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Funding Mechanisms for Restoring
and Maintaining a Healthy Nisqually
Watershed
Prepared by
107 N. Tacoma Ave
Tacoma, WA 98403
253-539-4801
www.eartheconomics.org | info@eartheconomics.org
iEARTH ECONOMICS
Acknowledgments
Earth Economics would like to thank all who contributed valuable information to this proj...
TITLEii
WHO WE ARE
Earth Economics
Earth Economics is a non-profit organization located in Tacoma, Washington, dedicated t...
iiiEARTH ECONOMICS
CONTENTS
EXECUTIVE SUMMARY................................................................................
TITLEiv
1.	 Summary table of three funding mechanism options viable for the Nisqually
Watershed	.............................
EARTH ECONOMICS 1
The health of our natural environment directly impacts the health of people and our
economy. A healthy w...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
2
This report utilizes the best practices i...
EARTH ECONOMICS 3
Puget Sound Regional Restoration Fund
▪▪ Funding from cargo shipped goes from shippers to the systems th...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
4
PURPOSE OF THIS REPORT
The Nisqually Wate...
EARTH ECONOMICS 5
In recent years, King County merged six separate flood districts across the Water
Resource Inventory Are...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
6
PROJECT OBJECTIVES
The main objective of ...
EARTH ECONOMICS 7
The Nisqually Watershed
From the depths of Puget Sound to Mount Rainier’s height of over 14,000 feet,
an...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
8
The Nisqually Watershed begins on the vol...
EARTH ECONOMICS 9
A gem of the U.S. National Wildlife Refuge system, the Nisqually National Wildlife
Refuge, hosts migrato...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
10
Nisqually Watershed
Management
BRIEF HIS...
EARTH ECONOMICS 11
The Watershed has been the site of many restoration projects including habitat and
riparian restoration...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
12
Nature provides vast amounts of economic...
EARTH ECONOMICS 13
FURTHER EFFORTS
This report aims to secure funding to ensure the success of the Nisqually Watershed
Ste...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
14
Ecosystem Services in the
Nisqually Wate...
EARTH ECONOMICS 15
TABLE 2 DESCRIPTION OF 21 ECOSYSTEM GOODS AND SERVICES
Good/Service Economic Benefit to People
Provisio...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
16
THE VALUE OF THE NISQUALLY WATERSHED
The...
EARTH ECONOMICS 17
From this annual flow of benefits, an asset value can be calculated for the
Watershed systems that prod...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
18
The Beneficiaries and
Provisioners of th...
EARTH ECONOMICS 19
Manufactured goods are typically composed of an element of built capital that,
when combined with labor...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
20
BENEFICIARIES
In a market transaction, a...
EARTH ECONOMICS 21
Forestry is still a dominant part of the Nisqually Watershed’s working landscape.
The high rainfall and...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
22
Funding Mechanisms
Overview
TYPES OF FUN...
EARTH ECONOMICS 23
of which potentially could be managed more efficiently and effectively by a new
allocation structure ca...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
24
An example of a tax collected for a spec...
EARTH ECONOMICS 25
Other fees in Washington State include title and registration fees for land and
vehicles, permitting fe...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
26
A fee on impervious surfaces is paid by ...
EARTH ECONOMICS 27
TABLE 4 FUNDING MECHANISM STRATEGY USED IN THE CITY OF BELLINGHAM
Name Watershed Rate
Implemented 2001
...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
28
ALLOCATION TOOLS
Conservation Easements
...
EARTH ECONOMICS 29
The Nisqually
River Delta
represents
the largest
tidal marsh
restoration
project in
the Pacific
Northwe...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
30
Grants
Grants are awarded for targeted f...
EARTH ECONOMICS 31
iv
http://www.dnr.wa.gov/ResearchScience/Topics/ForestResearch/Pages/snohomish_watershed_srvcs_pilot_pr...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
32
If a watershed were considered the unit ...
EARTH ECONOMICS 33
Proposed
Funding Mechanisms
for Nisqually
Resource allocation decisions are increasingly complex. Ecolo...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
34
Seven Proposed Funding Mechanisms:
▪▪ Wa...
EARTH ECONOMICS 35
The voting, subsequent consultation with key project partners and stakeholders
highlighted the need for...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
36
Tacoma Public Utilities operates two dam...
EARTH ECONOMICS 37
SPECIAL WATERSHED ASSESSMENTS
This funding mechanism would work in tandem with the watershed protection...
FUNDING MECHANISMS
FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED
38
WATERSHED INVESTMENT DISTRICT
The Waters...
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
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Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed

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In a follow-up to their 2009 Report, Earth Economics produced these recommendations for using ecosystem services to support conservation efforts in the Nisqually Watershed. Earth Economics worked closely with stakeholders in the watershed to develop the report.

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Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed

  1. 1. Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed
  2. 2. Prepared by 107 N. Tacoma Ave Tacoma, WA 98403 253-539-4801 www.eartheconomics.org | info@eartheconomics.org
  3. 3. iEARTH ECONOMICS Acknowledgments Earth Economics would like to thank all who contributed valuable information to this project: David Troutt from the Nisqually Tribe, Justin Hall from the Nisqually River Foundation and the members of the Nisqually River Council. We deeply appreciate those who helped review and edit this document: Cathy Lear, Jeff Mitchell and Leah Eaton Mitchell. We would also like to thank the Earth Economics Board of Directors for their continued support: David Cosman, Josh Farley, Ingrid Rasch and Josh Reyneveld. Earth Economics project team members for this study included: Tedi Dickinson, TaNeashia Sudds, Tricia Baran; Angela Fletcher for layout; and our wonderful interns and volunteers: Quentin Morse and Can Huynh. Cover photo by Tyler Buntain Images credited in this report are licensed under http://creativecommons.org/licenses/by/2.0/. The authors are responsible for the content of this report. February 2014 Authors Tracy Stanton, Lola Flores and David Batker Suggested Citation Stanton, T., Flores, L., Batker, D. 2014. Funding Mechanisms for Restoring and Maintaining a Healthy Nisqually Watershed. Earth Economics: Tacoma, Washington. ©2014 by Earth Economics. Reproduction of this publication for educational or other non-commercial purposes is authorized without prior written permission from the copyright holder provided the source is fully acknowledged. Reproduction of this publication for resale or other commercial purposes is prohibited without prior written permission of the copyright holder.
  4. 4. TITLEii WHO WE ARE Earth Economics Earth Economics is a non-profit organization located in Tacoma, Washington, dedicated to researching and applying the economic solutions of tomorrow, today. Earth Economics provides robust, science-based, ecologically sound economic analysis, policy recommendations and tools to positively transform regional, national, and international economics and asset accounting systems. Working with leading ecologists, economists and modelers, we serve a large circle of businesses, non-profit organizations, government agencies, policy makers and media channels with research, reports, presentations, workshops and investigations. Our goal is to help communities shift away from the failed economic policies of the past, towards an approach that is both economically viable and environmentally sustainable. Mission Statement Earth Economics applies new economic tools and principles to meet challenges of the 21st century: achieving the need for just and equitable communities, healthy ecosystems, and sustainable economies. The Nisqually Tribe The Nisqually Indian Tribe are the people of the river, the people of the grass. The tribe is a sovereign government of the original peoples of the Pacific Northwest, and one of the principal native societies around the Puget Sound. The tribe envisions the Nisqually as a place where spirits are strong and good. It is a place where all people, interconnected with all things, can live in harmony. We believe in families that are united and healthy. Elders pass on their wisdom and our traditions to our youth. But we walk proudly into the future. Our people honor, support and encourage each other to grow and find their own way. Mission Statement The Nisqually Tribe’s mission is to perpetuate our home and our culture, by helping our people thrive. The Nisqually River Council The Nisqually River Council is a collaborative Council of governments and engaged citizens that works to preserve, promote, and protect the Nisqually Watershed. Since 1987, the Nisqually River Council has been a locally-based management partnership of state and local governments, business, and individuals working to protect the health of the Nisqually River. During that time, we have helped to resolve watershed planning issues surrounding salmon restoration and timber harvesting. We have also established education and stewardship programs aimed at raising awareness of its unique qualities, both for the local communities and those who visit. Mission Statement To create sustainability in the Nisqually Watershed for current and future generations by developing a common culture of environmental, social, and economic balance.
  5. 5. iiiEARTH ECONOMICS CONTENTS EXECUTIVE SUMMARY....................................................................................................................................... 1 Purpose of this Report..........................................................................................................................4 Project Objectives..................................................................................................................................6 THE NISQUALLY WATERSHED......................................................................................................................... 7 NISQUALLY WATERSHED MANAGEMENT...................................................................................................10 Brief History...........................................................................................................................................10 Current Management Challenges.......................................................................................................11 Watershed Scale Governance ............................................................................................................12 Further Efforts.......................................................................................................................................13 ECOSYSTEM SERVICES IN THE NISQUALLY WATERSHED......................................................................14 The Value of the Nisqually Watershed.............................................................................................16 THE BENEFICIARIES AND PROVISIONERS OF THE NISQUALLY WATERSHED...................................18 Beneficiaries..........................................................................................................................................20 Provisioners ..........................................................................................................................................20 Water Provisioning................................................................................................................................21 FUNDING MECHANISMS OVERVIEW............................................................................................................22 Types of Funding Mechanisms .........................................................................................................22 Sources of Revenue.............................................................................................................................23 Allocation Tools....................................................................................................................................28 Markets....................................................................................................................................................31 Proposed New Allocation Structure.................................................................................................31 PROPOSED FUNDING MECHANISMS FOR NISQUALLY............................................................................33 The Process for Choosing Funding Mechanisms..........................................................................33 Watershed Protection Fees................................................................................................................35 Watershed Stewardship Fees ............................................................................................................36 Special Watershed Assessments...................................................................................................... 37 Watershed Investment District..........................................................................................................38 Puget Sound Regional Restoration Fund .......................................................................................39 Corporate Voluntary Give Back Fund ............................................................................................ 40 CONCLUSIONS, RECOMMENDATIONS, AND NEXT STEPS.......................................................................41 REFERENCES.....................................................................................................................................................43
  6. 6. TITLEiv 1. Summary table of three funding mechanism options viable for the Nisqually Watershed ....................................................................................................................................3 2. Description of 21 ecosystem goods and services...............................................................15 3. Summary table of three funding mechanism options viable for the Nisqually Watershed ...................................................................................................................................16 4. Funding mechanism strategy used in the City of Bellingham........................................27 5. Results of the voting workshop (July 19, 2013).................................................................34 6. Kilowatt hours generated by each dam and their annual revenue...............................35 7. Three different scenarios of a rate increase for both dams and the additional $ yielded by each increase .........................................................................................................35 8. Summary table of three funding mechanism options viable for the Nisqually Watershed ..................................................................................................................................37 1. Map of the Nisqually Watershed ............................................................................................ 7 2. Relationship between beneficiaries and provisioners......................................................18 3. Water provisioning within the watershed............................................................................21 4. Funding Sources and Allocation Tools ................................................................................22 TABLES FIGURES
  7. 7. EARTH ECONOMICS 1 The health of our natural environment directly impacts the health of people and our economy. A healthy watershed and the ecosystem services it supports provides a steady stream of benefits to residents, and is essential for creating a stable, resilient and prosperous economy. Treating our watersheds as valuable natural capital assets provides the foundation for further investments by assuring that it continues to sustainably provide ecosystem services. The Nisqually Watershed is a leading example of the effective cooperation between governmental, private and nonprofit institutions for early action to restore listed salmon species. Over the past several years, major projects have made steady improvements in the salmon habitat, particularly in the Nisqually estuary. There is a sound governance model and a track record of best practices for watershed restoration, both of which have been recognized internationally.1 In 2009, Earth Economics estimated a value of Nisqually Watershed ecosystems services between $275 million and $3.9 billion each year. Improving this sizable asset increases the cultural, economic, and ecological benefits the Watershed provides, justifying tens of millions of dollars in ongoing investment. This investment is required to restore salmonids, as well as ensure and enhance the continued provision of other valuable ecosystem services. The Nisqually River Council has developed a plan for watershed restoration.2 To fully implement the watershed recovery program across the Nisqually requires dedicated funding mechanisms that generate revenue averaging $10 million to $15 million each year for many years to come. Current annual funding for salmon recovery averages between $2 million and $3 million in operating expenses and $1 million to $6 million in capital expenses; approximately $3 million is needed to fully implement and support watershed maintenance and natural asset improvement recovery projects to meet 2055 goals. Executive Summary
  8. 8. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 2 This report utilizes the best practices in economic analysis. Achieving a high quality of life for present and future generations entails attaining a prosperous economy, social equity, tribal cultural values and objectives, and environmental sustainability across the Watershed. This can only be achieved if the Nisqually Watershed—which houses people, an economy and natural systems—is healthy, and sufficient funding is provided for restoration and maintenance. We propose the following funding mechanisms for consideration by the Nisqually Tribe. Watershed Protection Fees ▪▪ The City of Olympia should implement a watershed protection fee to support Nisqually Watershed health and source water protection. The fee could be implemented by adding a flat rate of $5 per bi-monthly billing cycle (similar to the model implemented by Bellingham, Washington, which includes both a flat rate and volumetric charges for both unmetered and metered city residents and those outside the city). The flat rate alone will yield $600,000. ▪▪ Tacoma Public Utilities should increase investment in watershed health to mitigate impacts from Alder and La Grande Dams. At a current rate of $0.037/ kwh, Alder Dam generates 228 million kilowatt hours and $8.4 million in income, and La Grande Dam generates 345 million kilowatt hours and $12.7 million in income. Total income from both dams provides $21.1 million. Consider three alternative scenarios for an increase in total revenue of the power generated from both dams: A 5% rate increase yields $1 million; a 2.5% rate increase yields $525,000; a 1.0% rate increase yields $211,000 (representing the percent increase on total current revenue of $21.1 million). Whichever of the three scenarios is implemented, the additional revenue should be reinvested in the restoration of the Watershed. Watershed Stewardship Fees ▪▪ These fees would be voluntary donations by those visiting the Nisqually National Wildlife Refuge and Mount Rainier National Park (to be developed with those commercial entities operating the visitors’ centers and other lodging and dining establishments throughout the Watershed). Assuming voluntary donations of $5/vehicle entering the Nisqually Gate yielding $990,000 and $2/entrance fee paid at the Wildlife Refuge yielding $410,000. New revenues generated could be shared among the facilities and the Watershed. Special Watershed Assessments ▪▪ An additional watershed protection charge per parcel based on a flat rate of $15 for the total number of parcels (properties) within the Nisqually Watershed (41,775) is estimated to generate $626,625 annually. Watershed Investment District ▪▪ The Watershed Investment District concept is being developed under a study bill supported by Washington State Representative John McCoy (and administratively led by WRIA 9). It is beneficial to continue to actively support this opportunity for inter-jurisdictional collaboration on a watershed-wide view assessment, development of a restoration planning and investment strategy, and protection of both land and water resources. 1. 2. 3. 4.
  9. 9. EARTH ECONOMICS 3 Puget Sound Regional Restoration Fund ▪▪ Funding from cargo shipped goes from shippers to the systems that conveys the cargo (roads or rail.) However, this is not the case for Puget Sound. Shipping creates threats to the region, as it impairs Puget Sound health with invasive species, bilge water, port facilities, and other impacts. ▪▪ A fund should be created with special fees assessed at the Ports of Seattle and Tacoma, in the form of a cargo tax. The burden of this fee would be borne by shippers across the world who benefit from shipping through Washington State ports. Additionally, the fund would include redistribution of the Federal Harbor Maintenance Tax that is paid by tax payers to the Port of Seattle, but which is currently invested in ports in other parts of the United States that have more severe dredging maintenance issues than in Seattle (given the naturally deep channel from the Port through Elliott Bay). Corporate Voluntary Give Back Fund ▪▪ A Corporate Give Back Fund involves developing a marketing strategy for the Nisqually to promote its benefits to the likes of Patagonia, Microsoft, Nordstrom, Amazon, Costco and Wilcox Family Farms. For example, Intel donated locally more than $2 million in 2012 alone, much of which was invested in the Nisqually Watershed. This donation included $180,000 through the grant matching program (triggered when Intel employees volunteer over 20 hours), $200,000 for K–12 education in Pierce and Thurston Counties, and $435,000 for the United Way. TABLE 1 SUMMARY TABLE OF THREE FUNDING MECHANISM OPTIONS VIABLE FOR THE NISQUALLY WATERSHED Funding Mechanism $ Generated 1. Watershed Protection Fee City of Olympia $5 bi-monthly $600,000 Tacoma Power 2.5% rate increase $525,000 2. Watershed Stewardship Fee Mt. Rainier $5 per vehicle $990,000 Nisqually Wildlife Refuge $2 entrance fee $410,000 3. Special Assessment Fee Nisqually Properties $15 per parcel $626,625 Total $3,151,625 This table uses the mid-range calculations of the dollars generated with three types of selected mechanisms to equal about $3 million, our proposed goal of needed revenue. 6. 5.
  10. 10. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 4 PURPOSE OF THIS REPORT The Nisqually Watershed is a leading example of the effective cooperation between governmental, private and nonprofit institutions and landowners for early action to restore the populations of listed salmon species. Over the past several years, steady improvements have been made in salmon habitat as major projects have been completed, particularly in the Nisqually estuary. Sound governance by the Nisqually River Council is in place and provides a model track record of best practices for watershed restoration. The work in the Nisqually has been recognized locally, nationally, and internationally. However, the resources that restore and maintain watershed health are insufficient. This report provides suggestions for additional funding sources to support the ongoing exemplary work and restore critical watershed ecosystem services, including salmon, in the Nisqually Watershed. A previous study by Earth Economics in 2009 stated that the Nisqually Watershed produced between $275 million and $3.9 billion each year in ecosystem services across several landscapes. This shows that the Watershed is well worth tens of millions of dollars in ongoing investment required to restore salmonids, as well as ensure and enhance the continued provision of other ecosystem services. The value and public benefits of restoring a healthy watershed provide a strong economic justification for expenditures to secure viable and healthier salmon populations, enhancing natural capital throughout the Watershed. A number of these services are provisioned at the watershed level and are key components to economic development and to securing high quality of life for those within the Watershed, as well as people outside the Watershed. It is in the interest of all beneficiaries of watershed services, such as clean and abundant water supply, healthy food, energy, raw materials, and recreation and tourism to maintain the production of these services through sustainable management practices. Built vs. Natural Capital One hundred years ago, our watersheds were largely pristine. Built capital, such as buildings, roads, bridges and dams was scarce and highly valuable. Natural capital, such as forests, clean water, and salmon were abundant. Greater salmon catches simply required more boats and nets. Today, the reverse is true. Our watershed has an abundance of built capital. Value creation is less limited by built capital and more constrained by natural capital limits, even in a relatively undeveloped watershed like the Nisqually. Greater salmon catches today require more quality habitat to support healthy fish populations, not more boat and nets. Increased production of timber and fish is no longer limited by a shortage of chain saws and nets, but by a shortage of fish and trees.3 Historically, many solutions to watershed problems emphasized replacing natural capital assets with built capital. Our current tax jurisdictions reflect this bias. As floodplains were built up, flooding increased in the lower reaches of the watershed. Flood districts have traditionally been located in the deltas and charged principally with building levees to replace lost natural flood protection from wetlands, forests, and riparian areas. Flood protection is a watershed-scale service and cannot be effectively delivered with actions only in the lower reaches of the watershed.
  11. 11. EARTH ECONOMICS 5 In recent years, King County merged six separate flood districts across the Water Resource Inventory Area (WRIA) 9.4 These districts extended only where flooding occurred, not where flood protection was provisioned. King County recognized that while flooding occurs at the lower end of the watershed, much of the service of flood prevention is provisioned upstream in forests and wetlands. Merging separate flood districts into a single district created a more effective and efficient countywide flood district, which links flood protection actions across the whole watershed. Solutions should be applied at the watershed scale of the problem, and the Nisqually Tribe has embraced the correct scale and focus. The Tribe has facilitated effective governance between jurisdictions, the public, nonprofit organizations, corporations, and residents in the watershed, serving as a conduit for communication on watershed issues. The Nisqually Tribe and the River Council are also vehicles for managing solutions that are sustainable and ecologically sound, which build natural capital for economic development, and thus benefit all jurisdictions and residents. The Nisqually Watershed Stewardship Plan provides lower cost solutions to continue restoration work throughout the Watershed.5 Investing in natural capital is far more efficient than replacing these with human-built infrastructure that depreciates and must be replaced every 30 to 40 years, not to mention the costly maintenance costs. Natural systems are unsurpassed in preserving natural and human health and economic benefit for the lowest cost.6 The greatest barrier to salmon recovery in the Watershed is the lack of sufficient and dependable funding mechanisms to implement the various plans and projects. Accomplishing the objectives of this report should lead to the creation and implementation of a number of new funding mechanisms to invest in the restoration of salmonids and other critical natural capital in the Nisqually Watershed. The chosen funding mechanisms will enable implementation of a watershed plan at the scale of the Nisqually Watershed, and allow the flexibility of providing funding in other areas of Puget Sound critical to the recovery of the Nisqually salmon stocks. Wildflowers at Paradise in Mount Ranier National Park. Image credit: CC by Rachel Sarai
  12. 12. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 6 PROJECT OBJECTIVES The main objective of this report is to develop multiple, permanent and sufficient funding mechanisms to provide $3 million of revenue annually to fund a healthy and sustainable Nisqually Watershed. The following steps were undertaken to identify and evaluate funding mechanisms: 1. Survey of literature on existing and proposed funding mechanisms within the United States or outside for models that are relevant to a Nisqually solution, and seek descriptions of working case studies that implement ecosystem service funding mechanisms. 2. Identify and describe a set of 3-5 potential funding mechanisms that could be applied to provide a sufficient dedicated funding source for implementation. One of these funding mechanisms should be in a form that could be implemented in one year in collaboration with the Washington Department of Natural Resources, Nisqually Tribe, and other basin stakeholders. 3. Conduct workshops with Nisqually Tribe staff, Nisqually River Council members, and watershed stakeholders to create a funding viability matrix and rank possible funding mechanisms, identifying one to three for further analysis. 4. Based on the mandate from the workshops, stakeholders and decision makers, examine the identified funding mechanisms for economic viability, sufficiency, legal requirements, collection efficiency, and other criteria. 5. Produce final report in collaboration with the Nisqually Tribe, Nisqually River Council, and relevant stakeholders.
  13. 13. EARTH ECONOMICS 7 The Nisqually Watershed From the depths of Puget Sound to Mount Rainier’s height of over 14,000 feet, an incredible variety of natural surroundings is part of what makes the Nisqually Watershed spectacular and unique. The Nisqually Watershed Stewardship Plan identified seven ecoregions in the area: Oak Woodland/Prairie, Puget Sound Douglas Fir, Coastal Western Hemlock, Silver Fir, Mountain Hemlock, Alpine, and Ice/Snow. Figure provided by the Nisqually River Council FIGURE 1 MAP OF THE NISQUALLY WATERSHED
  14. 14. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 8 The Nisqually Watershed begins on the volcanic slopes of Mount Rainier. Mount Rainier National Park, the country’s fifth national park, was established in 1899, with the Nisqually entrance, the most used entrance and the primary climbing route to the summit of Mount Rainier. The Nisqually Glacier provides cold, clean water throughout the dry summer, and is a premier attraction from Paradise, the most popular destination in the park. The bridge on the road to Paradise provides a stunning view of the glacier and of the emergence of the Nisqually River, a high mountain braided river that flows rapidly to Alder Lake, a popular fishing area. Three dams on the Nisqually River—Alder, La Grande, and the Centralia Diversion dam—provide power to western Washington. Along with electricity, these dams provide recreational opportunities on their associated lakes. Numerous creeks flow below Alder Lake into the Nisqually River. The area has dozens of pothole lakes, which retreating glaciers created about 12,000 years ago. The Nisqually Watershed also provides freshwater flows that are critical to the health of lower Puget Sound. The South Sound is a marine area that is not naturally cleansed by tides given its distance from the Strait of Juan de Fuca and the Pacific Ocean currents. Additionally, the Watershed hosts one of the most extensive areas of native prairie in the Puget Sound region, with a spectacular bloom of camas and other native and endangered prairie plants. The Nisqually Watershed’s diverse vegetation patterns range from heavily forested mountain slopes covered with cedar, fir and hemlock, to shrubs in the lowlands, and grasses in the prairie lands and meadows. Before the European settlers arrived, the Nisqually people burned much of the prairie each fall to curb the encroachment of forests into the prairies where the Tribe harvested food and medicinal plants. Wildfire suppression and an end to burning for prairie maintenance have resulted in the conversion of much of the prairie and oak forests to Douglass Fir forest-dominated land cover. The Nisqually glacier at Mount Ranier. Image credit: CC by Mount Ranier National Park
  15. 15. EARTH ECONOMICS 9 A gem of the U.S. National Wildlife Refuge system, the Nisqually National Wildlife Refuge, hosts migratory birds, amphibians, salmon and other fish species, seals and sea lions, mink, otter and beaver. In 1974 the refuge was created to protect the delta and its rich biodiversity. It houses critical habitat and has just finished a major restoration project increasing rare estuary habitat in Puget Sound. The Nisqually Wildlife Refuge hosts about 200,000 visitors annually, contributing over $9 million per year to the local economy. Although many of these areas are in relatively good condition, there are still many important restoration needs. The Nisqually Watershed Stewardship Plan aims to restore viable areas of these ecoregions by 2055 by eliminating invasive species and fully restoring all threatened and endangered animal and plant species. The Nisqually Watershed has been home to the Nisqually Tribe for thousands of years. The Tribe is a vibrant, welcoming community with advanced work in ecological restoration, tribal health and education. The Tribe has worked hard and successfully developed strong, constructive relationships with residents throughout the Watershed. Although it was the first area in the Puget Sound to be settled by Europeans, the Nisqually basin was not rapidly developed. Due to this, as compared to other parts of the Puget Sound region, the Nisqually Watershed is in good ecological condition. Significant areas within and around the Watershed enjoy protection: Mount Rainier National Park, the Nisqually Indian Reservation, Fort Lewis Military Reservation, Nisqually State Park, Nisqually tribal lands, the Nisqually National Wildlife Refuge, University of Washington’s Pack Forest, mitigation land purchased for protection by Tacoma Public Utilities along the Nisqually River, and the lands of the Nisqually Land Trust. The population of the rural towns in the Watershed—including Yelm, Eatonville, and Roy—has grown rapidly in the past decades. This has brought an increase in built infrastructure from roads and utilities to storm water and sewage treatment systems. More people have demanded the services that the Watershed’s natural systems provide as well. Answering these needs has put increasing pressure on the landscape. Wildlife like this Blue Heron is common at the Nisqually National Wildlife Refuge.
  16. 16. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 10 Nisqually Watershed Management BRIEF HISTORY The Nisqually River was first recognized as a “River of Statewide Significance” under the 1972 Washington State Shoreline Management Act. State House Bill 323 was passed in 1985 directing the Washington Department of Ecology (DOE) to develop a comprehensive management plan to protect and cultivate economic, cultural and natural resources within the Watershed. The DOE subsequently established the Nisqually River Task Force, which later evolved into the Nisqually River Council, to fully develop the proposed management plan, known as the Nisqually River Management Plan. This was approved by the Washington State legislature in 1987. The Nisqually River Council, the oldest river council in Washington State, comprises a wide variety of stakeholders including citizens, city and county elected officials, private landowners, local industry, environmental organizations, state and federal agency representatives and the Nisqually Indian Tribe. The Tribe is a significant force in coordinating and implementing watershed protection efforts, and is a critical player in current and future planning and restoration work. In 2003, the Nisqually River Council looked to update the Nisqually River Management Plan. The update resulted in the Nisqually Watershed Stewardship Plan in 2009, which was created to ensure previous conservation efforts continuing well into the future. The Stewardship Plan is a model emphasizing sustainability as the guiding principle for healthy communities, a healthy watershed and a healthy local economy. The Stewardship Plan also stipulates actions, objectives, goals and missions out to 2055, separated into four main categories: community involvement, biological diversity, recreation/public access/tourism and sustainable economy.
  17. 17. EARTH ECONOMICS 11 The Watershed has been the site of many restoration projects including habitat and riparian restoration, reforestation and storm water management. The Nisqually National Wildlife Refuge hosts one of the largest tidal marsh restoration projects to date in the Pacific Northwest.7 The Nisqually Watershed has made a great deal of positive progress in adopting a watershed-wide approach to ecosystem management and restoration. CURRENT MANAGEMENT CHALLENGES Though the Nisqually Watershed is in far better condition than most Puget Sound watersheds, there has been significant degradation of natural systems and the benefits they provide. Declining goods and services include: salmon, flood protection, drinking water quality, cultural and aesthetic value. Increasing the ecological health and economic value of the Watershed requires investment in natural assets. Fortunately, these investments pay off. A healthier watershed ensures more salmon, provides more jobs and healthy food, and creates recreational and cultural benefits. Abundant, clean water benefits people and wildlife. Most of the current built infrastructure was created in the last century without a full understanding of the impact on salmon, natural systems and long-term economic health. Ecosystem services, such as flood protection were lost, and taxpayers paid for built structures, such as levees to replace what natural systems previously provided for free. These built structures have often performed poorly in comparison to natural systems. Levees were built to provide flood protection because forests were cleared, wetlands were filled and floodplains were populated with structures. As natural flood protection reduces and storm frequency and intensity increases, damages produced by frequent floods will also increase. Storm water districts in many western Washington cities were required because impermeable pavement caused flooding. These expensive built systems often direct water from cities into rivers with great efficiency. This contributes to higher river peak flows, degraded water quality, and flooding downstream where flood districts are at work to reduce flooding with ever greater expenditures on levees.8 A combination of built structures and natural systems is today’s most inexpensive and effective way to provide many of the services needed for a healthy watershed and prosperous economy. Access to salmon, clean water, clean air, flood protection and other benefits provided by healthy ecosystems should be available to present and future residents of the Nisqually Watershed. Good planning and investments in restoration are required to achieve this goal. One generation should protect, not destroy, the potentially permanent flow of benefits that the Watershed’s natural capital provides. This is a core value of the Nisqually Tribe, the River Council, and many other stakeholders living in the Watershed. The fruit of these shared core values are reflected in the efforts to protect and restore the Watershed’s natural assets.9
  18. 18. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 12 Nature provides vast amounts of economic value for free or at little cost. Once degraded, natural systems require investments to restore health. Restored systems provide the flow of goods and services. Unlike other built-capital investments, healthy, natural systems are self-maintaining. The people who will benefit the most from protection and restoration efforts are those who live within the Nisqually Watershed. However, the Nisqually Watershed is a key indicator regarding the health of the entire Puget Sound, having regional and statewide significance.10 Restoration provides long-term dividends to everyone connected to the Watershed, whether they are within the actual boundaries or within the area of benefits, which extends far beyond the Watershed boundaries. The investment in watershed restoration provides a high, sustainable and fair rate of return for people in Washington State today and in the future.11 Though the Nisqually Watershed has avoided some over development mistakes, there is no doubt that pressure on the Watershed will increase as population and demands on natural systems within the Watershed grow. The Nisqually River Council has developed a list of needed restoration projects. Indeed the greatest challenge is not what to do but finding the funding for both maintaining the current natural asset institution, the River Council, and identifying capital improvement projects. WATERSHED SCALE GOVERNANCE The Nisqually Watershed Stewardship Plan is a large-scale project that includes several other projects all with measurable milestones that work towards the overall watershed restoration goals. Crucial projects are often time specific to a particular location, action must be taken or an opportunity to work with landowners, within seasons, or implement changes will be missed. There are several projects that focus in areas near Yelm, Eatonville, and the Nisqually Tribe Reservation, such as the Ohop Valley restoration, rain gardens in Eatonville, easement acquisitions and the well- known restoration of the Nisqually Delta. There are also species-specific plans, such as the Chinook Recovery Plan and the Multi-species Plan. Cities also have projects and plans that have importance to the Watershed, water quality and salmon, such as storm water and wastewater in Eatonville and Yelm. It is wasteful to build expensive systems that destroy each other. A storm water system that damages salmon or increases storm impact on levees may do more harm than good. This is called an “infrastructure conflict.” Plans that are implemented within a watershed framework, mutually informed, and in coordination with a watershed scale institution, like the Nisqually River Council, that represents the Watershed jurisdictions and stakeholders can cost less, generate co-funding sources, provide greater benefits, and last longer than uncoordinated, blind investments. A watershed approach with a sufficiently funded watershed scale institution strengthens objective and achievements for the entire watershed, including the Nisqually Watershed Stewardship Plan.12 Image credit: CC by Kat Kellner The Nisqually River as it winds along a rocky valley.
  19. 19. EARTH ECONOMICS 13 FURTHER EFFORTS This report aims to secure funding to ensure the success of the Nisqually Watershed Stewardship Plan and the Chinook and Steelhead recovery plans. Current funding for the Tribe, the Nisqually River Foundation, the Nisqually Land Trust, and other associated groups working towards implementing these three plans runs between $2 million and $3 million annually for operating expenses. However, finding this funding has become increasingly difficult, and takes more time each year to secure. Securing $3 million annually to cover the operating expenses will allow all projects to proceed at a pace to achieve the restoration objectives by 2055. Investing $3 million per year in the health of the Nisqually Watershed is a good investment, it maintains and improves an enormous asset that provides economic benefits to every resident, and many people beyond the Watershed’s boundaries. The Nisqually River Council recently commissioned an analysis of the economic value provided by the Watershed. Mudflats at the Nisqually National Widlife Refuge.
  20. 20. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 14 Ecosystem Services in the Nisqually Watershed A previous study by Earth Economics in 200913 estimated the value of ecosystem services produced in the Nisqually Watershed. The range of value was derived using both a benefit transfer methodology with GIS data provided by the Nisqually Indian Tribe Department of Natural Resources, and peer-reviewed economic studies of market and non-market values employing direct use and indirect use valuation methods. Valuation figures from this analysis established per acre values for four different categories of ecosystem services using GIS data for each land cover type within the Watershed. These were further adjusted with ecosystem health coefficients. CO₂ Provisioning Services Regulating Services Supporting Services Information Services
  21. 21. EARTH ECONOMICS 15 TABLE 2 DESCRIPTION OF 21 ECOSYSTEM GOODS AND SERVICES Good/Service Economic Benefit to People Provisioning Services Food Producing crops, fish, game, and fruits Medicinal Resources Providing traditional medicines, pharmaceuticals and assay organisms Ornamental Resources Providing resources for clothing, jewelry, handicraft, worship and decoration Energy and Raw Materials Providing fuel, fiber, fertilizer, minerals and energy Water Supply Provisioning of surface and ground water for drinking water, irrigation and industrial use Regulating Services Biological Control Providing pest and disease control Climate Stability Supporting a stable climate at global and local levels through carbon sequestration and other processes Air Quality Providing clean, breathable air Moderation of Extreme Events Preventing and mitigating natural hazards such as floods, hurricanes, fires and droughts Pollination Pollination of wild and domestic plant species Soil Formation Creating soils for agricultural and ecosystems integrity; maintenance of soil fertility Soil Retention Retaining arable land, slope stability and coastal integrity Waste Treatment Improving soil, water, and air quality by decomposing human and animal waste and removing pollutants Water Regulation Providing natural irrigation, drainage, ground water recharge, river flows and navigation Supporting Services Habitat and Nursery Maintaining genetic and biological diversity, the basis for most other ecosystem functions; promoting growth of commercially harvested species Genetic Resources Improving crop and livestock resistance to pathogens and pests Information Services Aesthetic Information Enjoying and appreciating the presence, scenery, sounds and smells of nature Cultural and Artistic Inspiration Using nature as motifs in art, film, folklore, books, cultural symbols, architecture and media Recreation and Tourism Experiencing natural ecosystems and enjoying outdoor activities Science and Education Using natural systems for education and scientific research Spiritual and Historical Using nature for religious and spiritual purposes Using a similar classification to the Millennium Ecosystem Assessment14 the following table describes services that were valued, and some which were identified as present and holding economic value but were not valued (appropriate estimation techniques or valuation studies may not exist).
  22. 22. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 16 THE VALUE OF THE NISQUALLY WATERSHED The valuation of 12 ecosystem services across 18 land cover types present in the Nisqually Watershed shows an annual flow of approximately $275 million to $3.9 billion. These are conservative values because 11 other ecosystem service categories present were not valued. The values reported, even on the low side, clearly justify significantly higher investment in restoration and conservation than is currently available. The asset value of ecosystems in the Watershed is certainly in the billions, with annual benefits in the hundreds of millions. TABLE 3 SUMMARY TABLE OF THREE FUNDING MECHANISM OPTIONS VIABLE FOR THE NISQUALLY WATERSHED Total $/Acre/ Year Total $/Acre/ Year Total $/Year Total $/Year Cover Type Acre Low High Low High Early Forest 71,436 $0 $0 $0 $0 Pole Forest 34,362 $12 $636 $402,379 $21,858,725 Mid Forest 56,449 $73 $1,093 $4,144,221 $61,713,425 Late/Old Forest 35,441 $396 $2,420 $14,026,485 $85,784,232 Riparian Forest Pole 22,288 $35 $12,567 $790,902.45 $280,107,404 Riparian Forest Mid to Late 59,604 $3,469 $25,365 $206,764,141 $1,511,864,248 Riparian Shrub 21,712 $35 $12,567 $770,440 $272,860,254 Fresh Wetland 20,216 $319 $59,914 $6,446,723 $1,211,196,925 River/Lakes 7,230 $78 $22,013 $561,804 $159,145,008 Shrub/Scrub 21,711 $12 $636 $254,236 $13,811,018 Grassland/Herb 29,680 $97 $97 $2,889,657 $2,889,657 Agriculture 1,190 $30 $40 $35,567 $47,106 Pasture 26,845 $6 $6 $167,781 $167,781 Urban Green Space 28,365 $1,278 $4,743 $36,259,414 $134,537,539 Beach 2 $22,353 $81,528 $37,330 $136,152 Salt Marsh 1,215 $359 $114,739 $436,013 $139,454,364 Estuary Waters 1,912 $19 $1,869 $35,601 $3,572,591 Marine Waters 3,009 $259 $773 $780,354 $2,324,994 Total 442,666 $274,803,050 $3,901,471,422 Forests, wetlands, riparian areas, estuaries and marine waters are of particularly high values. Prairies are clearly undervalued because few valuation studies of prairies exist. For example, within the Nisqually Watershed prairies are crucial groundwater recharge areas for aquifers and water supplies both for cities and individual wells.
  23. 23. EARTH ECONOMICS 17 From this annual flow of benefits, an asset value can be calculated for the Watershed systems that produce this flow of goods and services. The asset value of ecosystems in the Watershed is $274 million to $3.9 billion. Letting this asset degrade or improving it has an enormous impact upon the economy and quality of life within the Watershed. Importantly, many of the beneficiaries of the goods and services produced with the Nisqually Watershed are very easily identifiable. For example, Olympia receives much of the city’s water supply from the Nisqually, yet the city provides no funding for the health of the Watershed that provides and filters every drop of that water. This is not unusual. Los Angeles provides no funding to the Colorado Basin for watershed restoration, though water from The Colorado is sipped from the tap in Los Angeles. This historical oversight is changing, however. Bellingham, WA, as will be further discussed is a utility that places a watershed health charge on the bill and invests in watershed restoration and improvements. Trees in the Nisqually Watershed filter water that ends up in the City of Olympia’s water supply.
  24. 24. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 18 The Beneficiaries and Provisioners of the Nisqually Watershed A healthy environment is essential to a high quality of life. People live longer when they have the clean water, clean air and healthy food that a healthy watershed provides. This may seem obvious, but every polluted watershed was once as spectacular as the Nisqually. The residents of the Nisqually Watershed have identified a healthy environment as a critical contributor to quality of life thus empowering elected officials and others to actively pursue restoration throughout the Watershed, from the National Park, National Forest, and private lands to the Nisqually Wildlife Refuge. In understanding the economics of a watershed, there are three aspects of the production and distribution of ecosystem services that are important across a landscape: the provisioning area (the areas that produces benefits), the beneficiary area (those receiving the benefits), the areas of impairment (where the services are damaged or disrupted. FIGURE 2 RELATIONSHIP BETWEEN BENEFICIARIES AND PROVISIONERS PROVISIONER = WATERSHED The Nisqually watershed provides water, food, and other goods BENEFICIARIES = PEOPLE Residents within the watershed and all who receive water, food, and other goods
  25. 25. EARTH ECONOMICS 19 Manufactured goods are typically composed of an element of built capital that, when combined with labor, yields a single good or service. By comparison, natural systems, such as a wetland, provide a variety of benefits, such as flood protection, water filtration, recreation, and biodiversity. In addition, a single ecosystem service is provided by a variety of systems in a watershed. Flood protection is enhanced by multiple factors, including forest cover, porous soils, wetlands and wide riparian areas. This means that each ecosystem service has a unique provisioning map across a watershed landscape. Flood protection, for example, is primarily provided in the upper watershed and prairies, where forests break up rainfall and waters are slowed, ponded, or absorbed in highly permeable prairie soils to recharge groundwater. Flood protection services are also provided by built structures, such as dams and levees. The provisioning maps for each ecosystem service is different. Carbon sequestration, recreation, salmon production, and drinking water are all different, but overlapping within the watershed. The beneficiary maps for each ecosystem service are also different but overlapping. The beneficiaries of flood protection typically live at the base of a watershed where flooding takes place, whereas a map of the beneficiaries of recreational value in the Nisqually Watershed, would include people from all over the nation and world who visit the Nisqually entrance to Mount Rainier National Park or Nisqually Wildlife Refuge (recreational provisioning areas). Carbon sequestration benefits are global. Drinking water benefits are outlined by the wells and distribution systems of public utilities, which are inherently local. The third set of maps includes impairment of, damage to, or interference with ecosystem services. Areas of groundwater pollution within a watershed would be mapped as damage to drinking water quality. A map of areas where the floodplain has been filled would be included an impairment or damage to the service of flood protection to those downstream. These maps contribute to an understanding where there are highly critical areas for ecosystem services. For example, the transition zone for juvenile salmon is where salt and fresh water mix. Salmon species require days to weeks in this area to adjust to salt water before entering Puget Sound. While a parking lot could be located in many places within a watershed, the transition zone for salmon cannot. There is only one transition zone in the Nisqually River; if that transition zone is not available to salmon, then salmon runs cannot be maintained. These concepts set the stage for wiser and more effective land-use planning and infrastructure investment decisions.
  26. 26. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 20 BENEFICIARIES In a market transaction, a consumer who purchases (benefits from) a product pays the producer to produce it. If producers received no pay, they would likely stop producing the products. Nature is much more generous, often providing many valuable goods for free, such as water or fish, as long natural assets are unimpaired. In an ecosystem service transaction, beneficiaries of an ecosystem service pay those who provide the ecosystem services. In the Nisqually Watershed the beneficiaries are all those who benefit from services provided by the natural landscape, services such as abundant and clean drinking water, suitable habitat for salmon, and flood protection. Often these payments are a tiny fraction of the value provided, but ensure that landscapes are healthy and flows of ecosystem services and goods continue. Residents within a watershed, as well as those residing outside a watershed who receive food, drinking water, recreation, and flood protection are considered beneficiaries. The utility and efficiency of these types of payments for ecosystem services will become more apparent in coming years as new market opportunities develop for habitat, climate control, temperature and water quality.15 These formal ecosystem service markets have been slowly developing in areas where there is clear and strong demand for the services provided and sufficient infrastructure to assure credibility of the market transactions. A number of factors make ecosystem service markets more challenging than markets for traditional commercial goods. Unlike goods, a flow of services is often measured over time. Quantifying the amount of flood protection provided by a given forest and the value of that flood protection is much more difficult than calculating the potential for timber harvest. Regardless of the difficulty in measuring service flows, the value of drinking water, flood protection or other services may be higher than the production of goods of that same ecosystem.16 PROVISIONERS In the Nisqually Watershed, the main provisioner of services is the Watershed itself. The Watershed boasts a number of native salmon runs, a large protected estuary, and a wide range of critical habitats. It is home to several threatened and endangered species, including bald eagles, marbled murrelets and spotted owls. These ecosystems also provide a number of tangible and measureable economic and societal benefits, such as recreational opportunities, hydroelectric power generation, timber production, potable water supply, and more than half of the fresh water flow that enters the South Sound. Farming is a significant activity in the Watershed. The 1,500-acre Wilcox Farm, the largest farm in the Watershed, producing eggs for western Washington and Alaska, generating some $180 million in annual sales, and employing 110 people. Greenhouses in the lower Watershed provide seed trees and plants, enabling greater forestry and agricultural production in other watersheds, farms and nurseries. The Nisqually Estuary provides important habitat to hundreds of species of wildlife.
  27. 27. EARTH ECONOMICS 21 Forestry is still a dominant part of the Nisqually Watershed’s working landscape. The high rainfall and good soil quality provide high quality timber and fast growth rates. Hancock and other companies own significant areas of land, the State of Washington manages two forests within the Watershed, and the Gifford Pinchot National Forest implements the U.S. Forest Service’s vision of multiple use on their lands within the Watershed. WATER PROVISIONING The provisioning and purification of water are two of the most essential ecosystem services. It is anticipated that population growth will result in water supply shortfalls for the cities of Yelm and Lacey and the Town of Eatonville in the next 10 to 20 years, if new sources are not found and water rights are not granted by the State.17 Olympia and the South Sound rank among the fastest growing areas in the state, with water becoming increasingly scarce in Thurston County.18 Although the McAllister Spring has traditionally provided 84%19 of Olympia’s water, it was found to be susceptible to contamination from nitrates from failing septic systems, pesticides from both agricultural lands and residential lawns and runoff from local roads.20,21 Resolving water supply and quality issues will require careful planning, solid science, defining sustainable use and rights and determining fair distribution. The Nisqually Watershed provides drinking water to residents including those in the City of Olympia, which lies outside the Nisqually Watershed. Puget Sound aquifers are complex due to the glacial history that left tremendous amounts of permeable sand and gravel, accompanied by impermeable glacial lake sediments. Because glacial streams cut through sediments and then were covered, it is no easy task to understand how one aquifer is related to another. Although it was once thought that a single aquifer provided much of the Watershed’s groundwater and discharge to the Puget Sound, recent studies have revealed several deep aquifers that are directly connected to surface waters.22 Thus, the McAllister and Yelm sub-basins may have a greater impact on surface and ground water than previously thought. This ongoing research accentuates the importance of carefully understanding and balancing natural resource and land-use planning to sustainably accommodate the needs of current and future generations living in and outside of the Watershed. The Nisqually watershed provides water to the McAllister Springs McAllister Springs supplies 84% of the City of Olympia’s water FIGURE 3 WATER PROVISIONING WITHIN THE WATERSHED
  28. 28. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 22 Funding Mechanisms Overview TYPES OF FUNDING MECHANISMS Following from the rationale of beneficiaries and provisioners in a watershed, this section of the report details a variety of potential new, innovative funding mechanisms to provide the Nisqually River Council, Nisqually Tribe and other relevant stakeholders with options for choosing the most practical and reliable funding sources to match their needs. As seen in Figure 4, the sources of revenue are mainly: taxes, fees and voluntary contributions. Allocation mechanisms are separated into six: grants, conservation easements, revolving loan funds, tradable development rights, land acquisitions and special purpose districts; the allocation FIGURE 4 FUNDING SOURCES AND ALLOCATION TOOLS Watershed Investment District PROPOSED NEW ALLOCATION STRUCTURE SOURCES OF REVENUE Taxes ▪▪ Property ▪▪ Incentives ▪▪ General/ Special Purpose Voluntary Contributions ▪▪ Corporate Donations Fees ▪▪ Environmental Impact ▪▪ Watershed protection Revolving Loan Funds ALLOCATION TOOLS Trade-able Development Rights Conservation Easements Grants Land Aquisitions Special Purpose Districts MARKETS Voluntary ▪▪ Carbon Offset ▪▪ Stormwater Offset Regulatory ▪▪ Wetland Mitigation ▪▪ Carbon ▪▪ Water Quality
  29. 29. EARTH ECONOMICS 23 of which potentially could be managed more efficiently and effectively by a new allocation structure called a watershed investment district. Markets stand on their own, as both voluntary or regulatory, and are a viable option in the development of new funding approaches. In addition, the team further describes the approach taken for selecting appropriate funding mechanisms for the Nisqually Watershed. SOURCES OF REVENUE Taxes Taxes for funding general services at state and local levels Funding collected from taxes, at the state and local level (generally from property or sales taxes), provide means to support a wide variety of civic services including garbage collection, sewer maintenance and education.23 Business taxes, fuel tax and the Regional Transit Authority (RTA) tax, a combined vehicle tax and sales tax are other examples used in Washington State. Generally, taxes should have the following qualities to be fair, efficient, and effective: 1. Clarity and Certainty: the tax should be transparent and understandable (like a sales tax), There should be certainty as to how much will be paid and how it is calculated. 2. Efficiency: tax collection, implementation, and enforcement should be easy, rapid, and low-cost. 3. Fairness: people or firms in the same situation should have the same tax liabilities, and individuals and firms with a higher “ability to pay” should pay more. Taxes should be progressive (the wealthy pay relatively more than those with less income) rather than regressive (the poor pay more). 4. General taxes support universally beneficial services (national defense, environmental protection, education). Specific taxes/user fees support actions that benefit a portion of the population (road tolls for bridges, sewer charges for sewer services). 5. Taxes are dis-incentives, so they can be used to reduce externalities and overall market and social costs. Taxing tobacco reduces lung cancer, which reduces public health costs, increases employment and income, and both saves taxpayers money and increases tax revenues (people who would get lung cancer live longer and pay more taxes than if they were sick).24 6. Geographic Distribution: The tax should be set at the geographic scale of beneficiaries, which may be outside the Watershed. A watershed provides a broad set of benefits to everyone within it and to many people outside it. That is why a more diverse set of funding mechanisms are justified (market, non-market, tax-based, volunteer) than simply a special purpose single funding mechanism.
  30. 30. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 24 An example of a tax collected for a special purpose, a common practice to address specific environmental and other challenges, is demonstrated by the King County Flood Control District (KCFCD) tax levy, at a rate of $.10 per $1,000 of assessed property value generates $32 million a year for flood protection management activities across the county. This revenue is used to manage flooding in vulnerable areas, including building or maintaining existing infrastructure such as levees and revetments. Taxes for incentives In addition to generating revenue, taxes can serve as an incentive to change behavior, adjusting incentives to discourage activities that force impacts or external costs on others. For example, taxes on cigarettes, alcohol, or gas emissions reduce external costs.25 These incentives have been successfully implemented in various locations. In Maryland, the Chesapeake and Atlantic Coastal Bays Trust Fund, a water quality incentive program, pays rural landowners to reduce nutrient and sediment run-off from their land. The money used to pay these landowners comes from taxes on motor fuel and rental cars. The Chesapeake Bay restoration effort is supported by a tax known as the “flush tax.” Currently the fee is $30 per year, which is levied on those with sewer connections as well as those with septic systems. The fee is used to upgrade the state’s 67 major sewer treatment plants that discharge into tidal waters, upgrade failing septic systems and fund cover crops for fields—all designed to reduce nutrient loading and improve the overall health of the Chesapeake Bay. Property Taxes A property tax is a levy on property that the owner is required to pay based on the assessed value, as allowed in the Revised Code of Washington State. The tax is levied by a local governing authority of the jurisdiction in which the property is located, such as Thurston or Pierce Counties, in the case of the Nisqually. Depending on State law, multiple jurisdictions may tax the same property. In Earth Economics’ work with WRIA 9, a new $5-per-parcel special assessment fee was discussed which would generate an estimated $866,950 to support the proposed establishment of a watershed-wide tax district status for the WRIA. Alternatively discussed was a new property tax levy at a rate of $.20 per $1,000 property value, estimated to generate $21.2 million for WRIA 9.26 Fees Fee-based funding mechanisms provide an alternative to tax-based mechanisms. Fees are charged to parties based on a particular benefit provided. Fees are levied, collected, and allocated to fund projects or programs that address a problem or alleviate negative impacts. For example, local stormwater management fees are designed to provide funding for engineered stormwater management systems to mitigate flooding caused by a high concentration of impervious surfaces. The fee amount is related to the cost of the stormwater management actions required.
  31. 31. EARTH ECONOMICS 25 Other fees in Washington State include title and registration fees for land and vehicles, permitting fees, and environmental impact fees. Development of fee- based mechanisms may in some cases require establishment of a new district under legislative direction detailed in the Revised Code of Washington State. Such districts include special purpose districts, benefit assessment districts, or local improvement districts. For example, in 2001, the Board of Thurston County Commissioners approved two ordinances creating the Henderson Inlet and the Nisqually Reach Shellfish Protection District, led by an appointed stakeholder group. The stakeholder groups proposed changes to enhance the overall health of the Nisqually Reach and the Henderson Inlet, with the objective of protecting shellfish harvests. Rates and charges apply to those who have property that utilize any portion of the wastewater system. In the case of the Nisqually Reach, the rates are $60 per single family residence, $135 per family in high risk areas, and $145 per food establishments and schools (unless part of a large on-site sewage system). The charge varies depending the property’s soil drainage level and its proximity to water. A related example is the Washington Discover Pass, created in the budget-strapped year of 2011 and used to ensure the public could continue to enjoy recreation lands across the state. Given a budget shortfall, the state shifted from relying on tax revenue from the state General Fund to a user fee to pay for recreation. The cost to users is $30 for the annual Discover Pass or $10 for a one-day pass. In Maryland and Virginia, money from the sale of specialty license plates goes to the Chesapeake Bay Restoration Fund, which allocates contributions to programs that help restore the Bay and educate people about the restoration effort. From 1995 to1999 this Fund provided more than $3 million to some 300 community groups for restoration and environmental education.27 Environmental Impact Fees Impact fees are common across many areas. There are school impact fees, road impact fees, traffic impact fees, and development impact fees. Local environmental impact fees are created by local governments, under State Environmental Policy Act (SEPA), to mitigate environmental impacts caused by new or proposed development. This includes the authority to impose fees to pay for the mitigation of impacts on public facilities and services. The income generated by impact fees is used to help fund and pay for offsite environmental mitigation projects.28 Other areas would work well for impact fees as well. Marine shoreline armoring is a practice that has known and measurable ecosystem service impacts. These impacts could be partially addressed by paying a special fee. Bulkheads damage species including as smelt, Dungeness crab, herring and salmon. There is substantial evidence that salmon habitat is dramatically affected.29 A fee on existing bulkheads (new bulkheads are banned, though many variances are allowed) could help pay for the conversion from hard to soft armoring that would restore some of these critical and lost functions. The headwaters of the Nisqually begin at the Nisqually Glacier on Mount Ranier. Image credit: CC by Steve Cyr
  32. 32. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 26 A fee on impervious surfaces is paid by those disrupting the normal flow of water absorption into the ground in a specific area. The scientific evidence is clear that untreated run-off harms salmon fingerlings, habitat and ecosystem health. WRIA 9 is considering an additional fee on new impervious surfaces, which could generate approximately $15.4 million annually from a levy in unincorporated King County.30 The University of Pennsylvania started saving $11,000 per month on the fees it pays the Philadelphia Water Department to handle stormwater runoff at its campus by changing to green infrastructure practices that enhanced the collection of rainwater thus lowering the amount of stormwater discharge into the sewer system. Less stormwater into the system, lowered stormwater fees.31 Watershed Protection Fees Water utilities depend on natural assets such as watersheds, forests and river systems as a vital component of their drinking water infrastructure. Yet most do not include natural capital costs in their rate structure. As the primary source of revenue for water utilities, water rates have traditionally included a single base rate and/or user charges such as consumption charges. To better communicate the value of, and provide sufficient investments in their natural capital assets to ratepayers and other stakeholders, several utilities across the country have begun to include natural capital surcharges in their rate structures. In 2009, the City of Santa Fe, New Mexico, completed its 20-year Santa Fe Municipal Watershed Management Plan. It provides a framework for ongoing watershed management, environmental monitoring, educational outreach and long-term funding. In terms of long-term funding, the plan includes financial management based on a “Payment for Ecosystem Services” model. The plan is unique in that it identifies city water customers as the beneficiaries of a healthy watershed, and proposes that costs associated with ongoing water source protection activities in a watershed be paid for by the public through the “Water Source Protection Fund.” The fee is assessed per household on an annual basis and is in the range of $5.10 per household per year.32 As the source of Bellingham, Washington’s drinking water, the Lake Whatcom Watershed is monitored carefully for high nutrient runoff from residential development and other sources, which can result in algae problems. In 2001, Bellingham’s municipal utility implemented a system of “watershed rates” to fund land acquisition and preservation measures in the Lake Whatcom Watershed. Activities funded by the rates include identification, cleanup and long-term maintenance, and restoration of utility-owned land. The watershed rates are also used as a communication tool to help ratepayers understand the role of natural systems in filtering pollutants and distributing nutrients is more cost effective than traditional built infrastructure. The watershed rate for metered customers is the sum of a $5 per month base rate plus a volume rate of 64 cents per 100 cubic feet of water used. The base and volumetric rate for metered customers is expected to be roughly equal to the fixed rate for unmetered customers. Rates are increased by 50% for customers outside the city. Before implementation, the proposed fee structure and Acquisition Program went through a public process, including a public hearing before City Council. The fee has received little opposition from ratepayers and a recent fee increase passed unanimously in the City Council.
  33. 33. EARTH ECONOMICS 27 TABLE 4 FUNDING MECHANISM STRATEGY USED IN THE CITY OF BELLINGHAM Name Watershed Rate Implemented 2001 Amount $144 per year for unmetered city residents. $60 + $.64/CCF volume rate per year for metered city residents. $90 + $.96/CCF per year for residents outside the city. Communication Strategy Public process and public hearing Investment Strategy Nutrient monitoring and cleanup, long-term maintenance and restoration of utility-owned land. Source: Earth Economics/US Endowment: http://www.eartheconomics.org/FileLibrary/file/21st%20Century%20 Utility/EE_US_Endowment_Watershed_Rates_2012.pdf The Eugene Water and Electric Board (EWEB) is working on setting up a Watershed Investment Fund, a “dividend on natural capital,” to reward landowners who maintain 66% forest cover. Participating landowners would be paid an annual dividend per year. The Fund will be capitalized by an initial grant, corporate sponsorship (breweries) and water rates. The target for initial fund setup is $250,000. Earth Economics completed a rapid valuation of McKenzie watershedi , which produced values for water storage, filtration, habitat and recreation to help educate policy makers and the public. This valuation can be used to help set initial dividend prices, acknowledging that current rate payers are not expected to pay the full price of the asset value of a watershed. The City of Denver implemented a $27 dollar water fee per household over 5 years to finance the removal of dead trees and the extermination of northern pine beetles in 38,000 critical acres in five key watersheds.33 In 2009, Central Arkansas Water adopted a watershed rate of $5.40–$8.16 per payer, dependent on meter type. These funds were invested towards acquisitions, protection, monitoring and management of the watershed services that produce source water for the utility and its ratepayers.34 A similar funding mechanism is the implementation of a watershed fee to the electric utility. A healthy watershed provides for hydroelectric production. Running rivers, tributary streams and abundant water flow are vital to electricity generation. For example, Bonneville Power Administration (BPA) has established rates, approved by Congress, for costs for salmon recovery projects at $252 million annually, plus river operation requirements that cost anywhere from $90 million to $280 million a year. This is about one-fifth of BPA’s annual operating budget.35 i http://www.eartheconomics.org/FileLibrary/file/Reports/Earth Economics McKenzie Watershed rESV.pdf
  34. 34. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 28 ALLOCATION TOOLS Conservation Easements A conservation easement is a legal agreement between a landowner and a land trust (a private, nonprofit conservation organization) or government agency that permanently limits a property’s uses in order to protect its conservation values. The benefits of conservation easements are many, but essentially the private owner makes a commitment to a management or protection status, or sells some aspect of their property (development rights). They retain ownership of the land. In the Blackfoot Valley of Montana, for example, the Nature Conservancy accepted the state’s first conservation easement on 1,800 acres in the mid-1970s. Today, 30,254 acres in the Blackfoot are protected from development by easements and it is one of the most intact landscapes in all of Montana. In Washington State, Forterra has an ownership and/or easements on over 14,300 acres of diverse landscapes within King, Kittitas, Pierce, Snohomish and Mason Counties, as well as estuary land on the Washington coast. Of this total, they own 7,498 acres. They hold a conservation or stewardship easement on the remaining 6,824 acres. Forterra stewards these lands to enhance their ecological value and improve the value of these natural assets for the benefits of the local community. By monitoring conservation easements annually and working with landowners, landowners improve conservation values while maintaining the uses permitted. The City of Olympia is committed to providing safe and reliable drinking water to its customers, now and into the future. In order to meet this commitment, the city is actively developing a new water source, the McAllister Wellfield that will replace the McAllister Springs, their current water source, which is located in the Nisqually Watershed. The City of Olympia owns acres of land surrounding this new Wellfield, ensuring its immediate and future conservation to protect groundwater in the area. The construction of the McAllister Wellfield was funded through capital budget that included funds to purchase property on sensitive lands near this new, key City water resource.36 Transfer of Development Rights (TDR) A TDR program is both a voluntary, incentive-based and market-driven approach to steer development away from rural and resource lands into more suitable urban settings. These programs, such as the program in King County, Washington, are based on free-market principles and prices that motivate both landowner and developer participation. Rural landowners, termed the “sending” area, receive financial compensation without having to sell or fully develop their land. Private developers purchase the development rights that enable them to build more compactly in designated urban areas, termed the “receiving” area. To date in King County, the program has protected 141,500 acres of rural/resource land.39 Aerial view of the restored Nisqually Estuary. Image credit: CC by USFWS Pacific Region
  35. 35. EARTH ECONOMICS 29 The Nisqually River Delta represents the largest tidal marsh restoration project in the Pacific Northwest. Revolving Loan Funds A Revolving Loan Fund (RLF) is a source of money from which loans are made for multiple small business development projects, for utilities or other groups of borrowers. Borrowers tend to be small producers of goods and services, and could be artisans, farmers, or utilities. Some examples include U.S. Farm Bill programs, Clean Water Act State revolving loan funds (SRF) and Safe Drinking Water Act revolving loan funds. They provide many billions of dollars each year in low-interest loans to farmers, utilities (both wastewater and drinking water) and communities for the construction or expansion of built infrastructure.40 An example of a project funded by the Clean Water State Revolving Fund (CWSRF) is the City of Port Townsend purchasing an area known as the Winona Wetlands (EPA), which enabled the city to meet both storm water treatment and reduction objectives as well as wetlands preservation goals. Originally, State Revolving Funds (SRF) supported only the construction of built infrastructure such as wastewater treatment systems and drinking water infrastructure. Today, some states have expanded use of SRF to invest in natural capital along with built capital to maximize the services provided by watersheds and other ecosystems, especially for drinking water sources through land acquisitions.41 One example in Ohio allows wastewater treatment projects to receive significantly lower loan rates if projects invest a portion of the funding in watershed protection and restoration.42
  36. 36. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 30 Grants Grants are awarded for targeted funding purposes all over the country. Many of the grant cycles are open all year and financial support awarded can be in the millions of dollars depending on the source. There is a wide array of federal, state, local government and private philanthropic grants available that target investment in sustainable management and restoration of watershed resources. In an average year, the Nisqually Watershed, through numerous organizations, is the beneficiary of millions of dollars of both public and private grant funding that is invested in maintaining the health of the Watershed. These grants often fund pilot studies, small-scale preliminary studies conducted to evaluate feasibility (both political and institutional), applicability, cost and adverse events in an attempt to understand performance and outcomes of a full-scale research project or implementation effort. One suggestion for the Nisqually Watershed is to participate in pilot programs in collaboration with the Puget Sound Partnership Action Agenda. This would align funding mechanism development with agenda financing strategies (AFS). The AFS is part of the 2020 Action Agenda for the protection and recovery of Puget Sound. The Puget Sound Partnership (PSP) is required to complete a financing strategy for the Action Agenda. As specified under RCW 90.71.370 the financing strategy is to: (1) Provide recommendations for projected funding needed through 2020 to implement the action agenda by action agenda element; (2) Address funding responsibilities among local, state and federal governments, as well as nongovernmental sources; (3) Identify methods to secure stable and sufficient funding to meet these needs as well as proposals for new sources of funding to be dedicated to Puget Sound protection and recovery. One such grant funded project is the Watershed Services Transaction Demonstration Projectii was launched by DNR, in partnership with the University of Washington School of Environmental and Forest Sciences’ Northwest Environmental Forum in June 2011. The multi-stakeholder forum focused on forest watershed services, and included project partners from the two participating pilot watersheds, Snohomish Watershed and Nisqually Watershed. The two-year project, funded by a grant from the Washington State Department of Commerce, envisioned one year for organization and start-up; the second year for detailed analysis, implementation and documentation.43 The work in the Nisqually Watershediii is driven by DNR staff, members of the Nisqually River Council, Nisqually Land Trust and Northwest Natural Resource Group, among others. It is focused on exploring a payment program for watershed- based ecosystem services that links private-forest landowner actions with improvements to water quality and quantity within the Watershed. The work is a natural extension of ongoing Nisqually Watershed protection efforts and is intended to help provide a steady funding source to improve the health of forest ecosystems ii http://www.dnr.wa.gov/ResearchScience/Topics/ForestResearch/Pages/forest_watershed_service_markets.aspx iii http://www.dnr.wa.gov/ResearchScience/Topics/ForestResearch/Pages/nisqually_watershed_srvcs_demo_proj.aspx
  37. 37. EARTH ECONOMICS 31 iv http://www.dnr.wa.gov/ResearchScience/Topics/ForestResearch/Pages/snohomish_watershed_srvcs_pilot_proj.aspx on private lands, and to provide new sources of income to forest landowners. This provides an incentive for landowners to keep forests from being degraded or converted to non-forest uses. Information about the specific direction of the work in the Snohomish Watershed can be found on the DNR website.iv MARKETS Market funding mechanisms apply innovative approaches to the banking and trading of benefits or impacts. Credits corresponding to actions with negative impact are transferred to projects with a corresponding positive impact. In wetlands mitigation banking, any projects that harm a healthy, intact wetland must be offset by other projects providing comparable wetland restoration in another location. Existing protocols, requirements and standards for such market-based mechanisms are used in a wider range of contexts including carbon trading and water quality trading. Wetland Mitigation Banking Wetlands mitigation banking, an emerging market mechanism, is a mitigation option for projects that harm a healthy, intact wetland that by law must be offset the impact by providing comparable wetland restoration in another location. Wetlands can be pre-developed or created and their credits placed into a bank so that project proponents that impact wetlands can purchase the “banked” wetland credits for mitigation. The Washington State Department of Transportation and Department of Ecology, established wetland mitigation banking across the state, describing important development criteria in Chapter 173-700 of the Washington Administrative Code (WAC).37 There are now fourteen approved wetland banks throughout Washington State and two new banks are under review.38 PROPOSED NEW ALLOCATION STRUCTURE Watershed Investment District (WID) The watershed investment district concept takes a multi-jurisdiction approach, and whole watershed approach, similar to a public utility, which includes management systems for a range of ecosystem services. Such a mechanism could be structured on the Vermont Common Asset Trust model or the Alaska Permanent Fund and implemented at the scale of an individual watershed through the WRIA system in Washington or by a county. As a watershed provides a suite of inseparable goods and services related to the health of the whole watershed, a governance structure such as a WID, holds the potential for being more effective and efficient, in terms of resource allocation, in achieving designated conservation and restoration across the whole watershed.
  38. 38. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 32 If a watershed were considered the unit of production, then a watershed investment district would be a jurisdiction at the same scale as the productive asset, encompassing the full suite of benefits a watershed provides. Washington State has previously created new tax districts to fund and manage individual ecosystem services. In nearly all of these cases, the boundaries of these districts do not correspond to the geographic area in which the ecosystem services are generated or benefits received. For example, shellfish districts do not include the areas where water quality is degraded, causing damage to shellfish. Also, flood districts have traditionally been at the base of a watershed, when most of the flood protection is provided further up a watershed. In many cases, effective management of natural flood protection services of upland ecosystems prior to damage can be more cost-effective than engineered management solutions or solutions designed after damage has occurred and flooding has increased. The challenge is how to tax and allocate resources on this scale. It is inefficient to manage for flooding, stormwater, water quality, biodiversity (including both salmon habitat restoration and shellfish protection) and other ecosystem services as individual districts. Moreover, unnecessary complexity and potential for conflict occur when these services are funded through separate jurisdictions, with separate legal precedents and jurisdictions overlapping in mission and geography and in some cases competing for limited funding. This complex, piecemeal structure also contains potentially redundant administrative functions. A more efficient solution would be to integrate all into one comprehensive system for funding, planning and management. The rationale for a comprehensive approach to watershed-scale integration of funding is that public and private entities within a watershed receive benefits from that watershed. Truly public goods such as flood control, storm protection, and biodiversity are best provided through a public utility model, since a private owner cannot exclude beneficiaries from these public goods and services. Such a proposal is currently working its way through the Washington State Legislature, based on an original proposal by WRIA 9, for the creation of a Watershed Investment District to better plan and allocate ever shrinking resources to the recovery of salmon across the whole watershed.
  39. 39. EARTH ECONOMICS 33 Proposed Funding Mechanisms for Nisqually Resource allocation decisions are increasingly complex. Ecological economics offers a strategic approach for the decisions makers in the Nisqually Watershed to choose among various standards, taxes, fees or market mechanisms to generate new sources of revenue and realize the potential of a fully restored watershed. The strategic goals of economics and ecology together guide the decision making on estimated costs of preventing, abating or mitigating any social or environmental impacts as compared to the estimated costs—or foregone benefit—that these impacts impose on society and the environment.44 It is precisely these costs, also called externalities that represent social or environmental impacts and loss of value, which are not captured in market dynamics. Ecological economics provides the opportunity to identify the costs and design funding mechanisms to protect the systems and restore them from these impacts.45 This report, and the analysis within, is based on principles of ecological economics to best manage the economy, address social equity concerns and foster environmental sustainability across the whole Nisqually Watershed. THE PROCESS FOR CHOOSING FUNDING MECHANISMS From the inventory of possible funding mechanisms described above and in consultation with the principals in the Watershed, including input from the stakeholders at an earlier River Council meeting, the Earth Economics research team presented the short list of proposed funding mechanisms for consideration at a meeting of the Nisqually River Council on July 19, 2013.
  40. 40. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 34 Seven Proposed Funding Mechanisms: ▪▪ Watershed Protection Fee ▪▪ Watershed Stewardship Fee ▪▪ Special Assessments ▪▪ Watershed Investment District ▪▪ Voluntary Offset Fund ▪▪ Beyond Local Opportunities/Marketing the Nisqually ▪▪ Corporate Give Back Along with the list of proposed mechanisms, a set of criteria that influenced the selection of the funding mechanisms. Evaluation/Rating Criteria: ▪▪ Equity/fairness (meets the progressive tax standard or is not burdensome) ▪▪ Adequacy to generate sufficient revenue ▪▪ Political feasibility ▪▪ Meets outreach and educational goals of the River Council ▪▪ Can be implemented after one year Once the funding mechanisms, evaluation and rating criteria were discussed and adopted, the stakeholders voted on the funding mechanisms. The results of the voting are summarized in the table below. TABLE 5 RESULTS OF THE VOTING WORKSHOP (JULY 19, 2013) Equity/ fairness Adequacy to generate sufficient funding Political feasibility Meets outreach and educational goals Implementable within the 1st year Results Yes No Yes No Yes %Voting Yes’s 1. Watershed Protection Fee 10 1 9 2 8 69.23 2. Watershed Stewardship Fee 14 1 11 1 12 94.64 3. Watershed Investment District 11 1 9 2 2 48.57 4. Special Assessments 8 2 7 2 1 24.00 5. Voluntary Offset Fund 12 0 9 2 12 94.23 6. Beyond Local Opportunities 12 0 12 0 9 84.91 7. Corporate Give Back 10 0 10 0 10 95.83
  41. 41. EARTH ECONOMICS 35 The voting, subsequent consultation with key project partners and stakeholders highlighted the need for about $3 million/year in additional resources. Through this vote and discussion mechanisms highlighted included the Watershed Protection Fees, Watershed Stewardship Fees, Special Watershed Assessment, Watershed Investment District, Puget Sound Regional Funding and Corporate Funding. These areas are further highlighted below. WATERSHED PROTECTION FEES This mechanism is being developed by utilities, primarily drinking water utilities, to increase revenue for natural capital protection. It is in the interest of utilities, and by extension their ratepayers, to protect the natural systems that provide abundant, clean drinking water. In October 2013, representatives of Earth Economics met with officials of the City of Olympia to discuss the potential of watershed protection fees as part of the City’s utility rate structure. Earth Economics suggested the City of Olympia should implement a watershed protection fee to support Nisqually Watershed health and source water protection. The fee could be implemented by adding a flat rate of $5 per bi-monthly billing cycle. The flat rate alone will yield $600,000. Similarly, in 2001 Bellingham, Washington, began assessing rater payers a watershed protection fee. The Bellingham model shows how the burden of watershed management is spread across all the beneficiaries (rate payers) as follows: $144 per year for unmetered city residents; $60 + $.64/CCF volume rate per year for metered city residents; $90 + $.96/CCF per year for residents outside the city. In addition to water utilities, electric utilities can be assessed mitigation fees to offset the impacts of their operations in a given watershed. The example of Bonneville Power Administration is relevant to draw on as a potential (partial) model for modification in the Nisqually Watershed. TABLE 6 KILOWATT HOURS GENERATED BY EACH DAM AND THEIR ANNUAL REVENUE47 Dam Kilowatt hours $ Generated per year Alder 228 million $8.4 million La Grande 345 million $12.7 million Total $21.1 million TABLE 7 THREE DIFFERENT SCENARIOS OF A RATE INCREASE FOR BOTH DAMS AND THE ADDITIONAL $ YIELDED BY EACH INCREASE Rate increase for both dams* Additional $ yielded per year given % increase 5% $1 million 2.5% $525,000 1% $211,000 *At a current rate of $0.037 per kwh48
  42. 42. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 36 Tacoma Public Utilities operates two dams in the Nisqually Watershed, the Alder and the La Grande dams. Each dam currently generates power as follows: Alder Dam: 228 million kilowatt hours (generating $8.4 million). La Grande Dam: 345 million kilowatt hours (generating $12.7 million). The total from both dams is $21.1 million, at a current rate/kwh of $0.037. At that rate, consider three scenarios for a rate increase on the power generated from both dams: a 5% increase yields $1 million, a 2.5% increase yields $525,000, and a 1.0% increase yields $211,000. For purposes of this analysis of the potential of new revenues to invest in the ecosystem services of the Watershed (in this case generated by a utility needing to offset its impacts to the Watershed) we assume the mid-level rate increase at 2.5%, generating $525,000.46 WATERSHED STEWARDSHIP FEES We use this term to describe various voluntary fees that are paid by visitors taking advantage of the natural resources available in Mount Rainier National Park and the Nisqually National Wildlife Refuge. Approximately 573,000 visitors and 198,000 vehicles enter annually through Nisqually Gate to Mount Rainier National Park. The current fees collected are as follows: $15 per person, $30 per vehicle, and $80 for a season pass. Through various voluntary contribution opportunities provided either at the entrance gate or by those commercial entities providing guest services in the form of gift shopping at the visitors’ centers, lodging or dining, the following fee options were considered: Voluntary donations: ▪▪ $10 per vehicle = $1.98 million ▪▪ $5 per vehicle = $990,000 ▪▪ $1 per vehicle = $198,000 Similarly, at the Nisqually National Wildlife Refuge, there are approximately 205,000 people visit annually. The current fees consist of a $3 daily suggested donation, which can include up to four adults, a $12 annual pass, or a $62 lifetime membership. If we assume that the non-profit group that runs the visitor’s center at the refuge supported a watershed-based fee in addition to the current contribution, the range of possible funding is as follows: ▪▪ $2 = $410,000 (for a total donation of $5) ▪▪ $7 = $1.47 million (for a total donation of $10) ▪▪ $17 = $3.57 million (for a total donation of $20)
  43. 43. EARTH ECONOMICS 37 SPECIAL WATERSHED ASSESSMENTS This funding mechanism would work in tandem with the watershed protection fee collected by the City of Olympia (discussed above) to capture those living outside the municipal boundary and benefit from the water services provided by the Watershed. There are two ways to approach spreading this fee across the total number of parcels in the Nisqually Watershed. The first is an additional watershed protection assessment per parcel based on a flat rate of $15 for the total number of parcels (properties) within the Nisqually Watershed, calculated at 41,775, which would generate an estimated $626,625. The second is based on the value of the parcel, which is often thought to be more socially equitable. There are approximately 41,775 parcels/properties in Nisqually Watershed: ▪▪ A rate of $.10 per $1,000 property value of a $175,000 property = $1,750; across 41,775 properties = $73 million ▪▪ A rate of $.01 per $1,000 property value of a $175,000 property = $175; across 41,775 properties = $7.26 million ▪▪ A rate of $.001 per $1,000 property value of a $175,000 property = $17.5; across 41,775 properties = $726,000. The average price of property in the Nisqually basin was estimated based on average property values listed on the Zillow.com. For purposes of simplicity, to demonstrate the possible stream of revenue from new sources, the research team focused on the amount generated by the flat $15/parcel. The different funding mechanisms, potential sources, structure of the rates, charges or fees, and amounts of revenue each could generate are summarized in Table 8. Additional funding mechanisms to consider for future development are described next. These were identified, but not pursued as they are more complex in terms of political feasibility including the need for new governing structures, changes to existing legislation and establishing support from across the Watershed. TABLE 8 SUMMARY TABLE OF THREE FUNDING MECHANISM OPTIONS VIABLE FOR THE NISQUALLY WATERSHED Funding Mechanism $ Generated 1. Watershed Protection Fee City of Olympia $5 bi-monthly $600,000 Tacoma Power 2.5% rate increase $525,000 2. Watershed Stewardship Fee Mt. Rainier $5 per vehicle $990,000 Nisqually Wildlife Refuge $2 entrance fee $410,000 3. Special Assessment Fee Nisqually Properties $15 per parcel $626,625 Total $3,151,625
  44. 44. FUNDING MECHANISMS FOR RESTORING AND MAINTAINING A HEALTHY NISQUALLY WATERSHED 38 WATERSHED INVESTMENT DISTRICT The Watershed Investment District (WID) is being further developed under a study bill supported by Washington State Representative John McCoy (administratively led by WRIA 9). The study bill supports the concept that watershed boundaries and the full suite of services it provides should be the organizing scale for planning, resource allocation and monitoring of a watershed recovery progress. The WID could help collaboration across jurisdictions and help coordinate investment within a watershed. The process of defining the WID boundaries and the governance structure should include the multitude of interests across a watershed. This could be the natural evolution of the existing Watershed Resource Inventory Areas (WRIA). The new WID would have taxing authority and be eligible to apply for and receive grants. It could also serve as a bonding authority for watershed-based Bond instruments. The WID would be governed by a board of elected officials of counties, cities and tribal interests that are housed wholly or partly within the district. The governing body would be authorized to use funds for all or part of activities to restore and conserve defined ecosystem services. This could include salmon habitat protection, restoration projects, floodplain management, potable water, forest protection, integrated watershed-wide stormwater and wastewater management programs, and flood risk reduction. The WID framework is intended to allow flexibility because watersheds are dramatically different. A WID in one watershed may only involve salmon restoration. Another, as in Mason County, might include water, flood risk reduction, storm water and salmon restoration. The voters and elected officials would determine the most appropriate scope for their watershed. Leaders in the Nisqually Watershed should continue to actively support this opportunity and engage in shaping the scope and scale of a Nisqually Watershed Investment District. This could be a natural evolution of the existing Nisqually River Council. The Council could continue with watershed-wide ecosystem services assessment, planning, strategy, and investment, with a funding mechanism to implement the plan.49 The Mount Ranier National Park is located in the Nisqually Watershed, along with Paradise, the park’s most popular destination. Image credit: CC by Rachel Sarai

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