Addressing GSI Challenges and Opening Up Opportunities with a Pay for Success Model
By Pete Hill and Grace Edinger
Green Stormwater Infrastructure (GSI) is gaining acceptance, especially in larger cities that are using it to partially manage combined sewer overflows. GSI installations retain stormwater and often incorporate vegetation into the design. Public installations in highly visible locations have increased the public’s familiarity with GSI. While still not the norm, depressed vegetated areas along roadways and green roofs on buildings no longer seem strange. This progress stems from early Low Impact Development practitioners, strong EPA support, and significant coordination efforts on the part of local government staff.
Despite this progress, challenges that hinder GSI from scaling up remain. Scaling is critical to maximize water quality benefits, buffer impacts of extreme urban heat, reduce flooding, and provide aesthetic and psychological benefits that natural-based stormwater features can provide. While GSI in some neighborhoods has delivered on this potential, most cities have yet to realize these benefits—especially in neighborhoods that could most benefit from these co-benefits but face economic barriers.
This blog explores how a Pay for Success (PfS) contracting model can help overcome these barriers to scaling up GSI. By sharing risk, increasing flexibility, and incentivizing better design and implementation, the Pay for Success model reduces administrative, coordination, and insurance burdens, therefore streamlining operations. The goal is to scale up GSI more efficiently for all participants, with accelerated implementation and lowered costs enabling this expansion.
What’s holding things up?
GSI challenges often center on familiar issues, with surveys highlighting persistent concerns like long-term maintenance and rising costs. Other locally driven issues, such as permitting delays, utility conflicts, outdated codes, and inconsistent leadership, also pose challenges. Yet for the two universally felt challenges, maintenance fears and cost increases, a Pay for Success contracting model can help.
Maintenance: Advances like streamlined plant selections in bioretention, design tweaks, and smart technologies can ease maintenance demands. Still, valid concerns about long-term burdens persist, especially for municipalities new to these responsibilities. Some cities, like Washington, DC and Philadelphia, PA have invested in maintenance programs or partnered with workforce development programs. However, funding gaps leave others searching for more cost-effective solutions.
Costs: Scaling GSI requires lowering costs, but material and labor costs continue to climb - often outpacing inflation. New procurement approaches can put downward pressure on both installation costs and long-term maintenance costs.
Missed opportunities
GSI projects often go unbuilt due to challenges that a Pay for Success approach could help overcome, particularly in under-resourced communities that stand to benefit most from GSI’s co-benefits.
Installations on private property: The 2022 State of Public Sector Green Stormwater Infrastructure Report notes that 62% of managed stormwater gallons are on public property. Considering that only 10-30% of urban land is publicly owned, the biggest opportunities for GSI are on private property. Municipalities may find retrofitting private property more cost effective, yet to be able to do so, an efficient contracting arrangement that limits legal risks to the government is needed.
Installations in under-resourced communities: New developments integrate GSI more easily by spreading costs across broader projects, achieving economies of scale. Under-resourced communities, however, generally lack new development. They are often saddled with aging properties like strip malls populated by low-margin businesses with little incentive to undertake GSI projects. Engaging these property owners remains a challenge for local governments.
Pay for Success creates the right incentives
Pay for Success, or pay-for-performance, contracting can address key GSI challenges. A funder solicits projects based on specific, measurable outcomes like gallons of stormwater captured or acres of impervious area managed, and practices must capture currently untreated stormwater. This outcomes-based approach ensures fair project comparisons and creates strong incentives for optimization in both design and construction.
Erik Michelson, Deputy Director of Anne Arundel County’s (MD) Bureau of Watershed Protection explains: “When we initially put our pay-for-performance program into place, the goal was that it would create a more cost-effective, quicker way to get projects done in an environment where we had very aggressive regulatory goals and rampant cost inflation. What we've found in the decade since exceeded even our most optimistic expectations, with compliance costs well under 50% of conventional procurement approaches, and highly accelerated implementation timelines. It's a critical tool in the restoration toolbox."
Pay for Success
Flexible payment schedules and strategic filters
Pay for Success contracts often extend payment schedules over 2-5 years, sometimes up to 10. Payments are tied to specified performance metrics, ensuring the funder pays only for results, rather than, for example, time and materials in a standard reimbursement model. This deferred payment approach gives funders confidence by allowing payments to be withheld if outcomes aren’t achieved. Valuable insights on optimizing these payment schedules can be found in this report.
Funders typically set available funding and desired outcomes (e.g., $1.5M for 1M gallons of stormwater treated. Importantly, the funder can set filters to guide project selection, such as:
Targeted watersheds: Prioritizing watersheds with water quality concerns (e.g., those that are Total Maximum Daily Load impaired)
Under-resourced neighborhoods: Prioritizing funds to communities that might benefit the most from GSI projects
Property ownership: Prioritizing private or public property
Overly restrictive filters can increase costs, so a funder should consider what stipulations are essential to their goals. For instance, requiring that 50% of any GSI proposal constitute green roofs would raise costs. On the other hand, requiring that shade trees be planted in bioretention projects where possible would likely not. In some cases, projects in under-resourced areas might yield the most cost-effective projects (see following blog).
Why would a contractor or firm want to engage on Pay for Success terms?
Contractors benefit from reduced or eliminated bonding requirements, less coordination with government staff, streamlined permits, and the flexibility to select cost-effective, profitable projects. The funders can reduce these requirements because the extended payment schedule builds accountability into the contract, rendering many of these government mandated “checks” unnecessary. Contractors can also submit proposals for full project delivery, achieving economies of scale often missing in smaller, grant-funded projects. Crucially, contractors only propose projects they’re confident they can complete—unlike traditional government agency-selected projects.
This model lets contractors focus on efficient project delivery while minimizing unnecessary costs. When structured well, it leverages contractors’ expertise and relationships. While extended payment schedules may not suit all contractors, those with consistent work pipelines may find the predictable, long-term payments help stabilize their resilience to fluctuating business cycles.
Why would a landowner participate?
Private landowners often join Pay for Success programs for financial benefits, such as easement payments and potential reductions in stormwater utility fees. The bidder may compensate the landowner for potential short term inconvenience associated with construction. The landowner might support the goals of a project but could not independently fund the work. Finally, done well, GSI should enhance the aesthetic appeal of the property and, potentially, the property value as well.
Benefits for the funding agency
Pay for Success contracts shift project risks to contractors, accelerate implementation, and lower costs. Payments are tied to performance metrics, discouraging delays. Municipal staff focus on certifying results rather than micromanaging projects, fostering a partnership dynamic versus the government acting as project manager.
Why Pay for Success works for GSI
GSI fits well with Pay for Success by encouraging contractors to develop efficient maintenance solutions. Contractors might partner with property owners to integrate maintenance into existing services or collaborate with nonprofits for volunteer support, since one strength of many nonprofits is the ability to inspire and organize volunteer efforts. Many routine maintenance tasks could be included as part of volunteer clean-up efforts. Following the close out of the contract period (5-10 years), there is an existing maintenance strategy that the funding agency could take over and continue to pay, or give the nonprofit time to secure long-term funding through grants or other means.
Incentivizing innovation
Pay for Success also rewards cost-saving innovations, like the inclusion of forebays for bioretention cells or automated clog detection in permeable pavers, both of which reduce maintenance. Although consultants do suggest design improvements, the incentives to do so are not as strong and direct. The Pay for Success model drives better designs and long-term sustainability by making the consultant an invested partner in this most important objective.
Scaling GSI efficiently
The Pay for Success model encourages a range of partners to identify arrangements that work for them. By engaging private property owners, the model expands potential project sites and engages the community. Government agencies can better direct funds to areas that will yield both the greatest water quality benefits and desired co-benefits for residents.
Evidence of success
Two Maryland counties have been using this approach to pay for GSI projects, one for 10 years. That county has reduced its costs by 60-80% per impervious acre treated. The other county has faced hurdles in getting its Pay for Success program off the ground. Depending on how the Request For Proposals are designed, these hurdles are avoidable. For more, read our blog on common Pay for Success contracting pitfalls and how to avoid them). In other environmental sectors, like wetland restoration and dam removal, Pay for Success has resulted in roughly 60% cost reductions over 5 years.
The potential of the Pay for Success contracting model is evident. Stay tuned for our next blog that will show how this approach could spur GSI retrofits in a specific under-resourced Milwaukee neighborhood, with the potential to benefit residents and local waterways at the same time.