[Federal Register Volume 73, Number 70 (Thursday, April 10, 2008)]
[Rules and Regulations]
[Pages 19594-19705]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-6918]



[[Page 19593]]

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Part II





Department of Defense





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Department of the Army, Corps of Engineers



33 CFR Parts 325 and 332



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Environmental Protection Agency





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40 CFR Part 230



Compensatory Mitigation for Losses of Aquatic Resources; Final Rule

Federal Register / Vol. 73, No. 70 / Thursday, April 10, 2008 / Rules 
and Regulations

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DEPARTMENT OF DEFENSE

Department of the Army, Corps of Engineers

33 CFR Parts 325 and 332

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 230

[EPA-HQ-OW-2006-0020; FRL-8545-4]
RIN 0710-AA55


Compensatory Mitigation for Losses of Aquatic Resources

AGENCIES: U.S. Army Corps of Engineers, DoD; and Environmental 
Protection Agency.

ACTION: Final rule.

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SUMMARY: The U.S. Army Corps of Engineers (the Corps) and the 
Environmental Protection Agency (EPA) are issuing regulations governing 
compensatory mitigation for activities authorized by permits issued by 
the Department of the Army. The regulations establish performance 
standards and criteria for the use of permittee-responsible 
compensatory mitigation, mitigation banks, and in-lieu programs to 
improve the quality and success of compensatory mitigation projects for 
activities authorized by Department of the Army permits.
    This rule improves the planning, implementation and management of 
compensatory mitigation projects by emphasizing a watershed approach in 
selecting compensatory mitigation project locations, requiring 
measurable, enforceable ecological performance standards and regular 
monitoring for all types of compensation and specifying the components 
of a complete compensatory mitigation plan, including assurances of 
long-term protection of compensation sites, financial assurances, and 
identification of the parties responsible for specific project tasks.
    This rule applies equivalent standards to permittee-responsible 
compensatory mitigation, mitigation banks and in-lieu fee mitigation to 
the maximum extent practicable. Since a mitigation bank must have an 
approved mitigation plan and other assurances in place before any of 
its credits can be used to offset permitted impacts, this rule 
establishes a preference for the use of mitigation bank credits, which 
reduces some of the risks and uncertainties associated with 
compensatory mitigation. This rule also significantly revises the 
requirements for in-lieu fee programs to address concerns regarding 
their past performance and equivalency with the standards for 
mitigation banks and permittee-responsible compensatory mitigation.

DATES: The effective date is June 9, 2008.

ADDRESSES: Headquarters, U.S. Army Corps of Engineers, Operations and 
Regulatory Community of Practice, 441 G Street, NW., Washington, DC 
20314-1000. Headquarters, U.S. Environmental Protection Agency, 
Wetlands Division, Mail code 4502T, 1200 Pennsylvania Ave, NW., 
Washington, DC 20460.

    The Corps and EPA have established a docket for this action under 
Docket ID No. EPA-HQ-OW-2006-0020. All documents in the docket are 
listed on the http://www.regulations.gov web site. Although listed in 
the index, some information is not publicly available, e.g., CBI or 
other information whose disclosure is restricted by statute. Certain 
other material, such as copyrighted material, is not placed on the 
Internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available either electronically 
through http://www.regulations.gov or in hard copy at the Water Docket, 
EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, 
DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744, and the telephone number for the 
Water Docket is (202) 566-2426.

FOR FURTHER INFORMATION CONTACT: Mr. David Olson at 202-761-4922 or by 
e-mail at david.b.olson@usace.army.mil, or Mr. Palmer Hough at 202-566-
1374 or by e-mail at hough.palmer@epa.gov. Additional information can 
also be found at the Corps Headquarters Regulatory Program webpage at: 
http://www.usace.army.mil/cw/cecwo/reg/index.html or the EPA 
compensatory mitigation webpage at: http://www.epa.gov/
wetlandsmitigation.

SUPPLEMENTARY INFORMATION: 

I. Background
II. General Comments and Responses
    A. Overview
    B. Most Frequently Raised Issues
    1. Section 404(b)(1) Guidelines
    2. Compensatory Mitigation Standards for Streams
    3. Discretionary Language
    4. Watershed Approach
    5. In-Lieu Fee Programs
    C. Other General Comments
III. In-Lieu Fee Programs
IV. Compliance With Section 314 of the NDAA
V. Organization of the Final Rule
VI. Discussion of Specific Sections of the Final Rule
VII. Administrative Requirements

I. Background

    Compensatory mitigation involves actions taken to offset 
unavoidable adverse impacts to wetlands, streams and other aquatic 
resources authorized by Clean Water Act section 404 permits and other 
Department of the Army (DA) permits. As such, compensatory mitigation 
is a critical tool in helping the federal government to meet the 
longstanding national goal of ``no net loss'' of wetland acreage and 
function. For impacts authorized under section 404, compensatory 
mitigation is not considered until after all appropriate and 
practicable steps have been taken to first avoid and then minimize 
adverse impacts to the aquatic ecosystem pursuant to 40 CFR part 230 
(i.e., the CWA Section 404(b)(1) Guidelines).
    Compensatory mitigation can be carried out through four methods: 
the restoration of a previously-existing wetland or other aquatic site, 
the enhancement of an existing aquatic site's functions, the 
establishment (i.e., creation) of a new aquatic site, or the 
preservation of an existing aquatic site. There are three mechanisms 
for providing compensatory mitigation: permittee-responsible 
compensatory mitigation, mitigation banks and in-lieu fee mitigation. 
Permittee-responsible mitigation is the most traditional form of 
compensation and continues to represent the majority of compensation 
acreage provided each year. As its name implies, the permittee retains 
responsibility for ensuring that required compensation activities are 
completed and successful. Permittee-responsible mitigation can be 
located at or adjacent to the impact site (i.e., on-site compensatory 
mitigation) or at another location generally within the same watershed 
as the impact site (i.e., off-site compensatory mitigation).
    Mitigation banks and in-lieu fee mitigation both involve off-site 
compensation activities generally conducted by a third party, a 
mitigation bank sponsor or in-lieu fee program sponsor. When a 
permittee's compensatory mitigation requirements are satisfied by a 
mitigation bank or in-lieu fee program, responsibility for ensuring 
that required compensation is completed and successful shifts from the 
permittee to the bank or in-lieu fee sponsor. Mitigation banks and in-
lieu fee programs both conduct consolidated aquatic resource 
restoration, enhancement, establishment and preservation projects; 
however, under

[[Page 19595]]

current practice, there are several important differences between in-
lieu fee programs and mitigation banks.
    First, in-lieu fee programs are generally administered by state 
governments, local governments, or non-profit non-governmental 
organizations while mitigation banks are usually (though not always) 
operated for profit by private entities. Second, in-lieu fee programs 
rely on fees collected from permittees to initiate compensatory 
mitigation projects while mitigation banks usually rely on private 
investment for initial financing. Most importantly, mitigation banks 
must achieve certain milestones, including site selection, plan 
approval, and financial assurances, before they can sell credits, and 
generally sell a majority of their credits only after the physical 
development of compensation sites has begun. In contrast, in-lieu fee 
programs generally initiate compensatory mitigation projects only after 
collecting fees, and there has often been a substantial time lag 
between permitted impacts and implementation of compensatory mitigation 
projects. Additionally, in-lieu fee programs have not generally been 
required to provide the same financial assurances as mitigation banks. 
For all of these reasons, there is greater risk and uncertainty 
associated with in-lieu fee programs regarding the implementation of 
the compensatory mitigation project and its adequacy to compensate for 
lost functions and services.
    As noted in the preamble for the March 2006 proposal, the majority 
of the existing guidance regarding compensatory mitigation and the use 
of these three mechanisms for providing compensation exists in a number 
of national guidance documents released by the Corps and EPA over the 
past seventeen years (sometimes in association with other federal 
agencies such as the U.S. Fish and Wildlife Service and the National 
Marine Fisheries Service). Since these guidance documents were 
developed at different times, and in different regulatory contexts, 
concerns have been raised regarding the consistent, predictable and 
equitable interpretation and application of these guidance documents. 
In November 2003, Congress called for the development of regulatory 
standards and criteria for the use of compensatory mitigation in the 
section 404 program.
    Section 314 of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2004 (section 314) requires the Secretary of the Army, 
acting through the Chief of Engineers, to issue regulations 
``establishing performance standards and criteria for the use, 
consistent with section 404 of the Federal Water Pollution Control Act 
(33 U.S.C. 1344, also known as the Clean Water Act), of on-site, off-
site, and in-lieu fee mitigation and mitigation banking as compensation 
for lost wetlands functions in permits issued by the Secretary of the 
Army under such section.'' This provision also requires that those 
regulations, to the maximum extent practicable, ``maximize available 
credits and opportunities for mitigation, provide flexibility for 
regional variations in wetland conditions, functions and values, and 
apply equivalent standards and criteria to each type of compensatory 
mitigation.''
    In response to this directive, the U.S. Army Corps of Engineers and 
the U.S. Environmental Protection Agency (the agencies) published a 
proposed rule in Part II of the March 28, 2006, issue of the Federal 
Register (71 FR 15520), with a 60-day public comment period. As a 
result of several requests, the Corps and EPA extended the comment 
period by an additional 30 days. The comment period ended on June 30, 
2006.
    In the preamble to the March 2006 proposal, the agencies noted 
their decision, in light of their respective statutory roles in the 
section 404 program, to pursue this rulemaking as a joint effort 
between the Corps and EPA. The preamble also discussed the Corps's 
decision to develop these standards for all DA permits which could 
potentially require compensatory mitigation. Thus, in addition to Clean 
Water Act section 404 permits, these standards also apply to DA permits 
issued under sections 9 and 10 of the Rivers and Harbors Act of 1899. 
Finally, the preamble also discussed why these standards should apply 
to compensatory mitigation for impacts to streams and other open waters 
in addition to wetlands.
    As discussed in the preamble to the March 2006 proposal, in 2001 
the National Research Council (NRC) released a comprehensive evaluation 
of the effectiveness of wetlands compensatory mitigation required under 
section 404 of the Clean Water Act. This report noted concerns with 
some past wetland compensatory mitigation and provided recommendations 
for the federal agencies, states, and other parties to improve 
compensatory mitigation. This report was an important resource in the 
development of today's rule.

II. General Comments and Responses

    In response to the proposed rule, approximately 12,000 comments 
were received, including about 850 distinct comments and 11,150 
additional substantially identical e-mails and letters. Comments were 
provided by regulated entities, the scientific community, non-
governmental organizations, mitigation bankers, in-lieu fee program 
sponsors, state and local government agencies, and other members of the 
public.

A. Overview

    Most of the distinct commenters said that this rule is a necessary 
addition to regulations for implementing the Corps Regulatory Program 
and some expressed appreciation that the rule incorporates stakeholder 
feedback and lessons learned. Many commenters expressed general support 
for the proposed rule because: (1) It will promote predictability and 
consistency in compensatory mitigation; (2) it will further effective 
partnerships with private sector mitigation banks; (3) it responds to 
concerns raised by those participating in the development of Mitigation 
Action Plan products; (4) many provisions of the rule are consistent 
with the 2005 Millennium Ecosystem Assessment; (5) it brings greater 
technical clarity to the process of determining appropriate mitigation; 
(6) it provides greater focus on accountability through measurable and 
enforceable ecological performance standards, monitoring, and 
management; (7) it fosters incorporation of aquatic ecosystem science 
into compensatory mitigation plans; and (8) it increases public 
participation in the compensatory mitigation process. Some of these 
commenters also suggested modifications to the proposed rule, which are 
discussed in more detail below.
    Some commenters, including most of the form letters, opposed the 
proposed rule or suggested extensive revisions to increase the 
protection of aquatic resources. The issues most frequently raised, 
considering both the individual and form letters, were: (1) Interaction 
of the proposed rule with the existing requirements of the Section 404 
(b)(1) Guidelines, (2) compensatory mitigation standards for streams, 
(3) the amount of discretionary language in the proposed rule, (4) use 
of the watershed approach for identifying mitigation projects, and (5) 
the proposed phase-out of in-lieu fee mitigation. These five major 
issues and our responses to them are discussed below in part II.B. Many 
other general issues were raised as well, and a number of these are 
discussed in part II.C. Additional detail, and responses to comments on 
specific rule provisions, are provided in part VI.

[[Page 19596]]

B. Most Frequently Raised Issues

1. Section 404(b)(1) Guidelines
    Many commenters stated that, consistent with existing regulations 
and policy, the rule should emphasize impact avoidance and that 
compensatory mitigation should not be considered until all efforts have 
been made to first avoid and then minimize impacts to streams and 
wetlands. Some commenters also asserted that the proposal would expand 
the district engineer's existing level of discretion in determining 
that an applicant has taken all appropriate and practicable steps to 
first avoid and then minimize impacts to the aquatic ecosystem. Some 
further asserted that the proposal could be construed to allow permits 
to be issued even if they cause or contribute to significant 
degradation of aquatic resources, an action prohibited by the Section 
404(b)(1) Guidelines (40 CFR 230.10(c)).
    The agencies agree that impacts must be first avoided and then 
minimized, and that compensatory mitigation should be used only for 
impacts that cannot be avoided or minimized. The agencies disagree that 
the rule will weaken or undermine the 404(b)(1) Guidelines, which are 
codified in regulation and remain unchanged. These requirements are 
essential to meeting the overall objective of the Clean Water Act to 
restore and maintain the chemical, physical and biological integrity of 
the nation's waters. We have clarified that none of them have changed 
by adding a new paragraph at 33 CFR 332.1(c)(1) [40 CFR 230.91(c)(1)] 
stating that nothing in these new rules affects the requirement that 
all DA permits subject to section 404 of the Clean Water Act comply 
with applicable provisions of the Section 404(b)(1) Guidelines. Thus, 
this rule does not expand the district engineer's existing level of 
discretion in determining that an applicant has taken all appropriate 
and practicable steps to first avoid and then minimize impacts to the 
aquatic ecosystem. Paragraph (c)(2) of this section has also been 
modified to clarify that individual section 404 permits will be issued 
only if compliance with all applicable provisions of the 404(b)(1) 
Guidelines has been achieved including those which require the permit 
applicant to take all appropriate and practicable steps to avoid and 
minimize adverse impacts to the aquatic ecosystem. For general permits, 
compliance with the Section 404(b)(1) Guidelines is clarified at 40 CFR 
230.7.
    In addition, a new paragraph at 33 CFR 332.1(f)(2) [40 CFR 
230.91(f)(2)] has been added to the final rule which clarifies which 
provisions of the 1990 Memorandum of Agreement (MOA) between the 
Department of the Army and the Environmental Protection Agency on the 
Determination of Mitigation Under the Clean Water Act Section 404(b)(1) 
Guidelines have been superseded by this rule and which provisions 
remain in effect. Those that remain in effect include the provisions 
related to impact avoidance and minimization, evaluation of the least 
environmentally damaging practicable alternatives, and circumstances 
where the impacts of the proposed project are so significant that 
discharges may not be permitted regardless of the compensatory 
mitigation proposed.
    Today's rule is focused on the compensation component of the 
mitigation sequence. Its purpose is to develop a comprehensive set of 
standards for compensatory mitigation pursuant to section 314 of the 
NDAA. Fulfilling this directive necessitates a detailed treatment of 
all critical aspects of compensatory mitigation. This does not affect 
compliance with other parts of our regulations, including the 404(b)(1) 
Guidelines. Additional discussion of this issue can be found in part VI 
of the preamble.
2. Compensatory Mitigation Standards for Streams
    Many commenters stated that compensatory mitigation for stream 
impacts should not be addressed in this rule. Some stated that there is 
no scientific evidence that streams can be established (i.e., stream 
creation) or that other approaches taken in this rule such as stream 
restoration can compensate for stream losses. They suggested that the 
agencies should conduct further research on stream mitigation and 
demonstrate its success before including standards for stream 
mitigation in the rule. Some also noted that the statutory language in 
the NDAA refers only to wetlands.
    On the other hand, other commenters expressed support for applying 
the rule to streams and other open waters. These commenters believe 
that physical alteration of aquatic resources should be mitigated to 
the extent practicable to support the objectives of the Clean Water Act 
and that because section 404 of the Clean Water Act authorizes 
discharges of dredged or fill material into lakes, streams, and 
wetlands, mitigation for those impacts should be required (and 
addressed in this rule) as well.
    As noted in the preamble to the March 2006 proposal, we believe 
this rule should apply to compensatory mitigation for all types of 
aquatic resources that can be impacted by activities authorized by DA 
permits, including streams and other open waters. We recognize that the 
scientific literature regarding the issue of stream establishment and 
re-establishment is limited and that some past projects have had 
limited success (Bernhardt and others 2007).\1\ Accordingly, we have 
added a new paragraph at 33 CFR 332.3(e)(3) [40 CFR 230.93(e)(3)] that 
specifically notes that there are some aquatic resources types that are 
difficult to replace and streams are included among these. It 
emphasizes the need to avoid and minimize impacts to these `difficult-
to-replace' resources and requires that any compensation be provided by 
in-kind preservation, rehabilitation, or enhancement to the extent 
practicable. This language is intended to discourage stream 
establishment and re-establishment projects while still requiring 
compensation for unavoidable stream impacts in the form of stream 
corridor restoration (via rehabilitation), enhancement, and 
preservation projects, where practicable. District engineers will 
evaluate compensatory mitigation proposals for streams, and assess the 
likelihood of success before deciding whether the proposed compensation 
should be required.
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    \1\ Bernhardt, E.S., E.B. Sudduth, M.A. Palmer, J.D. Allan, J.L. 
Meyer, G. Alexander, J. Follastad-Shah, B. Hassett, R. Jenkinson, R. 
Lave, J. Rumps, and L. Pagano. 2007. Restoring rivers one reach at a 
time: Results from a survey of U.S. river restoration practitioners. 
Restoration Ecology 15:482-493.
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    We recognize that the science of stream restoration is still 
evolving and that more research is needed; however, the lack of a 
fully-developed set of tested hypotheses and techniques does not mean 
that stream mitigation (particularly via restoration, enhancement and 
preservation) cannot be successfully performed or that it should not be 
required where avoidance of impacts is not practicable. As noted by 
Bernhardt and others (2005),\2\ ``stream and river restoration can lead 
to species recovery, improved inland and coastal water quality, and new 
areas for wildlife habitat and recreational activities.'' There is a 
growing body of research that documents successful outcomes for stream 
restoration projects, examines stream restoration techniques and 
provides recommendations for effective stream and river restoration.

[[Page 19597]]

Successful outcomes for stream restoration with respect to water 
quality, habitat creation, species recovery and recreation, have been 
documented by Baron and others (2002); \3\ Buijse and others (2002); 
\4\ Muotka and Pekka (2002); \5\ Nakamura and Kunihiko (2006); \6\ and 
Petersen (1999).\7\ Criteria and recommendations for ecologically 
successful stream restoration have been addressed by Hassett and others 
(2005) \8\ Kauffman and others (1997) \9\ Lavendel (2002) \10\ Palmer 
and others (2005) \11\ and Whalen and others (2002).\12\ Assessment of 
the physical and biological effects of restoration activities has been 
performed by Reeves and others (1997); \13\ Slaney and others (1994) 
\14\ and Solazzi and others (2000).\15\ The applicability of specific 
tools to measure stream restoration success has been investigated by 
Paller and others (2000) \16\ and Lester and others (2006).\17\ 
Somerville and Pruitt (2004) \18\ reviewed existing stream assessment 
and mitigation protocols and Roni and others (2002) \19\ reviewed 
stream restoration techniques. Shields and others (2003) \20\ discussed 
the unique challenges associated with stream restoration research.
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    \2\ Bernhardt, E.S., M.A. Palmer, J.D. Allan, G. Alexander, K. 
Barnas, S. Brooks, J. Carr, S. Clayton, C. Dahm, J. Follstad-Shah, 
D. Galat, S. Gloss, P. Goodwin, D. Hart, B. Hassett, R. Jenkinson, 
S. Katz, G.M. Kondolf, P.S. Lake, R. Lave, J.L. Meyer, T.K. 
O'Donnell, L. Pagano, B. Powell, and E. Sudduth. 2005. Synthesizing 
U.S. river restoration efforts. Science 308: 636-637.
    \3\ Baron, J.S. et al. 2002. Meeting ecological and societal 
needs for freshwater. Ecological Applications 12: 1247-1260.
    \4\ Buijse, A.D. et al. 2002. Restoration strategies for river 
floodplains along the large lowland rivers in Europe. Freshwater 
Biology 47: 889-907.
    \5\ Muotka, T. and P. Laasonen. 2002. Ecosystem recovery in 
restored headwater streams: The role of enhanced leaf retention. 
Journal of Applied Ecology 39: 145-156.
    \6\ Nakamura, K. and K. Amano. 2006. River and wetland 
restoration: Lessons from Japan. Bioscience 56(5): 419-129.
    \7\ Petersen, M.M. 1999. A natural approach to watershed 
planning, restoration and management. Water Science and Technology 
39(12): 347-352.
    \8\ Hassett, B. et al. 2005. Restoring watersheds project by 
project: Trends in Chesapeake Bay tributary restoration. Frontiers 
in Ecology and the Environment 3(5): 259-267.
    \9\ Kauffman, J. Boone, R.L. Beschta, N.O., and D. Lytjen. 1997. 
An ecological perspective of riparian and stream restoration in the 
western United States. Fisheries 22(5): 12-24.
    \10\ Lavendel, B. 2002. The business of ecological restoration. 
Ecological Restoration 20: 173-178.
    \11\ Palmer, M.A. et al. 2005. Standards for ecologically 
successful river restoration. Journal of Applied Ecology 42: 207-
217.
    \12\ Whalen, P.J., L.A. Toth, J.W. Koebel, and P.K. Strayer. 
2002. Kissimmee River Restoration: A case study. Water Science and 
Technology 45(11): 55-62.
    \13\ Reeves, G.H., D.B. Hohler, B.E. Hansen, F.H. Everest, J.R. 
Sedell, T.L. Hickman, and D. Shively. 1997. Fish habitat restoration 
in the Pacific Northwest: Fish Creek of Oregon. Pages 335-359 in 
J.E. Williams, C.A. Wood, and M.P. Dombeck, editors. Watershed 
Restoration: Principles and Practices. American Fisheries Society, 
Bethesda, Maryland.
    \14\ Slaney, P.A., B.O. Rublee, C.J. Perrin, and H. Goldberg. 
1994. Debris structure placements and whole-river fertilization for 
salmonoids in a large regulated stream in British Columbia. Bulletin 
of Marine Science 55: 1160-1180.
    \15\ Solazzi, M.F., T.E. Nickelson, S.L. Johnson, and J.D. 
Rodgers. 2000. Effects of increasing winter rearing habitat on 
abundance of salmonoids in two coastal Oregon streams. Canadian 
Journal of Fisheries and Aquatic Sciences. 57: 906-914
    \16\ Paller, M.H., M.J.M. Reichert, J.M. Dean, and J.C. Seigle. 
2000. Use of fish community data to evaluate restoration success of 
a riparian stream. Ecological Engineering 15: 171-187.
    \17\ Lester, R., W. Wright, and M. Jones-Lennon. 2006. 
Determining Target Loads of Large and Small Wood for Stream 
Rehabilitation in High-Rainfall Agricultural Regions of Victoria, 
Australia. Ecological Engineering 28: 71-78.
    \18\ Somerville, D.E. and B.A. Pruitt. 2004. Physical stream 
assessment: A review of selected protocols for use in the Clean 
Water Act Section 404 Program. Prepared for the U.S. Environmental 
Protection Agency, Office of Wetlands, Oceans, and Watersheds, 
Wetlands Division (Order No. 3W-0503-NATX). Washington, DC, 213 pp.
    \19\ Roni, P. et al. 2002. A review of stream restoration 
techniques and a hierarchical strategy for prioritizing restoration 
in Pacific Northwest watersheds. North American Journal of Fisheries 
Management 22: 1-20.
    \20\ Shields, F. Douglas, C.M. Cooper Jr., Scott S. Knight and 
M.T. Moore. 2003. Stream corridor restoration research: A long and 
winding road. Ecological Engineering 20: 441-454.
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    Under this final rule, mitigation plans for all wetland 
compensatory mitigation projects must contain the following twelve 
elements: Objectives; site selection criteria; site protection 
instruments (e.g., conservation easements); baseline information (for 
impact and compensation sites); credit determination methodology; 
mitigation work plan; maintenance plan; ecological performance 
standards; monitoring requirements; long-term management plan; adaptive 
management plan; and financial assurances (see 33 CFR 332.4(c) [40 CFR 
230.94(c)]). Existing literature regarding stream restoration, as well 
as our experience with past stream mitigation projects supports our 
decision to require mitigation plans for stream compensatory mitigation 
projects to contain the same twelve fundamental elements. Some 
commenters noted that aspects of the mitigation work plan will differ 
between stream and wetland mitigation projects. Today's rule highlights 
some of these potential differences by noting additional elements that 
may be necessary for stream mitigation project work plans. These 
elements include planform geometry, channel form, watershed size, 
design discharge, and riparian area plantings and can be found at 33 
CFR 332.4(c)(7) [40 CFR 230.94(c)(7)].
    Another important modification was made to the section of the rule 
describing ecological performance standards. Like the proposal, today's 
rule requires that every mitigation plan include objective and 
verifiable ecological performance standards to assess whether the 
compensatory mitigation project is achieving its objectives. Neither 
the proposal nor today's rule prescribe the individual variables or 
metrics that should be used to evaluate each aquatic resource type 
potentially restored, enhanced, established, or preserved in 
compensatory mitigation projects. Given the extremely large variation 
among the aquatic resource types found across the country, and the 
constant advances in the science of aquatic ecosystem restoration, 
overly prescriptive requirements would be impractical. However, in 
recognition of the need to strengthen this provision and to ensure that 
compensatory mitigation project performance standards reflect the 
latest advances in the science of stream and wetland restoration, we 
have modified the final rule at 33 CFR 332.5(b) [40 CFR 230.95(b)] to 
include a requirement that ecological performance standards be based on 
the best available science that can be measured or assessed in a 
practicable manner.
    As stream scientists have noted, the proportion of stream 
restoration projects that have been monitored for performance is low 
(Bernhardt and others 2005).\21\ Today's rule, however, requires 
monitoring of mitigation projects for a minimum of five years with 
longer monitoring periods required for aquatic resources with slow 
development rates. This monitoring requirement will provide new data on 
stream restoration performance that will serve to increase knowledge 
and improve stream mitigation over time. (See 33 CFR 332.6 [40 CFR 
230.96]). Also, in response to public comment, we removed a provision 
from 33 CFR 332.6(a) [40 CFR 230.96(a)] that would have allowed the 
district engineer to waive all monitoring requirements if they were 
determined not to be practicable.
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    \21\ Bernhardt, E.S., M.A. Palmer, J.D. Allan, G. Alexander, K. 
Barnas, S. Brooks, J. Carr, S. Clayton, C. Dahm, J. Follstad-Shah, 
D. Galat, S. Gloss, P. Goodwin, D. Hart, B. Hassett, R. Jenkinson, 
S. Katz, G.M. Kondolf, P.S. Lake, R. Lave, J.L. Meyer, T.K. 
O'Donnell, L. Pagano, B. Powell, and E. Sudduth. 2005. Synthesizing 
U.S. river restoration efforts. Science 308: 636-637.
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    While section 314 of the NDAA refers only to the development of 
compensatory mitigation standards for wetlands, we believe that in 
order to improve the performance and results of all types of 
compensatory mitigation this rule should include compensatory 
mitigation standards for all types of aquatic resources that can be 
impacted by activities authorized by DA permits, including streams and 
other open waters. Section 404(b) of the Clean Water Act authorizes EPA 
to develop

[[Page 19598]]

the substantive environmental criteria used by the Corps in making 
section 404 permit decisions including those associated with all forms 
of compensatory mitigation. Also, section 501(a) of the Clean Water Act 
provides EPA with broad authority to conduct any rulemaking necessary 
to carry out its functions under the Clean Water Act.
    While many stream restoration and rehabilitation activities have 
been conducted across the country, we recognize that not all of them 
have been successful. Much of the literature suggests that this is due 
to a lack of the kinds of comprehensive standards for project planning, 
implementation and management included in this rule. Accordingly, we 
determined that including stream mitigation in this rule would improve 
current standards and practices for compensatory mitigation of streams. 
Today's rule, with the addition of the above referenced modifications, 
includes the necessary provisions to appropriately treat stream 
mitigation. Additional discussion of this issue can be found in part VI 
of the preamble.
3. Discretionary Language
    Many commenters expressed concern that the proposal leaves too much 
discretion to district engineers. Some commenters objected to use of 
``may'', ``should'', and ``can'' in some rule provisions, and/or to use 
of the qualifier ``appropriate and practicable'' for some requirements. 
Commenters were concerned that such discretion might lead to 
authorization of inappropriate compensatory mitigation projects, 
inadequate enforcement and oversight, or excessive litigation.
    In contrast, other commenters suggested even greater flexibility, 
to allow cost-effective compensatory mitigation based on case-specific 
circumstances.
    In response to these comments, we have carefully evaluated all of 
the discretionary language in the proposed rule, and replaced it with 
binding and/or more clearly articulated requirements where appropriate. 
Such modifications were made to a number of key provisions in the rule 
including those related to mitigation type, the amount of mitigation 
necessary to offset permitted losses, financial assurances, credit 
releases, the use of preservation, ecological performance standards, 
and long-term site protection and management. Also, a number of 
requirements for in-lieu fee programs have been added to the rule, as 
part of the decision not to phase them out as originally proposed. 
(Note that the preamble to the proposed rule included an extensive 
discussion of and request for comment on alternatives to the proposed 
phase-out. The new requirements for in-lieu fee programs reflect many 
of the comments received.) These specific modifications and additions 
are discussed in more detail in part VI of the preamble.
    With these modifications, we believe that today's rule achieves a 
proper balance of binding requirements and discretion. The rule will 
help improve the quality and success of compensatory mitigation, while 
providing flexibility necessary to ensure that compensatory mitigation 
requirements for a particular DA permit appropriately offset authorized 
impacts. Some discretionary language is necessary for this rule because 
resource types, project impacts, and compensatory mitigation practices 
vary widely across both projects and regions of the country. District 
engineers need to take such variations into account, including 
variations in state and local requirements that affect the 
implementation and long-term management of compensatory mitigation 
projects. For example, laws and regulations governing real estate 
instrument and financial assurances vary from state to state. In 
addition, practices for restoring, establishing, and enhancing aquatic 
resources vary by resource type and by region. For these reasons, 
discretionary language is used where appropriate to promote both 
regulatory efficiency and project success, and to ensure that required 
mitigation is practicable.
4. Watershed Approach
    Many comments addressed the watershed approach included in the 
proposal. A majority of commenters expressed support for the use of a 
watershed approach to compensatory mitigation. They noted that use of a 
watershed approach would improve the sustainability of compensatory 
mitigation projects and ensure that they are better integrated with the 
needs of the watershed. However, some commenters believed that 
additional specificity in the requirements relating to the use of a 
watershed approach was needed. For example, commenters requested 
clarification regarding use of the watershed approach in the absence of 
a watershed plan, parameters needed to implement a watershed approach, 
and the definition of the terms ``watershed,'' ``watershed plan'' and 
``watershed approach.''
    Other commenters opposed the watershed approach described in the 
proposed rule. Some were particularly concerned about use of the 
watershed approach in the absence of a detailed watershed plan, arguing 
that this could lead to inappropriate compensatory mitigation decisions 
and the cumulative loss of wetland functions. Others were more 
concerned about the analytical burden on permit applicants of 
developing watershed plans or justifying mitigation projects in terms 
of wider watershed considerations. Still others thought the concept was 
too ambiguous to be included in a regulation.
    The agencies continue to believe that the watershed approach 
provides the appropriate framework for making compensatory mitigation 
decisions, but have made a number of changes to address specific 
comments. The primary objective of the watershed approach included in 
today's rule is to maintain and improve the quantity and quality of 
wetlands and other aquatic resources in watersheds through strategic 
selection of compensatory mitigation project sites. The watershed 
approach accomplishes this objective by expanding the informational and 
analytic basis of mitigation project site selection decisions and 
ensuring that both authorized impacts and mitigation are considered on 
a watershed scale rather than only project by project. This requires a 
degree of flexibility so that district engineers can authorize 
mitigation projects that most effectively address the case-specific 
circumstances and needs of the watershed, while remaining practicable 
for the permittee. In response to the concern about additional burden 
on permittees, the agencies recognize that the level of data and 
analysis appropriate for implementing the watershed approach must be 
commensurate with the scale of the project, and that there will be 
situations, particularly for projects with small impacts, where it 
would not be cost-effective to utilize a watershed approach. For this 
reason, the regulations at Sec.  332.3(c)(1) [Sec.  230.93(c)(1)], 
state that the watershed approach is to be used to the extent 
appropriate and practicable, and the regulations at Sec.  
332.3(c)(3)(iii) [Sec.  230.93(c)(3)(iii)] state that the level of 
information and analysis must be commensurate with the scope and scale 
of the authorized impacts and functions lost.
    We recognize that there are many different types of watershed plans 
that have been developed for purposes other than aquatic resource 
restoration, establishment, enhancement, and/or preservation activities 
and that such plans may be of limited use in making compensatory 
mitigation decisions. For example, some watershed plans are conceived 
to guide development activities or the placement of storm

[[Page 19599]]

water infrastructure. Therefore, we have modified Sec.  332.3(c)(1) 
[Sec.  230.93(c)(1)] to state that the district engineer will determine 
whether a given watershed plan is appropriate for use in the watershed 
approach for compensatory mitigation.
    We further recognize that in many areas, watershed plans 
appropriate for use in planning compensatory mitigation activities have 
not been developed. Therefore, consistent with the 2001 NRC Report, the 
watershed approach described in this final rule does not require a 
formal watershed plan. Although it would always be preferable to have 
an appropriate watershed plan, we believe that implementing a watershed 
approach to the degree practicable, even without a watershed plan, can 
improve compensatory mitigation site selection and project 
implementation. For example, the use of appropriately sited mitigation 
banks can support a watershed approach without using watershed plans. 
In the absence of an appropriate watershed plan, the watershed approach 
should be based on a structured consideration of watershed needs and 
how wetlands and other types of aquatic resources in specific locations 
will address those needs. To implement this approach, district 
engineers will utilize the considerations specified in Sec.  
332.3(c)(2) [Sec.  230.93(c)(2)] and available information on watershed 
conditions and needs, as described in Sec.  332.3(c)(3) [Sec.  
230.93(c)(3)].
    In response to public input, we have revised the definition of 
``watershed plan'' to clarify the kinds of plans appropriate for use in 
making compensation decisions. We have also added definitions for the 
terms ``watershed'' and ``watershed approach'' at Sec.  332.2 [Sec.  
230.92]. The appropriate watershed scale to use for the watershed 
approach will vary by geographic region, as well as by the particular 
aquatic resources under consideration. Since using a watershed approach 
is not appropriate in areas without watershed boundaries, such as 
marine waters, we have also added a provision (Sec.  332.3(c)(2)(v) 
[Sec.  230.93(c)(2)(v)]) to clarify that other types of spatial scales 
may be more appropriate in those areas. To enhance the use of the 
watershed approach, we have added a sentence to Sec.  332.3(c)(2)(iv) 
[Sec.  230.93(c)(2)(iv)] stating that the identification and 
prioritization of resource needs should be as specific as possible. We 
have also added a provision, stating that a watershed approach may 
include on-site compensatory mitigation, off-site compensatory 
mitigation, or a combination of on-site and off-site compensatory 
mitigation (see Sec.  332.3(c)(2)(iii) [Sec.  230.93(c)(2)(iii)]).
    We have revised Sec.  332.3(c)(3) [Sec.  230.93(c)(3)] to clarify 
that district engineers will use available information for the 
watershed approach. That available information will address watershed 
conditions and needs and include potential and/or priority sites for 
compensatory mitigation projects. We have also indicated potential 
sources of appropriate information, such as wetland maps, soil surveys, 
aerial photographs, local ecological reports, etc. Public input on the 
watershed approach and our response to this input including the above 
mentioned modifications are discussed in more detail in part VI of the 
preamble.
5. In-Lieu Fee Programs
    Many commenters, including many state officials, opposed the 
proposed phase-out of in-lieu programs. These commenters indicated that 
in certain areas (especially rural and coastal regions, the West, and 
Alaska) there are few mitigation banks and little potential for their 
development, and that permittee-responsible compensatory mitigation is 
often impractical. In-lieu fee programs are therefore the best (or 
only) option for compensatory mitigation in these areas. Some 
commenters also argued that in-lieu fee programs provide important 
benefits that other types of mitigation do not, such as a more thorough 
consideration of the needs of a watershed and the most appropriate 
locations and mitigation types to sustain and enhance its long-term 
health. Some commenters representing in-lieu fee programs stated that 
if they were held to all of the same standards as mitigation banks, 
particularly the requirement to secure project sites before selling any 
credits, they would have to cease operation and these benefits would be 
lost.
    Many of these commenters also acknowledged problems in the current 
administration and performance of in-lieu fee mitigation, but stated 
that these problems were due to existing requirements and policies (or 
the lack thereof) rather than the in-lieu fee concept itself. They 
suggested that instead of phasing out in-lieu fee programs, the final 
rule should include standards that address these problems and ensure 
that in-lieu fee programs do in fact deliver mitigation that 
compensates for the impacts associated with the credits they sell. 
Commenters noted that the NDAA does not require that these standards be 
exactly the same as those for mitigation banks but rather 
``equivalent'' to the maximum extent practicable. Some standards for 
in-lieu fee programs suggested by commenters included: Limiting the 
number of credits that in-lieu fee programs can sell before they have 
secured sites, limiting the types of organizations that can be in-lieu 
fee sponsors, and establishing financial accounting standards to 
improve their accountability for credit fulfillment. A number of 
commenters acknowledged that even with significant improvements to in-
lieu fee mitigation, mitigation banks would be more likely to minimize 
project uncertainties and temporal losses of aquatic resource 
functions. They suggested that the final rule should therefore 
stipulate that where the service areas of an in-lieu fee program and a 
mitigation bank overlap, the mitigation bank should be the preferred 
credit provider.
    Other commenters supported the phase-out of in-lieu fee programs as 
proposed. These commenters pointed out shortfalls associated with 
current administration of in-lieu fee programs noting, for example, 
that prices for in-lieu fee credits are often too low and fail to cover 
all of the costs necessary to deliver the promised mitigation, 
including expenses for program administration, long-term maintenance of 
projects, and corrective action. This may result in undercutting of 
mitigation bank credit prices, since banks, as commercial ventures, 
must charge prices based on the full cost of producing compensation 
credits or go out of business. Furthermore, in-lieu fee programs often 
require fees from multiple permitted projects before they can initiate 
compensation projects, resulting in substantial delays between 
permitted impacts and compensation. Several commenters further stated 
that it was not fair for in-lieu fee programs to be allowed to continue 
to operate with lower or looser standards than mitigation banks and 
permittee-responsible mitigation. Commenters also noted that because 
credit release schedules for mitigation banks are tied to performance, 
they have a financial incentive to produce timely, successful 
mitigation that is lacking for in-lieu fee programs.
    After carefully considering all comments received, the agencies 
have decided to retain in-lieu fee programs in today's rule as a 
separate and distinct mechanism for providing compensatory mitigation 
for DA permits. We believe they can fulfill an important role in 
providing effective mitigation in circumstances where mitigation banks 
and permittee-responsible mitigation are not practicable. At the same 
time, we have included a number of new requirements for in-lieu fee 
programs to improve accountability and

[[Page 19600]]

performance, based to a large extent on existing practice at the most 
successful currently-operating in-lieu programs. Specifically, we have 
added a requirement for a compensation planning framework at Sec.  
332.8(c) [Sec.  230.98(c)] which details how the in-lieu fee program 
will select and secure project sites and implement mitigation projects 
in a watershed context. The framework is essentially a watershed plan 
designed to support resource restoration, and must include an analysis 
of historic aquatic resource losses and current conditions, a 
description of the general amounts, types and locations of aquatic 
resources the program will seek to provide and a prioritization 
strategy for selecting and implementing compensatory mitigation 
activities. This type of advanced planning will ensure that in-lieu fee 
programs are guided by a thorough understanding of the needs, 
opportunities, and challenges of the areas in which they operate, which 
will allow them to select and design more successful projects and 
better estimate full project costs.
    The final rule also requires that the in-lieu fee program 
instrument establish a cap on the number of credits that the program 
can sell before securing a compensatory mitigation project site and 
conducting aquatic resource restoration, establishment, enhancement, 
and/or preservation at that site. These are defined as ``advance 
credits'' (see Sec.  332.2 [Sec.  230.92]) and the rules for their 
establishment and use are provided at Sec.  332.8(n) [Sec.  230.98(n)]. 
The rule also limits sponsorship of in-lieu fee programs specifically 
to governmental or non-profit natural resource management entities (see 
definition of ``in-lieu fee program'' at Sec.  332.2 [Sec.  230.92]). 
District engineers and Interagency Review Team (IRT) members should 
carefully evaluate the capabilities and demonstrated performance of 
these natural resource management entities prior to approving them as 
in-lieu fee program sponsors in order to minimize the risks associated 
with allowing advance credit sales.
    We have added a provision at Sec.  332.8(i) [Sec.  230.98(i)] 
requiring in-lieu fee programs to establish a program account, 
including criteria for the management of this account. Funds collected 
from permittees, including interest on these funds, may only be used 
for the selection, design, acquisition, implementation, and management 
of in-lieu fee projects, with a small percentage allowed for 
administrative costs.
    Provisions at Sec.  332.8(d)(6)(iv)(B)-(C) [Sec.  
230.98(d)(6)(iv)(B)-(C)] and Sec.  332.8(o)(5)(ii) [Sec.  
230.98(o)(5)(ii)] were included to improve the estimation of in-lieu 
fee project costs and the establishment of adequate fee schedules. 
Today's rule ensures that the review, approval, and oversight of in-
lieu fee programs is subject to the same level of interagency and 
public review as mitigation banks (see Sec.  332.8(d) [Sec.  
230.98(d)]). Similarly, today's rule requires in-lieu fee projects to 
develop mitigation plans that meet the same standards as those 
applicable to mitigation banks and permittee-responsible projects (see 
Sec.  332.8(j) [Sec.  230.98(j)]).
    Properly organized in-lieu fee programs which comply with the new 
requirements established by today's rule should actively support a 
watershed approach to compensatory mitigation, and will help advance 
goals for protecting and restoring aquatic resources within watersheds, 
especially in areas where there are no mitigation banks.
    We recognize that even with these improvements to in-lieu fee 
programs, there will likely be less temporal loss of resources 
associated with mitigation provided by banks than with mitigation 
provided by in-lieu fee programs. We have therefore established a 
hierarchy in Sec.  332.3(b) [Sec.  230.93(b)] for selecting the type 
and location of compensatory mitigation with an explicit preference for 
mitigation bank credits over advance credits from in-lieu fee programs 
when appropriate bank credits are available for use. Public input 
regarding in-lieu fee mitigation as well as all of these specific 
modifications and additions are discussed in more detail in parts III 
and VI of the preamble.

C. Other General Comments

    Some commenters stated that the proposed rule should be revised to 
incorporate principles of ecological restoration and landscape ecology. 
Other commenters said that the proposed rule fails to recognize the 
dynamic nature of wetlands and provides disincentives for active 
management of wetland resources in ways that would benefit society. A 
few commenters remarked that the proposed rule does not adequately 
address compensatory mitigation for marine habitats or aquatic species.
    We have revised the final rule to better incorporate principles of 
ecological restoration and landscape ecology, for example, at Sec.  
332.3(d) [Sec.  230.93(d)], which specifies detailed factors for the 
district engineer to use in determining ecological suitability for 
mitigation project sites. Section 404 directs the Corps to issue 
permits for discharges of dredge and fill material, not to promote 
``active management'' of wetlands. To the extent that active management 
may provide an alternative to permitted discharges, permit applicants 
should consider such approaches as part of the avoidance and 
minimization mitigation sequencing. Also, both permitted projects and 
compensatory mitigation projects may require on-going active management 
to protect resources, and conditions for such management may be 
incorporated into DA permits where appropriate. Finally, management of 
existing wetlands may itself involve discharges requiring DA permits, 
and in this case permit conditions will address issues related to the 
management and protection of affected resources, in accordance with 
applicable regulations, including this rule. We disagree that the rule 
does not adequately address marine habitats and species. While the 
specific projects needed to mitigate impacts to marine resources may be 
different, the procedural and analytical framework established in the 
final rule applies equally well to freshwater and marine resources.
    Several commenters said that the proposed rule did not address 
concerns raised in recent reports on compensatory mitigation in the 
Corps Regulatory Program that were issued by the Government 
Accountability Office (GAO). Some commenters said that the proposed 
rule incorporates some of GAO's recommendations, but expressed 
skepticism that the Corps has the resources to implement those 
provisions of this rule. These commenters asserted that the Corps needs 
to make compensatory mitigation compliance a high priority to ensure 
effective replacement of wetland acreage and function lost as a result 
of permitted activities.
    One GAO report was issued in May 2001, and was entitled ``Wetlands 
Protection: Assessments Needed to Determine Effectiveness of In-Lieu 
Fee Mitigation.'' Another GAO report, ``Wetlands Protection: Corps of 
Engineers Does Not Have an Effective Oversight Approach to Ensure That 
Compensatory Mitigation Is Occurring'' was issued in September 2005. We 
have incorporated many of the recommendations of these GAO reports into 
this rule, by requiring the use of enforceable permit conditions, 
performance standards, and third-party agreements. In addition, this 
rule states that it supersedes certain agency guidance on compensatory 
mitigation, specifically the 1995 mitigation banking guidance, the 2000 
in-lieu fee guidance, and Regulatory Guidance Letter (RGL)

[[Page 19601]]

02-02. That RGL provides guidance on compensatory mitigation projects 
for aquatic resources impacted by activities authorized by DA permits. 
This rule also clarifies the requirements for compensatory mitigation, 
as recommended by GAO. We agree that taking actions to determine 
compensatory mitigation compliance should be a high priority, and have 
provided general principles for establishing ecological performance 
standards and criteria. Corps districts and EPA regional offices will 
continue to work with other federal and state resource agencies to 
develop and refine specific performance standards and criteria to 
evaluate and ensure success of compensatory mitigation projects in 
their geographic areas of responsibility. These performance standards 
and criteria will take into account regional variations in aquatic 
resource characteristics, functions, and services.
    A number of commenters discussed ad hoc mitigation, which has been 
defined in various reports as cash donations made by a permittee to 
satisfy their mitigation requirements. The majority of commenters 
stated that ad hoc mitigation should not be approved unless it meets 
the requirements specified in the rule. One commenter said that ad hoc 
mitigation is often unsuccessful because there is no evaluation process 
and no oversight for the compensatory mitigation that is to be 
completed, and there is no way to track the compensatory mitigation 
that was to occur. One commenter proposed that ad hoc mitigation should 
be allowed on a one-time basis where a compensatory mitigation 
opportunity and need arise concurrently, but are not of such a scale as 
to justify going through the review process in Sec.  332.8 [Sec.  
230.98]. Two of these commenters discussed ad hoc mitigation 
arrangements and stated that the Corps needs to improve record-keeping 
for ad hoc mitigation activities.
    The May 2001 GAO report defines ad hoc mitigation as involving 
``mitigation payments from developers to third parties that are neither 
mitigation banks nor considered by the Corps to be in-lieu fee 
organizations.'' For the purposes of this rule, ad hoc mitigation is 
considered to be a form of permittee-responsible mitigation. For a 
mitigation bank or in-lieu fee program to be used to provide 
compensatory mitigation for DA permits, and to have the responsibility 
for providing the required compensatory mitigation transfer from the 
permittee to the mitigation bank sponsor or in-lieu fee sponsor, there 
must be a mitigation banking or in-lieu fee program instrument approved 
by the district engineer in accordance with the procedures in this 
final rule (see Sec.  332.8 [Sec.  230.98]). Any other compensatory 
mitigation arrangements are considered to be permittee-responsible 
mitigation where the permittee retains responsibility for providing the 
required compensatory mitigation, and this will be reflected in the 
terms of the DA permit. Permittee-responsible mitigation also includes 
any ad hoc payments made to governmental or non-governmental 
organizations that are not in accordance with the terms of an approved 
in-lieu fee program instrument. When a governmental or non-governmental 
organization accepts an ad hoc payment from a permittee, that 
organization is in essence acting as a contractor to provide the 
compensatory mitigation for that permittee, and the permittee retains 
responsibility for any long-term protection and/or management of the 
compensatory mitigation project.
    We also recognize the importance of record-keeping for compensatory 
mitigation projects, and have established procedures for using permit 
conditions, instruments, and ledgers to track the implementation and 
success of those projects. The Corps will also track permitted impacts 
and compensatory mitigation through databases, such as the OMBIL 
Regulatory Module (ORM-2), which is the primary automated information 
system for the Corps Regulatory Program, and the Regional Internet Bank 
Information Tracking System (RIBITS). All 38 Corps districts are now 
using ORM-2, which will help standardize data collection in the Corps 
Regulatory Program. It will also be used to collect data to assess the 
performance of the Regulatory Program. RIBITS is an automated 
information system with an interactive Web site. It is currently 
designed to track the status of mitigation banks and to provide up-to-
date information to mitigation bank sponsors and customers. We are also 
considering modifying RIBITS to track the status of in-lieu fee 
programs. Use of RIBITS is currently limited to several districts, but 
we are planning to make RIBITS the standard tool for tracking sale and 
production of compensatory mitigation credits by third parties.
    Several commenters expressed appreciation that the agencies 
incorporated many of the recommendations made in the 2001 NRC Report. A 
few commenters acknowledged that the proposed rule prioritized the 
location and types of compensatory mitigation projects in accordance 
with the NRC's recommendations. However, they said that they disagree 
with the NRC's recommendations and suggested that the agencies 
establish a preference for on-site and in-kind mitigation in the final 
rule. They said that a preference for on-site and in-kind compensation 
would better support a ``no net loss'' goal for aquatic resources.
    We disagree that the rule should establish a preference for on-site 
compensatory mitigation, because the failure rate for such projects is 
quite high. On-site compensatory mitigation activities, especially 
wetland restoration or establishment, are particularly sensitive to 
land use changes. Land use changes often alter local hydrology. 
Establishing appropriate hydrology patterns (i.e., duration and 
frequency) to support the desired aquatic habitat type is a key factor 
in successfully restoring or establishing those habitats. In many 
cases, there are circumstances in which on-site mitigation is neither 
practicable nor environmentally preferable. Under the watershed 
approach, it may be desirable to require some on-site mitigation 
measures to address water quality and quantify functions, and to 
require off-site mitigation to compensate for habitat functions.
    We do agree that, in general, in-kind mitigation is preferable to 
out-of-kind mitigation because it is more likely to compensate for the 
functions and services lost at the impact site. The rule states that 
the compensatory mitigation should be of a similar type (e.g., Cowardin 
and/or hydrogeomorphic class) to the affected aquatic resource, unless 
the district engineer determines using the watershed approach described 
in the rule (see Sec.  332.3(c) [Sec.  230.93(c)]) that out-of-kind 
compensatory mitigation will better serve the aquatic resource needs of 
the watershed. The term ``in-kind'' in Sec.  332.2 [Sec.  230.92] is 
defined to include similarity in structural and functional type; 
therefore, the focus of the in-kind preference is on classes of aquatic 
resources (e.g., forested wetlands, perennial streams). However, all 
compensatory mitigation projects should provide a high level of 
functional capacity, even when compensating for degraded or low-quality 
resources. Replacement ratios may be used to adjust for the relative 
quality of impact sites and mitigation projects, where appropriate. 
With this rule, we are moving towards greater reliance on functional 
and condition assessments to quantify credits and debits, instead of 
surrogates such as acres and linear feet. We believe that more frequent 
use of such assessment methods will help improve the quality of aquatic 
resources in the United States.

[[Page 19602]]

    For example, in a case where a project proponent is proposing to 
fill a degraded three acre wetland that provides one unit of wetland 
function per acre (as determined by a rigorous functional assessment 
method), the loss of that wetland may in some cases be offset by a 
compensatory mitigation project that provides fewer acres of high-
functioning wetlands (as determined by the same functional assessment 
method). Conversely, where the impact is to a high-value resource, more 
than one-to-one replacement on an acreage basis may be necessary just 
to achieve functional equivalence between the impact and mitigation 
sites. Note that replacement ratios may also be greater than one-to-one 
for other reasons, such as to address uncertainty of success or 
temporal losses.
    One commenter said that the Corps should be the principal agency 
administering the 404 wetlands regulatory program. The commenter stated 
that the involvement of multiple agencies in wetlands regulation only 
hinders the overall efforts of the Corps Regulatory Program. This 
commenter also stated that the Corps should build a stronger, more 
predictable compensatory mitigation program to both enhance 
environmental protection and provide a measure of certainty to both 
regulatory staff and permit applicants.
    While we agree that the section 404 regulatory program should be as 
streamlined and efficient as possible, we do not agree that the 
involvement of other agencies necessarily hinders that efficiency. 
Today's rule will foster greater efficiency and predictability in the 
interagency process by providing clear deadlines for action on all 
types of compensatory mitigation, particularly banking and in-lieu fee 
program instruments. We note that the participation of other agencies 
in the section 404 permit process is required by various laws, 
regulations, and legally-binding agreements. For example, section 
404(b) of the Clean Water Act specifically authorizes EPA to develop 
guidelines for the identification of disposal sites for dredged or fill 
material (the 404(b)(1) Guidelines), which provide substantive 
environmental criteria for avoidance, minimization and compensatory 
mitigation. The EPA is authorized by section 501(a) of the Clean Water 
Act to conduct any rulemaking necessary to carry out their functions 
under that act. As another example, the Fish and Wildlife Coordination 
Act and other statutes require consultation with the U.S. Fish and 
Wildlife Service and the National Marine Fisheries Service for 
activities that control or modify waterbodies.
    Many commenters stated that the proposed rule is inconsistent with 
existing national regulations, and one commenter said that the proposed 
rule is inconsistent with regulations at 33 CFR 320.4(r), as well as 
the ``Mitigation'' general condition for the nationwide permits and 
other compensatory mitigation guidance documents that apply to the 
Corps Regulatory Program. This commenter also stated that the 404(b)(1) 
Guidelines provide no authority for requiring compensatory mitigation 
for unavoidable adverse impacts after all appropriate and practicable 
minimization has been required.
    The agencies disagree with these comments. The Corps general 
mitigation policy at 33 CFR 320.4(r) describes types of mitigation, 
including avoiding, minimizing, rectifying, reducing, or compensating 
for resource losses. Since that provision was last promulgated in 1986, 
there have been policy changes that have resulted in the Corps 
requiring compensatory mitigation for more activities, not just those 
that result in significant resource losses. For example, when the 
nationwide permit regulations were revised in 1991, a provision was 
added (33 CFR 330.1(e)(3)) which stated that compensatory mitigation 
could be required by a district engineer to ensure that an NWP activity 
results in minimal adverse environmental effects. The final rule issued 
today also specifically states that it does not alter the regulations 
of 33 CFR 320.4(r), and that it supersedes certain guidance documents 
on compensatory mitigation. What is generally understood to be 
compensatory mitigation today (i.e., the restoration, establishment, 
enhancement, and/or preservation of aquatic resources) is in the 
404(b)(1) Guidelines as an action to minimize adverse effects on 
populations of plants and animals (see 40 CFR 230.75(d)). Compensatory 
mitigation may also be required to satisfy other legal requirements, as 
a result of the public interest review process, or to compensate for 
other resource losses. As indicated in the preamble to this rule, 
today's rule does not affect the determination as to when compensatory 
mitigation is required, only the requirements for conducting such 
mitigation once the district engineer determines that it is necessary. 
As stated in the preamble to the March 28, 2006, proposed rule (71 FR 
15524-15525), this rule does not change the threshold for determining 
when compensatory mitigation is required; instead it focuses on where 
and how compensatory mitigation will be provided. The threshold for 
determining when compensatory mitigation is required for DA permits is 
generally addressed through 33 CFR 320.4(r) and specifically for the 
nationwide permits at 33 CFR 330.1(e)(3).
    A number of commenters stated that the proposed rule gives 
preference to certain groups. One commenter said that the proposed rule 
promotes the interests of non-profit organizations, government 
agencies, and academics, instead of restoration practitioners and 
entrepreneurs. One commenter remarked that wetland mitigation and 
market-based approaches have the potential to expand land conservation 
practices through private investments and to provide additional 
economic incentives to help retain working farms and forests. Another 
commenter said that a market-driven approach will help small developers 
and allow for increased entrepreneurship in compensatory mitigation. 
One commenter said that the proposed rule would damage the economic 
viability of wetland mitigation banking and encourage losses of 
wetlands in floodplains, which would exacerbate property damage caused 
by flooding.
    Under this rule, any entity, whether a non-profit group, government 
agency or commercial entrepreneur, has the opportunity to develop and 
implement compensatory mitigation projects. We believe we have complied 
with the statute requiring the promulgation of this rule, by maximizing 
available credits while raising requirements and standards to help 
ensure ecological performance. When evaluating compensatory mitigation 
options, district engineers will consider what would be environmentally 
preferable to offset the authorized impacts. In many instances, the 
environmentally preferable compensatory mitigation will be in the form 
of mitigation banks or in-lieu fee programs because they usually 
involve consolidating compensatory mitigation projects and resources, 
and providing financial planning and scientific expertise. They may 
also reduce temporal losses of functions and reduce uncertainty over 
project success. We have added a provision that in-lieu fee sponsors 
must be governmental or non-profit organizations. We believe this is 
appropriate in light of the fact that only in-lieu fee programs are 
allowed to sell advance credits, before a site has been secured or a 
specific mitigation project reviewed and approved.
    We disagree that the rule will adversely affect the economic 
viability of mitigation banks and encourage

[[Page 19603]]

losses of wetlands in floodplains. By further clarifying the 
requirements and timelines for mitigation bank approval, and by 
establishing a preference for mitigation bank credits we believe the 
final rule will in fact enhance the economic viability of mitigation 
banks. Since the focus of this rule is on compensatory mitigation, 
avoidance and minimization of impacts to wetlands located in 
floodplains is more appropriately addressed through the application of 
Subpart B of the 404(b)(1) Guidelines, compliance with Executive Order 
11988 (Floodplain Management), and compliance with the floodplain 
management requirements of the Federal Emergency Management Agency and 
state and local governments.
    One commenter said that the rule will slow down the permitting 
process for new energy projects. Three commenters stated that section 
1221 of the Energy Policy Act of 2005 (Pub. L. 109-58), through section 
216(h) of the Federal Power Act, requires federal permit decisions 
associated with transmission facilities to be made in one year, unless 
it is not possible under other laws. These commenters said that the 
one-year time frame applies to DA permits.
    This final rule will not have an adverse effect on processing times 
for DA permits that authorize the construction of transmission 
facilities. The rule promotes the development of mitigation banks and 
in-lieu fee programs, which can be used to provide compensatory 
mitigation for energy projects that require DA permits. Securing 
credits from third-party mitigation providers can help shorten permit 
processing times, because there is no need to review and approve site-
specific mitigation plans for permittee-responsible mitigation. In 
cases where appropriate third-party mitigation credits are not 
available, the review and approval of permittee-responsible mitigation 
projects should be more timely, because this rule establishes clear 
guidelines and requirements for those compensatory mitigation projects. 
This rule does not change the circumstances under which compensatory 
mitigation is required, so additional compensatory mitigation will not 
be required for energy projects.
Wetland Protection
    Many commenters said that the proposed rule does not adequately 
protect the Nation's wetlands, does not support the goal of ``no net 
loss'' of wetlands, does not support the objective of the Clean Water 
Act to maintain the chemical, physical, and biological integrity of 
wetlands, and will result in a significant loss of wetland acreage 
across the country. Several commenters recommended that the final rule 
include provisions to make it more difficult to fill wetlands to ensure 
no net loss of wetland acreage and functions. However, one commenter 
said that although current federal regulations could be improved, those 
regulations are sufficient to ensure no net loss of wetlands in 
Florida. One commenter stated that over 33,000 acres of wetlands have 
been lost last year alone, and, with this much destruction, it is 
obvious that the agencies are not requiring enough avoidance of wetland 
impacts. Two commenters said that of the three goals stated in the 
proposed rule (i.e., to improve quality of mitigation, improve 
regulatory efficiency, and ensure opportunities for federal agency 
participation in mitigation banks), only one goal is focused on natural 
resource protection. These commenters also stated that regulatory 
efficiency should not be pursued at the expense of wetland protection.
    A primary objective of the Clean Water Act is to restore and 
maintain the chemical, physical and biological integrity of the 
Nation's waters. Through its permit program, the Corps helps protect 
the aquatic environment by requiring project proponents to avoid and 
minimize regulated impacts to wetlands and other waters of the United 
States to the extent practicable. This rule was specifically 
promulgated to address compensatory mitigation. For activities that 
require a section 404 permit, avoidance and minimization are addressed 
through application of Subparts A through H of the 404(b)(1) Guidelines 
at 40 CFR part 230. Prior to issuing a permit, the Corps must evaluate 
the proposed work and its impacts on the aquatic environment and other 
public interest review factors, and determine whether the proposed work 
is in the public interest. Compensatory mitigation may be required to 
ensure that the proposed work is not contrary to the public interest 
and, if the activity involves discharges of dredged or fill material 
into waters of the United States, is in compliance with the 404(b)(1) 
Guidelines. The rule does not change or weaken existing regulatory 
requirements to avoid and minimize impacts to wetlands.
    In fiscal year 2005, the Corps authorized 20,754 acres of wetland 
impacts, and required 56,693 acres of compensatory mitigation through 
wetland restoration, establishment, enhancement, and preservation to 
offset those unavoidable impacts. From fiscal years 2001 to 2005, the 
mean annual wetland impacts authorized were 23,000 acres, and the mean 
annual wetlands compensatory mitigation required was 50,000 acres.
    This rule incorporates many of the recommendations of the 2001 NRC 
Report, as well as appropriate recommendations from other evaluations 
of wetland compensation, to provide measures to help improve the 
success of wetland compensatory mitigation projects. By improving the 
success of these projects, the Corps Regulatory Program will help 
support the Administration's goal of increasing wetland acreage and 
quality. We believe that the rule will both improve the quality and 
success of compensatory mitigation and increase predictability and 
efficiency in the regulatory program.
    Three commenters recommended adding a provision to the rule from 
the 1990 mitigation Memorandum of Agreement (MOA) between the Army and 
EPA stating that no overall net loss of wetlands may not be achieved 
for each and every permit action, but the Corps would achieve this goal 
programmatically. One commenter noted that the ``no net loss'' goal for 
wetlands is required by statute for the Corps Civil Works Program (see 
33 U.S.C. 2317(a)(1)).
    That specific provision of the 1990 Mitigation MOA has not been 
superseded by this final rule. It is important to understand that the 
1990 Mitigation MOA applies only to standard permits. It is not 
practicable or appropriate to require compensatory mitigation for every 
standard permit, or for every general permit authorization. The 
requirements of 33 U.S.C. 2317(a)(1) are more accurately presented as 
achieving an interim goal of ``no overall net loss'' of the nation's 
remaining wetlands base as measured by acreage and function, with a 
long-term goal of increasing the quality and quantity of the nation's 
wetlands. That provision of the United States Code applies to water 
resource development projects undertaken through Corps Civil Works 
program, not to activities authorized by DA permits.
    Two commenters stated that developers should not be able to provide 
wetlands compensatory mitigation through mitigation banks or in-lieu 
fee programs. One commenter said that wetland buffers reduce adverse 
impacts of human disturbance on wetland habitats. Two commenters 
recommended emphasizing voluntary economic incentives and balancing 
economic needs with those of wetlands protection.
    Under this rule, developers will be able to provide compensatory 
mitigation through mitigation banks, in-lieu fee

[[Page 19604]]

programs, or permittee-responsible mitigation. In many cases, the 
environmentally preferable compensatory mitigation will be provided 
through mitigation banks or in-lieu fee programs because they typically 
involve consolidating compensatory mitigation projects and resources, 
and providing financial planning and scientific expertise. For a 
particular activity requiring a DA permit, the Corps may consider any 
appropriate form of compensatory mitigation, as long as it complies 
with these regulations. We agree that wetland buffers often help ensure 
the long term viability of wetlands, and the rule promotes the use of 
such buffers. There are some federal programs that provide economic 
incentives to protect wetlands, but those programs have limited 
availability. Section 404 of the Clean Water Act is not structured to 
provide voluntary economic incentives for avoiding regulated activities 
in wetlands. Instead, it relies on a regulatory approach to wetland 
protection.
Aquatic Resource Functions, Services, and Values
    A number of commenters discussed the concepts of ``functions,'' 
``services,'' and ``values'' that were in the proposed rule. Two 
commenters suggested removing ``values'' and ``services'' from the 
rule. One commenter said there is disagreement on the definitions of 
these terms, and the rule should instead require a minimum one-to-one 
acreage ratio. One commenter said that functional capacity appears to 
represent natural wetland potential better than society-driven values 
and services and should be emphasized more. Another commenter said that 
the rule should explicitly require replacement of lost ``values,'' 
because a shift from a broad concept of ``function and value'' to a 
narrow concept of function alone ignores social services and values 
that are important to the public interest, such as protection from 
natural hazards. One commenter said that the phrase ``non-use values 
such as biodiversity'' will subject the regulatory agency and the 
regulated community to uncertainty and litigation as opponents who 
object to a project challenge the details of an impact. One commenter 
suggested that functions, values, and services found in a given wetland 
can best be measured after the wetland conditions are established using 
biological indices, and that a framework or methodology is needed.
    The terms ``functions,'' ``services,'' and ``values'' have been 
used in various documents to describe the attributes of aquatic 
resources that are being replaced through compensatory mitigation. We 
included definitions for all three terms in the proposed rule. After 
considering the comments received in response to these concepts, we 
have eliminated the term ``values'' from the final rule because the 
term ``services'' is currently being used in the ecological literature 
to relate to the human benefits that are provided by an ecosystem. The 
concept of ecosystem services provides a more objective measure than 
``values'' of the importance of the functions performed by the 
ecosystem to human populations. Ecosystem services is a useful concept 
for assessing the public interest, an important consideration in the 
Corps Regulatory Program. Consideration of ``services'' provided by 
aquatic resources is usually qualitative, and can be accomplished 
through evaluations of compensatory mitigation options, including 
siting those projects near human populations.
    Using the concept of ``services'' also allows us to focus on how 
the general population benefits from ecological functions, instead of 
whether potentially affected parties may or may not ``value'' a 
particular aquatic resource and the functions it provides. The term 
``values'' is more subjective, since a particular ecosystem service may 
be perceived to be valuable by some individuals but not others. The 
term ``values'' can also be read to imply monetary valuation, which is 
difficult for most aquatic resource functions and is not generally 
practical for most decisions. Therefore, we believe the regulatory 
program is appropriately focused on protecting ``functions'' (the 
physical, chemical and biological processes that occur in aquatic 
resources) and ``services'' (the benefits to humans that result from 
these functions). Accordingly, we have eliminated the term ``values'' 
from the rule, including the reference to ``non-use values such as 
biodiversity.'' However, biodiversity is a potential service that some 
resources may provide.
    The agencies have a long-standing policy of achieving no overall 
net loss for wetland acreage and function. Simply requiring one-to-one 
acreage replacement may not adequately compensate for the aquatic 
resource functions and services lost. Presently, there are methods that 
can be used by district engineers to assess aquatic resource functions 
or condition, such as hydrogeomorphic assessment methods and indices of 
biological integrity. There are efforts being undertaken to develop 
methods to assess ecosystem services, such as those that use indices of 
wetland function to reflect the services provided by wetlands.
    A number of commenters expressed concern that offsite mitigation 
can lead to transfer of wetland ecosystem services from urban to rural 
areas. However, one commenter said that the rule should not be written 
for the purpose of preventing urban wetland values from migrating to 
rural areas because local jurisdictions have other means for preventing 
this (e.g., zoning ordinances, eminent domain). Another commenter 
stated that because of a shortage of suitable sites in populated areas, 
it may not be possible to establish ecologically viable mitigation 
banks in certain heavily urbanized areas. This commenter said that 
mitigation banks in urban areas should be allowed to generate more 
credit per unit of restored resource to make these sites financially 
feasible.
    We recognize that aquatic resources in urban settings can provide 
important functions and services, and we believe it is important that 
urban areas not become devoid of aquatic resources simply because it is 
more difficult to successfully restore or establish aquatic habitat in 
developed areas, or to obtain suitable compensatory mitigation project 
sites. However, in certain situations self-sustaining and ecologically 
successful aquatic resource restoration or establishment projects may 
not be feasible in urban areas because of changes in land use and the 
resulting impacts to local surface hydrology and groundwater. In these 
types of situations, the rule allows compensatory mitigation for 
impacts to urban wetlands to be conducted in rural areas if the 
applicable requirements of the rule and the Section 404(b)(1) 
Guidelines are met. Under the watershed approach adopted in the final 
rule, district engineers may require compensatory mitigation at more 
than one site. For example, compensatory mitigation may be required on-
site to offset losses of water quality and flood storage functions, 
while off-site compensation may be required to offset losses of habitat 
functions. The siting of mitigation banks is dependent upon potential 
mitigation bank sponsors securing land suitable for compensatory 
mitigation projects. Such land may not be available in urban areas at a 
price, and a rate of return on that investment, that is acceptable to 
the sponsor. Credit valuation must be based on the ecological functions 
and services provided by the compensatory mitigation project, not the 
difficulty or cost of siting and constructing it. However, where 
appropriate, district engineers may consider the relative

[[Page 19605]]

ecological value of scarce aquatic resources in urban areas (at both 
the impact and mitigation sites) in determining appropriate 
compensation ratios. While preservation may be the most appropriate 
form of compensatory mitigation in urban areas in some cases, we 
encourage district engineers to look for opportunities to restore or 
establish aquatic resources in appropriate areas.
Mitigation Effectiveness
    Many commenters stated that compensatory mitigation projects do not 
effectively replace natural wetlands, because created wetlands do not 
support the variety of native biota found in natural ecosystems, and 
there is no guarantee that they will function as natural wetlands. A 
large number of commenters also said that the rule fails to address the 
fact that many aquatic systems cannot be created. The commenters stated 
that there is no scientific data showing that the functions of 
headwater streams, and wetlands such as bogs and fens, can be 
reproduced, and the proposed rule would weaken protections for these 
waters by sanctioning uncertain mitigation practices. Several 
commenters stated that the rule does not include major improvements 
suggested by the scientific community to improve wetlands compensatory 
mitigation.
    We have carefully considered reviews and criticisms of compensatory 
mitigation projects, especially the 2001 NRC Report, during the 
development of this rule. We recognize that there are compensatory 
mitigation projects that do not fully succeed in replacing the 
functions and services of aquatic resources that are lost or altered as 
a result of permitted activities. In an effort to improve compensatory 
mitigation practices in the Corps Regulatory Program, we have 
incorporated recommendations made in the 2001 NRC Report and other 
reports. We believe that this final rule accomplishes that objective 
and will help increase the success and quality of aquatic resource 
restoration, establishment, and enhancement activities by focusing on 
effective site selection at a landscape and watershed scale, requiring 
enforceable permit conditions (including ecological performance 
standards), requiring monitoring of compensatory mitigation, and 
undertaking adaptive management to help ensure success. We recognize 
that some types of aquatic resources are difficult to replace, such as 
bogs, fens, vernal pools, and streams. In response to these comments, 
we have added Sec.  332.3(e)(3) [Sec.  230.93(e)(3)], which emphasizes 
avoidance and minimization of impacts to difficult-to-replace 
resources, and if such avoidance and minimization is not practicable, 
requires that compensatory mitigation be provided through in-kind 
preservation, rehabilitation, or enhancement to the extent practical.
Mitigation Mechanisms
    Several commenters said that the rule inappropriately treats 
permittee-responsible mitigation, mitigation banks, and in-lieu fee 
programs as though they are a single vehicle. Two commenters stated 
that in cases where a mitigation bank is successfully established, it 
should be preferred over permittee-responsible mitigation, but with the 
caveat that movement of aquatic resources from urban areas to rural 
areas should be monitored and possibly prevented. One commenter 
recommended that consolidated mitigation be allowed for linear 
facilities such as transmission lines. One commenter suggested the 
following clarification be included in the preamble to the final rule: 
``This rule is not intended to inhibit market-based opportunities for 
trading environmental credits beyond those required for compensatory 
wetland mitigation.'' According to that commenter, this would allow 
private landowners to sell credits for environmental services gained 
beyond those required for compensatory mitigation for DA permits.
    This rule establishes, to the extent practicable, equivalent 
standards for all types of mitigation, as required by section 314. The 
administrative and procedural requirements in the final rule vary, 
because there are fundamental differences among mitigation banks, in-
lieu fee programs, and permittee-responsible mitigation. It is not 
possible to impose exactly the same requirements on these three sources 
of compensatory mitigation, and fulfill the other requirement of 
section 314, which is to ``maximize available credits and opportunities 
for mitigation.'' To maximize available credits, it is necessary to 
recognize the differences among the three sources, and impose 
equivalent standards and requirements to the extent practicable. Where 
it is not practicable to impose identical requirements, the rule adopts 
comparable alternative requirements to help ensure the ecological 
success of all types of compensatory mitigation. It is also important 
to emphasize that the rule applies equivalent ecological standards to 
all three types of compensatory mitigation; the differences are in 
procedures and timing of requirements. Site selection for third-party 
mitigation should focus on the ecological benefits that the mitigation 
banks or in-lieu fee projects will provide to the watershed. This may 
or may not result in migration of aquatic resources from urban to rural 
areas within that watershed.
    For linear projects, such as roads and utility lines, district 
engineers may determine that consolidated compensatory mitigation 
projects provide appropriate compensation for the authorized impacts, 
and are environmentally preferable to requiring numerous small 
permittee-responsible compensatory mitigation projects along the linear 
project corridor. We do not believe it is necessary to explicitly state 
that this rule is not intended to inhibit market-based environmental 
credit trading, as the rule only applies to compensatory mitigation 
required for DA permits. The ability of private landowners to sell 
credits for environmental services gained beyond those required for 
compensatory mitigation for DA permits is more appropriately addressed 
through other applicable programs.
General Comments on Mitigation Banking
    Many general comments were received regarding mitigation banking. 
Some commenters encouraged broader use of banks, many others criticized 
a perceived preference for mitigation banks in the proposed rule. 
Several commenters recommended providing greater incentives for Corps 
districts to process commercial mitigation bank requests. One commenter 
suggested that this rule include incentives to private landholders to 
participate in wetland mitigation banking. Many commenters said the 
rule inappropriately promoted the economic needs of the mitigation 
banking industry over the needs of watersheds, and that the preference 
for mitigation banks over other forms of compensatory mitigation is not 
justified.
    We recognize that mitigation banking is an important tool for 
compensatory mitigation. In this final rule, we have established a 
preference for mitigation bank credits, since mitigation banks must 
have an approved mitigation plan and other assurances in place before 
credits can be provided to permittees (see Sec.  332.3(b)(2) [Sec.  
230.93(b)(2)]). Because of the requirements imposed on mitigation 
banks, they generally involve less risk and uncertainty than in-lieu 
fee programs and permittee-responsible mitigation. This preference is 
based on administrative criteria, not ecological criteria. To the best 
of our knowledge, there have been few studies by independent parties of 
the ecological

[[Page 19606]]

performance of mitigation banks. The studies that we have reviewed have 
shown that mitigation banks have experienced many of the same problems 
as permittee-responsible mitigation (see the environmental assessment 
completed for this rule for summaries of those studies). The ecological 
success of mitigation banks, in-lieu fee programs, and permittee-
responsible mitigation is dependent on many of the same factors, such 
as selecting appropriate sites and establishing the proper hydrology. 
We are not aware of any independent studies on the ecological 
performance of in-lieu fee projects. As discussed below, in response to 
comments received as a result of the proposed rule, we are retaining 
in-lieu fee programs as another form of third-party mitigation, with 
robust requirements to help ensure that they provide effective 
compensatory mitigation.
    The timelines in this rule for processing proposed mitigation banks 
and in-lieu fee programs will promote timely decisions on instruments 
for these third-party mitigation activities. Participation in 
mitigation banks is not limited to entrepreneurs; private landowners 
can also submit proposed mitigation banks for consideration. We 
recognize that mitigation banks are not currently available in many 
areas of the country, or will be able to provide in-kind compensation 
for some types of aquatic resources. Therefore, to support a watershed 
approach for compensatory mitigation, we are retaining in-lieu fee 
programs as a separate form of third-party mitigation in this final 
rule, because in-lieu fee programs can provide ecologically beneficial 
compensatory mitigation in areas not served by mitigation banks. The 
preference for mitigation banks can be overridden by district engineers 
on a case-by-case basis if, for example, an approved in-lieu fee 
program has released credits available, or the permittee is proposing a 
compensatory mitigation project that will restore an outstanding 
resource.
    Several commenters said that references to economic factors should 
be removed from consideration of the mitigation service area and there 
should be a greater consideration of the watershed approach, in order 
to be more consistent with other forms of compensatory mitigation. 
Several commenters stated that overdependence on mitigation banks will 
promote less successful compensatory mitigation projects. They cited a 
recent study in Ohio that showed that mitigation banks have not 
provided successful mitigation for permitted impacts. Several other 
commenters noted that there are too many areas in the country that are 
underserved by mitigation banks. One commenter recommended non-profit 
management of mitigation banking, because non-profit entities can do 
more work for the actual cost and their ultimate goal is stream 
restoration, not maximizing the amount of profit.
    Mitigation banks and in-lieu fee programs must be sited in such a 
way as to effectively replace lost aquatic resource functions and 
services and address key watershed needs within their service areas. 
However, consideration of economic factors is also important in 
determining the service area, to make it possible for third-party 
mitigation sponsors to develop and implement these projects. If service 
areas are too small to support economically viable mitigation banks or 
in-lieu fee programs, then we would have to rely on permittee-
responsible mitigation. As discussed in the environmental assessment 
for this rule, permittee-responsible mitigation is generally less 
likely to be a successful source of compensatory mitigation. However, 
to ensure the benefits of third-party mitigation, economic factors 
should not supersede ecological considerations in the final service 
area determination. The benefits of mitigation banks and in-lieu fee 
programs are discussed in Sec.  332.3(a)(1) [Sec.  230.93(a)(1)].
    The agencies agree that there are certain advantages to non-profit 
and governmental agencies as third-party mitigation sponsors. They do 
not need to earn a profit, and are more likely to act in the public 
interest. However, commercial banks also have certain advantages. They 
have a strong financial incentive to provide effective, timely 
mitigation that may be lacking for non-commercial entities. Under 
today's final rule, mitigation bank sponsors may be either commercial, 
non-profit, or governmental entities, while in-lieu fee program 
sponsorship is limited to governmental and non-profit entities.
    Some commenters supported the mitigation banking rules, while 
others disagreed with the proposal to eliminate in-lieu- fee programs. 
Several commenters said that the cost of bank credits should be 
established in the context of the marketplace. One commenter stated 
that over-promoting mitigation banks could lead to a monopolistic 
pricing structure. Numerous commenters asserted that the process of 
establishing a mitigation bank should be streamlined. Some commenters 
supported the termination of wetland mitigation banks that do not 
comply with the Clean Water Act.
    In this final rule, we have established criteria and standards for 
both mitigation banks and in-lieu fee programs, to maximize the 
available credits for use in the Corps regulatory program, as well as 
the Corps Civil Works Program and military construction activities. 
Credit costs for mitigation banks will be determined by their sponsors. 
The rule does attempt to streamline the process for establishing both 
mitigation banks and in-lieu fee programs, while recognizing the need 
for thorough and effective IRT and public review before credit sales 
can begin. To accomplish these goals, the final rule establishes 
reasonable deadlines for each step in the review and approval process. 
To continue operating, approved mitigation banks and in-lieu fee 
programs must comply with the terms of their instruments and these 
regulations, and district engineers will take appropriate actions if 
credits are not produced in accordance with approved credit release 
schedules. This ensures compliance with the Clean Water Act.
Regional Issues
    A number of commenters expressed concern about how the rule will be 
implemented at the district or regional level, or with regard to 
specific issues such as coal mining and port facilities. One commenter 
welcomed the improved consistency in Corps implementation of a federal 
mitigation regulation with similar standards, timelines, and laws 
across states, for administrative reasons rather than biological/
ecological differences. One commenter expressed concern that Corps 
districts will develop stricter requirements than those in the rule and 
another commenter stated that the rule places too much authority with 
the district engineer and not enough with state and local officials who 
are more familiar with local needs. Other commenters stated that the 
rule could conflict with state or local programs, and if the state 
enacts stricter standards for mitigation, the Corps must adopt those 
standards into DA permits. Many commenters noted that mitigation 
banking is being given preference over other types of mitigation 
despite state agency efforts to develop rules to encourage site-
specific in-kind mitigation. In this way, the proposed rule fails to 
account for existing state and local regulations. Numerous commenters 
stated that coordination between state, local, and federal 
administrators is necessary or the rule may undermine functioning state 
and local mitigation plans.

[[Page 19607]]

    The rule provides district engineers the flexibility to address 
permit-specific situations, while ensuring clear and consistent 
national standards and requirements. While we expect district engineers 
to work closely with their state and local partners, particularly on 
Interagency Review Teams, it is essential that this rule is consistent 
with Congressional intent as provided by section 314. This rule must 
also be consistent with the other Corps regulations at 33 CFR parts 320 
through 331, which govern the implementation of the Corps Regulatory 
Program. Of course, it would be desirable to have consistent 
compensatory mitigation requirements across the various levels of 
government that have regulatory authority over a particular project, 
but there are usually differences because of variability among agency 
authorities, missions, and objectives. State and local governments may 
impose different requirements to address local or regional needs or 
concerns. Compensatory mitigation decisions made by district engineers 
must address federal concerns and authority, and must focus on 
compliance with the Clean Water Act and other federal requirements. 
There are likely to be cases where the compensatory mitigation 
requirements imposed by the Corps are different from those imposed by 
state or local governments, but in most cases they are likely to be 
similar. All section 404 permits require section 401 water quality 
certification by states and tribes. Where states feel that federal 
requirements are not stringent enough, they may impose more protective 
requirements in accordance with their water quality standards.
    In this final rule, preference is given to mitigation banks, if the 
authorized impacts occur in the service area of a mitigation bank that 
has the appropriate number and resource type of credits available. If 
permittee-responsible mitigation is required by a state or local 
government with regulatory authorities that are similar to the Corps 
under section 404 of the Clean Water Act or sections 9 or 10 of the 
Rivers and Harbors Act of 1899, and the mitigation project will 
appropriately offset the permitted impacts, then the district engineer 
may determine that the permittee-responsible mitigation is acceptable 
for the purposes of the DA permit. We encourage coordination among 
federal, state, and local governments to avoid duplicate or conflicting 
compensatory mitigation requirements, as long as those requirements are 
consistent with federal requirements.
    Several commenters cited various successful state programs and said 
that these programs should not be subject to the additional 
administrative burden of IRT review and approval of each separate 
mitigation project, and that their success could be disrupted by 
application of the rule. A number of commenters discussed the unique 
regulatory scheme that applies to mining, stated that the rule does not 
recognize the temporary nature of coal mining impacts on streams, and 
that the agencies must reconsider application of some of the proposed 
requirements, particularly those addressing monitoring and long-term 
assurances, in the context of the mining industry's regulatory 
environment.
    District engineers will continue to work with successful state 
programs to streamline the review process to the maximum extent 
possible under these regulations. Third-party mitigation projects will 
be reviewed by district engineers and other interested members of the 
IRT. That interagency review is often helpful in providing different 
areas of expertise to evaluate the potential that each compensatory 
mitigation project has for successfully offsetting functions lost as a 
result of impacts authorized by DA permits. Established relationships 
between state programs and their federal counterparts will not be 
disrupted by this rule. Corps oversight is necessary to ensure the 
continued success of these programs. To help take advantage of 
established relationships, we have added a provision to the final rule 
that allows the district engineer and any member of the IRT to enter 
into a memorandum of agreement to perform some or all review functions 
(see Sec.  332.8(b)(5) [Sec.  230.98(b)(5)]). However, the district 
engineer cannot delegate his or her authority for final approval of 
instruments or other documents.
    As for mining activities, this rule does not change how the Corps 
will evaluate permit applications or assess the need for compensatory 
mitigation for those activities. What constitutes a temporary impact, 
and the need for compensatory mitigation, is determined on a case-by-
case basis, depending on the specific circumstances of the project. The 
district engineer will determine the appropriate time interval for 
distinguishing between temporary and permanent impacts. Monitoring of 
compensatory mitigation sites is required and monitoring reports must 
be submitted to the district engineer in accordance with the special 
conditions of the DA permit or the terms of the mitigation banking or 
in-lieu fee program instrument. However, the content and level of 
detail of monitoring reports is commensurate with the scale, scope, and 
type of the compensatory mitigation project. Requirements relating to 
financial assurances and long-term management are determined on a case-
by-case basis, depending on the specific circumstances of the project.
Need for Clarification
    Several commenters stated that the proposed rule does not 
specifically state whether it applies to general permits. Most of these 
commenters argued that the rule should apply solely to individual 
permits, and that nationwide and regional general permits should 
continue to be governed by 33 CFR part 330, because the requirements of 
the proposed rule conflict with the more flexible standards that apply 
to the nationwide permits and will greatly limit their utility. Two 
commenters stated that the proposed rule should also apply to general 
permits. One commenter said that the rule should include provisions 
that would eliminate all general permits that do not comply with the 
Clean Water Act.
    The rule applies to compensatory mitigation required by all DA 
permits, including individual and general permits. We have made changes 
to this rule to clarify those provisions that are applied differently 
to individual permits and general permits. With these modifications, 
this rule does not conflict with the regulations at 33 CFR part 330, or 
the NWP general condition governing mitigation (i.e., general condition 
20 of the 2007 nationwide permits, as published in the March 12, 2007, 
issue of the Federal Register (72 FR 11193)). District engineers will 
determine specific compensatory mitigation requirements for each 
permitted activity based on case-specific considerations, including 
whether the activity is being authorized under a general or individual 
permit. This rule does not alter the circumstances under which the 
district engineers require compensatory mitigation or the threshold for 
determining when compensatory mitigation is required for a particular 
activity. The compliance of general permits with section 404(e) of the 
Clean Water Act is addressed through application of the Corps 
regulations governing the issuance of general permits, as well as the 
criteria in the 404(b)(1) Guidelines for issuing general permits (40 
CFR 230.7) and concerns about those permits that do not relate to 
compensatory mitigation are outside the scope of this rule.
    One commenter recommended that the rule specify when the term 
``project''

[[Page 19608]]

refers to an authorized or permitted activity. One commenter 
recommended that the agencies reconsider use of the term 
``ecological.'' Many readers may view this only in terms of species 
habitat, while in some cases other functions, such as flood control or 
water quality improvement, may be as or more important than habitat.
    To provide clarity in the final rule, we have used the term 
``project'' to refer to compensatory mitigation projects, and used the 
terms ``permitted impacts'' and ``authorized impacts'' when referring 
to the activities that adversely affect waters of the United States and 
may require compensatory mitigation. The term ``ecological,'' as used 
in this rule, is intended to be interpreted broadly as dealing with 
interrelationships of organisms (including humans) and their 
environment. The term ``ecological'' can refer to other features and 
functions of aquatic systems besides species habitat. For example, 
ecological functions provided by aquatic resources also include 
biogeochemical functions, which can help improve water quality. The 
agencies agree that water quality and flood control are important 
ecological services that should be compensated for when adversely 
impacted by permitted activities.
    One commenter stated that the proposed rule has implications for 
USDA program participants who perform conservation or other activities 
in wetlands and for wetland activities conducted on National Forest 
System (NFS) lands. The USDA is exploring how it may facilitate its 
constituents' involvement in wetland mitigation activities.
    This rule specifies compensatory mitigation requirements for DA 
permits. Compensatory mitigation projects may be conducted on 
agricultural lands and NFS lands. District engineers will consider the 
number and type of compensatory mitigation credits that may be provided 
through aquatic resource restoration, establishment, enhancement, and/
or preservation activities on these lands, over and above any 
environmental improvements that result from USDA programs (see Sec.  
332.3(j) [Sec.  230.93(j)]). Resources that are restored, established, 
enhanced or preserved to satisfy the requirements of other federal 
programs may not also be used for compensatory mitigation for DA 
permits, although district engineers may evaluate and approve on a 
case-by-case basis situations where a consolidated project is used to 
satisfy more that one set of requirements, provided the same resource 
is not ``double counted.'' For example, if 10 acres of wetlands were 
needed as compensatory mitigation for a DA permit, and 10 acres were 
needed for some other federal program, a 20 acre project could be 
authorized to fulfill the requirements of both, but the same 10-acre 
project could not.
    One commenter said that the agencies should use ``District 
Commander'' instead of ``district engineer'' when referring to the 
person that will implement this rule. The term ``District Commander'' 
refers to the person in charge of a particular Corps district. The term 
``district engineer'' refers to the District Commander and any of his 
or her designees (i.e., persons who are authorized to take actions on 
his or her behalf). This rule uses the term ``district engineer'' 
because most day-to-day regulatory decisions are made by the District 
Commander's designees.
    One commenter stated that subsurface impacts are not addressed, 
including subsurface extraction (mining) of oil, gas, ground water, and 
the aquifer matrix (e.g., rock, sand, shell). The commenter cited an 
example where a Corps permit involved the removal of thousands of acres 
(surface area) of aquifer matrix (in that case, limestone), resulting 
in greatly increased groundwater flow occurring in the vicinity of 
these mine pits despite erroneous assumptions of low flow by the 
regulatory agencies.
    It is not possible in this preamble to address the details of the 
particular case the commenter cites. To the extent that DA 
authorization is required for subsurface extraction activities, 
district engineers will determine the need for compensatory mitigation 
on a case-by-case basis.
Transition to the New Rule
    Several commenters recommended that the agencies clarify that the 
new regulations apply only to applications submitted after the 
effective date of the rules. One commenter added that the rule should 
recognize that applicants in the permitting process have expended 
substantial resources needed to obtain permits under the current rules, 
and those resources have been committed in reliance on the current 
rules governing compensatory mitigation. Therefore, the new 
requirements should not be applied retroactively to permit applicants 
who have invested substantial effort in developing data and plans under 
the previous rules and guidance. One commenter requested a clear 
statement that the rule does not apply to existing compensatory 
mitigation projects under Corps permits.
    This final rule will apply to permit applications received after 
the effective date of this rule, unless the district engineer has made 
a written determination that applying these new rules to a particular 
project would result in a substantial hardship to a permit applicant. 
In such cases, the district engineer will consider whether the 
applicant can fully demonstrate that substantial resources have been 
expended or committed in reliance on previous guidance governing 
compensatory mitigation for DA permits. Final engineering design work, 
contractual commitments for construction, or purchase or long-term 
leasing of property will, in most cases, be considered a substantial 
commitment of resources. Permit applications received prior to the 
effective date will be processed in accordance with the previous 
compensatory mitigation guidance.
Need for Additional Guidance
    Four commenters requested more detailed guidance on how and when 
riparian areas and upland buffers can be used as compensatory 
mitigation. Several commenters requested further guidance from agencies 
to implement the watershed approach consistently across the nation, on 
issues such as determination of watershed boundaries, information 
needed in watershed plans, and how to identify the needs of a 
particular watershed. Other commenters recommended that the agencies 
develop guidance on compensatory mitigation for open and navigable 
waters, performance standards, mitigation ratios, financial assurances, 
the implementation of adaptive management, and credit determination 
methods. Another commenter suggested that the agencies prepare regional 
reference manuals that provide guidance on how to best design 
compensatory projects appropriate to meet the needs of watershed units 
in that region.
    Many of these questions, such as how to determine watershed scale 
and boundaries, must be answered by district engineers at a regional or 
local level, to address landscape variability and other factors. Other 
questions must be answered on a case-by-case basis, after considering 
the impacts and the compensatory mitigation that may be necessary to 
offset those impacts. However, we recognize the need to provide more 
information to the public and agency personnel, and we will continue to 
develop guidance, as necessary, outside of this rulemaking.
Economic Issues
    Two commenters expressed concern over the increase in mitigation 
costs that will result from more stringent

[[Page 19609]]

performance standards and the delay of credit releases until 
performance is achieved. One commenter stated that the requirements of 
the rule will overly complicate the permitting process and ultimately 
impact the availability of affordable housing. If the costs of 
purchasing credits from a mitigation bank are too high, the district 
engineer should take that into account and allow other off-site or out-
of-kind mitigation.
    In some cases, the cost of performing compensatory mitigation may 
increase as a result of implementation of this rule. Since this rule is 
generally based on existing practice, with improvements to enhance 
performance and efficiency, we do not believe that it will cause a 
substantial increase in compliance costs. We believe that ecological 
performance standards and other aspects of this rule are necessary to 
improve the success of compensatory mitigation in the Corps Regulatory 
Program. District engineers will take costs into account when 
evaluating compensatory mitigation options, since practicability is one 
consideration when determining compensatory mitigation requirements for 
DA permits.
    One commenter strongly objected to adding any provision in the 
final rule that would require the Corps to ``determine what an adequate 
price might be'' of compensatory mitigation credits as suggested in the 
discussion section of the proposed regulation.
    The Corps will not determine the price of compensatory mitigation 
credits. The rule states that the cost of compensatory mitigation 
credits is determined by the sponsor of a mitigation bank or in-lieu 
fee program. However, the district engineer may evaluate fee schedules 
for in-lieu fee programs to determine whether those fees satisfy the 
criteria in Sec.  332.8(n)(5)(ii) [Sec.  230.98(n)(5)(ii)], and are 
sufficient for providing the required compensatory mitigation.
Implementation Issues
    A number of commenters stated that the requirements of the proposed 
rule will place an enormous burden on the Corps' staff and resources 
and may further delay implementation of projects. Numerous commenters 
asserted that additional resources must be allocated to reviewing 
monitoring reports, conducting site visits, and taking enforcement 
action when permittees and mitigation banks do not perform their 
prescribed mitigation requirements. Other commenters stressed the need 
to educate potential sponsors on how to operate wetland mitigation 
banks. Commenters also stated that the rule would place a 
disproportionate burden on permittees. However, another commenter 
stated that project proponents must consider mitigation requirements 
early in the project planning cycle to implement mitigation in advance 
of, or concurrent with, a project.
    This rule will not place a large incremental burden on Corps staff 
and other resources because it builds on existing requirements and 
practices and promotes those that have been successful in the past. To 
develop this rule, we have considered the recommendations from the 2001 
NRC Report and the 2001 and 2005 GAO reports, as well as other studies 
of compensatory mitigation projects, to establish regulations that will 
help ensure that compensatory mitigation successfully replaces 
functions that are lost as a result of permitted activities. 
Monitoring, site visits, and compliance activities are essential 
actions for ensuring compensatory mitigation success but they are not 
new. What is new is the greater clarity and consistency of requirements 
in these areas that the rule provides. The Corps already conducts 
compliance inspections on compensatory mitigation projects, including 
mitigation banks and in-lieu fee programs, as its resources allow and 
will continue to do so.
    We believe that the rule will increase regulatory efficiency by 
providing clear, consistent requirements, improving the third-party 
mitigation review process, and encouraging compensatory mitigation 
planning to be performed in advance of permitted activities through the 
use of mitigation banks and in-lieu fee programs. We do not believe 
that this rule will place a substantial burden on permittees. As more 
credits are generated by third-party mitigation providers, burdens on 
permittees should be reduced. This rule does not change the 
circumstances under which compensatory mitigation is required. As in 
the past, the district engineer will require compensatory mitigation to 
the extent appropriate and practicable. This rule appropriately 
balances the need for consistency with the need for flexibility, 
including its requirements for permittee-responsible mitigation. 
District engineers will continue to determine on a case-by-case basis 
what is required to satisfy the requirements of the 404(b)(1) 
Guidelines and other aspects of the Corps Regulatory Program.
    One commenter recommended that permit review staff go to each site 
before making a decision. Another commenter recommended that the 
agencies clearly define their roles ahead of time to reduce interagency 
conflicts, and that if such conflicts should occur, the Corps should 
work to resolve them rather than the applicant.
    Because of resource constraints, site visits cannot be conducted 
for each permit application. Districts must prioritize their site 
visits to determine which sites require on-site evaluations. The Corps 
is the decision-maker for activities that require DA authorization. The 
Corps fully considers agency views when making its decisions regarding 
whether to issue or deny permits. This rule further clarifies the roles 
and responsibilities of the Corps and other agencies, including the 
Interagency Review Team, in the review and approval of compensatory 
mitigation, and provides realistic deadlines for each step in the 
process. The rule also contains a dispute resolution procedure through 
which disagreements among Federal agencies regarding third-party 
mitigation proposals will be addressed expeditiously.
    A number of commenters discussed enforcement and compliance with 
mitigation permit conditions and claimed that there are insufficient 
staffing levels for these activities. Several commenters recommended 
that the Corps and state agencies place a stronger emphasis on staffing 
in order to increase permit compliance and enforcement of mitigation 
requirements. Several commenters cited the 2005 GAO report's finding 
that compliance with mitigation performance standards has been 
inadequate, which provides a disincentive for parties to comply with 
mitigation requirements. They stated that third-party mitigation 
instruments and/or permit conditions often do not adequately specify 
the mitigation activities to be performed, the standards to be 
achieved, and the time frames for performance. Several commenters 
requested clarification of the Corps' compliance authorities related to 
mitigation requirements.
    The agencies agree that vigorous enforcement and compliance 
activities are necessary for the success of the regulatory program, 
including compensatory mitigation. The Corps believes that it has 
adequate resources in these areas. In the Corps Regulatory Program's 
performance measures required by the Administration's Program 
Assessment Rating Tool (PART), enforcement and compliance metrics 
comprise six of the eight performance measures. These performance 
measures relate to compliance inspections on activities authorized by 
individual permits and general permits, field inspections of active 
mitigation sites, compliance inspections or audits on active

[[Page 19610]]

mitigation banks and in-lieu fee programs, resolution of non-compliance 
issues, and resolution of enforcement actions. The inclusion of so many 
metrics in the PART reflects the high priority placed on enforcement 
and compliance activities by the Corps regulatory program, which will 
help address the concerns raised in the two GAO reports. This rule will 
also address compliance and enforcement issues by more clearly 
specifying the required information for both permittee-responsible 
mitigation and third-party mitigation instruments plans. This rule also 
includes new requirements related to ecological performance standards, 
monitoring and credit release schedules.
    We have clarified the language in the rule that addresses non-
compliance with compensatory mitigation permit conditions or third-
party mitigation instruments and plans. Permittees responsible for 
mitigation as a permit condition will be subject to the compliance and 
enforcement provisions at 33 CFR part 326. If the district engineer 
determines that a mitigation bank or in-lieu fee program is not meeting 
performance standards or complying with the terms of the instrument, 
appropriate actions will be taken, such as requiring adaptive 
management, decreasing available credits, suspending credit sales 
altogether, and/or directing that financial assurance resources (e.g., 
escrow monies) be used to perform remediation or alternative 
mitigation. As a last resort, if a sponsor does not comply with the 
terms of its instrument, the district engineer can take appropriate 
legal action to compel compliance.
    Three commenters suggested emphasizing that compliance with new 
mitigation requirements fully meets requirements of section 404 of 
Clean Water Act, therefore, there is no need for supplemental 
mitigation to address the uncertainty of mitigation outcomes.
    Although this rule provides standards and requirements for 
compensatory mitigation for DA permits, there are provisions that allow 
district engineers to require additional compensatory mitigation when 
necessary to address the risk and uncertainty associated with 
compensatory mitigation projects. For example, adaptive management may 
involve requiring additional compensation if the original compensatory 
mitigation project does not perform as well as expected. As another 
example, higher amounts of compensatory mitigation may be required if 
the aquatic resource restoration, establishment, enhancement, and/or 
preservation activity is conducted after the permitted activity, to 
account for both temporal losses and the risk of failure associated 
with the prospective mitigation.
    A few commenters expressed concern that if developers are 
responsible for developing watershed plans, and those plans are used by 
others to implement a watershed approach, this might create an 
incentive to develop a plan that meets future development expansion 
needs rather than watershed needs.
    This rule does not require prospective permittees to develop 
watershed plans. District engineers will determine whether an existing 
watershed plan is appropriate for use in determining compensatory 
mitigation requirements (see Sec.  332.3(c)(1) [Sec.  230.93(c)(1)]). 
In general, watershed plans will be developed by governmental and/or 
non-profit resource planners, in consultation with watershed 
stakeholders. The purpose of a watershed plan is to maintain and 
improve the quality and quantity of aquatic resources within a 
watershed, not to facilitate development. District engineers will 
ensure that watershed plans used to determine compensatory mitigation 
requirements for DA permits have been developed through appropriate 
processes to satisfy this purpose.
Transfer of Responsibility
    In the proposal, we requested comments on the appropriate legal 
mechanism for transferring the responsibility for providing 
compensatory mitigation from the permittee to a mitigation bank or an 
in-lieu fee program. We proposed an option of using parallel permit 
conditions and instrument provisions, that would acknowledge the 
transfer of responsibility from the permittee to the sponsor. Another 
option we solicited comments on was co-permitting, where the sponsor 
would sign the DA permit and assume responsibility for providing 
compensatory mitigation credits.
    Two commenters expressed support for co-permitting, but several 
other commenters said that co-permitting is not an appropriate 
mechanism for transferring responsibility. Some commenters said that a 
sponsor should only sign documents that deal exclusively with the 
credits, debits, and use of a mitigation bank for compensatory 
mitigation. Two commenters stated that transfer of responsibility from 
the permittee to a mitigation bank is an incentive for using mitigation 
banks. Several commenters supported the use of the suggested permit 
conditions and instrument provisions provided in the preamble to the 
proposed rule, when credits are to be secured from a mitigation bank.
    After evaluating these comments, we have determined that the most 
effective approach for transferring compensatory mitigation 
responsibilities from a permittee to a mitigation bank or in-lieu fee 
program sponsor is through the use of permit conditions and instrument 
provisions. The rules governing this transfer are provided at Sec.  
332.3(l) [Sec.  230.93(l)]. This process requires submittal of 
appropriate documentation after the permittee has secured the 
appropriate number and resource type of credits from the sponsor. These 
requirements are discussed in greater detail in the preamble discussion 
of Sec.  332.3(l) [Sec.  230.93(l)].
Other Issues
    A couple of commenters submitted questions about the Corps permit 
application, other publications, and record-keeping. Commenters 
requested better guidance on the information required for permit 
applications, such as sample drawings and checklists, and recommended 
electronic filing of permit applications.
    Many Corps districts have posted information on their web sites to 
assist permit applicants. Such information includes tips on providing 
complete permit applications, as well as sample drawings and 
checklists. The Corps regulations at 33 CFR 325.1(d) discuss what is 
required for a complete application for an individual permit. Project 
proponents should also review the general conditions for the nationwide 
permits and regional general permits to determine what is necessary for 
a complete general permit verification request. The Corps is developing 
an electronic permit application, which will allow its districts to 
accept permit applications through the Internet. As discussed above, 
the Corps is implementing a new automated information system to better 
track impacts authorized by authorized activities, and any required 
compensatory mitigation.
    One commenter said that poor record-keeping has made it difficult 
to evaluate the successes and failures of individual projects and the 
regional and national impacts of the program. Commenters also asked 
that the public have easy access to all relevant planning documents 
during the public comment period on permits. One commenter recommended 
creating a clearinghouse for wetlands funding or information needs with 
a single person to track follow-up and successes. This could provide 
information to support a watershed approach in specific areas

[[Page 19611]]

and possibly to support in-lieu fee programs. One commenter said the 
rule should not apply to ephemeral washes.
    Archiving of monitoring reports for compensatory mitigation 
projects is done in accordance with district-specific practices and 
resources. Monitoring reports are part of the administrative record for 
a permit action or third-party mitigation instrument, and are public 
information. However, a Corps district may charge reasonable fees for 
duplication to provide those reports to interested parties. It is 
impractical to make all planning documents available during public 
notice comment periods. Typically, not all of this information is 
provided to the Corps prior to the public comment period. However, the 
rule requires that public notice for DA permits include a discussion of 
mitigation plans, including any compensatory mitigation. Public comment 
can then help inform the development of detailed planning documents. 
The Corps does not intend at this time to create a clearinghouse for 
wetlands funding and wetlands-related information; however, the Corps 
will provide information to the public on mitigation required and 
fulfilled under the section 404 program. This rule only applies to 
compensatory mitigation for activities in waters of the United States 
authorized by DA permits. It does not alter the definition of ``waters 
of the United States'' at 33 CFR part 328 or 40 CFR 230.2(s). 
Discharges of dredged of fill material into features that are not 
waters of the United States do not require permits under section 404 of 
the Clean Water Act, and therefore would not require compensatory 
mitigation that would be subject to this rule. In cases where ephemeral 
washes are determined to be waters of the U.S., this rule applies; 
there are no technical reasons for addressing them differently from 
other waters of the U.S.
    Several commenters highlighted general concerns regarding climate 
change. Some of these commenters cited important ecosystem services 
provided by wetlands, streams and other aquatic resources such as 
absorbing storm surges, providing drinking water, and sequestering 
carbon and noted that these ecosystem services will be of increasing 
importance as climate patterns shift. A few commenters wanted to know 
how concerns about climate change were considered in the development of 
today's rule.
    We agree that protecting our Nation's existing aquatic resource 
base is an important way to help foster ecological and economic 
resilience as climatic patterns shift. Today's rule reaffirms the 
existing requirement to avoid and minimize impacts to the nation's 
aquatic resources and to require, in cases where it is appropriate and 
practicable to do so, compensatory mitigation for impacts that cannot 
be avoided or minimized. Compensatory mitigation projects planned and 
designed using the watershed approach and the standards provided by 
today's rule are likely to provide ecosystem functions and services 
that, in addition to offsetting losses resulting from activities 
authorized by DA permits, also provide the ecological and economic 
resilience needed to address climate change. For example, the 
reestablishment of a forested wetland may also provide carbon 
sequestration benefits, over the long term, through the growth of 
trees. As another example, coastal wetland restoration projects could 
be designed to take into account reasonably foreseeable rises in sea 
level.

III. In-Lieu Fee Programs

    In the proposed rule we proposed to phase out in-lieu fee programs 
and require existing in-lieu fee programs to comply with the same 
standards and requirements as mitigation banks. In the preamble to the 
proposed rule, we also explained the differences between mitigation 
banks and in-lieu fee programs, and the agencies expressed concern that 
providing less stringent oversight or up-front requirements for in-lieu 
fee programs might not ensure that the compensatory mitigation is 
performed. Another concern was compliance with section 314 of NDAA, 
which directs us to apply equivalent standards and criteria to each 
type of compensatory mitigation to the maximum extent practicable. At 
the time, the agencies could not find strong grounds for concluding 
that meeting the same requirements as mitigation banks is not 
appropriate or practicable for in-lieu fee programs. The agencies also 
acknowledged that phasing out in-lieu fee programs would pose some 
challenges for the ability of the Corps Regulatory Program to support 
the objectives of the Clean Water Act and ensure high-quality 
mitigation in all parts of the country.
    In response to the proposed rule, many commenters, including 29 
states, as well as industry groups and environmental organizations, 
supported retaining in-lieu fee programs as a separate mechanism for 
providing compensatory mitigation for DA permits. These commenters said 
that an alternative form of third-party mitigation is needed in areas 
not serviced by mitigation banks. Many of these commenters also stated 
that the desired performance of in-lieu fee programs can be achieved by 
imposing appropriate rules and standards, with Corps oversight. Some 
commenters indicated that the proposal to phase out in-lieu fee 
programs is contrary to section 314, because it wouldn't comply with 
the statutory requirement for the rule to ``maximize available 
credits.'' Over 30 commenters described successful in-lieu fee 
programs.
    After carefully considering all comments, for and against, we have 
decided to retain in-lieu fee programs as a distinct third-party 
compensation option, subject to equivalent ecological standards as the 
other types of compensatory mitigation (mitigation banks and permittee-
responsible mitigation) but somewhat different administrative and 
procedural requirements. We agree that in-lieu fee programs are 
important sources of compensatory mitigation in areas that do not have 
mitigation banks, because they can provide consolidated compensatory 
mitigation projects that have greater ecological benefits than small, 
geographically separated, permittee-responsible mitigation. We also 
agree that in-lieu fee programs can provide important ecological and 
societal benefits by focusing primarily on the watershed needs and by 
siting multiple compensatory mitigation projects in strategic locations 
in a watershed. We believe that this final rule achieves the statutory 
mandate of section 314 in that it establishes, to the maximum extent 
practicable, equivalent standards for all three types of compensatory 
mitigation.
    Commenters suggested various approaches to in-lieu fee programs. 
One commenter suggested that the agencies delay the effective date of 
the final rule until more conclusive data are available to support the 
decision of whether to retain or eliminate in-lieu fee programs. One 
commenter recommended forming a technical working group to evaluate the 
effectiveness of in-lieu fee programs and their role in compensatory 
mitigation. Another commenter recommended comparing poorly performing 
in-lieu fee programs to more successful programs, to evaluate the 
differences in organization, oversight, mitigation approach and quality 
of mitigation, and to develop appropriate standards and requirements. 
Many commenters proposed rule language to provide accountability and 
ensure ecological success for in-lieu fee programs.
    We do not believe it is necessary to delay issuing a final rule 
until further studies can be done on in-lieu fee programs. We 
structured the proposed rule to solicit comment on appropriate

[[Page 19612]]

standards and criteria that could be established to ensure that in-lieu 
fee programs provide successful compensatory mitigation in a timely 
manner. Many of the requirements that apply to mitigation banks are 
applied to in-lieu fee programs, although some requirements will not be 
exactly the same, because of the fundamental differences between 
mitigation banks and in-lieu fee programs. Where it is necessary to 
promulgate different requirements for in-lieu fee programs, we believe 
those requirements will ensure the same level of success for in-lieu 
fee programs as for the other types of mitigation, and produce 
mitigation that meets the same high ecological standards. We have 
examined several successful in-lieu fee programs to establish effective 
standards and requirements.
    In the preamble to the proposed rule, we posed a set of questions 
on the proposed phase-out of in-lieu fee programs, and solicited public 
comment on retaining in-lieu fee programs as a distinct regulatory 
entity. We asked for public comment on 7 specific areas in which 
requirements for in-lieu fee programs might differ from mitigation 
banks if they were retained: (1) The degree of up-front planning 
required before credits could be sold (e.g., in-lieu fee programs might 
not be required to identify and secure a site and provide detailed site 
plans for the compensatory mitigation project); (2) the level and types 
of financial assurances that would be required; (3) the types of 
projects for which they could be used (e.g., in-lieu fee programs might 
be limited to providing compensatory mitigation only for nationwide 
permits and other general permits, or for projects below a specified 
acreage cutoff, such as 1 acre); (4) the required compensation ratios 
(e.g., these could be higher for in-lieu fee programs than for 
mitigation banks); (5) the credit release schedule (e.g., in-lieu fee 
programs might be permitted to sell more credits at an earlier point in 
the planning process); (6) the specific types of aquatic resources for 
which they could be used to compensate (e.g., not allowing in-lieu fee 
programs for tidal wetlands or in coastal areas); and (7) the types of 
permitted sponsoring entities (i.e., in-lieu fee programs might be 
limited to government agencies and/or non-profit land stewardship 
entities with proven track records). Comments received in response to 
these questions are provided below. We also solicited comments on other 
ways in which the requirements for mitigation banks and in-lieu fee 
programs might differ.
    Degree of up-front planning required before credits can be sold. 
Several commenters stated that in-lieu fee programs should be subject 
to the same amount of up-front planning as mitigation banks. Other 
commenters suggested that instead of identifying a specific site (which 
is required for proposed mitigation banks, except for umbrella banks), 
in-lieu fee programs should identify specific types of sites (e.g., 
impounded salt marshes) that their program would target. Another 
commenter suggested that in-lieu fee programs should submit a full 
mitigation plan to the district engineer for approval before the start 
of each project. Commenters representing in-lieu fee programs said that 
it would be challenging in some cases to identify sites and provide 
detailed plans before selling credits, and that such a requirement 
might make it impossible for them to operate.
    In recognition of these challenges, the final rule does not require 
the same level of up-front planning by in-lieu fee programs as it does 
for banks before credit sales can occur. However, it does require that 
a comprehensive program instrument be submitted to the Corps, reviewed 
by the IRT, and approved by the district engineer before any credit 
sales take place. Several new requirements have been added to the 
provisions for in-lieu fee program instruments, designed to ensure 
greater accountability and success in providing mitigation to fulfill 
credit sales in a timely manner. First, we have added a requirement in 
the rule for in-lieu programs fees to develop a compensation planning 
framework that will be used to select, secure, and implement aquatic 
resource restoration, establishment, enhancement, and/or preservation 
activities within the service area(s) for the in-lieu fee program. 
Specific sites may or may not be identified, but selection of the sites 
must be consistent with the compensation planning framework. The 
comprehensive planning framework is essentially a watershed plan for 
the service area of the in-lieu fee program. A mitigation plan that 
meets the requirements of Sec.  332.4(c) [Sec.  230.94(c)] and is 
consistent with the comprehensive planning framework must subsequently 
be submitted and approved by the district engineer, in consultation 
with the IRT, for each in-lieu fee project site prior to commencing 
work. Second, the instrument will specify a limited number of advance 
credit sales that can occur before specific sites are secured and 
mitigation plans approved. Once that number of credits is sold, no more 
advance credits can be sold until an equivalent number of credits, tied 
to a specific site and mitigation plan, has been released in accordance 
with an approved credit release schedule. Third, the instrument must 
provide for the establishment of an account that will segregate funds 
received from credit sales and ensure that these funds, including 
interest earned, are used only to provide the required mitigation, 
minus a small allowance for administrative costs.
    Required level of financial assurances. A number of commenters 
stated that in-lieu fee programs should be required to provide the same 
level of financial assurances as mitigation banks. Two commenters 
asserted that these financial assurances would ensure a more successful 
completion of mitigation projects. Other commenters indicated that 
providing the same level of financial assurances as banks prior to 
beginning credit sales would be challenging for in-lieu fee programs, 
which usually do not have up-front investors, and might prevent them 
from operating. In addition, government agencies often face legal or 
procedural restrictions that prevent them from providing the same types 
of financial assurances that are generally required of banks.
    The agencies believe that financial assurances are important to 
ensure successful initiation and completion of compensatory mitigation 
projects, but also recognize the challenges faced by in-lieu fee 
programs in this regard. Therefore, the rule states that the district 
engineer shall require sufficient financial assurances to ensure a high 
level of confidence that the compensatory mitigation project will be 
successfully completed, in accordance with applicable performance 
standards. There may be cases where financial assurances are not 
necessary because an alternate mechanism is available to ensure a high 
level of confidence that the compensatory mitigation will be provided 
and maintained (e.g., a formal, documented commitment from a government 
agency or public authority). Consideration of the sponsor's past 
performance in providing ecologically successful mitigation projects 
would also influence the district engineer's determination regarding 
the level of financial assurances necessary to ensure a high level of 
confidence in successful project completion--this is true for banks as 
well as in-lieu fee programs.
    Types of projects for which in-lieu fee program credits could be 
used. Several commenters stated that in-lieu fee programs should be 
limited to certain types of projects, such as those resulting in minor 
impacts. One commenter suggested limiting in-lieu fee programs

[[Page 19613]]

to activities that have less than 0.25 acre of impacts, and another 
commenter recommended restricting in-lieu fee programs to general 
permit activities resulting in less than one acre of impacts. Another 
commenter suggested that in-lieu fee programs should be available to 
provide compensation for impacts from linear transportation projects 
because those activities undergo environmental reviews and the 
compensatory mitigation is usually identified in advance of the 
proposed impacts. One commenter stated that in-lieu fee programs should 
not be restricted to a specific type or impact size. Two commenters 
said that in-lieu fee programs should only be used for activities 
authorized by general permit. A number of commenters stated that use of 
in-lieu fee programs should not be limited to a specific project size 
or permit type.
    In most cases, in-lieu fee programs implement compensatory 
mitigation projects after the impacts authorized by DA permits have 
occurred. Therefore, the timing of compensatory mitigation projects 
provided by in-lieu fee programs results in some risk and uncertainty. 
To address that risk and uncertainty, and to reduce temporal losses of 
aquatic resource functions, we have established a preference hierarchy 
for mitigation options at Sec.  332.3(b) [Sec.  230.93(b)]. This 
hierarchy, which is discussed in greater detail elsewhere in this 
preamble, generally provides a preference for mitigation bank credits, 
when the permitted activity is in the service area of an approved bank 
with the appropriate types of credits available. In the absence of an 
approved bank, in-lieu fee programs have certain advantages over 
permittee-responsible mitigation. They generally involve larger 
parcels, have access to appropriate scientific and technical expertise, 
may have a proven track record in establishing successful mitigation in 
the past, and will generally have a more fully developed watershed 
approach, developed through their required comprehensive planning 
framework. For these reasons, we do not believe it is appropriate to 
limit the use of lieu fee programs to any particular impact type or 
size. Rather, we believe the preference hierarchy described above will 
ensure that a mitigation option is selected with the highest 
probability of delivering successful, high-quality mitigation among the 
available choices in a given case.
    Required compensation ratios. A number of commenters stated that 
in-lieu fee programs should be required to mitigate at a certain ratio 
that should take into account temporal loss of wetland functions when 
compensatory mitigation is not fully functional at the time the 
permitted impacts occur. One commenter asserted that increasing the 
required mitigation ratios for in-lieu fee programs unfairly penalizes 
applicants in areas that do not have operating mitigation banks. Two 
commenters recommended higher mitigation ratios where in-lieu fee 
programs funds are used for preservation.
    We have added Sec.  332.3(f)(3) [Sec.  230.93(f)(3)] to allow 
district engineers to require additional compensatory mitigation in 
cases where released credits are not available to provide the 
appropriate type of compensatory mitigation. This additional 
compensatory mitigation is to account for the higher risk and 
uncertainty associated with compensatory mitigation projects that will 
be implemented after the permitted impacts have occurred. For all 
sources of compensatory mitigation, the amount of required compensation 
must be sufficient to replace lost aquatic resource functions. Other 
factors to be considered when determining the appropriate amount of 
compensatory mitigation to offset permitted impacts are: The method of 
compensatory mitigation (i.e., restoration, establishment, enhancement, 
preservation), the likelihood of success, differences between the 
functions lost at the impact site and the functions expected to be 
produced by the compensatory mitigation project, temporal losses of 
aquatic resource functions, the difficulty of restoring or establishing 
the desired aquatic resource type and functions, and/or the distance 
between the affected aquatic resource and the compensation site. The 
preference for released credits does not unfairly penalize permittees, 
since it is appropriate to require higher amounts of compensatory 
mitigation to account for risk and uncertainty. The rationale for the 
required compensation ratio must be documented in the administrative 
record for the permit action. In cases where preservation is used to 
provide compensatory mitigation, district engineers will generally 
require higher compensation ratios. While the rule does not explicitly 
differentiate between mitigation banks and in-lieu fee programs in the 
determination of ratios, the factors to be considered will generally 
result in higher ratios for in-lieu fee programs.
    Credit release schedule. One commenter stated that fewer credits 
should be released to in-lieu fee programs than to mitigation banks. In 
contrast, other commenters said that in-lieu fee programs should have 
100 percent of their credits released in advance, and/or that they 
should have no limit on advance credit sales.
    We do not agree that in-lieu fee programs should be allowed 
unlimited credit sales prior to providing any mitigation; this would 
not provide adequate assurance that credits will be fulfilled in a 
timely manner. However, in recognition of the fundamental differences 
between mitigation banks and in-lieu fee programs, the final rule does 
allow an in-lieu fee program to sell a limited number of credits before 
securing a compensatory mitigation project site and conducting aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at that site. Those credits are called ``advance credits'' and the 
sponsor can only sell such credits up to the limit specified in its 
approved instrument--under no circumstances may credits be sold prior 
to approval of an instrument meeting the requirements of Sec.  332.8 
[Sec.  230.98]. The number of advance credits will be determined by the 
district engineer, in consultation with the IRT, and will be specified 
in the instrument by service area. The amount of available advance 
credits will be based on an evaluation of the compensation planning 
framework, the size of the service area(s), the resources available to 
the program (e.g., an independent funding stream for government 
sponsored in-lieu fee programs) and other considerations identified by 
the district engineer during consultation with the IRT. If the in-lieu 
fee program instrument covers more than one service area, the advance 
credit limit will be specified for each service area. In addition, as 
each in-lieu fee project is approved by the district engineer (in 
consultation with the IRT), it will have an associated credit release 
schedule. As in-lieu fee projects are implemented and credits released, 
advance credits are converted to released credits and the sponsor can 
sell additional advance credits in that service area. In certain 
limited cases, such as when there is insufficient permitted activity in 
a given service area to support a viable mitigation project within a 
reasonable time frame, the district engineer may authorize the use of 
released credits from a different service area to fulfill advance 
credits sales. This might occur, for example, with a state-wide program 
managed by a government agency. In such cases, the district engineer 
should ensure that the approved mitigation compensates for the lost 
resources to the extent feasible, even though it may be some distance 
away, or in a different watershed.

[[Page 19614]]

    Limiting the establishment and use of in-lieu fee programs to 
specific types of aquatic resources or geographic regions. Three 
commenters stated that in-lieu fee programs should be used only to 
provide compensatory mitigation for specific aquatic resource types. 
One commenter suggested that in-lieu fee programs should be retained 
solely for rapidly developing urban watersheds and coastal watersheds, 
and two commenters suggested that these programs be used specifically 
for stream compensatory mitigation. Two commenters said that use of in-
lieu fee programs should not be restricted by resource type, but 
credits from in-lieu fee programs should be accepted only when those 
credits are different from the credits provided by a mitigation bank 
operating in the same service area.
    In this final rule, we have not limited in-lieu fee programs to 
providing compensatory mitigation for specific types of aquatic 
resources or geographic regions, for much the same reasons that we have 
not limited them to specific project types or sizes. Instead, as 
discussed above, we have established a preference hierarchy in Sec.  
332.3(b) [Sec.  230.93(b)] that will ensure that mitigation options 
with the highest likelihood of success and greatest value to the 
watershed will be selected from the available choices. This flexibility 
is needed because there is great regional variation in aquatic resource 
types and watershed needs, and there is also much variability in the 
types of credits produced by both mitigation banks and in-lieu fee 
programs. We do not agree that in-lieu fee programs should be limited 
to certain types of aquatic resources, because in some cases they may 
provide the greatest assurance of delivering successful, high-quality 
mitigation for the resource in question, especially in areas where 
there are no mitigation banks.
    Types of sponsoring entities. Several commenters suggested that 
only federal or state governmental entities or non-profit land 
stewardship organizations be allowed to be in-lieu fee program 
sponsors, because they have the capacity to provide permanent 
stewardship of compensatory mitigation project sites. However, one 
commenter stated that there is no evidence that government agencies or 
non-profit organizations provide compensatory mitigation that is 
superior to that provided by for-profit entities.
    Through the definition of ``in-lieu fee program'' provided in Sec.  
332.2 [Sec.  230.92], we have limited sponsorship of in-lieu fee 
programs to governmental or non-profit natural resources management 
entities. In this rule, we have established different requirements for 
mitigation banks and in-lieu fee programs that reflect basic 
differences in how those types of compensatory mitigation are provided 
and managed. In general, mitigation banks are established at single 
sites, to provide compensatory mitigation for pre-determined types of 
aquatic resource losses in a single or several neighboring watersheds. 
In contrast, in-lieu fee programs often provide compensatory mitigation 
at multiple sites within multiple service areas, and may serve areas 
where a mitigation bank is not economically viable because there is not 
sufficient development activity to ensure that enough credits can be 
sold within a reasonable time frame. For these reasons, in-lieu fee 
programs have fewer up-front planning requirements than mitigation 
banks, and are not expected to be operated as commercial ventures. The 
agencies thus believe it is appropriate to limit sponsorship of in-lieu 
fee programs to governmental or non-profit land management entities 
that operate explicitly in the public interest, rather than to serve 
the needs of investors. We are not aware of any independent studies 
that have examined the quality and ecological success of compensatory 
mitigation projects provided by for-profit entities versus governmental 
or non-profit entities, however we believe the rule provides 
appropriate safeguards and incentives to ensure that both types of 
entities (commercial and non-commercial) will provide successful 
compensatory mitigation given their differing organization, purposes, 
and constraints.
    Preference for ``in-place'' compensatory mitigation. Five 
commenters stated that in-lieu fee programs should be retained but that 
the rule should contain a preference for in-place compensatory 
mitigation. One commenter indicated that in-lieu fee programs and in-
place mitigation should have the same level of preference. One 
commenter said that adding such a provision would promote poor 
environmental stewardship because in-lieu fee programs would be 
excluded from areas where there are high credit demands. Another 
commenter said that a preference for in-place compensation would not be 
desirable if it led to approved mitigation banks having large service 
areas, because the compensatory mitigation could be a substantial 
distance from the location of the permitted impacts. This commenter 
stated that in-lieu fee programs should be retained in the final rule 
to provide ecologically appropriate compensatory mitigation in areas 
with thin markets for mitigation bank credits.
    In Sec.  332.3(b) [Sec.  230.93(b)] we have established a 
preference hierarchy for compensatory mitigation options (i.e., 
mitigation banks, in-lieu fee programs, and permittee-responsible 
mitigation). We have established a preference for mitigation bank 
credits, because a secured site, an approved mitigation plan and other 
assurances must be in place before an initial allocation of credits can 
be sold or transferred to permittees. Before additional credits can be 
sold, the mitigation bank must achieve appropriate ecological 
milestones set out in its credit release schedule. Therefore, 
mitigation bank credits are generally more likely to be fulfilled 
sooner (or to be already fulfilled), than in-lieu fee program credits. 
We recognize, however, that this is not always the case. Some in-lieu 
fee programs may have the appropriate number and resource type of 
released credits available, and the final rule allows the district 
engineer to modify the hierarchy in cases where the reasons underlying 
it do not apply (e.g., an in-lieu fee program has available released 
credits that are just as certain and close to fulfillment as credits 
from a bank). When considering the options in Sec.  332.3(b)(2)-(6) 
[Sec.  230.93(b)(2)-(6)], district engineers have the discretion to 
modify the hierarchy in order to approve the use of the environmentally 
preferable compensatory mitigation. Another example is when a permittee 
with a proven track record and access to appropriate scientific 
expertise proposes a high-value mitigation project, even though credits 
from an approved in-lieu fee program or mitigation bank are available.
    Differences between the standards for mitigation banks and in-lieu 
fee programs. Several commenters noted that the fundamental difference 
between in-lieu fee programs and mitigation banks is timing. Two of 
these commenters pointed out that mitigation banks, like in-lieu fee 
programs, receive credit before compensatory mitigation projects are 
implemented. Another commenter suggested that in-lieu fee programs 
should adhere to the same standards as mitigation banks for the 
implementation of compensatory mitigation projects, but should be 
allowed to collect funds before acquiring a compensatory mitigation 
project site. Two commenters stated that the rule should recognize the 
inherent differences between mitigation banks and in-lieu fee programs 
but that all sources of compensatory mitigation should be held to 
standards that assure successful performance. Another

[[Page 19615]]

commenter said that if the standards were the same for mitigation banks 
and in-lieu fee programs, private mitigation banks would dominate the 
process, resulting in poor geographic distribution of compensatory 
mitigation, significantly reduced ecological diversity, and less 
protection and restoration of important aquatic resources.
    According to the 2001 NRC Report, the principal difference between 
mitigation banks and in-lieu fee programs is timing. Mitigation banks 
and in-lieu fee programs are financed and planned differently, which 
creates the timing difference observed by the NRC. Since commercial 
mitigation banks sponsors have up-front financing, they can acquire and 
plan their mitigation bank sites before submitting their proposals to 
district engineers for consideration. In contrast, in-lieu fee programs 
do not generally have this up-front financing available, so they must 
obtain funds from permittees (under an in-lieu fee program instrument 
or agreement) before they can acquire and plan in-lieu fee project 
sites, and implement those projects.
    We agree that mitigation banks and in-lieu fee programs should be 
held to the same standards, to the maximum extent practicable, as 
required by NDAA section 314. We believe the final rule accomplishes 
this goal. The standards provided in this rule will help ensure that 
the compensatory mitigation provided by mitigation banks and in-lieu 
fee programs both offset the impacts incurred by permittees who secure 
credits from these third-party mitigation providers. To maximize 
compensatory mitigation options, the inherent differences between 
mitigation banks and in-lieu fee programs warrant somewhat different 
procedural requirements. The most substantial differences relate to 
timing and financing. We recognize that in-lieu fee programs are 
usually not able to capitalize compensatory mitigation projects up-
front. Instead, they must collect funds from permittees before they can 
secure a suitable site and develop and implement a compensatory 
mitigation project. For this reason, in-lieu fee programs, but not 
banks, are allowed to sell advance credits. Unless an in-lieu fee 
program has a surplus of credits available in a service area (i.e., 
released credits), the compensatory mitigation will take place after 
the permitted impacts have occurred. To help ensure that the collected 
funds are used in a timely manner to initiate compensatory mitigation 
projects, we are including a time limit of three growing seasons for 
fulfillment of advance credits (see Sec.  332.8(n)(4) [Sec.  
230.98(n)(4)]) and requiring in-lieu fee programs to establish accounts 
to retain the collected funds. Those funds can only be used for the 
selection, design, acquisition, implementation, and management of in-
lieu fee projects, with a small percentage allowed for administrative 
costs.
    However, the substantive mitigation requirements, as well as many 
of the procedural requirements are the same for both banks and in-lieu 
fee programs. Both are subject to the same requirements for plan 
approval, performance standards, monitoring, adaptive management and 
long-term stewardship. Proposed mitigation banks and in-lieu fee 
programs will both be required to undergo review by Interagency Review 
Teams, both for their instruments and for their specific mitigation 
project plans, though in the case of mitigation banks these two steps 
are usually accomplished simultaneously, while for in-lieu fee programs 
instrument review and approval will usually take place prior to 
development of a particular project. Public involvement is required in 
the same way for both types of third-party providers as well. By 
including equivalent substantive ecological standards while recognizing 
certain administrative and procedural differences, the rule will also 
help maximize available credits from sponsors willing to provide third-
party mitigation in a range of service areas, from high-development 
areas that can support economically-viable banks to remote areas that 
cannot, but that still have occasional mitigation needs. We recognize 
that in-lieu fee programs have sometimes provided compensatory 
mitigation for different types of aquatic resources than mitigation 
banks, and this rule does not interfere with that practice.
    Proposed in-lieu fee regulatory text. A few commenters proposed in-
lieu fee regulatory text. One commenter suggested that the district 
commander may only consider in-lieu fee preservation as the primary 
mitigation if no other form of mitigation is available, feasible or 
practicable. Another commenter proposed that each in-lieu fee program 
should draft a program agreement that is submitted for public review 
and comment and the review of the district engineer and the Interagency 
Review Team (IRT). Under that agreement, fees paid to each in-lieu fee 
program would be determined by the market rate of mitigation bank 
credits within a watershed and would be reviewed periodically by the 
IRT. One commenter suggested that all in-lieu fee programs should be 
required to have an approved operating agreement or instrument. This 
commenter said that an in-lieu fee program should have to project the 
type and location of impacts and receive advance payments so that the 
compensatory mitigation would be implemented in advance of permitted 
impacts. Another commenter suggested that each in-lieu fee program be 
required to have an approved Memorandum of Understanding and a program 
manager responsible for administering the program. This commenter also 
said that district engineers should determine acceptable fee amounts 
for the required compensatory mitigation and should be the final 
approval authority for all proposed expenditures of funds collected for 
compensatory mitigation for DA permits.
    We have considered the regulatory text proposed by these 
commenters. The final rule requires a prospectus, public notice and 
comment period, and IRT review of proposed in-lieu fee program 
instruments. The use of preservation as compensatory mitigation will be 
determined by district engineers on a case-by-case basis in accordance 
with Sec.  332.3(h) [Sec.  230.93(h)]. In-lieu fee programs must have 
approved instruments before they can be used to provide compensatory 
mitigation for DA permits. We do not believe it is practical to require 
in-lieu fee programs to receive advance payments so that they could do 
compensatory mitigation in advance of permitted impacts. If it were 
possible for in-lieu fee programs to fulfill such a requirement, they 
could operate as mitigation banks. We do not believe it is appropriate 
for district engineers to determine credit costs for in-lieu fee 
programs, but they will review the fees set by sponsors to determine 
whether they comply with the requirement for full cost accounting to 
ensure that the required compensatory mitigation is provided and 
maintained.

IV. Compliance With Section 314 of the NDAA

    Section 314 of the NDAA requires the issuance of standards and 
criteria for compensatory mitigation that, to the maximum extent 
practicable, (1) maximize available credits and opportunities for 
mitigation, (2) provide flexibility for regional variations in wetland 
conditions, functions and values, and (3) apply equivalent standards 
and criteria to each type of compensatory mitigation.
    With respect to maximizing available credits and opportunities for 
mitigation, the preference established in today's rule for the use of 
credits provided by

[[Page 19616]]

mitigation banks (see Sec.  332.3(b) [Sec.  230.93(b)]) should 
stimulate an increase in the number of mitigation banks and 
correspondingly the number of bank credits available for use. Also, 
today's rule provides greater efficiency and predictability to the 
process of authorizing new mitigation banks and in-lieu fee programs 
and associated projects by establishing clear standards and criteria 
for instruments and mitigation plans, and setting reasonable timelines 
for review and decision-making. These improvements in regulatory 
efficiency and predictability should serve to stimulate an increase in 
the number of mitigation banks and in-lieu fee programs, and therefore 
an overall increase in the number of third-party compensatory 
mitigation credits available to offset permitted impacts. Additionally, 
our decision to retain and reform in-lieu fee mitigation, rather than 
eliminate it, will provide a range of compensation options for permit 
applicants, and help to ensure that viable options are available in 
areas not served by banks. Thus, consistent with the NDAA, today's rule 
maximizes available credits and opportunities for mitigation to the 
maximum extent practicable.
    With respect to providing flexibility for regional variations in 
wetland conditions, functions and values, as previously noted, we 
believe that today's rule achieves the proper balance of binding 
requirements and flexibility necessary to ensure that compensatory 
mitigation decisions are reasonable and based on case-specific 
circumstances. An adequate degree of flexibility is necessary for this 
rule because practices for restoring, establishing, and enhancing 
aquatic resources vary by resource type and by geographic region. For 
example, today's rule does not proscribe a one-size-fits-all set of 
ecological performance standards to evaluate the success of all 
compensation projects. Instead, the rule recognizes that ecological 
performance standards will vary depending upon aquatic resource type, 
geographic region, and compensation method but requires that they be 
based the best available science that can be measured or assessed in a 
practicable manner. Thus, consistent with the NDAA, today's rule 
provides flexibility for regional variations in wetland and aquatic 
resource conditions, functions and values to the maximum extent 
practicable.
    Additionally, today's rule requires ``equivalent'' standards, to 
the maximum extent practicable, for all three mechanisms for providing 
compensatory mitigation: permittee-responsible compensatory mitigation, 
mitigation banks, and in-lieu fee mitigation. Because there are 
fundamental differences in how these three types of compensatory 
mitigation are structured and conducted, we do not believe that 
Congress intended to require the promulgation of identical standards 
for all three methods of compensation. Instead, we interpret 
``equivalent'' standards to mean standards which are equal in value, 
force, or meaning (See, e.g., The American Heritage Dictionary of the 
English Language, Fourth Edition). With that goal in mind, today's rule 
requires that compensation projects provided by all three compensation 
mechanisms have mitigation plans which include the same 12 fundamental 
components: objectives; site selection criteria; site protection 
instruments (e.g., conservation easements); baseline information (for 
impact and compensation sites); credit determination methodology; 
mitigation work plan; maintenance plan; ecological performance 
standards; monitoring requirements; long-term management plan; adaptive 
management plan; and financial assurances (see 33 CFR 332.4(c) [40 CFR 
230.94(c)]). There are minor differences in the specific requirements 
for these components in order to accommodate the different nature of 
the three mitigation approaches. There are also procedural and timing 
differences among the requirements for the three types of mitigation. 
For example, in-lieu fee programs are allowed to sell a limited number 
of credits before having an approved site and mitigation plan, while 
banks are not. However, to compensate for this difference and ensure 
that the standards are ``equivalent'' to the maximum extent 
practicable, in-lieu fee programs are required to develop a 
compensation planning framework and adhere to strict accountability 
requirements for all fees collected, requirements which go beyond those 
applied to banks. We have also included a preference for bank credits 
over advanced credits from in-lieu fee programs, and limited in-lieu 
fee program sponsorship to qualified governmental and non-profit 
resource management agencies. We thus believe that the final rule 
fulfills the statutory directive to provide ``equivalent'' standards 
for the three types of mitigation to the maximum extent practicable. 
Specific rule provisions that apply to each of the types of 
compensatory mitigation, and the reasons for their differences, are 
discussed throughout today's preamble.

V. Organization of the Final Rule

    The proposed compensatory mitigation regulation in 33 CFR part 332 
[40 CFR part 230], is organized into the following sections:
    Section 332.1 [230.91], Purpose and general considerations, 
describes the basic purpose of the proposed rule and general principles 
concerning compensatory mitigation.
    Section 332.2 [230.92], Definitions, provides definitions of 
important terms relating to compensatory mitigation and the Corps 
Regulatory Program.
    Section 332.3 [230.93], General compensatory mitigation 
requirements, describes general compensatory mitigation requirements 
for DA permits, including permit conditions and financial assurances. 
This section also describes the watershed approach to compensatory 
mitigation.
    Section 332.4 [230.94], Planning and documentation, describes the 
review of proposed compensatory mitigation activities, as well as 
requirements for mitigation plans.
    Section 332.5 [230.95], Ecological performance standards, describes 
principles for establishing ecological performance standards for 
compensatory mitigation projects.
    Section 332.6 [230.96], Monitoring, describes general requirements 
for monitoring compensatory mitigation projects.
    Section 332.7 [230.97], Management, describes general requirements 
for site protection, sustainability, adaptive management, and long-term 
management of compensatory mitigation projects.
    Section 332.8 [230.98], Mitigation banks and in-lieu fee programs, 
provides requirements that are specifically applicable to mitigation 
banks and in-lieu fee programs.

VI. Discussion of Specific Sections of the Final Rule

    The final rule is presented in two parallel sections: Changes to 
Corps regulation in 33 CFR and changes to EPA regulation in 40 CFR. The 
two sections are almost entirely the same, with minor exceptions. These 
include: (1) Corps changes to permit application requirements at 33 CFR 
325.1; (2) Conforming changes to EPA's existing mitigation regulations 
at 40 CFR part 230, making appropriate citations for the addition of 
new Sec. Sec.  230.91 through 230.98; and (3) References to the Rivers 
and Harbors Act of 1899, in which the EPA does not have a regulatory 
role, have been omitted from the text in 40 CFR part 230.

[[Page 19617]]

33 CFR 325.1 Application for Permits

    In the proposed rule, the Corps proposed to modify Sec.  325.1(d) 
by adding a new paragraph requiring a mitigation statement for section 
404 permit applications. Several commenters supported the proposed 
requirement. One commenter said that geographic coordinates and 
monitoring data should also be required for this mitigation statement. 
A number of commenters objected to the proposed requirement. One 
commenter believed requiring this statement is unnecessary because some 
impacts to waters of the United States are unavoidable. Another 
commenter said that determining whether the proposed avoidance and 
minimization is sufficient, appropriate, or practicable is highly 
subjective and may invite litigation. This commenter remarked that it 
is the Corps' responsibility to determine whether appropriate and 
practicable avoidance, minimization, and compensation has been provided 
prior to making a decision on a section 404 permit. Several commenters 
said that this provision should be modified, to clarify that the 
mitigation statement is to be brief, since it is provided at the 
beginning of the permit application process and is likely to change as 
a result of the evaluation process. One commenter stated that this 
paragraph should be modified to allow the permit applicant to explain 
why compensatory mitigation should not be required, since many 
individual permits are issued under section 404 that do not require 
compensatory mitigation.
    This requirement has been adopted in the final rule because it will 
provide useful information for the permit evaluation process. Section 
325.1(d)(7) has been changed to allow permit applicants to explain why 
they believe compensatory mitigation should not be required for 
particular activities. The mitigation statement should be brief, 
because the permit evaluation process is an iterative process, and 
district engineers often require additional avoidance and minimization 
as they evaluate permit applications. The Corps does not agree that it 
would be appropriate to require geographic coordinates or monitoring 
data with the mitigation statement. The permit application will 
indicate the location of the proposed work. Monitoring data may be 
required at a later time, depending on the conditions of the issued 
permit. See the discussion of section 332.4(b)(1) below for a 
description of public notice requirements for the mitigation statement.

33 CFR 332.1 and 40 CFR 230.91 Purpose and General Considerations

    (a) Purpose. Many commenters stated that the proposed rule 
restricts flexibility for mitigation options for both the permit 
applicant and the Corps, and therefore it is inconsistent with section 
314. Many commenters declared that the proposed elimination of in-lieu 
fee programs conflicts with this statute, because it reduces mitigation 
opportunities available to permittees as well as the quality and 
success of compensatory mitigation projects. One commenter said that to 
comply with the statutory mandate to maximize available credits and 
opportunities for mitigation, the rule should specify that mitigation 
banks are the preferred choice when available. A number of commenters 
believe that the proposed rule unfairly promotes mitigation banking and 
restricts other compensatory mitigation opportunities.
    In response to the comments, we have made substantial changes to 
this rule to better comply with the statutory mandate. We have retained 
in-lieu fee programs as a separate mechanism for providing compensatory 
mitigation, with clear and stringent standards to help ensure 
performance in replacing aquatic resource functions and services lost 
as a result of activities authorized by DA permits. We have also 
established a preference for mitigation bank credits, because of the 
lower risks associated with mitigation banks. This preference is 
discussed in greater detail below. In this final rule, we have applied 
equivalent standards to all sources of compensatory mitigation, to the 
extent it is practicable to do so, given the fundamental differences 
among permittee-responsible mitigation, mitigation banks, and in-lieu 
fee programs.
    Many commenters said that the rule should apply equivalent 
standards and criteria to each type of compensatory mitigation. A 
number of commenters expressed concern that the proposed rule does not 
accomplish that objective. One commenter suggested establishing 
equivalent levels of interagency review for proposed compensatory 
mitigation projects. Several commmenters said that the statute should 
be interpreted as requiring the establishment of similar levels of 
accountability for mitigation banks, in-lieu fee programs, and 
permittee-responsible mitigation. This would allow the retention of in-
lieu fee programs as a separate mechanism for providing compensatory 
mitigation for DA permits. One commenter remarked that the proposed 
rule goes much further than establishing equivalent standards and 
criteria by providing a strong preference for the use of mitigation 
banks. This commenter said that the proposed rule incorrectly asserts 
that mitigation banks are always successful and therefore other forms 
of compensatory mitigation should be held to the same standards as 
mitigation banks in order to achieve success. One commenter stated that 
the objective of this rule should be to effectively mitigate for losses 
of aquatic resources, not to level the playing field between mitigation 
banks and in-lieu fee programs. Three commenters said that the proposed 
rule provides equivalent standards for different types of compensatory 
mitigation, but it needs to focus on improving success, regardless of 
whether permittee-responsible mitigation, mitigation banks, or in-lieu 
fee programs are used.
    This final rule applies equivalent standards and criteria to all 
sources of compensatory mitigation, to the maximum extent practicable. 
It is not practicable to apply exactly the same standards and criteria 
to mitigation banks, in-lieu fee programs, and permittee-responsible 
mitigation, nor are the agencies required to do so, as discussed above. 
There are inherent differences among these sources of compensatory 
mitigation. As many commenters pointed out, there are many areas of the 
country where there are no mitigation banks or in-lieu fee programs. 
Flexibility in compensatory mitigation requirements is needed to 
account for regional variations in aquatic resources, as well as state 
and local laws and regulations. There also needs to be flexibility 
regarding the requirements for permittee-responsible mitigation. 
Practicability is an important consideration when determining 
compensatory mitigation requirements. We agree that the final rule 
should provide similar levels of accountability among the three sources 
of compensatory mitigation. We strongly agree that the focus should be 
on ecological success of compensatory mitigation projects, not the 
source of the compensatory mitigation. The preferences provided in 
Sec.  332.3(b) [Sec.  230.93(b)] are based primarily on administrative 
criteria that take into account risk and uncertainty in providing the 
required compensatory mitigation. This rule provides tools to help 
improve ecological success of compensatory mitigation projects, but the 
rule itself cannot guarantee that success. Ecological success is 
dependent upon effective project planning, site selection, and 
implementation.
    One commenter said that the agencies should clarify that they may 
conduct

[[Page 19618]]

rulemaking without public notice and comment and still comply with the 
Administrative Procedure Act.
    We acknowledge that, in limited circumstances, agencies can conduct 
rulemaking without a public notice and comment process. For example, an 
agency may issue a direct final rule for routine and non-controversial 
regulations, if the agency believes the rule would not result in 
adverse comments. It is unlikely that any rulemaking related to 
compensatory mitigation would result in no adverse comments. In the 
interest of transparency, the agencies have agreed that any future 
changes to this rule will involve notice and comment rulemaking.
    Many commenters said that stream compensatory mitigation should not 
be included in this rule. A number of commenters stated that there is 
no scientific evidence that streams can be created or replaced, or that 
other approaches taken in this rule can compensate for stream losses. 
Many of these commenters asserted that the agencies should conduct 
further research on stream mitigation and demonstrate its success 
before including standards for stream mitigation in the rule. Some 
commenters noted that the statute requiring the promulgation of this 
rule refers only to wetlands. Several commenters expressed support for 
applying the rule to streams and other open waters. One commenter said 
that physical alteration of the nation's waters should be mitigated to 
the extent possible to support the objective of the Clean Water Act. 
Since section 404 of the Clean Water Act authorizes discharges of 
dredged or fill material into lakes, streams, and wetlands, mitigation 
for those impacts should be provided.
    We believe that is appropriate to apply this rule to all types of 
aquatic resources, not just wetlands. This rule addresses the basic 
requirements of compensatory mitigation projects: planning and 
documentation, performance standards, monitoring, and management. 
Stream compensatory mitigation projects also require these basic 
elements. The final rule recognizes the challenges associated with 
stream restoration and provides in Sec.  332.3(e)(3) [Sec.  
230.93(e)(3)] that compensation for difficult to replace resources, 
such as streams, should be provided through in-kind rehabilitation, 
enhancement or preservation if practicable. The feasibility and 
appropriateness of compensatory mitigation for a particular aquatic 
resource type is to be addressed on a case-by-case basis by district 
engineers. Effective implementation of this rule, including the 
ecological performance of compensatory mitigation projects, is 
dependent upon critical thinking by decision-makers to determine 
whether a particular compensatory mitigation proposal at a specific 
site is technically feasible and capable of providing the desired 
aquatic resource functions and services. Stream restoration and 
rehabilitation activities have been conducted all across the country, 
with varying levels of success. There are areas of the country, such as 
the southeastern coastal plain, where it may be possible to 
rehabilitate functioning streams if appropriate geologic and hydrologic 
conditions are present. Compensatory mitigation required by the Corps 
helps support the objective of the Clean Water Act, by offsetting 
losses of aquatic resource functions that result from activities 
authorized by DA permits.
    (b) Applicability. One commenter said that the proposed rule is 
inconsistent with 33 CFR 320.4(r), which limits requirements for 
compensatory mitigation to ``significant resource losses.''
    This final rule does not alter the circumstances when compensatory 
mitigation is required. The Corps has required compensatory mitigation 
for minor activities, such as activities authorized by nationwide 
permits, for many years to ensure that those activities result in 
minimal individual and cumulative adverse effects on the aquatic 
environment and are in the public interest. Prior to issuing an 
individual permit, the Corps determines on a case-by-case basis whether 
compensatory mitigation is necessary to ensure that the authorized 
activity is in the public interest and, if it involves a discharge of 
dredged or fill material, complies with the 404(b)(1) Guidelines.
    Several commenters supported the use of areas not subject to 
regulatory jurisdiction under the Clean Water Act and/or sections 9 and 
10 of the Rivers and Harbors Act of 1899 to provide compensatory 
mitigation for DA permits. One commenter said that using non-
jurisdictional areas as compensatory mitigation can support a watershed 
approach.
    We agree with these comments, and have retained this provision in 
the final rule.
    A number of commenters believe that the rule should clarify the 
Corps' authority to require mitigation in light of the U.S. Supreme 
Court Decisions in Solid Waste Agency of Northern Cook County v. Army 
Corps of Engineers (2001) and Rapanos et ux., et al. v. United States 
(2006) (Rapanos). Some commenters noted that if the Corps cannot 
directly regulate discharges of dredged or fill material into a non-
jurisdictional wetland, then the Corps cannot require that particular 
wetland to be used to mitigate impacts to other wetlands. Such an 
approach would allow the Corps to indirectly regulate non-
jurisdictional wetlands. One commenter stated that the Rapanos decision 
should apply not only to determining whether a particular water body or 
wetland is jurisdictional under the Clean Water Act, but it should also 
guide the development of criteria and standards that inform mitigation 
decisions.
    This rule is not the appropriate venue for addressing Clean Water 
Act jurisdiction. The Corps does not generally require that any 
particular wetland or resource be used to provide compensatory 
mitigation. Rather, the project sponsor proposes a mitigation option 
and the Corps determines whether the proposed option is adequate to 
compensate for resource functions and services lost at the impact site. 
We believe that non-jurisdictional waters can be used to provide 
compensatory mitigation for activities authorized by DA permits, if the 
rehabilitation, enhancement, and/or preservation of those waters is 
determined to be appropriate compensation for authorized impacts. The 
Rapanos decision is limited to the question of Clean Water Act 
jurisdiction, not decision-making for compensatory mitigation
    (c) Sequencing. Many commenters stated that the rule should 
emphasize avoidance and minimization, not just compensatory mitigation. 
They said that compensatory mitigation should not be considered until 
all efforts have been made to first avoid and then minimize unavoidable 
impacts to waters of the United States. Many commenters believe that 
the proposed rule grants district engineers too much discretion to 
determine that permit applicants have avoided and minimized impacts to 
aquatic resources. Two commenters said that the rule needs to be 
rewritten to treat compensatory mitigation as a last resort to ensure 
protection and enhancement of the nation's streams and wetlands.
    This rule addresses only the compensation component of the section 
404 mitigation sequence. Avoidance and minimization are addressed 
through other regulations, such as the Section 404(b)(1) Guidelines for 
activities involving discharges of dredged or fill material into waters 
of the United States. Activities involving discharges of dredged or 
fill material into waters of the United States must comply with all

[[Page 19619]]

applicable provisions of the 404(b)(1) Guidelines before a section 404 
permit can be issued. For activities that require DA permits pursuant 
to sections 9 or 10 of the Rivers and Harbors Act of 1899, avoidance 
and minimization requirements are provided through application of the 
Corps Regulatory Program's mitigation policy at 33 CFR 320.4(r).
    A number of commenters said that the proposed rule is inconsistent 
with the 404(b)(1) Guidelines as they relate to the consideration of 
practicable alternatives. They indicated that allowing permit 
applicants to use compensatory mitigation instead of using practicable 
alternatives will result in significant adverse impacts to the 
environment. Two commenters recommended that the rule include measures 
to be used to avoid impacts to wetlands, and limit permit issuance to 
those impacts that were truly unavoidable. Several commenters said that 
the sequencing provision in the proposed rule fails to recognize 
changes that occur to wetlands over time, and it does not take into 
account innovative steps in wetland management that can be used to 
benefit society.
    Consideration of practicable alternatives is provided through 
application of the 404(b)(1) Guidelines for activities that involve 
discharges of dredged or fill material into waters of the United 
States. Using compensatory mitigation to minimize adverse effects to 
the aquatic environment is consistent with the 404(b)(1) Guidelines 
(see 40 CFR 230.75). Avoidance and minimization are achieved through 
application of the 404(b)(1) Guidelines for activities that require 
section 404 permits. We have added a new paragraph (c)(1) to this 
section to clarify that nothing in this rule affects the requirement 
that all section 404 permits comply with applicable provisions of the 
404(b)(1) Guidelines. Paragraph (c)(2) of this section has been 
modified to clarify that individual section 404 permits will be issued 
only when compliance with applicable provisions of the 404(b)(1) 
Guidelines has been achieved, including those which require the permit 
applicant to take all appropriate and practicable steps to avoid and 
minimize adverse impacts to aquatic resources. For general permits, 
compliance with the 404(b)(1) Guidelines is addressed through 
application of 40 CFR 230.7. There are many reasons why wetlands change 
over time, most of which are not under the control of the Corps. 
Paragraph (c) of this section can only address those changes that 
result from discharges of dredged or fill material into waters of the 
United States, including jurisdictional wetlands.
    Several commenters said that the final rule should include 
exemptions to the mitigation sequencing requirements when the discharge 
is necessary to avoid environmental harm or can be reasonably expected 
to result in environmental gains or insignificant impacts. Other 
commenters expressed concern that strict adherence to mitigation 
sequencing will prevent the implementation of large scale compensatory 
mitigation projects. Some commenters asserted that rigid rules for on-
site avoidance often result in small areas for compensatory mitigation 
projects, which are unlikely to function properly.
    Potential exemptions to the mitigation sequence are beyond the 
scope of today's rulemaking. However, we do note that these exemptions 
to the mitigation sequence are addressed through specific provisions of 
the 1990 Mitigation Memorandum of Agreement (MOA) between the U.S. EPA 
and the Department of the Army. Those provisions of the 1990 Mitigation 
MOA are not affected by this final rule. The 404(b)(1) Guidelines and 
the provisions of the 1990 Mitigation MOA that are retained after this 
final rule goes into effect provide sufficient flexibility to allow the 
development of large scale compensatory mitigation projects. Avoiding 
waters of the United States to the maximum extent practicable on the 
project site does not result in small areas for compensatory mitigation 
that may be required by the district engineer, since this rule does not 
require on-site compensatory mitigation. This rule takes a watershed 
approach to compensatory mitigation, and emphasizes that compensatory 
mitigation projects should be placed in appropriate locations within a 
watershed.
    One commenter stated that the definition of ``practicable'' should 
take into account public safety and maintenance. Another commenter 
suggested that the rule should require the district engineer to 
consider whether the wetland functions lost as a result of a permitted 
activity can be practicably replaced.
    The definition of ``practicable'' provides sufficient flexibility 
to take into account public safety and maintenance when making 
decisions on applications for DA permits. In Sec.  332.3 [Sec.  
230.93], there are several provisions that require the district 
engineer to consider the likelihood of success when determining 
appropriate and practicable compensatory mitigation.
    We have also added a new provision at Sec.  332.1(c)(3) [Sec.  
230.91(c)(3)] reminding the public that in some cases that district 
engineer may determine that a proposed permit cannot be issued because 
of the lack of appropriate and practicable mitigation options. While 
the Corps envisions that this will be an unusual situation, it is 
possible that the impacts at a particular site would be so significant, 
and the avoidance, minimization and compensation options are so 
limited, that it is simply not possible to adequately mitigate the 
project impacts.
    (d) Public interest. We received no comments on this provision. In 
the proposed rule, this provision was in paragraph (c) of this section, 
which discusses the mitigation sequence under the Clean Water Act 
Section 404(b)(1) Guidelines. Since the public interest review is a 
different process than mitigation sequencing, we have moved this 
sentence to a separate paragraph.
    (e) Accounting for regional variations. Many commenters said that 
the rule should provide flexibility to address regional issues relating 
to compensatory mitigation. For example, a number of commenters 
discussed implementation of section 404 of the Clean Water Act in the 
State of Alaska, where there is a clear understanding that compensatory 
mitigation is not always warranted or practicable. Some of these 
commenters cited the May 13, 1994, ``Statements on the Mitigation 
Sequence and No Net Loss of Wetlands in Alaska'' issued by the U.S. EPA 
and the Department of the Army. These commenters said that the final 
rule should identify Alaska as a special case in which local 
flexibility is needed and will be applied. In Alaska, there are limited 
opportunities to create or restore wetlands because of its 
environmental conditions.
    As discussed elsewhere in this preamble, this rule does not change 
the circumstances under which compensatory mitigation is required for 
DA permits. Therefore, it does not change the May 13, 1994, Alaska 
mitigation statement cited above. We have modified appropriate 
provisions of this rule to clarify the flexibility and discretion 
available to district engineers when determining compensatory 
mitigation requirements for DA permits.
    Some commenters cited examples where regional flexibility is needed 
to maximize available mitigation credits. An important tool for 
regional flexibility is to be able to use all three mechanisms 
(permittee-responsible mitigation, mitigation banks, and in-lieu fee 
programs) for providing compensatory mitigation. One commenter said 
that there is only one small mitigation bank

[[Page 19620]]

in Alaska because of its climate, geography, and limited opportunities 
for wetland establishment or restoration. Other commenters stated that 
opportunities to develop mitigation banks in southern Nevada and other 
areas of the southwest are extremely limited because of the low 
availability of water. Another commenter noted that in areas where most 
of the land is owned by the federal government, opportunities to 
develop mitigation banks are substantially limited.
    This rule supports all three mitigation sources used in the Corps 
Regulatory Program: permittee-responsible mitigation, mitigation banks, 
and in-lieu fee programs. We acknowledge that there are areas where 
mitigation banks are unlikely to be established. In such areas, in-lieu 
fee programs may be established. Permittee-responsible mitigation may 
also be required if there are no third-party mitigation options and the 
district engineer determines that compensatory mitigation is necessary 
to offset losses of aquatic resource functions.
    One commenter suggested that each Corps district establish region-
specific methodologies for calculating compensatory mitigation needs. 
According to this commenter, this would allow regional experts to set 
regional strategies for compensatory mitigation. One commenter said 
that this rule should provide district engineers with operational 
standards for regional variations, but only to the extent necessary to 
promote ecologically sound and successful restoration of wetland 
functions.
    Regional methods for determining compensatory mitigation 
requirements can be developed by Corps districts and other entities. 
District engineers are also encouraged to establish regional strategies 
for compensatory mitigation, through watershed planning or other means. 
The development of regional methods and watershed plans is a resource-
intensive enterprise, and any Corps district efforts towards developing 
such products are dependent on available resources. We do not believe 
it would be appropriate to provide operational standards in a national 
rule, because regional standards are more effectively developed at the 
local level.
    (f) Relationship to other guidance documents. Many commenters 
recommended adding a provision to the rule that clarifies whether 
previously issued guidance documents relating to compensatory 
mitigation in the Corps Regulatory Program are superseded by this final 
rule. These commenters cited the 1995 Mitigation Banking Guidance, the 
2000 In-Lieu Fee Guidance, and the 1990 Mitigation Memorandum of 
Agreement between the U.S. EPA and the Department of the Army as 
documents about which such clarification is needed.
    We agree that such a provision is appropriate to provide clarity 
for the regulated public and government agencies. We have added 
paragraph (f)(1) to this section, which states that this rule replaces 
the mitigation banking guidance issued on November 28, 1995, the in-
lieu fee guidance issued on November 7, 2000, and Regulatory Guidance 
Letter 02-02 which was issued on December 24, 2002. Since this rule 
does not address all provisions of the 1990 Mitigation MOA that relate 
to compensatory mitigation, paragraph (f)(2) discusses which provisions 
of this MOA are superseded by the rule. This rule supersedes only those 
provisions of the MOA relating to the amount, type, and location of 
compensatory mitigation, and the use of preservation as a mitigation 
component.
    Other Corps guidance documents that relate to compensatory 
mitigation for DA permits, such as local guidance issued by Corps 
districts, should be revised as necessary so that they are consistent 
with this final rule.

33 CFR 332.2 and 40 CFR 230.92 Definitions

    Adaptive management. Two commenters supported the proposed 
definition of adaptive management. Two commenters suggested that the 
definition should require consideration of likely risks to compensatory 
mitigation project sites. Other commenters stated that the definition 
should clarify that adaptive management involves a strategy that 
addresses challenges faced in the restoration of dynamic systems. Two 
commenters said that there is potential to use this definition to relax 
or modify project-specific performance criteria to account for poor 
design or unexpected as-built conditions to achieve project goals.
    We have modified this definition to account for two aspects of 
adaptive management: (1) Addressing challenges that are likely to occur 
with compensatory mitigation projects, and (2) addressing unforeseen 
changes to those projects. The likely challenges are those that are 
reasonably foreseeable, which may typically occur for the restoration, 
establishment, or enhancement of a particular aquatic habitat type in a 
specific area. For the purposes of this rule, adaptive management does 
not require anticipation of all potential challenges, since that would 
be impossible to accomplish. We have also changed this definition to 
state that adaptive management requires consideration of the risk, 
uncertainty, and dynamic nature of compensatory mitigation projects. 
Consideration of those factors can help proponents optimize the 
ecological performance of compensatory mitigation projects. The last 
sentence of this definition has been modified to clarify that the 
adaptive management process involves the selection of appropriate 
measures that will provide aquatic resource functions. Another change 
to the last sentence acknowledges that analysis of monitoring results 
will be used to identify and implement measures to rectify problems.
    Advance credits. We have adopted this new definition to define one 
of the two types of credits that can be provided by in-lieu fee 
programs. Advance credits are compensatory mitigation credits available 
for sale by an in-lieu fee program sponsor prior to being fulfilled 
through implementation of an approved mitigation plan for an in-lieu 
fee project. An approved in-lieu fee project will have a credit release 
schedule, and as the milestones in the credit release schedule are 
achieved, the credits that are produced will be released to fulfill the 
sponsor's obligation for credit production on behalf of the permittees 
who secured credits from that sponsor. The number of advance credits 
that a sponsor may make available to permittees is specified by service 
area in the in-lieu fee program instrument. In-lieu fee programs cannot 
sell advance credits until they have an approved instrument specifying 
the maximum allowable number of advance credits and a schedule for 
fulfilling any advance credit sales. Considerations for determining the 
appropriate number of advance credits for a given service area are 
discussed elsewhere in this preamble.
    Buffer. Two commenters recommended modifying this definition to 
include areas providing upland habitat next to aquatic resources, in 
addition to protecting those resources from disturbance. Another 
commenter said that this definition should include buffers associated 
with ephemeral channels. One commenter noted that there is 
inconsistency in the proposed rule: in one section the term ``buffer'' 
includes upland areas, but in another section of the proposed rule it 
implies that buffers do not include uplands. This commenter recommended 
using this term consistently throughout the rule to eliminate 
confusion. One

[[Page 19621]]

commenter said that buffers may include wetlands.
    Although upland buffers usually provide habitat next to aquatic 
resources, we do not believe it is necessary to explicitly state that 
in this definition. Upland buffers can be established and maintained 
next to ephemeral channels, but we do not believe such clarification is 
needed. We have modified this definition by adding the word ``wetland'' 
since buffers may be comprised of uplands, wetlands, and/or riparian 
areas. Riparian areas may or may not be wetlands.
    Compensatory mitigation. Two commenters suggested that this 
definition should not be limited to aquatic resources. It should also 
acknowledge ecological improvements in uplands. Another commenter said 
that the definition should clarify that preservation is always a 
required component of compensatory mitigation, and in certain 
circumstances it may be the sole component. One commenter stated that 
this definition should be expanded to include functional surrogates for 
hydrology, such as integrated storm water management facilities.
    This rule is limited to compensatory mitigation for impacts to 
aquatic resources, since the Corps regulates activities in waters of 
the United States, including navigable waters. Mitigation required by 
district engineers to address impacts to other resources, such as 
endangered species or historic properties, is governed by other 
provisions in the Corps regulations. Preservation is not always a 
required component of compensatory mitigation, although long-term 
protection through real estate instruments or other mechanisms is 
usually required for compensatory mitigation project sites. 
Preservation is one means of providing compensatory mitigation; 
compensation may also be provided through restoration, enhancement, or 
establishment, or any combination of those four methods. Preservation 
is rarely the sole source of compensatory mitigation for a DA permit; 
in most cases, aquatic resource restoration, establishment, and/or 
enhancement is required to achieve a minimum of one-to-one replacement 
of lost aquatic resources and any required preservation augments that 
replacement. Use of various techniques to offset losses of hydrologic 
functions, such as integrated storm water management facilities, is 
considered to be an action to minimize effects in accordance with 40 
CFR part 230, Subpart H. District engineer can consider the use of such 
features when determining the appropriate amount of compensatory 
mitigation required for DA permits.
    Compensatory mitigation project. Two commenters recommended 
expanding this definition to include ecological improvements in 
uplands, where appropriate. One commenter said it was unclear whether 
forms of third-party mitigation other than mitigation banks are 
considered to be compensatory mitigation projects. One commenter 
suggested adding in-lieu fee programs to this definition.
    This definition has been simplified by replacing the phrase ``a 
restoration, establishment, enhancement, and/or preservation activity'' 
with ``compensatory mitigation.'' In this rule, district engineers have 
the discretion to include uplands, such as non-wetland riparian areas 
and buffers, as part of the overall compensatory mitigation project if 
those features are essential to maintaining the ecological viability of 
adjoining aquatic resources. We do not believe it is necessary to state 
this concept in the definition, since it is addressed in Sec.  332.3(i) 
[Sec.  230.93(i)]. We have removed the term ``third-party'' from this 
definition, and added the phrase ``or an in-lieu fee program'' to 
clarify that compensatory mitigation projects include mitigation banks 
and in-lieu fee programs.
    Condition. We have adopted this new definition since methods other 
than functional assessments can be used to evaluate permitted impacts 
and compensatory mitigation projects. This definition is based on 
concepts provided in the 2004 report entitled ``Review of Rapid 
Assessment Methods for Assessing Wetland Condition'' which was 
published by the U.S. EPA (EPA/620/R-04/009).
    Credit. One commenter noted that the proposed definition is based 
on measures of function. This commenter said that if there are no units 
of measure included, measures of function cannot be used to calculate 
credits. Another commenter stated that units of measure are needed to 
calculate numbers of credits.
    We have modified this definition by adding the phrase ``or other 
suitable metric'' to the list of examples of potential measures. There 
are a variety of methods that can be used to determine the number of 
credits provided by a compensatory mitigation project. In some cases, 
condition assessments may be used to determine available credits. The 
units of measure will depend on the method of determining credits. We 
have also inserted the word ``aquatic'' before ``functions'' in the 
last sentence, to clarify that credits are to be based on aquatic 
functions provided by resource restoration, establishment, enhancement, 
or preservation.
    For the purposes of this rule, credits from a mitigation bank or an 
in-lieu fee project are produced in accordance with a credit release 
schedule associated with an approved mitigation plan. For permittee 
responsible mitigation, credits are produced when a compensatory 
mitigation project is implemented in accordance with the approved 
mitigation plan.
    DA. There were no comments received on the proposed definition. 
This definition is adopted as proposed.
    Days. There were no comments received on the proposed definition. 
This definition is adopted as proposed.
    Debit. One commenter noted that the proposed definition is based on 
measures of function. This commenter said that if there are no units of 
measure included, measures of function cannot be used to calculate 
debits. Another commenter stated that units of measure are needed to 
calculate numbers of debits.
    For the same reasons provided in the preamble discussion of the 
term ``credit,'' we have modified this definition to refer to other 
suitable metrics. The units of measure depend on the method of 
determining debits.
    Enhancement. One commenter expressed support for the proposed 
definition. Several commenters requested changes to this definition to 
provide clarification. They said that it is difficult to distinguish 
between enhancement, restoration, rehabilitation, and re-establishment. 
Two commenters suggested that this definition should not be limited to 
aquatic resources, since ecological improvements could be made to 
uplands. Two commenters stated that the definition should limit 
enhancement to increases in function within the normal range of the 
particular type of ecosystem. Two commenters disagreed that enhancement 
does not result in an increase in aquatic resource area.
    Enhancement differs from restoration, rehabilitation, and re-
establishment because the objective of enhancement is usually to 
improve one or two functions, which may result in a decrease in the 
performance of other functions. Increasing those particular functions 
does not change the amount of area occupied by the aquatic resource. In 
contrast, re-establishment and rehabilitation (which are forms of 
restoration) are intended to return most, if not all, natural and/or 
historic functions to a former or degraded aquatic resource. We 
acknowledge that ecological functions of uplands can be

[[Page 19622]]

augmented through enhancement activities, but the scope of this rule is 
focused on aquatic resources. Enhancement activities are likely to 
result in limited changes in functional performance, because of 
inherent limits to functional capacity at a particular compensatory 
mitigation project site. If a compensatory mitigation activity results 
in an increase in aquatic resource area, in addition to increases in 
one or more aquatic resource functions, then it would probably be more 
appropriately classified as restoration. However, there may be cases 
where an increase in aquatic resource area is considered to be an 
adverse effect (e.g., impoundment of a forested wetland and adjacent 
uplands that kills the trees and changes habitat types). While 
enhancement does not result in a gain in aquatic resource area for 
purposes of tracking ``not net loss'' of wetlands, this does not mean 
that it cannot be used to compensate for a loss in resource area at the 
impact site. The district engineer will determine on a case-by-case 
basis the appropriate type and amount of mitigation to compensate for 
permitted impacts.
    Establishment (creation). One commenter said that establishment 
should not be used in areas with poor hydrology. Two commenters stated 
that this definition should not be limited to aquatic resources, since 
ecological improvement can be made to uplands. One commenter 
recommended using the term ``creation'' instead of ``establishment'' 
because the term ``establishment'' does not convey the difficulties and 
risks associated with wetland creation. Another commenter said that 
deepwater sites are regulated waters and filling those waters to make a 
wetland is conversion, not establishment (creation).
    District engineers will evaluate proposed establishment (creation) 
projects to determine if there is appropriate hydrology to support the 
desired aquatic resource. As discussed above, we acknowledge that 
ecological functions of uplands can be enhanced, but that is outside 
the scope of this rule. The term ``establishment'' is used in this 
rule, to be consistent with the terminology developed by the White 
House Wetlands Working Group (WHWWG) in 2000 to track wetland gains and 
losses. The WHWWG terminology continues to be used for wetland 
reporting, such as the Council on Environmental Quality's reports on 
implementation of the President's wetlands goals. We acknowledge that 
deepwater sites are usually considered to be waters of the United 
States and we have struck the phrase ``or deepwater'' from this 
definition.
    Fulfillment of advance credit sales of an in-lieu fee program. This 
definition was developed for use in the regulations governing in-lieu 
fee programs. The fulfillment of advance credits from in-lieu fee 
programs is accomplished when an approved mitigation plan for an in-
lieu fee project is implemented by the in-lieu fee program sponsor. 
Each approved mitigation plan for an in-lieu fee project will have a 
credit release schedule. As each milestone of the credit release 
schedule is achieved, a number of credits will be produced. The number 
of credits produced will fulfill that sponsor's obligations for that 
same number of advance credits. Only after all previously sold advance 
credits in a service area have been fulfilled can additional released 
credits from the project be sold. As advance credits within a service 
area are fulfilled through the approved release of credits for an in-
lieu fee project, an equal number of new advance credits in that 
service area become available to be provided or transferred (sold) to 
permittees.
    Functional capacity. There were no comments received on the 
proposed definition. This definition is adopted as proposed.
    Functions. A few commenters supported the proposed definition. Many 
commenters recommended that the agencies provide clarification to this 
definition. Several commenters said that this definition should either 
identify which functions are to be measured or define standard 
protocols for functional assessment methods. One commenter suggested 
that the assessed functions should include primary and secondary 
production, nutrient uptake and transformation, nutrient and organic 
matter input, storage, and export, and organic matter decomposition 
rates. Another commenter said that the definition should apply only to 
wetlands, not streams.
    District engineers will determine appropriate functional 
assessments to use for particular permitting situations. We do not 
believe it is necessary to specify the type of functions provided by 
aquatic resources, since this definition is intended to have general 
applicability. We have removed the phrase ``aquatic resources and 
other'' from this definition, since the term ``functions'' applies to 
physical, chemical, and biological processes that occur in any 
ecosystem. Even though the focus of the Corps Regulatory Program is on 
functions provided by aquatic resources, we believe this definition 
should be based on the general concept of what an ecosystem function 
is.
    Impact. Two commenters said that the proposed rule incorrectly 
assumes that all impacts are adverse, and that the definition should 
recognize that some impacts may be beneficial.
    We acknowledge that not all impacts authorized by DA permits are 
adverse, but the focus of this rule is on providing compensatory 
mitigation for losses of waters of the United States. Activities 
authorized by DA permits that benefit aquatic resources do not 
generally require compensatory mitigation. When determining the 
compensatory mitigation requirements for a particular permit, district 
engineers should consider environmentally beneficial activities that 
are provided by components of the overall project. In cases where 
environmentally beneficial activities or mitigation measures related to 
the aquatic environment are incorporated into the overall project, a 
smaller amount of compensatory mitigation may be required to offset the 
authorized adverse impacts to waters of the United States.
    In-kind. Several commenters said that the proposed definition is 
too vague. Two of these commenters stated that in-kind compensation 
should be structurally and functionally similar. One commenter 
requested that the definition clarify the difference between 
``functionally similar'' and ``structurally similar''. Two commenters 
suggested that the final rule adopt the current definition of in-kind 
mitigation, which refers to specific ecological types of wetlands.
    We have changed the phrase ``and/or'' to ``and'' to define in-kind 
mitigation as being of a similar structural and functional type as the 
impacted resource. The modification of this definition will also help 
clarify that in-kind mitigation should provide similar types of 
structure and functions as the impacted resource, while accommodating 
high quality compensatory mitigation projects. In-kind mitigation 
projects should result in resource structure and functional capacity 
that are comparable to reference aquatic resources. In other words, in-
kind mitigation should not consist of replacing a degraded aquatic 
resource with a degraded compensation resource. An in-kind compensatory 
mitigation project should result in a high quality aquatic resource. 
Thus, a mitigation project that was the same class of wetlands as the 
impacted resource, but with greater species diversity and habitat 
quality, would be considered appropriate in-kind mitigation.

[[Page 19623]]

    In-lieu fee program. Many commenters said that the rule should 
define the term ``in-lieu fee program.'' Several commenters stated that 
such a definition is necessary to clarify which programs would be 
subject to new regulations governing in-lieu fee programs.
    We have added a definition of this term to the final rule. It is 
parallel to the definition of ``mitigation bank'' while recognizing 
basic differences between mitigation banks and in-lieu fee programs. 
This definition discusses how an in-lieu fee program is similar to a 
mitigation bank, but it also clarifies that the rules governing the 
operation and use of in-lieu fee programs differ from those that govern 
mitigation banks.
    In-lieu fee program instrument. We have added a definition of this 
term that is parallel to the definition of ``mitigation banking 
instrument.''
    Instrument. We are adding this new definition to clarify that the 
use of the generic term ``instrument'' in this final rule may refer to 
either a mitigation banking instrument or an in-lieu fee program 
instrument.
    Interagency Review Team. One commenter suggested modifying this 
definition to clarify that an Interagency Review Team (IRT) can review 
documents for more than one mitigation bank. Another commenter said 
that the term ``mitigation bank review team'' should be used instead 
since in-lieu fee programs would be phased out under the proposed rule.
    We do not believe it is necessary to change this definition to 
state that an IRT can review more than one proposed mitigation bank at 
a time. A different IRT may be established for each proposed mitigation 
bank or in-lieu fee program, or the same IRT may be involved in all 
proposed mitigation banks or in-lieu fee programs in an area. Since 
this final rule provides for both mitigation banks and in-lieu fee 
programs, it would be inappropriate to revert to using ``mitigation 
bank review team.''
    Mitigation bank. Three commenters recommended using the word 
``aquatic'' in place of ``similar'' to clarify that the district 
engineer can require out-of-kind compensatory mitigation. Two 
commenters said that this definition should acknowledge that ecological 
improvements to uplands may be provided through a mitigation bank. One 
commenter stated that this definition should include language to 
reflect the fact that a mitigation bank cannot be used to offset 
impacts to aquatic resources unless certain performance standards have 
been met.
    We have modified the first sentence of this definition by removing 
the word ``aquatic'' and adding examples of resource types that could 
be used as compensatory mitigation for impacts authorized by DA 
permits: wetlands, streams, riparian areas. This change is consistent 
with the practice of allowing out-of-kind compensation. Compensatory 
mitigation may be provided through the establishment and maintenance of 
non-wetland riparian areas, which are not aquatic resources. The 
changes to the first sentence also allow recognition that upland areas 
may provide important ecological functions within a mitigation bank, 
and compensatory mitigation credit can be provided by those functions. 
We do not believe it would be accurate to state in this definition that 
performance standards must be met before a mitigation bank may be used 
to provide compensatory mitigation for authorized impacts to aquatic 
resources. When a mitigation bank is approved, and certain 
administrative activities are accomplished, a limited number of credits 
may be released which can be sold or transferred to permittees to 
fulfill their compensatory mitigation requirements.
    Mitigation banking instrument. One commenter suggested modifying 
this definition to allow federal facility management plans, integrated 
natural resource management plans, or other acceptable documentation to 
be used as mitigation banking instruments.
    Federal facility management plans, integrated natural resource 
management plans, and similar documents are more appropriately 
considered as site protection instruments, not mitigation banking 
instruments. A mitigation banking instrument governs the establishment 
and operation of a mitigation bank, which involves more issues than how 
the site will be managed.
    Off-site. Many commenters requested a more explicit definition of 
this term. Several commenters said that the term ``near'' is subjective 
and should be more clearly defined. One commenter suggested using 
``hydrologically connected'' instead of ``near.'' Two commenters 
expressed support for the flexibility provided by the use of the term 
``or near'' in this definition. One commenter said that the term 
``parcel'' should be defined in measurable units, to establish 
reasonable distances and areas for parcels. Another commenter suggested 
that the agencies should consider loosening the definition of off-site 
mitigation instead of allowing for more opportunities for out-of-kind 
mitigation.
    We have removed the phrase ``or near'' to simplify this definition 
and to remove ambiguity. Off-site compensatory mitigation is located on 
a parcel of land other than the parcel containing the impact site or a 
parcel contiguous to the impact site. The revised definition does not 
establish minimum distances for a compensatory mitigation project to be 
considered off-site. The use of in-kind mitigation versus out-of-kind 
mitigation is more appropriately addressed by district engineers on a 
case-by-case basis in response to project-specific circumstances, 
instead of modifying this definition.
    On-site. Many commenters requested a more explicit definition of 
this term. Several commenters said that the term ``near'' should be 
more clearly defined because it is subjective. One commenter stated 
that the term ``near'' should be replaced with ``hydrologically 
connected.'' Some commenters expressed support for the flexibility 
provided by the use of the term ``near'' in this definition. Two 
commenters said that the term ``parcel'' should be defined more 
clearly.
    For the same reasons as provided in the preamble discussion of the 
changes to the definition of ``off-site,'' we have modified the 
definition of ``on-site'' by removing the phrase ``or near.'' These 
changes will help ensure that these two definitions complement each 
other.
    Out-of-kind. Two commenters said that the word ``or'' should 
replace the phrase ``and/or'' in this definition, to state that out-of-
kind mitigation should be structurally or functionally similar. One 
commenter remarked that this definition should provide clarification on 
what are accepted forms of out-of-kind mitigation. Two commenters 
suggested that this definition refer to specific ecological types of 
wetlands.
    We have removed the phrase ``and/or'' and replaced it with the word 
``and'' since out-of-kind mitigation differs from the resources 
impacted by the authorized work in both structure and function. 
Providing clarification on accepted forms of out-of-kind mitigation is 
beyond the scope of this definition. Appropriate out-of-kind mitigation 
will be determined by a district engineer on a case-by-case basis in 
response to an application for a DA permit. There are a number of 
classification systems for the various ecological types of aquatic 
resources. For the purposes of a regulatory definition that applies to 
a wide variety of aquatic resources, it would not be appropriate to 
modify this definition to refer to a particular classification system.

[[Page 19624]]

    Performance standards. One commenter requested that the agencies 
expand this definition to explain, in greater detail, what performance 
standards are.
    We do not believe it would be appropriate to provide greater detail 
regarding performance standards in this definition. Performance 
standards will vary by aquatic resource type, and those standards are 
also likely to vary among geographic regions. Performance standards are 
also dependent on the techniques used to measure how well a 
compensatory mitigation project is meeting its objectives. General 
criteria for establishing appropriate ecological performance standards 
are provided in Sec.  332.5 [Sec.  230.95].
    Permittee-responsible mitigation. There were no comments on this 
proposed definition. This definition is adopted as proposed.
    Preservation. Some commenters said that this definition should be 
clearer, while other commenters stated that the proposed definition is 
adequate. Two commenters recommended modifying this definition to 
explicitly state that the preserved site will be permanently protected 
through appropriate real estate or legal instruments. One of these 
commenters noted that making such a change would avoid passive 
mitigation that results in little or no mitigation benefits. Two 
commenters said that preservation should not be limited to aquatic 
resources, but should also include ecological improvements in uplands 
when appropriate. One commenter suggested revising this definition to 
acknowledge gains in aquatic resource functions, services, and values.
    The protection of a compensatory mitigation project site is more 
appropriately addressed through the rule provisions for site protection 
in Sec.  332.7(a) [Sec.  230.97(a)]. This definition merely explains 
what preservation is, in the context of compensatory mitigation for DA 
permits. As part of an overall compensatory mitigation project, uplands 
such as non-wetland riparian areas may be included with preserved 
aquatic resources, if they help protect or sustain those aquatic 
resources. Although preservation helps sustain the functions and 
services provided by the preserved aquatic resources, by preventing 
direct impacts through land use changes, there is no gain in acreage. 
There may be a ``passive'' gain in functions and services over the 
long-term, if the preservation activity serves to remove or reduce 
stressors on the resource, however the main purpose of preservation is 
to prevent a future loss of resources, not to provide a gain. For this 
reason, higher compensation ratios are generally required.
    Release of credits. This definition has been added to describe 
actions where the district engineer, in consultation with the IRT, 
determines that credits associated with an approved mitigation plan for 
a mitigation bank are available for sale, transfer, or debit, or in the 
case of an in-lieu fee program, for fulfillment of advance credit 
sales. The credit release schedule for an approved mitigation bank or 
in-lieu fee project plan will be used to determine the number and 
resource type of credits that are released, as long as appropriate 
milestones specified in that schedule are achieved. A proportion of 
projected credits for a specific mitigation bank or in-lieu fee project 
may be released upon approval of the mitigation plan.
    Re-establishment. Three commenters said that this definition should 
be deleted from this rule. One commenter found this definition useful, 
while others remarked that this definition is unclear and difficult to 
distinguish from ``restoration'' and ``enhancement.'' Two other 
commenters recommended expanding this definition to include ecological 
improvements in uplands, instead of limiting it to aquatic resources.
    Re-establishment is a form of restoration, where the functions are 
returned to the site where an aquatic resource previously existed. The 
other form of restoration is rehabilitation, which results in an 
improvement in most, if not all, aquatic resource functions at a 
degraded site. Re-establishment differs from enhancement because 
enhancement is the augmentation of certain functions in an existing 
aquatic resource. It is not appropriate to address ecological 
improvements to uplands in this definition, since it is focused on 
aquatic resource functions. Ecological improvements to uplands that are 
conducted as part of a compensatory mitigation project can be 
considered by the district engineer when determining the amount of 
credits provided by that compensatory mitigation project.
    Reference aquatic resources. Three commenters said that the 
proposed definition contradicts extensive scientific literature that 
describes the use of reference conditions in ecological assessment. 
These commenters stated that the range of variability encompassed by 
anthropogenic disturbances should not be included in this definition. 
One commenter added that the term ``reference condition'' is used to 
describe aquatic systems that are stable and highly functional, and 
restoration projects should use reference streams and wetlands as 
models to establish objectives. Another commenter recommended modifying 
this definition to describe the use of reference sites.
    We have revised this definition to make it consistent with its 
current application in ecological assessment. Reference aquatic 
resources represent the full range of variability exhibited by a 
regional class of aquatic resources. That variability is due to both 
natural processes and anthropogenic disturbances. The term ``reference 
standard'' is used for the subset of reference aquatic resources that 
are the least disturbed and exhibit the highest levels of functions. 
Aquatic resources are not stable; instead, they are dynamic ecosystems 
that change over time. For the purposes of compensatory mitigation for 
DA permits, reference sites are used to help establish realistic 
objectives for compensatory mitigation projects, but these sites have 
other uses as well.
    Rehabilitation. Many commenters said that the proposed definition 
is unclear. One commenter recommended eliminating this definition and 
another commenter stated that the term ``enhancement'' should be used 
instead. One commenter supported the proposed definition. Two 
commenters suggested that this definition should not be limited to 
aquatic resources, but should also include ecological improvements to 
uplands where applicable. One commenter recommended modifying the 
second sentence of this definition to read: ``Restoration of an aquatic 
resource can result in an increase in function with or without an 
increase in size.''
    Rehabilitation differs from enhancement in that rehabilitation is 
intended to result in a general improvement in the suite of the 
functions performed by a degraded aquatic resource. In contrast, 
enhancement activities focus on increasing one or two functions, rather 
than all the functions being performed by an existing aquatic resource. 
For the purposes of this rule, ecological improvements to uplands are 
more appropriately addressed through the crediting of compensatory 
mitigation projects. We do not believe it is necessary to add the 
suggested sentence to this definition, since rehabilitation does not 
include re-establishment, which is the other type of restoration. The 
lack of gain in aquatic resource area is already addressed by the last 
sentence of the definition of ``rehabilitation.'' We note that, while 
rehabilitation does not result in a gain in aquatic resource area for 
purposes of tracking ``not net loss'' of wetlands, this does not mean 
that it cannot be used to compensate for a loss

[[Page 19625]]

in resource area at the impact site. The district engineer will 
determine on a case-by-case basis the appropriate type and amount of 
mitigation to compensate for permitted impacts.
    Restoration. Several commenters requested clarification of the 
proposed definition, and one commenter said that the definition should 
explain how restoration differs from enhancement. One commenter said 
that rehabilitation should not be considered as a form of restoration 
because rehabilitation does not result in an increase in wetland 
acreage, even though it improves wetland functions and/or values. Two 
commenters stated that this definition should not be limited to aquatic 
resources, so it should also include ecological improvements to uplands 
when appropriate.
    Restoration differs from enhancement in that it results in either 
the re-establishment of an aquatic resource or the rehabilitation of a 
suite of functions at a degraded aquatic resource. In contrast, 
enhancement activities focus on the improvement of a subset of specific 
functions of an aquatic resource. Rehabilitation results in a general 
improvement in the amount of functions performed by aquatic resources, 
and is considered to be a form of restoration. As stated above, 
ecological improvements to uplands are more appropriately addressed 
through crediting of compensatory mitigation projects.
    Riparian areas. One commenter suggested defining this term more 
narrowly, to specify the type of vegetation that characterizes riparian 
areas. One commenter recommended modifying this definition to limit it 
to open waters, since wetlands are also considered to be waterbodies.
    We have modified the first sentence of this definition to clarify 
that riparian areas are lands adjacent to streams, rivers, lakes, and 
marine-estuarine shorelines. To simplify this definition, we have also 
removed the second sentence of the proposed definition.
    Service area. There were no comments on this proposed definition. 
This definition is adopted as proposed.
    Services. Several commenters said that the proposed definition of 
this term is unclear and too subjective. According to one commenter, 
using a subjective measure such as services to assess mitigation 
success will hinder the government's administration of the program. In 
addition, it will create compliance problems for industry, because they 
will not be able to effectively plan future activities as a result of 
this uncertain, subjective measure. Two commenters said that the 
definitions of services and values should be combined. Other commenters 
recommended removing both terms from the final rule. One commenter 
stated that the reference to aquatic resources should be deleted 
because services are provided by all types of ecosystems, not just 
aquatic ecosystems.
    This definition has been simplified by deleting the phrase 
``aquatic resource and other'' since services may be provided by any 
type of ecosystem, including non-aquatic ecosystems. The concept of 
ecosystem services is important for considering where compensatory 
mitigation projects should be located. The relative locations of 
compensatory mitigation projects in the landscape helps address certain 
public interest factors, such as water quality, flood hazards, and fish 
and wildlife protection.
    Sponsor. One commenter suggested that this definition should 
include an entity responsible for establishing and operating a 
mitigation bank or in-lieu fee program.
    We have changed this definition to clarify that the sponsor is 
responsible for establishing, and in most cases operating, a mitigation 
bank or in-lieu fee program. There may be cases where sponsor turns 
over the long-term management (and ownership) of the mitigation bank 
site or in-lieu fee project site to another entity, so the word 
``operating'' is modified by the phrase ``in most circumstances'' to 
reflect those situations.
    Standard permit. There were no comments received on the proposed 
definition. It is adopted as proposed.
    Temporal loss. We have added a definition of temporal loss which 
clarifies that temporal loss is the time lag between the loss of 
aquatic resource functions caused by the permitted impacts and the 
replacement of aquatic resource functions at the compensatory 
mitigation site. Temporal loss is one factor that must be considered in 
determining compensation ratios. The definition also provides that the 
district engineer may determine that compensation for temporal loss is 
not necessary when a mitigation project is initiated prior to or 
concurrent with the permitted impacts, except for resources with long 
development times (e.g., forested wetlands). This is intended to 
provide an additional incentive for timely mitigation.
    Values. Two commenters said that the definitions of services and 
values should be combined. Several commenters said that the proposed 
definition of this term is unclear and too subjective, and others 
indicated that this definition should be deleted. One commenter stated 
that using value as a measure of mitigation success reduces the 
predictability and regulatory certainty needed for industry and 
government to operate efficiently.
    We have deleted this definition, since the term ``services'' is the 
current term being used to signify the importance of ecosystem 
functions to human populations. The use of the term ``values'' in the 
Regulatory Program during the past few decades has been similar to the 
way ``services'' is used today in most of the academic environmental 
literature, as well as policy documents. The use of the term 
``services'' instead of ``values'' will provide a more objective means 
of assessing how impacted aquatic resources and compensatory mitigation 
projects relate to people.
    In addition, ecosystem services can be more easily described than 
values. They are usually simply presented in qualitative terms as the 
benefits that are being provided to people in the watershed or other 
area of interest. The term ``value'' can have different meanings (e.g., 
monetary versus non-monetary values; landowner versus societal values). 
The valuation of aquatic resources and their functions is a complicated 
issue, and one that is unnecessary to resolve for this rule. Use of the 
term ``services'' will assist in program implementation, since agencies 
and stakeholders are more likely to reach a common understanding 
through descriptions of the ecosystem services being provided by a 
particular site.
    Watershed. Many commenters recommend adding a definition of 
``watershed'' to the rule. One commenter said that the definition 
should recognize that watersheds vary from region to region. On the 
other hand, another commenter stated that the definition should be 
interpreted and applied in a consistent manner regardless of the 
geographic location of the compensatory mitigation project. This 
commenter also suggested that the rule specifically identify the 
watersheds that are eligible for use as locations for compensatory 
mitigation projects.
    We have adopted a definition for this term, based on the definition 
provided in EPA's Watershed Plan Handbook, which was published in 
December 2006. District engineers will determine appropriate watershed 
scales for compensatory mitigation projects, including services areas 
for mitigation banks and in-lieu fee programs. We do not believe it 
would be appropriate to identify specific watersheds in which 
compensatory mitigation can be conducted. In general, compensatory 
mitigation projects should be located in

[[Page 19626]]

the same watershed as the permitted impacts, at a scale determined to 
be appropriate by the district engineer based on the factors specified 
in the rule.
    Watershed approach. Two commenters asked that the final rule 
include a definition of this term. We have added a definition of 
``watershed approach'' that is based on concepts in this final rule.
    Watershed plan. Several commenters said that there should be 
opportunities for local watershed groups or non-governmental 
organizations to develop watershed plans. Two commenters stated that 
this definition should be limited to plans with a specific goal of 
aquatic resource restoration and preservation to ensure that the 
watershed plan goals are consistent with federal, tribal, and state 
regulations. One commenter said that watershed plans should not include 
priority sites for aquatic resource restoration. On the other hand, 
another commenter stated that a watershed plan should identify priority 
sites for restoration and should also have a goal of ecosystem 
restoration. One commenter said that the proposed rule implies that any 
available watershed plan should be used to identify compensatory 
mitigation sites. This commenter stated that such an approach would be 
inappropriate unless the watershed plan is developed for the purpose of 
compensatory mitigation, including the protection of both natural and 
built environments.
    We have modified this definition to include appropriate non-
governmental organizations, such as local watershed groups, as 
potential developers of watershed plans. We have also changed this 
definition to clarify that, for the purposes of this rule, watershed 
plans are developed for the specific goal of aquatic resource 
restoration, establishment, enhancement, and preservation. This 
clarification is necessary because there are many different types of 
watershed plans, and those plans may be intended to fulfill a wide 
variety of purposes. We believe it is appropriate for watershed plans 
to identify priority sites for compensatory mitigation projects. In 
addition, we have replaced the word ``ecological'' with the phrase 
``aquatic resource'' to clarify that a watershed plan appropriate for 
use in implementing this rule should address aquatic resource 
conditions in a watershed. In the last sentence of this definition, we 
have replaced the phrase ``watershed management plans'' with ``wetland 
management plans'' to avoid a circular definition. As discussed below 
in Sec.  332.3(c) [Sec.  230.93(c)], district engineers will determine 
whether a particular watershed plan is appropriate for use in a 
watershed approach to compensatory mitigation.
    Several commenters said that key terms in the proposed rule are 
either undefined or vaguely defined. A number of commenters suggested 
additional terms to define in the final rule. These terms include 
``larger projects'' and ``smaller projects.'' We do not believe it 
would be appropriate to provide specific definitions to distinguish 
between large and small projects. The difference between large and 
small is subjective, and should be at the discretion of the district 
engineer after considering site-specific and project-specific criteria. 
Other requested definitions are discussed in more detail below.
    One commenter requested a definition of the term ``aquatic resource 
function'' since it is used repeatedly throughout the rule. We have 
provided a general definition of the term ``functions'' in this 
section, which applies to aquatic resources as well as other types of 
ecological resources.
    Two commenters asked for a definition of ``aquatic resource type'' 
since it is used throughout the rule. Three commenters said that the 
final rule should define ``aquatic resources.'' We do not believe it is 
necessary to define these terms in this rule. Different aquatic 
resource types may be distinguished through a variety of classification 
systems. What constitutes an aquatic resource is also dependent on the 
classification system used. Different regions may have different 
thresholds for making distinctions among aquatic, mesic, and xeric 
resources.
    Two commenters said that the rule should include a definition of 
``successful mitigation.'' One commenter proposed a set of criteria to 
be used to determine if the mitigation is successful.
    Successful compensatory mitigation projects will be identified by 
evaluating those projects against their ecological performance 
standards. Therefore, successful mitigation will be determined on a 
case-by-case basis.
    Two commenters asked for a definition of ``mitigation type.'' We 
have defined mitigation types in the final rule: restoration (which 
includes re-establishment and rehabilitation), establishment, 
enhancement, and preservation. We have also defined the terms ``in-
kind'' and ``out-of-kind.''
    One commenter said that the rule should have a definition of 
``complete prospectus.'' A complete prospectus contains the items 
listed at Sec.  332.8(d)(2) [Sec.  230.98(d)(2)].
    One commenter requested a definition of ``umbrella mitigation 
banking instrument.'' We do not believe it is necessary to define this 
term, because it is described at Sec.  332.8(h) [Sec.  230.98(h)].
    One commenter said that the final rule should include a definition 
of ``unavoidable impacts.'' It is not necessary to define this term, 
since unavoidable impacts are identified on a case-by-case basis when a 
district engineer evaluates a permit application.
    One commenter stated that this rule should provide a definition of 
``conversion'' as it relates to man-made changes to aquatic resources. 
This commenter also requested that the final rule contain guidelines to 
determine when a conversion would be ecologically appropriate.
    We do not believe it is necessary to define the term ``conversion'' 
since it is commonly understood to refer to an action that changes an 
area from one resource type to another resource type. Establishing 
guidelines for evaluating conversion is beyond the scope of this rule. 
For proposed changes to aquatic resources that require DA 
authorization, district engineers will determine on a case-by-case 
basis whether those activities constitute conversions and whether 
proposed conversions are in compliance with applicable regulations.
    One commenter suggested adding a definition of ``aggregate 
mitigation site,'' to account for cases where a permittee desires to 
provide a single compensatory mitigation project for multiple impacts 
to waters of the United States. We do not believe it is necessary to 
define this term. District engineers can consider compensatory 
mitigation that has been provided in advance by permittees when 
evaluating compensatory mitigation options (see 33 CFR 332.3(b) and 40 
CFR 230.92(b)).
    One commenter said that the rule should include a definition of 
``degraded.'' It would not be appropriate to define this term, since it 
is subjective. Assessment methods can be used to determine whether a 
particular resource is degraded, based on a threshold chosen by the 
district engineer. Best professional judgment may also be used to 
identify degraded resources in situations where appropriate assessment 
methods are not available.
    One commenter stated that the term ``stream'' should be defined. We 
do not believe it is necessary to define this term. District engineers 
can determine on a case-by-case basis whether a particular waterbody is 
a stream.
    One commenter requested a definition of ``ecoregion.'' We do not 
believe it is necessary to define this term. There are a number of 
classification systems for

[[Page 19627]]

identifying ecoregions. Ecoregions may also be identified through local 
criteria. District engineers will use appropriate criteria if 
ecoregions are to be used to define service areas for mitigation banks 
or in-lieu fee programs.

33 CFR 332.3 and 40 CFR 230.93 General Compensatory Mitigation 
Requirements

    Three commenters suggested that paragraph (c) of this section 
should be put in front of paragraph (b) of this section. Two commenters 
proposed that the Corps automated information system used for 
compensatory mitigation should include a regional list of rare habitat 
types.
    We do not agree that paragraph (c) of this section, which discusses 
the watershed approach, should be placed in front of paragraph (b), 
which presents criteria concerning the type and location of 
compensatory mitigation. As discussed below, paragraph (b) has a 
preference hierarchy that includes the watershed approach. Although 
mitigation banks and in-lieu fee projects should be strategically 
located in areas that support a watershed approach to compensatory 
mitigation, the preference hierarchy in paragraph (b) will be first 
considered when determining the compensatory mitigation required for a 
DA permit. If a mitigation bank or in-lieu fee program does not have 
the appropriate number and resource type of credits available, then 
permittee-responsible mitigation should be determined using the 
watershed approach described in paragraph (c) of this section. District 
engineers have the discretion to add appropriate data layers to the 
Corps automated information system to include information on rare 
habitat types, but it is not necessary to make that a requirement in 
this rule.
    (a) General considerations. One commenter remarked that the 
proposed rule does not provide criteria, standards, or meaningful 
guidance to ensure that the district engineer will require mitigation 
that will protect water quality. Another commenter said that there 
should be sufficient flexibility in the final rule to support new 
approaches or strategies that meet the standards identified, but do not 
fall into one of the existing categories.
    Water quality standards are more appropriately addressed through 
the water quality certification process under section 401 of the Clean 
Water Act. A district engineer can require water quality management 
measures as part of the overall compensatory mitigation package 
required for a particular DA permit. Even though this rule is focused 
on a watershed approach, it provides flexibility for district engineers 
to use innovative approaches or strategies for determining more 
effective compensatory mitigation requirements that provide greater 
benefits for the aquatic environment. We have added to this section a 
provision that allows the district engineer, when evaluating 
compensatory mitigation options, to consider what would be 
environmentally preferable, taking into account the likelihood for 
ecological success and sustainability, the location of the compensation 
site relative to the impact site and their relative significance within 
the watershed, and the costs of the compensatory mitigation project.
    One commenter stated that the economic cost of mitigation should 
not be a primary consideration when determining the amount, location, 
or type of compensatory mitigation required, and that reference to 
economic costs should be deleted from this section. Several commenters 
said that the district engineer should not be required to consider 
economic costs when assessing the success and sustainability of a 
mitigation project. Another commenter, however, recommended that the 
final rule require the district engineer to consider economic factors 
more comprehensively, including not only the economic cost of the 
compensatory mitigation, but also the full range of costs and benefits 
to society stemming from the loss of aquatic resources.
    Economic costs are an important consideration when determining the 
practicability of a proposed compensatory mitigation project. In 
addition to economic costs, existing technology and logistics must also 
be considered. If a particular compensatory mitigation project is cost-
prohibitive, then an alternative compensation project that is more 
practicable should be required. District engineers will also consider 
impacts to the public interest, including potential losses of aquatic 
resource functions and services, when evaluating permit applications 
and compensatory mitigation proposals, and determining appropriate and 
practicable compensatory mitigation requirements.
    We have added Sec.  332.3(a)(2) [Sec.  230.93(a)(2)] to provide 
clarification regarding the potential mechanisms for providing 
compensatory mitigation. It states that restoration should be the first 
option considered since the likelihood of success is greater. 
Restoration also helps reduce impacts to ecologically important 
uplands, such as mature forests, where compensatory mitigation 
activities may be proposed because of land availability. The 404(b)(1) 
Guidelines prohibit discharges in areas where there may be other 
significant environmental consequences (see 40 CFR 230.10(a)).
    Some commenters recommended that the rule allow compensatory 
mitigation projects on federal lands where state wildlife agencies 
lease management rights for fish and wildlife purposes. Others 
commenters suggested prohibiting compensatory mitigation projects on 
existing public conservation lands.
    We have added Sec.  332.3(a)(3) [Sec.  230.93(a)(3)], which was 
moved from Sec.  332.8(a)(2) [Sec.  230.98(a)(2)] of the proposed rule. 
We have modified this paragraph to be generally applicable to all 
compensatory mitigation projects, not just mitigation banks. 
Compensatory mitigation projects may be located on federal lands, as 
long as those projects comply with the provisions of this part, 
including the site protection requirements in Sec.  332.7(a)(4) [Sec.  
230.97(a)(4)].
    (b) Type and location of compensatory mitigation. Several 
commenters stated that the established order of preference in the 
proposed rule (i.e., mitigation bank credits; permittee-responsible 
mitigation in accordance with a watershed plan or watershed approach; 
on-site, in-kind permittee-responsible mitigation; and lastly, off-
site, out-of-kind permittee-responsible mitigation) is too limiting and 
creates inefficiency. Many commenters stated that the proposed rule 
establishes a preference for mitigation banks, and some of these 
commenters argued that the preference for mitigation banks over in-lieu 
fee programs cannot be justified. One commenter suggested that this 
rule stipulate that mitigation banks should not necessarily represent a 
``first resort'' to fulfilling mitigation requirements if there are on-
site opportunities that are likely to provide greater ecological 
benefits. However, another commenter said that section 314 warrants a 
stronger preference for using approved mitigation banks.
    We have substantially revised and reorganized this section of the 
final rule, and have provided flexibility for district engineers to 
make compensatory mitigation decisions based on what is environmentally 
preferable and is most likely to successfully provide the required 
compensatory mitigation. Sections 332.3(b)(2)-(6) [Sec.  230.93(b)(2)-
(6)] present a preference hierarchy, which was developed through 
careful consideration of comments received in response to the proposed 
rule, as well as various studies on the different approaches for 
providing compensatory mitigation. The hierarchy is based on

[[Page 19628]]

administrative and environmental considerations, to reduce risk and 
uncertainty associated with compensatory mitigation projects, as well 
as temporal losses of aquatic resource functions and services. 
Reduction of risk and uncertainty associated with compensatory 
mitigation projects is achieved by favoring compensatory mitigation 
that is further along in the planning and approval process or will 
better support a watershed approach. Since there are time lags 
associated with all sources of compensatory mitigation (see the 2001 
NRC Report), our focus is on reducing temporal losses to the extent 
practicable. Administrative considerations include the regulations 
governing mitigation banks, in-lieu fee programs, and permittee-
responsible mitigation that are provided in this rule, as well as the 
timing of actions required for those sources of compensatory 
mitigation. Environmental considerations include the expected 
ecological benefits of third-party compensatory mitigation as well as 
independent studies that have shown that the ecological success of 
permittee-responsible mitigation is uneven. There have been few 
independent studies of the ecological success of mitigation banks and 
in-lieu fee programs, so we have no basis for establishing a preference 
based solely on third-party mitigation success.
    Section 332.3(b)(1) [Sec.  230.93(b)(1)] discusses general 
principles for determining the appropriate type and location for 
compensatory mitigation projects. Some of these principles were taken 
from Sec.  332.3(b)(4) [Sec.  230.93(b)(4)] of the proposed rule, which 
discussed the use of off-site and out-of-kind compensation. Since these 
basic principles should be applied earlier in the selection process, we 
have moved those provisions to Sec.  332.3(a)(1) [Sec.  230.93(a)(1)] 
of the final rule. Paragraph (b)(1) of this section also states that 
the compensatory mitigation options provided in paragraphs (b)(2) 
through (b)(6) should be applied in the order they are given, to make 
it clear that this is a hierarchy from highest to lowest preference. It 
is important to understand that this is a preference hierarchy that 
does not override a district engineer's judgment as to what constitutes 
the most appropriate and practicable compensatory mitigation based on 
consideration of case-specific circumstances. In this paragraph, we 
have added a provision to address compensating for impacts to marine 
resources. This provision states that compensatory mitigation project 
sites for marine resources should be located in the same marine 
ecological system as the impact site, citing reef complexes and 
littoral drift cells as examples of marine ecological systems. We have 
also added provisions indicating that compensation for impacts to 
aquatic resources in coastal watersheds should be located in a coastal 
watershed where practicable, and that mitigation projects should not be 
located where they will increase risks to aviation by attracting 
wildlife to areas where aircraft-wildlife strikes may occur (e.g., near 
airports).
    Section 332.3(b)(2) [Sec.  230.93(b)(2)] establishes a preference 
for the use of mitigation bank credits if the mitigation bank has the 
appropriate number and resource type of credits available. This 
preference is based on the requirements in this rule: before credits 
can be sold or transferred to permittees the sponsor must have an 
approved instrument, as well as an approved mitigation plan and other 
assurances in place. Those other assurances are specified in the 
mitigation banking instrument and usually include securing the 
mitigation bank site, establishing financial assurances, and finalizing 
the appropriate site protection mechanisms. Because of these 
requirements for mitigation banks, there is generally less risk and 
uncertainty (and less temporal loss) than there is with in-lieu fee 
programs and permittee-responsibility. Because of the credit release 
schedule required for mitigation banks, there is some degree of 
demonstrated success in providing the compensatory mitigation. In 
addition, the planning and resources involved in developing and 
implementing a mitigation bank help provide greater assurance that the 
compensatory mitigation project will provide environmental benefits. 
However, district engineers can apply these considerations to other 
sources of compensatory mitigation to override the preference for 
mitigation bank credits. For example, the district engineer may 
authorize the use of released credits from an in-lieu fee program since 
the requirements for release of these credits are comparable to the 
requirements for release of credits from an approved mitigation bank. 
In a situation where the permittee has proposed to restore an 
outstanding resource, and has provided sufficient scientific and 
technical analysis to demonstrate that such a project will be 
successful, the district engineer may authorize the use of that 
compensatory mitigation project instead of mitigation bank credits.
    If the permitted impacts are not in the service area of an approved 
mitigation bank, or are in the service area of an approved mitigation 
bank, but that mitigation bank does not have the appropriate number and 
resource type of credits available, and an approved in-lieu fee program 
does not have appropriate released credits available, Sec.  332.3(b)(3) 
[Sec.  230.93(b)(3)] establishes a preference for in-lieu fee program 
credits. In-lieu fee programs fall into the next level of the hierarchy 
because of the levels of planning and review they are required to 
perform as a result of this rule. In-lieu fee programs are required to 
develop a compensation planning framework that supports a watershed 
approach (see Sec.  332.8(c) [Sec.  230.98(c)]). In-lieu fee programs 
can also bring substantial expertise to aquatic resource restoration 
and protection activities, and many in-lieu fee program sponsors are 
conservation organizations with an interest in long-term management of 
aquatic resources. This preference may be overridden by a high quality 
permittee-responsible mitigation project or one that is likely to meet 
performance standards before the in-lieu fee program sponsor fulfills 
his or her obligation for advance credits.
    If an approved mitigation bank or in-lieu fee program cannot be 
used to provide the required compensatory mitigation, Sec.  332.3(b)(4) 
establishes a preference for permittee-responsible mitigation conducted 
under a watershed approach. In cases where a watershed approach is not 
practicable for permittee-responsible mitigation, under Sec.  
332.3(b)(5) [Sec.  230.93(b)(5)] the district engineer should consider 
options for on-site and/or in-kind compensation to fulfill the 
compensatory mitigation requirements. The last option under the 
preference hierarchy is for permittee-responsible mitigation through 
off-site and/or out-of-kind compensatory mitigation (see Sec.  
332.3(b)(6) [Sec.  230.93(b)(6)]).
    One commenter said the proposed rule seems excessively rigid, and 
the limited funds available to public agencies should be used to 
implement mitigation where it will be most cost-effective. One 
commenter said that wetland establishment should not be an acceptable 
form of wetland compensation, as it is too uncertain and has a bad 
track record. One commenter recommended that this section be re-
organized to explain how the watershed approach should be applied to 
each mitigation location option.
    Cost considerations may be used to evaluate whether the proposed 
compensatory mitigation requirement for a DA permit is practicable. 
However, the ecological success of the compensatory mitigation project 
and its effectiveness at offsetting the permitted impacts are also 
important

[[Page 19629]]

considerations. We recognize that wetland establishment may not be 
successful in many situations, so we have established a preference for 
restoration in Sec.  332.3(a)(2) [Sec.  230.93(a)(2)]. The watershed 
approach is discussed in Sec.  332.3(c) [Sec.  230.93(c)]. District 
engineers will apply the watershed approach to the extent practicable 
when considering compensatory mitigation options, as well as during the 
review and approval of instruments for mitigation banks and in-lieu fee 
programs.
    The final rule states that compensatory mitigation decisions will 
be based on what is environmentally preferable, which, in a particular 
situation, might be on-site compensation. As discussed above, it 
provides a hierarchy of preferences for satisfying compensatory 
mitigation requirements for DA permits, starting with mitigation bank 
credits.
    Many commenters supported eliminating the preference for in-kind 
and on-site compensatory mitigation. Most of these commenters said that 
compensatory mitigation requirements should be based on ecological 
criteria, as well as the likelihood of offsetting the permitted 
impacts, not on a preference for on-site mitigation. Some commenters 
noted that rigid rules favoring on-site compensation often yield small, 
poorly functioning compensatory mitigation projects. One commenter 
noted that federal agencies that review permit applications are often 
restricted from accepting more environmentally meaningful compensation 
proposals because of the preference for in-kind, on-site compensatory 
mitigation projects. Several other commenters, however, recommended 
that the final rule express a preference for on-site mitigation. Two 
commenters said that compensatory mitigation wetlands should be located 
as close as possible to the impacted wetlands, and should be the same 
wetland type. A few commenters suggested that on-site, in-kind 
mitigation should be preferred until substantive watershed-level plans 
are developed to guide compensatory mitigation decisions. Several 
commenters stated that off-site mitigation should only be considered if 
other forms of mitigation are likely to be ineffective, and several 
commenters requested clarification of the circumstances under which 
off-site or out-of-kind mitigation can be provided. A few commenters 
stated that district engineers needed to be provided direction for 
considering off-site mitigation.
    We believe that compensatory mitigation requirements should be 
guided by ecological and practicability considerations, to help ensure 
that the required compensation successfully fulfills its objective, to 
offset aquatic resource functions lost as a result of the permitted 
impacts. The watershed approach, as well as the other considerations 
provided in Sec.  332.3 [Sec.  230.93] will help meet these objectives. 
Because of its poor record of ecological success, a preference for on-
site mitigation cannot be justified. The final rule is supported by the 
findings of the 2001 NRC Report, which indicated that an automatic 
preference for on-site, in-kind compensatory mitigation is inconsistent 
with a watershed approach, since there are circumstances in which on-
site or in-kind mitigation is neither practicable nor environmentally 
preferable. District engineers will use available tools and information 
to guide their decision-making regarding where compensatory mitigation 
projects should be located. As additional data are gathered, and new 
tools are developed, district engineers will use those items as 
appropriate.
    A number of commenters agreed that it may be appropriate to replace 
certain aquatic resource functions on-site and other functions off-site 
and that this flexibility is a positive aspect of the rule. However, 
several commenters suggested that the rule should not allow a 
combination of off-site and on-site mitigation, as it is overly 
burdensome and would dilute the overall effectiveness of compensation. 
One commenter said that compensating for functions at different 
locations may create situations where each site is not fully 
functional. Two commenters stated that the rule should allow a single, 
permittee-sponsored mitigation project to compensate for the aquatic 
impacts of a linear facility, such as a transmission line, which may 
affect more than one watershed.
    We believe that using a combination of on-site and off-site 
compensatory mitigation is often necessary or preferable to 
successfully offset the functions lost at the impact site. This is an 
important facet of a watershed approach to compensatory mitigation. To 
be effective, compensatory mitigation projects must be located in 
appropriate landscape settings. The off-site aquatic habitat 
restoration or establishment activities should provide the suite of 
functions performed by that habitat. The on-site mitigation will likely 
focus on effectively replacing specific functions, such as water 
quality or water quantity functions. Therefore, from a watershed 
perspective, there will likely be a net increase in aquatic resource 
functions. In general, off-site compensatory mitigation will be located 
in the same watershed as the impact site. District engineers also have 
flexibility under this rule to allow compensation for linear projects 
to be conducted on one or multiple sites, based on environmentally 
preferable and practicable compensatory mitigation options.
    A number of commenters expressed concern that an emphasis on off-
site compensatory mitigation can lead to the transfer of wetland 
ecosystem services from urban to rural areas. Two commenters argued 
that unless the rule requires applicants to include a description of 
service values and benefits at the impact site and the compensatory 
mitigation project site, rural areas will benefit and urban populations 
will incur the costs. One commenter stated that recent and past studies 
indicate that the location of mitigation banks is dictated primarily by 
land costs rather than by sound scientific watershed principles.
    We recognize that aquatic resources in urban settings can provide 
important functions and services, and we believe it is important that 
urban areas not become devoid of aquatic resources simply because it is 
more difficult to successfully restore or establish aquatic habitat in 
developed areas. Compensatory mitigation required by district engineers 
will be located in areas where it is appropriate and practicable to 
conduct successful aquatic resource restoration, establishment, and 
enhancement activities. In some cases, this will result in compensatory 
mitigation for impacts in urban areas to be conducted in more remote 
locations; in other cases, it may be appropriate to replace certain 
aquatic resources in urban areas. Site selection is a primary 
consideration for compensatory mitigation projects and district 
engineers will evaluate proposed mitigation projects, including 
mitigation banks, using the watershed approach to ensure that they 
contribute to the functions and sustainability of aquatic resources 
within a watershed. As discussed above, the use of a combination of on-
site and off-site compensatory mitigation can be effective in retaining 
aquatic resource functions and services in urban areas.
    (c) Watershed approach to compensatory mitigation. Many commenters 
supported use of a watershed approach for compensatory mitigation. One 
commenter said that consideration of watershed functions is an orderly, 
incremental next step to move section 404 permitting towards a 
watershed-based perspective. One

[[Page 19630]]

commenter stated that an ecosystem approach will result in a 
comprehensive package that best fits the landscape and its needs. 
Several commenters noted that the use of a watershed approach would 
increase the flexibility for compensatory mitigation and ensure a 
project's sustainability. Four commenters encouraged the Corps to use 
its funding to develop a general and flexible framework for 
consideration of landscape or watershed needs, rather than formal 
watershed plans.
    We have retained the watershed approach in the final rule, with 
modifications made in response to specific comments. The watershed 
approach retains many of the recommendations from the 2001 NRC Report. 
While the watershed approach provides flexibility for identifying an 
appropriate compensatory mitigation project, as well as its location in 
the watershed, a main objective of the watershed approach is to 
maintain and improve the quantity and quality of wetlands and other 
aquatic resources in watersheds through strategic selection of 
compensatory mitigation project sites. As experience is gained in the 
use of the watershed approach, Corps districts will use that experience 
to improve decision-making for compensatory mitigation requirements.
    One commenter suggested that use of a watershed approach be 
encouraged, but not required, and a few commenters asserted that the 
term ``watershed approach'' is too ambiguous to be a mandatory 
requirement. Many commenters recommended that the agencies not require 
use of the watershed approach until there is consensus on how 
watersheds are defined and the development of planning tools. One 
commenter said that a state, district, or county cannot be compelled to 
establish a watershed approach. One commenter stated that the language 
in Sec.  332.3(c)(3) [Sec.  230.93(c)(3)] suggests that watershed 
approach will be taken on a project-by-project basis and contradicts 
the entire idea of a watershed approach. This commenter added that 
watershed studies should not be project-specific.
    The watershed approach described in the proposed rule is intended 
to be a general framework for better decision-making for compensatory 
mitigation requirements for DA permits. The rule language needs to be 
flexible, so that district engineers can adapt the general framework to 
more effectively address aquatic resource needs in their regions. We 
have added a definition of the term ``watershed'' to Sec.  332.2 [Sec.  
230.92], but the appropriate watershed scale to use for the watershed 
approach will vary by region, as well as the particular aquatic 
resources under consideration. There are a number of planning tools 
available for use with a watershed approach, and more will be developed 
as this rule is implemented and further experience is gained from using 
a watershed perspective. As stated in Sec.  332.3(c)(1) [Sec.  
230.93(c)(1)], the watershed approach is to be used to the extent 
appropriate and practicable. There will be situations, such as 
compensatory mitigation requirements for small impacts, where it would 
not be cost-effective to utilize a watershed approach. Since using a 
watershed approach is not appropriate in areas without watershed 
boundaries, such as marine waters, we have added a provision (Sec.  
332.3(c)(2)(v) [Sec.  230.93(c)(2)(v)]) to clarify that other types of 
spatial scales may be more appropriate in those areas. This rule does 
not require the development of watershed studies on a project-by-
project basis.
    Several commenters supported the idea of a watershed and/or 
ecosystem approach but said that watershed plans should be prepared 
before permitted impacts can occur. A few commenters stated that many 
existing watershed plans are not comprehensive. One commenter noted 
that it will be difficult to implement the watershed approach in a 
meaningful way in the majority of developing watersheds that are 
without watershed plans. Several commenters requested that the rule 
stipulate that only mitigation banks that conform to approved watershed 
plans shall be approved by the district engineer and the IRT. Several 
commenters stated that, in the absence of a watershed plan, a watershed 
approach will lead to inappropriate mitigation and the cumulative loss 
of wetland functions. These commenters also noted that the proposed 
rule did not provide an incentive to undertake real watershed planning, 
and recommended that the agencies develop criteria and standards for 
watershed plans that incorporate the recommendations of the National 
Research Council and the elements of watershed plans discussed in the 
rule.
    As with the 2001 NRC Report, the watershed approach described in 
this final rule does not require a formal watershed plan. The watershed 
approach may be based on a structured consideration of watershed needs 
and how wetlands and other types of aquatic resources in specific 
locations will address those needs. We realize that in many areas, 
watershed plans appropriate for use in planning compensatory mitigation 
activities have not been developed. Although it would be desirable to 
have watershed plans designed to more fully support a watershed 
approach, we believe that a watershed approach can be effectively 
implemented without watershed plans. Mitigation banks can support a 
watershed approach without using watershed plans. There are different 
types of watershed plans that could be developed for purposes other 
than aquatic resource restoration, establishment, enhancement, and/or 
preservation activities. For example, some watershed plans are 
conceived to guide development activities or the placement of storm 
water infrastructure. Therefore, we have modified Sec.  332.3(c)(1) 
[Sec.  230.93(c)(1)] to state that the district engineer will determine 
whether a watershed plan is appropriate for use in the watershed 
approach for compensatory mitigation. The final rule does not provide 
disincentives to develop watershed plans. District engineers are 
encouraged to work with other government agencies and stakeholders to 
develop watershed plans to support decision-making in the Corps 
Regulatory Program, but we also recognize that the development of 
watershed plans is resource-intensive, and may not be feasible in many 
areas. Criteria and standards for developing watershed plans 
appropriate for use in the Corps Regulatory Program may be established 
at a later time.
    Some commenters stated that it is unclear how the watershed 
approach will be implemented in the absence of a watershed plan. One 
commenter stated that most watershed management plans are relatively 
small in scope relative to an economically sustainable service area, 
and therefore using such plans can thwart regional water quality needs. 
Others argued that the government, not permit applicants, should 
develop watershed plans, because most applicants lack the time and 
resources needed to develop those plans. One commenter said that 
watershed plans vary considerably from region to region and are usually 
unable to support evaluations of compensatory mitigation needs. This 
commenter recommended that EPA and the Corps establish a certification 
process to assure the format and information content of watershed plans 
is sufficient to meet the intent of the proposed rule.
    To implement a watershed approach in the absence of a watershed 
plan, district engineers will utilize the considerations specified in 
Sec.  332.3(c)(2) [Sec.  230.93(c)(2)] and available information on 
watershed conditions and needs, as discussed in Sec.  332.3(c)(3) 
[Sec.  230.93(c)(3)]. Although many of the watershed plans that have 
been

[[Page 19631]]

developed in the past focus on small watersheds, water quality 
considerations can be effectively addressed through a watershed 
approach without relying on watershed plans. Most watershed plans will 
be developed through collaboration among federal, tribal, state, and 
local government agencies, as well as non-governmental organizations, 
landowners, and various other stakeholders. This rule does not require 
the development of watershed plans by permit applicants. As discussed 
above, the district engineer will determine whether an existing 
watershed plan is appropriate for use in a watershed approach for 
compensatory mitigation. We do not believe it is necessary to establish 
a certification process for appropriate watershed plans.
    Commenters requested clarification regarding watershed parameters, 
interstate watersheds, the effect the watershed approach will have on 
section 404 permitting, and the definitions of watershed and watershed 
approach. A few commenters cited the high cost of obtaining data for a 
watershed approach and the difficulties in developing watershed plans. 
Many commenters recommended additional considerations to be included in 
the watershed approach. These considerations include the following: (1) 
Potential wetland landscape function; (2) aquatic resources in an 
ecosystem context; (3) decisions regarding mitigation for aquatic 
resources that take into account the needs of the ecosystem as a whole, 
including mitigation priorities for other resources, such as endangered 
species; (4) interactions and habitat connectivity; (5) inventory of 
historic as well as existing aquatic resources and conditions; (6) 
social values; (7) provision of adequate and suitable on-site storm 
water management; (8) consideration of aquatic resource problems and 
risks, and specific opportunities for addressing those problems and 
risks; and (9) evaluation of functions of the current wetland 
landscape.
    Appropriate watershed parameters for use in a watershed approach 
will be determined by district engineers for their regions of 
responsibility. District engineers may consult with other agencies and 
other interested parties to identify watershed parameters that should 
be used. The intended effect of implementing a watershed approach to 
compensatory mitigation is to improve the success and effectiveness of 
aquatic resource restoration, establishment, enhancement, and/or 
preservation required by DA permits, and to maintain and improve 
aquatic resource functions and services within watersheds. The terms 
``watershed'' and ``watershed approach'' have been defined at Sec.  
332.2 [Sec.  230.92]. If an appropriate watershed plan is not 
available, district engineers are to use a watershed approach based on 
analysis of available information (see Sec.  332.3(c)(3)(i) [Sec.  
230.93(c)(3)(i)]). Permit applicants are not required to incur 
substantial costs to provide information for the watershed approach. 
The nine considerations provided in the previous paragraph are already 
addressed through various provisions in this rule. For example, social 
values are considered as ecosystem services. We have added a sentence 
to Sec.  332.3(c)(2)(iv) [Sec.  230.93(c)(2)(iv)] (Sec.  
332.3(c)(2)(ii) [Sec.  230.93(c)(2)(ii)] in the proposed rule) to state 
that the identification and prioritization of resource needs should be 
as specific as possible, to enhance the use of the watershed approach. 
We have also added a provision to this section which states that a 
watershed approach may include on-site compensatory mitigation, off-
site compensatory mitigation, or a combination of on-site and off-site 
compensatory mitigation (see Sec.  332.3(c)(2)(iii) [Sec.  
230.93(c)(2)(iii)]).
    Many commenters did not believe that the rule should specify 
minimum information requirements for use of the watershed approach to 
compensatory mitigation site selection. Several commenters said that 
this would place an undue burden on the regulated community and the 
agencies, especially if the information is not available, and could 
potentially delay the issuance of permits or the implementation of 
mitigation plans. Others expressed concern that, because the minimum 
information mentioned in the preamble is not currently available in 
many areas, a requirement for such information would limit the use of a 
watershed approach. Some commenters argued that the rule should not 
rely on only the applicants to provide supporting data for a watershed 
approach. Several commenters supported the inclusion of minimal 
information requirements. One commenter noted that these requirements 
are necessary to establish a consistent and scientifically defensible 
method of using the watershed approach. One commenter suggested that 
the requirements be based on information generally known to be 
available for most watersheds. Other commenters argued that all 
projects regardless of size should be subject to the requirement for 
additional information.
    We have revised Sec.  332.3(c)(3) [Sec.  230.93(c)(3)] to clarify 
the information that the district engineers should use as the basis for 
a watershed approach, and to identify potential sources for such 
information. While there is no bright line for the minimum amount of 
information needed to support a watershed approach, the final rule 
identifies information that is generally needed to implement a 
watershed approach effectively. That information will address watershed 
conditions and needs, and should include potential sites (as well as 
priority sites) for compensatory mitigation projects. We have indicated 
that appropriate information may be available from sources such as 
wetland maps, soil surveys, aerial photographs, local ecological 
reports, etc. In Sec.  332.3(c)(3)(iii) [Sec.  230.93(c)(3)(iii)], we 
state that the level of information and analysis must be commensurate 
with the scope and scale of the proposed impacts that require a DA 
permit, as well as the functions lost as a result of those impacts. 
Larger projects will generally warrant greater investment in 
information gathering to ensure proper consideration of watershed 
factors in the selection of appropriate compensatory mitigation.
    (d) Site selection. One commenter stated that the proposed site 
selection criteria are well-defined and appropriate. Another commenter 
said that the criteria were too broad. One commenter stated that the 
rule should require the district engineer to deny the use of 
compensatory mitigation project sites that are not ecologically 
suitable. Two commenters suggested that site selection criteria should 
consider species that should be present or have access to the 
compensatory mitigation project site. Another commenter noted that the 
proposed rule provides end goals of a site selection process but does 
not provide details concerning how these goals would be met. One 
commenter stated that requirements that further limit compensatory 
mitigation site selection would be overly burdensome. Two commenters 
expressed concern that mitigation banks would be prohibited near 
airports. One commenter recommended that the agencies discourage 
compensatory mitigation projects on public lands as these tend to 
result in a loss of wetlands accompanied only by some limited 
improvement in lands already set aside for conservation purposes.
    This provision provides site criteria that district engineers must 
consider, to the extent practicable, to help determine whether a 
proposed compensatory mitigation project site will be suitable for 
successfully replacing lost aquatic resource functions. They are 
general

[[Page 19632]]

considerations, since it is impractical to provide a comprehensive list 
that accounts for different regions across the country. If a proposed 
compensatory mitigation project site is determined to be unsuitable, 
then other sites ought to be considered. Section 332.3(d)(1)(vi) [Sec.  
230.93(d)(1)(vi)] includes consideration of habitats for species of 
interest. In some cases, selecting an appropriate compensatory 
mitigation project site will be an iterative process, so that the most 
suitable site for achieving as many objectives as possible can be 
found. The intent of Sec.  332.3(d) [Sec.  230.93(d)] is to assist in 
site selection that will support ecologically successful and 
sustainable compensatory mitigation projects. As discussed in the 
preamble to the proposed rule, locating compensatory mitigation 
projects (including mitigation banks) near airports is likely to 
attract wildlife species and pose hazards to aviation. This does not 
mean that no compensatory mitigation projects can be located near any 
airport; it means that compatibility with existing facilities must be 
considered. We believe it is appropriate, in some instances, to site 
compensatory mitigation projects on public lands, where they are 
consistent with the use and management of the public land, and the 
credits are based solely on aquatic resource functions provided by the 
compensatory mitigation project, over and above those provided by 
public programs already planned or in place.
    (e) Mitigation type. Many commenters recommended that the rule 
retain a preference for in-kind mitigation. Several commenters stated 
that out-of-kind mitigation does not address the specific functions, 
services, or values of the resource being impacted. Several commenters 
said that the current preference for on-site, in-kind mitigation should 
be continued until substantive watershed-level plans are developed to 
guide compensatory mitigation activities, and one commenter noted that 
the proposed rule appears to allow the district engineer to accept out-
of-kind mitigation without determining if it serves the needs of the 
watershed. One commenter was concerned that the rule has loosened the 
definition of in-kind to allow more flexibility, which would lead to a 
more relaxed mitigation approach, and other commenters noted that a 
broad application of ``out-of-kind'' would allow the replacement of a 
wetland with a stream habitat or vice versa.
    The final rule retains a preference for in-kind mitigation. As 
defined in Sec.  332.2 [Sec.  230.92], the term ``in-kind'' refers to 
similar structural and functional types. However, we would like to 
clarify that in-kind mitigation does not mean compensating for impacts 
to degraded aquatic resources by providing degraded compensatory 
mitigation projects. A compensatory mitigation project should result in 
high quality aquatic resources that provide optimum functions within 
its landscape context, taking into account unavoidable constraints.
    We have modified the example in Sec.  332.3(e)(2) [Sec.  
230.93(e)(2)] to provide clarification as to what constitutes in-kind 
mitigation in terms of aquatic resource type. The revised example 
states that tidal wetlands are most likely to compensate for 
unavoidable impacts to tidal wetlands. Perennial streams are used as 
the other example of in-kind mitigation. Although out-of-kind 
mitigation may not offset all aquatic resource functions and services 
provided by the aquatic resource being affected by the permitted 
activity, out-of-kind mitigation may be important for restoring or 
improving watersheds, especially in cases where certain aquatic 
resource types have been disproportionately lost from a watershed (see 
the 2001 NRC Report). It is not necessary to develop watershed plans to 
allow out-of-kind mitigation, but watershed factors need to be 
considered. Section 332.3(e)(2) [Sec.  230.93(e)(2)] requires district 
engineers to document the basis for requiring out-of-kind mitigation in 
the administrative record for the permit action.
    Several commenters supported the provision in the proposed rule 
that allows for out-of-kind compensation, and one commenter said that 
out-of-kind mitigation should be used when it is ``environmentally 
preferable'' to in-kind mitigation. A number of commenters requested 
further guidance on when out-of-kind mitigation is appropriate and a 
more definitive and transparent list of ``factors'' to be considered 
when proposing or evaluating out-of-kind mitigation. One commenter 
noted that the rule as proposed does not limit the types of projects 
that could be authorized as compensatory mitigation for permanent 
stream losses. Another commenter suggested that stream mitigation 
should only be appropriate compensation for wetland impacts in limited 
situations. One commenter expressed concern that the requirements in 
the proposed rule will make it difficult to provide in-kind 
compensation for losses of ephemeral channels.
    The final rule states that district engineers can require the use 
of out-of-kind compensatory mitigation when he or she determines that 
it will serve the aquatic resource needs of the watershed. In addition, 
Sec.  332.3(a)(1) [Sec.  230.93(a)(1)] states that, when evaluating 
compensatory mitigation options, the district engineer will consider 
what is environmentally preferable. This includes consideration of in-
kind versus out-of-kind mitigation. District engineers will determine 
on a case-by-case basis if out-of-kind mitigation would be more 
appropriate for offsetting the losses of aquatic resource functions 
caused by the permitted impacts. In this rule, it would not be 
appropriate to list factors for consideration, since these are likely 
to vary by geographic region and by watershed. District engineers will 
determine appropriate and practicable compensatory mitigation 
requirements for permanent losses of streams. Unless there are case-
specific watershed considerations that warrant out-of-kind mitigation 
for stream impacts, district engineers will generally require stream 
restoration, enhancement, or preservation activities to provide 
required compensatory mitigation for permitted impacts to streams. The 
appropriateness and practicability of requiring in-kind compensation 
for permitted losses of ephemeral streams will be determined by 
district engineers on a case-by-case basis.
    One commenter recommended that the rule specify the types of 
compensatory mitigation activities that are preferred. This commenter 
said that re-establishment should be the preferred method of mitigation 
and that establishment should be rarely accepted. Another commenter 
stated that the proposal places full discretion with the district 
engineer for making determinations of what type of compensatory 
mitigation might be most appropriate in any given scenario.
    Preferred compensatory mitigation activities in terms of what would 
be best for the aquatic environment, including a particular watershed, 
will be determined by the district engineer on a case-by-case basis. We 
have added a new paragraph at Sec.  332.3(a)(2) [Sec.  230.93(a)(2)], 
which states that restoration should be the first option considered for 
providing compensatory mitigation. Aquatic resource establishment may 
be acceptable after considering the likelihood of success of a 
particular compensatory mitigation project, including the suitability 
of the proposed site to satisfy the objectives of the compensatory 
mitigation project after that project is fully implemented. The final 
rule retains the discretion of the district engineer to determine the 
appropriateness and practicability of any compensatory mitigation 
required for DA permits.

[[Page 19633]]

    Three commenters supported adding a provision which states that 
district engineers should not permit out-of-kind mitigation for rare or 
hard to replace wetlands. Two commenters also stated that such a 
provision would eliminate compensatory mitigation for those habitat 
types that are not the easiest to recreate or those that would not have 
a relatively high likelihood of success. Some commenters objected to 
the inclusion of ``relative likelihood of success in establishing 
different habitat types'' as it allows impacts to higher quality, 
difficult-to-replace wetlands (e.g., fens or forested wetlands), 
without requiring their replacement. One commenter added that meeting 
ecological needs should take priority over the likelihood of a 
compensatory mitigation project's success. One commenter noted that a 
strict preference for on-site, in-kind mitigation often results in 
compensatory mitigation projects that have relatively little ecological 
value, are more difficult to establish, and are less likely to be 
sustained over the long term.
    To reduce losses of difficult-to-replace aquatic resources, we have 
added Sec.  332.3(e)(3) [Sec.  230.93(e)(3)] which states that, in 
cases where further avoidance and minimization is not practicable, the 
required compensatory mitigation must be provided through in-kind 
rehabilitation, enhancement or preservation to the extent practicable. 
When evaluating a request for a section 404 permit for an activity that 
would result in the loss of a difficult-to-replace aquatic resource, 
the district engineer will determine whether the proposed activity 
fully complies with the 404(b)(1) Guidelines, including requirements to 
avoid and minimize impacts to those resources to the maximum extent 
practicable and to consider alternatives. The likelihood of success 
must be considered when evaluating compensatory mitigation proposal. If 
the potential for successfully satisfying the objectives of a 
compensatory mitigation project is low, then an alternative 
compensatory mitigation project with a higher likelihood of success 
should be required instead. There will always be some risk and 
uncertainty associated with compensatory mitigation projects, but risks 
and uncertainties need to be minimized as much as possible so that the 
objectives of those projects will be achieved.
    A few other commenters suggested that the rule specify that the 
credit or ratio authorized for out-of-kind mitigation be equivalent 
across mitigation providers. Two commenters recommended that stream 
credits be treated the same as wetlands credits in the rule.
    Appropriate compensation ratios will be determined by district 
engineers on a case-by-case basis (see Sec.  332.3(f) [Sec.  
230.93(f)]). District engineers will determine the appropriate units of 
measure for wetland and stream credits.
    (f) Amount of compensatory mitigation. Some commenters agreed with 
the minimum mitigation ratio in the proposed rule. Many commenters 
argued that the suggested baseline mitigation ratio of one-to-one in 
the proposed rule is not conservative enough, and is not scientifically 
defensible given the high documented rate of failure or under-
performance of many mitigation sites. A considerable number of these 
commenters also argued that mitigation should never be at a ratio that 
is less than one-to-one. One commenter suggested that a 1.5 to 1 ratio 
would be a better minimum ratio and would reasonably account for 
expected failures. One commenter stated that the rule gives the 
district engineer too much discretion to decide on the replacement 
ratio.
    We have modified Sec.  332.3(f)(1) [Sec.  230.93(f)(1)] to clarify 
that, in cases where the district engineer determines that compensatory 
mitigation is required to offset unavoidable impacts to aquatic 
resources, the amount of compensatory mitigation must be, to the extent 
appropriate and practicable, sufficient to replace lost aquatic 
resource functions. With this rule, we are encouraging the use of 
functional and condition assessments to determine the appropriate 
amount of compensatory mitigation needed to offset authorized impacts, 
instead of relying primarily on surrogate measures such as acres and 
linear feet. In the future, there will be more assessment methods 
available to quantify impacts and compensatory mitigation. We recognize 
that, in some cases, it may not be appropriate and practicable to 
require full replacement of aquatic resource functions. This paragraph 
also states that in cases where functional or condition assessments or 
other suitable metrics are not used, a minimum one-to-one acreage or 
linear foot compensation ratio must be used. The latter provision will 
help ensure that an equivalent area or length of aquatic habitat will 
be used to provide compensatory mitigation, to help offset aquatic 
resource losses that will occur as a result of the permitted activity. 
When determining the appropriate compensation ratio in the absence of a 
functional or condition assessment method, it is necessary to rely on 
other metrics, such as area and linear measures. In this rule, a 
baseline ratio greater than one-to-one cannot be justified because of 
the uncertainties surrounding impact and compensatory mitigation sites. 
Those uncertainties must be accounted for on a case-by-case basis by 
district engineers. Most aquatic resources likely to be impacted by 
activities that require DA permits are degraded to some degree. 
District engineers can only require an amount of compensatory 
mitigation that is roughly proportional with the permitted impacts, so 
that it is sufficient to offset those lost aquatic resource functions. 
Only in cases where a functional or condition assessment or other 
suitable metric is used can the district engineer require less than 
one-to-one compensation on an acreage or linear foot basis. Even in 
cases where functional or condition assessment methods are used, these 
will not usually result in less than one-to-one ratios, because of the 
other factors (uncertainty, temporal loss) that must be considered.
    A few commenters noted said there is no scientific basis for a 
replacement ratio based on linear feet. According to these commenters, 
compensatory mitigation credits and debits must be based on the net 
gain or loss of stream functions, not stream length. Several commenters 
argued that the use of a required minimum replacement ratio in the 
absence of a functional assessment is too inflexible for stream 
mitigation. One commenter supported efforts to achieve a one-to-one 
replacement ratio in stream mitigation. Another commenter argued that a 
one-to-one minimum replacement ratio would be too inflexible and that, 
in some instances, stream restoration is better handled by other means 
(e.g., rotational grazing and livestock exclusion).
    The use of linear feet may be more appropriate for determining 
compensatory mitigation amounts for aquatic resources that are more 
linear in nature, such as streams. District engineers retain the 
discretion to quantify stream impacts and required compensatory 
mitigation in terms of area or other appropriate units of measure. 
Where they are available and appropriate for use, we encourage the use 
of functional and condition assessments to quantify debits and credits 
for stream impacts and compensation. The amount of required stream 
compensatory mitigation is dependent on the method of providing the 
compensation, as well as other factors (see Sec.  332.3(f)(2) [Sec.  
230.93(f)(2)]).
    Many commenters requested further guidance as to when functional 
assessments should be used to determine the required amount of

[[Page 19634]]

compensatory mitigation. A few commenters stated that there could be 
situations where a functional assessment is inappropriate or not needed 
(e.g., temporary impacts to unvegetated waters). Commenters also 
requested clarification as to whether a preferred assessment method 
would be specified in the final rule, if the district engineer will 
perform these assessments, and how the Corps planned to reconcile 
differences in opinion regarding functional assessments. While some 
commenters supported the use of functional assessments, others 
recommended retaining replacement ratios based on area until there is 
an approved model for accurate functional assessment. According to one 
commenter, functional assessment methods and mitigation ratios should 
be determined with input or consensus from the regulated community. One 
commenter said that use of a functional assessment methodology should 
never result in less mitigation than the amount of acreage or linear 
footage impacted. However, several commenters urged the agencies to 
insert language into the rule that would provide district engineers 
with explicit guidelines to allow for mitigation ratios of less than 
one-to-one where appropriate.
    Functional assessments will be used to determine compensatory 
mitigation amounts in cases where such methods are available, 
appropriate, and practicable for use. There are on-going efforts to 
develop and refine functional assessment methods and other science-
based assessment tools. If appropriate functional assessment methods 
are not available, or if it is not practicable to use the appropriate 
and available functional assessment method for a particular project, 
then other appropriate metrics are to be used. We have modified Sec.  
332.3(f)(1) [Sec.  230.93(f)(1)] to include the use of condition 
assessment methods and other appropriate metrics for determining the 
amount of compensatory mitigation that is to be required for DA 
permits. Condition assessments are typically based on indices of 
biological integrity. District engineers will determine on a case-by-
case basis whether a particular functional or condition assessment 
method is appropriate and practicable for calculating compensatory 
mitigation amounts for DA permits. District engineers may consult with 
the regulated public and other stakeholders on the appropriateness of 
using existing functional or condition assessment methods in a 
particular region, or for certain types of aquatic resources, but the 
district engineer retains responsibility for the final decision as to 
how much mitigation will be required and how it is determined.
    Since functional assessments typically provide quantitative 
measures of specific functions performed by an impact site, and 
expected functions to be provided by the compensatory mitigation 
project site, there may be cases where the compensatory mitigation 
project site is expected to provide higher levels of functions than the 
impact site, especially if the impact site is substantially degraded. 
Where quantitative measures are used, there needs to be flexibility to 
ensure that the required compensatory mitigation is roughly 
proportional to the permitted impacts.
    In Sec.  332.3(f)(2) [Sec.  230.93(f)(2)], we have added 
``likelihood of success'' and ``the distance between the affected 
aquatic resource and the compensation site'' to the list of factors to 
be considered by district engineers when determining the appropriate 
amount of compensatory mitigation for permitted impacts. We have also 
added a new Sec.  332.3(f)(3) [Sec.  230.93(f)(3)], to state that in 
cases where an in-lieu fee program will be used to provide the required 
compensatory mitigation, and advance credits will be used to provide 
that compensatory mitigation, the district engineer must require 
additional compensatory mitigation to account for the risk and 
uncertainty associated with in-lieu fee projects that have not yet been 
implemented. Finally we note that, while temporal loss must also be 
considered in determining mitigation ratios, the definition of 
``temporal loss'' in Sec.  332.2 [Sec.  230.92] specifies that district 
engineers may determine that additional compensation for temporal loss 
is not required if the mitigation is initiated prior to or concurrent 
with the permitted impacts, except for resources with long development 
times (e.g., forested wetlands).
    (g) Use of mitigation banks and in-lieu fee programs. Two 
commenters supported the use of mitigation banks for all DA 
authorizations. One commenter requested clarification on whether 
mitigation banks could provide compensatory mitigation for all types of 
mitigation requirements. A few commenters stated that mitigation banks 
should not be used to provide compensation for after-the-fact permits 
until all appropriate federal, state and local enforcement conditions 
are met, and that compensatory mitigation should not be allowed instead 
of restoration if the activity would not have been eligible for a DA 
permit. Another commenter suggested that ratios for after-the-fact 
permits should be higher. Another commenter said that mitigation banks 
should only be used in after-the-fact permits with a debit penalty.
    Since the final rule includes in-lieu fee programs as a source of 
compensatory mitigation, we have modified this paragraph to include 
both mitigation banks and in-lieu fee programs. We have also modified 
this paragraph to refer to the preference hierarchy provided in Sec.  
332.3(b) [Sec.  230.93(b)]. Mitigation banks and in-lieu fee programs 
may be used to compensate for impacts to aquatic resources authorized 
by general permits and individual permits, including after-the-fact 
permits. Corps enforcement actions will be handled in accordance with 
the regulations at 33 CFR part 326, which stipulate when after-the-fact 
permit applications will be accepted. If the district engineer 
determines that compensatory mitigation is necessary, he will determine 
the appropriate ratio based on what is required to compensate for the 
aquatic resources.
    Two commenters said that the provision stating that mitigation 
banks may also be used to satisfy requirements arising out of an 
enforcement action, such as supplemental environmental projects, should 
be included in 33 CFR 332.3(g). One commenter said that mitigation 
banks should be used to resolve violations.
    The Corps does not have the authority to require supplemental 
environmental projects to resolve Clean Water Act violations. EPA has a 
Supplemental Environmental Projects (SEP) Policy that allows the Agency 
to consider projects proposed by violators to mitigate the penalties 
assessed for violations of the CWA. Mitigation banks and in-lieu fee 
programs can qualify as these types of projects if they meet the basic 
requirements of the Agency's SEP Policy.
    (h) Preservation. Many commenters supported the use of preservation 
as a form of compensatory mitigation. Several commenters said that 
preservation is needed in urban and coastal areas. Other commenters 
stated that preservation is important to sustainable ecosystems and to 
protect watershed health. Several commenters recommended that the rule 
require the use of a permanent legal instrument to ensure the 
protection of the preserved site. Several additional commenters argued 
that compensation ratios should be greater than one-to-one for 
preservation mitigation projects. Some commenters supported a 
requirement that any use of preservation should be the result of a 
watershed plan or a

[[Page 19635]]

watershed approach. One commenter said that the requirement for the 
preserved resource to ``contribute to the ecological sustainability of 
the watershed'' is too vague.
    The 2001 NRC Report stated that wetland preservation is an 
important tool for maintaining wetland diversity in a watershed, and 
achieving the goals of the Clean Water Act in that watershed. 
Preservation is particularly valuable for protecting unique, rare, or 
difficult-to-replace aquatic resources, such as bogs, fens, and 
streams, and may be the most appropriate form of compensatory 
mitigation for those resources. We recognize that wetland preservation 
does not, in the short term, result in new wetland resources and thus 
contribute to the ``no overall net loss'' goal, but over longer time 
periods preservation helps reduce wetland losses by removing the 
protected wetlands from the pool of wetlands that may be subject to 
future development activities that require DA permits. Aquatic resource 
preservation, when combined with restoration or establishment 
activities, can provide important aquatic services in a watershed. 
Section 332.3(h)(1)(v) [Sec.  230.93(h)(1)(v)] requires the site 
containing the preserved resources to be permanently protected through 
appropriate instruments.
    Decisions on whether to allow preservation as part of a 
compensatory mitigation package will be made by the district engineer, 
based, to the extent appropriate and practicable, on the watershed 
approach. We have modified Sec.  332.3(h)(1) [Sec.  230.93(h)(1)] to 
clarify that all five criteria must be met for preservation to be used 
as compensatory mitigation for DA permits. We have also modified Sec.  
332.3(h)(1)(ii) [Sec.  230.93(h)(1)(ii)] to state that the resources to 
be preserved must provide a significant contribution to the ecological 
sustainability of the watershed. In determining whether this 
requirement is met, the district engineer may also consider whether the 
resource to be preserved is unique, rare, or hard to replace. To 
support compliance with that requirement, this provision also requires 
the district engineer to use appropriate quantitative assessment tools, 
in cases where such tools are available. The district engineer will 
also decide whether a proposed preservation site contributes to 
ecological sustainability of the watershed, based on case-specific 
factors.
    Many commenters stated that preservation alone is not an acceptable 
form of compensatory mitigation and preservation does not promote ``no 
net loss'' of wetlands. Several commenters said that preservation and 
enhancement should only be used to augment aquatic resource restoration 
and establishment. Other commenters recommended that only a small 
percentage of credits for a particular compensatory mitigation project 
should be given for preservation and only when it is used in 
conjunction with restoration, enhancement, and/or establishment.
    As stated in Sec.  332.3(h)(2) [Sec.  230.93(h)(2)], preservation 
will be provided in conjunction with aquatic resource restoration, 
establishment, and/or enhancement activities, unless the district 
engineer waives this requirement in a situation where preservation has 
been identified as a high priority using a watershed approach. If the 
district engineer makes such a waiver, a higher compensation ratio 
shall be required. For each mitigation bank and in-lieu fee project 
involving preservation, the district engineer, in consultation with the 
IRT, will determine the number of credits that will result from that 
preservation activity.
    (i) Buffers. Many commenters agreed that upland buffers and 
riparian areas should be used as compensatory mitigation. Several 
commenters stated that buffers should be required for all compensatory 
mitigation projects. Some commenters noted that uplands and buffers 
play important roles in wetland and stream mitigation banks and are an 
integral part of a compensatory mitigation project's functions and 
values. One commenter said that buffers should not be used to generate 
compensatory mitigation credits unless they contribute substantially to 
habitat connectivity. A number of commenters said that buffers should 
not be used as compensatory mitigation.
    Upland buffers and non-wetland riparian areas can provide 
substantial contributions to the ecological sustainability of aquatic 
resources within watersheds. These areas may also be critical to the 
success of aquatic resource restoration, establishment, enhancement, 
and preservation activities. It is not feasible to require buffers for 
all compensatory mitigation projects; such decisions need to be made by 
district engineers on a case-by-case basis. We have added a sentence to 
Sec.  332.3(i) [Sec.  230.93(i)] to clarify that buffers may provide 
habitat or corridors necessary for the ecological functioning of 
aquatic resources.
    One commenter said that the final rule should allow credit for 
riparian and upland areas that serve as the principal or sole 
compensatory mitigation in certain circumstances (e.g., in arid regions 
in the western United States). Some commenters suggested that adjacent 
upland habitat should not be counted separately for compensatory 
mitigation credit, unless a minimum one-to-one ratio of wetland 
restoration or establishment is provided. Three commenters requested 
guidance that explains how and when buffers could be used to provide 
compensatory mitigation credit.
    We have added a sentence to Sec.  332.3(i) [Sec.  230.93(i)] to 
clarify that in cases where buffers are required by the district 
engineer as part of a compensatory mitigation project, compensatory 
mitigation credit will be provided for those buffers. In most cases, 
the required buffers will supplement aquatic resource restoration, 
establishment, enhancement, and/or preservation activities. To qualify 
as providing compensatory mitigation credit, adjacent upland habitat 
must contribute to the long-term viability of the adjoining aquatic 
resources. District engineers will determine on a case-by-case basis 
whether buffers are necessary components of compensatory mitigation 
projects.
    (j) Relationship to other federal, tribal, state, and local 
programs. Several commenters requested clarification regarding the 
relationship between compensatory mitigation undertaken for purposes of 
compensating for losses under the Corps Regulatory Program and 
mitigation actions taken under other federal, state, or local programs. 
Many commenters said that the same compensatory mitigation project site 
or mitigation bank should satisfy all sets of statutory requirements 
without the need for additional compensatory mitigation required by the 
Corps, as long as the functions provided through compensatory 
mitigation under each statute are the same or complementary. One 
commenter noted that the rule should recognize that compensatory 
mitigation, including compensation provided by mitigation banks, may be 
designed to comprehensively address requirements under multiple 
programs and authorities for the same activity. Another commenter 
stated that this provision is contrary to the intent of the statute 
that the regulations should maximize opportunities for mitigation 
credits. Other commenters, however, supported this provision of the 
proposed rule.
    Compensatory mitigation projects used to fulfill the compensation 
requirements for DA permits may be used to satisfy the environmental 
requirements for other programs, such as wetlands regulatory programs 
administered by tribal, state, and local

[[Page 19636]]

governments. In cases where tribal, state, or local governments 
regulate similar activities to those regulated by the Corps, 
compensatory mitigation projects may be designed to fulfill all 
applicable compensation requirements. For example, a surface coal 
mining activity that requires authorization under section 404 of the 
Clean Water Act and the Surface Mining Control and Reclamation Act 
(SMCRA) may offset environmental losses through a compensatory 
mitigation project that is designed to satisfy the requirements of both 
statutes. Also, mitigation banks and in-lieu fee programs that are 
developed for the purposes of providing compensatory mitigation under 
the Corps Regulatory Program may also be used to provide compensatory 
mitigation for Corps Civil Works projects (see section 2036(c) of the 
2007 Water Resources Development Act) or activities conducted on 
military installations (see 10 U.S.C. 2694b).
    We have revised Sec.  332.3(j) [Sec.  230.93(j)] by subdividing it 
into several paragraphs to make it easier to read. In Sec.  332.3(j)(1) 
[Sec.  239.93(j)(1)], we have replaced the phrase ``compensate for 
environmental impacts authorized under'' with the phrase ``satisfy the 
environmental requirements of'' to clarify that a single compensatory 
mitigation project can be used to satisfy the requirements of more than 
one law. We have replaced the reference to the National Pollutant 
Discharge Elimination System Program (NPDES) with the phrase ``other 
federal programs such as the Surface Mining Control and Reclamation 
Act'' since activities authorized under the NPDES do not generally 
require compensatory mitigation. A coal mining project that requires 
authorization under both section 404 of the Clean Water Act and SMCRA 
can often satisfy the compensatory mitigation requirements for both 
authorizations through a single compensatory mitigation project.
    Section 332.3(j) [Sec.  230.93(j)] is not contrary to section 314. 
It requires accounting for the use of compensatory mitigation credits. 
It does not limit production of compensatory mitigation credits; 
instead, it prevents the same credits from being used for different 
projects.
    In Sec.  332.3(j)(1)(i) [Sec.  230.93(j)(1)(i)], we have modified 
the rule language to state that the compensatory mitigation project 
must include appropriate compensation required by the DA permit. This 
is intended to address situations where a compensatory mitigation 
project may be designed to address the environmental requirements of 
both the DA permit and other permits issued by other federal, tribal, 
state, or local agencies. In such cases, the additional environmental 
benefits required through those other permits could be satisfied by 
other components of the compensation project.
    In the revisions to Sec.  332.3(j)(1)(ii) [Sec.  230.93(j)(1)(ii)], 
we are clarifying that the same credits can not be used to provide 
mitigation for more than one permitted activity. We are also clarifying 
that in-lieu fee programs can be designed to holistically address 
requirements under multiple programs and authorities. We have added 
Sec.  332.3(j)(3) [Sec.  230.93(j)(3)] to clarify that compensatory 
mitigation projects can also be designed to satisfy the mitigation 
requirements of the Endangered Species Act, as long as they comply with 
the requirements of this section.
    One commenter noted that the proposed rule does not recognize the 
inherent ability of many of these programs to provide the necessary 
financial incentives for landowners to restore and enhance their 
wetlands and wildlife habitat as part of a larger resource management 
plan for their lands in the hopes of garnering future compensatory 
mitigation credits. Two commenters agreed with the provision in the 
proposed rule that stipulates that projects undertaken with federal 
funds should not be used to generate mitigation credits. Two commenters 
disagreed with this proposed provision. One commenter stated that the 
agencies should retain flexibility in managing these landscapes and 
promote creativity in assigning credits for large-scale mitigation 
banks that offer a variety of ecosystem services beyond wetlands 
replacement.
    Section 332.3(j)(2) [Sec.  230.93(j)(2)] has been made into a 
separate paragraph to address situations where federal funding is 
provided for wetland conservation projects. In cases where a landowner 
has taken advantage of financial incentives to restore or enhance 
wetlands on their property, that landowner can also produce 
compensatory mitigation credits that can be used for DA permits, as 
long as those credits are the result of supplemental ecological 
improvements. In other words, the ecological improvements that result 
from the financial incentives provided to the landowner cannot be used 
to satisfy compensatory mitigation requirements of DA permits, but 
additional ecological improvements involving aquatic resource 
restoration, establishment, enhancement, and/or preservation may be 
used as compensatory mitigation for DA permits, provided these 
additional improvements were not part of the requirements for obtaining 
the financial incentives. For example, if a federal program has a 50% 
landowner match requirement, neither the federally funded portion of 
the project, nor the landowner's 50% match, which is part of the 
requirements for obtaining federal funding, may be used for 
compensatory mitigation credits. However, if the landowner provides a 
greater than 50% match, any improvements provided by the landowner over 
and above those required for federal funding could be used as 
compensatory mitigation credits. Note however that in order to sell 
credits to a third party, a landowner must have an approved mitigation 
banking instrument. The final rule provides flexibility for managing 
landscapes to produce a variety of ecological functions and services, 
but the rule also requires careful accounting of any credits that are 
produced.
    (k) Permit conditions. Many commenters supported the provision in 
the proposed rule that calls for compensatory mitigation requirements 
to be included as enforceable conditions of DA permits. One commenter 
stated that performance standards should be mandatory and enforceable 
permit components. One commenter stated that financial assurances 
should be included in the DA permit. Another commenter requested 
clarification of whether the term ``describe'' means to provide an 
overview of the proposed mechanism for financing a compensatory 
mitigation project or whether the intent is to give Corps the right to 
review and/or approve a final draft legal instrument.
    We have substantially revised this section to clarify the 
requirements for special conditions for individual permits requiring 
permittee-responsible mitigation (Sec.  332.3(k)(2) [Sec.  
230.93(k)(2)]), requirements for special conditions for general permits 
requiring permittee-responsible mitigation (Sec.  332.3(k)(3) [Sec.  
230.93(k)(3)]), and the use of mitigation banks and in-lieu fee 
programs (Sec.  332.3(k)(4) [Sec.  230.93(k)(4)]). For individual 
permits that require permittee-responsible mitigation, the special 
conditions must identify who is responsible for providing the 
compensatory mitigation, incorporate by reference the approved 
mitigation plan, state the objectives and substantive requirements of 
the compensatory mitigation project, and describe any required 
financial assurances or long-term management. For general permit 
authorizations that require permittee-responsible mitigation, the 
special conditions must describe the compensatory mitigation proposal,

[[Page 19637]]

require district engineer approval of a final mitigation plan before 
commencing work in waters of the United States (unless exceptions are 
granted), and address, as appropriate, the requirements of Sec.  
332.3(k)(2) [Sec.  230.93(k)(2)]. Examples of situations where the 
district engineer may waive the requirement to approve a final 
mitigation plan before the permittee commences work in waters of the 
United States include after-the-fact permits and cases where the 
authorized work must be completed immediately (e.g., emergency 
situations).
    If a mitigation bank or in-lieu fee program will be used to provide 
the required compensatory mitigation, Sec.  332.3(k)(4) [Sec.  
230.93(k)(4)] describes requirements for permit conditions. For 
individual permits and general permits, the special conditions must 
specify the number and resource type of third-party mitigation credits 
the permittee is required to secure. For individual permits (i.e., 
standard individual permits and letters of permission), the special 
conditions must specify the particular mitigation bank or in-lieu fee 
program that will be used to provide the compensatory mitigation. For 
general permits, there is more flexibility because of the timeframes 
that must be met, such as the 45-day pre-construction notification 
review period for nationwide permits. For general permit verifications, 
the special conditions must specify either the mitigation bank or in-
lieu fee program that will be used, or state that the use of a 
mitigation bank or in-lieu fee program will be identified at a later 
time, once the permittee has negotiated the terms of securing the 
appropriate number and resource type of credits from the sponsor, and 
the district engineer has approved the use of those credits. In the 
latter case, once the district engineer has approved the use of those 
credits, the permittee would then secure the credits from the sponsor 
in order to fulfill his or her compensatory mitigation requirements. 
Once the permittee has secured credits from the sponsor, and provided 
the appropriate documentation to the district engineer (see Sec.  
332.3(l) [Sec.  230.93(l)]), the responsibility for providing the 
required compensatory mitigation is transferred from the permittee to 
the third-party mitigation sponsor.
    The provision requiring a description of any required financial 
assurances is intended to ensure that the provisions regarding those 
financial assurances are addressed as enforceable conditions of the DA 
permit. The regulations relating to financial assurances at Sec.  
332.3(n) [Sec.  230.93(n)] should be used as a guide for writing those 
conditions.
    Several commenters argued that compensatory mitigation plans should 
not be included in permits, and some commenters said that this 
provision would delay the permitting process. Two commenters 
recommended flexibility in this section so the district engineer can 
accept a preliminary compensatory mitigation plan prior to permit 
issuance and an approved final mitigation plan prior to the start of 
construction.
    The approved mitigation plans must be linked to the individual 
permit or to the general permit verification through special 
conditions, so that the Corps has a legal basis for ensuring compliance 
with the terms and conditions of its permits. For individual permits, 
the mitigation plan must be approved before the permit can be issued 
(see Sec.  332.4(c)(1) [Sec.  230.93(c)(1)]. Approval of a final 
mitigation plan prior to issuance of an individual permit is necessary 
to ensure that the approved compensatory mitigation project provides 
appropriate compensation for the permitted impacts. For general permits 
that require compensatory mitigation, the district engineer may approve 
a conceptual or detailed mitigation plan in order to meet applicable 
timeframes for general permit verifications. However, the permittee 
cannot begin work in waters of the United States authorized by general 
permit until a final mitigation plan has been approved by the district 
engineer.
    Two commenters said that both the permittee and the mitigation bank 
must be required to comply with the permit conditions relating to 
compensatory mitigation and be subject to enforcement for failure to 
meet their obligations. One commenter stated that if an in-lieu fee 
program is approved by the district engineer to provide required 
compensatory mitigation for a DA permit, the special conditions of that 
DA permit must indicate which in-lieu fee program will be used to 
provide that compensatory mitigation. One commenter asked whether the 
Corps has the authority to specify in a permit condition that the 
permittee must purchase credits at a specific bank, which could 
restrict the permittee's ability to negotiate, and would prevent the 
permittee from purchasing credits from a given bank because they were 
the least expensive rather than the most environmentally beneficial.
    In cases where the district engineer has determined that the use of 
a mitigation bank or in-lieu fee program is appropriate to satisfy some 
or all of the compensatory mitigation requirements for a DA permit, the 
responsibility for providing the compensatory mitigation is transferred 
to the third-party mitigation sponsor once the permittee has secured 
the appropriate number and resource type of credits and the necessary 
documentation has been provided to the district engineer in accordance 
with Sec.  332.3(l) [Sec.  230.93(l)]. The Corps has the authority to 
impose conditions on a DA permit that specify which mitigation bank or 
in-lieu fee program will be used to provide the required compensatory 
mitigation. Permittees are free to negotiate with mitigation banks or 
in-lieu fee programs before the permit is issued. Once they have made 
arrangements to purchase the appropriate number of credits, the name of 
the third-party provider and the number and resource type of credits 
must be approved by the district engineer, and in the case of an 
individual permit, included as a special condition in the permit. If 
the permittee later finds an alternative source of third-party 
mitigation, then he or she can request a permit modification to change 
the special conditions to use that alternative compensatory mitigation, 
contingent upon approval by the district engineer. The district 
engineer will determine whether the modified compensatory mitigation 
proposal is sufficient for offsetting the permitted losses of aquatic 
resources. For general permits, the district engineer has the option of 
specifying the mitigation bank or in-lieu fee program in the special 
conditions, or stating that the use of a mitigation bank or in-lieu fee 
program is contingent upon approval by the district engineer.
    Three commenters supported the inclusion of long-term management 
provisions in the permit conditions. According to one commenter, 
requiring adequate arrangements for long-term management funds prior to 
permit issuance will help ensure mitigation project success and provide 
a significant incentive for the permit applicant to supply adequate 
financing acceptable to the resources agencies. One commenter argued 
that it would be difficult to enforce this permit condition until a 
proven tool for control of invasive species is found. Another commenter 
was unclear if the intent was to describe the long-term management 
provisions or give the Corps the right to review and/or approve the 
legal instrument.
    The control of invasive species is an implementation issue that is 
more appropriately addressed on a case-by-case basis. For the purposes 
of Sec.  332.3(k) [Sec.  230.93(k)], the special conditions should 
address, to the extent appropriate, how the provisions at Sec.  
332.7(d) [Sec.  230.97(d)] will be satisfied. That section discusses 
long-term

[[Page 19638]]

management for compensatory mitigation projects. District engineers 
will evaluate proposals for long-term management to determine whether 
they are sufficient for the purposes of compensatory mitigation for DA 
permits. The requirements for long-term management plans will be 
specified through enforceable special conditions.
    (l) Party responsible for compensatory mitigation. One commenter 
stated that when a mitigation bank or in-lieu fee program is cited as a 
responsible party in the permit, responsibility should be transferred 
from the permittee to the sponsor once the permittee has completed the 
payment transaction. One commenter, however, said that the 
responsibility for compensatory mitigation should remain with the 
project proponent. If a project proponent has the responsibility to 
provide successful mitigation, that person has an incentive to avoid 
and minimize impacts.
    In this rule, when a permittee has secured the required number and 
resource type of credits from an approved mitigation bank or in-lieu 
fee program, and the district engineer receives the documentation 
specified in Sec.  332.3(l)(3) [Sec.  230.93(l)(3)], the responsibility 
for providing the required compensatory mitigation is transferred to 
the sponsor. As indicated in Sec. Sec.  332.3(l)(2) and 332.8(d)(8) 
[Sec. Sec.  230.93(l)(2) and 230.98(d)(8)], a mitigation banking 
instrument and an in-lieu fee program instrument must have a provision 
stating that the legal responsibility for providing compensatory 
mitigation lies with the sponsor once a permittee has secured credits 
from that sponsor (see Sec.  332.8(d)(6)(ii)(C) [Sec.  
230.98(d)(6)(ii)(C)]). The combination of the third-party instrument 
and the documentation demonstrating that the permittee has secured the 
appropriate number and resource type of credits, establishes a legally 
enforceable transfer of responsibility. If the sponsor fails to provide 
the required compensatory mitigation, the district engineer will take 
appropriate action to achieve compliance with the terms of the 
instrument. Such actions may include suspending credit sales, use of 
the financial assurances to provide alternative compensation, referring 
the non-compliance with the terms of the instrument to the Department 
of Justice, or using in-lieu fee program account funds to secure 
credits from another source of third-party mitigation.
    We have modified Sec.  332.3(l)(2) [Sec.  230.93(l)(2)] to include 
in-lieu fee programs. This provision states that mitigation banking 
instruments and in-lieu fee program instruments must contain a 
provision expressing the sponsor's agreement to assume responsibility 
for providing the required compensatory mitigation once the credits 
have been secured by the permittee and the district engineer receives 
the appropriate documentation.
    In addition, we have modified Sec.  332.3(l)(3) [Sec.  
230.93(l)(3)] to explain what documentation is required to confirm that 
the appropriate number and resource type of credits have been secured 
from the sponsor. This paragraph also states that the district engineer 
may pursue measures against the sponsor to ensure compliance if that 
entity fails to provide the required compensatory mitigation in a 
timely manner.
    (m) Timing. Several commenters said that all temporal losses should 
be considered in mitigation ratios. Some commenters recommended that 
the rule require additional compensatory mitigation if functions have 
not been restored in a certain time frame, and this should not be left 
to the discretion of the district engineer. These commenters stated 
that many functions are likely to require more than one year to become 
restored or established. Three commenters requested more flexibility in 
timing requirements. One commenter said that the final rule should not 
require permanent mitigation, particularly at a ratio greater than one-
to-one, for temporary losses of wetland functions.
    District engineers can require additional compensatory mitigation 
to offset temporary losses of aquatic resource functions if the 
compensatory mitigation project cannot be implemented in advance of, or 
concurrent with, the permitted impacts. Factors to be considered in 
determining appropriate compensatory mitigation ratios are provided at 
Sec.  332.3(f)(2) [Sec.  230.93(f)(2)]. We understand that different 
functions often develop at different rates after aquatic resource 
restoration, establishment, or enhancement activities are implemented, 
because of the ecosystem development processes that occur. However, it 
is usually not feasible to require full functionality of a compensatory 
mitigation project to be achieved before the permitted impacts occur. 
The provisions in this rule are intended to minimize temporal losses of 
aquatic resource functions, to the extent practicable. There is 
sufficient flexibility in the timing requirements provided by this 
rule. District engineers will determine appropriate compensatory 
mitigation requirements for temporary impacts. It is important to 
understand that temporary impacts may result in permanent changes to, 
or losses of, specific functions. As an incentive for timely 
mitigation, district engineers may determine that additional 
compensation for temporal losses is not necessary if the mitigation 
project is initiated prior to or concurrent with the permitted impacts, 
except in the case of resources with long development times (e.g., 
forested wetlands).
    One commenter noted that it is virtually impossible to implement a 
compensatory mitigation project in advance of, or concurrently with, 
permitted impacts on large, multi-phased, linear transportation 
projects that are constructed over several years. Another commenter 
stated that the proposed rule is silent on how it would be applied to 
projects that occur in phases, where the amount of compensatory 
mitigation should be timed to correspond to each phase of development. 
This commenter said that the rule ought to provide the flexibility to 
allow applicants to build phased mitigation that tracks the project 
phases.
    For linear transportation projects, district engineers will 
considered the practicability of requiring advance or concurrent 
compensatory mitigation. Depending on the specific circumstances 
surrounding a phased development project, compensatory mitigation may 
be required up-front as the first phase of the development project is 
constructed. Or there could be separate compensatory mitigation 
projects required for each phase. The appropriate approach for phased 
construction projects is at the discretion of the district engineer.
    (n) Financial assurances. Most commenters supported the provision 
in the proposed rule that requires mitigation providers to secure 
financial assurances to ensure project completion and long-term 
management. Other commenters did not agree with the financial 
assurances provisions. Some commenters said that the financial 
assurance provisions should be strengthened. One commenter suggested 
that financial assurances should only be required for larger, more 
critical projects comprising several acres, large-scale preservation 
and protection, or wetland banking projects. One commenter stated that 
financial assurances should not be required for projects authorized by 
nationwide permits.
    We have modified Sec.  332.3(n) [Sec.  230.93(n)] to address the 
comments received on the proposed financial assurance provisions. The 
district engineer shall require sufficient financial assurances to 
ensure a high level of confidence that the

[[Page 19639]]

compensatory mitigation project will be successfully completed, in 
accordance with applicable performance standards. In cases where an 
alternate mechanism is available to ensure a high level of confidence 
that the compensatory mitigation will be provided and maintained (e.g., 
a formal, documented commitment from a government agency or public 
authority) the district engineer may determine that financial 
assurances are not necessary for that compensatory mitigation project. 
Decisions regarding the appropriate type and amount of financial 
assurances should not be based solely on the size of the compensatory 
mitigation project, or whether it is a mitigation bank. The risk and 
uncertainty associated with a specific compensatory mitigation project 
should be considered. For small losses of waters of the United States 
authorized by nationwide permits and regional general permits, it may 
not be practicable to require financial assurances, and permit 
conditions may be all that is necessary to provide a high level of 
confidence that the required compensatory mitigation is provided.
    Two commenters stated that compensatory mitigation providers who 
have substantial assets and can demonstrate a continuing ability to 
cover expenses associated with compensatory mitigation requirements 
should not have to provide financial assurances. Two commenters said 
that the use of financial instruments, such as those proposed in the 
rule, is inconsistent with other EPA programs with potentially much 
greater financial liability.
    Section 332.3(n)(2) [Sec.  230.93(n)(2)] identifies a number of 
different mechanisms that can be used to address financial assurance 
requirements at the discretion of the district engineer.
    Three commenters said that the financial assurance requirements 
should not be duplicative of the financial assurances that a permittee 
may be required to give under state or local law to secure the 
performance of the same activities.
    District engineers can consider whether financial assurances 
required for compensatory mitigation projects under state or local laws 
are sufficient for the purposes of achieving compliance with 
compensatory mitigation requirements for DA permits. State or local 
requirements for financial assurances may be adequate in cases where 
the same compensatory mitigation project will be used to satisfy the 
requirements of the Corps Regulatory Program, as well as similar state 
or local regulatory programs.
    Two commenters said that, because a mitigation bank sponsor is not 
allowed 100 percent immediate credit release, the sponsor should only 
have to post financial assurances for the percentage of the mitigation 
bank site that has been debited for use and that has not met final or 
interim performance standards.
    The initial debiting (release of credits) for mitigation banks 
provided at Sec.  332.8(m) [Sec.  230.93(m)] provides some capital to 
the mitigation bank sponsor once the instrument has been approved and 
certain tasks are achieved. That capital is intended to support the 
success of the mitigation bank during its early stages of development. 
Since the ecological success of a mitigation bank is usually dependent 
upon having sufficient funds available to do the tasks necessary for 
aquatic resource restoration, establishment, and/or enhancement 
activities, the amount of any required financial assurances must 
reflect the costs of doing those necessary activities. The district 
engineer, in consultation with the sponsor and the IRT, will determine 
the appropriate amount for the required financial assurances.
    Three commenters stated that financial assurances should not be 
required for government agencies. One commenter said that government 
agencies should be required to provide financial assurances if adequate 
funding cannot be assured.
    This rule does provide flexibility for government agencies in 
meeting financial assurance requirements. In cases where a formal, 
documented commitment from a government agency is provided, the 
district engineer may determine that financial assurances are not 
necessary for that compensatory mitigation project. This flexibility is 
afforded since government agencies tend to be relatively stable 
entities, and operate in the public interest.
    Two commenters stated that financial assurances should include all 
construction and monitoring costs.
    We have added a new sentence to Sec.  332.3(n)(2) [Sec.  
230.93(n)(2)] to clarify that district engineers will consider 
construction and monitoring costs, as well as costs for land 
acquisition, planning and engineering, legal fees, mobilization, and 
long-term stewardship when determining amounts of required financial 
assurances. In addition, we have modified this paragraph to require 
documentation of the basis for the financial assurance amount in the 
administrative record for either the DA permit or the third-party 
mitigation instrument. We have also added a new paragraph (3) to Sec.  
332.3(n) [Sec.  230.93(n)], which states that if financial assurances 
are required, the DA permit must include a special condition requiring 
those assurances to be in place before commencing the permitted 
activity.
    Several commenters recommended that the final rule explicitly state 
that financial assurances are only to be released upon the full 
completion of all compensatory mitigation requirements. In contrast, 
some commenters said that financial assurance should be phased out as 
phases of compensatory mitigation projects are completed. A few 
commenters stated that a portion of the financial assurance should be 
retained until the end of the monitoring period, after the compensatory 
mitigation project has met all legal and performance standards.
    Section 332.3(n)(4) [Sec.  230.93(n)(4)] states that financial 
assurances shall be phased out once the compensatory mitigation project 
has been determined by the district engineer to be successful in 
accordance with its performance standards. The DA permit or third-party 
mitigation instrument has to clearly specify the conditions under which 
the financial assurances will be released. Financial assurances should 
not be phased out until the district engineer decides that the 
compensatory mitigation project has met its performance standards. 
Phasing out financial assurances in increments before compliance with 
performance standards has been achieved would increase the risk that 
insufficient financial assurances would be available if the 
compensatory mitigation project were to fail at a later date.
    One commenter said that the proposed rules for financial assurance 
will consume critical federal and state staff resources in managing, 
tracking, and enforcing these new requirements, and it could result in 
considerable expenses for many permittees with little value added.
    Financial assurances are important to ensure that a compensatory 
mitigation project will be implemented and maintained. Requiring 
financial assurances is not a new practice, so we do not expect there 
to be substantial changes in staff resources for managing, tracking, 
and enforcing this rule.
    A number of commenters supported the suggestion requiring advance 
notice to the district engineer before financial assurances are 
canceled or allowed to lapse. Several commenters said that a minimum of 
120 days should be the standard for notification and a few commenters 
indicated that 30 days should be the minimum. Other commenters 
recommended minimum time periods of 45, 60, and 90 days. One

[[Page 19640]]

commenter suggested that the Corps suspend or revoke a permit if the 
financial assurance has lapsed. Another commenter stated that, in order 
to perform this function adequately, the Corps district would need 
additional staff.
    We have added paragraph (5) to Sec.  332.3(n) [Sec.  230.93(n)] to 
require financial assurances to be in a form that ensures that the 
district engineer receives notification at least 120 days in advance of 
any termination or revocation. District engineers will determine, on a 
case-by-case basis, the appropriate action to take if notified that the 
financial assurances will lapse. We do not believe that this provision 
would impose additional burdens on Corps staff, since it simply 
provides notice in cases where a requirement for a compensatory 
mitigation project is not being fulfilled.
    One commenter suggested that the financial assurances should be 
structured to ensure that in the event of a failure of a compensatory 
mitigation project, the Corps can easily obtain funds to pay for 
project correction by a third party, if needed.
    The Corps lacks statutory authority to accept directly, retain, and 
draw upon financial assurances, such as performance bonds, to ensure 
compliance with permit conditions. These limitations are a result of 
the Miscellaneous Receipts Statute (31 U.S.C. Sec.  3302(b)). If the 
Corps were to directly, retain, and draw upon those funds, the monies 
would be categorized as a ``miscellaneous receipt'' under the 
Miscellaneous Receipts Statute and would be deposited in the U.S. 
Treasury without being used to ensure permit compliance.
    District engineers have the authority to condition the approval of 
a permit to require the posting and execution of financial assurances 
by a third-party mitigation sponsor or a permittee, as long as the 
Corps is not positioned to accept directly, retain, or draw upon those 
funds in the event of a default. Financial assurances should be 
executed with the signatures of an additional governmental or non-
governmental environmental management entity or entities as a bond 
``surety'' or ``sureties,'' who agree to ensure performance if the 
Corps should determine that the sponsor or permittee, as the bond 
``principal,'' has defaulted on any of his or her responsibilities. The 
third-party instrument or permit conditions should also specify that 
the Corps stands as a third-party ``obligee'' to the principal and 
surety(ies) of the bond, possessing the full and final authority to 
determine the penal sum amount, and to determine whether the principal 
and the surety(ies) have specifically performed some or all of the 
obligations, covenants, terms, conditions, and agreements of the 
financial assurance. Finally, the financial assurance should specify 
that if both the principal and the surety(ies) default in their 
responsibilities, the Corps retains the full and final discretionary 
authority to identify new parties as additional surety(ies) to the 
bond.
    We have added a new paragraph (6) to Sec.  332.3(n) [Sec.  
230.93(n)] to state that financial assurance are to be payable at the 
direction of the district engineer to his designee or to a standby 
trust agreement. In cases where a standby trust is used, all amounts 
paid by the financial assurance provider are to be directly deposited 
into the standby trust fund for distribution by the trustee in 
accordance with the district engineer's instructions. Still, the 
district engineer cannot accept directly, retain, or draw upon those 
funds.
    Several commenters recommended that each Corps district be required 
to develop consistent requirements for financial assurances, so that 
there will be a level playing field among mitigation providers for all 
types of compensatory mitigation. One commenter requested that Corps 
project managers and attorneys receive training on how to evaluate the 
appropriateness of a proposed financial assurance. One commenter 
suggested that the agencies incorporate an appeals or arbitration 
process into the rule in case a district engineer imposes excessive or 
other unreasonable requirements.
    Additional guidance for financial assurances is provided by 
Regulatory Guidance Letter 05-01, which is available at: http://
www.usace.army.mil/cw/cecwo/reg/rgls/rgl05_01.pdf. For individual 
permits, prospective permittees can utilize the Corps administrative 
appeal process. The administrative appeal process can be used in cases 
where a district engineer proffers an individual permit, and the 
prospective permittee does not agree with the terms and conditions of 
that permit. The regulations governing the Corps administrative appeal 
process are found at 33 CFR part 331.
    (o) Compliance with applicable law. No comments were received on 
this subsection. In the second sentence, we have added ``in-lieu fee 
program'' instrument, since this final rule includes in-lieu fee 
programs as another source of compensatory mitigation for DA permits.

33 CFR 332.4 and 40 CFR 230.94 Planning and Documentation

    (a) Pre-application consultations. Several commenters supported the 
provision for pre-application consultations, as they would save time 
and reduce misunderstandings. Some commenters expressed concern that 
pre-application meetings would stretch district staff resources. A few 
commenters said that discussing compensatory mitigation before the 
public review and comment period is at odds with sequencing 
requirements, which require consideration of avoidance and minimization 
prior to consideration of compensatory mitigation.
    We believe that pre-application coordination is an important tool 
that provides prospective permit applicants an opportunity to address 
important issues in early planning stages. The Corps current 
regulations already include pre-application consultations (see 33 CFR 
325.1(b)), so we do not believe this provision would place additional 
burdens on district resources. We have removed the word 
``compensatory'' from this paragraph to clarify that all potential 
mitigation measures, including avoidance, minimization, and 
compensation, should be discussed during pre-application consultations.
    (b) Public review and comment. Many commenters supported the 
proposed requirement that public notices include a statement describing 
how impacts to aquatic resources will be avoided, minimized, and 
compensated for. These commenters stated that the requirement would 
result in better up-front planning and design and would allow for more 
meaningful public participation. There were many other commenters, 
however, who did not support this proposed provision. Several of these 
commenters recommended that only a brief statement of avoidance, 
minimization, and compensation, or conceptual mitigation plan, be 
included in the public notice. Several commenters suggested that this 
subsection should be reworded to ensure that the public and the 
agencies are aware that any mitigation options described in a public 
notice are preliminary measures that the applicant has proposed, and 
may be changed during the evaluation process. Some commenters requested 
that the final rule specify that this provision is required of all 
permits, instead of limiting it to individual permits.
    We have clarified in the final rule that the mitigation statement 
in the public notice is to be based on the information submitted by the 
applicant, in

[[Page 19641]]

accordance with the new requirement at 33 CFR 325.1(d)(7). As discussed 
in the section of this preamble that addresses Sec.  325.1(d)(7), this 
should be a brief statement because this occurs in the early stages of 
the evaluation process, and the evaluation of mitigation options is an 
iterative process. As district engineers conduct their evaluations in 
accordance with applicable Corps regulations, the 404(b)(1) Guidelines, 
and regulations governing other applicable laws (e.g., section 7 of the 
Endangered Species Act), additional avoidance and minimization may be 
required, and compensatory mitigation requirements will be determined 
in greater detail to offset the permitted impacts to the extent 
appropriate and practicable. We have also modified Sec.  332.4(b)(1) 
[Sec.  230.94(b)(1)] to allow prospective permittees to indicate an 
intention to use an approved in-lieu fee program. In the last sentence 
of Sec.  332.4(b)(1) [Sec.  230.94(b)(1)] we have replaced the word 
``project'' with impacts, since the impacts that require DA 
authorization often comprise a small proportion of the overall project. 
The Corps can only require appropriate and practicable compensatory 
mitigation to offset the permitted impacts to waters of the United 
States (see 33 CFR 320.4(r)(2)).
    We do not believe it is necessary to reword this subsection to 
clarify that the mitigation statement contains preliminary mitigation 
measures proposed by the permit applicant. It is understood that these 
preliminary measures may be revised in response to public comment and 
other input to the permit process. It would not be appropriate to 
expand the requirements of Sec.  332.4(b) [Sec.  230.94(b)] to letters 
of permission and general permits because those forms of authorization 
do not require project-specific public notices. Public notices are 
required only for standard permits.
    We have added Sec.  332.4(b)(2) [Sec.  230.94(b)(2)] to require 
district engineers to consider any timely comments and recommendations 
received from other federal agencies, tribal, state, or local 
governments, and the public. We have modified Sec.  332.4(b)(3) [Sec.  
230.94(b)(3)] to state that, for activities authorized by letters of 
permission and general permits, district engineers must comply with 
review and approval processes for compensatory mitigation proposals and 
plans that are applicable to those forms of DA authorization. We have 
also modified Sec.  332.4(b)(1) [Sec.  230.94(b)(1)] to provide that 
certain information may be kept confidential for business purposes. For 
example, permittees may not want to reveal the exact parcel of land 
that they are considering for a compensatory mitigation project if they 
have not yet secured the site, since revealing this information may 
adversely affect their ability to do so. The district engineer must 
agree that any information withheld is legitimately confidential for 
business purposes, and must ensure that adequate information is 
included in the public notice to enable the public to provide 
meaningful comment.
    (c) Mitigation plan. Many commenters supported the provision that 
requires a permit applicant to prepare a detailed draft mitigation plan 
and submit it to the district engineer for review and approval. 
Commenters noted that this requirement emphasizes the need for up-front 
planning for compensatory mitigation, and provides a level of assurance 
that the compensatory mitigation project will be completed. Three 
commenters recommended that an applicant also be required to submit a 
draft mitigation plan to other appropriate federal, state, or local 
government agencies. One commenter supported the provision but also 
suggested that the final rule should provide a time frame for the Corps 
to review and approve the mitigation plan to ensure that the permit 
process is not delayed by this requirement. Another commenter said that 
it was unclear if this provision applies to general permits. One 
commenter indicated that National Environmental Policy Act case law 
does not establish a requirement for a complete mitigation plan to be 
provided at the time of permit issuance.
    We have revised Sec.  332.4(c) [Sec.  230.94(c)] to clarify the 
different requirements for mitigation plans for individual permits, 
general permits, and third-party mitigation. Section 332.4(c)(1)(i) 
[Sec.  230.94(c)(1)(i)] describes mitigation plan requirements for 
individual permits. Before an individual permit can be issued, a final 
mitigation plan must be approved by the district engineer. This will 
help ensure that the required compensatory mitigation is appropriate 
for the authorized impacts. The final mitigation plan must include the 
items listed in Sec.  332.4(c)(2) through (c)(14) [Sec.  230.94(c)(2) 
through (c)(14)], but the level of detail should be commensurate with 
the scale and scope of the impacts that will be authorized by the 
individual permit. We have also added language to this paragraph that 
allows district engineers to utilize permit conditions to address any 
of the items listed in paragraphs (c)(2) through (c)(14). Paragraph 
(c)(1)(i) does not require the prospective permittee to provide 
contract-ready mitigation plans. However, the mitigation plans need to 
be sufficiently detailed to demonstrate that the items listed in 
paragraphs (c)(2) through (c)(14) have been appropriately addressed. 
District engineers must also ensure that the final mitigation plans 
have the appropriate level of detail necessary for compliance under the 
Corps regulatory authorities. If the prospective permittee intends to 
use a mitigation bank or in-lieu fee program to provide the required 
compensatory mitigation, he or she needs to provide the name of the 
mitigation bank or in-lieu fee program, as well as baseline information 
and a description of the number of credits to be provided.
    For activities authorized by individual permits, district engineers 
may coordinate draft mitigation plans with commenting agencies during 
the permit application evaluation process. We do not agree that it is 
necessary to impose a requirement for district engineers to approve a 
final mitigation plan within a specific number of days.
    To address requirements for mitigation plans for activities 
authorized by general permits, we have added Sec.  332.4(c)(1)(ii) 
[Sec.  230.94(c)(1)(ii)]. If compensatory mitigation is required for an 
activity authorized by a general permit, the district engineer may 
approve a conceptual or detailed mitigation plan to meet required 
timeframes for general permit verifications. A final mitigation plan 
must be approved by the district engineer before the permittee 
commences work in waters of the United States. If third-party 
mitigation will be used, the mitigation plan must include information 
on the baseline conditions and the credits to be provided, and either 
the name of the specific mitigation bank or in-lieu fee program to be 
used, or a statement that a mitigation bank or in-lieu fee program will 
be used, contingent upon approval of the district engineer. The latter 
provision will allow permittees to seek the appropriate number and 
resource type of credits from a third-party mitigation sponsor and 
negotiate the terms of securing those credits. However, the number and 
resource type of credits must be approved by the district engineer 
before those credits are secured by the permittee (see Sec.  
332.3(k)(4) [Sec.  230.93(k)(4)]).
    For mitigation banks and in-lieu fee programs, we have added Sec.  
332.4(c)(1)(iii) [Sec.  230.94(c)(1)(iii)], which states that the 
mitigation plans must include the items listed in paragraphs (c)(2) 
through (c)(14) of this section. Mitigation plans must be prepared for 
each separate compensatory mitigation project site. The review and 
approval process for

[[Page 19642]]

mitigation plans for third-party mitigation is provided at Sec.  332.8 
[Sec.  230.98].
    Three commenters supported the proposed list of items to be 
included in mitigation plans. One commenter stated that requiring these 
items would improve the efficiency of permit reviews and the success of 
compensatory mitigation projects. There were also many commenters who 
disagreed with these requirements. Several commenters said that 
requiring these items to be included in mitigation plans would delay 
compensatory mitigation projects. One commenter stated that the content 
of a mitigation plan should not be left to the discretion of the 
district engineer. In contrast, another commenter stated that the final 
rule needs to provide flexibility for the district engineer to decide, 
on a case-by-case basis, what needs to be included in a mitigation 
plan; such considerations should be based on the size and nature of the 
compensatory mitigation project. One commenter recommended that in-lieu 
fee programs should be required to submit a draft mitigation strategy, 
in place of the mitigation plan.
    The items listed in Sec.  332.4(c)(2) through (c)(14) [Sec.  
230.94(c)(2) through (c)(14)] are necessary to help ensure that 
mitigation plans for DA permits contain the appropriate types of 
information for the purposes of developing successful compensatory 
mitigation projects and facilitating effective compliance measures. 
Because of the potential variability among compensatory mitigation 
project types, as well as differences in compensatory mitigation 
practices among regions, the rule provides flexibility in the level of 
detail required for the content of mitigation plans. It specifies that 
while all required items must be addressed, the level of detail should 
be commensurate with the scope and scale of the impacts. This is up to 
the district engineer to determine. Under the regulations governing in-
lieu fee programs, a sponsor will be required to develop a compensation 
planning framework (see Sec.  332.8(c) [Sec.  230.98(c)]), as well as 
mitigation plans for each in-lieu fee project (see Sec.  332.8(j) 
[Sec.  230.98(j)]).
    One commenter objected to the proposed language stating that the 
level of detail in the mitigation plan would be commensurate with the 
scale and scope of the project, because that language is vague and 
would result in mitigation plans of varied thoroughness and quality. 
Another commenter said that the level of detail should take the nature 
of the impacted resource into account. One commenter stated that the 
level of detail should not be related to the size and scale of the 
project; instead, the level of detail should be sufficient to evaluate 
the water quality benefits and to ensure that the compensatory 
mitigation project offsets the impacts.
    Flexibility in the level of detail required for mitigation plans is 
necessary to account for differences in compensatory mitigation 
projects. It would be impractical to require the same level of detail 
for all mitigation plans developed for individual permits, general 
permits, and third-party mitigation. Rather, projects with significant 
impacts will necessarily need to devote more effort and resources to 
mitigation planning than projects with minor impacts. We have modified 
Sec.  332.4(c)(1)(i) [Sec.  230.94(c)(1)(i)] to state that, for 
individual permits, the level of detail of the mitigation plan should 
be commensurate with the scale and scope of the impacts. The same 
principle applies to general permits. Compensatory mitigation projects 
required for DA permits rarely focus solely on water quality benefits. 
These projects usually result in the restoration, establishment, and/or 
enhancement of other aquatic resource functions, such as habitat and 
water quantity storage.
    (2) Objectives. We added ``physiographic province'' to the list of 
types of geographic areas that may be served by the objectives of a 
compensatory mitigation project.
    (3) Site selection. We have added a reference to Sec.  332.3(d) 
[Sec.  230.93(d)] to this paragraph.
    (4) Site protection instrument. One commenter recommended that 
every parcel of land set aside for compensatory mitigation have a 
recorded conservation easement held by a third-party governmental 
agency or non-profit organization. Another commenter suggested that the 
site protection instrument should ensure the permanent protection of 
the mitigation site.
    Specific requirements for site protection are provided in Sec.  
332.7(a) [Sec.  230.97(a)]. In some cases, it is not practicable to 
require execution of a conservation easement that would be held by a 
third party. For example, it may not be possible to find a third-party 
willing to hold the conservation easement. While the goal of the rule 
is to ensure permanent protection of all compensatory mitigation 
project sites, we recognize that the degree of long-term protection 
afforded by real estate instruments varies from state to state.
    (5) Baseline information. One commenter recommended the addition of 
stream-oriented baseline information requirements. Other commenters 
recommended requiring additional baseline information, including 
geographic coordinates of all impact and mitigation sites, planned 
alterations to lands or waters adjacent to the proposed site, flooding 
frequency of a proposed mitigation site, and a delineation of waters of 
the United States, including jurisdictional wetlands (if any 
unavoidable impacts to jurisdictional waters will occur on the proposed 
mitigation site).
    We have modified this paragraph to add several more examples of 
information that may be required as baseline information. A map showing 
the locations of the impact and mitigation site(s) or the geographic 
coordinates for those site(s) should be provided. Also, information 
concerning other site characteristics appropriate to the type of 
resource proposed as compensation may also be included in the baseline 
information. We have added a sentence stating that the baseline 
information should also include a delineation of waters of the United 
States on the proposed compensatory mitigation project site. We have 
added a reference to in-lieu fee programs to the last sentence of this 
paragraph, since we are including in-lieu fee programs in this rule.
    (6) Determination of credits. One commenter recommended that the 
explanation of the rationale for determining credits should be detailed 
and should include results of a functional assessment of the impacted 
habitat.
    We believe that the level of detail of the mitigation plan, 
including the rationale for determining credits, should be commensurate 
with the scale and scope of the impacts. Appropriate functional or 
condition assessments may not be available in some regions, and for 
some activities that require DA authorization, it may not be 
practicable to use functional or condition assessments. We have added a 
reference to Sec.  332.3(f) [Sec.  230.93(f)] since credit 
determinations are related to the amount of compensatory mitigation 
required. In Sec.  332.4(c)(6)(i) [Sec.  230.94(c)(6)(i)], we are 
clarifying that the determination of credits relates to the required 
permittee-responsible mitigation. Section 332.4(c)(6)(ii) [Sec.  
230.94(c)(6)(ii)] applies to permittees intending to secure credits 
from mitigation banks or in-lieu fee programs.
    (7) Mitigation work plan. One commenter suggested that the 
mitigation work plan should specify whether the wetland to be used to 
provide compensatory mitigation will be permanent, temporary, or 
ephemeral.
    The mitigation work plan is to provide written specifications and 
work

[[Page 19643]]

descriptions for compensatory mitigation projects. If wetlands 
compensatory mitigation is to be provided, the objectives are the most 
appropriate place to describe the wetland type. We have modified this 
paragraph by replacing ``plant species to be planted at the site'' with 
``methods for establishing the desired plant community'' since the 
means for establishing a particular plant community is not limited to 
planting certain species at the compensatory mitigation project site. 
We have also added ``soil management'' since soil amendments and other 
techniques may be needed for the project. Also, we added information on 
elements that might be needed for stream mitigation project work plans, 
such as planform geometry, channel form, watershed size, design 
discharge, and riparian area plantings.
    (8) Maintenance plan. We received no comments and made no changes 
to this paragraph.
    (9) Performance standards. One commenter expressed concern that the 
requirement to include ecologically based performance standards in a 
mitigation plan for impacts to ephemeral channels will create a 
significant burden for permit applicants. This commenter also said that 
such requirements will put local Corps staff in a difficult position in 
terms of evaluating such standards, when no widely available metrics 
exist.
    Ecological performance standards are necessary to assess whether 
the project is achieving its objectives. Performance standards will 
vary by aquatic resource type and geographic region. This rule provides 
the district engineer with flexibility to require standards that are 
appropriate for compensatory mitigation projects that involve ephemeral 
streams. Since ecological performance standards are discussed in more 
detail in Sec.  332.5 [Sec.  230.95], we have added a reference to that 
subsection.
    (10) Monitoring requirements. One commenter suggested replacing 
``adaptive management'' with ``remedial measures'' in this paragraph.
    Since this rule utilizes adaptive management to address 
deficiencies in compensatory mitigation projects, it would not be 
appropriate to make the suggested change. Since monitoring is discussed 
in more detail at Sec.  332.6 [Sec.  230.96], we have added a reference 
to that subsection.
    (11) Long-term management plan. Several commenters supported the 
inclusion of a long-term management plan in the mitigation plan. One 
commenter recommended that the long-term management plan also include a 
description of long-term management needs and detailed annual cost 
estimates for these needs, and identify the funding mechanism that will 
be used to meet those needs. Two commenters said that there should be 
no requirement for long-term management other than for structural 
components that may have been constructed as part of the compensatory 
mitigation project, once monitoring requirements have been fulfilled 
and the compensatory mitigation project has been determined to be 
successful.
    In order for compensatory mitigation to offset permitted losses, 
compensation projects need to be sustainable for the long-term. 
Accordingly, the rule requires that provisions necessary for long-term 
management be provided as permit conditions or as stipulations in a 
mitigation banking or in-lieu fee program instrument. Specific 
requirements for long-term management plans are provided in Sec.  
332.7(d) [Sec.  230.97(d)]. In response to these comments, we have 
added a new Sec.  332.7(d)(2) [Sec.  230.97(d)(2)] to state that a 
long-term management plan should include a description of long-term 
management needs, annual cost estimates for these needs, and identify 
the funding mechanism that will be used to meet those needs. Since 
long-term management is discussed in more detail in Sec.  332.7(d) 
[Sec.  230.97(d)], we have added a reference to that subsection.
    (12) Adaptive management plan. We have modified this paragraph to 
reflect changes to the definition of adaptive management at Sec.  332.2 
[Sec.  230.92] and the regulations governing adaptive management at 
Sec.  332.7(c) [Sec.  230.97(c)]. We have also added a reference to 
Sec.  332.7(c) [Sec.  230.97(c)], since the rules governing adaptive 
management are provided in that subsection.
    (13) Financial assurances. One commenter requested further 
clarification of the term ``high level of confidence.'' Another 
commenter noted that requiring financial assurances would cause a 
workload burden on Corps districts.
    Financial assurances are intended to provide a pool of funds that 
would be available to implement a compensatory mitigation project. The 
term ``high level of confidence'' is used because having sufficient 
funding is often a critical element for successfully providing the 
required compensation. The funds available from financial assurances 
can be used to correct deficiencies in a compensatory mitigation 
project or to provide alternative compensation. Requiring financial 
assurances for compensatory mitigation projects is not a new practice, 
so it will not cause substantial increases in the Corps workload. Since 
financial assurances are discussed in more detail in Sec.  332.3(n) 
[Sec.  230.93(n)], we have added a reference to that subsection.
    (14) Other information. Two commenters recommended that the 
mitigation plan include a discussion of the alternative mitigation 
options considered and a full explanation of why the chosen option will 
best replace the functions and values of the impacted aquatic resource.
    Alternative compensatory mitigation options are more appropriately 
discussed prior to submittal of a mitigation plan. Once the district 
engineer has determined the appropriate and practicable compensatory 
mitigation option for a particular DA permit, the prospective permittee 
will prepare the mitigation plan.

33 CFR 332.5 and 40 CFR 230.95 Ecological Performance Standards

    A number of commenters supported the use of ecological performance 
standards because they are based on objective and verifiable 
characteristics that can be measured with a ``reasonable amount of 
effort.'' Three commenters supported establishing criteria and metrics 
based on aquatic functions rather than type and amount of wetlands or 
streams. Several commenters stated that the proposed rule focuses on 
process and procedure, but lacks explicit ecological performance 
measures. However, a number of commenters supported the lack of 
specifics in the proposed rule so that ecological performance standards 
are tailored to each site.
    We have modified Sec.  332.5 [Sec.  230.95] by splitting it into 
two paragraphs. Paragraph (a) states that the approved mitigation plan 
must contain performance standards to assess whether the compensatory 
mitigation project is achieving its objectives. The last sentence of 
Sec.  332.5(a) [Sec.  230.95(a)] has been modified to clarify that 
other applicable metrics, such as acres, could be used to evaluate 
compensatory mitigation projects. In Sec.  332.5(b) [Sec.  230.95(b)] 
we have modified the first sentence to state that performance standards 
must be objective and verifiable. We have also added a sentence to 
paragraph (b), to require ecological performance standards to be based 
on the best available science that can be measured or assessed in a 
practicable manner. This will help ensure that performance standards 
for compensatory mitigation projects are based on ecological outcomes, 
not construction tasks or administrative

[[Page 19644]]

milestones that may not reflect gains in aquatic resource functions or 
services.
    This rule cannot provide specific ecological performance standards 
for use in compensatory mitigation projects. Instead, it must focus on 
the general principles for ecological performance standards. 
Performance standards must be developed on a project-by-project basis, 
to address the objectives of a compensatory mitigation project. 
District engineers can develop templates for ecological performance 
standards, to provide consistent standards for the types of aquatic 
resources found in their areas of responsibility.
    Some commenters noted that the proposed rule emphasizes functional 
standards instead of area-based performance standards, and said that it 
will be difficult for the Corps to move to a functional approach 
because simple functional assessment methods do not exist for many 
types of wetlands, and regulators are much more comfortable with 
measuring acres and linear feet. A few commenters contended that 
nowhere in the rule is compensatory mitigation required to actually 
replace the functions of the aquatic habitat destroyed.
    Functional standards are necessary to demonstrate that compensatory 
mitigation projects offset losses of aquatic resource functions 
resulting from activities authorized by DA permits. Area-based 
performance standards tied to functions can also be used, to determine 
the functional capacity of a compensatory mitigation project. However, 
area or linear measures alone would not constitute ecological 
performance standards. Functional or condition assessments should be 
used where appropriate and practicable to better describe how 
compensatory mitigation projects offset losses of aquatic resource 
functions. We are continuing to develop and refine functional 
assessment methods and other science-based assessment tools, but where 
such tools are not available, the performance standards must still 
attempt to describe a successful project in ecological terms that can 
be measured (e.g., the project has established an appropriate 
hydrologic regime or has an appropriate number of acres of specific 
types of plant communities at specified levels of development, 
including particular species, etc). The purpose of compensatory 
mitigation is discussed in Sec.  332.3(a)(1) [Sec.  230.93(a)(1)]. This 
paragraph states that the ``fundamental objective of compensatory 
mitigation is to offset unavoidable impacts to waters of the United 
States authorized by DA permits.''
    One commenter suggested that the Corps welcome partnerships with 
local and state agencies and quickly approve performance standards in 
watersheds with extensive wetland inventory and functional data. A few 
commenters recommended that the agencies provide detail on aquatic 
resource characteristics to be considered (e.g., vegetation, soil and 
hydrology), specification of wetland factors that might require 
remediation to meet performance standards, and development of a pre-
planning simulation for adaptive management. Several commenters said 
that the proposed rule fails to provide guidance as to how proposed 
performance-based standards will be interpreted and applied, and that 
ecological success criteria are vague and not likely to include 
meaningful criteria that will account for all wetland functions.
    District engineers are encouraged to work with federal, state, and 
local resource agencies to develop ecological performance standards 
that are appropriate for the types of aquatic resources found in their 
areas of responsibility. District engineers are responsible for 
developing ecological performance standards that are objective and 
verifiable. Such performance standards must be clearly written, so that 
independent parties can assess whether compensatory mitigation projects 
are meeting their performance standards. Ecological performance 
standards may be based on specific wetland characteristics. We have 
added a new sentence to Sec.  332.5(b) [Sec.  230.95(b)] to clarify 
that reference aquatic resources can be used to establish performance 
standards that are reasonably achievable, by reflecting the range of 
variability exhibited by the regional class of aquatic resources.

R 332.6 and 40 CFR 230.96 Monitoring

    (a) General. Commenters generally supported the emphasis on 
compensatory mitigation project site management and monitoring. Several 
commenters said that the agencies must strengthen compliance monitoring 
and enforcement activities. Three commenters said that Corps guidance 
states that monitoring reports are a high priority when ``substantial 
mitigation'' is required, but it does not define substantial 
mitigation.
    Compliance activities are dependent upon available resources, and 
the Corps is placing greater emphasis on compensatory mitigation 
project compliance through its performance standards developed under 
the Program Assessment Rating Tool for the President's ``Budget and 
Performance Integration'' management initiative. The Corps guidance 
relating to ``substantial mitigation'' is not part of this rulemaking, 
and therefore does not need to be defined. That guidance appeared in 
the Corps Regulatory Program's Standard Operating Procedure dated 
October 15, 1999, which is in the process of being revised. Under this 
final rule, monitoring reports are required for all mitigation project 
sites, but the content and level of detail of the reports must be 
commensurate with the scale and scope of the mitigation project.
    We have added Sec.  332.6(a)(2) [Sec.  230.96(a)(2)] to clarify 
that district engineers may conduct site inspections on a regular basis 
during the monitoring period to evaluate the performance of 
compensatory mitigation project sites. These site visits will be used 
to verify the findings of monitoring reports. We have modified the 
language that was in Sec.  332.6(c)(2) [Sec.  230.96(c)(2)] of the 
proposed rule, since only the district engineer has the authority to 
conduct site visits to assess compliance with the conditions of a DA 
authorization. Representatives of federal, tribal, state, or local 
resources agencies may be asked to participate in these site visits, at 
the invitation of the district engineer and with the express consent of 
the landowner.
    (b) Monitoring period. There was no consensus among commenters 
regarding the appropriate length for monitoring periods. One commenter 
said that compensatory mitigation in coral reef habitats should be 
monitored for more than five years. Another commenter suggested that 
monitoring be required for seven to ten years. Several commenters 
stated that monitoring periods should be flexible and site specific. A 
number of commenters supported the proposed five year monitoring 
period. One commenter said that longer monitoring periods are needed to 
account for the development of certain aquatic resource types, or for 
natural events, such as drought or floods, that may affect the 
development of plant communities. This commenter also said that longer 
monitoring periods are necessary to develop realistic objectives and 
performance standards.
    We believe that five years is an appropriate starting point for 
determining the required monitoring period. The final rule states that 
the mitigation plan must provide for a monitoring period that is 
sufficient to demonstrate that the compensatory mitigation project has 
met performance standards, but not less than five years, and a longer 
monitoring period must be required for aquatic resources with slow

[[Page 19645]]

development rates (e.g., forested wetlands, bogs). The rule also allows 
the district engineer to reduce or waive remaining monitoring 
requirements upon a determination that the compensatory mitigation 
project has achieved its performance standards. To reduce or waive the 
remaining monitoring requirements before the five year period ends, 
there should be at least two consecutive monitoring reports issued 
where the success criteria are met. This will help account for 
variability in environmental conditions, to ensure that the 
compensatory mitigation project is truly meeting its performance 
standards. Performance standards should be designed, to the extent 
practicable, to account for the ecological characteristics of early 
developmental stages of aquatic ecosystems, so that a determination of 
ecological success can be made within five years. For aquatic habitat 
types where five years is insufficient to determine ecological success 
through performance standards that satisfy the criteria at Sec.  332.5 
[Sec.  230.95], longer monitoring periods may be required. We have 
modified the last sentence of Sec.  332.6(b) [Sec.  230.96(b)] to 
include adaptive management as a reason for revising monitoring 
requirements.
    (c) Monitoring reports. Many commenters stated that monitoring 
reports should be standardized to expedite the Corps review and that 
minimum monitoring requirements and performance standards should be 
provided in the rule. A number of commenters said that the Corps should 
specify the minimum required reporting elements for each habitat type. 
Some commenters recommended that monitoring reports include sufficient 
detail to facilitate scientific comparison between the functions of 
filled wetlands and the functions of mitigation bank credits used to 
compensate for those filled wetlands. One commenter stated that the 
rule should require inspections and brief progress or status reports 
for all compensatory mitigation projects that require monitoring, to 
facilitate adaptive management.
    We have modified Sec.  332.6(a)(1) [Sec.  230.96(a)(1)] to clarify 
that the content and level of detail for monitoring reports must be 
commensurate with the scale and scope of the compensatory mitigation 
project, as well as the compensatory mitigation project type. The 
information to be included in a monitoring report is at the discretion 
of the district engineer, who should take into account the 
characteristics of the compensatory mitigation project when determining 
those requirements. The content of monitoring reports will also depend 
on the ecological performance standards for the compensatory mitigation 
project, since the purpose of the monitoring report is to demonstrate 
how the project is progressing towards achieving those standards. If 
the performance standards require the use of functional assessments to 
assess the performance of the compensatory mitigation project, then the 
results of those assessments should be provided in the monitoring 
reports. We do not believe it is appropriate to require monitoring 
reports to include scientific comparisons of wetland functions between 
mitigation and impact sites, because the tools necessary to conduct 
such comparisons are not available in many areas, or they may not be 
practicable for certain types of projects, such as small compensatory 
mitigation projects provided for activities authorized by general 
permits. Furthermore, the appropriateness of the required mitigation to 
replace aquatic functions and services lost at the impact site is 
evaluated at the time the mitigation plan is approved, including the 
identification of appropriate ecological performance standards for the 
mitigation project. After this point, monitoring is needed to ensure 
that the mitigation project is developing as planned and progressing 
satisfactorily towards meeting the performance standards. District 
engineers will determine, on a case-by-case basis, the need for site 
inspections to assess compensatory mitigation project sites.
    We have modified Sec.  332.6(c)(1) [Sec.  230.96(c)(1)] to state 
that as-built plans may be provided in monitoring reports. We have also 
modified Sec.  332.6(c)(1) [Sec.  230.96(c)(1)] to stipulate that 
monitoring reports may include the results of condition assessments or 
other types of assessments.
    Two commenters stated that Corps guidance does not instruct 
district engineers on what actions to take if permittees or third-party 
mitigation providers fail to submit required mitigation reports. 
Several commenters recommended that mitigation plans and mitigation 
banking instruments include built-in, agreed-upon penalties for failure 
to submit accurate, timely, and complete monitoring reports that are 
required by the permit or instrument.
    We have added Sec.  332.6(c)(2) [Sec.  230.96(c)(2)] to stipulate 
that the permittee or sponsor is responsible for submitting monitoring 
reports as required by the special conditions of the DA permit or the 
terms of the third-party mitigation instrument. If permittees or third-
party mitigation sponsors do not provide the required monitoring 
reports, they are not in compliance with the terms and conditions of 
their permits or instruments, respectively. In such cases, district 
engineers will take appropriate compliance actions in accordance with 
the Corps regulations at 33 CFR part 326. Failure to comply with the 
conditions of a DA permit issued under section 404 of the Clean Water 
Act could result in the assessment of Class I administrative penalties. 
Therefore, it is important that monitoring report requirements be 
specified as conditions in DA permits.
    Some commenters said that monitoring reports should be made 
available to the public, but other commenters indicated that they 
should not be made public.
    Since monitoring reports are public information, Sec.  332.6(c)(3) 
[Sec.  230.96(c)(3)] has been changed to clarify that monitoring 
reports must be provided to interested federal, tribal, state, and 
local resource agencies, and the public upon request. District 
engineers may establish policies and procedures for how to fulfill 
these requests for monitoring reports and other public information, 
including establishing time frames for responding to the requests and 
recouping nominal costs for filling those requests (e.g., duplication 
costs). As discussed above, we have moved the language regarding site 
inspections that was in Sec.  332.6(c)(2) [Sec.  230.96(c)(2)] of the 
proposed rule to Sec.  332.6(a)(2) [Sec.  230.96(a)(2)], since it is a 
general issue relating to monitoring.

33 CFR 332.7 and 40 CFR 230.97 Management

    (a) Site protection. Several commenters supported the flexibility 
regarding the use of real estate and legal instruments for long-term 
site protection. A number of commenters stated that compensatory 
mitigation project sites should be protected in perpetuity through 
conservation easements, rather than deed restrictions or other legal 
instruments. A few commenters said that conservation easements are an 
overly restrictive and unnecessary requirement for stream mitigation. 
One commenter said that when a compensatory mitigation project is 
located within a right-of-way owned by a public agency, requiring a 
real estate instrument is unnecessary. Several commenters said that the 
proposed rule ignores the jurisdiction of federal and state regulatory 
programs, and compromises private property rights. These commenters 
believe that the rule exceeds the authority of the agencies to regulate 
activities under section 404 of the Clean Water Act.

[[Page 19646]]

    The goal of the rule is to ensure permanent protection of all 
compensatory mitigation project sites. Specifically the rule states 
that the aquatic habitats, riparian areas, buffers, and uplands that 
comprise the overall compensatory mitigation project must be provided 
long-term protection through real estate instruments or other available 
mechanisms. However, we recognize that the terms of real estate or 
legal instruments used to protect compensatory mitigation project sites 
will differ, because of the variability in real estate laws among 
states and local jurisdictions. For example, in some states perpetual 
protection cannot be required, because the real estate or legal 
instruments may be in effect for a limited number of years. Therefore, 
we cannot require specific terms for real estate instruments in this 
rule. The terms for conservation easements, restrictive covenants, and 
other mechanisms are more appropriately addressed by district engineers 
on a case-by-case basis. However, we have added a provision which 
states that, where practicable, a conservation easement or restrictive 
covenant should establish in an appropriate third party (e.g., 
governmental or non-profit resource management agency) the right to 
enforce site protections and provide the third party the resources 
necessary to monitor and enforce these site protections. For stream 
compensatory mitigation projects, appropriate means of site protection 
will be determined by district engineers, after considering the 
characteristics of the compensation activities and the real estate 
interests of the project proponent. For example, in-stream 
rehabilitation measures may not warrant long-term protection. Specific 
requirements for site protection are at the discretion of the district 
engineer. There are other examples of situations where it may not be 
feasible to require site protection through real estate or legal 
instruments for compensatory mitigation projects. One potential 
situation is the construction of oyster habitat or the restoration of 
sea grass beds in state-owned tidal waters, where the project proponent 
does not have a real estate interest, but may obtain authorization to 
conduct those environmentally beneficial activities. Another example 
may be the restoration of tidal marshes or other coastal resources, 
since the long-term sustainability of those projects in the dynamic 
coastal environment cannot be assured because of the natural littoral 
processes that occur in those areas.
    This rule does not exceed the agencies' authority under the Clean 
Water Act. The Corps has the authority to add special conditions to its 
permits, when such conditions are necessary to satisfy legal 
requirements such as compliance with the 404(b)(1) Guidelines or to 
satisfy the public interest (see 33 CFR 325.4(a)). For example, 
compensatory mitigation may be required to comply with the 404(b)(1) 
Guidelines and to support the objective of the Clean Water Act, which 
is to restore and maintain the chemical, physical, and biological 
integrity of the Nation's waters. This final rule addresses 
compensatory mitigation that may be required for DA permits issued 
under the Corps jurisdictional authority under section 404 of the Clean 
Water Act and sections 9 and 10 the Rivers and Harbors Act of 1899. 
Compensatory mitigation requirements that may be imposed by state 
regulatory programs are to be addressed through applicable state 
regulations. While compensatory mitigation requirements may affect how 
private property is used, such permit conditions do not necessarily 
result in a taking of private property.
    If a compensatory mitigation project is located in a right-of-way 
owned by a public agency, then alternative mechanisms may be used to 
provide site protection. This rule does not compromise private property 
rights. Permittees can propose alternative compensatory mitigation 
projects in cases where a particular parcel of land is needed for uses 
other than compensatory mitigation.
    One commenter asked for clarification as to why there is a 
preference for non-profit conservation organizations versus for-profit 
conservation organizations. Some commenters requested a definition of 
the phrase ``long-term protection.''
    We do not state a preference for non-profit conservation 
organizations. Section 332.7(a)(1) [Sec.  230.97(a)(1)] provides 
examples of suitable land managers, and does not limit potential land 
managers. Long-term protection refers to measures taken to sustain and 
preserve the compensatory mitigation project after performance 
standards are met and monitoring requirements have been fulfilled.
    Several commenters asserted that in addition to fishing and grazing 
rights, compatible uses of compensatory mitigation projects on public 
lands should include non-motorized public recreation, including 
development of multi-use trails. They said that the agencies should 
recognize that any trails or other features or activities that would 
impact jurisdictional waters of the United States would require DA 
permits and compensatory mitigation. Other commenters recommended 
restricting incompatible uses. One commenter stated that a mitigation 
bank needs to be preserved in perpetuity and protected from negative 
impacts. This commenter said that the phrase ``restrict or'' should be 
removed from Sec.  332.7(a) [Sec.  230.97(a)] of the proposed rule, 
because incompatible uses must not be allowed.
    To the extent appropriate and practicable, incompatible uses that 
might jeopardize the objectives of the compensatory mitigation project 
will be prohibited. District engineers will determine which uses are 
compatible and incompatible on a case-by-case basis. We have added 
mineral extraction to Sec.  332.7(a)(2) [Sec.  230.97(a)(2)] as an 
example of an incompatible use. We have removed the phrase ``restrict 
or'' from this provision (now designated as Sec.  332.7(a)(2) [Sec.  
230.97(a)(2)]).
    To address potential alterations to compensatory mitigation 
projects on public lands, including federal facilities, that may result 
from changes in statutes, regulations, or agency needs or mission, we 
have also added Sec.  332.7(a)(4) [Sec.  230.97(a)(4)]. This provision 
requires the public agency authorizing the incompatible use to provide 
alternative compensatory mitigation acceptable to the district engineer 
for any loss in functions resulting from the incompatible use.
    Several commenters said that in cases where a third party is the 
holder of the conservation easement, the easement should contain a 
requirement that the regulating agency be notified should there be any 
action taken to void the easement (e.g., in legal actions related to 
bankruptcy, tax reversion, or similar circumstances). In the event that 
a third party holder defaults on an easement or is no longer authorized 
to hold an easement, then that easement should revert to the regulating 
agency.
    We have added Sec.  332.7(a)(3) [Sec.  230.97(a)(3)] to require 
long-term protection mechanisms to include provisions requiring 60-day 
advance notification to the district engineer if any action is taken to 
void or modify the mechanism. The Corps, however, does not have 
authority to hold easements for compensatory mitigation projects.
    (b) Sustainability. A number of commenters agreed that compensatory 
mitigation projects should be designed to be self-sustaining once 
performance standards have been achieved. One commenter expressed a 
preference for self-sustaining mitigation projects to those requiring 
on-going human intervention, such as irrigation, but acknowledged that 
in arid regions, surface water supplies may be severely limited or 
unavailable because of

[[Page 19647]]

established water rights. This commenter said that pumped groundwater 
may be the only practicable solution.
    This rule requires compensatory mitigation projects to be designed, 
to the maximum extent practicable, to be self-sustaining once 
performance standards have been achieved. Where use of active 
structures such as pumps cannot be avoided, it is permitted, however 
the project sponsor should carefully evaluate the project design to 
ensure that it is self-sustaining to the maximum extent practicable. At 
the end of Sec.  332.7(b) [Sec.  230.97(b)], we have added a provision 
requiring the acquisition and protection of water rights where needed. 
That provision also requires documentation in the permit conditions or 
the third-party mitigation instrument.
    Several commenters stated that monitoring will be required to make 
sure that mitigation projects are self-sustaining. One commenter 
recommended denying compensatory mitigation credit for projects 
requiring active engineering features or excessive management such as 
pumps or manipulated impoundments except in exceptional circumstances. 
Another commenter said that language supporting active management and 
maintenance, as well as adaptive management, should be included. 
Commenters also stated that when an existing, human-created wetland is 
being impacted, it may be appropriate to develop mitigation features 
with shorter life expectancies.
    Determining whether an implemented compensatory mitigation project 
is self-sustaining should occur during the original monitoring period. 
In general, compensatory mitigation should not require active 
engineering features such as pumps, but should be appropriately sited 
to ensure that natural hydrology and landscape position will support 
long-term sustainability. If this is not possible in some areas, 
district engineers may decide that active engineering features or 
active management may be necessary for a compensatory mitigation 
project to meet its objectives. Adaptive management and long-term 
management are addressed in paragraphs (c) and (d) of this section, 
respectively. Appropriate compensatory mitigation project design, 
objectives, and life expectancies are most appropriately determined by 
district engineers on a case-by-case basis.
    (c) Adaptive management. A number of commenters supported the use 
of adaptive management to address unforeseen changes in aquatic 
resource functions of compensatory mitigation projects. Several 
commenters recommended the use of legal instruments to protect 
compensatory mitigation sites instead of relying on adaptive management 
strategies. One commenter suggested that if a permittee has made a 
``good faith effort'' to meet performance standards, no additional 
compensatory mitigation requirements should be imposed other than an 
extension of the monitoring period. Several commenters said that 
requiring adaptive management efforts beyond what is currently required 
as remediation or contingency actions will impose additional financial 
and resource burdens on mitigation providers. One commenter requested 
that the final rule clarify that ``monitoring and adaptive management'' 
will not be used as a substitute for developing a mitigation site plan.
    We have modified Sec.  332.7(c) [Sec.  230.97(c)] to be consistent 
with the changes to the definition of adaptive management made in Sec.  
332.2 [Sec.  230.92]. The protection of compensatory mitigation 
projects sites through real estate instruments and other mechanisms 
will not address poor performance that could be remedied through 
adaptive management measures. The focus of adaptive management should 
be on taking measures to achieve performance and satisfy the objectives 
of the compensatory mitigation project. Extending the monitoring period 
may not be an appropriate adaptive management approach to achieve the 
desired performance, however, if the district engineer determines that 
the project is progressing towards meeting performance standards and 
that more time is all that is needed, he may determined that extension 
of the monitoring period is an appropriate adaptive management 
response. We recognize that there may be additional costs associated 
with an adaptive management approach, but we believe that such an 
approach is necessary to achieve compensatory mitigation project 
objectives, or to provide comparable or superior ecological benefits. 
An adaptive management plan is part of a mitigation plan (see Sec.  
332.4(c)(12) [Sec.  230.94(c)(12)]), not a substitute for a complete 
mitigation plan.
    We have added Sec.  332.7(c)(1) [Sec.  230.97(c)(1)] to require 
permittees or third-party mitigation sponsors to notify the district 
engineer if a permittee-responsible mitigation project or a mitigation 
bank or in-lieu fee project cannot be constructed in accordance with 
the approved mitigation plans. Any significant modification of a 
compensatory mitigation project requires the approval of the district 
engineer, and must comply with the conditions of the permit or the 
third-party mitigation instrument. If a change is necessary that does 
not comply with the permit or instrument as approved, the permit or 
instrument must be modified.
    Several commenters stated that an adaptive management plan should 
describe a technical approach to dealing with performance issues such 
as invasive species, but should not depend on agency review and 
approval of specific management decisions. One commenter said that 
requiring applicants to develop up-front adaptive management plans 
would allow flexibility and responsiveness on the part of the applicant 
while preserving final agency approval or disapproval of the results. 
Several commenters recommended allowing responsible parties to 
determine remediation actions and report on those actions and the 
results to the district engineer. A number of commenters said that the 
proposed rule leaves the district engineer too much discretion to 
dismiss remediation measures as not being ``appropriate and 
practicable.''
    Management decisions that deviate from the approved mitigation 
plans require approval from the district engineer. However, a certain 
amount of responsiveness to conditions on the ground may be built in to 
the mitigation plan itself. In such cases, as long as the project 
sponsor is operating in accordance with the approved mitigation plan, 
no special notification or additional approval is required, although 
monitoring reports should include appropriate information to allow the 
district engineer to assess how the project is progressing. In Sec.  
332.7(c)(2) [Sec.  230.97(c)(2)] of the final rule, we have modified 
this paragraph to require the responsible party to notify the district 
engineer as soon as possible if the compensatory mitigation project is 
not achieving its performance standards as anticipated. The district 
engineer may determine that modification of the approved mitigation 
plans is necessary to ensure compliance with the DA permit or third-
party instrument. District engineers will evaluate proposed measures to 
determine if they will address deficiencies in the compensatory 
mitigation project and/or require modification of the approved 
mitigation plans. It is necessary to provide the district engineer with 
the authority to determine whether remediation measures are appropriate 
and practicable. If the proposed remediation measures do not meet those 
two criteria, the district engineer may

[[Page 19648]]

determine that it is necessary for the responsible party to provide 
alternative compensatory mitigation. In Sec.  332.7(c) [Sec.  230.7(c)] 
we have replaced the phrase ``remediation measures'' with ``measures'' 
since appropriate measures may involve activities other than 
remediation.
    One commenter agreed that the performance standards may need to be 
revised, but only if performance and conditions at the compensatory 
mitigation project site warrant revision of the objectives. Another 
commenter stated that Sec.  332.7(c)(3) [Sec.  230.97(c)(3)] of the 
proposed rule should be modified to clarify that performance standards 
will not be lowered simply because the compensatory mitigation project 
has not been able to meet those standards.
    The last sentence of Sec.  332.7(c)(2) [Sec.  230.97(c)(2)] states 
that district engineers will consider whether compensatory mitigation 
projects are providing comparable ecological benefits to the original 
objectives, when determining whether it is necessary to require 
adaptive management. This will not result in a lowering of performance 
standards. Alternative compensatory mitigation may be required to 
offset a shortfall in aquatic resource functions. District engineers 
will also consider whether the compensatory mitigation project is 
providing ecological benefits that are comparable or superior to the 
approved compensatory mitigation project (see Sec.  332.7(c)(4) [Sec.  
230.97(c)(4)]).
    Several commenters agreed with statements in the preamble of the 
proposed rule indicating that district engineers will not require 
additional monitoring or corrective actions for compensatory mitigation 
projects that have not developed as intended due to natural 
catastrophes. A number of commenters suggested that flooding issues 
should be further explained in the final rule, or references to those 
issues eliminated. Several commenters said that the final rule should 
avoid creating a loophole in those cases where diseased vegetation 
results from poor stock or contractor error, and not a natural 
catastrophe. A few commenters recognized that, at certain stages of 
restoration projects, those activities may not be able to withstand a 
natural disaster; in such cases the district engineer should have 
discretion to extend deadlines for completion. One commenter stated 
that the discussion of natural disasters should be part of the adaptive 
management plan. Another commenter asked for guidance on using 
financial assurances to address damage caused by a natural disaster.
    In Sec.  332.7(c)(4) [Sec.  230.97(c)(4)], we address adaptive 
management as it relates to natural disasters. Except in the case of 
natural disasters, this rule does not allow revisions to performance 
standards unless they reflect ecological benefits that are comparable 
or superior to the originally approved objectives. If a natural 
disaster causes deficiencies in a compensatory mitigation project, the 
district engineer will evaluate the circumstances and determine whether 
it would be appropriate and practicable to require measures to address 
those deficiencies. Additional monitoring may be required to assess how 
a compensatory mitigation project is responding to a natural disaster. 
District engineers will determine on a case-by-case basis whether flood 
events warrant taking action to repair compensatory mitigation 
projects. In cases where diseased plant stock may have been used at a 
compensatory mitigation project site, it may be appropriate either to 
require replanting, or to allow natural revegetation. It is appropriate 
for adaptive management plans to consider potential natural disasters 
that may occur, to the extent that they can be reasonably foreseen. 
Financial assurances may be used to provide alternative compensatory 
mitigation if the compensatory mitigation project fails as a result of 
a natural disaster that occurs before the monitoring period has ended.
    (d) Long-term management. One commenter suggested that Sec.  
332.7(d) [Sec.  230.97(d)] conflicts with Sec.  332.7(b) [Sec.  
230.97(b)], which states that compensatory mitigation projects should 
be designed to be self-sustaining. Many commenters supported the 
proposed requirement to identify the party responsible for the long-
term management of the compensatory mitigation project site. Several 
commenters agreed that the mitigation bank sponsor should maintain 
management responsibilities unless they are formally transferred to 
another party. Several commenters stated that funding for the long-term 
management of mitigated projects must be arranged prior to the issuance 
of any permits.
    Although compensatory mitigation projects should, to the extent it 
is practicable to do so, be self-sustaining, active long-term 
management and maintenance are often necessary for a compensatory 
mitigation project to fulfill its objectives. In such cases, provisions 
for long-term management need to be provided as permit conditions or as 
stipulations in a mitigation banking or in-lieu fee program instrument. 
Such permit conditions or instrument stipulations should identify the 
party responsible for long-term management, and if another party agrees 
to assume that responsibility at a later date, the permit or instrument 
can be modified by the district engineer to transfer that 
responsibility. For permittee-responsible mitigation, Sec.  332.7(d)(4) 
[Sec.  230.97(d)(4)] has been added to require approval of any required 
long-term financing mechanisms before the permitted impacts occur.
    We have added Sec.  332.7(d)(2) [Sec.  230.97(d)(2)], which states 
that a long-term management plan should include a description of long-
term management needs for the compensatory mitigation project and 
annual cost estimates for those needs, and identify the funding 
mechanism that will support the long-term management activities. In 
Sec.  332.7(d)(3) [Sec.  230.97(d)(3)], which was Sec.  332.7(d)(2) 
[Sec.  230.97(d)(2)] of the proposed rule, we have added a sentence to 
allow the district engineer to impose, where appropriate, provisions to 
address inflationary adjustments and other contingencies.
    One commenter supported the requirement for a long-term management 
plan that identifies the responsible entity and addresses ``long-term 
funding mechanisms'' as specified in the proposed Sec.  332.4(c)(11) 
[Sec.  230.94(c)(11)], but believed that this requirement conflicts 
with the proposed Sec.  332.3(n)(3) [Sec.  230.93(n)(3)], which states 
that financial assurances would be phased out once performance 
standards have been met. Instead, this commenter suggests that the rule 
be clarified by describing the two required types of financial 
assurances: (1) Financial assurances for the construction and 
establishment of the compensatory mitigation project, which would be 
phased out incrementally as performance standards are met, and (2) 
funding for long-term management of the compensatory mitigation 
project. Several commenters said that the rule should more explicitly 
recognize that funding of long-term management can be ``phased-out'' or 
reduced over time.
    In this rule, financial assurances are used to provide a high level 
of confidence that compensatory mitigation projects will be completed, 
whereas long-term management measures are used to help ensure the long-
term sustainability of compensatory mitigation projects. Funding for 
financial assurances is handled differently than funding for long-term 
management. The final rule clearly differentiates between financial 
assurances for construction and establishment of compensatory 
mitigation projects and funding

[[Page 19649]]

mechanisms for long-term management of those projects. In general, 
funding for long-term management should not be phased out over time, 
since those activities usually need to be conducted for substantial 
periods of time. There may be occasions where long-term management is 
no longer necessary because a compensatory mitigation project has 
developed to the point where active management measures are no longer 
needed to fulfill the objectives of that project. In such cases, the 
responsible party should contact the district engineer and request that 
the long-term management provisions be modified to release those 
obligations.
    Several commenters said that long-term management for compensatory 
mitigation projects on public land should not be required, or at the 
very least should be privately funded. Several commenters stated that 
the proposed rule is ambiguous and could result in different standards 
applying to compensatory mitigation sites on public lands versus 
private lands because it allows district engineers flexibility in 
determining requirements for long-term management on public lands on a 
case-specific basis. One commenter said that adequate financing of 
long-term stewardship of a compensatory mitigation site should be 
demonstrated for the public or private authority accepting stewardship 
responsibility, because this will ensure consistency of site 
maintenance whether the responsible party is a private or public 
entity.
    In cases where compensatory mitigation project sites are owned by 
public entities, it may not be necessary to include provisions for the 
financing of any required long-term management if, for example, a 
formal, documented commitment from a government agency is provided 
(i.e., stewardship commitment). For public agencies, identifying 
adequate financing at the time of permit issuance may be problematic 
since agency funding can vary from year-to-year with budget cycles, 
thus underscoring the need for a formal, documented commitment. In 
cases of non-governmental organizations or private land managers 
accepting responsibility for long-term management of compensatory 
mitigation projects, including mitigation bank sites or in-lieu fee 
project sites, it will be necessary for those entities to demonstrate 
that there will be adequate funds available for the long-term 
management activities. It is important to note that many public and 
private land managers are no longer accepting the long-term stewardship 
responsibilities of compensatory mitigation sites unless an endowment 
or other source of long-term funding is provided by the permittee or 
sponsor.
    Although not included in the text of the proposed rule, in the 
preamble we requested comments on including a provision that would 
require that the arrangements for adequate capitalization of long-term 
management funds be finalized prior to permit issuance. Several 
commenters disagreed with adding such a provision. They said that 
finalization of long-term management funds should not be required prior 
to permit issuance because it is often difficult to locate and 
establish a long-term management entity. These commenters also 
indicated it may take substantial time to arrange adequate 
capitalization of long-term management funds. However, several other 
commenters said that capitalization should take place prior to the 
permit issuance in order to ensure that compensatory mitigation project 
sites will be maintained in the long-term. An alternative solution 
offered by several commenters would be to require mitigation banks to 
provide incremental long-term management funding as credits are 
released. These commenters also suggested that an endowment fund be 
created in order to aid in the establishment of mitigation banks.
    We have added Sec.  332.7(d)(4) [Sec.  230.97(d)(4)] to require 
approval of any required long-term financing mechanisms before the 
activity authorized by the DA permit is initiated. This does not mean 
that the long-term management measures need to be established and fully 
funded, but they do need to be described and approved. This provision 
applies to permittee-responsible mitigation projects. For third-party 
mitigation, provisions necessary for long-term management must be 
addressed in the instrument (see Sec.  332.7(d)(3) [Sec.  
230.97(d)(3)]). For mitigation banks and in-lieu fee programs, long-
term management is also addressed in Sec.  332.8(u) [Sec.  230.98(u)]. 
For in-lieu fee programs, costs per unit credit are explicitly required 
to take into account long-term management and protection of in-lieu fee 
project sites (see Sec.  332.8(o)(5)(ii) [Sec.  230.98(o)(5)(ii)]). For 
banks, this will be taken care of by market pricing of credits, since 
the bank sponsor is responsible for long-term management and must 
ensure that revenues are adequate to cover this responsibility.
    In cases where long-term financing for long-term management of 
compensatory mitigation projects is necessary, district engineers 
should consider the need to make inflationary adjustments and certain 
financial assumptions. For example, district engineers may consider 
total return assumptions and capitalization rates in the case of 
endowments, or Consumer Price Index adjustments in the case of annual 
payments.

33 CFR 332.8 and 40 CFR 230.98 Mitigation Banks and In-Lieu Fee 
Programs

    (a) General considerations. Four commenters supported the provision 
in the proposed rule that stipulates mitigation banks can be sited on 
public or private land. There were several commenters, however, who 
opposed locating mitigation banks on public land. One commenter stated 
that public lands are to be protected, held in public trust, and 
managed for their natural resources, ecosystem services, and the 
recreational and aesthetic values. This commenter said that when 
private lands are impacted and those impacts are mitigated on public 
lands, the public gains nothing and more natural habitat is lost. 
Commenters also stated that it is not appropriate for private 
developers to profit from compensatory mitigation projects conducted on 
lands purchased with public funds. One commenter said that, given the 
current demands for management on public lands, that use of public 
lands cannot be adequately controlled to assure long-term success of 
the mitigation bank. Four commenters noted that the statement that 
credits are based solely on aquatic resource functions may be 
interpreted as limiting credits to only those activities in wetlands 
and other aquatic resources, and not activities in uplands that support 
and enhance those functions.
    We have moved Sec.  332.8(a)(2) [Sec.  230.98(a)(2)] of the 
proposed rule to Sec.  332.3(a)(3) [Sec.  230.93(a)(3)], since the 
principles in this paragraph should apply to all compensatory 
mitigation projects, including permittee-responsible mitigation. Public 
entities should be allowed to establish mitigation banks or in-lieu fee 
projects on their lands. Public entities are often prospective 
permittees who may need to provide compensatory mitigation for their 
projects. As long as mitigation banks or in-lieu fee projects 
established on public lands provide environmental benefits over and 
above what normal management activities provide, there should be no 
conflict. Credits secured by private developers can provide a source of 
income for public entities to conduct aquatic resource restoration, 
establishment, enhancement, and/or preservation activities that could 
not be done under their current budgets. Credits provided by mitigation 
banks and in-lieu fee projects include

[[Page 19650]]

environmental benefits resulting from riparian areas, buffers, and 
uplands (see Sec.  332.8(o)(7) [Sec.  230.98(o)(7)]).
    Several commenters said that mitigation bank site selection should 
be tied to watershed analyses, and should, to the extent possible, 
dovetail with existing regional watershed plans, many of which identify 
or prioritize regional restoration needs. One commenter noted that the 
mitigation bank approval process does not require a watershed 
assessment, and said that such an assessment is essential for 
determining the ecological functions that the mitigation bank is likely 
to achieve.
    The selection of mitigation bank sites should, to the extent 
practicable, follow a watershed approach. As stated in Sec.  
332.8(b)(3) [Sec.  230.98(b)(3)], the district engineer and the IRT are 
to use a watershed approach when evaluating proposed mitigation banks 
and in-lieu fee programs. For in-lieu fee programs, the required 
compensation planning framework must support a watershed approach to 
compensatory mitigation (see Sec.  332.8(c)(1) [Sec.  230.98(c)(1)]).
    We have modified Sec.  332.8(a) [Sec.  230.98(a)] by adding in-lieu 
fee programs, since Sec.  332.8 [Sec.  230.98] contains regulations 
governing both forms of third-party mitigation: mitigation banks and 
in-lieu fee programs. We have divided Sec.  332.8(a)(1) [Sec.  
230.98(a)(1) of the proposed rule into two paragraphs. Section 
332.8(a)(1) [Sec.  230.98(a)(1)] states that all mitigation banks and 
in-lieu fee programs must have an approved instrument signed by the 
sponsor and the district engineer before being used to provide 
compensatory mitigation for DA permits. This provision facilitates 
compliance with terms of a mitigation banking instrument or an in-lieu 
fee program instrument. So called ``ad hoc'' third-party mitigation 
providers cannot operate as banks or in-lieu fee programs without an 
approved instrument. While a permittee-responsible mitigation project 
is free to use a third party to provide some or all of the design, 
construction and management services required for project 
implementation, liability for project success cannot be transferred to 
a third party except where there is an approved instrument. Section 
332.8(a)(2) [Sec.  230.98(a)(2)] stipulates that mitigation bank sites 
and in-lieu fee project sites must be planned and designed to be self-
sustaining, but may also require some active management to ensure their 
long-term viability and sustainability.
    (b) Interagency Review Team. Three commenters supported the 
establishment of the Interagency Review Team (IRT). Several commenters, 
however, stated that the IRT impedes the process. Those commenters 
recommended streamlining the review process by eliminating the IRT and 
using public notices instead. One commenter said that it is unclear 
whether an IRT is a standing committee or whether a new one is formed 
for each mitigation bank proposal. One commenter asked who will fund 
IRT activities. Several commenters asked for clarification on the role 
of the IRT. One commenter said that the team should retain the name 
``mitigation bank review team.''
    The participation of the IRT is necessary to provide expertise and 
advice to district engineers who are evaluating third-party mitigation 
proposals from potential mitigation bank sponsors and in-lieu fee 
program sponsors. Because of our experience with the 1995 mitigation 
banking guidance, we believe that the IRT review process is more 
effective than a simple public notice process for determining the 
potential success and usefulness of a proposed mitigation bank. With 
this rule, we are extending the IRT review process to all in-lieu fee 
programs, with the hope of achieving the same benefits.
    District engineers have the flexibility to establish standing IRTs 
in their geographic areas of responsibility, or to establish a new IRT 
for each proposed mitigation bank or in-lieu fee program. Participation 
in an IRT will be funded through that agency's budget. Since the IRT 
concept will be used for both mitigation banks and in-lieu fee 
programs, we are retaining ``interagency review team.''
    Many commenters stated that state, local, or tribal entities should 
be included in the IRT. Some commenters also recommended that the IRT 
have a state co-chair whenever the mitigation bank is being implemented 
under both state and federal mitigation banking programs, rather than 
allowing the district engineer discretion to make that determination. 
Some commenters said that the proposed rule diminishes the advisory 
role of state and federal resource agencies. Many commenters stressed 
the need for collaboration with state and local agency personnel. One 
commenter stated that the rule must establish strong, uniform standards 
so as not to undermine states that currently employ more stringent and 
protective mitigation standards for aquatic resources. This commenter 
also said that the rule should prompt those states with weak programs 
to raise their standards, and to ensure that state and local agencies 
have a more equal role with their federal counterparts.
    Representatives of the U.S. EPA, National Marine Fisheries Service, 
and U.S. Fish and Wildlife Service will automatically be included on 
the IRT if they choose to participate. Beyond this, the district 
engineer determines the composition of the IRT. Section 332.8(b)(2) 
[Sec.  230.98(b)(2)] states that the district engineer will seek to 
include in the IRT all public agencies with a substantive interest in 
the establishment of a mitigation bank or in-lieu fee program. This 
includes state, local, or tribal entities. As stated in Sec.  
332.8(b)(1) [Sec.  230.98(b)(1)], other federal, tribal, state, or 
local agencies may serve as co-chairs of an IRT, if the mitigation bank 
or in-lieu fee program will also be used to satisfy their requirements. 
Since this rule is focused on compensatory mitigation for DA permits, 
we believe it is appropriate for the district engineer to be the 
primary authority to administer these regulations. There are states 
that have developed their own regulations governing mitigation banks or 
in-lieu fee programs. This rule merely addresses the federal concerns 
regarding compensatory mitigation required by DA permits under section 
404 of the Clean Water Act and/or sections 9 and 10 of the Rivers and 
Harbors Act of 1899. Therefore, it reflects the decision-making 
responsibilities of the U.S. Army Corps of Engineers. It does not 
affect state or local government aquatic resource regulatory programs. 
State or local governments can issue their own regulations governing 
compensatory mitigation required under their environmental statutes or 
regulations.
    A number of commenters recommended that the district engineer 
exercise the ultimate authority for approvals granted under this rule 
following due consideration of the IRT recommendations. However, 
several commenters said that decisions should not rest solely with 
district engineers. Numerous respondents requested the elimination of 
the requirement in the rule that the resource agencies be signatories 
to the mitigation banking document. One commenter said that the rule 
should be expanded to accommodate additional review processes.
    As stated in Sec.  332.8(b)(4) [Sec.  230.98(b)(4)], the district 
engineer retains the final authority for approving mitigation banking 
instruments or in-lieu fee program instruments, since these third-party 
mitigation sources will be used to satisfy compensatory mitigation 
requirements for DA permits. If there is a co-chair, that co-chair will 
decide whether the proposed mitigation bank or in-lieu fee program can 
be used to provide compensatory mitigation

[[Page 19651]]

under the other federal, tribal, state, or local program. We believe 
that allowing IRT members to sign mitigation banking instruments or in-
lieu fee program instruments is beneficial, and helps demonstrate their 
support of approved instruments; however, under today's rule they are 
not required to do so and the district engineer may approve an 
instrument regardless of whether or not other IRT member agencies sign 
it. In Sec.  332.8(b)(3) [Sec.  230.98(b)(3)] we have added a sentence 
that allows IRT members the option of submitting letters of 
concurrence, instead of signing an instrument. We do not agree that 
this rule should be expanded to other review processes. This rule was 
promulgated in response to the congressional mandate in section 314 of 
the National Defense Authorization Act for Fiscal Year 2004, which only 
directed the development of standards and criteria for compensatory 
mitigation for CWA section 404 permits. For program efficiency, we have 
included requirements for RHA section 9 and 10 permits as well, but we 
do not believe it is efficient or appropriate to cover review processes 
for requirements under other statutes in these regulations.
    Since the final rule contains in-lieu fee programs, in Sec.  
332.8(b)(3) [Sec.  230.98(b)(3)] we have modified the second sentence 
to clarify that the IRT will review the prospectus, instrument, and 
other appropriate documents and provide comments to the district 
engineer. Examples of ``other appropriate documents'' include 
mitigation plans for mitigation banks and in-lieu fee project sites, as 
well as monitoring reports, proposed adaptive management measures, and 
documents supporting proposed credit releases. Also included are the 
compensation planning frameworks required of all in-lieu fee programs, 
which are included as part of their instruments. At the end of Sec.  
332.8(b)(3) [Sec.  230.98(b)(3)], we have added two sentences. One 
sentence stipulates that comments from IRT members must be received 
within specified time limits, to ensure timely processing of 
instruments. The other sentence states that IRT comments received after 
specified deadlines will only be considered at the discretion of the 
district engineer to the extent doing so does not jeopardize the 
deadlines for the district engineer's actions.
    We have also added Sec.  332.8(b)(5) [Sec.  230.98(b)(5)], which 
allows district engineers and IRT members to enter into memoranda of 
agreement with other agencies to perform some or all of the IRT 
functions described in Sec.  332.8 [Sec.  230.98]. This may be 
particularly appropriate in states with robust programmatic general 
permits for the section 404 program. However, the district engineer 
retains sole authority for approving instruments and other 
documentation.
    (c) Compensation planning framework for in-lieu fee programs. We 
have added this section to the final rule to provide a level of 
watershed planning for in-lieu fee programs that goes beyond the 
watershed planning typically conducted by mitigation banks. The 
compensation planning framework is also intended to help reduce some of 
the risk and uncertainty surrounding in-lieu fee programs, since those 
programs will be able to sell a limited number of credits before 
selecting and implementing compensatory mitigation projects. The 
compensation planning framework will be used to select, secure, and 
implement aquatic resource restoration, establishment, enhancement, 
and/or preservation activities.
    In the proposed rule, the agencies proposed to phase out the use of 
in-lieu fee programs within 5 years. We also asked for comment on this 
provision, and asked that commenters who supported continued 
authorization of in-lieu fee programs as third-party mitigation 
providers explain their rationale for allowing two different types of 
providers (banks and in-lieu fee programs) to operate under different 
requirements. We also asked for comment on how to ensure that in-lieu 
fee programs achieve the same level of success and certainty in 
providing compensation for permitted impacts as mitigation banks. One 
response we received to this request was that many in-lieu fee programs 
conduct more extensive and intensive watershed-based resource planning 
prior to securing sites and developing mitigation plans for specific 
projects. These commenters argued that in-lieu fee programs were better 
positioned to identify and provide resources that best meet the needs 
of the watershed, even when these resources are not the ``easiest'' to 
provide, or appropriate sites are more expensive or difficult to 
secure. The agencies have determined that this may be a legitimate 
advantage of in-lieu fee programs, and this consideration was part of 
the basis for our determination to allow continued authorization of in-
lieu programs in this final rule. To ensure that this benefit is 
realized, we have formalized this comprehensive planning process in the 
requirement for in-lieu fee programs to include a compensation planning 
framework in their instrument.
    The compensation planning framework will include the following 
information: One or more geographic service areas; a general 
description of the threats to aquatic resources in the service area(s), 
including how the in-lieu fee program would help offset impacts 
resulting from those threats; an analysis of historic aquatic resource 
loss in the service area(s); an analysis of current aquatic resource 
conditions in the service area(s), supported by an appropriate level of 
field documentation; a statement of aquatic resource goals and 
objectives for each service area, including general amounts, types, and 
locations of aquatic resources the proposed in-lieu fee program will 
seek to provide; a prioritization strategy for selecting and 
implementing compensatory mitigation activities; an explanation of any 
preservation objectives, including how those preservation activities 
would satisfy the criteria at Sec.  332.3(h); a description of any 
public or private stakeholder involvement in the development of the 
framework; a description of the long-term protection and management 
strategies for activities; a strategy for periodic evaluation and 
reporting on the in-lieu fee program's progress in achieving its goals 
and objectives; and other information determined by the district 
engineer to be necessary for effective compensation planning by in-lieu 
fee programs.
    The level of detail necessary for the compensation planning 
framework is at the discretion of the district engineer, and will take 
into account the characteristics of the service area(s) and the scope 
of the in-lieu fee program. Once the planning framework is approved as 
part of the in-lieu fee program instrument, all specific mitigation 
projects developed by the in-lieu fee program to provide compensation 
for DA permits must be consistent with it. Any modification to the 
framework must be approved as a significant modification to the 
instrument by the district engineer, after consultation with the IRT.
    (d)(1) Review process. Many commenters supported the proposed 
timeframes for the review of mitigation banking instruments. Several 
commenters said that the time frames should be shorter. Several 
commenters stated that the proposed time frames are inadequate to allow 
all agencies time to receive, review, and comment on proposed 
mitigation banks. One commenter stated that setting unrealistic 
deadlines will only serve to weaken the process and discourage any 
substantive review of third-party mitigation proposals. Some commenters 
expressed concern that the proposed time frames may be unachievable due 
to

[[Page 19652]]

the workloads of the Corps and the IRT. Several commenters said that 
the IRT process would result in delays in implementation and increased 
costs for mitigation banks, as well as increased risk of failure or 
environmental deterioration of mitigation bank sites resulting from 
time-consuming modifications of instruments. Two commenters stated that 
the Corps should place deadlines on its own actions, such as 
establishing a time frame for a district engineer to approve or deny a 
final mitigation banking instrument.
    In response to comments, we have modified a number of time frames 
in the final rule to provide sufficient time to complete specific 
tasks. For instance, we have changed Sec.  332.8(d)(8) [Sec.  
230.98(d)(8)] to increase, from 15 days to 30 days, the period by which 
the district engineer must notify the IRT whether or not he intends to 
approve the instrument or amendment. We have also added time frames to 
certain provisions to make the review process more effective. For 
example, we have added a requirement for a district engineer to notify 
the sponsor within 30 days whether a draft instrument or amendment is 
complete (see Sec.  332.8(d)(6)(i) [Sec.  230.98(d)(6)(i)]).
    We believe that the time frames in the final rule will provide 
efficiency to the review and approval process for third-party 
mitigation, while taking into account the workload of the agencies. We 
do not agree that these timeframes would adversely affect an agency's 
ability to provide substantive comments. It is important to consider 
the savings on time and resources that third-party mitigation can 
provide in comparison to permittee-responsible mitigation, where 
individual mitigation plans must be reviewed and approved in accordance 
with the regulations in this part. We also believe that the time frames 
provided in this rule will result in fewer delays for mitigation banks 
and in-lieu fee programs, since the 1995 mitigation banking guidance 
and the 2000 in-lieu fee guidance did not establish time frames for 
review and approval. The reduced delays, as well as the required time 
frames for project implementation, will help protect the environment 
through timely implementation of compensatory mitigation projects. This 
rule imposes appropriate time frames for the Corps to complete its 
decisions, to ensure timely responses to requests to approve third-
party mitigation instruments or amendments to previously approved 
instruments.
    Several commenters recommended that the rule provide flexibility 
for Corps districts to take advantage of state procedures to the extent 
practicable to make it easier for sponsors to go through the permit 
process and to avoid unnecessary duplication of effort.
    In areas where DA permits are needed to construct mitigation banks 
or in-lieu fee projects, and programmatic general permits are available 
to authorize such activities, district engineers are encouraged to use 
those programmatic general permits to provide the required 
authorization. District engineers have the discretion to determine that 
use of programmatic general permits may not be appropriate for 
authorizing the construction of mitigation banks, to ensure adequate 
coordination of instrument approval and any required DA authorization. 
District engineers are also free to enter into MOAs with state agencies 
administering programmatic general permits to perform some or all of 
the review functions associated with mitigation bank and in-lieu fee 
program approval; however, the district engineer retains the final 
responsibility and authority for ensuring that the requirements of the 
CWA and this part are met.
    One commenter noted that the proposed rule does not require that 
permits be issued or denied within a fixed amount of time and 
mitigation banks should not categorically be accorded a higher priority 
than permit decisions.
    The procedures for issuing DA permits are provided at 33 CFR part 
325, and are outside the scope of today's rule. The regulations 
governing the timing for processing DA permit applications are provided 
at 33 CFR 325.2(d).
    Since the final rule includes in-lieu fee programs as a source of 
compensatory mitigation for DA permits, we have revised Sec.  
332.8(d)(1) [Sec.  230.98(d)(1)] to include in-lieu fee programs. Since 
in-lieu fee programs usually cannot secure compensatory mitigation 
project sites until a period of time after the in-lieu fee program 
instrument is approved and the in-lieu fee program becomes operational, 
we have added a provision that stipulates that mitigation plans for in-
lieu fee project sites will be prepared as those sites are identified. 
The sentence stating that a mitigation banking instrument must include 
the mitigation plan by reference has been moved to Sec.  332.8(l)(2) 
[Sec.  230.98(l)(2)] and modified to include in-lieu fee projects.
    (d)(2) Prospectus. A number of commenters requested clarification 
on the definition of what constitutes a ``complete'' prospectus, and 
who determines whether a prospectus is complete. Other commenters 
stated that the proposed time period of 15 days for the district 
engineer to notify a potential sponsor whether the prospectus is 
complete is too short. One commenter stated that the proposed rule may 
force trained scientists to quickly become de facto financiers who are 
expected to understand prospectus preparation.
    We have modified Sec.  332.8(d)(2) [Sec.  230.98(d)(2)] to include 
in-lieu fee programs. We have also modified this paragraph to clarify 
that the review process for a proposed mitigation bank or in-lieu fee 
program begins when the sponsor submits a complete prospectus to the 
district engineer. We have changed the time period for the district 
engineer to notify the sponsor whether the prospectus is complete to 30 
days, to allow adequate time for this review to occur. An entity who 
wants to develop a mitigation bank or in-lieu fee program must be able 
to provide a complete prospectus. We believe that the requirements for 
a complete prospectus constitute basic information that is necessary 
for district engineers, IRT members, and the public to effectively 
evaluate the potential for the proposed mitigation bank or in-lieu fee 
program to provide successful and sustainable compensatory mitigation 
projects. As with any business venture, knowledge in financial matters 
is often a requisite for success.
    For a proposed mitigation bank, a complete prospectus includes the 
following information: The objectives of the proposed mitigation bank; 
how the mitigation bank will be established and operated; the proposed 
service area; the general need for and technical feasibility of the 
proposed mitigation bank; the proposed ownership arrangements and long-
term management strategy for the mitigation bank; the qualifications of 
the sponsor to successfully complete the type(s) of mitigation 
project(s) proposed, including information describing any past such 
activities by the sponsor; the ecological suitability of the site to 
achieve the objectives of the proposed mitigation bank, including the 
physical, chemical, and biological characteristics of the bank site and 
how that site will support the planned types of aquatic resources and 
functions; and assurance of sufficient water rights to support the 
long-term sustainability of the mitigation bank.
    For a proposed in-lieu fee program, a complete prospectus includes 
the following information: The objectives of the proposed in-lieu fee 
program; how the in-lieu fee program will be established and operated; 
the proposed service area(s); the general need for and

[[Page 19653]]

technical feasibility of the proposed in-lieu fee program; the proposed 
ownership arrangements and long-term management strategy for the in-
lieu fee project sites; the qualifications of the sponsor to 
successfully complete the type(s) of mitigation project(s) proposed, 
including information describing any past such activities by the 
sponsor; the compensation planning framework; and a description of the 
in-lieu fee program account.
    To clarify that a sponsor does not need to submit a new prospectus 
to request modification of an approved instrument, we have added a 
sentence stating that the sponsor needs to submit a written request for 
instrument modification, with appropriate documentation. What 
constitutes appropriate documentation for an instrument modification is 
at the discretion of the district engineer, and is dependent on the 
type of modification.
    (d)(3) Preliminary review of prospectus. A few commenters asked why 
site visits are not mentioned within the preliminary review process.
    A district engineer may conduct site visits as necessary to provide 
feedback on a draft prospectus.
    (d)(4) Public review and comment. Several commenters said that 
issuing the public notice when a mitigation bank prospectus is received 
is inefficient because the mitigation plan may only be preliminary. A 
number of commenters agree with the proposed length of the public 
comment period, others suggested extending it to 60 or 90 days. Some 
commenters opposed any public comment period, contending that it will 
complicate the process. On the other hand, several commenters said that 
the public comment period is required by the National Environmental 
Policy Act. Several commenters suggested that there be public notice 
and comment for draft mitigation banking instruments.
    The public notice is an important means of assisting district 
engineers in making informed decisions on proposed mitigation banks and 
in-lieu fee programs, as well as modifications of third-party 
mitigation instruments. Comments submitted in response to a public 
notice can help ensure that a proposed third-party mitigation operation 
is in the public interest and complies with applicable laws and 
regulations. We have modified Sec.  332.8(d)(4) [Sec.  230.98(d)(4)] to 
specify that the public notice will be 30 days, unless the district 
engineer determines that more time is necessary to solicit meaningful 
comment. We do not believe it would be appropriate to have comment 
periods of less than 30 days for third-party mitigation operations. We 
have also added a sentence to this paragraph to require, for proposed 
modifications of approved instruments, a public notice that includes a 
summary of the proposed modification and any appropriate documentation. 
We do not believe it is necessary to subject draft mitigation banking 
instruments to a public notice and comment process, because these 
documents are essentially contractual in nature. The principle aspects 
of a proposed mitigation bank or in-lieu fee program that would benefit 
from the public notice and comment process are covered by the 
prospectus.
    Several commenters said that there should be public notices 
announcing final mitigation banking instruments. Some commenters asked 
whether the resulting mitigation bank instrument and the alternatives 
analysis will be available to the public. A number of commenters said 
that the Corps must be required to make mitigation plans, instruments, 
and monitoring reports easily accessible to resource agencies and the 
public so that they may assist in holding permittees and banks 
accountable for mitigation compliance.
    District engineers may announce the approval of a mitigation 
banking instrument or an in-lieu fee program instrument by issuing a 
public notice. Approved third-party mitigation instruments are public 
information that will be provided to interested parties upon request. 
Alternatives analyses are not typically conducted for third-party 
mitigation activities. If a permit is required to construct a 
mitigation bank or in-lieu fee project, and an alternatives analysis 
was required to issue that permit, then the documentation of the 
alternatives analysis would be in the administrative record for the 
permit action. The last sentence of Sec.  332.8(d)(8) [Sec.  
230.98(d)(8)] states that final mitigation banking and in-lieu fee 
program instruments must be made available to the public upon request.
    (d)(5) Initial evaluation. We have added this provision to the 
final rule, to allow district engineers to provide prospective third-
party mitigation sponsors with an initial evaluation of the potential 
for the proposed mitigation bank or in-lieu fee program to provide 
compensatory mitigation for DA permits. Initial evaluation letters will 
be provided to sponsors within 30 days of the end of the public notice 
comment period. A sponsor may either submit a draft instrument or 
revise the prospectus, depending on the district engineer's initial 
evaluation.
    This provision will add efficiency to the review and approval 
process, because potentially unsuitable proposals for third-party 
mitigation will not proceed to draft instruments that are unlikely to 
be approved. This initial evaluation allows for feedback from the 
district engineer, so that a sponsor can revise the prospectus to 
address any deficiencies. The initial evaluation process does not apply 
to modifications of previously approved instruments.
    (d)(6) Draft instrument. In Sec.  332.8(d)(6)(i) [Sec.  
230.98(d)(6)(i)] we added a requirement that the district engineer 
determine, within 30 days of receipt of a draft instrument, whether 
that draft instrument is complete. If the draft instrument is 
incomplete, the district engineer will notify the sponsor to request 
the information necessary to make the draft instrument complete and 
notify the sponsor as soon as he receives the additional information 
and determines that the instrument is complete.
    We also added a sentence to Sec.  332.8(d)(6)(i) [Sec.  
230.98(d)(6)(i)], which states that in the case of an instrument 
modification, the sponsor must prepare a draft amendment and submit it 
to the district engineer. This clarifies that, for instrument 
modifications, the sponsor is not required to submit a new draft 
instrument. A draft amendment may consist of a specific instrument 
provision or a new or modified mitigation plan.
    In Sec.  332.8(d)(6)(i) [Sec.  230.98(d)(6)(i)], we also explained 
the required content of draft mitigation banking or in-lieu fee program 
instruments. For mitigation banks, a draft instrument must include: a 
description of the proposed geographic service area of the mitigation 
bank; accounting procedures; a provision stating that legal 
responsibility for providing the compensatory mitigation lies with the 
sponsor once a permittee secures credits from the sponsor; default and 
closure provisions; reporting protocols; mitigation plans that include 
all applicable items listed in Sec.  332.4(c)(2) through (14); a credit 
release schedule; and any other information deemed necessary by the 
district engineer.
    For in-lieu fee programs, the draft instrument must include: A 
description of the proposed geographic service area(s) of the in-lieu 
fee program; accounting procedures; a provision stating that legal 
responsibility for providing the compensatory mitigation lies with the 
sponsor once a permittee secures credits from the sponsor; default and 
closure provisions; reporting protocols; the compensation planning 
framework; specification of the initial allocation of advance credits 
and a draft fee schedule for these credits, by service area, including 
an explanation of the

[[Page 19654]]

basis for the allocation and draft fee schedule; a methodology for 
determining future project-specific credits and fees; a description of 
the in-lieu fee program account required by Sec.  332.8(i); and any 
other information deemed necessary by the district engineer.
    Several commenters requested that the rule define ``service area'' 
more clearly. One commenter supported the increased flexibility in 
defining the service areas that can be served by mitigation banks, but 
another commenter said that the proposed definition is too restrictive. 
A number of commenters stated that service areas should be determined 
solely on the basis of its suitability to restore functions for 
impacted resources within a watershed, without regard to whether there 
are sufficient mitigation needs to support an economically viable bank. 
A few commenters agreed with the proposed rule that economic viability 
should be included in the determination of mitigation bank service 
areas. One commenter said that the service areas of mitigation banks 
should be based on watershed plans or, in the absence of a plan, the 
service area should be limited to the area and types of wetlands for 
which they can reasonably be expected to compensate functionally. 
Several commenters supported the provision that the district engineer, 
with input from the IRT, will determine a mitigation bank's service 
area.
    The criteria for establishing service areas for mitigation banks 
and in-lieu fee programs is provided in Sec.  332.8(d)(6)(ii)(A) [Sec.  
230.98(d)(6)(ii)(A)] of the final rule. The service area may be based 
on watersheds, ecoregions, physiogeographic regions, or other types of 
geographic area deemed appropriate by the district engineer, after 
consulting with the IRT. The service area must be appropriately sized 
to ensure that the aquatic resources provided will effectively 
compensate for adverse environmental impacts across the entire service 
area. In addition, the economic viability of the bank or in-lieu fee 
program may also be considered in determining the size of the service 
area. We believe it is necessary to allow economic factors to be taken 
into account, so that the environmental benefits of third-party 
mitigation discussed in Sec. Sec.  332.3(a) and (b) [Sec. Sec.  
230.93(a) and (b)] can be realized. Banks will only be established if 
the prospective sponsor believes that there will be enough business to 
justify the initial investment of time and financial resources. And in-
lieu fee programs will only be successful if they can collect enough 
fees to finance viable mitigation projects. We do not believe it is 
practical to require watershed plans prior to establishing service 
areas for mitigation banks. There are few watershed plans available 
that would provide concrete information for establishing service areas 
for mitigation banks. The Corps believes that ecologically-suitable 
service area sizes can be established through the review processes 
required for mitigation banks even in the absence of a formal watershed 
plan, though district engineers must use a watershed approach in making 
this determination to the extent practicable. As for in-lieu fee 
programs, the compensation planning framework is itself a type of 
watershed plan, specifically tailored to the types of information 
needed to define an appropriate service area for the in-lieu fee 
program and guide site and project selection within that area.
    Several commenters stated that the size of the mitigation bank 
service area specified in the proposed rule is too large. One commenter 
said that a 6- or 8-digit HUC is too large to guide appropriate 
ecological replacement of lost functions. Two commenters argued that 
the size of a mitigation bank's service area should be based on the 
local watershed area. Several other commenters, however, believed that 
the service areas suggested in the proposed rule are too small. Some of 
these commenters noted that certain states have over 50 (e.g., North 
Dakota) or 100 (e.g., Alaska) 8-digit HUCs, and that developing a 
mitigation bank for each HUC would be difficult. One commenter noted 
that the size of a service area should be driven by environmental 
factors, and that there should not be different sizes for urban areas 
versus rural areas. Three commenters agreed that, as proposed in the 
preamble, single-user mitigation banks (e.g., those sponsored by state 
departments of transportation) should be given additional flexibility 
for the size of the service area. Two commenters, however, disagreed 
with this provision and argued that the size of the service area should 
not be based on the characteristics of the bank sponsor.
    In the final rule, we have retained the examples of service area 
based on 8-or 6-digit hydrologic unit codes for urban and rural areas. 
It is important to remember that these are examples, and that the 
district engineer, in consultation with the IRT, will determine the 
appropriate service area(s) for mitigation banks and in-lieu fee 
programs. District engineers can take into account the sponsor's needs 
and capabilities (as well as relevant statutory or regulatory 
authorities if the sponsor is a government agency) when determining 
service areas for a third-party mitigation operation.
    Two commenters said that Sec.  332.8(c)(5)(iii) [Sec.  
230.98(c)(5)(iii)] of the proposed rule is inconsistent with the 
proposed Sec.  332.8(j) [Sec.  230.98(j)]. One commenter stated that 
this provision should address that fact that most mitigation banks will 
need to sell some initial credits to fund site acquisition and 
construction associated with starting a new mitigation bank. Another 
commenter suggested that the agencies provide a credit release schedule 
template in the final rule.
    The two provisions cited in the previous paragraph are not 
inconsistent with each other. The provision concerning the credit 
release schedule for a mitigation bank is at Sec.  332.8(d)(6)(iii)(B) 
[Sec.  230.98(d)(6)(iii)(B)] of the final rule. This provision requires 
the achievement of specific milestones for credit releases to occur. 
The initial credit release (initial debiting) for mitigation banks 
provided by Sec.  332.8(m) [Sec.  230.98(m)] of the final rule requires 
achievement of appropriate milestones, such as approval of the 
mitigation banking instrument mitigation plan, securing the mitigation 
bank site, and establishing appropriate financial assurances. The 
initial debiting allows the mitigation bank sponsor to obtain some 
capital that will be used to fund subsequent operations at the 
mitigation bank. We do not believe it would be appropriate to provide a 
credit release schedule template in the final rule, because credit 
release schedules are likely to vary from project to project.
    Two commenters asked whether the requirement to include accounting 
procedures in a mitigation banking instrument is linked to the ledger 
account in Sec.  332.8(l)(1) [Sec.  230.98(l)(1)] of the proposed rule, 
or to the financial assurance requirements of mitigation plans in 
general.
    The requirements for a ledger account are stipulated in Sec.  
332.8(q)(1) [Sec.  230.98(q)(1)] of the final rule. Ledger reports are 
required for both mitigation banks and in-lieu fee programs. The draft 
instrument must describe the accounting procedures that will be used 
for the mitigation bank or in-lieu fee program. Additional requirements 
for mitigation bank or in-lieu fee program accounting procedures are 
provided in Sec.  332.8(p) [Sec.  230.98(p)] of the final rule. In 
Sec.  332.8(q)(3) [Sec.  230.98(q)(3)] of the final rule, we have added 
a requirement for an annual report showing the activities for any 
financial assurances accounts and long-term management funding 
accounts.

[[Page 19655]]

    One commenter said that the agencies should provide more guidance 
on mitigation bank closure procedures.
    Default and closure provisions for the mitigation bank or in-lieu 
fee program must be described in the instrument (see Sec.  
332.8(d)(ii)(D) [Sec.  230.98(d)(ii)(D)]). The instrument must also 
describe the site protection and long-term management for the 
mitigation bank. For umbrella mitigation bank sites or in-lieu fee 
project sites, the site protection and long-term management will 
normally be addressed in the approved mitigation plans. Specific 
closure procedures for mitigation banks are at the discretion of the 
district engineer.
    (d)(7) IRT review. One commenter recommended that the IRT's review 
of the draft prospectus and mitigation banking instrument be concurrent 
with the Corps review to help streamline the approval process. One 
commenter noted that the rule does not provide a funding mechanism for 
Corps staff to spend more time in the review of mitigation banking 
proposals. Several commenters suggested that the rule establish a 
method earlier in the review process for rejecting poor mitigation 
banking proposals. One commenter said that the rule should clarify that 
the Corps has the authority to reject reviewing agency suggestions that 
exceed the Corps' statutory authority, are insufficiently related to 
the purposes of the mitigation bank, or are excessive in scope or 
scale.
    The preliminary review of a draft prospectus provided in Sec.  
332.8(d)(3) [Sec.  230.98(d)(3)] will be conducted concurrently by the 
Corps and the IRT. As for the review of draft instruments, we believe 
it is more efficient for the district engineer to evaluate whether the 
draft instrument is complete before providing copies to the IRT members 
for their review. Funding for the Corps review of third-party 
mitigation instruments will be provided through Regulatory Program 
appropriations. We have added Sec.  332.8(d)(5) [Sec.  230.98(d)(5)] to 
provide for an initial evaluation of proposed mitigation banks or in-
lieu fee programs, to allow early notification to sponsors of proposed 
third-party mitigation operations that are unlikely to be acceptable 
for providing compensatory mitigation for DA permits. As stated in 
Sec.  332.8(b)(4) [Sec.  230.98(b)(4)], the district engineer will give 
full consideration to any timely comments and advice provided by the 
IRT, but the district engineer alone retains final authority for 
approval of instruments for mitigation banks or in-lieu fee programs 
used to provide compensatory mitigation for DA permits.
    To facilitate IRT review of draft instruments or amendments, Sec.  
332.8(d)(7) [Sec.  230.98(d)(7)] of the final rule states that the 
sponsor must provide the district engineer with a sufficient number of 
copies of those documents. The district engineer will promptly 
distribute copies of those documents to the IRT members for a 30-day 
comment period, which will begin five days later. The five day waiting 
period will ensure that the IRT members will have a full 30 days to 
review the draft instrument or amendment. This paragraph was also 
changed, where appropriate, to include amendments of approved 
instruments.
    We have also modified this paragraph to make it clear that the 
district engineer will seek to resolve concerns raised by IRT members 
using a consensus based approach, to the extent practicable, but that 
this cannot be allowed to jeopardize meeting the time frames in the 
rule. The rule provides 90 days from the time the complete draft 
instrument is distributed to IRT members for the district engineer to 
notify the sponsor whether it is generally acceptable, and if so, what 
changes are needed for the final instrument. Alternately, within this 
same time frame (90 days), the district engineer must notify the 
sponsor if there are significant unresolved concerns that may lead to 
disapproval of the final instrument, or to a formal objection by one or 
more IRT members. Use of a consensus-based approach does not alter the 
responsibility of the district engineer to make a final determination 
regarding the draft instrument within the specified time frames.
    (d)(8) Final instrument. Many commenters supported the proposed 
process for mitigation bank approval. Two commenters specifically 
supported the provision that gives the district engineer the final 
authority to approve a mitigation banking instrument. One commenter 
said that the final rule should require the sponsor to address any 
comments provided as a result of the IRT review process. One commenter 
said that if the district engineer does not make a decision on a final 
mitigation banking instrument as provided, the instrument should be 
considered to be approved by default. Two commenters encouraged the 
agencies to establish a process to appeal a district engineer's 
decision not to approve a mitigation banking instrument.
    We have modified this paragraph to require the sponsor to submit 
supporting documentation with the final instrument. This supporting 
documentation must explain how the final instrument addresses the 
comments provided by the IRT. As stated in Sec.  332.8(a)(1) [Sec.  
230.98(a)(1)], for a mitigation bank or in-lieu fee program to be able 
to provide compensatory mitigation for DA permits, it must have an 
instrument approved by the district engineer. Allowing approval by 
default would be inappropriate as there would be no assurance that 
compensatory mitigation provided by the bank or in-lieu fee program 
would meet the requirements of the Clean Water Act and this part. 
Therefore, this final rule does not include a default approval 
provision. We do not believe it is necessary to establish an appeal 
process for third-party mitigation instruments. District engineers have 
the discretion to determine whether a proposed mitigation bank or in-
lieu fee program will be suitable for providing compensatory mitigation 
for DA permits. When the district engineer disapproves an instrument, 
he must provide comments to the sponsor indicating the deficiencies 
that formed the basis for the disapproval. If a proposed mitigation 
bank or in-lieu fee program is not approved, a prospective sponsor can 
modify that proposal to correct these deficiencies and resubmit it for 
consideration.
    (e) Dispute resolution process. Three commenters supported the 
dispute resolution process as outlined in the proposed rule. Two 
commenters asserted that the dispute resolution process will slow 
mitigation bank development. Two commenters said that resource agency 
staff should be granted full involvement in decision-making over the 
development of mitigation banking instruments, instead of elevating 
their concerns over proposed instruments to headquarters. One commenter 
recommended that each district develop a mitigation bank template in 
coordination with federal and state agencies, and that the use of this 
template will reduce the need to go through a dispute resolution 
process. One commenter stated that the higher level review in this 
process may only drive it farther away from any perceived watershed or 
biologically-based approach.
    We have modified Sec.  332.8(e) [Sec.  230.98(e)] to include 
amendments of approved mitigation banking instruments and in-lieu fee 
program instruments. We do not agree that the dispute resolution 
process will slow the decision-making process for third-party 
mitigation instruments. On the contrary, the dispute resolution process 
will facilitate decision-making through the involvement of higher level 
agency personnel. The decision to approve a mitigation bank or in-lieu 
fee program to

[[Page 19656]]

provide compensatory mitigation for DA permits lies solely with the 
district engineer. As explained in Sec.  332.8(b) [Sec.  230.98(b)], 
the role of the IRT is to provide comments and advice on the 
establishment and use of mitigation banks and in-lieu fee programs. 
Although district engineers are encouraged to develop templates for 
mitigation banking and in-lieu fee program instruments, the development 
of such templates does not need to be addressed in this rule. The 
dispute resolution process is not expected to conflict with a watershed 
approach, since it is an administrative process intended to resolve 
objections to proposed instruments.
    One commenter said that the milestones and time frames established 
in the proposed rule are adequate to move the process along, while 
giving time for appropriate comment. One commenter expressed concern 
that 15 days for the Interagency Review Team to initiate the dispute 
resolution process is too short.
    We have retained the time frames in the dispute resolution process. 
We believe that 15 days is sufficient for a member agency of the IRT to 
initiate the dispute resolution process. The IRT members will have 
already thoroughly reviewed the draft instrument, and had the proposed 
final instrument for 30 days before this 15-day time period begins. Any 
remaining issues should already have been identified by that time and 
evaluated to determine whether they warrant elevation to the agency's 
headquarters. In Sec.  332.8(e)(3) [Sec.  230.98(e)(3)], we have added 
electronic mail as an acceptable means for notifying district engineers 
that an issue has been forwarded to Headquarters for review.
    Two commenters recommended that the dispute resolution process 
include procedures to address disputes when they are with a co-chair 
from a tribal, state, or local program. One commenter said a mitigation 
banking instrument should not be approved over the objections of the 
state in which the mitigation bank is located. Another commenter 
suggested that the rule should allow for coordination with states that 
have separate appeals procedures.
    This process is intended to resolve disputes that are within the 
purview of the Corps to address. If there is a co-chair involved in the 
approval process, and there is an IRT objection that is solely under 
the authority of the tribal, state, or local co-chair to address, then 
the co-chair should address those objections. The co-chair also has the 
option of not approving the instrument, so that the mitigation bank or 
in-lieu fee program cannot be used to provide compensatory mitigation 
for tribal, state, or local authorizations. District engineers should 
try to address state objections to proposed mitigation banks and in-
lieu fee programs, but final decisions must be based on federal 
interests, including applicable federal laws, regulations, and 
executive orders. State appeals procedures do not apply to federal 
decisions regarding mitigation banks and in-lieu fee programs. A state 
can choose not to approve a mitigation bank or in-lieu fee program to 
provide compensatory mitigation for its authorizations.
    (f) Extension of deadlines. One commenter said that deadlines 
should be established for review and response, but that these deadlines 
should have built-in flexibility for extenuating circumstances.
    We have revised this paragraph to account for the potential issues 
that may warrant allowing additional time to reach decisions on third-
party mitigation instruments. In Sec.  332.8(f)(1)(i) [Sec.  
230.98(f)(1)(i)], we have added consultation under section 7 of the 
Endangered Species Act or section 106 of the National Historic 
Preservation Act as potential reasons for needing more time to process 
mitigation banking or in-lieu fee program instrument proposals. We have 
added Sec.  332.8(f)(1)(ii) [Sec.  230.98(f)(1)(ii)] to include 
government-to-government consultation with Indian tribes, since it may 
be necessary to conduct such consultation if a proposed mitigation bank 
or in-lieu fee program may affect an Indian tribe's interests, such as 
protected tribal resources, tribal rights, or Indian lands. In Sec.  
332.8(f)(1)(ii) [Sec.  230.98(f)(1)(ii)], in-lieu fee programs and 
proposed instrument modifications have been added to include these 
actions as potentially needed deadline extensions.
    (g) Modification of instruments. Two commenters stated that the 
proposed mechanism for modifying mitigation banking instruments is a 
fair and effective way of addressing the grandfathering of operational 
mitigation banks. Another commenter suggested that the Corps establish 
an administrative appeal process for mitigation banking instrument 
modifications.
    Since in-lieu fee programs have been added to this rule, we have 
included the modification of in-lieu fee program instruments in Sec.  
332.8(g) [Sec.  230.98(g)]. We do not believe it is necessary to 
establish an administrative appeal process for modifications of third-
party mitigation instruments.
    Several commenters supported the streamlined mitigation bank permit 
modification process proposed in the rule. One commenter said that the 
process will not sufficiently reduce permitting burdens and time frames 
to justify elimination of in-lieu fee programs. One commenter believed 
that the time frame for IRT review in this process is too long and has 
the potential to delay decision-making for simple changes to an 
instrument. One commenter requested that the agencies provide examples 
of ``non-significant'' changes that would allow use of the streamlined 
review process to modify an instrument.
    We have retained in-lieu fee programs in this final rule, and the 
streamlined review process for instrument modifications also applies to 
certain actions pertaining to in-lieu fee programs. Examples of such 
actions include adaptive management, credit releases, and changes in 
credit release schedules. We believe that IRT review of proposed 
instrument modifications is necessary, and that the time frames are 
sufficient to ensure that substantive comments can be provided in a 
timely manner. District engineers have the discretion to determine what 
changes that are not listed in Sec.  332.8(g) [Sec.  230.98(g)] warrant 
use of the streamlined review process. Examples might include minor 
changes to a mitigation project plan that do not substantively change 
the character of the project or its ability to provide appropriate 
mitigation for DA permits. The addition and approval of umbrella 
mitigation bank sites and in-lieu fee project sites, or the expansion 
of previously approved mitigation bank or in-lieu fee project sites, 
must be evaluated through the full instrument amendment process in 
Sec.  332.8(d) [Sec.  230.98(d)].
    (h) Umbrella mitigation banking instruments. Four commenters 
supported development of umbrella mitigation banking instruments. One 
commenter did not support the authorization of umbrella mitigation 
banking instruments, because they usually cover sites that are in 
different geographic locations and have different site conditions. 
Several commenters suggested that the rule require the entity proposing 
an umbrella agreement have at least one site in place, and limit credit 
releases to sites that have been reviewed and permitted. Several 
commenters opposed the provision in the rule that requires a major 
modification to the instrument for additional umbrella mitigation bank 
sites. These commenters said that this requirement will impede project

[[Page 19657]]

development schedules. One commenter stated that the sponsor of an 
umbrella mitigation banking instrument should not be able to sell 
credits until the site has been acquired, the mitigation plan approved, 
and the financial assurances are in place.
    In this paragraph, we have clarified that adding more mitigation 
bank sites to an umbrella mitigation banking instrument requires 
following the procedures at Sec.  332.8(g)(1) [Sec.  230.98(g)(1)] for 
amending an approved instrument. In response to a proposal to add a new 
site to an umbrella mitigation banking instrument, the district 
engineer and the IRT will review the proposed mitigation plan. The 
district engineer, in consultation with the IRT, will determine whether 
the proposed site is acceptable for providing compensatory mitigation 
for DA permits within the service area governed by that instrument. The 
proposed rule, as well as the final rule, requires a mitigation bank 
site to be included in the initial mitigation banking instrument. The 
mitigation banking instrument becomes an umbrella instrument when 
additional compensatory mitigation project sites are added (see Sec.  
332.8(h) [Sec.  230.98(h)]). We have added a sentence to this paragraph 
that requires credit withdrawal from umbrella mitigation bank sites to 
be consistent with Sec.  332.8(m) [Sec.  230.98(m)]. In particular, any 
additional projects must have an approved plan, a secured site, and 
appropriate financial assurances in place before any credits can be 
sold or transferred. After the initial credit release, further releases 
are tied to achievement of milestones and performance standards in 
accordance with an approved credit release schedule.
    (i) In-lieu fee project account. We have added this provision to 
require in-lieu fee program sponsors to establish program accounts at 
financial institutions that are a member of the Federal Deposit 
Insurance Corporation (FDIC). The purpose of the program account is to 
ensure that the funds collected from permittees by the in-lieu fee 
program sponsor are used within a reasonable time period to provide 
compensatory mitigation for DA permits, instead of other activities. 
Requiring the sponsor to establish the account with a member of the 
FDIC is intended to protect those funds from being lost through 
default. The interest and other earnings accruing to the account must 
remain in the account, to fund in-lieu fee projects. The funds placed 
into the in-lieu fee program account may only be used for the 
selection, design, acquisition, implementation, and management of in-
lieu fee projects, with a small percentage being allowed for 
administrative costs. The percentage that can be used for 
administrative costs will be determined by the district engineer, in 
consultation with the IRT. If the sponsor conducts activities, such as 
educational programs, in addition to aquatic resource restoration, 
establishment, enhancement, and/or preservation activities that are 
used to provide compensatory mitigation for DA permits, the in-lieu fee 
program account must be separate from the accounts that fund those 
supplemental activities.
    Section 332.8(i)(2) [Sec.  230.98(i)(2)] requires in-lieu fee 
program sponsors to submit proposed in-lieu fee projects to the 
district engineer for funding approval. Disbursements from the in-lieu 
fee program account can only be made after the district engineer 
provides written approval of a proposed in-lieu fee project. The 
district engineer's decision will occur after consultation with the 
IRT. The district engineer does not need to authorize each individual 
disbursement from the account, but must provide written approval for 
the project, based on a review of the project mitigation plan, which 
will include a description of activities and projected costs. Once the 
project is authorized, funds disbursed from the account must be spent 
for the project in a manner consistent with the approved project 
mitigation plan. The terms of the in-lieu fee program account must 
specify that the district engineer has the authority to direct those 
funds to alternative compensatory mitigation projects if the sponsor 
does not provide the compensatory mitigation in accordance with 
required time frames. As with financial assurances, the Corps lacks 
statutory authority to accept directly, retain, and draw upon funds 
that are in the in-lieu fee program account, because of the 
requirements of the Miscellaneous Receipts Statute (31 U.S.C. 3302(b)). 
Therefore, the terms of the in-lieu fee program instrument must be 
carefully crafted to ensure that the district engineer can direct the 
funds deposited in the in-lieu fee program account to be used for 
providing compensatory mitigation for DA permits, without the Corps 
directly accepting or disbursing the funds.
    The in-lieu fee program sponsor is also required to provide annual 
reports to the district engineer and the IRT regarding the in-lieu fee 
program account (see Sec.  332.8(i)(3) [Sec.  230.98(i)(3)]). The 
district engineer may audit the records for the in-lieu fee program 
account, to ensure compliance with this rule.
    (j) In-lieu fee project approval. We added Sec.  332.8(j) [Sec.  
230.98(j)] to provide a process for the review and approval of in-lieu 
fee projects. The mitigation plans for in-lieu fee projects must 
include the information required by Sec.  332.4(c)(2) through (c)(14) 
[Sec.  230.94(c)(2) through (c)(14)]. The mitigation plan must also 
include a credit release schedule, which is similar to the credit 
release schedule required for mitigation banks. The review and approval 
of in-lieu fee projects will be conducted as instrument modifications 
in accordance with the procedures at Sec.  332.8(g)(1) [Sec.  
230.98(g)(1)]. In-lieu fee projects may be conducted by other parties 
on behalf of the in-lieu fee program sponsor, but the project must 
still be approved by the district engineer and the sponsor remains 
responsible for compliance with the terms of the instrument and the 
approved mitigation plan.
    Section 332.8(j)(2) [Sec.  230.98(j)(2)] states that if a DA permit 
is required for the in-lieu fee project, then the permit should not be 
issued until the relevant provisions of the mitigation plan have been 
substantively determined. This will help ensure that the special 
conditions of the DA permit reflect the provisions of the mitigation 
plan, including the ecological performance standards, site protection 
mechanisms, and financial assurances.
    (k) Coordination of mitigation banking instruments and DA permit 
issuance. Two commenters supported the provision in the rule that 
prohibits district engineers from issuing a permit authorizing the 
construction of a mitigation bank until all relevant provisions of the 
mitigation banking instrument have been substantively determined. One 
commenter suggested that this provision be modified so that the section 
404 permit process could be concurrent with the review of the 
mitigation banking instrument. Another commenter said that delaying 
construction of mitigation banks would exacerbate financial problems 
that often occur shortly after the mitigation banking instrument is 
approved.
    We have revised this paragraph to include the development of new 
compensatory mitigation project sites under an umbrella mitigation 
banking instrument. We have also modified this paragraph to state that 
the DA permit should not be issued until all relevant provisions of the 
mitigation plan have been substantively determined, including the 
ecological performance standards. District engineers are encouraged to 
conduct the evaluation for a DA permit to construct a mitigation

[[Page 19658]]

bank concurrently with the review process for the mitigation banking 
instrument. Delaying issuance of the DA permit until the content of the 
mitigation plan has been determined should help reduce costs by 
avoiding the need to modify the permit and its special conditions to 
accurately reflect the approved mitigation plan.
    (l) Project implementation. We added a new Sec.  332.8(l)(1) [Sec.  
230.98(l)(1)] to clarify that a third-party mitigation sponsor must 
have an approved instrument before collecting funds from permittees to 
satisfy compensatory mitigation requirements for DA permits.
    Section 332.8(l)(2) [Sec.  230.98(l)(2)] contains the text from the 
proposed rule, and it has been modified to include in-lieu fee 
programs. We have added Sec.  332.8(l)(3) [Sec.  230.98(l)(3)] to 
stipulate that in-lieu fee program sponsors are responsible for the 
implementation, long-term management, and any required remediation of 
in-lieu fee projects, even in cases where those projects are conducted 
by other parties through requests for proposals or other contracting 
mechanisms.
    (m) Credit withdrawal from mitigation banks. One commenter said 
that the rule should make it clear that for initial debiting of a 
percentage of the mitigation bank credits to occur, the mitigation bank 
needs to be constructed within a short time frame. Another commenter 
stated that if the rule allows mitigation banks to pre-sell credits 
with appropriate financial securities in place, the mitigation banks 
will be able to produce more environmental benefits. One commenter 
recommended adding a provision to limit the number of credits provided 
through establishment (creation) to no more than 25 percent of the 
total credits that will be produced by the mitigation bank, because 
establishment activities are less likely to succeed.
    We have added a provision requiring initial implementation of the 
approved mitigation plan no later than the first full growing season 
after the date the first credit transaction occurs, to ensure timely 
construction of the mitigation bank. A purpose of the initial debiting 
is to provide a source of funds for conducting activities that support 
the continued development of the mitigation bank. We do not believe it 
would be appropriate to place a limit on the percentage of credits that 
can be produced through aquatic resource establishment activities. Such 
decisions should be made on a case by case basis by the district 
engineer, after consulting with the IRT. Likelihood of success is one 
of the factors that the district engineer and the IRT will consider in 
making such decisions.
    (n) Advance credits for in-lieu fee programs. We have added Sec.  
332.8(n) [Sec.  230.98(n)] to provide an analogous standard to the 
initial debiting for mitigation banks that is provided by Sec.  
332.8(m) [Sec.  230.98(m)]. The limitations in Sec.  332.8(n) [Sec.  
230.98(n)] are also intended to reduce risk and uncertainty for in-lieu 
fee programs and to ensure timely implementation of in-lieu fee 
projects. The goal of the requirements in this paragraph is not to 
place an arbitrary limit on the availability of advance credits within 
a service area, but rather to ensure that in-lieu fee programs do not 
sell more advance credits than they can reasonably deliver in the time 
frame specified in Sec.  332.8(n)(4) [Sec.  230.98(n)(4)], generally 3 
years.
    This does not mean that the number of advance credits will 
necessarily be small. The number of advance credits authorized for an 
in-lieu fee program will be limited by service area, and specified in 
the in-lieu fee program instrument. District engineers will determine 
the number of advance credits allowed per service area, after 
consulting with the IRT in accordance with the procedures in Sec.  
332.8(d) [Sec.  230.98(d)]. The number of advance credits will be based 
on an evaluation of the compensation planning framework; the sponsor's 
past performance for implementing aquatic resource restoration, 
establishment, enhancement, and/or preservation activities in the 
proposed service area or other areas; and the projected financing 
necessary to begin planning and implementation of in-lieu fee projects. 
For example, in service areas with larger numbers of permitted impacts, 
and where a sponsor with demonstrated past successes is likely to 
produce a substantial amount of compensatory mitigation within the time 
frame specified in Sec.  332.8(n)(4) [Sec.  230.98(n)(4)], district 
engineers can authorize a higher number of advance credits. As another 
example, if an in-lieu fee program is being established by a sponsor 
that does not have a history of successfully implementing aquatic 
resource restoration, establishment, enhancement, and/or preservation 
projects, the district engineer may authorize a smaller number of 
advance credits to address potential risks. If an in-lieu fee program 
sells all of its advance credits and it appears likely that it can 
fulfill a higher number of advance credits within the required time 
frame, it may apply for an instrument modification to increase the 
number of available advance credits.
    Section 332.8(n)(2) [Sec.  230.98(n)(2)] allows the district 
engineer to require the sponsor to provide confidential supporting 
information to determine an appropriate limit for advance credits. Such 
confidential supporting information may include locations of potential 
in-lieu fee project sites that have been identified by the sponsor. It 
may be necessary to keep this information confidential to lessen the 
risk of land speculation activities that could drive up the price of 
prospective in-lieu fee project sites before the sponsor can collect 
sufficient fees to secure those sites.
    Each approved in-lieu fee project will have an approved mitigation 
plan, with a credit release schedule. As in-lieu fee projects are 
implemented by the in-lieu fee sponsor in accordance with approved 
mitigation plans, credits will be released as milestones in the credit 
release schedule are achieved. As released credits are produced, these 
must first be used to fulfill any advance credits that have been sold 
in the service area, after which any remaining released credits may 
also be sold. Once advance credits are fulfilled, an equivalent number 
of new advance credits will become available, which the sponsor may 
sell as advance credits. Therefore, the advance credit account is a 
rolling account, and when released credits are produced and previously 
sold advance credits are fulfilled, the advance credit account will 
have new advance credits available for sale, but not more than the 
advance credit limit specified in the instrument (see Sec.  332.8(n)(3) 
[Sec.  230.98(n)(3)]).
    Within a particular service area, Sec.  332.8(n)(4) [Sec.  
230.98(n)(4)] requires in-lieu fee program sponsors to secure in-lieu 
fee project sites and conduct the initial physical and biological 
improvements (e.g., grading and planting) by the third full growing 
season after the first advance credit for that service area is secured 
by a permittee. District engineers have the discretion to allow more 
time to plan and initiate in-lieu fee projects. An example of where 
this discretion may be appropriate would be a service area where credit 
demand is lower than expected, and the in-lieu fee program has not been 
able to collect enough funds to secure an in-lieu fee project site and 
plan and implement the compensatory mitigation project within the three 
growing season time period. The district engineer also has the 
discretion to direct the sponsor to use the funds in the in-lieu fee 
program account required by Sec.  332.8(i) [Sec.  230.98(i)] to provide 
alternative compensatory mitigation to fulfill the

[[Page 19659]]

obligations created through the sale or transfer of advance credits. In 
rare circumstances, the district engineer may allow an in-lieu fee 
program to fulfill advance credits sold in one service area with 
released credits from a different service area. This should only occur 
in situations where the number of unfulfilled advance credits is small, 
the prospects for collecting more fees in the service area are poor, 
and the district engineer determines that fulfilling the advance 
credits in another service area will provide adequate compensation for 
the previously authorized impacts represented by the advance credits. 
This may happen in the case of state-wide in-lieu fee programs that 
have some remote service areas with very small numbers of authorized 
impacts.
    We have added Sec.  332.8(n)(5) [Sec.  230.98(n)(5)] to address 
compliance with in-lieu fee program instruments. District engineers 
will review the operations of approved in-lieu fee programs, to assess 
their performance. If an in-lieu fee program is not complying with the 
terms of its instrument, the district engineer may suspend credit sales 
or take other appropriate action until the sponsor complies with the 
terms of the instrument. This paragraph also makes it clear that 
permittees who secure credits from in-lieu fee programs are not 
responsible for in-lieu fee program compliance.
    (o) Determining credits. (1) Units of measure. Several commenters 
said that credits should not be expressed as acres or linear feet, 
because those units do not adequately account for functions and values. 
Several commenters suggested that the agencies revise this section to 
relate back to the functional approach provided by the definition of 
``credit'' in Sec.  332.2 [Sec.  230.92]. Two commenters recommended 
that the agencies develop appropriate means for quantifying debits for 
stream impacts and compensatory mitigation credits for stream 
mitigation. One commenter suggested that the rule establish specific 
alternative quantitative measures other than acres or stream length 
units, and provide methods for tracking each of the wetland functions 
and values that result in credits or debits. Another commenter said 
that all mitigation bank credit transactions should be based on the 
accrual of functions, not on areal measures. One commenter stated that 
all functional assessment studies should be standardized within a 
watershed, and preferably across regions, districts, or states.
    It is not always possible to quantify credits by functional or 
condition assessments, so there is a need to use other metrics, such as 
acres or linear feet. The requirements in Sec.  332.8(o) [Sec.  
230.98(o)] are consistent with the definition of credit in Sec.  332.2 
[Sec.  230.92]. We have modified Sec.  332.8(o)(1) [Sec.  230.98(o)(1)] 
to include ``other suitable metrics'' as potential units for 
quantifying credits or debits. Appropriate units for quantifying 
credits and debits will be determined by district engineers on a case-
by-case basis. District engineers are encouraged to use science-based 
assessment methods for determining aquatic habitat condition, such as 
the index of biological integrity, where practicable. District 
engineers and other entities, such as scientists, may develop 
assessment methods for stream impacts and compensatory mitigation that 
could be used to quantify debits and credits. Stream assessment methods 
are likely to vary by geographic region, and may be developed locally. 
The development of an automated information system to track specific 
aquatic resource functions that are lost as a result of permitted 
activities, or are produced by compensatory mitigation projects, is 
outside the scope of this rule, however the Corps is working to improve 
its tracking of permitted impacts and compensatory mitigation. In many 
areas of the country, and for certain types of wetlands, there may not 
be functional or condition assessment methods available, so other 
measures such as acres, may need to be used to quantify credits and 
debits. We do not agree that functional assessment methods should be 
standardized within watershed, districts, or states. Functional 
assessment methods will vary among resource type, and sometimes by 
regional categories, such as ecoregion or physiographic region.
    (o)(2) Assessment. Several commenters supported the use of 
functional assessments to determine credits. One commenter recommended 
that functional assessments should be required for all mitigation 
banks. Another commenter said that functional assessments are just one 
tool that could be used. Two commenters recommended that the rule 
prescribe specific methods for conducting functional assessments. One 
commenter supported the use of functional assessments for both credits 
and debits. According to one commenter, the agencies have had 
considerable difficulty successfully tracking compensatory mitigation 
by type and location (e.g., in-kind, on-site), and functional 
assessments would greatly increase the complexity of this process. One 
commenter stated that the district engineer should incorporate the most 
current information on restoration and creation techniques and success 
rates, functional assessment, and other relevant factors when 
determining the number of credits a mitigation bank will provide. 
Another commenter recommended that value or socio-economic services 
should be included in mitigation crediting.
    We have modified this paragraph by changing the heading to refer to 
``assessment'' since we have amended the rule to include the use of 
other suitable metrics, such as condition assessments. The term 
``condition'' is defined in Sec.  332.2 [Sec.  230.92]. An index of 
biological integrity is an example of another type of assessment method 
that can be used to assess and describe the aquatic resource types that 
will be restored, established, enhanced, and/or preserved by mitigation 
banks or in-lieu fee programs.
    We cannot revise this rule to require the use of functional 
assessments for all mitigation banks or in-lieu fee programs. In some 
areas of the country, appropriate functional assessments are not 
available. Condition assessments or other types of assessment methods 
may be more appropriate in some regions. The new automated information 
system being used in the Corps Regulatory Program (ORM 2.0) will help 
improve the tracking of compensatory mitigation projects by type and 
location. This automated information system is a spatially-enabled 
system that will allow tracking of the locations of impact sites and 
compensatory mitigation sites, as well as the aquatic resource types 
that are present at impact sites or are required as compensatory 
mitigation. District engineers, in consultation with the IRT, will 
evaluate compensatory mitigation proposals for mitigation banks and in-
lieu fee programs, to determine the number of credits that are likely 
to be provided. This evaluation should include the type of compensatory 
mitigation being conducted (e.g., reestablishment, rehabilitation), the 
potential for success, the type of aquatic resource being provided, and 
other relevant aspects of the mitigation bank or in-lieu fee project. 
Although the services provided by aquatic resource functions are 
important to consider when determining the type and location of 
compensatory mitigation projects, there are few methods available for 
assessing services. Therefore, in most cases consideration of services 
will be conducted through best professional judgment. As discussed 
elsewhere in this preamble, there are numerous difficulties in 
assessing aquatic resource values, and

[[Page 19660]]

this rule focuses on functions and services.
    (o)(3) Credit production. We have modified this paragraph to refer 
to pre- and post-compensatory mitigation project site conditions, since 
this section applies to mitigation banks and in-lieu fee projects. We 
have also changed this paragraph to require the use of functional or 
condition assessments, or other suitable metrics, to determine the 
number of credits produced by a mitigation bank or in-lieu fee project. 
In areas where appropriate assessment methods are not available, or 
practicable to use, other suitable metrics such as acres or linear feet 
may be used. We have removed the last two sentences of the proposed 
text of this paragraph, which stated that, for enhancement activities, 
the number of credits should only reflect those enhancements produced 
by the construction of the mitigation bank. These two sentences are no 
longer necessary, because of the other changes to this paragraph. 
However, it is still the case that credits for enhancement activities 
should only include the ``functional lift'' generated by the activity.
    (o)(4) Credit value. We have not changed this paragraph in the 
final rule.
    (o)(5) Credit costs. We added this provision to clarify that the 
cost of compensatory mitigation credits provided by a mitigation bank 
or an in-lieu fee program shall be determined by the sponsor. Section 
332.8(o)(5)(ii) [Sec.  230.98(o)(5)(ii)] requires in-lieu fee programs 
to use full cost accounting methods, so that the cost per unit credit 
includes the expected costs associated with the restoration, 
establishment, enhancement, and/or preservation of aquatic resources in 
the service area. This paragraph also states that the cost per unit 
credit for in-lieu fee programs should factor in contingency costs, to 
address uncertainties in construction and real estate expenses. The 
cost per unit credit must also reflect resources needed for long-term 
management and protection of the in-lieu fee project site, as well as 
any financial assurances that may be necessary to ensure successful 
completion of those projects. District engineers can evaluate the fee 
structure of an in-lieu fee program to determine whether the sponsor is 
complying with this provision. Compliance with these requirements is 
necessary to ensure that an in-lieu fee program generates sufficient 
funds so that it can select and implement compensatory mitigation 
projects in a timely manner. One concern raised about in-lieu fee 
programs in the past is that they have sometimes underpriced credits, 
with the result that they may not be able to deliver the required 
mitigation. This provision is intended to ensure that in-lieu fee 
programs develop realistic price schedules, while still leaving 
determination of credit prices to the program sponsor, rather than the 
Corps.
    (o)(6) Credits provided by preservation. One commenter said that 
preservation and/or enhancement should only be considered in 
combination with restoration, to ensure no net loss on an acreage 
basis. A commenter said that credits associated with preservation 
should be released as soon as possible, since functional capacity is 
not an issue. One commenter stated that preservation credits should be 
sparingly granted and should never allow preservation of landscape 
features of a different type than those adversely affected by the 
permitted activity.
    The regulations governing the use of preservation as compensatory 
mitigation are provided in Sec.  332.3(h) [Sec.  230.93(h)]. The use of 
aquatic resource preservation to provide compensatory mitigation will 
be determined by the district engineer in accordance with Sec.  332.3 
[Sec.  230.93]. When evaluating the Corps Regulatory Program's 
contribution to the Administration's wetlands goals, it is important to 
consider the compensatory mitigation requirements imposed on 
permittees, since the compensatory mitigation requirements for a 
specific DA permit may consist of a package of compensation activities. 
In other words, a permittee could provide the required compensatory 
mitigation through more than one compensation type. When a permittee 
proposes to use preservation to provide compensatory mitigation, Sec.  
332.3(h)(2) [Sec.  230.98(h)(2)] requires that the preservation be 
done, to the extent appropriate and practicable, in conjunction with 
aquatic resource restoration, establishment, and/or enhancement 
activities. For example, a permittee may provide some of the required 
compensatory mitigation through a permittee-responsible restoration 
project, and provide the remaining compensatory mitigation by securing 
preservation credits from an in-lieu fee program or a mitigation bank. 
Preservation may also be used as the only form of compensatory 
mitigation, at the discretion of the district engineer, but this should 
only be allowed where preservation of specific resources has been 
identified as a high priority using a watershed approach, and in this 
case higher compensation ratios should be required.
    When using a watershed approach, the district engineer may 
determine that preservation of out-of-kind aquatic resources is an 
appropriate means of providing compensatory mitigation.
    Two commenters said that the proposed rule is unclear whether 
preservation is to be applied to an entire mitigation bank, above and 
beyond any establishment, enhancement, or restoration that is conducted 
to produce credits at that mitigation bank, or whether it only applies 
to those areas of the mitigation bank where preservation of existing 
aquatic resources will occur.
    The long-term protection of compensatory mitigation project sites, 
including mitigation banks and in-lieu fee programs is addressed in 
Sec.  332.7(a) [Sec.  230.97(a)]. This is a different issue that the 
use of preservation as compensatory mitigation. As defined in Sec.  
332.2 [Sec.  230.92], preservation is the removal of a threat to, or 
preventing the decline of, aquatic resources by an action in or near 
those aquatic resources. If there are existing aquatic resources on a 
mitigation bank site or an in-lieu fee project site, and those aquatic 
resources will not be enhanced or rehabilitated to produce enhancement 
or restoration credits, then the district engineer may determine that 
there are preservation credits being provided, once the appropriate 
site protection mechanisms are implemented.
    We have modified Sec.  332.8(o)(6) [Sec.  230.98(o)(6)] of the 
final rule to include other suitable metrics as a means of quantifying 
preservation credits. We have also added in-lieu fee programs to this 
paragraph, since the final rule includes those programs as a form of 
third-party mitigation. We have removed the reference to Sec.  332.3(c) 
[Sec.  230.93(c)] because the subsection on the watershed approach does 
not explicitly discuss watershed functions.
    (o)(7) Credits provided by riparian areas, buffers, and uplands. 
Several commenters supported the use of riparian areas, buffers, and 
uplands to provide credits. One commenter said that buffer credits 
should only be included if the minimum one-to-one mitigation ratio is 
increased and the proportion of enhancement and rehabilitation as a 
component of mitigation is strictly limited. One commenter suggested 
that buffers in and of themselves should not be used to generate 
mitigation credits unless they are above and beyond what is required 
and will contribute substantially to habitat connectivity. Several 
commenters suggested that the agencies revise this section to relate 
back to the functional approach provided by the definition of the term 
``credit'' in Sec.  332.2 [Sec.  230.92]. Several commenters stated 
that mitigation credits provided through riparian areas, buffers, or 
uplands should not be expressed as acres or linear feet because those 
units do not

[[Page 19661]]

adequately account for their associated functions and values. Three 
commenters requested more detailed guidance regarding how and when 
mitigation credits can be given for buffers.
    Section 332.3(f)(1) [Sec.  230.93(f)(1)] states that the amount of 
the required compensatory mitigation must be, to the extent appropriate 
and practicable, sufficient to replace lost aquatic resource functions. 
In cases where a mitigation bank or in-lieu fee project has released 
riparian area, buffer, or upland credits, district engineers will 
determine the appropriateness of those credits in fulfilling the 
requirements of Sec.  332.3(f)(1) [Sec.  230.93(f)(1)]. In general, 
third-party mitigation credits provided by riparian areas, buffers, and 
uplands will supplement the credits produced through aquatic resource 
restoration, establishment, enhancement, and/or preservation 
activities, to provide a compensatory mitigation package that is 
appropriate for offsetting the permitted losses of aquatic resource 
functions. As stated in Sec.  332.8(o)(7) [Sec.  230.98(o)(7)], non-
aquatic resources can only be used for compensatory mitigation when 
they are essential for maintaining the ecological viability of 
adjoining aquatic resources.
    Riparian areas are critical components of stream ecosystems, as 
well as other open waters. Riparian areas provide important ecological 
functions, and directly influence the functions of streams, especially 
in terms of habitat quality and water quality. Therefore, it is 
important for mitigation banks and in-lieu fee projects containing 
streams and other open waters to include riparian areas as part of the 
overall compensatory mitigation project. In such cases, compensatory 
mitigation credits should also be awarded to those riparian areas. 
Buffers next to wetlands, and uplands that provide habitat connectivity 
and other ecological functions, may also generate compensatory 
mitigation credits because of their contribution to the ecological 
functions of the overall mitigation bank or in-lieu fee project site.
    We have revised the definition of ``credit'' in Sec.  332.2 [Sec.  
230.92] to be consistent with this paragraph. Although the definition 
of ``credit'' refers to the accrual or attainment of aquatic functions 
at a compensatory mitigation site, riparian areas, buffers, and uplands 
are often critical for maintaining the integrity and sustainability of 
aquatic resource functions. Therefore, compensatory mitigation credits 
can be produced through the restoration, establishment, enhancement, 
and/or preservation of riparian areas, buffers, and uplands that 
support aquatic resources.
    In areas where there are no appropriate assessment methods 
available, or the available methods are impractical to use, acreage and 
linear measures may be the only means for quantifying the credits 
produced through the restoration, establishment, enhancement, and/or 
preservation of riparian areas, buffers, and uplands. District 
engineers will determine on a case-by-case basis when buffers are 
essential to maintaining the ecological viability of adjoining aquatic 
resources, and thus eligible to produce compensatory mitigation 
credits.
    We have modified Sec.  332.8(o)(7) [Sec.  230.98(o)(7)] of the 
final rule to include other suitable metrics as a means of quantifying 
credits for buffers, riparian areas and uplands. We have also added in-
lieu fee programs to this paragraph, since the final rule includes 
those programs as a form of third-party mitigation. We have removed the 
reference to Sec.  332.3(c) [Sec.  230.93(c)] because the subsection on 
the watershed approach does not explicitly discuss watershed functions.
    (o)(8) Credit release schedule. One commenter recommended that the 
rule include a provision to ensure that mitigation credit releases are 
equivalent for all mitigation providers. One commenter said that Sec.  
332.8(k)(7)-(8) [Sec.  230.98(k)(7)-(8)] of the proposed rule should be 
revised to apply equivalent credit release standards for all sources of 
mitigation, not just mitigation banks. This commenter also recommended 
that the rule specify an initial release amount so that the amount does 
not vary significantly across the country as it does today. One 
commenter suggested that credit releases prior to the achievement of 
any performance standards should be restricted to no more than 15 
percent of the total estimated credits to be generated by a mitigation 
bank. Another commenter recommended that the agencies remove the 
provision that district engineers must approve credit releases because 
the Corps has the monitoring period to ensure compliance with 
performance standards and has the ability to prevent future credit 
sales until satisfactory remediation takes place.
    In the final rule, we have developed similar standards for credit 
releases for mitigation banks and in-lieu fee programs that take into 
account the fundamental differences between these two forms of third 
party mitigation. Similar to the credit release schedule for a 
mitigation bank site, each approved in-lieu fee project will have a 
credit release schedule. The credit release schedule for an in-lieu fee 
project will be based on its approved mitigation plan. In terms of 
credit release schedules, the difference between mitigation banks and 
in-lieu fee programs lies with the initial debiting for mitigation 
banks provided under Sec.  332.8(m) [Sec.  230.98(m)] and the advance 
credits allowed for in-lieu fee programs under Sec.  332.8(n) [Sec.  
230.98(n)]. For permittee-responsible mitigation, it is usually not 
feasible or practicable to require advance compensatory mitigation, 
although we are reducing the risks associated with permittee-
responsible mitigation by requiring, to the maximum extent practicable, 
implementation of those compensatory mitigation projects in advance or 
concurrent with the activity causing the authorized impacts (see Sec.  
332.3(m) [Sec.  230.93(m)]). We are also allowing district engineers to 
not require additional compensation for temporal losses when project 
sponsors initiate compensation prior to or concurrent with permitted 
impacts, as a further incentive for timely mitigation.
    We do not believe it would be appropriate to specify a particular 
amount for the initial debiting for mitigation banks. There are a 
variety of factors that can affect the initial debiting, such as the 
type of compensatory mitigation being done at the mitigation bank and 
the assurances that are required to be in place for the initial 
debiting to occur. It is necessary for district engineers to approve 
credit releases, to ensure that all applicable criteria are met, and 
that those credits are acceptable for providing compensatory mitigation 
for DA permits.
    One commenter supported the principle underlying Sec.  332.8(k)(7) 
[Sec.  230.98(k)(7)] of the proposed rule, which ties credit release to 
performance-based milestones, but has experienced disparate practices 
across the country.
    The performance-based milestones that will be used to establish 
credit release schedules will be based on the specific attributes of 
the aquatic resource restoration, establishment, enhancement, and/or 
preservation activity that is being conducted to generate credits at 
the mitigation bank or in-lieu fee project. Section 332.1(e) [Sec.  
230.91(d)] states that where appropriate, district engineers shall 
account for regional characteristics when determining performance 
standards for compensatory mitigation projects. This principle applies 
to mitigation banks and in-lieu fee projects, as well as permittee-
responsible mitigation.

[[Page 19662]]

    We have revised Sec.  332.8(o)(8) [Sec.  230.98(o)(8)] to clarify 
the requirements for credit release schedules. Subparagraph (i) 
discusses general considerations for credit release schedules. We have 
removed considerations of initial capital costs needed to establish a 
mitigation bank, since the credit release schedule is to be based on an 
approved mitigation plan and its ecological performance standards. We 
have added subparagraph (ii) to this subsection to describe the credit 
release schedule for a single-site mitigation bank. We have added 
subparagraph (iii) to this subsection to address credit release 
schedules for in-lieu fee projects and umbrella mitigation bank sites, 
since in-lieu fee projects and umbrella mitigation bank sites are 
usually identified after the instrument is approved.
    In the second sentence of Sec.  332.8(o)(8)(i) [Sec.  
230.98(o)(8)(i)], the final rule states that the credit release 
schedule should reserve a significant share of the total credits for 
release only after full achievement of ecological performance 
standards. What constitutes a significant share is at the discretion of 
the district engineer, after consulting with the IRT and may vary 
depending on the nature of the mitigation compensatory project and the 
risks and uncertainty associated with successful completion of that 
mitigation project. ``Significant share'' does not necessarily mean a 
majority. Rather, for the purposes of this paragraph, the term 
``significant share'' refers to a proportion of projected credits that 
will provide the sponsor with a significant incentive to complete a 
mitigation bank or in-lieu fee project and ensure that all performance 
standards are achieved.
    (o)(9) Credit release approval. Two commenters recommended that 
Sec.  332.8(k)(8) [Sec.  230.98(k)(8)] of the proposed rule establish a 
time frame for the district engineer to make a final decision on credit 
release. One commenter said that 45 to 60 days is a more appropriate 
time frame for the IRT to review a request for credit release. 
According to another commenter, if the district engineer fails to 
approve or deny the release of credits within 45 days of submittal of 
appropriate documentation, the credit release should be deemed 
approved. One commenter stated that the Corps does not have enough 
staff to make site visits to determine if the appropriate milestones 
for a release of credits have been achieved.
    We have added a time frame for district engineers to make decisions 
on requests for credit releases. The time frame is based on the date 
the comment period for the IRT ends. The last sentence of Sec.  
332.8(o)(9) [Sec.  230.98(o)(9)] states that district engineers shall 
make decisions within 30 days of the end of the comment period. The IRT 
must provide comments within 15 days of receiving documentation showing 
that appropriate milestones have been achieved, unless the district 
engineer determines that a site visit is necessary to approve credit 
releases. In this case, the IRT members have 15 days from the date of 
the site visit to provide their comments. The timing for site visits 
may be affected by a variety of factors, such as seasonal conditions 
that may impair the ability of the district engineer and the IRT 
members to evaluate the ecological conditions at the mitigation bank 
site or the in-lieu fee project site. We have revised Sec.  332.8(o)(9) 
[Sec.  230.98(o)(9)] to require district engineers to schedule site 
visits as soon as it is practicable to do so. The need to conduct site 
visits to evaluate requests for credit releases is at the discretion of 
the district engineer. The rule allows a total of 45 days for the 
district engineer to make a decision after distributing documentation 
to the IRT, or after the site visit, whichever is later. We believe 
this is a reasonable time frame that appropriately balances the need of 
the project sponsor for timely credit releases with the need to ensure 
that performance based milestones have indeed been met before credits 
are released.
    Two commenters said that credits should not be released from a 
mitigation bank until it is functioning in a manner that replaces the 
functions and values of the impacted aquatic resource. One commenter 
said that limiting the time and availability of releases of credits 
significantly diminishes the value of the mitigation bank and provides 
significant disincentives to investing in mitigation banks. One 
commenter suggested that, if projected mitigation credits are released 
before a performance milestone is reached, the purchaser of the credits 
should agree to assume responsibility for providing the compensatory 
mitigation, in the event of a default by the sponsor of the mitigation 
bank.
    As stated in Sec.  332.8(o)(8) [Sec.  230.98(o)(8)], credit 
releases are to be tied to performance based milestones, and a 
significant share of credits should not be released until the 
ecological performance standards are fully achieved. Linking credit 
release approval to the functions and values of the aquatic resources 
impacted by activities authorized by DA permits is impractical to 
implement. Credit releases must be tied to achievement of the 
performance based milestones of a mitigation bank site or an in-lieu 
fee program site. The number and type of credits that a permittee is 
required to secure from a mitigation bank or in-lieu fee program 
sponsor is to be determined by the district engineer at the time of 
permit issuance, after considering the functions that will be lost as a 
result of the permitted activity.
    The responsibility for providing the required compensatory 
mitigation is transferred from the permittee to the third-party 
mitigation sponsor after the permittee takes the necessary steps to 
secure those credits and the district engineer has received the 
appropriate documentation in accordance with Sec.  332.3(l) [Sec.  
290.93(l)]. If the mitigation bank or in-lieu fee project does not 
achieve its performance milestones or standards, the district engineer 
will take appropriate action, which may include suspending credit sales 
or terminating the instrument (see Sec.  332.8(o)(10) [Sec.  
230.98(o)(10)]).
    Adjustments to credit totals and release schedules. In Sec.  
332.8(k)(9)(i) [Sec.  230.98(k)(9)(i)] of the proposed rule, we had a 
provision that would have allowed a sponsor to submit documentation to 
the district engineer to request adjustments to credit totals and 
credit release schedules for mitigation banks that develop aquatic 
resource functions substantially in excess of the credit totals and 
credit release schedules specified in the original approved instrument.
    Two commenters objected to this proposed provision, stating that it 
could create an incentive for setting low performance standards and 
result in credits from the same acreage being sold as compensatory 
mitigation for more than one project. Two commenters did not agree that 
there could be a reasonable circumstance in which ``excess'' credits 
could be generated by a mitigation bank. According to one commenter, 
this provision would be difficult to apply fairly since the assessment 
of whether a compensatory mitigation project site has merely met its 
anticipated aquatic functions or substantially exceeded them could be 
quite contentious and subjective. Two commenters recommended that 
``acres and linear feet'' not ``functions'' should be the basis of 
credit adjustments because most areas of the country have not developed 
function assessment methodologies. One commenter said that an 
administrative appeals process should be available for any adjustments 
of credits.
    In response to these comments, and after considering the potential 
difficulties in implementation, we have removed this provision from the 
final rule. In general, the performance

[[Page 19663]]

standards for a mitigation bank or in-lieu fee project should reflect 
high functioning resources. Thus, it is unlikely that the functional 
lift provided at a site will ``exceed'' what is required to meet 
performance standards. The agencies agree that trying to identify 
``excess'' functional lift would be contentious and potentially 
arbitrary. If a mitigation bank site or an in-lieu fee project site 
results in substantially more acres or linear feet of established, 
enhanced, restored or preserved aquatic resource than was originally 
anticipated when the mitigation plan and associated credit release 
schedule were approved, the sponsor can request a modification in 
accordance with the procedures at Sec.  332.8(g) [Sec.  230.98(g)]. As 
discussed elsewhere in this preamble, we have not provided an 
administrative appeal process for third-party mitigation activities.
    (o)(10) Suspension and termination. Two commenters said that the 
district engineer should not suspend credit sales for credits already 
released. One commenter stated that if a mitigation bank is not meeting 
performance standards or is not in compliance with monitoring 
requirements, reduction or suspension of credits should be a mandatory 
penalty, to provide an incentive for mitigation bank sponsors to 
monitor their sites.
    We have modified the proposed Sec.  332.8(k)(9)(ii) [Sec.  
230.98(k)(9)(ii)] so that it applies to mitigation banks and in-lieu 
fee programs. We have also amended this paragraph to state that the 
district engineer will take appropriate action if the mitigation bank 
or in-lieu fee program is not meeting performance standards or 
complying with the terms of its instrument. Appropriate action may 
include suspending credit sales, adaptive management, decreasing 
available credits, utilizing financial assurances, or terminating the 
instrument.
    Except for advance credits for in-lieu fee programs, credit 
releases should not occur unless the mitigation bank or in-lieu fee 
project is meeting the applicable milestones specified in the credit 
release schedule. If those milestones are not being satisfied, the 
credits do not become available for fulfilling the compensatory 
mitigation requirements for DA permits. In such cases, adaptive 
management or other measures may be required to achieve the performance 
that will result in a credit release. The district engineer needs some 
flexibility to determine the appropriate response when performance 
standards are not being met on schedule. In some cases, a little more 
time may be adequate, in other cases more active adaptive management 
may be needed. District engineers will take appropriate action to 
ensure compliance with monitoring requirements, which, unlike 
ecological performance standards, are under the full control of the 
project sponsor. We believe that the provisions at Sec.  332.8(o)(10) 
[Sec.  230.98(o)(10)] contain appropriate incentives to ensure 
performance of third-party mitigation and associated requirements 
(e.g., monitoring).
    (p) Accounting procedures. To help clarify the requirements for 
tracking credit production and credit transactions among sponsors and 
permittees, we have added a new paragraph to this section. Section 
332.8(p)(1) [Sec.  230.98(p)(1)] contains the requirements that were in 
Sec.  332.8(l)(1) [Sec.  230.98(l)(1)] of the proposed rule. It 
requires mitigation bank sponsors to establish and maintain ledgers to 
account for all credit transactions. As each approved credit 
transaction occurs, the sponsor must notify the district engineer. This 
will help ensure that a mitigation bank credit is not sold or 
transferred to more than one permittee.
    Since this rule includes in-lieu fee programs, we have added Sec.  
332.8(p)(2) [Sec.  230.98(p)(2)] to require in-lieu fee program 
sponsors to establish and maintain annual report ledgers, as well as 
individual ledgers for tracking released credits provided by in-lieu 
fee projects. Annual report ledgers must be done in accordance with the 
requirements for in-lieu fee program accounts at Sec.  332.8(i)(3) 
[Sec.  230.98(i)(3)].
    (q) Reporting. (1) Ledger account. Two commenters requested that 
the rule clarify: (1) The information included in the annual report 
compared to the information included in the updated ledger, and (2) the 
role of the IRT in reviewing the annual report. One commenter suggested 
that the ledger account include a description of the type and location 
of wetlands filled for all credit transactions. One commenter said that 
ledger accounts should be standardized for easy comparison across 
mitigation banks.
    To assist in the accounting procedures required by Sec.  332.8(p) 
[Sec.  230.98(p)], Sec.  332.8(q)(1) [Sec.  230.98(q)(1)] describes the 
information required for ledger reports. Ledger reports must show the 
beginning and ending balances of available credits and permitted 
impacts (i.e., debits) for each resource type, all credit additions and 
subtractions, and other changes in credit availability, such as the 
release of additional credits or the suspension of credit sales. 
Members of an IRT can review ledger reports, and if they have concerns 
over the use of credits, they may invoke the procedures in Sec.  
332.8(s) [Sec.  230.98(s)]. This rule addresses the minimum 
requirements for ledgers. District engineers can develop ledger 
templates for use in their districts.
    (q)(2) Monitoring reports. Three commenters stated that the rule 
should require annual monitoring reports. One commenter believed that 
monitoring reports for mitigation banks should be required at least 
after one, three, and five years. Several commenters suggested that 
monitoring reports should be made available for public review. Other 
commenters stated the need for built-in, agreed-upon enforcement 
penalties for failure to submit accurate, timely, and complete reports 
as required by the plan and the permit. One commenter asked for 
clarification for the actions taken in the event of a bankruptcy. One 
commenter supported the standardization of monitoring reports, 
including attachments of the raw data so that results can be verified, 
or more easily checked in the field.
    Monitoring requirements, including the frequency for providing 
monitoring reports to the district engineer and the IRT, will be 
determined on a case-by-case basis and specified in either the 
instrument or approved mitigation plans. As stated in Sec.  332.6(c)(3) 
[Sec.  230.96(c)(3)], monitoring reports must be provided to interested 
agencies and the public upon request. Failure to submit required 
monitoring reports may result in suspension of credit sales or 
termination of the instrument (see Sec.  332.8(o)(10) [Sec.  
230.98(o)(10)]). The required content of monitoring reports for 
mitigation banks and in-lieu fee projects will be determined by 
district engineers, in consultation with the IRTs. Monitoring report 
templates can be developed by district engineers, to provide a standard 
format for those documents.
    (q)(3) Financial assurance and long-term management funding report. 
To improve the oversight of financial assurances and long-term 
management funding, we have added a provision to this rule that allows 
district engineers to require sponsors to provide annual reports 
showing balances of accounts for financial assurances and long-term 
management. These reports should also document the status of financial 
assurances, including when they might expire.
    (r) Use of credits. Two commenters recommended that the rule 
include language clarifying that credits that are withdrawn from a 
mitigation bank, but are not used because the permitted impacts did not 
occur, may be reinstated into the mitigation bank. One

[[Page 19664]]

commenter did not agree that any authorized activity should be eligible 
to use a mitigation bank to compensate for unavoidable impacts to 
aquatic resources. One commenter said that selling mitigation credits 
by wetland type does not provide any additional environmental benefit 
and will lead to confusion.
    We have revised this paragraph to clarify that it is the district 
engineer's decision whether to allow the use of credits from mitigation 
banks or in-lieu fee programs to provide compensatory mitigation for a 
particular activity authorized by a DA permit. If a permittee secures 
third-party credits from a sponsor, but decides not to proceed with the 
authorized work, he or she should notify the district engineer. It is 
at the sponsor's discretion whether to buy back any unused credits. Any 
such transactions should be documented in the ledger reports required 
by Sec.  332.8(q)(1) [Sec.  230.98(q)(1)]. Categorizing credits by 
aquatic resource type helps account for in-kind mitigation versus out-
of-kind mitigation. Other metrics can also be used to track credit 
types. The instrument should specify how credits are to be categorized 
for accounting purposes for a mitigation bank or in-lieu fee program.
    (s) IRT concerns with use of credits. We have modified this 
paragraph to include in-lieu fee programs. We have added a sentence to 
the end of this paragraph to stipulate that nothing in these 
regulations governing mitigation banks and in-lieu programs limits the 
authorities designated to IRT agencies under existing statutes or 
regulations.
    (t) Site protection. One commenter stated that the rule should not 
require aquatic resources replaced by the mitigation bank to be 
afforded long-term protection through ``real estate instruments.'' 
Another commenter said that all compensatory mitigation projects that 
require a real property protection instrument should also require a 
long-term funding mechanism to ensure compliance monitoring of the 
long-term protection instrument.
    The goal of the rule is to ensure permanent protection of all 
compensatory mitigation project sites. Specifically the rule states 
that the aquatic habitats, riparian areas, buffers, and uplands that 
comprise the overall compensatory mitigation project must be provided 
long-term protection through real estate instruments or other available 
mechanisms. As stated in the rule, any provisions necessary for long-
term management, including compliance monitoring, must be addressed in 
the original permit or instrument.
    We added this section to the final rule to clarify that real estate 
instruments, management plans, or other long-term protection mechanisms 
used for long-term protection must be finalized before any mitigation 
bank credits can be released. For in-lieu fee programs, real estate 
instruments, management plans, or other long-term protection mechanisms 
used for long-term protection must become finalized before any credits 
can be released for individual projects and used to fulfill advance 
credits or sold to permittees.
    (u) Long-term management. One commenter noted that many long-term 
management organizations will not commit to managing a compensatory 
mitigation site until the site is well established, which may be five 
years after the instrument is signed. Therefore, the party responsible 
for the long-term management may not be known at the time the 
instrument is approved. This commenter said that the rule should 
include a sentence that allows for flexibility in when this party is 
identified.
    Section 332.8(u)(2) [Sec.  230.98(u)(2)] states that the instrument 
may contain provisions allowing the sponsor to transfer long-term 
management responsibilities to another party, such as a public agency, 
non-governmental organization, or private land manager, with approval 
from the district engineer. Therefore, this rule provides the 
flexibility to change the party responsible for the required long-term 
management.
    In Sec.  332.8(u)(1) [Sec.  230.98(u)(1)] we have added language 
clarifying that for umbrella mitigation banks and in-lieu fee programs, 
the legal mechanism and the party responsible for long-term management 
of the compensatory mitigation project site must be documented in the 
approved mitigation plans. We have also added a sentence to the end of 
this paragraph to state that the long-term management plan should 
include a description of long-term management needs and identify the 
funding mechanism that will be used to meet those needs.
    We have added Sec.  332.8(u)(3) [Sec.  230.98(u)(3)], which 
stipulates that funding mechanisms for long-term management must be 
described in the instrument or approved mitigation plan. Section 
332.8(u)(4) [Sec.  230.98(u)(4)] addresses the acquisition and 
protection of water rights. For umbrella mitigation banks and in-lieu 
fee projects, the acquisition and protection of water rights is to be 
documented in the approved mitigation plans.
    (v) Grandfathering of existing instruments. Two commenters 
supported the proposed grandfathering for existing mitigation banks. 
Four commenters, however, said that the rule should provide a schedule 
whereby all existing mitigation banks will be brought into compliance 
with the new guidelines. According to one commenter, five years may be 
too short a time period for in-lieu fee programs to effectively 
transition to a mitigation bank. Another commenter said that the 
timeline is too restrictive and requests that it be extended.
    For mitigation banks, Sec.  332.8(v)(1) [Sec.  230.98(v)(1)] states 
that mitigation banks approved before July 9, 2008 may continue to 
operate under the terms of their existing instruments. However, any 
modification of that instrument must be consistent with the terms of 
this part. Such modifications include the expansion of an existing 
mitigation bank site or the addition of another type of credits to a 
mitigation bank.
    For in-lieu fee programs, Sec.  332.8(v)(2) [Sec.  230.98(v)(2)] 
requires that all in-lieu fee programs approved on or after July 9, 
2008 must meet the requirements of this part. For in-lieu fee programs 
operating under instruments approved before July 9, 2008, those 
programs may continue to operate under their instruments for two years 
after the effective date of this rule. The purpose of the 
grandfathering period is to allow time for the in-lieu fee program to 
conform its instrument to the requirements of today's rule. The 
district engineer may, in consultation with the IRT, extend the 
grandfathering period by up to an additional three years where there is 
good cause, and the in-lieu fee program is providing appropriate 
compensatory mitigation in a timely manner. An example of good cause 
would be an extension to allow an existing in-lieu fee program that 
supports a programmatic general permit or a regional general permit to 
continue to operate until that general permit expires. We have also 
added a provision allowing a project constructed under the terms of a 
previous instrument to continue operating under those terms 
indefinitely, provided the district engineer determines that the 
project is providing appropriate mitigation substantially consistent 
with the terms of this part. This provision is parallel to the 
grandfathering allowed for existing mitigation banks. The agencies see 
no value in requiring the terms for a previously constructed in-lieu 
project to be revised in this situation.
Proposed Elimination of In-Lieu Fee Programs
    Many commenters, including the representatives of 29 states, stated 
that

[[Page 19665]]

in-lieu fee programs should not be eliminated. A number of commenters 
said that elimination of in-lieu fee programs would decrease the number 
of mitigation options and thus lead to less compensatory mitigation. 
Many commenters stated that in certain areas, especially in rural and 
coastal regions, the West, and Alaska, there are few mitigation banks 
and little incentive to establish mitigation banks. In these areas, in-
lieu fee programs are the only available option for compensatory 
mitigation. Many commenters said that in-lieu fee programs offer more 
flexibility in site selection and can target specific resources, 
enhancing functions that are outside of a real estate boundary. One 
commenter also noted that if compensatory mitigation is to be based on 
a watershed approach, in-lieu fee programs will always be needed in 
watersheds that do not have mitigation banks. Several commenters said 
that the under-performance of many current in-lieu fee programs is the 
result of the structure of existing policies rather than the 
compensatory mitigation mechanism, and that these problems could be 
alleviated by making specific and targeted improvements and 
establishing and enforcing consistent program standards. Some 
commenters stated that by eliminating in-lieu fee programs, the 
proposed rule is inappropriately promoting for-profit mitigation 
banking. Instead of eliminating in-lieu fee programs, these commenters 
said that equivalent standards should be established that are based on 
ensuring successful and sustainable aquatic resource functions, not 
economic viability. Five commenters suggested that the rule stipulate 
that where the service areas of an in-lieu fee program and a mitigation 
bank overlap, the mitigation bank should have preference as a credit 
provider.
    After carefully considering the comments received in response to 
the proposed rule, including the responses to the questions we posed in 
the preamble to the proposal, we have retained in-lieu fee programs as 
a separate mechanism for providing compensatory mitigation for DA 
permits. Several commenters provided suggested regulations for in-lieu 
fee programs, and we have evaluated that language as we developed this 
final rule. Where the in-lieu fee program regulations differ from the 
rules for mitigation banks, we believe we have adopted standards and 
criteria that will result in successful in-lieu fee programs that will 
provide compensatory mitigation in a timely manner, with a high level 
of accountability. We also recognize that in-lieu fee programs can 
actively support a watershed approach to compensatory mitigation, and 
can help advance goals for protecting and restoring aquatic resources 
within watersheds, especially in areas where there are no mitigation 
banks. To further this goal, we have added a requirement for in-lieu 
fee programs to develop a compensation planning framework as part of 
their instrument that identifies watershed needs and priorities and 
explains how the in-lieu fee program will target its mitigation 
activities to those needs and priorities. In Sec.  332.3(b) [Sec.  
230.93(b)], we have established a hierarchy for district engineers to 
consider compensatory mitigation options, with a preference for 
mitigation bank credits because those credits are usually more 
developed at the time the impacts to waters of the United States 
authorized by the DA permit are expected to occur.
    Other commenters supported the elimination of in-lieu fee programs 
as proposed in the rule. Several commenters said that in-lieu fee 
arrangements should not have different standards than mitigation banks 
and permittee-responsible mitigation. One commenter suggested that 
mitigation providers currently operating under in-lieu fee arrangements 
should be required to submit applications to become mitigation banks 
within one year of the final rule. Those in-lieu fee programs that do 
not submit a proposal on time could no longer accept fees; those that 
do submit a proposal could continue to operate until two years after 
the promulgation of the final rule. Some commenters also noted that, 
unlike in-lieu fee programs, mitigation banks are self-implementing and 
have a financial incentive to perform. One commenter stated that 
mitigation banks are more suitable to handle compensatory mitigation 
needs and have a more sufficient mechanism to ensure accountability and 
adequate financial assurances and measurable performance standards. 
Others said that the quality of land used in in-lieu fee programs is 
poor and that the suspension of such programs would improve the 
performance and accountability of the mitigation program. Some 
commenters stated that in-lieu fee programs are not adequately 
capitalized to complete meaningful projects and must use funds for 
administrative and operations costs. Another commenter stated that cost 
estimates for in-lieu fee programs are almost always too conservative 
and seldom cover additional expenses incurred in the administration of 
the in-lieu fee program, maintenance, and management of aquatic 
resources, or correction of failures.
    After evaluating the comments received in response to the proposed 
rule, we have determined that it is not appropriate to require in-lieu 
fee programs to be modified to comply with exactly the same standards 
as mitigation banks. The fundamental difference between mitigation 
banks and in-lieu fee programs is timing, and the difference in timing 
is due to the need for in-lieu fee programs to accumulate funds before 
they can secure sites, design and plan aquatic resource restoration, 
establishment, enhancement, and/or preservation activities, and 
implement those activities. Unlike commercial mitigation bank sponsors, 
in-lieu fee program sponsors usually do not have funds available to 
secure and develop prospective compensatory mitigation projects. 
Because mitigation bank projects are usually further along in 
implementation than in-lieu fee programs or permittee-responsible 
mitigation, we have established a preference for the use of mitigation 
bank credits at Sec.  332.3(b)(2) [Sec.  230.98(b)(2)]. However, in-
lieu fee programs can provide other benefits that we believe justify 
allowing them to operate under slightly different requirements. In 
particular, they can perform more thorough watershed planning than is 
often done by banks, and may be able to better target their activities 
to watershed needs and priorities. There is no basis for the assertion 
that land used for in-lieu fee projects is of poor quality. There are 
successful in-lieu fee programs operating in different areas of the 
country, and we have looked at how those programs are structured when 
writing this final rule. To provide greater accountability in the use 
of funds collected in advance of project approval and construction, we 
have added a provision requiring in-lieu fee programs to segregate 
funds collected from permittees in a program account, with provisions 
in the instrument that will allow the district engineer to redirect 
those funds to other mitigation activities if the program does not 
provide the required mitigation in a timely manner. This rule 
acknowledges that there are administrative costs associated with 
operating in-lieu fee programs, and a small percentage of fees 
collected from permittees (to be determined by the district engineer 
and specified in the instrument) can be used to defray those 
administrative costs.
    Commenters suggested various time frames for the proposed phase-out 
of in-lieu fee programs: One year, two years,

[[Page 19666]]

three years, and five years. One commenter said current in-lieu fee 
program instruments should be allowed to continue as long as is 
necessary to fully fund already established and approved projects. 
Another commenter stated that stream in-lieu fee programs should take 
longer to phase out. Another commenter proposed that the phase-out 
period include a proportional reduction of activity of in-lieu fee 
programs on the basis of the percentage of money collected as the time 
nears for the program to end.
    Section 332.8(v)(2) [Sec.  230.98(v)(2)] addresses the transition 
for current in-lieu fee programs to the requirements in this rule. It 
provides 2 years, with a possible extension of up to 3 additional 
years, for in-lieu fee programs to obtain an approved instrument that 
meets the requirements of this rule. It also allows projects already 
constructed under the terms of a prior instrument to continue operating 
under those terms, provided the project is providing appropriate 
mitigation that is substantially consistent with the requirements of 
the rule. We are retaining in-lieu fee programs, so Sec.  332.9 [Sec.  
230.99] has not been included in this final rule.
    One commenter proposed that the rule include provisions requiring 
data collection on the part of in-lieu fee programs so regulators can 
determine if these programs are functioning in an equitable manner.
    The rule significantly expands the tracking and reporting 
requirements for in-lieu fee programs in order to improve in-lieu fee 
program performance and accountability (see Sec.  332.8(i) [Sec.  
230.98(i)]).
EPA Regulations at 40 CFR Part 230

40 CFR 230.12 Findings of Compliance or Non-Compliance With the 
Restrictions on Discharge Referencing New Subpart J

    We received no comments, and therefore this provision is adopted as 
proposed.

40 CFR Part 230 Subpart H--Actions To Minimize Adverse Effects

    We received no comments, and therefore this provision is adopted as 
proposed.

40 CFR 230.75 Actions Affecting Plant and Animal Populations, 
Conforming Changes Referencing New Subpart J

    We received no comments, and therefore this provision is adopted as 
proposed.
Comments on Administrative Requirements
    One commenter stated that if the rule adopts a broad definition of 
watershed plan, it would allow guidance documents that may not have 
been through a regulatory review process to become federal permit 
requirements. The commenter believes that this would violate the 
Administrative Procedure Act (APA).
    Watershed plans prepared for the purpose of implementing a 
watershed approach to compensatory mitigation are not a federal permit 
requirement, either because of this rule, or through special conditions 
of DA permits. The final rule states that district engineers will use 
the watershed approach to guide compensatory mitigation decisions, to 
the extent appropriate and practicable. Mitigation decisions are based 
on a number of factors in addition to the watershed approach, and the 
specific compensatory mitigation option required by the district 
engineer will be determined in accordance with the requirements of this 
part and other applicable regulations, and will be included as part of 
the special conditions of the DA permit. Any watershed plan that was 
used to help guide the selection, however, is not a permit condition.
Environmental Assessment/Regulatory Analysis
    Two commenters said that the draft Environmental Assessment (EA) 
and Finding of No Significant Impact (FONSI) prepared for this rule 
fail to assess the potentially significant adverse environmental 
effects of the new rule, and fail to consider a reasonable range of 
alternatives. One commenter requested that an environmental impact 
statement be prepared on this proposed rule because it will have a 
significant adverse impact on the environment by allowing more filling 
of existing wetlands. Two other commenters requested that an 
environmental impact statement be prepared to address the long-term 
cumulative loss of existing wetlands due to the Corps' regulatory 
program and its reliance on mitigation banking to compensate for 
wetland losses from non-water dependent activities. However, one 
commenter stated that the implementation of the rule as proposed does 
not have environmental impacts, and the draft environmental assessment 
seems to stretch to find changes in the physical and human environment 
that may result from implementation of the proposed rule. This 
commenter also said that the draft environmental assessment relies too 
heavily on the watershed approach as the factor that may improve the 
performance of wetland mitigation. It would be more accurate to 
identify the ``level playing field'' aspect of the proposed rule as the 
key change from current practices. Another commenter noted that the 
draft environmental assessment for the proposed rule does not include 
any data on the number of stream impacts permitted or the amount of 
stream compensatory mitigation required.
    We believe that the environmental assessment addresses a sufficient 
number of alternatives. This rule is intended to improve the 
performance of compensatory mitigation required for DA permits, which 
will reduce cumulative wetland losses. Since this rule was developed by 
examining existing practices, and adopting measures to improve those 
practices, there are unlikely to be substantive changes to the physical 
and human environment, other than improved performance of aquatic 
resource restoration, establishment, enhancement, and preservation 
activities. By developing, to the extent practicable, equivalent 
standards for permittee-responsible mitigation, mitigation banks, and 
in-lieu fee programs, and using a watershed approach, we believe that 
this rule will improve performance. The Corps has not collected data on 
stream impacts and compensatory mitigation, so we did not have such 
data to use in the environmental assessment.
E.O. 13132--Federalism
    One commenter stated that the proposed rule has federalism impacts 
that were not addressed in the preamble, as it would seriously limit 
state authority regarding mitigation.
    We do not agree that the final rule limits any state's authority 
regarding compensatory mitigation. States may continue to apply any 
compensatory mitigation requirements for state regulatory programs that 
they determine to be appropriate. This rule establishes requirements 
for permittees who must perform compensatory mitigation for DA permits, 
including mitigation banks and in-lieu fee programs. All section 404 
permits, including their mitigation requirements, remain subject to 
state review and approval through the water quality certification 
required under section 401 of the CWA.
Unfunded Mandates Reform Act
    One commenter said that the cost of developing a comprehensive 
watershed assessment and plan is much higher than described in the 
draft

[[Page 19667]]

environmental assessment. This commenter noted that the rule increases 
flexibility because of the increased number of compensatory mitigation 
opportunities that are identified, but also increases the costs because 
of the increased number of sites that must be evaluated to see if they 
will satisfy the goals and technical parameters for successful 
compensatory mitigation. This commenter also recommended that this rule 
be re-evaluated for its compliance with the Unfunded Mandates Reform 
Act. Another commenter supported additional funding for agencies that 
will be members of the Interagency Review Team (IRT).
    This rule does not require the development of watershed plans. If 
there is an existing watershed plan, the district engineer may 
determine that it is appropriate for use in the watershed approach. 
Requiring more careful consideration of potential compensatory 
mitigation sites does not constitute an unfunded mandate. Instead, it 
is merely a means to achieve compliance with permit conditions and 
third-party mitigation instruments. Although this rule encourages the 
participation of other agencies on IRTs, such participation is not 
required, and therefore does not constitute an unfunded mandate.
E.O. 13211--Actions Concerning Regulations That Significantly Affect 
Energy Supply, Distribution, or Use
    One commenter stated that it is not clear that the proposed 
regulations do not have the potential to have an ``adverse effect on 
energy supply, distribution, or use.'' The commenter believes that this 
particular rule will result in additional consultation and reporting 
obligations for the applicant, as well as an additional burden to an 
already strained Corps review staff and resources. Another commenter 
argued that the proposed rule could significantly impact the viability 
of energy exploration and development in Alaska by increasing costs of 
compensatory mitigation, requiring specific kinds of financial 
assurances, and in general removing the flexibility needed to work 
effectively in the state.
    The final rule does not significantly alter permitting processes 
for energy projects. It has been developed from existing practices, and 
does not change the circumstances under which compensatory mitigation 
is required. This rule provides requirements to help ensure that the 
required compensatory mitigation meets its objectives and successfully 
replaces aquatic resource functions that are lost as a result of the 
permitted impacts. District engineers still have the flexibility to 
tailor compensatory mitigation requirements to permit-specific 
circumstances.
National Technology Transfer and Advancement Act
    One commenter identified a typographical error in the preamble 
description of the National Technology Transfer and Advancement Act, 
which we have corrected.

VII. Administrative Requirements

Plain Language

    In compliance with the principles in the President's Memorandum of 
June 1, 1998 (63 FR 31855), regarding plain language, this preamble is 
written using plain language. The use of ``we'' in this notice refers 
to the Corps and EPA. We have also used the active voice, short 
sentences, and common everyday terms except for necessary technical 
terms.

Paperwork Reduction Act

    This action will impose a new information collection burden under 
the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Applicants for Clean Water Act section 404 permits will be required, 
under 33 CFR 325.1(d)(7) of the final rule, to submit a statement 
explaining how impacts associated with the proposed activity are to be 
avoided and minimized. This statement must also describe any proposed 
compensatory mitigation for impacts to waters of the United States, or 
include an explanation of why compensatory mitigation should not be 
required. In addition, in-lieu fee program sponsors must provide 
additional information as part of their application for an instrument, 
beyond what was previously required. Specifically, they must include a 
compensation planning framework, and information describing their 
program account. Both in-lieu fee programs and mitigation banks are 
also subject to new annual reporting requirements, including a ledger 
report and, at the discretion of the district engineer, reporting on 
financial assurances and long-term management. Some other reporting 
requirements, such as monitoring reports and most of the information 
required to apply for an instrument, are substantially the same as 
existing requirements.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
For the Corps Regulatory Program under section 10 of the Rivers and 
Harbors Act of 1899, section 404 of the Clean Water Act, and section 
103 of the Marine Protection, Research and Sanctuaries Act of 1972, the 
current OMB approval number for information collection requirements is 
maintained by the Corps of Engineers (OMB approval number 0710-0003, 
which expires on April 30, 2008). As a result of the new information 
collection requirement in the final rule, we will modify our standard 
permit application form in accordance with the requirements of the 
Paperwork Reduction Act. The Corps is currently preparing a revised ICR 
that includes the new requirements in this final rule, along with an 
estimate of their associated burden. The new burden associated with 
this rule includes the estimated number of hours needed to: (1) Prepare 
a compensation planning framework for a proposed in-lieu fee program, 
(2) provide a description of the in-lieu fee program account, (3) 
prepare annual reports required for mitigation banks and in-lieu fee 
programs, such as financial assurance and long-term management funding 
reports, and (4) provide annual monitoring reports for mitigation banks 
and in-lieu fee projects.
    We estimate that it will take approximately 80 hours for a 
prospective in-lieu fee sponsor to develop a compensation planning 
framework. A description of a proposed in-lieu fee program account will 
take approximately 12 hours to complete. We estimate that, over the 
next three years, there will be eight existing in-lieu fee programs per 
year that will convert to the requirements of this rule and two new in-
lieu fee programs proposed per year, resulting in an annual burden of 
920 hours to produce those documents. We estimate that an average of 8 
hours will be needed to produce an annual report for a mitigation bank 
or in-lieu fee program. To produce a monitoring report for a mitigation 
bank or in-lieu fee project, we estimate that 80 hours will be needed. 
We also estimate that there will be 391 existing mitigation banks, 25 
new mitigation banks, 58 existing in-lieu fee programs, and 2 new in-
lieu fee programs that would be required to produce annual reports and 
monitoring reports each year. Based on an estimate of the number of 
existing and new mitigation banks and in-lieu fee programs, we estimate 
that the annual burden for producing these annual reports and 
monitoring reports will be 42,000 hours.
    We are in the process of preparing a new information collection 
request that will include the information collection burden associated 
with the approval

[[Page 19668]]

and oversight of mitigation banks and in-lieu fee programs. These 
requirements to do not become effective until approved by OMB.

Executive Order 12866

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), we must 
determine whether the regulatory action is ``significant'' and 
therefore subject to review by OMB and the requirements of the 
Executive Order. The Executive Order defines ``significant regulatory 
action'' as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, we have determined 
that the final rule is a ``significant regulatory action'' and the 
draft was submitted to OMB for review.
    The regulatory analysis required by E.O. 12866 has been prepared 
for this final rule. The regulatory analysis is available on the 
internet at: http://www.usace.army.mil/inet/functions/cw/cecwo/reg/
citizen.htm. It is also available by contacting Headquarters, U.S. Army 
Corps of Engineers, Operations and Regulatory Community of Practice, 
441 G Street, NW., Washington, DC 20314-1000.

Executive Order 13132

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires the Corps to develop an accountable process to 
ensure ``meaningful and timely input by state and local officials in 
the development of regulatory policies that have Federalism 
implications.'' The final rule does not have Federalism implications. 
We do not believe that the final rule will have substantial direct 
effects on the states, on the relationship between the federal 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The final rule 
does not impose new substantive requirements. In addition, the final 
rule will not impose any additional substantive obligations on state or 
local governments. State and local governments that administer in-lieu 
fee programs to provide compensatory mitigation for impacts to wetlands 
and other aquatic resources can modify their in-lieu fee programs to 
conform with the requirements of this final rule. Therefore, Executive 
Order 13132 does not apply to this final rule. However, in the spirit 
of Executive Order 13132, we specifically requested comment from state 
and local officials on the proposed rule, and fully considered those 
comments when preparing this final rule.

Regulatory Flexibility Act, as Amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996, 5 U.S.C. 601 et seq.

    The Regulatory Flexibility Act generally requires an agency to 
prepare a regulatory flexibility analysis of any rule subject to 
notice-and-comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations and small governmental jurisdictions.
    For purposes of assessing the impacts of this final rule on small 
entities, a small entity is defined as: (1) A small business based on 
Small Business Administration size standards; (2) a small governmental 
jurisdiction that is a government of a city, county, town, school 
district, or special district with a population of less than 50,000; or 
(3) a small organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    The statutory basis for the final rule is section 314 of the 
National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-
136), which is discussed above. After considering the economic impacts 
of the final rule on small entities, we certify that this action will 
not have a significant impact on a substantial number of small 
entities. Small entities subject to the final rule include those small 
entities that need to obtain DA permits pursuant to section 404 of the 
Clean Water Act and section 10 of the Rivers and Harbors Act of 1899.
    This rulemaking will not significantly change compensatory 
mitigation requirements, or change the number of permitted activities 
that require compensatory mitigation. This rule further clarifies 
mitigation requirements established by Corps and EPA, and is generally 
consistent with current agency practices. Some provisions of the rule 
may result in increases in compliance costs, other provisions may 
result in decreases in compliance costs, but most of the provisions in 
the rule are expected to result in little or no changes in compliance 
costs. To the extent that it promotes mitigation banking and in-lieu 
fee programs, the rule may lower compensatory mitigation costs for 
small projects by making credits more widely available. For a more 
detailed analysis of potential economic impacts of this rule, please 
see the regulatory analysis in the Environmental Assessment prepared 
for the final rule.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
agencies generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``federal 
mandates'' that may result in expenditures to state, local, and tribal 
governments, in the aggregate, or to the private sector, of $100 
million or more in any one year. Before promulgating a rule for which a 
written statement is needed, section 205 of the UMRA generally requires 
the agencies to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, most cost-effective, or least 
burdensome alternative that achieves the objectives of the rule. The 
provisions of section 205 do not apply when they are inconsistent with 
applicable law. Moreover, section 205 allows an agency to adopt an 
alternative other than the least costly, most cost-effective, or least 
burdensome alternative if the agency publishes with the final rule an 
explanation why that alternative was not adopted. Before an agency 
establishes any regulatory requirements that may significantly or 
uniquely affect small governments, including tribal governments, it 
must have developed, under section 203 of the UMRA, a small government 
agency plan. The plan must provide for notifying potentially affected 
small governments, enabling officials of affected small governments to 
have meaningful and timely input in the development of regulatory 
proposals with significant federal intergovernmental mandates, and 
informing, educating, and advising

[[Page 19669]]

small governments on compliance with the regulatory requirements.
    The final rule is generally consistent with current agency practice 
and we have therefore determined that it does not contain a federal 
mandate that may result in expenditures of $100 million or more for 
state, local, and tribal governments, in the aggregate, or the private 
sector in any one year. Therefore, the final rule is not subject to the 
requirements of sections 202 and 205 of the UMRA. For the same reasons, 
we have determined that the final rule contains no regulatory 
requirements that might significantly or uniquely affect small 
governments. Therefore, the final rule is not subject to the 
requirements of section 203 of UMRA.

Executive Order 13045

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997), applies 
to any rule that: (1) Is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that we have reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, we must evaluate the environmental health or 
safety effects of the proposed rule on children, and explain why the 
regulation is preferable to other potentially effective and reasonably 
feasible alternatives.
    The final rule is not subject to this Executive Order because it is 
not economically significant as defined in Executive Order 12866. In 
addition, it does not concern an environmental or safety risk that we 
have reason to believe may have a disproportionate effect on children.

Executive Order 13175

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires agencies to develop an accountable process to ensure 
``meaningful and timely input by tribal officials in the development of 
regulatory policies that have tribal implications.'' The phrase 
``policies that have tribal implications'' is defined in the Executive 
Order to include regulations that have ``substantial direct effects on 
one or more Indian tribes, on the relationship between the federal 
government and the tribes, or on the distribution of power and 
responsibilities between the Federal government and Indian tribes.''
    The final rule does not have tribal implications. It is generally 
consistent with current agency practice and will not have substantial 
direct effects on tribal governments, on the relationship between the 
federal government and the tribes, or on the distribution of power and 
responsibilities between the federal government and tribes. Therefore, 
Executive Order 13175 does not apply to this final rule. However, in 
the spirit of Executive Order 13175, we specifically requested comment 
from tribal officials on the proposed rule, and have fully considered 
those comments when preparing the final rule.

Environmental Documentation

    The Corps has prepared a final Environmental Assessment (EA) and a 
Finding of No Significant Impact (FONSI) for the final rule. The final 
EA and the FONSI are available at: http://www.usace.army.mil/inet/
functions/cw/cecwo/reg/citizen.htm. It is also available by contacting 
Headquarters, U.S. Army Corps of Engineers, Operations and Regulatory 
Community of Practice, 441 G Street, NW., Washington, DC 20314-1000.

Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. We will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States.

Executive Order 12898

    Executive Order 12898 requires that, to the greatest extent 
practicable and permitted by law, each federal agency must make 
achieving environmental justice part of its mission. Executive Order 
12898 provides that each federal agency conduct its programs, policies, 
and activities that substantially affect human health or the 
environment in a manner that ensures that such programs, policies, and 
activities do not have the effect of excluding persons (including 
populations) from participation in, denying persons (including 
populations) the benefits of, or subjecting persons (including 
populations) to discrimination under such programs, policies, and 
activities because of their race, color, or national origin.
    The final rule is not expected to negatively impact any community, 
and therefore is not expected to cause any disproportionately high and 
adverse impacts to minority or low-income communities.

Executive Order 13211

    The final rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 
28355, May 22, 2001) because it is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy.

National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (NTTAA), Public Law No. 104-113, section 12(d), (15 U.S.C. 
272 note), directs us to use voluntary consensus standards in its 
regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g., materials specifications, test methods, 
sampling procedures, business practices) that are developed or adopted 
by voluntary consensus standards bodies. The NTTAA directs us to 
provide Congress, through the Office of Management and Budget (OMB), 
explanations when we decide not to use available and applicable 
voluntary consensus standards.
    This action does not require the use of any particular technical 
standards. To the extent that functional and condition assessment 
methods are used to assess impacts to aquatic resources and determine 
appropriate compensation, district engineers are encouraged to use 
voluntary consensus methods where available.

List of Subjects

33 CFR Part 325

    Administrative practice and procedure, Intergovernmental relations, 
Environmental protection, Navigation, Water pollution control, 
Waterways.

33 CFR Part 332

    Administrative practice and procedure, Intergovernmental relations, 
Navigation (water), Water pollution control, Water resources, 
Watersheds, Waterways.

40 CFR Part 230

    Environmental Protection, Water pollution control.

[[Page 19670]]

Corps of Engineers

33 CFR Chapter II

0
For the reasons stated in the preamble, the Corps amends 33 CFR chapter 
II as set forth below:

PART 325--PROCESSING OF DEPARTMENT OF THE ARMY PERMITS

0
1. The authority citation for part 325 continues to read as follows:

    Authority: 33 U.S.C. 401 et seq.; 33 U.S.C. 1344; 33 U.S.C. 
1413.


0
2. Amend Sec.  325.1 by redesignating paragraphs (d)(7), (d)(8), and 
(d)(9) as paragraphs (d)(8), (d)(9), and (d)(10), respectively, and 
adding new paragraph (d)(7) as follows:


Sec.  325.1  Applications for permits.

* * * * *
    (d) * * *
    (7) For activities involving discharges of dredged or fill material 
into waters of the United States, the application must include a 
statement describing how impacts to waters of the United States are to 
be avoided and minimized. The application must also include either a 
statement describing how impacts to waters of the United States are to 
be compensated for or a statement explaining why compensatory 
mitigation should not be required for the proposed impacts. (See Sec.  
332.4(b)(1) of this chapter.)
* * * * *

0
3. Add part 332 to read as follows:

PART 332--COMPENSATORY MITIGATION FOR LOSSES OF AQUATIC RESOURCES

Sec.
332.1 Purpose and general considerations.
332.2 Definitions.
332.3 General compensatory mitigation requirements.
332.4 Planning and documentation.
332.5 Ecological performance standards.
332.6 Monitoring.
332.7 Management.
332.8 Mitigation banks and in-lieu fee programs.

    Authority: 33 U.S.C. 401 et seq.; 33 U.S.C. 1344; and Pub. L. 
108-136.


Sec.  332.1  Purpose and general considerations.

    (a) Purpose. (1) The purpose of this part is to establish standards 
and criteria for the use of all types of compensatory mitigation, 
including on-site and off-site permittee-responsible mitigation, 
mitigation banks, and in-lieu fee mitigation to offset unavoidable 
impacts to waters of the United States authorized through the issuance 
of Department of the Army (DA) permits pursuant to section 404 of the 
Clean Water Act (33 U.S.C. 1344) and/or sections 9 or 10 of the Rivers 
and Harbors Act of 1899 (33 U.S.C. 401, 403). This part implements 
section 314(b) of the 2004 National Defense Authorization Act (Pub. L. 
108-136), which directs that the standards and criteria shall, to the 
maximum extent practicable, maximize available credits and 
opportunities for mitigation, provide for regional variations in 
wetland conditions, functions, and values, and apply equivalent 
standards and criteria to each type of compensatory mitigation. This 
part is intended to further clarify mitigation requirements established 
under U.S. Army Corps of Engineers (Corps) and U.S. Environmental 
Protection Agency (U.S. EPA) regulations at 33 CFR part 320 and 40 CFR 
part 230, respectively.
    (2) This part has been jointly developed by the Secretary of the 
Army, acting through the Chief of Engineers, and the Administrator of 
the Environmental Protection Agency. From time to time guidance on 
interpreting and implementing this part may be prepared jointly by U.S. 
EPA and the Corps at the national or regional level. No modifications 
to the basic application, meaning, or intent of this part will be made 
without further joint rulemaking by the Secretary of the Army, acting 
through the Chief of Engineers and the Administrator of the 
Environmental Protection Agency, pursuant to the Administrative 
Procedure Act (5 U.S.C. 551 et seq.).
    (b) Applicability. This part does not alter the regulations at 
Sec.  320.4(r) of this title, which address the general mitigation 
requirements for DA permits. In particular, it does not alter the 
circumstances under which compensatory mitigation is required or the 
definitions of ``waters of the United States'' or ``navigable waters of 
the United States,'' which are provided at parts 328 and 329 of this 
chapter, respectively. Use of resources as compensatory mitigation that 
are not otherwise subject to regulation under section 404 of the Clean 
Water Act and/or sections 9 or 10 of the Rivers and Harbors Act of 1899 
does not in and of itself make them subject to such regulation.
    (c) Sequencing. (1) Nothing in this section affects the requirement 
that all DA permits subject to section 404 of the Clean Water Act 
comply with applicable provisions of the Section 404(b)(1) Guidelines 
at 40 CFR part 230.
    (2) Pursuant to these requirements, the district engineer will 
issue an individual section 404 permit only upon a determination that 
the proposed discharge complies with applicable provisions of 40 CFR 
part 230, including those which require the permit applicant to take 
all appropriate and practicable steps to avoid and minimize adverse 
impacts to waters of the United States. Practicable means available and 
capable of being done after taking into consideration cost, existing 
technology, and logistics in light of overall project purposes. 
Compensatory mitigation for unavoidable impacts may be required to 
ensure that an activity requiring a section 404 permit complies with 
the Section 404(b)(1) Guidelines.
    (3) Compensatory mitigation for unavoidable impacts may be required 
to ensure that an activity requiring a section 404 permit complies with 
the Section 404(b)(1) Guidelines. During the 404(b)(1) Guidelines 
compliance analysis, the district engineer may determine that a DA 
permit for the proposed activity cannot be issued because of the lack 
of appropriate and practicable compensatory mitigation options.
    (d) Public interest. Compensatory mitigation may also be required 
to ensure that an activity requiring authorization under section 404 of 
the Clean Water Act and/or sections 9 or 10 of the Rivers and Harbors 
Act of 1899 is not contrary to the public interest.
    (e) Accounting for regional variations. Where appropriate, district 
engineers shall account for regional characteristics of aquatic 
resource types, functions and services when determining performance 
standards and monitoring requirements for compensatory mitigation 
projects.
    (f) Relationship to other guidance documents. (1) This part applies 
instead of the ``Federal Guidance for the Establishment, Use, and 
Operation of Mitigation Banks,'' which was issued on November 28, 1995, 
the ``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,'' which was issued on 
November 7, 2000, and Regulatory Guidance Letter 02-02, ``Guidance on 
Compensatory Mitigation Projects for Aquatic Resource Impacts Under the 
Corps Regulatory Program Pursuant to Section 404 of the Clean Water Act 
and Section 10 of the Rivers and Harbors Act of 1899'' which was issued 
on December 24, 2002. These guidance documents are no longer to be used 
as compensatory mitigation policy in the Corps Regulatory Program.
    (2) In addition, this part also applies instead of the provisions 
relating to the amount, type, and location of compensatory mitigation 
projects,

[[Page 19671]]

including the use of preservation, in the February 6, 1990, Memorandum 
of Agreement (MOA) between the Department of the Army and the 
Environmental Protection Agency on the Determination of Mitigation 
Under the Clean Water Act Section 404(b)(1) Guidelines. All other 
provisions of this MOA remain in effect.


Sec.  332.2  Definitions.

    For the purposes of this part, the following terms are defined:
    Adaptive management means the development of a management strategy 
that anticipates likely challenges associated with compensatory 
mitigation projects and provides for the implementation of actions to 
address those challenges, as well as unforeseen changes to those 
projects. It requires consideration of the risk, uncertainty, and 
dynamic nature of compensatory mitigation projects and guides 
modification of those projects to optimize performance. It includes the 
selection of appropriate measures that will ensure that the aquatic 
resource functions are provided and involves analysis of monitoring 
results to identify potential problems of a compensatory mitigation 
project and the identification and implementation of measures to 
rectify those problems.
    Advance credits means any credits of an approved in-lieu fee 
program that are available for sale prior to being fulfilled in 
accordance with an approved mitigation project plan. Advance credit 
sales require an approved in-lieu fee program instrument that meets all 
applicable requirements including a specific allocation of advance 
credits, by service area where applicable. The instrument must also 
contain a schedule for fulfillment of advance credit sales.
    Buffer means an upland, wetland, and/or riparian area that protects 
and/or enhances aquatic resource functions associated with wetlands, 
rivers, streams, lakes, marine, and estuarine systems from disturbances 
associated with adjacent land uses.
    Compensatory mitigation means the restoration (re-establishment or 
rehabilitation), establishment (creation), enhancement, and/or in 
certain circumstances preservation of aquatic resources for the 
purposes of offsetting unavoidable adverse impacts which remain after 
all appropriate and practicable avoidance and minimization has been 
achieved.
    Compensatory mitigation project means compensatory mitigation 
implemented by the permittee as a requirement of a DA permit (i.e., 
permittee-responsible mitigation), or by a mitigation bank or an in-
lieu fee program.
    Condition means the relative ability of an aquatic resource to 
support and maintain a community of organisms having a species 
composition, diversity, and functional organization comparable to 
reference aquatic resources in the region.
    Credit means a unit of measure (e.g., a functional or areal measure 
or other suitable metric) representing the accrual or attainment of 
aquatic functions at a compensatory mitigation site. The measure of 
aquatic functions is based on the resources restored, established, 
enhanced, or preserved.
    DA means Department of the Army.
    Days means calendar days.
    Debit means a unit of measure (e.g., a functional or areal measure 
or other suitable metric) representing the loss of aquatic functions at 
an impact or project site. The measure of aquatic functions is based on 
the resources impacted by the authorized activity.
    Enhancement means the manipulation of the physical, chemical, or 
biological characteristics of an aquatic resource to heighten, 
intensify, or improve a specific aquatic resource function(s). 
Enhancement results in the gain of selected aquatic resource 
function(s), but may also lead to a decline in other aquatic resource 
function(s). Enhancement does not result in a gain in aquatic resource 
area.
    Establishment (creation) means the manipulation of the physical, 
chemical, or biological characteristics present to develop an aquatic 
resource that did not previously exist at an upland site. Establishment 
results in a gain in aquatic resource area and functions.
    Fulfillment of advance credit sales of an in-lieu fee program means 
application of credits released in accordance with a credit release 
schedule in an approved mitigation project plan to satisfy the 
mitigation requirements represented by the advance credits. Only after 
any advance credit sales within a service area have been fulfilled 
through the application of released credits from an in-lieu fee project 
(in accordance with the credit release schedule for an approved 
mitigation project plan), may additional released credits from that 
project be sold or transferred to permittees. When advance credits are 
fulfilled, an equal number of new advance credits is restored to the 
program sponsor for sale or transfer to permit applicants.
    Functional capacity means the degree to which an area of aquatic 
resource performs a specific function.
    Functions means the physical, chemical, and biological processes 
that occur in ecosystems.
    Impact means adverse effect.
    In-kind means a resource of a similar structural and functional 
type to the impacted resource.
    In-lieu fee program means a program involving the restoration, 
establishment, enhancement, and/or preservation of aquatic resources 
through funds paid to a governmental or non-profit natural resources 
management entity to satisfy compensatory mitigation requirements for 
DA permits. Similar to a mitigation bank, an in-lieu fee program sells 
compensatory mitigation credits to permittees whose obligation to 
provide compensatory mitigation is then transferred to the in-lieu 
program sponsor. However, the rules governing the operation and use of 
in-lieu fee programs are somewhat different from the rules governing 
operation and use of mitigation banks. The operation and use of an in-
lieu fee program are governed by an in-lieu fee program instrument.
    In-lieu fee program instrument means the legal document for the 
establishment, operation, and use of an in-lieu fee program.
    Instrument means mitigation banking instrument or in-lieu fee 
program instrument.
    Interagency Review Team (IRT) means an interagency group of 
federal, tribal, state, and/or local regulatory and resource agency 
representatives that reviews documentation for, and advises the 
district engineer on, the establishment and management of a mitigation 
bank or an in-lieu fee program.
    Mitigation bank means a site, or suite of sites, where resources 
(e.g., wetlands, streams, riparian areas) are restored, established, 
enhanced, and/or preserved for the purpose of providing compensatory 
mitigation for impacts authorized by DA permits. In general, a 
mitigation bank sells compensatory mitigation credits to permittees 
whose obligation to provide compensatory mitigation is then transferred 
to the mitigation bank sponsor. The operation and use of a mitigation 
bank are governed by a mitigation banking instrument.
    Mitigation banking instrument means the legal document for the 
establishment, operation, and use of a mitigation bank.
    Off-site means an area that is neither located on the same parcel 
of land as the impact site, nor on a parcel of land contiguous to the 
parcel containing the impact site.
    On-site means an area located on the same parcel of land as the 
impact site,

[[Page 19672]]

or on a parcel of land contiguous to the impact site.
    Out-of-kind means a resource of a different structural and 
functional type from the impacted resource.
    Performance standards are observable or measurable physical 
(including hydrological), chemical and/or biological attributes that 
are used to determine if a compensatory mitigation project meets its 
objectives.
    Permittee-responsible mitigation means an aquatic resource 
restoration, establishment, enhancement, and/or preservation activity 
undertaken by the permittee (or an authorized agent or contractor) to 
provide compensatory mitigation for which the permittee retains full 
responsibility.
    Preservation means the removal of a threat to, or preventing the 
decline of, aquatic resources by an action in or near those aquatic 
resources. This term includes activities commonly associated with the 
protection and maintenance of aquatic resources through the 
implementation of appropriate legal and physical mechanisms. 
Preservation does not result in a gain of aquatic resource area or 
functions.
    Re-establishment means the manipulation of the physical, chemical, 
or biological characteristics of a site with the goal of returning 
natural/historic functions to a former aquatic resource. Re-
establishment results in rebuilding a former aquatic resource and 
results in a gain in aquatic resource area and functions.
    Reference aquatic resources are a set of aquatic resources that 
represent the full range of variability exhibited by a regional class 
of aquatic resources as a result of natural processes and anthropogenic 
disturbances.
    Rehabilitation means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of repairing 
natural/historic functions to a degraded aquatic resource. 
Rehabilitation results in a gain in aquatic resource function, but does 
not result in a gain in aquatic resource area.
    Release of credits means a determination by the district engineer, 
in consultation with the IRT, that credits associated with an approved 
mitigation plan are available for sale or transfer, or in the case of 
an in-lieu fee program, for fulfillment of advance credit sales. A 
proportion of projected credits for a specific mitigation bank or in-
lieu fee project may be released upon approval of the mitigation plan, 
with additional credits released as milestones specified in the credit 
release schedule are achieved.
    Restoration means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of returning 
natural/historic functions to a former or degraded aquatic resource. 
For the purpose of tracking net gains in aquatic resource area, 
restoration is divided into two categories: re-establishment and 
rehabilitation.
    Riparian areas are lands adjacent to streams, rivers, lakes, and 
estuarine-marine shorelines. Riparian areas provide a variety of 
ecological functions and services and help improve or maintain local 
water quality.
    Service area means the geographic area within which impacts can be 
mitigated at a specific mitigation bank or an in-lieu fee program, as 
designated in its instrument.
    Services mean the benefits that human populations receive from 
functions that occur in ecosystems.
    Sponsor means any public or private entity responsible for 
establishing, and in most circumstances, operating a mitigation bank or 
in-lieu fee program.
    Standard permit means a standard, individual permit issued under 
the authority of section 404 of the Clean Water Act and/or sections 9 
or 10 of the Rivers and Harbors Act of 1899.
    Temporal loss is the time lag between the loss of aquatic resource 
functions caused by the permitted impacts and the replacement of 
aquatic resource functions at the compensatory mitigation site. Higher 
compensation ratios may be required to compensate for temporal loss. 
When the compensatory mitigation project is initiated prior to, or 
concurrent with, the permitted impacts, the district engineer may 
determine that compensation for temporal loss is not necessary, unless 
the resource has a long development time.
    Watershed means a land area that drains to a common waterway, such 
as a stream, lake, estuary, wetland, or ultimately the ocean.
    Watershed approach means an analytical process for making 
compensatory mitigation decisions that support the sustainability or 
improvement of aquatic resources in a watershed. It involves 
consideration of watershed needs, and how locations and types of 
compensatory mitigation projects address those needs. A landscape 
perspective is used to identify the types and locations of compensatory 
mitigation projects that will benefit the watershed and offset losses 
of aquatic resource functions and services caused by activities 
authorized by DA permits. The watershed approach may involve 
consideration of landscape scale, historic and potential aquatic 
resource conditions, past and projected aquatic resource impacts in the 
watershed, and terrestrial connections between aquatic resources when 
determining compensatory mitigation requirements for DA permits.
    Watershed plan means a plan developed by federal, tribal, state, 
and/or local government agencies or appropriate non-governmental 
organizations, in consultation with relevant stakeholders, for the 
specific goal of aquatic resource restoration, establishment, 
enhancement, and preservation. A watershed plan addresses aquatic 
resource conditions in the watershed, multiple stakeholder interests, 
and land uses. Watershed plans may also identify priority sites for 
aquatic resource restoration and protection. Examples of watershed 
plans include special area management plans, advance identification 
programs, and wetland management plans.


Sec.  332.3  General compensatory mitigation requirements.

    (a) General considerations. (1) The fundamental objective of 
compensatory mitigation is to offset environmental losses resulting 
from unavoidable impacts to waters of the United States authorized by 
DA permits. The district engineer must determine the compensatory 
mitigation to be required in a DA permit, based on what is practicable 
and capable of compensating for the aquatic resource functions that 
will be lost as a result of the permitted activity. When evaluating 
compensatory mitigation options, the district engineer will consider 
what would be environmentally preferable. In making this determination, 
the district engineer must assess the likelihood for ecological success 
and sustainability, the location of the compensation site relative to 
the impact site and their significance within the watershed, and the 
costs of the compensatory mitigation project. In many cases, the 
environmentally preferable compensatory mitigation may be provided 
through mitigation banks or in-lieu fee programs because they usually 
involve consolidating compensatory mitigation projects where 
ecologically appropriate, consolidating resources, providing financial 
planning and scientific expertise (which often is not practical for 
permittee-responsible compensatory mitigation projects), reducing 
temporal losses of functions, and reducing uncertainty over project 
success. Compensatory mitigation requirements must be commensurate with 
the amount and type of impact that is associated with a particular DA 
permit. Permit applicants are responsible for proposing an

[[Page 19673]]

appropriate compensatory mitigation option to offset unavoidable 
impacts.
    (2) Compensatory mitigation may be performed using the methods of 
restoration, enhancement, establishment, and in certain circumstances 
preservation. Restoration should generally be the first option 
considered because the likelihood of success is greater and the impacts 
to potentially ecologically important uplands are reduced compared to 
establishment, and the potential gains in terms of aquatic resource 
functions are greater, compared to enhancement and preservation.
    (3) Compensatory mitigation projects may be sited on public or 
private lands. Credits for compensatory mitigation projects on public 
land must be based solely on aquatic resource functions provided by the 
compensatory mitigation project, over and above those provided by 
public programs already planned or in place. All compensatory 
mitigation projects must comply with the standards in this part, if 
they are to be used to provide compensatory mitigation for activities 
authorized by DA permits, regardless of whether they are sited on 
public or private lands and whether the sponsor is a governmental or 
private entity.
    (b) Type and location of compensatory mitigation. (1) When 
considering options for successfully providing the required 
compensatory mitigation, the district engineer shall consider the type 
and location options in the order presented in paragraphs (b)(2) 
through (b)(6) of this section. In general, the required compensatory 
mitigation should be located within the same watershed as the impact 
site, and should be located where it is most likely to successfully 
replace lost functions and services, taking into account such watershed 
scale features as aquatic habitat diversity, habitat connectivity, 
relationships to hydrologic sources (including the availability of 
water rights), trends in land use, ecological benefits, and 
compatibility with adjacent land uses. When compensating for impacts to 
marine resources, the location of the compensatory mitigation site 
should be chosen to replace lost functions and services within the same 
marine ecological system (e.g., reef complex, littoral drift cell). 
Compensation for impacts to aquatic resources in coastal watersheds 
(watersheds that include a tidal water body) should also be located in 
a coastal watershed where practicable. Compensatory mitigation projects 
should not be located where they will increase risks to aviation by 
attracting wildlife to areas where aircraft-wildlife strikes may occur 
(e.g., near airports).
    (2) Mitigation bank credits. When permitted impacts are located 
within the service area of an approved mitigation bank, and the bank 
has the appropriate number and resource type of credits available, the 
permittee's compensatory mitigation requirements may be met by securing 
those credits from the sponsor. Since an approved instrument (including 
an approved mitigation plan and appropriate real estate and financial 
assurances) for a mitigation bank is required to be in place before its 
credits can begin to be used to compensate for authorized impacts, use 
of a mitigation bank can help reduce risk and uncertainty, as well as 
temporal loss of resource functions and services. Mitigation bank 
credits are not released for debiting until specific milestones 
associated with the mitigation bank site's protection and development 
are achieved, thus use of mitigation bank credits can also help reduce 
risk that mitigation will not be fully successful. Mitigation banks 
typically involve larger, more ecologically valuable parcels, and more 
rigorous scientific and technical analysis, planning and implementation 
than permittee-responsible mitigation. Also, development of a 
mitigation bank requires site identification in advance, project-
specific planning, and significant investment of financial resources 
that is often not practicable for many in-lieu fee programs. For these 
reasons, the district engineer should give preference to the use of 
mitigation bank credits when these considerations are applicable. 
However, these same considerations may also be used to override this 
preference, where appropriate, as, for example, where an in-lieu fee 
program has released credits available from a specific approved in-lieu 
fee project, or a permittee-responsible project will restore an 
outstanding resource based on rigorous scientific and technical 
analysis.
    (3) In-lieu fee program credits. Where permitted impacts are 
located within the service area of an approved in-lieu fee program, and 
the sponsor has the appropriate number and resource type of credits 
available, the permittee's compensatory mitigation requirements may be 
met by securing those credits from the sponsor. Where permitted impacts 
are not located in the service area of an approved mitigation bank, or 
the approved mitigation bank does not have the appropriate number and 
resource type of credits available to offset those impacts, in-lieu fee 
mitigation, if available, is generally preferable to permittee-
responsible mitigation. In-lieu fee projects typically involve larger, 
more ecologically valuable parcels, and more rigorous scientific and 
technical analysis, planning and implementation than permittee-
responsible mitigation. They also devote significant resources to 
identifying and addressing high-priority resource needs on a watershed 
scale, as reflected in their compensation planning framework. For these 
reasons, the district engineer should give preference to in-lieu fee 
program credits over permittee-responsible mitigation, where these 
considerations are applicable. However, as with the preference for 
mitigation bank credits, these same considerations may be used to 
override this preference where appropriate. Additionally, in cases 
where permittee-responsible mitigation is likely to successfully meet 
performance standards before advance credits secured from an in-lieu 
fee program are fulfilled, the district engineer should also give 
consideration to this factor in deciding between in-lieu fee mitigation 
and permittee-responsible mitigation.
    (4) Permittee-responsible mitigation under a watershed approach. 
Where permitted impacts are not in the service area of an approved 
mitigation bank or in-lieu fee program that has the appropriate number 
and resource type of credits available, permittee-responsible 
mitigation is the only option. Where practicable and likely to be 
successful and sustainable, the resource type and location for the 
required permittee-responsible compensatory mitigation should be 
determined using the principles of a watershed approach as outlined in 
paragraph (c) of this section.
    (5) Permittee-responsible mitigation through on-site and in-kind 
mitigation. In cases where a watershed approach is not practicable, the 
district engineer should consider opportunities to offset anticipated 
aquatic resource impacts by requiring on-site and in-kind compensatory 
mitigation. The district engineer must also consider the practicability 
of on-site compensatory mitigation and its compatibility with the 
proposed project.
    (6) Permittee-responsible mitigation through off-site and/or out-
of-kind mitigation. If, after considering opportunities for on-site, 
in-kind compensatory mitigation as provided in paragraph (b)(5) of this 
section, the district engineer determines that these compensatory 
mitigation opportunities are not practicable, are unlikely to 
compensate for the permitted impacts, or will be incompatible with the 
proposed project, and an alternative,

[[Page 19674]]

practicable off-site and/or out-of-kind mitigation opportunity is 
identified that has a greater likelihood of offsetting the permitted 
impacts or is environmentally preferable to on-site or in-kind 
mitigation, the district engineer should require that this alternative 
compensatory mitigation be provided.
    (c) Watershed approach to compensatory mitigation. (1) The district 
engineer must use a watershed approach to establish compensatory 
mitigation requirements in DA permits to the extent appropriate and 
practicable. Where a watershed plan is available, the district engineer 
will determine whether the plan is appropriate for use in the watershed 
approach for compensatory mitigation. In cases where the district 
engineer determines that an appropriate watershed plan is available, 
the watershed approach should be based on that plan. Where no such plan 
is available, the watershed approach should be based on information 
provided by the project sponsor or available from other sources. The 
ultimate goal of a watershed approach is to maintain and improve the 
quality and quantity of aquatic resources within watersheds through 
strategic selection of compensatory mitigation sites.
    (2) Considerations. (i) A watershed approach to compensatory 
mitigation considers the importance of landscape position and resource 
type of compensatory mitigation projects for the sustainability of 
aquatic resource functions within the watershed. Such an approach 
considers how the types and locations of compensatory mitigation 
projects will provide the desired aquatic resource functions, and will 
continue to function over time in a changing landscape. It also 
considers the habitat requirements of important species, habitat loss 
or conversion trends, sources of watershed impairment, and current 
development trends, as well as the requirements of other regulatory and 
non-regulatory programs that affect the watershed, such as storm water 
management or habitat conservation programs. It includes the protection 
and maintenance of terrestrial resources, such as non-wetland riparian 
areas and uplands, when those resources contribute to or improve the 
overall ecological functioning of aquatic resources in the watershed. 
Compensatory mitigation requirements determined through the watershed 
approach should not focus exclusively on specific functions (e.g., 
water quality or habitat for certain species), but should provide, 
where practicable, the suite of functions typically provided by the 
affected aquatic resource.
    (ii) Locational factors (e.g., hydrology, surrounding land use) are 
important to the success of compensatory mitigation for impacted 
habitat functions and may lead to siting of such mitigation away from 
the project area. However, consideration should also be given to 
functions and services (e.g., water quality, flood control, shoreline 
protection) that will likely need to be addressed at or near the areas 
impacted by the permitted impacts.
    (iii) A watershed approach may include on-site compensatory 
mitigation, off-site compensatory mitigation (including mitigation 
banks or in-lieu fee programs), or a combination of on-site and off-
site compensatory mitigation.
    (iv) A watershed approach to compensatory mitigation should 
include, to the extent practicable, inventories of historic and 
existing aquatic resources, including identification of degraded 
aquatic resources, and identification of immediate and long-term 
aquatic resource needs within watersheds that can be met through 
permittee-responsible mitigation projects, mitigation banks, or in-lieu 
fee programs. Planning efforts should identify and prioritize aquatic 
resource restoration, establishment, and enhancement activities, and 
preservation of existing aquatic resources that are important for 
maintaining or improving ecological functions of the watershed. The 
identification and prioritization of resource needs should be as 
specific as possible, to enhance the usefulness of the approach in 
determining compensatory mitigation requirements.
    (v) A watershed approach is not appropriate in areas where 
watershed boundaries do not exist, such as marine areas. In such cases, 
an appropriate spatial scale should be used to replace lost functions 
and services within the same ecological system (e.g., reef complex, 
littoral drift cell).
    (3) Information Needs. (i) In the absence of a watershed plan 
determined by the district engineer under paragraph (c)(1) of this 
section to be appropriate for use in the watershed approach, the 
district engineer will use a watershed approach based on analysis of 
information regarding watershed conditions and needs, including 
potential sites for aquatic resource restoration activities and 
priorities for aquatic resource restoration and preservation. Such 
information includes: current trends in habitat loss or conversion; 
cumulative impacts of past development activities, current development 
trends, the presence and needs of sensitive species; site conditions 
that favor or hinder the success of compensatory mitigation projects; 
and chronic environmental problems such as flooding or poor water 
quality.
    (ii) This information may be available from sources such as wetland 
maps; soil surveys; U.S. Geological Survey topographic and hydrologic 
maps; aerial photographs; information on rare, endangered and 
threatened species and critical habitat; local ecological reports or 
studies; and other information sources that could be used to identify 
locations for suitable compensatory mitigation projects in the 
watershed.
    (iii) The level of information and analysis needed to support a 
watershed approach must be commensurate with the scope and scale of the 
proposed impacts requiring a DA permit, as well as the functions lost 
as a result of those impacts.
    (4) Watershed scale. The size of watershed addressed using a 
watershed approach should not be larger than is appropriate to ensure 
that the aquatic resources provided through compensation activities 
will effectively compensate for adverse environmental impacts resulting 
from activities authorized by DA permits. The district engineer should 
consider relevant environmental factors and appropriate locally 
developed standards and criteria when determining the appropriate 
watershed scale in guiding compensation activities.
    (d) Site selection. (1) The compensatory mitigation project site 
must be ecologically suitable for providing the desired aquatic 
resource functions. In determining the ecological suitability of the 
compensatory mitigation project site, the district engineer must 
consider, to the extent practicable, the following factors:
    (i) Hydrological conditions, soil characteristics, and other 
physical and chemical characteristics;
    (ii) Watershed-scale features, such as aquatic habitat diversity, 
habitat connectivity, and other landscape scale functions;
    (iii) The size and location of the compensatory mitigation site 
relative to hydrologic sources (including the availability of water 
rights) and other ecological features;
    (iv) Compatibility with adjacent land uses and watershed management 
plans;
    (v) Reasonably foreseeable effects the compensatory mitigation 
project will have on ecologically important aquatic or terrestrial 
resources (e.g., shallow sub-tidal habitat, mature forests), cultural 
sites, or habitat for federally- or

[[Page 19675]]

state-listed threatened and endangered species; and
    (vi) Other relevant factors including, but not limited to, 
development trends, anticipated land use changes, habitat status and 
trends, the relative locations of the impact and mitigation sites in 
the stream network, local or regional goals for the restoration or 
protection of particular habitat types or functions (e.g., re-
establishment of habitat corridors or habitat for species of concern), 
water quality goals, floodplain management goals, and the relative 
potential for chemical contamination of the aquatic resources.
    (2) District engineers may require on-site, off-site, or a 
combination of on-site and off-site compensatory mitigation to replace 
permitted losses of aquatic resource functions and services.
    (3) Applicants should propose compensation sites adjacent to 
existing aquatic resources or where aquatic resources previously 
existed.
    (e) Mitigation type. (1) In general, in-kind mitigation is 
preferable to out-of-kind mitigation because it is most likely to 
compensate for the functions and services lost at the impact site. For 
example, tidal wetland compensatory mitigation projects are most likely 
to compensate for unavoidable impacts to tidal wetlands, while 
perennial stream compensatory mitigation projects are most likely to 
compensate for unavoidable impacts to perennial streams. Thus, except 
as provided in paragraph (e)(2) of this section, the required 
compensatory mitigation shall be of a similar type to the affected 
aquatic resource.
    (2) If the district engineer determines, using the watershed 
approach in accordance with paragraph (c) of this section that out-of-
kind compensatory mitigation will serve the aquatic resource needs of 
the watershed, the district engineer may authorize the use of such out-
of-kind compensatory mitigation. The basis for authorization of out-of-
kind compensatory mitigation must be documented in the administrative 
record for the permit action.
    (3) For difficult-to-replace resources (e.g., bogs, fens, springs, 
streams, Atlantic white cedar swamps) if further avoidance and 
minimization is not practicable, the required compensation should be 
provided, if practicable, through in-kind rehabilitation, enhancement, 
or preservation since there is greater certainty that these methods of 
compensation will successfully offset permitted impacts.
    (f) Amount of compensatory mitigation. (1) If the district engineer 
determines that compensatory mitigation is necessary to offset 
unavoidable impacts to aquatic resources, the amount of required 
compensatory mitigation must be, to the extent practicable, sufficient 
to replace lost aquatic resource functions. In cases where appropriate 
functional or condition assessment methods or other suitable metrics 
are available, these methods should be used where practicable to 
determine how much compensatory mitigation is required. If a functional 
or condition assessment or other suitable metric is not used, a minimum 
one-to-one acreage or linear foot compensation ratio must be used.
    (2) The district engineer must require a mitigation ratio greater 
than one-to-one where necessary to account for the method of 
compensatory mitigation (e.g., preservation), the likelihood of 
success, differences between the functions lost at the impact site and 
the functions expected to be produced by the compensatory mitigation 
project, temporal losses of aquatic resource functions, the difficulty 
of restoring or establishing the desired aquatic resource type and 
functions, and/or the distance between the affected aquatic resource 
and the compensation site. The rationale for the required replacement 
ratio must be documented in the administrative record for the permit 
action.
    (3) If an in-lieu fee program will be used to provide the required 
compensatory mitigation, and the appropriate number and resource type 
of released credits are not available, the district engineer must 
require sufficient compensation to account for the risk and uncertainty 
associated with in-lieu fee projects that have not been implemented 
before the permitted impacts have occurred.
    (g) Use of mitigation banks and in-lieu fee programs. Mitigation 
banks and in-lieu fee programs may be used to compensate for impacts to 
aquatic resources authorized by general permits and individual permits, 
including after-the-fact permits, in accordance with the preference 
hierarchy in paragraph (b) of this section.
    (h) Preservation. (1) Preservation may be used to provide 
compensatory mitigation for activities authorized by DA permits when 
all the following criteria are met:
    (i) The resources to be preserved provide important physical, 
chemical, or biological functions for the watershed;
    (ii) The resources to be preserved contribute significantly to the 
ecological sustainability of the watershed. In determining the 
contribution of those resources to the ecological sustainability of the 
watershed, the district engineer must use appropriate quantitative 
assessment tools, where available;
    (iii) Preservation is determined by the district engineer to be 
appropriate and practicable;
    (iv) The resources are under threat of destruction or adverse 
modifications; and
    (v) The preserved site will be permanently protected through an 
appropriate real estate or other legal instrument (e.g., easement, 
title transfer to state resource agency or land trust).
    (2) Where preservation is used to provide compensatory mitigation, 
to the extent appropriate and practicable the preservation shall be 
done in conjunction with aquatic resource restoration, establishment, 
and/or enhancement activities. This requirement may be waived by the 
district engineer where preservation has been identified as a high 
priority using a watershed approach described in paragraph (c) of this 
section, but compensation ratios shall be higher.
    (i) Buffers. District engineers may require the restoration, 
establishment, enhancement, and preservation, as well as the 
maintenance, of riparian areas and/or buffers around aquatic resources 
where necessary to ensure the long-term viability of those resources. 
Buffers may also provide habitat or corridors necessary for the 
ecological functioning of aquatic resources. If buffers are required by 
the district engineer as part of the compensatory mitigation project, 
compensatory mitigation credit will be provided for those buffers.
    (j) Relationship to other federal, tribal, state, and local 
programs. (1) Compensatory mitigation projects for DA permits may also 
be used to satisfy the environmental requirements of other programs, 
such as tribal, state, or local wetlands regulatory programs, other 
federal programs such as the Surface Mining Control and Reclamation 
Act, Corps civil works projects, and Department of Defense military 
construction projects, consistent with the terms and requirements of 
these programs and subject to the following considerations:
    (i) The compensatory mitigation project must include appropriate 
compensation required by the DA permit for unavoidable impacts to 
aquatic resources authorized by that permit.
    (ii) Under no circumstances may the same credits be used to provide 
mitigation for more than one permitted activity. However, where 
appropriate, compensatory mitigation projects, including mitigation 
banks and in-lieu fee projects, may be designed to

[[Page 19676]]

holistically address requirements under multiple programs and 
authorities for the same activity.
    (2) Except for projects undertaken by federal agencies, or where 
federal funding is specifically authorized to provide compensatory 
mitigation, federally-funded aquatic resource restoration or 
conservation projects undertaken for purposes other than compensatory 
mitigation, such as the Wetlands Reserve Program, Conservation Reserve 
Program, and Partners for Wildlife Program activities, cannot be used 
for the purpose of generating compensatory mitigation credits for 
activities authorized by DA permits. However, compensatory mitigation 
credits may be generated by activities undertaken in conjunction with, 
but supplemental to, such programs in order to maximize the overall 
ecological benefits of the restoration or conservation project.
    (3) Compensatory mitigation projects may also be used to provide 
compensatory mitigation under the Endangered Species Act or for Habitat 
Conservation Plans, as long as they comply with the requirements of 
paragraph (j)(1) of this section.
    (k) Permit conditions. (1) The compensatory mitigation requirements 
for a DA permit, including the amount and type of compensatory 
mitigation, must be clearly stated in the special conditions of the 
individual permit or general permit verification (see 33 CFR 325.4 and 
330.6(a)). The special conditions must be enforceable.
    (2) For an individual permit that requires permittee-responsible 
mitigation, the special conditions must:
    (i) Identify the party responsible for providing the compensatory 
mitigation;
    (ii) Incorporate, by reference, the final mitigation plan approved 
by the district engineer;
    (iii) State the objectives, performance standards, and monitoring 
required for the compensatory mitigation project, unless they are 
provided in the approved final mitigation plan; and
    (iv) Describe any required financial assurances or long-term 
management provisions for the compensatory mitigation project, unless 
they are specified in the approved final mitigation plan.
    (3) For a general permit activity that requires permittee-
responsible compensatory mitigation, the special conditions must 
describe the compensatory mitigation proposal, which may be either 
conceptual or detailed. The general permit verification must also 
include a special condition that states that the permittee cannot 
commence work in waters of the United States until the district 
engineer approves the final mitigation plan, unless the district 
engineer determines that such a special condition is not practicable 
and not necessary to ensure timely completion of the required 
compensatory mitigation. To the extent appropriate and practicable, 
special conditions of the general permit verification should also 
address the requirements of paragraph (k)(2) of this section.
    (4) If a mitigation bank or in-lieu fee program is used to provide 
the required compensatory mitigation, the special conditions must 
indicate whether a mitigation bank or in-lieu fee program will be used, 
and specify the number and resource type of credits the permittee is 
required to secure. In the case of an individual permit, the special 
condition must also identify the specific mitigation bank or in-lieu 
fee program that will be used. For general permit verifications, the 
special conditions may either identify the specific mitigation bank or 
in-lieu fee program, or state that the specific mitigation bank or in-
lieu fee program used to provide the required compensatory mitigation 
must be approved by the district engineer before the credits are 
secured.
    (l) Party responsible for compensatory mitigation. (1) For 
permittee-responsible mitigation, the special conditions of the DA 
permit must clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project.
    (2) For mitigation banks and in-lieu fee programs, the instrument 
must clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project(s). The instrument must also contain a 
provision expressing the sponsor's agreement to assume responsibility 
for a permittee's compensatory mitigation requirements, once that 
permittee has secured the appropriate number and resource type of 
credits from the sponsor and the district engineer has received the 
documentation described in paragraph (l)(3) of this section.
    (3) If use of a mitigation bank or in-lieu fee program is approved 
by the district engineer to provide part or all of the required 
compensatory mitigation for a DA permit, the permittee retains 
responsibility for providing the compensatory mitigation until the 
appropriate number and resource type of credits have been secured from 
a sponsor and the district engineer has received documentation that 
confirms that the sponsor has accepted the responsibility for providing 
the required compensatory mitigation. This documentation may consist of 
a letter or form signed by the sponsor, with the permit number and a 
statement indicating the number and resource type of credits that have 
been secured from the sponsor. Copies of this documentation will be 
retained in the administrative records for both the permit and the 
instrument. If the sponsor fails to provide the required compensatory 
mitigation, the district engineer may pursue measures against the 
sponsor to ensure compliance.
    (m) Timing. Implementation of the compensatory mitigation project 
shall be, to the maximum extent practicable, in advance of or 
concurrent with the activity causing the authorized impacts. The 
district engineer shall require, to the extent appropriate and 
practicable, additional compensatory mitigation to offset temporal 
losses of aquatic functions that will result from the permitted 
activity.
    (n) Financial assurances. (1) The district engineer shall require 
sufficient financial assurances to ensure a high level of confidence 
that the compensatory mitigation project will be successfully 
completed, in accordance with applicable performance standards. In 
cases where an alternate mechanism is available to ensure a high level 
of confidence that the compensatory mitigation will be provided and 
maintained (e.g., a formal, documented commitment from a government 
agency or public authority) the district engineer may determine that 
financial assurances are not necessary for that compensatory mitigation 
project.
    (2) The amount of the required financial assurances must be 
determined by the district engineer, in consultation with the project 
sponsor, and must be based on the size and complexity of the 
compensatory mitigation project, the degree of completion of the 
project at the time of project approval, the likelihood of success, the 
past performance of the project sponsor, and any other factors the 
district engineer deems appropriate. Financial assurances may be in the 
form of performance bonds, escrow accounts, casualty insurance, letters 
of credit, legislative appropriations for government sponsored 
projects, or other appropriate instruments, subject to the approval of 
the district engineer. The rationale for determining the amount of the 
required financial assurances must be documented in the administrative 
record for either the DA permit or the instrument. In determining the 
assurance amount, the district engineer shall consider the cost of 
providing

[[Page 19677]]

replacement mitigation, including costs for land acquisition, planning 
and engineering, legal fees, mobilization, construction, and 
monitoring.
    (3) If financial assurances are required, the DA permit must 
include a special condition requiring the financial assurances to be in 
place prior to commencing the permitted activity.
    (4) Financial assurances shall be phased out once the compensatory 
mitigation project has been determined by the district engineer to be 
successful in accordance with its performance standards. The DA permit 
or instrument must clearly specify the conditions under which the 
financial assurances are to be released to the permittee, sponsor, and/
or other financial assurance provider, including, as appropriate, 
linkage to achievement of performance standards, adaptive management, 
or compliance with special conditions.
    (5) A financial assurance must be in a form that ensures that the 
district engineer will receive notification at least 120 days in 
advance of any termination or revocation. For third-party assurance 
providers, this may take the form of a contractual requirement for the 
assurance provider to notify the district engineer at least 120 days 
before the assurance is revoked or terminated.
    (6) Financial assurances shall be payable at the direction of the 
district engineer to his designee or to a standby trust agreement. When 
a standby trust is used (e.g., with performance bonds or letters of 
credit) all amounts paid by the financial assurance provider shall be 
deposited directly into the standby trust fund for distribution by the 
trustee in accordance with the district engineer's instructions.
    (o) Compliance with applicable law. The compensatory mitigation 
project must comply with all applicable federal, state, and local laws. 
The DA permit, mitigation banking instrument, or in-lieu fee program 
instrument must not require participation by the Corps or any other 
federal agency in project management, including receipt or management 
of financial assurances or long-term financing mechanisms, except as 
determined by the Corps or other agency to be consistent with its 
statutory authority, mission, and priorities.


Sec.  332.4  Planning and documentation.

    (a) Pre-application consultations. Potential applicants for 
standard permits are encouraged to participate in pre-application 
meetings with the Corps and appropriate agencies to discuss potential 
mitigation requirements and information needs.
    (b) Public review and comment. (1) For an activity that requires a 
standard DA permit pursuant to section 404 of the Clean Water Act, the 
public notice for the proposed activity must contain a statement 
explaining how impacts associated with the proposed activity are to be 
avoided, minimized, and compensated for. This explanation shall 
address, to the extent that such information is provided in the 
mitigation statement required by Sec.  325.1(d)(7) of this chapter, the 
proposed avoidance and minimization and the amount, type, and location 
of any proposed compensatory mitigation, including any out-of-kind 
compensation, or indicate an intention to use an approved mitigation 
bank or in-lieu fee program. The level of detail provided in the public 
notice must be commensurate with the scope and scale of the impacts. 
The notice shall not include information that the district engineer and 
the permittee believe should be kept confidential for business 
purposes, such as the exact location of a proposed mitigation site that 
has not yet been secured. The permittee must clearly identify any 
information being claimed as confidential in the mitigation statement 
when submitted. In such cases, the notice must still provide enough 
information to enable the public to provide meaningful comment on the 
proposed mitigation.
    (2) For individual permits, district engineers must consider any 
timely comments and recommendations from other federal agencies; 
tribal, state, or local governments; and the public.
    (3) For activities authorized by letters of permission or general 
permits, the review and approval process for compensatory mitigation 
proposals and plans must be conducted in accordance with the terms and 
conditions of those permits and applicable regulations including the 
applicable provisions of this part.
    (c) Mitigation plan. (1) Preparation and Approval. (i) For 
individual permits, the permittee must prepare a draft mitigation plan 
and submit it to the district engineer for review. After addressing any 
comments provided by the district engineer, the permittee must prepare 
a final mitigation plan, which must be approved by the district 
engineer prior to issuing the individual permit. The approved final 
mitigation plan must be incorporated into the individual permit by 
reference. The final mitigation plan must include the items described 
in paragraphs (c)(2) through (c)(14) of this section, but the level of 
detail of the mitigation plan should be commensurate with the scale and 
scope of the impacts. As an alternative, the district engineer may 
determine that it would be more appropriate to address any of the items 
described in paragraphs (c)(2) through (c)(14) of this section as 
permit conditions, instead of components of a compensatory mitigation 
plan. For permittees who intend to fulfill their compensatory 
mitigation obligations by securing credits from approved mitigation 
banks or in-lieu fee programs, their mitigation plans need include only 
the items described in paragraphs (c)(5) and (c)(6) of this section, 
and the name of the specific mitigation bank or in-lieu fee program to 
be used.
    (ii) For general permits, if compensatory mitigation is required, 
the district engineer may approve a conceptual or detailed compensatory 
mitigation plan to meet required time frames for general permit 
verifications, but a final mitigation plan incorporating the elements 
in paragraphs (c)(2) through (c)(14) of this section, at a level of 
detail commensurate with the scale and scope of the impacts, must be 
approved by the district engineer before the permittee commences work 
in waters of the United States. As an alternative, the district 
engineer may determine that it would be more appropriate to address any 
of the items described in paragraphs (c)(2) through (c)(14) of this 
section as permit conditions, instead of components of a compensatory 
mitigation plan. For permittees who intend to fulfill their 
compensatory mitigation obligations by securing credits from approved 
mitigation banks or in-lieu fee programs, their mitigation plans need 
include only the items described in paragraphs (c)(5) and (c)(6) of 
this section, and either the name of the specific mitigation bank or 
in-lieu fee program to be used or a statement indicating that a 
mitigation bank or in-lieu fee program will be used (contingent upon 
approval by the district engineer).
    (iii) Mitigation banks and in-lieu fee programs must prepare a 
mitigation plan including the items in paragraphs (c)(2) through 
(c)(14) of this section for each separate compensatory mitigation 
project site. For mitigation banks and in-lieu fee programs, the 
preparation and approval process for mitigation plans is described in 
Sec.  332.8.
    (2) Objectives. A description of the resource type(s) and amount(s) 
that will be provided, the method of compensation (i.e., restoration, 
establishment, enhancement, and/or preservation), and the manner in 
which the resource functions of the compensatory mitigation project 
will address the needs of the watershed,

[[Page 19678]]

ecoregion, physiographic province, or other geographic area of 
interest.
    (3) Site selection. A description of the factors considered during 
the site selection process. This should include consideration of 
watershed needs, on-site alternatives where applicable, and the 
practicability of accomplishing ecologically self-sustaining aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at the compensatory mitigation project site. (See Sec.  332.3(d).)
    (4) Site protection instrument. A description of the legal 
arrangements and instrument, including site ownership, that will be 
used to ensure the long-term protection of the compensatory mitigation 
project site (see Sec.  332.7(a)).
    (5) Baseline information. A description of the ecological 
characteristics of the proposed compensatory mitigation project site 
and, in the case of an application for a DA permit, the impact site. 
This may include descriptions of historic and existing plant 
communities, historic and existing hydrology, soil conditions, a map 
showing the locations of the impact and mitigation site(s) or the 
geographic coordinates for those site(s), and other site 
characteristics appropriate to the type of resource proposed as 
compensation. The baseline information should also include a 
delineation of waters of the United States on the proposed compensatory 
mitigation project site. A prospective permittee planning to secure 
credits from an approved mitigation bank or in-lieu fee program only 
needs to provide baseline information about the impact site, not the 
mitigation bank or in-lieu fee project site.
    (6) Determination of credits. A description of the number of 
credits to be provided, including a brief explanation of the rationale 
for this determination. (See Sec.  332.3(f).)
    (i) For permittee-responsible mitigation, this should include an 
explanation of how the compensatory mitigation project will provide the 
required compensation for unavoidable impacts to aquatic resources 
resulting from the permitted activity.
    (ii) For permittees intending to secure credits from an approved 
mitigation bank or in-lieu fee program, it should include the number 
and resource type of credits to be secured and how these were 
determined.
    (7) Mitigation work plan. Detailed written specifications and work 
descriptions for the compensatory mitigation project, including, but 
not limited to, the geographic boundaries of the project; construction 
methods, timing, and sequence; source(s) of water, including 
connections to existing waters and uplands; methods for establishing 
the desired plant community; plans to control invasive plant species; 
the proposed grading plan, including elevations and slopes of the 
substrate; soil management; and erosion control measures. For stream 
compensatory mitigation projects, the mitigation work plan may also 
include other relevant information, such as planform geometry, channel 
form (e.g., typical channel cross-sections), watershed size, design 
discharge, and riparian area plantings.
    (8) Maintenance plan. A description and schedule of maintenance 
requirements to ensure the continued viability of the resource once 
initial construction is completed.
    (9) Performance standards. Ecologically-based standards that will 
be used to determine whether the compensatory mitigation project is 
achieving its objectives. (See Sec.  332.5.)
    (10) Monitoring requirements. A description of parameters to be 
monitored in order to determine if the compensatory mitigation project 
is on track to meet performance standards and if adaptive management is 
needed. A schedule for monitoring and reporting on monitoring results 
to the district engineer must be included. (See Sec.  332.6.)
    (11) Long-term management plan. A description of how the 
compensatory mitigation project will be managed after performance 
standards have been achieved to ensure the long-term sustainability of 
the resource, including long-term financing mechanisms and the party 
responsible for long-term management. (See Sec.  332.7(d).)
    (12) Adaptive management plan. A management strategy to address 
unforeseen changes in site conditions or other components of the 
compensatory mitigation project, including the party or parties 
responsible for implementing adaptive management measures. The adaptive 
management plan will guide decisions for revising compensatory 
mitigation plans and implementing measures to address both foreseeable 
and unforeseen circumstances that adversely affect compensatory 
mitigation success. (See Sec.  332.7(c).)
    (13) Financial assurances. A description of financial assurances 
that will be provided and how they are sufficient to ensure a high 
level of confidence that the compensatory mitigation project will be 
successfully completed, in accordance with its performance standards 
(see Sec.  332.3(n)).
    (14) Other information. The district engineer may require 
additional information as necessary to determine the appropriateness, 
feasibility, and practicability of the compensatory mitigation project.


Sec.  332.5  Ecological performance standards.

    (a) The approved mitigation plan must contain performance standards 
that will be used to assess whether the project is achieving its 
objectives. Performance standards should relate to the objectives of 
the compensatory mitigation project, so that the project can be 
objectively evaluated to determine if it is developing into the desired 
resource type, providing the expected functions, and attaining any 
other applicable metrics (e.g., acres).
    (b) Performance standards must be based on attributes that are 
objective and verifiable. Ecological performance standards must be 
based on the best available science that can be measured or assessed in 
a practicable manner. Performance standards may be based on variables 
or measures of functional capacity described in functional assessment 
methodologies, measurements of hydrology or other aquatic resource 
characteristics, and/or comparisons to reference aquatic resources of 
similar type and landscape position. The use of reference aquatic 
resources to establish performance standards will help ensure that 
those performance standards are reasonably achievable, by reflecting 
the range of variability exhibited by the regional class of aquatic 
resources as a result of natural processes and anthropogenic 
disturbances. Performance standards based on measurements of hydrology 
should take into consideration the hydrologic variability exhibited by 
reference aquatic resources, especially wetlands. Where practicable, 
performance standards should take into account the expected stages of 
the aquatic resource development process, in order to allow early 
identification of potential problems and appropriate adaptive 
management.


Sec.  332.6  Monitoring.

    (a) General. (1) Monitoring the compensatory mitigation project 
site is necessary to determine if the project is meeting its 
performance standards, and to determine if measures are necessary to 
ensure that the compensatory mitigation project is accomplishing its 
objectives. The submission of monitoring reports to assess the 
development and condition of the compensatory mitigation project is 
required, but the content and level of detail for those monitoring 
reports must be commensurate with the scale and scope of the 
compensatory mitigation

[[Page 19679]]

project, as well as the compensatory mitigation project type. The 
mitigation plan must address the monitoring requirements for the 
compensatory mitigation project, including the parameters to be 
monitored, the length of the monitoring period, the party responsible 
for conducting the monitoring, the frequency for submitting monitoring 
reports to the district engineer, and the party responsible for 
submitting those monitoring reports to the district engineer.
    (2) The district engineer may conduct site inspections on a regular 
basis (e.g., annually) during the monitoring period to evaluate 
mitigation site performance.
    (b) Monitoring period. The mitigation plan must provide for a 
monitoring period that is sufficient to demonstrate that the 
compensatory mitigation project has met performance standards, but not 
less than five years. A longer monitoring period must be required for 
aquatic resources with slow development rates (e.g., forested wetlands, 
bogs). Following project implementation, the district engineer may 
reduce or waive the remaining monitoring requirements upon a 
determination that the compensatory mitigation project has achieved its 
performance standards. Conversely the district engineer may extend the 
original monitoring period upon a determination that performance 
standards have not been met or the compensatory mitigation project is 
not on track to meet them. The district engineer may also revise 
monitoring requirements when remediation and/or adaptive management is 
required.
    (c) Monitoring reports. (1) The district engineer must determine 
the information to be included in monitoring reports. This information 
must be sufficient for the district engineer to determine how the 
compensatory mitigation project is progressing towards meeting its 
performance standards, and may include plans (such as as-built plans), 
maps, and photographs to illustrate site conditions. Monitoring reports 
may also include the results of functional, condition, or other 
assessments used to provide quantitative or qualitative measures of the 
functions provided by the compensatory mitigation project site.
    (2) The permittee or sponsor is responsible for submitting 
monitoring reports in accordance with the special conditions of the DA 
permit or the terms of the instrument. Failure to submit monitoring 
reports in a timely manner may result in compliance action by the 
district engineer.
    (3) Monitoring reports must be provided by the district engineer to 
interested federal, tribal, state, and local resource agencies, and the 
public, upon request.


Sec.  332.7  Management.

    (a) Site protection. (1) The aquatic habitats, riparian areas, 
buffers, and uplands that comprise the overall compensatory mitigation 
project must be provided long-term protection through real estate 
instruments or other available mechanisms, as appropriate. Long-term 
protection may be provided through real estate instruments such as 
conservation easements held by entities such as federal, tribal, state, 
or local resource agencies, non-profit conservation organizations, or 
private land managers; the transfer of title to such entities; or by 
restrictive covenants. For government property, long-term protection 
may be provided through federal facility management plans or integrated 
natural resources management plans. When approving a method for long-
term protection of non-government property other than transfer of 
title, the district engineer shall consider relevant legal constraints 
on the use of conservation easements and/or restrictive covenants in 
determining whether such mechanisms provide sufficient site protection. 
To provide sufficient site protection, a conservation easement or 
restrictive covenant should, where practicable, establish in an 
appropriate third party (e.g., governmental or non-profit resource 
management agency) the right to enforce site protections and provide 
the third party the resources necessary to monitor and enforce these 
site protections.
    (2) The real estate instrument, management plan, or other mechanism 
providing long-term protection of the compensatory mitigation site 
must, to the extent appropriate and practicable, prohibit incompatible 
uses (e.g., clear cutting or mineral extraction) that might otherwise 
jeopardize the objectives of the compensatory mitigation project. Where 
appropriate, multiple instruments recognizing compatible uses (e.g., 
fishing or grazing rights) may be used.
    (3) The real estate instrument, management plan, or other long-term 
protection mechanism must contain a provision requiring 60-day advance 
notification to the district engineer before any action is taken to 
void or modify the instrument, management plan, or long-term protection 
mechanism, including transfer of title to, or establishment of any 
other legal claims over, the compensatory mitigation site.
    (4) For compensatory mitigation projects on public lands, where 
federal facility management plans or integrated natural resources 
management plans are used to provide long-term protection, and changes 
in statute, regulation, or agency needs or mission results in an 
incompatible use on public lands originally set aside for compensatory 
mitigation, the public agency authorizing the incompatible use is 
responsible for providing alternative compensatory mitigation that is 
acceptable to the district engineer for any loss in functions resulting 
from the incompatible use.
    (5) A real estate instrument, management plan, or other long-term 
protection mechanism used for site protection of permittee-responsible 
mitigation must be approved by the district engineer in advance of, or 
concurrent with, the activity causing the authorized impacts.
    (b) Sustainability. Compensatory mitigation projects shall be 
designed, to the maximum extent practicable, to be self-sustaining once 
performance standards have been achieved. This includes minimization of 
active engineering features (e.g., pumps) and appropriate siting to 
ensure that natural hydrology and landscape context will support long-
term sustainability. Where active long-term management and maintenance 
are necessary to ensure long-term sustainability (e.g., prescribed 
burning, invasive species control, maintenance of water control 
structures, easement enforcement), the responsible party must provide 
for such management and maintenance. This includes the provision of 
long-term financing mechanisms where necessary. Where needed, the 
acquisition and protection of water rights must be secured and 
documented in the permit conditions or instrument.
    (c) Adaptive management. (1) If the compensatory mitigation project 
cannot be constructed in accordance with the approved mitigation plans, 
the permittee or sponsor must notify the district engineer. A 
significant modification of the compensatory mitigation project 
requires approval from the district engineer.
    (2) If monitoring or other information indicates that the 
compensatory mitigation project is not progressing towards meeting its 
performance standards as anticipated, the responsible party must notify 
the district engineer as soon as possible. The district engineer will 
evaluate and pursue measures to address deficiencies in the 
compensatory mitigation project. The district engineer will consider 
whether the compensatory mitigation project is

[[Page 19680]]

providing ecological benefits comparable to the original objectives of 
the compensatory mitigation project.
    (3) The district engineer, in consultation with the responsible 
party (and other federal, tribal, state, and local agencies, as 
appropriate), will determine the appropriate measures. The measures may 
include site modifications, design changes, revisions to maintenance 
requirements, and revised monitoring requirements. The measures must be 
designed to ensure that the modified compensatory mitigation project 
provides aquatic resource functions comparable to those described in 
the mitigation plan objectives.
    (4) Performance standards may be revised in accordance with 
adaptive management to account for measures taken to address 
deficiencies in the compensatory mitigation project. Performance 
standards may also be revised to reflect changes in management 
strategies and objectives if the new standards provide for ecological 
benefits that are comparable or superior to the approved compensatory 
mitigation project. No other revisions to performance standards will be 
allowed except in the case of natural disasters.
    (d) Long-term management. (1) The permit conditions or instrument 
must identify the party responsible for ownership and all long-term 
management of the compensatory mitigation project. The permit 
conditions or instrument may contain provisions allowing the permittee 
or sponsor to transfer the long-term management responsibilities of the 
compensatory mitigation project site to a land stewardship entity, such 
as a public agency, non-governmental organization, or private land 
manager, after review and approval by the district engineer. The land 
stewardship entity need not be identified in the original permit or 
instrument, as long as the future transfer of long-term management 
responsibility is approved by the district engineer.
    (2) A long-term management plan should include a description of 
long-term management needs, annual cost estimates for these needs, and 
identify the funding mechanism that will be used to meet those needs.
    (3) Any provisions necessary for long-term financing must be 
addressed in the original permit or instrument. The district engineer 
may require provisions to address inflationary adjustments and other 
contingencies, as appropriate. Appropriate long-term financing 
mechanisms include non-wasting endowments, trusts, contractual 
arrangements with future responsible parties, and other appropriate 
financial instruments. In cases where the long-term management entity 
is a public authority or government agency, that entity must provide a 
plan for the long-term financing of the site.
    (4) For permittee-responsible mitigation, any long-term financing 
mechanisms must be approved in advance of the activity causing the 
authorized impacts.


Sec.  332.8  Mitigation banks and in-lieu fee programs.

    (a) General considerations. (1) All mitigation banks and in-lieu 
fee programs must have an approved instrument signed by the sponsor and 
the district engineer prior to being used to provide compensatory 
mitigation for DA permits.
    (2) To the maximum extent practicable, mitigation banks and in-lieu 
fee project sites must be planned and designed to be self-sustaining 
over time, but some active management and maintenance may be required 
to ensure their long-term viability and sustainability. Examples of 
acceptable management activities include maintaining fire-dependent 
habitat communities in the absence of natural fire and controlling 
invasive exotic plant species.
    (3) All mitigation banks and in-lieu fee programs must comply with 
the standards in this part, if they are to be used to provide 
compensatory mitigation for activities authorized by DA permits, 
regardless of whether they are sited on public or private lands and 
whether the sponsor is a governmental or private entity.
    (b) Interagency Review Team. (1) The district engineer will 
establish an Interagency Review Team (IRT) to review documentation for 
the establishment and management of mitigation banks and in-lieu fee 
programs. The district engineer or his designated representative serves 
as Chair of the IRT. In cases where a mitigation bank or in-lieu fee 
program is proposed to satisfy the requirements of another federal, 
tribal, state, or local program, in addition to compensatory mitigation 
requirements of DA permits, it may be appropriate for the administering 
agency to serve as co-Chair of the IRT.
    (2) In addition to the Corps, representatives from the U.S. 
Environmental Protection Agency, U.S. Fish and Wildlife Service, NOAA 
Fisheries, the Natural Resources Conservation Service, and other 
federal agencies, as appropriate, may participate in the IRT. The IRT 
may also include representatives from tribal, state, and local 
regulatory and resource agencies, where such agencies have authorities 
and/or mandates directly affecting, or affected by, the establishment, 
operation, or use of the mitigation bank or in-lieu fee program. The 
district engineer will seek to include all public agencies with a 
substantive interest in the establishment of the mitigation bank or in-
lieu fee program on the IRT, but retains final authority over its 
composition.
    (3) The primary role of the IRT is to facilitate the establishment 
of mitigation banks or in-lieu fee programs through the development of 
mitigation banking or in-lieu fee program instruments. The IRT will 
review the prospectus, instrument, and other appropriate documents and 
provide comments to the district engineer. The district engineer and 
the IRT should use a watershed approach to the extent practicable in 
reviewing proposed mitigation banks and in-lieu fee programs. Members 
of the IRT may also sign the instrument, if they so choose. By signing 
the instrument, the IRT members indicate their agreement with the terms 
of the instrument. As an alternative, a member of the IRT may submit a 
letter expressing concurrence with the instrument. The IRT will also 
advise the district engineer in assessing monitoring reports, 
recommending remedial or adaptive management measures, approving credit 
releases, and approving modifications to an instrument. In order to 
ensure timely processing of instruments and other documentation, 
comments from IRT members must be received by the district engineer 
within the time limits specified in this section. Comments received 
after these deadlines will only be considered at the discretion of the 
district engineer to the extent that doing so does not jeopardize the 
deadlines for district engineer action.
    (4) The district engineer will give full consideration to any 
timely comments and advice of the IRT. The district engineer alone 
retains final authority for approval of the instrument in cases where 
the mitigation bank or in-lieu fee program is used to satisfy 
compensatory mitigation requirements of DA permits.
    (5) MOAs with other agencies. The district engineer and members of 
the IRT may enter into a memorandum of agreement (MOA) with any other 
federal, state or local government agency to perform all or some of the 
IRT review functions described in this section. Such MOAs must include 
provisions for appropriate federal oversight of the review process. The 
district engineer retains sole authority for final approval of 
instruments and

[[Page 19681]]

other documentation required under this section.
    (c) Compensation planning framework for in-lieu fee programs. (1) 
The approved instrument for an in-lieu fee program must include a 
compensation planning framework that will be used to select, secure, 
and implement aquatic resource restoration, establishment, enhancement, 
and/or preservation activities. The compensation planning framework 
must support a watershed approach to compensatory mitigation. All 
specific projects used to provide compensation for DA permits must be 
consistent with the approved compensation planning framework. 
Modifications to the framework must be approved as a significant 
modification to the instrument by the district engineer, after 
consultation with the IRT.
    (2) The compensation planning framework must contain the following 
elements:
    (i) The geographic service area(s), including a watershed-based 
rationale for the delineation of each service area;
    (ii) A description of the threats to aquatic resources in the 
service area(s), including how the in-lieu fee program will help offset 
impacts resulting from those threats;
    (iii) An analysis of historic aquatic resource loss in the service 
area(s);
    (iv) An analysis of current aquatic resource conditions in the 
service area(s), supported by an appropriate level of field 
documentation;
    (v) A statement of aquatic resource goals and objectives for each 
service area, including a description of the general amounts, types and 
locations of aquatic resources the program will seek to provide;
    (vi) A prioritization strategy for selecting and implementing 
compensatory mitigation activities;
    (vii) An explanation of how any preservation objectives identified 
in paragraph (c)(2)(v) of this section and addressed in the 
prioritization strategy in paragraph (c)(2)(vi) satisfy the criteria 
for use of preservation in Sec.  332.3(h);
    (viii) A description of any public and private stakeholder 
involvement in plan development and implementation, including, where 
appropriate, coordination with federal, state, tribal and local aquatic 
resource management and regulatory authorities;
    (ix) A description of the long-term protection and management 
strategies for activities conducted by the in-lieu fee program sponsor;
    (x) A strategy for periodic evaluation and reporting on the 
progress of the program in achieving the goals and objectives in 
paragraph (c)(2)(v) of this section, including a process for revising 
the planning framework as necessary; and
    (xi) Any other information deemed necessary for effective 
compensation planning by the district engineer.
    (3) The level of detail necessary for the compensation planning 
framework is at the discretion of the district engineer, and will take 
into account the characteristics of the service area(s) and the scope 
of the program. As part of the in-lieu fee program instrument, the 
compensation planning framework will be reviewed by the IRT, and will 
be a major factor in the district engineer's decision on whether to 
approve the instrument.
    (d) Review process. (1) The sponsor is responsible for preparing 
all documentation associated with establishment of the mitigation bank 
or in-lieu fee program, including the prospectus, instrument, and other 
appropriate documents, such as mitigation plans for a mitigation bank. 
The prospectus provides an overview of the proposed mitigation bank or 
in-lieu fee program and serves as the basis for public and initial IRT 
comment. For a mitigation bank, the mitigation plan, as described in 
Sec.  332.4(c), provides detailed plans and specifications for the 
mitigation bank site. For in-lieu fee programs, mitigation plans will 
be prepared as in-lieu fee project sites are identified after the 
instrument has been approved and the in-lieu fee program becomes 
operational. The instrument provides the authorization for the 
mitigation bank or in-lieu fee program to provide credits to be used as 
compensatory mitigation for DA permits.
    (2) Prospectus. The prospectus must provide a summary of the 
information regarding the proposed mitigation bank or in-lieu fee 
program, at a sufficient level of detail to support informed public and 
IRT comment. The review process begins when the sponsor submits a 
complete prospectus to the district engineer. For modifications of 
approved instruments, submittal of a new prospectus is not required; 
instead, the sponsor must submit a written request for an instrument 
modification accompanied by appropriate documentation. The district 
engineer must notify the sponsor within 30 days whether or not a 
submitted prospectus is complete. A complete prospectus includes the 
following information:
    (i) The objectives of the proposed mitigation bank or in-lieu fee 
program.
    (ii) How the mitigation bank or in-lieu fee program will be 
established and operated.
    (iii) The proposed service area.
    (iv) The general need for and technical feasibility of the proposed 
mitigation bank or in-lieu fee program.
    (v) The proposed ownership arrangements and long-term management 
strategy for the mitigation bank or in-lieu fee project sites.
    (vi) The qualifications of the sponsor to successfully complete the 
type(s) of mitigation project(s) proposed, including information 
describing any past such activities by the sponsor.
    (vii) For a proposed mitigation bank, the prospectus must also 
address:
    (A) The ecological suitability of the site to achieve the 
objectives of the proposed mitigation bank, including the physical, 
chemical, and biological characteristics of the bank site and how that 
site will support the planned types of aquatic resources and functions; 
and
    (B) Assurance of sufficient water rights to support the long-term 
sustainability of the mitigation bank.
    (viii) For a proposed in-lieu fee program, the prospectus must also 
include:
    (A) The compensation planning framework (see paragraph (c) of this 
section); and
    (B) A description of the in-lieu fee program account required by 
paragraph (i) of this section.
    (3) Preliminary review of prospectus. Prior to submitting a 
prospectus, the sponsor may elect to submit a draft prospectus to the 
district engineer for comment and consultation. The district engineer 
will provide copies of the draft prospectus to the IRT and will provide 
comments back to the sponsor within 30 days. Any comments from IRT 
members will also be forwarded to the sponsor. This preliminary review 
is optional but is strongly recommended. It is intended to identify 
potential issues early so that the sponsor may attempt to address those 
issues prior to the start of the formal review process.
    (4) Public review and comment. Within 30 days of receipt of a 
complete prospectus or an instrument modification request that will be 
processed in accordance with paragraph (g)(1) of this section, the 
district engineer will provide public notice of the proposed mitigation 
bank or in-lieu fee program, in accordance with the public notice 
procedures at 33 CFR 325.3. The public notice must, at a minimum, 
include a summary of the prospectus and indicate that the full 
prospectus is available to the public for review upon request. For 
modifications of approved instruments, the public notice must instead 
summarize, and make available to the public upon request, whatever 
documentation is appropriate for the modification (e.g., a

[[Page 19682]]

new or revised mitigation plan). The comment period for public notice 
will be 30 days, unless the district engineer determines that a longer 
comment period is appropriate. The district engineer will notify the 
sponsor if the comment period is extended beyond 30 days, including an 
explanation of why the longer comment period is necessary. Copies of 
all comments received in response to the public notice must be 
distributed to the other IRT members and to the sponsor within 15 days 
of the close of the public comment period. The district engineer and 
IRT members may also provide comments to the sponsor at this time, and 
copies of any such comments will also be distributed to all IRT 
members. If the construction of a mitigation bank or an in-lieu fee 
program project requires a DA permit, the public notice requirement may 
be satisfied through the public notice provisions of the permit 
processing procedures, provided all of the relevant information is 
provided.
    (5) Initial evaluation. (i) After the end of the comment period, 
the district engineer will review the comments received in response to 
the public notice, and make a written initial evaluation as to the 
potential of the proposed mitigation bank or in-lieu fee program to 
provide compensatory mitigation for activities authorized by DA 
permits. This initial evaluation letter must be provided to the sponsor 
within 30 days of the end of the public notice comment period.
    (ii) If the district engineer determines that the proposed 
mitigation bank or in-lieu fee program has potential for providing 
appropriate compensatory mitigation for activities authorized by DA 
permits, the initial evaluation letter will inform the sponsor that he/
she may proceed with preparation of the draft instrument (see paragraph 
(d)(6) of this section).
    (iii) If the district engineer determines that the proposed 
mitigation bank or in-lieu fee program does not have potential for 
providing appropriate compensatory mitigation for DA permits, the 
initial evaluation letter must discuss the reasons for that 
determination. The sponsor may revise the prospectus to address the 
district engineer's concerns, and submit the revised prospectus to the 
district engineer. If the sponsor submits a revised prospectus, a 
revised public notice will be issued in accordance with paragraph 
(d)(4) of this section.
    (iv) This initial evaluation procedure does not apply to proposed 
modifications of approved instruments.
    (6) Draft instrument. (i) After considering comments from the 
district engineer, the IRT, and the public, if the sponsor chooses to 
proceed with establishment of the mitigation bank or in-lieu fee 
program, he must prepare a draft instrument and submit it to the 
district engineer. In the case of an instrument modification, the 
sponsor must prepare a draft amendment (e.g., a specific instrument 
provision, a new or modified mitigation plan), and submit it to the 
district engineer. The district engineer must notify the sponsor within 
30 days of receipt, whether the draft instrument or amendment is 
complete. If the draft instrument or amendment is incomplete, the 
district engineer will request from the sponsor the information 
necessary to make the draft instrument or amendment complete. Once any 
additional information is submitted, the district engineer must notify 
the sponsor as soon as he determines that the draft instrument or 
amendment is complete. The draft instrument must be based on the 
prospectus and must describe in detail the physical and legal 
characteristics of the mitigation bank or in-lieu fee program and how 
it will be established and operated.
    (ii) For mitigation banks and in-lieu fee programs, the draft 
instrument must include the following information:
    (A) A description of the proposed geographic service area of the 
mitigation bank or in-lieu fee program. The service area is the 
watershed, ecoregion, physiographic province, and/or other geographic 
area within which the mitigation bank or in-lieu fee program is 
authorized to provide compensatory mitigation required by DA permits. 
The service area must be appropriately sized to ensure that the aquatic 
resources provided will effectively compensate for adverse 
environmental impacts across the entire service area. For example, in 
urban areas, a U.S. Geological Survey 8-digit hydrologic unit code 
(HUC) watershed or a smaller watershed may be an appropriate service 
area. In rural areas, several contiguous 8-digit HUCs or a 6-digit HUC 
watershed may be an appropriate service area. Delineation of the 
service area must also consider any locally-developed standards and 
criteria that may be applicable. The economic viability of the 
mitigation bank or in-lieu fee program may also be considered in 
determining the size of the service area. The basis for the proposed 
service area must be documented in the instrument. An in-lieu fee 
program or umbrella mitigation banking instrument may have multiple 
service areas governed by its instrument (e.g., each watershed within a 
state or Corps district may be a separate service area under the 
instrument); however, all impacts and compensatory mitigation must be 
accounted for by service area;
    (B) Accounting procedures;
    (C) A provision stating that legal responsibility for providing the 
compensatory mitigation lies with the sponsor once a permittee secures 
credits from the sponsor;
    (D) Default and closure provisions;
    (E) Reporting protocols; and
    (F) Any other information deemed necessary by the district 
engineer.
    (iii) For a mitigation bank, a complete draft instrument must 
include the following additional information:
    (A) Mitigation plans that include all applicable items listed in 
Sec.  332.4(c)(2) through (14); and
    (B) A credit release schedule, which is tied to achievement of 
specific milestones. All credit releases must be approved by the 
district engineer, in consultation with the IRT, based on a 
determination that required milestones have been achieved. The district 
engineer, in consultation with the IRT, may modify the credit release 
schedule, including reducing the number of available credits or 
suspending credit sales or transfers altogether, where necessary to 
ensure that all credit sales or transfers remain tied to compensatory 
mitigation projects with a high likelihood of meeting performance 
standards;
    (iv) For an in-lieu fee program, a complete draft instrument must 
include the following additional information:
    (A) The compensation planning framework (see paragraph (c) of this 
section);
    (B) Specification of the initial allocation of advance credits (see 
paragraph (n) of this section) and a draft fee schedule for these 
credits, by service area, including an explanation of the basis for the 
allocation and draft fee schedule;
    (C) A methodology for determining future project-specific credits 
and fees; and
    (D) A description of the in-lieu fee program account required by 
paragraph (i) of this section.
    (7) IRT review. Upon receipt of notification by the district 
engineer that the draft instrument or amendment is complete, the 
sponsor must provide the district engineer with a sufficient number of 
copies of the draft instrument or amendment to distribute to the IRT 
members. The district engineer will promptly distribute copies of the 
draft instrument or amendment to the IRT members for a 30-day comment 
period. The 30-day comment period begins 5 days after the district 
engineer distributes the copies of the draft instrument or amendment to 
the IRT.

[[Page 19683]]

Following the comment period, the district engineer will discuss any 
comments with the appropriate agencies and with the sponsor. The 
district engineer will seek to resolve issues using a consensus based 
approach, to the extent practicable, while still meeting the decision-
making time frames specified in this section. Within 90 days of receipt 
of the complete draft instrument or amendment by the IRT members, the 
district engineer must notify the sponsor of the status of the IRT 
review. Specifically, the district engineer must indicate to the 
sponsor if the draft instrument or amendment is generally acceptable 
and what changes, if any, are needed. If there are significant 
unresolved concerns that may lead to a formal objection from one or 
more IRT members to the final instrument or amendment, the district 
engineer will indicate the nature of those concerns.
    (8) Final instrument. The sponsor must submit a final instrument to 
the district engineer for approval, with supporting documentation that 
explains how the final instrument addresses the comments provided by 
the IRT. For modifications of approved instruments, the sponsor must 
submit a final amendment to the district engineer for approval, with 
supporting documentation that explains how the final amendment 
addresses the comments provided by the IRT. The final instrument or 
amendment must be provided directly by the sponsor to all members of 
the IRT. Within 30 days of receipt of the final instrument or 
amendment, the district engineer will notify the IRT members whether or 
not he intends to approve the instrument or amendment. If no IRT member 
objects, by initiating the dispute resolution process in paragraph (e) 
of this section within 45 days of receipt of the final instrument or 
amendment, the district engineer will notify the sponsor of his final 
decision and, if the instrument or amendment is approved, arrange for 
it to be signed by the appropriate parties. If any IRT member initiates 
the dispute resolution process, the district engineer will notify the 
sponsor. Following conclusion of the dispute resolution process, the 
district engineer will notify the sponsor of his final decision, and if 
the instrument or amendment is approved, arrange for it to be signed by 
the appropriate parties. For mitigation banks, the final instrument 
must contain the information items listed in paragraphs (d)(6)(ii), and 
(iii) of this section. For in-lieu fee programs, the final instrument 
must contain the information items listed in paragraphs (d)(6)(ii) and 
(iv) of this section. For the modification of an approved instrument, 
the amendment must contain appropriate information, as determined by 
the district engineer. The final instrument or amendment must be made 
available to the public upon request.
    (e) Dispute resolution process. (1) Within 15 days of receipt of 
the district engineer's notification of intent to approve an instrument 
or amendment, the Regional Administrator of the U.S. EPA, the Regional 
Director of the U.S. Fish and Wildlife Service, the Regional Director 
of the National Marine Fisheries Service, and/or other senior officials 
of agencies represented on the IRT may notify the district engineer and 
other IRT members by letter if they object to the approval of the 
proposed final instrument or amendment. This letter must include an 
explanation of the basis for the objection and, where feasible, offer 
recommendations for resolving the objections. If the district engineer 
does not receive any objections within this time period, he may proceed 
to final action on the instrument or amendment.
    (2) The district engineer must respond to the objection within 30 
days of receipt of the letter. The district engineer's response may 
indicate an intent to disapprove the instrument or amendment as a 
result of the objection, an intent to approve the instrument or 
amendment despite the objection, or may provide a modified instrument 
or amendment that attempts to address the objection. The district 
engineer's response must be provided to all IRT members.
    (3) Within 15 days of receipt of the district engineer's response, 
if the Regional Administrator or Regional Director is not satisfied 
with the response he may forward the issue to the Assistant 
Administrator for Water of the U.S. EPA, the Assistant Secretary for 
Fish and Wildlife and Parks of the U.S. FWS, or the Undersecretary for 
Oceans and Atmosphere of NOAA, as appropriate, for review and must 
notify the district engineer by letter via electronic mail or facsimile 
machine (with copies to all IRT members) that the issue has been 
forwarded for Headquarters review. This step is available only to the 
IRT members representing these three federal agencies, however other 
IRT members who do not agree with the district engineer's final 
decision do not have to sign the instrument or amendment or recognize 
the mitigation bank or in-lieu fee program for purposes of their own 
programs and authorities. If an IRT member other than the one filing 
the original objection has a new objection based on the district 
engineer's response, he may use the first step in this procedure 
(paragraph (e)(1) of this section) to provide that objection to the 
district engineer.
    (4) If the issue has not been forwarded to the objecting agency's 
Headquarters, then the district engineer may proceed with final action 
on the instrument or amendment. If the issue has been forwarded to the 
objecting agency's Headquarters, the district engineer must hold in 
abeyance the final action on the instrument or amendment, pending 
Headquarters level review described below.
    (5) Within 20 days from the date of the letter requesting 
Headquarters level review, the Assistant Administrator for Water, the 
Assistant Secretary for Fish and Wildlife and Parks, or the 
Undersecretary for Oceans and Atmosphere must either notify the 
Assistant Secretary of the Army (Civil Works) (ASA(CW)) that further 
review will not be requested, or request that the ASA(CW) review the 
final instrument or amendment.
    (6) Within 30 days of receipt of the letter from the objecting 
agency's Headquarters request for ASA(CW)'s review of the final 
instrument, the ASA(CW), through the Director of Civil Works, must 
review the draft instrument or amendment and advise the district 
engineer on how to proceed with final action on that instrument or 
amendment. The ASA(CW) must immediately notify the Assistant 
Administrator for Water, the Assistant Secretary for Fish and Wildlife 
and Parks, and/or the Undersecretary for Oceans and Atmosphere of the 
final decision.
    (7) In cases where the dispute resolution procedure is used, the 
district engineer must notify the sponsor of his final decision within 
150 days of receipt of the final instrument or amendment.
    (f) Extension of deadlines. (1) The deadlines in paragraphs (d) and 
(e) of this section may be extended by the district engineer at his 
sole discretion in cases where:
    (i) Compliance with other applicable laws, such as consultation 
under section 7 of the Endangered Species Act or section 106 of the 
National Historic Preservation Act, is required;
    (ii) It is necessary to conduct government-to-government 
consultation with Indian tribes;
    (iii) Timely submittal of information necessary for the review of 
the proposed mitigation bank or in-lieu fee program or the proposed 
modification of an approved instrument is not accomplished by the 
sponsor; or

[[Page 19684]]

    (iv) Information that is essential to the district engineer's 
decision cannot be reasonably obtained within the specified time frame.
    (2) In such cases, the district engineer must promptly notify the 
sponsor in writing of the extension and the reason for it. Such 
extensions shall be for the minimum time necessary to resolve the issue 
necessitating the extension.
    (g) Modification of instruments. (1) Approval of an amendment to an 
approved instrument. Modification of an approved instrument, including 
the addition and approval of umbrella mitigation bank sites or in-lieu 
fee project sites or expansions of previously approved mitigation bank 
or in-lieu fee project sites, must follow the appropriate procedures in 
paragraph (d) of this section, unless the district engineer determines 
that the streamlined review process described in paragraph (g)(2) of 
this section is warranted.
    (2) Streamlined review process. The streamlined modification review 
process may be used for the following modifications of instruments: 
changes reflecting adaptive management of the mitigation bank or in-
lieu fee program, credit releases, changes in credit releases and 
credit release schedules, and changes that the district engineer 
determines are not significant. If the district engineer determines 
that the streamlined review process is warranted, he must notify the 
IRT members and the sponsor of this determination and provide them with 
copies of the proposed modification. IRT members and the sponsor have 
30 days to notify the district engineer if they have concerns with the 
proposed modification. If IRT members or the sponsor notify the 
district engineer of such concerns, the district engineer shall attempt 
to resolve those concerns. Within 60 days of providing the proposed 
modification to the IRT, the district engineer must notify the IRT 
members of his intent to approve or disapprove the proposed 
modification. If no IRT member objects, by initiating the dispute 
resolution process in paragraph (e) of this section, within 15 days of 
receipt of this notification, the district engineer will notify the 
sponsor of his final decision and, if the modification is approved, 
arrange for it to be signed by the appropriate parties. If any IRT 
member initiates the dispute resolution process, the district engineer 
will so notify the sponsor. Following conclusion of the dispute 
resolution process, the district engineer will notify the sponsor of 
his final decision, and if the modification is approved, arrange for it 
to be signed by the appropriate parties.
    (h) Umbrella mitigation banking instruments. A single mitigation 
banking instrument may provide for future authorization of additional 
mitigation bank sites. As additional sites are selected, they must be 
included in the mitigation banking instrument as modifications, using 
the procedures in paragraph (g)(1) of this section. Credit withdrawal 
from the additional bank sites shall be consistent with paragraph (m) 
of this section.
    (i) In-lieu fee program account. (1) The in-lieu fee program 
sponsor must establish a program account after the instrument is 
approved by the district engineer, prior to accepting any fees from 
permittees. If the sponsor accepts funds from entities other than 
permittees, those funds must be kept in separate accounts. The program 
account must be established at a financial institution that is a member 
of the Federal Deposit Insurance Corporation. All interests and 
earnings accruing to the program account must remain in that account 
for use by the in-lieu fee program for the purposes of providing 
compensatory mitigation for DA permits. The program account may only be 
used for the selection, design, acquisition, implementation, and 
management of in-lieu fee compensatory mitigation projects, except for 
a small percentage (as determined by the district engineer in 
consultation with the IRT and specified in the instrument) that can be 
used for administrative costs.
    (2) The sponsor must submit proposed in-lieu fee projects to the 
district engineer for funding approval. Disbursements from the program 
account may only be made upon receipt of written authorization from the 
district engineer, after the district engineer has consulted with the 
IRT. The terms of the program account must specify that the district 
engineer has the authority to direct those funds to alternative 
compensatory mitigation projects in cases where the sponsor does not 
provide compensatory mitigation in accordance with the time frame 
specified in paragraph (n)(4) of this section.
    (3) The sponsor must provide annual reports to the district 
engineer and the IRT. The annual reports must include the following 
information:
    (i) All income received, disbursements, and interest earned by the 
program account;
    (ii) A list of all permits for which in-lieu fee program funds were 
accepted. This list shall include: The Corps permit number (or the 
state permit number if there is no corresponding Corps permit number, 
in cases of state programmatic general permits or other regional 
general permits), the service area in which the authorized impacts are 
located, the amount of authorized impacts, the amount of required 
compensatory mitigation, the amount paid to the in-lieu fee program, 
and the date the funds were received from the permittee;
    (iii) A description of in-lieu fee program expenditures from the 
account, such as the costs of land acquisition, planning, construction, 
monitoring, maintenance, contingencies, adaptive management, and 
administration;
    (iv) The balance of advance credits and released credits at the end 
of the report period for each service area; and
    (v) Any other information required by the district engineer.
    (4) The district engineer may audit the records pertaining to the 
program account. All books, accounts, reports, files, and other records 
relating to the in-lieu fee program account shall be available at 
reasonable times for inspection and audit by the district engineer.
    (j) In-lieu fee project approval. (1) As in-lieu fee project sites 
are identified and secured, the sponsor must submit mitigation plans to 
the district engineer that include all applicable items listed in Sec.  
332.4(c)(2) through (14). The mitigation plan must also include a 
credit release schedule consistent with paragraph (o)(8) of this 
section that is tied to achievement of specific performance standards. 
The review and approval of in-lieu fee projects will be conducted in 
accordance with the procedures in paragraph (g)(1) of this section, as 
modifications of the in-lieu fee program instrument. This includes 
compensatory mitigation projects conducted by another party on behalf 
of the sponsor through requests for proposals and awarding of 
contracts.
    (2) If a DA permit is required for an in-lieu fee project, the 
permit should not be issued until all relevant provisions of the 
mitigation plan have been substantively determined, to ensure that the 
DA permit accurately reflects all relevant provisions of the approved 
mitigation plan, such as performance standards.
    (k) Coordination of mitigation banking instruments and DA permit 
issuance. In cases where initial establishment of the mitigation bank, 
or the development of a new project site under an umbrella banking 
instrument, involves activities requiring DA authorization, the permit 
should not be issued until all relevant provisions of the mitigation 
plan have been substantively determined. This is to

[[Page 19685]]

ensure that the DA permit accurately reflects all relevant provisions 
of the final instrument, such as performance standards.
    (l) Project implementation. (1) The sponsor must have an approved 
instrument prior to collecting funds from permittees to satisfy 
compensatory mitigation requirements for DA permits.
    (2) Authorization to sell credits to satisfy compensatory 
mitigation requirements in DA permits is contingent on compliance with 
all of the terms of the instrument. This includes constructing a 
mitigation bank or in-lieu fee project in accordance with the 
mitigation plan approved by the district engineer and incorporated by 
reference in the instrument. If the aquatic resource restoration, 
establishment, enhancement, and/or preservation activities cannot be 
implemented in accordance with the approved mitigation plan, the 
district engineer must consult with the sponsor and the IRT to consider 
modifications to the instrument, including adaptive management, 
revisions to the credit release schedule, and alternatives for 
providing compensatory mitigation to satisfy any credits that have 
already been sold.
    (3) An in-lieu fee program sponsor is responsible for the 
implementation, long-term management, and any required remediation of 
the restoration, establishment, enhancement, and/or preservation 
activities, even though those activities may be conducted by other 
parties through requests for proposals or other contracting mechanisms.
    (m) Credit withdrawal from mitigation banks. The mitigation banking 
instrument may allow for an initial debiting of a percentage of the 
total credits projected at mitigation bank maturity, provided the 
following conditions are satisfied: the mitigation banking instrument 
and mitigation plan have been approved, the mitigation bank site has 
been secured, appropriate financial assurances have been established, 
and any other requirements determined to be necessary by the district 
engineer have been fulfilled. The mitigation banking instrument must 
provide a schedule for additional credit releases as appropriate 
milestones are achieved (see paragraph (o)(8) of this section). 
Implementation of the approved mitigation plan shall be initiated no 
later than the first full growing season after the date of the first 
credit transaction.
    (n) Advance credits for in-lieu fee programs. (1) The in-lieu fee 
program instrument may make a limited number of advance credits 
available to permittees when the instrument is approved. The number of 
advance credits will be determined by the district engineer, in 
consultation with the IRT, and will be specified for each service area 
in the instrument. The number of advance credits will be based on the 
following considerations:
    (i) The compensation planning framework;
    (ii) The sponsor's past performance for implementing aquatic 
resource restoration, establishment, enhancement, and/or preservation 
activities in the proposed service area or other areas; and
    (iii) The projected financing necessary to begin planning and 
implementation of in-lieu fee projects.
    (2) To determine the appropriate number of advance credits for a 
particular service area, the district engineer may require the sponsor 
to provide confidential supporting information that will not be made 
available to the general public. Examples of confidential supporting 
information may include prospective in-lieu fee project sites.
    (3) As released credits are produced by in-lieu fee projects, they 
must be used to fulfill any advance credits that have already been 
provided within the project service area before any remaining released 
credits can be sold or transferred to permittees. Once previously 
provided advance credits have been fulfilled, an equal number of 
advance credits is re-allocated to the sponsor for sale or transfer to 
fulfill new mitigation requirements, consistent with the terms of the 
instrument. The number of advance credits available to the sponsor at 
any given time to sell or transfer to permittees in a given service 
area is equal to the number of advance credits specified in the 
instrument, minus any that have already been provided but not yet 
fulfilled.
    (4) Land acquisition and initial physical and biological 
improvements must be completed by the third full growing season after 
the first advance credit in that service area is secured by a 
permittee, unless the district engineer determines that more or less 
time is needed to plan and implement an in-lieu fee project. If the 
district engineer determines that there is a compensatory mitigation 
deficit in a specific service area by the third growing season after 
the first advance credit in that service area is sold, and determines 
that it would not be in the public interest to allow the sponsor 
additional time to plan and implement an in-lieu fee project, the 
district engineer must direct the sponsor to disburse funds from the 
in-lieu fee program account to provide alternative compensatory 
mitigation to fulfill those compensation obligations.
    (5) The sponsor is responsible for complying with the terms of the 
in-lieu fee program instrument. If the district engineer determines, as 
a result of review of annual reports on the operation of the in-lieu 
fee program (see paragraphs (p)(2) and (q)(1) of this section), that it 
is not performing in compliance with its instrument, the district 
engineer will take appropriate action, which may include suspension of 
credit sales, to ensure compliance with the in-lieu fee program 
instrument (see paragraph (o)(10) of this section). Permittees that 
secured credits from the in-lieu fee program are not responsible for 
in-lieu fee program compliance.
    (o) Determining credits. (1) Units of measure. The principal units 
for credits and debits are acres, linear feet, functional assessment 
units, or other suitable metrics of particular resource types. 
Functional assessment units or other suitable metrics may be linked to 
acres or linear feet.
    (2) Assessment. Where practicable, an appropriate assessment method 
(e.g., hydrogeomorphic approach to wetlands functional assessment, 
index of biological integrity) or other suitable metric must be used to 
assess and describe the aquatic resource types that will be restored, 
established, enhanced and/or preserved by the mitigation bank or in-
lieu fee project.
    (3) Credit production. The number of credits must reflect the 
difference between pre- and post-compensatory mitigation project site 
conditions, as determined by a functional or condition assessment or 
other suitable metric.
    (4) Credit value. Once a credit is debited (sold or transferred to 
a permittee), its value cannot change.
    (5) Credit costs. (i) The cost of compensatory mitigation credits 
provided by a mitigation bank or in-lieu fee program is determined by 
the sponsor.
    (ii) For in-lieu fee programs, the cost per unit of credit must 
include the expected costs associated with the restoration, 
establishment, enhancement, and/or preservation of aquatic resources in 
that service area. These costs must be based on full cost accounting, 
and include, as appropriate, expenses such as land acquisition, project 
planning and design, construction, plant materials, labor, legal fees, 
monitoring, and remediation or adaptive management activities, as well 
as administration of the in-lieu fee program. The cost per unit credit 
must also take into account contingency costs appropriate to the stage 
of project planning, including uncertainties in

[[Page 19686]]

construction and real estate expenses. The cost per unit of credit must 
also take into account the resources necessary for the long-term 
management and protection of the in-lieu fee project. In addition, the 
cost per unit credit must include financial assurances that are 
necessary to ensure successful completion of in-lieu fee projects.
    (6) Credits provided by preservation. These credits should be 
specified as acres, linear feet, or other suitable metrics of 
preservation of a particular resource type. In determining the 
compensatory mitigation requirements for DA permits using mitigation 
banks or in-lieu fee programs, the district engineer should apply a 
higher mitigation ratio if the requirements are to be met through the 
use of preservation credits. In determining this higher ratio, the 
district engineer must consider the relative importance of both the 
impacted and the preserved aquatic resources in sustaining watershed 
functions.
    (7) Credits provided by riparian areas, buffers, and uplands. These 
credits should be specified as acres, linear feet, or other suitable 
metrics of riparian area, buffer, and uplands, respectively. Non-
aquatic resources can only be used as compensatory mitigation for 
impacts to aquatic resources authorized by DA permits when those 
resources are essential to maintaining the ecological viability of 
adjoining aquatic resources. In determining the compensatory mitigation 
requirements for DA permits using mitigation banks and in-lieu fee 
programs, the district engineer may authorize the use of riparian area, 
buffer, and/or upland credits if he determines that these areas are 
essential to sustaining aquatic resource functions in the watershed and 
are the most appropriate compensation for the authorized impacts.
    (8) Credit release schedule. (i) General considerations. Release of 
credits must be tied to performance-based milestones (e.g., 
construction, planting, establishment of specified plant and animal 
communities). The credit release schedule should reserve a significant 
share of the total credits for release only after full achievement of 
ecological performance standards. When determining the credit release 
schedule, factors to be considered may include, but are not limited to: 
The method of providing compensatory mitigation credits (e.g., 
restoration), the likelihood of success, the nature and amount of work 
needed to generate the credits, and the aquatic resource type(s) and 
function(s) to be provided by the mitigation bank or in-lieu fee 
project. The district engineer will determine the credit release 
schedule, including the share to be released only after full 
achievement of performance standards, after consulting with the IRT. 
Once released, credits may only be used to satisfy compensatory 
mitigation requirements of a DA permit if the use of credits for a 
specific permit has been approved by the district engineer.
    (ii) For single-site mitigation banks, the terms of the credit 
release schedule must be specified in the mitigation banking 
instrument. The credit release schedule may provide for an initial 
debiting of a limited number of credits once the instrument is approved 
and other appropriate milestones are achieved (see paragraph (m) of 
this section).
    (iii) For in-lieu fee projects and umbrella mitigation bank sites, 
the terms of the credit release schedule must be specified in the 
approved mitigation plan. When an in-lieu fee project or umbrella 
mitigation bank site is implemented and is achieving the performance-
based milestones specified in the credit release schedule, credits are 
generated in accordance with the credit release schedule for the 
approved mitigation plan. If the in-lieu fee project or umbrella 
mitigation bank site does not achieve those performance-based 
milestones, the district engineer may modify the credit release 
schedule, including reducing the number of credits.
    (9) Credit release approval. Credit releases for mitigation banks 
and in-lieu fee projects must be approved by the district engineer. In 
order for credits to be released, the sponsor must submit documentation 
to the district engineer demonstrating that the appropriate milestones 
for credit release have been achieved and requesting the release. The 
district engineer will provide copies of this documentation to the IRT 
members for review. IRT members must provide any comments to the 
district engineer within 15 days of receiving this documentation. 
However, if the district engineer determines that a site visit is 
necessary, IRT members must provide any comments to the district 
engineer within 15 days of the site visit. The district engineer must 
schedule the site visit so that it occurs as soon as it is practicable, 
but the site visit may be delayed by seasonal considerations that 
affect the ability of the district engineer and the IRT to assess 
whether the applicable credit release milestones have been achieved. 
After full consideration of any comments received, the district 
engineer will determine whether the milestones have been achieved and 
the credits can be released. The district engineer shall make a 
decision within 30 days of the end of that comment period, and notify 
the sponsor and the IRT.
    (10) Suspension and termination. If the district engineer 
determines that the mitigation bank or in-lieu fee program is not 
meeting performance standards or complying with the terms of the 
instrument, appropriate action will be taken. Such actions may include, 
but are not limited to, suspending credit sales, adaptive management, 
decreasing available credits, utilizing financial assurances, and 
terminating the instrument.
    (p) Accounting procedures. (1) For mitigation banks, the instrument 
must contain a provision requiring the sponsor to establish and 
maintain a ledger to account for all credit transactions. Each time an 
approved credit transaction occurs, the sponsor must notify the 
district engineer.
    (2) For in-lieu fee programs, the instrument must contain a 
provision requiring the sponsor to establish and maintain an annual 
report ledger in accordance with paragraph (i)(3) of this section, as 
well as individual ledgers that track the production of released 
credits for each in-lieu fee project.
    (q) Reporting. (1) Ledger account. The sponsor must compile an 
annual ledger report showing the beginning and ending balance of 
available credits and permitted impacts for each resource type, all 
additions and subtractions of credits, and any other changes in credit 
availability (e.g., additional credits released, credit sales 
suspended). The ledger report must be submitted to the district 
engineer, who will distribute copies to the IRT members. The ledger 
report is part of the administrative record for the mitigation bank or 
in-lieu fee program. The district engineer will make the ledger report 
available to the public upon request.
    (2) Monitoring reports. The sponsor is responsible for monitoring 
the mitigation bank site or the in-lieu fee project site in accordance 
with the approved monitoring requirements to determine the level of 
success and identify problems requiring remedial action or adaptive 
management measures. Monitoring must be conducted in accordance with 
the requirements in Sec.  332.6, and at time intervals appropriate for 
the particular project type and until such time that the district 
engineer, in consultation with the IRT, has determined that the 
performance standards have been attained. The instrument must include 
requirements for periodic monitoring reports to be submitted to the 
district engineer, who will provide copies to other IRT members.

[[Page 19687]]

    (3) Financial assurance and long-term management funding report. 
The district engineer may require the sponsor to provide an annual 
report showing beginning and ending balances, including deposits into 
and any withdrawals from, the accounts providing funds for financial 
assurances and long-term management activities. The report should also 
include information on the amount of required financial assurances and 
the status of those assurances, including their potential expiration.
    (r) Use of credits. Except as provided below, all activities 
authorized by DA permits are eligible, at the discretion of the 
district engineer, to use mitigation banks or in-lieu fee programs to 
fulfill compensatory mitigation requirements for DA permits. The 
district engineer will determine the number and type(s) of credits 
required to compensate for the authorized impacts. Permit applicants 
may propose to use a particular mitigation bank or in-lieu fee program 
to provide the required compensatory mitigation. In such cases, the 
sponsor must provide the permit applicant with a statement of credit 
availability. The district engineer must review the permit applicant's 
compensatory mitigation proposal, and notify the applicant of his 
determination regarding the acceptability of using that mitigation bank 
or in-lieu fee program.
    (s) IRT concerns with use of credits. If, in the view of a member 
of the IRT, an issued permit or series of issued permits raises 
concerns about how credits from a particular mitigation bank or in-lieu 
fee program are being used to satisfy compensatory mitigation 
requirements (including concerns about whether credit use is consistent 
with the terms of the instrument), the IRT member may notify the 
district engineer in writing of the concern. The district engineer 
shall promptly consult with the IRT to address the concern. Resolution 
of the concern is at the discretion of the district engineer, 
consistent with applicable statutes, regulations, and policies 
regarding compensatory mitigation requirements for DA permits. Nothing 
in this section limits the authorities designated to IRT agencies under 
existing statutes or regulations.
    (t) Site protection. (1) For mitigation bank sites, real estate 
instruments, management plans, or other long-term mechanisms used for 
site protection must be finalized before any credits can be released.
    (2) For in-lieu fee project sites, real estate instruments, 
management plans, or other long-term protection mechanisms used for 
site protection must be finalized before advance credits can become 
released credits.
    (u) Long-term management. (1) The legal mechanisms and the party 
responsible for the long-term management and the protection of the 
mitigation bank site must be documented in the instrument or, in the 
case of umbrella mitigation banking instruments and in-lieu fee 
programs, the approved mitigation plans. The responsible party should 
make adequate provisions for the operation, maintenance, and long-term 
management of the compensatory mitigation project site. The long-term 
management plan should include a description of long-term management 
needs and identify the funding mechanism that will be used to meet 
those needs.
    (2) The instrument may contain provisions for the sponsor to 
transfer long-term management responsibilities to a land stewardship 
entity, such as a public agency, non-governmental organization, or 
private land manager.
    (3) The instrument or approved mitigation plan must address the 
financial arrangements and timing of any necessary transfer of long-
term management funds to the steward.
    (4) Where needed, the acquisition and protection of water rights 
should be secured and documented in the instrument or, in the case of 
umbrella mitigation banking instruments and in-lieu fee programs, the 
approved mitigation site plan.
    (v) Grandfathering of existing instruments. (1) Mitigation banking 
instruments. All mitigation banking instruments approved on or after 
July 9, 2008 must meet the requirements of this part. Mitigation banks 
approved prior to July 9, 2008 may continue to operate under the terms 
of their existing instruments. However, any modification to such a 
mitigation banking instrument on or after July 9, 2008, including 
authorization of additional sites under an umbrella mitigation banking 
instrument, expansion of an existing site, or addition of a different 
type of resource credits (e.g., stream credits to a wetland bank) must 
be consistent with the terms of this part.
    (2) In-lieu fee program instruments. All in-lieu fee program 
instruments approved on or after July 9, 2008 must meet the 
requirements of this part. In-lieu fee programs operating under 
instruments approved prior to July 9, 2008 may continue to operate 
under those instruments for two years after the effective date of this 
rule, after which time they must meet the requirements of this part, 
unless the district engineer determines that circumstances warrant an 
extension of up to three additional years. The district engineer must 
consult with the IRT before approving such extensions. Any revisions 
made to the in-lieu fee program instrument on or after July 9, 2008 
must be consistent with the terms of this part. Any approved project 
for which construction was completed under the terms of a previously 
approved instrument may continue to operate indefinitely under those 
terms if the district engineer determines that the project is providing 
appropriate mitigation substantially consistent with the terms of this 
part.

    Dated: March 28, 2008.
John Paul Woodley, Jr.,
Assistant Secretary of the Army, (Civil Works), Department of the Army.

Environmental Protection Agency

40 CFR Chapter I

0
For the reasons stated in the preamble, the Environmental Protection 
Agency amends 40 CFR part 230 as set forth below:

PART 230--SECTION 404(b)(1) GUIDELINES FOR SPECIFICATION OF 
DISPOSAL SITES FOR DREDGED OR FILL MATERIAL

0
1. The authority citation for part 230 continues to read as follows:

    Authority: Secs. 404(b) and 501(a) of the Clean Water Act of 
1977 (33 U.S.C. 1344(b) and 1361(a)).


Sec.  230.12  [Amended]

0
2. In Sec.  230.12(a)(2) remove the reference ``subpart H'' and add in 
its place the reference ``subparts H and J''.

Subpart H--[Amended]

0
3. In subpart H the Note following the subpart heading is amended by 
adding a sentence to the end to read as follows:

Subpart H--Actions To Minimize Adverse Effects

    Note: * * * Additional criteria for compensation measures are 
provided in subpart J of this part.


0
4. In Sec.  230.75 add a new sentence after the second sentence in 
paragraph (d) to read as follows:


Sec.  230.75  Actions affecting plant and animal populations.

* * * * *
    (d) * * * Additional criteria for compensation measures are 
provided in subpart J of this part. * * *
* * * * *

0
5. Add Subpart J to part 230 to read as follows:

[[Page 19688]]

Subpart J--Compensatory Mitigation for Losses of Aquatic Resources
Sec.
230.91 Purpose and general considerations.
230.92 Definitions.
230.93 General compensatory mitigation requirements.
230.94 Planning and documentation.
230.95 Ecological performance standards.
230.96 Monitoring.
230.97 Management.
230.98 Mitigation banks and in-lieu fee programs.

Subpart J--Compensatory Mitigation for Losses of Aquatic Resources


Sec.  230.91  Purpose and general considerations.

    (a) Purpose. (1) The purpose of this subpart is to establish 
standards and criteria for the use of all types of compensatory 
mitigation, including on-site and off-site permittee-responsible 
mitigation, mitigation banks, and in-lieu fee mitigation to offset 
unavoidable impacts to waters of the United States authorized through 
the issuance of permits by the U.S. Army Corps of Engineers (Corps) 
pursuant to section 404 of the Clean Water Act (33 U.S.C. 1344). This 
subpart implements section 314(b) of the 2004 National Defense 
Authorization Act (Pub. L. 108-136), which directs that the standards 
and criteria shall, to the maximum extent practicable, maximize 
available credits and opportunities for mitigation, provide for 
regional variations in wetland conditions, functions, and values, and 
apply equivalent standards and criteria to each type of compensatory 
mitigation. This subpart is intended to further clarify mitigation 
requirements established under the Corps and EPA regulations at 33 CFR 
part 320 and this part, respectively.
    (2) This subpart has been jointly developed by the Secretary of the 
Army, acting through the Chief of Engineers, and the Administrator of 
the Environmental Protection Agency. From time to time guidance on 
interpreting and implementing this subpart may be prepared jointly by 
EPA and the Corps at the national or regional level. No modifications 
to the basic application, meaning, or intent of this subpart will be 
made without further joint rulemaking by the Secretary of the Army, 
acting through the Chief of Engineers and the Administrator of the 
Environmental Protection Agency, pursuant to the Administrative 
Procedure Act (5 U.S.C. 551 et seq.).
    (b) Applicability. This subpart does not alter the circumstances 
under which compensatory mitigation is required or the definition of 
``waters of the United States,'' which is provided at Sec.  230.3(s). 
Use of resources as compensatory mitigation that are not otherwise 
subject to regulation under section 404 of the Clean Water Act does not 
in and of itself make them subject to such regulation.
    (c) Sequencing. (1) Nothing in this section affects the requirement 
that all DA permits subject to section 404 of the Clean Water Act 
comply with applicable provisions of this part.
    (2) Pursuant to these requirements, the district engineer will 
issue an individual section 404 permit only upon a determination that 
the proposed discharge complies with applicable provisions of 40 CFR 
part 230, including those which require the permit applicant to take 
all appropriate and practicable steps to avoid and minimize adverse 
impacts to waters of the United States. Practicable means available and 
capable of being done after taking into consideration cost, existing 
technology, and logistics in light of overall project purposes. 
Compensatory mitigation for unavoidable impacts may be required to 
ensure that an activity requiring a section 404 permit complies with 
the Section 404(b)(1) Guidelines.
    (3) Compensatory mitigation for unavoidable impacts may be required 
to ensure that an activity requiring a section 404 permit complies with 
the Section 404(b)(1) Guidelines. During the 404(b)(1) Guidelines 
compliance analysis, the district engineer may determine that a DA 
permit for the proposed activity cannot be issued because of the lack 
of appropriate and practicable compensatory mitigation options.
    (d) Accounting for regional variations. Where appropriate, district 
engineers shall account for regional characteristics of aquatic 
resource types, functions and services when determining performance 
standards and monitoring requirements for compensatory mitigation 
projects.
    (e) Relationship to other guidance documents. (1) This subpart 
applies instead of the ``Federal Guidance for the Establishment, Use, 
and Operation of Mitigation Banks,'' which was issued on November 28, 
1995, the ``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,'' which was issued on 
November 7, 2000, and Regulatory Guidance Letter 02-02, ``Guidance on 
Compensatory Mitigation Projects for Aquatic Resource Impacts Under the 
Corps Regulatory Program Pursuant to Section 404 of the Clean Water Act 
and Section 10 of the Rivers and Harbors Act of 1899'' which was issued 
on December 24, 2002. These guidance documents are no longer to be used 
as compensatory mitigation policy in the Corps Regulatory Program.
    (2) In addition, this subpart also applies instead of the 
provisions relating to the amount, type, and location of compensatory 
mitigation projects, including the use of preservation, in the February 
6, 1990, Memorandum of Agreement (MOA) between the Department of the 
Army and the Environmental Protection Agency on the Determination of 
Mitigation Under the Clean Water Act Section 404(b)(1) Guidelines. All 
other provisions of this MOA remain in effect.


Sec.  230.92  Definitions.

    For the purposes of this subpart, the following terms are defined:
    Adaptive management means the development of a management strategy 
that anticipates likely challenges associated with compensatory 
mitigation projects and provides for the implementation of actions to 
address those challenges, as well as unforeseen changes to those 
projects. It requires consideration of the risk, uncertainty, and 
dynamic nature of compensatory mitigation projects and guides 
modification of those projects to optimize performance. It includes the 
selection of appropriate measures that will ensure that the aquatic 
resource functions are provided and involves analysis of monitoring 
results to identify potential problems of a compensatory mitigation 
project and the identification and implementation of measures to 
rectify those problems.
    Advance credits means any credits of an approved in-lieu fee 
program that are available for sale prior to being fulfilled in 
accordance with an approved mitigation project plan. Advance credit 
sales require an approved in-lieu fee program instrument that meets all 
applicable requirements including a specific allocation of advance 
credits, by service area where applicable. The instrument must also 
contain a schedule for fulfillment of advance credit sales.
    Buffer means an upland, wetland, and/or riparian area that protects 
and/or enhances aquatic resource functions associated with wetlands, 
rivers, streams, lakes, marine, and estuarine systems from disturbances 
associated with adjacent land uses.
    Compensatory mitigation means the restoration (re-establishment or 
rehabilitation), establishment (creation), enhancement, and/or in 
certain circumstances preservation of aquatic resources for the 
purposes of offsetting unavoidable adverse impacts which remain after 
all appropriate and

[[Page 19689]]

practicable avoidance and minimization has been achieved.
    Compensatory mitigation project means compensatory mitigation 
implemented by the permittee as a requirement of a DA permit (i.e., 
permittee-responsible mitigation), or by a mitigation bank or an in-
lieu fee program.
    Condition means the relative ability of an aquatic resource to 
support and maintain a community of organisms having a species 
composition, diversity, and functional organization comparable to 
reference aquatic resources in the region.
    Credit means a unit of measure (e.g., a functional or areal measure 
or other suitable metric) representing the accrual or attainment of 
aquatic functions at a compensatory mitigation site. The measure of 
aquatic functions is based on the resources restored, established, 
enhanced, or preserved.
    DA means Department of the Army.
    Days means calendar days.
    Debit means a unit of measure (e.g., a functional or areal measure 
or other suitable metric) representing the loss of aquatic functions at 
an impact or project site. The measure of aquatic functions is based on 
the resources impacted by the authorized activity.
    Enhancement means the manipulation of the physical, chemical, or 
biological characteristics of an aquatic resource to heighten, 
intensify, or improve a specific aquatic resource function(s). 
Enhancement results in the gain of selected aquatic resource 
function(s), but may also lead to a decline in other aquatic resource 
function(s). Enhancement does not result in a gain in aquatic resource 
area.
    Establishment (creation) means the manipulation of the physical, 
chemical, or biological characteristics present to develop an aquatic 
resource that did not previously exist at an upland site. Establishment 
results in a gain in aquatic resource area and functions.
    Fulfillment of advance credit sales of an in-lieu fee program means 
application of credits released in accordance with a credit release 
schedule in an approved mitigation project plan to satisfy the 
mitigation requirements represented by the advance credits. Only after 
any advance credit sales within a service area have been fulfilled 
through the application of released credits from an in-lieu fee project 
(in accordance with the credit release schedule for an approved 
mitigation project plan), may additional released credits from that 
project be sold or transferred to permittees. When advance credits are 
fulfilled, an equal number of new advance credits is restored to the 
program sponsor for sale or transfer to permit applicants.
    Functional capacity means the degree to which an area of aquatic 
resource performs a specific function.
    Functions means the physical, chemical, and biological processes 
that occur in ecosystems.
    Impact means adverse effect.
    In-kind means a resource of a similar structural and functional 
type to the impacted resource.
    In-lieu fee program means a program involving the restoration, 
establishment, enhancement, and/or preservation of aquatic resources 
through funds paid to a governmental or non-profit natural resources 
management entity to satisfy compensatory mitigation requirements for 
DA permits. Similar to a mitigation bank, an in-lieu fee program sells 
compensatory mitigation credits to permittees whose obligation to 
provide compensatory mitigation is then transferred to the in-lieu 
program sponsor. However, the rules governing the operation and use of 
in-lieu fee programs are somewhat different from the rules governing 
operation and use of mitigation banks. The operation and use of an in-
lieu fee program are governed by an in-lieu fee program instrument.
    In-lieu fee program instrument means the legal document for the 
establishment, operation, and use of an in-lieu fee program.
    Instrument means mitigation banking instrument or in-lieu fee 
program instrument.
    Interagency Review Team (IRT) means an interagency group of 
federal, tribal, state, and/or local regulatory and resource agency 
representatives that reviews documentation for, and advises the 
district engineer on, the establishment and management of a mitigation 
bank or an in-lieu fee program.
    Mitigation bank means a site, or suite of sites, where resources 
(e.g., wetlands, streams, riparian areas) are restored, established, 
enhanced, and/or preserved for the purpose of providing compensatory 
mitigation for impacts authorized by DA permits. In general, a 
mitigation bank sells compensatory mitigation credits to permittees 
whose obligation to provide compensatory mitigation is then transferred 
to the mitigation bank sponsor. The operation and use of a mitigation 
bank are governed by a mitigation banking instrument.
    Mitigation banking instrument means the legal document for the 
establishment, operation, and use of a mitigation bank.
    Off-site means an area that is neither located on the same parcel 
of land as the impact site, nor on a parcel of land contiguous to the 
parcel containing the impact site.
    On-site means an area located on the same parcel of land as the 
impact site, or on a parcel of land contiguous to the impact site.
    Out-of-kind means a resource of a different structural and 
functional type from the impacted resource.
    Performance standards are observable or measurable physical 
(including hydrological), chemical and/or biological attributes that 
are used to determine if a compensatory mitigation project meets its 
objectives.
    Permittee-responsible mitigation means an aquatic resource 
restoration, establishment, enhancement, and/or preservation activity 
undertaken by the permittee (or an authorized agent or contractor) to 
provide compensatory mitigation for which the permittee retains full 
responsibility.
    Preservation means the removal of a threat to, or preventing the 
decline of, aquatic resources by an action in or near those aquatic 
resources. This term includes activities commonly associated with the 
protection and maintenance of aquatic resources through the 
implementation of appropriate legal and physical mechanisms. 
Preservation does not result in a gain of aquatic resource area or 
functions.
    Re-establishment means the manipulation of the physical, chemical, 
or biological characteristics of a site with the goal of returning 
natural/historic functions to a former aquatic resource. Re-
establishment results in rebuilding a former aquatic resource and 
results in a gain in aquatic resource area and functions.
    Reference aquatic resources are a set of aquatic resources that 
represent the full range of variability exhibited by a regional class 
of aquatic resources as a result of natural processes and anthropogenic 
disturbances.
    Rehabilitation means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of repairing 
natural/historic functions to a degraded aquatic resource. 
Rehabilitation results in a gain in aquatic resource function, but does 
not result in a gain in aquatic resource area.
    Release of credits means a determination by the district engineer, 
in consultation with the IRT, that credits associated with an approved 
mitigation plan are available for sale or transfer, or in the case of 
an in-lieu fee program, for fulfillment of advance credit sales. A 
proportion of projected credits for a specific mitigation bank or in-
lieu fee project may be released upon

[[Page 19690]]

approval of the mitigation plan, with additional credits released as 
milestones specified in the credit release schedule are achieved.
    Restoration means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of returning 
natural/historic functions to a former or degraded aquatic resource. 
For the purpose of tracking net gains in aquatic resource area, 
restoration is divided into two categories: re-establishment and 
rehabilitation.
    Riparian areas are lands adjacent to streams, rivers, lakes, and 
estuarine-marine shorelines. Riparian areas provide a variety of 
ecological functions and services and help improve or maintain local 
water quality.
    Service area means the geographic area within which impacts can be 
mitigated at a specific mitigation bank or an in-lieu fee program, as 
designated in its instrument.
    Services mean the benefits that human populations receive from 
functions that occur in ecosystems.
    Sponsor means any public or private entity responsible for 
establishing, and in most circumstances, operating a mitigation bank or 
in-lieu fee program.
    Standard permit means a standard, individual permit issued under 
the authority of section 404 of the Clean Water Act.
    Temporal loss is the time lag between the loss of aquatic resource 
functions caused by the permitted impacts and the replacement of 
aquatic resource functions at the compensatory mitigation site. Higher 
compensation ratios may be required to compensate for temporal loss. 
When the compensatory mitigation project is initiated prior to, or 
concurrent with, the permitted impacts, the district engineer may 
determine that compensation for temporal loss is not necessary, unless 
the resource has a long development time.
    Watershed means a land area that drains to a common waterway, such 
as a stream, lake, estuary, wetland, or ultimately the ocean.
    Watershed approach means an analytical process for making 
compensatory mitigation decisions that support the sustainability or 
improvement of aquatic resources in a watershed. It involves 
consideration of watershed needs, and how locations and types of 
compensatory mitigation projects address those needs. A landscape 
perspective is used to identify the types and locations of compensatory 
mitigation projects that will benefit the watershed and offset losses 
of aquatic resource functions and services caused by activities 
authorized by DA permits. The watershed approach may involve 
consideration of landscape scale, historic and potential aquatic 
resource conditions, past and projected aquatic resource impacts in the 
watershed, and terrestrial connections between aquatic resources when 
determining compensatory mitigation requirements for DA permits.
    Watershed plan means a plan developed by federal, tribal, state, 
and/or local government agencies or appropriate non-governmental 
organizations, in consultation with relevant stakeholders, for the 
specific goal of aquatic resource restoration, establishment, 
enhancement, and preservation. A watershed plan addresses aquatic 
resource conditions in the watershed, multiple stakeholder interests, 
and land uses. Watershed plans may also identify priority sites for 
aquatic resource restoration and protection. Examples of watershed 
plans include special area management plans, advance identification 
programs, and wetland management plans.


Sec.  230.93  General compensatory mitigation requirements.

    (a) General considerations. (1) The fundamental objective of 
compensatory mitigation is to offset environmental losses resulting 
from unavoidable impacts to waters of the United States authorized by 
DA permits. The district engineer must determine the compensatory 
mitigation to be required in a DA permit, based on what is practicable 
and capable of compensating for the aquatic resource functions that 
will be lost as a result of the permitted activity. When evaluating 
compensatory mitigation options, the district engineer will consider 
what would be environmentally preferable. In making this determination, 
the district engineer must assess the likelihood for ecological success 
and sustainability, the location of the compensation site relative to 
the impact site and their significance within the watershed, and the 
costs of the compensatory mitigation project. In many cases, the 
environmentally preferable compensatory mitigation may be provided 
through mitigation banks or in-lieu fee programs because they usually 
involve consolidating compensatory mitigation projects where 
ecologically appropriate, consolidating resources, providing financial 
planning and scientific expertise (which often is not practical for 
permittee-responsible compensatory mitigation projects), reducing 
temporal losses of functions, and reducing uncertainty over project 
success. Compensatory mitigation requirements must be commensurate with 
the amount and type of impact that is associated with a particular DA 
permit. Permit applicants are responsible for proposing an appropriate 
compensatory mitigation option to offset unavoidable impacts.
    (2) Compensatory mitigation may be performed using the methods of 
restoration, enhancement, establishment, and in certain circumstances 
preservation. Restoration should generally be the first option 
considered because the likelihood of success is greater and the impacts 
to potentially ecologically important uplands are reduced compared to 
establishment, and the potential gains in terms of aquatic resource 
functions are greater, compared to enhancement and preservation.
    (3) Compensatory mitigation projects may be sited on public or 
private lands. Credits for compensatory mitigation projects on public 
land must be based solely on aquatic resource functions provided by the 
compensatory mitigation project, over and above those provided by 
public programs already planned or in place. All compensatory 
mitigation projects must comply with the standards in this part, if 
they are to be used to provide compensatory mitigation for activities 
authorized by DA permits, regardless of whether they are sited on 
public or private lands and whether the sponsor is a governmental or 
private entity.
    (b) Type and location of compensatory mitigation. (1) When 
considering options for successfully providing the required 
compensatory mitigation, the district engineer shall consider the type 
and location options in the order presented in paragraphs (b)(2) 
through (b)(6) of this section. In general, the required compensatory 
mitigation should be located within the same watershed as the impact 
site, and should be located where it is most likely to successfully 
replace lost functions and services, taking into account such watershed 
scale features as aquatic habitat diversity, habitat connectivity, 
relationships to hydrologic sources (including the availability of 
water rights), trends in land use, ecological benefits, and 
compatibility with adjacent land uses. When compensating for impacts to 
marine resources, the location of the compensatory mitigation site 
should be chosen to replace lost functions and services within the same 
marine ecological system (e.g., reef complex, littoral drift cell). 
Compensation for impacts to aquatic resources in coastal watersheds 
(watersheds that include a tidal water body) should also be located in 
a coastal watershed where practicable. Compensatory mitigation projects

[[Page 19691]]

should not be located where they will increase risks to aviation by 
attracting wildlife to areas where aircraft-wildlife strikes may occur 
(e.g., near airports).
    (2) Mitigation bank credits. When permitted impacts are located 
within the service area of an approved mitigation bank, and the bank 
has the appropriate number and resource type of credits available, the 
permittee's compensatory mitigation requirements may be met by securing 
those credits from the sponsor. Since an approved instrument (including 
an approved mitigation plan and appropriate real estate and financial 
assurances) for a mitigation bank is required to be in place before its 
credits can begin to be used to compensate for authorized impacts, use 
of a mitigation bank can help reduce risk and uncertainty, as well as 
temporal loss of resource functions and services. Mitigation bank 
credits are not released for debiting until specific milestones 
associated with the mitigation bank site's protection and development 
are achieved, thus use of mitigation bank credits can also help reduce 
risk that mitigation will not be fully successful. Mitigation banks 
typically involve larger, more ecologically valuable parcels, and more 
rigorous scientific and technical analysis, planning and implementation 
than permittee-responsible mitigation. Also, development of a 
mitigation bank requires site identification in advance, project-
specific planning, and significant investment of financial resources 
that is often not practicable for many in-lieu fee programs. For these 
reasons, the district engineer should give preference to the use of 
mitigation bank credits when these considerations are applicable. 
However, these same considerations may also be used to override this 
preference, where appropriate, as, for example, where an in-lieu fee 
program has released credits available from a specific approved in-lieu 
fee project, or a permittee-responsible project will restore an 
outstanding resource based on rigorous scientific and technical 
analysis.
    (3) In-lieu fee program credits. Where permitted impacts are 
located within the service area of an approved in-lieu fee program, and 
the sponsor has the appropriate number and resource type of credits 
available, the permittee's compensatory mitigation requirements may be 
met by securing those credits from the sponsor. Where permitted impacts 
are not located in the service area of an approved mitigation bank, or 
the approved mitigation bank does not have the appropriate number and 
resource type of credits available to offset those impacts, in-lieu fee 
mitigation, if available, is generally preferable to permittee-
responsible mitigation. In-lieu fee projects typically involve larger, 
more ecologically valuable parcels, and more rigorous scientific and 
technical analysis, planning and implementation than permittee-
responsible mitigation. They also devote significant resources to 
identifying and addressing high-priority resource needs on a watershed 
scale, as reflected in their compensation planning framework. For these 
reasons, the district engineer should give preference to in-lieu fee 
program credits over permittee-responsible mitigation, where these 
considerations are applicable. However, as with the preference for 
mitigation bank credits, these same considerations may be used to 
override this preference where appropriate. Additionally, in cases 
where permittee-responsible mitigation is likely to successfully meet 
performance standards before advance credits secured from an in-lieu 
fee program are fulfilled, the district engineer should also give 
consideration to this factor in deciding between in-lieu fee mitigation 
and permittee-responsible mitigation.
    (4) Permittee-responsible mitigation under a watershed approach. 
Where permitted impacts are not in the service area of an approved 
mitigation bank or in-lieu fee program that has the appropriate number 
and resource type of credits available, permittee-responsible 
mitigation is the only option. Where practicable and likely to be 
successful and sustainable, the resource type and location for the 
required permittee-responsible compensatory mitigation should be 
determined using the principles of a watershed approach as outlined in 
paragraph (c) of this section.
    (5) Permittee-responsible mitigation through on-site and in-kind 
mitigation. In cases where a watershed approach is not practicable, the 
district engineer should consider opportunities to offset anticipated 
aquatic resource impacts by requiring on-site and in-kind compensatory 
mitigation. The district engineer must also consider the practicability 
of on-site compensatory mitigation and its compatibility with the 
proposed project.
    (6) Permittee-responsible mitigation through off-site and/or out-
of-kind mitigation. If, after considering opportunities for on-site, 
in-kind compensatory mitigation as provided in paragraph (b)(5) of this 
section, the district engineer determines that these compensatory 
mitigation opportunities are not practicable, are unlikely to 
compensate for the permitted impacts, or will be incompatible with the 
proposed project, and an alternative, practicable off-site and/or out-
of-kind mitigation opportunity is identified that has a greater 
likelihood of offsetting the permitted impacts or is environmentally 
preferable to on-site or in-kind mitigation, the district engineer 
should require that this alternative compensatory mitigation be 
provided.
    (c) Watershed approach to compensatory mitigation. (1) The district 
engineer must use a watershed approach to establish compensatory 
mitigation requirements in DA permits to the extent appropriate and 
practicable. Where a watershed plan is available, the district engineer 
will determine whether the plan is appropriate for use in the watershed 
approach for compensatory mitigation. In cases where the district 
engineer determines that an appropriate watershed plan is available, 
the watershed approach should be based on that plan. Where no such plan 
is available, the watershed approach should be based on information 
provided by the project sponsor or available from other sources. The 
ultimate goal of a watershed approach is to maintain and improve the 
quality and quantity of aquatic resources within watersheds through 
strategic selection of compensatory mitigation sites.
    (2) Considerations. (i) A watershed approach to compensatory 
mitigation considers the importance of landscape position and resource 
type of compensatory mitigation projects for the sustainability of 
aquatic resource functions within the watershed. Such an approach 
considers how the types and locations of compensatory mitigation 
projects will provide the desired aquatic resource functions, and will 
continue to function over time in a changing landscape. It also 
considers the habitat requirements of important species, habitat loss 
or conversion trends, sources of watershed impairment, and current 
development trends, as well as the requirements of other regulatory and 
non-regulatory programs that affect the watershed, such as storm water 
management or habitat conservation programs. It includes the protection 
and maintenance of terrestrial resources, such as non-wetland riparian 
areas and uplands, when those resources contribute to or improve the 
overall ecological functioning of aquatic resources in the watershed. 
Compensatory mitigation requirements determined through the watershed 
approach should not focus exclusively on specific functions (e.g., 
water quality or habitat for certain species), but should provide, 
where practicable, the

[[Page 19692]]

suite of functions typically provided by the affected aquatic resource.
    (ii) Locational factors (e.g., hydrology, surrounding land use) are 
important to the success of compensatory mitigation for impacted 
habitat functions and may lead to siting of such mitigation away from 
the project area. However, consideration should also be given to 
functions and services (e.g., water quality, flood control, shoreline 
protection) that will likely need to be addressed at or near the areas 
impacted by the permitted impacts.
    (iii) A watershed approach may include on-site compensatory 
mitigation, off-site compensatory mitigation (including mitigation 
banks or in-lieu fee programs), or a combination of on-site and off-
site compensatory mitigation.
    (iv) A watershed approach to compensatory mitigation should 
include, to the extent practicable, inventories of historic and 
existing aquatic resources, including identification of degraded 
aquatic resources, and identification of immediate and long-term 
aquatic resource needs within watersheds that can be met through 
permittee-responsible mitigation projects, mitigation banks, or in-lieu 
fee programs. Planning efforts should identify and prioritize aquatic 
resource restoration, establishment, and enhancement activities, and 
preservation of existing aquatic resources that are important for 
maintaining or improving ecological functions of the watershed. The 
identification and prioritization of resource needs should be as 
specific as possible, to enhance the usefulness of the approach in 
determining compensatory mitigation requirements.
    (v) A watershed approach is not appropriate in areas where 
watershed boundaries do not exist, such as marine areas. In such cases, 
an appropriate spatial scale should be used to replace lost functions 
and services within the same ecological system (e.g., reef complex, 
littoral drift cell).
    (3) Information Needs. (i) In the absence of a watershed plan 
determined by the district engineer under paragraph (c)(1) of this 
section to be appropriate for use in the watershed approach, the 
district engineer will use a watershed approach based on analysis of 
information regarding watershed conditions and needs, including 
potential sites for aquatic resource restoration activities and 
priorities for aquatic resource restoration and preservation. Such 
information includes: Current trends in habitat loss or conversion; 
cumulative impacts of past development activities, current development 
trends, the presence and needs of sensitive species; site conditions 
that favor or hinder the success of compensatory mitigation projects; 
and chronic environmental problems such as flooding or poor water 
quality.
    (ii) This information may be available from sources such as wetland 
maps; soil surveys; U.S. Geological Survey topographic and hydrologic 
maps; aerial photographs; information on rare, endangered and 
threatened species and critical habitat; local ecological reports or 
studies; and other information sources that could be used to identify 
locations for suitable compensatory mitigation projects in the 
watershed.
    (iii) The level of information and analysis needed to support a 
watershed approach must be commensurate with the scope and scale of the 
proposed impacts requiring a DA permit, as well as the functions lost 
as a result of those impacts.
    (4) Watershed Scale. The size of watershed addressed using a 
watershed approach should not be larger than is appropriate to ensure 
that the aquatic resources provided through compensation activities 
will effectively compensate for adverse environmental impacts resulting 
from activities authorized by DA permits. The district engineer should 
consider relevant environmental factors and appropriate locally-
developed standards and criteria when determining the appropriate 
watershed scale in guiding compensation activities.
    (d) Site selection. (1) The compensatory mitigation project site 
must be ecologically suitable for providing the desired aquatic 
resource functions. In determining the ecological suitability of the 
compensatory mitigation project site, the district engineer must 
consider, to the extent practicable, the following factors:
    (i) Hydrological conditions, soil characteristics, and other 
physical and chemical characteristics;
    (ii) Watershed-scale features, such as aquatic habitat diversity, 
habitat connectivity, and other landscape scale functions;
    (iii) The size and location of the compensatory mitigation site 
relative to hydrologic sources (including the availability of water 
rights) and other ecological features;
    (iv) Compatibility with adjacent land uses and watershed management 
plans;
    (v) Reasonably foreseeable effects the compensatory mitigation 
project will have on ecologically important aquatic or terrestrial 
resources (e.g., shallow sub-tidal habitat, mature forests), cultural 
sites, or habitat for federally- or state-listed threatened and 
endangered species; and
    (vi) Other relevant factors including, but not limited to, 
development trends, anticipated land use changes, habitat status and 
trends, the relative locations of the impact and mitigation sites in 
the stream network, local or regional goals for the restoration or 
protection of particular habitat types or functions (e.g., re-
establishment of habitat corridors or habitat for species of concern), 
water quality goals, floodplain management goals, and the relative 
potential for chemical contamination of the aquatic resources.
    (2) District engineers may require on-site, off-site, or a 
combination of on-site and off-site compensatory mitigation to replace 
permitted losses of aquatic resource functions and services.
    (3) Applicants should propose compensation sites adjacent to 
existing aquatic resources or where aquatic resources previously 
existed.
    (e) Mitigation type. (1) In general, in-kind mitigation is 
preferable to out-of-kind mitigation because it is most likely to 
compensate for the functions and services lost at the impact site. For 
example, tidal wetland compensatory mitigation projects are most likely 
to compensate for unavoidable impacts to tidal wetlands, while 
perennial stream compensatory mitigation projects are most likely to 
compensate for unavoidable impacts to perennial streams. Thus, except 
as provided in paragraph (e)(2) of this section, the required 
compensatory mitigation shall be of a similar type to the affected 
aquatic resource.
    (2) If the district engineer determines, using the watershed 
approach in accordance with paragraph (c) of this section that out-of-
kind compensatory mitigation will serve the aquatic resource needs of 
the watershed, the district engineer may authorize the use of such out-
of-kind compensatory mitigation. The basis for authorization of out-of-
kind compensatory mitigation must be documented in the administrative 
record for the permit action.
    (3) For difficult-to-replace resources (e.g., bogs, fens, springs, 
streams, Atlantic white cedar swamps) if further avoidance and 
minimization is not practicable, the required compensation should be 
provided, if practicable, through in-kind rehabilitation, enhancement, 
or preservation since there is greater certainty that these methods of 
compensation will successfully offset permitted impacts.
    (f) Amount of compensatory mitigation. (1) If the district engineer

[[Page 19693]]

determines that compensatory mitigation is necessary to offset 
unavoidable impacts to aquatic resources, the amount of required 
compensatory mitigation must be, to the extent practicable, sufficient 
to replace lost aquatic resource functions. In cases where appropriate 
functional or condition assessment methods or other suitable metrics 
are available, these methods should be used where practicable to 
determine how much compensatory mitigation is required. If a functional 
or condition assessment or other suitable metric is not used, a minimum 
one-to-one acreage or linear foot compensation ratio must be used.
    (2) The district engineer must require a mitigation ratio greater 
than one-to-one where necessary to account for the method of 
compensatory mitigation (e.g., preservation), the likelihood of 
success, differences between the functions lost at the impact site and 
the functions expected to be produced by the compensatory mitigation 
project, temporal losses of aquatic resource functions, the difficulty 
of restoring or establishing the desired aquatic resource type and 
functions, and/or the distance between the affected aquatic resource 
and the compensation site. The rationale for the required replacement 
ratio must be documented in the administrative record for the permit 
action.
    (3) If an in-lieu fee program will be used to provide the required 
compensatory mitigation, and the appropriate number and resource type 
of released credits are not available, the district engineer must 
require sufficient compensation to account for the risk and uncertainty 
associated with in-lieu fee projects that have not been implemented 
before the permitted impacts have occurred.
    (g) Use of mitigation banks and in-lieu fee programs. Mitigation 
banks and in-lieu fee programs may be used to compensate for impacts to 
aquatic resources authorized by general permits and individual permits, 
including after-the-fact permits, in accordance with the preference 
hierarchy in paragraph (b) of this section. Mitigation banks and in-
lieu fee programs may also be used to satisfy requirements arising out 
of an enforcement action, such as supplemental environmental projects.
    (h) Preservation. (1) Preservation may be used to provide 
compensatory mitigation for activities authorized by DA permits when 
all the following criteria are met:
    (i) The resources to be preserved provide important physical, 
chemical, or biological functions for the watershed;
    (ii) The resources to be preserved contribute significantly to the 
ecological sustainability of the watershed. In determining the 
contribution of those resources to the ecological sustainability of the 
watershed, the district engineer must use appropriate quantitative 
assessment tools, where available;
    (iii) Preservation is determined by the district engineer to be 
appropriate and practicable;
    (iv) The resources are under threat of destruction or adverse 
modifications; and
    (v) The preserved site will be permanently protected through an 
appropriate real estate or other legal instrument (e.g., easement, 
title transfer to state resource agency or land trust).
    (2) Where preservation is used to provide compensatory mitigation, 
to the extent appropriate and practicable the preservation shall be 
done in conjunction with aquatic resource restoration, establishment, 
and/or enhancement activities. This requirement may be waived by the 
district engineer where preservation has been identified as a high 
priority using a watershed approach described in paragraph (c) of this 
section, but compensation ratios shall be higher.
    (i) Buffers. District engineers may require the restoration, 
establishment, enhancement, and preservation, as well as the 
maintenance, of riparian areas and/or buffers around aquatic resources 
where necessary to ensure the long-term viability of those resources. 
Buffers may also provide habitat or corridors necessary for the 
ecological functioning of aquatic resources. If buffers are required by 
the district engineer as part of the compensatory mitigation project, 
compensatory mitigation credit will be provided for those buffers.
    (j) Relationship to other federal, tribal, state, and local 
programs. (1) Compensatory mitigation projects for DA permits may also 
be used to satisfy the environmental requirements of other programs, 
such as tribal, state, or local wetlands regulatory programs, other 
federal programs such as the Surface Mining Control and Reclamation 
Act, Corps civil works projects, and Department of Defense military 
construction projects, consistent with the terms and requirements of 
these programs and subject to the following considerations:
    (i) The compensatory mitigation project must include appropriate 
compensation required by the DA permit for unavoidable impacts to 
aquatic resources authorized by that permit.
    (ii) Under no circumstances may the same credits be used to provide 
mitigation for more than one permitted activity. However, where 
appropriate, compensatory mitigation projects, including mitigation 
banks and in-lieu fee projects, may be designed to holistically address 
requirements under multiple programs and authorities for the same 
activity.
    (2) Except for projects undertaken by federal agencies, or where 
federal funding is specifically authorized to provide compensatory 
mitigation, federally-funded aquatic resource restoration or 
conservation projects undertaken for purposes other than compensatory 
mitigation, such as the Wetlands Reserve Program, Conservation Reserve 
Program, and Partners for Wildlife Program activities, cannot be used 
for the purpose of generating compensatory mitigation credits for 
activities authorized by DA permits. However, compensatory mitigation 
credits may be generated by activities undertaken in conjunction with, 
but supplemental to, such programs in order to maximize the overall 
ecological benefits of the restoration or conservation project.
    (3) Compensatory mitigation projects may also be used to provide 
compensatory mitigation under the Endangered Species Act or for Habitat 
Conservation Plans, as long as they comply with the requirements of 
paragraph (j)(1) of this section.
    (k) Permit conditions. (1) The compensatory mitigation requirements 
for a DA permit, including the amount and type of compensatory 
mitigation, must be clearly stated in the special conditions of the 
individual permit or general permit verification (see 33 CFR 325.4 and 
330.6(a)). The special conditions must be enforceable.
    (2) For an individual permit that requires permittee-responsible 
mitigation, the special conditions must:
    (i) Identify the party responsible for providing the compensatory 
mitigation;
    (ii) Incorporate, by reference, the final mitigation plan approved 
by the district engineer;
    (iii) State the objectives, performance standards, and monitoring 
required for the compensatory mitigation project, unless they are 
provided in the approved final mitigation plan; and
    (iv) Describe any required financial assurances or long-term 
management provisions for the compensatory mitigation project, unless 
they are specified in the approved final mitigation plan.
    (3) For a general permit activity that requires permittee-
responsible compensatory mitigation, the special conditions must 
describe the compensatory mitigation proposal,

[[Page 19694]]

which may be either conceptual or detailed. The general permit 
verification must also include a special condition that states that the 
permittee cannot commence work in waters of the United States until the 
district engineer approves the final mitigation plan, unless the 
district engineer determines that such a special condition is not 
practicable and not necessary to ensure timely completion of the 
required compensatory mitigation. To the extent appropriate and 
practicable, special conditions of the general permit verification 
should also address the requirements of paragraph (k)(2) of this 
section.
    (4) If a mitigation bank or in-lieu fee program is used to provide 
the required compensatory mitigation, the special conditions must 
indicate whether a mitigation bank or in-lieu fee program will be used, 
and specify the number and resource type of credits the permittee is 
required to secure. In the case of an individual permit, the special 
condition must also identify the specific mitigation bank or in-lieu 
fee program that will be used. For general permit verifications, the 
special conditions may either identify the specific mitigation bank or 
in-lieu fee program, or state that the specific mitigation bank or in-
lieu fee program used to provide the required compensatory mitigation 
must be approved by the district engineer before the credits are 
secured.
    (l) Party responsible for compensatory mitigation. (1) For 
permittee-responsible mitigation, the special conditions of the DA 
permit must clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project.
    (2) For mitigation banks and in-lieu fee programs, the instrument 
must clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project(s). The instrument must also contain a 
provision expressing the sponsor's agreement to assume responsibility 
for a permittee's compensatory mitigation requirements, once that 
permittee has secured the appropriate number and resource type of 
credits from the sponsor and the district engineer has received the 
documentation described in paragraph (l)(3) of this section.
    (3) If use of a mitigation bank or in-lieu fee program is approved 
by the district engineer to provide part or all of the required 
compensatory mitigation for a DA permit, the permittee retains 
responsibility for providing the compensatory mitigation until the 
appropriate number and resource type of credits have been secured from 
a sponsor and the district engineer has received documentation that 
confirms that the sponsor has accepted the responsibility for providing 
the required compensatory mitigation. This documentation may consist of 
a letter or form signed by the sponsor, with the permit number and a 
statement indicating the number and resource type of credits that have 
been secured from the sponsor. Copies of this documentation will be 
retained in the administrative records for both the permit and the 
instrument. If the sponsor fails to provide the required compensatory 
mitigation, the district engineer may pursue measures against the 
sponsor to ensure compliance.
    (m) Timing. Implementation of the compensatory mitigation project 
shall be, to the maximum extent practicable, in advance of or 
concurrent with the activity causing the authorized impacts. The 
district engineer shall require, to the extent appropriate and 
practicable, additional compensatory mitigation to offset temporal 
losses of aquatic functions that will result from the permitted 
activity.
    (n) Financial assurances. (1) The district engineer shall require 
sufficient financial assurances to ensure a high level of confidence 
that the compensatory mitigation project will be successfully 
completed, in accordance with applicable performance standards. In 
cases where an alternate mechanism is available to ensure a high level 
of confidence that the compensatory mitigation will be provided and 
maintained (e.g., a formal, documented commitment from a government 
agency or public authority) the district engineer may determine that 
financial assurances are not necessary for that compensatory mitigation 
project.
    (2) The amount of the required financial assurances must be 
determined by the district engineer, in consultation with the project 
sponsor, and must be based on the size and complexity of the 
compensatory mitigation project, the degree of completion of the 
project at the time of project approval, the likelihood of success, the 
past performance of the project sponsor, and any other factors the 
district engineer deems appropriate. Financial assurances may be in the 
form of performance bonds, escrow accounts, casualty insurance, letters 
of credit, legislative appropriations for government sponsored 
projects, or other appropriate instruments, subject to the approval of 
the district engineer. The rationale for determining the amount of the 
required financial assurances must be documented in the administrative 
record for either the DA permit or the instrument. In determining the 
assurance amount, the district engineer shall consider the cost of 
providing replacement mitigation, including costs for land acquisition, 
planning and engineering, legal fees, mobilization, construction, and 
monitoring.
    (3) If financial assurances are required, the DA permit must 
include a special condition requiring the financial assurances to be in 
place prior to commencing the permitted activity.
    (4) Financial assurances shall be phased out once the compensatory 
mitigation project has been determined by the district engineer to be 
successful in accordance with its performance standards. The DA permit 
or instrument must clearly specify the conditions under which the 
financial assurances are to be released to the permittee, sponsor, and/
or other financial assurance provider, including, as appropriate, 
linkage to achievement of performance standards, adaptive management, 
or compliance with special conditions.
    (5) A financial assurance must be in a form that ensures that the 
district engineer will receive notification at least 120 days in 
advance of any termination or revocation. For third-party assurance 
providers, this may take the form of a contractual requirement for the 
assurance provider to notify the district engineer at least 120 days 
before the assurance is revoked or terminated.
    (6) Financial assurances shall be payable at the direction of the 
district engineer to his designee or to a standby trust agreement. When 
a standby trust is used (e.g., with performance bonds or letters of 
credit) all amounts paid by the financial assurance provider shall be 
deposited directly into the standby trust fund for distribution by the 
trustee in accordance with the district engineer's instructions.
    (o) Compliance with applicable law. The compensatory mitigation 
project must comply with all applicable federal, state, and local laws. 
The DA permit, mitigation banking instrument, or in-lieu fee program 
instrument must not require participation by the Corps or any other 
federal agency in project management, including receipt or management 
of financial assurances or long-term financing mechanisms, except as 
determined by the Corps or other agency to be consistent with its 
statutory authority, mission, and priorities.


Sec.  230.94  Planning and documentation.

    (a) Pre-application consultations. Potential applicants for 
standard

[[Page 19695]]

permits are encouraged to participate in pre-application meetings with 
the Corps and appropriate agencies to discuss potential mitigation 
requirements and information needs.
    (b) Public review and comment. (1) For an activity that requires a 
standard DA permit pursuant to section 404 of the Clean Water Act, the 
public notice for the proposed activity must contain a statement 
explaining how impacts associated with the proposed activity are to be 
avoided, minimized, and compensated for. This explanation shall 
address, to the extent that such information is provided in the 
mitigation statement required by 33 CFR 325.1(d)(7), the proposed 
avoidance and minimization and the amount, type, and location of any 
proposed compensatory mitigation, including any out-of-kind 
compensation, or indicate an intention to use an approved mitigation 
bank or in-lieu fee program. The level of detail provided in the public 
notice must be commensurate with the scope and scale of the impacts. 
The notice shall not include information that the district engineer and 
the permittee believe should be kept confidential for business 
purposes, such as the exact location of a proposed mitigation site that 
has not yet been secured. The permittee must clearly identify any 
information being claimed as confidential in the mitigation statement 
when submitted. In such cases, the notice must still provide enough 
information to enable the public to provide meaningful comment on the 
proposed mitigation.
    (2) For individual permits, district engineers must consider any 
timely comments and recommendations from other federal agencies; 
tribal, state, or local governments; and the public.
    (3) For activities authorized by letters of permission or general 
permits, the review and approval process for compensatory mitigation 
proposals and plans must be conducted in accordance with the terms and 
conditions of those permits and applicable regulations including the 
applicable provisions of this part.
    (c) Mitigation plan. (1) Preparation and Approval. (i) For 
individual permits, the permittee must prepare a draft mitigation plan 
and submit it to the district engineer for review. After addressing any 
comments provided by the district engineer, the permittee must prepare 
a final mitigation plan, which must be approved by the district 
engineer prior to issuing the individual permit. The approved final 
mitigation plan must be incorporated into the individual permit by 
reference. The final mitigation plan must include the items described 
in paragraphs (c)(2) through (c)(14) of this section, but the level of 
detail of the mitigation plan should be commensurate with the scale and 
scope of the impacts. As an alternative, the district engineer may 
determine that it would be more appropriate to address any of the items 
described in paragraphs (c)(2) through (c)(14) of this section as 
permit conditions, instead of components of a compensatory mitigation 
plan. For permittees who intend to fulfill their compensatory 
mitigation obligations by securing credits from approved mitigation 
banks or in-lieu fee programs, their mitigation plans need include only 
the items described in paragraphs (c)(5) and (c)(6) of this section, 
and the name of the specific mitigation bank or in-lieu fee program to 
be used.
    (ii) For general permits, if compensatory mitigation is required, 
the district engineer may approve a conceptual or detailed compensatory 
mitigation plan to meet required time frames for general permit 
verifications, but a final mitigation plan incorporating the elements 
in paragraphs (c)(2) through (c)(14) of this section, at a level of 
detail commensurate with the scale and scope of the impacts, must be 
approved by the district engineer before the permittee commences work 
in waters of the United States. As an alternative, the district 
engineer may determine that it would be more appropriate to address any 
of the items described in paragraphs (c)(2) through (c)(14) of this 
section as permit conditions, instead of components of a compensatory 
mitigation plan. For permittees who intend to fulfill their 
compensatory mitigation obligations by securing credits from approved 
mitigation banks or in-lieu fee programs, their mitigation plans need 
include only the items described in paragraphs (c)(5) and (c)(6) of 
this section, and either the name of the specific mitigation bank or 
in-lieu fee program to be used or a statement indicating that a 
mitigation bank or in-lieu fee program will be used (contingent upon 
approval by the district engineer).
    (iii) Mitigation banks and in-lieu fee programs must prepare a 
mitigation plan including the items in paragraphs (c)(2) through 
(c)(14) of this section for each separate compensatory mitigation 
project site. For mitigation banks and in-lieu fee programs, the 
preparation and approval process for mitigation plans is described in 
Sec.  230.98.
    (2) Objectives. A description of the resource type(s) and amount(s) 
that will be provided, the method of compensation (i.e., restoration, 
establishment, enhancement, and/or preservation), and the manner in 
which the resource functions of the compensatory mitigation project 
will address the needs of the watershed, ecoregion, physiographic 
province, or other geographic area of interest.
    (3) Site selection. A description of the factors considered during 
the site selection process. This should include consideration of 
watershed needs, on-site alternatives where applicable, and the 
practicability of accomplishing ecologically self-sustaining aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at the compensatory mitigation project site. (See Sec.  230.93(d).)
    (4) Site protection instrument. A description of the legal 
arrangements and instrument, including site ownership, that will be 
used to ensure the long-term protection of the compensatory mitigation 
project site (see Sec.  230.97(a)).
    (5) Baseline information. A description of the ecological 
characteristics of the proposed compensatory mitigation project site 
and, in the case of an application for a DA permit, the impact site. 
This may include descriptions of historic and existing plant 
communities, historic and existing hydrology, soil conditions, a map 
showing the locations of the impact and mitigation site(s) or the 
geographic coordinates for those site(s), and other site 
characteristics appropriate to the type of resource proposed as 
compensation. The baseline information should also include a 
delineation of waters of the United States on the proposed compensatory 
mitigation project site. A prospective permittee planning to secure 
credits from an approved mitigation bank or in-lieu fee program only 
needs to provide baseline information about the impact site, not the 
mitigation bank or in-lieu fee project site.
    (6) Determination of credits. A description of the number of 
credits to be provided, including a brief explanation of the rationale 
for this determination. (See Sec.  230.93(f).)
    (i) For permittee-responsible mitigation, this should include an 
explanation of how the compensatory mitigation project will provide the 
required compensation for unavoidable impacts to aquatic resources 
resulting from the permitted activity.
    (ii) For permittees intending to secure credits from an approved 
mitigation bank or in-lieu fee program, it should include the number 
and resource type of credits to be secured and how these were 
determined.
    (7) Mitigation work plan. Detailed written specifications and work 
descriptions for the compensatory

[[Page 19696]]

mitigation project, including, but not limited to, the geographic 
boundaries of the project; construction methods, timing, and sequence; 
source(s) of water, including connections to existing waters and 
uplands; methods for establishing the desired plant community; plans to 
control invasive plant species; the proposed grading plan, including 
elevations and slopes of the substrate; soil management; and erosion 
control measures. For stream compensatory mitigation projects, the 
mitigation work plan may also include other relevant information, such 
as planform geometry, channel form (e.g., typical channel cross-
sections), watershed size, design discharge, and riparian area 
plantings.
    (8) Maintenance plan. A description and schedule of maintenance 
requirements to ensure the continued viability of the resource once 
initial construction is completed.
    (9) Performance standards. Ecologically-based standards that will 
be used to determine whether the compensatory mitigation project is 
achieving its objectives. (See Sec.  230.95.)
    (10) Monitoring requirements. A description of parameters to be 
monitored in order to determine if the compensatory mitigation project 
is on track to meet performance standards and if adaptive management is 
needed. A schedule for monitoring and reporting on monitoring results 
to the district engineer must be included. (See Sec.  230.96.)
    (11) Long-term management plan. A description of how the 
compensatory mitigation project will be managed after performance 
standards have been achieved to ensure the long-term sustainability of 
the resource, including long-term financing mechanisms and the party 
responsible for long-term management. (See Sec.  230.97(d).)
    (12) Adaptive management plan. A management strategy to address 
unforeseen changes in site conditions or other components of the 
compensatory mitigation project, including the party or parties 
responsible for implementing adaptive management measures. The adaptive 
management plan will guide decisions for revising compensatory 
mitigation plans and implementing measures to address both foreseeable 
and unforeseen circumstances that adversely affect compensatory 
mitigation success. (See Sec.  230.97(c).)
    (13) Financial assurances. A description of financial assurances 
that will be provided and how they are sufficient to ensure a high 
level of confidence that the compensatory mitigation project will be 
successfully completed, in accordance with its performance standards 
(see Sec.  230.93(n)).
    (14) Other information. The district engineer may require 
additional information as necessary to determine the appropriateness, 
feasibility, and practicability of the compensatory mitigation project.


Sec.  230.95  Ecological performance standards.

    (a) The approved mitigation plan must contain performance standards 
that will be used to assess whether the project is achieving its 
objectives. Performance standards should relate to the objectives of 
the compensatory mitigation project, so that the project can be 
objectively evaluated to determine if it is developing into the desired 
resource type, providing the expected functions, and attaining any 
other applicable metrics (e.g., acres).
    (b) Performance standards must be based on attributes that are 
objective and verifiable. Ecological performance standards must be 
based on the best available science that can be measured or assessed in 
a practicable manner. Performance standards may be based on variables 
or measures of functional capacity described in functional assessment 
methodologies, measurements of hydrology or other aquatic resource 
characteristics, and/or comparisons to reference aquatic resources of 
similar type and landscape position. The use of reference aquatic 
resources to establish performance standards will help ensure that 
those performance standards are reasonably achievable, by reflecting 
the range of variability exhibited by the regional class of aquatic 
resources as a result of natural processes and anthropogenic 
disturbances. Performance standards based on measurements of hydrology 
should take into consideration the hydrologic variability exhibited by 
reference aquatic resources, especially wetlands. Where practicable, 
performance standards should take into account the expected stages of 
the aquatic resource development process, in order to allow early 
identification of potential problems and appropriate adaptive 
management.


Sec.  230.96  Monitoring.

    (a) General. (1) Monitoring the compensatory mitigation project 
site is necessary to determine if the project is meeting its 
performance standards, and to determine if measures are necessary to 
ensure that the compensatory mitigation project is accomplishing its 
objectives. The submission of monitoring reports to assess the 
development and condition of the compensatory mitigation project is 
required, but the content and level of detail for those monitoring 
reports must be commensurate with the scale and scope of the 
compensatory mitigation project, as well as the compensatory mitigation 
project type. The mitigation plan must address the monitoring 
requirements for the compensatory mitigation project, including the 
parameters to be monitored, the length of the monitoring period, the 
party responsible for conducting the monitoring, the frequency for 
submitting monitoring reports to the district engineer, and the party 
responsible for submitting those monitoring reports to the district 
engineer.
    (2) The district engineer may conduct site inspections on a regular 
basis (e.g., annually) during the monitoring period to evaluate 
mitigation site performance.
    (b) Monitoring period. The mitigation plan must provide for a 
monitoring period that is sufficient to demonstrate that the 
compensatory mitigation project has met performance standards, but not 
less than five years. A longer monitoring period must be required for 
aquatic resources with slow development rates (e.g., forested wetlands, 
bogs). Following project implementation, the district engineer may 
reduce or waive the remaining monitoring requirements upon a 
determination that the compensatory mitigation project has achieved its 
performance standards. Conversely the district engineer may extend the 
original monitoring period upon a determination that performance 
standards have not been met or the compensatory mitigation project is 
not on track to meet them. The district engineer may also revise 
monitoring requirements when remediation and/or adaptive management is 
required.
    (c) Monitoring reports. (1) The district engineer must determine 
the information to be included in monitoring reports. This information 
must be sufficient for the district engineer to determine how the 
compensatory mitigation project is progressing towards meeting its 
performance standards, and may include plans (such as as-built plans), 
maps, and photographs to illustrate site conditions. Monitoring reports 
may also include the results of functional, condition, or other 
assessments used to provide quantitative or qualitative measures of the 
functions provided by the compensatory mitigation project site.
    (2) The permittee or sponsor is responsible for submitting 
monitoring reports in accordance with the special conditions of the DA 
permit or the terms

[[Page 19697]]

of the instrument. Failure to submit monitoring reports in a timely 
manner may result in compliance action by the district engineer.
    (3) Monitoring reports must be provided by the district engineer to 
interested federal, tribal, state, and local resource agencies, and the 
public, upon request.


Sec.  230.97  Management.

    (a) Site protection. (1) The aquatic habitats, riparian areas, 
buffers, and uplands that comprise the overall compensatory mitigation 
project must be provided long-term protection through real estate 
instruments or other available mechanisms, as appropriate. Long-term 
protection may be provided through real estate instruments such as 
conservation easements held by entities such as federal, tribal, state, 
or local resource agencies, non-profit conservation organizations, or 
private land managers; the transfer of title to such entities; or by 
restrictive covenants. For government property, long-term protection 
may be provided through federal facility management plans or integrated 
natural resources management plans. When approving a method for long-
term protection of non-government property other than transfer of 
title, the district engineer shall consider relevant legal constraints 
on the use of conservation easements and/or restrictive covenants in 
determining whether such mechanisms provide sufficient site protection. 
To provide sufficient site protection, a conservation easement or 
restrictive covenant should, where practicable, establish in an 
appropriate third party (e.g., governmental or non-profit resource 
management agency) the right to enforce site protections and provide 
the third party the resources necessary to monitor and enforce these 
site protections.
    (2) The real estate instrument, management plan, or other mechanism 
providing long-term protection of the compensatory mitigation site 
must, to the extent appropriate and practicable, prohibit incompatible 
uses (e.g., clear cutting or mineral extraction) that might otherwise 
jeopardize the objectives of the compensatory mitigation project. Where 
appropriate, multiple instruments recognizing compatible uses (e.g., 
fishing or grazing rights) may be used.
    (3) The real estate instrument, management plan, or other long-term 
protection mechanism must contain a provision requiring 60-day advance 
notification to the district engineer before any action is taken to 
void or modify the instrument, management plan, or long-term protection 
mechanism, including transfer of title to, or establishment of any 
other legal claims over, the compensatory mitigation site.
    (4) For compensatory mitigation projects on public lands, where 
Federal facility management plans or integrated natural resources 
management plans are used to provide long-term protection, and changes 
in statute, regulation, or agency needs or mission results in an 
incompatible use on public lands originally set aside for compensatory 
mitigation, the public agency authorizing the incompatible use is 
responsible for providing alternative compensatory mitigation that is 
acceptable to the district engineer for any loss in functions resulting 
from the incompatible use.
    (5) A real estate instrument, management plan, or other long-term 
protection mechanism used for site protection of permittee-responsible 
mitigation must be approved by the district engineer in advance of, or 
concurrent with, the activity causing the authorized impacts.
    (b) Sustainability. Compensatory mitigation projects shall be 
designed, to the maximum extent practicable, to be self-sustaining once 
performance standards have been achieved. This includes minimization of 
active engineering features (e.g., pumps) and appropriate siting to 
ensure that natural hydrology and landscape context will support long-
term sustainability. Where active long-term management and maintenance 
are necessary to ensure long-term sustainability (e.g., prescribed 
burning, invasive species control, maintenance of water control 
structures, easement enforcement), the responsible party must provide 
for such management and maintenance. This includes the provision of 
long-term financing mechanisms where necessary. Where needed, the 
acquisition and protection of water rights must be secured and 
documented in the permit conditions or instrument.
    (c) Adaptive management. (1) If the compensatory mitigation project 
cannot be constructed in accordance with the approved mitigation plans, 
the permittee or sponsor must notify the district engineer. A 
significant modification of the compensatory mitigation project 
requires approval from the district engineer.
    (2) If monitoring or other information indicates that the 
compensatory mitigation project is not progressing towards meeting its 
performance standards as anticipated, the responsible party must notify 
the district engineer as soon as possible. The district engineer will 
evaluate and pursue measures to address deficiencies in the 
compensatory mitigation project. The district engineer will consider 
whether the compensatory mitigation project is providing ecological 
benefits comparable to the original objectives of the compensatory 
mitigation project.
    (3) The district engineer, in consultation with the responsible 
party (and other federal, tribal, state, and local agencies, as 
appropriate), will determine the appropriate measures. The measures may 
include site modifications, design changes, revisions to maintenance 
requirements, and revised monitoring requirements. The measures must be 
designed to ensure that the modified compensatory mitigation project 
provides aquatic resource functions comparable to those described in 
the mitigation plan objectives.
    (4) Performance standards may be revised in accordance with 
adaptive management to account for measures taken to address 
deficiencies in the compensatory mitigation project. Performance 
standards may also be revised to reflect changes in management 
strategies and objectives if the new standards provide for ecological 
benefits that are comparable or superior to the approved compensatory 
mitigation project. No other revisions to performance standards will be 
allowed except in the case of natural disasters.
    (d) Long-term management. (1) The permit conditions or instrument 
must identify the party responsible for ownership and all long-term 
management of the compensatory mitigation project. The permit 
conditions or instrument may contain provisions allowing the permittee 
or sponsor to transfer the long-term management responsibilities of the 
compensatory mitigation project site to a land stewardship entity, such 
as a public agency, non-governmental organization, or private land 
manager, after review and approval by the district engineer. The land 
stewardship entity need not be identified in the original permit or 
instrument, as long as the future transfer of long-term management 
responsibility is approved by the district engineer.
    (2) A long-term management plan should include a description of 
long-term management needs, annual cost estimates for these needs, and 
identify the funding mechanism that will be used to meet those needs.
    (3) Any provisions necessary for long-term financing must be 
addressed in the original permit or instrument. The district engineer 
may require provisions to address inflationary adjustments and other 
contingencies, as appropriate. Appropriate long-term financing

[[Page 19698]]

mechanisms include non-wasting endowments, trusts, contractual 
arrangements with future responsible parties, and other appropriate 
financial instruments. In cases where the long-term management entity 
is a public authority or government agency, that entity must provide a 
plan for the long-term financing of the site.
    (4) For permittee-responsible mitigation, any long-term financing 
mechanisms must be approved in advance of the activity causing the 
authorized impacts.


Sec.  230.98  Mitigation banks and in-lieu fee programs.

    (a) General considerations. (1) All mitigation banks and in-lieu 
fee programs must have an approved instrument signed by the sponsor and 
the district engineer prior to being used to provide compensatory 
mitigation for DA permits.
    (2) To the maximum extent practicable, mitigation banks and in-lieu 
fee project sites must be planned and designed to be self-sustaining 
over time, but some active management and maintenance may be required 
to ensure their long-term viability and sustainability. Examples of 
acceptable management activities include maintaining fire dependent 
habitat communities in the absence of natural fire and controlling 
invasive exotic plant species.
    (3) All mitigation banks and in-lieu fee programs must comply with 
the standards in this part, if they are to be used to provide 
compensatory mitigation for activities authorized by DA permits, 
regardless of whether they are sited on public or private lands and 
whether the sponsor is a governmental or private entity.
    (b) Interagency Review Team. (1) The district engineer will 
establish an Interagency Review Team (IRT) to review documentation for 
the establishment and management of mitigation banks and in-lieu fee 
programs. The district engineer or his designated representative serves 
as Chair of the IRT. In cases where a mitigation bank or in-lieu fee 
program is proposed to satisfy the requirements of another federal, 
tribal, state, or local program, in addition to compensatory mitigation 
requirements of DA permits, it may be appropriate for the administering 
agency to serve as co-Chair of the IRT.
    (2) In addition to the Corps, representatives from the U.S. 
Environmental Protection Agency, U.S. Fish and Wildlife Service, NOAA 
Fisheries, the Natural Resources Conservation Service, and other 
federal agencies, as appropriate, may participate in the IRT. The IRT 
may also include representatives from tribal, state, and local 
regulatory and resource agencies, where such agencies have authorities 
and/or mandates directly affecting, or affected by, the establishment, 
operation, or use of the mitigation bank or in-lieu fee program. The 
district engineer will seek to include all public agencies with a 
substantive interest in the establishment of the mitigation bank or in-
lieu fee program on the IRT, but retains final authority over its 
composition.
    (3) The primary role of the IRT is to facilitate the establishment 
of mitigation banks or in-lieu fee programs through the development of 
mitigation banking or in-lieu fee program instruments. The IRT will 
review the prospectus, instrument, and other appropriate documents and 
provide comments to the district engineer. The district engineer and 
the IRT should use a watershed approach to the extent practicable in 
reviewing proposed mitigation banks and in-lieu fee programs. Members 
of the IRT may also sign the instrument, if they so choose. By signing 
the instrument, the IRT members indicate their agreement with the terms 
of the instrument. As an alternative, a member of the IRT may submit a 
letter expressing concurrence with the instrument. The IRT will also 
advise the district engineer in assessing monitoring reports, 
recommending remedial or adaptive management measures, approving credit 
releases, and approving modifications to an instrument. In order to 
ensure timely processing of instruments and other documentation, 
comments from IRT members must be received by the district engineer 
within the time limits specified in this section. Comments received 
after these deadlines will only be considered at the discretion of the 
district engineer to the extent that doing so does not jeopardize the 
deadlines for district engineer action.
    (4) The district engineer will give full consideration to any 
timely comments and advice of the IRT. The district engineer alone 
retains final authority for approval of the instrument in cases where 
the mitigation bank or in-lieu fee program is used to satisfy 
compensatory mitigation requirements of DA permits.
    (5) MOAs with other agencies. The district engineer and members of 
the IRT may enter into a memorandum of agreement (MOA) with any other 
federal, state or local government agency to perform all or some of the 
IRT review functions described in this section. Such MOAs must include 
provisions for appropriate federal oversight of the review process. The 
district engineer retains sole authority for final approval of 
instruments and other documentation required under this section.
    (c) Compensation planning framework for in-lieu fee programs. (1) 
The approved instrument for an in-lieu fee program must include a 
compensation planning framework that will be used to select, secure, 
and implement aquatic resource restoration, establishment, enhancement, 
and/or preservation activities. The compensation planning framework 
must support a watershed approach to compensatory mitigation. All 
specific projects used to provide compensation for DA permits must be 
consistent with the approved compensation planning framework. 
Modifications to the framework must be approved as a significant 
modification to the instrument by the district engineer, after 
consultation with the IRT.
    (2) The compensation planning framework must contain the following 
elements:
    (i) The geographic service area(s), including a watershed-based 
rationale for the delineation of each service area;
    (ii) A description of the threats to aquatic resources in the 
service area(s), including how the in-lieu fee program will help offset 
impacts resulting from those threats;
    (iii) An analysis of historic aquatic resource loss in the service 
area(s);
    (iv) An analysis of current aquatic resource conditions in the 
service area(s), supported by an appropriate level of field 
documentation;
    (v) A statement of aquatic resource goals and objectives for each 
service area, including a description of the general amounts, types and 
locations of aquatic resources the program will seek to provide;
    (vi) A prioritization strategy for selecting and implementing 
compensatory mitigation activities;
    (vii) An explanation of how any preservation objectives identified 
in paragraph (c)(2)(v) of this section and addressed in the 
prioritization strategy in paragraph (c)(2)(vi) satisfy the criteria 
for use of preservation in Sec.  230.93(h);
    (viii) A description of any public and private stakeholder 
involvement in plan development and implementation, including, where 
appropriate, coordination with federal, state, tribal and local aquatic 
resource management and regulatory authorities;
    (ix) A description of the long-term protection and management 
strategies for activities conducted by the in-lieu fee program sponsor;

[[Page 19699]]

    (x) A strategy for periodic evaluation and reporting on the 
progress of the program in achieving the goals and objectives in 
paragraph (c)(2)(v) of this section, including a process for revising 
the planning framework as necessary; and
    (xi) Any other information deemed necessary for effective 
compensation planning by the district engineer.
    (3) The level of detail necessary for the compensation planning 
framework is at the discretion of the district engineer, and will take 
into account the characteristics of the service area(s) and the scope 
of the program. As part of the in-lieu fee program instrument, the 
compensation planning framework will be reviewed by the IRT, and will 
be a major factor in the district engineer's decision on whether to 
approve the instrument.
    (d) Review process. (1) The sponsor is responsible for preparing 
all documentation associated with establishment of the mitigation bank 
or in-lieu fee program, including the prospectus, instrument, and other 
appropriate documents, such as mitigation plans for a mitigation bank. 
The prospectus provides an overview of the proposed mitigation bank or 
in-lieu fee program and serves as the basis for public and initial IRT 
comment. For a mitigation bank, the mitigation plan, as described in 
Sec.  230.94(c), provides detailed plans and specifications for the 
mitigation bank site. For in-lieu fee programs, mitigation plans will 
be prepared as in-lieu fee project sites are identified after the 
instrument has been approved and the in-lieu fee program becomes 
operational. The instrument provides the authorization for the 
mitigation bank or in-lieu fee program to provide credits to be used as 
compensatory mitigation for DA permits.
    (2) Prospectus. The prospectus must provide a summary of the 
information regarding the proposed mitigation bank or in-lieu fee 
program, at a sufficient level of detail to support informed public and 
IRT comment. The review process begins when the sponsor submits a 
complete prospectus to the district engineer. For modifications of 
approved instruments, submittal of a new prospectus is not required; 
instead, the sponsor must submit a written request for an instrument 
modification accompanied by appropriate documentation. The district 
engineer must notify the sponsor within 30 days whether or not a 
submitted prospectus is complete. A complete prospectus includes the 
following information:
    (i) The objectives of the proposed mitigation bank or in-lieu fee 
program.
    (ii) How the mitigation bank or in-lieu fee program will be 
established and operated.
    (iii) The proposed service area.
    (iv) The general need for and technical feasibility of the proposed 
mitigation bank or in-lieu fee program.
    (v) The proposed ownership arrangements and long-term management 
strategy for the mitigation bank or in-lieu fee project sites.
    (vi) The qualifications of the sponsor to successfully complete the 
type(s) of mitigation project(s) proposed, including information 
describing any past such activities by the sponsor.
    (vii) For a proposed mitigation bank, the prospectus must also 
address:
    (A) The ecological suitability of the site to achieve the 
objectives of the proposed mitigation bank, including the physical, 
chemical, and biological characteristics of the bank site and how that 
site will support the planned types of aquatic resources and functions; 
and
    (B) Assurance of sufficient water rights to support the long-term 
sustainability of the mitigation bank.
    (viii) For a proposed in-lieu fee program, the prospectus must also 
include:
    (A) The compensation planning framework (see paragraph (c) of this 
section); and
    (B) A description of the in-lieu fee program account required by 
paragraph (i) of this section.
    (3) Preliminary review of prospectus. Prior to submitting a 
prospectus, the sponsor may elect to submit a draft prospectus to the 
district engineer for comment and consultation. The district engineer 
will provide copies of the draft prospectus to the IRT and will provide 
comments back to the sponsor within 30 days. Any comments from IRT 
members will also be forwarded to the sponsor. This preliminary review 
is optional but is strongly recommended. It is intended to identify 
potential issues early so that the sponsor may attempt to address those 
issues prior to the start of the formal review process.
    (4) Public review and comment. Within 30 days of receipt of a 
complete prospectus or an instrument modification request that will be 
processed in accordance with paragraph (g)(1) of this section, the 
district engineer will provide public notice of the proposed mitigation 
bank or in-lieu fee program, in accordance with the public notice 
procedures at 33 CFR 325.3. The public notice must, at a minimum, 
include a summary of the prospectus and indicate that the full 
prospectus is available to the public for review upon request. For 
modifications of approved instruments, the public notice must instead 
summarize, and make available to the public upon request, whatever 
documentation is appropriate for the modification (e.g., a new or 
revised mitigation plan). The comment period for public notice will be 
30 days, unless the district engineer determines that a longer comment 
period is appropriate. The district engineer will notify the sponsor if 
the comment period is extended beyond 30 days, including an explanation 
of why the longer comment period is necessary. Copies of all comments 
received in response to the public notice must be distributed to the 
other IRT members and to the sponsor within 15 days of the close of the 
public comment period. The district engineer and IRT members may also 
provide comments to the sponsor at this time, and copies of any such 
comments will also be distributed to all IRT members. If the 
construction of a mitigation bank or an in-lieu fee program project 
requires a DA permit, the public notice requirement may be satisfied 
through the public notice provisions of the permit processing 
procedures, provided all of the relevant information is provided.
    (5) Initial evaluation. (i) After the end of the comment period, 
the district engineer will review the comments received in response to 
the public notice, and make a written initial evaluation as to the 
potential of the proposed mitigation bank or in-lieu fee program to 
provide compensatory mitigation for activities authorized by DA 
permits. This initial evaluation letter must be provided to the sponsor 
within 30 days of the end of the public notice comment period.
    (ii) If the district engineer determines that the proposed 
mitigation bank or in-lieu fee program has potential for providing 
appropriate compensatory mitigation for activities authorized by DA 
permits, the initial evaluation letter will inform the sponsor that he/
she may proceed with preparation of the draft instrument (see paragraph 
(d)(6) of this section).
    (iii) If the district engineer determines that the proposed 
mitigation bank or in-lieu fee program does not have potential for 
providing appropriate compensatory mitigation for DA permits, the 
initial evaluation letter must discuss the reasons for that 
determination. The sponsor may revise the prospectus to address the 
district engineer's concerns, and submit the revised prospectus to the 
district engineer. If the sponsor submits a revised prospectus, a 
revised public notice will be issued in accordance with paragraph 
(d)(4) of this section.

[[Page 19700]]

    (iv) This initial evaluation procedure does not apply to proposed 
modifications of approved instruments.
    (6) Draft instrument. (i) After considering comments from the 
district engineer, the IRT, and the public, if the sponsor chooses to 
proceed with establishment of the mitigation bank or in-lieu fee 
program, he must prepare a draft instrument and submit it to the 
district engineer. In the case of an instrument modification, the 
sponsor must prepare a draft amendment (e.g., a specific instrument 
provision, a new or modified mitigation plan), and submit it to the 
district engineer. The district engineer must notify the sponsor within 
30 days of receipt, whether the draft instrument or amendment is 
complete. If the draft instrument or amendment is incomplete, the 
district engineer will request from the sponsor the information 
necessary to make the draft instrument or amendment complete. Once any 
additional information is submitted, the district engineer must notify 
the sponsor as soon as he determines that the draft instrument or 
amendment is complete. The draft instrument must be based on the 
prospectus and must describe in detail the physical and legal 
characteristics of the mitigation bank or in-lieu fee program and how 
it will be established and operated.
    (ii) For mitigation banks and in-lieu fee programs, the draft 
instrument must include the following information:
    (A) A description of the proposed geographic service area of the 
mitigation bank or in-lieu fee program. The service area is the 
watershed, ecoregion, physiographic province, and/or other geographic 
area within which the mitigation bank or in-lieu fee program is 
authorized to provide compensatory mitigation required by DA permits. 
The service area must be appropriately sized to ensure that the aquatic 
resources provided will effectively compensate for adverse 
environmental impacts across the entire service area. For example, in 
urban areas, a U.S. Geological Survey 8-digit hydrologic unit code 
(HUC) watershed or a smaller watershed may be an appropriate service 
area. In rural areas, several contiguous 8-digit HUCs or a 6-digit HUC 
watershed may be an appropriate service area. Delineation of the 
service area must also consider any locally-developed standards and 
criteria that may be applicable. The economic viability of the 
mitigation bank or in-lieu fee program may also be considered in 
determining the size of the service area. The basis for the proposed 
service area must be documented in the instrument. An in-lieu fee 
program or umbrella mitigation banking instrument may have multiple 
service areas governed by its instrument (e.g., each watershed within a 
State or Corps district may be a separate service area under the 
instrument); however, all impacts and compensatory mitigation must be 
accounted for by service area;
    (B) Accounting procedures;
    (C) A provision stating that legal responsibility for providing the 
compensatory mitigation lies with the sponsor once a permittee secures 
credits from the sponsor;
    (D) Default and closure provisions;
    (E) Reporting protocols; and
    (F) Any other information deemed necessary by the district 
engineer.
    (iii) For a mitigation bank, a complete draft instrument must 
include the following additional information:
    (A) Mitigation plans that include all applicable items listed in 
Sec.  230.94(c)(2) through (14); and
    (B) A credit release schedule, which is tied to achievement of 
specific milestones. All credit releases must be approved by the 
district engineer, in consultation with the IRT, based on a 
determination that required milestones have been achieved. The district 
engineer, in consultation with the IRT, may modify the credit release 
schedule, including reducing the number of available credits or 
suspending credit sales or transfers altogether, where necessary to 
ensure that all credits sales or transfers remain tied to compensatory 
mitigation projects with a high likelihood of meeting performance 
standards;
    (iv) For an in-lieu fee program, a complete draft instrument must 
include the following additional information:
    (A) The compensation planning framework (see paragraph (c) of this 
section);
    (B) Specification of the initial allocation of advance credits (see 
paragraph (n) of this section) and a draft fee schedule for these 
credits, by service area, including an explanation of the basis for the 
allocation and draft fee schedule;
    (C) A methodology for determining future project-specific credits 
and fees; and
    (D) A description of the in-lieu fee program account required by 
paragraph (i) of this section.
    (7) IRT review. Upon receipt of notification by the district 
engineer that the draft instrument or amendment is complete, the 
sponsor must provide the district engineer with a sufficient number of 
copies of the draft instrument or amendment to distribute to the IRT 
members. The district engineer will promptly distribute copies of the 
draft instrument or amendment to the IRT members for a 30 day comment 
period. The 30-day comment period begins 5 days after the district 
engineer distributes the copies of the draft instrument or amendment to 
the IRT. Following the comment period, the district engineer will 
discuss any comments with the appropriate agencies and with the 
sponsor. The district engineer will seek to resolve issues using a 
consensus based approach, to the extent practicable, while still 
meeting the decision-making time frames specified in this section. 
Within 90 days of receipt of the complete draft instrument or amendment 
by the IRT members, the district engineer must notify the sponsor of 
the status of the IRT review. Specifically, the district engineer must 
indicate to the sponsor if the draft instrument or amendment is 
generally acceptable and what changes, if any, are needed. If there are 
significant unresolved concerns that may lead to a formal objection 
from one or more IRT members to the final instrument or amendment, the 
district engineer will indicate the nature of those concerns.
    (8) Final instrument. The sponsor must submit a final instrument to 
the district engineer for approval, with supporting documentation that 
explains how the final instrument addresses the comments provided by 
the IRT. For modifications of approved instruments, the sponsor must 
submit a final amendment to the district engineer for approval, with 
supporting documentation that explains how the final amendment 
addresses the comments provided by the IRT. The final instrument or 
amendment must be provided directly by the sponsor to all members of 
the IRT. Within 30 days of receipt of the final instrument or 
amendment, the district engineer will notify the IRT members whether or 
not he intends to approve the instrument or amendment. If no IRT member 
objects, by initiating the dispute resolution process in paragraph (e) 
of this section within 45 days of receipt of the final instrument or 
amendment, the district engineer will notify the sponsor of his final 
decision and, if the instrument or amendment is approved, arrange for 
it to be signed by the appropriate parties. If any IRT member initiates 
the dispute resolution process, the district engineer will notify the 
sponsor. Following conclusion of the dispute resolution process, the 
district engineer will notify the sponsor of his final decision, and if 
the instrument or amendment is approved, arrange for it to be signed by 
the appropriate parties. For mitigation banks, the final instrument 
must contain

[[Page 19701]]

the information items listed in paragraphs (d)(6)(ii), and (iii) of 
this section. For in-lieu fee programs, the final instrument must 
contain the information items listed in paragraphs (d)(6)(ii) and (iv) 
of this section. For the modification of an approved instrument, the 
amendment must contain appropriate information, as determined by the 
district engineer. The final instrument or amendment must be made 
available to the public upon request.
    (e) Dispute resolution process. (1) Within 15 days of receipt of 
the district engineer's notification of intent to approve an instrument 
or amendment, the Regional Administrator of the U.S. EPA, the Regional 
Director of the U.S. Fish and Wildlife Service, the Regional Director 
of the National Marine Fisheries Service, and/or other senior officials 
of agencies represented on the IRT may notify the district engineer and 
other IRT members by letter if they object to the approval of the 
proposed final instrument or amendment. This letter must include an 
explanation of the basis for the objection and, where feasible, offer 
recommendations for resolving the objections. If the district engineer 
does not receive any objections within this time period, he may proceed 
to final action on the instrument or amendment.
    (2) The district engineer must respond to the objection within 30 
days of receipt of the letter. The district engineer's response may 
indicate an intent to disapprove the instrument or amendment as a 
result of the objection, an intent to approve the instrument or 
amendment despite the objection, or may provide a modified instrument 
or amendment that attempts to address the objection. The district 
engineer's response must be provided to all IRT members.
    (3) Within 15 days of receipt of the district engineer's response, 
if the Regional Administrator or Regional Director is not satisfied 
with the response he may forward the issue to the Assistant 
Administrator for Water of the U.S. EPA, the Assistant Secretary for 
Fish and Wildlife and Parks of the U.S. FWS, or the Undersecretary for 
Oceans and Atmosphere of NOAA, as appropriate, for review and must 
notify the district engineer by letter via electronic mail or facsimile 
machine (with copies to all IRT members) that the issue has been 
forwarded for Headquarters review. This step is available only to the 
IRT members representing these three federal agencies, however, other 
IRT members who do not agree with the district engineer's final 
decision do not have to sign the instrument or amendment or recognize 
the mitigation bank or in-lieu fee program for purposes of their own 
programs and authorities. If an IRT member other than the one filing 
the original objection has a new objection based on the district 
engineer's response, he may use the first step in this procedure 
(paragraph (e)(1) of this section) to provide that objection to the 
district engineer.
    (4) If the issue has not been forwarded to the objecting agency's 
Headquarters, then the district engineer may proceed with final action 
on the instrument or amendment. If the issue has been forwarded to the 
objecting agency's Headquarters, the district engineer must hold in 
abeyance the final action on the instrument or amendment, pending 
Headquarters level review described below.
    (5) Within 20 days from the date of the letter requesting 
Headquarters level review, the Assistant Administrator for Water, the 
Assistant Secretary for Fish and Wildlife and Parks, or the 
Undersecretary for Oceans and Atmosphere must either notify the 
Assistant Secretary of the Army (Civil Works) (ASA(CW)) that further 
review will not be requested, or request that the ASA(CW) review the 
final instrument or amendment.
    (6) Within 30 days of receipt of the letter from the objecting 
agency's Headquarters request for ASA(CW)'s review of the final 
instrument, the ASA(CW), through the Director of Civil Works, must 
review the draft instrument or amendment and advise the district 
engineer on how to proceed with final action on that instrument or 
amendment. The ASA(CW) must immediately notify the Assistant 
Administrator for Water, the Assistant Secretary for Fish and Wildlife 
and Parks, and/or the Undersecretary for Oceans and Atmosphere of the 
final decision.
    (7) In cases where the dispute resolution procedure is used, the 
district engineer must notify the sponsor of his final decision within 
150 days of receipt of the final instrument or amendment.
    (f) Extension of deadlines. (1) The deadlines in paragraphs (d) and 
(e) of this section may be extended by the district engineer at his 
sole discretion in cases where:
    (i) Compliance with other applicable laws, such as consultation 
under section 7 of the Endangered Species Act or section 106 of the 
National Historic Preservation Act, is required;
    (ii) It is necessary to conduct government-to-government 
consultation with Indian tribes;
    (iii) Timely submittal of information necessary for the review of 
the proposed mitigation bank or in-lieu fee program or the proposed 
modification of an approved instrument is not accomplished by the 
sponsor; or
    (iv) Information that is essential to the district engineer's 
decision cannot be reasonably obtained within the specified time frame.
    (2) In such cases, the district engineer must promptly notify the 
sponsor in writing of the extension and the reason for it. Such 
extensions shall be for the minimum time necessary to resolve the issue 
necessitating the extension.
    (g) Modification of instruments. (1) Approval of an amendment to an 
approved instrument. Modification of an approved instrument, including 
the addition and approval of umbrella mitigation bank sites or in-lieu 
fee project sites or expansions of previously approved mitigation bank 
or in-lieu fee project sites, must follow the appropriate procedures in 
paragraph (d) of this section, unless the district engineer determines 
that the streamlined review process described in paragraph (g)(2) of 
this section is warranted.
    (2) Streamlined review process. The streamlined modification review 
process may be used for the following modifications of instruments: 
changes reflecting adaptive management of the mitigation bank or in-
lieu fee program, credit releases, changes in credit releases and 
credit release schedules, and changes that the district engineer 
determines are not significant. If the district engineer determines 
that the streamlined review process is warranted, he must notify the 
IRT members and the sponsor of this determination and provide them with 
copies of the proposed modification. IRT members and the sponsor have 
30 days to notify the district engineer if they have concerns with the 
proposed modification. If IRT members or the sponsor notify the 
district engineer of such concerns, the district engineer shall attempt 
to resolve those concerns. Within 60 days of providing the proposed 
modification to the IRT, the district engineer must notify the IRT 
members of his intent to approve or disapprove the proposed 
modification. If no IRT member objects, by initiating the dispute 
resolution process in paragraph (e) of this section, within 15 days of 
receipt of this notification, the district engineer will notify the 
sponsor of his final decision and, if the modification is approved, 
arrange for it to be signed by the appropriate parties. If any IRT 
member initiates the dispute resolution process, the district engineer 
will so notify the sponsor. Following conclusion of the dispute 
resolution

[[Page 19702]]

process, the district engineer will notify the sponsor of his final 
decision, and if the modification is approved, arrange for it to be 
signed by the appropriate parties.
    (h) Umbrella mitigation banking instruments. A single mitigation 
banking instrument may provide for future authorization of additional 
mitigation bank sites. As additional sites are selected, they must be 
included in the mitigation banking instrument as modifications, using 
the procedures in paragraph (g)(1) of this section. Credit withdrawal 
from the additional bank sites shall be consistent with paragraph (m) 
of this section.
    (i) In-lieu fee program account. (1) The in-lieu fee program 
sponsor must establish a program account after the instrument is 
approved by the district engineer, prior to accepting any fees from 
permittees. If the sponsor accepts funds from entities other than 
permittees, those funds must be kept in separate accounts. The program 
account must be established at a financial institution that is a member 
of the Federal Deposit Insurance Corporation. All interests and 
earnings accruing to the program account must remain in that account 
for use by the in-lieu fee program for the purposes of providing 
compensatory mitigation for DA permits. The program account may only be 
used for the selection, design, acquisition, implementation, and 
management of in-lieu fee compensatory mitigation projects, except for 
a small percentage (as determined by the district engineer in 
consultation with the IRT and specified in the instrument) that can be 
used for administrative costs.
    (2) The sponsor must submit proposed in-lieu fee projects to the 
district engineer for funding approval. Disbursements from the program 
account may only be made upon receipt of written authorization from the 
district engineer, after the district engineer has consulted with the 
IRT. The terms of the program account must specify that the district 
engineer has the authority to direct those funds to alternative 
compensatory mitigation projects in cases where the sponsor does not 
provide compensatory mitigation in accordance with the time frame 
specified in paragraph (n)(4) of this section.
    (3) The sponsor must provide annual reports to the district 
engineer and the IRT. The annual reports must include the following 
information:
    (i) All income received, disbursements, and interest earned by the 
program account;
    (ii) A list of all permits for which in-lieu fee program funds were 
accepted. This list shall include: the Corps permit number (or the 
state permit number if there is no corresponding Corps permit number, 
in cases of state programmatic general permits or other regional 
general permits), the service area in which the authorized impacts are 
located, the amount of authorized impacts, the amount of required 
compensatory mitigation, the amount paid to the in-lieu fee program, 
and the date the funds were received from the permittee;
    (iii) A description of in-lieu fee program expenditures from the 
account, such as the costs of land acquisition, planning, construction, 
monitoring, maintenance, contingencies, adaptive management, and 
administration;
    (iv) The balance of advance credits and released credits at the end 
of the report period for each service area; and
    (v) Any other information required by the district engineer.
    (4) The district engineer may audit the records pertaining to the 
program account. All books, accounts, reports, files, and other records 
relating to the in-lieu fee program account shall be available at 
reasonable times for inspection and audit by the district engineer.
    (j) In-lieu fee project approval. (1) As in-lieu fee project sites 
are identified and secured, the sponsor must submit mitigation plans to 
the district engineer that include all applicable items listed in Sec.  
230.94(c)(2) through (14). The mitigation plan must also include a 
credit release schedule consistent with paragraph (o)(8) of this 
section that is tied to achievement of specific performance standards. 
The review and approval of in-lieu fee projects will be conducted in 
accordance with the procedures in paragraph (g)(1) of this section, as 
modifications of the in-lieu fee program instrument. This includes 
compensatory mitigation projects conducted by another party on behalf 
of the sponsor through requests for proposals and awarding of 
contracts.
    (2) If a DA permit is required for an in-lieu fee project, the 
permit should not be issued until all relevant provisions of the 
mitigation plan have been substantively determined, to ensure that the 
DA permit accurately reflects all relevant provisions of the approved 
mitigation plan, such as performance standards.
    (k) Coordination of mitigation banking instruments and DA permit 
issuance. In cases where initial establishment of the mitigation bank, 
or the development of a new project site under an umbrella banking 
instrument, involves activities requiring DA authorization, the permit 
should not be issued until all relevant provisions of the mitigation 
plan have been substantively determined. This is to ensure that the DA 
permit accurately reflects all relevant provisions of the final 
instrument, such as performance standards.
    (l) Project implementation. (1) The sponsor must have an approved 
instrument prior to collecting funds from permittees to satisfy 
compensatory mitigation requirements for DA permits.
    (2) Authorization to sell credits to satisfy compensatory 
mitigation requirements in DA permits is contingent on compliance with 
all of the terms of the instrument. This includes constructing a 
mitigation bank or in-lieu fee project in accordance with the 
mitigation plan approved by the district engineer and incorporated by 
reference in the instrument. If the aquatic resource restoration, 
establishment, enhancement, and/or preservation activities cannot be 
implemented in accordance with the approved mitigation plan, the 
district engineer must consult with the sponsor and the IRT to consider 
modifications to the instrument, including adaptive management, 
revisions to the credit release schedule, and alternatives for 
providing compensatory mitigation to satisfy any credits that have 
already been sold.
    (3) An in-lieu fee program sponsor is responsible for the 
implementation, long-term management, and any required remediation of 
the restoration, establishment, enhancement, and/or preservation 
activities, even though those activities may be conducted by other 
parties through requests for proposals or other contracting mechanisms.
    (m) Credit withdrawal from mitigation banks. The mitigation banking 
instrument may allow for an initial debiting of a percentage of the 
total credits projected at mitigation bank maturity, provided the 
following conditions are satisfied: the mitigation banking instrument 
and mitigation plan have been approved, the mitigation bank site has 
been secured, appropriate financial assurances have been established, 
and any other requirements determined to be necessary by the district 
engineer have been fulfilled. The mitigation banking instrument must 
provide a schedule for additional credit releases as appropriate 
milestones are achieved (see paragraph (o)(8) of this section). 
Implementation of the approved mitigation plan shall be initiated no 
later than the first full growing season after the date of the first 
credit transaction.

[[Page 19703]]

    (n) Advance credits for in-lieu fee programs. (1) The in-lieu fee 
program instrument may make a limited number of advance credits 
available to permittees when the instrument is approved. The number of 
advance credits will be determined by the district engineer, in 
consultation with the IRT, and will be specified for each service area 
in the instrument. The number of advance credits will be based on the 
following considerations:
    (i) The compensation planning framework;
    (ii) The sponsor's past performance for implementing aquatic 
resource restoration, establishment, enhancement, and/or preservation 
activities in the proposed service area or other areas; and
    (iii) The projected financing necessary to begin planning and 
implementation of in-lieu fee projects.
    (2) To determine the appropriate number of advance credits for a 
particular service area, the district engineer may require the sponsor 
to provide confidential supporting information that will not be made 
available to the general public. Examples of confidential supporting 
information may include prospective in-lieu fee project sites.
    (3) As released credits are produced by in-lieu fee projects, they 
must be used to fulfill any advance credits that have already been 
provided within the project service area before any remaining released 
credits can be sold or transferred to permittees. Once previously 
provided advance credits have been fulfilled, an equal number of 
advance credits is re-allocated to the sponsor for sale or transfer to 
fulfill new mitigation requirements, consistent with the terms of the 
instrument. The number of advance credits available to the sponsor at 
any given time to sell or transfer to permittees in a given service 
area is equal to the number of advance credits specified in the 
instrument, minus any that have already been provided but not yet 
fulfilled.
    (4) Land acquisition and initial physical and biological 
improvements must be completed by the third full growing season after 
the first advance credit in that service area is secured by a 
permittee, unless the district engineer determines that more or less 
time is needed to plan and implement an in-lieu fee project. If the 
district engineer determines that there is a compensatory mitigation 
deficit in a specific service area by the third growing season after 
the first advance credit in that service area is sold, and determines 
that it would not be in the public interest to allow the sponsor 
additional time to plan and implement an in-lieu fee project, the 
district engineer must direct the sponsor to disburse funds from the 
in-lieu fee program account to provide alternative compensatory 
mitigation to fulfill those compensation obligations.
    (5) The sponsor is responsible for complying with the terms of the 
in-lieu fee program instrument. If the district engineer determines, as 
a result of review of annual reports on the operation of the in-lieu 
fee program (see paragraphs (p)(2) and (q)(1) of this section), that it 
is not performing in compliance with its instrument, the district 
engineer will take appropriate action, which may include suspension of 
credit sales, to ensure compliance with the in-lieu fee program 
instrument (see paragraph (o)(10) of this section). Permittees that 
secured credits from the in-lieu fee program are not responsible for 
in-lieu fee program compliance.
    (o) Determining credits. (1) Units of measure. The principal units 
for credits and debits are acres, linear feet, functional assessment 
units, or other suitable metrics of particular resource types. 
Functional assessment units or other suitable metrics may be linked to 
acres or linear feet.
    (2) Assessment. Where practicable, an appropriate assessment method 
(e.g., hydrogeomorphic approach to wetlands functional assessment, 
index of biological integrity) or other suitable metric must be used to 
assess and describe the aquatic resource types that will be restored, 
established, enhanced and/or preserved by the mitigation bank or in-
lieu fee project.
    (3) Credit production. The number of credits must reflect the 
difference between pre- and post-compensatory mitigation project site 
conditions, as determined by a functional or condition assessment or 
other suitable metric.
    (4) Credit value. Once a credit is debited (sold or transferred to 
a permittee), its value cannot change.
    (5) Credit costs. (i) The cost of compensatory mitigation credits 
provided by a mitigation bank or in-lieu fee program is determined by 
the sponsor.
    (ii) For in-lieu fee programs, the cost per unit of credit must 
include the expected costs associated with the restoration, 
establishment, enhancement, and/or preservation of aquatic resources in 
that service area. These costs must be based on full cost accounting, 
and include, as appropriate, expenses such as land acquisition, project 
planning and design, construction, plant materials, labor, legal fees, 
monitoring, and remediation or adaptive management activities, as well 
as administration of the in-lieu fee program. The cost per unit credit 
must also take into account contingency costs appropriate to the stage 
of project planning, including uncertainties in construction and real 
estate expenses. The cost per unit of credit must also take into 
account the resources necessary for the long-term management and 
protection of the in-lieu fee project. In addition, the cost per unit 
credit must include financial assurances that are necessary to ensure 
successful completion of in-lieu fee projects.
    (6) Credits provided by preservation. These credits should be 
specified as acres, linear feet, or other suitable metrics of 
preservation of a particular resource type. In determining the 
compensatory mitigation requirements for DA permits using mitigation 
banks or in-lieu fee programs, the district engineer should apply a 
higher mitigation ratio if the requirements are to be met through the 
use of preservation credits. In determining this higher ratio, the 
district engineer must consider the relative importance of both the 
impacted and the preserved aquatic resources in sustaining watershed 
functions.
    (7) Credits provided by riparian areas, buffers, and uplands. These 
credits should be specified as acres, linear feet, or other suitable 
metrics of riparian area, buffer, and uplands respectively. Non-aquatic 
resources can only be used as compensatory mitigation for impacts to 
aquatic resources authorized by DA permits when those resources are 
essential to maintaining the ecological viability of adjoining aquatic 
resources. In determining the compensatory mitigation requirements for 
DA permits using mitigation banks and in-lieu fee programs, the 
district engineer may authorize the use of riparian area, buffer, and/
or upland credits if he determines that these areas are essential to 
sustaining aquatic resource functions in the watershed and are the most 
appropriate compensation for the authorized impacts.
    (8) Credit release schedule. (i) General considerations. Release of 
credits must be tied to performance based milestones (e.g., 
construction, planting, establishment of specified plant and animal 
communities). The credit release schedule should reserve a significant 
share of the total credits for release only after full achievement of 
ecological performance standards. When determining the credit release 
schedule, factors to be considered may include, but are not limited to: 
The method of providing compensatory mitigation credits (e.g., 
restoration), the likelihood of success, the nature and amount of work 
needed to generate the credits, and

[[Page 19704]]

the aquatic resource type(s) and function(s) to be provided by the 
mitigation bank or in-lieu fee project. The district engineer will 
determine the credit release schedule, including the share to be 
released only after full achievement of performance standards, after 
consulting with the IRT. Once released, credits may only be used to 
satisfy compensatory mitigation requirements of a DA permit if the use 
of credits for a specific permit has been approved by the district 
engineer.
    (ii) For single-site mitigation banks, the terms of the credit 
release schedule must be specified in the mitigation banking 
instrument. The credit release schedule may provide for an initial 
debiting of a limited number of credits once the instrument is approved 
and other appropriate milestones are achieved (see paragraph (m) of 
this section).
    (iii) For in-lieu fee projects and umbrella mitigation bank sites, 
the terms of the credit release schedule must be specified in the 
approved mitigation plan. When an in-lieu fee project or umbrella 
mitigation bank site is implemented and is achieving the performance-
based milestones specified in the credit release schedule, credits are 
generated in accordance with the credit release schedule for the 
approved mitigation plan. If the in-lieu fee project or umbrella 
mitigation bank site does not achieve those performance-based 
milestones, the district engineer may modify the credit release 
schedule, including reducing the number of credits.
    (9) Credit release approval. Credit releases for mitigation banks 
and in-lieu fee projects must be approved by the district engineer. In 
order for credits to be released, the sponsor must submit documentation 
to the district engineer demonstrating that the appropriate milestones 
for credit release have been achieved and requesting the release. The 
district engineer will provide copies of this documentation to the IRT 
members for review. IRT members must provide any comments to the 
district engineer within 15 days of receiving this documentation. 
However, if the district engineer determines that a site visit is 
necessary, IRT members must provide any comments to the district 
engineer within 15 days of the site visit. The district engineer must 
schedule the site visit so that it occurs as soon as it is practicable, 
but the site visit may be delayed by seasonal considerations that 
affect the ability of the district engineer and the IRT to assess 
whether the applicable credit release milestones have been achieved. 
After full consideration of any comments received, the district 
engineer will determine whether the milestones have been achieved and 
the credits can be released. The district engineer shall make a 
decision within 30 days of the end of that comment period, and notify 
the sponsor and the IRT.
    (10) Suspension and termination. If the district engineer 
determines that the mitigation bank or in-lieu fee program is not 
meeting performance standards or complying with the terms of the 
instrument, appropriate action will be taken. Such actions may include, 
but are not limited to, suspending credit sales, adaptive management, 
decreasing available credits, utilizing financial assurances, and 
terminating the instrument.
    (p) Accounting procedures. (1) For mitigation banks, the instrument 
must contain a provision requiring the sponsor to establish and 
maintain a ledger to account for all credit transactions. Each time an 
approved credit transaction occurs, the sponsor must notify the 
district engineer.
    (2) For in-lieu fee programs, the instrument must contain a 
provision requiring the sponsor to establish and maintain an annual 
report ledger in accordance with paragraph (i)(3) of this section, as 
well as individual ledgers that track the production of released 
credits for each in-lieu fee project.
    (q) Reporting. (1) Ledger account. The sponsor must compile an 
annual ledger report showing the beginning and ending balance of 
available credits and permitted impacts for each resource type, all 
additions and subtractions of credits, and any other changes in credit 
availability (e.g., additional credits released, credit sales 
suspended). The ledger report must be submitted to the district 
engineer, who will distribute copies to the IRT members. The ledger 
report is part of the administrative record for the mitigation bank or 
in-lieu fee program. The district engineer will make the ledger report 
available to the public upon request.
    (2) Monitoring reports. The sponsor is responsible for monitoring 
the mitigation bank site or the in-lieu fee project site in accordance 
with the approved monitoring requirements to determine the level of 
success and identify problems requiring remedial action or adaptive 
management measures. Monitoring must be conducted in accordance with 
the requirements in Sec.  230.96, and at time intervals appropriate for 
the particular project type and until such time that the district 
engineer, in consultation with the IRT, has determined that the 
performance standards have been attained. The instrument must include 
requirements for periodic monitoring reports to be submitted to the 
district engineer, who will provide copies to other IRT members.
    (3) Financial assurance and long-term management funding report. 
The district engineer may require the sponsor to provide an annual 
report showing beginning and ending balances, including deposits into 
and any withdrawals from, the accounts providing funds for financial 
assurances and long-term management activities. The report should also 
include information on the amount of required financial assurances and 
the status of those assurances, including their potential expiration.
    (r) Use of credits. Except as provided below, all activities 
authorized by DA permits are eligible, at the discretion of the 
district engineer, to use mitigation banks or in-lieu fee programs to 
fulfill compensatory mitigation requirements for DA permits. The 
district engineer will determine the number and type(s) of credits 
required to compensate for the authorized impacts. Permit applicants 
may propose to use a particular mitigation bank or in-lieu fee program 
to provide the required compensatory mitigation. In such cases, the 
sponsor must provide the permit applicant with a statement of credit 
availability. The district engineer must review the permit applicant's 
compensatory mitigation proposal, and notify the applicant of his 
determination regarding the acceptability of using that mitigation bank 
or in-lieu fee program.
    (s) IRT concerns with use of credits. If, in the view of a member 
of the IRT, an issued permit or series of issued permits raises 
concerns about how credits from a particular mitigation bank or in-lieu 
fee program are being used to satisfy compensatory mitigation 
requirements (including concerns about whether credit use is consistent 
with the terms of the instrument), the IRT member may notify the 
district engineer in writing of the concern. The district engineer 
shall promptly consult with the IRT to address the concern. Resolution 
of the concern is at the discretion of the district engineer, 
consistent with applicable statutes, regulations, and policies 
regarding compensatory mitigation requirements for DA permits. Nothing 
in this section limits the authorities designated to IRT agencies under 
existing statutes or regulations.
    (t) Site protection. (1) For mitigation bank sites, real estate 
instruments, management plans, or other long-term mechanisms used for 
site protection must be finalized before any credits can be released.

[[Page 19705]]

    (2) For in-lieu fee project sites, real estate instruments, 
management plans, or other long-term protection mechanisms used for 
site protection must be finalized before advance credits can become 
released credits.
    (u) Long-term management. (1) The legal mechanisms and the party 
responsible for the long-term management and the protection of the 
mitigation bank site must be documented in the instrument or, in the 
case of umbrella mitigation banking instruments and in-lieu fee 
programs, the approved mitigation plans. The responsible party should 
make adequate provisions for the operation, maintenance, and long-term 
management of the compensatory mitigation project site. The long-term 
management plan should include a description of long-term management 
needs and identify the funding mechanism that will be used to meet 
those needs.
    (2) The instrument may contain provisions for the sponsor to 
transfer long-term management responsibilities to a land stewardship 
entity, such as a public agency, non-governmental organization, or 
private land manager.
    (3) The instrument or approved mitigation plan must address the 
financial arrangements and timing of any necessary transfer of long-
term management funds to the steward.
    (4) Where needed, the acquisition and protection of water rights 
should be secured and documented in the instrument or, in the case of 
umbrella mitigation banking instruments and in-lieu fee programs, the 
approved mitigation site plan.
    (v) Grandfathering of existing instruments. (1) Mitigation banking 
instruments. All mitigation banking instruments approved on or after 
July 9, 2008 must meet the requirements of this part. Mitigation banks 
approved prior to July 9, 2008 may continue to operate under the terms 
of their existing instruments. However, any modification to such a 
mitigation banking instrument on or after July 9, 2008, including 
authorization of additional sites under an umbrella mitigation banking 
instrument, expansion of an existing site, or addition of a different 
type of resource credits (e.g., stream credits to a wetland bank) must 
be consistent with the terms of this part.
    (2) In-lieu fee program instruments. All in-lieu fee program 
instruments approved on or after July 9, 2008 must meet the 
requirements of this part. In-lieu fee programs operating under 
instruments approved prior to July 9, 2008 may continue to operate 
under those instruments for two years after the effective date of this 
rule, after which time they must meet the requirements of this part, 
unless the district engineer determines that circumstances warrant an 
extension of up to three additional years. The district engineer must 
consult with the IRT before approving such extensions. Any revisions 
made to the in-lieu-fee program instrument on or after July 9, 2008 
must be consistent with the terms of this part. Any approved project 
for which construction was completed under the terms of a previously 
approved instrument may continue to operate indefinitely under those 
terms if the district engineer determines that the project is providing 
appropriate mitigation substantially consistent with the terms of this 
part.

    Dated: March 28, 2008.
Stephen L. Johnson,
Administrator, U.S. Environmental Protection Agency.
 [FR Doc. E8-6918 Filed 4-9-08; 8:45 am]
BILLING CODE 6560-50-P