Stormwater Incentive Programs: Keys for Success
Stormwater incentive programs offered by municipal and county governments have been around for over fifteen years. These programs have been created to increase the amount of green stormwater infrastructure (GSI) on private property. The structure of these programs varies, but in general they seek to stretch government funds by paying only a portion of the implementation costs. Additionally, they seek to avoid liability concerns that are inherent in any instance of a unit of government working on private property. In a general sense, incentive programs encourage private landowners to have a stake in the game in a community’s broader efforts to control stormwater. This financial stake is also critical in ensuring these installations are maintained. Overall, incentive programs foster a situation where a greater number of people are involved in protecting and restoring their local waterbodies.
These programs vary in their approach, the level of involvement on the government’s part, and the degree of flexibility they offer the homeowner. Importantly, they also vary in the level of uptake by the public. This blog describes several different types of incentive programs and some key considerations local government entities should consider when considering various approaches.
The need
As mentioned above, if properly set up, these programs can begin to address the immense contribution of stormwater from private property. Publicly owned lands typically make up only 10-30% of the impervious area in any city. Any comprehensive effort to capture stormwater must find a way to address contributions from privately owned lands. Having said this, it’s clear that public funds alone won’t be enough to pay for all of this work. Private landowners need to chip in. The success of so many incentive programs indicates that many private landowners are willing to do just that. But differences in the structure of these programs can impact participation rates.
Program basics
It’s important to recognize that most programs generally don’t require private landowners to participate. As such, this is purely a voluntary arrangement on the part of the private landowner. Additionally, the level of management required by these programs can vary significantly. Lastly, certain safeguards are necessary to ensure that projects endure and that people don’t defraud these programs, but the design of these programs can go a long way to limit these challenges.
Option 1
Perhaps the simplest version of an incentive program is to offer a set amount of money for a specific unit. This amount could be expressed as a dollar per gallon. Gallons are defined as the maximum amount of stormwater the practice is designed to retain. Another typical unit is dollars per square foot of practice (eg: $10/ft2 for permeable pavers) or even dollars per square foot of impervious surface captured. Montgomery County’s long running RainScapes program uses this model, with square feet of the subsidized project as the unit.
The benefit of this approach is that it sets a hard limit on the amount a funder will pay per selected unit. Many government agencies prefer this approach because any cost increases are the responsibility of the private property owner. It is also very easy to determine the funder’s portion, as it is set in advance. When the funding level is attractive, private contractors have used these programs to market their particular work. For example, a paving contractor may begin to expand their marketing of permeable pavers or porous concrete given this subsidy. This expands the reach of the program significantly. In some cases, private landowners may be more receptive to outreach directly from contractors. Importantly, these programs are generally relatively easy for local governments to manage. If they wish, the governmental entity (funder) can require an inspection prior to paying the rebate, although the homeowner, having invested their own money, has ample incentive to ensure that the installation is working properly. Lastly, this approach allows private landowners to customize the project to their particular situation. This is important as GSI can and often should be incorporated in many different ways. Flexibility makes these practices more appealing to a greater number of people.
One limitation of this approach is the funder’s lack of knowledge of the full costs of a particular subsidized GSI practice, as the contract between the homeowner and the contractor is not usually revealed to the funder. It is hard to know what percentage of the project the government funder is subsidizing and if prices are being unnecessarily inflated. As such, it is harder for the funder to fully understand how the GSI market is evolving, what private landowners are willing to invest, and more broadly, what the reach and full impact of their program is. This lack of knowledge can have the effect of limiting changes that have the potential to improve the program going forward. Importantly, oftentimes the rebate amount may not be enough to bring lower-income homeowners or low-margin businesses into the program.
Option 2
Another approach is to offer a set percentage subsidy for any qualifying project, with any approved project qualifying for a cost-share at a set percentage (eg: 20-80%). A good example of this type of program is the city of Kirkland, WA’s Yard Smart Rain Rewards program. This program covers 75% of the cost of contractor-installed rain gardens on single family homes (up to $5,000) as well as multi-family homes and businesses (up to $10,000).
The benefit of this approach is that it doesn’t set a particular size limit and in some ways incentivizes larger projects, as the private landowner stands to receive a greater overall amount. Funders have a good idea of the total costs of projects and as such can prioritize certain practices going forward. The primary benefit of this approach is that it allows flexibility in the design of the project. The funder will want to set minimum criteria for each project (eg: minimum storage volume, minimum thickness of storage layers for paver projects, etc.), but as long as those criteria are met, the designer and homeowner are free to design the project as they see fit. This flexibility can increase participation, as private landowners don’t feel like they are limited in their options.
The primary drawbacks of this approach relate to verifying the costs of projects. Some ways to address this challenge are to require multiple bids for every project. There is also some potential for fraud in this arrangement, as contractors could submit false invoices or lump unrelated costs into the subsidized GSI project cost. Yet this risk can be mitigated if the program includes a process for inspection.
Option 3
A third approach is to require a set “co-pay” for certain GSI practices that are implemented by approved contractors or nonprofit partners. In this situation, a homeowner might pay $75 to have a shade tree installed. The true costs might be $300, but the homeowner is not aware of the full costs and is only responsible for their co-pay. The funder will make arrangements with partners to have the work installed to the funder’s satisfaction.
The benefits of this approach are, depending upon the amount of co-pay, a high level of accessibility for private property owners. The participants generally understand that they are getting a “good deal,” even if the actual costs are not known to them. It is the simplest arrangement for the private property owner, which can lead to higher levels of participation. The RiverSmart Homes program in Washington, DC uses this approach and has realized extremely high levels of participation due to it. (DC’s RiverSmart Homes has installed over 25,000 residential green infrastructure practices on District homes since 2008.) To make this approach available to low-income neighborhoods, it is fairly easy to offer deductions or waivers to the co-pay if an indicator of household income (such as participation in LIHEAP or SNAP) is available.
One challenge with this approach is it requires a much higher level of management and coordination from the funder. To address this challenge, the funder can enter partnerships with nonprofit partners to help manage the program, and these partnerships can strengthen the overall reach and effectiveness of a program. However, this arrangement does require coordination at many steps in the process. For example, DC’s program has several full-time staff dedicated to conducting stormwater audits and multiple nonprofit partners that manage the installations.
Another challenge of the co-pay approach is the need to define the confines of a project. This is relatively straightforward for practices like shade trees and rain barrels. One can require trees of a minimum caliper or rain barrels of a certain volume. But for practices such as rain gardens or native landscaping, the funder must set a specific size for the practice. If they don’t, contractors will not be able to provide predictable cost estimates, and there will be questions of overall fairness of the program, as residents would be receiving different sized projects. This is a problem, because in many cases this approach does not necessarily maximize the stormwater reduction potential at any given site. If the program offers a 50 square foot rain garden for a $100 co-pay, that will be what is installed, even if the site could accommodate a 150 square foot rain garden. Given the higher management costs mentioned above, this shortcoming is an inherent inefficiency in this approach.
Cash flow considerations
An important consideration in developing an incentive program is understanding the period of payment and any requirement of private property owners to front costs. In general, homeowners and business owners are very reluctant to front costs for projects. Some approaches, such as the co-pay option, eliminate this barrier. Others can be managed by ensuring quick pay out times. For example, a contractor working with a homeowner under Options 1 or 2, might be willing to float repayment from the homeowner for 30 days if the contractor were certain that the funder could disperse funds in that period of time. In some cases, local governments may want to partner with nonprofits to serve this role if their procurement offices cannot process payments this quickly. In any case, it is important to understand the exact repayment timeline before settling upon an approach.
Take-home points for bringing GSI to peoples’ homes and businesses
With the benefits and challenges of these approaches now outlined, it’s important to reiterate the broader positives of these programs:
These programs engage private property owners in the management of stormwater, something that requires contributions from everyone.
They stretch the impact of government dollars by bringing private funds to the table.
They create a strong incentive for long-term maintenance of these projects, both because homeowners have a financial stake in the game, but also because they were part of the decision process of installing them on their property.
These reasons make incentive programs an important tool for any municipality working to manage and control stormwater.