The COVID-19 pandemic has radically altered the landscape of government finances. The California League of Cities estimates that revenues for cities will drop more than $7 billion over next two years. The estimates of funding shortfalls barely convey the human suffering from the virus and the challenges that communities will face. All while local governments, hardest hit by the loss of revenues, have been answering the call to provide critical services for their residents.
A decade after the Great Recession, cities were just realizing stability and growth, and emerging from deficits that prevented them from supporting affordable housing development, infrastructure improvements and implementing clean energy projects to meet state goals. According to research published in early May, clean energy jobs are down approximately 17%, including a loss of 105,000 clean energy jobs in California alone.
At the Center for Sustainable Energy (CSE), we want to create resilient, decarbonized, inclusive and more sustainable local economies.
How can cities get Californians back to work, while implementing the critical climate and resilience goals we need to protect our citizens and improve their quality of life?
Cities have plenty of blueprints for how to build resilient, low-carbon infrastructure, whether from sustainable community strategies, resilience plans or distributed energy resource plans, but they need program assistance and advisory services to expedite clean energy deployment to turn these plans into projects on the ground that get people back to work.
Rebuilding educational, social and physical infrastructure requires a multipronged effort by state and local governments in partnership with businesses and project developers. Whether through federal support or state-supported strategies, local governments must be able to better leverage their available public investment dollars by making predevelopment activities eligible for loans and grants. In lieu of municipal financial resources, we must layer this state and federal public predevelopment investment with private dollars to create successful capital stacks to fund projects that will realize the state’s sustainable goals and resiliency needs. Pre-project development funding will facilitate regional resiliency projects and assist businesses by bolstering local community efforts to design, build, operate, maintain and finance climate-related infrastructure projects and businesses. With adequate predevelopment funding, local communities will finally be able to attract private money with a robust pipeline of climate-saving infrastructure projects that currently does not exist.
How do we encourage local action?
Ensuring more pre-project development activities (predevelopment) for local governments are eligible for loan and/or grant funds is the “secret sauce” to successful economic development projects. Predevelopment funding allows the necessary preconstruction tasks to occur, serving as the bridge from planning to construction, from vision to reality. Normally, these tasks are architectural, design and engineering work, market assessments and economic feasibility studies, site/lease acquisition costs and permitting. Essentially, predevelopment does the de-risking of a project so investors can get more certainty on the overall costs. In return, local governments have more control over which projects get built and are able to create a project pipeline that includes projects with both financial and societal benefit to local communities. With more predevelopment funding, more outside investment for projects with higher societal benefit but lower direct financial benefit (e.g., zero net energy/affordable housing) will be built.
Predevelopment is not a new idea. Successful programs that utilize predevelopment include the EPA’s Brownfields Program, where the government provides grants and technical assistance to cities, states or tribes to assess, clean up and sustainably reuse previously contaminated properties. The Brownfields Program allows financial flexibility, different equity arrangements and permitting variances to developers looking to invest in abandoned or contaminated parcels. For every $1 of federal funding for Brownfields, the return on investment is greater than $8.
Many former railroad corridors in the Bay Area and Southern California have benefited from these small Brownfields grants to conduct predevelopment activities. Portland, Oregon, has used predevelopment to redesign former industrial areas into thriving neighborhoods.
Predevelopment activities also lend themselves to a world of working from home or physical distancing. Engineers and architects can visit and grade sites without risking health. Economic development firms are hungry for work, looking to avoid layoffs due to the global slowdown. Preparing and predeveloping resilient projects will enable a more robust and widespread economic comeback, while advancing social and environmental goals.
Many municipalities have long lists of needed infrastructure projects. For example, a city hoping to retrofit an old parks and recreation gymnasium into a state-of-the-art, resilient cooling center, powered by solar energy and battery storage, can utilize the predevelopment process to bring in both technology and financial partners to get the project done regardless of the municipalities financial situation. By bringing in other sources of funds, the city can save costs and help catalyze another project.
Predevelopment costs normally account for 12% to 15% of a project’s total costs. De-risking this element by making it eligible for loan or grant funds can often stimulate more demand for creative, community-benefiting projects. By integrating predevelopment and strategic funding alignment criteria into a state or federal budget, existing programs can grow.
Why is predevelopment key to supporting California?
Faced with wildfires, earthquakes and increases in extreme heat occurrences, California cannot afford to turn a blind eye to infrastructure issues around clean energy delivery, storage and resilience. Between now and 2050, the Bay Area Council Economic Institute’s 21st Century Infrastructure Initiative identified a $1 trillion funding gap between what past state infrastructure funding trends will produce and projected needs. Predevelopment funding can bridge this gap by providing 10-15% project costs upfront and by predeveloping projects that will attract private capital to fund the remaining funding deficit.
Without cities taking the lead in envisioning resilient, low-carbon, infrastructure and housing, the middle-class jobs that define our regions will suffer. Any federal or state recovery plan will be emboldened and improved if projects are supported at the front end, and not just for the ribbon cutting.
Bridging COVID-19 and a decarbonized future
Supporting disadvantaged communities is even more critical post-COVID. Governor Gavin Newsom’s “California For All'' has focused on redefining economic vitality to address inequality facing communities of color and rural communities. Poor air quality has exacerbated health outcomes during this pandemic. Communities with higher smog levels and long-time exposure to air pollution are at greater risk of dying from COVID-19, according to an initial study by the Harvard T.H. Chan School of Public Health. So often, it is the essential workers who live in the underserved and overburdened communities. This only underscores the need to double down on zero emission goods movement, deploying thousands of cleaner trucks to help people living near freeways, ports and warehouses while reducing fossil fuel dependency and creating clean energy jobs.
This moment requires centering equity in the design of a decarbonized future, as the clean energy economy must play a role in addressing the corrosive impact of social and racial inequality. Any clean energy economy must create jobs that are inclusive, sustainable and equitable. As Governor Newsom’s Recovery Task Force noted, the future must include “building ladders of opportunity for Californians who have been locked out of our state’s prosperity.”
Just as urban planners are rethinking space for housing, outdoor recreation and active mobility, it is time to rethink space and needs for the clean energy sector. If adaptive reuse can repurpose an old strip mall into housing, there is an expansive opportunity for more clean energy, energy storage and electric vehicle infrastructure projects to leverage rebuilding efforts and decarbonize our environment and our economy. Ensuring predevelopment activities are baked into these programs will allow California to not just bounce back but to bounce forward.
 CALReUSE Assessment and Remediation 2017-2018 Fiscal Year Annual Report. https://www.treasurer.ca.gov/cpcfa/calreuse/annualreport/2017.pdf
 Successful Rail Property Cleanup and Redevelopment: Lessons Learned and Guidance to Get Your Railfields Projects on Track. August 2005. EPA. https://www.epa.gov/sites/production/files/2015-09/documents/05_railfields.pdf
 “21st Century Infrastructure: Keeping California Connected, Powered, and Competitive.” 2018. Bay Area Council Economic Institute. http://www.bayareaeconomy.org/files/pdf/21stCenturyInfrastructure.pdf
 Exposure to air pollution and COVID-19 mortality in the United States: A nationwide cross-sectional study. Harvard T. H. Chan School of Public Health. Initial Study, April 2019. https://projects.iq.harvard.edu/covid-pm
An Equitable Recovery for California and the Nation. Governor’s Task Force on Business and Job Recovery. June 15, 2020 Letter.