States can use certain policy tools to direct more Clean Water State Revolving Funds to Green Infrastructure
This blog summarizes key general recommendations for promoting and incentivizing green infrastructure projects through state Clean Water State Revolving Fund (CWSRF) policies, simply by adapting policy mechanisms with which most state CWSRF administrators will already be familiar.
By Stephanie Vo, Senior Water Policy Associate
With the large influx of money from the Infrastructure Investment and Jobs Act (IIJA), each state’s Clean Water State Revolving Fund (CWSRF) program has potential to direct large investments towards green infrastructure (GI). Greater implementation of these projects to address water quality challenges is crucial to building the resilience of water systems and communities in the face of the external risks.
Allocating more CWSRF resources to GI would help achieve the Biden-Harris Administration’s recent Roadmap for Nature-Based Solutions (Roadmap). The Roadmap emphasizes how nature-based solutions–or green infrastructure (GI) as it is referred to in this blog–can address a wide array of concerns, from promoting equity and climate resilience to protecting local economies, national security, and human health. The Roadmap underscores how important investments in GI are for communities to thrive. It makes one recommendation for Federal agencies to unlock and increase access to funding for GI. But states do not have to wait for federal actions to direct more funding to GI.
States have wide discretion and flexibility when administering their CWSRF programs. The policy choices states make regarding how CWSRF assistance will be distributed within the state are set out in the state’s annual Intended Use Plan (IUP). This blog summarizes key general recommendations for promoting and incentivizing GI projects through state SRF policies, simply by adapting policy mechanisms with which most state SRF administrators will already be familiar.
EPIC made these recommendations in comments on FY2023 CWSRF draft IUPs in several Great Lake states:
Increase carve outs on top of the Green Project Reserve,
Increase priority points for GI projects or scoring these projects separately from wastewater treatment projects,
Give priority principal forgiveness for disadvantaged communities wanting to implement GI projects,
Decrease the interest rates for GI projects,
Target technical assistance to develop and secure funds for shovel-worthy GI projects, and
Plan for robust public engagement for the development of GI projects in communities.
Add an additional carve out
One way states can direct more investments towards GI projects through the CWSRF program is to carve out additional money specifically for these types of projects. The Green Project Reserve (GPR) already requires that ten percent of a state’s federal capitalization grant is invested in green projects, which include water efficiency, energy efficiency, green infrastructure, and environmentally innovative practices. This requirement also applies to supplementary funding from IIJA. The purpose of the GPR is to promote more nontraditional projects since the majority of CWSRF investments go towards construction or improvement of wastewater treatment plants (WWTPs).
However, GPR projects actually consist largely of energy or water efficiency improvements to WWTPs. Efficiency improvements to WWTPs are important for long-term sustainability, but promoting GI is also crucial for supporting water quality improvements and resilient communities.
Therefore, states should reserve an additional ten percent (or more) from their yearly base federal capitalization grants as well as from their supplemental grants from IIJA. This ten percent would be on top of the GPR requirement and would help guide additional investments towards GI projects, which may have difficulty competing with WWTP projects.
Increase priority points
Another way states can help GI projects overcome barriers in CWSRF programs is to give more priority points to GI projects. Since states have a limited amount of CWSRF money each year, they have criteria for scoring projects. Each project is scored and ranked on a priority project list, with the projects receiving the highest score more likely to be in the fundable range and receive a CWSRF award that year.
States often prioritize projects that are necessary to help correct regulatory violations or to ensure continuing compliance. With that type of scoring criteria, WWTPs tend to score higher than GI projects and thus are more likely to receive funding. States would benefit from GI projects that would help them achieve water quality outcomes while also providing other environmental and public health benefits. States should consider increasing the number of priority points that GI projects receive. Moreover, if a state does carve out funding specifically for green infrastructure, it could score GI projects separately.
Give priority principal forgiveness
States can also offer “priority principal forgiveness” to GI projects located in disadvantaged communities (i.e., communities that meet the state’s CWSRF affordability criteria), on top of principal forgiveness already available to those communities on the basis of their status as disadvantaged. Incentivizing GI in disadvantaged neighborhoods would help to implement any equity and environmental justice goals as well as climate resilience goals the state has by ensuring that these communities share in the substantial co-benefits of GI including reduced risk of flooding, reduced urban heat-island effect, and increased health benefits.
Priority principal forgiveness can also be important because communities may not have dedicated funding streams for GI projects. The CWSRF program primarily awards loans that must be repaid, which can be a restraint for communities which do not have stormwater utilities. For example, in Michigan, the 1998 Bolt v. City of Lansing decision greatly limited the establishment of stormwater utility fees in the state. In 2018, Michigan had only 8 stormwater utilities covering about 12 percent of the Michigan population, which is much lower than neighboring states. A community could use other revenue streams, such as general tax revenues, to repay loans. If a community uses tax revenues, however, their GI projects then compete with other priority projects like schools, public safety, and transport. Therefore, principal forgiveness will be a key way to help promote the implementation of GI.
Lower interest rates
States can also incentivize GI through lower interest rates on SRF loans for GI projects. Some states already give interest rate discounts to GI projects, like Indiana, while others, like Wisconsin, provide up to zero percent interest for innovative non-point source pollution projects. Providing interest rate discounts can also help promote GI in communities that meet affordability criteria and communities that have not previously implemented any GI projects.
Improve technical assistance and public engagement
Lastly, states can take steps to share GI best practices and success stories, so communities can become more familiar with these solutions. Many communities may be unfamiliar with GI and thus less inclined to pursue solutions or to seek CWSRF awards to finance these projects.
Community outreach and engagement is key to overcoming unfamiliarity, hesitation, and uncertainty when implementing GI. It is important that state agencies engage with communities about the benefits and types of projects available. State CWSRF agencies can do so by holding accessible informational webinars and conducting targeted and proactive outreach to residents and community-based organizations to ensure that they are familiar with how GI projects are developed and how these projects can be financed through the CWSRF program. This will enable communities to see and understand how GI projects are financially feasible, help further environmental goals, and provide valuable co-benefits for communities.
Conclusion
Some states have also developed more innovative measures to direct CWSRF assistance to GI. These include the pilot program within Wisconsin’s CWSRF that enables SRF funds to support water quality trading to reduce phosphorus and other nutrients from agricultural run-off, Ohio’s CWSRF sponsorship program that gives wastewater treatment plant projects interest rate discounts if they are paired with stream and wetland restoration projects, and Maryland’s provision of SRF assistance in the form of a loan guarantee to allow a forest nonprofit organization to leverage CWSRF funds in the private market. Such innovations are worthy of further study and replication in other states. This blog highlights, however, that as a first step, state SRF administrators can simply adapt familiar policy tools already utilized in their CWSRF programs to direct more CWSRF assistance to GI.
For any questions or comments about this blog, please email stephanie@policyinnovation.org