Mitigation Bank Advantages

Public agencies may now find it advantageous to develop wetland mitigation banks rather than pursue project-specific mitigation due to rule changes by the U.S. Army Corps of Engineers and U.S. Environmental Protection Agency.

The regulatory change is an effort to develop watershed-based planning. Mitigation banks create larger wetlands projects with greater ecological functions and sustainability because of reduced “edge effects.” Edge effects are changes in species composition, physical conditions, or other ecological factors at the boundary between two ecosystems. The natural ecosystem can be seriously affected for some distance in from the edge.

Public agencies should be aware of one “gotcha” when pursuing a mitigation bank under the revised guidelines. The template bank enabling instrument (BEI) prepared by regulatory agencies to streamline the process is written for “third-party banks” involving private firms intending to sell credits. Public agencies often pursue “single-party banks” that establish banks solely to mitigate their capital improvement projects.

“Public agencies still benefit from the rule changes that encourage mitigation banks,” said Mike Sweesy, Dudek Senior Habitat Restoration Manager. “But there are complexities that require competent handling of wetlands design, bank operations (like endowment funding assurances), credit release schedules and service areas, and long-term management issues.”

Sweesy develops single-party banks for the San Diego County Water Authority and assists the City of San Diego under the new mitigation rule and bank templates. He said mitigation banks are a better deal for public agencies used to operating on “a pay-as-you-go, project-by-project basis for mitigation.”

“Mitigation banking is all about economic efficiency,” he said. “Larger mitigation projects are more economical to build and manage over the long run and bring greater ecological benefits to watersheds.”

Sweesy said mitigation bank efficiencies are generated by the following:

  • Mitigation ratios go down. Mitigation ratios can be reduced when a mitigation bank is 3 to 5 years old. Mitigation banks are viewed by resource agencies as “pre-mitigation,” or compensatory resources already established before project impacts. As a result, resource agencies apply a lower compensatory mitigation ratio (1:1) for established banks than for project-specific mitigation, which can require a 3:1 or greater ratio when high-sensitivity wetlands resources are impacted.
  • Economies of scale. Aggregating mitigation into banks costs less to construct and manage; per-acre mitigation costs are reduced compared to project-specific mitigation.
  • Eliminating uncertainty. The uncertainty of wetlands restoration outcomes is eliminated because bank credits are generally awarded when mitigation is successfully achieved. With a mitigation bank, public agencies know what credits they can apply to their capital improvement project needs.
  • Avoiding recurring permitting expenses. Successfully established mitigation banks reduce long-term and recurring costs because permit processing time for specific projects requires a lengthy mitigation site acquisition and approval effort to satisfy the resource agencies.
  • Managing long-term maintenance. Resource agencies have required long-term maintenance beyond the typical 5-year period. However, finding site managers willing to perform long-term management on small sites is difficult because management costs per acre can be up to five times greater than a large mitigation bank.
  • Potential revenue source. Public agencies might be able to structure mitigation banks as a third-party entity to sell credits as a new revenue source.

Land-rich and cash-poor public agencies can often find grant money to create mitigation banks on publicly owned land. Forward-thinking public agencies with sustainability goals and suitable mitigation sites can capitalize on current federal regulations to invest in larger mitigation banks to significantly reduce current and future mitigation costs for new projects.