66914 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices

DEPARTMENT OF DEFENSE

Department of the Army, Corps of

Engineers

ENVIRONMENTAL PROTECTION

AGENCY

DEPARTMENT OF THE INTERIOR

Fish and Wildlife Service

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric

Administration

[FRL–6898–3]

Federal Guidance on the Use of InLieu-Fee Arrangements for

Compensatory Mitigation Under

Section 404 of the Clean Water Act and

Section 10 of the Rivers and Harbors

Act

AGENCIES: Corps of Engineers,

Department of the Army, DOD;

Environmental Protection Agency; Fish

and Wildlife Service, Interior; and

National Marine Fisheries Service,

National Oceanic and Atmospheric

Administration, Commerce.

ACTION: Notice.

SUMMARY: The Army Corps of Engineers

(Corps), Environmental Protection

Agency (EPA), Fish and Wildlife Service

(FWS) and National Marine Fisheries

Service (NMFS) are issuing final policy

guidance regarding the use of in-lieu-fee

arrangements for the purpose of

providing compensation for adverse

impacts to wetlands and other aquatic

resources. Compensatory mitigation

projects are designed to replace aquatic

resource functions and values that are

adversely impacted under the Clean

Water Act Section 404 and Rivers and

Harbors Act Section 10 regulatory

programs. These mitigation objectives

are stated in regulation, the 1990

Memorandum of Agreement on

mitigation between Environmental

Protection Agency (EPA) and the

Department of the Army, the November

28, 1995, Federal Guidance on the

Establishment, Use and Operation of

Mitigation Banks (‘‘Banking Guidance’’),

and other relevant policy. The advent of

in-lieu-fee approaches to mitigation has

highlighted the importance of several

fundamental objectives that the agencies

established for determining what

constitutes appropriate compensatory

mitigation. The purpose of this

memorandum is to clarify the manner in

which in-lieu-fee mitigation may serve

as an effective and useful approach to

satisfy compensatory mitigation

requirements and meet the

Administration’s goal of no overall net

loss of wetlands. This in-lieu-fee

guidance elaborates on the discussion of

in-lieu-fee mitigation arrangements in

the Banking Guidance by outlining the

circumstances where in-lieu-fee

mitigation may be used, consistent with

existing regulations and policy.

EFFECTIVE DATE: The effective date is

October 31, 2000.

FOR FURTHER INFORMATION CONTACT: Mr.

Jack Chowning (Corps) at (202) 761–

4614; Ms. Lisa Morales (EPA) at (202)

260–6013; Mr. Mark Matusiak (FWS) at

(703) 358–2183; Ms. Susan-Marie

Stedman (NMFS) at (301) 713–2325.

SUPPLEMENTARY INFORMATION: This

notice publishes interagency guidance

regarding the use of in-lieu-fee

arrangements for the purpose of

providing compensation for adverse

impacts to wetlands and other aquatic

resources. Any comments or questions

on the document may be directed to the

persons listed above in the section

entitled: FOR FURTHER INFORMATION

CONTACT.

Dated: October 20, 2000.

Michael L. Davis,

Deputy Assistant Secretary (Civil Works),

Department of the Army.

Dated: October 20, 2000.

Robert H. Wayland III,

Director, Office of Wetlands, Oceans, and

Watersheds, Environmental Protection

Agency.

Dated: October 31, 2000.

Jamie Clark,

Director, Fish and Wildlife Service,

Department of the Interior.

Dated: October 25, 2000.

Scott B. Gudes,

Deputy Under Secretary for Oceans and

Atmosphere, National Oceanic and

Atmospheric Administration, Department of

Commerce.

Memorandum to the Field

Subject: 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

I. Purpose

Compensatory mitigation projects are

designed to replace aquatic resource

functions and values that are adversely

impacted under the Clean Water Act

Section 404 and Rivers and Harbors Act

Section 10 regulatory programs. These

mitigation objectives are stated in

regulation, the 1990 Memorandum of

Agreement on mitigation between

Environmental Protection Agency (EPA)

and the Department of the Army, the

November 28, 1995, Federal Guidance

on the Establishment, Use and

Operation of Mitigation Banks

(‘‘Banking Guidance’’), and other

relevant policy. The advent of in-lieufee approaches to mitigation has

highlighted the importance of several

fundamental objectives that the agencies

established for determining what

constitutes appropriate compensatory

mitigation. The purpose of this

memorandum is to clarify the manner in

which in-lieu-fee mitigation may serve

as an effective and useful approach to

satisfy compensatory mitigation

requirements and meet the

Administration’s goal of no overall net

loss of wetlands. This in-lieu-fee

guidance elaborates on the discussion of

in-lieu-fee mitigation arrangements in

the Banking Guidance by outlining the

circumstances where in-lieu-fee

mitigation may be used, consistent with

existing regulations and policy.

II. Background

A. ‘‘In-lieu-fee’’ mitigation occurs in

circumstances where a permittee

provides funds to an in-lieu-fee sponsor

instead of either completing projectspecific mitigation or purchasing credits

from a mitigation bank approved under

the Banking Guidance.

B. A fundamental precept of the

Section 404(b)(1) Guidelines is that no

discharge of dredged or fill material in

waters of the U.S. may be permitted

unless appropriate and practicable steps

have been taken to minimize all adverse

impacts associated with the discharge.

(40 CFR 230.10(d)) Specifically, the

Section 404(b)(1) Guidelines establish a

mitigation sequence, under which

compensatory mitigation is required to

offset wetland losses after all

appropriate and practicable steps have

been taken to first avoid and then

minimize wetland impacts. Compliance

with these mitigation sequencing

requirements is an essential

environmental safeguard to ensure that

CWA objectives for the protection of

wetlands are achieved. The Section 404

permit program relies on the use of

compensatory mitigation to offset

unavoidable wetlands impacts by

replacing lost wetland functions and

values.

C. The agencies further clarified their

mitigation policies in a Memorandum of

Agreement (MOA) between the EPA and

the Department of the Army Concerning

the Determination of Mitigation under

the Clean Water Act Section 404(b)(1)

Guidelines (February 6, 1990). That

document reiterates that ‘‘the Clean

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices 66915

Water Act and the Guidelines set forth

a goal of restoring and maintaining

existing aquatic resources. The Corps

will strive to avoid adverse impacts and

offset unavoidable adverse impacts to

existing aquatic resources, and for

wetlands, will strive to achieve a goal of

no overall net loss of values and

functions.’’ Moreover, the MOA clarifies

that mitigation ‘‘should be undertaken,

when practicable, in areas adjacent or

contiguous to the discharge site,’’ and

that ‘‘if on-site compensatory mitigation

is not practicable, off-site compensatory

mitigation should be undertaken in the

same geographic area if practicable (i.e.,

in close proximity and, to the extent

possible, the same watershed).’’ As

outlined in the MOA, the agencies have

also agreed that ‘‘generally, in-kind

compensatory mitigation is preferable to

out-of-kind.’’ The MOA further states

that mitigation banking may be an

acceptable form of compensatory

mitigation. The agencies recognize the

general preference for restoration over

other forms of mitigation, given the

increased chance for ecological success.

D. Pursuant to these standards,

project-specific mitigation for

authorized impacts has been used by

permittees to offset unavoidable

impacts. Project-specific mitigation

generally consists of restoration,

creation, or enhancement of aquatic

resources that are similar to the aquatic

resources of the impacted area, and is

often located on the project site or

adjacent to the impact area. Permittees

providing project specific mitigation

have a U.S. Army Corps of Engineers

(Corps) approved mitigation plan

detailing the site, source of hydrology,

types of aquatic resource to be restored,

success criteria, contingency measures,

and an annual reporting requirement.

The mitigation and monitoring plan

becomes part of the Section 404

authorization in the form of a special

condition. The permittee is responsible

for complying with all terms and

conditions of the authorization and

would be in violation of their

authorization if the mitigation did not

comply with the approved plan.

E. In 1995, the agencies issued the

Banking Guidance. Consistent with that

guidance, permittees may purchase

mitigation credits from an approved

bank. Mitigation banks will generally be

functioning in advance of project

impacts and thereby reduce the

temporal losses of aquatic functions and

values and reduce uncertainty over the

ecological success of the mitigation.

Mitigation banking instruments are

reviewed and approved by an

interagency Mitigation Banking Review

Team (MBRT). The MBRT ensures that

the banking instrument appropriately

addresses the physical and legal

characteristics of the bank and how the

bank will be established and operated (e.g.,

classes of wetlands and/or other aquatic

resources proposed for inclusion in the

bank, geographic service area where

credits may be sold, wetland classes or

other aquatic resource impacts suitable

for compensation, methods for

determining credits and debits). The

bank sponsor is responsible for the

operation and maintenance of the bank

during its operational life, as well as the

long-term management and ecological

success of the wetlands and/or other

aquatic resources, and must provide

financial assurances.

F. The Banking Guidance describes

in-lieu-fee mitigation as follows: ‘‘. . .

in-lieu-fee, fee mitigation, or other

similar arrangements, wherein funds are

paid to a natural resource management

entity for implementation of either

specific or general wetland or other

aquatic resource development project,

are not considered to meet the

definition of mitigation banking because

they do not typically provide

compensatory mitigation in advance of

project impacts. Moreover, such

arrangements do not typically provide a

clear timetable for the initiation of

mitigation efforts. The Corps, in

consultation with the other agencies,

may find circumstances where such

arrangements are appropriate so long as

they meet the requirements that would

otherwise apply to an offsite,

prospective mitigation effort and

provides adequate assurances of success

and timely implementation. In such

cases, a formal agreement between the

sponsor and the agencies, similar to a

banking instrument, is necessary to

define the conditions under which its

use is considered appropriate.’’

III. Use of In-Lieu-Fee Mitigation in the

Regulatory Program

In light of the above considerations

and in order to ensure that decisions

regarding the use of in-lieu-fee

mitigation are made more consistently

with existing provisions of agency

regulations and permit policies, the

following clarification is provided. It is

organized in a tiered manner to reflect

and incorporate the agencies’ broader

mitigation policies, and is based on

relative assurances of ecological

success.

A. Impacts Authorized Under

Individual Permit: In-lieu-fee

agreements may be used to compensate

for impacts authorized by individual

permit if the in-lieu-fee arrangement is

developed (or revised, if an existing

agreement), reviewed, and approved

using the process established for

mitigation banks in the Banking

Guidance. MBRTs should review

applications from such in-lieu-fee

sponsors to ensure that such agreements

are consistent with the Banking

Guidance.

B. Impacts Authorized Under General

Permit: As a general matter, in-lieu-fee

mitigation should only be used to

compensate for impacts to waters of the

U.S. authorized by a Section 404 general

permit, as described below:

1. Where ‘‘On-site’’ Mitigation Is Available

and Practicable: As a general matter,

compensatory mitigation that is completed

on or adjacent to the site of the impacts it is

designed to offset (i.e., project-specific

mitigation done by permittees consistent

with Corps approved mitigation plans) is

preferable to mitigation conducted off-site (i.e.,

mitigation bank or in-lieu-fee mitigation).

The agencies’ preference for on-site

mitigation, indicated in the 1990

Memorandum of Agreement on mitigation

between the EPA and the Department of the

Army, should not preclude the use of a

mitigation bank or in-lieu-fee mitigation

when there is no practicable opportunity for

on-site compensation, or when use of a bank

or in-lieu-fee mitigation is environmentally

preferable to on-site compensation,

consistent with the provisions in paragraph

2 below.

2. Where ‘‘On-site’’ Mitigation Is Not

Available or Practicable: Except as noted

below in a. or b., where on-site mitigation is

not available, practicable, or determined to

be less environmentally desirable, use of a

mitigation bank is preferable to in-lieu-fee

mitigation where permitted impacts are

within the service area of a mitigation bank

approved to sell mitigation credits, and those

credits are available. Use of a mitigation bank

is also preferable over in-lieu-fee mitigation

where both the available in-lieu-fee

arrangement and the service area of an

approved mitigation bank are outside of the

watershed of the permitted project impacts,

unless the mitigation bank is determined on

a case by case basis to not be practicable and

environmentally desirable.

a. Where Mitigation Bank Does Not Provide

‘‘In-kind’’ Mitigation: In those circumstances

where wetlands impacts proposed for general

permit authorization are within the service

area of an approved mitigation bank with

available credits, but the impacted wetland

type is not identified by the Mitigation

Banking Instrument for compensation within

such bank, then the authorized impact may

be compensated through an in-lieu-fee

arrangement, subject to the considerations

described in Section IV below, if the in-lieufee arrangement would provide in-kind

restoration as mitigation.

b. Where Mitigation Bank Does Not Provide

Restoration, Creation, or Enhancement

Mitigation: In those circumstances where

wetlands impacts proposed for general

permit authorization are within the service

area of an approved mitigation bank, but the

only available credits are through

preservation, then the authorized impact may

66916 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices

be compensated through an in-lieu-fee

arrangement subject to the considerations

described in Section IV below, if the in-lieufee arrangement would provide in kind

restoration as mitigation.

IV. Planning, Establishment, and Use of

In-lieu-fee Mitigation Arrangements

This section describes the basic

considerations that should be addressed

for any proposed use of in-lieu-fee

mitigation to offset unavoidable impacts

associated with a discharge authorized

under a general permit described in

Section III above.

A. Planning Considerations

1. Qualified Organizations: Given the

goal to ensure long-term mitigation

success, the Corps, in consultation with

the other Federal agencies, should

carefully evaluate the demonstrated

performance of natural resource

management organizations (e.g.,

governmental organizations, land trusts)

prior to approving them to manage inlieu-fee arrangements. In fact, given the

unique strengths and specialties of such

organizations, it may be useful for the

Corps, in consultation with other

Federal resource agencies, to establish

formal arrangements with several

natural resource management

organizations to ensure there are

sufficient options to effectively replace

lost functions and values. In any event,

in-lieu-fee arrangements and subsequent

modifications should be made in

consultation with the other Federal

agencies and only after an opportunity

for public notice and comment has been

afforded.

2. Operational Information: Those

organizations considered qualified to

implement formal in-lieu-fee

arrangements should work in advance

with the Corps to ensure that authorized

impacts will be offset fully on a projectby-project basis consistent with Section

10/404 permit requirements. As detailed

in the paragraphs that follow,

organizations should supply the Corps

with information in advance on (1)

potential sites where specific restoration

projects or types of restoration projects

are planned, (2) the schedule for

implementation, (3) the type of

mitigation that is most ecologically

appropriate on a particular parcel, and

(4) the financial, technical, and legal

mechanisms to ensure long-term

mitigation success. The Corps should

ensure that the formal in-lieu-fee

arrangements and project authorizations

contain distinct provisions that clearly

state that the legal responsibility for

ensuring mitigation terms are satisfied

fully rests with the organization

accepting the in-lieu-fee. In-lieu-fee

sponsors should be able to demonstrate

approval of all necessary State and local

permits and authorizations. In-lieu-fee

sponsors (e.g., State) should notify the

Corps and MBRT if the service area of

any mitigation bank overlaps the

jurisdiction in which their in-lieu-fees

may be spent.

3. Watershed Planning: Local

watershed planning efforts, as a general

matter, identify wetlands and other

aquatic resources that have been

degraded and usually have established a

prioritization list of restoration needs.

In-lieu-fee mitigation projects should be

planned and developed to address the

specific resource needs of a particular

watershed.

4. Site Selection: The Federal agencies

and in-lieu-fee sponsor should give

careful consideration to the ecological

suitability of a site for achieving the goal

and objectives of compensatory

mitigation (e.g., posses the physical,

chemical and biological characteristics

to support the desired aquatic resources

and functions, preferably in-kind

restoration or creation of impacted

aquatic resources). The location of the

site relative to other ecological features,

hydrologic sources, and compatibility

with adjacent land uses and watershed

management plans shall be considered

by the Federal agencies during the

evaluation process.

5. Technical Feasibility: In-lieu-fee

mitigation should be planned and

designed to be self-sustaining over time

to the extent possible. The techniques

for establishing aquatic resources must

be carefully selected. The restoration of

historic or substantially degraded

aquatic resources (e.g., prior-converted

cropland, farmed wetlands) utilizing

proven techniques increases the

likelihood of success and typically does

not result in the loss of other valuable

resources. Thus, restoration should be

the first option considered for siting inlieu-fee mitigation. This guidance

recognizes that in some circumstances

aquatic resources must be actively

managed to ensure their sustainability.

Furthermore, long-term maintenance

requirements may be necessary and

appropriate in some cases (e.g., to

maintain fire dependent habitat

communities in the absence of natural

fire, to control invasive exotic plant

species). Proposed mitigation

techniques should be well-understood

and reliable. When uncertainties

surrounding the technical feasibility of

a proposed mitigation technique exist,

appropriate arrangements may be

phased-out or reduced once the

attainment of prescribed performance

standards is demonstrated. In any event,

a plan detailing specific performance

standards should be submitted to ensure

the technical success of the project can

be evaluated.

6. Role of Preservation: As described

in the Banking Guidance, simple

purchase or ‘‘preservation’’ of existing

wetlands may be accepted as

compensatory mitigation only in

exceptional circumstances. Mitigation

credit may be given when existing

wetlands and/or other aquatic resources

are preserved in conjunction with

restoration, creation or enhancement

activities, and when it is demonstrated

that the preservation will augment the

functions of the restored, created or

enhanced aquatic resource.

7. Collection of Funds: Funds

collected under any in-lieu-fee

arrangement should be used for

replacing wetlands functions and values

and not to finance non-mitigation

programs and priorities (e.g., education

projects, research). Funds collected

should be based upon a reasonable cost

estimate of all funds needed to

compensate for the impacts to wetlands

or other waters that each permit is

authorized to offset. Funds collected

should ensure a minimum of one-forone acreage replacement, consistent

with existing regulation and permit

conditions. Land acquisition and initial

physical and biological improvements

should be completed by the first full

growing season following collection of

the initial funds. However, because site

improvements associated with in-lieufee mitigation may take longer to

initiate, initial physical and biological

improvements may be completed no

later than the second full growing

season where (1) initiation by the first

full growing season is not practicable,

(2) mitigation ratios are raised to

account for increased temporal losses of

aquatic resource functions and values,

and (3) the delay is approved in advance

by the Corps.

8. Monitoring and Management: The

in-lieu-fee sponsor is responsible for

securing adequate funds for the

operation and maintenance of the

mitigation sites. The wetlands and/or

other aquatic resources in the mitigation

site should be protected in perpetuity

with appropriate real estate

arrangements (e.g., conservation

easements, transfer of title to Federal or

State resource agency or non-profit

conservation agency). Such

arrangements should effectively restrict

harmful activities (e.g., incompatible

uses) that might otherwise jeopardize

the purpose of the compensatory

mitigation. In addition, there should be

appropriate schedules for regular (e.g.,

annual) monitoring reports to document

funds received, impacts permitted, how

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices 66917

funds were disbursed, types of projects

funded, and the success of projects

conducted under the in-lieu-fee

arrangement. The Corps, in conjunction

with other Federal and State agencies,

should evaluate the reports and conduct

regular reviews to ensure that the

arrangement is operating effectively and

consistent with agency policy and the

specific agreement. The Corps will track

all uses of in-lieu-fee arrangements and

report those figures by public notice on

an annual basis.

B. Establishment of In-Lieu-Fee

Agreements

A formal in-lieu-fee agreement,

consistent with the planning provisions

above, should be established by the

sponsor with the Corps, in consultation

with the other agencies. It may be

appropriate to establish an ‘‘umbrella’’

arrangement for the establishment and

operation of multiple sites. In such

circumstances, the need for

supplemental information (e.g., site

specific plans) should be addressed in

specific in-lieu-fee agreements. The inlieu-fee agreement should contain:

1. a description of the sponsor’s

experience and qualifications with

respect to providing compensatory

mitigation;

2. potential site locations, baseline

conditions at the sites, and general

plans that indicate what kind of wetland

compensation can be provided (e.g.,

wetland type, restoration or other

activity, proposed time line, etc.);

3. geographic service area;

4. accounting procedures;

5. methods for determining fees and

credits;

6. a schedule for conducting the

activities that will provide

compensatory mitigation or a

requirement that projects will be started

within a specified time after impacts

occur;

7. performance standards for

determining ecological success of

mitigation sites;

8. reporting protocols and monitoring

plans;

9. financial, technical and legal

provisions for remedial actions and

responsibilities (e.g., contingency fund);

10. financial, technical and legal

provisions for long-term management

and maintenance (e.g., trust); and

11. provision that clearly states that

the legal responsibility for ensuring

mitigation terms are fully satisfied rests

with the organization accepting the fee.

In cases where initial establishment of

in-lieu-fee compensatory mitigation

involves a discharge into waters of the

United States requiring Section 10/404

authorization, submittal of a Section 10/

404 application should be accompanied

by the in-lieu-fee agreement.

V. General

A. Effect of Guidance. This guidance

does not change the substantive

requirements of the Section 10/404

regulatory program. Rather, it interprets

and provides guidance and procedures

for the use of in-lieu fee mitigation

consistent with existing regulations. The

policies set out in this document are not

final agency action, but are intended

solely as guidance. The guidance is not

intended, nor can it be relied upon, to

create any rights enforceable by any

party in litigation with the United

States. This guidance does not establish

or affect legal rights or obligations,

establish a binding norm on any party

and it is not finally determinative of the

issues addressed. Any regulatory

decisions made by the agencies in any

particular matter addressed by this

guidance will be made by applying the

governing law and regulations to the

relevant facts.

B. Definitions. Unless otherwise

noted, the terms used in this guidance

have the same definitions as those terms

in the Banking Guidance. Note that as

part of the Administration’s Clean Water

Action Plan, the Federal agencies have

proposed a tracking system to more

accurately account for wetland losses

and gains that includes definitions of

terms such as restoration used in

wetland programs. Future notice will be

given when these definitions will be

applied to Section 10/404 regulatory

program.

C. Effective Date. This guidance is

effective immediately on the date of the

last signature below. Therefore, existing

in-lieu-fee arrangements or agreements

should be reviewed and modified as

necessary in light of the above.

D. Conversion to Banks: If requested

by the in-lieu-fee sponsor, the Corps, in

conjunction with the other Federal

agencies, will provide assistance and

recommendations on the steps

necessary to convert individual in-lieufee arrangements to mitigation banks,

consistent with the Banking Guidance.

E. Future Revisions. The agencies are

supporting a comprehensive,

independent evaluation of the

effectiveness of compensatory

mitigation by the National Academy of

Sciences. The technical results of this

evaluation are expected to be used by

the public to improve the quality of

wetlands and aquatic resource

restoration, creation, and enhancement.

The agencies will take note of the

results of this evaluation and other

relevant information to make any

necessary revisions to guidance on

compensatory mitigation, to ensure the

greatest opportunity for ecological

success of restored, created, and

enhanced wetlands and other aquatic

resources. At a minimum, a review of

the use of this guidance will be initiated

no later than 12 months after the

effective date.

Michael L. Davis,

Deputy Assistant Secretary (Civil Works),

Department of the Army.

Robert H. Wayland III,

Director, Office of Wetlands, Oceans, and

Watersheds Environmental Protection

Agency.

Jamie Clark,

Director, Fish and Wildlife Service,

Department of the Interior.

Scott B. Gudes,

Deputy Under Secretary for Oceans and

Atmosphere, National Oceanic and

Atmospheric Administration, Department

of Commerce.

[FR Doc. 00–28516 Filed 11–6–00; 8:45 am]

BILLING CODE 6560–50–P