From Proposals to Progress: Using Pay for Performance to Mobilize California’s 2020 Water Resilience Portfolio

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.  

Watershed Protection

Watershed protection often includes staggering cost projections to meet water quality-based standards. To overcome this, local governments and water utilities focused on watershed protection can write PFP contracts linking project payment to verified pollutant load reductions.

In Anne Arundel County Maryland, a proven PFP program is entering its fifth year delivering treated and maintained impervious surface area. Since the program started, new supplies of treated impervious surface have emerged from private property, delivery of projects has accelerated, and costs per acre have dropped significantly.  

In Southern California, Environmental Incentives is supporting local governments to reduce pollution through PFP stream restoration contracts. And, in Tahoe, local governments and highway departments exceeded their pollutant reduction milestones using the performance-driven Lake Clarity Crediting Program. 

Water and Agricultural Sustainability

Agricultural production, transportation needs, housing, urban growth, and wildlife habitat all compete for land in California. Critical habitats for iconic western species have been depleted, and the demand for land is only expected to increase in the coming years. 

Environmental Incentives is working with partners, including Environmental Defense Fund and California Department of Water Resources, to create a new funding stream for farmers who create habitat on their working lands in the Central Valley. Through performance contracts, project verification, and clear definition of habitat using Habitat Quantification Tools, our team will be able to clearly demonstrate environmental return on investment. 

Increased Water Efficiency

Photo courtesy of Jellaluna at Flickr.com

In the coming year, water agencies and local governments in California will face daunting expectations from the state as they work to make ”conservation a way of life” through SB 606 and AB 1668 and submit Groundwater Sustainability Plans.   

Water managers can leverage PFP to achieve efficiency improvements. In the Metropolitan Water District of Southern California, the Water Savings Incentive Program provides participants a rebate based on verified water savings. Other rebate programs in California could increase the return on investment by linking rebates to water bills and water meter data. Further, water quality programs have the opportunity to develop their own rebate programs that leverage PFP to improve both water quality and efficiency.  

To learn more about Environmental Incentives’ approach to PFP click here. Contact us to schedule a meeting to learn how our expertise can help your program reach its goals.