May 7, 1997
Are there opportunities for companies, governments and citizens in the Metropolitan Chicago Region to achieve exemplary environmental performance and compact, equitable development through community partnerships which take advantage of the greater regulatory flexibility, better access to information and smarter use of existing public funding which might result from a new relationship between the federal government and our metropolitan area?
To carry out a large scale renewal of the Metropolitan Chicago Region which includes both the restoration of its environment and the revitalization of its economy, we need to expand the range of regulatory and financing options available to community residents and businesses. The Metropolitan Initiative proposes that there are nine specific mechanisms existing elsewhere around the country which hold promise for this region:
(1) Environmental Trading with Community Benefits
Example: The 3M company anticipates earning "emission reduction credits" for their aggressive pollution prevention improvements. They propose to sell the credits within the Chicagoland region to companies that need the credits for expansion. They intend to donate the proceeds from this sale to a new operating foundation to fund community environmental improvements, based in part upon a previous pilot program in Ventura County, California.
Air pollution is a chronic problem in the Metropolitan Chicago Region. The region has been identified by the Lake Michigan Ozone Study in the high end of the volatile organic compounds (VOCs) and nitrous oxide (Nox) producing continuum in the entire Lake Michigan basin.
The Clean Air Amendments (CAA) of 1990 establish air quality standards for industry with provisions that emissions decrease at a regular pace, so that by 1997 they will represent the same percentage of the 1990 level. More importantly, provisions for the year 2007 need to achieve a standard of ozone standards at 80 particles per billion during an eight hour period. In order to encourage the most efficient investment in pollution prevention, the CAA also permits companies that exceed their mandated improvements to sell the "improved air quality" to other companies on a high offset basis, e.g., each ton of pollution traded would result in a substantial net decrease in overall pollution. These proceeds from the sale of pollution credits partially reimburse companies for exemplary environmental performance while offering an alternative to other companies for whom environmental retrofits are not feasible or economic.
Sharing the proceeds from the sale of pollution credits with the
community is a way for companies to compensate the community for bearing the
cost of pollution.
Are there a opportunities to produce and sell pollution credits within the Metropolitan Chicago Region as a way simultaneously to decrease overall pollution, improve firms' efficiency and competitiveness, and fund community-determined improvement projects?
(2) Avoidance of Public Capital Investments
Example: New York City was faced with investing $7 billion in conventional water treatment technology to correct for the agricultural contamination of its upstate watershed. Instead, the city formed a partnership with the farmers in the watershed to improve their agricultural practices in exchange for a payment of $1 billion. In this win-win solution, New York City avoids a $6 billion capital investment while farmers secure a new source of financing to upgrade the quality of their operations.
New York was able to find a strategy to avoid the expense of a "big system" capital improvement by decreasing the problem requiring it. In so doing, it is managing to invest in an important sector of the economy, agriculture, and spark major changes in the region's ecology.
In the Chicago Region, the Metropolitan Water Reclamation District is investing heavily in the Tunnel and Reservoir Project (TARP), a capital-intensive technology designed to divert the first quarter inch of rainfall from basements and the Chicago River. As in New York, a wide range of alternative approaches and technologies are possible to address the storm water runoff problem.
Are there cost-effective alternatives to current and proposed capital investments in the Metropolitan Chicago Region which can fulfill their objectives while improving environmental quality - like the financing of wetland restoration to improve their capacity to manage storm water runoff as an alternative to TARP?
(3) Tradable Wetlands
Example: On a neglected farm in northwest suburban Antioch, Land and Water Resources, Inc., a for-profit company, is constructing a 28-acre"wetland bank" to replace wetlands that were filled in elsewhere as part of construction projects. The US Fish and Wildlife Service and the Army Corps of Engineers are overseeing this effort and authorizing the sale of the "wetland credits." Metra has purchased some of the credits to offset wetlands lost when it built its new Wisconsin Central commuter line through Lake County. A shopping center developer has also purchased wetland credits.
It is ironical that artificial wetlands are being constructed in the far suburbs when the historic wetlands on the South East Side and elsewhere around the region remain contaminated. Yet the federal regulatory requirement that any loss of wetlands be replaced on a one-for-one basis is generating a market demand for "new" wetlands.
Can the cleanup of existing wetlands be financed by making them available to developers as offsets to wetland loss elsewhere in the region?
(4) Tradable Development Rights
Example: In 1969, Maryland's Montgomery County began to establish a "growth boundary," initially focusing on setting aside certain areas as open space while confining denser development within recognized corridors. In 1980, to strengthen this land use policy they established a development density trading mechanism which permitted farmers in protected agricultural areas to sell their residential development rights to developers outside the protected area permitting them to build in-fill housing at a higher-than-usual density. In this win-win program, farmers generate capital to invest in their farms and protect their farms for long-term agricultural use, while developers are able to build more housing units in transit-served areas.
On the fringe of the Chicagoland area, farmers are now organizing to protect their livelihood from the encroachment of suburban development. At the same time, many parts of the region have experienced systematic disinvestment as companies have moved to "greenfield" locations and banks have financed suburban sprawl.
Can sprawl be constrained in the Metropolitan Chicago Region through a partnership between exurban farmers and existing communities and businesses which generate resources for community renewal while protecting farmers' continuing ability to farm?
(5) Landfill Community Impact Fees
Example: Many states, including Illinois, place a surcharge on landfills to finance recycling programs. The logic for these landfill impact fees is that expanded recycling programs both improve the environment and extend the useful life of the landfills.
All residents of the Metropolitan Chicago Region generate waste, but only a small number of communities incur the blight of being the home of landfills. Landfills are disproportionately located in the Lake Calumet Area, but other communities throughout the region also have landfills. These communities - on behalf of the region as a whole -- incur a heavy price through air pollution, groundwater contamination, and truck traffic, yet the residents and businesses in these areas receive no compensation for playing this regional role. Fairness would dictate that the region as a whole fund the mitigation of landfill presence and stimulate needed economic development as compensation for the presence of landfills.
Can landfill impact fees on every ton of solid waste that ends up in local landfills become a major source of funding for the environmental restoration and economic revitalization of the communities impacted by those landfills?
Example: Wichita, Kansas discovered that the groundwater under its Central Business District was contaminated with toxic chemicals from several plants near the downtown. All real estate transactions, including an ambitious redevelopment strategy, came to a halt because of the threat of environmental liability. The city administration negotiated a settlement with the sources of the pollution and established a Tax Increment Financing District to fund the balance of the cleanup costs. This response was sufficient to resolve issues, and downtown real estate again became negotiable.
The value of property in the Lake Calumet Area and other parts of the region is seriously depressed because of widespread industrial contamination. The current Brownfield discussion focuses on three strategies to reuse contaminated land: (1) clarifying the cost of cleanup; (2) increasing the certainty about what parties are responsible and for what; and (3) changing cleanup standards to reflect the end-use of the property. However, these strategies which focus on site-by-site cleanups are likely to be inadequate in addressing contamination which is region-wide. Newly cleaned-up sites may become subject to recontamination from adjacent properties, and the scale of site-by-site cleanups may not be sufficient to trigger a major increase in land values.
In contrast, a larger scale strategy holds the promise of generating a value bonus which, as in Wichita, can be captured to pay for the cleanup. This potential increase in value can then be converted into large-scale cleanup funding through the inclusion of the entire area in a Tax Increment Financing District.
Is there an opportunity to finance the cleanup of the Calumet Region through a financing strategy which captures the post-cleanup increase in land values?
(7) Environmental Restoration Insurance
Example: Insurance is the conventional way that we buffer economic risks. And where the marketplace does not serve a particular market, special pooled funds are created, such as the Illinois Fair Plan.
The insurance industry is beginning to offer a range of products which can mitigate the future risks of environmental cleanup, including cost caps on cleanups and protection against unknown contamination. These offerings may not be adequate for the cleanup of widely contaminated areas like the Calumet.
Is there a need to create a pooled risk public/private insurance program for contaminated areas like the Calumet Region which can moderate the risk of environmental cleanups?
(8) Location Efficiency
Example: The Center for Neighborhood Technology, in cooperation with national transportation and environmental organizations, is poised to launch a new home mortgage product which converts the cost savings available to families that live in transit- and amenity-rich communities into access to a larger mortgage. The Location Efficient Mortgage 7 is designed to encourage homeownership for low- and moderate-income households; promote investment in urban communities; increase public transit ridership; and improve air quality. Because these savings can be substantial - up to $397/month - residents of transit- and amenity-rich areas could have access to an additional $54,000 to purchase a home.
The Metropolitan Chicago Region has a superb public transportation system, one of the best in the country. It provides one of many competitive advantages of the region resulting from "location efficiency." The marketplace needs to recognize and give value to these location efficiencies, so that capital and resource flows are targeted to already developed communities and to transit hubs within them, rather than to the urban fringe. The proper valuing of location efficiency can offset historical redlining of urban communities and urban disinvestment.
Is there an opportunity to convert the location efficiencies of the Metropolitan Chicago Region into financial advantages by taking advantage of the proposed Location Efficient Mortgage 7 and identifying other similar financial benefits of location efficiency?
(9) Industrial Reinvention and Regulatory Flexibility
Example: The 3M company has proposed that their Bedford Park tape factory report real-time air emission on the Internet both to regulators and to the public based on an instrumentation of their plant installed as part of a state-of-the-art pollution prevention program. In exchange for this "transparency" and for a proposed investment in community environmental improvement (see below), 3M has requested US EPA permission to avoid filing the over 100 permits for which they are now responsible.
The federal government is interested in encouraging innovative solutions to environmental problems, especially those which result in exemplary performance. In exchange, the federal government is prepared to offer regulatory flexibility which can cut firms' expenses and increase operating efficiencies. Increasingly, the federal government is also requiring as an element of this regulatory flexibility that plants involve their surrounding communities and find ways to share the benefits of this regulatory flexibility.
How can firms' full disclosure of environmental information and exemplary environmental performance be effectively tied to regulatory flexibility and community benefits?