A Conversation with Mark Kim
How DC Water's Mark Kim brought a novel solution to a decades-old problem
Interviewed by Eric Letsinger, Founder and CEO of Quantified Ventures
Mark Kim, CFO, DC Water
Mark Kim arrives to Quantified Ventures’ offices, early as always, with a warm smile as if this is the meeting he’s been waiting for all day. This is typical. Having worked closely with him for the better part of a year to construct the world’s first Environmental Impact Bond (EIB), I’ve never seen him have a bad day despite the enormous responsibilities he carries as the CFO of the DC Water and Sewer Authority (DC Water). He starts by saying he’s sincerely excited to reflect on the project and its broader context. You see, Mark is man of action. He’s less inclined to want to spend his time considering the ‘shoulds’ or ‘coulds’, but more so the ‘why nots?’, despite the odds and barriers. This appears to be a savored and rare moment for Mark, so we settle in to enjoy it over coffee and his favorite...strawberry rhubarb jam scones.
E: Before we jump in to the work we did together, let’s back up. I’d like to better understand what experiences were most impactful in shaping you into a public leader known for repeatedly delivering innovation after innovation. Tell me about some of your life chapters that really stand out.
Absolutely. There are two major chapters in my book so far...each is somewhat intertwined. Chapter 1 is school. I did my undergrad at Northwestern where my summer internship working for a US Senate Committee on the Hill in DC influenced my decision to attend law school...I got the government bug early and it never diminished. My first job out of law school at Cornell led me to work for the federal government in election law as a staff attorney. I returned to graduate school at Harvard to pursue a Ph.D. in public policy, which combined my interests in law, politics and policy. I knew I was headed in the right professional direction with this interdisciplinary degree.
Chapter 2 is work. My PhD dissertation examined the efficiency of the charitable contributions market in the nonprofit sector, and after graduation I accepted an offer in public finance investment banking, working with public and nonprofit sector clients and helping them raise capital. I worked at two different investment banks and learned an enormous amount about the capital markets and capital formation. Eager to apply these learnings more directly, I then moved to the “client side” of the business and went to work for the City of New York as Assistant Comptroller for Public Finance. As one of the largest and most frequent issuers of municipal bonds in the United States, it was an incredible honor for me to serve in that capacity. Big challenges...big opportunities for big impact...lots of moving parts...lots of room for creativity...I loved it.
DC Water is a result of all of the above, as well as serendipity. Long story short, my family had moved to DC for my wife’s career while I stayed in NYC and commuted. Just at the point where we as a family were deciding whether to regroup in NYC or DC, I received a call from a headhunter about the CFO position at DC Water. The rest, as they say, is history...
E: Which of those chapters (academic or professional) most prepared you for your DC Water chapter?
I was fortunate to have strong mentors in both chapters, which made them both equally valuable in preparing me for my current role. I’m fortunate to have learned from the best in both chapters. Although every successful career path is different, I can’t imagine one without the other.
E: Your career reflects a significant number of “first-of-a-kinds”, innovations and industry shaping initiatives. What drives you down these paths? Is it the complication/difficulty? Is it the being first’? What drives you to color outside the lines?
Good question...I’m not exactly sure. I am excited and motived by the challenge of solving practical problems in an innovative way. I have been fortunate to be in a position where I am able to take calculated risks and pursue non-conventional approaches to solving long-standing public policy problems. At DC Water, these challenges have included affordability, intergenerational equity, and risk managementThe difficultly of these challenges demands creative and innovative thinking, and I am fortunate to work in a place that values those characteristics.
I am excited and motived by the challenge of solving practical problems in an innovative way.
E: Being a public sector change agent delivering first-of-a-kinds, brings both post-completion accolades and sometimes harsh criticism from others? When you are working on your innovations, are you looking forward to those moments and reasoning back? How much does that play into your thinking during the ‘doing’ phase?
I am a big fan of what I will call ‘market discipline’ and what I mean by this is that anytime you do something different or new, you have to know that in doing so there will be those who will challenge the wisdom of changing the status quo. I consider this an important part of the process of innovating. If you do not have conviction that the new way of doing things is demonstrably better than the old way of doing things, then you probably shouldn’t be doing it. Knowing that you will be subject to such scrutiny forces you to innovate better. It is a form of market discipline that helps move us forward.
E: Your $25M EIB...another first-of-a-kind...not only was it the first environmental Pay For Success project in the world, but it broke a lot of additional new ground (e.g., largest transaction, lowest transaction costs, fastest to complete, no philanthropic subsidies, bond structure not bespoke). Did you go into this project with these objectives in mind? Or are they natural by-products of how you do your work?
We began this project with the goal of managing DC Water’s risk profile in advancing a novel solution (green infrastructure) to a serious water quality problem in the District (combined sewer overflows). In the process of trying to finance this, we were first concerned with managing the risk profile. We started with the general concept of PFS for GI outcomes but we were very aware while we were doing the brain damage of structuring this for the first time that this was a problem many other communities faced. So rather than just design a vehicle that was relevant for us, we kept those other communities in mind so that they can heavily leverage our work when they replicate similar risk management financing structures.
I think that the true value of an “innovation” is only proven over time by becoming the status quo. Adoption is a key metric for success, so I would say that while our EIB was an unqualified success for DC Water in particular, only time will tell if it will be adopted more broadly across the sector in general. I believe that it has the potential to do so, and I look forward to seeing how the market evolves.
There is no better time than right now, today, to get involved and serve.. If you view government as part of the problem, then go in there and fix it!
E: DC Water’s EIB was awarded the Non-Traditional Deal of the Year Award by The Bond Buyer and you received the Excellence in Government Finance Award for your work on the EIB by the Government Finance Officers Association. What is the future of the EIB? Are there non-stormwater applications?
The hope in creating something like the EIB is that it will spur others to ‘build a better mousetrap.’ We don’t have a lock on innovation and I hope that others will take what we have done, apply it to their own situation, and make it better. That is how we see this market evolving and advancing. So to answer your question, I hope and believe that our PFS structure (an actual bond) could be employed to finance other environmental and even non-envi- ronmental outcomes. I view what we did together with our EIB as building a better PFS mousetrap by expanding it to the environmental sector. I look forward to others further advancing PFS deeper into the environmental sector to finance other outcomes and into new fields that we haven’t even thought about yet.
E: What do you think have been some of the barriers to adoption within your industry might be?
I believe that it is now more likely that other organizations will be in a position to execute an EIB or EIB-like structure precisely because DC Water executed this first one. We invested a lot of intellectual capital to create a financing structure that we felt was replicable and scalable for others to adopt. Essentially, our initial investment has lowered the transaction costs for other to adopt this strategy. For example, the work we did with our advisors to structure this financing as a true debt instrument instead of an operating loan should allow others to more easily issue their own EIB addressing their own challenges and concerns. The work we did with bond counsel to establish the tax-exemption of the interest payments on the bond does not need to be done again. The work we did with Quantified Ventures to frame this project using a PFS model has proven its ability to be used across sectors, not just being limited to the social service sector like the prior SIBs. Once something is done, you don’t have to recreate that wheel again. That is the beauty of innovation and why one of the hallmarks for its success is broader adoption by others.
E: What do you say to those young, future public leaders out there who might be considering staying on the sidelines rather than jumping into public service as an arena to innovate and contribute?
There is no better time than right now, today, to get involved and serve. If you have talents to share and are willing to advance the public good, I would encourage you to do so regardless of what party the President belongs to. If you view government as part of the problem, then go in there and fix it!
E: No leader operates in a vacuum. What are the elements that exist within DC Water that enable you to thrive and succeed? More specifically, what factors should others be looking for within organizations, and externally, if they are seeking to innovate in a similar manner?
I am fortunate to be supported by an extraordinary Board of Directors as well as a strong executive management team. I also have a terrific staff of committed professionals and public servants. DC Water is mission oriented and its motto is “Water is Life!” I couldn’t agree more and that sense of purpose and serving the public good drives what we do. As a result, DC Water has a unique culture of innovation and a certain risk tolerance for doing things differently. I have a quote that has been on the white board in my office for the last couple of years that everyone who visits me will see. It reads: “If you don’t change direction, you are likely to end up where you are headed.” I think that it is a brilliant observation of an obvious and simple conclusion derived from the law of physics, but it also sums up nicely the mind of an innovator. Do you like where you are headed? If not, then go figure out a way to make a better future! By the way, I got that quote from a fortune cookie! Go figure...
E: What’s next for Mark Kim at DC Water?
I have no idea. But I will let you know as soon as I figure it out!!!
Post-Script: Since the time of this interview, Mark has indeed figured out what is next in his career and is currently serving as the Deputy Executive Director and Chief Operating Officer of the Municipal Securities Rulemaking Board (MSRB), which regulates the muni bond market in which he has been one of the leading innovators.