The DC Water and Sewer Authority (DC Water) recently issued the nation’s first Environmental Impact Bond (EIB) to fund the initial green infrastructure project in its DC Clean Rivers Project, a $2.6 billion program to control stormwater runoff and improve the District’s water quality, creating a healthier future for residents. This deal offers a new type of financial instrument to fund environmental capital projects.
The $25 million, tax-exempt EIB was sold in a private placement to the Goldman Sachs Urban Investment Group and Calvert Foundation. The proceeds of the bond will be used to construct green infrastructure practices designed to mimic natural processes to absorb and slow surges of stormwater during periods of heavy rainfall, reducing the incidence and volume of combined sewer overflows (CSOs) that pollute the District’s waterways. CSO reduction has become an increasingly urgent environmental challenge as a result of climate change, which has increased the frequency and severity of intense rainfall events.
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In its June 23, 2016 presentation to the Board, DC Water estimated the performance risk of the project at only 2.5% which, given the way that the deal was structured, is also the likelihood that DC Water would receive a risk-sharing payment from the investors.
Mentioned in other articles is that DC Water is paying a tax-exempt interest rate of 3.43% on the EIB through April 1, 2021. That is an exceptionally high rate, well over 2% above the market, and will require DC Water customers to pay an additional $2.5 million in interest costs for this financing.
Given the low level of performance risk and the additional expense, it is unclear why other utilities would want to emulate this financing.