July 2023 EPA 841-R-23-003
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Maryland's Powerful Strategy to Address Nonpoint
Source Pollution in the Chesapeake Bay
The Chesapeake Bay is the largest estuary in the United States, with an expansive watershed of
64,000 square miles reaching across six states. As one of the most productive bodies of water in the
world, essential habitat for fish and wildlife, and a recreational playground for millions of people, the
Chesapeake Bay is a natural resource of great economic and environmental value. But the health of
the Bay is under constant threat from water pollution. Phosphorus, nitrogen, and other contaminants
are carried into the bay by stormwater runoff from a watershed comprised of a patchwork of cities,
suburban and rural neighborhoods, farms, and transportation corridors. As a signatory to the
Chesapeake Bay Agreement, the Maryland Department of the Environment (MDE) engaged in this
EPA-sponsored pilot project to help their state Clean Water State Revolving Fund (CWSRF) program
pivot in new directions and expand the implementation of scalable, innovative nonpoint source
projects that support the health of this critical estuary.
Financing reforestation projects can effectively reduce pollutant runoff, support healthy soils,
sequester carbon dioxide, and potentially earn stormwater credits needed for permit compliance
in certain jurisdictions within Maryland. This approach is a core strategy in the State of Maryland's
Watershed Implementation Plan to reduce pollution in the Chesapeake Bay by 2025. MDE's Water
Quality Infrastructure Financing Administration, which administers Maryland's Clean Water
SRF program, in consultation with the Maryland Water and Science Administration's Watershed
Protection, Restoration and Planning Program, were inspired by the success of the Frederick County
Creek ReLeaf Program. They saw the potential to scale up a collaborative statewide ecosystem
restoration effort and leverage the financial might of Maryland's CWSRF program to further advance
the implementation of projects that address nonpoint source pollution.
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The Ecosystem Restoration Pilot
MDE has a strong program to address point source pollution. The goal of the EPA pilot project was to
create a viable pathway for using the CWSRF program to encourage reductions in nonpoint source
pollutant loadings to help meet the Chesapeake Bay Total Maximum Daily Load (TMDL). Specifically,
Maryland sought to use its CWSRF program to encourage reforestation on privately held lands (which
represents most of the ownership in the state) and to help local governments, counties, and their
partners finance their forestry efforts and earn restoration credits for stormwater permits. MDE used
the pilot to develop a framework for financing and quantifying the co-benefits of reforestation. The
pilot sought to broaden eligible practices that encourage the funding of nonpoint source projects
that align with the goals of the Maryland Department of Natural Resources (DNR) Chesapeake and
Atlantic Coastal Bays Trust Fund, the 2014 Chesapeake Bay Agreement, and the TMDL Phase III
Watershed Implementation Plan (WIP) 2025 targets and outcomes for EPA. These efforts will be
capitalized in part by the Maryland CWSRF program to complement existing DNR efforts that provide
funding for reforestation practices to reduce nonpoint source pollutant loads in the Chesapeake Bay
watershed.
Communicating Benefits
As part of this pilot, MDE also explored innovative approaches to messaging and marketing the
benefits of reforestation projects. The Department wants to incentivize participation, turning
concepts and ideas into actual projects. Compliance with stormwater permit requirements and
meeting the TMDL targets to achieve the restoration goals of the Maryland Phase III Watershed
Implementation Plan are top priorities for municipal and county government leaders and
stakeholders alike. Thus, finding a way to quantify the environmental outcomes and showcase
reforestation as a cost-effective way to achieve these goals is critical for MDE. They want to use
the assistance provided by the pilot to develop effective tools designed to assist communities and
stakeholders in assessing the potential costs and benefits of reforestation projects, and highlight
available financing options.
Hello MDFFIT!
MDE developed the Forest Financing Implementation Tool (MP FFIT) as a project planning tool that
shows how reforestation and native grass planting can be a cost-effective way to reduce nonpoint
source pollutant loads in the Chesapeake Bay watershed and restore watershed health in rural and
urban environments alike. The calculations are based on the conversion of existing land uses such as
crop, pasture, or turf to forest buffer as selected by the user. MD FFIT enables project implementers to
anticipate costs, consider financing needs and options, estimate pollution prevention and stormwater
credit earning potential, and measure project cost savings. The tool helps community leaders,
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drinking water and wastewater utilities, watershed groups, and other stakeholders evaluate and
document the benefits of investing in ecosystem restoration projects, so they can communicate those
benefits more effectively to key decision makers in their communities and take appropriate action.
The tool has two sections that help project implementers answer two different questions, depending
on how much information they have about a proposed project. The first section, called Discover MD
FFIT, answers the question: "How many acres can I restore if I have a fixed budget?" This section is
intended for users that don't have a lot of information about the project they are considering and
are interested in basic information about the benefits that might be realized with a specific budget.
The scenario is based on default assumptions about project parameters, and provides valuable
information about project acreage, credits, and estimated loan repayments for a project of a given
size. Figure 1 provides an example of some of the input and outputs of this section of the tool.
Figure 1
r You could earn
339 stormwater credits
Annual payments on
your loan could be as low as
$55,367
How many acres can ! restore on a fixed budget?
Discover MD FFIT
How much do you plan
on investing in the
project?
$1,700,000
Are you planning to
receive any grant
funding? Enter amount
here.
$250,000
What interest rate do you
expect to pay on a loan?
0.90%
How quickly do you plan
to repay the loan (in
years)?
The second section, called Project Planning, addresses the question "What size of a loan/grant mix
do I need to get in order to restore a fixed number of acres?" This scenario is entirely "user defined"
and is intended for users that have more detailed information about the project they are trying to
implement. The user enters line-item information to calculate a total project cost and determine the
environmental benefits to be gained by implementing the project. It also provides information on
the money that could be saved by financing the loan through the CWSRF versus using a bank or the
municipal bond market.
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The Project Planning section of MD FFIT helps a project implementer calculate the costs of working
with contractors and labor services, decide which elements of a project to retain versus outsource,
and estimate how competitive a loan proposal to MDE or a grant provider might be, based on nutrient
reductions and efficiencies. Calculations can be done in a matter of minutes with benefits and costs
laid out immediately.
Based on user-defined inputs, the Project Benefits section of the tool automatically generates a
summary of the co-benefits that may be realized by undertaking reforestation projects, such as the
annual reduction in total nitrogen, total phosphorus, and total suspended solids, and the number of
carbon credits earned. Figure 2 shows the anticipated environmental benefits for a 226-acre project
in a riparian zone.
Figure 2
JPIPiRflPPillPMIR
How much pollution could be reduced every year
by doing this project?
&
&
w
£
A
w
£
A
55
&
A
V/
5,190 lbs
Reduction in Total
Nitrogen (TN)
389 lbs
Reduction in Total
Phosphorous (TP)
44*44
44444
44444
277 tons
Reduction in Total
Suspended Solids (TSS)
565 -813 tons
C02 equivalent
absorbed
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Local jurisdictions often compare and select best management practices to achieve theirTMDL
targets based on the cost per acre of their different options. The Measuring Cost Efficiencies section
of MD FFIT conveniently lays out the implementation cost per acre for a proposed project, the annual
cost per pound per acre of pollution reduction, and cost per Equivalent Impervious Acre and per MS4
credit earned, annualized over the expected life of the forest restoration asset (typically 30 years), as
shown in Figure 3 below.
By running the numbers for a prospective project through MD FFIT, project implementers can quickly
estimate these critical metrics, generate reports, and share with key partners, stakeholders, and
financial assistance organizations.
Figure 3
What is the annualized cost per pound per acre for each
pollutant reduced by the project?
W
\|l Ita per pound
Total Nitrogen
per pound
Total Phosphorus
per pound
Total Suspended Solids
C02 Capture
Assumptions based on a 226-acre reforestation project
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Creative CWSRF Loan Structuring Options
The DNR Trust Fund currently provides between $5 and $6 million annually towards reforestation
and related efforts on public lands in the Chesapeake Bay and Coastal Bay watersheds. MDE sought
to leverage the flexibility and low interest rates of the CWSRF to further expand these efforts by
exploring several creative funding options and co-funding opportunities for funding these types of
nonpoint source projects. With most of the land available for reforestation being privately held, the
success of implementing MD FFIT will depend on the creation of effective public-private partnerships.
Fortunately, the state statutes that govern Maryland's CWSRF program allow for the program to
provide financing to private entities and nonprofit organizations so long as they have a dedicated
source of repayment and can provide adequate security for the loan.
The CWSRF Guarantee
A guarantee is an innovative, yet rarely utilized,
financing mechanism whereby the state CWSRF
program uses its authority to provide assurance
for a bond or other financial agreement for
another entity. This may be a public entity, such
as a municipality, or a private entity such as a
non-profit organization. In the event of a default,
the CWSRF would meet the terms of the entity's
bond. Due to the guarantee, the entity's bond will
adopt the credit rating of the CWSRF program.
Because CWSRF programs typically enjoy AAA
credit ratings, the guarantee can be a powerful
tool in lowering the interest rate of the entity
receiving it. The guaranteed bond is secured by
the entity's own repayment mechanism, with the
CWSRF's cash flows as an underlying security. If
the entity defaults on its debt, the CWSRF would
be required to step in and cover the debt service
on the bond, per the guarantee agreement.
Title VI of the Federal Water Pollution Control
Act Sections 603(d)(3) and 603(d)(5) allow state
CWSRF programs to use guarantees on bond
issuances made by public and private entities.
However, in Maryland this was previously limited
I Why use a CWSRF Guarantee?
A guarantee can provide a lower
interest rate by offering the SRF's
high credit rating.
The guarantee can be a benefit to
the entity receiving the guarantee if
they are a new entrant to the bond
market.
The strength of the CWSRF's cash
flows and bond market presence
can help reduce borrowing costs to
the guarantee recipient.
A guarantee can be a useful tool
for an SRF that is funds-limited and
does not have sufficient cash to
finance a direct loan.
The CWSRF would not be on the
hook for any cash outlays, unless
there is a default on the bond.
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to projects addressing wastewater facilities. As a result of this pilot, Maryland amended its
state statutes to expand its CWSRF guarantee authority as a means of financing various water quality
projects. This statutory revision now extends the guarantee to any public, private, or non-profit entity
utilizing green bonds or environmental impact bonds to pay for projects resulting in a water quality
benefit. Using this approach, MDE has approved the first ever loan guarantee to leverage carbon
markets and private finance to fund ecosystem restoration projects that improve water quality and
offer climate change solutions through healthy forests using the CWSRF program, as shown in Figure
4 below. This guarantee made to the Family Forest Impact Foundation for $2.5 million sets a national
precedent for CWSRF programs across the country.
Figure 4
4
MDE's First CWSRF Guarantee for the
Family Forest Impact Foundation
$2.5 million to enroll eligible land into the Family
Forest Carbon Program
~
5 Counties 17,813 Acres
and 135 landowners in
Western Maryland
streamside tree canopy
management acres enrolled
44444
44444
44444
81 tons/year
reduction in Total Nitrogen (TN)
as a result of doing the project
The Family Forest Impact Foundation seeks to enroll over 500,000 acres across the Central
Appalachian region into the Family Forest Carbon Program. The Foundation plans to issue a
series of green bonds each year beginning with $10 million in 2023 and subsequent issuances
of $8 million annually until 2027. To provide incentives for the 135 participating landowners in
Maryland, the Family Forest Impact Foundation plans to allocate 25% of the bond proceeds to
Forest Carbon Program efforts in Maryland using a CWSRF Guarantee from MDE's Water Quality
Financing Administration,
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Thinking Outside the Box
MDE and DNR continue to explore other creative financing mechanisms that take advantage of the
flexibility that Maryland's CWSRF program offers. This may include what is called an "afterpay"
loan structure which can leverage the grant funding made available by the DNR Trust Fund to help
make ecosystem restoration projects more affordable and offer a financial incentive to a community
partner (Figures 5,6). In this structure, the CWSRF provides bridge financing to implement the
project, with the DNR Trust Fund then reimbursing the implementer (landowner) for most of the
project costs at completion. This reduces the financial risk to the landowner and accelerates the
implementation of projects.
Another option that MDE and DNR may consider is to create a cooperative lending structure that uses
conduit lending, such as pass-through loans or a linked deposit mechanism, to reach ecosystem
restoration and reforestation projects on privately owned land. By passing funds to DNR with this
mechanism, the DNR Trust Fund would be able to offer a 50-50 grant/loan mix, allowing it to restore
twice the amount of project area at a significant discount (Figure 7).
Figure 5
What would an "afterpay" loan structure look like?
MDE provides a loan forthe project, which is bought out bythe DNRTrust Fund upon
completion.
MDE provides a loan to the project implementerthat is disbursed over3 years.
Year 1 includes planning, design, site preparation, and planting installation.
Years 2 and 3 are the assessment period.
The loan repayment term is 3 years.
The implementer pays annual principal and interest (P&l) based on the principal
outstanding.
The MD DNR reimburses the implementer 75 percent of the implementer's principal
and 100 percent of the interest payment annually. The remaining principal is paid out in
Year 4, after the project has been completed and certified.
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Maryland Clean Water SRF- DNR Trust Fund
Cooperative Partnership could
restoration activities
* Pairing $13 Million in low-cost CWSRF financing with
$13 million in Trust Fund grants could restore approximately
k 1,500 acres of riparian buffers and forestland
/ 1 Million
I 1 Ta+iI MHC /nM
compared to financing the
project with the CWSRF alone*
Total MDE/DNR
Investment
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Figure 7
CONDUIT LENDING ROLES & RESPONSIBILITIES
Pass-Through Entity (DNR)
Submit CWSRF loan application
Ensure repayment of CWSRF
loan
Determine funding levels for
various Community
Implementation Partners based
on need
Pass any principal forgiveness
on to Property Owners
Approved Forestry Contractors
Help market the program
Provide recommendations to
Property Owners regarding
plantings
Pre-planting land preparation,
tree planting, post-planting
assessment activities for 3-5
years
JL
w
&
Maryland CWSRF
Recruit Community
Implementation Partners
Enforce CWSRF program
requirements
Develop financial assistance
agreements, legal instruments
Process disbursements and
repayments
Annual oversight of
reforestation funding activity
The Family Forest Impact
Foundation (Community
Implementation Partner)
Determine demand for
reforestation in service areas
Determine organization's
internal capacity to expand
service to this need
Market the program using
existing networks
Assume risk of the loan
Establish underwriting criteria
and lending terms
Oversee administration and
performance of project
Oversee project design with
Forestry Contractors and
Property Owners
Select and manage Forestry
Contractors
Project reporting
Property Owners
Submit application to
Community
Implementation Partner
Provide access to property
from pre-planting to post-
planting assessment
Obtain local permits or
project approvals, if
necessary
Authorize disbursements
Repay loan to Community
Partner
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Public Outreach and Engagement
Once the MD FFIT tool and guidance was complete, MDE launched an active and ongoing
promotional campaign to introduce local governments and non-governmental organizations to the
tool, starting with developing a YouTube training video that provides an overview of the tool and
interactive demonstrations running different project scenarios. The link to the training video, as well
as a marketing brochure (Fig. 8), are posted on the MDE website. MDE has given presentations on MD
FFIT to numerous local governments and watershed groups, and there is continued interest from
stakeholders on the tool.
MDE has also discussed with the Office of Secretary of the Environment and the Air and Radiation
Administration how MD FFIT might help to implement the Tree Solutions Now Act, which was passed
in 2021 and subsequently created the Maryland Carbon Markets and Trees Commission. MDE leads
the commission and is using MD FFIT to support the Five Million Trees for Maryland initiative with
support from DNR,the Maryland Department of Agriculture, and the Chesapeake BayTrust. Together
they are coordinating the tracking and implementation of this tree planting goal.
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Figure 8
Maryland Forest Financing Implementation Tool
PURPOSE
To promote more trees using a mix of loans and grants
To select the best strategy
o Trees have so many benefits, they are perhaps the best
management practice (BMP)
o Riparian forest buffers (RFB) can be as cost effective as
agricultural BMPs and more effective than some urban BMPs
© This tool helps you determine your costs per pound per acre
To set responsible financial goals over time
o Gives you a starting point to estimate the cost of a project
o Then you can mix it up by comparing scenarios
o You can choose the most cost effective, healthiest outcome
The Maryland Forest Financing Implementation Tool (MD
FFIT) is a free, easy-to-use calculator designed to assist
MD local governments, counties, and their partners
seeking ways to fund forestry efforts and earn restoration
credits for stormwater permits.
MD FFIT can be used to review different implementation
scenarios; evaluate how much a forestry project would
cost; estimate how many MS4 credits you can earn; and
how to quantify the environmental co-benefits you can
achieve.
Forest Financing
Tool?
+ The regulated
community, under all
MS4 stormwater
Permits.
+ Non-Profits/NGOs
who partner to create
habitat and plant trees
MD FFIT Technical Assistance
+ Financial Planners
who budget for
restoration and need to
achieve savings
+ Grant seekers who
need to have cost
effectiveness info
quickly available
+ Citizens who want to
see more forests in
their communities
OPERATION
Using MD FFIT takes
Download the tool, w;
Inputs can be cost of
Outputs can be acres
Riparian forest buffer:
o Try other seen
Scan this Q
Code to viev\
MD FFIT
Live DEMC
mm
m
Maryland Department of the Environment,
1800 Washington Boulevard, Baltimore, MD 21230
MDE Points of Contact
Financial Questions - Contact MDE's Water Quality
Financing Administration by calling (410) 537-3972 or email
michael.roberts@marvland.gov
Watershed Restoration Questions - Contact MDE's
Integrated Water Planning Program by calling (410) 537-3689
or email paul.emmart@marvland.aov
MD FFIT can help you to:
MEET MS4
Permit
Requirements
n
n
your
Restoration
CALCULATE
your MS4
credits and
see your
SAVINGS
Make cost
effective
DECISIONS
n
T
Maryland Department of the Environment,
1800 Washington Boulevard, Baltimore, MD 21230
-
¦Frequently Answered Questions
by Using MD FFIT
How many acres can I restore with $1M?
The calculator uses real-world default
values for the cost of incentive payments
to landowners, trees and maintenance to
answer how many acres you can restore.
You can change the amount to suit your
budget and the tool will adjust according
to your inputs.
What will it cost to restore 250 acres?
You can modify the acres using your
inputs to calculate the costs of a project.
You can find out how much an annual
payment over 5-10-15 years would be to
finance the restoration.
If I plant trees how many do I need to
put /n?The tool is an Excel spreadsheet
and inputs for tree density (100/ac up to
400/ac), pre- and post-planting service
costs, incentive payments, etc. are all
inputs you can adjust.
What MS4 Credit can I receive for 100
acres of Riparian Forest Buffer? RFB gets
the most credit and one acre of trees
planted can equate to 1.5 acres of credit.
How much will my Nitrogen &
Phosphorus reduction cost per pound per
acre?The tool will auto calculate each
cost on a $$/lb/ac basis so you will know
your reduction costs immediately.
How cost effective is my project? You can
see the cost of implementing RFB (and
compare it to other BMP costs) on a $$
spent per acre basis to know if you are
saving - and, it is easy to save!
Lany Hogan, Governor
Boyd Rutherford, lieutenant Governor
Ben Grumbles, Secretary
lloracio Tablada, Deputy Secretaiy
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MDE has succeeded in creating an engagement strategy capable of reaching the underserved
urban communities, agricultural landowners, public and private stakeholders needed to realize
environmental goals in the Chesapeake Bay using tools like MD FFIT. This outreach campaign has
resulted in a new partnership with the Alliance forthe Chesapeake Bay and DNR Forest Service on
a $125,000 Landscape Scale Restoration Grant from USDA that will use MD FFIT to work with local
communities from 2022-2025. Other notable marketing and outreach with key partners include:
^cvaco st/j)
BALTIMORE
METROPOLITAN
COUNCIL
Hagerr.town
Maryland Municipal
Stormwater Association
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The Power of Collaboration
The success of establishing innovative financing mechanisms and implementing the MD FFIT tool to
quantify the benefits of ecosystem restoration projects required a strategic approach to watershed
finance partnership development. This meant developing a deep bench of resources and experiences
from various stakeholder groups across the public and private sectors. Many of the partners in the
pilot engage with a broad cross-section of stakeholders, particularly the DNR Trust Fund programs
that actively support numerous reforestation efforts across Maryland such as The Maryland Forest
Foundation. Tree Baltimore. Tree-Mendous Maryland, and Trout Unlimited. In fact, the DNR Trust
Fund already works with more than 30 nurseries and landscape service providers across the state,
which makes them an effective partner for the implementation of reforestation projects on a
statewide scale and well-positioned to help the program achieve further growth and expansion in the
future.
The partnership between MDE and the DNR Trust Fund is proving to be critical for further advancing
the goals of Maryland's Phase III WIP forthe Chesapeake Bay. The Maryland CWSRF program has
the robust financial resources necessary to support broad implementation of nonpoint source
project initiatives like reforestation undertaken by other state agency partners. MDE and DNR
continue to explore options and work toward the best plan for implementing an optimal co-funding
arrangement. Through their partnership, ecosystem restoration efforts and outcomes are poised to
grow significantly.
By working together, MDE and DNR are making important improvements to the Chesapeake Bay
and its surrounding habitat using ecosystem restoration in both urban and rural environments
and influencing groundbreaking new state legislative policy. On July 1,2022, a new Conservation
Finance Act went into effect in Maryland. This landmark piece of legislation establishes new state
policy priorities that support the integrity of healthy watersheds, including the conservation and
reforestation of forests, and makes ecosystem restoration projects eligible forthe same forms
of financial assistance as other wastewater and drinking water infrastructure projects. This bill
galvanizes the partnership between the CWSRF program, MDE, DNR, and local communities which
will benefit from greater access to innovative and flexible financing options.
This work was completed by Northbridge Environmental Management Consultants under GSA Contract Order# 68HERC21F0435. 15
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