Action Alert: Virginia’s Pay for Success Pilot Program

agriculturemarkets
Written By Harry Huntley

TL;DR: Virginia is considering a budget amendment that establishes a $20M Pay for Success nutrient reduction program. We’re encouraging allies to write a letter in support of this effort. This blog includes points that can be included in supporters’ letters. Appropriate legislators’ contact information and other relevant details can be found below. 

Please email Harry Huntley or Grace Edinger for further information. 

The Chesapeake Bay watershed is leading the world in paying for guaranteed water quality outcomes. After successful program establishment in Maryland and Pennsylvania, Virginia now has the chance to create its own Pay for Success nitrogen reduction program.

We strongly support budget amendment item 365 #3h to establish a $20 million Pay-for-Outcomes Pilot Program in Virginia. And we urge others who understand the benefit of these programs to share their support with the relevant legislators.

What is Pay for Success?

Paying for outcomes, also known as “pay-for-performance” and “Pay for Success” is a next-generation approach to procurement that defines desired outcomes (in this case, nitrogen reductions) and invites the private sector to provide them in advance of most payment. This pilot program would allow a pound of nitrogen prevented from entering the Chesapeake Bay to be paid for just like governments pay for a ream of paper or any other good–saving money through targeting, competition, streamlining, and innovation.

Context

While the concept of pay for success has been around for decades, the past few years have seen significantly more outcomes-based programs come to fruition in the Bay region. Maryland is now annually issuing a $20 million solicitation called the Clean Water Commerce Program, and Pennsylvania has a similar $22.5 million program to buy nutrient and sediment reduction outcomes: the Clean Water Procurement Program. Most recently, $25 million was announced as available by the Susquehanna River Basin Commission for outcomes across Maryland, Pennsylvania, and New York. In addition, Maryland counties like Prince George’s and Anne Arundel have used Pay for Success contracts for other environmental and public health outcomes.

Numerous reasons to adopt a Pay for Success program in the Virginia portion of the Bay watershed are described in the recent Comprehensive Evaluation of Systemic Response report:

“Achieving and sustaining substantial nonpoint pollutant reductions will likely require development and adoption of new implementation programs and tools.”

“Pay-for-performance or pay-for-success programs offer opportunities to reward treatment of high-loss areas or operations and to encourage adoption of highly effective practices”

But it’s not just the Chesapeake Bay watershed. Pay for Success programs are operational in North Carolina, Florida, California, and elsewhere. And the federal government is increasingly looking to use this as a tool itself and to incentivize states to do so. The USDA Regional Conservation Partnership Program matched part of Maryland’s first Pay for Success program, and the Social Impact Partnerships to Pay for Results Act can double cost savings state and local governments generate from switching to Pay for Success.

Cost effectiveness

One of the most compelling reasons to use Pay for Success contracts is that they tend to be cheaper–sometimes dramatically so. EPIC’s informal analysis of four Pay for Success programs found 63% cost reductions over a five-year period when existing programs switched to using Pay for Success solicitations. These cost savings come from targeting projects to where they’re most effective, creating a single unit ($/lb of nitrogen) that can be compared against different proposals (creating an efficient market), reducing paperwork and other administrative burdens, and allowing delivery partners to create new, better ways of reaching the goals.


Risk shifts
A huge benefit that Virginia will realize if this pilot is implemented is a responsible risk shift towards the private sector. Under Pay for Success, contractors risk not getting paid unless they deliver the desired outcomes. For them to take this risk, they need to have flexibility in how those outcomes are achieved and deserve reduced administrative burden. This frees up agency capacity constraints, allowing the government to focus on big-picture progress and results rather than day-to-day management. Put simply, Pay for Success eliminates the risk of contractors not delivering results.

This is a win-win-win scenario. It’s a win for the government, who is alleviating capacity constraints by reducing paperwork and direct project oversight time, a win for the contractors who gain flexibility in how they complete projects and reduce administrative costs, and a win for the environment because there is a strong incentive to achieve the desired results. 

Benefit to farmers

Meeting Chesapeake Bay goals is not free, and voluntary conservation funds like this will be crucial to achieving agriculture’s allocated nitrogen load reductions. In our experience, farmers love Pay for Success, because farmers hate paperwork. Focusing on outcomes, instead of process, allows third-party aggregators to take care of all the details, leaving farmers to cash the check and spend their time producing food. In addition, Pay for Success programs can actually serve as a source of income for farmers who provide the most cost-effective ecosystem services. Numerous thoughtful farm groups have encouraged this concept, such as National Farmers Union whose official policies include:

“We support…a payment system that moves toward an outcome-based approach where real changes and environmental benefits are tracked and rewarded”.

How you can help:

We want you to send a letter of your support addressed to the following Virginia legislators who serve on the respective relevant sub-committees:

Senate Finance and Appropriations Sub-Committee: Economic Development and Natural Resources

House Appropriations Sub-Committee: Commerce Agriculture & Natural Resources


Please feel free to use any of the text in this blog post to bolster your points. A copy of EPIC’s letter of support can be sent to you upon request. 

Harry Huntley
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