Turning Pay for Success Theory into Practice: Imagining the Future in Milwaukee

In our last blog, we explained how a Pay for Success contracting approach could address two persistent challenges to Green Stormwater Infrastructure (GSI); implementation costs and maintenance, both of which hinder the ability of GSI to scale up. We also hinted at how this approach could work in disinvested neighborhoods, bringing the co-benefits of GSI to those neighborhoods that could most use them.

In this blog we look at a specific and ubiquitous land use in Milwaukee, Wisconsin, the oversized and underutilized shopping center. These developments exist in all neighborhoods, but here we look at how this particular approach could spur GSI retrofits in a particular neighborhood that would otherwise not see such investments. 

Imagine a 21-acre strip mall in Milwaukee, a 60-year-old development with vast, underused asphalt, stretching lot line to lot line. Located in a Climate and Economic Justice Screening Tool-designated area, the lot contributes to localized flooding, hundreds of basement sewage backups, and high levels of chloride in nearby Lincoln Creek, a tributary of the Milwaukee River. The parking lot is rarely more than 5% full and is an eyesore for the community. Business owners have no financial incentive to retrofit the site, given the low likelihood of growth or redevelopment. Government agencies, lacking authority over the private property, cannot retrofit it directly.

Under typical project selection processes, either through the grant solicitation of projects or through government agency-identified projects, this site would not likely be proposed for GSI. A hypothetical government agency would typically look to implement retrofits on the nearby roadway at a much higher cost per gallon simply because it would be easier administratively. In short, under business as usual, the site, which has had negative community and environmental impacts for the past 60 years, would remain unchanged.

With a Pay for Success model prioritizing CEJEST-defined communities, this parcel could become a prime candidate for a retrofit. A savvy contractor could collaborate with the owner of the property to remove 50% of the pavement, amend the existing soil, and plant a visually appealing, low-maintenance landscape with shade trees to reduce extreme heat. The roof and surface runoff could be directed into forebays that feed into the newly planted area. The property owner would only need to allow access to the property and receive a payment in return.

To build community support, the contractor might partner with a local stream group or community organization to gather input on preferred plant selections. To further encourage the property owner’s participation, the organization could offer to oversee a watering operation during the growing season—either as volunteers or with compensation. With minimal site constraints, and significant environmental benefits as denominated in impervious area treated or gallons of stormwater captured, this project could deliver strong returns for the contractor, provide financial benefits for the owner, and improve the neighborhood’s aesthetics and resilience.

What’s wrong with the way we’re implementing GSI projects now?

While many impressive GSI projects have been installed using grants or standard contracts, those standard approaches often lead to inefficiencies. In some cases—like schoolyard projects with unique design needs—standard contracts make sense. However, many projects encounter unexpected permitting challenges or coordination issues that result in costly change orders and timeline delays. 

Over time, the inflated costs and delays create a mindset that it is best to simply pay more to get the job done. Additionally, contractors often build contingency costs of 10-25% into their bids to account for anticipated coordination headaches. These expenses add up, making projects more expensive than necessary. A Pay for Success model helps address these issues by tying payment directly to the delivery of agreed-upon stormwater management outcomes at a fixed price, reducing unnecessary overhead and cost inflation.

Does Pay for Success encourage contractors to cut corners?

It’s understandable to worry that less government oversight might lead contractors to cut corners. However, there’s a key difference between neglecting essential steps and finding smart efficiencies that maintain project durability. 

Imagine hiring a local teenager to weed your garden with a contract stipulating that the garden should be 95% weed-free for 80% of the growing season. One teenager might slack off, ignoring a hidden corner where weeds go to seed, causing more problems later. He might even ask for more money because the summer was particularly hot. 

Another, more resourceful teen might use a fabric weed barrier or a gas flame torch to tackle weeds more efficiently, delivering the same or better results with less effort. This type of approach is exactly what Pay for Success incentivizes: innovation and efficiency rather than neglect. Contractors get paid only when their work achieves outcomes, encouraging smarter approaches without compromising long-term performance. 

Sounds good, where do I sign up?

This blog highlights how the benefits of a Pay for Success contracting model are not just theoretical. Real neighborhoods and real people are not realizing the multiple benefits of GSI. Many of these sites are doomed to linger in a sort of paved purgatory under our current model of implementation. This one example has at least 100 doppelgangers in Milwaukee alone. Considering the scale of underutilized impervious surface on private lands in the United States, the potential to improve our nation’s waterbodies and improve resilience of communities is staggering. But we must utilize smart approaches to reach this goal.

We don’t expect all the potential benefits of Pay for Success contracts to materialize immediately. The first contract will involve setting new rules and expectations, including reducing certain regulatory and insurance burdens that funders are accustomed to enforcing. It’s important to remember that funders still retain control through the outcomes-based payment schedule. Private sector firms may need reassurance that the contract is designed to streamline their work, not complicate it. It might take a couple contracts before contractors fully trust the model and recognize its potential for effectiveness, efficiency, and profitability. By adopting these new contracting approaches, we can collectively address systemic barriers to scaling GSI. Success will come from the collaborative efforts of funders and implementers, paving the way for a more sustainable and resilient GSI future.