Atlanta may be among world’s first cities to use new financing tool for green infrastructure
By David Pendered
Atlanta hopes to be included in the second round of cities in the world to pilot an innovative financial tool underwritten by the Rockefeller Foundation. The money would help pay to install green infrastructure to improve the Westside’s polluted Proctor Creek watershed.
The Atlanta City Council is slated to vote Monday to authorize the city to submit an application to the Rockefeller program.
Rockefeller intends to fund a total of $342,000 to underwrite a new funding mechanism. The money would underwrite bonds that would be shared by two cities. Atlanta wants to be one of those cities.
This mechanism is just a year old and is named an environmental impact bond.
EIBs are part of the emerging green-bond industry that doubled to $95 billion in 2016, according to a report by bloomberg.com. Apple, Inc. sold $1.5 billion in green bonds in 2016 to shift to an all-renewable energy platform, according to the Bloomberg report.
Seeing the potential of EIBs, the Rockefeller Foundation and its partners announced plans this past summer to underwrite a total of $342,000 of the bonds issued through a partnership with Neighborly and Quantified Ventures. More than a dozen cities have expressed interest in the bonds, according to a report on missioninvestors.org.
The innovative element in EIBs is the notion that it reduces the financial risk to the government of installing green infrastructure. Incidentally, the most widely recognized such project in Atlanta is the body of water in the Fourth Ward Park that contains stormwater runoff to address historic flooding and sewer overflows in the neighborhood.
With projects funded by EIBs, investors shoulder the risk. If a project exceeds expectation, they are paid a bonus. If a project doesn’t meet expectation, investors pay the government a fee the government uses to design a new project.
The legislation pending before the city council provides scant detail about the funding mechanism. It does portray the environmental woes in the Proctor Creek watershed, though not to the extent of a report by the U.S. Environmental Protection Agency.
From the legislation:
“WHEREAS, Proctor Creek is listed as one of nineteen streams on the Urban Waters Federal Partnership to improve urban waterways;
- “WHEREAS, the City has identified over $100M in investments needed within the Proctor Creek Watershed to address flooding, spills and improve water quality;
- “WHEREAS, the Environmental Impact Bonds (“EIB”) Challenge provides an opportunity to facilitate innovative financin g for green infrastructure and resilience projects while lowering cost risk to cities; and
- “WHEREAS, the Department of Watershed Management (“Department”) and the Office of Resilience desire to participate in the EIB Challenge by submitting an application to be considered for an Environmental Impact Bond to enable the Department to leverage funds for green infrastructure projects in the Proctor Creek Watershed.”
Here’s language from the EPA’s report in 2013, when the government added the watershed to its list of 19 troubled urban waterways that became eligible for help from a broad array of federal entities. Proctor Creek is:
- “[P]lagued with pollution erosion and high bacteria levels from regular stormwater flooding and sewage overflows….
- “[T]he poor ecological health of this urban creek is attributed to illegal tire dumping/litter and combined and sanitary sewer overflows.”
Washington, D.C. participated in September 2016 in what has been described as the world’s first EIB. The city faced the same type of problem that Atlanta did with a crumbling sewer system that was designed to handle a mixture of raw sewage and runoff from storm events.
Washington issued a $25 million bond to fund green infrastructure in an effort to use green infrastructure to comply with a 2005 consent decree – again, a legal situation similar to one Atlanta had already faced.
Here’s how a partner in the bond issue described the risk scenario:
- “If GI [green infrastructure] underperforms, then investors make a ‘risk share’ payment back, providing DC Water with ‘free’ insurance. DC Water is then armed with the information they need to decide whether to continue with GI or go back to its grey infrastructure tunnel solution.
- “By identifying, quantifying, and transferring project risk, DC Water’s EIB created the incentives to deploy an innovative solution to an historical public policy problem by ‘de-risking’ the project.”