Governor Gavin Newson released California’s new Water Resilience Portfolio (Portfolio) on July 28, 2020. It highlights common water management challenges across the state and outlines innovative solutions. However, it does not provide a dedicated funding source for water managers to pursue the 142 proposals it contains.
With the likely economic downturn from COVID-19, declining water revenue from reduced water use, and limited bond funds remaining, water managers may find it challenging to fund the Portfolio’s proposals. To enact these proposals, they will need new and creative funding strategies.
Pay for performance (PFP) contracting is one such strategy. By linking project payment to verified outcomes and reducing project costs over time, PFP can make Portfolio proposals achievable. PFP allows water managers to transfer project delivery risk to those in the best position to manage it – contractors – by paying for outcomes (e.g., water efficiency improvement) rather than actions (e.g., project construction). In comparison, traditional agreements, such as grants and cost-plus contracts, often misalign the incentives between the water manager and contractor. Contractors are paid for actions rather than outcomes, providing no reward for cost-efficiency or effectiveness. The water managers are then left to bear the full risk if projects do not deliver the planned results.
Environmental Incentives is successfully applying PFP to water management challenges highlighted in the Portfolio through its work with environmental resource managers in California, across the United States, and internationally. This work includes watershed protection, water and agricultural sustainability, and increased water efficiency.