PreparedbytheUniversityofMarylandEnvironmentalFinanceCenterfortheChesapeakeBayProgramOfficeonbehalfoftheCommonwealthofVirginiaAugust2017efc.umd.edu

StrategiesforFinancingChesapeakeBayRestorationinVirginia

CHESAPEAKEBAYENVIRONMENTALFINANCESYMPOSIUM

RecommendationsandFinalReport

PreparedbytheEnvironmentalFinanceCenterattheUniversityofMarylandAugust2016

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ThisreportwaspreparedbytheEnvironmentalFinanceCenterattheUniversityofMarylandCollegePark,withfundingfromtheUSEPAChesapeakeBayProgramOffice.TheEFCprojectteamincludedKristelSheesleyandDanNees.EFCwouldliketothankthefollowingindividualsfortheirguidanceandfeedback:

- RussBaxter,VirginiaSecretaryofNaturalResources- WalterGills,VirginiaDepartmentofEnvironmentalQuality- ValerieThomson,VirginiaDepartmentofEnvironmentalQuality- DavidDowling,VirginiaDepartmentofConservationandRecreation

CoverphotoscourtesyoftheChesapeakeBayProgramOffice.

AbouttheEnvironmentalFinanceCenterTheEnvironmentalFinanceCenter(EFC)attheUniversityofMarylandispartofanetworkofuniversity-basedcentersacrossthecountrythatworkstoadvancefinancesolutionstolocalenvironmentalchallenges.Ourfocusisprotectingnaturalresourcesbystrengtheningthecapacityoflocaldecision-makerstoanalyzeenvironmentalproblems,developeffectivemethodsoffinancingenvironmentalefforts,andbuildconsensustocatalyzeaction.Ourgoalistoequipcommunitieswiththeknowledgeandtoolstheyneedtocreatemoresustainableenvironments,moreresilientsocieties,andmorerobusteconomies.

7480PreinkertDrive,PreinkertHall|CollegePark,MD20742|efc.umd.edu

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TableofContentsExecutiveSummary..........................................................................................................................................4

1.ProgresstowardBayrestorationgoals........................................................................................................6

2.TheCommonwealth’sfinancingchallengeandopportunity.......................................................................8

2.1.ScaleandcostofloadreductionsinVirginia’sagriculturesector.......................................................8

2.2.ScaleandcostofloadreductionsinVirginia’sstormwatersector......................................................9

2.3.Estimatedfundingneedsforagricultureandstormwatersectors....................................................11

2.4.CurrentBayrestorationfundinglevelsandsources..........................................................................11

2.4.1.WaterQualityImprovementFund..............................................................................................12

2.4.2.StormwaterLocalAssistanceFund.............................................................................................14

2.4.3.CleanWaterRevolvingLoanFund..............................................................................................16

2.5.ScaleandnatureoftheCommonwealth’sfinancingchallenge.........................................................16

3.StrategiesforsufficientlyandefficientlyfinancingBayrestoration..........................................................18

3.1.Accelerateprogrammaticandtechnologicalimprovementsandexpandincentivesfornutrientmanagementplanning...............................................................................................................................18

3.2.Increasestatefundingforwaterqualityrestoration.........................................................................20

3.2.1.Issuestatebondsforwaterrestoration......................................................................................21

3.2.1.Implementnewtax-and/orfee-basedfundingstructures........................................................21

3.3.Improveefficiencyandconsistencyofstatefinancing......................................................................23

3.3.1.Channelrestorationfundsthroughanindependentfinancingentity.......................................23

3.3.2.Advanceasystematicfocusonperformance.............................................................................24

3.3.3.AugmenttheimpactofVirginia’swaterqualitytradingprogram.............................................26

3.3.4.Pursuepublic-privatepartnerships.............................................................................................26

3.3.5.Investinkeymarketsandindustriesassociatedwiththerestorationeffort,andintegratewaterrestorationwitheconomicdevelopmentinitiatives..................................................................27

4.Conclusion...................................................................................................................................................28

Appendix.........................................................................................................................................................29

TablesandFiguresTable1.TotalMaximumDailyLoadannualallocations,2025targets(millionlbs/year)...............................6

Figure1.Virginia’spollutantloadsandgoals,bysector..................................................................................7

Table2.EstimatedfundingneedtomeettargetsinVA’sagricultureandstormwatersectors..................11

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Table3.FundinglevelsfrommajorstateandfederalsourcesfornonpointsourcepollutionreductioninVirginia,2013-2016($)........................................................................................................................11

Table4.WaterQualityImprovementFundhistoricfundinglevels,and%increase(decrease)eachyear.12

Table5.StormwaterLocalAssistanceFundhistoricfundinglevels..............................................................15

Table7.Percentageoftotalloadsfromnon-regulatedsources,2015.........................................................19

Table8.EstimatedcostsofachievingN,P,andSpollutantloadreductionsinVirginia’sagriculturesector................................................................................................................................................................29

Table9.EstimatedcostsofachievingN,P,andSpollutantloadreductionsinVirginia’sstormwatersector................................................................................................................................................................29

Table10.EstimatedcostofabatingnitrogenandphosphorousinVirginia’sagriculturalandstormwatersectors....................................................................................................................................................29

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ExecutiveSummary

BackgroundandpurposeVirginiahasdemonstratedastrongcommitmenttorestoringthehealthoftheChesapeakeBayaswellasthestate’sownlocalwaterways.1SincetheChesapeakeBayTotalMaximumDailyLoad(TMDL)wasenactedin2010,Virginiahasinvestedmorethan$350millioninnonpointsourcepollutionreductionprojectsstatewide.2TheCommonwealthhasmadesteadyprogresstowardimplementingitsChesapeakeBayWatershedImplementationPlan(WIP)andachievingtargetloadreductions.Ithasadvancedparticularlyimpressivegainsinabatingpointsourcepollution,andtheCommonwealth’snutrientcredittradingprogramisamodelfortheregion.However,VirginiahasrecognizedaneedforgreaterlevelsofinvestmentinBayrestoration,especiallyforpracticesthatsupportattainmentofgoalsinthestate’sagricultureandstormwatersectors,whicharemakingslower-than-neededprogressinordertomeetfinal2025TMDLtargets.VirginiahasalsoidentifiedaneedtoamenditsexistingBayfinancingmechanismssothatfundingismorepredictableandstablefromyeartoyear,andsothatstatewaterqualityinvestmentsareasefficientandeffectiveaspossible.TheChesapeakeBayProgramOffice(CBPO)askedtheUniversityofMarylandEnvironmentalFinanceCenter(EFC)tohelpVirginiaidentifycreativefinancingsolutionsthatwillmeettheseneeds.ThroughinterviewswithVirginiastateagencystaffaswellasareviewoftheCommonwealth’sexistingfundingstreamsforChesapeakeBayrestorationactivities,EFChasidentifiedopportunitiesfortheCommonwealthtobothcloseitsBayrestorationfundinggapaswellasimprovethewayinwhichitfinancesrestoration.Thesestrategiesfocusonstate-levelopportunitiesbecause,thoughBaycleanupisfundedbyvariouspublicandprivateactors,itisstategovernmentsthatareultimatelyaccountableformeetingTMDLmandates.ItisEFC’shopethattheideaspresentedinthisreportwillinformVirginia’seffortsto(1)increaserevenueflowforwaterqualityrestorationinawaythatisstableandsufficient,(2)takeadvantageofopportunitiestoleverageprivatesectorinvestmentinBayrestoration,and(3)findefficienciesastheCommonwealthacceleratescompliancewithrestorationtargets.Virginia’ssuccessintheseregardswouldmakeitamodelforotherBayjurisdictionsseekingtomakethebestuseofpublicfundsforwaterrestoration.

Virginia’sfinancingchallengeandopportunityWatershedmodelingindicatesthatVirginiaisontracktomeetstatewideinterimtargetsfor2017,inpartbecauseithasachievedbetterthanexpectedgainsinitspointsourcesector.However,theCommonwealthisfallingbehindtargetsinitsstormwatersector(forallthreepollutants:nitrogen,phosphorousandsediment)and,toalesserdegree,initsagriculturesector(forsediment).Thecurrentpaceofprogressinthesesectors,ifnotaccelerated,willbeinsufficienttomeetfinaltargetsby2025.Inadditiontoaneedforgreaterlevelsofinvestmentinthesenonpointsourcepollutionsectors,anevaluationofVirginia’sexistingfundingprogramsandfinancingmechanismsrevealsopportunitiesforimprovementinhowtheCommonwealthfundsWIPimplementation.Specifically,changescouldhelp 1Virginia’sBayrestorationcommitmenthasbeenmadeinnumerousvenues,includingthe2014ChesapeakeBayWatershedAgreement,signedbyallsixstatesintheBaywatershedaswellastheDistrictofColumbia.2SeeSection2.4forinformationonhistoricfundinglevelsfornonpointsourcepollutionreductioninVirginia.

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stabilizefundingovertime,makethestatefinancingsystemmoremarket-likeandperformance-driven,andaccelerateattainmentofwaterqualitygoals.

ReportorganizationandmenuoffinancingstrategiesThereportisorganizedintothreeparts.Itbegins,inSection1,withabriefoverviewofVirginia’sroleinChesapeakeBayrestorationanditsprogresstowardmeetingfederally-mandatedpollutionreductiongoals,basedondatafromtheChesapeakeBayProgrampartnership’sWatershedModelandVirginia’sinterimreportingtoUSEPA.3Section2assessesthescaleandnatureofthefinancingchallengethatVirginiaisfacingandprovidesanestimateoftheCommonwealth’sfundinggapinmeeting2025TMDLtargetsforitsagricultureandstormwatersectors.TheheartofthereportisSection3,whichpresentsamenuofoptionsforfinancingwaterqualityrestorationinawaythatisbothsufficientandeffective.Thesestrategiesareorganizedintothreecategories:

1. Narrowthecomplianceandfundinggapbyacceleratingkeyprogrammatic,technological,andregulatoryorincentive-basedimprovements.

2. RaiseadditionalrevenueforBayrestorationparticularlythroughfeesand/ortaxes.3. Improvetheefficiencyandstabilityofstatefundingbytakingamoremarket-likeapproachto

waterqualityinvestingandbypursuingstrategiesthatsetthestageforeffectivelyengagingtheprivatesectorandthemarketplaceinsupportofrestorationgoals.

3DatacitedinthisreportcomesfromthecurrentversionoftheWatershedModel(Phase5.3.2);anupdatedversion,Phase6,isunderdevelopment.TheWatershedModeldrawsonvarioussourcestoestimatepollutantloadsforeachmajorsourcesector.ThisreportdoesnotaddressanydeficiencieswiththecurrentModel’sdataorassumptions.

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1.ProgresstowardBayrestorationgoalsVirginiaplaysacriticalroleinrestoringthehealthoftheChesapeakeBay.Morethanhalfthestate’slandareadrainstotheBay,andnearlythreequartersofitsresidentslivewithinthewatershed.4Virginiamakesupapproximately37%ofthewatershed’slandareaandcontributes22%ofnitrogen,28%ofphosphorous,and34%ofsedimententeringtheBay.5TohelprestoretheBay–aswellasVirginia’sownlocalwaterways–theCommonwealthhasadoptedrigorouspollutionreductiontargets.ThesegoalsaredrivenbytheUSEPA’sChesapeakeBay2010TMDL,whichmandateslevelsofnutrientandsedimentpollutionreductionsthatmustbeachievedineachBayjurisdictionby2025inordertomeetwaterqualitystandardsfordissolvedoxygen,waterclarity,underwaterBaygrasses,andchlorophylla.6Table1showsfinalTMDLtargetsforVirginiaandforthewatershedasawhole.

AspartoftheTMDL,eachBayjurisdictionwasrequiredtodevelopaWatershedImplementationPlan(WIP)outliningaroadmapforachievingnutrientreductionsinpartnershipwithlocalandfederalgovernments.TheWIPprocessinvolvesthreephases:inthefirstphase,statesallocatedpollutantloadsamongsectorsanddescribedthestepsthatwillbetakenovertimetomeet2025goals.PhaseIIWIPs,completedin2012,providedmoredetailontheinitialstrategiesandspelledouthowlocalgovernmentswillparticipate.PhaseIIIplansareduetoEPAin2018andmustspecifyhowthefinalreductionswillbemade.Toassessprogresstowardrestorationgoalsandaidwithshort-termplanning,statessubmittwo-yearmilestonereportswhichoutlinerecentachievementandnear-termcommitments.ThesemilestonereportsaffordBayjurisdictionsflexibilityindetermininghowtheywillmeetlong-termgoals.CurrentwatershedmodelingindicatesthatVirginiaismakinggoodprogresstowardachievingTMDLtargets.Initsmostrecenttwo-yearmilestoneevaluation,completedJune2016,USEPAreportedthatVirginiahadachievedinterimstatewidetargetsfornitrogenandphosphorous,andthatitisontrackto

4USDANaturalResourcesConservationService.VirginiaandtheChesapeakeBay.Accessed11/14/16:https://www.nrcs.usda.gov/wps/portal/nrcs/detailfull/va/home/?cid=nrcs142p2_0188805Asof2015.EnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.6USEnvironmentalProtectionAgency.December2010.“ChesapeakeBayTotalMaximumDailyLoadforNitrogen,PhosphorousandSediment.”

Table1.TotalMaximumDailyLoadannualallocations,2025targets(millionlbs/year) Nitrogen Phosphorous SedimentTotalwatershed 207.57 14.46 7,340.53Virginia 52.59 6.40 3,251.38

Source:USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.

“Ourcommitmentto

theChesapeakeBayis

unwavering.The

ecologicandeconomic

attributesofthebay

demandscontinued

restorationand

protection.”

-MollyJosephWard,VirginiaSecretaryofNaturalResources

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meetallstatewidegoalsfor2017,thetargetforhavinginplaceallpollutionreductionmeasuresnecessarytoachieve60%offinal2025goals.7GainshavebeenparticularlyimpressiveinVirginia’swastewatersector,whichhasachievedbetterthanexpectedloadreductions.Progresshasnotbeenevenacrosssourcesectors,however.Whilethestate’swastewatersectorisover-performing,Virginiaisfailingtomeettargetsinitsstormwatersectorforallthreepollutants–nitrogen,phosphorousandsediment.8Toalesserdegree,thestate’sagriculturesectorisalsodeficientinkeepingpacewithtargetallocations,particularlyforsediment.Incorporationofnewdatafromthe2012agriculturalcensusaccountedforaslightincreaseinestimatedsedimentloadsandthereforecausedthestatetomissitsstatewide2014-2015targetforsediment.Figure1,below,depictspollutantloadsineachsourcesector,comparedtobaselineaswellasinterimandfinaltargets.

Source:USEPA.June2016.EPAEvaluationofVirginia’s2014-2015MilestoneProgressand2016-2017MilestoneCommitmentstoReduceNitrogen,Phosphorous,andSediment.

TheCommonwealthiswellawareoftheneedtorampupimplementationinitsstormwaterandagriculturesectors.Innumerouspublicforums,Virginiarepresentativeshaveacknowledgedthatthesignificantprogressinthewastewatersectorhasallowedtimetobeginacceleratingeffortstoaddressnonpointsourceloads.Inthenextsection,weconsiderthescaleandestimatedcostofnecessaryloadreductionsinthesesectors,andweassesschallengesassociatedwithexistingstatewaterqualityfinancingmechanismsmorebroadly.

7USEnvironmentalProtectionAgency.June2016.EvaluationofVirginia’s2014-2015and2016-2017Milestones.https://www.epa.gov/sites/production/files/2016-06/documents/va_2014-2015_-_2016-2017_milestone_eval_06-17-16.pdf8Ibid.

Figure1.Virginia’spollutantloadsandgoals,bysector

Watershedmodeling

indicatesthatVirginiais

meetinginterim

statewidetargetsfor

nitrogenand

phosphorousandison

tracktomeetallstatewidegoalsfor2017.

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2.TheCommonwealth’sfinancingchallengeandopportunityComparingestimatesofthecosttoachieveTMDLgoalsforVirginia’sagricultureandstormwatersectorstocurrentlevelsofinvestmentinnonpointreductioneffortsunderscorestheneedforgreaterlevelsofinvestmentinBayrestoration.Perhapsmoreimportantly,ananalysisoftheCommonwealth’smajorrevenuestreamsandfundingmechanismsforrestorationindicatesthatthereisopportunitytomakestateinvestmentsmoreconsistent,efficient,andeffectiveoverthelongterm.

2.1.ScaleandcostofloadreductionsinVirginia’sagriculturesectorAgricultureisVirginia’slargestindustry,generating$52billionannuallyineconomicimpactandprovidingnearly311,000jobs.9NearlyathirdofVirginia’sBaywatershedisinagriculturaluse,10andthissectorcontributesasubstantialshareofthestate’soverallpollutantloadtoBaytributaries.In2015,agriculturewasresponsiblefor30%ofthestate’stotalnitrogenload,54%ofitsphosphorousload,and63%ofitssedimentload.11CurrentwatershedmodelingindicatesthatinorderforVirginia’sagriculturesectortoachievefinalTMDLtargets,itwillneedtodecreaseannualnitrogenloadsby4.13millionpounds(a24%reductionovercurrentlevels),phosphorousby.31millionpounds(10%reduction),andsedimentby643.75millionpounds(29%reduction).Thesearesignificantdrops,especiallycomparedwiththestate’sperformanceoverthepastdecade,whenVirginia’sagriculturalconservationeffortsproduceda15%reductioninnitrogenloads,a28%reductioninphosphorous,anda6%reductioninsediment.Howmuchfundingwillberequiredtoachievethesereductionsisuncertain.Onerecentestimate,developedbytheVirginiaDepartmentofConservationandRecreationincollaborationwithagriculturalandconservationstakeholders,findsthatatotalofapproximately$1.66billioninstate,federal,andfarmer-providedfundsmaybeneededbetween2017and2025toeffectivelyimplementallagriculturalbestmanagementpractices(BMPs)calledforinVirginia’sstatewideWIP.12Approximatelyhalfofthisfunding($813million)isprojectedtocomefromstatesources,primarilyintheformofdirectfundingforVirginia’sagriculturalcostshareprogram.Ifappropriated,thesefundsareexpectedtobesufficienttomeetfinal2025targets.TheestimatedoesnotincludeBMPsinstalledfullyattheexpenseoftheagriculturalproducerorlandowner.

AnotherestimateoftheaggregatecostofimplementingagriculturalBMPscanbegeneratedthroughtheChesapeakeAssessmentScenarioTool(CAST),aweb-basedprogramthatenablesusersintheBaywatershedtoestimatethepollutantloadreductionsandcostsassociatedwithvariousBMPscenarios.DesignedtoreplicatetheresultsoftheChesapeakeBayProgram’sWatershedModel,CASThelps 9VirginiaDepartmentofAgricultureandConsumerServices.“VirginiaAgricultureFactandFigures.”Accessed12/5/16:http://www.vdacs.virginia.gov/markets-and-finance-agriculture-facts-and-figures.shtml10USDANaturalResourcesConservationService.“VirginiaandtheChesapeakeBay.”Accessed11/14/16:https://www.nrcs.usda.gov/wps/portal/nrcs/detailfull/va/home/?cid=nrcs142p2_01888011USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.12VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/DLS/h&sdocs.nsf/5c7ff392dd0ce64d85256ec400674ecb/69413f3e0dc162d285257fb00062a1fb?OpenDocument

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plannersfindthemostcost-effectivesuiteofBMPsforachievingdesiredloadreductions.UnderascenariothatassumesfullimplementationofallagriculturalandmanuremanagementBMPsinVirginia’sWIP,CASTgeneratesatotalannualizedcost$427,086,412.13Multiplyingthisfigurebythenineyearsbetween2017and2025givesanaggregatetotalof$3.84billion,significantlyhigherthantheDCRestimate.TheseaggregatecostestimatesassumethatfullyimplementingtheBMPscalledforintheCommonwealth’sWIPwillachievenecessaryloadreductions.Anotherwaytoestimatecostsistomultiplyneededreductions(pounds)bythecostofpreventingapoundofpollutionfromenteringtheBay.Severalrecentstudieshaveattemptedtoestimatetheper-poundcostofkeepingnitrogenandphosphorousoutoftheBay,andtheseanalysesshowthatcostscanrangesignificantly,dependingonwhichBMPsareusedandwherethepracticesarelocatedwithinthewatershed.14OneanalysisfoundthatthecostperpoundofnitrogenreducedannuallycanbeaslowasafewdollarsperpoundforsomeBMPs(e.g.livestockexclusion,grassbuffers)toashighas$600perpoundforothers(e.g.uplandprecisionintensiverotationalgrazing),andthatforphosphorous,costscansurpass$1,400perpoundforsomepractices(wetlandrestoration,treeplanting,landretirement).15Medianvalues,however,wereestimatedtobebelow$100perpoundfornitrogenandbelow$1,000perpoundforphosphorous.ThisisconsistentwithEFC’srecentanalysisforthestateofMarylandregardingthecostofimplementingitsWatershedImplementationPlan;basedonthatstate-specificanalysis,theaveragecostpertreatedpoundofnitrogenwasestimatedtobe$26.16Nutrientcredittradingalsoplacesavalueoneachpoundofnutrientpollutionabated.InVirginia’swell-establishedChesapeakeBayWatershedNutrientCreditExchangeProgram,whichallowstradingbetweenpointandnonpointsourceswithinseveralmajorriverbasins,thetradingpriceforapoundofpermanently-offsetphosphorousis$10,800-$24,000dependingontheriverbasin.17Annualizing$24,000usinga3.5%rateanda30-yearprojectlifeproducesafigureofaround$1,300perpound,whichissimilartothenumbersarrivedatabove.InSection2.3,below,weaveragethesevariousestimatestoproduceaballparkprojectionofthecoststoachieveadditionalrequiredloadreductionsinVirginia’sagriculturesector.

2.2.ScaleandcostofloadreductionsinVirginia’sstormwatersectorStormwaterrunoffaccountsforaboutafifthofthestate’soverallpollutantload.18Asignificantshareoftheseloads–60%ofnitrogen,51%ofphosphorous,and47%ofsediment–comefromurbanareasthatareregulatedviaMunicipalSeparateStormSewerSystem(MS4)permitsunderthefederal

13ChesapeakeAssessmentScenarioTool.“2025WIP–VirginiaSummaryResults.”Scenariocreated7/23/2012.(CosttoimplementallBMPsinVirginia’sWIP.Basedon2010initialloads.)14JamesShortleetal.August2013.FinalReport:BuildingCapacitytoAnalyzetheEconomicImpactsofNutrientTradingandOtherPolicyApproachesforReducingAgriculture’sDischargeintotheChesapeakeBayWatershed.15ChesapeakeBayCommission.May2012.NutrientCreditTradingfortheChesapeakeBay:AnEconomicStudy.16EnvironmentalFinanceCenter,UniversityofMaryland.February2015.Maryland’sChesapeakeBayRestorationFinancingStrategyFinalReport.17USDANaturalResourcesConservationService.“StokingDemandforNutrientCreditsinVirginia:GoodNewsforFarmersandfortheChesapeakeBay.”Accessed3/6/17:https://www.nrcs.usda.gov/wps/portal/nrcs/detail/national/technical/emkts/?cid=nrcseprd35481418In2015,stormwateraccountedfor19%ofVirginia’stotalnitrogenload,18%ofthephosphorousload,and20%ofthesedimentload.Source:USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.

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NationalPollutantDischargeEliminationSystem.19Virginiacontains11MS4PhaseI(largeandmedium)permitteesand104MS4PhaseIIpermittees.20Thesecommunitiesandentitiesarerequiredbytheirpermitsto“reducestormwaterpollutantdischargestothemaximumextentpracticableinamannerthatprotectsthewaterqualityofnearbystreams,rivers,wetlandsandbays.”21Tomeet2025targets,Virginia’sstormwatersector–includingbothregulatedandunregulatedsources–willneedtodecreaseannualnitrogenloadingby2.42millionpounds(22%reductioninthecomingdecadeovercurrentlevels),phosphorousby.18millionpounds(16%reduction),andsedimentby233.88millionpounds(32%reduction).Theseareaggressivetargets,especiallyconsideringthatloadsfromregulatedsourceswithinthestate’sstormwatersectorhaveactuallybeenincreasingoverthepastdecadeforallthreepollutanttypes.AccordingtotheChesapeakeBaymodel,forthesectorasawhole–regulatedandunregulated–phosphorousloadsdeclined7%overthepasttenyears,butnitrogenincreased11%andsedimentincreased4%.Aswiththeagriculturesector,estimatesofthecostofabatingstormwaterpollutantloadsvarywidely,dependingonBMPselectionandlocation,aswellaswhethercredittradingisenabledbetweenpointsources(e.g.permittedcommunities)andnonpointsourcesand/orbetweenstates.AnanalysisbytheChesapeakeBayCommissionfoundthatthecostperpoundofnitrogenremovedperyearbyvariousstormwaterBMPsrangesfromafewdollarsforsomepractices(e.g.urbannutrientmanagement)tocloseto$1,000forothers(e.g.urbanfiltering),withmediancostsabove$300perpoundreduced.22Forphosphorous,thecostperpoundcanbeashighas$80,000,withmediancostsabove$10,000perpound.23OtherstudiesintheBaywatershedhavecomeupwithhigherestimatesforthecostofreducingonepoundofnitrogenpollutionperyear,rangingfrom$1,12224to$3,800.25TheChesapeakeAssessmentScenarioToolcanalsobeusedtoestimatetheaggregatecostofimplementingstormwatercontrolscalledforinVirginia’sWIP.Thisscenariogeneratesatotalannualizedcostof$875million,26whichmultipliesouttoatotalof$7.88billionbetween2017and2025.Abouthalfofthis($4.13billion)couldbeexpectedtobetheCommonwealth’sshare,assumingthatitisresponsibleforstormwaterpollutantloadsfromunregulatedsources,andthatthecurrentbreakdownofregulatedandunregulatedloadsremainssteady.27

19USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.20VirginiaDepartmentofEnvironmentalQuality.June14,2016.MS4PermitteeList.Available:http://www.deq.virginia.gov/Programs/Water/StormwaterManagement/VSMPPermits/MS4Permits.aspx21VirginiaDepartmentofEnvironmentalQuality.MunicipalSeparateStormSewerSystem(MS4)Permits.Accessed11/14/16:http://www.deq.virginia.gov/Programs/Water/StormwaterManagement/VSMPPermits/MS4Permits.aspx22ChesapeakeBayCommission.May2012.NutrientCreditTradingfortheChesapeakeBay:AnEconomicStudy.Available:http://www.chesbay.us/Publications/nutrient-trading-2012.pdf23Ibid.24TheCenterforWatershedProtection.March2013.Cost-EffectivenessStudyofUrbanStormwaterBMPsintheJamesRiverBasin.Available:http://www.essex.org/vertical/sites/%7B60B9D552-E088-4553-92E3-EA2E9791E5A5%7D/uploads/24_-_App_X_-_Cost_Effectiveness_Study.pdf25MarylandDepartmentofEnvironment.October2014.CurrentProgressandFutureProjectionsinImplementingMD’sBlueprintforRestoration.26ChesapeakeAssessmentScenarioTool.“2025WIP–VirginiaSummaryResults.”Scenariocreated7/23/2012.(CosttoimplementallBMPsinVirginia’sWIP.Basedon2010initialloads.)272015shareofnon-regulatedpollutantloads=59.8%nitrogen,51.1%phosphorous,46.6%sediment;52.5%averageacrosspollutanttypes.Source:USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.

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2.3.EstimatedfundingneedsforagricultureandstormwatersectorsEFCaveragedtheabovecostestimatestoarriveatacombinedtotalof$641.33millionperyeartoachieve2025loadtargetsinVirginia’sagricultureandstormwatersectors(seeTable2).Thisneedmaybecompoundedbydecreasedfederalfundingforrestorationincomingyears,sincefederalsourceshavehistoricallysuppliedabouthalfthetotalfundingneededforNPSactivities.Itisalsoimportanttonotethatthisisonlyaroughestimate–derivedinpartfromstudiesconductedinotherBayjurisdictions–intendedtogiveasenseofVirginia’sfundingneed.FurtherrefinementofcostestimatesisinorderasVirginiachartsacoursetofullyfundTMDLcompliance.

Annualcost($million)

Aggregatecost,2017–2025($billion)

Agriculture 203.69 2.07Stormwater 437.64 5.21TOTAL 641.33 7.28Note:SeeAppendixformoredetailedcostcalculationtables.ThesefigureswerederivedinpartfromaliteraturereviewofBaywatershedcostanalyses;seeSections2.1and2.2forsources.

2.4.CurrentBayrestorationfundinglevelsandsourcesApproximately$100millioninstateandfederalfundingisspentonnonpointsource(NPS)pollutionreductioninVirginiaeachyear(seeTable3,below).ThisfigurerepresentsaverageannualfundingfrommajorsourcesforNPSactivitiesstatewide,notjustfornutrientandsedimentpollutionintheBaywatershed.NordoesitaccountforeveryNPSdollarspentinVirginia.However,itisahelpfulpointofcomparisonforthecostestimateidentifiedabove.EvenifallNPSfundsweretargetedtoBayrestoration,currentfundinglevelslagbehindwhatisneeded.Thefundinggapcouldbeasgreatas$6.38billionoverthecomingnineyears.Inaddition,thereareopportunitiestomodifythewaysinwhichVirginiafinancesBayrestoration.Tounderstandtheseopportunities,belowweprofilemajorstatesourcesoffundingforBayrestorationinVirginia:theWaterQualityImprovementFund(WQIF),theStormwaterLocalAssistanceFund,andtheCleanWaterRevolvingLoanFund.

2013 2014 2015 2016AnnualAverage

STATEWaterQualityImprovementFund 33,150,456 8,234,871 32,061,628 27,497,491 25,236,112StormwaterLocalAssistanceFund N/A 35,000,000 20,000,000 5,000,000 20,000,000CleanWaterRevolvingLoanFund* 9,750,000 1,322,300 2,705,275 4,550,000 4,581,894StateMatchforCWASection319Grants(viaVADCR) 1,955,334 2,090,615 2,047,041 2,075,461 2,042,113FEDERALEnvironmentalProtectionAgency CleanWaterAct(CWA)Section319NonpointSourceManagementImplementationGrants 1,236,661 1,872,937 1,944,234 1,680,352 1,683,546

Table2.EstimatedfundingneedtomeettargetsinVA’sagricultureandstormwatersectors

Table3.FundinglevelsfrommajorstateandfederalsourcesfornonpointsourcepollutionreductioninVirginia,2013-2016($)

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CWASection117(d)TechnicalAssistanceandGeneralAssistanceGrants 2,287,000 3,437,621 3,920,238 3,448,400 3,273,315CWASection117(e)(1)(A)ChesapeakeBayImplementationGrants† 2,257,599 3,037,406 2,386,889 2,848,727 2,632,655USDepartmentofAgricultureNaturalResourcesConservationServiceEnvironmentalQualityIncentiveProgramgrants 19,830,000 24,732,000 22,222,000 notavail 22,261,334ConservationStewardshipProgram 7,537,001 7,085,001 6,937,001 notavail 7,186,334RegionalConservationPartnershipProgram N/A

combinedwith2015 18,800,000 5,394,000 12,097,000

TOTALS 58,983,527 123,426,995 96,060,178 53,878,828 100,994,303*Excludingfundsforpointsourcepollutionprevention(i.e.wastewater).Reportedamountsarefor2014,2015,2016,and2017.Someofthesefundsarefederal.†Federalfundsplusstatematch.Sources:DavidDowling,VADepartmentofConservationandRecreation.2/12/17.CommunicationwithEFC.USDANaturalResourcesConservationService,Washington,DC.“ConservationStewardshipProgram.”Lastupdated7/15/15.http://www.nrcs.usda.gov/Internet/NRCS_RCA/reports/fb08_cp_cstp.htmlUSDANaturalResourcesConservationService,Washington,DC.“NRCSConservationPrograms.”Lastupdated7/15/15.http://www.nrcs.usda.gov/Internet/NRCS_RCA/reports/fb08_cp_eqip.htmlUSDA.2017.“RegionalConservationPartnershipProgram:InvestinginVirginia.”ValerieThomson,VADepartmentofEnvironmentalQuality.2/9/17and4/7/17.CommunicationwithEFC.

2.4.1.WaterQualityImprovementFund

Virginia’sWaterQualityImprovementFund(WQIF)isthesinglelargestsourceoffundingfornonpointprojectsintheCommonwealth.EstablishedviatheVirginiaWaterQualityImprovementActof1997andadministeredbytheVirginiaDepartmentofEnvironmentalQualityandtheDepartmentofConservationandRecreation,theFund’spurposeis“toprovideWaterQualityImprovementGrantstolocalgovernments,soilandwaterconservationdistricts,institutionsofhighereducationandindividualsforpointandnonpointsourcepollutionprevention,reductionandcontrolprograms.”28TheFundiscapitalizedannuallyviastaterealestaterecordationfeesaswellas10%ofanystatesurplusgeneralfundsinfiscalyearswhenthereisasurplus.29AdditionalfundsareoccasionallyaddedtotheWQIFviabudgetallocationsapprovedbytheGeneralAssemblyandGovernor.WQIFisanon-revertingfund,meaningthatanyunspentmoneyleftattheendofthefiscalyear–aswellasanyinterestearned–remainsintheFundforuseinfutureyears.30AsTable4indicates,capitalizationlevelshavefluctuateddramaticallyfromyeartoyear,rangingfrom$8.2millionto$70.7millionoverthepasteightyears.

FiscalYear

GeneralFundsurplus($)

Recordationfees($)

Otherappropriation($)

Totalappropriation($)

Increase(decrease)frompreviousyear

2010 - 0 20,000,000* 20,000,000 -2011 32,798,700 8,509,725 - 41,308,425 107%2012 - 8,866,566 - 8,866,566 (79%)2013 21,979,048 11,171,408 - 33,150,456 274%2014 - 8,234,871 - 8,234,871 (75%)

28CodeofVirginia.§10.1-2128.B.29VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf30VirginiaSecretaryofNaturalResources.2012.VirginiaWaterQualityImprovementFundGuidelines.Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ChesapeakeBay/Nov2006WQIFGuidelines-updated_5-15-12.pdf

Table4.WaterQualityImprovementFundhistoricfundinglevels,and%increase(decrease)eachyear

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2015 23,897,500 8,164,128 - 32,061,628 289%2016 0 8,615,603 18,881,888** 27,497,491 (14%)2017 61,708,800 9,090,240 - 70,799,040 157%*AmericanRecoveryandReinvestmentAct+DCRinterest**WQreserve+specialGFSource:DavidDowling,VirginiaDepartmentofConservationandRecreation.7/15/17.CommunicationwithEFC.

WQIFhastwosub-funds:theVirginiaNaturalResourcesCommitmentFund(VNRCF)andtheNutrientOffsetFund.VNRCF,createdin2008,supportstheinstallationofagriculturalBMPsandassociatedtechnicalassistanceviatheVirginiaAgriculturalBestManagementPracticesCost-ShareProgram.Itsenablingstatutespecifiesthatfundsbedistributedassuch:55%formatchinggrantsforBMPswithinorpartiallywithintheChesapeakeBaywatershed,37%formatchinggrantsforBMPsoutsidetheChesapeakeBaywatershed,and8%fortechnicalassistancebysoilandwaterconservationdistricts.31 Theamountprovidedfortechnicalassistanceinrecentyearshasbeenaround12%basedonSoilandWaterConservationDistrictBudgetTemplateanalysesandhasbeensetoutintheAppropriationsAct.32TheNutrientOffsetFund,createdin2008andamendedin2017,wasdesignedtopurchasenutrientcreditsfrompointornonpointsourcereductionsintributariesthathavealreadymetreductionsrequiredbystateorfederallaw,includingtheChesapeakeBayTMDL.33Todate,thissub-fundhasnotbeencapitalized.34 Thenonpointsourcecomponents35oftheWQIF–outlinedbelow–aimtoimprovewaterqualitythroughouttheCommonwealthandspecificallywithintheChesapeakeBaywatershedtoimplementtheBayTMDLWIP.36WQIFnonpointfundingforagriculturalbestmanagementcost-shareismadeaccordingtoafundingdistributionpolicyapprovedannuallybytheVirginiaSoilandWaterConservationBoard(VSWCB).37

(1) AgriculturalBestManagementPracticesCost-ShareProgram(VACS).AdministeredbytheVirginiaSoilandWaterConservationBoardandtheDepartmentofConservationandRecreationinclosepartnershipwiththestate’s47soilandwaterconservationdistricts,thisprogramsupportsthevoluntaryimplementationofconservationBMPsonagriculturallands,inordertoreducenutrientandsedimentpollution.BMPseligibleforfundingarethosethatareidentifiedascost-effectiveintheVACSManual,andthepreferenceforinstallationisareaswiththehighestnutrientloads.Statecost-sharepaymentsareperiodicallycoupledwithfederalfundsviatheUSDepartmentofAgriculture,reducingthefarmer’sexpensetoaslittleas10%oftotaleligibleprojectcosts.38

31CodeofVirginia.§10.1-2128.1.VirginiaNaturalResourcesCommitmentFundestablished.2008;2009;2011.Available:http://law.lis.virginia.gov/vacode/title10.1/chapter21.1/section10.1-2128.1/32DavidDowling,VirginiaDepartmentofConservationandRecreation.7/15/17.CommunicationwithEFC.33VirginiaLegislature2017Session.HB2311.Abilltoamendandreenact§10.1-2128.2oftheCodeofVirginia,relatingtotheNutrientOffsetFund;saleofcredits.Available:http://lis.virginia.gov/cgi-bin/legp604.exe?171+ful+HB2311E.34RussBaxter,DeputySecretaryofNaturalResources.7/8/16.InterviewwithEFC.35WQIFalsohasapointsourceprogram,whichsupportstheinstallationofnutrientreductiontechnologyatpointsourcedischargeswithintheBaywatershed.Sinceitsinceptionin1998,thepointsourceprogramhasreceivedatotalof$909.3millioninappropriations.Source:VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf36VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf37VirginiaSoilandWaterConservationBoard.May2016.PolicyandProceduresonSoilandWaterConservationDistrictCost-ShareandTechnicalAssistanceFundingAllocations(FiscalYear2017).Available:http://dswcapps.dcr.virginia.gov/htdocs/agbmpman/Policy_2017.pdf38VirginiaDepartmentofConservationandRecreation.ProgramYear2017.VirginiaAgriculturalCostShareManual.Available:http://dswcapps.dcr.virginia.gov/htdocs/agbmpman/agbmptoc.htm

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(2) ConservationReserveEnhancementProgram(CREP).WQIFfundssupportVirginia’sparticipationinUSDA’sConservationReserveEnhancementProgram,whichprovidescost-shareassistancetoeligiblelandownersfor“establishmentofriparianbuffersandwetlandrestorations,aswellasrentalpayments(upto15years)forremovingenvironmentallysensitivelandfromagriculturalproductionandplantinggrassesortreesthatwillimprovewaterqualityandwaterfowlandwildlifehabitat.”39Federalfundscover50%ofBMPinstallationcosts,withstatematchvaryingfrom25%-50%dependingonfundingavailability.

(3) StrategicNonpointSourceWaterQualityInitiatives.WQIFfundssupportotherwaterquality

initiativesthataddressnonpointsourcepollutionneeds,withaparticularfocuson“priority,costeffective,andinnovativeinitiatives”thatmeasurablyimprovewaterquality.40Theseprojectsareundertakenincollaborationwithotherstateagencies,soilandwaterconservationdistricts,planningdistrictcommissions,localgovernments,educationalinstitutionsandindividualsonnonpointsourcepollutionreduction,education,researchandimplementationprojects.Exampleshaveincludedincentivesforagriculturalandurbannutrientmanagementactivities;alternativewastemanagementandreusealternativesforanimalwasteproducts;dietandfeedmanagementprojectstoreducenutrientcontentandmoreefficientlymanageanimalwastes;animalwastetransportprojects;riparianbufferinitiativesandothereffectiveforestmanagementprograms;conservationeasementprograms;andinnovativeurbanstormwaterandeffectiveurbanBMPpracticesandrestorationprojects.41

(4) CooperativeNonpointSourcePollutionProgramswithLocalGovernments.WQIFfundsarealso

usedtoprovidematchingfundstolocalgovernmentstosupportprojectsthataddresslocalnonpointpollutionissues,suchasdevelopingstormwatermanagementprograms,rehabilitatingsepticsystems,andimplementingeffectiveurbanBMPs.In2016,$3.4millioninWQIFfundsweremadeavailableviaacompetitivegrantprogramtohelplocalgovernmentsimplementnonpointsourcepollutioncontrolprojects.Prioritywasgiventoprojectswiththehighestpollutionreductioncomparedtodollarsrequested,aswellastoprojectsthatmaximizedreductioninnitrogen,phosphorousandsediment(withintheChesapeakeBaywatershed).Theeightprojectsselectedforfundingaddressissuessuchasstormwatermanagement,septicsystemrehabilitation,andshorelineerosioncontrol.42

2.4.2.StormwaterLocalAssistanceFund

AnothersignificantsourceoffundingfornonpointsourcepollutionreductionprojectsisVirginia’sStormwaterLocalAssistanceFund(SLAF).43CreatedbytheGeneralAssemblyin2013,44theSLAFprovidesmatchinggrantstolocalgovernmentstoplan,design,andimplementcost-effectiveBMPsthat

39VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf40VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf41VirginiaSecretaryofNaturalResources.2012.VirginiaWaterQualityImprovementFundGuidelines.Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ChesapeakeBay/Nov2006WQIFGuidelines-updated_5-15-12.pdf42VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf43RussBaxter,DeputySecretaryofNaturalResources.7/8/16.InterviewwithEFC.44ParametersforadministeringtheFundwerespecifiedinItem360inChapter860oftheActsofAssembly(theCommonwealth’s2013-2014Budget).

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reducepollutantloadsfromstormwaterrunoff.45SLAFisadministeredbytheStateWaterControlBoardandtheDepartmentofEnvironmentalQuality,andfundsareallocatedeachyearviaacompetitivegrantapplicationprocess.46Grantsrangefrom$50,000to$5millionandcover50%ofeligiblecostsforplanning,designingandinstallingBMPs.Forgrantapplicationstoberankedcompetitively,projectsmustdemonstratethattheycancost-effectivelyreducetotalphosphorous,arepresentativepollutantforstormwater.AsofJuly2017,SLAFfundsmaybeusedtopurchasenonpointsourcenutrientcredits.47TheSLAFconsistsofproceedsfrombondsauthorizedbytheGeneralAssembly,aswellas“sumsappropriatedtoitbytheGeneralAssemblyandothergrants,gifts,andmoneysasmaybemadeavailabletoitfromanyothersource,publicorprivate.”48TheFundalsoretainsanyinterestitearns.LikeWQIF,fundinglevelshaveexperiencedsignificantyear-to-yearswings.In2014and2015,theSLAFreceived$35millionand$20millionrespectivelyinbondfunds,andinFY2016,itreceiveda$5millionappropriation.Forthecurrent(2017)grant-makingcycle,$20millionisavailable.49LiketheWQIF,theSLAFisanon-revertingfund;fundsleftattheendoftheyearremainintheFundratherthanrevertingtothegeneralfund.TheFundhasundergonethreegrant-makingcycles(seeTable5).Inthefirsttwofundingcycles,DEQdidnotexpendallavailablefundsbecausetheDepartmentfeltthatnotallproposedprojectswerecost-effectiveatreducingpollution,meaningthattheydidnotmeetDEQ’sthresholdof$50,000orlesstotreateachpoundofTotalPhosphorous,arepresentativepollutant.50TheFundreceivednonewappropriationfor2017.

Fiscalyear

Newappropriation($million)

Carry-over($million)

Fundsavailable($million)

Fundsrequested($million)

Fundsauthorized($million) Numberoffundedprojects

2014 35 None 35 39.37 22.94 71projectsin31localities2015 20 8 28 21.61 21.49 64projectsin25localities2016 5 3.5 8.5 36.03 8.49 17projectsin17localitiesSources:MelanieDavenport,VirginiaDepartmentofEnvironmentalQuality.12/19/13.“Memo:AuthorizationofSLAFProjectFundingList.”Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/signed_memo.pdfValerieThomson,VirginiaDepartmentofEnvironmentalQuality.12/4/14.“Memo:AuthorizationofFY2015ProjectFundingList.”Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/FY15_SLAF_Memo.pdfValerieThomson,VirginiaDepartmentofEnvironmentalQuality.2/26/16.“Memo:AuthorizationofFY2016SLAFProjectFundingList.”Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/signed_authorization_memo-FY16.pdf

45VirginiaDepartmentofEnvironmentalQuality.3/2/16.NewsRelease:“Virginiaauthorizes$8.5millionforlocalstormwaterprojects.”Available:http://www.deq.virginia.gov/info/newsreleases.php?show=280846VirginiaDepartmentofEnvironmentalQuality.December2016.StormwaterLocalAssistanceFundProgramGuidelines.Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/SLAF%20Guidelines%20Final-2016.pdf?ver=2016-12-15-092450-67047Ibid.48VirginiaDepartmentofEnvironmentalQuality.October2015.StormwaterLocalAssistanceFundProgramGuidelines.http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/SLAF_Guidelines_10-2015-v3.pdf49VirginiaDepartmentofEnvironmentalQuality.StormwaterLocalAssistanceFundwebsite.Accessed1/18/17:http://www.deq.virginia.gov/Programs/Water/CleanWaterFinancingAssistance/StormwaterFundingPrograms/StormwaterLocalAssistanceFund(SLAF).aspx50ValerieThomson,VirginiaDepartmentofEnvironmentalQuality.12/4/14.“Memo:AuthorizationofFY2015ProjectFundingList.”Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/FY15_SLAF_Memo.pdf

Table5.StormwaterLocalAssistanceFundhistoricfundinglevels

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2.4.3.CleanWaterRevolvingLoanFundCreatedin1987andmanagedbytheDepartmentofEnvironmentalQualityonbehalfoftheStateWaterControlBoard(SWCB),theVirginiaCleanWaterRevolvingLoanFund(VCWRLF)provideslow-interestloanstosupportwaterqualityimprovementprojectsthroughoutthestate.Foritsfirstdecade,theFundfocusedonimprovingpublicly-ownedwastewatercollectionandtreatmentfacilities,butitsscopehasbeenexpandedtoaddressagriculturalandothernonpointsourcepollutionissues.Today,theFundoperatesloanprogramsrelatedtowastewater,agriculturalBMPs(thoughthisprogramhasbeensuspendedindefinitely),brownfieldremediation,landconservation,stormwater,andlivingshorelines.VCWRLF’sStormWaterLoanProgram,authorizedin2010bytheGeneralAssembly,provideslowinterestloans“forconstructionoffacilitiesorstructuresorimplementationofbestmanagementpracticesthatreduceorpreventpollutionofstatewaterscausedbystormwaterrunofffromimpervioussurfaces.”51Loansareavailabletolocalgovernments(county,cityortown)aswellasmunicipalpublicserviceauthorities.ThisprogramreceivesnospecialappropriationoffundingandthereforereliesonexistingVCWRLFrevenue.Bylaw,VCWRLFfinancingforstormwaterprojects“canonlybeavailableinfiscalyearswhenloanrequestsforeligiblewastewatertreatmentfacilitiesdesignedtomeetthestate’swaterqualitystandardshavefirstbeensatisfied,unlessotherwiserequiredbylaw.”52GuidelinesfortheadministrationofstormwaterloansweredevelopedbytheDEQ’sCleanWaterFinancingandAssistanceProgram,onbehalfoftheSWCB.Applicationsareacceptedyearly,andfundingpriorityisgiventojurisdictionsthathaveanadoptedstormwatercontrolprogram,projectsthataddresspollutioninawaterbodythatisinviolationofwaterqualitystandards,andlocalgovernmentssubjecttoanMS4dischargepermit.Aportionoffundingmaybeprovidedinformofprincipalforgiveness,withpreferencegiventolocalitiesthathaveadedicatedsourceofrevenuefortheirstormwatermanagementprogram.53Sinceitsinceptionin1988,VCWRLFhasprovidedapproximately$3billioninlow-interestloanfundingtosupportmorethan950pointandnonpointsourcepollutionreductionprojects.Overthepastfouryears,theFundhasmade$4.5millioninloansfornonpointsourceeffortsstatewide.54

2.5.ScaleandnatureoftheCommonwealth’sfinancingchallengeVirginia’smostpressingBayrestorationfinancingchallengeisarguablyitsfundinggap.Assuggestedabove,averageannualfederalandstateinvestmentsof$100millionmayneedtobeincreasedmorethansixfoldinorderforVirginiatoachieveadditionalmandatedloadreductionsinitstwoprimaryNPSsectors.GiventhesignificantuncertaintiesinvolvedinpredictingcostsofWIPimplementationandinaccountingforallexistingsourcesofBayrestorationinvestment,theactualfigurelikelydiffersfromthisestimate.

51VirginiaDepartmentofEnvironmentalQuality.VirginiaCleanWaterRevolvingLoanFundStormWaterLoanProgramGuidelines.Accessed12/5/16:http://www.deq.virginia.gov/Programs/Water/CleanWaterFinancingAssistance/StormwaterFundingPrograms/StormwaterLoans.aspx52“However,itisimportanttonotethat,startinginfederalfiscalyear2010,EPAbeganrequiringthatacertainportionoftheannualfundingfortheVCWRLFgotogreenreserveprojects.SincemosteligiblestormwaterprojectsmeettheGreenProjectReserve(GPR)criteria,itmaybenecessarytofundstormwaterprojectsinfiscalyearswhenallthewastewaterfacilities’projectshavenotbeensatisfied(underthe“unlessotherwiserequiredbylaw”provision),inordertomeettheGPRrequirement.”VirginiaDepartmentofEnvironmentalQuality.VirginiaCleanWaterRevolvingLoanFundStormWaterLoanProgramGuidelines.Accessed12/5/16:http://www.deq.virginia.gov/Programs/Water/CleanWaterFinancingAssistance/StormwaterFundingPrograms/StormwaterLoans.aspx53VirginiaDepartmentofEnvironmentalQuality.VirginiaCleanWaterRevolvingLoanFundStormWaterLoanProgramGuidelines.Accessed12/5/16:http://www.deq.virginia.gov/Programs/Water/CleanWaterFinancingAssistance/StormwaterFundingPrograms/StormwaterLoans.aspx54ValerieThomson,VirginiaDepartmentofEnvironmentalQuality.2/9/17.CommunicationwithEFC.

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Nevertheless,itisclearthathistoricinvestmentlevelshavebeeninsufficienttokeeppacewithneededloadreductions,especiallyinVirginia’sstormwaterandagriculturesectors,andthatfutureinvestmentsmustincreaseiftheCommonwealthistoreach2025targets.Beyondthisbasicneedforadditionalfunding,thereisalsoanopportunityfortheCommonwealthtomodifyitsexistingrevenuestreamsandfundingmechanismsinordertomakestateinvestmentsmoreefficient,therebystretchingeverydollarasfaraspossible.AparticularchallengewithVirginia’scurrentfinancingsystemisthattwoofthestate’sbiggestsourcesoffundingforwaterqualityprotectionandrestoration–theWaterQualityImprovementFundandtheStormwaterLocalAssistanceFund–experiencedramaticshiftsinfundinglevelsfromyeartoyear.WQIFislargelycapitalizedbygeneralfundbudgetsurpluses,whichmeansthatfundingcanvarywidelyandthatitmaynotreceiveanyfundingfromthissourceinleanyears.SLAFiscapitalizedthroughbondsandbudgetappropriations,withnoguaranteeofongoingfundingatevenaminimallevel.Thiscreatesasystemwithconsiderableinconsistencyandunpredictability,whichineffectincreasesthecostofcapital.Inaddition,theCommonwealthmaybeabletoadoptamoremarket-likeapproachtofinancingwaterqualityrestoration,onethatinvestsonlyinthehighest-performingprojectsandthatleveragesotheravailablecapitaltomovefundswhereandhowtheycanachievegreatestimpact.Virginiahasalreadylaidthegroundworkfortakingthisapproach.BothWQIFandSLAFhaveflexibilitytocarryoverfundsfromyeartoyear,offeringthepotentialtopoolandfunnelfundsintothehighest-yieldprojects,andbothprogramshaveintegratedperformanceasakeyelementoffundingcriteria.TheCommonwealthcanbuildonthesepracticesinacomprehensiveandsystematicway,anditmayconsiderintegratingadditionalmarket-likefeatures,sothatVirginia’swaterqualityinvestmentsystemachievesthegreatestloadreductionsatthelowestcost.Thenextsectiondiscussessuchopportunities,aswellasotheroptionsforeffectivelyfundingandfinancingwaterqualityrestoration.

Virginiahasalreadylaid

thegroundworkfor

takingamoremarket-

based,performance-

drivenapproachtowater

qualityrestoration

financing.

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3.StrategiesforsufficientlyandefficientlyfinancingBayrestorationBelowwepresentoptionsthattheCommonwealthmaypursuetoreduceitsBayfundinggap.Thesestrategiesareorganizedintothreebroadcategories.Thefirstincludesimprovementsintechnology,BMPtracking,andagriculturalconservationincentives–ideasthatarenotfinancingapproachesbutwouldineffectreducethecompliancegapandfreeupfundsforadditionalrestorationneeds.Thesecondcategoryofoptionsaddressesrevenuegenerationatthestatelevel.Finally,wereviewstrategiestomaketheCommonwealth’sfundingandfinancingsystemmorepredictable,moremarket-like,andultimatelymoreefficientatachievingthegreatestloadreductionsatthelowestcost.EFCbelievesitisthisfinalcategoryofoptionsthatoffersgreatestpotentialtodrivedowncosts,leverageadditionalcapital,andachieveimpact.

3.1.AccelerateprogrammaticandtechnologicalimprovementsandexpandincentivesfornutrientmanagementplanningImprovedtrackingofvoluntarily-installedBMPs,technologicaladvancementsinrestorationpractices,efficiencygainsinwaterqualityprograms,andenhancementstotheBayModelhaveallbeenidentifiedasopportunitiesforreducingcostsandimprovingVirginia’sprogresstowardTMDLgoals.55Someoftheseimprovements–suchasbettertrackingandreportingofimplementedBMPs,aswellasimprovedaccountingforsuchpracticesintheBayModel–wouldineffectreducethecostofcompliancebyshowingthattheCommonwealthisclosertopollutionreductiontargetsthanmodelingcurrentlyindicates.Virginiaisworkingtoimproveitsabilitytoaccountforvoluntarily-implementedBMPs(i.e.thoseimplementedwithoutstateorfederalcost-shareassistance),viathedevelopmentofaprogramthatrecordsimplementationandfinancialdataassociatedwithallon-the-groundBMPs.Thisprogramwasexpandedin2016toaccountforpracticesassociatedwithResourceManagementPlansandConservationPlans.56Otherstrategies–suchasfindingprogramefficienciesandacceleratingadvancementsintechnologysothatBMPsremovegreaterpollutantloadsatthesameorlowercost–freeupdollarsthatmaythenbeinvestedinadditionalcompliancepractices.ArelatedwaytostretchfundsistotargetinvestmentstowardBMPsthathavebeenproventobeeffective,andthoseinstalledinprioritywatershedswheretheyarelikelytohavethegreatestimpactonpollutantloads.AstudyinPennsylvaniafoundthatchoosingcost-effectiveBMPportfolios–definedas“asetofpracticesassignedtolocationsthatminimizesthecostsofsatisfyingnitrogen,phosphorus,andsedimentloadallocationtargetsineachChesapeakeBayjurisdiction”–couldreducethatstate’scostofcompliancebyanimpressive36%.57Virginiadoesprioritizerestorationfundsinthiswaythroughitsagriculturalcost-shareprogram.ThesedollarsaretargetedtowardBMPsthathavebeenshowntobecost-effective,aswellastopracticesinstalledin“hydrologicunitswiththehighestpotentialtocontributeagriculturalNPSpollutionto 55VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf56EffortstotrackvoluntaryBMPs(thoseimplementedwithpublicfinancialsupport)haveonlyhadlimitedsuccesstodatedespitedataapplicationimprovements.DCRremainshopefulthatRMPswillenablethecollectionofvoluntaryBMPdata.Source:DavidDowling,VirginiaDepartmentofConservationandRecreation.7/15/17.CommunicationwithEFC.57J.Shortle,Environment&NaturalResourcesInstitute,PennStateUniversity.“TheCoststoAgricultureofSavingtheChesapeakeBay”presentation.Accessed9/12/16:http://files.dep.state.pa.us/Water/ChesapeakeBayOffice/CBMT_May2014_AgCostsChesapeakeBayTMDL.pdf

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surfaceandgroundwaters.”58Furtherstudymayenablefinerprioritization,andtheremaybeopportunitytoextendthisapproachtoothersectorsbeyondagriculture.Anevenmoreeffectiveapproachwouldbetoshiftfromtargetedpracticesandwatershedstotargetedoutcomes;thisstrategyofperformance-drivenfinancingisdiscussedingreaterdetaillater.Alsofallingwithinthiscategoryareregulatoryandincentive-basedstrategies.WhiletheseoptionsdonotcreatenewfundsorchangehowtheCommonwealthfinancesrestoration,theycanplayakeyroleinnarrowingthefundingandcompliancegap.WatershedmodelingindicatesthatalargeportionofVirginia’sagricultureandstormwaterpollutantloadingcomesfromnon-regulatedsources(seeTable7).Thisisparticularlystrikinginthestate’sagriculturesector,whereonlyasmallfractionofnitrogen,phosphorous,andsedimentemissionscomefromregulatedsources,e.g.confinedanimalfeedingoperations,asVirginia’sagriculturalwaterqualityimprovementprogramsarelargelyvoluntaryinnature.Inthestormwatersector,alittlemorethanhalfofthenitrogenandphosphorousloadsstemfromunregulatedsources,namelyareasthatarenotsubjecttoMS4dischargepermits.

Sector Nitrogen Phosphorous SedimentAgriculture 98.5% 97.1% 99.8%Stormwater 59.8% 51.1% 46.6%Source:USEnvironmentalProtectionAgencyChesapeakeBayProgram.TMDLTracker.Accessed11/4/16:https://stat.chesapeakebay.net/?q=node/130.Loadssimulatedusing5.3.2versionofWatershedModelandwastewaterdischargedatareportedbyBayjurisdictions.Progressdataupdated4/19/2016.

ImposingtighterrestrictionsonemittersofagriculturalandstormwaterpollutionshiftssomeoftherestorationcostfromtheCommonwealthtoregulatedentities,whomaybeinabetterpositiontofindcostefficiencies.OptionsmightincludeloweringthethresholdforagriculturaloperationsthatarerequiredtoreceiveaConfinedAnimalFeedingOperationpermit,makingnutrientmanagementplanningmandatoryintheagriculturesectorandforcertainlandownersinthestormwatersector,andtighteningpollutionloadlimitsinurbanstormwaterpermits.However,itisimportanttonotethatexpandedregulatoryprogramsrequireadditionalstafftimeandcoststoadminister,andnewregulationsarerarelypoliticallypopular.Inrecentyears,severallegislativeproposalsthatwouldhaverequiredmandatoryagriculturalBMPsinVirginiahavefailedtogainsupport.Insteadofexpandingregulatoryregimesinitsnonpointsourcesectors,Virginiahasfocusedonincentivizingvoluntarypollutionreductionactivitiesamongunpermittedentities.Aprimaryexampleofthisapproachisthestate’sResourceManagementPlan(RMP)Program,createdin2011bytheGeneralAssemblyto“promotegreaterandmoreconsistentuseofvoluntaryagriculturalpracticesacrossthestate.”59ThisDCR-administeredprogramprovidesanincentiveforfarmerstomakeandfullyimplementanRMP,byguaranteeingtheywillhaveasafeharborfromfuturemandatoryregulationsrelatedtoimplementingtheBayTMDL.AnotherincentiveforimplementinganapprovedRMPisthatitcanbeusedasabaselineforparticipatinginthestate’snutrientcreditexchangeprogram.AsofJune1,2017,380planscovering89,794acreshavebeendeveloped,thevastmajorityofwhichareintheChesapeakeBaywatershed.60

58VirginiaDepartmentofConservationandRecreation.2017.VirginiaAgriculturalBMPCost-ShareProgram(VACS)Guidelines.Available:http://dswcapps.dcr.virginia.gov/htdocs/agbmpman/Guidelines/Guidelines_2017.pdf59CommonwealthofVirginia.March2012.PhaseIIWatershedImplementationPlan.60Watlington,Christine.VirginiaDepartmentofConservationandRecreation.7/15/17.CommunicationwithEFC.

Table7.Percentageoftotalloadsfromnon-regulatedsources,2015

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Anotherincentive-basedinitiativewaslaunchedin2015underWQIF’sstrategicwaterqualityinitiativesfundingcategory.Throughacompetitivegrantprocess,fundsweremadeavailabletocertifiednutrientmanagementplannerstowritenutrientmanagementplansforagriculturaloperators,withafocusonunpermittedconfinedanimaloperators.Asaresultofthesegrants,24nutrientmanagementplansweredevelopedforunpermittedoperations,covering2,779acresstatewide.Theprogramwasscaledupin2016inasecondroundoffunding;itisexpectedthatthisroundwillresultinthedevelopmentofnutrientmanagementplansfor23,788acresonunpermittedoperationsandanadditional22,844acresonpermittedoperations.61Nutrientmanagementplanningalsooccurswithinunpermittedportionsofthestate’sstormwatersector;forexamplethroughaDCRprogramthatsubsidizesthedevelopmentofnutrientmanagementplansongolfcourses.FertilizerapplicationonnonagriculturallandisregulatedbyVirginialaw,andDEQprovidesassistancetolocalgovernmentstodevelopandimplementlocalstormwatermanagementplans.AreportbytheSecretaryofNaturalResourceshasfoundthatthemajorityofurbanacreagenotundernutrientmanagementplansisprivatelyownedandthereforethatmakingadditionalprogressinthestormwatersectorwillrequireenhancedeffortstoeducateandassisthomeownersandotherprivatelandowners,asisdonethroughVirginia’sCooperativeExtensionMasterGardenerprograms.62AnoptionformeetingneedsinunpermittedareasmightbetotargetStormwaterLocalAssistanceFunddollarsthere.Thiswasthetopicofaspecialmeetingheldinthefallof2016bytheGeneralAssembly’sNaturalResourcesCommittee,anditmeritsadditionalstudytoidentifyandpromulgateeffectivestrategies.Asinthestormwatersector,progresswithintheunpermittedportionsofVirginia’sagriculturalsectorwillrequireadditionalnutrientmanagementplanningandimplementation.IntheChesapeakeBaywatershed,87%ofalldairyfarms(337)areunpermitted,andlessthanhalfofthese(141)havenutrientmanagementplansinplace.63TheSecretaryofNaturalResourceshascalledformorefunding–approximately$150,000peryear–toretainplanningconsultantstopreparenutrientmanagementplansfortheseandotherunpermittedanimaloperations.64Giventhepopularityandeffectivenessofincentive-basedprogramssuchasRMP,nutrientplanninggrants,andhomeownereducationprograms,theCommonwealthmayfinditbeneficialtoexpandtheseprograms.ThiscouldachievecostefficienciesandbringVirginiaclosertofinalTMDLtargets,butitwouldalsorequireadditionalstatefunding,atopicaddressednext.

3.2.IncreasestatefundingforwaterqualityrestorationTomaintainandaccelerateprogresstowardTMDLgoals–includingthroughexpandedincentiveprogramsthatcaptureagreatershareofpollutionfromunregulatedsourcesasdiscussedabove–theCommonwealthwillneedtoincreasefundingforwaterqualityinitiatives.Keyoptionsforgeneratingrevenuearediscussedbelow;nonewillcomeasasurprisetotheCommonwealth.Itisalsonosecretthatlaunchinganewrevenueprogramwillnotbeadministrativelyorpoliticallyeasy.Forthisreason,anynewrevenue-generatingcampaignshouldbecoupledwithinitiativestoreducecompliancecostsandleverageoutsidefunds,optionsdiscussedinthefollowingsection.Additionally,itwillbeimportantforthe

61VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf62Ibid.63Ibid.64Ibid.

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Commonwealthtodevelopareliablecostestimatebeforedesigningnewrevenuestructures,sothatfundsraisedaresufficienttoachievedesiredimpact.Thisisessentialforbuildingpublictrust.

3.2.1.IssuestatebondsforwaterrestorationImmediatebayrestorationneedsmaybefundedthroughtheissuanceofstatebonds,suchasgreenbondswhoseproceedsarededicatedtoimplementingwaterqualitypractices.TheCommonwealthmayuseitsgeneralobligationbondingauthority;thesebondsrequireapprovalbytheGeneralAssemblyandamajorityofVirginiavotersthroughstatereferendum.ThelasttimeVirginiansapprovedgeneralobligationdebtwasin2002,65whichsuggeststhismightnotbeanimmediatelylikelyavenue.Anotheroptionisthepublicbuildingauthoritybond,whichisissuedbytheVirginiaPublicBuildingAuthorityuponapprovalbytheGeneralAssembly.PublicbuildingauthoritybondshavebeenusedinVirginiaforpointsourceprojectssuchascombinedsewerseparationandwastewatertreatmentplantprojects,andtheyarealsoauthorizedforstormwaterprojects.66Anobviousadvantageofbondfinancingisthatitgeneratesupfrontcapitaltomeetimmediateneeds;bondsalsorequirefutureusersofthebenefittoshareinitscost.However,debtfinancingconstitutesalong-termliabilityandneedstobepaidbackbyfuturetaxesorfeesorthroughtheuseofgeneralfundsattheexpenseofotherpriorities.

3.2.1.Implementnewtax-and/orfee-basedfundingstructuresStatescanfinancemajorpublicneedsviaexistingrevenuesources(usuallythegeneralfund),whichrequiresreallocatingbudgetfundsfromotherprograms.Buttheonlymechanismsforgeneratingnewrevenueatscalearetaxesandfees.RevenuefromanynewtaxorfeestructurescouldbeusedtobuttressWQIFandSLAFfunding,sincetheseprogramshavebeeneffectiveandpopular,ortheycouldbeusedtocapitalizeanew,dedicatedBayrestorationfundasdiscussedlater.Onealternativeinthiscategoryisataxonnutrientandsedimentdischarges.Pollutiontaxeshavethebenefitofdirectlydis-incentivizingtheundesiredactivity(inthiscase,waterpollution),andwhensetattheappropriaterate,theycanachievereductionsinthemosteconomicallyefficientwayandcatalyzethedevelopmentofinnovativepollutionreductiontechnologies.Theyarealsomoreeasilyadministeredthanmanyregulatoryprograms,andtheyprovideaflexiblerevenuestreambecausetheratecanbeadjustedovertimeasneeded.67Thoughpollutiontaxesarestillrelativelyrare,thereareafewcasestudiestodrawlessonsfrom,suchasNewYorkCity’staxon“dirty”fueloilswhichledtothediscoveryofcleanerfueloptions68andthe1990federaltaxonchlorofluorocarbons,whichcontributedtotheglobalphaseoutofthispollutant.69Alocal-levelexampleofapollutiontaxisFairfaxCounty,Virginia’sstormwatertax,whichassesses1centper$100ofpropertyvalueonpropertieswithinadesignatedassessmentdistrict.70Thismechanismdiffersslightlyfromastormwaterfee,discussedbelow.

65VirginiaDepartmentoftheTreasury.“GeneralObligationBonds.”Accessed5/15/17:https://www.trs.virginia.gov/Debt/obligation.aspx66RussBaxter,DeputySecretaryofNaturalResources.7/8/16.InterviewwithEFC.67ExperimentalEconomicsCenter.“AdvantagesofGreenTaxes.”Accessed9/29/16:http://www.econport.org/content/handbook/Environmental/pollution-control-revised/Advantages.html68CharlesKomanoff.4/29/09.“GiveFeesaChance:PollutionTaxesWork.”TheGrist.Accessedon9/29/16:http://grist.org/article/pollution-taxes-work/69Ibid.70WaterEnvironmentFederation.Undated.“TheStormwaterChallenge”slidedeck.Available:https://www.epa.gov/sites/production/files/2017-01/documents/session_5_french.pdf

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Therearebarriersassociatedwithimplementingapollutiontax,includingthechallengeofidentifyinganappropriatetaxrate.Inaddition,pollutiontaxesareconsideredbysometoberegressive,inthattheycanimposeadisproportionateburdenonlower-incomeconsumers.Butthemostsignificantbarrierislikelytobepoliticalopposition.Eventhoughsuchataxcouldbeimplementedinarevenue-neutralway,i.e.accompaniedbyareductioninothertaxesforaffectedparties,itisnotlikelytoenjoybroadsupport.Giventhecurrentwidespreadaversiontogeneraltaxincreases,feesareapotentiallymorepalatableoption.Feesdifferfromtaxesinthattheyareassessedinordertorecoversomeofthecostofprovidingaservicetoabeneficiary,ratherthansimplyraisingrevenueordis-incentivizingundesiredactivities.Tobepoliticallyacceptable,feesgenerallyneedtobedirectlylinkedtothecostofprovidingtheserviceandapplieduniformlyandfairlytoallbeneficiaries(thoughperhapsexemptionscouldbemadeforcertainentities),andfundsraisedthroughthefeeneedtobeappliedexclusivelytoprovidingtheservice.PennsylvaniaandDelawarehaverecentlyconsideredstatewidefeestofundwaterqualityinitiatives.Pennsylvania’sproposed“waterresourceusagefee”wouldbeassessedonlargewithdrawalsofwater–greaterthan10,000gallonsperday–byconsumerssuchasutilities,golfcourses,andnuclearpowerplants.Theproposedrateis1centper100gallonsifthewateriseventuallyreturnedtoitssource,and1centper10gallonsifitisnotreturnedtoitssource.Municipalwaterplantsandagriculturaluserswouldbeexempt.Basedoncurrentusagerates,thefeehasthepotentialtogenerate$245millionannually.71Delaware’sproposed“cleanwaterfee”wouldbeassessedonaper-householdandper-businessbasis,withratesbasedonpropertyvalue.Tax-exemptpropertieswouldbeassessedareducedrate,andagriculturalpropertieswouldbeassessedunderseparaterules.Parcelsintownswithstormwaterutilitieswouldalsoreceivefeereductions.Theproposedfeecouldgenerate$30millionperyearforfloodabatementandwaterqualityprojectsthroughoutthestate.72Dependingonhowthemechanismisdesigned,itcouldbearguedthatitfunctionsmorelikeataxthanafee.ThiswasthecasewithMaryland’sBayRestorationFund,afeeassessedonresidentsservedbywastewatertreatmentplantsoron-sitesewagedisposalsystemsandusedtoupgradetreatmentplants.73Whilethisfeeactuallyfunctionedmorelikeatax,themoreimportantpointisthatithasbeenincrediblyeffectiveatachievingitspurpose–reducingnitrogenpollutiontolocalwaterwaysandtheBay.Whenbuildingpublicsupportforanynewstatewidefee/tax,itwillbehoovestateleaderstoemphasizeitspotentialtoachievegoals.Anotherfee-basedoptionisthestormwaterutilityfee.Whilealocalratherthanstatefundingsource,stormwaterfeesareincreasinglybeingusedaroundthecountrytoprovideasufficient,dedicatedfundingforstormwatermanagement.Byshiftingtheresponsibilityformanaging–andfinancing–stormwatertothelocallevel,powerfulfinancingefficienciescanbeachieved.Virginialawauthorizeslocalitiestoestablishstormwaterutilityfeesorservicechargestosupporttheirstormwatermanagementprograms.74AnumberofstormwaterutilitiesalreadyexistinVirginiacommunities,includingChesapeake,Hampton,JamesCity,NewportNews,Norfolk,Portsmouth,PrinceWilliamCounty,Richmond,Suffolk,andVirginiaBeach.75TheCommonwealthcouldencourageotherjurisdictionstofollowsuit,throughoutreach,

71PAEnvironmentEditorialBoard.6/6/16.“Rep.SturlaWaterUseFeeBillWouldGenerate$245Million/YearforWaterPrograms.”PAEnvironmentDigest.Available:http://paenvironmentdaily.blogspot.com/2016/06/rep-sturla-water-use-fee-bill-would.html72Montgomery,Jeff.5/6/15.“Delawarebillwouldgive$30Myearlytocleanwater.”TheNewsJournal.Available:http://www.delawareonline.com/story/news/local/2015/05/06/delaware-clean-water/70909144/73MarylandDepartmentoftheEnvironment.“BayRestorationFund”website.Accessed5/23/17:http://www.mde.state.md.us/programs/Water/BayRestorationFund/Pages/index.aspx74CodeofVirginia.§15.2-211475USEnvironmentalProtectionAgencyRegionIII.2008.FundingStormwaterPrograms.Available:https://www3.epa.gov/npdes/pubs/region3_factsheet_funding.pdf

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training,andtechnicalassistance.Itcouldfurtherspurtheadoptionofstormwaterfeesbyofferingincentivestojurisdictionsthathavethem,suchaspriorityrevieworbonuspointsonstategrantapplicationsorareductioninrequiredlocalmatchforfundingprograms.

3.3.ImproveefficiencyandconsistencyofstatefinancingRegardlessofwhetherVirginiapursuesrevenuegenerationstrategiesinthenearterm,theCommonwealthcanreduceitsBayrestorationfundinggapbychangingthewayitpoolsandinvestswaterqualityfunds.ThefollowingideascouldhelpmovetheCommonwealthtowardamoremarket-likeapproachtowaterqualityinvesting.Further,theysetthestageformoreeffectivelyengagingtheprivatesectorandthemarketplaceinsupportofBayrestorationgoals–atopicofconsiderablerecentinterestintheBaywatershed.76PrivatefirmscanplayanumberofrolesinachievingTMDLgoals,fromdesigningandinstallingBMPstoprovidinginvestmentcapitaltomanagingentirerestorationprojectsviapublic-privatepartnerships.Thebenefitsofsuchengagementincludeenhancedinnovation,expeditedimplementation,andreducedcostsofcompliance.Butinorderforprivatecompaniesandfunderstoengage,theyneedtherightsetofenablingconditionstobeinplace,especially(1)predictabledemand,projectexpectations,andpermittingandprocurementrules,and(2)flexibilityinhowprojectsaredesigned,financed,andimplemented.

3.3.1.ChannelrestorationfundsthroughanindependentfinancingentityAsdiscussed,amajorshortcomingofVirginia’scurrentBayrestorationfinancingsystemistheinconsistencyoffundingfromyeartoyear.Virginiaiscurrentlyinvestigatingwaystoaddressthischallenge.Inits2017session,theGeneralAssemblydirectedtheDepartmentofConservationandRecreationtoestablishastakeholderadvisorygrouptoevaluatemethodstostabilizethefluctuationsinfundingforAgriculturalBMPs.77ThestudyisalsotoconsidertheimpactonthestaffingandtechnicalassistanceneedsoftheSoilandWaterConservationDistrictstoensurethatstaffingrequirementsdonotfluctuateorexceedtheirannualabilitytofullyimplementandoverseepracticeswiththefundingmadeavailable.ThestakeholderadvisorygrouphascommencedthestudyprocessanditsrecommendationsandfinalreportaredueNovember2017.78Tomaximizetheefficiency,consistency,andflexibilityofstateandfederalwaterqualityinvestments,Virginiacouldconsiderchannelingallwaterqualityrestorationfundingthroughanindependentfinancingagencyorauthority.Thisentitywouldhavetheauthorityandflexibilityto:

- Poolcapitalfromvarioussourcesincludingstate,federal,privateinvestors,andevenphilanthropicdonors,sothatpublicfundingcanmoreeffectivelybeusedinconcertwiththesesourcesofcapital.

- Spendthesefundsovertimeonthehighest-yieldprojects,investingwheneffectiveprojectsarereadytobefunded,notwhenpublicbudgetingcyclesdictate;

76ThiswasthetopicoftheChesapeakeBayEnvironmentalFinanceSymposium,heldApril2016.See:EnvironmentalFinanceCenter,UniversityofMaryland.August2016.ChesapeakeBayEnvironmentalFinanceSymposium:RecommendationsandFinalReport.77Thisstudymustinclude,ataminimum,(i)consideringincreasingtheportionofanydeposittotheWaterQualityImprovementFund(WQIF)directedtotheWQIFreserve,(ii)limitingtheportionoftheWQIFreservethatmaybeutilizedinanygivenyear,(iii)evaluatingthecombinedrevenuesavailablefromtheWQIFandtheNaturalResourcesCommitmentFundasastepinestablishingappropriateexpendituresfromthecombinedfundsinagivenfiscalyear,and(iv)distributinganyfundstobedepositedintotheWQIFpursuanttotheprovisionsofChapter21.1ofTitle10.1,CodeofVirginia,acrossabiennialperiod.78DavidDowling.VirginiaDepartmentofConservationandRecreation.7/15/17.CommunicationwithEFC.

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- Establishperformancecriteriaforwaterqualityinvestmentsandawardfundingbasedonthiscriteria(andadaptcriteriaasnewinformationbecomesavailableovertime);and

- Facilitatewaterqualitytradeswithinastateorregionalcreditfinancingsystem.Thisentitycouldadministerexistingwaterqualityfunds,and/oritcouldmanageanewfundinthecaseofarevenuegenerationmechanism.PoolingtogetherVirginia’svariedwaterqualityrevenuestreamswouldallowtheCommonwealthtorealizeefficienciesthatcomewithscaleandtoimprovecoordinationandprioritization,whichwouldultimatelyaccelerateimpact.Further,channelingthesefundsthroughanindependententityisolatedfrompublicbudgetingcycleswouldimprovetheflexibilityofinvestmentsandstabilizefundsovertime.Itwouldalsocreateafirewallbetweenwaterqualityinvestmentsandregulatoryprograms,enablinginvestmentstobefocusedexclusivelyonwaterqualityperformancegoals.Allofthisiscriticalforleveragingprivatecapital,astheprivatesectorvaluesclearexpectationsandmeasurableoutcomes.quickly.AnexampleofanentitythatfunctionsthiswayisthePennsylvaniaInfrastructureInvestmentAuthority(PennVEST).Createdin1988,PennVESTisstateauthoritychargedwithimprovingwaterqualitybyprovidinglow-interestloansandgrantsforthedesignandconstructionofwastewater,drinkingwater,andstormwaterinfrastructureprojects.79PennVESTalsomanagesthestate’snutrienttradingprogram,servingasaclearinghousefornitrogenandphosphorouscredits.Theagencyinvestsanaverageof$284millioningrantsandloansannually,80withrevenuecomingfromtheCleanWaterStateRevolvingFund,theDrinkingWaterStateRevolvingFund,stategeneralobligationbonds,PennVESTrevenuebonds,andloanrepaymentsandinterestearnings.81Theagencyhastheabove-outlinedcapacities:theabilitytopool,hold,andleveragerevenue;tofacilitatenutrientcredittrading;tomanageinvestmentsacrossarangeoffinancemechanismsfromtraditionaldebtfinancingtowaterqualitytrading;andtotargetinvestmentstowardnonpointsourcepollutionreductionprojectslikelytoachievestrongresults.AmongexistingentitiesinVirginia,apossiblecandidatetoserveasanindependentBayrestorationfinancingentitymaybetheVirginiaResourcesAuthority(VRA).VRAprovidesarangeoflow-costfinancingsolutionstoVirginialocalitiesforinfrastructureneedsacrossarangeofsectors.ShouldtheCommonwealthwishtoexplorethisstrategy,agoodstartingpointwouldbetoassessthecapacityofVRAtoperformthefinancingfunctionsdescribedabove.

3.3.2.AdvanceasystematicfocusonperformanceApowerfuloptionforreducingimplementationcostsandengagingtheprivatesectoristoadoptacomprehensiveperformancefinancingapproach.Thisapproachfocusesonthedesiredoutcomeratherthanthemeanstogetthere.Payingforresults(e.g.poundsofnutrientsorsedimentreduced)insteadofprojectsprovidestheincentivethatprojectimplementersneedinordertofindthemostcost-effectiveandhighest-performingpractices.Italsoprovidesclearexpectationsandrulesofengagement,oneofthekeyenablingconditionsforprivatesectorengagement.Virginiahasalreadydemonstratedacommitmenttoperformance-drivenfinancing,withbothWQIFandSLAFembeddingoutcomesintotheirfundingcriteria.Forexample,ina2016WQIFgrantcompetitionfor

79PennsylvaniaAssociationofConservationDistricts.April2014.“PennVESTNonpointSourceProgram:FrequentlyAskedQuestions.”Available:http://pacd.org/webfresh/wp-content/uploads/2012/03/FAQsApril2014Rev1.pdf80PaulMarchetti,PennVEST.CommunicationwithEFC,6/15/17. 81BrionJohnson,PennVEST.2012.“FinancingCleanWaterProjectsforPennsylvania”presentation.Available:“http://www.dvrpc.org/EnergyClimate/WSTP/pdf/Presentations/Pennvest.pdf

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localNPSprojects,fundingprioritywasgiventoprojectswiththehighestpollutionreductioncomparedtodollarsrequested,aswellastoprojectsthatmaximizedreductioninnitrogen,phosphorousandsediment.82SLAFhasadoptedapolicywherebyfundswillonlybeawardedtoprojectswithcostsbelow$50,000perpoundtotalphosphorousremovedperyear.83ExamplesliketheselaythegroundworkforVirginiatotakeamorerobustandsystematicapproachtowardperformance-drivenfinancing.ThiscouldbepursuedthroughanexplicitpolicyadoptedbyanewBayrestorationfinancingentityorforanewBayrestorationfund,ortheapproachcouldbeintegratedintoexistingBayrestorationfundingprogramsandmechanisms.Eitherway,aperformanceapproachwouldrequirereductionsinpoundsofpollutantsdeliveredtolocalwaterways,withpaymentstocontractorsbeingcontingentonthoseoutcomes.ThisisashiftawayfromfundingasuiteofpriorityBMPsorwatersheds(asVirginia’sagriculturalconservationprogramcurrentlydoes),towardfundingasuiteofoutcomesthatcanbemeasuredanddocumentedoverthelifeoftheprojectoranotheracceptabletimeframe..Projectmanagers–thoseclosesttotheproject–wouldbegiventheflexibilitytofindthebestmethodsforachievingreductions.Achallengewiththisapproachisthecostofmonitoring,measuring,andverifyingoutcomes.However,buildingthesecostsintocontractsnotonlyaccountsforthemupfront;itcreatesanincentivetoimprovetheefficiencyofmonitoringprocedures.Aspecificperformance-basedfinancingmechanismthatVirginiamightconsideristhepayforsuccesscontract.Inthismodel,stateorlocalgovernmentagenciescontractwithprivatesectorinvestorswhoprovideup-frontfundingtoaserviceprovider,whichinthecaseofwaterrestorationmaybeaprivatelandowner,nutrientcreditaggregator,watershedorganizationorothersimilarparty.Theserviceproviderconductswhateveractivitiesarenecessarytoproducethedesiredoutcome–e.g.poundsofpollutionabated.Ifthiscanbeachievedatacostbelowwhatthegovernmentagencyhasagreedtopay,theremainderisprofittotheinvestor.Thegovernmentagencythenrepaystheinvestors,oftenwithabonus,iftheprogrammeetsitsgoals.Iftheprogramfails,taxpayerspaynothing.Thepayforsuccessmodelofferssignificantbenefitstothepublicsector,includingimprovedperformance(asbetterperformanceequalsagreaterreturnoninvestment),increasedinnovation,andreducedcosts.Themodelalsotransfersriskfromthepublictotheprivatesector,whichisusuallybetterequippedtoefficientlymitigatethatrisk.84Virginiaisalreadypursuingpayforsuccessfinancingforearlychildhoodhealthcare,85andthemodelisbeingusednationwideinvariousfieldsincludingearlychildhoodeducation,criminaljustice,humanservices,andworkforcedevelopment.Ithasbeenlesstestedinthewaterqualityrealm,thoughtheDistrictofColumbiaWaterandSewerAuthorityispilotingapayforsuccessfinancingprogramforstormwaterretentionprojects.Thisapproachmeritsadditionalstudyandtesting,includingwhetheritcanbeeffectivelyundertakenatthestatelevelorifitwouldbemoreappropriatefortheCommonwealthtoencouragelocal-levelpayforsuccessfinancing.

82VirginiaSecretaryofNaturalResources.November2016.FY2016ChesapeakeBayandVirginiaWatersClean-UpPlan.Available:http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/RD4002016/$file/RD400.pdf83ValerieThomson,VirginiaDepartmentofEnvironmentalQuality.12/4/14.“Memo:AuthorizationofFY2015ProjectFundingList.”Available:http://www.deq.virginia.gov/Portals/0/DEQ/Water/ConstructionAssistanceProgram/FY15_SLAF_Memo.pdf84ThePayforSuccessLearningHub,maintainedbytheNonprofitFinanceFund,isarepositoryforinformationonthismodelandincludesanassessmenttoolforgovernmentstoevaluatereadinesstoimplementsuchaprogram.85VirginiaOfficeoftheGovernor.3/11/15.“VirginiaReceivesFederallyFundedSupporttoAdvancePayforSuccessinEarlyChildhoodHealthCare.”Available:https://governor.virginia.gov/newsroom/newsarticle?articleId=7964

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3.3.3.AugmenttheimpactofVirginia’swaterqualitytradingprogramThepotentialofmarketstoachieveenvironmentalgoalsmorequickly,effectively,andatlowercostthantraditionalregulatoryapproachesiswelldocumented.86Waterqualitytrading(WQT)inparticularisamarketmechanismthathasreceivedmuchattentionintheBaywatershed.Unlikestandardagricultureandstormwaterpollutioncontrolswhichrequireemissionstobeaddressedonsite,WQTallowsregulatedentitiestomeetpermitrequirementsbypurchasingreductionselsewhere,whichinprinciplemaximizesefficiency.Virginiaisaregionalleaderintheuseofwaterqualitytradingsystems;theCommonwealthhasbeenimplementingitsinnovativeandwell-regardedChesapeakeBayWatershedNutrientCreditExchangeProgramsince2005.Thisprogramcouldbecomeevenmorerobustbyimplementingsomeoftheotherstrategiespreviouslydiscussed,suchastighteningVirginia’snutrientmanagementand/orstormwaterregulations,whichcouldboostdemandforcredits,87aswellastransferringadministrationoftheprogramtoVRAoranotherentitythatissuitedtoefficientlymanagemarket-basedprograms.Anindependentfinancingentitymayalsobeabletoundertakemoreinnovativetradingmethodssuchasthereverseauction,inwhichsellerscompetetosupplybuyerswithaparticulargoodorservice(inthiscase,poundsofnutrientorsedimentpollutionabated).Becausesellersarecompetingratherthanbuyers,pricesarebiddownratherthanup.88Reverseauctionsareusedextensivelyintheprivatesector,andtheyhavebeenmodeledinenvironmentalconservationsettingsaswell,includinginPennsylvania’sConestogaWatershed.USDAhasestimatedthatreverseauctionscouldgeneratecostefficienciesofupto18%insomesettings.89TheCommonwealth’sWQTprogrammayalsoachievegreaterimpactbyshiftingtoamitigationbankingmodelinwhichfundingpreferenceisgiventoon-the-groundprojectsthathavebeendemonstratedtocosteffectivelyreducepollution.Throughthisapproach,Virginia’sBayrestorationfinancingentitywouldpurchasecreditsfromestablishedwaterqualityrestorationbanks,particularlythosewiththatmeetthehigheststandardsforperformanceandcostsavings.Byensuringthatreductionsareachievedpriortofinancing,thebankingapproachshiftstherisktothesupplier.Further,ifitisusedforvoluntaryorunregulatedreductions,rulemakingwouldbelesscumbersomethanitwouldbeinaregulatedmarket. Finally,tothedegreethatVirginia’scredittradingsystemcanbeintegratedwithotherprogramsthroughouttheBaywatershedastheyaredeveloped,thereisopportunitytoreducethebasin-widecostofcomplianceandaccelerateimplementationofoverallBayrestorationgoals.

3.3.4.Pursuepublic-privatepartnershipsRegardlessofwhetherVirginiapursuesthepreviousoptions,itmaybeabletoharnessthepoweroftheprivatesectorbyforgingpublic-privatepartnershipsatstateandlocallevels.Thepotentialuseofpublic-privatepartnerships(P3s)forstormwatermanagementinparticularhasattractedagreatdealof

86Shortle,James.April2013.“EconomicsandEnvironmentalMarkets:LessonsfromWater-QualityTrading.”AgriculturalandResourceEconomicsReview42/1.87NationalNetworkonWaterQualityTrading.June2015.BuildingaWaterQualityTradingProgram:OptionsandConsiderations.Available:http://www.usda.gov/oce/environmental_markets/files/BuildingaWQTProgram-NNWQT.pdf88Selman,M.,J.Guilling,J.St.John,andS.Greenhalgh.January2007.“PayingforEnvironmentalPerformance:UsingReverseAuctionsToAllocateFundingForConservation.”WorldResourcesInstitutePolicyNote.89Hellerstein,D.,N.Higgins,andM.Roberts,USDAEconomicResearchService.January2015.“OptionsforImprovingConservationPrograms:InsightsfromAuctionTheoryandEconomicExperiments.”EconomicResearchReportNo.ERR-181.

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attentionthroughouttheBayregion.AP3isacontractualarrangementbetweenapublicagencyandaprivatesectorentity,throughwhichthepartiescollaborativelydeliveragoodorserviceandshareinbearingthepotentialrisksandrewards.90P3scanbeusedforanentireprojectorforselectedaspects,suchasfinancing,design,construction,operationsandmaintenance,andmonitoringandevaluation.P3sarerelativelynewinthenonpointsourcerealm,thoughtheyhavebeenusedextensivelyinothersectorsincludingwastewater,transportation,andmilitaryhousing.Benefitsofthesearrangementsincludelowercosts,expeditedprojects,improvedassetmanagement,anddevelopmentofinnovativestrategiesandtechnologies.P3scanalsobedesignedtoachievespecificeconomicdevelopmentgoals,suchasaP3inPrinceGeorge’sCounty,Maryland,whichrequiresthatacertainpercentageofprojectactivitiesbeconductedbysmall,local,andminority-ownedbusinesses(seetheAppendixforacasestudyofthisproject).Despitetheirbenefits,P3sarenotapotofgold.Stateandlocalgovernmentswillstillneedtoidentifyreliablerevenuestreams(taxes,fees,grants,tolls,revolvingloanfunds,etc).Whenthesededicatedrevenuestreamsareavailable,however,aP3maybeabletobettermanageandleveragethem.Thesearrangementsarealsoparticularlyvaluableincaseswhenitisimportanttoreducepublicsectorriskortoavoidaddingpublicsectorcapacity.

3.3.5.Investinkeymarketsandindustriesassociatedwiththerestorationeffort,andintegratewaterrestorationwitheconomicdevelopmentinitiatives

Virginiaunderstandsthatcleanwateristhefoundationforahealthyeconomyandthatwaterqualityinvestmentscanstimulatesignificanteconomicactivity.Yettheremaybeopportunitytobetterintegratetherestorationeffortwithbroaderstatewideeconomicdevelopmentinitiatives.ThiscouldefficientlyadvanceVirginia’swaterqualityrestorationgoalswhilesimultaneouslymovingforwardotherstatepriorities,includingjobcreationandeconomicgrowth.Thefirstopportunityistodevelopindustriesandproductsthatsupportcleanwater.Anumberofsectorswithhighgrowthpotential–includingsustainableagricultureandfisheries,urbangreeninfrastructure,eco-tourism,andnature-basedrecreation–arepredicatedoncleanwater.Withitstidewaterheritage,Virginiaisassociatedwithsuchcleanwaterindustries,andfurthergrowthinthesesectorscouldattractnewbusinessesandskilledworkers,improvequalityoflifeforcitizens,andenhancethestate’sinfrastructurefoundationforlong-termeconomicgrowthanddevelopment.Second,thereistheopportunitytotargetinvestmentinBMPsthatalsosupportthelocaleconomy.AstudyconductedbytheEFCin2013showedthatinvestmentsinstormwatermanagementpractices,forexample,haveanimpactonlocaleconomiessimilartotheimpactofotherindustriessuchasconstruction.91Thereiscompellingevidencethateffectivewaterqualityinvestmentswillpayrealdividendstostateandlocalgovernments,andprojectscouldbeselectedwithaneyetowardacceleratingthateconomicimpact.Thisapproachtousingwaterqualityinvestmentstospurlocaleconomicdevelopmentactivityisakeyelementoftheabove-mentionedstormwaterpublic-privatepartnershipinPrinceGeorge’sCounty,Maryland,whichisonitswaytobecominganationalmodelinachievingmultiplecommunityeconomicandfinancinggoals.

90TheNationalCouncilforPublic-PrivatePartnerships.“7KeystoSuccess.”Accessed7/20/14:http://www.ncppp.org/ppp-basics/7-keys/91UniversityofMarylandEnvironmentalFinanceCenter.2013.StormwaterFinancingEconomicImpactAssessment:AnneArundelCounty,MD;Baltimore,MD;Lynchburg,VA.

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Third,theCommonwealthcaninvestigateincentivestogrowinnovativeinitiativesthatbothgeneraterevenueandfunctionasrestorationpracticesinandofthemselves.Someexamplesincludeoysterfarming,cultivatingfruitandnuttreeswithinforestbuffers,andinstallingwaste-to-energysystems;allofthesehavecapacitynotonlytocreatejobsbutalsotoimprovewaterquality.Virginiamaybenefitfromfosteringsuchinnovativeenterprisesthroughstartupincubators,businessdevelopmentassistanceprograms,entrepreneurialtraining,acceleratorprograms,revenuebondsforseedfunding,andsimilarefforts.

4.ConclusionVirginiaisaregionalleaderinadvancingeffortstorestorethehealthoftheChesapeakeBayaswellasitsownriversandcoastalwaters.TheCommonwealthnowhasanopportunitytoincreaseinvestmentinactivitiesthatwillenablethestatetomeetTMDLtargetsonschedule,andsimultaneouslytopursueinnovativefinancingapproachesthatwillenabletheseinvestmentstogoasfaraspossibleinachievingon-the-groundresults.Theoptionspresentedinthisreportarejustthat–optionsthattheCommonwealthmayconsiderasitchartsacoursetowardachievingitsgoalsofsufficientlyandefficientlyfundingwaterqualityrestoration.Whilesomestrategiesaretraditional,testedapproaches,othersrepresentadramaticallynewwayofdoingbusiness.Allwillrequireskillfulleadershipandexecution,aswellasbroad-scalesupportfromVirginians.Butthepaybackoftakingboldstepstowardimpactfulwaterqualityfinancingissignificant:cleanandhealthywatersthatsustainVirginia’seconomicvitalityandthewell-beingofitscurrentandfuturecitizens.

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Appendix

SourceAnnualcost($million)

Aggregatecost,2017-2025($billion)

VADept.ofConservationandRecreationannualfundingneedsassessment 184 1.66ChesapeakeAssessmentScenarioTool(CAST) 427 3.84Per-poundcost,NandP 0.08 0.72Average 203.69 2.07Notes:CASTscenarioassumesfullimplementationofBMPsinVirginia’sWIP,basedon2010initialloads.Per-poundnutrientreductioncostestimatesusethemedianvaluesforagriculturalBMPsperaliteraturereview($100/lbN,$1,000/lbP).SeeSection2.1fordiscussionandsources.

SourceAnnualcost($million)

Aggregatecost,2017-2025($billion)

ChesapeakeAssessmentScenarioTool(CAST) 875 7.88Per-poundcost,NandP 0.28 2.53Average 437.64 5.21Notes:CASTscenarioassumesfullimplementationofBMPsinVirginia’sWIP,basedon2010initialloads.Per-poundnutrientreductioncostestimatesusethemedianvaluesforstormwaterBMPsperaliteraturereview($300/lbN,$10,000/lbP).SeeSection2.2fordiscussionandsources.

Mediancost

($/lb)Requiredloadreduction

(millionlbs)Totalcost($million)

AgriculturesectorNitrogen 100 4.13 413Phosphorous 1,000 0.31 310StormwatersectorNitrogen 300 2.42 726Phosphorous 10,000 0.18 1800TOTALCOST 3,249Notes:Mediancostsderivedfromliteraturereview;seeSections2.1and2.2fordiscussionandsources.

Public-privatepartnershipcasestudy:CleanWaterPartnership,PrinceGeorge’sCounty,MD.92AhallmarkexampleofastormwaterP3intheChesapeakeBayregionistheCleanWaterPartnership,a30-yearagreementbetweenPrinceGeorge’sCounty,MarylandandCorviasSolutions,aprivatestormwatermanagementfirm.Finalizedinspring2015,thisagreementaimstoinstallgreeninfrastructureandlow-impactdevelopmentpracticesonupto4,000acresofimpervioussurfacethroughouttheCounty,inordertoensurecompliancewithfederalMS4permitrequirements.

Corviaswillmanagethedesign,construction,andlong-termmaintenanceofstormwaterinfrastructure;theCountyexpectsthatthisintegratedapproachwill“maximizetheefficienciesandsavingsfortheentirelifecycleofthegreeninfrastructureassets,”93aswellastransferrisksassociatedwithconstructionand

92PrinceGeorge’sCountyCleanWaterPartnershipwebsite.“FrequentlyAskedQuestions.”Accessed7/20/14:http://thecleanwaterpartnership.com/faqs/93Ibid.

Table8.EstimatedcostsofachievingN,P,andSpollutantloadreductionsinVirginia’sagriculturesector

Table9.EstimatedcostsofachievingN,P,andSpollutantloadreductionsinVirginia’sstormwatersector

Table10.EstimatedcostofabatingnitrogenandphosphorousinVirginia’sagriculturalandstormwatersectors

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maintenancefromthepublicsectortotheprivatesector.PrinceGeorge’sCountyhascommittedtoinvest$100millionbetween2016and2019toplan,design,andconstructprojectsonthefirst2,000acres.ProjectswillbecompletedacrosstheCountyandmaybecontiguous;prioritywillalsobegiventogreeninfrastructureinstallationsthatsupportthegoalsofvariousCountystrategicplans.

TheCleanWaterPartnershipisuniqueinitsscale–itisattemptingtomanageurbanstormwaterandmeetfederallymandatedrequirementscounty-wide.Theprogramisalsouniqueinitsworkforceandeconomicdevelopmentgoals;atleast30%ofprojectactivitiesaretobecompletedbylocal,minority-ownedsmallbusinesses,withaworkforcetrainingelementfoldedintotheprogram.Thispartnershipisstillinitsinfancy,andtheBaycommunityshouldwatchcloselytoevaluateitsprogressanddeterminewhetheritisamodelfortherestoftheregion.