WETLANDS BANKING CONCEPT TAKING OFF HERE BY SONO HASHISAKI Springwood Associates As recently as a couple of years ago, in most parts of the country, the concept of wetland mitigation banking was just that, a concept. Though there are a handful of banks nationwide that are more than 10 years old, most of the hundred plus banks in operation today are less than three years old. Several hundred more mitigation banks are in some phase of planning and design so the concept is fast becoming a reality. Bank development is expanding from agency-sponsored banks (departments of transportation and port districts) to commercial banks which offer compensatory mitigation credits for general use by the public and private sectors. This shift reflects not only a change from single-client to multiple-user banks but also movement towards a market-oriented approach involving the private sector. This trend in mitigation banking is supported by the Clinton Administration's Wetland Plan (August, 1993), the Joint EPA-Army Corps of Engineers Memorandum (1993) which states that permit applicants can draw upon available credits of a third party bank, and most recently by the Federal Guidance for the Establishment, Use and Operation of Mitigation Banks (November 28, 1995 Federal Register) released by the five federal agencies responsible for regulating wetlands. Mitigation banking is a mechanism to achieve "no net loss" of wetland function or acreage by providing compensatory mitigation in advance of authorized impacts to wetland resources. In a simplified look at a mitigation bank, a sponsor obtains and banks credits for restoring, enhancing, creating or in some instances preserving wetlands. The sponsor uses these credits to meet the mitigation requirements of the "no net loss" policy for development that impacts wetlands, or it sells the credits to third parties for the same purpose. Three major principles drive the banking concept. Northwest Racing's 58-acre mitigation for Emerald Downs had many of the attributes of a wetland bank. First, banking of credits in advance of actual need should speed the permitting process. Second, mitigation banks should result in lower mitigation costs due to the economies of scale that can be achieved in the proper development of a scientifically selected, designed and constructed mitigation site. Third, both wetland and wildlife habitats will benefit because the larger wetland site avoids the fragmentation associated with small, scattered mitigation sites. The regulatory and legislative context for mitigation banking lies with Section 401 and 404 of the Clean Water Act. Federal and state agencies that regulate under the Clean Water Act are mandated to "restore and maintain the chemical, physical and biological integrity of the nation's waters," including wetlands. The evolution of enforcement policy has come face-to-face with increasing development pressure both from the regulated community and interstate competition for economic development as well as with private property rights. Pressure to address property rights concerns has resulted in H.R. 961, approved by the House of Representatives, which has the potential to reduce wetlands protection. The passage of H.R. 961 and introduction of S. 851 in May, 1995, occurred during the height of the new Republican legislators "Contract with America." However, most observers agree that these bills will not get further consideration because polls indicate a backlash from the public regarding reductions in environmental protection, especially for clean water and air. Congress has determined that a better approach to addressing the concerns of both property rights and "no net loss" advocates is a stand-alone wetland mitigation banking bill. The Senate Environment Committee recently held hearings on the prospect of such a mitigation banking bill and Republican congressman Walter Jones from eastern North Carolina just introduced a house bill addressing the same. Mitigation banking can provide a workable compromise between property rights and "no-net-loss" that will improve the developmental capabilities of local communities and contribute to the overall environmental health of an area. The new federal guidance requires formal documentation of agency concurrence with the objectives and administration of a mitigation bank. This is provided in the form of a banking instrument or banking agreement which describes the integration of bank goals and objectives with local needs (i.e. comprehensive watershed planning), bank location, bank service area and types of wetland that may be served by a given bank, credits and debits (involving measurement of wetland function), and timing the withdrawal of credits. These are briefly discussed below. Defining bank goals and objectives depends on an assessment of the ecological functions a site could potentially perform and the incorporation of community values such as education, recreation, water quality improvement or flood control. Establishing the goals and objectives helps with site selection which in turn acts to refine the bank goals and objectives. The best way to evaluate the long-term ecological potential of a site is to conduct an ecosystem assessment that takes into account the processes and condition of the surrounding watershed. Site selection is also affected by economic and political considerations such as ownership, the cost of land, the jurisdiction, and the timing and demand for credits. Generally the bank service area is defined by geographic watershed boundaries though in some instances it may be defined jurisdictionally or by wetland type in a larger geographic context. The type of impacts that can be credited by a given bank can vary depending on the ability to functionally relate different wetland types within a system and the expected environmental objectives achieved through in-kind versus out-of-kind mitigation. The Federal Guidance also states that wetland mitigation banks can be used to compensate for environmental impacts authorized under other programs (e.g., state or local wetland programs, NPDES and Superfund removal and remedial projects). Bank credits are intended as a unit measure of the replacement of chemical, physical and biological functions of wetlands. Some of the difficulty in the credit/debit evaluation is due to the fact that wetlands provide multiple functions and most of the current wetland assessment techniques tend to quantitatively assess individual functions. In Washington state, the Department of Ecology is attempting to develop a regional method based on the Corps of Engineers Hydrogeomorphic Classification (HGM) which assesses wetland functions by wetland type and by location in the landscape. Until HGM is formally adopted, bank credits will be measured on a per acre basis in keeping with the mitigation requirements of many local jurisdictions. In general, the timing of credit withdrawal is tied to the achievement of measurable wetland function. However, in view of the balancing act between obtaining first rate mitigation planning, design and construction and the financial risk associated with developing a bank, the federal guidance provides that a percentage of credits may be sold at the time the banking charter is completed. Some things to remember about banking are that the availability of credits does not change the sequencing requirements for obtaining a permit including avoidance and minimization of impacts and an alternatives analysis. Increasingly regulators across the country are allowing that where environmentally preferable, mitigation banks stand on the same footing as on-site project mitigation. Mitigation banking offers applicants greater flexibility in meeting mitigation requirements and has several advantages over individual mitigation projects, including consolidating mitigation on a single larger parcel or contiguous parcels rather than in numerous smaller sites. This consolidation of land results in ecologically superior mitigation as ecosystem-based planning and design efforts are integrated with comprehensive watershed planning efforts. The merging of financial, planning and scientific resources that is not always practicable for project-specific mitigation increases the potential for successful establishment and long-term management of mitigation efforts. Another benefit of banking is the greater economy of scale at all phases of planning and implementation including the increased efficiency of regulatory review and compliance monitoring. The 58-acre mitigation completed by the Northwest Racing Associates in the Green River valley has many attributes that meets the design and technical requirements of a bank. It is an example of a mitigation project that with the proper administrative and operational details in place would have been a good mitigation bank candidate. The oldest bank in the Pacific Northwest Region is the Astoria Bank sponsored by the Oregon Division of State Lands for the Astoria Airport and constructed in 1987. To date, no mitigation banks have been constructed in Washington state though over the last couple of years, mitigation banks have been proposed for several sites locally. The state Department of Transportation has recently put a Mitigation Banking Agreement into place which shows that local regulators and resource agencies can create a mitigation document. Transportation departments and similar entities across the country are entering into their own banking agreements which serve as models for private mitigation banking efforts. As the momentum and markets for mitigation banking grow so do the possibilities for different banking arrangements ranging from public to public/private to private. Given these possibilities, the future for mitigation banking appears promising indeed. Sono Hashisaki is president of Springwood Associates, Inc., an environmental consulting firm specializing in wetland assessments, permitting and mitigation planning and design.