The Green New Deal for States: Part III

In their “2017 Report Card for America’s Infrastructure”, the American Society of Civil Engineers (ASCE) rated the state of our nation’s infrastructure – including railways, roads, water systems – a D+ meaning poor or at risk. With climate change set to alter and worsen natural hazards, the need for bold improvement and development of our infrastructure becomes more important each day. In a report, “Unlocking Private Capital to Finance Sustainable Infrastructure”, the Environmental Defense Fund identified an estimated $1.4 trillion gap in funding required to meet our nation’s infrastructure needs.

Every four years, the American Society of Civil Engineers’ Report Card for America’s Infrastructure depicts the condition and performance of American infrastructure.

So how do states undertake such critical development projects with continued funding shortfalls?

We’ll take a look at the unique funding and planning policies that have helped states tackle perhaps the most critical piece of the GND goals – promoting sustainable infrastructure to meet the economic and environmental challenges of our time.

Financing Projects:

State and local governments have turned to public-private partnership (P3) models to help fund and develop infrastructure projects. P3s take multiple forms. However, all primarily function by using public funds to reduce investment risk in infrastructure projects, resulting in more investment from the private sector to fully finance critical work. Here we’ll take a look at two unique P3 models in the states.

Green Banks

A green bank is a semi-public entity developed by states and localities to overcome the investment hurdles required in financing new infrastructure and clean energy deployment. Green banks are funded with public dollars to facilitate private investment into low carbon, climate resilient infrastructure and other green sectors such as water and waste management. Five states have already established a green bank – Connecticut, California, Hawaii, New York, and Rhode Island. Currently, Nevada, Colorado, and Washington, D.C. are working on developing their own.

Created in 2011, the Connecticut Green Bank (SB 1243) was the first of its kind in the nation. It was an evolution from earlier state programs such as the Clean Energy Fund and the Clean Energy Finance and Investment Authority. Since its creation, the bank has mobilized $1.5 billion in investment for innovation and deployment of renewable energy technologies in the residential, commercial, and industrial sectors of the state’s economy. To date, the bank brings in $6 of private funding for every $1 it’s invested.

The Rhode Island Infrastructure Bank (RIIB) is similar in model to the Connecticut Green Bank but broader in the scope of what is funds. In addition to renewable energy technologies, the RIIB finances infrastructure-based projects including drinking water and wastewater systems, roads and bridges, energy efficiency, and brownfield remediation. Also like their Connecticut neighbors, the Rhode Island legislature leveraged the existence of an earlier state entity, the Clean Water Finance Agency, to build the infrastructure bank. Rhode Island passed it’s enabling legislation in 2015. To date, the bank has financed over $2 billion in projects that have supported 55,000 jobs.

Since state borders are porous, a regional take on financing projects that mutually benefit neighboring states will be a key consideration in responding to climate change, particularly when it comes to transportation. This year, legislators in New Connecticut introduced SB 71, a study bill to assess the feasibility of establishing a Northeast Regional Infrastructure Bank with the transportation departments of other northeastern states.

Environmental Impact Bonds

States and municipalities regularly use bonds to fund capital improvement projects, especially transportation and water infrastructure. Recently, lawmakers have looked at new ways of using these limited funds to relieve some of the management and financial burden on state entities. One new pathway that has been gaining steam is the Environmental Impact Bond (EIB).

An EIB uses a pay-for-success model, where the risk of implementing a new project is taken away from government and placed on a private investor that carries out the work. This model leaves more room for innovation while still allowing governments to set the goals for outcomes. If the goals of the project are met, the government pays for it as it naturally would, and if they’re not, then the investor takes a loss.

The District of Columbia was the first to utilize an EIB in its effort to better manage stormwater runoff and improve the District’s water quality. In 2016, DC sold a $25-million, tax-exempt EIB to the Goldman Sachs Urban Investment Group and the Calvert Foundation. The money from that is being used to initiate the city’s DC Clean Rivers Project, a $2.6-billion program to control stormwater runoff through a large scale deployment of green infrastructure. Atlanta and Baltimore are leading similar projects. Atlanta has deployed the first ever publicly offered EIB that allows local residents to invest in improving the city’s sewer systems.

The EIB model is applicable to bonds at the state level as well, so long as the right enabling legislation is in place. This year Connecticut introduced S.B.235, a bill that would enable the CT Green Bank to issue environmental impact bonds to fund the municipal costs of developing separate stormwater systems. Additionally, the Environmental Defense Fund is working with Quantified Ventures, the firm that led the development of the DC EIB, on a proposal to help Louisiana restore its coastal wetlands. This would prevent further land loss and meet the state’s Coastal Master Plan. In fact, this is an innovative model other coastal states can utilize in not only restoring wetlands but in preparing for the impacts of climate change, such as rising sea levels and storm surges.  

Resilience:

As states modernize our infrastructure to be more sustainable, they must also consider what future climate conditions it will have to withstand in the 21st century. Integrating a resiliency component in project planning, financing, and development is becoming a regular practice in some states and localities.

In 2017, California enacted AB 733, enabling cities and counties to establish infrastructure financing districts to fund “projects that enable communities to adapt to the impacts of climate change.” This authority allows financing for new programs and for the design and construction of more resilient infrastructure, natural systems projects, and projects for reducing flood risks. The legislation reflects established policy (AB 2800 (2016)) on infrastructure planning, which requires the planning and design of state infrastructure projects to consider future climate change impacts.

In 2010, New York passed the Smart Growth Public Infrastructure Policy Act, which directs state entities to asses their infrastructure related programs and investments to ensure they are funding sustainable projects. The bill also outlined ten smart growth goals that each agency should meet when funding projects.

Takeaways:

Funding is a critical piece in meeting the challenge of creating sustainable and resilient infrastructure for the 21st century. States have shown that this can be done with creative tools for unlocking private sector investment for localized projects, either through quasi-public entities like green banks or through direct contracts like EIBs. Importantly, states have shown that infrastructure development can be done in a thoughtful manner, considering present impacts on the environment and future resilience to a changing environment. The examples presented above and detailed in the resources make one thing clear – the tools to meet our infrastructure challenges are already available.