Reauthorization of the Endangered Species Act (ESA): A Comparison of Pending Bills and a Proposed Amendment with Current Law
Released: 2006-03-13T00:00:00

Side-by-Side Comparison of the Endangered Species Act (H.R. 3824), Miller/Boehlert Amendment to H.R. 3824, and S. 2110

a. The latest report was available Feb. 9, 2006, at http://www.fws.gov/endangered/expenditures/reports/FWS%20Endangered%20Species%202004%20Expenditures%20Report.pdf .

b. See also Congressional Budget Office, Cost Estimate for H.R. 3824 , available at http://www.cbo.gov/showdoc.cfm?index=6663&sequence=0 , Feb. 9, 2006.

Appendix

Since conservation banks and tax incentives are addressed only in S. 2110 , they will be discussed outside the table to conserve space. Provisions related to conservation banks will be paraphrased and CRS comments arein italics. Page numbers refer to the PDF version of S. 2110 as introduced.

Conservation Banks Under S. 2110

Under S. 2110 , a conservation bank is defined as an area of land,water, or other habitat (not necessarily contiguous) that is managed in perpetuity orfor an "appropriate period" under an enforceable legal instrument and for the purposeof conserving and recovering habitat, or an endangered, threatened, or candidatespecies, or a species of special concern (p. 31).

The conservation bank definition includes habitat "not necessarilycontiguous," which suggests that a bank could consist of segments of habitat ratherthan a block. Given the importance and benefits of habitat continuity for speciessurvival, some might argue that banks consisting of fragmented portions would haveless value than banks with contiguous habitats. This definition also mentions an"appropriate period" as an alternative to in perpetuity when referring to the lifetimeof the bank. The bill does not identify who will make the determination of anappropriate period or what criteria will be used.

Credit is defined as the "unit of currency" of a conservation bank generatedby preserving or restoring habitat in an agreement, and quantified through theconservation values of a species or habitat. Conservation values are to be determinedby the Secretary for each bank and converted into a fixed number of credits (pp.31-32).

The definition of credit is written in a way that appears to allow alternativesto money that could be exchanged to pay for the values being purchased out of thebank. There is no indication what those alternatives might be. There is littleguidance on how the Secretary will determine or measure conservation value, andhow much "value" will equal a credit. Due to the changing nature of habitat and thepotential for habitat improvement or degradation, conservation values may changewithin banks. There do not appear to be any provisions that allow the Secretary toreassign values to conservation banks. On the other hand, allowing the Secretaryto determine the value and credits for each bank, has the potential to insure thatthere will be consistency among banks. This may be helpful, since a credit programfor species could involve a wide range of habitat values.

A service area is an area identified in a conservation bank agreement. Itincludes a soil type, watershed, habitat type, political boundary, or an area in afederally recognized conservation plan, among others, in which a credit may be usedto offset the effects of a project (p. 32).

The scope of a service area may vary broadly under this definition, whichcould allow the Secretary to create areas that fit desired biological criteria. Because person under the ESA includes federal agencies, and page 32 includes a referenceto federally recognized conservation plans, the provisions on conservation bankingmay apply to federal agencies; it is unclear if this was intended.

Conservation banks may be established by any private landowner who appliesand demonstrates that the affected area is managed under an enforceable legalinstrument and contributes to the conservation of a listed species, a candidate species,or a species of special concern (pp. 32-33). Secretary shall approve or disapprove abank within 180 days after the application is submitted (p. 33). A bank can bemanaged by a state, a holder of the bank, another party specified in the agreement,or a party that acquires property rights related to the conservation bank (p. 34).

While conservation banks would require an enforceable legal instrument, thebill does not specify any contents for that instrument. There may be certain minimalcontents that all such instruments or banking agreements should contain to ensurethat protection of species and habitat will be effective and consistent from site to site. The time limit for a decision will allow approved banks to enter into the program andgain credits within six months, which some feel would encourage participation, butit is unclear whether this period will be sufficient for the Secretary to render adecision with adequate justification. Management of the bank is not restricted,which may relieve the burden of management from the landowner and allow otherentities (e.g., state agencies or non-governmental organizations) to manage the bank. However, no criteria for holders are stated.

The holder of a conservation bank is required to establish an agreement thatdescribes the proposed management of the bank (p. 34). The agreement is submittedto the Secretary, who shall approve or disapprove it "as soon as practicable" (p. 35). Conditions for amending and nullifying the agreement are given (pp. 35-36). TheSecretary shall consider the use of banks for implementing recovery plans and mustadopt regulations on managing banks that balance the biological conditions of thetarget species and habitat with "economic free market principles" to ensure value tolandowners through a tradeable credit program (p. 36).

A bank management agreement undergoes a separate approval process fromestablishing a conservation bank, and the deadline for approving or disapprovingbank management agreements is uncertain. No standards for acceptable agreementsare provided. An approved agreement does not seem to be required to transfercredits or to maintain a conservation bank. The bill does specify that the bank mustcontribute to the conservation of qualified species, but there is no requirement thatbanks be consistent with approved recovery plans, and it is not clear that bankmanagers must comply with the relevant agreement.

The Secretary is to promulgate regulations on managing conservation banks(p. 37). The regulations are to relate to 11 subjects, including conservation andrecovery goals, activities that may be carried out in any conservation bank, measuresthat ensure the viability of conservation banks, "the demonstration of an adequatelegal control of property proposed to be included in the conservation bank" (p. 37),criteria for determining credits and an accounting system for them, and theapplicability of and compliance with Â§7 and Â§10 of ESA. Monitoring and reportingrequirements are also to be addressed in the regulations (pp. 37-38).

The regulations are to include provisions "relating to" how the consultationrequirements of Â§7 of the ESA and the incidental take provisions apply in the contextof conservation banks. It is not clear whether the authority given the Secretary todevelop these regulations could be broad enough to eliminate consultation, or toauthorize the issuance of general incidental take permits for activities inconservation bank areas. The requirement that banks be financially viable (pp.37-38) appears to refer to both biological and financial viability. As to the latter,some contend that financial viability should be determined by market forces ratherthan the federal government, which should ensure the biological viability of thespecies or habitat should a bank fail.

Biological data would determine how many credits a bank can sell (p. 38),and the Secretary is to establish a standard process by which credits could betransferred. Credit transfers can be used to comply with court injunctions, to meetrequirements of Â§Â§7(a), 7(b) or 10(a)(1) of the ESA, and to provide out-of-kindmitigation (p. 39). "Out-of-kind mitigation" is defined as mitigation involving thesame species or habitat, but in a different service area. Additional requirements mustbe met for approval of out-of-kind mitigation, and the Secretary is to give preferenceto in-kind mitigation to the maximum extent practicable (pp. 39-40). The Secretaryis not to regulate the price of credit transfers or to limit participation by any party inthe credit transfer process (p. 40). In some circumstances, credits may be transferredbefore the Secretary approves a bank (p. 41).

The criteria for transferring credits do not include habitat or speciesrequirements for the area being mitigated by the purchase of credits. Habitat fordifferent species may not be interchangeable; therefore, if the area being mitigatedcontained habitat for an endangered species of salamander, there are norequirements that credits purchased will be from a conservation bank with similarhabitat.

Out-of-kind mitigation is allowed when both ecological desirability andeconomic practicability can be met. The bill allows transfer of credits before thebank is approved if specified conditions can be met, which would seem to be a riskto the federal interest in species protection should the Secretary ultimately reject theapplication for establishing the bank. If the Secretary rejects a bank proposal, howwould that rejection affect any prior purchase of credits?

Creation of conservation banks can be integrated with conservation plansdeveloped under Â§10 of the ESA if certain criteria are met (pp. 41-42). Any party toan agreement, including the United States, may sue for breach of the agreement, andsovereign immunity is waived for participating federal, state, tribal, and localgovernments (pp. 42-43).

Subsection (g) (pp. 41-42) requires, to the maximum extent practicable , thata bank be integrated with habitat conservation plans developed under Â§10 of the ESAif the bank meets the ecological criteria of the habitat conservation plan andprovides greater economic benefits compared with other forms of mitigation ofhabitat destruction. Only a party to the agreement (not interested outsiders withstanding) may sue for breach of the agreement. How this restriction could affectenforcement actions under Â§10 is not clear. Since a party violating an agreement isnot likely to sue to enforce the agreement, this really means that only the Secretarycan enforce the agreement. "Equitable relief" is specifically allowed, despite thewording that judicial review is allowed for a breach of an agreement -- whichusually connotes a suit for damages. It is not clear in what circumstances states,local governments, or tribes would be defendants.

Tax Incentives Under S. 2110

Taxpayers may claim a tax credit based on the taxpayer's qualifiedconservation and recovery costs for the taxable year (pp. 56-62). Qualified costs arethose paid or incurred by the taxpayer in carrying out approved site-specific recoveryactions under Â§4(f) of ESA or other federal- or state-approved conservation andrecovery agreements that involve an endangered, threatened, or candidate species (p.57). The project must be undertaken according to a binding agreement, and the creditis subject to recapture if the agreement is breached or terminated (pp. 57-58 and 61). The amount of tax credit gained depends on the length of the agreement: 1) if it is forat least 99 years, the credit equals the reduction in the land's fair market value due tothe recovery action or agreement plus the property owner's actual costs; 2) if it is forat least 30 years but less than 99 years, the credit equals 75% of the above amounts;3) if it is for at least 10 years but less than 30 years, the credit equals 75% of theactual costs (pp. 57-58).

The qualifications or standards for the binding agreement are unclear. Depending on the specifics of the agreement, the requirements for claiming the taxcredit may be more or less stringent than those for tax incentives that currently existfor similar conservation activities (e.g., the charitable deduction for conservationeasements under IRC Â§170).

The taxpayer must submit to the IRS evidence of the binding agreement anda written verification from a biologist that the conservation and recovery practice isdescribed in the agreement and implemented during the taxable year in accordancewith the agreement's schedule (pp. 58-59). The credit may not be claimed if thetaxpayer received cost-share assistance from the federal or state government underany credit-eligible recovery action or agreement for that year (p. 59). There is anexception for individuals whose adjusted gross income is less than the limitations inIRC Â§32, the earned income tax credit (p. 59). Also, the taxpayer's qualified costs arereduced by any non-taxable governmental assistance for qualified conservation andrecovery costs received in the year the credit was claimed or in any prior year (p. 61).

With respect to the second limitation regarding cost-share assistance, it isunclear as to whether the assistance must have been received for the specific projectfor which the credit is claimed. There are no requirements regarding thequalifications of the biologist who can verify the agreement.

The basis of the property for which any credit is allowable must be reducedby the amount of the taxpayer's qualified costs, regardless of whether those costswere greater than the amount that the taxpayer's tax liability exceeded the sum of thespecified credits (p. 60).

This could be interpreted to require that the taxpayer reduce the basis by thetotal qualified costs in the first taxable year even if the taxpayer did not claim the fullcredit in that year. Thus, the taxpayer would experience the negative consequencesfrom reducing the basis to account for the total costs without necessarily receivingthe positive benefits from claiming the full credit.

The amount of any deduction or other tax credit must be reduced by thetaxpayer's qualified costs, limited to the taxpayer's tax liability (pp. 60-61).

This appears to require that the taxpayer reduce all deductions and othercredits by the amount of the credit allowed, regardless of whether they are based onthe same expenses used for this credit.

The credit is limited to the taxpayer's tax liability (including alternativeminimum tax liability) after applying certain credits (p. 57). Any portion of the creditthat cannot be claimed because of this limitation may be carried back for one yearand carried forward for 20 years (pp. 59-60). The new credit may be transferredthrough sale and repurchase agreements (p. 60).

The tax consequences of such sale are unclear. This provision is unusual asno other tax credit is allowed to be sold.