SRFs for Stormwater Infrastructure: A New Funding Strategy from the Clean Water Partnership P3

dreamstime_xl_6545210This is not an article about why water and wastewater utilities should consider a public-private partnership (P3) to deliver urban stormwater infrastructure projects. As you surely know, a P3 appeals to many municipalities for their ability to leverage private sector expertise and efficiencies — and shoulder financial risk — for delivery of what would traditionally be a public sector project.

Instead, this is an article about how an alternative contracting approach with a private partner can deliver more financial value and long term sustainability for your stormwater program, by securing new sources of funding, such as State Revolving Funds. The Clean Water Partnership has applied to become the first-ever stormwater P3 to obtain financing through a private partner by leveraging State Revolving Funds (SRF). First, let’s examine some background on the Clean Water Partnership, and then we’ll discuss how accessing this funding stream is so significant both for the project and potentially for your work too.

Signed in March 2015, the Clean Water Partnership is a long term public-private partnership between Prince George’s County, Maryland, and Corvias Solutions, to retrofit up to 4,000 acres of impervious surfaces using green infrastructure and low-impact development practices in the first three years and operate and maintain over the remaining life of the 30 year partnership. The partnership will deliver compliant, sustainable stormwater infrastructure with accelerated timelines and reduced costs, in accordance with Maryland Department of the Environment (MDE) and U.S. EPA standards. Best of all, the partnership is centered around economic development goals for small business training, development and utilization of local, small and minority-owned businesses. The goal of the partnership is to not just meet federal and state regulatory clean water requirements, but to do so with tangible economic development benefits for the local community.

As part of the Clean Water Partnership agreement, the private partner is responsible for long-term maintenance. Corvias expects to work with the county for the next 30 years, so we’re constantly assessing how to provide the kind of customer service that strengthens a relationship over the decades. With that frame of mind, we uncovered the opportunity for the Partnership to apply for non-point source SRF funding from MDE for $48 million to fund half of the costs of the Clean Water Partnership program.

MDE’s Water Quality Revolving Loan Fund (also known as the State Revolving Fund) provides below-market rate loans to encourage capital investments in water projects, in accordance with the Federal Clean Water Act and the Federal Safe Drinking Water Act. Up until now, State Revolving Funds have primarily been used to fund construction of wastewater treatment plants. However, exploratory conversations with MDE revealed the historical barriers to utilizing State Revolving Funds for stormwater management.

State Revolving Funds offer a lower interest rates to regulated communities and even lower interest rates to Disadvantaged Communities equal to 25 percent of the market rate, for an all-in rate of 1.20 percent (compared to the standard rate of 50 percent of the Market Rate, 2.00 percent). This saves more than $9 million compared to typical municipal debt financing.

Since Prince George’s County meets the Disadvantaged Community criteria, what was already attractive became even more critical to pursue. Other appealing benefits to Prince George’s County for accessing the SRF debt through the Clean Water Partnership with Corvias Solutions included:

Relief from the monthly construction requisition burden without losing control or oversight of the financing but ensuring faster payment and processing to the local subcontractors.

Relief of responsibility for all loan compliance reporting requirements as they are handled through the partnership.
Since principal and interest payments are not paid until after the first year of construction, Fiscal Year 2017 appropriated budget funds were not required to apply for the financing.

  • Residual savings reinvested back into project scope and/or long term maintenance.
  • Create non-recourse debt to Prince George’s County’s balance sheet.
  • Best of all, if the funding is awarded, Prince George’s County will lead the nation in the first-ever stormwater P3 financing through a private partner using State Revolving Funds.

While many types of P3 structures exist, the private partner in the relationship has traditionally not sought out state financing for the public partner. However, Prince George’s County and Corvias could not let this opportunity slip by.

MDE’s financing program had not been invested in a significant amount of stormwater work previously due to the piecemealed nature of stormwater project delivery. Thus, the aggregated nature of the Clean Water Partnership’s delivery structure and its ability to execute larger scopes in a shorter period of time enabled the $48 million loan application — and the combination of cost of capital, flexible terms, and its unique characteristics — made it the optimal source of financing available to fund the large volume of stormwater projects.

If the application is successful for the Clean Water Partnership, the idea of public-private partnerships accessing alternative low cost funding for large scaled stormwater projects through State Revolving loans can be similarly appealing and more cost effective for other local governments around the country.

Thinking about working with a private partner to create greater delivery efficiencies for your stormwater program and access alternative low cost funding?

For the benefit of water and wastewater utilities in other regions, some of the things you can advance include:

Engage the private sector for a Request for Qualifications to propose how they would meet MS4/TMDL stormwater requirements in a more cost effective approach that includes long term maintenance, performance metrics, and alternative funding scenarios.

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