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Other Federal Requirements

Natural Environment

Federal Guidance on the Use of In-Lieu-Fee arrangements for Compensatory Mitigation under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act

(65 FR 66913, November 7, 2000)


This Federal interagency policy guidance clarifies the manner in which in-lieu-fee (ILF) mitigation may serve to satisfy compensatory mitigation requirements and meet the Administration's goal of no overall net loss of wetlands.

Definition of ILF

This type of mitigation occurs when a permittee pays funds to an ILF sponsor instead of either completing project specific mitigation or providing credits from an existing mitigation bank approved under the Federal Interagency Wetland Banking Guidance (60 FR 58605, 28 November, 1995). ILF arrangements differ from wetlands banking in that they do not typically provide compensatory mitigation in advance of project impacts, nor do they establish a clear timetable for the initiation or completion of mitigation efforts.

When ILF approaches can be used

Individual Section 404 permits -- ILF can be used if the ILF program is reviewed and approved in accordance with the Federal Wetland Banking Guidance. This essentially requires ILFs be operated as a bank, except for the requirement for advance development.

General Section 404 permits, including Nationwide Permits -- ILF can be used where (a) there is no practicable opportunity for on-site compensation; (b) where available, existing, mitigation bank credits and the proposed ILF service area are outside the watershed of the project impacts, and the mitigation bank is determined to be not practicable and environmentally desirable; (c) where permitted project impacts are within an existing bank's service area, but are not a wetland type identified as eligible for compensation in the approved banking instrument; (d) when an available mitigation bank provides credits only on preservation, then ILF may be used, if the ILF mitigation is based on in-kind restoration.

FHWA requirements for participation in ILF Programs

The TEA-21 implicitly allows participation with Federal aid funds in ILF programs through the following language: " . . . . participation in natural habitat and wetland mitigation banks, contributions to statewide and regional efforts to conserve, restore, enhance, and create natural habitat and wetland, and development of regional natural habitat and wetland conservation and mitigation plans, . . . . " (Section 1106; 23 U. S. Code 103 (b)(6)(M).

FHWA memoranda to the field "Funding for Establishment of Wetland Mitigation Banks," dated October 24, 1994, and "Participation in Funding for Ecological Mitigation," dated July 25, 1995, established criteria for participation with Federal aid funds in costs to acquire, restore, establish and sustain, viable wetland mitigation projects. The criteria would apply also to ILF programs. For example, if payments are to be made to a ILF compensatory mitigation program that involves the acquisition of property, the program must comply with the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (Uniform Act) as amended, P.l. 91-646 (42 U. S. C. 4601). If acquisitions are site specific and subject to use of the power of eminent domain, all provisions of the Uniform Act implementing regulations at 49 CFR Part 24 are applicable. If acquisitions are not site specific and eminent domain authority will not be used, the acquisition could be defined as voluntary and only the limited requirement of 49 CFR 24.101 (a)(1) and (2) would apply. If the acquisition would displace tenant occupants, the relocation assistance provisions of 49 CFR Part 24 also apply.

In addition, to be eligible for participation with Federal aid funds, public interests in properties acquired with participation with Federal aid highway funds for ILF mitigation programs should be sufficient to ensure that the mitigation site is maintained in its' intended conditions, that is, as a wetland which will provide the functions and values conditioned by the project permit. This can be accomplished by a restrictive covenant or easement attached to the title of the property if it is to be retained by a private entity, such as an individual, corporation, or non-profit; or by transfer of title in fee to a public agency. Upfront costs associated with easements, covenants, or property transfers are eligible for Federal aid participation, and should encompass activities necessary to ensure that wetland functions are perpetuated and protected at mitigation sites.

Reasonable Federal-aid participation in an ILF program should be determined by comparing the fee with what the cost would be for providing direct compensatory mitigation for specific project impacts permitted under the Section 404 Regulatory process. The ILF should reasonably approximate the cost of direct compensatory mitigation that would have been required on the project and be verified by cost estimates from comparable mitigation activities.

A formal ILF agreement between the Corps Jurisdiction and ILF sponsor should be accomplished in accordance with the Federal Wetland Banking Guidance prior to Federal-aid participation in the applicable ILF program. This agreement must include the following:

  1. geographic service area
  2. accounting procedures
  3. methods for determining fees and credits
  4. a schedule for conducting the activities that will provide the compensatory mitigation
  5. performance standards for determining success of mitigation sites
  6. reporting protocols and monitoring plans
  7. financial, technical, and legal provisions for remedial actions and responsibilities (contingency funds)
  8. financial, technical, and legal provisions for long term management and maintenance
  9. a provision that clearly states that the legal responsibility for ensuring the mitigation terms of the permit conditions are fully satisfied rests with the ILF sponsor.
  10. A closed schedule for completing the ILF mitigation. This ensures that the mitigation will be accomplished in a timely way, and will avoid long-term accounting/auditing problems.