ENVIRONMENTAL FINANCIAL ADVISORY BOARD
Members
Kerry O'Neill, Chair
Ashley Allen Jones
Courtney L. Black
Steven J. Bonafonte
Angela Montoya Bricmont
Matthew T. Brown
Stacy Brown
Theodore Chapman
Albert Cho
Janet Clements
Lori Collins
Zachary Davidson
Jeffrey R. Diehl
Sonja B. Favors
Phyllis Garcia
Eric Hangen
Edward Henifin
Barry Hersh
Craig Holland
Craig A. Hrinkevich
Margot Kane
Thomas Karol
George W. Kelly
Gwendolyn Keyes Fleming
Cynthia Koehler
Colleen Kokas
Joanne V. Landau
Lawrence Lujan
MaryAnna H. Peavey
Dennis A. Randolph
Eric Rothstein
Sanjiv Sinha
William Stannard
Marilyn Waite
David L. Wegner
Gwen Yamamoto Lau
David Zimmer
Designated Federal
Officer
Edward H. Chu
September 16, 2022
The Honorable Michael S. Regan
Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington, D.C. 20460
Dear Administrator Regan:
The Environmental Financial Advisory Board ("EFAB") was engaged by the Office of Policy on the
topic of potential roles for EPA in attracting private investment to Opportunity Zones. EFAB took
up a Charge on this topic at its February 11-13, 2020 meeting and further refined the Charge at its
April 20-20, 2021 meeting . EFAB's scope of work for the Charge included:
Facilitating Investment (Marketplace/Matchmaking): Advise EPA on how to enhance the
Agency's approach to encourage increased Opportunity Zone ("01") funds investment
into both rural and urban communities alongside existing EPA funding tools, programs,
regulatory/permitting flexibility and federal and state partners.
Provide examples and advice and support to communities, including ways to minimize risk
for investors, and to investors seeking to direct OZ Fund investment into low-income,
minority, and/or otherwise vulnerable communities, reflecting environmental justice
principles. Note where community benefits standards and guidance have been developed
[or are so far lacking] that may be relevant to OZ-funded projects in these communities
and the value of such community benefits can be achieved.
Provide recommendations on where EPA may uniquely be situated to coordinate with
investors and other agencies in encouraging/identifying OZ investment opportunities in
high-priority communities from an environmental justice standpoint, including low-
income, minority, tribal, and indigenous communities that bear disproportionate
environmental risks and damages.
This letter provides advice, examples and recommendations on how EPA can facilitate attracting
more private investment to communities that qualify for investment under the OZ program.
Executive Summary
By definition, communities designated as OZs have a high degree of overlap with people of color,
low-income, and indigenous communities as well as communities with Environmental Justice
("EJ") concerns, and as such these communities are eligible for a range of public funds from
various agencies, particularly HUD , and subsidized private capital enabled programs such as
NMTC investment and USDA and SBA guarantees.
Many of our communities encounter barriers to accessing all of these sources of capital, inclusive
of OZ capital. Frequently, these barriers are non-financial, such as staff capacity, planning
resources, access to technical vendors (particularly for smaller projects), and underdeveloped
Creative Approaches to Funding Environmental Programs, Projects, and Activities
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networks. These barriers exacerbate challenges already present as financial barriers for many
communities, such as limited borrowing capacities and shrinking ratepayer bases.
In the EFAB's deliberations regarding the OZ Charge from EPA, including conversations with practitioners
managing OZ funds (see Appendix), it became clear that the areas under EPA's purview could uniquely
help address certain of these barriers in order to enable both private and public capital to flow to these
communities. As a tactical matter, given the uncertainty around the permanence of the OZtax benefits,
it is prudent to plan for any action on behalf of the EPA in such a way to create better enabling
conditions for as wide a selection of capital as possible, in order to increase long-term access and
supports for overburdened communities. Additionally, given the scope of programs and activities both
at federal and state levels and when EPA resources tend to be deployed by communities in project
development, it would be challenging and potentially inappropriate for the EPA to play a "matchmaking"
role with private investors managing OZ funds. EPA's primary role and expertise is as a regulator and as
an overseer of various environmental grant and low-cost financing programs.
Better for private investors and / or interested OZ communities to approach the EPA and its grant and
loan program state partners for assistance traversing regulation hurdles and requirements and for
seeking technical assistance optimizing EPA's grant and low-cost financing program opportunities.
Nevertheless, the EPA has an impactful role to play in a number of areas by investing in communities'
planning and fundraising capacities, grant funding for environmental remediation and project
predevelopment, data collection and aggregation around OZ-funded projects with other agencies, and
preferential terms and treatment under existing financing programs. These investments can strengthen
the capacity of disadvantaged and overburdened communities to access not only OZ funds but a wider
range of private and public sources of investment capital for key development and infrastructure
projects. As the expert panel indicated, all of these activities also meaningfully reduce risk for private
investors who may later invest in community projects enabled by these activities.
In summary, given uncertainty around OZ longevity, the EFAB team recommends that the EPA examines
its existing activities, programs and tools with an eye towards improvements that specifically benefit
high priority communities more broadly, in lieu of creating new programs, resources or funding sources
tailored specifically to OZ funding sources, and which changes can be implemented relatively quickly,
with limited administrative complications. One recent example of this is the Fiscal Year 2023 Brownfield
Multipurpose, Assessment, Revolving Loan Fund, and Cleanup Grants announcement, wherein the EPA
was able to remove matching requirements due to additional funding from the Bipartisan Infrastructure
Law.
Focusing on predevelopment, technical assistance, and planning capacity will reduce project and
investor risk, while also providing necessary supports to under-resourced communities both urban and
rural. As the EPA's existing programs are generally more flexible than other agency sources for project
funding, continuing to value and expand that flexibility to encourage high priority communities to
develop project capacity, and ensuring EPA programs enable or don't conflict with less flexible funding
sources from other agencies, is a uniquely impactful role for the agency. Finally, a collaborative and
interagency approach to data gathering and sharing can be emphasized in order for community benefits
to be better captured and communicated both from OZ-funded projects as well as other projects with
multiple federally subsidized funding sources in high priority communities.
We highlight the successful partnership the EPA formed with FEMA to produce a Memorandum of
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Understanding regarding hazard mitigation funds and SRF funds1, and the recently announced
partnership with USD A, "Closing America's Wastewater Access Gap Community Initiative," as examples
of the collaborative interagency possibilities.2
The EPA's Unique Role: Focus on Enabling Conditions
An evident barrier to accessing private investor capital, including OZ funds, is having met the baseline
conditions for private capital to flow: completed and approved plans, environmental remediation
completed, permits obtained, zoning addressed, utility infrastructure availability, technical vendors (e.g.
engineering) procured and, especially in the west, sufficient water rights/access. Since these are
preconditions before a dollar of private capital will commit to any project, disadvantaged, overburdened
and/or low-income communities must have the resources to address these before even soliciting
investors. In addition, from the disadvantaged community perspective, a lack of awareness and
understanding of the direct, indirect, and induced community benefits related to OZ projects which can
support communities from a broader economic standpoint, as well as enhancing necessary
infrastructure reliability and sustainability, can limit their interest for pursuing OZ funds and projects in
favor of other funding sources. Funding capacity development within disadvantaged and overburdened
communities can facilitate long lasting benefits and further leverage the OZ objectives.
Examples of enabling actions within EPA's existing purview could include:
PREDEVELOPMENT & CAPACITY BUILDING
• Providing increased flexible grant funds for planning development projects (inclusive of
hiring the human resources necessary to do so), and inclusive of funds to support
community outreach and genuine engagement.
• Identifying and addressing environmental remediation issues in disadvantaged and
overburdened communities before "shovel readiness" or planning is fully complete,
including potentially providing grant funds for the execution and development of a
remediation action (mitigation) plan.
• Sharing a "shovel-worthy" checklist - with potential funding sources and estimated
timelines attached to each element - so communities are aware of the preconditions
needed before investor dollars can be attracted to a project.
PRIORITY ALLOCATIONS OF LARGE FUNDING PROGRAMS AT STATE LEVEL
o Prioritizing applications for SRF loans with principal forgiveness, WIFIA loans, and
Brownfield remediation grants for disadvantaged and overburdened communities that
also qualify for OZ, USDA and NMTC funds (which is already in evidence in aligning
funding with the Justice40 initiative). Benefits of prioritizing State programs such as SRF
grantees include:
(i) Existing relationships and infrastructure - SRFs function as intermediaries
funneling federal and state funds under EPA's SRF Program to most local
1 https://www.epa.gov/cwsrf/memorandum-understanding-between-environmental-protection-agency-and-
department-homeland
2 https://www.epa.gov/newsreleases/biden-harris-administration-launches-epa-usda-partnership-provide-
wastewater
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communities and their water systems, positioning these state agencies as ready
partners with existing contacts and lending processes;
(ii) Higher certainty of funding for a project's water-related components, as most
SRF's make a determination of eligibility at the onset of application prior to
environmental and engineering review for funding certification;
(iii) Facilitation of certain water and land permits, as many SRF programs prioritize
and expedite the permitting process for participating projects;
(iv) Decreased financing costs through the use of either SRF funds or WIFIA funds
which, if shared with the water system and/or redeveloper, lead to a higher,
more attractive project return and probability of completion; and
(v) Support for Early Technical Assistance and Capacity Development. The
appropriation of BIL funds to SRF programs prioritizes funding for resource
strapped communities that have environmental justice and affordability
concerns and encourages states to develop processes to provide such support.
These processes will be directly transferrable to communities needing similar
assistance in developing and promoting Opportunity Zones projects.
• Enabling SRF loans to include disadvantaged communities to secure professional services to
conduct planning for off-site infrastructure in support of OZ development projects to
enhance related community benefits.
INTERAGENCY COLLABORATION AND AWARENESS
• Education of local public officials around the available sources of capital across agencies
and guidance on applying (USDA, HUD, etc.) - for example, adding to the Community
Calendar Application information around relevant HUD grant application timelines that
most commonly overlap with community projects
• Collaborating with HUD, Treasury, and other agencies on a reference database for
communities to access examples of other successful OZ-funded projects, or if this is not
readily available:
o EPA could instead expand upon its OZ "case study" library to provide several case
studies that showcase common funding sources & timelines for OZ projects - ideally
those that happened in communities with EJ concerns - with an emphasis on the
best "matching" funding sources (e.g. twinning tax credits, grant sources)
o Expand case studies to include discussion of direct and indirect community benefits
resulting from OZ investments - however, without improved data available on OZ-
funded projects, this may be limited only to anecdotal information
o Collaborate on comprehensive guidance to assist communities in identification of
community benefits that can be derived from an OZ-funded development and the
funding available to leverage OZ projects to enhance water and wastewater
infrastructure rehabilitation, while limiting adverse affordability impacts
• Actively encourage interagency working groups to discuss funding program compatibility
and areas of friction across funding sources available to people of color, low-income,
indigenous communities and communities with EJ concerns. This requires a "silo-busting,"
collaborative approach and flexibility that EPA may be uniquely positioned to encourage
3 https://www.epa,gov/grants/epa-grant-competition-calendar-community-grants
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among agencies and has already demonstrated capacity around in partnerships mentioned
above with FEMA and USDA, for example.
We recognize there are many competing priorities and workloads underway at the EPA. In order to
implement any of the above recommendations over time, we suggest prioritization of activities in the
following order.
Begin with alignment with other public funding sources
It should be noted that none of the above is possible without first aligning EPA funding eligibility
criteria with other agency definitions of high-priority communities with EJ concerns to maximize the
range of funding sources made available to these communities and proactively identify where there
is friction between these funding sources. Such alignment should include communities with EJ
concerns in existing funded initiatives at the federal level as identified in the Infrastructure Bill and
Inflation Bill (e.g. Justice40.) The recent Brownfields grant announcement for FY23 is a successful
example of aligning existing EPA resources with increased federal resources and prioritizing
communities that are most likely to also be eligible for various subsidized investment streams such
as OZ funding. Given the extensive array of multiple local, state, and federal grant and investment
programs available to communities today, guidance notes from the EPA on how to access certain
funding sources alongside other federal or state programs, for example where match requirements
can be met across funding streams, could be a worthwhile project led by EPA/DEP offices at the
state level.
Make incremental updates to existing grant and predevelopment EPA funding programs
One of the differentiating benefits the EPA uniquely enjoys is its flexibility in its grant programs - TA
and predevelopment grants specifically - which are the first resources that communities need to get
projects off the ground. These resources are particularly valuable when projects are also funded by
larger but more rigidly constructed programs run by other agencies. In terms of prioritization of
recommendations, EPA might consider updates to existing programs like TAG, EJSG, OLEM, etc. in
ways that support priority access to these funds for people of color, low-income, and indigenous
communities and communities with EJ concerns and ensure uses of funds include capacity, planning,
and other hard-to-finance predevelopment activities.
As the expert panel indicated, many communities will struggle to attract OZ and other private
funding because they lack the basic infrastructure (water, sewer, etc.) to support such projects.
Various federal programs have offered funds for different phases of work related to infrastructure
engineering and construction. However, it is difficult to navigate the federal funding process to
obtain funding that would support the work from preliminary engineering to design to construction
management and construction as these all tend to be housed in separate programs (and thus,
applications). The recent Infrastructure and Jobs Act's philosophy guiding the allocation of funds has
provided a potential solution in the Department of Transportation's ("DOT") RAISE grant program,
which encouraged communities to develop applications that stack funds from various component
programs. Stacking grants for planning, predevelopment, construction, and so on through the life of
a project can provide a community with funding from start to finish, reduce speculative risk in
infrastructure development, and meet holistic infrastructure needs of both communities and
developers seeking to invest private capital. Critically, to enable communities to think hoiistically
about project funding needs, DOT delegated support to its divisions, rather than funneling all its
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funds through State DOTs, avoiding a layer of complexity to the program.
Consider significantly increasing funding for Environmental Finance Centers ("EFCs") and similar
regional intermediaries.
EFCs have a sense of community needs and planned projects, as well as experience helping
communities access multiple funding sources for projects - both public and private. Additionally,
they are positioned to have relationships in place with private sector capital and can coordinate
between State-level EPA/DEP offices and private sector investors. Increasing funding for EFCs should
also reflect identification of priority communities per the first action recommended above. EFCs
could additionally function as the front line of targeted EPA grant programs for community-led
predevelopment work in redevelopment projects. One example of this is the EPA's 2021 grant
award to the Southwest Environmental Finance Center ("SEFC") to work with improving small public
water systems across the country.4
We thank the EPA for the opportunity to provide advice, examples and recommendations on how EPA
can facilitate attracting more private investment to low-income, people of color, and indigenous
communities and communities with EJ concerns.
Margot M. Kane and William Stannard, OZ Working Group Co-Chairs
Environmental Financial Advisory Board
Enclosure
cc: Edward H. Chu, Designated Federal Officer, Environmental Financial Advisory Board
Radhika Fox, Assistant Administrator for Water
Conclusion
Sincerely,
Kerry E. O'Neill, Chair
Environmental Financial Advisory Board
4 httpsi//www,biziournals,com/albuquerque/news/2021/05/21/unm~receives-epa-grant-funding,html
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APPENDIX
U.S. Environmental Protection Agency Environmental Financial
Advisory Board
Opportunity Zones Workgroup Practitioner Panel
Virtual Public Meeting via Zoom
Thursday, August 26 - 12:00-1:30 pin Eastern Time
Executive Summary
Purpose: To hear from Opportunity Zones (OZ) practitioners who work on OZ investments in
disadvantages communities across the country and were willing to share their experiences to support
the EFAB Opportunity Zones workgroup's charge.
Panelists: Diverse selection of OZ fund managers based in the Southwest, Mid-Atlantic, and Northeast
whose work reflects EPA interests (e.g., rural and disadvantaged communities, investments in operating
businesses, housing, and mixed-use real estate under OZ requirements).
• Alecia Hill - Investment Associate, Enterprise Community Investment, Inc.
• Jonathan D. Tower - Managing Partner, Arctaris
• Stephanie Copeland - Managing Partner, Four Points Funding
Key Insights & Takeaways
• Pre-conditions to potential investment(s):
o Access to and understanding of soft costs (e.g., planning, predevelopment, and risk
assessment at the community level) - Historically marginalized communities may lack
awareness of their environmental risk in planning projects,
o Adequate water infrastructure, quality, and access - Water rights are sometimes
requested by communities before developers are granted permits. These issues cannot
be left until later stages in project development, such as arranging financing. Investors
won't take these risks and are sensitive to what the delay(s) addressing them will cost,
o Community buy-in - Proposed projects should reflect community priorities and have
active support from key stakeholders, including those frequently underrepresented.
• On government involvement:
o Federal agencies and sources, notably HUD, ARPA, and SSBCI, have successfully paired
existing financing and grant products with OZ-qualifying projects and investors,
o Government funding sources at the project level can add so many requirements that
appreciation is suppressed, especially for smaller scale projects in rural settings,
o Consistent communication and streamlined processes are key.
• On community role:
o Prospectuses are insufficient for investors because they don't capture the complexity of
project risks. A more predictable environment for investors to enter is needed,
o Communities should be informed of the risks investors and developers are taking too.
• OZ can make infrastructure payback faster - The structure of OZ investment funds enables them
to recognize a faster ROI on infrastructure investments and pay for deferred maintenance
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thanks to accelerated depreciation, which may be useful for communities who seek investment
in water/wastewater infrastructure.
• Additional uncertainty (e.g., census tract changes, timeline for certain tax incentives) can
depress investor appetite.
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