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Mitigation Banking – All You Need to Know

• What is Wetland Mitigation Banking?

Pursuant to Section 404 of the Clean Water Act, any development activity that adversely affects wetlands must be authorized in advance through a Section 404 permit. In order to obtain a 404 permit, the applicant must demonstrate compliance with the Section 404 (b)(1) sequencing guidelines. Permit applicants must establish, in sequence, that: 1) impacts to aquatic resources cannot be avoided, 2) efforts to minimize aquatic resource impacts through modification of construction plans and designs have been taken, and 3) compensation for unavoidable impacts have been made. If impacts are considered unavoidable, compensation is usually required to mitigate for lost wetland functions and value. Any unavoidable impacts that result from project development must be fully compensated for through a wetland mitigation plan. Compensation is where wetland mitigation banking plays a role.

Mitigation banking is an approved and accepted method for compensating for unavoidable impacts. Banks are designed to create, restore, and/or enhance large, ecologically important wetland tracts in advance of permitted impacts. Based upon the type, size, and function of the improvements, the bank is authorized by the regulatory/resource agencies to sell a certain number of credits. As part of a sales transaction, the number of credits necessary to satisfy the requirements of a permit holder’s Section 404 permit are debited against the mitigation bank’s assets.

• What are the Regulatory Criteria for Using a Bank?

According to federal guidance on the establishment, use and operation of mitigation banks, banks should be used to compensate for minor aquatic resource impacts. This includes impacts authorized under nationwide permits and the numerous, small impacts associated with linear projects (e.g., roadways, utility corridors, etc.). For larger aquatic resource impacts, use of a bank may be appropriate, as determined on a case-by-case basis, if the essential functions of the impacted resources can be adequately replaced at the bank. Additionally, a combination of on-site and off-site (i.e., banked) mitigation may be appropriate.

• Who is Responsible for Maintaining Mitigation Credits at the Bank?

Pursuant to a binding legal agreement between the bank sponsor and the regulatory/resource agencies, the bank sponsor must monitor and maintain the mitigation credits at the bank until which time pre-determined performance standards have been met. These standards are set to guarantee that the mitigation wetlands have achieved a jurisdictional, functional, and self-sustaining status. (The bank sponsor is solely responsible for meeting these standards – the credit purchaser has no further mitigation liabilities or responsibilities once the sale transaction is complete). Upon meeting these standards, a permanent conservation easement on the property is assigned to a non-profit entity that will ensure that the wetlands remain in perpetuity. This way, the wetlands are protected over the long-term for the enjoyment of generations to come.

• What are the Alternatives to Purchasing Bank Credits?

The permit holder is obligated to undertake the process of designing, implementing, and guaranteeing a successful mitigation plan. Prior to the use of mitigation banks, this method was the only one available for fulfilling mitigation obligations. This option is still available.

Mitigation may be achieved through the restoration, creation, or enhancement of wetlands, usually on-site or at a selected off-site location. Regulations require a minimum compensation ratio of one to one, or one unit of wetland mitigation for each unit of impact. The regulators may require higher ratios based on the type of mitigation proposed and its perceived likelihood of success.

Planing and implementing a successful mitigation project usually demands the expertise of a certified wetland scientist, as well as other professional disciplines that can add critical expertise through the process. Your consultant and their team will work though a process that includes: 1) a site selection/feasibility analysis, 2) development of a conceptual design for regulatory review/approval, 3) negotiations with the regulatory agency regarding details of the plan, 4) preparation of construction design drawings/specifications, 5) contractor selection, 6) construction implementation and oversight, 7) as-built reports, 8) annual monitoring reports issued to the regulatory agency for a three- to five-year period, 9) post-construction maintenance and corrective measures, and 10) a final delineation report to demonstrate permit compliance.

Obviously, there are many details involved in this several-year process that could unfold into extended financing costs, construction change order costs, and even federal fines if the work is unsuccessful.

In-Lieu Fee Programs. This method takes monetary contributions from permit holders, accrues funds in reserve, and eventually uses the money to create, restore or enhance wetland ecosystems. Instead of undertaking a mitigation project to replace impacted wetlands, the permit holder would make a contribution to the fund in an amount determined by the regulatory agency, generally equal to the cost of implementing the individual mitigation requirement. This alternative results in mitigation occurring after the fact, a practice that is generally discouraged by the regulators.

This option is available in limited parts of the country. No in-lieu fee programs are known to exist in Colorado.

• What do the Regulatory and Resource Agencies Think about Banking?

In November of 1995, joint federal guidance on the "Establishment, Use and Operation of Wetland Mitigation Banks" was published in the federal register. Participating agencies included the U.S. Army Corps of Engineers, Environmental Protection Agency, Fish and Wildlife Service, Natural Resource Conservation Service, and National Oceanic and Atmospheric Administration. Recognizing the potential benefits mitigation banking offers for streamlining the permit evaluation process and providing more effective mitigation for authorized impacts to wetlands, the agencies encourage the establishment and appropriate use of mitigation banks. Further, the agencies recognize that:

• Larger, consolidated wetland bank sites can provide greater function and ecological value as compared to small, isolated, on-site mitigation projects.
• Banks provide mitigation in advance of impacts, which is of significant benefit to the environment.
• Banks have a greater probability of success because of consolidation of professional and regulatory resources, in addition to the financial guarantees banks provide.
• Banks reduce the permit processing time, thereby increasing the effectiveness of the regulatory agencies.