Gotham Gazette

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How New York Will Implement the $4.2 Billion Environmental Bond Act Passed by Voters in 2022

Projects underway (photo: Mike Groll/Governor's Office)

After voters overwhelmingly approved it last fall, state officials expect to issue the first bonds under the $4.2 billion Environmental Bond Act in the upcoming fiscal year, which begins April 1. It will take years to spend the entire sum, aimed at addressing some of the state's most dire climate and environmental needs.

The bond act authorizes the state to raise its general obligation debt to support public works in four broad categories: climate change mitigation, flood risk reduction, water quality improvement, and land conservation. Governor Kathy Hochul, state legislators, and environmentalists say the money is necessary to pay for critical infrastructure and to leverage other state and federal funding sources.

Hochul made it a central part of her climate platform in her first year-plus in office as she moves to implement policies to meet emission-reduction and renewable-energy mandates in the state's landmark 2019 Climate Leadership and Community Protection Act, which will probably require bond act funds. The Democratic governor recently laid out her 2023 agenda with a major focus on environmental and climate policies that will in part be bolstered by bond act spending.

Before any of that can happen, though, the Hochul administration must set out the criteria and guidelines local governments and organizations will use to apply for grants for the myriad projects to be funded under the act, formally known as the Clean Water, Clean Air, and Green Jobs Environmental Bond Act.

The State Department of Environmental Conservation (DEC) is leading a working group of state agencies focused on developing procedures through a "robust engagement process…throughout the spring and summer," according to a DEC spokesperson. The groundwork they lay must then go through a public comment period before projects may be considered.

The state is expecting to finance $100 million in the next fiscal year, from April 2023 through March 2024, according to Hochul's financial plan. Its projection shows New York will spend less than a quarter of the total $4.2 billion over the next five years.

"We are moving as quickly as we can as a state enterprise to identify the current programs that exist, the ones that we are going to need to create new, and then developing the infrastructure behind that in order to stand those up," said Sean Mahar, DEC's Executive Deputy Commissioner, in a recent interview. "That's really our goal in the short term."

"Our staff and all the agency staff are excited about this and our sleeves are rolled up and we're at the table," Mahar said.

DEC and eight other state agencies make up the bond act working group: the New York State Energy Research and Development Authority (NYSERDA), the Environmental Facilities Corporation, Department of State, Office of Parks, Recreation, and Historic Preservation, the Adirondack Park Agency, Department of Transportation, Department of Agriculture and Markets, Office of General Services, and Homes and Community Renewal. While subcommittees are focused on each of the four spending categories, the exact structure of the office overseeing spending is still in development, according to DEC. So are other pieces of infrastructure, like a public facing website, which will help New Yorkers understand how the dollars are being spent.

"I'm personally of the belief that the governor should hire a director to oversee…and to help arbitrate where there may be some disagreements, as may happen from time to time between various agencies," said Julie Tighe, executive director of the New York League of Conservation Voters, in a recent interview. Tighe and NYLCV were major proponents of the bond act, and part of a coalition that urged voters to pass it when it appeared as question one on the ballot this past fall.

The bond act and its implementing legislation outline dollar figures for each of the four categories and describe a smattering of the types of environmental work they can fund. It requires the executive branch to lay out the technical details of how entities will apply for grants while ensuring 35% goes to "disadvantaged communities."

The legislation outlines an array of projects that may be eligible, including: shoreline restoration, fish hatchery and farmland protections, wastewater infrastructure and municipal stormwater projects, green building, pollution mitigation, and zero-emission school buses. The money comes with certain labor requirements, including a prevailing wage mandate, apprenticeship agreements, and Buy America provisions on iron and steel.

Amy Chester, managing director of Rebuild by Design, a policy and research group focused on resiliency and another member of the "Vote Yes for Clean Water and Jobs" coalition, echoed the importance of setting up the right groundwork early on. "I think the biggest immediate step is for the State to determine which agency(ies) will administer the different components of the bond act, and how they will ensure that there is the capacity to staff the programs effectively," Chester wrote by email.

Hochul's fiscal year 2024 executive budget proposes to add 131 full-time DEC employees specifically to implement the bond act, but its projects will be executed by a long list of state agencies and authorities, local governments, and others.

Chester, who was a senior policy advisor to Mayor Michael Bloomberg, also noted the importance of a requirement to spend a third of funds in underserved and disproportionately impacted communities. She is eager to see how they will "be involved in the prioritization and awarding" of grants, she said.

Short-Term Goals
According to DEC, in the short-term the working group is focused on engaging the municipalities, nonprofits, and corporations likely to be stewarding projects. The administration must then promulgate spending regulations including the form and content of grant applications, which will then be subject to public comment before taking effect.

"What we want to do is really have a robust stakeholder engagement process where we work across the state to galvanize good local conversations to get the right types of projects identified and prioritized," Mahar told Gotham Gazette. "And then work creatively throughout all the funding sources that we have available."

The bond act is one of many state funding mechanisms, along with the Environmental Protection Fund and others, that will be used for those projects, many of which will build toward the state's statutory conservation and resiliency goals. Hochul announced a number of those priorities in her executive budget, only some of which rely on bond act funds. Last year, Hochul advanced many climate priorities, including work on two major renewable energy transmission lines she greenlit and contracts are also moving ahead on offshore wind, solar farm, and many other projects.

"We don't have details of exactly what the governor and the department have in mind and so [on Tuesday, February 14] is a budget hearing at which we will ask for more details," said Assembly Member Deborah Glick, a Manhattan Democrat and chair of her chamber’s environmental conservation committee, in an interview. Glick is hoping to probe the administration's timeline and organizational structure for spending the bond act money. She also wants to know how the administration will issue grants, whether they will go through a competitive bidding process, and how it will ensure broad participation.

The broader funding itself will not be the subject of budget negotiations, however, as that was allocated in the current fiscal year budget, passed on the contingency that voters approved the bond act. "They have the money," Glick said.

According to a spokesperson for State Senator Pete Harckham, the Senate's environmental conservation chair and a Hudson Valley Democrat, the Legislature's real oversight functions will begin after DEC goes through the public comment period as part of its rule-drafting process.

"We need to be moving forward expeditiously but we also need to be moving forward smartly," said Tighe of New York League of Conservation Voters, who previously served as chief of staff at DEC. Part of that means ensuring local governments and nonprofits have the technical support needed to compete for grants and implement projects. That will be essential to meet the bond act requirement of dedicating 35% of funds to environmental justice, she said (she and other advocates want to see that figure hit at least 40%).

That could mean addressing environmental issues that have plagued low-income areas, like lead pipes in urban centers or harmful algal blooms in upstate lakes, though the legislation doesn't include specifics. According to the state's webpage on the bond act, the criteria will be the same being developed for the state's Climate Leadership and Community Protections Act (CLCPA) by the State Climate Justice Working Group, a body of regionally diverse public members and representatives from DEC, NYSERDA, and the departments of health and labor.

James Hanley, a fellow at The Empire Center, a think tank, wonders if the state will "actually manage to achieve that" benchmark. "Well-to-do communities tend to [be] more connected to power…We'll see how it actually plays out," he said in a recent interview.

"There are big governments like New York City, and sophisticated governments like Suffolk County and Westchester County, that have a lot of people who would be dedicated to this," Tighe said. That means the state will need to make additional efforts to facilitate "geographic diversity" in projects.

New York City is already angling for a substantial share of bond act funds. In December, the City Council passed a resolution calling on the state to allocate bond act funds to the city proportionate to its share of the state tax base (62% of state tax revenue and 43% of the population comes from New York City, according to the resolution).

Shovel-Ready Projects
In order to get money out the door, the state is looking to first fund ongoing and shovel-ready projects, according to DEC.

That includes school bus electrification already funded by NYSERDA and water supply and flood risk initiatives under the Water Quality Improvement Program and Water Infrastructure Improvement Act. The state may use the bond act to bolster land acquisition programs run by DEC and the Parks Department and backed by the Environmental Protection Fund, according to Mahar. Many of the current programs are funded under the federal Clean Water State Revolving Fund and state investments under the Clean Water Infrastructure Act.

Hochul is also putting billions of dollars toward the environment outside the bond act. Her $227 billion executive budget includes $500 million for the Water Infrastructure Improvement Act, $400 million for the Environmental Protection Fund, and $200 million for parks. Another $400 million will go toward lowering energy costs and retrofitting buildings. Other programs to increase recycling rates and local contaminant remediation are also included. And NYSERDA contracts and coordinates massive renewable energy projects that may or may not include significant state funding.

In her new agenda, Hochul also proposed a cap-and-invest program, to be run by DEC and NYSERDA, which would place a tax on carbon emissions and invest proceeds into energy rebates for New Yorkers. Over $1 billion from that revenue stream would be placed in a Climate Action Fund to support the rebates.

The executive budget also expands the New York Power Authority's jurisdiction to help meet renewable energy targets and includes a number of building decarbonization proposals.

The bond act places New York in a stronger position to apply for federal funding under the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. DEC Commissioner Basil Seggos praised the Inflation Reduction Act as a boon to the types of environmental projects the administration is eying. "The [Inflation Reduction] Act is a major boost for New York's leading climate efforts and will ensure all states and localities can help galvanize the clean energy economy," Seggos said in a statement in August. "New York is extraordinarily well positioned to fast track these initiatives that will reduce the costs and burdens on energy consumers, secure protections and opportunities for disadvantaged communities, provide inflation relief to Americans and New Yorkers, all while reducing the nation's deficit."

The demand is certainly there. A recent report from the nonprofit Environmental Advocates NY found that the Water Infrastructure Improvement Act gave $279 million to 73 projects while 246 shovel-ready projects valued at $665 million went unfunded in the last grant cycle.

According to Mahar, the exercise now is lining up bond act requirements with existing programs and "seeing what the gaps are."

The Climate Leadership and Community Protection Act
A number of Hochul's executive budget proposals – especially the cap-and-invest and renewable energy programs – will help New York meet the lofty energy goals set under the Climate Leadership and Community Protections Act, which then-Governor Andrew Cuomo signed into law in 2019.

It requires reducing carbon emissions 40% by 2030 and 85% by 2050 from 1990 levels. It also requires 70% of the state’s electricity to come from renewable sources by 2030 and 100% by 2040. In December, the Climate Action Council, a governing body established under the CLCPA, issued a scoping plan of recommendations to guide the state's work. Hochul’s agenda is in part based on those recommendations.

The bond act, particularly the largest funding category, up to $1.5 billion, for climate change mitigation, can support those goals, according to DEC.

"I think the way that we've approached our climate mitigation efforts is really all hands on deck when it comes to implementing the scoping plan," Mahar said.

The bond act "is intended to be linked to the CLCPA so that they are addressing the full range of concerns that are out there, whether it's water quality, coastline resiliency, and so forth," said Assemblymember Glick, "but we need to get more detail on their timeline and how they will choose organizations to actually do the work."

"All of our targets are very necessary but also very ambitious," she said. "And frankly they're goals, we may not meet them all in the time frame set out."

"Even if you could build out all the renewables in say six or seven years, which I think is going to be a struggle, you have to have all the transmission lines, you know, there are a lot of moving parts," Glick said. The bond act will help. So will federal assistance under the Inflation Reduction Act, she said, "but my sense is that people aren't working as hard and fast as they did before the pandemic so I think we have to pick up our game."

Financing the Bond Act
The bond act outlines how much can be financed for each of the four categories. The largest category, at $1.5 billion, is climate change mitigation, which can include anything from green buildings to renewable energy to pollution remediation.

Projects to mitigate flood risk, a growing problem with more frequent superstorms and eroding protections, will receive up to $1.1 billion. Water infrastructure and land conservation will each receive $650 million under the act, with another $300 million not specifically allocated.

A third of all funding must go to projects in underserved areas that have borne the brunt of pollution, climate change, and scarcity. The projects must have a useful life of ten years in order to be eligible for bonding.

Hochul and the State Legislature already allocated the full $4.2 billion to DEC in the current fiscal year, meaning the administration will not necessarily have to return to the Legislature to authorize the spending.

The capital plan in Hochul's new budget projects $805 million of the bond act will be financed over the next five fiscal years, through March 2028. That includes $5 million in the current fiscal year, growing to a projected $100 million in FY 2024, $150 million in FYs 2025 and 2026, and $200 million in FYs 2027 and 2028.

"$805M is currently the minimum amount of disbursements expected from the Bond Act for the period," wrote Jason Gough, a spokesperson for the governor, in an email to Gotham Gazette. That estimate is based on historic capital spending trends for similar, mostly reimbursement-based environmental and parks projects, he said.

While the first bonds are expected to be issued in the upcoming fiscal year (from April 2023 through March 2024), the full $4.2 billion will be financed over multiple years.

The State Comptroller’s office works with the Division of the Budget to monitor capital spending under the bond act to determine when to issue general obligation bonds to reimburse state coffers, according to a spokesperson for Comptroller Thomas DiNapoli. The office issues the bonds but does not have a role in determining which projects get awards, they said. Interest rates could impact state decisions on bond offerings, officials and advocates have said.

"Bond acts take years, if not decades to be spent out," DiNapoli told Gotham Gazette in a podcast interview in October, before voters approved it. "And because New York does have a high debt burden, this will be factored in before the state goes out to, you know, to borrow."

The bond act's debt service, paid through each year’s state budget, over the next five fiscal years is projected at $114 million with the first payment expected in fiscal year 2025. According to Gough, General Obligation Bonds are typically sold at the end of each fiscal year, meaning the debt service is not reflected until the following fiscal year.

The debt service is expected to rise to $354 million annually when all $4.2 billion has gone out the door.

"It's going to fund very important environmental initiatives, drinking water protection, wastewater management, open space preservation, and money targeted to deal with the climate issue, building and resilience helping us meet the very ambitious goals we have in New York State to deal with the issue of climate change," DiNapoli said in the October interview. "You need money to do this."

by Ethan Geringer-Sameth, reporter, Gotham Gazette

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