Green Infrastructure can do it all... if only we let it

For years, FEMA has been criticized for deflating flood risk to prevent insurance rates from skyrocketing. In late June, First Street published a new report exposing hidden flood risk throughout the United States. Compared to FEMA risk data, First Street identified millions of additional properties at risk of flood damage. For example, FEMA’s report shows that only .5% of properties in Los Angeles are at risk for flooding. First Street’s analysis says this number is closer to 12%. This should come as no surprise if you’ve been tracking the increase and intensification of climate events. Further, properties facing flood risk are increasingly vulnerable because of aging and undersized grey infrastructure. This infrastructure was originally sized to collect and reroute stormwater away from properties. But, over the years, storm intensity has overwhelmed stormwater infrastructure.

Shifting from Grey to Green Infrastructure

In 1987, the Clean Water Act was amended to promote the use of green infrastructure to better manage stormwater runoff and flooding. Green infrastructure is defined as “… the range of measures that use plant or soil systems, permeable pavement or other permeable surfaces or substrates, stormwater harvest and reuse, or landscaping to store, infiltrate, or evapotranspirate stormwater and reduce flows to sewer systems or to surface waters.” This isn’t as technical as it sounds. Green infrastructure is any infrastructure that sinks, slows, and reuses stormwater runoff, like rain gardens, wetlands, green roofs, detention tanks, and creek restoration.

Green infrastructure can extend the life of grey infrastructure by reducing stress to stormwater pipes. It is also more cost effective than grey infrastructure, saving millions in construction costs. Philadelphia’s city-wide Green City, Clean Waters program is projected to save the city $8 billion over a 25-year implementation period. And, Chicago’s Green Alley Program is estimated to manage stormwater 3-6 times more effectively per dollar than conventional grey infrastructure. Another source of cost savings comes from reduced energy use with green roofs and tree plantings that can cast shade and temper urban climates. On top of this, green infrastructure creates jobs and provides public health benefits. For example, Ontario’s green infrastructure sector has created more than 120,000 jobs.

Despite the benefits of green infrastructure and the need for nearly 800 communities to reduce stormwater runoff under the Clean Water Act, green infrastructure is still a novelty for many. Without having the technical expertise to design and maintain green infrastructure, municipalities fall back on conventional grey infrastructure. To make the shift toward green infrastructure requires new incentives and structures that value community health and well-being… enter green infrastructure investments.

Financing a Better, Cleaner, and Healthier Future

Like many infrastructure assets, green infrastructure assets have social and environmental value that is difficult to quantify. New financing structures are finding ways to capture that value as indirect revenue sources. Research from the University of Texas estimates that property values can increase up to 20% with abutting or fronting parks. With this logic, tax incremental financing has been used to front the cost of green infrastructure. Incremental tax increases from rising property values can be captured to pay back initial construction costs. Similarly, property assessed clean energy (PACE) financing has been applied to green infrastructure, to be repaid by an annual assessment on property taxes.

Increasing green space, not only increases property values, it also decreases stormwater runoff and that indirect benefit can be quantified in flood insurance premiums and stormwater credits. To capture these multiple indirect value streams, cities and other infrastructure and property developers have issued their own green bonds. And, the idea of a water fund has been floated to ensure a revolving stream of investment towards green infrastructure for the purposes of clean water.

Realizing the Local Benefits of Green Infrastructure

Local communities directly benefit from green infrastructure and realize the costs of not installing green infrastructure. This is highlighted with First Street’s new flood risk map. Empowered to make local changes, one neighborhood in Portland used green infrastructure to revitalize the community. Living Cully is a grassroots program that builds parks and gardens as a way to create local wealth and reduce displacement. Through tremendous community engagement, Cully, Portland has become a rogue ecodistrict that has provided health benefits, created new jobs, and constructed green streetscapes that improved pedestrian safety. Harnessing the grassroots nature of this green infrastructure revolution, Living Cully turned towards crowdfunding.

But, Cully’s approach should not be unique. Crowdfunding has an opportunity to realize the local, social, and environmental value of green infrastructure. Communities can use crowdfunding, outside of traditional means, to finance and fund the delivery of better infrastructure, infrastructure that can be enjoyed by all and effectively reduce flood risks.

Read the original blog at InfraShares.com.

Infrastructure Disrupted: New Business Models for America's Oldest Assets

The public investment and ownership model for infrastructure assets isn’t working anymore. As the infrastructure funding gap increases, it’s time for us to find and invest in new business models for constructing and maintaining key infrastructure assets. This means looking for new revenue streams and rethinking life cycle costs. We often think about private investment models and public-private partnerships as solutions. But, there are a spectrum of options.

Just as companies have stepped up to innovate around materials and technologies, there are companies innovating around business models. These business models are set up to overcome the many obstacles of investing in infrastructure. Those obstacles start with infrastructure’s complex life cycle with many different stakeholders. The legacy and ‘lock in’ nature of infrastructure systems make them necessary and natural monopolies. And, on top of all that, there are external, difficult to value, externalities of infrastructure systems. To overcome these obstacles, companies are stepping in to disrupt and break down these issues.

This is most commonly seen in the transportation sector, where Uber and Bird have flipped the “last mile” problem on its head. No longer is the solution about extending public transit systems or improving pedestrian infrastructure. These companies are monetizing the idea of transportation as a service (TaaS)- pay as you use it. The pervasiveness of these companies is having huge effects on the transport sector. Estimates project that TaaS could save families $5,600/year and reduce the global fleet from 247 million in 2020 to 44 million in 2030. This new paradigm is creating opportunities for every infrastructure sector to innovate and unlock capital.

We’ve gone ahead and highlighted a few of these models. You’ll be surprised to learn that while the private sector is playing a big part in this, the public sector has played a key role to incentive investments in new business models.

Zero down commitments:

One of the biggest barriers to infrastructure investment is the high capital costs. We’ve seen many energy companies finance themselves to reap huge benefits in building more efficient energy networks. Solar companies, like SolarCity, enter into long-term operational contracts with customers. They install solar panels on buildings for a relatively low cost and reap the pay-back through monthly utility bills. Since the efficiency of these panels is greater than the utility service, the customer sees a lower energy bill and the installer is still making a return. Los Angeles’ PACE program incentivizes these services by allowing homeowners to install without any upfront costs. And, other localities have leveraged this model to bring in private investment to install LEDs in public lighting and lower their own operational costs with very little upfront costs.

Credits galore:

Credits are being used to solve the problem of valuing infrastructure’s external impacts. The most common kind of infrastructure-related credits are carbon credits. Companies who produce too much carbon can buy credits from “low carbon” companies. This model is the basis of Washington, DC’s Stormwater Retention Credit (SRC) program. Projects that reduce stormwater runoff can earn credits and sell those to projects that have too much stormwater runoff. From here, a new market is created, where investors can buy and sell credits to improve the return for projects. Leading the front, Prudential invested $1.7 million in District Stormwater LLC and is helping property owners install green improvements for free in exchange for retention credits.

Rain gardens built by District Stormwater, LLC

Going, going,… gone!

Typically, infrastructure assets are permanent. Choosing where that infrastructure is located becomes contentious and can lead to costly predevelopment processes. Reverse auctioning takes a new approach and let’s residents decide where distributed infrastructure should be sited. In Cincinnati, residents got to decide how much they would need to be paid to have a water basin located on their property. Then, the local government determined where the lowest cost and the highest environmental benefit would be. Those selected for a water basin were paid what they stated during the reverse auction.

Capturing new value:

When taxes don’t pay for infrastructure, we usually see user fees pop-up. But, what if there was another way to capture improved value? Improving infrastructure has an indirect effect on property values (and hence property taxes). The Santa Ana River Watershed established a Enhanced Infrastructure Financing District that collects revenues from the incremental increase of property taxes. This is more commonly referred to as tax increment financing and has been used widely by quasi-government entities like Business Improvement Districts.

For Rent:

Other infrastructure companies are leveraging growth in circular economy companies which are projected to boost economic growth by 4% and introduce 200,000 jobs by 2030. Instead of thinking about purchasing space, materials, and equipment, these companies are creating products for the built environment that can be reduced, reused, and recycled. In the spirit of the circular economy, Solvitect is repurposing rooftops and parking lots to implement energy and (storm) water solutions. As Solvitect is, in effect, renting these spaces, others have established online marketplaces for renting out materials and equipment in the built environment.

But, how do we continue to rethink these business models? Because of infrastructure’s legacy within the public sector, the government has set rules for how these systems are constructed, maintained, and financed. In many cases, the government needs to establish new policies, in effect sparking and building private investors interest and confidence. In 2017, DOEE rolled out a Price Lock Program and Aggregator Startup Grants to do just this. Other localities are following suit.

Interested in learning more? Check out my original article at InfraShares.com.

How to Bring Sexy (Back) to Construction with ConTech

Start-up companies come to crowdfunding platforms eager for new financing streams and (more importantly) a way to build brand awareness. And, prospective investors flock to crowdfunding platforms eager to find new technologies to expand their businesses, leverage external innovation, and make financial returns.

The Risk and Reward of Start-Ups

Because start-ups are naturally risky, each investment opportunity is a balancing act between risk and reward. Data shows that only 50% of start-ups make it to their fifth year. To instill confidence in the crowdfunding process, platforms have taken it upon themselves to heavily vet prospective business ventures and start-ups.

While this level of oversight is common among crowdfunding platforms, crowdfunding adds an additional layer of certainty for start-ups. Often, start-ups are looking to cross the valley of death by understanding and penetrating a market. For an industry- like construction- that has been slow to adopt technology, crowdfunding offers a unique opportunity for start-ups- especially ConTech– to build resources and reputations to make it across the valley of death.

As ConTech start-ups make their way to crowdfunding platforms, they are seeking crowd validation and interest in the market. So, how do you make the most of your crowdfunded investment, for yourself and for the start-up?

Evaluating Investment Opportunities

First, decide why you want to invest. Crowdfunding offers a two-pronged financing approach for start-ups and investors. Savvy start-ups come to the crowdfunding market to interact with the market and understand demand. Therefore, ConTech, as an emerging industry, has found a home on crowdfunding platforms.

Crowdfunding, while it may seem daunting for novice investors, offers innovators, early adopters, and even the early majority a first look into novel technologies. Therefore, their investment decisions are motivated by instinct and deep market knowledge. In short, these investors invest in start-ups that are developing direct solutions to problems they face.

When we put this in relationship to ConTech, crowdfunding attracts industry practitioners looking for new ways to improve construction safety, reduce project uncertainty, better manage labor, money, and time, and provide a competitive edge. Making that connection between purpose, technology, and investment provides confidence to both investors and start-ups.

Second, research the start-up. Believing that the start-up provides a direct solution to known problems means there is a real market. While that might be the most important criteria, investors must consider several other criteria:

1. Identify the Competitive Advantage: Investors should identify potential competitors and understand why the start-up/technology in question is unique in the marketplace.

2. Know the Team: One of the biggest strengths of start-ups is their ability to move quickly when the market changes or an obstacle arises. That ability to move comes from the expertise and experience of the start-up’s leadership.

3. Understand the Business Model: Is this start-up selling a subscription service, a one-time product, or a customized solution? Knowing where the revenue for a start-up is coming from is key to understanding it’s viability.

4. Expect a Timeline: Start-ups come to crowdfunding platforms at all different stages. As a start-up matures, they should be able to show their growth through prototypes and beta partnerships with industry practitioners.

Investing on a Crowdfunding Platform

Crowdfunding is unique in that it makes the evaluation process more transparent to so many more potential investors. As start-ups cross the valley of death and attract early adopters, they need crowd validation. This makes it an exciting and also daunting option for novice and experienced investors.

Read my original piece on InfraShares.com and learn more about how to invest in ConTech on this crowdfunding platform.

Growing Wealth in Opportunity Zones: A Proposal for Community Equity Trusts

The absence of wealth creation in the African American community is at the root of lingering social inequalities. Where racism is the “disease”, insidious, inter-generational poverty, and societal and health inequities are the symptoms. Any attempt to cure this disease must begin with an imperative to ensure clear pathways to family wealth creation, wealth that may be transferred from generation to generation, inherited, accumulated and capitalized. Any cure must also ensure that wealth arising from equity investments in communities of color is at least shared with, and not extracted via sophisticated financial instruments that continue to prey on, these ever-vulnerable communities. This, we believe, is the essence of equitable community development.

Read the original piece authored by Kofi Bonner, Bruce Katz, Roberta Achtenburg, Lori Bamberger and myself.

Crowdfunding and Recessions: Two Peas in a Pod?

During recessions, banks and institutional investors, once eager to take on smaller projects and riskier ventures, tighten their lending standards and slow down investment outflows. The government can counteract these trends with loan programs and credit enhancements. But, during a recession, these dollars dry-up quickly, leaving businesses reeling.

Even under these conditions, recessions can catalyze innovation. During the first year of the 2009 recession, more than 550,000 new businesses launched. Instead of relying on traditional capital, these entrepreneurs turned towards the crowdfunding marketplace to receive capital at a magnitude otherwise unseen.

With early success, the crowdfunding market grew 54% between 2010 and 2011, grossing more than $830 million dollars among 1.2 million crowdfunding campaigns. Since then, the growth of the crowdfunding market has dwarfed these numbers. Crowdfunding’s success quickly moved beyond donation campaigns, to debt and equity opportunities.

As the recession continued to impact bottom lines, Congress shepherded the Jumpstart Our Businesses (JOBS) Act, giving credence to the crowdfunding market. In the years to follow, hundreds of crowdfunding platforms got their foothold, diversifying their position in the market in terms of model and offerings. Whereas access to investments used to be reserved for banks and institutional investors, crowdfunding opened these options to a wider pool of money. In doing so, entrepreneurs and capital seekers, sought more than just capital. They sought crowd approval, reducing demand risks.

In 2019, business journals started to see the writing on the wall- we were heading toward an impending recession, one that would bring a decade’s bullish market to a slow down. But, no one predicted the rearing economic halt of Covid-19. Similar to the 2009 recession, government programs have stopped short of supporting these businesses and providing a safety net for critical economic programs. Crowdfunding, after years of growth and ongoing regulatory clarity, is well positioned to fill the gap for small businesses, emerging businesses, and cash-strapped local governments.

Investors are looking beyond the turbulent economic conditions of Covid, and the impending recession, to diversify their portfolios and associated returns. They recognize the tumultuous state of the stock market and are looking for alternative places to put their dollars. And, entrepreneurs and small businesses are flocking to the crowdfunding market, eager to find alternative capital sources. These two sides are meeting on crowdfunding platforms.

Just as the 2009 recession created the perfect environment for this to occur, we are seeing the stage set for crowdfunding’s second rise. As the SEC relaxes regulations, crowdfunding platforms are in a tight position to ensure they support and vet new opportunities while informing potential investors, all in the hopes of maintaining confidence.

Read my original piece on InfraShares.com and learn more about how this crowdfunding platform is stepping up.