External Affairs Alert – August 2012 – Land Use, Energy and the Environment Perspective

Philadelphia Pioneers New Infrastructure Investment Approach – a Case Study

The inaugural Counselors External Affairs Alert (EAC Alert) identified infrastructure funding and the integration of sustainable practices as two of 10 critical issues society must address. Philadelphia’s ground breaking – or better, wave-making – storm water approach provides a creative example of how regions can address these issues.

Like many older cities, Philadelphia has a combined sewer and storm water system that can dump sewage into waterways – in its case, over 60% of the system. To meet state and federal clean water regulations, Philadelphia initiated plans starting in 1997 and culminating in the “Green City, Clean Waters” plan approved by the state in 2011. The plan includes code and water billing changes that improve water quality through retention and infiltration rather than through constructing parallel storm and sewer systems. The plan requires phased provision of 10,000 acres of new pervious surfaces at a cost projected to be $1.67 billion over the next 25 years – estimates for comparable installation of separated storm systems were “billions” higher. The driving force behind the plan was the simple economic fact that Philadelphia could not afford to build separated systems. Plan requirements and their consequences include:

  • On-site retention required for all new construction: All new or redeveloped projects with a footprint over 15,000 square feet are now required by code to retain the first one inch of rainfall on site, and to allow this water to infiltrate into the soil. While this code has many exceptions and qualifications, in general it has caused new projects to employ a variety of new approaches. At the new Curtis institute of Music Lenfest Hall, for instance, there is both a green roof and a detention tank under one of the sidewalks; the detention tank partially restricts flow into the storm sewer and partially infiltrates water into the earth. This approach is expected to provide approximately a quarter to half of the required new green surface.
    • Implications: Clearly the requirement for on-site detention increases construction costs, already high in Philadelphia, and thus makes new development more difficult for both private and public entities and may lower land value. Additionally, many urban developments such as Lenfest Hall abut historic properties with stone and rubble basement walls; there is a concern that this may result in flooding of neighbors.
  • Increased public pervious surfaces: To provide the remaining half to three-quarters of required pervious surface, Philadelphia’s plan includes projects in sizes from pocket parks to sidewalk tree trenches to new pervious asphalt paving. Because streets and sidewalks comprise 38% of impervious surfaces in the city, addressing them is key. Dozens of tree trenches, downspout planters, rain gardens and similar projects have been completed and many are underway. Many are planned in distressed neighborhoods in “concentrated early action areas” to provide more equitable access to healthy neighborhoods for less wealthy citizens. Additional projects are also planned at the time of other street or sidewalk work, limiting overhead costs.
    • Implications: These improvements are being paid for by increased and recalculated water bills: the city’s water department is phasing in billing based primarily on a property’s impervious coverage as a “revenue-neutral” way to pay for storm drainage. Properties with large parking lots (think big box retail) or roof areas (think industrial or manufacturing businesses) will see a many-fold increase in their water bills: for American Box Co., the bill went from $200/month to $4,000/month. This is essentially a new tax on these businesses, which, although accurate in that their impervious areas clearly contribute to the problem, was not anticipated by the businesses in making their plans to locate in Philadelphia. This may cause some businesses to leave the city limits and its tax rolls, or more likely, it may cause industrial or big box users to avoid locating in City limits. Neighboring communities are advertising their water rates already.
    • Offsetting the cost: The water department is attempting to offset the impact by offering tax credits, free designs, low interest loans, phase-ins, and rain-barrel give-aways – but some business may still feel the need to locate elsewhere, although water costs still remain substantially less than 1% of business costs for most if not all businesses.

Other important parts of the program include funding operations and maintenance in addition to first costs, tracking, testing, and quantifying progress, and focusing on improving school yards for their educational value as well as for their surface area.

Philadelphia calculates that over 45 years it will see a return on its investment through energy savings in cooling due to tree and plant shading, increased property values due to the presence of trees, lowered healthcare costs for asthma due to cleaner air from trees, and higher tax revenues and lower assistance needs due to employment in building the infrastructure. Time will tell whether this calculation is accurate, but it is clear that most of these benefits would not result from providing the much more expensive parallel system. A final benefit is the positive press Philadelphia is now receiving as the city with “the most comprehensive network of green infrastructure in the United States.” Not inconsequentially, being known as a City that can solve big problems may be the lasting legacy.

The External Affairs Committee welcomes feedback on these issues as well as identification of issues you think are critical to real estate and/or of interest to Counselors and the broader industry.