purpose, poorly maintained GSIs become fodder for naysayers and those who advocate "gray" solutions over "green". Unfortunately, this raises questions that aren't easily answered--Who should be in charge of ongoing operation and maintenance? and What must be done to prepare skilled workers to take on these responsibilities? Some early adapters expect to rely on water associations and community volunteers. However, this does not seem like a reasonable approach for large scale initiatives. This is an extremely important issue for those who are interested in GSI. It's not something that folks are talking about very much, and yet it is critical for long term success. Clearly this is a planning consideration that funders and other stakeholders in GSI should expect from those who are planning and implementing GSI in local communities. It's a big responsibility and an essential ingredient for effective, long term solutions. I'm eager to learn more about how cities that are taking the lead in GSI implementation are addressing this issue.

Mary Reilly is working with Living Cities in its effort to investigate the community development implications of infrastructure and how Living Cities might engage in infrastructure to advance the community development agenda.