On Friday, US Senator David Vitter sided with developers who face astronomical costs in developing in areas regulated by the US Army Corps of Engineers who now require 2.4 acres of land to be mitigated for every acre developed, compared to previous method requiring 1.6 acres. This affects New Orleans commercial real estate development since this amounts to a 50% price increase.
Vitter spoke at a public meeting of the Mississippi River Commission (MRC) which was established by an Act of Congress on June 28, 1879. Congress charged the MRC with the mission to develop plans to improve the condition of the Mississippi River, foster navigation, promote commerce, and prevent destructive floods, and they have a public meeting twice a year to discuss strategies.
Every year, on average, the Corps of Engineers allows 20,000 acres of wetlands to be impacted by developments because they require 56,000 acres of wetlands to be restored by developers. This article explores how developers with a permit from the Corps are allowed to buy mitigation bank credits to offset the impact a development might have on wetlands.
Since New Orleans is technically under sea level, you would expect many real estate developers to be eventually confronted with wetlands on their property, which the Environmental Protection Agency defines as “an area that is regularly saturated by surface water or groundwater and is characterized by a prevalence of vegetation that is adapted for life in saturated soil conditions”. Although these areas make up a very small percentage of the total land found in the United States, Southern Louisiana contains 40 – 45% of the wetlands found in the lower 48 states. This is because Louisiana is the drainage gateway to the Gulf of Mexico for the Lower Mississippi Regional Watershed which drains more than 24 million acres in seven states from southern Illinois to the Gulf of Mexico.
Compensatory mitigation for unavoidable wetland impacts may be accomplished through three distinct mechanisms:
• Permittee-Responsible Mitigation: Restoration, establishment, enhancement or preservation of wetlands undertaken by a permittee in order to compensate for wetland impacts resulting from a specific project. The permittee performs the mitigation after the permit is issued and is ultimately responsible for implementation and success of the mitigation. Permittee-responsible mitigation may occur at the site of the permitted impacts or at an off-site location within the same watershed.
• Mitigation Banking: A wetlands mitigation bank is a wetland area that has been restored, established, enhanced or preserved, which is then set aside to compensate for future conversions of wetlands for development activities. Permittees, upon approval of regulatory agencies, can purchase credits from a mitigation bank to meet their requirements for compensatory mitigation. The value of these “credits” is determined by quantifying the wetland functions or acres restored or created. The bank sponsor is ultimately responsible for the success of the project. Mitigation banking is performed “off-site,” meaning it is at a location not on or immediately adjacent to the site of impacts, but within the same watershed. Federal regulations establish a flexible preference for using credits from a mitigation bank over the other compensation mechanisms.
• In-Lieu Fee Mitigation: Mitigation that occurs when a permittee provides funds to an in-lieu-fee sponsor (a public agency or non-profit organization). Usually, the sponsor collects funds from multiple permittees in order to pool the financial resources necessary to build and maintain the mitigation site. The in-lieu fee sponsor is responsible for the success of the mitigation. Like banking, in-lieu fee mitigation is also “off-site,” but unlike mitigation banking, it typically occurs after the permitted impacts.
Here’s how mitigation works in New Orleans commercial real estate development. Let’s say a private developer is building a subdivision on 900 acres of land, of which 300 acres has been declared wetlands by the U.S. Department of Army under the Corps of Engineers. Once federal and state regulatory agencies have agreed that the developer cannot avoid or even minimize the effect on those acres, the developer must compensate – hence, the word mitigation – for the wetlands’ loss by purchasing credits in a mitigation bank.
The mitigation bank is the area that has been restored-not a bank as we know it- and has four distinct components:
1. The bank site: the physical acreage restored, established, enhanced, or preserved;
2. The bank instrument: the formal agreement between the bank owners and regulators establishing liability, performance standards, management and monitoring requirements, and the terms of bank credit approval;
3. The Interagency Review Team (IRT): the interagency team that provides regulatory review, approval, and oversight of the bank; and
4. The service area: the geographic area in which permitted impacts can be compensated for at a given bank.
Before a bank can be permitted, and approved for wetland credit sales, federal and state government regulatory agencies form a Mitigation Banking Review Team (MBRT) that must approve plans for building the bank, from the hydrological and planting design to maintenance and monitoring arrangements. The MBRT also approves the number of mitigation credits that may be earned by the banker.
A developer can buy credits only if they have applied to the federal and/or state agency responsible for wetland permitting, and have provided adequate justification of a need to impact wetlands on their development. Mitigation regulations recommend that the impact and compensation be located in the same watershed and that the impact and mitigation be the same habitat, of similar ecological value or ecologically preferable.
In-Lieu Fee Mitigation
A permit applicant may make a payment to an in-lieu fee program that will conduct wetland, stream or other aquatic resource restoration activities. In-lieu fee programs, as shown in Chart One, are generally administered by government agencies or non-profit organizations that have established an agreement with the regulatory agencies to use in-lieu fee payments collected from permit applicants.
Usually a non-profit organization acts as an intermediary to restore, enhance, create and preserve wetlands and assumes responsibility for their long-term maintenance, earning mitigation credits for their efforts. Non-profits can then sell these mitigation credits to developers who have a permit who must compensate for having impacted wetlands. The sale of wetland credits legally transfers the liability for wetland mitigation from the permittee to the wetland banker.
In 2008, the U.S. Army Corps of Engineers adopted new rules that dramatically changed its approach to mitigation under Section 404 of the Clean Water Act, which regulates fill in wetlands and other waters of the United States. The new rules adopt a mitigation hierarchy that moves away from the prior preference for onsite mitigation in favor of mitigation banks and watershed-based mitigation programs. If you wish to obtain a permit to impact wetlands, you must first minimize impacts, and then compensate for unavoidable impacts. The basis for the new rule is that despite progress over the last two decades, there are still gaps in the science of restoration ecology.
The new rule state a permittee must have mitigation plans which include the following:
|*objectives||*a mitigation work plan|
|*site selection criteria||*a maintenance plan|
|*baseline information (for impact sites)||*credit determination methodology|
|* performance standards||*a long-term management plan|
|*site conservation easements||*monitoring requirements|
The Mitigation Process
1 Federal Register, Guidance for Establishment, Use and Operation of Mitigation Banks, November 28, 1995