Department of Environmental Quality Division of Mitigation Services Proposed Amendments to 15A NCAC 02R May 10, 2017 Water Quality Committee

Proposed Amendments to Subchapter 02R Rules Major proposed revisions: Actual Cost Method (ACM) calculate buffer fees Modified ACM to calculate stream and freshwater wetland rates Increase coastal wetland rate commensurate with costs   Minor proposed revisions: Updated language for watershed planning component Formatting and technical corrections Modification to adjustment factor for nutrient fees to address diminishing revenue volume Modification to consistency determination

What is In-Lieu Fee Mitigation? Solutions for the Development Community Assist developers with mitigation requirements Payment in-lieu of permittee-responsible mitigation DMS becomes responsible for permit requirements DMS uses watershed planning to inform project location for highest environmental benefit

SECTION .0200 - BASINWIDE RESTORATION PLANS Proposed Amendments to 02R .0201-.0203 Reflect current basinwide restoration planning components Address public comments Assessment of watershed conditions Prioritization of functional improvement for aquatic resources

SECTION .0300 - COMPENSATORY MITIGATION Proposed Amendments to 02R .0301 Clarifies what it means to be consistent with basinwide restoration plans Current Rule- located within TLW or approved by USACE Proposed Rule- project demonstrates it advances functional improvement goals of basinwide restoration plan

SECTION .0400 - ECOSYSTEM RESTORATION FUND Stream and Wetland Rates (.0402) SECTION .0600 – RIPARIAN BUFFER RESTORATION FUND Riparian Buffer Rates (.0601) Nutrient Offset Rates (.0602)

Nutrient Offset ILF Nutrient Offset ILF Program State laws and rules Application Process Fee schedule financing Uses Actual Cost Methodology to set rates Rates evaluated quarterly Rates automatically updated annually Timeline requirements based on payment date Nutrient Offset ILF

Actual Cost Method

Actual Cost Method Completed Projects Terminated Projects Existing Projects in Process Staff Supplies Rent All Costs Adjusted to Present Day Costs

Total Pounds Adjusted to Present Day Values Actual Cost Method Total Pounds Adjusted to Present Day Values Represents true cost of implementing new project Addresses concerns over regulation changes Ensures rate will never be below actual cost

Actual Cost Method

Actual Cost Method Ensures additional collections are made if historical receipts were below costs If Actual Costs > Actual Receipts, the gap is distributed to future pounds paid into program

15A NCAC 02R .0602 NUTRIENT OFFSET PAYMENT RATES Continue using ACM Minor changes: Premium watershed rates applied when costs exceed rate by 33% (from 40%) Immediate rate adjustment when program suspends acceptance of payments due to costs Modification to adjust for the lower and volatile nature of the frequency of payments: Adjustment Factor shall not comprise more than 60% of overall rate

Riparian Buffer ILF Riparian Buffer ILF Program Application process State laws and rules Application process All customer types Receipts based Uses single statewide fee ($1.16) Annual inflation adjustment Riparian Buffer ILF

15A NCAC 02R .0601 RIPARIAN BUFFER MITIGATION FEES Actual cost method- ACM Detailed method Rate evaluated and adjusted quarterly 2 premium watershed rates Rates reflect actual project costs Ensure financial sustainability Rates responsive to changes in costs

15A NCAC 02R .0601 RIPARIAN BUFFER MITIGATION FEES Current Rate Estimated Initial ACM Rates Standard Rate Areas $1.16 $0.99 Randleman Watershed Rate $2.38 Jordan (Lower New Hope)

Statewide Stream & Wetland ILF Statewide Stream & Wetland Program 1996 Start All customer types Application process Fee schedule financing Annual updates for inflation Costs accelerated faster than inflation Program costs currently exceed receipts Statewide Stream & Wetland ILF

Statewide Stream & Wetland Program Annual inflation adjustments have ranged from -1.9% to +6.4% since the last time the rates were amended. Type Higher Rate Standard Rate Stream $391 $297 Coastal Wetland $175,323 Riparian Wetland $71,273 $40,297 Nonriparian Wetland $51,422 $26,445

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates Issues Last Fee change - 2008 rulemaking Costs accelerating faster than inflation Rates are not reflective of current costs Rates must keep pace for program to remain viable

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates Simplified Actual Cost Method- ACM Ensure financial sustainability Allows rates to respond to actual costs Rate evaluated and adjusted annually Statewide rates and special watershed rates Eliminates quarter-acre wetland rounding Simplifies wetland categories in rate schedule Rates reflect actual project costs from last 3 years

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates Watershed Planning Inventory Overhead Administrative Costs (Staff, Rent, Office Equip., etc.) Credit Risk / Contingency Project Costs (including Stewardship) Program Costs 30% 70%

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates 70% Total = Project Costs Total = (1.0/0.7) * Project Costs Total Costs = 1.43 * Project Costs Program Costs Actual Total Costs = 1.43 x Project Costs Project Costs (70%) All Other Program Costs (30%)

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates Simplified ACM Actual Project CostsPresentDay means the sum of all Full Delivery and Mitigation Bank Credit Purchase project costs in the three years prior adjusted for inflation. Costs associated with administrative, watershed planning, operational, and contingency are captured by the coefficient of 1.43 and represent 30% of the total fee calculation.

15A NCAC 02R .0402 Statewide Stream & Wetland Program Rates Coastal Wetlands State Program Wetland Type Price Range (Present Day) Virginia ILF Tidal Wetlands $429,457 -$644,187 Massachusetts ILF Saltmarsh $1,006,515 New Hampshire ILF $451,542 Proposed Coastal Wetland Rate: $825,000/credit Payments average 0.25 credits per yr No economies of scale High coastal land costs Proposed rate sufficient for single project every 2-4 years Will allow mitigation to occur closer to impacts

Statewide Stream & Wetland Program – Rates (.0402) Current Rates (Higher/Standard) Estimated Initial ACM Rates Stream $391/ $297 $458 Riparian Wetland $71,273/ $40,297 N/A Non-riparian Wetland $51,422/ $26,445 Freshwater Wetland $67,851 Coastal Marsh Wetland $175,323 $825,000

NC DIVISION OF MITIGATION SERVICES Questions? NC Division of Mitigation Services 1652 Mail Service Center Raleigh, NC 27699-1652 919-707-8976 https://deq.nc.gov/about/divisions/mitigation-services Department of Environmental Quality