Green Infrastructure Toolkit
How to Pay for Green Infrastructure: Funding and Financing
Communities are increasingly turning to green infrastructure as a vital tool to help manage stormwater and improve climate resilience. However, many local governments seeking to establish green infrastructure programs face budget constraints that may limit the scope or effectiveness of program implementation. Fortunately, local governments have the opportunity to draw upon a wide range of funding sources, revenue models, and financing strategies to support green infrastructure programs. This Funding and Financing Chapter provides strategic guidance on how to pay for green infrastructure.
Stormwater management is increasingly becoming a major expense for local governments addressing persistent flooding or responding to legal and regulatory mandates, such as combined sewer overflow (CSO) consent decrees, total maximum daily load waste load allocations, or municipal separate storm sewer system (MS4) permits.
Investing in green infrastructure can cost-effectively help communities manage stormwater while also producing significant co-benefits. Examples of co-benefits include improvements in air quality and public health, increased climate resilience, opportunities for community recreation, and enhanced community aesthetics. Designing green infrastructure programs to maximize co-benefits may open up funding sources that would otherwise not be available for stormwater management projects or programs. For example, communities can use funds for programs such as transportation and street design, open space and wildlife conservation, or disaster relief to pay for green infrastructure programs. Additionally, communities can implement innovative financing strategies to capture the economic value created by flood costs avoided, increased health benefits, or increased property values. Communities can aggregate multiple funding and revenue sources, or combine a funding source with financing options such as low-interest loans or green bonds.
Green Infrastructure Cost Effectiveness
Green infrastructure can effectively manage the “first flush” of stormwater while producing significant cost savings for local governments. For example, Philadelphia’s city-wide Green City, Clean Waters program is projected to save the city $8 billion over a twenty-five year implementation period compared to the traditional gray infrastructure that would have been required under an agreement with the U.S. EPA to control the city’s stormwater. Similarly, Chicago, Illinois, has reported that its green infrastructure installations are more effective at managing stormwater than traditional techniques on a per-dollar basis. The Chicago Green Alley Program is estimated to manage stormwater between 3 and 6 times more effectively per dollar compared to traditional stormwater infrastructure. However, it can still be hard to find the funds to build and maintain green infrastructure.
This chapter provides descriptions of multiple strategies that a local government can use to pay for green infrastructure program implementation. The tools covered in this chapter are broken down into five categories. For each of the funding or financing strategies, this toolkit provides an overview of how the mechanism can be used to pay for green infrastructure projects or programs. Linked resources in the Georgetown Climate Center Adaptation Clearinghouse provide more detailed information about funding programs or descriptions of jurisdictions that have successfully paid for green infrastructure projects or programs using the various funding or financing tools. This Chapter explores federal funding sources, state funding sources, local funding models, government financing options, and private financing options (each described in more detail below).
Each funding or financing strategy can be compared under a set of decision-making criteria, including:
- Funding Availability, which includes the ease of getting funds and the ability to sustain them over time. For example, whether a federal program is available every year and calculated by a formula, as opposed to being a competitive grant program.
- Funding Flexibility, meaning the amount of discretion the local government has to decide how to use the funds, or the breadth of activities that the funds can support.
- Municipal Budget Impact, meaning whether the particular funding strategy takes money out of the local government’s general fund.
- Administrative Burden, which includes the time and resources necessary for the local government to administer or manage that funding strategy, in addition to any potential administrative process to begin the program (writing new regulations, for example).
- Legal Constraints, such as whether the funding strategy is constrained by state statutes that may give the local government legal authority for that strategy (or not), or by related state laws such as, for example, caps on borrowing.
Funding and Financing Options
Federal programs can provide significant funding for local green infrastructure programs. Local governments may be eligible for federal government grants administered by a range of departments and agencies (e.g., DOT, EPA). Federal funding can come in multiple forms: some in competitive grants, and some in formula programs that local governments are already likely to be receiving. Federal grants may be used to supplement money available to local governments through traditional budgeting or financing. However, federal grants can be highly competitive, may require lengthy application, are limited in size and scope, and often are awarded on a one-time basis.
Many states have grant programs that may be used to fund green infrastructure projects and programs. Because of the varied and broad benefits of green infrastructure, a diverse array of stormwater and other environmental programs, including those for wildlife preservation, land conservation, tree planting, and water quality improvement, may be available.
Local governments can also pay for green infrastructure using local revenue sources, including the government’s general fund appropriations and capital budget, or through user fees or stormwater utility fees. These local funding sources, if implemented, may be consistently available and more flexible for application to green infrastructure projects; general funds, however, may present a strain on municipal budgets because green infrastructure projects could compete for money with other projects without an increase in revenue.
Municipal governments may also be able to use public financing methods, such as municipal bonds, to pay for green infrastructure projects. Local governments may be able to use Clean Water State Revolving Fund money to finance green infrastructure projects. Additionally, local governments can explore strategies that capture the value created by installing green infrastructure, such as tax increment financing.
Communities may also explore innovative strategies to leverage limited municipal funds to attract private capital. One approach that is common to infrastructure projects but has been limited in green infrastructure stormwater management is the use of public-private partnerships (P3s). P3s provide access to private capital and may provide a means to rapidly scale up green infrastructure project installation; however, local governments must take care to ensure that the program will take into account and ultimately reflect the community’s needs.
Federal programs can provide significant funding for local green infrastructure programs. Federal funding can come in the form of competitive grants or formula programs. that local governments are already likely to be receiving. Grant funding may provide a local government with the resources to implement green infrastructure projects. However, federal grants can be highly competitive, may require lengthy application, are limited in size and scope, and often are awarded on a one-time basis. Many federal grants require a funding match from state or local sources for some percentage of the awarded funds. Some funding sources also prohibit the use of grant funding for operations and maintenance expenses. Local governments that use grant funding for green infrastructure installation should take these factors into account and recognize the importance of identifying additional funding streams to support on-going expenditures.
Local governments can expand opportunities for federal funding by designing green infrastructure projects in ways that maximize particular co-benefits. For example, designing bioswales with native plants may provide eligibility for wildlife conservation or pollinator grant funding (e.g., State Wildlife Grant Programs, funded by U.S. Fish and Wildlife Service). Similarly, green infrastructure can be included in local programs that already receive or apply for federal funding, such as transportation projects or disaster recovery plans.
This toolkit covers several types of federal funds in more detail below: 1) water quality; 2) economic and community development; 3) disaster recovery; and 4) transportation. Within each substantive area, some federal funding strategies are competitive grant programs and some are regularly given, formula grant programs.
Water Quality Funding
Green infrastructure projects may be funded by federal programs that support efforts to reduce water pollution and manage stormwater. Programs include the US Environmental Protection Agency’s Section 319 Nonpoint Source Program and the Urban Waters Small Grants Program (UWSG). Under Section 319 (of the Clean Water Act), EPA provides grant funding to states to reduce pollution from stormwater runoff and other sources; EPA recognizes the “importance of green infrastructure … in managing stormwater” has made clear that funds can be used for green infrastructure projects. EPA’s UWSG Program focuses on improving the quality of urban waters and stimulating neighborhood revitalization in underserved communities, and can be used specifically for innovative or new green infrastructure practices.
Economic and Community Development Funding
Community development money can be used to fund green infrastructure because these projects can create jobs, increase economic activity, and increase property values. Urban tree planting can increase economic activity in a commercial district. Additionally, green infrastructure can increase property values by mitigating flooding, improving neighborhood aesthetics, and providing other co-benefits. As a result, green infrastructure can be funded using Community Development Block Grant (CDBG) program funding (formula funding), administered by the U.S. Department of Housing and Urban Development (HUD).
Disaster Recovery Funding
Local governments eligible for disaster recovery and relief funding following a presidentially declared disaster may be able to use this federal funding to pay for green infrastructure projects. Many local governments have included green infrastructure in disaster recovery and rebuilding plans to mitigate flood risk and manage stormwater. The FEMA Hazard Mitigation Grant Program (HMGP) provides post-disaster federal aid to states to mitigate the risks of future disasters and can fund flood mitigation projects, including acquisition and relocation of flood-prone properties and soil stabilization projects like the installation of vegetative buffer strips. The Community Development Block Grant – Disaster Recovery (CDBG-DR) program also provides federal aid to states post-disaster, and funds can be used for a variety of community development activities that benefit low- and moderate-income individuals, reduce blight, or address an urgent community need. In rehabilitating housing and constructing public amenities, cities may be able to incorporate green infrastructure techniques (like street trees and permeable pavements) in street design.
Green infrastructure projects are often eligible for transportation funding because they improve transportation networks by efficiently and cost-effectively mitigating street and alley flooding. The U.S. Department of Transportation’s (DOT’s) Transportation Alternatives Program (TAP) provides funding for “transportation alternatives,” including “off-road trail facilities for pedestrians, bicyclists, and other non-motorized forms of transportation.” TAP funding could be used to pay for green infrastructure components of trails and sidewalks such as permeable pavements. The Congestion Mitigation and Air Quality (CMAQ) program allocates federal funding for infrastructure projects that reduce congestion and improve air quality. Bicycle transportation and pedestrian walkways are eligible uses of the money, and can be designed to include green infrastructure features, such as permeable surfaces for trails, and bioswales and bioretention for areas adjacent to trail surfaces. The Transportation Investment Generating Economic Recovery (TIGER) program funds investments in road, rail, transit and port projects. TIGER grants have been awarded to projects that included green infrastructure components.
Clean Water Act: Section 319 Grant Program
The Transportation Investment Generating Economic Recovery (TIGER) Discretionary Grant program, administered by the U.S. Department of Transportation (USDOT), has been used to fund green infrastructure projects as part of transportation improvements. TIGER provides funding for investments in road, rail, transit and port projects. TIGER grants have been awarded to projects that included green stormwater management components, including a project in Syracuse, NY. The Connective Corridor project in Syracuse created more bikeable and walkable streets to encourage active transportation and reduce greenhouse gas emissions, and incorporated green infrastructure elements such as tree trenches and porous pavements.
City of Milwaukee, Wisconsin All Hazards Mitigation Plan
EPA Clean Water Act Section 319 grant funding goes to states to reduce nonpoint source pollution (pollution caused by rainfall running over the ground and carrying pollutants including trash, oil and grease, and fertilizers into nearby waterways). EPA’s most recent program guidance recognized the “importance of green infrastructure … in managing stormwater” and supported awarding funding to green infrastructure projects. The District of Columbia Department of Energy and Environment (DOEE) used Section 319 funding to partially fund remediation of the Watts Branch watershed in northeast D.C. Watts Branch suffered from severe erosion and sediment pollution due to frequent flooding. DDOE led a project to restore the stream bed and control flooding using tree and shrub plantings, regrading of the stream bed, and upstream low-impact development practices to manage impervious surface runoff.
EPA Urban Waters Small Grants
Milwaukee, WI, included green infrastructure projects for flood control in the City Of Milwaukee All Hazards Mitigation Plan. Stormwater management is included as an element of managing flood hazards in that Plan, and several green infrastructure projects are listed as hazard mitigation strategies relevant to the stormwater management element of the plan, in addition to more tradition stormwater management strategies. Hazard Mitigation Grant program money is identified in the Plan as a potential funding source.
HUD Green Infrastructure and the Sustainable Communities Initiative
The EPA’s Urban Waters Small Grants Program provides funding to communities to improve the quality of urban waters while simultaneously stimulating neighborhood revitalization. The Urban Waters Small Grants Program has a focus on underserved communities, defined as “communities with environmental justice concerns and/or susceptible populations.” The Program can be used specifically for innovative or new green infrastructure practices that improve water quality; state, local, and tribal governments, as well as universities and nonprofit organizations, are eligible to apply. The Sewerage and Water Board of New Orleans (SWBNO) is utilizing UWSG funding for its Green Infrastructure Monitoring Project, in which data will be collected and analyzed to measure the effects of green infrastructure on water quality at specific sites. The data will then be used for public engagement at community workshops and trainings.
HUD Community Development Block Grant Program
The U.S. Department of Housing and Urban Development (HUD) Green Infrastructure and the Sustainable Communities Initiative report provides case studies of 30 local governments who have used U.S. HUD Sustainable Communities Regional Planning Grants or Community Challenge Planning Grants to fund green infrastructure programs. Although the HUD Sustainable Communities Initiative grant programs have not received Congressional appropriations since 2011, the case studies provide excellent examples of how local governments can combine various funding streams to pay for green infrastructure programs. For example, the City of Pittsburgh combined funding from a HUD Community Challenge Planning Grant and a U.S. DOT TIGER II grant to fund the planning of the Allegheny Riverfront Green boulevard project.
HUD Community Development Block Grant - Disaster Recovery
The Community Development Block Grant (CDBG) programs, administered by the U.S. Department of Housing and Urban Development (HUD), is a funding program that supports communities’ development needs. Communities may be able to use CDBG Program funds to acquire property and build public facilities, including green infrastructure installations. In rehabilitating housing and constructing public amenities, cities can incorporate green infrastructure principles (like street trees and permeable pavements). Detroit, MI, used $8.9 million in CDBG funds in 2014 to create a major flood prevention and economic development program. Detroit is using the funding to demolish blighted properties, landscape and install trees on 200 vacant lots to improve stormwater management and neighborhood aesthetics, and install infrastructure that will direct stormwater into new bio-retention basins.
FHWA Transportation Alternatives Program
The Community Development Block Grant – Disaster Recovery (CDBG-DR) program also provides federal aid to states during the post-disaster period. CDBG-DR funds can be used for a variety of community development activities, but must help low- and moderate-income individuals, reduce blight, or address another urgent community need in addition to addressing the effects of the disaster. In rehabilitating housing and constructing public amenities, cities may be able to incorporate green infrastructure principles (like street trees and permeable pavements) in street design.
Congestion Mitigation and Air Quality program
The Transportation Alternatives Program (TAP) is administered by the U.S. Federal Highway Administration (FHWA) and can be used to pay for green infrastructure projects integrated into transportation improvements, including trails and sidewalks with permeable pavement. It can also be used to mitigate environmental impacts from transportation, including for green infrastructure projects that help to manage stormwater or abate water pollution from highway construction or run off. The Southeast Michigan Council of Governments (SEMCOG) used TAP funding in 2015 from the state of Michigan to fund the Detroit – Inner Circle Greenway Railroad Acquisition, which included 1) installation of green infrastructure such as green streets and bioretention and 2) repurposing of 8.3 miles of abandoned railway near Detroit.
FEMA Hazard Mitigation Grant Program
The Congestion Mitigation and Air Quality (CMAQ) program, jointly administered by the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA), allocates federal funds for infrastructure projects that reduce congestion and improve air quality. Because CMAQ funding can be used for bicycle transportation and pedestrian walkways, such pathways can be designed to include green infrastructure features, such permeable surfaces for trails and bioswales and bioretention areas adjacent to trail surfaces.
The FEMA Hazard Mitigation Grant Program (HMGP) provides federal aid to states during the disaster reconstruction process to fund critical projects to mitigate the risks of future disasters and can be used to fund green infrastructure projects. HMGP can be used to fund projects that will both improve water quality and reduce flood risks such as projects involving acquisition and relocation of flood-prone properties, and soil stabilization projects including the installation of vegetative buffer strips. New Orleans used HMGP funding for its post-Katrina rebuilding process, including the reconstruction of the city’s stormwater infrastructure. Although the New Orleans Stormwater plan calls for a significant expansion of green infrastructure to manage the city’s chronic flooding, the city initially had difficulty demonstrating the benefits of green infrastructure under FEMA’s required benefit-cost analysis because the city 1) lacked the data to demonstrate potential flood losses avoided and 2) could not count many of green infrastructure’s environmental benefits. Demonstrating the cost-benefit of green infrastructure under HMGP has been much easier since FEMA amended its policy to allow counting of some “ecosystem services” (including aesthetic value, air quality, recreation space, and water filtration) as benefits.
Many states have grant programs that may be used to fund green infrastructure projects and programs. Because of the varied and broad benefits of green infrastructure, a diverse array of stormwater and other environmental programs, including those for wildlife preservation, land conservation, tree planting, and water quality improvement, may be available. For example, Cumberland County, Pennsylvania, supported its green infrastructure planning by applying for and receiving funding to develop an open space and smart growth plan from the state Department of Conservation and Natural Resource (DCNR) Keystone Grant Funding program.
The City of Tucson, Arizona, used a grant from the Arizona Department of Environmental Quality to fund a series of green infrastructure projects in the Rincon Heights neighborhood, including the conversion of vacant lots into stormwater management pocket parks featuring bioretention elements, curb cuts, and the removal of impervious surfaces.
State-administered transportation grants can provide a regular funding source for municipal green infrastructure programs. The City of Grand Rapids, Michigan, used a Michigan Department of Transportation Enhancement Grant (complemented with funding from neighborhood and business associations and a regional environmental council) to construct bioretention islands in the roadway. These islands capture stormwater and reduce sediment runoff and phosphorus loading.
The greater Memphis region created a plan to combine multiple sources of federal, state, and local funding – including transportation funding for recreational trails – to implement a regional plan for trails and open space to mitigate flooding and promote community growth. In 2015, the Mid-South Regional GreenPrint, a vision for the next 25 years, envisions a regional network of green space, including parks and greenways. The plan includes a comprehensive description of how multiple sources of funding, from federal funds to state wildlife and conservation funding, could be combined to pay for this network.
Local governments can increase the effectiveness and reach of grant funding by leveraging federal or state grants through environmental loan programs. For example, the City of Lancaster, PA, funded a program that installed stormwater management features in parking lots by leveraging grant money from the state natural resources agency (as well as from the National Fish and Wildlife Foundation) to secure a loan from Pennsylvania’s infrastructure bank.
Memphis, Tennessee Mid-South Regional GreenPrint
Community-Based Conservation in Tucson’s Rincon Heights Neighborhood
The greater Memphis region created a plan to combine multiple sources of federal, state, and local funding – including transportation funding for recreational trails – to implement a regional plan for trails and open space to mitigate flooding and promote community growth. In 2015, the Mid-South Regional Commission created the Mid-South Regional GreenPrint for the next 25 years and envisions a regional network of green space, including parks and greenways. The plan includes a comprehensive description of how multiple sources of funding, from federal funds to state wildlife and conservation funding, could be combined to pay for this network.
The City of Tucson, Arizona, used a grant from the Arizona Department of Environmental Quality to fund a series of green infrastructure projects in the Rincon Heights neighborhood, including the conversation of vacant lots into a stormwater management pocket parks featuring bioretention elements, curb cuts, and the removal of impervious surfaces.
The Rainscaping Iowa Program is a collaboration among several state and local agencies in Iowa and is dedicated to educating the public and training professionals in infiltration-based stormwater management. The program is funded through a variety of state and local sources, including the state Department of Transportation’s Living Roadway Trust, along with the Iowa Department of Natural Resources, Department of Agricultural and Land Stewardship, Department of Economic Development, the Iowa Storm Water Education Program, and the Polk Soil and Water Conservation District.
Local governments have multiple options for using local funding to pay for green infrastructure projects. If resources are sufficient, local governments can include green infrastructure programs and projects in capital budgets. If local governments want a dedicated source of funds just for green infrastructure and stormwater management, municipal and stormwater utility fees may also provide an important source of revenue.
Coordinating Across Multiple Agencies
Local governments can increase the efficiency of green infrastructure programs and expand the pool of available funding by coordinating funding across municipal agency budgets. Such coordination can reduce project costs by ensuring that projects are installed at the most cost-effective times – for example, when street or sidewalk construction is already scheduled. In addition to improving cost effectiveness, encouraging collaboration among agencies may enable sharing of green infrastructure costs among agency budgets. For example, in Los Angeles, CA, the Bureau of Street Services and the Bureau of Sanitation collaborated to implement the Oros Street project – a $1 million installation of bio-retention areas in the street parkway and a large infiltration basin underneath a nearby park. Boulder, Colorado’s Greenways program is funded by equal contributions from the City’s Transportation Fund, Stormwater and Flood Control Utility Fund and the state’s Lottery Fund, with additional funding by the Urban Drainage and Flood Control District.
Local Funding Options
Many local governments fund green infrastructure and stormwater management programs through the general fund, which in most local governments is primarily funded through income and property taxes. A local government using funds from general tax revenue for green infrastructure will not need to set up new revenue collection and appropriation systems, but funding for green infrastructure programs may not be stable year-to-year if other spending obligations are seen as higher priorities. Additionally, the use of general funds could be seen as inequitable, because some property owners that contribute to stormwater runoff (such as public facilities, universities, and churches) may be exempt from the income or property taxes used to fund the program.
The Ramsey-Washington Metro Watershed District in the Twin Cities in Minnesota provided initial funding for its green infrastructure program with the watershed district’s Capital Improvements Budget. The project received additional support from property tax revenue and state grant funding.
Local governments can assess permit fees to provide additional revenue for green infrastructure programs. The fees allow local governments to raise revenue directly from any proposed development or construction that might worsen stormwater impacts. Portland, Oregon, has established a “One Percent for Green” Fund, which requires that all construction projects in the public right-of-way that do not include “green street facilities” (including curb extensions and porous pavement) must contribute one percent of project costs to a city fund for other green infrastructure projects that exceed city requirements.
However, assessed fees may not provide sufficient funding for full program implementation, and likely would need to be combined with additional funding sources. Additionally, fees may not be a consistent source of revenue, as they may decrease during a time of slow construction.
Stormwater Utility Fees
Local governments may choose to assess stormwater utility fees as a reliable means of paying for green infrastructure programs. This approach is advantageous because it provides a dedicated funding stream with sustainable and predictable revenue over time.
A stormwater utility fee may be seen as a more equitable way to pay for stormwater management, compared to general funds, because local governments or utilities may be able to raise money in a way that is directly related to a property’s stormwater impacts. Many local governments allow property owners to offset stormwater user fees or earn incentives and credits by managing stormwater onsite through best management practices such as reducing impervious surface area. For example, the programs in Prince William County, Virginia, and Lenexa, Kansas, provide fee reductions or credits to property owners who manage stormwater onsite.
However, establishing utility fees may face regulatory and legal limitations, including sometimes approval of a legislative body. An entity (local or regional government or utility) that decides to establish a stormwater user fee must first determine its legal authority to do so, and must structure the user fee in a way that meets all applicable state legal requirements. State law sets the parameters for what types of local or regional entities are allowed to establish fees or taxes, and local governments must be extremely clear that they meet their own states’ definition. While these requirements vary by state, they can include procedural questions (e.g., whether a vote by the local elected body or the voters is necessary) and substantive questions (e.g., whether the fee is structured in such a way as to fairly relate to the amount of impervious surface on a particular property).
A number of local governments have faced legal challenges following the imposition of utility fees, including stormwater fees. One of the most commonly litigated issues is whether an assessed utility fee is considered a fee or a tax. Because some jurisdictions require voter approval to assess a tax, this distinction can be critical. In the event of a legal challenge, courts commonly look to several elements to distinguish between a tax and a fee. These elements include: the relationship between the assessed fee and the service provided by the local government, the purpose of the fee, the uniformity of application of the fee, and whether the fee benefits those who pay. Similarly, lawsuits have been filed challenging the authority of a local government to establish a utility. Local governments should carefully consider all applicable legal requirements and relevant case law before implementing a stormwater utility fee.
Establishing and assessing a utility fee requires upfront administrative costs, including a feasibility study, stakeholder outreach, and fee structure design and implementation. Additionally, there have been a few high-profile examples of public resistance to the stormwater user fee model. However, through effective outreach, local governments may be able to establish strong community support for stormwater user fees. The City of Orlando, Florida, funds its stormwater management activities through a stormwater utility fee, and successfully built public support for fee implementation by linking the fee to citizens’ concerns about flooding and clean waterbodies.
Boulder's Greenways Master Plan
Lenexa, Kansas Rain to Recreation Program
In addition to traditional revenue sources such as taxes or fees, many local governments draw on other revenue sources. In Boulder, Colorado, the city’s Greenways program is funded by equal contributions from the City’s Transportation Fund, Stormwater and Flood Control Utility Fund and the State’s Lottery Fund, with additional funding by the Urban Drainage and Flood Control District.
Prince William County Stormwater Fee
Lenexa, KS, is funding its robust Rain to Recreation program by pairing the city’s Storm Systems Development Charge (a 1/8 cent sales tax) and a permit fee that the city called a “capital development charge,” along with available sources of local, state and federal funding. Combining multiple sources of funding enables Lenexa to have longer-term and more sustainable funding for its program.
Prince William County, VA, assesses a stormwater management utility fee to all owners of developed property. Residential property owners are biannually assessed a flat fee based on the type of residence (single family home or apartment). Nonresidential properties are assessed a fee of $18.56 for every 1,000 square feet of impervious area on the property. Property owners can get a fee reduction or a credit for reducing the amount of impervious surface, encouraging more use of green infrastructure.
In addition to using funding and revenue sources, municipal governments may be able to use public financing strategies to pay for green infrastructure projects. Financing a project through a municipal bond or Clean Water State Revolving Fund loan may have significant advantages. For example, a local government may be able to make upfront investments in green infrastructure programs and realize more immediate benefits from project installation. However, financing strategies have limitations. Local governments may not be able to find sufficient financing for small scale or demonstration projects because investors are generally interested in bigger projects. Additionally, financing may only be available for capital projects and not for the operations and maintenance that are essential to successful green infrastructure programs.
Clean Water State Revolving Fund
One important source of financing for water infrastructure projects is the Clean Water State Revolving Fund (CWSRF). The federal government provides grants to capitalize state CWSRF programs. States contribute a 20 percent funding match, and administer and operate the programs. The state programs function as infrastructure banks: repaid principal and interest from loans is returned to the state program, allowing the state to finance new projects.
States have significant flexibility over CWSRF program administration, and can provide several forms of financial assistance to local governments, including:
- Direct loans: CWSRF can provide financing for a project and offer interest rates at or below market rates.
- Debt purchasing or refinancing: CWSRF can be used to purchase a community’s stormwater infrastructure debt to relieve unfavorable loan terms; projects may be refinanced using CWRF funds.
- Loan guarantees and insurance: CWSRF funding can be used to increase access to private credit markets or lower a jurisdiction’s private borrowing costs.
- Additional subsidization: Under certain conditions and federal appropriation levels, additional subsidization in the form of loan forgiveness or grants may be available.
States can use the CWSRF to fund the capital costs of both gray and green infrastructure, but CWSRF funding cannot be used for operations and maintenance expenses.
Although only a small percentage of CWSRF funding has historically been directed to green infrastructure projects, the EPA and many states have recently made green infrastructure a priority for CWSRF programs. The CWSRF operates a Green Project Reserve, designed to encourage environmentally responsible investments with CWSRF funds. Green Project reserve guidance requires states to invest at least ten percent of their federal grant funding in four priority areas, including green infrastructure. Since 2009, state CWSRF programs have provided $800 million in assistance to green infrastructure projects. In January 2016, the EPA issued a statement of policy encouraging states to support green infrastructure projects by prioritizing these projects for CWSRF funding.
Local governments and municipal utilities may be able to finance capital spending through the issuance of municipal bonds. Municipal bonds are a very common way for local governments to finance capital projects – in the United States there are approximately $2.8 trillion in outstanding U.S. municipal bonds. For infrastructure that requires significant upfront capital investment but will operate for a number of years, bond financing allows a local government to pay for a project over the entire life of the infrastructure because the debt is repaid gradually over time.
Municipal bonds can be issued as:
- General obligation bonds: secured by the full faith and credit of a local government, or
- Revenue bonds: secured by a future revenue stream (e.g., a stormwater fee).
While local governments and utilities can raise funds in the private bond market, municipal bonds often provide capital at a lower interest rate. An EPA study found that a typical interest rate on a municipal bond was 3-4 percent, compared to a private bond typical rate of 5-15 percent.
Municipal bond issuance is regulated by state law, and state laws generally cap the total amount a jurisdiction may borrow through bonding. State law also controls a local government’s authority to issue bonds at all, the type of projects that can be financed with bond issuance, the eligibility of bond proceeds to pay for operations and maintenance expenses, and other factors. It is important that a jurisdiction considering bond financing look into its applicable state laws on all of these topics to ensure compliance.
Green bonds are an emerging, promising mechanism by which local governments can fund climate resilience and other environmentally focused projects. Green bonds are not significantly different in structure than bonds used for other purposes, but are used to finance environmentally beneficial activities. Because green bonds must be used for environmentally beneficial projects, they may attract the interest of investors interested in environmental issues, as well as traditional investors. This increased interest may in the future reduce borrowing costs (compared to traditional bonds) for governments raising funds through bond issuance.
Many investment institutions, including major private and public banks, have developed independent principles and guidelines governing green bonds. Green infrastructure installations would qualify under most definitions and institutional guidelines for green bonds, due to the numerous environmental benefits of green infrastructure installations. Over the past several years, green bonds have been one of the fastest growing sectors of the bond market, with over $37 billion in green bonds sold globally in 2014.
Tax Increment Financing
Tax Increment Financing (TIF) is a method of financing a project or development in a designated geographic area based on the anticipated increase in property tax that will be generated by the project. The revenue generated by a TIF is the property tax assessed on the increase in property value of a designated district following a development project, compared to the baseline property value prior to the development project. Tax increment financing originally developed as a means of financing the redevelopment of “blighted” areas, but is now used for a broad range of infrastructure improvements. Chicago, Illinois, has established more than 120 TIF districts, and has leveraged its public investment to attract over $6 billion in private capital investment in TIF districts over two decades of development. Revenue from Chicago’s Central Loop TIF has been used to fund the city’s Green Roof Improvement Fund, which incentivizes and provides partial reimbursement to commercial buildings that install green roofs to manage stormwater.
Green infrastructure may be an important component of a TIF development because the installation of green infrastructure can increase property values. The property value increases are driven by the effectiveness of green infrastructure at mitigating persistent flooding, as well as co-benefits such as providing community amenities and improving aesthetics. The city of Milwaukee performed a quantitative analysis of green infrastructure installations and found that such projects added significant value to neighboring property, as expected when the TIF district was created.
Local governments can use tax increment financing for large capital projects (such as green infrastructure installation) or incremental, longer-term spending. A local government could issue municipal or private bonds to raise capital for a large-scale green infrastructure project, and use the TIF revenue to service bond payments. Alternatively, a local government could use TIF revenue incrementally—as the revenue is collected—to pay for smaller-scale green infrastructure projects or, in many jurisdictions, to provide a sustainable revenue source to pay for operations and maintenance of green infrastructure installations.
Tax increment financing may be a valuable option for a local government because the TIF model allows a development or infrastructure project to “self-finance”—the increase in assessed property value caused by the development is used to repay the cost of the property development. This process allows a local government to finance a capital project without raising property tax rates or exceeding its debt limit.
However, tax increment financing has several limitations that local governments must consider. A local government cannot implement a TIF unless the state has passed TIF-enabling legislation. State-specific statutory and regulatory requirements regulate the type of projects permitted and administrative procedures required for tax increment financing, such as requirements to pass local ordinances. For example, some states require a local government to make a finding of blight in a district before using a TIF as part of a redevelopment plan, which might limit the neighborhoods in which a local government could focus green infrastructure projects. Additionally, TIFs have received significant criticism and opposition due to the potential of TIF financing to divert property tax revenue from other municipal needs, such as school funding.
City of Berkeley, California 2016 Measure T1 - Bonds to Improve Existing City Infrastructure and Facilities
EPA Financing Green Infrastructure: A Best Practices Guide for the Clean Water State Revolving Fund
On November 8, 2016 Berkeley voters passed Measure T1 with an 86.5% approval. This measure authorizes the City to sell $100 million of General Obligation Bonds (GO Bonds) to repair, renovate, replace, or reconstruct the City’s aging infrastructure and facilities, such as sidewalks and streets, senior and recreation centers, and other important City facilities and buildings. The first round of funding includes the use of green infrastructure for storm drains and parks, and is focused on advancing social equity across projects. City staff prioritized potential T1 projects using Berkeley’s Resilience Strategy criteria, which focus on addressing safety, financial, social, and environmental criteria to provide multiple benefits from infrastructure investments.
Massachusetts Green Bonds
In 2015 the U.S. Environmental Protection agency published a best practices guide for funding green infrastructure projects through states’ Clean Water State Revolving Fund (CWSRF) programs. The Best Practices Guide highlights successful case studies from several states, and provides examples of ways in which state CWSRF programs can prioritize green infrastructure projects for program funding. The EPA suggests that states can increase CWSRF support for green infrastructure by implementing priority point systems, program set-asides, and marketing strategies for state programs.
City of Chicago Tax Increment Financing and Green Roof Improvement Fund
In 2014, the state of Massachusetts issued $350 million in green bonds to fund water infrastructure projects, including stream bed restoration and open-space protection. Bond funds also covered the planting of new trees in the City of Worcester and surrounding areas, including several urban “orchards.” These orchards are small plots within the city designed to accommodate fruit bearing trees, to help with access to healthy foods in these neighborhoods. Bond funding supported the Worcester Tree Initiative, which also engages and trains residents in care for the trees and the benefits of urban forestry.
Funding Green Infrastructure in Pennsylvania: Funding the Future of Stormwater Management
The City of Chicago, Illinois, has successfully used tax increment financing (TIF) to fund public infrastructure and development projects. The city has established more than 120 TIF districts, and has leveraged its public investment to attract over $6 billion in private capital investment in TIF districts over two decades of development. Revenue from Chicago’s Central Loop TIF has been used to fund the city’s Green Roof Improvement Fund, which provides partial reimbursement to commercial buildings that install green roofs to manage stormwater. Several complete street green infrastructure projects in Chicago have been partially funded by the use of tax increment financing, including the Cermak/Blue Island Sustainable Streetscape project.
American Rivers’ Funding Green Infrastructure in Pennsylvania report provides an overview of financing and funding strategies currently being employed to fund green infrastructure projects in Pennsylvania, including the Clean Water State Revolving Fund (CWSRF). In Pennsylvania, the CWSRF is administered by PENNVEST, an independent state agency that awards funds allocated to the state. PENNVEST funds all stages of a project: development, construction, and rehabilitation. In 2009, PENNVEST awarded the city of Philadelphia a low-interest loan of $30 million for green infrastructure projects, including street tree planting and permeable pavement installation.
Communities may also explore innovative strategies to leverage limited municipal funds to attract private capital. One approach that is common to infrastructure projects but has been limited in green infrastructure stormwater management is the use of public-private partnerships. Even more innovative strategies to engage private sector capital include pay-for-performance funding mechanisms such as social impact bonds.
A public-private partnership (P3) is a collaboration between a government and one or more private sector partners. Under a P3, the private sector partner contracts to fulfill one or more traditional government functions, including financing, delivery, operations, and/or maintenance of public infrastructure.
A P3 may allow a local government to make significant upfront capital investments without straining its municipal debt limit, by leveraging limited public funds to attract private capital. Commonly cited benefits of P3s include more cost effective and faster program implementation, due to potential economies of scale and technical expertise that a private-sector partner can provide.
However, local governments exploring a P3 must examine several significant legal and policy considerations. A local government must first determine whether its state has passed enabling legislation for P3s, as well as any restrictions in the enabling legislation on the categories or structures of P3s. Additionally, there can be some degree of public opposition to private-sector management of traditional public functions such as operations and maintenance post-installation. Prior to establishing a P3, local governments should conduct meaningful stakeholder and community outreach to ensure that the goals of the P3 and terms of the contract agreement align with community interests and achieve community objectives.
For example, local governments can structure a P3 to achieve those community objectives such as community development and local jobs growth by adding local workforce training and hiring requirements into the P3 contract agreement. Prince George’s County, Maryland, has entered into a P3 to address its stormwater management problems through a comprehensive, county-wide green infrastructure program. Corvias Solutions, the private sector partner, assumes responsibility for design, construction, operations, and ongoing maintenance. As part of the P3 agreement, Corvias will use small and minority businesses in Prince George’s County for at least 30 to 40 percent of the total project. To verify the effectiveness of the P3, Prince George’s County is independently conducting its own green infrastructure program using conventional public processes during the first three years of the contract. After three years, the county will evaluate the effectiveness of the P3 and determine whether or not to extend the agreement with Corvias.
DC Water Environmental Impact Bond
Public-Private Partnership (P3) Model State Legislation
DC Water and Sewer Authority (DC Water), the water utility in Washington, D.C., has announced the nation’s first Environmental Impact Bond (EIB), an innovative bond to fund the construction of green infrastructure to manage stormwater runoff and improve the District’s water quality. The $25 million, tax-exempt EIB was sold in a private placement to the Goldman Sachs Urban Investment Group and Calvert Foundation to fund the initial green infrastructure project in its DC Clean Rivers Project, a $2.6 billion program to control stormwater runoff that pollutes the Anacostia River, Potomac River and Rock Creek. The linked case study from the US Environmental Protection Agency's Water Infrastructure and Resiliency Finance Center provides an overview of how the transaction was structured.
Community Based Public-Private Partnerships (CBP3s) and Alternative Market-Based Tools for Integrated Green Stormwater Infrastructure
The Bipartisan Policy Center prepared model legislation to help states pass legislation authorizing the use of public-private partnerships (P3). Before a local government can use a P3 to implement green infrastructure projects, it must determine whether its state has passed enabling legislation for P3s, as well as whether the enabling legislation is broad enough to allow for green infrastructure or stormwater management P3s. As of December 2015, 33 states have passed some form of P3 enabling legislation. Many states’ enabling laws contain specific limitations on the types of P3s, the length of P3 agreements, and the process for negotiating P3s.
Prince George’s County Clean Water Partnership FAQs
This report is a comprehensive guide for local governments developed by U.S. EPA Region 3. The Community Based Public-Private Partnerships provides background on Public-Private Partnerships (P3s) and a detailed case study of the Prince George’s County green infrastructure P3. The guide provides more general information about the cost and cost-effectiveness of green infrastructure techniques for stormwater management and includes an overview of traditional and innovative strategies for communities funding green infrastructure programs.
The Clean Water Partnership Frequently Asked Questions document provides an overview of the green infrastructure P3 agreement between Prince George’s County, Maryland, and Corvias Solutions, the private-sector partner. The document includes an overview of the project goals and schedule, and explains the role of the private and public-sector parties.