The Federal Context for In-Lieu-Fee Mitigation

An in-lieu-fee program is an agreement between a regulatory agency (state, federal, or local) and a single sponsor, generally a public agency or non-profit organization. Under an in-lieu-fee agreement, the mitigation sponsor collects funds from an individual or a number of individuals who are required to conduct compensatory mitigation required under §404 or another state or local wetland regulatory program. The sponsor may use the funds pooled from multiple permittees to create one or a number of sites under the authority of the agreement to satisfy the permittees’ required mitigation. In-lieu-fee mitigation is generally categorized as mitigation conducted after permitted impacts have occurred.

“In-lieu-fee mitigation occurs in circumstances where a permittee provides funds to an in-lieu-fee sponsor instead of either completing project-specific mitigation or purchasing credits from a wetland mitigation bank approved under the Banking Guidance.”[1]

The Corps began allowing permittees to pay funds in-lieu of conducting on-site, permittee-responsible mitigation in the late 1980s. These early transactions were primarily approved on a one-time, project-by-project basis as part of an agreement between the permittee and the regulatory entity for unusual circumstances. These in-lieu-fee transactions were not usually carefully documented. The regulatory entities viewed in-lieu-fee payments as a flexible option for meeting mitigation requirements. The use of in-lieu-fee payments slowly increased through the early 1990s. These one-time transactions began to develop into more systematic programs, although they still retained a high degree of flexibility.

New Jersey’s state in-lieu-fee mitigation program, authorized in 1987, is one of the earliest such programs.[2] The first in-lieu-fee programs developed in the absence of federal guidance to regulate their operation. These programs typically did not involve detailed agreements, lacked any governing framework, and varied greatly between states. In-lieu-fee programs were first characterized by the federal government in the 1995 banking guidance, although only in a cursory manner. The 1995 guidance states that in-lieu-fee mitigation does not meet the definition of mitigation banking because it does not “typically provide compensatory mitigation in advance of project impacts.”[3] The guidance also states that the Corps may find circumstance where in-lieu-fee arrangements are appropriate as long as they meet the requirements that would otherwise apply to an off-site mitigation effort and they provide adequate assurances of ecological effectiveness and timely implementation.[4] This vague language allowed in-lieu-fee programs to continue to evolve in the absence of any detailed requirements.

In response to concerns about the ability of in-lieu-fee programs to provide ecologically effective compensatory mitigation, the Corps, USEPA, FWS, and NOAA promulgated “Federal Guidance on the Use of In-Lieu-Fee Arrangements” in 2000 (“2000 guidance” or “in-lieu-fee guidance”).[5] The guidance was designed to address concerns about whether fees collected under these programs were being spent and mitigation was being completed in a timely manner and whether the Corps or the state regulatory agency were conducting adequate monitoring and oversight of the projects.[6]

The 2000 guidance states that MBRTs should review applications from in-lieu-fee sponsors to ensure that agreements are consistent with the 1995 banking guidance.[7] It also states a preference for the use of mitigation banks over the use of in-lieu-fee programs when on-site mitigation is not available or is less “environmentally desirable” and “the permitted impacts are within the service area of a mitigation bank approved to sell mitigation credits,” or if the service area for both the in-lieu-fee program and the mitigation bank are outside of the watershed of the permitted impact.[8] Preference is not given to a mitigation bank over in-lieu-fee mitigation when the mitigation bank does not provide in-kind mitigation and the in-lieu-fee site does, or if the bank only provides preservation credits, rather than credits generated through restoration, creation, or enhancement, and the in-lieu-fee site provides credits generated through in-kind restoration.[9]

In-lieu-fee programs that were established following issuance of the 2000 guidance rely on very different agreements than their predecessors. These new agreements, such as the ones found in the two new South Carolina programs, Beidler Forest and Historic Ricefields, are more detailed and more similar to banking instruments than previous agreements.[10] These new agreements include detailed performance criteria, specific long-term management and maintenance requirements, and outline the role of the MBRT. The 2000 guidance has also caused several in-lieu-fee program administrators to reexamine their programs. Several in-lieu-fee programs have ceased activity altogether, some have stopped accepting payments in-lieu of mitigation until their programs are reauthorized under an updated agreement, and others are continuing to operate while updating their agreements to be consistent with the guidance.

The 2000 in-lieu-fee guidance only applies to a subset — albeit, the majority — of the currently approved in-lieu-fee programs. The guidance applies only to those programs that accept payment for impacts approved under the federal §404 programs. In-lieu-fee programs that accept payment for impacts approved under a state or local wetland regulatory program are not required to follow directives issued by the federal agencies.

Last updated July 2002.

[1] US Department of the Army, US Environmental Protection Agency, US Department of Interior, and US Department of Commerce. Federal Guidance on the Use of In-Lieu-Fee Arrangements for Compensatory Mitigation under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. 2000.

[2] Royal Gardner. Money for Nothing? The Rise of Wetland Fee Mitigation. 19 Va. Envtl. L.J. 1, 2000.

[3] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks. 60 Fed. Reg. 228, 58605-58614. 1995. II.F(1).

[4] Federal Guidance for the Establishment, Use and Operation of Mitigation Banks. 60 Fed. Reg. 228, 58605-58614. 1995. II.F(1).

[5] US Department of the Army, US Environmental Protection Agency, US Department of Interior, and US Department of Commerce. Federal Guidance on the Use of In-Lieu-Fee Arrangements for Compensatory Mitigation under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. 2000. 66915.

[6] US General Accounting Office. Wetlands Protection:  Assessments Needed to Determine Effectiveness of In-Lieu Fee Mitigation. GAO-01-325. May 4, 2001.

[7] US Department of the Army, US Environmental Protection Agency, US Department of Interior, and US Department of Commerce. Federal Guidance on the Use of In-Lieu-Fee Arrangements for Compensatory Mitigation under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. 2000.  66915.

[8] Id.

[9] Id.

[10] Beidler Forest In-Lieu Fee Mitigation Program. Implementation Instrument. South Carolina, 2000; Historic Ricefields Association Waccamaw and Pee Dee River Basins In-Lieu Fee Mitigation Program. Implementation Instrument. South Carolina, 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. <www2.eli.org/wmb>. July 2002.