The Federal Context for Wetland Mitigation Banking
The Clean Water Act
The primary source of federal regulatory jurisdiction over wetlands is the Federal Water Pollution Control Act, or the Clean Water Act ( CWA).[1] The CWA was established to restore and maintain the chemical, physical, and biological integrity of the nation’s waters, including wetlands. The CWA section that established the wetlands regulatory program, §404, was enacted in 1972. Since that time, §404 has evolved into the major federal program regulating activities to the nation’s aquatic resources, including wetlands.
Section 404 regulates “discharges” of “dredged or fill material” to waters of the United States, including wetlands. Corps’ regulations define wetlands as “those areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions. Wetlands generally include swamps, marshes, bogs, and similar areas.”[2]
Several types of activities, such as normal, on-going farming, ranching, and silviculture activities, are exempt from regulation under §404(f) of the CWA unless they convert a wetland to a new use and impair the flow or circulation of waters of the United States or reduce the reach of such waters.
Because of the historical role played by the Corps in regulating dredging and other activities in navigable waters, Congress assigned the agency primary responsibility for administering the §404 permitting program. The Corps has the authority to issue individual permits or general permits under §404(e). General permits are intended to be issued for categories of activities that are similar in nature and are determined to have only minimal adverse environmental impacts. Individuals or organizations wishing to fill a wetland must first obtain authorization from the Corps.
Although the Corps plays the lead role in regulating wetlands, the US Environmental Protection Agency (EPA) is responsible for establishing the environmental guidelines (or §404(b)(1) guidelines) that the Corps must use to evaluate the impact of proposed projects when making permit determinations. EPA also has the authority to veto permits approved by the Corps under §404(c). Other federal agencies, such as the US Fish and Wildlife Service (FWS), Natural Resources Conservation Service (NRCS), and the National Marine Fisheries Service (NMFS), have the opportunity to review and comment upon Corps permit decisions. Under §404(q), EPA, FWS, and NMFS have the ability to “elevate” disputes over specific proposed permits and general policy matters, but they do not have the veto authority of EPA.
Alternatives analysis
The §404(b)(1) guidelines, or environmental guidelines, established by EPA were finalized in 1980.[3] Under these binding rules,[4] all wetlands are considered “special aquatic sites.”[5] The §404(b)(1) guidelines set in motion the process — referred to as the “practical alternatives analysis” — that the Corps must undertake before issuing a §404 permit to fill a wetland. The §404(b)(1) guidelines dictate that the Corps requires applicants to provide documentation that there are no practicable alternatives to the proposed project. In other words, a permit cannot be issued if there is a “practicable alternative to the proposed discharge which would have less adverse impact on the aquatic ecosystem, so long as the alternative does not have other significant adverse environmental consequences.”[6] An alternative is considered practicable after taking into consideration “cost, existing technology, and logistics in light of overall project purposes.”[7] The guidelines also provide that proposed projects may not be permitted unless “appropriate and practicable steps have been taken which will minimize potential adverse impacts of the discharge on the aquatic ecosystem.”[8]
1990 federal mitigation memorandum of agreement
In 1990, the Department of the Army and EPA entered into a Memorandum of Agreement (MOA) that clarifies the protocol for determining the type and level of mitigation required under the §404(b)(1) guidelines (“mitigation MOA” or “1990 MOA”).[9] This MOA has had a significant impact on the §404 permitting process.
The 1990 mitigation MOA was developed to clarify the “appropriate and practicable measures” required to offset unavoidable impacts permitted through the §404 regulatory program. Under the MOA, the agencies established a three-part process — or sequencing guidelines — to help guide compensatory mitigation decisions. It is important to note that the mitigation MOA applies only to individual, or “standard” permits, not general permits (i.e., regional permits, nationwide permits, or programmatic permits).[10] As many as 85 percent of all §404 projects authorized by the Corps in the waters of the United States are approved under a general permit.[11]
The sequencing steps are:
- Avoid — This step is in accordance with the alternatives analysis established by the §404(b)(1) guidelines, which allows permits for only the least environmentally damaging practicable alternatives. It restates, “no discharge shall be permitted if there is a practicable alternative to the proposed discharge which would have less adverse impact to the aquatic ecosystem.”[12]
- Minimize — If impacts cannot be avoided, steps must be taken to minimize the adverse impacts through project modifications and permit conditions.[13]
- Mitigate — The final step in sequencing, the Corps is required to determine “appropriate and practicable compensatory mitigation for unavoidable adverse impacts which remain after all appropriate and practicable minimization has been required.”[14]
Therefore, before a §404 permit can be issued, the Corps must determine if there is a practicable alternative that avoids impacts to wetlands. If unavoidable, impacts must be minimized. Finally, any resulting unavoidable impacts must then be mitigated. The 1990 MOA also clarified the role of wetland mitigation banking as an acceptable form of compensatory mitigation. In a brief nod to the then new practice of wetland mitigation banking, the MOA states “[m]itigation banking may be an acceptable form of compensatory mitigation under specific criteria designed to ensure an environmentally successful bank.”[15]
1995 Federal Banking Guidance
Although the 1990 mitigation MOA established the legitimacy of wetland mitigation banking, the practice was still not commonplace in the early 1990s because of high costs and regulatory uncertainty. In 1992 there were 46 wetland mitigation banks in the United States. At that time, banks existed in only 17 states. Eleven were located in California and eight in Florida. In 1992, only six banks were controlled by private developers and only one of these — Fina LaTerre in Louisiana — offered credits for commercial sale to the general public.[16]
In an effort to clarify the manner in which mitigation banks could be used to satisfy the mitigation requirements of the CWA §404 program, the Corps, EPA, FWS, NRCS, and National Oceanic and Atmospheric Administration (NOAA), published “Federal Guidance for the Establishment, Use and Operation of Mitigation Banks” in the Federal Register in November 1995.[17] The 1995 guidance reinforced many provisions offered in a 1993 Regulatory Guidance Letter signed by the Corps and EPA, which offered interim guidance on wetland mitigation banking.[18]
The 1995 banking guidance (“banking guidance” or “1995 guidance”) defines mitigation banking as “the restoration, creation, enhancement and, in exceptional circumstances, preservation of wetlands and/or other aquatic resources expressly for the purpose of providing compensatory mitigation in advance of authorized impacts to similar resources.” Mitigation banking is authorized for use when “on-site compensation is either not practicable or use of a mitigation bank is environmentally preferable to on-site compensation.”
The 1995 banking guidance lists several advantages of mitigation banking over individual mitigation projects, such as the ability of banks to:
- Consolidate compensatory mitigation into a single large parcel or contiguous parcels;
- Bring together financial resources, planning, and scientific expertise not practicable to many project-specific compensatory mitigation proposals;
- Reduce permit processing times and provide more cost-effective compensatory mitigation opportunities;
- Implement and function in advance of project impacts, thereby reducing temporal losses of aquatic functions and uncertainty over whether the mitigation will be successful in offsetting project impacts;
- Increase the efficiency of limited agency resources in the review and compliance monitoring of mitigation projects because of consolidation, and thus improving the reliability of efforts to restore, create, or enhance wetlands for mitigation purposes; and
- Contribute towards attainment of the goal for no overall net loss of wetlands by providing opportunities to compensate for authorized impacts when mitigation might not otherwise be appropriate or practicable.[19]
The 1995 guidance was a milestone in institutionalizing the practice of wetland mitigation banking. The guidance gave state agencies, local governments, and the private sector the regulatory certainty and procedural framework they needed to move forward on seeking approval for mitigation banks. Following its issuance, the number of banks across the country proliferated and entrepreneurial mitigation banks became a mainstream option, rather than a novelty.
Corps Regulatory Guidance Letter:Â October 2001
In June 2001, the National Academy of Sciences (NAS) released its report, Compensating for Wetland Losses Under the Clean Water Act.[20] The two-year study was initiated in response to a request by the EPA. Among other charges, the Committee on Mitigating Wetland Losses was asked to evaluate the ability of wetland restoration, enhancement, creation, and in-lieu-fee mitigation to adequately restore wetland functions and to evaluate options for improving the ecological effectiveness of wetland mitigation. The report offered 26 recommendations for improving the ecological effectiveness of federally required compensatory mitigation.
In response to the NAS study and in light of ten years of operation under the 1990 mitigation MOA, the Corps released a Regulatory Guidance Letter addressing compensatory mitigation on October 31, 2001.[21] The RGL was to build on the recommendations in the NAS report to require “more stringent standards for mitigating impacts to the aquatic ecosystem, including wetlands.”[22]
The 2001 NAS study included several recommendations related to adopting a watershed approach to compensatory mitigation. The Corps’ RGL addresses several of these recommendations. For example, the NAS study states, “preference for on-site and in-kind mitigation should not be automatic, but should follow from an analytically based assessment of the wetland needs in the watershed and the potential for the compensatory wetland to persist over time.”[23] Through its RGL, the Corps intends to relax the preference for on-site mitigation previously advanced through existing agency policy. The RGL also considerably relaxes the agency’s previous position on in-kind vs. out-of-kind mitigation by stating, “out-of-kind compensation may also be appropriate” and where used should be “practicable and environmentally equal or preferable to in-kind compensation (i.e., of equal or greater ecological value to a particular region).”[24]Â Although the NAS study does make some allowances for out-of-kind mitigation, it also states, “opportunities for in-kind compensation need to be sought within the larger landscape context.”[25] In addition, the RGL employs the watershed management approach to allow for aquatic mitigation projects that provide a “variety of aquatic resource types,” such as open water, wetland, and upland mixtures. The Corps states, “Where such mix of ecological factors is included in the mitigation, all of those features (open water, wetland, and upland resources which add to the aquatic functions) should be included in the “credits” established.”[26] If interpreted broadly, this provision could lead to permitted wetland impacts being compensated for with upland or open water acreage, leading to a net loss of wetland acreage and function.
The Corps states that the changes outlined in the RGL are designed to enhance the wetland mitigation program, rather than diminish the ability of the program to support the policy of no net loss of wetland functions. For this to hold true, the watershed management approach must be employed with appropriate safeguards. In its report, NAS acknowledged the risks of the watershed approach:Â “The committee is aware of the concern that a watershed approach might weaken the commitment during the permitting process to protect individual wetlands and the functions they provide, with existing wetlands being too readily traded for compensatory wetlands that might not be ecologically functional.”[27]Â Although watershed management is the basis of several of the Corps recommendations, the agency does not clearly describe the watershed planning elements that should be in place prior to allowing the relaxation of on-site and in-kind mitigation. In addition, the Corps states that under the new approach, mitigation projects should “generally be located within the area (e.g., watershed, county) where a project can reasonably be expected to provide appropriate compensation for the impacts.”[28] It goes on to say that “Mitigation in nearby watersheds may be appropriate.”[29] Without clear watershed boundaries, the changes advocated by the Corps hold no guarantee that mitigation (including credits generated for out-of-kind mitigation, preservation, uplands, and buffers) would even occur in close proximity to the permitted impacts.
In several areas the RGL promotes mitigation of wetland impacts with non-wetland habitats. The guidance allows credits to be assigned for the inclusion of upland areas in a compensatory mitigation project[30] and allows for the establishment of vegetated buffers in or near streams or other open waters as the sole compensatory mitigation activity (even if the buffers are uplands).[31]Â The RGL states that wetland preservation “may be authorized as the sole basis for generating credits in mitigation projects.”[32] Previously, credit could be given to preservation when the preservation was done in conjunction with other forms of mitigation and was demonstrated to augment the restored, created, or enhanced wetland resources; preservation could only be the sole method of mitigation for a given project in “exceptional circumstances”.[33] These changes would not ensure that wetland functions are replaced with comparable wetland functions in compensation for “unavoidable impacts” to wetlands.
The RGL moves away from the clear preference given to restoration over other forms of compensatory mitigation highlighted in the 1995 guidance. The 1995 guidance states that creation and enhancement should be used only when there are “adequate assurances to ensure success.”[34] The 2001 RGL states that although “restoration efforts provide the best potential for success in terms of providing functional compensation…each type of mitigation has utility and may be used as compensatory mitigation.”[35]
In the spirit of interagency cooperation and, in part, due to EPA’s role in the wetland program established under the Clean Water Act,[36] past policy changes affecting compensatory mitigation, were made through lengthy interagency efforts. Development of the 1995 mitigation banking guidance also included a solicitation for public comment on the proposed changes. Following a flurry of complaints from its sister wetland regulatory agency and environmental groups, in December 2001, the Corps opened the regulatory guidance letter for comment by other federal agencies.[37]
Since March 2002, an interagency workgroup including EPA, FWS, and NMFS, has been working with the Corps to address concerns about the RGL. It is anticipated that the Corps will incorporate many of the agencies’ recommendations in revised guidance to the field. In addition, an interagency group has been working to develop a comprehensive response to many of the deficiencies identified in recent evaluations of compensatory mitigation, including the NAS report and a 2001 report by the General Accounting Office on in-lieu-fee mitigation.[38] The interagency group expects to release the “National Mitigation Action Plan” by fall 2002. The plan will identify specific tasks that the agencies will complete jointly over the next three years to address key weaknesses in compensatory mitigation.
Food Security Act
Under the 1985 Food Security Act, Congress enacted a new program — Wetlands Conservation Compliance, or Swampbuster — that can also require mitigation for some agricultural activities affecting wetlands. Under Swampbuster, farmers become ineligible for certain federal farm program benefits, such as price support or payment and loans, if they fill a wetland to plant commodity crops.[39] The Natural Resources Conservation Service, the arm of the US Department of Agriculture (USDA) that monitors compliance with Swampbuster, may allow mitigation as part of a farmer’s effort to comply with the program. Under the program, mitigation requirements may be satisfied through “restoration, enhancement, or creation as long as wetland functions are maintained.”[40] Swampbuster requires that the mitigation site be in the same general area of the local watershed as the converted wetlands, which includes regional mitigation banks.[41] Because Swampbuster and §404 cover different activities on agricultural lands, some actions that fall under Swampbuster may not fall under §404 jurisdiction and vice versa.[42]
Mitigation Banking Under the Federal Highway Administration
Wetland mitigation legislation and policies developed by the Federal Highway Administration (FHWA) have been promoting wetland mitigation banking since the early 1990s. As a result, the majority of the wetland mitigation banks that emerged early on were single-user banks established by state departments of transportation. In 1992, nearly half of the existing banks were state highway banks.[43]
In 1991, Congress passed the Intermodal Surface Transportation Efficiency Act (ISTEA), which included a provision that made the costs of wetland mitigation banks established as compensatory mitigation for impacts due to federal aid highway projects eligible for federal aid highway funds.[44] In 1996, the FHWA revised its no net loss of wetlands policy by establishing a goal of replacing 1.5 acres of wetlands for every acre impacted under the federal-aid highway program.[45] To measure whether or not this goal is being met, the FHWA compiles information from field offices on the area of wetlands impacted to the area of wetlands provided through compensatory wetland mitigation. In fiscal year 2001, the FHWA reported “on a program-wide basis…federal-aid highway projects provided 2.11 acres of compensatory wetland mitigation for each acre of impact.”[46]
Building on ISTEA, Congress passed the Transportation Equity Act for the 21st Century (TEA-21) in 1998.[47] Under TEA-21, the costs of wetland and habitat mitigation projects established as mitigation for impacts due to federal aid highway projects are eligible for federal aid highway funds.[48] In 2000, FHWA clarified this provision, establishing that “under current law Federal-aid funds may be used to improve or restore wetlands affected by past Federal-aid highway projects, even when no current Federal-aid project is taking place in the vicinity.”[49] In other words, federal highway funds can be used to restore, conserve, enhance, and create wetlands, as mitigation for past wetland impacts due to federal aid highway projects, even if there are currently no wetland-impacting highway projects underway in the immediate area.[50]
TEA-21 and subsequent regulations also establish a preference for using mitigation banks to compensate for impacts due to highway projects if the impacts are within the service area of the bank. The bank must have available sufficient credits to offset the impacts, be approved in accordance with the 1995 banking guidance, and the use of the bank must be in accordance with all applicable federal laws and regulations.[51]
As a result of TEA-21 and agency guidance, federal aid highway projects give greater preference to the use of mitigation banks than does the 1995 banking guidance. This policy will continue to promote the development of wetland mitigation banks across the county.
Last updated July 2002.
[1] Federal Water Pollution Control Act, 33 U.S.C. §§1251-1387.
[2] 33 C.F.R. §328.3(b) (2001). See also 40 C.F.R. §§230.3(t), 232.2 (2001).
[3] 40 C.F.R. §230. See <http://www.epa.gov/OWOW/wetlands/regs.html>.
[4] Strand, Margaret N. Wetlands Deskbook, 2nd Edition. Washington DC: Environmental Law Institute, 1997. 41.
[5] 40 C.F.R. §230.41.
[6] 40 C.F.R. §230.10(a).
[7] 40 C.F.R. §230 10(a)(2).
[8] 40 C.F.R. §230.10(d).
[9] US Environmental Protection Agency and US Department of the Army. Memorandum of Agreement Between the Environmental Protection Agency and the Department of the Army Concerning the Determination of Mitigation Under the Clean Water Act Section 404(b)(1) Guidelines. 1990. See <http://www.epa.gov/OWOW/wetlands/regs.html>.
[10] Id.
[11] National Academy of Sciences. Compensating for Wetland Losses Under the Clean Water Act. Washington, DC: National Academy Press, 2001. 66.
[12] US Environmental Protection Agency and US Department of the Army. Memorandum of Agreement Between the Environmental Protection Agency and the Department of the Army Concerning the Determination of Mitigation Under the Clean Water Act Section 404(b)(1) Guidelines. 1990. II.C(1).
[13] Id. II.C(2); 40 C.F.R. §230.10(d).
[14] US Environmental Protection Agency and US Department of the Army. Memorandum of Agreement Between the Environmental Protection Agency and the Department of the Army Concerning the Determination of Mitigation Under the Clean Water Act Section 404(b)(1) Guidelines. 1990. II.C(3).
[15] Id.
[16] Wetland Mitigation Banking. Washington, DC: Environmental Law Institute, 1993.
[17] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks. 60 Fed. Reg. 228, 58605-58614. 1995.
[18] US Army Corps of Engineers and US Environmental Protection Agency. Regulatory Guidance Letter No. 93-2. “Memorandum to the Field. Subject: Establishment and Use of Wetland Mitigation Banks in the Clean Water Act Section 404 Regulatory Program.” Washington, DC. August 23, 1993.
[19] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks. 60 Fed. Reg. 228, 58605-58614. 1995.
[20] National Academy of Sciences. Compensating for Wetland Losses Under the Clean Water Act. Washington, DC: National Academy Press, 2001.
[21] US Army Corps of Engineers. Regulatory Guidance Letter, No. 01-1. “Guidance for the Establishment and Maintenance of Compensatory Mitigation Projects Under the Corps Regulatory Program Pursuant to Section 404(a) of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899.” Washington, DC: US Army Corps of Engineers. October 31, 2001. See <http://www.usace.army.mil/inet/functions/cw/hot_topics/rgl01_1.pdf>.
[22] US Army Corps of Engineers. US Army Corps of Engineers issues new regulatory guidance. News Release, No. PA-01-13. See <http://www.usace.army.mil/civilworks/hot_topics/rgl_release.pdf>.
[23] National Academy of Sciences. Compensating for Wetland Losses Under the Clean Water Act. Washington, DC: National Academy Press, 2001. 4.
24] US Army Corps of Engineers. Regulatory Guidance Letter, No. 01-1. “Guidance for the Establishment and Maintenance of Compensatory Mitigation Projects Under the Corps Regulatory Program Pursuant to Section 404(a) of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899.” Washington, DC: US Army Corps of Engineers. October 31, 2001. 2(e).
[25] National Academy of Sciences. Compensating for Wetland Losses Under the Clean Water Act. Washington, DC: National Academy Press, 2001. 4.
[26] US Army Corps of Engineers. Regulatory Guidance Letter, No. 01-1. “Guidance for the Establishment and Maintenance of Compensatory Mitigation Projects Under the Corps Regulatory Program Pursuant to Section 404(a) of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899.” Washington, DC: US Army Corps of Engineers. October 31, 2001. 2(i).
[27] National Academy of Sciences. Compensating for Wetland Losses Under the Clean Water Act. Washington, DC: National Academy Press, 2001. 144.
[28] US Army Corps of Engineers. Regulatory Guidance Letter, No. 01-1. “Guidance for the Establishment and Maintenance of Compensatory Mitigation Projects Under the Corps Regulatory Program Pursuant to Section 404(a) of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899.” Washington, DC: US Army Corps of Engineers. October 31, 2001. 3(b)(1). Emphasis added.
[29] Id. 3(b)(1).
[30] Id. 2(c).
[31] Id. 2(d).
[32] Id. 2(b).
[33] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks. 60 Fed. Reg. 228, 58605-58614. 1995.
[34] Id.
[35] US Army Corps of Engineers. Regulatory Guidance Letter, No. 01-1. “Guidance for the Establishment and Maintenance of Compensatory Mitigation Projects Under the Corps Regulatory Program Pursuant to Section 404(a) of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 1899.” Washington, DC: US Army Corps of Engineers. October 31, 2001. 2(g).
[36] Under §404 (§404(b)(1) guidelines) of the Clean Water Act, EPA is charged with acting as the lead agency in the development of environmental criteria used to evaluate permit applications under §404.
[37] See <http://www.usace.army.mil/inet/functions/cw/hot_topics/fedagcycomment.htm>.
[38] US General Accounting Office. Wetlands Protection:Â Assessments Needed to Determine Effectiveness of In-Lieu Fee Mitigation. GAO-01-325. May 4, 2001.
[39] 16 U.S.C. §3821 et seq.; Strand, Margaret. Wetlands Deskbook, 2nd Edition. Washington, DC: Environmental Law Institute, 1997. 73.
[40] Fact Sheet — Mitigation. Natural Resources Conservation Service. 6 May 2002. <http://www.nrcs.usda.gov/programs/wetlands/>.
[41] Id.
[42] Zinn, Jeffrey. Wetland Mitigation Banking: Status and Prospects. Washington, DC: Congressional Research Service, 1997.
[43] Wetland Mitigation Banking. Washington, DC: Environmental Law Institute, 1993.
[44] Strand, Margaret N. Wetlands Deskbook, 2nd Edition. Washington DC: Environmental Law Institute, 1997. See Intermodal Surface Transportation Efficiency Ac of 1991, Pub. L. No. 102-240, 105 Stat. 1914 (1991).
[45] Slater, Rodney E. Memorandum to Regional Administrators. “Results of the 1996 Performance Agreement on the Protection of Wetlands and Water Quality.” 13 November 1996; Bank, Fred and Paul Garrett. “Federal Aid Highway Program and Wetlands Mitigation.” Roadsides. 8:5 (2001).
[46] Wetlands Mitigation Data Report for Federal-Aid Highway Projects Fiscal Year 2001. Federal Highway Administration. May 17, 2002. <http://www.fhwa.dot.gov//////environment//wetland/mitrpt01.htm>.
[47] Pub. L. 105‑178 (1998)
[48] Pub. L. 105‑178 Sec. 1106(b)(6)(M), amending 23 U.S.C. §103; Pub. L. 105‑178 Sec. 1108(a)(6)(B), amending 23 U.S.C. §133(b)(11).
[49] Mitigation of Impacts to Wetlands and Natural Habitat. 65 Fed. Reg. 251, 82913-82926. 2000.
[50] Id.
[51] Pub. L. 105‑178 Sec. 1108(a)(6)(B), amending 23 U.S.C. §133(b)(11); Mitigation of Impacts to Wetlands and Natural Habitat. 65 Fed. Reg. 251, 82913-82926. 2000.
Cite: Environmental Law Institute. 2002. “Banks and Fees: The Status of Off-Site Wetland Mitigation In the United States” Washington, DC: Environmental Law Institute. <www.eli.org/Program_Areas/WMB>. July 2002.
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