New Finance Symposium Final Report 9-1-16 · 2017. 8. 1. · • Perry Raso, Matunuck Oyster Bar • Jag Khuman, Maryland Department of the Environment • Nick Dilks, Ecosystem Investment

CHESAPEAKEBAYENVIRONMENTALFINANCESYMPOSIUM

RecommendationsandFinalReport

PreparedbytheEnvironmentalFinanceCenterattheUniversityofMarylandAugust2016

ChesapeakeBayEnvironmentalFinanceSymposiumFinalReport

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AcknowledgmentsTheEnvironmentalFinanceCenterwouldliketothankthefollowingpeopleandorganizationsfortheirassistanceinimplementingtheSymposiumanddevelopingthisfollow-upreport:

Projectplanning,guidance,andimplementation.TheFinancingSymposiumprocesswasgreatlyaidedbyseveralcommittees,includingtheSymposiumSteeringCommittee,SymposiumPlanningCommittee,andSymposiumReportEditingCommittee.1

Symposiumspeakers.WeareverygratefultothefollowingpeopleforpresentingattheSymposium.Theirexpertiseprovidedaneffectivestartingpointforthesubsequentconversations.

• EricLetsinger,QuantifiedVentures• PaulCarroll,CityofNewport,RhodeIsland• PerryRaso,MatunuckOysterBar• JagKhuman,MarylandDepartmentoftheEnvironment• NickDilks,EcosystemInvestmentPartners• JeremySokulsky,EnvironmentalIncentives• SecretaryBenGrumbles,MarylandDepartmentoftheEnvironment• DeputySecretaryAngelaNavarro,VirginiaDepartmentofNaturalResources• TheHonorablePenelopeA.“Penny”Gross,LocalGovernmentAdvisoryCommitteetothe

ChesapeakeExecutiveCouncil,VirginiaDelegation• DelegateDavidBulova,CBCandVirginiaDelegate

Symposiumfacilitators.TheconversationswithinthetwelveSymposiumbreakoutsessionswereexpertlyguidedbythefollowingfacilitators:

• DougBlack• ColleenCopple• JimCopple• GaryDecker• JohnLesko• PerryPockros

Reportreviewandcomment.

• ChesapeakeBayProgramManagementBoard• Citizen’sAdvisoryCommittee• LocalGovernmentAdvisoryCommittee• MarylandDepartmentofNaturalResources• PennsylvaniaDepartmentofEnvironmentalProtection

Aspecialthankstothefollowingindividualsforreviewingandcommentingonthereport:

• MarkBryer• JeffCorbin1AcompletelistofthemembersofeachcommitteeisincludedintheAppendixofthisreport.


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• NickDilks• KhrisDodson• CraigHolland• JackKartez• GeorgeKelly• DougLashley• BethMcGee• KurtStephenson• DougWheeler

Finally,theEnvironmentalFinanceCenterwouldliketothanktheleadershipandstaffattheChesapeakeBayProgramOfficefortheirsupportandassistancethroughouttheSymposiumprocess.Thisprojectwouldnothavebeenpossiblewithouttheirpartnership.CoverphotoscourtesyoftheChesapeakeBayProgramOffice.


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Contents

ExecutiveSummary..........................................................................................................................................5

Section1:Background......................................................................................................................................8

Section2:ConditionsthatEnablePrivateSectorEngagement........................................................................11

Section3:RecommendationsforScalingandAcceleratingPublic-PrivateEngagement.................................14CoreRecommendations......................................................................................................................................15Theme-SpecificRecommendations.....................................................................................................................25

Conclusion......................................................................................................................................................34

Appendix........................................................................................................................................................35


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ExecutiveSummaryOnApril25-26,2016,theEnvironmentalFinanceCenter(EFC)attheUniversityofMaryland,incollaborationwiththeEPAChesapeakeBayProgram(CBP),convenedtheChesapeakeBayEnvironmentalFinanceSymposium.ThiseventwascatalyzedbyChesapeakeExecutiveCouncilResolution2015-2,whichchargedCBPwithbringingtogetherasymposiumtoidentifyinnovativeapproachestoleverageorincentivizeprivateinvestmentinBayrestorationandprotectionefforts.

Theeventgatheredmorethan130creative,successfulleadersfromdiversefieldsincludingfinance,business,policy,andresourceprotectiontodiscussoptionsforadvancingamoremarket-likeapproachtoachievingBayrestorationgoals.Symposiumparticipantsengagedinrobustdiscussionbothduringandfollowingtheevent,andwhiletheseconversationsdidnotresultinconcrete,consensus–basedconclusions,theyadvancedknowledgeonwhytheprivatesectorhasnotbeenmoreinvolvedinfinancingrestorationtodate,aswellashowthissectorcouldbemoreeffectivelyengaged.

InitsworkplanwithCBP,EFCwastaskedwithdistillingkeyfindingsfromtheSymposiumanddevelopingasetoffinancingrecommendationstopresenttotheChesapeakeExecutiveCouncilatitsfall2016meeting.Todeveloptheserecommendations,EFClistenedcarefullytoSymposiumconversations–especiallytotheopinionsofprivatesectorparticipants–andalsodrewfromtheCenter’sowndeepunderstandingoftherestorationfinancinglandscape.EFCrecognizesthatcontinueddebateisnecessaryandhopesthatthisreportwillserveasalaunchingpointforongoingdiscussionthatcatalyzesaction.

Keyfindings.TheSymposiumaddressedanarrayoffinancing,policy,andimplementationbarriersandopportunities.Thoughtheeventgeneratedadiversearrayofideas,ahandfulofthemespermeatedmuchofthediscussionandhavethereforedirectlyandindirectlyinfluencedtherecommendationspresentedinthisreport.Thesecommonthemesinclude:

• Marketdiversity.Symposiumparticipantsrepresentedmanydifferentindustries,firms,andmarketsegments,eachplayingtheirownuniqueroleintheBayrestorationeffort.Theprivatesectorisdiverse,servingarangeoffunctionsandprovidinganarrayofpotentialbenefitsinthecontextofwaterqualityimprovement.Asaresult,thereisnosinglesolutionorsetofsolutionsthatcaneffectivelyleverageprivatesectoractivity.TheconversationsattheSymposium,therefore,largelyfocusedontheuniversalconditionsthatarenecessarytoengagemultiplemarketsegmentsandactors.

• Itisnotallaboutwaterqualitytrading.Thebenefitsandbarriersofestablishingwaterqualitymarketswasadominantthemeattheevent,andforgoodreason.Waterqualitytradingandmarketshavethepotentialtodramaticallyreducethecostofwaterqualitycompliance,especiallyatthelocallevel.However,thescaleoftherestorationeffortmeansthattradingisnotapanacea,butratheroneofmanyimportantcomponentsofthefinancingsolution.

• Thereisafoundationforsuccessfulfinancingacrosstheregion.TheChesapeakeBayrestorationfinancingchallengeissignificantandwillrequirethemobilizationoffiscalresourcesacrosstheentireregion.Inspiteofthechallenge–orperhapsasaresultofit–thereareexamplesoflocalandstategovernmentseffectivelyestablishingtheconditionsnecessarytocatalyzemarket


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behavior,andofsuccessfulmarket-basedfinancingprogramsthatareacceleratingimplementationandreducingcosts.

• Theprivatesectorisreadytoengage.Symposiumparticipantsrepresentedindustrysectorsthatarereadytoengage,invest,andadvancerestorationactivities,oncetherightconditionsareinplacetoenablethesesectorstoact.

Summaryofcorerecommendations.Toleveragetheprivatesector’stremendouspotentialforadvancingtheBayrestorationeffort,itwillbenecessarytolaythegroundworkforeffectiveengagement.AllparticipantsinBayrestoration–publicandprivate–havearoletoplayincreatingasetofkey“enablingconditions”thatsetthestageforsuccessfulinteractionwiththemarketandprivatesector:1)allowingflexibilityinhowprojectsaredesigned,financed,andimplemented;2)fosteringconsistencyandpredictabilityinmarketdemand,permitting,procurement,andregulatoryenforcement;3)developingsharedorintegratedstandardsforthewaterqualitymarketplace;and,4)boostingbroad-scaledemandforrestoration.

ToadvancetheseenablingconditionsandcatalyzeprivatesectorengagementinBayrestoration,theEFCmakesthefollowingcorerecommendations:

• AdvanceaChesapeakeBayrestorationeconomicdevelopmenteffort.MuchoftheBayrestorationfinancedialogueisfocusedonthecostofcomplyingwithpollutionreductionmandates.Thoughreducingcostsandachievinggreaterreturnsoninvestmentmustbeaprimarygoal,theoverallrestorationeffortwillbemoreeffectiveifitcanbefoldedintoalargereconomicdevelopmentinitiative.Waterqualityinvestmentscanstimulatesignificantandsustainableeconomicactivityacrosstheregion.Bettercoordinatingrestorationgoalswitheconomicdevelopmentprioritiescouldcreatejobsinkeyindustrysectors,spurentrepreneurshiparoundinnovativeventuresthatproducerevenuewhilealsohelpingcleanuptheBay,andestablishthemid-Atlanticasahubforwaterqualityrestoration-basedtechnology,industry,andbusiness.

• Createacredit-basedfinancingsystemandmarketinfrastructure,basin-wide.ThefoundationforachievingefficientandeffectiveBayrestorationfinancingisacredit-basedsystemthatenablesnutrientandsedimentreductionstobegeneratedandsoldacrossthewatershed,oncelocalwaterqualitymandatesaremet.SuchtradingsystemsalreadyexistwithinBaystatesandtheDistrict.Ifthesedisparateprogramscanbeintegratedinawaythatenablestradestooccureasilyandcost-effectivelyacrossjurisdictions,thereisgreatopportunitytoreducetheoverallcostofcomplianceandaccelerateimplementationofBayrestorationgoals.

• Establishimplementationandperformancestandards,basin-wide.Oneofthemostimportantprerequisitesforeffectivemarketactivityistheestablishmentofstandardsthatsetthecodeofconduct.Whiletherestorationfinancingeffortmayhavemyriadgoals–includingstimulatingeconomicactivityintheregion–theprimary,overarchinggoaloftheeffortmustbetorestorewaterqualityintheChesapeakeBayanditstributaries.Implementingperformancestandardshelpsensurethatrestorationmarketsultimatelyadvancethisgoal–anditgivesprivatefirmstheclearexpectationstheyneedinordertogetinvolved.

• Reduceunnecessarytransactioncosts.AconsistentmessageinSymposiumdiscussionswasthefactthatinefficientgovernmentprocesseshaveanadverseimpactonprivatesectoractivity.


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Targetedreformstopermittingandprocurementprocessestoremoveunnecessaryinefficienciescouldgoalongwayinstimulatingprivatesectorengagement.

• Facilitatetheflowofrestorationinvestmentthroughinnovativeinstitutionalstructures.PrivatesectorandmarketexpertsattheSymposiumdescribedavarietyofopportunitiesforgaininginvestmentefficiencies,eachonerequiringflexibilitythatistoooftenlackinginexistingpublicfinancingsystems.Yettherearemodelsofinstitutionalstructuresthatinvestpublicfundsinawaythatincentivizeseffectiveprogramsandpractices,andthesemodelsshouldbereplicated.

Theseprimaryrecommendationsareuniversal,inthattheycouldapplyinalljurisdictionsthroughouttheChesapeakeBaywatershed.Inaddition,thereareopportunitiesforestablishinginnovativefinancingprocessesandprogramswithlocal-levelspecificity,includinglinkingprivatecapitalandimplementationpowerwithpublicsectorinvestmentthroughpay-for-successprograms;adaptingthemitigationbankingmodeltomeetlocalstormwatermanagementneeds;utilizingpublic-privatepartnershipstoreduceimplementationcosts;andcreatingtaxincentivestomotivateadoptionofwaterqualitypracticesonprivateland.Whiletheseoptionsmaynotapplyineveryjurisdiction,theirpotentialtoreducethecostofcomplyingwithlocalwaterqualityregulationsmakesthemworthconsiderationandfurtherstudy.


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Section1:BackgroundInJuly2015,theChesapeakeExecutiveCouncilissuedResolution2015-2,whichdirectedtheEPAChesapeakeBayProgram(CBP),undertheleadershipofthePrincipals’StaffCommittee(PSC),toconveneanEnvironmentalFinanceSymposiumthatwouldidentifyinnovativeapproachesforleveragingorincentivizingprivateinvestmentinBayrestorationandprotectionefforts.TheCBPengagedtheEnvironmentalFinanceCenter(EFC)toplanandimplementthisSymposium,whichwasheldatUniversityofMarylandinCollegeParkonApril25and26,2016.DrawingfromtherichdiscussionsthatoccurredduringtheSymposium,theEFCpreparedasetofkeyfinancingrecommendationscontainedinthisreport.

Committeeguidance.ToguidethedevelopmentandimplementationoftheSymposium,theCBPandtheEFCconvenedtwocommittees,eachcomprisedofpublicandprivatesectorleadersfromtheBaystatesandtheDistrictofColumbia.Committeesincludedrepresentationfromexpertsinarangeofrelevantfields,includingfinance,resourcemanagement,planning,andpolicy.CommitteedescriptionsandalistofCommitteememberscanbefoundintheAppendix.

Eventstructure.TheSymposiumconvenedmorethan130individualsfromarangeoffieldsincludingacademia,resourcemanagement,finance,business,andpolicy.Thetwo-dayeventagendaincludedplenarysessionsthatsetthestageforconversationsoneffectivelyengagingtheprivatesectorinBayrestoration.TheseframingpresentationsweremadebyspeakersfromBaystatesandaroundthecountry,representingboththepublicsectorandtheprivatesector.Thecoreoftheevent,however,wasaseriesofworkingsessionsinwhichparticipantsdovedeeplyintotheissuesathand,brainstormingandvettinginnovativeapproachestocatalyzingprivateinvestmentinBayrestoration,aswellassinglingoutobstaclestotheseapproaches.Eachparticipantwasassignedtoparticipateintwoofsixworkinggroupsorganizedaroundkeythemes(seebelow),withdiscussionledbyatrainedfacilitator.Workgroupsdiscussedbarriersandopportunitiesassociatedwithcreatingmoreeffectivelinkagesbetweenthepublicsector,theprivatesector,andthemarketplace.Afullsummaryreportofworkgroupdiscussions,alongwiththecompleteeventagendaandlistofparticipants,canbefoundintheAppendix.

Keythemes.TheChesapeakeExecutiveCouncil’sdirectiveclearlydefinedthefocusoftheSymposiumtobetheinteractionwithandengagementoftheprivatesector,includingtheroleofenvironmentalmarketsintheChesapeakeBayrestorationfinancingeffort.GiventhecomplexityandscaleofthechallengefacingtheBaycommunity,thischargemadesense.Whilepublicinvestmentsareessentialtocatalyzerestoration,thepublicsectoralonedoesnothavethecapacitytoachieverestorationgoals;successwilldependoninvolvementbycitizens,businesses,andinvestors.Tothatend,theSymposiumwasdesignedtohoneinonhowthepublicsector–primarilystateandlocalgovernments–caneffectivelyengageandpartnerwiththeprivatesectorintherestorationeffort.

Toorganizediscussionswithinthisbroadtopic,theprojectteamidentifiedsixthemesforparticipantstoexploreindepthduringtheSymposium:

• Reducingimplementationcosts;• Incentivizinginnovation;• Creatingandexpandingconsumerdemandforconservationandrestoration;


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• Integratingpublicandprivatecapital;• Mitigatinginvestmentrisk;and,• Establishingwaterqualitymarketsandtradingprograms.

Eachofthesethemesrepresentsanopportunityfortheprivatesectortobringvaluetotherestorationfinancingeffortand/orthemechanismsthatcancreatelinkagestothemarketplace.

Goalsofthisreport.InitsworkplanwiththeCBP,theEFCwaschargedwithdistillingkeyfindingsfromtheSymposiumandpreparingasetoffinancingrecommendationstobedeliveredtotheChesapeakeExecutiveCouncilatits2016annualmeeting.Specifically,thisreportwastofocuson:

• Theenablingconditionsnecessaryforincentivizingprivateinvestmentand,• Thekeyopportunitiesforbringingwaterqualityinvestmentstoscale

Thisreportfirstlaysout,inSection2,theprerequisitefactorsorenablingconditionsforlocalandstategovernmentstoeffectivelypartnerwiththeprivatesector.Inaddition,someofthemainobstaclestoestablishingtheseconditionsareidentified,drawingfrominputreceivedattheSymposium.Followingthat,Section3laysoutrecommendationsformovingforwardwithamoremarket-basedapproachtoBayrestoration,informedbothbySymposiumconversationsandtheEFC’sownunderstandingofthislandscape.TheAppendixcontainsasetofmaterialsintendedtoprovideadditionalcontextfortheSymposiumandthisreport.

Afewpreliminarynotes.ThechargefromtheChesapeakeExecutiveCouncilwastofocusonwaterquality,sothisreportdoesnotdiscussthefinancingchallengesrelatedtothemyriadadditionalissuesthatarecriticaltoBayrestorationandaddressedintheChesapeakeBayAgreements,suchasgoalsrelatedtofisheriesandpubliceducation.TheEFC’sintentistodevelopapathforwardbasedonengagingprivateinvestmentandmarket-basedprogramsforwaterqualityrestorationthatwillpavethewayforsimilareffortsrelatedtootherwatershedrestorationgoals.

Second,wherethisreporttouchesonpublicratherthanprivatesourcesofrevenueforrestoration,itisintendedtohighlighthowtomaximizetheimpactofthoseinvestments,ratherthanexplorepotentialnewpublicsources.PublicinvestmentisessentialtotheBayrestorationfinancingsystem,andinmanycasesistheprimarycatalystforrestorationactivity.However,therangeofpublicrevenuesourcesandthemechanismsfordeployingthemare,forthemostpart,well-established,andthereareplentifulexistingresourcesaddressingthefinancingchallengesthatBayareajurisdictionsface.Additionally,becausepublicrevenuegenerationisapoliticalratherthantechnicalchallenge,theconversationiscontainedtounderstandinghowtomaximizetheeffectivenessofinvestments,whethertheycomefrompublicorprivatesources.

Third,theEFC’sfocusisonstateandlocalfinancingopportunitiesandprocesses;federalfinancingandfundingresourcesarenotdirectlyaddressed.Certainly,federalresourcesarecriticaltotherestorationprocess,especiallyincertainsectorssuchasagriculture,andfederalinvolvementcanimpactmarketdynamicsinavarietyofareassuchasinsurancetoolsandmechanisms,landprotection,andapplicationoftechnology.However,thecomplexityoffederalfinancingprogramsandthecumbersomeprocessforshiftingspendingpatternsandprioritieswouldhavemadeitdifficulttoidentifyrecommendationsthatcouldaffectchangeintimetoachievemandatedpollutionreduction


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targets.Thatsaid,therecommendationspresentedinthisreportprovideagoodfoundationforleveragingfederalresourceswithintheirexistingstructures.

Finally,itshouldbenotedthattheSymposiumdidnotattempttoestimatetheaggregatecostofrestorationactivities.Costsmatter,butratherthantrytoestimatewhatcostsmaybeinthelongterm(anecessaryexercisewhendevelopingbudgetsandfinancingplans),thefocuswasnarrowedtotheissues,processes,andopportunitiesassociatedwithreducingthosecosts,whateverthosemightbe.


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Section2:ConditionsthatEnablePrivateSectorEngagementTheprivatesectorisnonewcomertotheworldofpublicinfrastructurefinancing.Infact,privatefirmsandthemarkethavebeenintegralplayersinfinancingpublicservicesforgenerations–andtheChesapeakeBayrestorationeffortisnoexception.Privateinstitutionsandbusinessesareinvolvedinarangeofrestorationactivities,includingdesigningandconstructingbestmanagementpractices(BMPs)andwaterqualityinfrastructure;providinginstitutionalmanagementandcapacitybuildingservices;supplyingfinancingandcapitalmanagement;and,facilitatingmarketactivitythroughaggregationandtechnicalassistance.

Theadvantagesofsuchprivatesectorinvolvementarewelldocumentedandinclude:

• Efficiency:Market-basedfinancingprocessesareoftenabletoachieveoutcomesmorequicklyandcosteffectively.Inregardtowaterqualityrestoration,thistranslatestoanopportunitytomaximizethelevelofpollutionreductionperdollarinvested.

• Effectiveness:Theprivatesectorisoftenabletoachievehigher-qualityoutcomesasaresultofgreateroverallcapacityandaccesstoresources.

• Expediency:Whenunnecessarypublicbarriersareremoved,themarketplaceisabletomobilizecapitalandresourcesnimbly—aboontotheBaycommunity,withrestorationdeadlinesapproachingquickly.

• Innovation:Themarketforcesthatcreatecostefficienciesalsoincentivizethedevelopmentofinnovativenewpractices,policies,andfinancingmechanismsthatcanadvancetherestorationeffort.

• Riskmitigation:Whenprivatefirmsproviderestorationservices,theyassumetheriskassociatedwiththem,shiftingitawayfromthepublicsector.

TheprivatesectorisalreadyservinganumberofmarketfunctionsrelatedtoBayrestoration,asmentionedabove,andthereisalmostlimitlessopportunityforenhancedengagementinordertocapitalizeonthepowerofthemarkettoachievemoreefficient,effective,andinnovativeoutcomes.Thesuccessofsuchengagement,however,dependsonhowitisstructuredandwhethertherightconditionsareinplace.Whatthoseconditionsare,andhowtheycanbeachieved,wasamainthemeoftheSymposiumdialogue.Participantsworkedtoidentifytheprerequisitesforsuccessfullystimulatingprivatesectorengagement,aswellasthechallengesandopportunitiesassociatedwithputtingtheseconditionsinplace.Thesediscussionsledtotheidentificationoffour“enablingconditions”thatprovidethefoundationforleveragingthebenefitsofthemarket.

Flexibilityinhowprojectsaredesigned,financed,andimplemented.AcommonthemeinSymposiumdiscussionswastherisk-aversenatureofthepublicsectorassociatedwithrestorationinvestments.Theneedtocomplywithregulations,permittingprocedures,andprocurementpolicieshasresultedinafinancingsystemthathasatendencytoberigidandunnecessarilyprescriptive,whichinturnreducesincentiveforinnovationandefficiency.Amoreflexiblesystemthatemphasizesresultsratherthanapproachwouldmotivatemarketactorstofindthelowest-costwaytoachievedesiredoutcomes.Theresultwouldbeincreasedinnovation,costsavings,andacceleratedimplementation.Whatofteninhibitspolicymakersfromenablingflexibilityisaconcernthatitcouldresultinsubstandardoutcomes.Toavoidthis,programscanincludeclear,appropriateprogramparametersthatdriveperformance,aswillbediscussedlaterinthisreport.


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Marketconsistency.AnothercriticalprerequisiteidentifiedrepeatedlyinSymposiumdiscussionsistheneedforconsistencyorpredictability,especiallyinthreeareas:steadydemandforrestorationservices,clearandpredictablepublicprocurementandpermittingprocesses,andconsistently-enforcedwaterqualityregulations.

Thefirstofthese–steadydemandforgoodsorservices–facilitatesmarketactivitybybringingvendorstothetable,whichfostershealthycompetitionanddrivesdowncosts.Predictablelevelsofinvestmentinpoundsofnutrientandsedimentpollutionreduction,forexample,wouldletprivatefirmsknowwhatisexpected(poundsreduced)andalsoofferreliablerevenueflowastheyworktoachievethoseresults.Steadydemandisdifficulttoachieve,however,forseveralreasons,includingthefactthatpublicspendingprioritiesnecessarilyshiftyeartoyeartoreflectpressingneeds,thetendencyforappropriationprocessestobaseinvestmentdecisionsonvariousgoalsotherthanorinadditiontopollutionreduction,andthe“useitorloseit”provisioncommontomanypublicspendingprograms.

Anotherareawherepredictabilitytendstobelackingisinthepublicprocessesofpermittingandprocurement.Procurementistheprimarypointofconnectionbetweenprivatefirmsandlocalgovernments.Whenprocurementrequirementsareunwieldytonavigate,orwhentheyvarysignificantlyfromcommunitytocommunity,transactioncostsincrease.Costsalsoincreaseasaresultofunnecessarilysloworcumbersomeprocessesforpermittingwaterinfrastructureprojects,whichcausesfrustrationandprojectdelays.ReducingtheburdenofinefficientpermittingsystemsatalllevelsofgovernmentwasidentifiedattheSymposiumasamajoropportunityforimprovingthelikelihoodofprivatesectorparticipationinrestorationactivity.

Finally,inconsistentregulations–specificallyrelatedtostormwatermanagementinurbancommunities–andinconsistentregulatoryenforcementacrossjurisdictionsposebarrierstoprojectimplementation,especiallyasitrelatestomarket-basedprograms.Contrarytopopularbelief,itistheconsistentapplicationofwell-definedregulations–notthereductionofregulatoryobligations–thatprovidestheoptimumframeworkforeffectivelyengagingtheprivatesector.Bydevelopingandapplyingclearparameters,jurisdictionsfreethemarkettodowhatitdoesbest:pursuethelowest-costmethodsforachievingregulatorygoals.

Integratedstandardsandpoliciesforthemarketplace.Athirdprerequisiteforsuccessfulprivatesectorengagementistheestablishmentofsharedstandardsforthewaterqualitymarketplace.Thisisespeciallychallenging–butalsoespeciallynecessary–giventhesizeanddiversityChesapeakeBaywatershed.Bayjurisdictionscurrentlyusearangeofregulatory,financing,andtechnicalstrategiestoachievewaterqualitygoals;forexample,metricsforMS4permitimplementationrangefromacresofimpervioussurfacetreated,togallonsofwaterretainedonsite,topoundsofnutrientsreduced.Whilelocalgovernmentsunquestionablyshouldtailortheirapproachtolocalneeds,theBay-widerestorationeffortwouldbenefitfromamoreintegratedsystem.Sharedstandardsforthedesign,installation,andmonitoringofstormwaterBMPs,forexample,wouldmakeiteasierandlesscostlyforprivatefirmstoprovidetheseservicesregion-wide.Ataminimum,statesshouldstrivetomaketheirowninternalstandardsstraightforwardandconsistent.

Broad-scaledemand.Finally,anecessaryconditionforengagingmarketsatscaleisbroaddemandforthepractices,behaviors,andprogramsthatresultinarestoredChesapeakeBay,whichinturnwill


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drivethesupplyofthosepractices,behaviors,andprograms.Buildingdemandforrestorationwillrequireinterventionsatmultiplepoints,includingmaintainingandincreasingexistinglevelsofpublicinvestmentinrestoration;ensuringthatlocal,state,andfederallawsareconsistentlyenforced;andredoublingeffortstoboostpublicdemandforBayclean-up.Thelatterwillinvolveoutreachandeducationsothatcitizens,businesses,andinstitutionsthroughoutthewatershedunderstandthatacleanChesapeakeBayisintegraltothecommunity’squalityoflifeandeconomichealth.

Thesefourconditions–flexibilityinprojectimplementation;consistencyinmarketdemand,procurement,permittingandregulatoryenforcement;sharedstandardsforthemarketplace;and,broad-scaledemandforrestoration–representthefoundationforestablishingarobustBayrestorationmarket.TheEFCdoesnotpresumethatthesearesimplegoalstoachieve–butanystridesforwardwillhelpsetthestageforeffectivelyengagingthemarketandtheprivatesector,withthepayoffofenhancedefficiency,effectiveness,andinnovation–andultimately,ahealthierBayandregionaleconomy.Thenextsectionpresentsrecommendationsforincrementalactionsthatworktowardachievingthisvision.


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Section3:RecommendationsforScalingandAcceleratingPublic-PrivateEngagementTheEFC’skeyrecommendationsrepresentstrategieswithstrongpotentialtobringaboutaBayrestorationfinancingsystemthatproactivelyleveragesprivatesectorcapacity.Ifimplemented,theseapproacheswouldtakesignificantstridestowardovercomingthebarriersoutlinedintheprevioussectionandfosteringtheconditionsnecessaryforproductiveengagementbetweenthepublicandprivatesector.Somerecommendationstargetparticularlevelsofgovernment;nearlyallwillrequirecoordinationbetweenstate,local,andfederalagenciesandamongbothprivateandpublicmarketparticipants.Therecommendationsareorganizedintotwocategories:

• Corerecommendationsrepresentbroad-scalemarketinterventionsandforthemostpartareintendedtobeimplementedbystatesratherthanlocalgovernments;theycouldbeundertakenbyallBayjurisdictions;and,

• Theme-specificrecommendationsaddressspecificideasthathavedemonstratedcapacitytoacceleratetheimplementationofenablingconditionsatthestateandlocallevels.

Beforepresentingtheserecommendations,however,theEFCoffersoneover-archingrecommendationforanimmediatenextstepthatwillaidimplementationofalloftheproposednextsteps.ThechallengeofBayrestorationfinancing,andallpotentialsolutions,warrantsignificantadditionaldebate.ToensurethattheconversationbegunattheSymposiumcontinues–andthatthisconversationcatalyzesaction–theEFCrecommendsthattheChesapeakeBayProgramcreateaFinanceAdvisoryBoard.Thisboardwouldbecomprisedoffinance,economic,andpolicyexpertsandchargedwithadvancingBayrestorationfinancingsolutions.

ThisBoardwouldworkinpartnershipwithandreceivestaffsupportfromCBP’snewly-formedBudgetandFinanceWorkGroup,whichhasbeentaskedwithengagingonissuesthatpertaintofinancingtherequirementsoftheChesapeakeBayagreement.Workingtogether,thetwogroupswouldhavethecapacitytoprovidepublicandprivatesectorleaderswithactionableideasforadvancingrestorationfinance–thosecontainedinthisreportandanyothersthatemergemovingforward.Below,EFCsuggestsspecifictasksthatwouldbeappropriateforthisnewBoardtoundertake.

TheEFCrecognizesthesignificantstafflimitationsaffectingallinvolvedinBayrestorationandthechallengeofpopulatinganewboard.Theremaycertainlybeotherwaystocontinuetherestorationfinancingconversationinacodifiedwayandmovetowardimplementation;thekeypointisthattheconversationmustnotstophere.


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CoreRecommendations

Recommendation1:AdvanceaChesapeakeBayrestorationeconomicdevelopmenteffort.ThisrecommendationrepresentswhattheEFCbelievesisthegreatesthopeforrestoringandprotectingtheChesapeakeBay:strengtheningthelinkagebetweentheBayrestorationeffortandtheregion’seconomyandeconomicdevelopmentframework.WhiletheSymposiumprocessandthisreporthaveattemptedtoidentifywaystoreduceBayrestorationcosts,thepublicsectormustbegintoshiftfromafocusoncontrollingcoststowardavisionofwaterqualityinvestmentasapowerfultoolforachievingsustainedeconomicdevelopmentintheregion.

Baystatesarecompelledbyfederalmandatestopayforwaterqualityimprovements,yettheseexpendituresarenotsimplycoststoBayareajurisdictions;theyareinfactinvestmentsinlocalandregionaleconomies,creatingjobs,buildingkeyindustrysectors,andshoringupthelong-termpotentialfortheBayareatoremainadesirableplacetoliveandwork.ItgoeswithoutsayingthatacleanandhealthyBayisfoundationaltotheBayarea’seconomyandwayoflife,sustainingiconicindustriessuchasfishing,tourism,andrecreation.Yetmorecanbedonetostrengthenthelinkage–bothperceivedandactual–betweenBayrestorationandeconomicdevelopment.

Therearethreekeyopportunitieshere.FirstistheopportunitytodevelopindustriesandproductsthatarenaturallylinkedwithacleanandhealthyBay.Aclusterofsectorswithhighgrowthpotential–includingsustainableagricultureandfisheries,urbangreeninfrastructure,eco-tourism,andnature-basedrecreation–ispredicatedoncleanwater.Economicactivityassociatedwiththesesectorsisalreadysubstantialandispoisedforgrowth.Baystateshaveanopportunitytoestablishtheregionasahubforsuch“cleanwater”industries.Growthinthesesectorswillattractnewbusinessesandskilledworkers,improvequalityoflifeforcitizens,andenhancetheinfrastructurefoundationforlong-termeconomicgrowthanddevelopment.

Second,thereistheopportunitytotargetinvestmentinBMPsthatalsosupportthelocalandregionaleconomy.AstudyconductedbytheEFCin2013showedthatinvestmentsinstormwatermanagementpractices,forexample,haveanimpactonlocaleconomiessimilartotheimpactofotherindustriessuchasconstruction.2Thereiscompellingevidencethateffectivewaterqualityinvestmentswillpayrealdividendstostateandlocalgovernments,andprojectsshouldbeselectedwithaneyetowardacceleratingthateconomicimpact.ThisapproachtousingwaterqualityinvestmentstospurlocaleconomicdevelopmentactivityisakeyelementofPrinceGeorge’sCounty’snewstormwaterpublic-privatepartnership,whichisonitswaytobecominganationalmodelinachievingmultiplecommunityeconomicandfinancinggoals.

Third,localandstategovernmentscancreateincentivestogrowinnovativeinitiativesthatbothgeneraterevenueandfunctionasrestorationpracticesinandofthemselves.Someexamplesincludeoysterfarming,cultivatingfruitandnuttreeswithinforestbuffers,andinstallingwaste-to-energysystems;allofthesehavecapacitynotonlytocreatejobsbutalsotoimprovewaterquality.Theregionwouldbenefitfromfosteringsuchinnovativeenterprisesthroughstartupincubators,businessdevelopmentassistance,entrepreneurialtraining,acceleratorprograms,andsimilarefforts.

2UniversityofMarylandEnvironmentalFinanceCenter.2013.StormwaterFinancingEconomicImpactAssessment:AnneArundelCounty,MD;Baltimore,MD;Lynchburg,VA.


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Thismindsetshift–waterqualityaseconomicdevelopment–mayhavetheaddedbenefitofhelpingtoovercomeresistancetorestorationactivitiesamongcertainstakeholders,especiallyupstreamcommunitiesandindustriesthattendtoresistregulation.ItisnotanewideatouseBayrestorationtogenerateeconomicactivity,anditwillbeimportanttolearnfromthosecommunitiesthathavesuccessfullyadvancedBay-relatedeconomicdevelopmentinitiatives,sothatsuccessescanbereplicatedincommunitiesacrosstheregion.Butmorethanthat,whatiscalledforisawidespread,coordinatedeconomicdevelopmenteffortthatleveragesthe“Baybrand”forgrowthinpromisingindustryclustersandseeksstrategicconnectionsbetweenrestorationactivityandbroadereconomicdevelopmentinitiatives.

Nextsteps:

ThecriticalfirststepistobetterintegrateeconomicdevelopmentexpertsandleadersintheBayrestorationapparatus,therebycreatingtheopportunitytoadvancetheseideas.TheEFCrecommendsthatrepresentativesofstateDepartmentsofCommerceandEconomicDevelopmentbeincludedinChesapeakeBaymanagementanddecisionmakingsystems,specificallyinthePrincipals’StaffCommittee(PSC)attheChesapeakeBayProgramandtheproposedFinanceAdvisoryBoard.

Whilesomecoordinationdoesalreadyoccurbetweeneconomicandnaturalresourcedepartments,ifthegoalistotightlyweaveBayrestorationwitheconomicdevelopment,itwillbeimportanttoinvolvetheeconomicdevelopmentcommunityfirst-hand.Onceengagedinthisway,theseprofessionalswillbeinprimepositiontoidentifyopportunitiestointegraterestorationintostateandlocaleconomicdevelopmentactivitiesandpriorities,includingthosesurroundingfinance,marketing,neighborhooddevelopment,workforcedevelopment,smallbusinessdevelopment,businessretentionandexpansion,technologytransfer,andrealestatedevelopment.Inaddition,economicdevelopmentprofessionalsareuniquelyqualifiedtoinvestigatetheeconomicimpactofBayrestorationandcouldspearheadanefforttoquantifythejobscreatedandrevenuegeneratedbyrestorationactivitiesinBayjurisdictions,whichcouldhelplocalitiesmakethecasethatrestorationiseconomicdevelopment.

Recommendation2:Createacredit-basedfinancingsystemandmarketinfrastructure,basin-wide.ThesecondcorerecommendationistoestablishacommonrestorationfinancingandmarketsystemthatisdirectlytiedtoreducingpollutionloadstotheChesapeakeBayinthemostefficientwaypossible.Thiswillinvolveestablishingnutrientandsedimentcreditsasthebasisforrestorationfinancing,requiringthatinvestmentsresultinactualpollutionreduction,andsettingupthenecessaryinfrastructuretoenablethismarketplacetofunctionsmoothly.SuchasystemwillbemosteffectiveatreducingthecostofBayrestorationifimplementedbasin-wide,butshouldaregionalsystemproveelusive,state-orlocal-leveltradingprogramscanstillachieveimpact,asevidencedbythesuccessfultradingprogramsinplaceinVirginiaandtheDistrictofColumbia.Withstate-leveltradingsystemsupandrunning,thenextstepwouldbetocoordinatesystemsacrossjurisdictionalboundaries.

Sub-recommendation2a:Thefirstpartofthisrecommendationistoestablishacredit-basedfinancingsysteminordertoexplicitlytiewaterqualityrestorationinvestmentswiththedesired


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outcomeofreducednutrientandsedimentloadingtotheBay.3Bystructuringrestorationtransactionsintermsofcredits,themarketplacewillhaveaconsistentprotocolforevaluatingeachproposedrestorationproject(i.e.intermsofhowmanycreditsitgenerates),andtheBaycommunitywillhaveaclearmetricbywhichrestorationprogresscanbemeasured.Thissupportsenhancedtransparencyinhowstateandlocalgovernmentsfinancerestorationactivity,anditwillrequireprojectimplementersintheprivatesectortobemoretransparentinaccountingforperformance,whichultimatelyimprovestheefficiencyratioandresultsingreaterconservationperdollarspent.Whenthissystemisdesignedcorrectly,itwillincorporateallthecostsassociatedwithawaterqualityBMP,includingnotonlyitsdesignandconstructionbutalsoitslifetimeoperationsandmaintenance,whichovertimecanexceedthecostsofconstruction.

Demandforcreditsmaycomefromavarietyofbuyers,suchaslocalgovernmentsseekingtocomplywithMS4permits;wastewatertreatmentplantsneedingtoachieveregulatedpollutionreductionrequirements;orstateorfederalgovernmentsinvestingsubsidymoniesinrestorationactivities.Similarly,creditscouldbegeneratedbyarangeofsources:agriculturaloperatorsplantingcovercrops,privatefirmsaggregatingwaterrestorationBMPsonprivateland,municipalitiesorstatesconstructinggreeninfrastructureonvacantproperties.Beforebeingeligibletosellcreditsinastatewideorregionalmarket,MS4regulatedcommunitieswouldfirstneedtomeettheirownlocalpermitrequirements.

Coordinatedacrossmultiplejurisdictions,acredit-basedaccountingsystemwouldprovidebroad-scaleconsistencyinhowrestorationinvestmentsaremadeandreducetransactioncoststoprojectimplementers.Furthermore,suchasystemwouldlenditselftobefoldedintoalarger,watershed-widewaterqualitytradingmarket,whichcouldleveragethesuccessofcurrentfunctioningenvironmentalmarketprogramsinthewatershed.

Sub-recommendation2b:Hand-in-handwithadoptingacredit-basedfinancingsystemisashifttowardaperformance-financingapproach,whichfocusesonthedesiredoutcomeratherthanthemeanstogetthere.IfBMPscanbeevaluatedbasedonhowmanypoundsofnutrientsorsedimentstheyreduce,investorswouldbeabletotargetfundstopracticesthatachievereductionsatthelowestcost.Payingforresultsratherthanprojectsprovidestheincentivethatprivatefirmsneedtofindthemostcost-effectiveandhighest-performingtechnologiesandpractices.

Payingforperformancerepresentsanewwayofdoingbusinessformanypublicrevenueprograms.Yetperformanceneednotsupplantotherfundingcriteriabutrathercansupplementthem,enablingmultipleprojectneedstobeaddressedwithoutsacrificingfinancingefficiency.Oneofthemorecommonconcernsaboutfocusingonthecosteffectivenessofrestorationinvestmentsisthatgettingprojectstothepointofinvestmentandimplementationcanrequireavarietyofinterventionsthatarenotdirectlyassociatedwithwaterqualityrestoration.Forexample,overcomingculturalbarriersthrougheducationandoutreach,orprovidingtechnicalassistanceareoften“offbalancesheet”inthattheydonotshowupinprojectproposalsorcostassessments–andthereforewouldnotbeaccountedforinthecreditgenerationprocess.However,thisneednotbethecase.Thepowerofperformance-

3Weusetheterm“credit-basedfinancingsystem”asawayofcapturingthemultiplecomponents,actors,andactivitieswithinthatsystem.Itshouldbenotedthatinmanycasesthecredit-basedfinancingsystemisreferringtoanaccountingsystem,whichisaspecificcomponentofthebroadersystem.


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basedbasedfinancingisthatthefundingorganization,usuallystateorlocalgovernment,canrequirethesellerofcredits,i.e.theprojectimplementer,toberesponsibleforallprojectcosts,includingoutreach,evaluationandmonitoring,andlong-termtechnicalassistance.Includingtheseactivitiesinthemarketplaceprovidesincentivetoensurethattheyareaccomplishedinthemostefficientmannerpossible.

CaseStudy:ChesapeakeandAtlanticCoastalBaysTrustFund.AgoodexampleofapublicrevenueprogramthatusesperformancetoguideinvestmentsistheChesapeakeandAtlanticCoastalBaysTrustFund.FormedbytheMarylandGeneralAssemblyin2007,theTrustFundiscapitalizedwithrevenuefromMarylandmotorfuelandcarrentaltaxes.4Between2009and2015,theFundinvestedmorethan$250MineffortstoimprovethehealthoftheChesapeakeBay,includingprojectsthatadvanceimplementationoflocalandstateWatershedImplementationPlans(WIPs).5

TheFund’sexplicitgoalistoensurethegreatestenvironmentalreturnoninvestment.6Tothatend,theFundisadvisedbyaScientificAdvisoryPanel,whichannuallyrecommendswherefundsshouldbetargetedandwhichBMPsandmonitoringprotocolsarelikelytobemosteffective.BasedonPanelrecommendationsaswellasgeographicmappingviatheUSGeologicalSurveySPARROWmodel,theFundannuallytargetsinvestmentsto“specificwatersheds,watershedareas,projectsandpracticesthatprovidethemostcost-effectivewaterqualitybenefitstotheChesapeakeandCoastalBaysviareductionsinnon-pointsourcenutrientandsedimentloadings.”7

Totrackwhetherprojectsareachievinganticipatedgoals,theTrustFundworkswiththeMarylandBiologicalStreamSurvey(MBSS)todocumentbaselineconditionsandmonitorandcomparetheeffectivenessofvariousBMPs.ResultsaresharedpubliclyviatheFund’sTrustFundMonitoringwebsiteaswellastheMarylandStreamHealthwebsitemanagedbytheMBSS.8

Sub-recommendation2c:ToenablewaterqualitytradingandotherBay-widerestorationinvestments,itwillbenecessaryforlocalandstateleaderstocreatewaterqualitymarketinfrastructure.Settingupmarketinfrastructureincludesdefiningthecurrencyorunitoftransaction,whichmaybeawaterqualitycreditdefinedasonepoundofnitrogen,phosphorus,orsedimentreducedperyear,aswellasestablishingaprotocolforcalculatingthevalueofacredit.TherewillalsoneedtobemechanismsforevaluatingthepollutionreductionsofvariouswaterqualityBMPs,aswellasadministrativesystem(s)fortracking,monitoring,andregisteringmarketactivity.

Eachjurisdictionmaychoosetoestablishitsownmarketinfrastructureratherthanparticipateinoneover-archingsystem,buttominimizetransactioncostsforbuyersandsellersandefficientlyallocate

4MarylandDepartmentofNaturalResources.2016.Maryland’sChesapeakeandAtlanticCoastalBaysTrustFundFiscalYear2016BudgetAtaGlance.Available:http://dnr2.maryland.gov/ccs/Documents/TrustFundFY16.pdf5Ibid.6MarylandDepartmentofNaturalResources.ChesapeakeandAtlanticCoastalBaysTrustFundwebsite.Accessed7/21/14:http://dnr2.maryland.gov/ccs/Pages/funding/trust-fund.aspx7Ibid.8TrustFundMonitoringsite:http://dnr2.maryland.gov/streams/Pages/trustfund.aspx;MBSSMarylandStreamHealthsite:http://www.streamhealth.maryland.gov/


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scarceresources,variousstateprogramsshouldbeintegratedinawaythatallowseasytransactionsacrossstatelines.Forexample,theDistricthasaneffectivestormwaterretentioncredittradingprogram9thatisbasedonacrestreatedforstormwateremissions,whereasMaryland’scredittradingprogramisbasedonpoundsofnitrogenandphosphorousreduced.Anintegratedsystemwouldincludeamechanismfortranslatingthesedifferingmetricsintoacommoncurrency,anditwouldalsoincludesomekindofunifiedplatformwherebuyersandsellerscanmaketransactions.

Withsuchanintegratedmarketinfrastructureinplace,anycommunityinanystatecouldmeetitsChesapeakeBaypollutionreductionobligations–i.e.thosetranscendinglocalpermitrequirements–byfinancingthemostefficientrestorationpracticeanywhereacrossthebasin,therebyachievingoverallBaypollutionreductiontargetsmorequicklyandcosteffectively.Settingitapartfromsomeexistingstateprograms,thissystemwouldbeabletomitigatenotonlytheimpactsofnewgrowthbutalsoexistingsourcesofnonpointpollution.

Transitioningtoacredit-basedfinancingandaccountingsystemthatisintegratedacrossallBayjurisdictionsoffershugepotentialtoharnessthepowerofthemarket–andyetitwillnotbewithoutconsiderablelogistical,legal,andpoliticalchallenges.Themostsignificantwillbeintegratingnewaccountingsystemswiththosealreadyinplacethroughoutthewatershed.Atthestatelevelwherethemajorityofwaterqualityinvestmentsareintheformofsubsidies,theshiftwillrequiretransforminggrant-basedfundingprogramstoinvestment-basedones,whichwilllikelytakeconcertedeffortandstrongleadership.

Casestudy:MarylandNutrientCreditTradingProgram’sMarketplaceandTradingRegistry.WhileMaryland’sNutrientCreditTradingProgramhasnotyetseenmuchtradingactivity,itsweb-basedMarketplaceandTradingRegistryisagoodmodelofwell-conceivedmarketinfrastructure.TheportalincludesatoolforestimatingcreditsgeneratedbyBMPs,anditservesasacentralplaceforbuyersandsellerstomaketransactions.AftersettingupanaccountontheMarketplace,participantscanpostand/orpurchaseregisteredcredits.TheRegistryalsorecordsallregisteredcredits,trackstransactions,andenablesthepublictomonitorprogressofthetradingprogram.10

Nextsteps:

Sub-recommendation2aisfoundationalandcouldbeimplementedindependentlyoftheothertwosub-recommendations,butthegreatestimpactwillbehadiftheyareallpursuedintandem.Whilemanyactionswillbeneededinordertobringaboutsuchacomprehensivechange,big-picturenextstepsincludethefollowing:

• Transitionstateandlocalfundingprogramsandresourcestocredit-basedfinancing.Localgovernmentswillstillmeetlocalwaterqualityneedsfirst,butforadditionalpollutionreductioninvestmentsthatadvanceChesapeakeBayrestorationgoals,intra-and/orinter-statecreditsystemsshouldbeenabled(wheretheydonotcurrentlyexist).Credit-basedfinancingsystems

9Formoreinformation,visit:http://doee.dc.gov/src10MarylandNutrientTradingProgramwebsite.Accessed7/21/14:http://www.mdnutrienttrading.com/farmers/q3.php


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havethecapacitytoimprovelocalfinancingsystemsaswell;stormwaterbankingisagoodexampleanditisdiscussedinthenextsectionofthisreport.11

• Conveneasummitofstateandlocalleaderstoidentifywaystocoordinateexistingtradingprograms,especiallymarketplaceplatformsandregistries.

Recommendation3:EstablishImplementationandPerformanceStandards,Basin-Wide.Efficiencyandeffectivenessarethetwohallmarkfeaturesofafunctioningmarket.Ifwethinkofpollutionreductioninvestmentsasabasicequation–dollarsperpoundreduced–efficiencyisconcernedwiththenumerator(dollarsspent)andeffectivenesswiththedenominator(pollutionreduced).Thepreviousrecommendationfocusedonefficiency,makingeachdollarinvestedgoasfaraspossible.Buttobeeffective,awaterqualitymarketmustalsoresultinactualimprovementinwaterquality.Implementationandperformancestandardshelpachievethatgoal.

Performancestandardshavelongbeenintegraltomitigationandconservationbankingprograms,whichsuccessfullypreservehabitatandwetlandsatscale,innosmallpartbecausetheyclearlyarticulatetotheprivatesectorwhatoutcomesareexpected.Performancestandardsforastormwaterorwaterqualitymarketcanbemodeledonthoseinthemitigationbankingsystem,whichaddressthreemainareas:12

• Legalstandardsaddressmanyoftheactivitiesthatcancreatethemostsignificanttransactioncostsforboththepublicandprivatesectorssuchasdeedrestrictions,conservationeasements,propertyrights,andthesecuringoftrustandbankdocuments.Legalstandardsareessentialforbringingpracticesonprivatepropertytoscaleandthereforehaveperhapsthegreatestimpactonthelong-termviabilityofprojects.

• Financialstandardsorassurancescoveractivitiessuchasconstructionbonding,interimmanagementsecurity,contingencysecurity,andtheestablishmentoflandmanagementendowmentaccounts.Thesestandardsremovemuchoftheriskfromprojectimplementation,therebyprovidingassurancetothepublicsectorthattherightstepshavebeentakentomitigateunintendedprojectsetbacksanddelays.

• Biologicalorphysicalstandardsensurethatprojectsaredesigned,constructed,andmaintainedasstipulatedintheagreementbetweentheinvestorandtheimplementer.Itisthesestandardsthatensureenvironmentalperformanceandtheyoftenrequiremonitoringefforts.

Collectively,thesestandardsprovidetheframeworkorrulesofengagementforthemarketandensurethatinvestmentsinwaterqualityinfrastructureandprojectsactuallydoimprovewaterquality(thoughofcourse,waterrestorationshouldnotbepursuedatthedetrimentofothercommunityvalues;andjurisdictionscertainlycanandshouldinvestinstormwaterBMPsthatachievemultipleco-benefits).

11AnexcellentexampleofalocalcreditsystemisLakeTahoe,CA’sLakeClarityCreditProgram.Formoreinformation,visit:http://enviroincentives.com/portfolio-item/lake-clarity-crediting-program-lake-tahoe-2/12MitigationBanking:PerformanceStandardsandCreditReleases.TheEnvironmentalLawInstituteWebSite:https://www.eli.org/sites/default/files/docs/denisoff.pdf.LastvisitedJuly23,2016.


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Becauseperformancestandardsrequiremonitoringandevaluationinordertogaugeeffectiveness,theyhavepotentialtoadvancethesciencerelatedtowaterqualityrestorationpracticesandtocreategreaterinvestmentcertaintyovertime.Suchenhancedknowledgewouldsupportan“adaptivemanagement”approachtoBayrestoration,inwhichleadersmakemanagementdecisionswithlimitedunderstandingofwhattheresultswillbe,knowingthatthesedecisionsarelikelytobeadjustedasinformationisgained,orassocial,politicaloreconomicconditionschange.13Thiskindofflexibledecision-makingapproach–whichcontinuallyseeksbettersciencebutdoesnotdelayactionuntilcompleteresultsareavailable–willbenecessarilyifpollutionreductiondeadlinesaretobemet.

Nextsteps:

TheproposedFinanceAdvisoryBoardshouldworkinconcertwiththeNationalWaterQualityTradingAllianceandtheNationalWaterQualityNetworktodevelopmodelperformancestandardsforthewaterqualityrestorationmarket.Thesemodelstandardsmaybeadaptedand/oradoptedbyBayjurisdictionsasdeemedappropriate.Whileeachstatewilldeterminethedesirabilityandfeasibilityofimplementingperformancestandards,themorethatthesestandardsareintegratedacrossthewatershed,themoretheywillfosterpredictabilityintheBayrestorationmarket,akeyconditionforengagingtheprivatesector.

Recommendation4:ReduceUnnecessaryTransactionCosts.Performancestandards,recommendedabove,havethepotentialtoreducetransactioncoststothepublicsector.Thepublicsectorcanalsocreatetransactioncoststhroughinefficientapplicationofservicesnecessaryforprojectimplementation.TheEFCrecommendstwomainprocesschangesthatcouldsignificantlyimproveprivatesectorengagement:streamliningpermittingprocesses,andtransforminglocalandstateprocurementsystems.

Reformlocalandstatepermittingprocessesasneeded.NosinglebarrierwasdiscussedmoreattheSymposiumthanchallengesassociatedwithlocalandstateprojectpermitting,whichcancauseimplementationandconstructiondelaysanddriveupcosts.Whilewaterqualityprojectsmustgothroughthepermittingprocessinordertoachievebestoutcomes,unnecessarydelaysintheprocesscanhavesurprisinglyprofoundcostimpactsonprivatefirmsandbyextension,onthepublic.Thisproblemisnotuniquetowaterqualityindustries;astudybyTheAmericanInstituteofArchitectsshowedthatremovingpermittingdelaysintheconstructionprocesscouldincreasespendingbyupto5.7%andleadtoamorethan16%increaseintaxrevenuetostateandlocalgovernments.14Inadditiontoincreasingtaxrevenue,streamlinedpermittingprocessescanmakelocalgovernmentsmorecompetitiveinattractingbusinessinvestment.

Whilepermittingdelaysareoftenassumedtobesolelyduetoslowgovernmentoperations,permitteesthemselvescanalsoplayarole.Fast-trackinginitiativesoftenincludechecklistsofwaystheapplicantcanspeeduptheprocess,suchasmeetingwithcitystafftodiscusstheprojectpriorto

13NationalResearchCouncil.2011.AchievingNutrientandSedimentReductionGoalsintheChesapeakeBay:AnEvaluationofProgramStrategiesandImplementation.14TheAmericanInstituteofArchitects.March2011.IssueBrief:ExpeditedPermitting


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application,submittingacompleteapplicationthefirsttimearound,workingwithstafftobesurestateandlocalrequirementsaremet,andrespondingtopermitreviewcommentsinatimelymanner.15

Fast-trackedpermitoptionsavailabletoBayjurisdictionsincludeCleanWaterActgeneralpermitsorstateprogrammaticgeneralpermits,whichcanprovideregulatoryefficiencywhilealsoensuringthatprojectscomplywithregulations.Suchpermits“shrinkreviewtimelinesbyreducingoreliminatingpublicengagementso,therefore,aredesignedtoauthorizeonlylimitedresourceconcernsandclearly-definedprojectscopes.”16

Casestudy:PADEPPermitDecisionGuaranteePolicy.In2012,Pennsylvania’sDepartmentofEnvironmentalProtection(DEP)rolledoutanewpermittingprocessdesignedto“rewardapplicantswhospendtimeandresourcessubmittingwhatDEPconsiderstobehighqualityapplicationsforprojectswithverifiable,positiveeconomicimpact”17byprovidingthemwithaguaranteedfast-trackedreviewtimeline.Conversely,initialpermitapplicationsthatfailtomeetestablishedstandardsaresubjecttoanextendedreviewprocess.Toenjoyexpeditedreview,applicantsmustsubmitcompleteandtechnicallyadequateapplicationsthataddressallrelevantregulatoryandstatutoryrequirementsinthefirstsubmission.TheDepartmentalsostronglyencouragespotentialapplicantstoparticipateinpre-applicationmeetingwithDEPstaff,“goingsofarastostatethatthePermitDecisionGuaranteemaybe‘void’ifanapplicantchoosestoforegoapre-applicationconferencewhenonehasbeenadvisedbyDEP.”18Inadditiontoincentivizingthesubmissionofcomplete,high-qualityapplications,thegoalsofthePermitDecisionGuaranteePolicyareto(1)providepredictablereviewtimeframesforapplicants,(2)makeapplicationrequirementsclearandconcise,and(3)establishexpectationsforDEPstaffinordertomakethepermitreviewprocessmoreclear,efficient,andconsistent.19

Improveefficiencyoflocalandstateprocurementsystems.Performance-financingsystemsbenefitfromaprocurementprocessthatisflexibleandabletoshiftfromproject-basedpaymentstoperformance-basedinvestmentsinpollutionreduction.Flexible,efficient,andadaptivearenottermsthatareusuallyassociatedwithlocalprocurementsystems,andinfactprocurementisbynecessityaconservativeandcautiousprocessthatisdesignedtodiscouragepoorbehaviorratherthanencouragewhatisbest.However,performancefinancingisactuallyinkeepingwiththespiritoflocalprocurementpolicy:togetthemostefficientandeffectiveoutcomeperdollarinvested.

Communitiescanshifttoperformance-basedpaymentsusingtheirexistingprocurementsystems,meaningadministrativecostswouldbeminimal.AgoodexampleofthistypeofperformancesystemistheNorthCarolinaEcosystemEnhancementProgram(NCEEP).NCEEPisabletodisseminateRequestforProposals(RFPs)forwatermitigationcreditsthroughtheirstateprocurementsystem.Throughthis

15Foranexample,seetheCityofTallahassee’sDevelopmentReviewFastTrackingandCustomerServiceInitiative:http://www.talgov.com/growth/growth-10ways.aspx16AnnSwanson,ChesapeakeBayCommission.PersonalcommunicationwithEFC,7/27/16.17Manko,Gold,Katcher,andFox.November5,2012.MGKFSpecialAlert:“DEPFinalizesPermitDecisionGuaranteePolicy.”18Ibid.19PennsylvaniaDepartmentofEnvironmentalProtection,OfficeofProgramIntegration.November2,2012.“PolicyforImplementingtheDepartmentofEnvironmentalProtection(Department)PermitReviewProcessandPermitDecisionGuarantee.”Available:http://files.dep.state.pa.us/ProgramIntegration/PermitDecisionGuaranteePortalFiles/021-2100-001_PRP_and_PDG_Policy.pdf


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method,thestateisabletoconnectwithbiddersthroughamarketapproachusingaplatformalreadyinplace.

Nextsteps:

Stateandlocalgovernmentarebestequippedtoidentifypermittingandprocurementbarriersintheirownjurisdictions;thus,theEFCrecommendsthateachBayjurisdictionengageitsstakeholderstoidentifyandresolveinefficiencies.Thereisnoone-size-fits-allpublicprocurementorpermittingprogrammodel,butstatesshouldadvanceindustrystandardssuchasclearexpectationsforapplicationsandastraightforwardandpredictabletimeline.Manystateshavealreadyworkedtomakeimprovementintheseareas,butSymposiumconversationsindicatethereisstillsignificantroomforprogress.Toassistinthisprocess,itmaybebeneficialtoengageagroupsuchastheChesapeakeLegalAlliancetoidentifyanyneededlegislativeactionstoimprovetheefficiencyoflocalpermittingandprocurementprocesses.

Recommendation5:FacilitatetheFlowofCapitalThroughInnovativeInstitutionalStructures.Thoughtheprivatesectorisessentialtotherestorationfinancingprocess,itisstateandlocalgovernmentthatwillultimatelybeheldresponsibleforrestoringtheBay,andthustheywillcontinuetoleadtheeffortandserveasprimaryinvestorsinrestorationactivityfortheforeseeablefuture.Tomakesuretheseinvestmentsfosterafunctioningrestorationmarket,publicinvestmentsshouldbestructuredsotheyareconsistentwithwhattheprivatesectorneedsinordertoparticipatefruitfully.Acriticalwayforpublicinvestmenttodothisistoonlyinvestinprojectswhenthoseprojectsarereadyforinvestment.Thismaysoundlikecommonsense,andindeedintheprivatesectorthisgenerallyhappensnaturally.Inthepublicsector,however,budgetingandprocurementrestrictions–especiallythe“useitorloseit”provisioncommoninpublicspendingprograms–caninadvertentlycompelprojectmanagerstoinvestininefficientprojectsratherthanlosethosefunds.Thissendsthewrongsignaltothemarketplace.

Bayjurisdictionsareaddressingthischallengebyestablishinginstitutionalstructuresthathavethecapacitytoholdfundsthroughmultiplefiscalyearsandmakeinvestmentsinnonpointpollutionreductionprojects,onlywhenviableprojectsareready.20Theseinitiativestakevariousforms,suchasstandaloneinstitutionslikePENNVESTinPennsylvania(describedbelow)andprogramswithinexistingagencies,suchastheMarylandDepartmentoftheEnvironment’sWaterQualityFinancingAdministration.Whatisinnovativeabouttheseprograms–andshouldbemodeledineachjurisdiction–isthattheyhavethecapacityto:

• Holdorbankrevenuewithoutconcernthatfundingwillbesequesteredorreallocated;• Leveragerevenue;and,• Purchase,hold,anddistributewaterqualitycreditsasneeded21

20WefocusonnonpointsourcepollutionbecauseeachoftheBayStateshascreatedfinancingprogramstoaddresspointsourcereductionsfromsourcessuchaswastewatertreatmentplants.21Thesestructuresdonotrequireacredittradingsysteminordertofunction,however.


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Whenstateshavecapacitytoinvestinthisway,theywillbeabletosendthecorrectmarketsignalsinordertoachieveimplementationstandards.Restrictinginvestmentstoqualityprojectscreatesapowerfulincentivefortheprivatesectortoprovidequalityprojects.

Casestudy:PennsylvaniaInfrastructureInvestmentAuthority(PENNVEST).Establishedin1988,PENNVESTisastateauthoritychargedwithimprovingwaterqualitybyprovidinglow-interestloansandgrantsforthedesignandconstructionofwastewater,drinkingwater,andstormwaterinfrastructureprojects.22PENNVESTalsomanagesthestate’snutrienttradingprogram,servingasaclearinghousefornitrogenandphosphorouscredits.Theagencyinvestsmorethan$3millionannually,withrevenuecomingfromtheCleanWaterStateRevolvingFund,theDrinkingWaterStateRevolvingFund,stategeneralobligationbonds,PENNVESTrevenuebonds,andloanrepaymentsandinterestearnings.23Theinstitutionhasallthecapacitiesoutlinedabove:theabilitytopool,hold,andleveragerevenue;tofacilitatenutrientcredittrading;andtotargetinvestmentstowardnonpointsourcepollutionreductionprojectslikelytoachievestrongresults,notjustonesthatarereadyforfundinginagivenfundingcycle.

Nextsteps:

Bayjurisdictionshaveavarietyofexistingagenciesthatcaninvestinnonpointpollutionreductionprojects,includingStateRevolvingFundandCleanWaterRevolvingFundprograms.YetnotallofthesehavethecapacitytoallocateandinvestcapitalasdescribedaboveandmodeledbyPENNVEST.Jurisdictionsshouldconductanassessmentoftheircapacitytoinvestinthisway,andbasedonthatanalysis,eithercreatenewinstitutionsorreformexistingagencies/programs.

22PennsylvaniaAssociationofConservationDistricts.April2014.“PennVESTNonpointSourceProgram:FrequentlyAskedQuestions.”Available:http://pacd.org/webfresh/wp-content/uploads/2012/03/FAQsApril2014Rev1.pdf23BrionJohnson,PennVEST.2012.“FinancingCleanWaterProjectsforPennsylvania”presentation.Available:“http://www.dvrpc.org/EnergyClimate/WSTP/pdf/Presentations/Pennvest.pdf


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Theme-SpecificRecommendationsThissectionpresentsrecommendationsassociatedwithspecificprogramsorpolicyinterventionsthatareavailabletostateandlocalgovernmentsandaddresstheneedsofBaycommunities.Howtheseideasareappliedwillbeasvariedasthecommunitiesthatareconsideringthem.Thissectionoffersdiscussionofeachidea’smeritsandanypotentialdrawbacks,aswellasthoughtsonnextstepsforimplementation.

Recommendation1:PilotPayforSuccessInvestmentModels.Asocialimpactbond,alsoknownasapayforsuccesscontract,isanagreementbetweenapublicagencyandaprivatefirm,inwhichacommitmentismadetopayforimprovedsocialoutcomesthatresultinpublicsectorsavings.24Thesemechanismsarerelativelysimpleindesignandareessentiallyanextensionoftheperformance-basedfinancingsystemsdescribedabove.Throughthesemodels,investorspaythecostsofanewprograminitsearlyyears,andthegovernmentlaterrepaystheinvestors,oftenwithabonus,aslongastheprogrammeetsitsgoals.Ifitfails,taxpayerspaynothing.Thisisarelativelynewmodel;asofspring2016,fewerthanadozenpayforsuccessprojectshavebeenlaunchednationwide(i.e.contractsfinalized,financingsecured,anddeliveryinitiated),25buttheyarewidelyrecognizedinimpactinvestingcirclesasapromisingmechanismforlinkingfundingtooutcomes.

WhenappliedtoBayrestoration,payforsuccessmechanismswouldinvolveagovernmentalagencyagreeingtopayaprivateinvestoracertainsumofmoneyforpoundsofnutrientand/orsedimentpollutionreduced.Theprivateinvestorwouldthenidentifyathirdparty(landowner,aggregator,watershedorganization,etc.)thatisabletoachievethereductionsatacostbelowwhatthegovernmenthasagreedtopay.Thedifferencebetweentheguaranteedpayoutandtheactualimplementationcostsisprofittotheinvestor.

Payforsuccessandsocialimpactfinancingarrangementsprovidemultiplebenefitstothepublicsector.Byofferingthepotentialforreturnoninvestment–somethingveryfewotherconservationfinancingsystemsaccomplish–thesemodelsofferincentivestoimproveperformance,achieveinnovation,andlowercosts.Inaddition,thesemodelsencouragecompaniestomonitorandevaluatewhichpollutionreductionpracticesandmonitoringsystemsworkbest,andwhattypesofcommunication,outreach,andsocialengagementprocessesarehelpfulinspurringaction.Finally,thistypeoffinancingsystemeffectivelytransfersriskfromthepublictotheprivatesector,whichisbetterequippedtoefficientlymitigatethatrisk.

Despiteitspotentialbenefits,thepayforsuccessmodelalsohaslimitations.Forexample,itdoesnotrepresentanewsourceofcapital,andthecomplexityofthesearrangementscanrequireasignificantamountofupfrontworkandduediligenceonthepartofagencystaff,whichinturnincreasesprojectcosts.Importantly,thesemodelsalsotendtonarrowthecompetition,whichiscountertotheefficiencyargumentsmadethroughoutthisreport.

24NewSouthWalesGovernment.SocialImpactInvestmentwebsite.Lastaccessed7/21/16:http://www.treasury.nsw.gov.au/site_plan/social_impact_investment25NonprofitFinanceFund.April2016.PayforSuccess;TheFirstGeneration.AComparativeAnalysisoftheFirst10PayforSuccessProjectsintheUnitedStates.


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Nextsteps:

• Whereappropriate,stateandlocalgovernmentsshouldpilotpayforsuccessfinancingprograms.ThePayforSuccessLearningHub,maintainedbytheNonprofitFinanceFund,isarepositoryforinformationonthismodelandincludesanassessmenttoolforgovernmentstoevaluatereadinesstoimplementsuchaprogram.

• AnagencysuchastheproposedFinanceAdvisoryBoardshouldcommissionacompilationofsuccessfulpilotprojectcasestudiesintheregionastheyareimplementedanddisseminatelessonslearned.

Recommendation2:EstablishProactiveStormwaterBankingPrograms.Ascommunitiesseeklower-costoptionsforcomplyingwithstateandfederalstormwaterregulations,stormwaterbankingisemergingasapromisingoptiontosavemoneyforpermitholders,aswellasforprivatepropertyownerssubjecttostormwaterutilityfees.Inastormwaterbankingsystem,propertyownersconstructBMPscapableoftreatingmorestormwaterthanisrequiredbytheirownpermit,therebygeneratingcreditsthatcanbesoldtootherswhoneedtomeettheirownstormwatermanagementrequirements,suchasdevelopersseekingalower-costalternativetomanagingstormwateronsite.Thissystemismodeledontraditionalmitigationbanking,andlikemitigationbanking,thegoalistoprovidewaterqualitybenefitsbeforetheyareneededinordertooffsettheimpactsofdevelopment.26However,thestormwaterbankinghasthepotentialtobeequallyeffectiveinreducingthecostsofaddressingpollutionfromexistingsourcesofpollutionacrosstheregion,especiallyinurbancommunities.

ThereislikelytobestrongdemandforlocalstormwaterbankinginmunicipalitiesthroughouttheChesapeakeBaywatershedfromthreemainsources:

• Developersseekinglower-costoptionsformeetingstormwatermanagementrequirements:Manyjurisdictionsinthewatershedrequirenewdevelopmentorredevelopmenttomanageasignificantamountofstormwateronsite.Thiscanbeexpensiveandlogisticallychallenging,especiallyinurbanareas,becauseofpoorlydrainingorcontaminatedsoils,limitedlandavailability,andexistingutilities.Stormwaterbanksofferdevelopersaneasierandoftencheaperalternativetoonsitemanagement.

• MunicipalitiescomplyingwithMS4andTMDLpermits:IthasbeenestimatedthatMaryland’stenbiggestMS4jurisdictionswillneedtospendupto$89.8millionperjurisdictionperyeartocomplywithmandatedChesapeakeBayTMDLnutrientandsedimentreductions.27Citieswouldhaveastrongincentivetoutilizestormwaterbanksifitwouldenablethemtomeetpermitrequirementsatalowercost.

• Privatepropertyownerswantingrelieffromstormwaterutilityfees:ManycommunitiesintheChesapeakeBaywatershedimplementastormwaterfeetopayforstormwatermanagement.

26Cappiella,K.,B.Stack,J.Battiata,D.Nees,andL.Fraley-McNeal.November2014.PotentialApplicationofStormwaterBankingintheChesapeakeBayWatershedUsingTwoCaseStudies.EllicotCity,MD:CenterforWatershedProtection.27MarylandDepartmentofLegislativeServices.2013.StormwaterremediationfeesinMaryland:LocalimplementationofHouseBill987of2012.


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Whilethefeetendstoberelativelylowforresidentialpropertyowners,itcanbesignificantforownersoflargepropertieswithextensiveimperviouscover,whichareoftencommercial.AstormwaterbankingprogramwouldenablethesepropertyownerstoreducetheirfeebybuildingoversizedstormwaterBMPsontheirsiteandsellingcredits,orbypurchasingcreditsgeneratedelsewhere.

Therearemultiplewaysthatastormwaterbankingprogramcanbesetup,dependingonamunicipality’sparticularconditionsincludingregulatorydrivers,degreeofurbanization,stormwaterutilitydetails,andlandavailability.Citieswithabundantvacantproperties,forexample,couldmakelandavailablethroughsaleorleasetoathirdpartywhowouldthenconstructgreeninfrastructureorstormwaterBMPsontheparcel,therebygeneratingcreditsforsale.

Anotherscenarioisanoff-sitestormwaterfee-creditprogram.ManycitieswithstormwaterfeesystemsoffercreditstopropertyownerswhoinstallstormwatermanagementBMPsontheirproperty.Butforcommercialpropertyownersinparticular,thepaybackperiodforBMPinstallationisoftentoolongtojustifytheinvestment,ortheyarehesitanttolimitlandusesontheirpropertyortakeaportionoftheirlandoutofproduction.Off-sitestormwaterfee-creditprogramscanaddressthesebarriersbyallowingcommercialratepayerstoreducetheirstormwaterfeebysupportingoffsitemitigationprojects,whetherpreviouslyconstructedoras-yetconstructed.SuchasystemhasthefurtherbenefitofallowingBMPstobegroupedtogetherandtargetedwheretheycanhavethegreatestimpactonwaterquality,suchasstreambankrestoration.Inthisway,off-siteprogramsgivecities“theabilitytodirectcapitaltothoseprojectswiththegreatesteconomyofscale—thehighestpollutionreductionatthelowestcost,whichissomethingthattraditionalfee-creditprogramsareunabletodoeffectively.”28ThissystemcreatesarevolvingsourceofcapitalthatmunicipalitiescanusetoinstallBMPswheretheyaremostneeded.

ItisimportanttonotethedifferencebetweenlocalstormwaterbankingprogramsandthenutrienttradingsystemsuggestedinCoreRecommendation2,above–aswellexistingstate-levelnutrienttradingprograms.Botharecredit-basedsystems,butthekeydifferenceisscale:stormwaterbankingkeepsBMPsandfundswithinasinglejurisdiction;creditsupply,demand,andtransactionsalltakeplacewithinthecommunity.Thisisimportant,becauselocalstormwaterbankingprogramswillnotbeabletocompete,price-wise,withstateorregionalnutrienttradingprograms,wherecreditsaretypicallyderivedfromagriculturaloperationsinruralareasandthuswillbesignificantlycheapertoproducethancreditsgeneratedbyurbanBMPs.WhileaBay-widecreditsystemwillhelpmeetBay-widerestorationgoals,stormwaterbankingoffersjurisdictionstheoptiontomeetlocalwaterqualitygoalsandtokeeprestorationdollarslocal.

Casestudy:Philadelphia’sGreenedAcreRetrofitProgram.29PhiladelphiaWaterDepartment(PWD)administersastormwaterutilityfeebasedonimperviouscoveratthepropertylevel.Toincentivizeinvestmentsinstormwaterinfrastructureonprivately-heldproperties,PWDoffersafeecreditofupto80%forpropertyownersthatinstallgreeninfrastructurepracticesthattreat

28Cappiella,K.,B.Stack,J.Battiata,D.Nees,andL.Fraley-McNeal.November2014.PotentialApplicationofStormwaterBankingintheChesapeakeBayWatershedUsingTwoCaseStudies.EllicotCity,MD:CenterforWatershedProtection.29EPARegion3.April2015.CommunityBasedPublic-PrivatePartnershipsandAlternativeMarket-BasedToolsforIntegratedGreenStormwaterInfrastructure:AGuideforLocalGovernments.


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atleastthefirstinchofstormwater.However,a2013studybyNaturalResourceDefenseCouncilandtheNatureConservancyfoundthat“thecostsassociatedwithstormwaterretrofitsinthePhiladelphiaareaaregenerallyhigherthanthereturnoninvestinginstormwaterinfrastructureconstructionforamajorityofnon-residentialpropertyowners,”30withthepaybackperiodofmostgreeninfrastructureretrofitslongerthan10years.Basedonthesefindings,PWDbeganexploringotheroptionsbeyondfeecreditstoencouragegreeninfrastructureinstallationonprivateproperty.

TheresultwastheGreenedAcreRetrofitProgram(GARP),whichprovidesgrantstocontractorsthatinstallgreeninfrastructureonlargeareas,oftenovermultipleproperties,withinthecity’scombinedsewerarea.Propertyownersbenefitbyreceivingafeecredit.WhatsetsGARPapartisitsemphasisonprojectaggregation,“anapproachthatgroupsprojectstogetherunderasingleretrofitefforttoreducetransactioncosts,byspreadingthiscostovermanyprojects,andbygainingeconomicsofscale,therebytransformingprojectswithunreasonablecostsandreturn-on-investmenthorizonstobefinanciallyattractiveeffortswhenviewedasawhole.”31

Nextsteps:

JurisdictionsintheBaywatershedshouldpilotstormwaterbankingprogramstotestvariousbankingscenariosandassesshowwelltheyreducecostsofstormwatermanagement.AnentitysuchasUniversityofMarylandorCenterforWatershedProtectioncouldstudythesepilotprojectsandshareresults.Municipalitiesconsideringthisapproachshould:

• Assessthedemandforstormwaterbankingthroughinterviewsandsurveyswithratepayersanddevelopers(thiswillalsohelpdeterminetheappropriatepricepointsforfeecredits),aswellasthesupplyofpotentiallocationsforstormwaterbanks.TheCenterforWatershedProtection’s2014article“PotentialApplicationofStormwaterBankingintheChesapeakeBayWatershedUsingTwoCaseStudies”offersaframeworkforassessingpotentiallocationsforstormwaterbanking.

• Ensurethatstormwaterbankingisenabledwithinlocalregulationsandthatfeeoffsetsareallowedwithinstormwaterprogrampolicies.

• Determineprogramelementssuchasfeestructure,creditingapproach,administrativeneeds,andoperatingpoliciestolaunchapilotprogram.

Recommendation3:AdvancePublic-PrivatePartnershipsWhereAppropriate.Thepotentialuseofpublic-privatepartnerships(P3s)forstormwatermanagementhasattractedagreatdealofattentionthroughouttheregion.Aslocalgovernmentsincreasinglystruggletomeetstormwaterpermitrequirements,manyareconsideringP3structurestoaugmentlocalcapacityandreducerisk.

AP3isa“contractualarrangementbetweenapublicagency(federal,stateorlocal)andaprivatesectorentity.Throughthisagreement,theskillsandassetsofeachsector(publicandprivate)are

30Ibid.31Ibid.


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sharedindeliveringaserviceorfacilityfortheuseofthegeneralpublic.”32Thetwopartiesshareresourcesindeliveringthegoodorservice,andtheyalsosharethepotentialrisksandrewards.P3scanbeusedforvariousaspectsofaproject,includingfinancing,design,construction,operationsandmaintenance,and/ormonitoringandevaluation.

WhiletheapplicationofP3sforstormwaterisarelativelynewpractice,thesestructureshavebeenusedextensivelyinotherutilityandinfrastructurecontexts,includingwater,wastewater,transportation,andmilitaryhousing.Thebenefitstothepublicsectorvaryfromprojecttoproject,butsomeofthemoreuniversalbenefitsthatarealsotransferrabletothestormwatersectorinclude:

• Lowercosts:OneofthebiggestbenefitsofP3sistheirpotentialtoreducetheoverallcostofaprojectbyfindingefficienciesthatmaynotbeavailabletothepublicsector.

• Expeditedprojects:Inmanycases,P3sallowprojectstogetoffthegroundfasterandtobecompletedsooner,becauseofefficientprojectmanagementandtheabilitytobypasssomeoftheadministrativeslowdownsthancanhappenwhenapublicagencyismanagingtheproject.33

• Improvedassetmanagement:Assetmanagementisasystematicmethodforevaluatingthelife-cyclecostsofinfrastructureassets.Whentheprivatecompanyistaskedwithnotonlyconstructionbutalsoongoingmaintenance,itwillbemotivatedtoundertakestrategic,long-termplanningtomaximizethelifespanofinstalledinfrastructure.

• Developmentofinnovativestrategiesandtechnologies:BecauseP3sincludebuilt-inincentivesforachievingoutcomesmorecheaplyorquickly,thesearrangementscancatalyzethedevelopmentandimplementationofnewerand/ormoreeffectivemechanismsforachievingdesiredimpact.

• Economicdevelopment:WhenaP3makesitpossibleforacitytorenewitsaginginfrastructure,thecitymaybeabletoattractneworexpandedbusinessdevelopment.34Inthecaseofupdatedstormwaterinfrastructure,benefitssuchasfloodmitigationandimproveaestheticsinpublicspacesareaboonforeconomicvitality.Further,P3scanbestructuredtoachieveancillaryeconomicdevelopmentgoals,suchasPrinceGeorge’sCountystormwaterP3,whichrequiresthat30-40%ofprojectactivitiesbeconductedbysmall,local,andminority-ownedbusinesses.

Inshort,P3soffertheopportunitytoharnessmanyoftheadvantagesofferedbytheprivatesector.However,itisimportanttocautionthatP3sarenotapotofgold.Communitieswillstillneedtoidentifyadedicated,reliablestreamofrevenueforfundingstormwaterandwaterqualityinfrastructureinvestments.Justaswithpublicly-managedprojects,stormwaterprojectsmanagedbyaprivatefirmwillneedtobefundedbyoneormorerevenuesourcessuchastaxes,stormwaterfees,grants,staterevolvingloanfunds,etc.

CommunitiesconsideringaP3structuretoachievewaterqualitygoalsshouldfirstclearlyunderstandtheirwaterqualitygoalsandfinancingrequirementsoverthenext5-10years,aswellastheircapacity

32TheNationalCouncilforPublic-PrivatePartnerships.“7KeystoSuccess.”Accessed7/20/14:http://www.ncppp.org/ppp-basics/7-keys/33Investopedia.“Public-PrivatePartnerships.”Accessed7/20/14:http://www.investopedia.com/terms/p/public-private-partnerships.asp34Black&Veatch.“12WaysthePublicBenefitsinaPublic-PrivatePartnership.”Accessed7/20/14:http://bv.com/Home/news/solutions/water/12-ways-the-public-benefits-in-a-public-private-partnership


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tomeettheseneeds.ThiswillinformwhetheraP3isreallyneededand,ifso,howitshouldbestructured.Whenacommunityknowswhatfundamentalgap(s)itneedstofill–whetheradministration,permitting,construction,oranyotherstormwatermanagementfunction–thenitwillbebetterpositionedtodesignaP3programthatmeetsthatneed.

USEPARegion3hasbeenleadingthewayinevaluatingandpromotingP3sintheBayregion.CommunitiesconsideringthisapproachshouldreferenceRegion3’s2015CommunityBasedPublic-PrivatePartnerships(CBP3s)andAlternativeMarket-BasedToolsforIntegratedGreenStormwaterInfrastructure:AGuideforLocalGovernments.ThiscomprehensiveguideisdesignedtohelpcommunitiesdecideifaP3isappropriatefortheiruniquestormwatermanagementneeds.ItincludesareviewoftheregulatoryandlegislativecontextintheBaystatesasitaffectstheestablishmentofP3s;alistofkeyquestionsthatacommunityshouldconsiderwhendeterminingifaP3isrightforthem;aseriesofcheckliststohelpdefineandestablishaP3;adiscussionofoptionsforstructuringthecontractualrelationshipbetweenthepublicentityandtheprivatepartner;variousfinancingscenariosthatcommunitiesmaypursue;casestudiesfromthemid-Atlantic;andotherrelevantinformation.

CaseStudy:CleanWaterPartnership,PrinceGeorge’sCounty,MD.35AhallmarkexampleofastormwaterP3intheChesapeakeBayregionistheCleanWaterPartnership,a30-yearagreementbetweenPrinceGeorge’sCounty,MarylandandCorviasSolutions,aprivatestormwatermanagementfirm.Finalizedinspring2015,thisagreementaimstoinstallgreeninfrastructureandlow-impactdevelopmentpracticesonupto4,000acresofimpervioussurfacethroughouttheCounty,inordertoensurecompliancewithfederalMS4permitrequirements.

Corviaswillmanagethedesign,construction,andlong-termmaintenanceofstormwaterinfrastructure;theCountyexpectsthatthisintegratedapproachwill“maximizetheefficienciesandsavingsfortheentirelifecycleofthegreeninfrastructureassets,”36aswellastransferrisksassociatedwithconstructionandmaintenancefromthepublicsectortotheprivatesector.PrinceGeorge’sCountyhascommittedtoinvest$100millionbetween2016and2019toplan,design,andconstructprojectsonthefirst2,000acres.ProjectswillbecompletedacrosstheCountyandmaybecontiguous;prioritywillalsobegiventogreeninfrastructureinstallationsthatsupportthegoalsofvariousCountystrategicplans.

TheCleanWaterPartnershipisuniqueinitsscale–itisattemptingtomanageurbanstormwaterandmeetfederallymandatedrequirementscounty-wide.Asmentionedabove,theprogramisalsouniqueinitsworkforceandeconomicdevelopmentgoals;atleast30%ofprojectactivitiesaretobecompletedbylocal,minority-ownedsmallbusinesses,withaworkforcetrainingelementfoldedintotheprogram.Thispartnershipisstillinitsinfancy,andtheBaycommunityshouldwatchcloselytoevaluateitsprogressanddeterminewhetheritisamodelfortherestoftheregion.

35PrinceGeorge’sCountyCleanWaterPartnershipwebsite.“FrequentlyAskedQuestions.”Accessed7/20/14:http://thecleanwaterpartnership.com/faqs/36Ibid.


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Nextsteps:

• P3scanbeusedinawiderangeofcontexts,atvaryingscales,andformyriadpurposes.Anyjurisdiction–whethermunicipality,county,orstate–thatisconsideringthisapproachwouldbenefitfromfirstwalkingthroughthethoughtprocessoutlinedabove,inordertorealisticallyassesslocalcapacityandgaps.ResourcesfromEPARegion3willhelpcommunitiescarefullyassesswhetheraP3canbridgeidentifiedgaps.DesigningandimplementingaP3programrequiresasignificantinvestmentofpublicresources,soitisimportantthatcommunitiesnotstartdownthatroaduntiltheyhaveasolidunderstandingoftheirgoalsandareasonableexpectationthattheywillrealizeanticipatedbenefits.

• ThedisseminationofPrinceGeorge’sCounty’slessonslearnedfromitspioneeringcounty-widestormwaterP3willhelpmunicipalitiesandcountiesinthewatershedemulatesuccessesandavoidanypitfalls.

Recommendation4:IncentivizeCommercialLandownerstoMitigateNutrientandSedimentEmissions.Bayrestorationrequirestheparticipationofmultiplepublicandprivatestakeholders,andnonearemoreimportantthanprivatelandowners.Whetherinurbanorruralenvironments,privatepropertyownerscontrolnotonlyactionsthatcanimpairwaterquality,butalsothosethatcanmitigatethatimpairment.Howbesttoengagelandownersinrestorationactivitieswillbedeterminedbytheuniquefinancialandeconomicsystemsassociatedwiththoselands.

Oneoftheprimarybarrierstobroad-scaleadoptionofwaterqualitypracticesamongcommerciallandownersistheircost,eitherdirectcostsofBMPinstallationorindirectcostsassociatedwithreducedlandproductivity.Theperformanceandcredit-basedfinancingsystemsrecommendedinthisreportwouldaddressthisbarrierbyimprovingtheefficiencyofpublicinvestmentsandpaymentstolandowners.Yet,long-termsuccesswillrequireintegratingrestorationactivityintothecorecompetenciesofbusinesses,andonepowerfulwaytodothisistoimpactcommerciallandowners’taxobligations.Belowaretwopossibletaxincentivescenariosthatwillenableprivatelandownerstoovercometheoftenprohibitivecostsassociatedwithinstallingrestorationpracticesontheirland.

Taxcreditsfordepreciationand/orone-timecapitalimprovements.Taxcreditsfordepreciationorvoluntarylandimprovementsisacommonapproachtoincentivizedesiredactionbycommercialandresidentialpropertyowners.Thetaxcreditsgenerallyapplytoeitherassetdepreciationordirectexpenditures;however,businessesoftenadvocatefortaxcreditsbasedondepreciation.Depreciationisanincometaxdeductionthatallowsataxpayertorecoverthecostorotherbasisofcertainproperty.Itisanannualallowanceforthewearandtear,deterioration,orobsolescenceoftheproperty.37Amoreaccelerateddepreciationscheduleprovidesgreaterupfrontbenefittolandorpropertyowners,whichinturnprovidesmorefinancingbenefit.Thereareexamplesoftaxdepreciationbeingusedtoincentivizelandowneractivity,suchasenergyefficiencyandgreenbuilding

37UnitedStatesInternalRevenueService.“ABriefOverviewofDepreciation.”Lastaccessed729/16:https://www.irs.gov/businesses/small-businesses-self-employed/a-brief-overview-of-depreciation.


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taxincentives,whichhavebeenwidelyusednationwide.Intherealestatemarket,taxincentiveshavebeenshowntohaveapositiveeffectontherentalandmarketvaluesofcommercialbuildings.

Depreciationasataxcreditcancomeintheformofaone-timedeductionorthroughanaccelerateddepreciationschedule.Section179doftheFederalTaxCode38(knownasthe“greenbuildingtaxdeduction”)isanexampleofusingdepreciationasthebasisforaone-timetaxcredit.Toqualifyforthededuction,ownersmustinvestinupgradesthatmeetclearlystated,nationallyaccreditedperformancestandards.Accelerateddepreciationhelpsoffsethighupfrontcostsandoftencitedasanapproachtodeploybreak-throughtechnologies.39

Realestate–leasebackmodel.Auniquefeatureofwaterqualityrestorationinurbanandruralsettingsistheneedtoconstructmanagementpracticesonprivatelands.Thisrequiresestablishingcontractualrelationshipsbetweengovernmententitiesandprivatelandownerstoensureproperoperationsandmaintenanceofwaterqualityrestorationstructures.Tothatend,privateand/orcommerciallandownersoftenhaveeasementsontheirpropertythatallowthepublicsector(government)orutilitiestherighttoundertakeworkinaspecifiedarea.Theeasementsrestrictactivitiesontheland,whichinturnresultsinalossofvaluetopropertyowner.Existingtaxsystemsvaryinregardtotheextenttowhichpropertyownersarecompensatedforthislossofuse.

Onepotentialapproachforcompensatingforlostvalueistocreatealeasearrangementbetweenthegovernment/utilityandthelandowner.Aleasewouldpermitthegovernmenttohavelimitedaccesstothepropertytoappropriatelyoperateandmaintainpractices.Inaddition,theleaseapproachwouldpotentiallyallowforthepropertyownertocreateleaseexpensetaxdeductions.Alease-basedtaxdeductionwouldessentiallybeamodificationofconservationeasements,whichprovideanongoingincometaxdeduction.

Theserecommendationswillrequiresignificantlocal,state,andfederalcoordinationandadvocacy,whichcreatesalevelofcomplexitythatmaydistinguishitfromotherdirectincentiveprograms.Inaddition,providingtaxincentiveswillhaveanimpactonbudgetsatalllevels.However,oncetheappropriateenablingconditionshavebeenputinplace,thesetypesofincentiveshavethepotentialtomovecommerciallandownerstoactionmoreeffectivelythanperhapsanyotherincentiveprogram.Finally,utilizingtaxincentiveswillconnectBayrestorationactivitieswiththetypesofincentivesandprogramsthatdefineeconomicdevelopmenteffortsatthestateandlocallevels.Itthereforerepresentsanimportantsteptowardsintegratingrestorationactivityintotheeconomicfabricoftheregion.

Nextsteps:

Thisrecommendationdiffersfromtheothersinthatenablingdepreciationforwaterqualitypracticeswillrequirefederalauthorizationandlegislation.Statescancreateconservationtaxcreditprogramsindependentofthefederalgovernment;40however,themosteffectiveprogramwouldincludefederalincometaxrelief.Thoughprescribingaspecificapproachforaffectingchangeatthefederallevelon

38https://www.poplarnetwork.com/news/5-green-building-tax-incentives-201539http://solutions-network.org/site-energyshift/accelerated-depreciation/40ThePennsylvaniaResourceEnhancementandProtection(REAP)programtaxcreditprovidesanexcellentexample.


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thisissueisbeyondthecapacityandscopeofthisreport,itshouldbenotedthatnationalandglobalattentionisbeinggiventotheconceptofaccelerateddepreciationforgreeninfrastructure,whichmanyanalystsfeelcouldhaveasignificantimpactonavarietyofenvironmentalissues,includingclimatechangemitigation.Therefore,acoordinatedeffortbyChesapeakeBaystakeholdersandjurisdictionswouldpotentiallybenefitfromabroaderefforttoachievesimilargoals.


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ConclusionTheChesapeakeBayEnvironmentalFinanceSymposiumprocessgeneratedideasandenergytomovetheneedleonBayrestorationfinancingandeconomicdevelopment,andtherecommendationspresentedinthisreporthavethepotentialtoacceleratethatfinancingprocess.Implementingtheseapproacheswillrequirenosmallamountofeffort,coordination,andnewwaysofdoingbusiness.Yet,asillustratedthroughoutthisreport,communitiesthroughoutthewatershedarealreadypioneeringmanyofthesepromisingapproachesandaredemonstratingthatinnovationispossible:• TheDistrictofColumbia’sStormwaterRetentionCreditTradingProgramisastrongmodelofa

credit-basedfinancingsystem.Theprogramisbecomingoneofthemostwell-knownmarket-basedfinancingsystemsinthenation.

• TheCommonwealthofVirginiahasanestablishednutrienttradingprogramwhichincludesaphosphorusoffsetsystemtomitigatetheimpactofnewdevelopmentinperpetuity.Thoughtheprogramdoesnotcurrentlyaddressexistingpollution,itisanexemplarofacomprehensivemarket-basedoffsetprogram.

• TheMarylandDepartmentofNaturalResources(DNR)ispilotingaperformance-basedfinancingapproachviathestate’sChesapeakeandAtlanticCoastalBaysTrustFund.Throughinnovativeprogramdesign,DNRstaffisdemonstratinghowpublicfinancingcanstriveforthegreatestpollutionreductionperdollarspent.

• TheDistrictofColumbiaWaterandSewerAuthorityispilotingapayforsuccessfinancingprogramthatwillpotentiallyreducetheriskandlong-termcostofinstallingstormwaterretentionprojectsbylinkingpublicandprivatecapitalwithon-the-groundpractitioners.

• PennsylvaniaDepartmentofEnvironmentalProtectionhasimplementedapermitdecisionguaranteeprogramdesignedtoacceleratethepermittingprocessforwell-conceivedprojects,therebyreducingtransactioncoststotheprivatesector.

• PrinceGeorge’sCounty,Marylandispioneeringaninnovativepublic-privatepartnershipforstormwatermanagementthathasthepotentialtoachievemultiplebenefits,includingreducedcosts,betterwaterqualityoutcomes,andeconomicdevelopmentinthecounty.

• LancasterCity,Pennsylvaniahasbecomearegionalmodelintheuseofgreeninfrastructuretoaddresswaterqualityandstormwaterretentionneeds.Inadditiontotestinginnovativeimplementationandmarketprocesses,CityleadershaveidentifiedgreeninfrastructureasanimportantcomponentintheCity’seconomicdevelopmentplans.

• PennsylvaniahasadvancedtaxpolicybyestablishingtheResourceEnhancementandProtection(REAP)programtaxcredits.ThisprogramprovidestaxcreditstofarmerswhoinstallwaterqualityBMPs.

WhileexamplessuchasthesecollectivelyrepresentjustafractionofwhatwillbeneededtorestoretheChesapeakeBay,theyprovideanexcellentfoundationformovingforward.Thechallengeissignificant,butastheSymposiumprocessindicated,thereisawealthoftalentandresourcesthroughouttheregionwithregardstowatershedscience,creativefinancing,andeffectivepolicychange.Ifthattalentcanbeharnessed,thereisgreatpotentialtocontinuemomentumandtakeconcretestepstofinanceBayrestorationactivitiesmoreinnovativelyandeffectively.


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Appendix

Appendix1:EventAgendaChesapeakeBayEnvironmentalFinanceSymposiumSamuelL.RiggsIVAlumniCenter|UniversityofMarylandCollegePark,Maryland|April25-26,2016Purpose&Background.OneofthemostsignificantenvironmentalchallengesfacingourregionistherestorationandprotectionoftheChesapeakeBayanditswatershed.ThoughalmosteveryonecanagreethatcleaninguptheBayisimportant,comingtoagreementonasustainableandsufficientfinancingplanhasbeenproblematictosaytheleast.Tothatend,theChesapeakeExecutiveCouncilmadethedecisiontoconvenetheChesapeakeBayEnvironmentalFinanceSymposium,thegoalofwhichistoidentifyoptions,opportunities,andresourcesthatcanreducecostsandaccelerateimplementation.Throughthiseventwewillbringtogethercreative,innovative,andsuccessfulfinancing,business,andpolicyleaderstoidentifyoptionsforadvancingamoremarket-likeapproachtoenvironmentalprotectionandrestoration.Theconversations,discussions,anddebatecomingfromtheSymposiumwillbetranslatedintoasuiteoffinancingrecommendationsthatwillbeforwardedtothegovernorslaterthissummer.Day1–April25,2016.ThepurposeofDay1istosetthestagefortheconversationsanddeliberationsduringtheworkingsessionsoftheSymposium.TheDay1agendawillincluderemarksfromBayStates’cabinetmembersandlocalgovernmentrepresentatives.

1:00pm Welcome

§ DanNees,EnvironmentalFinanceCenter

1:10pm Introduction

§ PresidentWallaceLoh,UniversityofMaryland

1:20pm FinancingChesapeakeBayWatershedRestoration:ThePathForward

§ SecretaryBenGrumbles,MarylandDepartmentoftheEnvironment§ SecretaryJohnQuigley,PennsylvaniaDepartmentofEnvironmentalProtection§ DeputySecretaryAngelaNavarro,VirginiaDepartmentofNaturalResources§ TheHonorablePenelopeA.“Penny”Gross,LocalGovernmentAdvisory

CommitteetotheChesapeakeExecutiveCouncil,VirginiaDelegation§ DelegateDavidBulova,CBCandVirginiaDelegate

2:30pm LeveragingtheInnovation,Creativity,andEfficiencyofthePrivateSector

Thiseventwillfocusonhowthepublicsector—primarystateandlocalgovernments—caneffectivelyengageandpartnerwiththeprivatesector.Morespecifically,theSymposiumwillidentifyopportunitiesforscalinginvestment,creatingfinancingefficienciesandcostreductions,reducingrestorationfinancingrisk,expanding


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economicdevelopmentopportunities,andincentivizinginnovationandnewapproachestowaterqualityrestoration.ThispartoftheeventwillserveasalaunchingpointforthefacilitateddeliberationsinDay2byprovidingabrieflayofthelandwithinthesixsymposiumthemes.

§ CreatingFinancingEfficienciesandCostReductionsEricLetsinger,QuantifiedVentures

§ IncentivizingInnovationPaulCarroll,CityofNewport,RhodeIsland

§ InfluencingtheConsumerMarketplacePerryRaso,MatunuckOysterBar,SouthKingston,RhodeIsland

§ IntegratingPublicandPrivateCapitalJagKhuman,MarylandDepartmentoftheEnvironment

§ MitigatingRestorationInvestmentRiskNickDilks,EcosystemInvestmentPartners,Baltimore,Maryland

§ EnvironmentalMarketsJeremySokulsky,EnvironmentalIncentives,SouthLakeTahoe,California

4:15pm Closing§ DanNees,EnvironmentalFinanceCenter

4:30pm NetworkingReception(endingat6:30pm)

Day2–April26,2016.ThisisadayofsmallworkinggroupsdesignedtodivedeeplyintothemescriticaltofinancingBayrestorationefforts.Attendeeswillspendmuchofthisfulldayrollinguptheirsleevestoengageinrobustdialogue.

9:00am OpeningRemarks§ DeanRobertOrr,UMDSchoolofPublicPolicy

9:30am WorkingGroupSession1

12:30pm Lunch

1:30pm WorkingGroupSession2

4:30pm Closing§ DanNees,EnvironmentalFinanceCenter


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Appendix2:CommitteeMembershipToguidethedevelopmentandimplementationoftheSymposium,CBPandEFCconvenedtwocommittees,eachcomprisedofpublicandprivatesectorleadersfromtheBaystatesandtheDistrictofColumbia.Thecommitteesincludedrepresentationfromexpertsinarangeofrelatedfields,includingfinance,resourcemanagement,planning,andpolicy.

TheExecutiveSteeringCommitteewaschargedwithensuringthattheSymposiumandrelatedreportsweredevelopedandimplementedwithinthespiritofResolution2015-2andtherestorationfinancinggoalsofthesignatoriestotheChesapeakeBayWatershedAgreement.Thecommitteeprovidedstrategicguidancetotheplanningteaminregardtotheselectionofspeakersandissueexperts,thestructureoftheSymposium,andtheproductionofasummaryreportthatwasdeliveredtotheExecutiveCouncil.Committeemembersincluded:

• DanaAunkst,PennsylvaniaDepartmentofEnvironmentalProtection• RussBaxter,VirginiaNaturalResourcesfortheChesapeakeBay• CarinBisland,USEPARegion3–ChesapeakeBayProgram• SoniaBrubaker,USEPAHQ• DavidCraig,MarylandDepartmentofPlanning• NickDispaquale,USEPARegion3–ChesapeakeBayProgram• MattFleming,MarylandDepartmentofNaturalResources• MaryGattis,AlliancefortheChesapeakeBay• PennyGross,FairfaxCounty(VA)• BenGrumbles,MarylandDepartmentoftheEnvironment• AnnJennings,ChesapeakeBayCommission• HamidKarimi,DCDepartmentofEnergyandEnvironment• JosephMaroon,VirginiaEnvironmentalEndowment• FrankPiorko,DelawareDepartmentofNaturalResources• JohnStefanko,PennsylvaniaDepartmentofEnvironmentalProtection• JohnQuigley,PennsylvaniaDepartmentofEnvironmentalProtection• LisaWainger,UniversityofMarylandCenterforEnvironmentalScience• JulieWinters,USEPARegion3–ChesapeakeBayProgram

ThePlanningCommitteeworkedinparallelwiththeExecutiveSteeringCommitteeandwaschargedwithprovidingguidanceandresourcesassociatedwitheventorganizationandimplementation.Thisincludedidentifyingkeyparticipantsandspeakersandprovidinginputonagendadevelopmentandimplementationprocesses.Committeemembersincluded:

• MarkBreyer,TheNatureConservancy• PrestonBryant,McGuireWoodsConsulting• JeffCorbin• FeliciaDell,YorkCountyPlanningCommission• ChrisHartley,USDAOfficeofEnvironmentalMarkets• CharlotteKatzenmoyer,CityofLancaster,PA• GeorgeKelly,ResourceEnvironmentalSolutions


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• DougLashley,GreenVest• JoeLerch,VirginiaMunicipalLeague• EricLetsinger,QuantifiedVentures• PaulMarchetti,PennVest• BethMcGee,ChesapeakeBayFoundation• NealMenkes,VirginiaMunicipalLeague• BradRodgers,MorelandAdvisors,Inc.• BrooksSmith,TroutmanSanders• JoanneThrowe,MarylandDepartmentofNaturalResources

WithleadershipandsupportfromCBPandEFC,eachcommitteeheldregularconferencecallsinlate2015andearly2016,inordertocompletetheirrespectivetasks.


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Appendix3:SymposiumParticipantsWhilethefindingsandrecommendationsinthisreportwereinformedbyconversationsamongSymposiumparticipants,theviewsexpressedhereindonotnecessarilyreflecttheviewsofallparticipants.

StephanAbel,OysterRecoveryPartnership

KristynAbhold,USEPA

DanielleAlgazi,USEPARegion3

AshleyAllen,i2Capital

GregoryBarranco,EPA,ChesapeakeBayProgram

RandyBartlett,FairfaxCounty

RichBatiuk,USEPAChesapeakeBayProgram

JennyBeard,EnvironmentalFinanceCenter,UMD

AlexBeehler,Earth&WaterLaw,LLC

MarkBelton,DepartmentofNaturalResources

KathyBenini,Markit

ClareBillett,WilliamPennFoundation

CarinBisland,USEPA

JessicaBlackburn,AlliancefortheChesapeakeBay

RubyBrabo,VAViceChairLGAC,KingGeorgeCountySupervisor

ShannonBrawley,RINurseryandLandscapeAssociation

MariaBroadbent,CityofAnnapolis,MD

JohnBrooks,TimmonsGroup

SethBrown,StormandStreamSolutions,LLC

SoniaBrubaker,USEPA

PrestonBryant,pbryantConsultingLLC

MarkBryer,TheNatureConservancy

DarleneBucciero,FrederickCountyGovernment

LynnBuhl,MarylandDepartmentoftheEnvironment

DavidBulova,VAHouseofDelegates/ChesapeakeBayCommission

FionaBurns,StateofMaryland,Dept.ofBudgetandManagement

JimCaldwell,HowardCounty

PaulCarroll,CityofNewport,RI

PatrickaCoady,Seale&Associates

KimCoble,ChesapeakeBayFoundation

GabeCohee,MarylandDNR

KariCohen,USDANaturalResourcesConservationService

KevinConroy,MarylandDepartmentofAgriculture

LesleyCook,MDDepartmentofLegislativeServices

JeffCorbin,RestorationSystems

JenCotting,EnvironmentalFinanceCenter

DavidCraig,StateofMaryland

MichaelCurley,EnvironmentalLawInstitute

JanaDavis,ChesapeakeBayTrust

FrankDawson,MontgomeryCountyDepartmentofEnvironmentalProtection

LizDeardorff,AmericanRivers

TerryDeputy,DelawareDNREC

MikeDieterich,RenewandSustain

NickDiPasquale,USEnvironmentalProtectionAgency


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SarahDougherty,NaturalResourcesDefenseCouncil

JimEdward,EPAChesapeakeBayProgramOffice

JenniferEgan,SkellyandLoyInc.

PaulEmmart,MarylandDept.oftheEnvironment

HilaryFalk,NationalWildlifeFederation

LisaFeldt,MontgomeryCountyDepartmentofEnvironmentalProtection

BrentFewell,Earth&WaterLawLLC

MatthewFleming,Dept.ofNaturalResources

SuzyFriedman,EnvironmentalDefenseFund

MaryGattis,AlliancefortheChesapeakeBay

JoseGaztambide,QuantifiedVentures

JamesGebhardt,USEPA

BillGill,Smithfield

KimberleeGlinka,CenterforSocialValueCreation,UMD

KateGonick,LancasterCountyConservancy

DavidGoshorn,MDDepartmentofNaturalResources

JohnGriffin,BuchartHorn

PenelopeGross,FairfaxCounty

DavidGroves,WhiteHouse

BenGrumbles,MarylandDepartmentoftheEnvironment

RebeccaHammer,NaturalResourcesDefenseCouncil

ChristopherHartley,USDAOfficeofEnvironmentalMarkets

CharlesHegberg,SkellyandLoy,Inc.

RuthHocker,CityofLancaster,PA

PeterHughes,RedBarn

MattJacobs,ColdwellBankerResidentialBrokerage

AnnJennings,ChesapeakeBayCommission

HamidKarimi,DistrictofColumbiaDepartmentofEnergyandEnvironment

CharlotteKatzenmoyer,CityofLancaster

MaritaKelley,DCED,CenterforLocalGovernmentServices

GeorgeKelly,ResourceEnvironmentalSolutions

JasonKeppler,MarylandDepartmentofAgriculture

JagKhuman,MarylandWaterQualityFinancingAdministration

SandraKnight,UMDCenterforDisasterResilience

JoshuaKurtz,TheNatureConservancy

DougLashley,GreenVestLLC

EricLetsinger,QuantifiedVentures

ThomasLiu,BankofAmericaMerrillLynch

PaulMarchetti,PENNVEST

JosephMaroon,VirginiaEnvironmentalEndowment

BrentonMcCloskey,EnvironmentalFinanceCenter

BethMcGee,ChesapeakeBayFoundation

SteveMcHenry,MDAg&Resource-BasedInd.Dev.Corp.(MARBIDCO)

DavidMcKay,USEPA

ErikMichelsen,AnneArundelCounty

KristenMui,EnvironmentalFinanceCenter

FayNance,ChesapeakeBayFoundation

AngelaNavarro,OfficeofGovernorMcAuliffe


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RyaneNecessary,MarylandDepartmentofLegislativeServices

DanNees,EnvironmentalFinanceCenter

DavidNewburn,UniversityofMaryland

SaraNicholas,PADept.ofConservationandNaturalResources

PatrickF.Noonan,TheConservationFund

TeresaOpheim,IroquoisValleyFarms

JamesParker,FallingSprings

MichaelPatella,USEnvironmentalProtectionAgency

SusanPayne,MarylandDepartmentofAgriculture

RossPickfordm,Earth-Concepts,LLC

FrankPiorko,MarylandCoastalBaysProgram

ChristopherPomeroy,AquaLawPLC

RobertProutt,VenGott,LC

JohnQuigley,PADepartmentofEnvironmentalProtection

CarissaRalbovsky,DepartmentofBudgetandManagement

JakeReilly,NFWF

MarcRibaudo,EconomicResearchService-USDA

LisaRiggs,EconomicDevelopmentCompanyofLancasterCounty

BradRodgers,MorelandAdvisors,Inc.

AngieRosser,WestVirginiaRiversCoalition

CliffordRossi,RobertH.SmithSchoolofBusiness,UMD

KitSchaefer,i2Capital

TheodoreScott,StormwaterMaintenance&Consulting

DavidSmall,DEDept.ofNaturalResourcesandEnvironmentalControl

GinnySnead,LouisBerger

JeremySoluksky,EnvironmentalIncentives,LLC

TanyaSpano,MetropolitanWashingtonCouncilofGovernments

CharlieStek,AdvisoryCommittee

KurtStephenson,VirginiaTech

AnnSwanson,ChesapeakeBayCommission

SandraTaylor,SustainableBusinessInternationalLLC

JohnThomas,HampdenTownshipBoardofCommissioners

JoanneThrowe,MarylandDepartmentofNaturalResources

RachelToker,UrbanEcosystemRestorations,Inc.

DennisTreacy,SmithfieldFoundation

MichelleVigen,MontgomeryCounty

RobWallace,i2Capital

CoryWeiss,UrbanEcosystemRestorations,Inc.

DouglasWheeler,HoganLovellsUSLLP

LeighWhelpton,TheConservationFinanceNetwork

BruceWilliams,LocalGovernmentAdvisoryCommittee

JulieWinters,USEPA

BrandonWright,StateofMaryland


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Appendix4:SummaryNotesfromWorkGroupDiscussionsTheme1:ReducingImplementationCosts.

Context:Perhapsthemostfundamentalreasonforengagingthemarketandprivatesectoristoachieverestorationgoalsmoreefficientlyandeffectively.Market-basedeconomiesandfinancingprocessesarepredicatedonachievinggoalsinthemostcost-effectivemannerpossible.Asaresult,thereisanopportunitythroughouttheregiontomaximizingthelevelofpollutionreductionachievedperdollarinvested.Theforumidentifiedthetypesofconditionsthatarenecessaryformarketforcestofunctionefficiently.Asastartingpointforthediscussions,participantsdiscussedpotentialfinancinginnovationssuchaspay-for-successorSocialImpactBonds,aswellaspay-for-performancefinancingsystems.

Keydiscussionissues,topics,andgoals

• Needforidentifyingthemarketandfinancestrategiesthathavethehighestpotentialforreducingcosts.

• Focusoninnovativenewpolicyandfinancingapproachessuchassocialimpactbondsandpay-for-successprograms.

• Incentivizeprojectswithdemonstratedenvironmentalorsocialoutcomes.

Barriers

• Thereisalackofclarityassociatedwithmarketandpay-for-performancefinancingsystemsthatcouldbeaddressedwithacommonvocabulary.

• Thereisaneedforaconsistentapproachtoestablishingecosystemservicevalue.• Governmentprocurementproceduresareoftencountertoefficiencyefforts.• Thepublicsector’sfinancingandimplementationapproachisoftenprescriptiveratherthan

performancebased.• Thereisinconsistencyinregulationsandpolicies.

Solutions

• Clarityofmarketsandcommonvocabulary:– Bringstakeholderstogetherandgetstarted:processwilldeveloplanguageandtrust.– Recognizethatperceivedfailurescanbeopportunitiesforgrowth.– Trackanddisseminateexamplesandcasestudies.

• Ecosystemserviceevaluationandvalue:– Engagemoreprofessionalaccountingfirms.– Engageamorediversecollectionofplayersandstakeholders.

• Governmentprocurementprocedure:– Assessexamplesfromnationalandinternationalspheresandcreateasystemofbestpractices.– Establishadaptiveprocessesandcheckpointsformanagingandtrackingimplementation

results.

• Publicsectorallocationprocess:– Setandfocusonstandardsratherthanimplementationgoals.


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– Enableandincentivizegovernmentstosetamarket-likeplayingfield.Thiswillrequirecreatingabetterunderstandingofgovernment’sroleinthefinancingprocess.

– Allowandincentivizeindustrytodeterminethemostefficientimplementationprocesses.– Movetowardspayingforperformanceasopposedtospecificprojects.

Theme2:IncentivizingInnovation.

Context:Themarketforcesthathelpreducecostsandcreateefficienciesalsoincentivizeinnovation.Infact,thepushtowardsinnovationintechnology,financing,andproductionisoneofthemostbeneficialaspectsofmarketactivity.However,drivinginnovationinanecosystemrestorationprocessiscomplicatedbyregulatoryandpolicydynamics.Therefore,theconversationinthisforumfocusedonovercomingregulatoryandpolicybarriers,therebycreatinguniqueandeffectiveoptionsforfinancingandimplementingrestorationpracticesandprograms.Specificdiscussiontopicsandpotentialfinancinginnovationsincludedusingtechnologytoacceleraterestoration,aswellastheuseofformalpublic-privatepartnerships.


• Theneedforconsistentregulatoryandpolicyframeworkstopromotemorerestorationinnovation.• Theneedforgovernmentsatalllevelstoincentivizeinnovativetechnologiesthatcanassistinthe

collectionofdatawhileatthesametimedirectlyengagingcitizensintherestorationeffort.

Barriers

• Regulationsprioritizeoutputsoveroutcomes.• Thereisalanguagebarrieramongdifferentdisciplinesandsectors.• Vendersexperiencesignificantcontractingdelaysatalllevelsofgovernment.• Bureaucratsareoftenunnecessarilyrisk-averse.

Solutions

• Regulatingactualoutcomes:– Developmeteringandmonitoringsystemstotrackoutcomesforallsectors.– Includethecostofmonitoringinprojectcostestimates.– Providefinancialincentivizesthatencouragesustainabilityandcost-effectiveness.– Allowforflexibility;relaxprecision.

• Overcominglanguagebarriers:– Pushforfinancialliteracyamongenvironmentalprofessionalsandvice-versa.– Createmechanismsforcross-cultural,multi-disciplinedialogue.– EstablishafinancialadvisorygroupatBayProgram.

• Bureaucraticdelays:– Accelerateprioritypermitting–pipelineinnovative,sustainableprojects.– Minimizerigiditytoproviderequirementsthatallowforinnovation.– Tiescienceintostatutory/regulatoryandoutyearfundingdecisions.

• Minimizeriskadversityinpublicserviceprograms:– Allocateunspentfundsforinnovation.


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– Removeadverseconsequencesforrisk-taking.– Reviewmodelsandcasestudiesforagencyleadershiponrisk/innovation.

Theme3:CreatingandBuildingConsumerDemand.

Context:Thoughamarket-likerestorationsystemwillbeprimarilypredicatedoneffectiveregulationsandpolicy,thereareopportunitiestoachieverestorationgoalsbycreating,building,andleveragingconsumerdemand.ThereareanumberofopportunitiesforbetterpositioningahealthyChesapeakeBaywatershedintheconsumermarketplacethroughindustriessuchasorganicandsustainableagriculture,sustainablefisheries,recreation,andsustainablestormwatermanagement.


• Identifynewandinnovativewaystobuildconsumerdemandoutsideoftheregulatoryprocess.• Createprocessestoengagekeyindustrysectors.• Incentivizepublicrecreationareassuchasmarinas,boatlaunches,andthelikeasopportunitiesto

fosterapublicinterestandinvestmentsintorestoringtheBay.• FocusrestorationeffortsthatsupporttheBay’srestorationandimprovement.

Barriers

• Whilesustainablefisheries,recreation,stormwatermanagement,andagricultureallhavetheiruniquechallenges,severalthemesemergedfromthegroupdiscussions.– Theindividualcultureofeachofthesesectorshasinhibitedtheflexibilitytoactaggressivelyon

acollaborativebasis.– Publiceducationlimitationspreventthepublicfromeffectivelyengaging.– Uncertaintyaroundcosts,benefitsandimpactdetergreaterinvestment.– Deficienciesandconfusioninlabelingimpedesmarketactivity.

Solutions

• Createawell-definedpipelineoflocally-sourcedproductswithproceedsreturningtoBayrestoration.

• Strengthenpartnershipsandcommunicationaroundeconomicdevelopmentandconservation.• Prioritizeassetmanagementatthecommunitylevel.• Improvepublicawareness.

Theme4:IntegratingPublicandPrivateCapital.

Context:Thoughitisclearthatprivateinvestmentandengagementwillbenecessarytoachieverestorationgoals,itispublicinvestmentthatwilldrivethefinancingprocess.Linkingandintegratingpublicinvestmenttotheprivatesectorandthemarketplacewillbeessentialforcreatingfinancingscaleandefficiency.ThisforumfocusedonpotentiallyinnovativeapproachesformaximizingtheefficiencyandeffectivenessofexistingfinancingmechanismssuchastheStateRevolvingLoanFundprogram.Inaddition,theconversationfocusedonhowtoimprovetheperformanceandeffectivenessofstate-basedfundingprograms,whichhavethepotentialtoinvestbillionsofdollarsinwaterqualitypracticesandprograms.


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• Linkingandintegratingpublicinvestmenttotheprivatesectortocreatefinancingscaleandefficiencies.

• UsingtheStateRevolvingFundasafoundationforfinancingotherwaterqualityinfrastructureneeds.

• Linkingpublicfundingtoperformance-basedoutcomesinordertocreateefficienciesandreducecosts.

Barriers

• Thereisalackofscalenecessaryforefficientfinancing.• Changingpoliticalenvironmentsandalackofcivicinvolvementandcommunityoutreachmakeit

difficulttoeffectivelylinkpublicandprivatecapital.• Thereisaneedtoeducatelegislatorsonprivatesectorperspective.

Solutions:

• Createanon-stateentitytoconveneandbundleprojects.• Establishaspecial-purposevehicletospecificallytargetwaterqualityinfrastructureinvestments.• Identifyhigh-leveleducatorsandconvenersthatcouldserveasacoordinatingentity.• Havethepublicsectoractasanaggregatortocreatefinancingpools.

Theme5:MitigatingInvestmentandImplementationRisk.

Context:GiventhescaleoftheChesapeakeBayRestorationeffort,addressingfinancingandimplementationriskwillbeimportantatalllevelsofgovernment.TheSymposium’sgoalwastoidentifyoptionsandopportunitiesforthepublicsectortoleveragethecapacityandinnovationoftheprivatesectortoensurethefinancialandphysicalperformanceofwaterqualityinvestments.TheSymposium’sforumsspecificallyaddressedestablishedrisk-basedinstitutionalandfinancialmechanismssuchaspublic—privatepartnershipsandmitigationbankingprograms,andhowthosefinancingtoolsandprocessescanserveasthefoundationforotherinnovativeapproachesforreducingtheriskandimprovingtheperformanceofwaterqualityinvestments.Aswiththeotherissuesaddressed,thegoalwastoidentifytheenablingconditionsthatarenecessaryforestablishingeffectivemarket-basedriskmitigationprogramsandtools.


• Employingpublic-privatepartnershipstoimprovethequalityandeffectivenessofBMPoperationsandmaintenance.

• Applylessonslearnedfromwetlandandhabitatmitigationbankingprograms.

Barriers

• Localandstateregulationsdonotenableinnovativeprogramsthatcanshiftrisktothemarketplace.

• Effectiveriskmanagementisoftenblockedbytraditionalprocurementprocesses.


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Solutions:

• Createregulatoryandpolicytemplatesthatwillenablemarket-basedfinancingprocesses.• Incentivizetheapplicationofpublic/privatepartnershipsandotherinnovativeriskreducing

systems.• Expandtheuseofmitigationbankingtypefinancingprocesses.

Theme6:WaterQualityTradingandEnvironmentalMarkets.

Context:Regulatory-basedtradingprogramsareperhapsthemostdiscussed,debated,andpotentiallyimpactfulfinancingsystemavailabletostateandlocalgovernments.Inspiteofthesignificantattentionthesemarketsystemsreceive,thelevelofmarketactivityhasbeenrelativelylowinmanyChesapeakeBayjurisdictions,andnonexistentinothers.Thisforumfocusedspecificallyonthepotentialbenefitoftradingandthenecessaryenablingconditionsforbringtheseprogramstoscale.

Keyquestionsandissues:

• Establishingthenecessaryframeworktogeneratemarketplacedemand.• Identifyingtheoptionsandpossibilitiesforapplyingmitigationbankingprogramsinastormwater

orurbanenvironment.• EstablishingstandardsforBMPconstructionandmaintenance.

Barriers

• Thecertaintyofdemandisinquestion.• Thelocalgovernmentprocurementmodelischallenging.• Thefearoflitigationfromenvironmentalcommunity.

Solutions

• Enableandincorporatetradingandmarketprogramsintoregulationsandpermits.• Createclearandtransparentrulesthatdecisionscanbemadeagainst.• Establishpublically-backedinsurancepoliciesandcreditassuranceprograms.