Achieving “No Net Loss”: The Future of National Wetlands Policy

Presented at the American College of Real Estate Lawyers in Washington, D.C., in October 1998 and at the Terrene Institute National Mitigation Banking Conference in Atlanta, Georgia, on June 14, 1999, by HunterMaclean Attorneys.

I. INTRODUCTION

On the surface, America’s national wetlands policy is clear. Both Republicans and Democrats favor the avoidance of wetlands destruction, a national development policy which will result in “no net loss” of wetlands, and, ultimately, an improvement in the quality and quantity of our wetlands resources.

However, we continue to suffer “net” wetlands losses, because of growth and development in coastal regions, and the failure of our regulatory programs to encourage responsible wetlands restoration and enhancement.

Wetland Mitigation Banking provides the best available mechanism for achieving our national objectives, but its use has been frustrated by the “environmental community” which purports to act in defense of the wetlands. The practical effect of opposing mitigation banking has been to force the “development community” to pay “in lieu” fees, which often do not promote the “no net loss” objective, or to construct “on-site” mitigation projects, which are less ecologically successful than permitted mitigation banks.

We can achieve “no net loss” on a national level in a very short period of time. However, this will require compromises by both the “environmental community,” which generally opposes most growth (and calls it “sprawl”), and the “development community,” which generally favors the right to develop property without governmental interference (and calls it “progress”).

This paper will discuss the historical development of national wetlands policy, and will propose changes which would enable us to protect the environment, while allowing responsible development to proceed.

II. THE HISTORY OF NATIONAL WETLANDS POLICY

For the past five hundred years, since Europeans came to America, we have systematically destroyed our wetlands.

For a large part of that time, most people thought that the destruction was a good idea. They thought that draining marshes to build our great cities of Boston, San Francisco and Washington enhanced our quality of life, that damming the Mississippi to hold back the flood waters and create our agricultural heartland was good economics, that diking coastal marshlands to create rice plantations would create prosperity, and that draining the Okefenokee and the Everglades would eliminate yellow fever.

Under the earliest federal programs dealing with wetlands, our government actually gave them away to anyone who agreed to drain them and convert them to more useful purposes. By the mid-1970’s, an estimated 110 million acres of wetlands had been destroyed, more than half of the amount present when European settlement began in the 1600’s. The Conservation Foundation, Protecting America’s Wetlands: An Action Agenda (The Final Report of the National Wetlands Policy Forum) (1989).

As early ecologists began to understand the importance of wetlands, they began pushing to stop the destruction. In response to their efforts, we developed laws which prohibit filling in coastal marshlands, and which regulate construction in obvious flood plains. More recently, in the last thirty years, we have begun to protect endangered species’ habitats, to require environmental impact statements with respect to major projects and, finally, to regulate dredging and filling activities in continental wetlands, far inland from our coastal areas.

Today we know that wetlands provide an array of environmental services that are essential to human health and safety. Wetlands abate damaging floods, recharge groundwater resources, filter pollutants and sediments, and provide critical habitat for countless species of fish and wildlife.

The value of wetlands, at least in general, is no longer questioned. See D. King, The Dollar Value of Wetlands, National Wetlands Newsletter 7 (July 1998). The present dilemma is how to conserve and expand them while allowing for new growth and development. This paper will discuss the federal government’s attempts to regulate development in wetlands, and the means by which federal programs could be improved so that we can achieve our national goal of “no net loss” of wetlands functions and values.

III. THE “NO NET LOSS” GOAL

The goals of national wetlands policy today are very clear. Although development is allowed when there is no “practicable alternative,” 40 C.F.R. § 230.10(a), President Bush declared that the goal will be “no net loss of wetlands functions and values.”

President Clinton has expanded on the Bush policy by adopting the “no net loss” goal as an interim goal. He has established a long term goal to “increase the quality and quantity of our nation’s wetlands resource base.” White House Office of Environmental Policy, Protecting America’s Wetlands: A Fair, Flexible, and Effective Approach (August 24, 1993).

The federal government’s primary tool for regulating development in wetlands is the “Section 404 Program” which is implemented by the Corps of Engineers pursuant to the Clean Water Act. 33 U.S.C. § 1344. The program requires that any person seeking to dredge or fill wetlands must obtain a permit from the Corps of Engineers.

IV. DEVELOPMENT IN AREAS WHICH MAY CONTAIN WETLANDS

A developer who is beginning a project which may contain wetlands must first determine whether any wetlands are present on his property. If wetlands are present, he must determine whether he can design his project to avoid the wetlands. If this is impossible or unfeasible, then he must determine whether he needs a permit to dredge or fill. If he does need a permit, he must submit the necessary application to the Corps of Engineers. If his permit is granted, he will probably be required to provide “compensatory mitigation” to “replace” the wetlands which he is impacting. He may provide the mitigation in one of several ways. These include restoring or enhancing degraded wetlands, creating new wetlands, making a payment “in lieu” of mitigating, or purchasing mitigation “credits” from a wetlands mitigation bank.

Theoretically, if all developers who adversely impact existing wetlands provide adequate compensatory mitigation, then the national goal of “no net loss” will be achieved.

A. What is a Wetland? As an initial matter, we should clarify what a wetland is for purposes of federal regulation. The federal agencies that regulate wetlands under the programs described below have adopted a paragraph-long definition of wetlands that culminates in the phrase, “wetlands generally include swamps, marshes, bogs, and similar areas.” 40 C.F.R. § 230.3(t). The agencies have devoted an entire book to identifying wetlands in the field. Generally, wetlands are identified by evaluating the soils, plants, and hydrology (or the presence of surface or ground water) at a given site. U.S. Army Corps of Engineers, Wetlands Delineation Manual (January 1987). This definition includes areas that many people do not visualize as being wetlands, a fact that can cause expensive and lengthy delays for developers. Since the presence of wetlands can affect the size and location of real property improvements, it is imperative that a developer knows from the earliest planning phases whether he has a wetlands problem.

The only way to know for certain whether a certain piece of property contains regulated wetlands (known as “jurisdictional wetlands”) is to have a “jurisdictional delineation” performed by the U.S. Army Corps of Engineers (“Corps”) or a qualified environmental consultant. The Corps field technician or the consultant walks the site, tests the soils, surveys the plants, looks for indications of hydrology, and examines any wetland maps or aerial photos of the property to determine the exact location of any jurisdictional wetlands. Many developers prefer to use a consultant because the work can be completed much faster, and he can be sure there are no regulatory motives affecting where the line is drawn. Many district offices of the Corps have a program of training and approving consultants, and can provide lists of qualified persons. If a consultant performs the delineation, the Corps will need to verify or approve it. This process is relatively quick and simple, particularly when the consultant is approved by the Corps or is well known as being accurate.

B. The 404 Regulatory Process. Once a property owner has determined that jurisdictional wetlands are present on the property, he must consider whether he needs a permit before conducting any construction work on the site. Section 404 of Clean Water Act of 1972 established the primary scheme for regulating development in wetlands. This section requires a permit for the discharge of dredged or fill material into navigable waters, which, after administrative and judicial interpretations over the years, includes most wetlands.

The Corps administers the Section 404 program, with oversight from the Environmental Protection Agency (EPA) and coordination with other federal agencies charged with protecting natural resources. Technically, the Corps has final authority to issue permits, subject to EPA’s rarely-used authority to veto a permit decision.

In practice, the Corps, EPA, and the Fish and Wildlife Service have redundant staff, who often have the same type of scientific qualifications, but who are paid to advance the separate environmental agendas of their particular agencies. These federal employees spend major portions of their time reviewing the work of other federal employees. They often disagree about whether a project should be permitted, how the project should proceed, and the type and quantity of mitigation which should be required. In many states, state and local governments also have redundant staff who review, and often disagree with, the work of the federal employees. Thus, a developer who needs a permit is often forced to negotiate with an array of competing bureaucrats, with no clear direction on how to proceed. This frequently results in lengthy and expensive delays in decision-making by the agencies, and corresponding loss of confidence by the public in the regulatory process.

1. Nationwide Permits. In an effort to minimize the administrative burden of reviewing permit applications for every dredge and fill activity, the Corps and EPA developed a “nationwide” permit program. Under this program, the agencies issue general permits for certain categories of activities, such as dock construction, farm ponds, timbering, mining, and small construction projects. Each general permit contains certain criteria and guidelines. If an applicant adheres to the terms of a general permit, the activity will not require an individual permit, which is subject to the review process described above.

The nationwide permit which is most frequently used by private developers is known as Nationwide 26 (“NWP 26”), which currently covers impacts to isolated wetlands that are three acres or smaller. 61 Fed. Reg. 65873 (1996). Under NWP 26, a developer is not required to give notice or obtain a permit in order to fill less than 1/3 of an acre of isolated wetlands. (see end note 1) For impacts to isolated wetlands of between 1/3 of an acre and three acres, the developer must send a pre-discharge notification (“PDN”) to the Corps describing the activities he intends to perform. If the Corps does not respond within thirty (30) days, the developer may proceed with the proposed work. The Corps can, and often does, impose mitigation requirements on developers who are impacting wetlands under nationwide permits. Such requirements will be contained in any response letter from the Corps directing the conditions under which the work may be performed.

The original idea behind nationwide permits was that dredging and filling activities in small, isolated wetland areas would have only a minimal impact on national wetlands resources, and, thus, would be too difficult and expensive to regulate. However, environmentalists complained about the overall or cumulative impacts of this kind of general permit. Therefore, in recent years the Corps has modified the nationwide permits to curtail their use (by reducing the limits for “no notice” from three acres to 1/3 of an acre, and for use of a PDN from ten acres to three acres), and to require mitigation for impacts.

In an attempt to further limit the use of nationwide permits, the Corps issued new draft regulations last year which would eliminate NWP 26, and replace it with a series of new “activity based” nationwide permits. 63 Fed. Reg. 36040 (July 1, 1998). However, many environmental groups strongly objected to the proposed rules, on the ground that they still allowed too much unregulated development in wetlands. The Corps retreated. It agreed to withdraw one of the proposed permits, for Master Planned Developments, and to revise the other new rules to prohibit the use of NWPs in connection with any development within a 100-year floodplain. The Corps further agreed to extend existing NWP 26 until September 15, 1999, and to publish a new proposal for further public comment before implementing any changes. 63 Fed. Reg. 55095 (October 14, 1998). (see end note 2)

2. Individual Permits. If a developer wishes to dredge or fill wetlands which are adjacent to, or “above the headwaters” of a river or stream (i.e., which are not “isolated”), or if he wishes to disturb over three acres of isolated wetlands, he must apply for an individual permit (“IP”) from the Corps. The Corps must circulate the application to other state and federal agencies and to the public for comment. It must then review the comments, circulate them, receive and consider rebuttals, and make a decision whether to issue the permit. In some cases, it must order a public hearing on the permit. If it issues the permit, the other agencies can disagree with the decision, and cause it to be appealed, or “elevated,” to higher bureaucratic levels. Ultimately, the EPA can “veto” the Corps’ decision. This veto power is rarely used, but it is routinely threatened, forcing delays and compromises in the permitting process.

In a Memorandum of Agreement dated February 6, 1990, 55 Fed. Reg. 9210 (1990), the agencies formally adopted a three-step process, known as “sequencing,” for reviewing permit applications. Briefly, the steps are: avoidance, minimization, and mitigation.

Under sequencing, a permit applicant first must demonstrate that he has avoided impacts to wetlands. The regulations implementing the Section 404 program, 40 C.F.R. § 230, et seq., require applicants to consider other alternatives, and do not authorize issuance of a permit unless there are no “practicable alternatives.” The regulations contain a number of factors to consider in determining if an alternative is practicable.

If an applicant makes it past the first step, the next consideration is whether he has minimized impacts to wetlands. This step entails many of the same factors that are considered in the avoidance step. An applicant must show that he has considered other alternatives, such as various building footprints, sizes, or locations, and that he selected a plan that will minimize any impacts to wetlands.

Finally, if the applicant is allowed to proceed with his project, he must mitigate any impacts to wetlands.

V. COMPENSATORY MITIGATION

Compensatory Mitigation is the restoration, enhancement, creation, and under certain circumstances, the preservation of wetlands to compensate for the damage to wetlands which are impacted in the development project. It can take one of several forms:

A. “On-site” Restoration, Enhancement, or Creation of Wetlands. Restoring or enhancing degraded wetlands, or creating new wetlands at or near the site of the new development was until recently the preferred method of mitigation. Many “on-site” projects fail ecologically because they are restricted in size, and they are adversely affected by stormwater runoff, and other pollution and noise associated with the adjacent new development.

B. “Preservation” of existing wetlands. While preservation is a worthy environmental objective, its use as a compensatory mitigation alternative can allow “net loss” of wetlands to occur, and thus can undercut national wetlands policy. Recognizing this problem, Corps regulators frequently will only allow preservation acreage be used to satisfy a portion of the compensatory mitigation requirement for a project, and they will require that the number of acres which are preserved be a substantial multiple of the number of acres which are destroyed (e.g. 10 acres of preservation for one acre of destruction).

C. “Off-site” Restoration, Enhancement, or Creation of Wetlands. Most commentators recognize this as the most ecologically successful solution, because it allows efficient replacement of wetland “functions and values,” usually in remote locations which can provide superior wildlife habitat and water filtration functions. (see end note 3)

D. Purchase of “Credits” From a Wetland Mitigation Bank. This is a variation of the “off site” solution. A mitigation bank is a restoration, enhancement or creation project in an off-site location, which is utilized to provide compensatory mitigation for more than one project which is adversely impacting wetlands. The “banker” may be the developer which needs the “credits” (e.g., a state DOT), or it may be a third party (a “commercial mitigation banker”). The “banker” acquires the land upon which the wetland mitigation will take place, he plans, permits, constructs and monitors the project, and obtains the approval of the state and federal agencies to sell “credits” from the bank to developers who are impacting wetlands in the same watershed. The developer pays the banker for the credit, and is relieved of any further obligation for the success of the mitigation project. The banker provides assurances to the agencies that the project will be a success, and his bank project is monitored for compliance by the agencies.

E. Payments “In Lieu” of Mitigation. These are payments by the party who needs to provide compensatory mitigation to a third party, usually a non-profit conservation group, which the Corps authorizes “in lieu” of other mitigation requirements. Generally, the use of these payments is unregulated, and the payments are often not applied to wetland restoration projects. They are a convenient means for regulators to “get the environmentalists off our back,” but they do little to advance the “no net loss” objective.

VI. ARE WE ACHIEVING THE GOAL OF NO NET LOSS?

At present, achievement of the underlying goal of no net loss of wetlands functions and values is far from reality, and achievement of the new Clinton goal of increasing the quantity and quality of wetlands seems unattainable. According to a recent study by the U.S. Fish and Wildlife Service, wetland losses from 1985 to 1995 have averaged 117,000 acres per year. See Million Wetland Acres Lost in 1985-1995, N.Y. Times, September 18, 1997, at A-24. The losses have decreased dramatically from the past. In the previous decade, wetlands losses totaled nearly three million acres. U.S. Fish and Wildlife Service, Status and Trends of Wetlands (1991). However, we are still far from reaching the no net loss goal. The losses during the most recent decade amount to about one percent of our total remaining wetlands.

A number of factors contribute to this problem:
(1) Past Wetlands Impacts. Wetlands continue to be lost every year from activities of the past, such as diking, channeling, and natural causes like storms and erosion. Even if we stopped every development that impacted wetlands, we would continue to have some losses. Many of the destructive man-made activities have long since been discontinued, but have not been rectified. As a result, the damage to wetlands continues. Since many of the activities were federal projects, they require federal authorizations and funding to repair.

(2) Necessary new development. Many wetlands losses are a result of positive and necessary development projects. Some of the major contributors to the loss are farming activities, highway and utility line developments, port improvements and major economic development projects. Unless the country adopts a “no growth” policy, and the American people accept the consequential decline in the development of new infrastructure necessary to support new jobs and a rising standard of living, then there is “no practicable alternative” to some wetlands destruction.

(3) Population Growth. With our nation’s population growth and the trend toward coastal living –where wetlands abound– wetlands impacts will continue.

(4) Regulatory problems. The current regulatory climate contributes to wetlands losses. Many mitigation projects are never started or fail miserably, resulting in uncompensated impacts to wetlands. This is the one factor we can most readily address– through our elected officials– and is the topic of the remainder of this paper.

VII.REGULATORY IMPEDIMENTS TO ACHIEVEMENT OF NO NET LOSS

The current failures of the regulatory program to meet the no net loss goal center around the agencies’ mitigation policies (that is, during step three of sequencing). Changes in these policies could result in tremendous strides toward increasing the quantity and quality of the nation’s wetlands resources. The primary problems with our mitigation policies and some potential solutions are discussed below.

A. The Preference for On-Site Wetland Mitigation. First, the Corps generally imposes its strong preference for “on-site” mitigation– where wetlands are restored, enhanced or created near the place where the wetlands disturbance occurs. While there is little, if any, scientific justification for this policy, many regulators believe that on-site mitigation is superior to off-site alternatives. Some regulators believe that on-site mitigation is more likely to provide replacement of the functions lost by the impacted wetlands than off-site mitigation, because of the proximity of the impact.

Unfortunately, the preference for on-site mitigation results in ecologically inferior wetlands. Restored or enhanced wetlands that are adjacent to development projects are more vulnerable to degradation from storm water runoff, other pollutants, and noise that can impair their ability to function properly. For these and other reasons, most wetlands experts recognize that generally mitigation should be constructed in remote locations. David Salvesen, Wetlands: Mitigating and Regulating Development Impacts (The Urban Land Institute, 2d ed. 1994). Mitigation projects developed off-site, in appropriate locations, result in much higher quality wetlands than their on-site counter-parts, with a much better odds for success.

On-site mitigation projects also carry expensive development costs compared to off-site mitigation. The combination of the high cost and low functioning value of on-site mitigation undermines the viability of the Section 404 program. Developers view the on-site mitigation requirements as “punishment” for their activities by vindictive “environmental extremists,” reinforcing their position that the program is too intrusive on private property rights. By the same token, environmentalists correctly consider the mitigation projects to be unsuccessful, reinforcing their view that compensatory mitigation in general is impossible. Anecdotally, we have seen many examples of “on-site” projects which are clearly unsuccessful, and were obviously unsound from the beginning. It is difficult, if not impossible, to construct a highly functioning wetland habitat in the middle of a shopping center parking lot. Forcing developers to construct these types of projects does little to help the environment. (see end note 4)

At the very least, the preference for on-site mitigation wastes natural and economic resources by squandering the funds that could be used to restore healthy wetlands. We could dramatically decrease overall net losses of wetlands functions and values by requiring the Corps to discontinue the policy which favors on-site mitigation.

B. The Preference for Creating Wetlands. Another regulatory impediment is the preference of some regulators for creating new wetlands rather than restoring or enhancing existing wetlands. This problem often occurs in connection with the on-site preference discussed above. When the Corps requires on-site mitigation, and there are no areas that could be restored on the site, wetlands must be created, in soil conditions where wetlands have not previously existed. Most experts in the field agree that creating wetlands involves expensive and complicated procedures, a poor recipe for success.

Compared to the relatively less expensive and ecologically more sound process for restoring destroyed or severely damaged wetlands, it makes little sense in most cases to prefer creation projects.

C. Lack of Uniform Mitigation Requirements. When the Clinton Administration issued its national wetlands policy in 1993, it announced that it would pursue several goals. These included the issuance of Mitigation Guidance, Wetlands Mitigation Banking Guidance, and more reliance on scientific methodology. While the federal agencies have pursued the latter goal and have issued Mitigation Banking Guidance, 60 Fed. Reg. 12286 (1995), they have not issued any guidance on compensatory mitigation itself. Thus, the bureaucrats in the field, and the developers with whom they work, are placed in this position: they know, generally, the requirements for constructing and operating a mitigation bank. However, they do not have any guidance on when, if ever, they should use the bank, or on how to compare its utility with other potential types of compensatory mitigation.

The result of this regulatory void is that mitigation banking is highly regulated, but that other types of mitigation are substantially unregulated. There is no “level playing field” between mitigation alternatives. As discussed below, this has slowed the development of banks, and the corresponding achievement of national policy objectives.

D. Lack of Performance Standards for Individual Mitigation Projects. Many mitigation projects fail because the Corps does not require any assurances from the applicant that the work will be completed, monitored, or maintained, or because the Corps does not enforce compliance with the assurances which it receives. While specific and stringent rules apply to mitigation banks, no standards or regulations govern the individual mitigation projects required of applicants seeking a Section 404 permit. The Corps reviews and approves such projects on a case by case basis. The majority of applicants performing mitigation offer no assurance to the Corps that they will live up to the mitigation responsibilities, either by demonstrating they have experience with mitigation projects, or by offering financial assurance bonding, or by agreeing to submit reports on follow-up monitoring and maintenance.

E. Continuing use of Preservation for Compensatory Mitigation. Although federal guidance discourages the use of “preservation” in most cases, many individual Corps districts continue to allow the use of preservation to satisfy mitigation requirements. While preservation is a worthy goal, and should be encouraged and rewarded when a mitigation banker or other landowner preserves adjacent wetlands as part of a buffer zone in connection with a restoration or enhancement project, preservation does not replace “lost” wetlands. Thus, unless it is combined with mitigation banking or other compensatory mitigation alternatives, it does not contribute to the achievement of “no net loss.”

F. Use of Payments “in lieu” of Mitigation. There is no regulatory guidance on the use of “in lieu” fees. This is why they are attractive to some regulators, particularly Corps employees “in the field.” The Corps often favors the use of these payments because they allow local regulators to bypass many regulatory disputes with the EPA and the Fish and Wildlife Service. (see end note 5)

While the Corps’ frustration with the other agencies is very understandable, the use of in lieu payments, instead of viable compensatory mitigation projects, is very counter-productive. Corps personnel can direct monies to their favorite projects without having to monitor the use of the funds. These payments have a great potential for subversion of the regulatory process and for corruption. In fact, local Corps employees can set the amount of the payments in an arbitrary manner to allow a project to proceed or to render it economically unfeasible. They can direct or withhold contributions to “charities” with which they may have personal connections. Most problematic of all, the payments can be used by the designated charities for unregulated activities, which may have no relationship to the provision of compensatory mitigation. Thus, the use of “in lieu” fees clearly undermines the purpose and intent of federal wetlands policy, by allowing development to proceed which results in “net loss” of wetlands. (see end note 6)

VIII. MITIGATION BANKING: THE KEY TO ACHIEVING NO NET LOSS

A. The Advantages of Mitigation Banks. Encouraging the creation and use of wetlands mitigation banks would move us closer to reaching the no net loss goal. While the Clinton Administration generally supports mitigation banking, the Corps and EPA have developed numerous policies that impede the utilization of mitigation banks.

Mitigation banking offers solutions to many of the regulatory shortcomings discussed above. Banks offer ecologically sound and economically feasible alternatives to on-site mitigation, and replace the patch-work of individual projects that are difficult for the Corps to monitor and enforce. Use of a bank allows construction of mitigation in areas of fifty acres or larger, while on-site mitigation projects are frequently ten acres or less. Large banks provide better habitat, filtration, and flood control. In addition, a bank operator provides assurance that the bank has been, or will be built. The regulators can require the assurances in advance of the sale of any credits.

Mitigation banking also provides many advantages to a permit applicant. It expedites the permitting process by allowing the applicant to focus on his own development project, without spending time obtaining approvals for the mitigation project. The purchase of a bank credit allows the applicant to obtain a fixed price for his mitigation costs, to avoid future monitoring responsibilities, and to be relieved of the future contingent liabilities associated with potential failure of the bank. The applicant passes on these responsibilities to the bank operator, who is accountable to the Corps.

B. Regulation of Mitigation Banks. The Corps, EPA and other federal agencies published Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, 60 Fed. Reg. 58605 (Nov.28, 1995). This Guidance sets forth the procedures for setting up, utilizing and monitoring mitigation banks. In addition, some states, including Georgia, have produced their own mitigation banking guidance to supplement the national standards.

C. Needed Reforms. The development of the Guidance is a positive step toward improving the use of mitigation banks. However, the development of banks has been relatively slow, because of regulatory impediments to their use. The following legislative or administrative changes would substantially aid the rapid development of banks and the concurrent achievement of the “no net loss” objective:

1. Make All Compensatory Mitigation Subject to the Same Rules. The Corps should require individual mitigation projects to undergo a similar level of review and to meet the same performance assurance standards that are imposed on mitigation bankers. This would improve protection of wetlands in two ways. It would encourage permit applicants to give strong consideration to using a mitigation bank rather than attempting to meet the stringent requirements. It also would create a more level playing field between mitigation bankers and individual mitigation projects. Given the ecological superiority of banks to individual projects, the incentive to use banks would result in better mitigation of wetlands losses.

2. Eliminate Most “In Lieu” Payments. The Corps should discontinue the use of “in lieu fees” in areas that are served by a mitigation bank, or, at a minimum, should require that any party which receives fees be subjected to the same requirements for actually planning and building a project which are imposed on mitigation bankers in the same area. (see end note 7)

3. Create Standard Methodology for Valuation of Impacts and Bank Credits. The agencies must develop more specific criteria for determining the amount of credits a mitigation bank will be allowed to sell, and the amount of mitigation credits an applicant’s project will require. The current mitigation banking Guidance requires that a Mitigation Banking Review Team (“MBRT”) decide how a mitigation bank will operate, including how many credits it can sell. The MBRT is comprised of one representative from the Corps, EPA, Fish and Wildlife Service, National Marine Fisheries Services, Natural Resource Conservation Service, and the applicable state environmental protection department. The team has broad discretion in its decision-making on the bank’s credit system, and must arrive at a consensus. Since each agency brings to the table its own priorities and perspectives on wetlands, which may differ widely, a consensus on the amount of credits is difficult to achieve.

Even more problematic for both developers and for regulators in the field, there is no prescribed methodology for determining the number of mitigation credits which a developer who is impacting wetlands will be required to buy or “construct” in order to satisfy his compensatory mitigation requirements. Thus, while the banker knows, after a lengthy negotiation with the MBRT, exactly how many credits he may sell from his bank, the bank customer has no means of objectively determining how many credits he will need to purchase. (see end note 8)

4. Eliminate Concurrent Agency Reviews. The entire Section 404 program, and the mitigation banking regulations in particular, are rife with overlapping federal agency review. As discussed in the preceding paragraph, the MBRT creates a cumbersome regulatory procedure for establishing banks. (see end note 9) In addition, the duplicate review by the Corps, EPA and the other agencies exists for each and every permit application, causing delays in approving permits and their associated mitigation plans. In some areas the federal agencies disagree over wetlands regulatory policy to such an extent that establishing a mitigation bank is impossible. In areas where banks already exist, agency disagreements have prevented permit applicants from using banks to satisfy mitigation requirements. These administrative squabbles could be eliminated if Congress selected one federal agency to implement the Section 404 program.

IX. CURRENT DEVELOPMENTS

Many of the problems and solutions posed in this article were raised at hearings on mitigation banking held in the U.S. Senate and House of Representatives over the last two years. Two bills addressing mitigation banking were introduced in the House during the previous Congress: H.R. 1290, “The Wetlands Restoration and Improvement Act of 1997,” Rep. Walter B. Jones, Jr. (R-N.C.); H.R. 2762, “The Wetlands and Watershed Management Act of 1997,” Rep. Wayne Gilchrest (R-MD.). The Jones bill deals exclusively with mitigation banking, while the Gilchrest bill would reform wetlands regulations in general.
Neither of these bills moved out of committee in 1998. However, Senate Committee staff have indicated that action on wetlands law, including mitigation banking, is likely to occur in the current Congress. It is possible that recent court decisions narrowing the Corps’ jurisdiction over isolated wetlands and certain development activities, and agency proposals to revise the nationwide permit program may prompt legislative responses.

A significant piece of mitigation banking legislation was enacted by the Congress in 1998 as part of the Intermodal Surface Transportation Efficiency Act (ISTEA), Pub. L. No. 105-178, §1106(M) (1998). The language was offered as an amendment to the bill by Sen. Christopher Bond (R-MO). The amendment requires that if a federally-funded transportation project requires mitigation because of wetlands impacts that occur within the service area of a mitigation bank, then “preference shall be given, to the maximum extent practicable, to the use of the mitigation bank if the bank contains sufficient available credits to offset the impact and the bank is approved in accordance with the [federal guidelines].” This new requirement should promote the use and development of both private and institutional mitigation banks. (see end note 10)

X. CONCLUSION

Several fundamental changes in our regulatory scheme must occur if we are to achieve the goal of no net loss of wetlands functions and values, and the more ambitious goal of increasing the quantity and quality of our nation’s wetlands. The ultimate solution will require striking a balance between wetlands protection and the need for growth and development.

Unfortunately, national wetlands policy is caught in the “Washington gridlock” between the 10% of the public who oppose all development for any reason, and the opposite 10% who favor the unfettered right to develop property without governmental interference. We will only achieve “no net loss,” and a sane balance between the need for development and the need to protect our wetlands, when the voices of the 80% of the public who are moderate and reasonable are heard.
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W. Brooks Stillwell is a member of the firm of Hunter, Maclean, Exley and Dunn, P.C. in Savannah, Georgia. He is a graduate of Wake Forest University and the University of Georgia School of Law. He is a member of the American College of Real Estate Lawyers, former Chair of the Real Property Law Section of the State Bar of Georgia. He is the current President of the Savannah Bar Association. He is a former Alderman and Mayor Pro-tem of the City of Savannah, and a co-founder of W.E.T., inc., Wetlands Environmental Technologies, which was the first company in the United States to receive a permit from the Corps of Engineers to construct and operate a commercial wetland mitigation bank.

The author acknowledges the assistance of Triece Gignilliat Ziblut, an associate with Hunter, Maclean, Exley & Dunn, P.C. in the preparation of this paper. She is a graduate of the University of Georgia and its School of Law, and a former legislative assistant to Congressman Lindsay Thomas (D-GA) and Congressman Jack Kingston (R-GA), where she specialized in wetlands law and other environmental legislation.
END NOTES:

END NOTE 1 The requirements for notice and permitting are more stringent in some state and local jurisdictions. For example, the Commonwealth of Virginia has enacted a statute establishing a wetlands zoning ordinance, which any county, city or town may adopt and implement. Va. Code Ann. § 28.2-1302 (Michie 1998). If the ordinance is adopted in a political subdivision, a wide range of uses and activities in wetlands requires a local permit. The comments in this article are limited to the requirements of the federal regulatory program.

END NOTE 2: The Corps is currently conducting “Scoping Meetings” as part of a process to prepare a Programmatic Environmental Impact Statement for the entire Nationwide Permitting Program, to be completed by December, 2000. 64 Fed. Reg. 13782 (March 22, 1999).

ENDNOTE 3: Generally, Corps policy requires that any off-site mitigation be conducted in the same watershed in which the adverse impact to existing wetlands will occur. Theoretically, this preserves watersheds, and refines the “no net loss” goal by adding the further requirement that there be “no net loss in the affected watershed.” Some Corps districts have not followed this policy, and have regularly allowed compensatory mitigation to occur in adjacent watersheds. This has been severely criticized by environmental groups, who have argued that the failure to achieve “no net loss in the affected watershed” should cause the regulators to stop using off-site mitigation to compensate for wetland losses in general. See, e.g., Ann Jennings, Roy Hoagland and Eric Rudolph, Down Sides to Virginia Mitigation Banking, 21 National Wetlands Newsletter, Jan.-Feb 1999, at 9. The problem with the argument in this article is that it would prohibit the use of “out of watershed” mitigation, even if “in watershed mitigation” is not available.

END NOTE 4: The Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, 60 Fed. Reg. 12287 (1995), provides that “[Mitigation] credits may only be authorized when on-site compensation is either not practicable or use of a mitigation bank is environmentally preferable to on-site compensation.” Regulators in some Corps districts recognize that, as a matter of fact, the use of an off-site mitigation bank is almost always environmentally preferable, and accordingly pay little attention to this language. For example, the Savannah District allows the use of credits from an approved mitigation bank for all impacts under three acres, and for all projects that meet the Nationwide Permit Program criteria, without any documentation of other “mitigation alternatives.” Guidelines on the Establishment and Operation of Wetland Mitigation Banks in Georgia, Addendum 1 (January 16, 1996). Regulators in other Corps districts still feel that the Guidance compels them to use inferior on-site compensation in almost all cases.

END NOTE 5: The lack of cooperation between the Corps and EPA is clearly evident in the following comments by John F. Studt, Chief of the Regulatory Branch of the Corps, in notes of a teleconference with regulatory chiefs in all Corps districts on March 13, 1998: “The Corps may accept comments from other agencies, but the Corps will unilaterally determine if an in lieu fee program is acceptable. We are having serious problems with other Federal agencies on mitigation banking in some parts of the Country, and must not let that stifle in lieu fee programs.” Remarks of John F. Studt, Notes from Regulatory Program Managers Training Seminars (Teleconference), Spring 1998, Mitigation– In Lieu Fee Programs.

END NOTE 6: In Georgia, the Savannah District of the Corps has officially limited the use of “in lieu” payments to those “small impact projects, enforcement actions, or to supplement an on-site mitigation plan, where an impact site is not within the service area of a commercial mitigation bank.” The in-lieu program is conducted through a contract with the Georgia Land Trust Service Center at the University of Georgia, and the GLTSC is required to use the funds the “acquire and preserve the wetlands.” Public Notice, Savannah District, U.S. Army Corps of Engineers, June 12, 1998. Notwithstanding the written policy, some Corps employees in the field continue to approve “in lieu” payments

END NOTE 7: These suggestions could be implemented by adding the following language, or a similar provision, in the Clean Water Act, or any other legislation which addresses wetland regulation: “In the event compensatory mitigation is required for the wetland impact of a regulated activity which occurs within the service area of a mitigation bank which has been approved pursuant to applicable federal guidelines or regulations, then: a. Preference shall be given, to the maximum extent practicable, to the use of credits from a mitigation bank to satisfy the compensatory mitigation requirement for any impact of 35 acres or less, if the bank contains sufficient available credits to offset the impact, and b. No payment to any agency or person in lieu of mitigation shall be used to satisfy the mitigation requirement, and c. In the event any mitigation alternative other than the use of credits from a mitigation bank is authorized to be used by a permittee to satisfy the mitigation requirement, the permittee shall furnish reasonable assurance to the District Engineer, similar to the assurance required of the operator of a mitigation bank in the same District, that the mitigation will be performed and monitored in a manner which is designed to insure its environmental success.”

END NOTE 8: This is not true in all Corps districts. The Savannah District has issued a “Standard Operating Procedure for Compensatory Mitigation Plans for Nationwide Permits” (1995) which establishes a methodology for use within Georgia. However, there is no national standard. Many Corps districts have no policy on this matter.

END NOTE 9: The Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, at footnote 2, outlines the means by which the agencies’ MBRT will attempt to agree on the conditions under which a mitigation bank may operate: “The term consensus as defined herein, is a process by which a group synthesizes its concerns and ideas to form a common collaborative agreement acceptable to all members. Under consensus, agreements or decisions are made without voting. An agreement is reached through a process of gathering information and viewpoints, discussion, analysis, persuasion, a combination or synthesis of the proposals, and/or development of totally new solutions that are acceptable to the group. The goal of consensus is to reach an agreement or decision with which everyone can agree, but not necessarily unanimity. A consensus agreement is a recognition by a group that it has reached the best achievable solution for the parties involved.”

END NOTE 10: The Commonwealth of Virginia also enacted a statute regarding the use of mitigation banking in connection with wetlands impacts of transportation projects. Va. Code Ann. § 33.1-223.2:1 (Michie 1998). Unlike the federal version, which encourages the use of mitigation banking, the Virginia version may have the opposite effect. Rather than granting a preference to banks, the Virginia statute places conditions on the authority of the Commonwealth Transportation Commissioner to expend funds for the purchase of credits. The Virginia statute limits the Commissioner’s authority to purchase credits to banks which are in the same “U.S.G.S. cataloging unit” as the impacted site, which are “ecologically preferable to practicable on-site and off-site individual mitigation options, as defined by federal wetland regulations,” and which have had their banking instruments approved through a public review and comment process. These restrictions on the Commissioner’s authority apparently do not extend to other, less environmentally sound mitigation alternatives, such as on-site mitigation, and use of “in lieu” fees.