Wetland Mitigation Banking:
Status and Prospects III

97-849 ENR

CONTENTS FOR THIS SECTION

Support for Mitigation Banking

Consolidation of Small Wetland Losses
Planning and Implementation
Monitoring and Evaluation
Improved Regulatory Climate

Criticisms of Mitigation Banking

Encourages Wetland Destruction
Uncertainty of Replacing Natural Ecosystems
Dissimilar Replacement of Wetland Habitat
Nature of Crediting and Debiting Techniques
Bank Operations

Congressional Considerations
Bibliography

Support for Mitigation Banking

Many advocates of banking view it as a promising alternative to current mitigation programs, which some characterize as ineffective. They argue that banking can make important contributions to achieving the overall national policy goal of "no net loss." The benefits ascribed to banking below are generally supported by the experiences recounted at congressional hearings.

Consolidation of Small Wetland Losses

Mitigation banks encourage the restoration and creation of larger wetland areas than on-site mitigation. Banks generally have higher success rates and lower cost ratio per mitigated acre. 18 Wetlands within banks may also be more enduring because the sponsor has the opportunity and a strong commitment to implementing a long-term program for preservation and maintenance of wetland values. Additionally, combining many wetland acres in a single site may allow the mitigation effort to focus on a habitat with especially desirable characteristics.

By contrast, individual on-site mitigation projects are typically smaller and fragmented. Often such sites are less hospitable to the creation or restoration of wetlands, and may have a lower probability for establishing a sustainable habitat. Numerous scattered sites have proven inefficient and difficult for public agencies (with limited staff) to monitor, and for applicants (who have little commitment to protecting long-term wetland values beyond what is required by regulatory agencies) to maintain. 19 In addition, a large majority of permit applicants do not have professional staff knowledgeable about wetlands ecology and are often interested in minimizing the financial and other resources that must be devoted to their mitigation effort.

Proponents contend that having the banker select a site for mitigation banks is an additional advantage. A banker has a strong incentive to choose a location at which a project could flourish. Often, conventional mitigation ends up being placed on lands which the applicant owns or can easily purchase at the time that the permit process is being completed. These sites may be far less than ideal for establishing and maintaining wetland functions and values. The process of locating and establishing a bank helps insure that it will be located at a hydrologically and ecologically favorable place.

Planning and Implementation

Mitigation banks may have a better design for long-term maintenance and operation than on-site mitigation projects. Bank sponsors make a substantial financial commitment to the success of each project, and are much more likely to retain experts, including biologists, engineers, and ecologists, to design and monitor the site.20 Scattered mitigation projects are more likely to fail, especially if applicants have little wetland experience, because they seek to minimize additional costs. Supporters of mitigation banking claim that the extra scientific and technical effort that goes into establishing a bank will continue with a stronger commitment to successful implementation, including proper siting, design and construction, and long-term maintenance of the site.

The timing with which credits are made available has been subject to some debate. Entrepreneurial bankers want the flexibility to sell at least some credits as they develop the site to raise implementation funds. Skeptics of mitigation banking want some credits to be withheld from the market until the performance of the wetland can be certified. Also, if credits are sold only after the bank is operating and the wetland functions are in place, then the purchase of credits will bypass temporary losses associated with on-site mitigation. These temporary losses can be significant if they occur during the breeding or nesting season, or if a flood occurs, for example.

The federal guidance supports sale of some credits before the bank is fully functional at sites where it can determine that there is a high likelihood of success. Some sites, such as a bank in Eugene Oregon, sold "uncertified" credits at a lower prices. In this case, they sold them only during the first 6 years of the project and the quantity that could be sold was limited.21 For commercial banks, the longer the time before credit sales are allowed, the greater the economic exposure for the bank sponsor.

Monitoring and Evaluation

Monitoring wetland values at mitigation sites is more practically accomplished at a larger mitigation bank. The process is more efficient because a single entity would operate a bank. For a federally-approved bank, the banking agreement defines responsibilities for maintaining wetland values. Follow-up evaluation activities by mitigation banking review team members would identify adjustments that are necessary to protect the site values that are identified in a bank management plan. If a sponsor fails to comply with its banking instrument, it could be held accountable for its violations, up to a rescission of its approval to operate the bank. Numerous recent reviews have shown that most agencies do not have adequate staff to monitor the many small mitigation projects or to initiate actions against violators.

Improved Regulatory Climate

The availability of mitigation banks may allow for faster permit processing and more streamlined decision-making by federal agencies. Bank credits can serve as a bond or collateral to enforce compliance with the required mitigation measures. The mitigation bank can recover the cost of establishing the credit units through a credit purchases. This system can be much more efficient then a series of on-site mitigation projects.

Criticisms of Mitigation Banking

Mitigation presents the difficult challenge of creating, restoring, or enhancing complex wetland ecosystems. Many wetlands have evolved over thousands of years, with animal and plant communities that reflect precise relationships between wet and dry conditions. Opponents of mitigation and mitigation banking are concerned that it is difficult to determine how fully these complex ecosystems can be reestablished or replicated in a short time. Opposition comes from the members of the environmental and scientific communities, but it is also important to note that within both these communities, views range from support to strong opposition. One likely source of skepticism from environmentalists and scientists is that they may measure success by different, typically higher, standards than regulators. Another source is that the poor results from on-site mitigation have heightened skepticism about banking, and many critics have similar criticisms of both.

As mitigation banking is relatively recent and untried for many types of wetland ecosystems, bank sponsors may not recognize current or potential problems. If a banking site fails to maintain the promised value of the credits, then a double loss results; at the bank and at the purchaser's project site.

Encourages Wetland Destruction

Critics are concerned that the expanded use of mitigation banking will allow greater destruction of wetlands. Banking provides a more efficient system for completing mitigation requirements to applicants by simply allowing them to purchase credits. Opponents worry that this relatively simple process will lead to a decline in the quality of regulatory decision-making since a credit purchase may become an increasingly accessible alternative when on-site mitigation is not feasible.Opponents also hypothesize that if mitigation banking flourishes, pressure will grow to use it before avoidance or minimization measures are fully considered, resulting in even more wetland destruction. Mitigation banking could be exploited by applicants who might try to promote inappropriate projects or avoid more complex and costly, but environmentally superior, mitigation activities.

Uncertainty of Replacing Natural Ecosystems

Opponents claim that limits to the techniques of preservation, enhancement, and creation of wetlands must be recognized. Preservation of existing wetlands could result in a net loss if they were merely maintained to compensate for destroyed wetlands. Enhancement may not completely off-set impacts to wetlands either, and artificial enhancement could accelerate the loss process if it allowed for the introduction of different habitats and species that did not replicate the wetland it was intended to replace.

A portion of all banks have involved creation. However, creating wetlands remains generally regarded as an experimental technique among knowledgeable scientists. Critics contend that created wetlands may not be as successful as natural wetlands. To date, created wetland areas have not replaced the equivalent attributes of natural wetlands. Wetland protection advocates caution that a created wetland must be evaluated over a long time period before a conclusion can be drawn on whether equivalent functions and values have been replaced and the site is self-sufficient. Credit purchases should be authorized only after this objective is achieved, and contingency plans, including some form of a performance bond in case the bank fails, should be included.

Dissimilar Replacement of Wetland Habitat

Opponents claim that replacement of similar functions and values of altered wetlands will be difficult to accomplish through a bank. Ideally, mitigation should occur in the same watershed as the affected site, and should have similar ecological characteristics, sometimes referred to as in-kind mitigation. Since mitigation banks are not at the same site as the project, they may not fully replicate the mix of functions and values that the affected wetlands provided. That mix may be impossible to recreate due to ecological differences, the location of the bank in the watershed, or surrounding land uses. For example, it may be impossible to recreate significant flood storage at a wetland with the same value at a bank site, even in the same watershed. Differences are often more subtle than this example, yet have a substantial effect on the value of the resource. Critics contend that differences should be accounted for in the credit system, and any uncertainty about how to value the credits and debits should err in favor of protecting wetland resources.

Opponents also believe that the diversity of species supported by the wetland to be altered should be fully replaced. They argue that even when replacement is attempted, identical habitat may not be readily established at another site, resulting in declines or the potential loss of some species, and in less diversity in the ecosystem.

The availability of banks could promote more purchases of mitigation credits at sites with different replacement values. In terms of vegetation, for example, shrub, marsh, or tidal wetlands have been the most common replacement projects. These wetlands require less planning, management, and expense than other types of wetlands, such as bottomland hardwood forests, and generally are more likely to be successful. Some types, such as those with peat soils or ones that rely on ground water or rainfall, are more difficult to create or restore. As a result, banks with "easier sites could be established more widely and quickly. While applicants and bank sponsors would seek to use these easier sites whenever possible, they might provide inadequate or inappropriate credit for degraded wetlands from a different biological community. Expanding mitigation banking opportunities could stimulate this kind of inappropriate mitigation, and lead to a debate over whether the bank is a success with either less than anticipated benefits or a different mix of benefits.

While the federal guidance addresses this issue by stating that in-kind compensation of wetland impacts should generally be required and the requests for out-of-kind mitigation will be handled on a case-by-case basis, critics wonder whether federal agencies can be counted on to vigorously monitor these requirements. Requests for out-of-kind mitigation are supposed to be approved only when it is a part of an area-wide management plan designed to address a specific resource objective.

Nature of Crediting and Debiting Techniques

Critics contend that a consensus should be reached on the value of wetland credits purchased for mitigation before banks can be utilized. Such an agreement is necessary so that when debits are measured, team members and others can determine the amount of credit necessary for appropriate compensation. Disagreements over the value of a credit can be contentious, in part because alternative methods for calculating these values are available. Probably the most widely-used method is some version of the Habitat Evaluation Procedure (HEP), first developed by FWS 20 years ago. HEP comes in several forms, and has several competitors as well. Some of these methods are relatively simple to use, while more complicated ones better assess the values and functions; no single method appears to be simple yet sophisticated. A new method for assessing functions being developed and field tested by the federal agencies, the hydrogeomorphic approach, is not yet fully in place. Another cause of disagreements is whether and how to differentiate the value of credits for wetlands that are created, restored, or preserved at the bank site.

Bank Operations

Critics worry that banking proponents are not sufficiently concerned about both the start up of banks and the long-term liability to ensure that wetland values will be maintained. As a part of the start up, there will be pressure to sell credits before they have matured at the site, a practice characterized as "speculating in wetland credit futures."22 If the bank fails after selling credits, wetland values at both the old and new sites are lost. Also, financial pressures on bank sponsors from the private sector could cause them to seek public lands and agency expertise, generating additional taxpayer costs.

Long-term responsibility may be at risk if enforcement mechanisms and operating controls are inadequate and a bank fails. Many banking agreements appear to offer little detail on enforcement and responsibility should a bank fail. There is little evidence about the frequency with which this kind of information is included in agreements, or even what should be required, at a minimum. Requiring a bond and a clear assignment of liability would certainly be important to ensure the protection of public values.

Congressional Considerations

Mitigation banking is drawing increasing attention from Congress. Some Members may view banking as an additional means to slow the decline of wetlands and attain the "no net loss" goal. Others may view banking as an approach that would relieve some pressure on Congress to act to further protect private property rights by providing a market-based option that also could increase flexibility for federal agencies administering wetland programs. Implementation of the pilot program mitigation banking provisions in the 1996 Federal Agricultural Improvement and Reform Act (1996 farm bill) through the Conservation Reserve Program could create substantial new opportunities on agricultural lands. The steadily increasing number of operating banks demonstrates an expanded interest and an ability to overcome impediments.

Economic activity and growth will continue to threaten the existence of some wetlands, keeping the issue of wetland protection before Congress. On-site mitigation projects have a poor track record, supporting the claims of those who believe that these efforts are not effective. The potential for banking to be more successful, especially under some conditions, appears viable. However, mitigation banking will be inhibited unless conservation interests support it, banking entities prove that they can make the program work for a long time period, and mitigation requirements are achieved. For Congress, the policy debate will continue to center on how national policy should endorse or support mitigation banking as a practical mitigation alternative for wetland protection programs. However, the 105th Congress has yet to act on legislation that would affect mitigation banking activities.

In the 104th Congress, the House did address many of these issues as it considered HR. 961, Clean Water Act reauthorization legislation. Provisions in this bill, which passed the House in May 1995, would have modified the § 404 program in many ways. Among other things, it would have required the Corps to issue regulations governing mitigation activities in wetlands and regulations for the establishment, use, and oversight of mitigation banks. The Senate did not act on this bill, or on other legislation which included similar mitigation and mitigation banking provisions.

The Senate Environment and Public Works Committee, however, did explore current mitigation banking efforts at a March 14, 1996 hearing. Witnesses suggested that there is considerable entrepreneurial interest and activity. They identified examples of current experiences, successes and impediments, and suggested further changes that they believe would help mitigation banking flourish. One tension in banking was between the flexibility that proponents sought for success and the tight administration that critics thought should be placed on these activities to ensure that wetland resources are protected. A policy topic not addressed at the hearing that seem certain to receive future congressional attention, is whether the federal government should provide financial or other incentives. Should any incentives be provided for all federally-endorsed banks, for selected "model" banking efforts, or for no banks? Also, are non-financial incentives, such as streamlining the permit process or providing scientific or technical assistance, either appropriate or necessary, and if so, under what circumstances? Should a revolving fund be established to support overall banking efforts?

Federal agencies have moved slowly in adopting mitigation banking policies. After President Clinton announced his wetland policies in August 1993, including support for mitigation banking, more than 2 years elapsed before the final guidance was issued. With five agencies having to agree on the many specific issues surrounding implementation, perhaps this is not surprising. But even after the release of final guidance for banking, concerns over banking policy remain, and are likely to continue.

Implementing the mitigation banking guidelines could help ensure that degraded wetlands are fully replaced. Yet, many unanswered questions remain. Development interests are generally strong supporters of the concept of banking. They view banking as another alternative for the mitigation process. Many environmentalists are skeptical of mitigation banks. They claim that banking policy endorses wetland destruction, with little assurance that functional values will be protected over the long term. Some of them will only support mitigation banking if use is limited to a last option and monitored closely. They want mitigation banks to have precise, scientifically sound rules that provide for guaranteed banking success. Though the federal guidance seems to respond to many of these arguments, mitigation banks must provide some long term success stories before concerns can be alleviated. Congress may continue to encourage banking generally, as it did in the 1996 farm bill, but it is also likely to address these issues as part of legislation that authorizes any specific mitigation banking programs or policies.

Bibliography

The following bibliography is not a comprehensive listing of the rapidly expanding library of sources that examine wetland mitigation banking. These sources provide an overview of current though about mitigation banking. For a comprehensive compilation of pre-1994 publications on this topic, see the bibliography in the U. S. Army Corps of Engineers report, Wetland Mitigation Banking (IWR Report 94-WMB-6), p.163-178.

Environmental Law Institute. Wetland Mitigation Banking. Washington, D.C. 1993. 219p.

Erwin, K. An Evaluation of Wetland Mitigation Within the South Florida Water Management District, v.1. South Florida Water Management District, West Palm Beach, FL: July 1991.

Florida Audubon Society. Wetland Mitigation Banking in Florida: Issues and Concerns. Miami, FL: 1996. n.p.

Hoagland, Roy A., et. al. "Mitigation Banking: a Tool, Not a Panacea." National Wetlands Newsletter. v.18, n. 4 (July/Aug, 1996). p.1, 14-15.

Howorth, L. "Highway Construction and Wetland Loss: Mitigation Banking Programs in the Southeastern United States." Environmental Professional, v.13, n.2 (1991). p.139.

Kentula, M., Sifheos, J., Good, 3., Rlko, M., and Kunz, K. "Trends and Patterns in Section 404 Permitting Requiring Compensatory Mitigation in Oregon and Washington, USA." Environmental Management, v.16, n. 1(1992). p.109-19.

Kusler, J. "The Mitigation Banking Debate". National Wetlands Newsletter, v.14, n. 1 (Jan/Feb 1992). p.4.

Kusler, J. "Mitigation Banks and the Replacement of Wetland Functions and Values." Effective Mitigation: Mitigation Banks and Joint Projects in the Context of Wetland Management Plans Symposium, Association of State Wetland Managers, June 24-27, 1992, Palm Beach Gardens, FL. 1994, p.51-56.

Lashley, Douglas. "Guiding Mitigation Banking." National Wetlands Newsletter, v.17, n.6 (Nov/Dec 1995). p.1,18-21.

Lewis, Megan. "Swamps for Sale: Wetland Mitigation Banking." Environmental Planning, American Planning Association, Mar/Apr 1996, p.1-4.

Marsh, Lindell, Douglas Porter, and David Salvesen (eds.), in cooperation with The Urban Institute. Mitigation Banking: Theory and Practice. Island Press, Washington, D.C. 1996. 300 p.

Redmond, A. "Florida Moves on Mitigation Banking." National Wetlands Newsletter, v.17, n.6 (Nov/Dec 1995). p.14-17

Salversen, David. "Banking on Wetlands." Planning, American Planning Association. Feb, 1995. p.11-15.

Sibbing, Julie M. "Mitigation's Role in Wetland Loss." National Wetlands Newsletter, v.19, no.1 (Jan/Feb 1997). p.1, 17-21.

U.S. Army Corps of Engineers. Wetland Mitigation Banking Concepts. [prepared by Richard Reppert] Institute for Water Resources, Alexandria, VA. July 1992, 25 p. 92-WMB-1

--------.Wetlands Mitigation Banking: Resource Document. [prepared by the Environmental Law Institute and the Institute for Water Resources] Institute for Water Resources, Alexandria, VA. January 1994, 131 p. 94-WMB-2

--------.Expanding Opportunities for Successful Wetland Mitigation: the Private Credit Market Alternative. [prepared by Leonard Shabman, Dennis King, and Paul Scodari] Institute for Water Resources, Alexandria, VA. January 1994, 63p. 94-WMB-3

---------. First Phase Report. [prepared by Robert Brumbaugh and Richard Reppert] Institute for Water Resources, Alexandria, VA. January 1994, 80 p. 94-WMB-4

---------. An Examination of Wetland Programs: Opportunities for Compensatory Mitigation. [prepared by Apogee Research Inc.] Institute for Water Resources, Alexandria, VA. March 1994, 96 p. 94-WMB-5

--------. Wetland Mitigation Banking. [prepared by Environmental Law Institute] Institute for Water Resources, Alexandria, VA. February 1994, 178pp. 94-WMB-6

---------. Commercial Wetland Mitigation Credit Markets: Theory and Practice.[prepared by Paul Scodari, Leonard Shabman, and David White) Institute for Water Resources, Alexandria, VA. November 1995, 89p. 95-WMB-7

-----------.Watershed-based Wetlands Planning: A Case Study Report. [prepared by David white and Leonard Shabman] Institute for Water Resources, Alexandria, VA. December 1995, 45p. 95-WMB-8.

---------. Commercial Wetland Mitigation Credit Ventures: 1995 National Survey. [prepared by Paul Scodari and Robert Brumbaugh] Institute for Water Resources, Alexandria, VA. August 1996, 45p. 96-WMB-9

---------.U.S. Congress Senate Committee on Environment and Public Works. Wetland Mitigation Banking Hearings. 104th Congress, 2nd session. March 14, 1996. 242 p.
S. Hrg. 104-644

ENDNOTES

18 Kusler, J. "The Mitigation Banking Debate". National Wetlands Newsletter. v.14, n.l, (January/February 1992), p.4.

19 Reppert, R. Wetland Mitigation Banking Concepts. Alexandria, VA; July 1992.P.12.

20 Riddle, E. "Mitigation Banks: Unmitigated Disaster or Sound Investment?" , Lo Proceedings: National Wetland Symposium - Mitigation of Impacts and Issues, New Orleans, LA. Oct. 8-10, 1986, pp. 353-358.

21 Testimony submitted by Steve Gordon on behalf of the Council of Lane County Governments to the Senate Committee on Environment and Public Works, March 14, 1996.

22 Testimony submitted by Jan Goldman-Carter on behalf of the National Wildlife Federation to the Senate Committee on Environment and Public Works, March 14, 1996.

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