Gauri Gadgil
Chesapeake Bay Foundation
EIB Coordinator

Can pay for success help save the Chesapeake Bay?

March 29, 2018 - 12:48pm

The Chesapeake Bay Foundation’s (CBF) mission is simple: Save the Bay. For 50 years, we have worked to restore and protect the Chesapeake Bay and its rivers and streams. Through environmental education, advocacy, public outreach, strategic litigation, and environmental restoration, CBF improves water quality, and creates a healthier environment for the 18 million people and 3,600 species of wildlife who make this region their home.

We’ve made some incredible gains, especially in the past decade. The Bay is cleaner and clearer, thanks to reductions in pollution from sewage and power plants, farms, and other sources. In many areas, we’re seeing corresponding increases in dissolved oxygen and underwater grasses, as well as other indicators that the Chesapeake is bouncing back. But there’s a lot of work still left to do. For example, stormwater runoff is the only major source of nitrogen pollution that is still increasing in the Chesapeake Bay watershed. Stormwater picks up pollutants like pet waste, sediment, fertilizers and pesticides, and automotive fluids when it flows into local rivers, streams, and the Bay after each rainfall.

CBF generally advocates using “green infrastructure” to slow down and soak up stormwater.  This infrastructure includes rain gardens, permeable pavements, and green roofs. Green infrastructure is often more cost-effective and can tackle more pollutants than expensive “gray” infrastructure. It can also bring a variety of co-benefits including cleaner water and air, reduced localized flooding, increased property values, and enhanced community livability. Although science shows green infrastructure techniques to be effective, many Chesapeake Bay governments have been reluctant to adopt them due to lack of funding, and the perception that these techniques are untested.

Enter—the Environmental Impact Bond!

CBF is partnering with impact advisory firm, Quantified Ventures, to pilot the use of environmental impact bonds (EIBs) to finance green infrastructure in up to four municipalities across the Chesapeake Bay watershed. Quantified Ventures introduced an EIB in a PFS project with DC Water in 2016. Now CBF and Quantified Ventures are working together to help municipalities leverage an innovative new source of financing to meet their stormwater needs.

Readers of this blog will be familiar with the basic tenants of the pay for success (PFS) model and the idea of structuring bond repayment around the achievement of environmental or social objectives, while transferring some performance risk to the private sector. Issuing an EIB for green infrastructure, however, is not without its challenges. Municipalities must commit to a hands-on process that requires coordination across departments to align programmatic, planning, and financial interests.

Local governments are credited with doing their part to reduce stormwater by simply installing green infrastructure—regardless of how well it performs. This means that there are no clear regulatory incentives to support higher performing projects. CBF and Quantified Ventures will need to work with localities to identify metrics and measure performance in a meaningful way that also helps them meet local environmental and social goals.

Just this week, CBF announced Baltimore as our first municipal partner! Baltimore will issue up to $6.2 million worth of EIB financing to help fund the construction of 90 green infrastructure projects in more than three dozen neighborhoods and at a dozen public schools. The city’s repayment of the EIB will be based on the effectiveness of the projects. CBF and Quantified Ventures will work with Baltimore over the coming months to identify an appropriate outcome metric(s) and develop an EIB around that metric.

CBF is continuing outreach efforts to identify additional municipal partners that would benefit from pay for success financing. Our hope is to develop an EIB model that works not only in large cities, but also the smaller counties, cities, and townships that make up the Chesapeake Bay so that they too can reduce pollution in a cost-effective way—and green their local communities in the process.  

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As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research. Photo via Pixabay.