FHWA Memo on Reimbursement of Mitigation Banking Costs

Subject: INFORMATION: Federal-aid Eligibility for Long-Term Management Activities in Wetland and Natural Habitat Mitigation

(Original signed by)
From: April L. Marchese
Director, Office of Natural
and Human Environment

To: Division Administrators
Federal Lands Highway Division Engineers
Directors of Field Services
Resource Center Managers

The purpose of this memorandum is to clarify FHWA guidance on funding long-term management activities for wetland and natural habitat mitigation where compensatory mitigation is provided through purchase of credits in a mitigation bank or in-lieu fee program. Specifically, it emphasizes that upfront costs included in mitigation bank or in-lieu fee program credit purchases associated with maintaining the ecological function and preservation of the mitigation area over the long-term are eligible costs for reimbursement under the Federal-aid Highway program.

Mitigation banks and in-lieu fee program sponsors include their long term management costs in the price of credits. Long term management of mitigation areas is a normal requirement (33 CFR Part 332.7(d)) imposed by the U.S. Army Corps of Engineers (USACE) for wetland mitigation areas. The long term management provisions often include legal protection of the mitigation area and conditions for maintaining the ecological integrity of the mitigation site.

Commercial mitigation banks and governmental or non-profit in-lieu fee programs are acceptable alternatives for providing necessary compensatory mitigation for impacts to wetlands and other aquatic resources under the Section 404 permit program. Bank and in-lieu fee sponsors sell mitigation credits to both private and public entities such as State DOTs. TEA-21 established a preference for the use of mitigation banks for compensatory mitigation for projects that use Federal-aid funds. The banking preference has been continued under SAFETEA-LU. Once the credit transaction is approved by the USACE, the purchase of the designated number of credits by the permit applicant meets the Section 404 requirements for mitigation.

When in-lieu fee programs and mitigation bank credits are purchased by a State DOT or any other permit applicant, the responsibility for meeting the ecological performance requirements of the Section 404 permit, and the long-term management of the mitigation site, are transferred to the bank or in-lieu fee sponsor. The permit applicant such as the State DOT is relieved of any further responsibility for performance once the credit transaction has been approved by the USACE and executed by the relevant parties. Furthermore, monitoring reports and compliance with permit conditions for the mitigation become the responsibility of the bank or in-lieu fee sponsor.

When establishing a new bank or in-lieu fee program, the USACE typically requires (33 CFR 332.8(u)) that the sponsors manage the site in perpetuity as a functioning wetland or other aquatic system. The long term management provisions that are required of the sponsors typically include invasive species control and upkeep of physical barriers like fences that would discourage activities, such as grazing, that are incompatible with the goal of achieving mitigation objectives. The costs of long term management activities are incorporated into the initial credit price by the sponsors. There are no subsequent fees required of the permit applicant once the credit transaction has occurred. The bank or in-lieu fee sponsor is responsible for determining the costs necessary to undertake long term management activities to maintain the ecological functions on site.

Often the USACE requires the bank or in-lieu fee sponsor establish a trust fund or endowment that contains dedicated funds for long term management of the mitigation area. These costs should be included in the upfront cost per credit. Nevertheless, it is the bank owner or sponsor who is responsible for managing and maintaining the site for the long term, not the applicant.

Relevant Laws and FHWA Guidance:

23 U.S.C. 133 (b)(11)

With respect to participation in a natural habitat or wetland mitigation effort related to a project funded under this title that has an impact that occurs within the service area of a mitigation bank, preference shall be given, to the maximum extent practicable, to the use of the mitigation bank if the bank contains sufficient available credits to offset the impact and the bank is approved in accordance with the Federal Guidance for the Establishment, Use and Operation of Mitigation Banks (60 Fed. Reg. 58605 (November 28, 1995)) or other applicable Federal law (including regulations).

23 CFR 777.9 Mitigation of Impacts

This section describes those mitigation actions which are eligible for Federal funding. Section 777.9(a)(4) identifies mitigation banks as an eligible action. The section authorizes both the purchase of credits in entrepreneurial banks and the use of single user banks such as those operated by State DOTs.

Section 777.9(a)(2) and (3) describe eligibility of funding for on-site and off-site mitigation typically performed for project specific mitigation but also typical of in-lieu fee programs. These actions include wetland restoration, creation, enhancement, monitoring, physical and biological control measures, and preservation measures. Section 777.9(c) allows contributions to statewide and regional efforts to conserve, restore, enhance and create wetlands or natural habitats. These activities are consistent with in-lieu fee programs operated by State agencies.

Federal Highway Administration Guidelines

Guidelines for Federal-aid Participation in the Establishment and Support of Wetland Mitigation Banks. Memorandum dated October 24, 1994.

Section IV of the guidelines clarifies that initial payments that incorporate long-term management costs are eligible for Federal-aid participation. “Upfront costs associated with easements, covenants, or property transfers are eligible for Federal-aid participation, and should encompass activities necessary to ensure that wetland functions are perpetuated and protected at mitigation sites.”

Participation in Funding for Ecological Mitigation. July 25, 1995.

This guidance establishes minimum conditions and requirements for Federal-aid funding of ecological mitigation, including development of ecological mitigation banks along the same general concepts as wetland banks. An ecosystem banking or conservation banking approach is useful when mitigating impacts to endangered species or their habitat. The guidance includes the same language with regards to eligibility of the use of Federal-aid funds for long-term management activities of the mitigation site stating, “Up-front costs associated with easements, covenants, or property transfers are eligible for Federal-aid participation, and should encompass activities necessary to ensure that ecological functions are perpetuated and protected at mitigation sites.”

Additional Federal Guidance

Federal Guidance on the Use of In-Lieu Fee Arrangements for Compensatory Mitigation Under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. (65 FR 66913, November 7, 2000)

This memorandum contains identical language as the 1994 and 1995 memoranda specifying eligibility for Federal-aid funds for long term management activities for compensatory mitigation through the use of in-lieu fee programs stating, “Upfront costs associated with easements, covenants, or property transfers are eligible for Federal-aid participation, and should encompass activities necessary to ensure that wetland functions are perpetuated and protected at mitigation sites.”

Federal-aid Eligibility of Wetland and Natural Resource Mitigation, March 10, 2005.

... such activities may occur concurrent with or in advance of the construction of … projects funded under Title 23, … as long as the efforts are consistent with all applicable requirements of Federal law (including the Uniform Relocation Assistance and Real Property Acquisition Policies Act, as amended)….

Questions should be directed to Mr. Paul Garrett, HEPN-30, (720) 963-3071 or Mr. Dennis Durbin, HEPN-30, (202) 366-2066.

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