1. Compensatory Mitigation Rule: Corps/EPA Notice of Proposed Rulemaking
Regulatory Branch
U.S. Army Corps of Engineers
Office of Wetlands, Oceans and Watersheds
U.S. Environmental Protection Agency
October 2006
On March 28, 2006, the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency published a proposed set of new standards designed to promote “No Net Loss” of wetlands and streams.
This proposed rule represents a collaborative effort between the Corps and EPA to develop a consistent set of science-based standards for compensatory mitigation required to offset unavoidable impacts to wetlands, streams, and other aquatic resources authorized under Section 404 of the Clean Water Act.

2. Overview Status of compensation Rule drivers and timeline Rule outline
Key changes in practice
Next steps
The Corps and EPA will be tag teaming this presentation on the proposed compensatory mitigation rulemaking
We will highlight the status of compensatory mitigation using data complied in the draft Environmental Assessment generated for the rulemaking (posted on the web form comment in March ‘06) and the Environmental Law Institute’s recently released 2005 Compensatory Mitigation Status Report published on the web in April ’06.
We will also describe some of the drivers behind the rulemaking as well as the rule’s timeline
We will hit on the rule’s major themes, describe its key provisions, and wrap up by noting our next steps in the rulemaking process.

3. Type of Compensation Permittee-responsible mitigation (PRM)
Third-party
mitigation
Mitigation Banks
In-lieu fee (ILF)
There are three mechanisms for providing compensatory mitigation under Section 404: Permitte-responsible mitigation, mitigation banking, and in-lieu fee mitigation.
In Permittee responsible mitigation, the permittee does the restoration work or hires contractor to do work, however, responsibility for completing work and ensuring success remains with permittee. PRM commonly lacks the detailed information and assurances included in bank instruments and it does not benefit from the oversight offered by an interagency review team.
With ILF mitigation and Wetland Banking, the permittee pays someone else to do the compensation work and that third party accepts responsibility for completing work and ensuring success. Unlike banks, many ILF programs accept funds long before they have identified a project site to conduct restoration and conservation activities and this has proven to be very problematic.
The Proposed Rule is designed to address the inequities between these three mechanisms.
Data collected for our draft EA for the proposed rule indicates that the majority of compensatory mitigation undertaken annually is still permittee-responsible ……(60%)
…… and currently banking represents approximately 33 % of compensatory mitigation and ILF the remaining 7%.
(USACOE, 2006)

4. Rule Drivers and Timeline
2001 NRC report on compensation
2002 Initiation of Mitigation Action Plan
Defense Authorization Act for 2004
Timeline:
1/05 – 12/05– Corps/EPA coordination
12/5/05-3/10/06 – OMB review
3/28/06 – Federal Register publication
6/30/06 – Comment period closed
There were a number of important drivers behind the rulemaking.
In 2001, the National Research Council published a very thorough critique of Clean Water Act Section 404 compensatory mitigation. Among its findings, the NRC concluded that we were falling short of our NNL goal. NRC provided 29 recommendations and specific goals for the federal government to improve the effectiveness of compensation.
The Administration took the NRC’s advice to heart and in 2002 the Corps, EPA and four other federal agencies released the National Mitigation Action Plan which included 17 actions for the agencies to accomplish designed to improve the ecological performance and results of compensation
Congress also took the NRC’s advice to heart and in 2003 provided the most important driver behind the current rulemaking when it included provisions in the National Defense Authorization Act for 2004 requiring the development of regulations establishing equivalent standards for the use of all forms of compensation (PRM, MB, and ILF)
The Corps has been the lead agency on the rulemaking from the start
Corps and EPA began coordinating in earnest on the rulemaking in early 2005, providing OMB with a proposed rule package in 12/05.
During OMB review, DOT (FHWA and FAA), DoD (non-Corps), NOAA, USFWS, and DOI provided written comments on the draft rule
Adjustments were made to the proposed rule during OMB review to address concerns raised by these agencies. The Corps and EPA are in agreement with all changes made during the interagency review process.
OMB review wrapped up on 3/10, Army signed the NPRM on 3/13, EPA on 3/23, and the NPRM was published in FR on 3/28.
Based on numerous requests from a variety of stakeholders, the Corps and EPA extending the public comment period to 6/30/06

5. Supporting Materials Primary sources used in drafting:
2002 Mitigation RGL
2000 ILF Guidance
1995 Banking Guidance
1990 Army/EPA Mitigation MOA
2001 NRC Report, others
2003/2004 MAP work-productions and stakeholder input
For inspiration in developing the rule, we looked to the four national mitigation guidance documents, at least one of which has been in use for the past 16 yrs.
We also relied heavily on the 2001 National Research Council Mitigation Report
As well as the Mitigation Action Plan work-products and stakeholder input.

6. Rule Outline Purpose and general considerations Definitions
General requirements
Planning and documentation
Ecological performance standards
Monitoring
Management
Mitigation banks
In-lieu fee mitigation
The rule has nine sections. The first 7 section apply to all compensation projects. We were very conscious when we organized the rule to treat all the requirements that should apply to all forms of compensation in these seven section such as planning and documentation, performance standards, monitoring, short- and long-term financial assurances, etc.
Issues reserved for sections 8 and 9 are those issues that are unique to third party forms of compensation such as banks and ILFs.
While most of the rule is simply a codification of compensatory mitigation practices spelled out in existing guidance documents, the rule does contain some differences with existing practices that I would like to highlight quickly over the next few slides…..

7. Changes: 3rd Party Compensation
Grandfathers existing banks
Instrument modification will trigger compliance with new requirements
In-lieu Fee mitigation
Suspension of new authorizations
Existing ILFs: 5-yr transition period
Preamble solicits comment on:
Impacts of and alternatives to ILF phase-out

8. Changes: Public Notice
Individual permits -
“…the public notice for the proposed activity must explain how impacts associated with the proposed activity are to be avoided, minimized, and compensated for.” §332.4/230.94
Mitigation banks –
All proposed banks to receive public notice and comment

9. Changes: Contents of Mitigation Plans
Project objectives
Site selection factors
Site protection instrument
Baseline information (at impact site and compensation site)
Credit determination methodology
Work plan
Maintenance plan
Performance standards
Monitoring requirements
Long-term management plan
Adaptive management plan
Financial assurances
Mitigation plan. Mitigation plans must be developed by the permittee or bank sponsor and approved by the Corps before a permit is issued (in the case of permittee-responsible mitigation) or the banking instrument is approved (in the case of mitigation banks). Mitigation plans must include:
project objectives,
site selection factors,
specification of the site protection instrument,
baseline information (at the impact and compensation sites),
credit determination methodology,
work plan,
maintenance plan,
performance standards,
monitoring requirements,
a long-term management plan,
an adaptive management plan, and
specification of financial assurances.
For permittees planning to use a mitigation bank, the following information is required:
baseline information (only at the impact site), and
credit determination methodology.

10. Additionally for Banks…
Prospectus and draft and final instruments must include:
Service area
Credit release schedule
Accounting procedures
Transfer of liability for site success
Default and closure provisions
Rule includes timelines for bank review and dispute resolution
Section 8 of the rule, which deals with mitigation banks, includes the five additional items that must be included in a bank Prospectus and draft and final instruments. These five items are unique to third-party forms of compensation and thus required separate treatment.

11. IRT/Public review
3 required phases of review totaling ≤195 days

12. Dispute resolution process
Dispute resolution process. A formal dispute resolution process is provided in the event that the Corps is unable to obtain interagency agreement on the proposed bank using the rule’s consensus-based approach. The formal process produces a final decision within 150 days of receipt of the final banking instrument.

13. Next Steps Process/post public comments Analyze public comments
~12,100 total comment letters
~900 unique comment letters
Analyze public comments
Draft comment response
Implementation
MBRT/IRT Academy
The public comment period closed on , So what’s next?
Received a large number of public comments. All have been processed and posted in the online public docket and can be viewed at Reg.gov (website URL is on next slide)
EPA and Corps are currently analyzing public comments – over the next few months we will draft comment response document, make necessary edits to rule, and submit to OMB
It is never to soon to start planning for implementation. To that end:
The Corps and EPA have been working with other federal and non-federal partners to develop a pilot course that would provide critical training to federal and state regulators on the broad set of legal, financial, as well as scientific and technical skills necessary to do an efficient and effective job reviewing and managing complex compensation projects such as mitigation banks

14. Questions Compensatory Mitigation Website: Federal Docket Contacts:
Federal Docket
Contacts:
Corps HQ: David Olson
EPA HQ: Palmer Hough
Available at Website:
Copy of FRN
Instructions on how to provide comments
Q’s and A’s
Factsheet
Draft EA/FONSI
Background/supporting materials