PROFILES IN CIVIC INNOVATION
MARK KIM, CHIEF FINANCIAL OFFICER Of the district of
columbia water & sewer authority
Profiles in Civic Innovation is our series capturing the stories of creative and visionary leaders that are implementing grass-roots efforts at the forefront of the government innovation landscape. In this edition read about Mark Kim, the Chief Financial Officer of the District of Columbia Water & Sewer Authority (DC Water). Under Mark Kim’s leadership, DC Water was able to do what no other governmental body in America has ever done to solve a problem dating back to the 1800s by issuing 100-year Green Bonds. The invisible infrastructure that delivers water and sewer services to citizens across America is critically important, and financing the massive infrastructure that sustains these essential services requires creativity and a fresh perspective. Our interview with Mark explores his leadership role in introducing innovation that encompassed creativity in finance and governance that ensured the long-term financial sustainability and viability of water and sewer services for more 2.2 million residents in the District of Columbia, Maryland and Virginia who are served by DC Water.
How did you identify the opportunity for innovation and lead a team in bringing it to fruition? MK: As Chief Financial Officer, one of my core responsibilities is to finance DC Water’s capital improvement program. The DC Clean Rivers Project, a federally mandated water quality initiative, is the largest capital project in our history - a $2.6 billion tunnel system that was designed to last for the next 100 years. That’s where the opportunity for innovation began. To fund large-scale construction projects, DC Water typically borrows money in the capital markets by issuing 30-year, tax-exempt municipal bonds. My finance team assumed that we would follow this traditional path to finance the Clean Rivers Project, even though we were building a 100-year asset. Similarly, my accounting team assumed that we would use the traditional depreciation schedule to amortize this asset on our balance sheet, which only went out for 60 years. So this was the “ah-ha” moment when it occurred to me that if we just followed the traditional way of doing things - business as usual - then DC Water would be building an asset that was engineered to last over 100 years, depreciating it over 60 years and financing it over 30 years! In order to match our assets and liabilities, and to spread the costs of this project over the successive generations that would benefit from it, we needed to think differently about how we were going to finance this unique project. Being the first water utility to issue a 100-year green bond required us to challenge long held assumptions about the way things have always been done. It required changing the way we do business in order to better align our financial management with our operational activities. Innovation only became possible once we started down the path of working across silos towards a larger common goal.
What stakeholders did you bring to the table as you developed and executed the innovation strategy? MK: Our board of directors, senior management, financial advisors and investment bankers played an important role. However, our most important stakeholder was the general public: the people we serve every day. We spent a lot of time communicating with our customers about why this project matters to them. In those conversations, we articulated a vision about building multi-generational assets and explaining how they would solve a serious water quality problem in the District. When we decided to put in place a 100-year solution to this problem, we were asking generations of rate payers to accept that as equitable.
We told this story in person, in public town hall meetings across all eight wards of the District. We explained the two primary goals that this financing would achieve: (1) asset liability matching; and (2) inter-generational equity. I believe that an important driver of our success was that we were able to articulate an easy-to-understand and common-sense vision and strategy, with clear goals and objectives. One of the best compliments that I could ever hope to receive on this financing was from one of our customers who thanked me for such an innovative solution that had a direct impact on their monthly water bill.
What were some of the challenges you faced when introducing this innovative approach within the authority? MK: Introducing innovation is always a challenge because it requires people to think differently and act differently. For example, we had to manage considerable execution risk on the deal itself – how did we know if we could sell a 100-year bond since no utility had ever done that before in America? That required a great deal of education of the credit rating agencies who rate our bonds and of the institutional investors who buy our bonds. We had to respond to those who were wary of our motive and the need for this deal.
How did you motivate your team to stay focused on innovation? MK: Meaningful change rarely happens in a vacuum. For a leader to create a culture of change and innovation it requires acknowledging and rewarding a certain amount of risk-taking. Convincing people that they ought to be taking risks on something unknown is necessary, and if you don’t reward that willingness to take risks it will be hard to drive innovation. It also requires shared responsibility, because not every risk taken will be successful.
What advice would you offer to another leader in government who wants to engender a culture of innovation within their team? MK: There’s a sense that innovation only occurs in certain sectors or industries. However, our innovation came from a relatively routine activity – financing our capital program - and the ability to look at things from a fresh perspective. That is what allowed us to realize there was an opportunity for innovation, and to coalesce the organization around that opportunity. When you ask your team – is it possible to do things better? That’s how it starts. That is the seed for innovation. We didn’t set out to find the most creative way to finance and build this project, and I didn’t start the financing with the intent to do something new and innovative. In many ways, the opportunity for innovation found us because we were willing and able to embrace it.
About Mark Kim. Mr. Kim serves as Chief Financial Officer for DC Water. Mr. Kim joined DC Water in March 2013 from the City of New York, where he served as Deputy Comptroller for Economic Development and Assistant Comptroller for Public Finance, and previously as an investment banker at several global financial institutions. Over his career, Mr. Kim has raised in excess of $50 billion in the capital markets, including the first century bond issued by a municipal water utility and the first certified green bond issued in the U.S., which was awarded The Bond Buyer’s 2014 Northeast Deal of the Year. Currently, he sits on the Environmental Financial Advisory Board of the U.S. Environmental Protection Agency (EPA) and the Committee on Governmental Debt Management of the Government Finance Officers Association (GFOA), and he is a member of the Bars of the State of New York and the District of Columbia. Mr. Kim holds a B.A. from Northwestern University; J.D. from Cornell Law School; and Ph.D. in public policy from Harvard University. To contact Mark or learn more about the D.C. Water Authority visit www.dcwater.com
Disclaimer: Any reference to bonds or fixed income securities presented in this piece are intended for educational purposes only. Any reference to bonds or fixed income securities presented in this piece should not be construed as an offer, solicitation, or recommendation to buy or sell securities or other investment products, nor is it intended to be used as a general guide to investing, or as a source of any specific or general investment recommendation.