[Federal Register Volume 65, Number 251 (Friday, December 29, 2000)]
[Rules and Regulations]
[Pages 82913-82926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33194]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 777

[FHWA Docket No. FHWA-97-2514; 96-8]
RIN 2125-AD78


Mitigation of Impacts to Wetlands and Natural Habitat

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Final rule.

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SUMMARY: This document revises the rule concerning the eligibility for 
Federal-aid transportation funding of activities to mitigate impacts to 
wetlands and natural habitats due to highway projects funded pursuant 
to provisions of title 23, U.S. Code. It updates the FHWA's wetlands 
regulation to conform with wetland and natural habitat mitigation 
provisions contained in the Intermodal Surface Transportation 
Efficiency Act of 1991 (ISTEA) and the Transportation Equity Act for 
the 21st Century (TEA-21), which allow increased flexibility for 
Federal funding participation under title 23, U.S. Code, in mitigation 
measures for impacts of federally funded highway projects to wetlands 
and natural habitats

EFFECTIVE DATE: January 29, 2001.

FOR FURTHER INFORMATION CONTACT: Mr. Paul Garrett, Office of Natural 
Environment, (303) 969-5772, ext. 332, email address: 
[email protected]; FHWA, 555 Zang Street, Lakewood, CO 80228, 
office hours are from 8 a.m. to 5 p.m., m.t., Monday through Friday, 
except Federal holidays; or Mr. Robert J. Black, Office of the Chief 
Counsel, HCC-30, (202) 366-1359, email address: 
[email protected], 400 Seventh Street, SW., Washington, D.C. 
20590-0001. Office hours are from 7:45 a.m. to 4:15 p.m, e.t., Monday 
through Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access

    Internet users may access all comments received by the U.S. DOT 
Dockets, Room PL-401, by using the universal resource locator (URL): 
http:/

[[Page 82914]]

/dms.dot.gov. It is available 24 hours each day, 365 days each year. 
Please follow the instructions online for more information and help.
    An electronic copy of this document may be downloaded by using a 
computer, modem and suitable communications software from the 
Government Printing Office's Electronic Bulletin Board Service at (202) 
512-1661. Internet users may reach the Office of the Federal Register's 
home page at http://www.nara.gov/fedreg and the Government Printing 
Office's web page at http://www.access.gpo.gov/nara.

Table of Contents

A. Background
B. Who is affected by the wetlands rule?
C. What does the rule do and what changes were made in the final 
rule due to comments received on the proposed rule?
D. Why did the FHWA change the rule?
E. Discussion of comments.
F. Rulemaking analyses and notices.

A. Background

    The FHWA issued a notice of proposed rulemaking (NPRM) June 17, 
1996, at 61 FR 30553, and supplementary notices of proposed rulemaking 
(SNPRMs) June 18, 1997, at 62 FR 33047, and April 7, 1999, at 64 FR 
16870.
    This final rule establishes the following:
    1. The criteria for participation with Federal highway funds (title 
23, U.S. Code) in costs of mitigation of impacts to wetlands and 
natural habitats;
    2. A preference in compensatory mitigation of wetlands and natural 
habitats impacts due to highway projects funded pursuant to title 23, 
U.S. Code, for mitigation banks, where the impacts are within the 
service area of the bank, and the bank has been properly permitted; and
    3. The requirements for evaluation of wetlands impacts due to such 
projects and implementation of mitigation consistent with current 
technology and wetlands science.
    This regulation does not establish a requirement to implement 
mitigation of impacts to resources regulated under the Clean Water Act 
(33 U.S.C. 1344), the Section 404 regulatory program, or to other 
resources regulated under other Federal, State, or local regulations, 
or to unregulated natural habitat resources. It establishes 
requirements for eligibility of such actions for Federal funding 
participation and the banking preference only.
    Approximately 50 percent of our nation's wetlands have been lost in 
the last two hundred years. Section 404 of the Clean Water Act (CWA) 
established the regulatory program of the U.S. Army Corps of Engineers 
(33 CFR Parts 320-330) to permit discharges of dredged and fill 
material in wetlands and other waters of the United States, and helps 
to protect the nation's wetlands resources, functions, and values by 
requiring environmental review for the issuance of such permits. The 
permit review process requires a sequencing analysis of alternatives to 
avoid and minimize wetlands impacts as much as practicable in 
accordance with 40 CFR 230.10(a) (the Section 404 (b)(1) guidelines), 
and consideration of compensatory mitigation for unavoidable impacts.
    Executive Order 11990, Protection of Wetlands, (42 FR 26961; 3 CFR, 
1977 comp., p. 121) directs Federal agencies to avoid to the extent 
possible adverse impacts associated with the destruction or 
modification of wetlands, and to avoid direct or indirect support of 
new construction in wetlands wherever there is a practicable 
alternative. Other Federal programs designed to conserve and protect 
wetlands include the Emergency Wetlands Protection Resources Act of 
1986 (16 U.S.C. 3921-3931), the North American Waterfowl Management 
Plan (16 U.S.C. 4401(a)(12)), and the Wetlands Reserve Program (16 
U.S.C. 3837). Private organizations, such as Ducks Unlimited, have been 
established to help conserve, restore, and protect wetlands as 
waterfowl habitat. In addition, there are State and local wetlands 
protection programs and regulations that must be met when planning and 
building highway projects.
    The FHWA implements the regulatory and national policy requirements 
stated above. The ISTEA (Pub. L. 102-240, 105 stat. 1914), and the TEA-
21 (Public Law 105-178, 112 Stat. 107), both recognized changes in 
wetlands management regulations, procedures and processes, and included 
important new authorities for participation in costs of wetlands 
mitigation with Federal transportation funds. Accordingly, the FHWA 
decided to update and revise its regulation concerning mitigation of 
wetlands. At the same time, in accordance with new language in the TEA-
21, eligibility for use of Federal transportation funds was established 
for mitigation of impacts to natural habitats.
    In the NPRM published on June 17, 1996 (61 FR 30553), the FHWA 
proposed to amend 23 CFR Part 777, Mitigation of Impacts to Privately-
owned Wetlands, in order to update the previous, obsolete regulation in 
light of changes brought about by the ISTEA. The ISTEA significantly 
altered the range and timing of alternatives eligible for Federal-aid 
participation for mitigation of wetland impacts due to Federal-aid 
highway projects. Accordingly, the June 17, 1996, NPRM revised the 
current regulation to conform to the ISTEA's requirements, providing 
more flexibility to State highway agencies in determining eligibility 
of alternatives for Federal participation. This proposal also broadened 
the scope of the current regulation to encompass all wetlands 
mitigation projects eligible for Federal participation, not just those 
involving privately-owned wetlands.
    Subsequently, the FHWA determined that certain language in the 
regulation proposed in the NPRM, which was carried over from the 
original rulemaking published in 1980, could be interpreted in an 
unnecessarily restrictive manner. Part 777, as then written, stated 
that it applied to ``the evaluation and mitigation of adverse 
environmental impacts to privately owned wetlands caused by new 
construction of Federal-aid highway projects.'' (23 CFR 777.1). The 
NPRM retained this language, with the exception of the words 
``privately owned.'' The FHWA believed this provision was unnecessarily 
restrictive, because under current law Federal-aid funds may be used to 
improve or restore wetlands affected by past Federal-aid highway 
projects, even when no current Federal-aid project is taking place in 
the vicinity.
    Four provisions of title 23, U.S. Code, sanction such ``historic 
wetlands'' restoration projects. First, both the National Highway 
System and Surface Transportation Programs, created by the ISTEA, allow 
States to use Federal-aid funds for wetlands mitigation activities. 23 
U.S.C. 103(b)(6)(m) and 133(b)(11). These provisions are identically 
worded, and allow the expenditure of Federal-aid highway funds towards 
efforts to conserve, restore, enhance, and create wetlands. Both 
provisions state that contributions to such mitigation efforts may take 
place concurrent with or in advance of project construction. The FHWA 
believes this phrase may be fairly interpreted as permissive, rather 
than restrictive and, therefore, States are permitted by these two 
provisions to use Federal-aid funds for the stated purposes concurrent 
with or in advance of project construction. Nothing in the language of 
sections 103(b)(6)(M) or 133(b)(11) forbids States from doing so after 
a project has been completed. No specific prohibition having been 
written into these provisions, the FHWA does not believe one is to be 
implied.

[[Page 82915]]

    Two other provisions of title 23, U.S. Code, when read together, 
also provide a basis for funding so-called historic wetlands 
restoration projects. The first is 23 U.S.C. 133(b)(1), which permits 
Surface Transportation Program (STP) funds to be spent for ``mitigation 
of damage to wildlife, habitat, and ecosystems caused by a 
transportation project funded under this title.'' Under 23 U.S.C. 101, 
the term ``project'' means ``an undertaking to construct a particular 
portion of a highway, or if the context so implies, the particular 
portion of a highway so constructed.'' This definition is broad enough 
to encompass not just new or even recent projects, but any highway that 
has been constructed using title 23, U.S. Code, funds.
    A final category of funding for which historic wetlands projects 
may be eligible is that available under the STP for transportation 
enhancement activities (TEAs) (23 U.S.C. 133(e)(5)). The definition of 
TEAs (23 U.S.C. 101) does not limit them to those related to particular 
``projects'' (as defined in section 101), and does not specify any 
particular time frame in which they must take place. Historic wetlands 
projects could qualify for STP funds if legitimately tied to one of the 
categories of TEAs set forth in the definition, such as, scenic 
beautification, mitigation of water pollution due to highway runoff, or 
maintaining habitat connectivity while reducing wildlife mortality due 
to motor vehicles.
    Accordingly, the FHWA issued an SNPRM, dated June 18, 1997 (62 FR 
33047), which further amended Part 777 by revising Sec. 777.1 to read: 
``To provide policy and procedures for evaluation and mitigation of 
adverse environmental impacts to wetlands resulting from projects 
funded pursuant to the provisions of title 23, United States Code.''
    That SNPRM also made a technical amendment to the text of the June 
17, 1996, NPRM, and revised the heading of the regulation to read, 
``Mitigation of Impacts to Wetlands.''
    The TEA-21 established a preference for use of mitigation banks to 
provide compensatory mitigation for unavoidable wetlands impacts caused 
by federally funded highway projects, and for impacts to natural 
habitat. The TEA-21 provides that, for projects funded under title 23, 
U.S. Code, having a wetland impact within the service area of a 
mitigation bank, to the maximum extent practicable preference shall be 
given to the use of the mitigation bank, if the bank contains 
sufficient credits to offset the impact and is approved in accordance 
with the Federal Guidance for the Establishment, Use, and Operation of 
Mitigation Banks (60 FR 58605, November 28, 1995) (Federal Guidance). 
The Federal Guidance presents guidance for the use of ecological 
mitigation banks as compensatory mitigation in the Section 404 
regulatory program for unavoidable impacts to wetlands and other 
aquatic resources.

B. Who Is Affected by the New Regulation?

    The new regulation addresses the eligibility of mitigation 
activities for impacts to wetlands and natural habitats for funding 
under title 23, U.S. Code. The FHWA and State departments of 
transportation (DOTs), who are responsible for administering title 23, 
U.S. Code, funds and implementing highway projects, are the primary 
agencies affected by the new regulation. State departments of 
transportation will have increased flexibility in planning and 
implementing mitigation for impacts to wetlands and other waters of the 
United States, and to natural habitats caused by highway projects 
funded pursuant to title 23, U.S. Code. This increased flexibility will 
affect advance planning for wetlands conservation by other agencies as 
well through interagency coordination and cooperative projects. 
Providers of services to mitigate wetlands impacts, such as private 
wetlands mitigation banking companies, and wetland regulatory agencies, 
including the U.S. Army Corps of Engineers, U.S. Environmental 
Protection Agency, and State regulatory agencies, will also be affected 
by the regulation through the increased flexibility and the mitigation 
banking preference. The changes in the new regulation should reduce the 
permit review times for the Section 404 regulatory program by 
increasing the flexibility offered to State highway agencies in 
mitigating impacts to wetlands, facilitate project development, and 
result in greater efficiency in providing mitigation for unavoidable 
impacts.

C. What Does the Rule Do and What Changes Were Made in the Final 
Rule Due to Comments Received on the Proposed Rule?

    The final rule establishes a preference for wetland mitigation 
banking in mitigating wetlands impacts caused by projects funded under 
title 23, U.S. Code, broadens the regulation to provide eligibility for 
use of title 23 Federal highway funds to mitigate for impacts to 
wetlands caused by current or past highway projects funded under title 
23, U.S. Code, and to mitigate impacts to natural habitat. The NPRM did 
not address mitigation of impacts to natural habitat, however, this 
issue was discussed in the SNPRM April 7, 1999 at 64 FR 16870. The 
final rule also recognizes the eligibility of environmental restoration 
activities established in the TEA-21 on highway projects funded 
pursuant to title 23, U.S. Code.
    Specific changes in the final rule from those published in the NPRM 
and the SNPRMs are the following:

Section 777.2  Definitions

    In the definition of ``compensatory mitigation,'' the phrase 
``Activities such as'' is deleted in order to limit the definition to 
the specific activities cited.
    The definition of ``ecologically desirable'' is deleted in response 
to comments recommending its removal. The banking preference in the 
TEA-21 is not restricted to the most ecologically desirable mitigation 
alternative; therefore, the definition is not needed.
    The definition of natural habitat is changed to add the word 
``currently'' in the phrase ``not currently subject to cultivation.'' 
Also, a new sentence is added at the end of the definition. These 
changes were made to more clearly define the scope of the term.
    The definition for ``net gain of wetlands'' is changed to make it 
more consistent with the Federal Guidance and Section 404(b)(1) 
guidelines. The phrase ``at a ratio greater than 1:1'' is added to 
clarify the definition.
    A definition for ``practicable'' is added to make this regulation 
consistent with the regulatory program language found at 33 CFR Parts 
320-330 and 40 CFR Part 240.
    The definition for ``wetland or habitat enhancement'' is revised to 
make it consistent with the Federal Guidance and to broaden the 
definition with respect to control and management of pests necessary 
for enhancement.
    The definition for ``wetland or habitat establishment period'' is 
changed in response to comments to clarify the distinction between 
establishment and maintenance of wetland mitigation sites. Maintenance 
activities are not eligible for participation with Federal-aid highway 
funds (23 U.S.C. 116(a)), whereas certain activities for wetland or 
habitat establishment for the purpose of project mitigation have been 
identified as eligible.
    A definition for ``wetland or habitat preservation'' is added to 
make this regulation consistent with the Federal Guidance.
    The definition for ``wetland or habitat restoration'' is changed in 
response to

[[Page 82916]]

comments to make it consistent with the Federal Guidance.
    The definition of ``wetlands and habitat banking and related 
measures'' is changed in response to a commenter's request to make it 
consistent with the Federal Guidance. The definition is now titled 
``mitigation bank.''
    The definition of ``wetlands or habitat mitigation credit'' is 
changed in response to comments to make it consistent with the Federal 
Guidance.

Section 777.3  Background

    This section is revised for clarity and to add regulatory 
references. Paragraph (b) is added to make the references to title 23, 
U.S. Code, formerly in paragraph (a), more clear. Paragraphs (c), (d), 
and (e) are added to provide reference to Federal regulations and 
guidance pertinent to wetlands and habitat mitigation activities, at 
the request of several commenters.

Section 777.7  Evaluation of Impacts

    Paragraph (a) is revised to use appropriate regulatory language 
(``shall'' rather than ``should'') and to clarify the applicability of 
the regulation relative to participation with title 23, U.S. Code, 
funds. Paragraph (b) is revised to make it clearer. Paragraph (c) is 
revised to emphasize concurrent environmental analyses and processes, 
and to incorporate a reference to regulatory guidance relative to 
recognized wetlands functions and mitigation of impacts found at 33 CFR 
320.4.

Section 777.9  Mitigation of Impacts

    Paragraph (a) is revised to make it clearer that this section 
applies to mitigation activities eligible for participation with 
Federal-aid highway (title 23) funds and to remove requirements not 
found in the TEA-21, but stated elsewhere (at 40 CFR Part 230). 
Paragraph (b) is revised to remove a perceived bias against commercial 
wetlands banks in the proposed regulation. Paragraphs (c) and (d) are 
added to make the regulation more consistent with guidance on wetlands 
and natural habitat mitigation in the TEA-21 and to incorporate the 
FHWA's current legal interpretation on eligibility of mitigation 
activities for participation with title 23, U.S. Code, funds.

Section 777.11  Other Considerations

    Paragraphs (b) and (c) are revised to make them consistent and 
clearer, and to include performance bonds as a sufficient assurance 
that a mitigation site would be properly maintained as a wetland or 
natural habitat. Paragraph (g) is changed to eliminate unnecessary 
language outside the authority of title 23, U.S. Code.

D. Why Did the FHWA Change the Rule?

    This rule was changed to implement new authority for participation 
with Federal highway funds in mitigation for wetlands and natural 
habitat impacts due to federally funded highway projects. It also 
recognizes new needs, requirements, and methods to successfully 
implement compensatory mitigation, and implements changes in 
interpretation of existing regulations to allow restoration or 
mitigation of such impacts due to already-completed projects which were 
not mitigated when the projects were built.

E. Discussion of Comments

    All comments received on the NPRM were carefully considered in the 
decision to publish a final rule. A total of 33 comments were received: 
3 from Federal agencies, 22 from State agencies, 1 from a State 
legislature, 3 from non-governmental organizations, 3 from private 
wetland banking organizations or companies, and 1 from 3 U.S. Senators.
    Comments in general supported the increased flexibility provided by 
changes in the regulation to conform with new authority established in 
the ISTEA and the TEA-21 for mitigating impacts to wetlands and natural 
habitat. However, concerns were expressed that this new authority: (1) 
Might become a requirement with respect to unregulated resources; (2) 
might lead to inappropriate use of permits and compensatory mitigation; 
(3) might de-emphasize the Section 404(b)(1) guidelines; and (4) might 
lead to lack of emphasis on the National Environmental Policy Act 
(NEPA) in the project development process.
    As previously stated, this regulation does not establish any 
requirement to mitigate impacts to wetlands, waters of the United 
States, or natural habitats, or to carry out environmental restoration 
of historic or past impacts to such resources. It establishes 
requirements for participation with title 23, U.S. Code, Federal-aid 
highway funds in costs of mitigation activities (avoidance, 
minimization, rectification, reduction, compensation (40 CFR 1508.20)) 
or environmental restoration activities authorized under the TEA-21 
associated with highway projects funded under title 23, U.S. Code, 
only. Part 771 of title 23, CFR, establishes the general project 
environmental process, impact review requirements, and mitigation 
policy under NEPA for federally funded highway projects. Specific 
mitigation requirements for wetlands and waters of the United States 
are established at 33 CFR Part 320, 40 CFR Part 230, and by other 
applicable State or local regulations. Federal requirements for 
conservation measures for habitat of federally listed species are found 
in 50 CFR Part 402--Interagency Cooperation--Endangered Species Act of 
1973, as amended, and related guidance, and State regulations as 
applicable.
    Part 771 is the FHWA regulation implementing NEPA; it addresses 
appropriate analysis of impacts to the natural and human environment, 
and use of title 23, U.S. Code, funds for mitigation of impacts in 
general. Other Federal guidance and regulations regarding mitigation 
for impacts to wetlands and aquatic resources include: the U.S. Fish 
and Wildlife Service (USFWS) draft regulations concerning compatible 
uses of Federal wildlife refuges, found at 64 FR 49055 (September 9, 
1999); the USFWS policy on mitigation, found at 46 FR 7644 (January 23, 
1981); the Federal Guidance; and the Regulations for Implementing the 
Procedural Provisions of the National Environmental Policy Act (40 CFR 
Part 1508).
    Since the ISTEA was passed, the FHWA has implemented the additional 
flexibility that the ISTEA provided to participate in wetland 
mitigation that was not found in the old regulation through internal 
memoranda and technical guidance. The FHWA has encouraged progressive 
approaches to wetlands mitigation, including development of mitigation 
banking agreements and restoration of past impacts which were not 
mitigated when the highway projects were constructed. State DOTs have 
been allowed all possible flexibility in developing compensatory 
mitigation approaches for unavoidable wetlands impacts with Federal 
highway funds, and have been encouraged to seek out new methods and 
technology for mitigation. The FHWA has participated in wetland 
technical workshops, and published a technical manual on mitigation of 
wetlands, National Cooperative Highway Research Program (NCHRP) Report 
379, ``Guidelines for the Development of Wetland Replacement Areas,'' 
\1\ to improve the value and performance of compensatory mitigation.
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    \1\ Report 379 dated 1996 is available for purchase at a cost of 
$65 from the Transportation Research Board bookstore at 2001 
Wisconsin Avenue, NW., Green Building, Room 346, Washington, DC 
20007, (202) 334-3213; or online at: http://www.nas.edu/trb. It is 
available for inspection and copying as provided in 49 CFR Part 7.

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[[Page 82917]]

    In addition to supporting the increased flexibility in 
participation with Federal transportation funds for mitigation, several 
comments also generally supported mitigation banking for mitigation of 
highway impacts. Highway projects are linear, often resulting in many, 
small, incremental impacts. On-site mitigation sometimes results in 
isolated wetlands that might not provide benefits commensurate with 
costs and time required to establish wetland functions. Due to the 
presumed larger size of the mitigation wetlands established through 
banking, and the controls that are recommended by the Federal Guidance 
under the Section 404 permit authority, wetlands banks could provide 
more wetland values and benefits per acre and should receive sufficient 
management to ensure their functions will be sustained into the future.
    Additional comments and responses are as follows:
    Several commenters requested that a citation to the Section 
404(b)(1) guidelines (40 CFR Part 230) be included; others thought it 
was not necessary. The Section 404(b)(1) guidelines are regulatory in 
nature and apply to environmental review and mitigation of impacts 
under Section 404 permit authority. The citation is now provided in 
Sec. 777.3.
    Several commenters requested citation of the Environmental Quality 
Council National Environmental Policy Regulations (40 CFR Parts1500-
1508). These regulations are now cited in Sec. 777.7.
    One commenter requested information on the location and cost of 
mitigation banks established with Federal highway funds or by State 
Departments of Transportation (DOTs). The FHWA does not collect or 
maintain this data.
    Several commenters requested preparation of an environmental impact 
statement (EIS) on this rulemaking. Typically, promulgation of rules by 
the FHWA is a categorical exclusion (23 CFR 771.117(c)(20)). Further, 
this rulemaking is not a proposal for a major Federal action 
significantly affecting the environment. Impacts to wetlands and waters 
of the United States due to federally funded highway projects, and the 
appropriateness of the mitigation provided for those impacts, are 
assessed for each project under NEPA through two paths. One is the NEPA 
process by the State DOT and the FHWA (23 CFR Part 771), and a second 
is through the public interest review process for Section 404 permits 
as required under NEPA by the U.S. Army Corps of Engineers (33 CFR 
320.4).
    This rulemaking does not establish additional mandatory mitigation 
requirements for wetlands or natural habitats, nor does it alter the 
Section 404 Regulatory Program or the requirements of the Section 
404(b)(1) guidelines to avoid and minimize wetlands impacts. The U.S. 
Army Corps of Engineers has revised the nationwide permit (NWP) program 
under Section 404 (65 FR 12817), effective June 5, 2000. Requirements 
for notice and mitigation of impacts on NWPs have been strengthened, 
not relaxed. Therefore, the FHWA does not agree that promulgation of 
this final rule requires the preparation of an EIS.
    One non-governmental organization stated that the Federal highway 
program caused the loss of ``thousands of acres of wetland.'' Losses of 
wetlands due to Federal highway projects which involved individual 
Section 404 permits have averaged about 2,000 acres per year on a 
program-wide basis over the past three years. During the same period, 
compensatory mitigation for these unavoidable impacts has been provided 
at a ratio of approximately 2:1 on a program wide basis. The FHWA will 
continue to pursue a goal of providing compensatory mitigation 
sufficient to help reach the national goal of a net gain in wetlands 
functions and values.
    One commenter asserted that this rule will encourage greater use of 
Section 404 general permits through participation in mitigation with 
Federal highway funds, and will result in more wetlands losses. The 
recent changes to the nationwide permit program do not broaden the use 
of general permits, instead they strengthen the requirements for use of 
such permits which apply to highway projects, and increase the level of 
environmental review and mitigation required. Therefore, the FHWA does 
not believe that this rule will encourage wetland losses. However, it 
will enable better mitigation on highway projects; not just 
compensatory mitigation, but also avoidance and minimization, and will 
result in an improvement in the performance of compensatory mitigation 
sites.
    Numerous comments were received on the definitions (Sec. 777.2). 
Several commenters suggested revision of the definition of compensatory 
mitigation to delete ``wetland buffer areas,'' ``usually occurs,'' and 
``Compensatory mitigation * * * after such impacts in special 
circumstances.'' Most of these commenters emphasized avoidance and 
minimization of adverse wetlands impacts to the maximum extent 
practicable, and implementation of compensatory mitigation before 
impacts occur to avoid temporal (temporary) loss of wetlands functions 
and values. Some commenters opposed allowing the use of mitigation 
banks or off-site compensatory mitigation.
    The Congress, in the ISTEA, made use of wetland mitigation banks 
eligible for Federal funding on National Highway System and Surface 
Transportation Program projects (23 U.S.C. 133). Further, the TEA-21 
establishes a preference for the use of mitigation banks to offset 
unavoidable losses due to Federal-aid highway projects. Therefore, the 
FHWA cannot disallow their use.
    The U.S. Army Corps of Engineers, in its recent notice regarding 
revision of the Nationwide Permit Program (64 FR 39252, July 21, 1999), 
stated: ``The establishment and maintenance of vegetated buffers 
adjacent to open waters and streams will protect, restore, and enhance 
water quality and aquatic habitat. Vegetated buffers can be used to 
provide out-of-kind compensatory mitigation for wetland impacts where 
the District Engineer determines that such mitigation for wetland 
impacts is the best, ecologically, for the aquatic environment.'' This 
approach is consistent with watershed management concepts in wetlands 
and aquatic resource protection and conservation currently being 
advanced by the Administration (Protecting America's Wetlands: A Fair, 
Flexible, and Effective Approach, White House Office for Environmental 
Policy, 1993) and many State resource agencies.
    Off-site compensatory mitigation has been accepted by the U.S. Army 
Corps of Engineers as a means of obtaining replacement of lost wetlands 
functions and values where it is determined to be suitable. In some 
cases, on-site mitigation is not available or practicable. Off-site 
alternatives might provide the opportunity to re-establish wetlands 
functions where other alternatives cannot be implemented or would be 
ineffective.
    One commenter asserted that allowing compensatory mitigation to 
``occur after such impacts under special circumstances,'' invites abuse 
of flexibility and is not consistent with the Federal Guidance. In 
fact, the Federal Guidance states: ``Compensatory mitigation is 
typically implemented and functioning in advance of project impacts, * 
* *.'' The FHWA recognizes that it is preferable for compensatory 
mitigation to be accomplished before or concurrently with impacts. 
However, our current interpretation of eligibility of mitigation 
activities for participation with Federal highway funds, based on

[[Page 82918]]

provisions in the ISTEA and the TEA-21, allows mitigation of project 
impacts after the fact, to the extent that mitigation and environmental 
restoration projects related to transportation projects can be 
undertaken well after the highway construction project has been 
completed and is in use, and there is no active federally funded 
highway construction project in the vicinity. Therefore, we are leaving 
the definition as written.
    Comments by Federal agencies were submitted concerning the 
definition of mitigation banks for wetlands and natural habitats, to 
the effect that the definition should be consistent with the Federal 
Guidance. We agree with this comment, and therefore have changed the 
definition of mitigation bank to agree with that found in the Federal 
Guidance, with the addition that the definition also applies to natural 
habitat. A comment was also submitted requesting that ``related 
measures'' be defined separately from ``mitigation bank.'' Upon review 
of section 1106 of the TEA-21 (23 U.S.C. 103), no mention of the term 
``related measures'' was found. The FHWA believes that this term falls 
within a range of activities that would normally be associated with 
other definitions in the regulation. Therefore, no definition is 
included for ``related measures,'' and the term is removed from the 
definition and other sections where it appeared.
    Several State departments of transportation commented on the 
definition of natural habitat to exclude highway rights-of-way from the 
definition in accordance with 23 CFR 1.2. The FHWA agrees with these 
comments. Once established through title or easement, highway rights-
of-way are excluded from the definition of natural habitat. Their 
primary purposes are transportation related. This is not intended to 
preclude the use of rights-of-way for purposes of maintaining wildlife 
passage across highways by structures or other means, or for enhancing 
natural habitats, when consistent with transportation uses.
    Comment was also made that the definition of natural habitat could 
be interpreted as precluding the restoration of cultivated or 
artificially landscaped areas to natural habitat conditions. All 
cultivated or landscaped areas were at one time occupied by naturally 
occurring, native vegetation. They usually can be restored to natural 
habitat through deliberate restoration processes.
    Several commenters suggested changes to the definition of ``Net 
gain of wetlands'' (1) To exclude preservation as a means of achieving 
a net gain, (2) to delete the phrase ``at a ratio greater than 1:1,'' 
and (3) to include natural habitat in a net gain definition and policy. 
The FHWA agrees that preservation is not capable of achieving a net 
gain of wetland area. However, the FHWA believes that, under 
exceptional circumstances, preservation can protect existing, high 
value wetlands that are at risk of development, degradation, or loss, 
and result in a gain in wetlands' functional capacity in the long run. 
Preservation is also permitted under the Federal Guidance and Section 
404(b)(1) guidelines. Deleting the phrase ``at a ratio greater than 
1:1'' will not substantively change the meaning or interpretation of 
the definition. We also maintain that this definition is confined to 
eligibility of mitigation activities funded pursuant to title 23, U.S. 
Code; in other words, the federally funded highway program. Wetlands 
have been identified through special national programs and policies for 
particular management attention and protection as unique and critical 
national resources, for example the National Clean Water Action Plan 
has specific wetland elements included. In addition, the FHWA has 
established specific performance objectives in its National Strategic 
Plan and Performance Plan for conservation of wetlands.
    The FHWA also recognizes the mandate to conserve and protect the 
habitat of species listed as threatened or endangered under the Federal 
Endangered Species Act (ESA) (16 U.S.C. 1531 et seq.) and other 
biological species of special concern under NEPA and other related 
regulations and policies. Through participation in the ESA Section 7 
process (16 U.S.C. 1536), conservation measures for protection and 
recovery of listed species on Federal highway projects are implemented. 
Part 771 provides for the mitigation of significant, adverse impacts of 
Federal highway projects. Neither FHWA policy nor regulations preclude 
participation with Federal transportation funds in mitigation for 
impacts to natural habitat which would provide compensation ratios 
greater than 1:1 where appropriate. This regulation does not prohibit 
such appropriate compensation for natural habitat losses, and the FHWA 
believes that the ESA and other conservation objectives are adequately 
met under those policies and requirements. Therefore, the definition is 
left as it is.
    One commenter objected to the use of the definition for ``service 
area'' provided in the Federal Guidance. This definition has been 
generally accepted in the Section 404 regulatory program and provides 
sufficient flexibility to obtain useful, timely, cost-effective 
mitigation. In the interest of consistency, the definition used in the 
Federal Guidance will be retained in this regulation.
    Several commenters suggested revision or deletion of the definition 
of ``wetland or habitat enhancement.'' We agree that the written 
definition was not as clear as we would like, and therefore have 
partially replaced it with the definition of ``enhancement'' from the 
Federal Guidance. However, we have left examples of activities which 
can be carried out to enhance wetlands for purposes of determining 
eligibility for Federal participation with Federal highway funds.
    One commenter expressed a concern with the definition of ``wetland 
or habitat enhancement,'' saying that allowing enhancement or 
improvement of areas surrounding wetlands (i.e., buffer zones) should 
not be considered mitigation and should not receive credit for 
mitigating impacts to wetlands. The TEA-21 provides for participation 
with Federal highway funds to mitigate impacts to wetlands and other, 
non-wetland, habitats. Mitigation of impacts to wetlands are required 
as a condition of permits issued under Section 404 of the CWA, and the 
appropriate mitigation credits granted to a mitigation project are 
determined by the U.S. Army Corps of Engineers through that process. 
The definition as written allows for the use of Federal highway funds 
for mitigation of impacts of federally funded highway projects to 
wetland and non-wetland habitats, is accurate, and has not been 
changed.
    One non-governmental organization requested that the term ``pest 
control'' be replaced with ``integrated pest management.'' We agree 
with this last comment, and have changed the section to that effect.
    One commenter complained that the definition of ``wetland or 
habitat establishment period'' was too vague. Therefore, the definition 
has been changed to indicate more of the purpose. The intent of 
defining an establishment period is to allow participation with Federal 
highway funds in corrective measures necessary to fully establish 
compensatory mitigation. The definition is necessary and remains in the 
regulation.
    One commenter requested that the definition of ``wetland or habitat 
functional capacity'' be deleted. Section 404 regulations require that 
functions of wetlands being impacted in a proposed action or project 
permitted under Section 404 authority be assessed to determine the 
extent of impacts on waters of the United States and to

[[Page 82919]]

evaluate the importance of the wetlands being impacted. The concept of 
functional capacity is implicit in the Section 404 Regulatory Program, 
is an essential element in the hydrogeomorphic functional assessment 
approach (HGM) being developed by the U.S. Army Corps of Engineers (62 
FR 33607, June 20, 1997), and is defined therein. The FHWA supports the 
development and application of HGM to highway projects where it is 
practicable. Therefore, this definition remains in the regulation.
    One commenter asked for a definition of ``scientific functional 
assessment.'' Functional assessment of wetlands is defined by the U.S. 
Army Corps of Engineers as ``a process by which the capacity of a 
wetland to perform a function is measured.'' (Technical Report WRP-DE-
9, U.S. Army Corps of Engineers, 1995). This definition is expanded and 
further refined in the Section 404(b)(1) guidelines (40 CFR 230.20-
230.50). Both of these definitions are science-based in that they refer 
to or require factual data concerning the observation and measurement 
of conditions that exist in wetlands and the processes which occur 
there. This is the type of analysis to which the FHWA refers in the 
term ``scientific functional assessment.'' This process is required by 
the public interest review when a Section 404 permit is issued for 
compliance with the Section 404(b)(1) guidelines. The Section 404(b)(1) 
guidelines are ``substantive environmental standards by which all 404 
permit applications are evaluated.'' (Joint Memorandum to the Field, 
USEPA and USACE; Appropriate Level of Analysis Required for Evaluating 
Compliance with the Section 404(b)(1) Guidelines Alternatives 
Requirements (August 23, 1993)).
    One commenter suggested changing the definition for ``wetland or 
habitat mitigation credit'' to that found in the Federal Guidance; 
another suggested that this definition be deleted. The hydrogeomorphic 
approach developed by the U.S. Army Corps of Engineers facilitates 
using the concept of mitigation credits by presenting an area-based 
functional capacity index which can be used to determine appropriate 
ratios of compensation. Thus, the concept of mitigation credits can be 
applied to on-site, project-specific mitigation as well as to 
mitigation banks. Therefore, we have left the definition as it was, and 
added a statement that, with respect to mitigation banks, the 
definition means the same as that in the Federal Guidance.
    A Federal agency commented on the definition for ``wetland or 
habitat restoration,'' suggesting removal of the phrase ``but have 
essentially been eliminated.'' We agree that this phrase is 
unnecessary, and have eliminated it.
    The remaining comments apply to the body of the regulation, 
Secs. 777.3 through 777.11.
    One commenter requested that a paragraph referring to the Section 
404 regulatory program be included in Sec. 777.3, background. We agree 
with this comment and have included a reference to the U.S. Army Corps 
of Engineers Regulatory Program, 33 CFR Parts 320-330.
    One commenter requested that a description of the preference for 
the use of mitigation banks for compensatory mitigation of impacts 
related to projects funded pursuant to title 23, U.S. Code, as stated 
in the TEA-21, be included in Sec. 777.3. That preference relates to 
participation in mitigation costs on such projects, and is stated in 
Sec. 777.9, Mitigation of Impacts.
    One commenter requested that monitoring of mitigation projects be 
included in Sec. 777.5, Federal Participation, paragraph (b). 
Monitoring of mitigation activities and results is an essential 
activity to ensure successful completion of mitigation. Therefore, the 
section is changed to specifically include monitoring as an eligible 
activity.
    Several commenters requested Sec. 777.5(a) require consultation by 
the State DOTs with Federal and State resource agencies to determine 
what measures are needed to fully mitigate adverse impacts to wetlands. 
Consultation with resource agencies is carried out under the 
requirements of the Section 404 public interest review process on all 
permits which have greater than minimal effects on waters of the United 
States. The Section 404(b)(1) guidelines are likewise universally 
applied to the Section 404 Permit process. The interagency review 
process is also referenced in Secs. 777.7 and 777.11.
    One commenter asked that a requirement for compliance with Section 
404 of the CWA, requirements and other relevant statutes be added to 
Sec. 777.7, Evaluation of impacts. The FHWA agrees, therefore a 
paragraph is added to that effect. A commenter also recommended that 
indirect and cumulative impacts be added to the statement in this 
section. The evaluation of such long term impacts is addressed in 
Sec. 777.7(c).
    Several State departments of transportation commented in reference 
to Sec. 777.7, that the cost of mitigation often exceeded the ``value'' 
of the wetland resource impacted, and that the area of mitigation 
required to satisfy a Section 404 permit condition far exceeded the 
area of wetland impacted. 33 CFR 320.4(r)(2) states:

    All compensatory mitigation will be for significant resource 
losses which are specifically identifiable, reasonably likely to 
occur, and of importance to the human or aquatic environment. Also, 
all mitigation will be directly related to the impacts of the 
proposal, appropriate to the scope and degree of those impacts, and 
reasonably enforceable * * *.

    Natural resource values are very difficult to determine, since 
common practice in our society is to assign value to a service, an 
object, or a parcel of land, in monetary terms. Natural resources that 
do not receive or encourage direct public or private ``use'' in some 
manner, for instance recreation or economic gain, are typically valued 
very low in monetary terms, lower than their importance to a healthy 
ecosystem might be. Means of valuing resources include ``replacement 
cost,'' ``willingness to pay'' for use or access, and ``user economic 
expenditures'' value, wherein the economic benefit is calculated based 
on average expenditures for those uses. None of these approaches 
effectively measures the importance of a particular ecological element 
to the healthy, normal, functioning of ecosystems. They do approach 
some measure of the economic significance of the resource. However, 
wetlands have been identified as being of national importance and 
significance by law, executive order, and regulation. Therefore, we 
assume that they are significant in the functioning of the ecosystems 
within which they occur, despite our inability at this time to put an 
``appraised'' dollar value or significance rating on their ecosystem 
relationships. For this reason, FHWA policy is that reasonable costs of 
mitigation, in all its forms, are eligible for participation with 
Federal highway funds, and are consistent with agency and national 
resource conservation objectives, as exemplified by such programs as 
the National Clean Water Action Plan, Wetlands Reserve Program, and 
North American Waterfowl Management Plan.
    Several commenters requested clarification of the applicability of 
Sec. 777.9, Mitigation of impacts, to the TEA-21, section 1108(a)(7), 
Surface Transportation Program, Eligibility of projects (23 U.S.C. 
133(b)(14)). This section of the TEA-21 adds the following to the list 
of activities eligible for Federal transportation funds under this 
section:


[[Page 82920]]


    (14) Environmental restoration and pollution abatement projects 
(including the retrofit or construction of storm water treatment 
systems) to address water pollution or environmental degradation 
caused or contributed to by transportation facilities, which 
projects shall be carried out when the transportation facilities are 
undergoing reconstruction, rehabilitation, resurfacing, or 
restoration; except that the expenditure of funds under this section 
for any such environmental restoration or pollution abatement 
project shall not exceed 20 percent of the total cost of the 
reconstruction, rehabilitation, resurfacing, or restoration project.

    The commenters raised the question whether or not the 20 percent 
limit applied to mitigation of current impacts due to projects funded 
under Title 23. The FHWA's interpretation of this section is that the 
20 percent limit for ``four r'' projects (reconstruction, 
rehabilitation, resurfacing, or restoration) applies to past or 
existing impacts or pollution caused by the original highway project or 
subsequent construction projects on the highway, not to mitigation of 
impacts anticipated by a proposed new activity.
    Several commenters also recommended that if the participation of 
Federal highway funds in mitigation of past wetlands impacts were 
allowed, a specific pool of funds be set aside for such ``wetland 
mitigation retrofit activities'' with a specific funding limit.
    ``Wetland mitigation retrofit'' we take to mean the mitigation of 
historical or past wetlands impacts due to highway projects which were 
not successfully compensated or mitigated at the time of construction. 
The TEA-21 does not subdivide Transportation Enhancement (TE) funds 
into separate accounts that can only be used for specified TE projects. 
Wetland mitigation retrofit projects are treated like any other TE 
project and are eligible for TE funding on a case-by-case basis.
    One commenter requested that the term ``wetland'' in 
Sec. 777.9(a)(1) be changed to ``waters of the United States,'' and 
that the following phrase, ``avoidance and minimization must be given 
first consideration in mitigating wetlands impacts' be replaced with 
``impacts to wetlands and other waters of the United States must be 
avoided and minimized to the maximum extent practicable, prior to 
consideration of compensatory mitigation measures.''
    One of the reasons this regulation is being revised is specific 
authority in the TEA-21, which refers to ``natural habitats and 
wetlands* * *.'' Therefore, the regulation will retain references to 
wetlands, and not waters of the United States. However, the FHWA 
recognizes that the Section 404 regulatory program (33 CFR Parts 320-
330) regulates discharges in ``waters of the United States'' (33 CFR 
328.3), which include aquatic resources other than wetlands. 
Eligibility of funding for mitigation of these impacts is addressed 
under Part 771. The FHWA recognizes the need to satisfy the 
requirements for mitigation established in the Section 404(b)(1) 
guidelines in permitting projects, and also established in section 1106 
of the TEA-21, which amended 23 U.S.C. 103(b)(6)(M) in part, as follows 
: ``In accordance with all applicable Federal law (including 
regulations), participation in natural habitat and wetland mitigation 
efforts* * *.'' We interpret this as a reference to 33 CFR Part 320, 
General Regulatory Policy, 40 CFR Part 230, Section 404(b)(1) 
guidelines, and other Federal regulations related to wetlands and 
natural habitats. It is not the intent of the FHWA to duplicate 
regulatory requirements in this regulation that have been independently 
established. Therefore, this reference and the accompanying language 
are removed from the section and have been placed in Sec. 777.3, 
Background.
    A commenter suggested that Sec. 777.9(a)(2) specify that the 
compensatory wetland mitigation implemented must be the most preferred 
environmentally in accordance with the Section 404(b)(1) guidelines. 
This change is beyond the scope and intent of this regulation, 
therefore, the requested change was not made.
    Several commenters suggested that the service area of a mitigation 
bank (Sec. 777.9(a)(4)) be defined as the USGS hydrologic unit in which 
it occurs. This is not consistent with the Federal Guidance. Further 
changes were also requested specifying the proximity of mitigation to 
impacts. These decisions are made by the U.S. Army Corps of Engineers, 
in conditioning Section 404 permits, and are not within the scope of 
this regulation.
    A commenter also suggested, in reference to Sec. 777.9(a)(4), that 
compensatory mitigation be allowed only within the same hydrologic 
unit, and that out-of-kind mitigation should be acceptable only if 
specifically recommended by resource agencies. Such a requirement is 
beyond the scope of the statute and this regulation. General guidelines 
for siting of mitigation banks are found in Section II.B(2) of the 
Federal Guidance. Requirements for siting of compensatory mitigation 
are determined by the U. S. Army Corps of Engineers as conditions to 
the issuance of a permit in accordance with the Section 404(b)(1) 
guidelines. Therefore we are not changing the language in this section.
    A commenter recommended that Sec. 777.9 include sequencing 
requirements for non-wetland, natural habitats, similar to that 
required by 40 CFR 230 for wetlands. Sequencing, as defined in the 
Section 404(b)(1) guidelines, is the requirement to avoid or minimize 
impacts before considering compensatory mitigation. Such a requirement 
is beyond the scope of this regulation and the TEA-21 authorities. 
Therefore, a sequencing requirement for natural habitat was not added 
to the regulation.
    Comment was made on this section requesting that clarification be 
provided in the final rule for the language in the TEA-21 which states 
a preference for the use of mitigation banks, to the effect that an 
eligible bank (impacts within service area, credits available, approved 
and permitted by the COE in accordance with the Federal Guidance) be 
used to the maximum extent practicable to mitigate some of the wetland 
impacts on a highway project, even if the bank does not have sufficient 
credits available to mitigate all the project's impacts.
    The TEA-21, section 1106 (23 U.S.C. 103(b)(6)(M)) states:

    In accordance with all applicable Federal law (including 
regulations) participation in natural habitat and wetland mitigation 
efforts related to projects funded under this title, which may 
include participation in natural habitat and wetland mitigation 
banks, contributions to statewide and regional efforts to conserve, 
restore, enhance, and create natural habitats and wetlands, and 
development of statewide and regional natural habitat and wetland 
conservation and mitigation plans, including any such banks, 
efforts, and plans authorized under the Water Resources Development 
Act of 1990 (Public Law 101-640) (including crediting provisions). 
Contributions to the mitigation efforts described in the preceding 
sentence may take place concurrent with or in advance of project 
construction; except that contributions in advance of project 
construction may occur only if the efforts are consistent with all 
applicable requirements of Federal law (including regulations) and 
State transportation planning processes. With respect to 
participation in a natural habitat or wetland mitigation effort 
related to a project funded under this title that has an impact 
within the service area of a mitigation bank, preference shall be 
given, to the maximum extent practicable, to the use of the 
mitigation bank if the bank contains sufficient credits to offset 
the impact and the bank is approved in accordance with the Federal 
Guidance for the Establishment, Use, and Operation of Mitigation 
Banks (60 FR 58605) or other applicable Federal law (including 
regulations).

    The U.S. Army Corps of Engineers, as the agency administering the 
Section 404 regulatory program, has the primary

[[Page 82921]]

responsibility to determine the most appropriate compensatory 
mitigation approach for unavoidable impacts to wetlands and waters of 
the United States, including the use of a mitigation bank, under 
Section 404, CWA, 33 CFR Part 320, and 40 CFR Part 230. 33 CFR 320.4(r) 
presents the regulatory guidance for mitigation of impacts to waters of 
the United States in the Section 404 permit process.
    The FHWA, in determining eligibility for participation with 
Federal-aid funds for mitigation costs, sees no reason why the use of a 
permitted mitigation bank as partial mitigation for project impacts 
should not be an eligible expense when approved as a condition for 
issuance of a Section 404 permit. Ultimately, the decision upon which 
compensatory mitigation approach to use for unavoidable impacts rests 
with the U.S. Army Corps of Engineers under the Section 404 permit 
program authority and U.S. Environmental Protection Agency under the 
provisions of Section 404(c).
    One commenter suggested that Sec. 777.9(a)(4) explicitly require 
mitigation banks to be certified as functioning before credits can be 
issued against project impacts. This comment is appropriate to the 
Federal Guidance and the Section 404 regulatory program, but beyond the 
scope of this regulation. Therefore Sec. 777.9(a)(4) was not changed in 
this regard.
    A wetlands mitigation banker commented on Sec. 777.9(b), objecting 
to the phrase ``is determined to be the most ecologically desirable and 
practicable alternative for compensatory mitigation.'' Upon reviewing 
the regulatory process, and in light of the other qualifying statements 
in the TEA-21, the FHWA believes that the phrase is unnecessary, and 
therefore it is deleted from the final rule. It should be clear under 
the Section 404 regulations, including the Section 404(b)(1) 
Guidelines, that a cooperative impact and functional assessment process 
using science-based information will be employed as necessary to 
determine the appropriate compensatory mitigation approach.
    One commenter requested clarification of Sec. 777.9(c), 
Contributions to statewide and regional efforts to conserve, restore, 
enhance and create wetlands or natural habitats, with respect to the 
eligibility of ``in-lieu-fee'' mitigation programs for participation 
with Federal-aid highway funds. In-lieu-fee programs are those in which 
funds are collected in specific amounts per unit of impact and are then 
administered by the regulatory agency to pay for compensatory 
mitigation according to pre-established objectives and plans. The FHWA 
has not developed specific guidance for participation with Federal-aid 
highway funds in in-lieu-fee programs at this time. However, in so far 
as in-lieu-fee programs are defined within the guidelines provided in 
the TEA-21, comply with other applicable Federal and State laws 
(including regulations), and are not contrary to the public interest, 
they are eligible for participation. The TEA-21 implicitly states that 
in-lieu-fee mitigation programs are eligible for Federal participation, 
as follows (section 1106; 23 U.S.C. 103 (b)(6)(M)):

* * * 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, * * *
    Accordingly, this regulation makes no specific prohibition against 
participation in in-lieu-fee programs, other than the existing 
stipulation that they be in accordance with other applicable Federal 
laws (including implementing regulations and guidance) and State 
transportation planning processes. It is in the public interest that 
the FHWA ensure, through appropriate documentation, cooperative 
agreements, and performance contracts, as well as direct monitoring and 
oversight where appropriate, that in-lieu-fee programs having 
participation with Federal highway funds provide effective compensation 
for unavoidable impacts due to federally funded highway projects.
    A Federal agency expressed concern about the use of ``public 
lands'' for compensatory wetland mitigation (Sec. 777.9(b)). The intent 
of the FHWA's mitigation policy and this regulation concerning the 
siting of mitigation is to achieve the highest possible balance of 
ecological values and public benefits within available mitigation 
opportunities, costs, and legal authorities. It is not the intent of 
the FHWA to establish a policy which preempts management of public 
lands by the responsible agency, nor place unnecessary constraints on 
compensatory mitigation alternatives. Therefore, the reference to 
public lands has been removed from the regulation. We have established 
no prohibition against alternatives for compensatory mitigation on 
private lands, nor any requirement to mitigate on publicly-owned lands.
    The Federal Guidance states the following in Section II B(1) ``The 
overall goal of a mitigation bank is to provide economically efficient 
and flexible mitigation opportunities, while fully compensating for 
wetland and other aquatic resource losses in a manner that contributes 
to the long term functioning of a watershed . . . Banks may be sited on 
public or private lands. Cooperative arrangement between public and 
private entities to use public lands for mitigation banks may be 
acceptable. In some circumstances, it may be appropriate to site banks 
on Federal, State, tribal, or locally-owned resource management areas(. 
. .). The siting of banks on such lands may be acceptable if the 
internal policies of the public agency allow use of its land for such 
purposes, and the public agency grants approval. Mitigation credits 
generated by banks of this nature should be based solely on those 
values in the bank that are supplemental to the public programs already 
planned or in place, . . .''
    One State department of transportation suggested that Sec. 777.9(d) 
disallow the eligibility of Federal highway funds for mitigation or 
restoration of impacts to wetlands from historical or past highway 
projects without promulgation of additional specific and proscriptive 
guidelines for implementation. The concern was that this eligibility 
would result in requirements for such mitigation from regulatory 
agencies without legal authority.
    The TEA-21 authorizes the use of Federal highway construction funds 
(title 23, U.S. Code) to mitigate or restore current or past wetlands 
losses caused by federally funded highway projects, but establishes no 
requirements in this regard. This final rule addresses the eligibility 
of wetland mitigation activities for Federal highway funding 
participation, and does not establish requirements for mitigation or 
ecological restoration of any type or extent. 33 CFR 320.4(r)(2) 
clearly states that mitigation required under a Section 404 permit 
issued for a current project is meant to address direct impacts of the 
permitted project, and not the impacts due to prior or other current 
activities or projects, as follows: ``All compensatory mitigation will 
be for significant resource losses which are specifically identifiable, 
reasonably likely to occur, and of importance to the human or aquatic 
environment. Also, all mitigation will be directly related to the 
impacts of the proposal, appropriate to the scope and degree of those 
impacts, and reasonably enforceable.'' The FHWA opposes extensions of 
requirements for mitigation which are not properly authorized by 
regulation or law.

[[Page 82922]]

    A non-governmental conservation organization requested 
Sec. 777.9(d) require mitigation to meet specific conditions for 
participation with Federal transportation funds. The conditions 
suggested were that mitigation must: (1) improve ecological conditions 
of the regional watershed, (2) be scientifically measurable as 
compensation, (3) be accompanied by a long term management plan, (4) 
have established success criteria, and (5) have a specific time frame 
for implementation. While the FHWA agrees with the intent of these 
conditions, we do not believe it necessary that they be added to this 
regulation since they can be stipulated under the Section 404 permit 
conditions.
    One commenter requested that Sec. 777.11(a) be changed to state 
that consultation with State and Federal resource agencies ``must'' 
occur, rather than ``should'' occur. The FHWA believes that ``shall'' 
is the appropriate language for this regulation, and therefore 
Sec. 777.11(a) is changed to use ``shall.''
    One commenter requested clarification of the term ``sufficient 
assurances'' in Sec. 777.11(b). By this the FWHA means legally 
recognized documents or agreements, such as easements, title 
restrictions, or, mitigation banking instruments legally approved under 
Section 404 authority. Another commenter suggested that ``sufficient 
assurances'' include a performance bond. We agree with this comment and 
have changed Sec. 777.11(b) to include performance bonds in the 
examples of ``sufficient assurances.''
    One commenter recommended that Sec. 777.11(b) include a bonding 
requirement for private mitigation banks. The U.S. Army Corps of 
Engineers has the authority to establish bonding requirements for 
mitigation banks approved in accordance with the Federal Guidance. 
State DOTs can require performance bonding of private banks where 
consistent with State law, and bonding in some cases is suggested to 
ensure completion of mitigation. Additional bonding authority to 
require bonding is unnecessary. Therefore, this regulation will not 
establish a universal bonding requirement for participation in 
mitigation banks with title 23 Federal highway funds.
    Several commenters recommended that Sec. 777.11(b) not include a 
reference to net gain of wetlands, or that the net gain statement be 
further qualified. A net gain of wetlands nationally over the next 
decade has been made a goal of the National Clean Water Action Plan, 
and the FHWA has established a goal in the Plan of providing a 
compensatory mitigation ratio of 1.5 :1 or greater on a program-wide 
basis. In addition, the FHWA has established a goal of a net gain of 
wetlands in the FHWA Performance Plan. For the past three years the 
average ratio of mitigation provided to wetlands impacted has been two 
to one or greater. The FHWA is aware that many of the wetlands impacted 
by highway projects are small, isolated areas that have been degraded 
or are of relatively low value, and has worked with the U.S. Army Corps 
of Engineers to develop appropriate assessment methodology to reflect 
the relatively low value and benefits of these wetlands where such is 
the case. The FHWA also recognizes that in some parts of the country, 
such as the arid west, there are additional constraints on creating new 
wetlands acreage above what would naturally exist. Among these 
constraints is the availability of sufficient water and legal water 
rights issues. The FHWA emphasizes that the net gain of wetlands goal 
is a national objective in the federally funded highway program, and is 
not to be applied on a project-by-project basis, or even within a State 
Federal-aid highway program.
    However, wetlands are nationally recognized in the Clean Water Act 
and other programs as important natural resources which need special 
management to ensure that their significant benefits are protected and 
preserved. Therefore, the FHWA believes that a net gain goal for the 
Federal highway program is a significant and worthwhile objective, and 
will provide important future ecological and societal benefits. 
Therefore, the net gain objective remains in the regulation as stated.
    One commenter requested that Sec. 777.11(c) be modified to allow 
the use of Federal highway funds to acquire mitigation credits in 
accordance with the terms of an approved mitigation banking instrument. 
The FHWA agrees that a mitigation banking instrument, approved by the 
appropriate regulatory authority, should provide sufficient assurances 
that the site will be maintained as a wetland as suggested in the 
Federal Guidance. However, this section deals with mitigation 
approaches other than banks. Therefore, the existing language will 
remain, with the following change: ``. . . legally recognized 
instrument, such as permanent easement, deed restriction, or legally 
approved mitigation banking instrument, which provides for the 
protection and permanent continuation of the wetland or natural habitat 
nature of the mitigation.''
    A Federal agency pointed out the value of interdisciplinary, 
interagency, coordination highlighted in Secs. 777.7 and 777.11, and 
encouraged State departments of transportation to take advantage of 
planning and design services provided by the State resource managers in 
evaluating resource values and project impacts and implementing 
effective mitigation. The FHWA concurs with these comments and 
encourages interdisciplinary approaches to wetlands assessment and 
mitigation.
    Two commenters expressed additional concerns regarding mitigation 
banking and locating compensatory mitigation on public lands. One 
commenting agency, while aware of the potential advantages of 
mitigation banking, was concerned about the efficacy of wetland banks, 
which are unproven in its region. The recommendation was made that 
mitigation banks be fully coordinated and reviewed by State resource 
agencies before being implemented as mitigation. The importance of 
legally binding banking instruments was emphasized. The dynamic nature 
of natural wetlands was also emphasized by this commenter, which noted 
that the legal nature of wetland banks requires them to be stable in 
ecological character and functions over time, whereas natural wetlands 
are by nature dynamic and often subject to rapid and radical change by 
natural hydrologic change and biological succession. This comment 
points out the need for more knowledge about the dynamic processes 
which characterize the nature of wetlands and their successional 
changes in response to landscape and climatic processes.
    It is incumbent on the banking proponent to be aware of potential 
stability problems associated with a particular bank, and be prepared 
to effectively establish and maintain the bank to provide the benefits 
and functions which are intended over the lifetime of the legal 
obligation. It is also important that regulators and resource managers 
consider the relative stability of the banked wetland resources, and 
make decisions about requirements for and certification of the use of 
banks within that context.

Rulemaking Analyses and Notices

    All comments received before the close of business on the comment 
closing date indicated above were considered and are available for 
examination in the docket at the above address. Comments received after 
the comment closing date were placed in the docket and were considered 
to the extent practicable. In addition to late comments, the FHWA will 
also

[[Page 82923]]

continue to file in the docket relevant information that became 
available after the comment closing date, and interested persons should 
continue to examine the docket for new material.

Executive Order 12866 (Regulatory Planning and Review and DOT 
Regulatory Policies and Procedures)

    The FHWA has considered the impact of this document and has 
determined that it is neither a significant rulemaking action within 
the meaning of Executive Order 12866 nor a significant rulemaking under 
the regulatory policies and procedures of the Department of 
Transportation. This rulemaking amends the FHWA's regulations regarding 
mitigation of impacts to wetlands, which have become outdated because 
of provisions in sections 1006 and 1007 of the ISTEA and sections 1107 
and 1109 of the TEA-21 authorizing greater flexibility for Federal 
participation in mitigating impacts to wetlands and natural habitats. 
These amendments have been codified at 23 U.S.C. 103 and 133. The 
recently enacted TEA-21 added the term ``natural habitat'' to the 
eligibility provisions of 23 U.S.C. 103 and 133, and added a preference 
for the use of established mitigation banks for wetland mitigation 
activities.
    This rule does not cause any significant changes to the amount of 
funding available to the States under the STP or NHS programs or add to 
the process by which States receive funding. The provisions of this 
final rule do not require the additional expenditure of Federal-aid or 
State highway funds. Instead, this rule merely clarifies the scope of 
the FHWA's wetlands regulations by specifying that they apply to 
mitigation of all wetlands impacts due to projects funded pursuant to 
title 23, United States Code, not just privately owned wetlands, that 
mitigation of impacts to natural habitat due to projects funded 
pursuant to title 23 is eligible for Federal participation, and that 
mitigation banks are to receive preference in mitigating such impacts. 
Thus, it is concluded that the economic impact of this final rule is 
minimal. In addition, it does not create a serious inconsistency with 
any other agency's action or materially alter the budgetary impact of 
any entitlements, grants, user fees, or loan programs; nor will 
amendment of this regulation raise any novel legal or policy issues. 
Therefore, a full regulatory evaluation was not performed and is not 
required.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the FHWA has evaluated the effects of this final rule on small 
entities and has determined it would not have a significant economic 
impact on a substantial number of small entities. This final rule does 
not affect the amount of funding available to the States through the 
STP or NHS programs, or the procedures used to select the States 
eligible to receive these funds. Furthermore, States are not included 
in the definition of ``small entity'' set forth in 5 U.S.C. 601. For 
these reasons, and for those set forth in the analysis of Executive 
Order 12866, the FHWA hereby certifies that this action will not have a 
significant economic impact on a substantial number of small entities.

Executive Order 13132 (Federalism)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13132 dated August 4, 1999, and 
it has been determined this action does not have a substantial direct 
effect or sufficient federalism implications on States that would limit 
the policymaking discretion of the States. Nothing in this document 
directly preempts any State law or regulation.

Executive Order 12372 (Intergovernmental Review)

    Catalog of Domestic Assistance Program Number 20.205, Highway 
Planning and Construction. The regulations implementing Executive Order 
12372 regarding intergovernmental consultation on Federal programs and 
activities apply to this program.

Paperwork Reduction Act of 1995

    This action does not create a collection of information requirement 
for the purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 
3501-3520.

National Environmental Policy Act

    The FHWA has analyzed this rulemaking for the purposes of the 
National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4347). 
This rule does not, in and of itself, constitute a major Federal action 
significantly affecting the quality of the human environment. Instead, 
it amends the scope of the existing FHWA regulation on wetland 
mitigation to conform with authorities in the ISTEA and the TEA-21, 
which increases the flexibility available to States when deciding how 
to mitigate impacts to wetlands and natural habitats resulting from 
projects funded pursuant to the provisions of title 23. In addition, 
the passage of the TEA-21, with its addition of the term ``natural 
habitat'' to the wetlands mitigation banking provisions of title 23, 
made this rule necessary. Such impacts to wetlands and natural habitat 
and appropriate mitigation measures would be evaluated pursuant to NEPA 
on a project-by-project basis by the States and the FHWA. Accordingly, 
promulgation of this rule does not require the preparation of an 
environmental impact statement.

Unfunded Mandates Reform Act of 1995

    This rule does not impose a Federal mandate resulting in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. (2 
U.S.C. 1531 et seq.).

Executive Order 12630 (Taking of Private Property)

    This rule will not effect a taking of private property or otherwise 
have taking implications under Executive Order 12630, Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights.

Executive Order 12988 (Civil Justice Reform)

    This action meets applicable standards in sections 3(a) and 3(b)(2) 
of Executive Order 12988, Civil Justice Reform, to minimize litigation, 
eliminate ambiguity, and reduce burden.

Executive Order 13045 (Protection of Children)

    We have analyzed this action under Executive Order 13045, 
Protection of Children from Environmental Health Risks and Safety 
Risks. This rule is not an economically significant rule and does not 
concern an environmental risk to healthy or safety that may 
disproportionately affect children.

Regulatory Identification Number

    A regulation identification number (RIN) is assigned to each 
regulatory action listed in the Unified Agenda of Federal Regulations. 
The Regulatory Information Service Center publishes the Unified Agenda 
in April and October of each year. The RIN contained in the heading of 
this document can be used to cross reference this action with the 
Unified Agenda.

List of Subjects in 23 CFR Part 777

    Flood plains, Grant programs--Transportation, Highways and Roads, 
Wetlands.


[[Page 82924]]


    Issued on: December 21, 2000.
Kenneth R. Wykle,
Federal Highway Administrator.

    In consideration of the foregoing, the FHWA revises 23 CFR Part 777 
to read as follows:

PART 777--MITIGATION OF IMPACTS TO WETLANDS AND NATURAL HABITAT

Sec.
777.1   Purpose.
777.2   Definitions.
777.3   Background.
777.5   Federal participation.
777.7   Evaluation of impacts.
777.9   Mitigation of impacts.
777.11   Other considerations.

    Authority: 42 U.S.C. 4321 et seq.; 49 U.S.C. 303; 23 U.S.C. 
101(a), 103, 109(h), 133(b)(1), (b)(11), and (d)(2), 138, 315; E.O. 
11990; DOT Order 5660.1A; 49 CFR 1.48(b).


Sec. 777.1  Purpose.

    To provide policy and procedures for the evaluation and mitigation 
of adverse environmental impacts to wetlands and natural habitat 
resulting from Federal-aid projects funded pursuant to provisions of 
title 23, U.S. Code. These policies and procedures shall be applied by 
the Federal Highway Administration (FHWA) to projects under the Federal 
Lands Highway Program to the extent such application is deemed 
appropriate by the FHWA.


Sec. 777.2  Definitions.

    In addition to those contained in 23 U.S.C. 101(a), the following 
definitions shall apply as used in this part:
    Biogeochemical transformations means those changes in chemical 
compounds and substances which naturally occur in ecosystems. Examples 
are the carbon, nitrogen, and phosphorus cycles in nature, in which 
these elements are incorporated from inorganic substances into organic 
matter and recycled on a continuing basis.
    Compensatory mitigation means restoration, enhancement, creation, 
and under exceptional circumstances, preservation, of wetlands, wetland 
buffer areas, and other natural habitats, carried out to replace or 
compensate for the loss of wetlands or natural habitat area or 
functional capacity resulting from Federal-aid projects funded pursuant 
to provisions of title 23, U.S. Code. Compensatory mitigation usually 
occurs in advance of or concurrent with the impacts to be mitigated, 
but may occur after such impacts in special circumstances.
    Mitigation bank means a site where wetlands and/or other aquatic 
resources or natural habitats are restored, created, enhanced, or in 
exceptional circumstances, preserved, expressly for the purpose of 
providing compensatory mitigation in advance of authorized impacts to 
similar resources. For purposes of the Clean Water Act, Section 404 (33 
U.S.C. 1344), use of a mitigation bank can only be authorized when 
impacts are unavoidable.
    Natural habitat means a complex of natural, primarily native or 
indigenous vegetation, not currently subject to cultivation or 
artificial landscaping, a primary purpose of which is to provide 
habitat for wildlife, either terrestrial or aquatic. For purposes of 
this part, habitat has the same meaning as natural habitat. This 
definition excludes rights-of-way that are acquired with Federal 
transportation funds specifically for highway purposes.
    Net gain of wetlands means a wetland resource conservation and 
management principle under which, over the long term, unavoidable 
losses of wetlands area or functional capacity due to highway projects 
are offset by gains at a ratio greater than 1:1, through restoration, 
enhancement, preservation, or creation of wetlands or associated areas 
critical to the protection or conservation of wetland functions. This 
definition specifically excludes natural habitat, as defined in this 
section, other than wetlands.
    On-site, in-kind mitigation means compensatory mitigation which 
replaces wetlands or natural habitat area or functions lost as a result 
of a highway project with the same or like wetland or habitat type and 
functions adjacent or contiguous to the site of the impact.
    Practicable means available and capable of being done after taking 
into consideration cost, existing technology, and logistics, in light 
of overall project purposes.
    Service area of a mitigation bank means that the service area of a 
wetland or natural habitat mitigation bank shall be consistent with 
that in the Federal Guidance for the Establishment, Use and Operation 
of Mitigation Banks (60 FR 58605, November 28, 1995), i.e., the 
designated area (e.g., watershed, county) wherein a bank can be 
expected to provide appropriate compensation for impacts to wetlands 
and/or other aquatic or natural habitat resources.
    Wetland or habitat enhancement means activities conducted in 
existing wetlands or other natural habitat to achieve specific 
management objectives or provide conditions which previously did not 
exist, and which increase one or more ecosystem functions. Enhancement 
may involve tradeoffs between the resource structure, function, and 
values; a positive change in one may result in negative effects to 
other functions. Examples of activities which may be carried out to 
enhance wetlands or natural habitats include, but are not limited to, 
alteration of hydrologic regime, vegetation management, erosion 
control, fencing, integrated pest management and control, and 
fertilization.
    Wetland or habitat establishment period means a period of time 
agreed to by the FHWA, State DOT, and U.S. Army Corps of Engineers, as 
necessary to establish wetland or natural habitat functional capacity 
in a compensatory mitigation project sufficient to compensate wetlands 
or habitat losses due to impacts of Federal-aid highway projects. The 
establishment period may vary depending on the specific wetland or 
habitat type being developed.
    Wetland or habitat functional capacity means the ability of a 
wetland or natural habitat to perform natural functions, such as 
provide wildlife habitat, support biodiversity, store surface water, or 
perform biogeochemical transformations, as determined by scientific 
functional assessment. Natural functions of wetlands include, but are 
not limited to, those listed by the U.S. Army Corps of Engineers at 33 
CFR 320.4(b)(2)(i) through (viii).
    Wetland or habitat preservation means the protection of 
ecologically important wetlands, other aquatic resources, or other 
natural habitats in perpetuity through the implementation of 
appropriate legal and physical mechanisms. Preservation of wetlands for 
compensatory mitigation purposes may include protection of upland areas 
adjacent to wetlands as necessary to ensure protection and/or 
enhancement of the aquatic ecosystem.
    Wetland or habitat restoration means the reestablishment of 
wetlands or natural habitats on a site where they formerly existed or 
exist in a substantially degraded state.
    Wetland or wetlands means those areas that are inundated or 
saturated by surface or ground water at a frequency and duration to 
support, and that under normal circumstances do support, a prevalence 
of vegetation typically adapted for life in saturated soil conditions. 
Wetlands generally include swamps, marshes, bogs and similar areas.
    Wetlands or habitat mitigation credit means a unit of wetlands or 
habitat mitigation, defined either by area or a measure of functional 
capacity through application of scientific functional assessment. With 
respect to mitigation banks, this definition means the same as that in 
the Federal Guidance for the

[[Page 82925]]

Establishment, Use, and Operation of Mitigation Banks.


Sec. 777.3  Background.

    (a) Executive Order 11990 (42 FR 26961, 3 CFR, 1977 Comp., p. 121) 
Protection of Wetlands, and DOT Order 5660.1A,\1\ Preservation of the 
Nation's Wetlands, emphasize the important functions and values 
inherent in the Nation's wetlands. Federal agencies are directed to 
avoid new construction in wetlands unless the head of the agency 
determines that:
---------------------------------------------------------------------------

    \1\ DOT Order 5660.1A is available for inspection and copying 
from FHWA headquarters and field offices as prescribed at 49 CFR 
part 7.
---------------------------------------------------------------------------

    (1) There is no practicable alternative to such construction, and
    (2) The proposed action includes all practicable measures to 
minimize harm to wetlands which may result from such use.
    (b) Sections 103 and 133 of title 23, U.S. Code, identify 
additional approaches for mitigation and management of impacts to 
wetlands and natural habitats which result from projects funded 
pursuant to title 23, U.S. Code, as eligible for participation with 
title 23, U.S. Code, funds.
    (c) 33 CFR parts 320 through 330, Regulatory Program, U.S. Army 
Corps of Engineers; Section 404, Clean Water Act and 40 CFR part 230, 
Section 404(b)(1) Guidelines for the Specification of Disposal Sites 
for Dredged or Fill Material, establish requirements for the permitting 
of discharge of dredge or fill material in wetlands and other waters of 
the United States.
    (d) Federal Guidance for the Establishment, Use, and Operation of 
Mitigation Banks presents guidance for the use of ecological mitigation 
banks as compensatory mitigation in the Section 404 Regulatory Program 
for unavoidable impacts to wetlands and other aquatic resources.
    (e) Interagency Cooperation--Endangered Species Act of 1973, as 
amended (50 CFR part 402), presents regulations establishing 
interagency consultation procedures relative to impacts to species 
listed under the authority of the Act and their habitats as required by 
Section 7, Interagency Coordination, of the Endangered Species Act of 
1973 (16 U.S.C. 1536).


Sec. 777.5  Federal participation.

    (a) Those measures which the FHWA and a State DOT find appropriate 
and necessary to mitigate adverse environmental impacts to wetlands and 
natural habitats are eligible for Federal participation where the 
impacts are the result of projects funded pursuant to title 23, U.S. 
Code. The justification for the cost of proposed mitigation measures 
should be considered in the same context as any other public 
expenditure; that is, the proposed mitigation represents a reasonable 
public expenditure when weighed against other social, economic, and 
environmental values, and the benefit realized is commensurate with the 
proposed expenditure. Mitigation measures shall give like consideration 
to traffic needs, safety, durability, and economy of maintenance of the 
highway.
    (b) It is FHWA policy to permit, consistent with the limits set 
forth in this part, the expenditure of title 23, U.S. Code, funds for 
activities required for the planning, design, construction, monitoring, 
and establishment of wetlands and natural habitat mitigation projects, 
and acquisition of land or interests therein.


Sec. 777.7  Evaluation of impacts.

    (a) The reasonableness of the public expenditure and extent of 
Federal participation with title 23, U.S. Code, funds shall be directly 
related to:
    (1) The importance of the impacted wetlands and natural habitats;
    (2) The extent of highway impacts on the wetlands and natural 
habitats, as determined through an appropriate, interdisciplinary, 
impact assessment; and
    (3) Actions necessary to comply with the Clean Water Act, Section 
404, the Endangered Species Act of 1973, and other relevant Federal 
statutes.
    (b) Evaluation of the importance of the impacted wetlands and 
natural habitats shall consider:
    (1) Wetland and natural habitat functional capacity;
    (2) Relative importance of these functions to the total wetland or 
natural habitat resource of the area;
    (3) Other factors such as uniqueness, esthetics, or cultural 
values; and
    (4) Input from the appropriate resource management agencies through 
interagency coordination.
    (c) A determination of the highway impact should focus on both the 
short-and long-term affects of the project on wetland or natural 
habitat functional capacity, consistent with 40 CFR part 1500, 40 CFR 
1502.16, 33 CFR 320.4, and the FHWA's environmental compliance 
regulations, found at 23 CFR part 771.


Sec. 777.9  Mitigation of impacts.

    (a) Actions eligible for Federal funding. There are a number of 
actions that can be taken to minimize the impact of highway projects on 
wetlands or natural habitats. The following actions qualify for 
Federal-aid highway funding:
    (1) Avoidance and minimization of impacts to wetlands or natural 
habitats through realignment and special design, construction features, 
or other measures.
    (2) Compensatory mitigation alternatives, either inside or outside 
of the right-of-way. This includes, but is not limited to, such 
measures as on-site mitigation, when that alternative is determined to 
be the preferred approach by the appropriate regulatory agency; 
improvement of existing degraded or historic wetlands or natural 
habitats through restoration or enhancement on or off site; creation of 
new wetlands; and under exceptional circumstances, preservation of 
existing wetlands or natural habitats on or off site. Restoration of 
wetlands is generally preferable to enhancement or creation of new 
wetlands.
    (3) Improvements to existing wetlands or natural habitats. Such 
activities may include, but are not limited to, construction or 
modification of water level control structures or ditches, 
establishment of natural vegetation, re-contouring of a site, 
installation or removal of irrigation, drainage, or other water 
distribution systems, integrated pest management, installation of 
fencing, monitoring, and other measures to protect, enhance, or restore 
the wetland or natural habitat character of a site.
    (4) Mitigation banks. In accordance with all applicable Federal law 
(including regulations), with respect to participation in compensatory 
mitigation related to a project funded under title 23, U.S. Code, that 
has an impact on wetlands or natural habitat occurring within the 
service area of a mitigation bank, preference shall be given, to the 
maximum extent practicable, to the use of the mitigation bank, if the 
bank contains sufficient available credits to offset the impact and the 
bank is approved in accordance with the Federal Guidance for the 
Establishment, Use, and Operation of Mitigation Banks, or other 
agreement between appropriate agencies.
    (b) Mitigation banking alternatives eligible for participation with 
Federal-aid funds including such measures as the following:
    (1) Mitigation banks in which mitigation credits are purchased by 
State DOTs to mitigate impacts to wetlands or natural habitats due to 
projects funded under title 23, U.S. Code, including privately owned 
banks or those established with private funds to mitigate wetland or 
natural habitat losses.

[[Page 82926]]

    (2) Single purpose banks established by and for the use of a State 
DOT with Federal-aid participation; or multipurpose publicly owned 
banks, established with public, non-title 23 Federal highway funds, in 
which credits may be purchased by highway agencies using title 23 
highway funds on a per-credit basis.
    (c) Contributions to statewide and regional efforts to conserve, 
restore, enhance and create wetlands or natural habitats. Federal-aid 
funds may participate in the development of statewide and regional 
wetlands conservation plans, including any efforts and plans authorized 
pursuant to the Water Resources Development Act of 1990 (Pub. L. 101-
640, 104 Stat. 4604). Contributions to these efforts may occur in 
advance of project construction only if such efforts are consistent 
with all applicable requirements of Federal law and regulations and 
State transportation planning processes.
    (d) Mitigation or restoration of historic impacts to wetlands and 
natural habitats caused by past highway projects funded pursuant to 
title 23, U.S. Code, even if there is no current federally funded 
highway project in the immediate vicinity. These impacts must be 
related to transportation projects funded under the authority of title 
23, U.S. Code.


Sec. 777.11  Other considerations.

    (a) The development of measures proposed to mitigate impacts to 
wetlands or natural habitats shall include consultation with 
appropriate State and Federal agencies.
    (b) Federal-aid funds shall not participate in the replacement of 
wetlands or natural habitats absent sufficient assurances, such as, but 
not limited to, deed restrictions, fee ownership, permanent easement, 
or performance bond, that the area will be maintained as a wetland or 
natural habitat.
    (c) The acquisition of proprietary interests in replacement 
wetlands or natural habitats as a mitigation measure may be in fee 
simple, by easement, or by other appropriate legally recognized 
instrument, such as a banking instrument legally approved by the 
appropriate regulatory agency. The acquisition of mitigation credits in 
wetland or natural habitat mitigation banks shall be accomplished 
through a legally recognized instrument, such as permanent easement, 
deed restriction, or legally approved mitigation banking instrument, 
which provides for the protection and permanent continuation of the 
wetland or natural habitat nature of the mitigation.
    (d) A State DOT may acquire privately owned lands in cooperation 
with another public agency or third party. Such an arrangement may 
accomplish greater benefits than would otherwise be accomplished by the 
individual agency acting alone.
    (e) A State DOT may transfer the title to, or enter into an 
agreement with, an appropriate public natural resource management 
agency to manage lands acquired outside the right-of-way without 
requiring a credit to Federal funds. Any such transfer of title or 
agreement shall require the continued use of the lands for the purpose 
for which they were acquired. In the event the purpose is no longer 
served, the lands and interests therein shall immediately revert to the 
State DOT for proper disposition.
    (f) The reasonable costs of acquiring lands or interests therein to 
provide replacement lands with equivalent wetlands or natural habitat 
area or functional capacity associated with these areas are eligible 
for Federal participation.
    (g) The objective in mitigating impacts to wetlands in the Federal-
aid highway program is to implement the policy of a net gain of 
wetlands on a program wide basis.
    (h) Certain activities to ensure the viability of compensatory 
mitigation wetlands or natural habitats during the period of 
establishment are eligible for Federal-aid participation. These 
include, but are not limited to, such activities as repair or 
adjustment of water control structures, pest control, irrigation, 
fencing modifications, replacement of plantings, and mitigation site 
monitoring. The establishment period should be specifically determined 
by the mitigation agreement among the mitigation planners prior to 
beginning any compensatory mitigation activities.

[FR Doc. 00-33194 Filed 12-28-00; 8:45 am]
BILLING CODE 4910-22-P