\"Rowden, Rebecca A SAS\" \<Rebecca.A.Rowden@sas02.usace.army.mil\>

04/06/2006 01:55 PM

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EPA-HQ-OW-2006-0020

RIN 0710-AA55 -March 28, 2006 -- Proposed Rules -- Department of
Defense,

Department of the Army, Corps of Engineers, Environmental Protection

Agency, Compensatory Mitigation for Losses of Aquatic Resources. See

comments in Microsoft Word file attached.

**Docket Number EPA-HQ-OW-2006-0020 and/or RIN 0710-AA55**

**Comments to Federal Register: March 28, 2006**

**(Volume 71, Number 59)**

**Proposed CFR 332.9 In-lieu fee program**

Comments: The stated goal of the proposed rule is to establish
equivalent standards for all forms of compensatory mitigation to an
extent that is feasible and practical.

**General Comments on the Proposed Rule**

Where compensatory mitigation involves **restoration, enhancement and
establishment (creation)** in combination with **preservation**, and
where the intent of the proponent is to sell the credits, or have sole
use of the credits banked, there should be a uniform methodology for the
establishment of mitigation banks whether it is a commercial,
governmental or in-lieu fee bank. Where the intent of the mitigation is
[solely]{.underline} to protect preservation mitigation of high function
and value in perpetuity, and where no credits are proposed to be created
or sold, a mitigation bank format is neither feasible nor practical for
an in-lieu-fee ***preservation*** program. The in-lieu fee preservation
program should not be abolished in that criteria can be established to
provide substantially equivalent standards of performance with other
forms of mitigation. Specific language is set out below as suggested
wording for that purpose. **The term \"*district engineer*\" is replaced
with \"*district commander*\" as required.**

**Banks Cannot Fulfill All Mitigation Requirements for a**

**Watershed Plan**

Commercial bankers understandably invest in wetland and/or stream
mitigation bank projects for the sole purpose of making a profit. A
review of the commercial mitigation banking enterprise will show that
once all profit from a site has been exhausted, the commercial banker
conveys the property to the subdivision homeowners, where the bank is
part of a subdivision, sells the property to a holding company for
investment or conveys it at no cost or at a reduced cost to a
governmental entity or environmental group for a tax break and in order
to avoid costly property taxes. Most likely the typical commercial bank
is structured as a limited liability corporation in order to limit the
corporation\'s liability as to the bank and the corporation may do
business in several states. There often is no connection between the
banker and the community where the bank property is located.

Many commercial bank properties are not the type of properties that land
trusts, governmental natural resource departments or water management
entities care to manage. Some commercial bank properties are part of old
agricultural fields or former silviculture areas, have been clear-cut
with timber removed and are isolated from other commercial banks
geographically. Some are completely surrounded by subdivisions and
commercial development. Some banking proposals provide restoration of
hydrology to streams and wetlands but the restoration does not result in
establishing habitat for aquatic species making them unattractive to
environmental groups.

Upon completion of the sale or use of all credits, some state
governmental entities like departments of transportation generally try
to sell the bank property on the open market or transfer the bank
property to another state governmental department, like a natural
resources department, for long term management. State departments of
transportation or county water and sewer departments do not envision
long term management of banking properties. There is no concept of long
term stewardship with these types of banks. It is not realistic to
assume that there will be, even with the proposed new rules although
some management may take place. That is why it is imperative to have a
requirement that the property be protected in perpetuity by a real
property deed restriction. It is also the reason that DA district
regulatory programs encourage and allow additional credits to be
allocated to bankers if they convey a conservation easement to a
qualified [third party]{.underline} for long term management of the
mitigation property in addition to protecting the property by a deed
restriction. The additional credits are an incentive for bankers to seek
out third parties who will take on long term management and stewardship
responsibilities.

Although long term management and stewardship has not generally been
associated with commercial mitigation banking, banking has generally
been a success and should be encouraged. Environmental engineers and
consultants have developed remarkable skills over the past decade in
wetland and stream restoration, enhancement and creation. The venture
capital financing provided by commercial bankers combined with the
skills of the construction, engineering and environmental consultants,
has generally succeeded in providing much needed restoration,
enhancement and establishment mitigation on a large scale.

**Watershed Approach**

In those states where there is a state water management program and
where the state regulates freshwater wetlands, state-administered
mitigation banks or programs may establish a watershed plan. In states
that do *not* have state water management programs and do *not* exercise
authority over freshwater wetlands, often there is no watershed approach
and the commercial bankers come forward in [larger]{.underline} numbers
with proposals for commercial banks since there is no state program.

Neither EPA nor the DA can *compel* a state, district or county to
establish a watershed approach to CWA regulatory permitting where the
state, county or district does not plan for watershed goals. Federal
agencies cannot specify to commercial bankers what properties they must
target. Commercial bankers and state departments of transportation will
naturally focus on *any* prospective mitigation property that becomes
available at a reasonable cost on the market that will provide a
substantial number of credits and profit through the restoration,
enhancement, creation and preservation. Many commercial bankers already
*own* the property they propose for a commercial mitigation bank such as
large timber companies looking to make a profit on otherwise
unprofitable tracts, farmers who are seeking alternative use for their
agricultural lands or developers seeking to generate additional income
from selling credits not needed for impacts associated with their
residential or commercial subdivisions. Therefore only those commercial
bankers who are looking for property to acquire at a reasonable cost may
consider targeting properties in a watershed plan.

Many DA regulatory districts already have geographical \"service area\"
limitations for banks built in to their operating procedures such that
the bank may only serve as mitigation for a watershed where the impacts
occur. In addition, some regulatory districts have already built
\"function and value\" analysis into their credit calculations and that
should be standardized if feasible and practicable. *Incentives* could
be built in to provide additional credits for mitigation plans where
applicants conform to a watershed approach but not make it mandatory.
Watershed studies and plans not carried out by DA or USEPA may not
necessarily give priority to protection of waters of the US and may
target other water resources as the primary subject of the plan. For
example a watershed plan may give equal emphasis to recreational use of
water resources such as construction of fishing lakes or lakes for
waterskiing. Another watershed plan may give priority to aquatic species
habitat.

Minimal information that would be *required* for use with a watershed
approach should only apply to those DA regulatory districts located in
states where the state or water management department or district
regulates the permitting of impacts to freshwater wetlands and streams
or where the state, department or district has established a watershed
management plan, provided the public an opportunity to comment on the
plan, identified targeted properties or types of properties it seeks to
protect and has some *authority* to prioritize or require mitigation in
compliance with a watershed plan. Otherwise the requirement might result
in unfair application of a watershed standard that varies greatly from
state to state.

**Suggested language for use in CFR rule regarding watersheds**

33 CFR 332.3 (c) proposed rules should provide:

\(c\) Watershed approach to compensatory mitigation. (1) Where an
applicable watershed plan has been developed by the state, watershed
district or by a federal department or agency after public notice and an
opportunity to comment, the district commander may use a watershed
approach to establish compensatory mitigation requirements in DA permits
to the extent relevant, appropriate and practicable. Where no such
state, district, federal department or agency watershed plan has been
developed, a watershed approach may be considered where based on
information provided by the project sponsor or available from other
sources. The goal of a watershed approach is to maintain and improve the
quality and quantity of aquatic resources within watersheds through
strategic selection of compensatory mitigation sites.

**Benefits of In-Lieu Fee Preservation Mitigation**

Environmental land trusts, non-profit organizations and county, state
and federal governmental agencies or departments, who have as their
statutory or incorporated goal, the preservation of the environment,
including wetlands, streams, rivers, buffers, aquatic and wildlife
habitat, are [seeking]{.underline} funds to carry out their goals. They
offer local long term stewardship and management. They identify
properties they desire to protect such as parcels along corridors within
watersheds or along tributaries, out-parcels threatened with development
where surrounded by national and state forests and wildlife refuges,
properties that can provide greenspace in developed areas and unique
properties containing endangered species, habitat and large ecosystem
corridors. These properties are generally part of watershed plans for
protection of the environment including aquatic resources.

Often the preservation properties containing wetlands, streams and
diverse habitat are identified *in* *advance* of impacts associated with
CWA permits and the land trust may have an *option to purchase
agreement* in hand prior to funds becoming available for acquisition.
Therefore some in-lieu fee preservation mitigation is taking place in
advance of, simultaneous with, or soon after, permitted impacts to
waters of the United States. This is generally true where the land
trusts have come to *rely* on funds becoming available through the
in-lieu fee preservation program as one source of funding and it
encourages the land trusts to establish goals for the watershed. This is
also true with local governments where funds become available for
protection of buffers to tributaries and in-lieu fee funds are one
source of funding for these linear stream buffer projects.

Land trust groups have special skills and experience negotiating with
land owners regarding conservation easements. Many such organizations
have skills in management of property for its environmental benefits
such as control burns to prevent large fires, control of native versus
exotic species, wildlife management, management for public use and
environmental education, and have an understanding of the uniqueness of
the ecology on each site. The land trust groups generally prioritize
acquisition of those properties that have endangered species, headwaters
or unique wetland systems.

Many non-profit land trusts generally have no desire to engage in
restoration, establishment or enhancement. However, they offer a unique
opportunity for locating and acquiring high value preservation
mitigation property that banking rarely offers. Without this type of
mitigation, many of the watershed goals of mitigation will not be
achieved. In-lieu fee preservation mitigation has been very successful
in many DA regulatory districts and provided a unique opportunity for
federal agencies and land trust groups to work together to meet
preservation goals and remove from the market, sensitive properties
threatened with development.

In addition, some commercial bankers now give consideration to the type
of properties that land trusts target for bank sites in that the land
trust will step forward after the credits are sold from the bank and
provide long term management of the bank property. In-lieu fee
preservation mitigation funds have been used by land trust groups and
governmental entities to *leverage* opportunities for receipt of
additional environmental conservation funds from other sources for
acquisition of conservation properties. Sometimes the properties
acquired with in-lieu fee preservation funds have been the *only* source
of mitigation for providing replacement *habitat* for aquatic species
and wildlife lost by virtue of the authorized permit impacts. It has
also been very successful as a form of mitigation with compliance and
enforcement cases. In some regions EPA utilizes the in-lieu fee trust
account as a depository for funds paid as *penalty* with Clean Water Act
Section 404 violations thereby allowing the funds to be applied back to
the watershed where the violation occurred, rather than have court
ordered civil penalty funds paid through the court clerk into the U.S.
Treasury.

In-lieu fee *preservation* program should not be abolished. It should be
encouraged as a form of compensatory mitigation where appropriate in
order to provide high function and value aquatic resource mitigation
properties in the watershed where the impact occurred but should be
subject to certain criteria and standards.

In-lieu fee *mitigation banking* should be required to comply with the
same credit calculation standards as commercial mitigation banks such
that they will have substantially the same performance standards and
criteria of success where practical and feasible. The *combination* of
mitigation banking and in-lieu fee preservation, added to on-site and
off-site mitigation options, will allow each district commander the
*flexibility* to develop compensatory mitigation programs tailored to
provide a greater range of permit specific options to meet the \"no
overall net loss\" goal. The suggested wording below for the CFR
regulations for in-lieu fee preservation mitigation is taken from
language used in successful in-lieu fee preservation programs
implemented by district commanders in certain districts and found to be
workable and successful.

**Suggested language for use in the CFR as it relates to In-Lieu Fee
Preservation Mitigation**

The in lieu fee proposals that require restoration, enhancement and
establishment combined with preservation and/or propose to have
exclusive use of banked credits or propose to sell credits will comply
with the mitigation requirements for mitigation banks set out in 33 CFR
332.8. The in lieu fee programs that solely address preservation will
have the following requirements:

**33 CFR 332.2 Definitions**

In-lieu fee mitigation bank shall have the same meaning as the
definition for mitigation banks set out in 33 CFR 332.2 (Definitions)

In-lieu fee preservation mitigation shall mean preservation mitigation
obtained with in-lieu fee funds.

In-lieu fee proposal shall mean a proposal by the in-lieu fee program
administrator or a local partner whereby compensatory mitigation in-lieu
fee funds are proposed to be used to acquire and/or permanently protect
high function and value aquatic resource preservation properties where
the proposal does not include restoration, establishment or enhancement
of aquatic resources or involve the sale or exclusive use of credits.

Local partner shall mean (1) a private non-profit organization that has
been determined to be exempt from federal income tax under section
501(c)(3) of the Internal Revenue Code, listed as an active corporation
in good standing by a state corporation department and has as its
central mission, to preserve and protect the environment; (2) a
governmental entity whose authorizing and implementing statutes,
regulations or ordinances have as their purpose, the protection or
management of natural resources and/or the environment including aquatic
resources.

In-lieu fee preservation program administrator shall mean the legal
entity, whether an individual, land trust, a corporation, business or a
governmental department that will manage funds paid into a wetland and
stream mitigation trust account through the regulatory in-lieu fee
preservation program as mitigation requirements for use in the
acquisition and protection of preservation properties upon approval by
the district commander.

**33 CFR 332.9 In-Lieu Fee Preservation**

\(a\) **General considerations**. Use of in-lieu fee preservation
mitigation will be considered for compensatory mitigation in appropriate
cases. Where in-lieu fee preservation is used to provide compensatory
mitigation, to the extent appropriate and practicable, the preservation
shall be done in conjunction with aquatic resource restoration,
establishment and/or enhancement activities. The term \"in conjunction\"
may include balancing credit calculation to include some percentage of
in-lieu fee preservation credits. This requirement may be waived by the
district commander where preservation has been identified as a high
priority in a geographic region. Preservation compensation ratios should
be higher than one-to-one wetland acreage or linear foot impact ratios.
In addition to the use of preservation mitigation as set out in 33 CFR
332.3 (h) (1), in-lieu fee preservation may be used:

\(1\) to meet the number of mitigation credits required by the permit in
conjunction with restoration, enhancement and establishment credits;

\(2\) to meet cumulative impact mitigation requirements that may be over
and above the site specific impacts;

\(3\) for the purpose of providing habitat for endangered species,
habitat diversity or habitat connectivity that supports aquatic
resources in the watershed.

\(4\) to meet compliance and enforcement objectives

Where no other form of mitigation is available, feasible or practicable,
the district commander may consider in-lieu fee preservation as the
primary mitigation. This may be the case with some nationwide permits,
with multi-state linear projects that run through numerous watersheds
where mitigation bank credits are not available in a service area, and
for mitigation required through the permit compliance and enforcement
program.

\(b\) **Procedures.** Upon approval of a mitigation plan that includes
in-lieu fee preservation, the applicant will pay funds into a trust
account managed by the in-lieu fee program administrator. The following
procedures will be followed:

\(1\) The district commander will determine the impacts associated with
the proposed permit or enforcement action, including the impacts to the
functions and values of the aquatic resource and/or the wetland acreage
and linear feet of impact.

\(2\) The district commander will determine the number of in-lieu fee
preservation mitigation credits and/or wetland acreage or linear feet of
stream with buffer that will be required, taking into consideration the
criteria used in assessing the impacts and utilizing a ratio for
mitigation greater than one-to one for impact.

\(3\) The in-lieu fee program administrator will determine the amount of
funds that will be required to be paid into the in-lieu fee trust
account per mitigation credit or per the wetland acreage and/or linear
feet of stream and buffer mitigation required.

\(4\) The in-lieu fee program administrator will apply or make the funds
available to qualified local partners for the purpose of acquisition
and/or protection of preservation property that meet ratios greater than
one-to-one of impacts and with functions and values greater than
wetlands and/or streams impacted;

\(5\) At such time as the required funds are paid into the trust
account, the burden of providing in-lieu fee preservation mitigation
will shift to the in-lieu fee program administrator and/or subsequently
to the local partner as funds are released from the in-lieu fee trust
account for acquisition and/or protection of preservation property.

\(c\) **Agreement**. The district commander will enter into an agreement
with the in-lieu fee program administrator and/or establish the terms
and conditions of the management and application of the in-lieu fee
funds in the trust account. The agreement should provide: (1) Purpose
(2) Authority (3) Parties (4) Qualification Required of Administrator
(5) Program Operation (6) Fiscal Accountability (7) Record Keeping (8)
Procedure for selection of Local Partners and preservation properties
(9) Administrative Costs (10) Approval and Allocation of Funds to a
Specific Site (11) Amendments and Termination and (12) Points of
Contact.

\(d\) **Duties of Administrator of the In-Lieu Fee Preservation
Program**. The administrator will establish a trust account for
placement of funds from the in-lieu fee preservation mitigation program
and adopt record keeping measures to include:

\(1\) DA records of the permit or enforcement document associated with
each payment of in-lieu fee preservation funds;

\(2\) DA records documenting that portion of the permitted impacts that
are required to be mitigated with in-lieu fee preservation mitigation
funds by wetland acreage and/or linear feet of stream;

\(3\) DA records of the functions and values associated with property
that is authorized to be impacted where in-lieu preservation funds are
paid into the trust account and where documented;

\(4\) Allocation of trust funds to be associated with either stream or
wetland preservation mitigation based on the type of permitted impact;

\(5\) Identification of the watershed in which the impact occurred with
trust account funds for preservation mitigation targeted in the same
watershed;

\(6\) Consultation with local partners as to available funds in the
trust account by watershed such that proposals by local partners may be
timely submitted as funds become available;

\(7\) Review of applications by local partners for trust funds for use
in acquisition of preservation properties associated with aquatic
resources;

\(8\) Establishment of a method for review and evaluation of
applications for trust funds to be used with preservation properties;

\(9\) Scheduled site visits to the property with the owner, local
partner and the IRT;

\(10\) Reports to the district commander regarding the property being
proposed as in-lieu fee preservation, including the ratios of wetland
acreage and linear feet of stream of the proposed in-lieu fee
preservation, in comparison with the ratios of impacts permitted by
reference to each permit and discussion of the functions and values of
the in-lieu fee preservation property compared to the impacted property
where information is in the DA records;

\(11\) Recommendations to the district commander for use of trust funds
for the acquisition of in-lieu fee preservation parcels;

\(12\) Preparation of an agreement as to the terms and conditions of the
use of the trust account funds for preservation properties;

\(13\) Submittal of the proposed agreement to the district commander for
approval and execution;

\(14\) Approval from the district commander for the release and transfer
of funds in the in-lieu fee trust account for acquisition and/or
protection of preservation property;

\(15\) Compliance documentation for placement in the record;

\(16\) An annual financial audit of the trust account; and

\(17\) A yearly report to the district commander listing those
properties that have been acquired with in-lieu fee preservation trust
account funds by watersheds and by ratios of impact to preservation
mitigation.

\(e\) **Application.** The in-lieu fee administrator in consultation
with the district commander may develop a process and/or an application
procedure for use with local partners, for application of in-lieu fee
trust account funds in the acquisition, stewardship and long term
management of preservation properties.

\(f\) **Agreement**. Prior to release of funds for acquisition or
preservation of property, an agreement will be signed by the district
commander, the in-lieu fee program administrator and where applicable,
the local partner. The agreement may generally provide the following:

\(1\) The parties;

\(2\) The purpose and authority;

\(3\) The amount of funds to be applied toward acquisition and/or
protection of the property or the environmental resource;

\(4\) Identification of the property to be acquired and/or protected
with the funds by legal description and platted survey;

\(5\) The amount of wetlands, linear feet of stream and buffer on the
property;

\(6\) An exhibit listing the ecological functions and values of the
property, particularly those related to the aquatic resources and the
unique contribution it makes to the watershed;

\(7\) A list of any federal or state endangered species found on the
property;

\(8\) The legal document or statutory authority that will provide
perpetual protection of the property;

\(9\) A management plan;

\(10\) A stewardship plan and identification of funds that will be used
for stewardship of the property;

\(11\) Points of contact, communication goals and cooperation language;

\(12\) Amendments and termination with language addressing how the
property will be conveyed to another qualified local partner should it
be necessary;

\(13\) Where a real property interest is involved, the agreement will be
recorded in the appropriate record land deeds office in which the land
lies at such time as the property is acquired and/or protected by deed,
conservation easement or otherwise.

**Issues in the Administration of Mitigation Banking**

Although the mitigation banking process has been generally successful,
the commercial banking process requires enormous amounts of time and
effort on the part of the DA regulatory staff, the interagency staff and
the banking applicants. DA regulatory districts that promote commercial
mitigation banks may not have employment performance evaluation criteria
crediting the time their staff spends on processing mitigation banks.
One commercial bank proposal generally can take a year or longer to
process. In addition, if DA regulatory districts are not funded in some
part based on the time or number of mitigation banks they process,
authorize, monitor and visit, then there is no incentive to engage in
the commercial mitigation bank process and the DA district regulatory
program will focus instead on permitting and compliance and leave the
applicants to find mitigation on their own.

Rules alone do not make for good mitigation banking programs. The more
rules, the more stringent the rules, the less the flexibility, the less
likely DA staff may want to spend in the process without incentives or
funding. If time frames for the banking process are strictly enforced,
then the district may determine that it cannot meet the requirements due
to staffing, limited funding, more significant priorities such as
litigation or otherwise. If processing commercial mitigation banks is
discretionary and not required, then what incentive is there for a DA
regulatory district program to engage in the banking process at all?
Some DA regulatory districts have understandably determined that it is
not in their best interest to engage in review of mitigation banking
proposals. If processing banks is discretionary, and some districts
elect not to review mitigation banks, then those districts need some
other form of mitigation as an alternative to on-site and off-site
mitigation and the in-lieu fee form of mitigation will play a much
larger role. In a DA regulatory district where there are no banks, the
in-lieu fee program does not *compete* with mitigation banks and does
not need \"fixing.\" It simply needs to be subject to some performance
criteria.

Sincerely,

Rebecca A. Rowden