    Wetlands Protection: Assessments Needed to Determine
    Effectiveness of In-Lieu-Fee Mitigation (04-MAY-01, GAO-01-325).

    Of the estimated 220 million acres of marshes, bogs, swamps, and
    other wetlands in the United States during the colonial times,
    more than half have disappeared and others have become degraded.
    This decrease is due, primarily, to agricultural activities and
    development. Developers whose projects may harm wetlands must,
    according to environmental regulations, first avoid and then
    minimize adverse impacts to wetlands to the extent practicable.
    If harmful impacts are unavoidable, the developer must compensate
    by restoring a former wetland, enhancing a degraded wetland,
    creating a new wetland, or preserving an existing wetland. Such
    mitigation efforts can occur under the following three types of
    arrangements: (1) mitigation banks, under which for-profit
    companies restore wetlands under Army Corps of Engineers
    agreements and then sell credits for these wetlands to
    developers; (2) in-lieu-fee arrangements under which developers
    pay public or non-profit organizations fees for establishing
    wetland areas, usually under formal Corps agreements; and (3) ad
    hoc arrangements, under which developers pay individuals or
    companies to perform the mitigation. This report, determines the
    extent to which (1) the in-lieu-fee option has been used to
    mitigate adverse impacts to wetlands, (2) the in-lieu-fee option
    has achieved its intended purpose of mitigating such impacts, and
    (3) in-lieu-fee organizations compete with mitigation banks for
    developers' mitigation business. This report also discusses the
    use of ad hoc arrangements as a mitigation option. Most of the
    arrangements were designed to use fees received from developers
    to restore, enhance, or preserve wetlands, with a few
    arrangements designed to allow wetlands to be created. During
    fiscal years 1998 through 2000, developers used the in-lieu-fee
    option to fulfill mitigation requirements for more than 580 acres
    of adversely affected wetlands, and paid more than $39.5 million
    to in-lieu-fee organizations. The extent to which the in-lieu-fee
    option has achieved its purpose of mitigating adverse impacts to
    wetlands is uncertain. Although Corps officials in 11 of the 17
    districts with the in-lieu-fee option said that the number of
    wetland acres restored, enhanced, created, or preserved by
    in-lieu-fee organizations equaled or exceeded the number of
    wetland acres adversely affected, data submitted by more than
    half of those districts did not support these claims. Officials
    in 9 of the 17 districts said that functions and economic values
    lost from the adversely affected wetlands were replaced at the
    same level or better through in-lieu-fee mitigation, but
    officials in more than half of those districts also acknowledged
    that they have not tried to assess whether mitigation efforts
    have been ecologically successful. As a result, the Corps cannot
    be certain that in-lieu-fee mitigation has been effective. Corps
    district officials in 9 of the 17 districts with the in-lieu-fee
    option said that organization and mitigation banks were competing
    with each other by providing similar mitigation services in the
    same geographic area. No competition existed in 5 of the 17
    districts because either no mitigation banks were available, or
    in-lieu-fee organizations and mitigation banks provided different
    services, or served different geographic areas. GAO found that
    hoc arrangements typically were for one-time projects without a
    formal agreement. Oversight of mitigation affairs was lacking in
    almost half of the districts using such arrangements. Corps
    districts disagreed on whether responsibility for the ecological
    success of ad hoc mitigation rests with the ad hoc fund recipient
    or the developer.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-01-325
        ACCNO:   A00893
      TITLE:     Wetlands Protection: Assessments Needed to Determine
                 Effectiveness of In-Lieu-Fee Mitigation
         DATE:   05/04/2001
      SUBJECT:   Environmental monitoring
    	     Environmental policies
    	     Water resources conservation
    	     Clean Water Action Plan

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    GAO-01-325

    United States General Accounting Office

    Report to Congressional Requesters GAO

    May 2001 WETLANDS PROTECTION

    Assessments Needed to Determine Effectiveness of InLieu- Fee Mitigation

    GAO- 01- 325

    Page i GAO- 01- 325 Wetlands Protection Letter 1

    Appendix I Select Characteristics of In- Lieu- Fee Arrangements, by Corps
    District Office 21

    Appendix II Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the

    In- Lieu- Fee Option 28

    Appendix III Comments From the Department of Defense 51

    Appendix IV Comments From the Environmental Protection Agency 60

    Appendix V Comments From the Department of Commerce 64

    Appendix VI Comments From the Department of the Interior 68

    Appendix VII GAO Contacts and Staff Acknowledgments 71

    Figures

    Figure 1: Bottomland Hardwood Wetland in Georgia 6 Figure 2: Number of In-
    Lieu- Fee Arrangements by Corps District,

    as of September 30, 2000 9 Contents

    Page 1 GAO- 01- 325 Wetlands Protection

    May 4, 2001 Congressional Requesters Of an estimated 220 million acres of
    marshes, bogs, swamps, and other wetlands in the contiguous United States
    during colonial times, over half have disappeared, and some of the remaining
    wetlands have been degraded. This decrease is due, primarily, to
    agricultural activities and development. Pressure to use wetlands for such
    purposes continues, but in recent times wetlands have become valued for a
    variety of ecological functions they perform, including abating floods,
    maintaining water quality, and providing habitat for fish and wildlife.
    Recognizing the value of wetlands, in 1989, the administration set a
    national goal to protect against additional loss.

    Developers whose projects adversely affect wetlands must, as prescribed in
    regulations and guidance issued by the Army Corps of Engineers (Corps) and
    Environmental Protection Agency (EPA) under the Clean Water Act, first avoid
    and then minimize adverse impacts to wetlands to the extent practicable. 1
    In the event that adverse impacts are unavoidable, the developer is required
    to compensate by restoring a former wetland, enhancing a degraded wetland,
    creating a new wetland, or preserving an existing wetland. 2 Developers may
    perform their own compensatory mitigation, often on or near the development
    site, or they may pay third parties for mitigation, usually at locations
    away from the development site.

    Mitigation by third parties has occurred under three types of arrangements
    in recent years: (1) ?mitigation banks,? often private for- profit entities,
    typically establish (restore, enhance, create, or preserve) wetlands under

    1 Section 404 of the Clean Water Act authorizes the Corps to issue permits
    for the discharge of dredged or fill material into navigable waters of the
    United States, including most wetlands (33 U. S. C. 1344). As part of that
    decision, the Corps determines the level of mitigation required. Permit
    applicants, who include large and small individual landowners as well as
    commercial developers, are referred to in this report as developers.

    2 According to agency guidance, preservation may be used only in exceptional
    circumstances.

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 01- 325 Wetlands Protection

    agreements with the Corps and then sell credits for these wetlands to
    developers; 3 (2) developers pay fees to public entities or private
    nonprofit natural resources management organizations 4 that, usually under
    agreements with Corps district offices, use accumulated fees to establish
    wetlands (referred to in this report as in- lieu- fee arrangements); and (3)
    developers pay individuals or entities, which are neither mitigation banks
    nor considered by the Corps to be in- lieu- fee organizations, to perform
    mitigation (referred to in this report as ad hoc arrangements).

    The Corps and EPA, in coordination with the Department of the Interior?s
    Fish and Wildlife Service (FWS) and the Department of Commerce?s National
    Oceanic and Atmospheric Administration (NOAA), work together to ensure that
    developers mitigate adverse impacts to wetlands and other waters of the
    United States. For example, the Corps must approve developers? plans,
    including mitigation efforts, when issuing permits required by section 404
    of the Clean Water Act. EPA, in conjunction with the Corps, FWS, and NOAA,
    issued guidance setting standards for mitigation banks effective December
    1995 and for in- lieu- fee mitigation effective October 2000. 5

    Since use of the in- lieu- fee mitigation option has increased over the last
    decade, you asked us to determine the extent to which (1) the in- lieu- fee
    option has been used to mitigate adverse impacts to wetlands, (2) the
    inlieu- fee option has achieved its intended purpose of mitigating such
    impacts, and (3) in- lieu- fee organizations compete with mitigation banks
    for developers? mitigation business. In addition, this report addresses the
    use of ad hoc arrangements as a mitigation option. To answer your questions,
    we completed a two- phase telephone survey of officials from the Corps? 38
    district regulatory offices. We also obtained from these officials specific
    data on the districts? in- lieu- fee and ad hoc arrangements.

    3 A similar mitigation method, called conservation banks, is used by
    developers with the approval of Fish and Wildlife Service to compensate for
    adverse impacts to threatened or endangered species or critical habitat.
    Conservation banking is addressed in Endangered Species Act: Fee- based
    Mitigation Arrangements (GAO- 01- 287R, February 15, 2001).

    4 The Ohio Department of Natural Resources is an example of a public entity,
    and The Nature Conservancy is an example of a private nonprofit natural
    resources management organization.

    5 The Department of Agriculture?s Natural Resources Conservation Service was
    a signatory to the 1995 mitigation banking guidance but not to the 2000 in-
    lieu- fee guidance. Wetlands Overview: Problems With Acreage Data Persist
    (GAO/ RCED- 98- 150, July 1, 1998) contains additional information on
    federal agency involvement in wetlands programs.

    Page 3 GAO- 01- 325 Wetlands Protection

    Some districts did not provide these data because, for example, they did not
    track the data or these data were not readily available. Further, we met
    with officials from the EPA, FWS, and NOAA. In addition, we visited Corps
    offices in the districts of Chicago, Illinois; Savannah, Georgia; and
    Vicksburg, Mississippi. We also visited in- lieu- fee organizations and
    mitigation banks in those areas.

    The Corps has established 63 in- lieu- fee arrangements since the first one
    was used in the late 1980s. These arrangements have been made in 17 of the
    38 Corps regulatory districts, and officials from at least 8 other districts
    are planning to establish such arrangements in the future. Most of the
    arrangements were designed to use fees received from developers to restore,
    enhance, and/ or preserve wetlands, with a few arrangements designed to
    allow wetlands to be created. Through fiscal year 2000, developers used the
    in- lieu- fee option to fulfill mitigation requirements for over 1,440 acres
    of adversely affected wetlands, and paid over $64.2 million to in- lieu- fee
    organizations, according to districts that were able to provide data.
    Federal agencies and others agree that this option serves as a useful
    mitigation tool. Corps officials explained, for example, that by
    consolidating mitigation sites, in- lieu- fee arrangements provide
    developers with a less cumbersome, timelier mitigation option that benefits
    the environment and allows the Corps to operate more efficiently than when
    developers perform the mitigation themselves. At the same time, however,
    EPA, FWS, and NOAA officials and mitigation bankers expressed concerns about
    in- lieu- fee arrangements, including whether fees are being spent in a
    timely manner and whether the Corps is providing adequate monitoring and
    oversight of the mitigation projects. These and other concerns are addressed
    in the October 2000 in- lieu- fee guidance, which states, for example, that
    in- lieu- fee organizations should establish formal agreements that include
    plans for conducting mitigation activities and monitoring.

    The extent to which the in- lieu- fee option has achieved its purpose of
    mitigating adverse impacts to wetlands is uncertain. While Corps officials
    in 11 of the 17 districts with the in- lieu- fee option told us that the
    number of wetland acres restored, enhanced, created, or preserved by in-
    lieu- fee organizations equaled or exceeded the number of wetland acres
    adversely affected, data submitted by over half of those districts did not
    support these claims. Also, while officials in 9 of the 17 districts said
    that the ecological functions and associated values (i. e., economic and
    social benefits) lost from the adversely affected wetlands were replaced at
    the same level or better through in- lieu- fee mitigation, officials in over
    half of Results in Brief

    Page 4 GAO- 01- 325 Wetlands Protection

    those districts acknowledged that they have not tried to assess whether
    mitigation efforts have been ecologically successful. Further, lacking
    criteria for ecological success, some districts use acreage as a measure for
    success, and some assume success as soon as the developer pays a fee to an
    in- lieu- fee organization even if no mitigation has been performed. As a
    result, the Corps lacks assurances that in- lieu- fee mitigation has been
    effective. We are making a recommendation aimed at establishing criteria and
    developing and implementing procedures to determine ecological success.

    Corps district officials in 9 of the 17 districts with the in- lieu- fee
    option told us that in- lieu- fee organizations and mitigation banks were
    competing with each other by providing similar mitigation services in the
    same geographic areas. In- lieu- fee organization and mitigation bank
    officials in the districts we visited agreed with the Corps? position. Corps
    officials also said that the potential for competition existed in another
    three districts. No potential for competition existed in 5 of the 17
    districts either because no mitigation banks were available in the districts
    or because inlieu- fee organizations and mitigation banks provided different
    services or served different geographic areas. Prior to the in- lieu- fee
    guidance, mitigation bank officials raised concerns that they bore greater
    costs and were at a disadvantage in competing with in- lieu- fee
    organizations. While the new guidance gives preference to mitigation banks,
    it also allows for flexibility according to officials in the Corps, EPA,
    FWS, and NOAA.

    Our survey of Corps officials showed that 24 Corps districts allowed
    developers to use ad hoc arrangements to mitigate adverse impacts to
    wetlands. These arrangements typically were for one- time projects without a
    formal agreement between the Corps and the third party receiving the funds.
    Our survey also showed that oversight of mitigation efforts performed under
    ad hoc arrangements was lacking in almost half of the districts using such
    arrangements. In addition, Corps districts disagreed on whether
    responsibility for the ecological success of ad hoc mitigation rests with
    the ad hoc fund recipient or the developer. We are making a recommendation
    aimed at clarifying this responsibility, and at developing and implementing
    procedures for assessing ecological success.

    EPA and the departments of Commerce and the Interior generally agreed with
    the information presented in the draft and our recommendations. The
    Department of Defense concurred with our recommendation concerning ad hoc
    arrangements but did not concur with our recommendation calling for
    ecological success criteria. Rather, Defense suggested that instead of
    establishing criteria to determine the ecological

    Page 5 GAO- 01- 325 Wetlands Protection

    success of mitigation efforts, criteria should be established to determine

    ?that wetlands functions have been adequately compensated,? and that the
    Corps, instead of EPA, should have the lead in establishing the criteria. We
    disagree. We continue to believe that establishment of ecological success
    criteria is not only possible, but essential to determine if the objectives
    of compensatory mitigation are being fulfilled and to measure whether
    progress is being made toward achieving the national goal of no net loss of
    wetlands. We also continue to believe that EPA should have the lead in
    implementing our recommendation because section 404( b) of the Clean Water
    Act authorizes EPA to issue such guidance.

    Wetlands are diverse, but they can generally be defined as transitional
    areas between open waters and dry land, such as swamps, marshes, bogs, and
    similar areas. Wetlands are typically characterized by the frequent or
    prolonged presence of water at or near the soil surface, by soils that form
    under flooded or saturated conditions, and by plants that are adapted to
    life in these types of soils. Figure 1 is an example of a type of wetland.
    Background

    Page 6 GAO- 01- 325 Wetlands Protection

    Figure 1: Bottomland Hardwood Wetland in Georgia

    Source: Army Corps of Engineers, Savannah District.

    Federal authority over wetland development is exercised through section 404
    of the Clean Water Act. The section 404 program requires that, unless
    exempted, anyone wanting to discharge dredged or fill material in navigable
    waters of the United States, which include most wetlands, obtain a permit
    from one of the 38 Corps district regulatory offices. This permitting
    process provides the Corps with a mechanism for enforcing mitigation
    efforts. Also, section 404 (b)( 1) authorizes the Administrator of EPA, in
    conjunction with the Secretary of the Army, to develop guidelines the Corps
    uses in the permit process. Under these guidelines, developers must first
    avoid and then minimize adverse impacts to wetlands to the extent
    practicable and then compensate for any unavoidable impacts.

    Page 7 GAO- 01- 325 Wetlands Protection

    The objective of mitigation is to compensate for adversely affected
    wetlands. In 1989, the Bush administration established the national goal of

    ?no net loss? of wetlands. Subsequently, the Clinton administration expanded
    the goal to achieve a net increase of 100, 000 acres per year by 2005. In
    addition, a 1990 memorandum of agreement between the Department of the Army
    and EPA, addressing mitigation under the Clean Water Act, states that the
    Corps will strive to achieve a goal of no overall net loss of wetland
    functions and values. Wetland functions include controlling floods and
    erosion, purifying water, and providing habitat for numerous bird and fish
    species. Wetland values are the economic and social benefits derived from
    wetland functions, including food, timber, improved water quality, and
    recreation. Agencies agree that it is difficult to measure the success of
    efforts to mitigate adverse impacts to functions and values, at least in
    part, because of variations across the country in wetlands.

    Under mitigation banking guidance issued in 1995 and in- lieu- fee guidance
    issued in 2000, mitigation banks and in- lieu- fee organizations should have
    formal, written agreements with the Corps, developed in consultation with
    the other agencies, to provide frameworks for the mitigation banking and in-
    lieu- fee options. These agreements are to include financial assurances and
    provisions for long- term management and maintenance of mitigation projects.
    In addition, the 1995 and 2000 guidance clarifies that responsibility for
    ecological success of mitigation efforts should rest with the mitigation
    bank or in- lieu- fee organization. However, neither guidance provides
    ecological success measurements. The agencies plan to review the use of the
    in- lieu- fee guidance by the end of October 2001.

    As of September 30, 2000, 17 of the 38 Corps districts had established
    inlieu- fee arrangements, and officials from 8 additional districts informed
    us that they were planning to establish such arrangements. The 17 districts
    with an in- lieu- fee option had developed a total of 63 arrangements. Seven
    districts had established 1 arrangement, 9 districts had established between
    2 and 5 arrangements, and 1 had established 27 arrangements. While the first
    arrangement was established in Vicksburg, Mississippi, in 1987, most were
    developed since January 1997. The arrangements have been designed
    predominantly to restore, enhance, and/ or preserve wetlands, with some
    arrangements also allowing for the creation of In- Lieu- Fee Mitigation

    Option Available in 17of 38 Corps Districts

    Page 8 GAO- 01- 325 Wetlands Protection

    wetlands. 6 Developers have used in- lieu- fee arrangements to mitigate
    adverse impacts for over 1, 440 acres of wetlands involving hundreds of
    projects, often smaller than an acre. Fees collected by in- lieu- fee
    organizations total over $64.2 million, with the individual arrangements
    involving total fees ranging from about $1,200 to $24.7 million. Acres
    adversely impacted and dollars collected are understated because some
    districts did not report data, sometimes because they did not track the data
    or it was not readily available. Figure 2 shows the number of in- lieufee
    arrangements in each Corps district. Appendix I provides information on the
    individual in- lieu- fee arrangements by district.

    6 In addition, arrangements in 10 of the 17 districts are designed to allow
    for mitigating adverse impacts to streams, including 2 districts that use
    in- lieu- fee arrangements solely for this purpose. Stream impacts and
    mitigation of such impacts are often measured in linear feet instead of
    acres.

    Page 9 GAO- 01- 325 Wetlands Protection

    Figure 2: Number of In- Lieu- Fee Arrangements by Corps District, as of
    September 30, 2000

    Source: Army Corps of Engineers districts.

    Corps and EPA officials told us that they typically approve the use of
    inlieu- fee arrangements as mitigation measures for minor impacts and when
    adversely affected acreage is relatively small. Officials explained that
    when developers make such arrangements, the Corps is able to operate more
    efficiently than when developers perform their own mitigation because the
    in- lieu- fee option results in fewer, more consolidated mitigation sites,
    thus reducing the Corps? oversight burden. In addition, Corps officials said
    that using the in- lieu- fee option often gives permittees

    Page 10 GAO- 01- 325 Wetlands Protection

    a less cumbersome alternative to performing their own mitigation, which
    requires submittal of a plan and schedule detailing their mitigation effort.
    Further, other federal agencies and others agree that the in- lieu- fee
    option services as a useful mitigation tool.

    EPA, FWS, and NOAA officials, as well as mitigation bank officials, however,
    expressed concern about the in- lieu- fee option. They questioned whether
    in- lieu- fees are being used in a timely manner and appropriately and
    whether adequate monitoring of mitigation efforts is taking place. These
    concerns are not unfounded. Corps officials from 11 of the 17 districts
    reported that they did not require in- lieu- fee organizations to spend or
    obligate fees received from developers within a specific time frame. In
    addition, three districts have some in- lieu- fee arrangements that have
    been in existence since 1997 or earlier and, as of September 2000, had not
    spent or obligated any funds that directly mitigated adverse impacts. In
    districts where in- lieu- fees have been spent, arrangements in three
    districts have used funds for activities, such as research and/ or
    education, that do not directly mitigate adverse impacts. Appendix II, which
    summarizes Corps district responses to our survey questions, provides
    detailed information about in- lieu- fee arrangements.

    In order to address concerns about the in- lieu- fee mitigation option, the
    Corps, EPA, FWS, and NOAA developed guidance that became effective in
    October 2000. Under the new guidance, in- lieu- fee organizations have a
    time frame for initiating physical and biological improvements of mitigation
    sites and are precluded from using fees for activities such as research and
    education. In addition, the Corps is required to track all uses of in- lieu-
    fee arrangements and to report those figures by public notice on an annual
    basis.

    The effectiveness of in- lieu- fee mitigation is unclear. Information
    provided by Corps district officials during our telephone survey was not
    always consistent with written data provided by those districts. Corps
    officials in 11 of the 17 districts with the in- lieu- fee option stated
    that the number of wetland acres restored, enhanced, created, or preserved
    by the in- lieu- fee organizations equaled or exceeded the number of wetland
    acres adversely affected. However, our analysis of written data submitted by
    those 11 districts showed that the data from only 5 supported the
    statements. Inlieu- fee organizations in 3 of the 11 districts had not
    performed mitigation at a level that equaled or exceeded the adversely
    affected acreage. Another 3 of the 11 districts were not able to provide
    data on the number of wetland acres that had been restored, enhanced,
    created, or preserved Effectiveness of InLieu-

    Fee Mitigation Is Uncertain

    Page 11 GAO- 01- 325 Wetlands Protection

    by in- lieu- fee organizations in their areas. For the remaining 6 of the 17
    districts, officials from 1 district stated that the restored, enhanced,
    created, or preserved acres had not equaled or exceeded the adversely
    impacted acres, and officials from 5 districts stated that the question was
    not applicable to their respective districts because the in- lieu- fee
    organizations had not started any projects. These five districts reported
    having 12 in- lieu- fee arrangements, including 3 that had been operating
    for less than a year and, consequently, had had little time to collect fees
    or initiate projects.

    When asked about functions and values of wetlands, officials in 9 of the 17
    districts reported that the functions and values lost from the adversely
    affected wetlands were replaced at the same level or better through the
    inlieu- fee organizations? mitigation efforts. However, officials in five of
    those nine districts also stated that they had never taken steps to
    determine whether in- lieu- fee organizations? mitigation efforts have been
    ecologically successful, which calls into question their determinations
    about functions and values. Of the eight districts that did not report
    functions and values at the same level or better, one reported that the
    functions and values had not met or exceeded the functions and values of the
    adversely affected wetlands; two did not know whether the functions and
    values of the mitigated wetlands met or exceeded the functions and values of
    the impacted wetlands; and five reported that the in- lieu- fee
    organizations had not started any projects that could be assessed.

    Seven districts have taken steps to determine whether in- lieu- fee
    organizations? mitigation efforts have been ecologically successful, and
    officials in these districts reported that they use a variety of techniques.
    While some districts use performance standards such as the percentage of
    vegetative survival, other districts review reports, visit mitigation sites,
    and/ or use specific techniques such as the Wetland Rapid Assessment
    Procedure. 7 Officials in some of the districts that have not taken steps to
    determine the success of in- lieu- fee organizations? mitigation efforts
    assume that if the acreage requirement is met, then functions and values
    will follow suit. In addition, although most districts reported that they
    monitor the use of in- lieu- fees, several district officials also explained
    that their monitoring is limited by resource constraints. For example,
    officials in one district we visited explained that they receive monitoring
    reports

    7 The Wetland Rapid Assessment Procedure, which is used in Florida, is one
    of many techniques for evaluating wetlands.

    Page 12 GAO- 01- 325 Wetlands Protection

    from the in- lieu- fee organization but do not have time to review the
    reports. Furthermore, officials from several other districts told us that no
    significant monitoring efforts are needed because they consider in- lieu-
    fee mitigation to be a success as soon as the developer pays a fee to the
    inlieu- fee organization, even if no mitigation has been performed, or
    because they use organizations that they trust will do adequate mitigation.
    NOAA officials said that using such organizations is not an adequate
    substitute for monitoring.

    In- lieu- fee organizations have the potential to compete with mitigation
    banks for developers? mitigation business to the extent that organizations
    and banks provide similar mitigation services and serve the same geographic
    areas. In those areas with the potential for competition, some mitigation
    bank officials raised concerns about their ability to compete with in- lieu-
    fee organizations because, for example, in- lieu- fee organizations
    generally did not have requirements, such as securing financial assurances,
    that increased mitigation banks? operating costs. The October 2000 guidance
    not only established such requirements for in- lieufee organizations, but
    also generally gives preference to mitigation banks.

    At the time of our survey, in- lieu- fee organizations and mitigation banks
    potentially could compete in 12 of the 17 Corps districts where in- lieu-
    fee mitigation was an option, according to information provided by Corps
    district officials. In- lieu- fee organizations had funded or planned to
    fund wetland restoration, enhancement, and preservation and/ or other
    mitigation services in all 17 districts with the in- lieu- fee option.
    Mitigation banks provided restoration and other mitigation services similar
    to those provided by in- lieu- fee organizations in only 13 of the 17
    districts, however, and mitigation banks served the same geographic area as
    in- lieufee organizations in only 12 of those 13 districts. In 3 of the 12
    districts where in- lieu- fee organizations potentially could compete with
    mitigation banks, the in- lieu- fee organizations? service areas covered an
    entire state, and in 9 of the districts, the area of potential competition
    was limited to a watershed, county, or other geographic area. No potential
    for competition existed in the remaining five districts because no
    mitigation banks existed in one, banks and in- lieu- fee organizations did
    not provide the same services in one, banks had not begun marketing
    mitigation services in one, and banks and in- lieu- fee organizations served
    different geographic areas in two.

    Of the 12 districts with the potential for competition, Corps district
    officials in 9 told us that in- lieu- fee organizations and mitigation banks
    had Recent Guidance May

    Affect Competition Between In- Lieu- Fee Organizations and Mitigation Banks
    in Districts With the InLieu- Fee Option

    Page 13 GAO- 01- 325 Wetlands Protection

    competed with each other, and officials in 3 said they had not competed.
    Corps officials? views on competition were corroborated by in- lieu- fee
    organization and mitigation bank officials in the districts we visited. For
    example, in the Chicago district, where 1 in- lieu- fee organization and 10
    mitigation banks operate in the same six- county area and provide similar
    services, mitigation bank and in- lieu- fee organization officials agreed
    that they competed with each other. In the three districts where Corps
    officials said mitigation banks and in- lieu- fee organizations had not
    competed, two districts have policies that encourage the use of mitigation
    banks and, in the other district, competition is expected after the in-
    lieufee arrangements that were established in 2000 take hold.

    Some mitigation bank officials have raised concerns about competing with in-
    lieu- fee organizations for several reasons. First, some bank officials have
    claimed that they are at greater economic risk than in- lieu- fee
    organizations because banks generally must invest money to establish
    wetlands before they can sell credits. In contrast, in- lieu- fee
    organizations often do not establish wetlands until they have collected
    sufficient fees from developers to cover their expenses. Second, some bank
    officials said that they have difficulty competing with in- lieu- fee
    organizations? prices. For example, top management representing two
    mitigation banks in Chicago said that, in the Chicago district, the in-
    lieu- fee organization?s price was lower than the banks? prices. The fund
    administrator of the inlieu- fee organization acknowledged competing with
    mitigation banks and said that the organization?s price was lower than the
    prices of some banks and higher than the prices of others. Third, prior to
    the October 2000 inlieu- fee guidance, some bank officials questioned
    whether in- lieu- fee organizations were being held to the same standards as
    banks.

    The recent in- lieu- fee guidance gives preference to mitigation banks under
    certain circumstances. For example, when impacts that require mitigation are
    outside the service areas of mitigation banks and in- lieu- fee
    organizations, use of a mitigation bank is preferable to in- lieu- fee
    mitigation, unless using the bank is not practicable or environmentally
    desirable. While there is a preference for mitigation banks, the new
    guidance also allows for flexibility according to officials in the Corps,
    EPA, FWS, and NOAA.

    Page 14 GAO- 01- 325 Wetlands Protection

    Our survey showed that since January 1, 1996, 24 of the 38 Corps districts
    allowed developers to mitigate adverse impacts to wetlands through ad hoc
    arrangements. We found no definition of ad hoc arrangements in existing
    mitigation guidance. As explained earlier, ad hoc arrangements, for purposes
    of this report, involve mitigation payments from developers to third parties
    that are neither mitigation banks nor considered by the Corps to be in-
    lieu- fee organizations. For example, a district office that we visited
    allowed a developer to partly compensate for the adverse impact at a
    development site by paying a fee to a nearby landowner to preserve a wooded
    wetland by placing a restriction on the property to prevent future
    development. We were unable to determine the number of times ad hoc
    arrangements were used because not all districts routinely track the data.
    However, officials we surveyed in several districts told us that they used
    such arrangements infrequently.

    Corps district officials did not consider ad hoc arrangements to be in-
    lieufee arrangements for several reasons. Most often they distinguished ad
    hoc from in- lieu- fee arrangements by the lack of a formal agreement
    between the Corps district and the ad hoc fund recipient. Officials in some
    districts also said that ad hoc fund recipients usually perform mitigation
    at a single site with funds received from one developer for one development
    project. 8 In contrast, in- lieu- fee organizations usually perform
    mitigation at one or more sites with funds consolidated from multiple
    developers for multiple development projects.

    EPA and Corps headquarters officials, as well as Corps district officials,
    disagree as to whether ad hoc mitigation is covered by the October 2000 in-
    lieu- fee guidance. Corps headquarters officials said that ad hoc mitigation
    is not covered under the guidance. EPA headquarters officials disagreed and
    said that mitigation is covered by the guidance when a third party other
    than a mitigation bank performs the mitigation and responsibility for the
    ecological success is transferred to the fund recipient as a condition of
    the section 404 permit. However, Corps headquarters officials reported that
    most permits authorizing ad hoc mitigation arrangements do not transfer
    responsibility, and Corps officials in 17 of the 24 districts using ad hoc
    arrangements told us that they never required transfer of responsibility as
    a condition of section 404 permits. Further,

    8 Some ad hoc arrangements involved state trust funds, such as those in
    Maryland and Pennsylvania, which receive payments from multiple developers
    that can be used for more than one project. Effectiveness of Ad

    Hoc Mitigation Unknown

    Page 15 GAO- 01- 325 Wetlands Protection

    Corps district officials disagree on whether ad hoc mitigation is covered by
    the 2000 guidance. Officials in 6 districts that use ad hoc arrangements
    said that ad hoc mitigation is covered by the guidance, while officials in 7
    said it is not covered, and officials in 11 said that they did not know
    whether it is covered by the guidance.

    Oversight of mitigation efforts performed under ad hoc arrangements was
    lacking in almost half of the 24 districts using such arrangements.
    Officials in seven districts said that they had not monitored either the
    mitigation efforts or use of funds made under ad hoc arrangements, and
    officials in three others did not know whether such monitoring had occurred.
    In addition, officials in eight districts said that they had never taken
    steps to determine whether mitigation efforts performed under ad hoc
    arrangements had been ecologically successful, and officials in two others
    did not know whether such steps had been taken. Officials in some districts
    gave reasons for the limited oversight. For example, officials in four
    districts said monitoring was unnecessary because developers make payments
    to organizations that the Corps was confident would use the payments to do
    adequate mitigation, such as The Nature Conservancy. Further, officials in
    some districts said that they had limited resources for oversight.

    Responsibility for the ecological success of mitigation performed by ad hoc
    organizations is unclear. Of the 24 districts that used ad hoc arrangements,
    officials in 13 said ad hoc fund recipients were not liable for the failure
    of their mitigation efforts, while officials in 2 said they were, and
    officials in 9 said they did not know whether ad hoc recipients were liable.
    Officials in many of the districts who said that ad hoc fund recipients were
    not liable also said that developers were responsible for the mitigation
    efforts. However, federal regulations setting forth requirements for section
    404 permits do not require permits to include performance standards for
    ecological success of mitigation efforts. Consequently, no procedures exist
    for ensuring the ecological success of ad hoc mitigation efforts.

    In- lieu- fee arrangements have the potential to be an effective
    compensatory mitigation tool that benefits the environment and provides
    developers flexibility in meeting their mitigation requirements. It is not
    clear, however, whether such arrangements have, in practice, been an
    adequate method for mitigating adverse impacts to wetlands. Corps districts
    supplied us with contradictory information or were not able to provide us
    with data to support claims that acreage and/ or functions and Conclusions

    Page 16 GAO- 01- 325 Wetlands Protection

    values of wetlands that had been restored, enhanced, created, or preserved
    equaled or exceeded those that had been lost through development. In
    addition, several districts have never taken steps to assess whether in-
    lieu- fee mitigation has adequately mitigated adverse impacts, and those
    that did make assessments used varying criteria. Similarly, oversight of ad
    hoc mitigation has been lacking. Projects, whether performed under in- lieu-
    fee arrangements or under ad hoc arrangements, must be assessed to determine
    whether they have been ecologically successful so that corrective action can
    be taken if necessary. The Corps lacks assurances that mitigation efforts
    under in- lieu- fee or ad hoc arrangements have been effective, sometimes
    relying instead on ?good

    faith? on the part of the organizations performing the mitigation. We
    commend the Corps, EPA, and other agencies for developing and implementing
    the October 2000 guidance, which provides a framework for in- lieu- fee
    mitigation. Without such a framework, congressional and agency
    decisionmakers would be hampered in their ability to make sound management
    decisions in providing continued stewardship of our nation?s resources. At
    the same time, the recent guidance does not go far enough either to bring
    consistency to how determinations of ecological success should be made or to
    establish appropriate monitoring and oversight activities. Agencies need
    adequate success criteria in order to measure whether progress is being made
    toward achieving the national goal of no net loss of the nation?s remaining
    wetlands. Where states play a significant role in decisions on compensatory
    mitigation, the agencies could coordinate with them in developing the
    criteria. Once the agencies establish success criteria for in- lieu- fee
    arrangements, extending those criteria to all compensatory mitigation
    options would provide the agencies the opportunity to assess mitigation
    success more broadly. Further, for purposes of accountability,
    responsibility for the success of mitigation efforts must be clearly
    assigned to either the developer or the party performing the mitigation.

    To ensure that in- lieu- fee organizations adequately compensate for adverse
    impacts to wetlands, we recommend that the Administrator of EPA, in
    conjunction with the Secretaries of the Army, Commerce, and the Interior,
    establish criteria to determine the ecological success of mitigation efforts
    and develop and implement procedures for assessing success.

    To better ensure the ecological success of mitigation efforts under ad hoc
    arrangements, we recommend that the Secretary of the Army instruct the Corps
    to establish procedures to clearly identify whether developers or
    Recommendations

    Page 17 GAO- 01- 325 Wetlands Protection

    recipients of funds are responsible for the ecological success of mitigation
    efforts and, using the same success criteria applicable to in- lieu- fee
    arrangements, to develop and implement procedures for assessing success.

    We provided the Department of Defense, EPA, and the departments of Commerce
    and the Interior with a draft of this report for review and comment. While
    all four agencies agreed with our recommendation concerning ad hoc
    arrangements, only EPA and Commerce agreed with our recommendation that EPA,
    in conjunction with the Secretaries of the Army, Commerce, and the Interior,
    establish ecological success criteria. In disagreeing with the
    recommendation, Defense suggested two changes. We disagree with both. First,
    Defense believes that the Corps, rather than EPA, should have the lead in
    implementing the recommendation. We continue to believe that EPA should have
    the lead in implementing our recommendation because section 404( b) of the
    Clean Water Act authorizes EPA to issue section 404 guidance. Second,
    Defense stated that, instead of establishing criteria to determine the
    ecological success of mitigation efforts, because the term ?success? is too
    imprecise and subjective to be consistently and effectively applied,
    criteria should be established to determine ?that wetlands functions have
    been adequately compensated.? We believe that Defense?s suggestion of
    adequate compensation is too narrow and does not address the overall
    national goal of no net loss of wetlands. We continue to believe that
    establishment of ecological success criteria is not only possible, but
    essential to determine whether progress is being made toward achieving that
    national goal through section 404 mitigation efforts. Regarding our
    recommendation calling for ecological success criteria, Interior stated that
    it did not agree that the federal agencies should establish national
    criteria. However, our recommendation does not call for national criteria.
    We agree with Interior?s comment that criteria are most appropriately
    developed at the local level, where experienced personnel can work together
    to develop criteria keyed to local ecosystems or watersheds. The comments of
    Defense, EPA, Commerce, and the Interior, and our responses to those
    comments, are included in appendixes III, IV, V, and VI, respectively.
    Agency Comments

    Page 18 GAO- 01- 325 Wetlands Protection

    To obtain information on the extent to which the in- lieu- fee option has
    been used and been effective in mitigating adverse impacts to wetlands, and
    on the extent to which in- lieu- fee organizations compete with mitigation
    banks for developers? mitigation business, we conducted a twophase telephone
    survey of Corps officials from the 38 district regulatory offices. The first
    phase of the telephone survey was conducted for all 38 Corps districts. We
    asked Corps officials to provide basic information such as whether their
    district provides the in- lieu- fee and mitigation banking options for
    developers, and if so, how many in- lieu- fee arrangements and mitigation
    banks exist in the district. We also asked Corps officials to provide us
    with copies of written in- lieu- fee agreements and any guidance concerning
    in- lieu- fee arrangements. We used the responses and documentation from the
    first phase to obtain an understanding of the extent to which in- lieu- fee
    arrangements were being used nationwide and to devise questions for the
    second phase of the survey.

    The second phase of the telephone survey consisted of two versions: one for
    districts that have in- lieu- fee arrangements, and the other for districts
    that do not have such arrangements. During this second phase of the survey,
    we asked Corps officials to verify the number of in- lieu- fee arrangements
    and mitigation banks in the districts and to respond to questions concerning
    such topics as in- lieu- fee guidance, monitoring and enforcement,
    ecological success, competition between in- lieu- fee organizations and
    mitigation banks, and ad hoc arrangements.

    In developing questions for our telephone survey, we conducted pretests of
    each version with two Corps district offices. During the pretest, we first
    asked Corps officials to answer the survey questions. After completing the
    survey questions, we interviewed the Corps officials to ensure that (1) the
    questions were clear, (2) the terms were precise, and (3) the survey
    appeared to be independent and unbiased. We also asked Corps districts to
    supply, in writing, information not suited for collection by telephone, such
    as the number of permits issued per district that used in- lieu- fees to
    satisfy mitigation requirements during fiscal years 1998- 2000; the total
    dollar amounts received by in- lieu- fee organizations; and the number of
    acres that in- lieu- fee organizations restored, enhanced, created and/ or
    preserved from the time that the in- lieu- fee arrangements were established
    through fiscal year 2000. Some districts did not provide all the information
    requested because, for example, the data were not tracked or not readily
    available. Further, we did not verify the information provided by Corps
    district officials; however, we corroborated the data with other sources to
    the extent possible. Scope and

    Methodology

    Page 19 GAO- 01- 325 Wetlands Protection

    To better understand in- lieu- fee activities, the effectiveness of in-
    lieu- fee mitigation efforts, and competition between in- lieu- fee
    organizations and mitigation banks, we interviewed Corps officials and staff
    of in- lieu- fee organizations and mitigation banks, and we visited wetland
    sites in the Corps? districts of Chicago, Illinois; Savannah, Georgia; and
    Vicksburg, Mississippi. We judgmentally selected these districts because
    they had inlieu- fee arrangements that were established in 1997 or earlier
    and had mitigation banks available as a mitigation option. For additional
    perspective, we also interviewed officials from The Nature Conservancy in
    Arlington, Virginia; the National Mitigation Banking Association; the Corps
    of Engineers? Engineer Research and Development Center in Vicksburg,
    Mississippi; a NOAA office in Charleston, South Carolina; and consulting
    firms in Savannah, Georgia, and Jackson, Mississippi. In addition, we met
    with a developer in Jackson, Mississippi, and with officials at a local FWS
    office in Athens, Georgia. Furthermore, we met with officials from Corps,
    EPA, FWS, and NOAA headquarters.

    We conducted our work from May 2000 through April 2001 in accordance with
    generally accepted government auditing standards.

    As we agreed with your offices, unless you publicly announce the contents of
    this report earlier, we plan no further distribution of it until 30 days
    from the date of this letter. We will then send copies to other interested
    parties and make copies available to others who request them.

    If you or your staff have any questions about this report, please call me or
    Peg Reese at (202) 512- 3841. Key contributors to this report are listed in
    appendix VII.

    (Ms.) Gary L. Jones Director, Natural Resources and Environment

    Page 20 GAO- 01- 325 Wetlands Protection

    List of Requesters

    The Honorable Don Young Chairman The Honorable James L. Oberstar Ranking
    Democratic Member Committee on Transportation and Infrastructure House of
    Representatives

    The Honorable John J. Duncan, Jr. Chairman The Honorable Peter A. DeFazio
    Ranking Democratic Member Subcommittee on Water Resources and the
    Environment Committee on Transportation and Infrastructure House of
    Representatives

    The Honorable Sherwood L. Boehlert House of Representatives

    The Honorable Robert A. Borski House of Representatives

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 21 GAO- 01- 325 Wetlands Protection

    We identified 17 Corps district offices that have established in- lieu- fee
    arrangements as a mitigation option for developers whose activities will
    adversely affect wetlands. The districts have established a total of 63
    inlieu- fee arrangements, ranging from 1 to 27 arrangements per district.
    Table 1 lists the in- lieu- fee arrangements by district, as well as
    selected characteristics of each arrangement. Some districts did not provide
    the information we requested because, for example, the data were not tracked
    or were not readily available. The October 2000 in- lieu- fee guidance, if
    properly implemented, requires the Corps to track all uses of in- lieu- fee
    arrangements and report those figures by public notice on an annual basis.

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated Alaska

    The Conservation Fund May- 98 Nonprofit 8,000 0 2 2 4. 6 4.9 0 The Great
    Land Trust Jul- 98 Nonprofit 887,249 1 2 3 82.4 82.4 0 Southeast Alaska Land
    Trust Sep- 98 Nonprofit 74,000 0 2 2 7.6 7. 6 0 Kachemak Heritage Land Trust

    Mar- 99 Nonprofit 51,994 0 2 2 14.8 10.0 0

    Buffalo

    Lake Metroparks May- 97 Public 477,384 44 2 46 16.7 16.7 b The Nature
    Conservancy, Central and Western New York Chapter

    May- 97 Nonprofit 84,734 100 0 100 6.9 6. 9 b Portage Land Association
    Conservation Education

    Jun- 97 Nonprofit 5,000 0 0 0 0. 6 0.6 b The Western New York Land
    Conservancy, Inc.

    Jun- 97 Nonprofit 73,000 77 2 79 4.7 4. 7 b Cleveland Metroparks Jul- 97
    Public 1,073,250 37 2 39 50.6 50.6 b

    Buffalo (cont.)

    Appendix I: Select Characteristics of In- Lieu Fee Arrangements, by Corps
    District Office

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 22 GAO- 01- 325 Wetlands Protection

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated

    The Nature Conservancy, Ohio Chapter

    Aug- 97 Nonprofit b bbb b bb Geauga Park District Oct- 97 Public 72,885 95 5
    100 2.1 2. 1 b Willoughby Natural Areas Conservancy, Inc.

    Oct- 97 Nonprofit b bbb b bb Tinkers Creek Land Conservancy, Inc.

    Nov- 97 Nonprofit 0 0 0 0 0 0 b Save- the- County Land Trust, Inc. Nov- 97
    Nonprofit 75,000 95 5 100 2.0 2. 0 b Wood County Park District Nov- 97
    Public 45,700 44 2 46 4.4 4. 4 b Metro Parks, Serving Summit County

    Nov- 97 Public 238,941 27 1 28 7.0 7. 0 b Town of Brighton Jan- 98 Public
    27,840 0 0 0 0.6 0. 6 b Park District Foundation of Allen County

    Feb- 98 Public b bbb b bb Portage County Park District Mar- 98 Public 45,120
    0 0 0 1.4 1. 4 b Metropolitan Park District of the Toledo Area

    Mar- 98 Public 81,005 0 0 0 3.5 3. 5 b Chagrin River Land Conservancy

    May- 98 Nonprofit 71,030 67 3 70 2.0 2. 0 b Ohio Department of Natural
    Resources, Division of Natural Areas and Preserves

    Jun- 98 Public 106,450 17 1 18 3.6 3. 6 b Natural Areas Stewardship, Inc.
    Aug- 98 Nonprofit b bbb b bb Hancock Park District Dec- 98 Public 45,045 0 9
    9 3.4 7. 3 b The Audubon Society of Greater Cleveland

    Jan- 99 Nonprofit b bbb b bb

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 23 GAO- 01- 325 Wetlands Protection

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated Buffalo (cont.)

    Hudson Land Conservancy, Inc. Feb- 99 Nonprofit 193,500 70 17 87 5. 0 5.0 b
    Johnny Appleseed Metropolitan Park District

    Sep- 99 Public 12,150 0 0 0 1.0 1. 0 b Medina County Park District Sep- 99
    Public 78,375 0 0 0 1.5 1. 5 b Grand River Partners, Inc. Jan- 00 Nonprofit
    b bbb b bb West Creek Preservation Committee

    Apr- 00 Nonprofit b bbb b bb The Cleveland Museum of Natural History

    May- 00 Nonprofit 0 0 0 0 0 0 b

    Charleston

    Waccamaw and Pee Dee River Basins/ Historic Ricefields Association

    Sep- 00 Nonprofit 1,167 45 55 100 1.5 1. 5 0 c

    Chicago

    Wetlands Restoration Fund/ Corporation for Open Lands

    Jun- 97 Nonprofit 2,822,929 74 8 82 41.5 62.3 129.5

    Fort Worth

    The Nature Conservancy of Texas

    Nov- 98 Nonprofit 469,922 17 1 18 2.7 d 2.7 0 c

    Galveston

    Galveston Bay Foundation Apr- 00 Nonprofit 0 e 0 00 0 00 Armand Bayou Nature
    Center May- 00 Nonprofit 0 e 0 00 0 00 Katy Prairie Conservancy Jul- 00
    Nonprofit 0 e 0 00 0 00 The Nature Conservancy of Texas

    Aug- 00 Nonprofit 0 e 0 00 0 00

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 24 GAO- 01- 325 Wetlands Protection

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated Huntington

    Lake Choctaw/ Ohio Wetlands Foundation

    Aug- 98 Nonprofit 176,000 55 45 100 7.2 10.8 11.0 Singer Lake/ The Cleveland
    Museum of Natural History

    Jul- 99 Nonprofit 300,000 100 0 100 24.9 36.4 58.2

    Jacksonville

    Florida Keys Environmental Restoration Trust Fund/ Florida Audubon Society

    Jun- 98 Nonprofit 293,048 11 12 23 b b 0 Hole- in- the Donut/ Dade County
    Department of Environmental Resources Management

    Jul- 92 Public 24,700,000 61 8 69 857.5 1, 286.3 1, 204 f Unit 11 of the
    Indian Trail Improvement District/ Palm Beach County Department of
    Environmental Resources Management

    Not final Public 10,169,967 55 0 55 b 1,057.1 919.3

    Kansas City

    Stream Stewardship Trust Fund/ Missouri Conservation Heritage Foundation

    Jul- 99 Nonprofit 131,555 0 0 0 2.8 g 2.8 0 c

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 25 GAO- 01- 325 Wetlands Protection

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated Los Angeles

    Santa Monica Mountains/ Santa Monica Mountains Conservancy

    Dec- 98 Nonprofit b b b b b b b Ventura River Watershed/ Ojai Valley Land
    Conservancy

    Jan- 99 Nonprofit b b b b b b b Santa Margarita Arundo Control Fund/ Mission
    Resource Conservation District

    Feb- 99 Public b b b b b b b Calleguas Creek Watershed/ California Coastal
    Conservancy

    Not final Public b b b b b b b Santa Ana River Watershed

    b b b b b b b b b

    Louisville

    Stream Corridor Restoration Fund/ Northern Kentucky University Foundation
    and Environmental Resource Management Center

    Aug- 99 Nonprofit 974,550 2 2 4 h hh Louisville and Jefferson County
    Metropolitan Sewer District

    Jul- 00 Public 0 0 0 0 0 0 0

    Norfolk

    Virginia Wetlands Restoration Trust Fund/ The Nature Conservancy of Virginia

    Aug- 95 Nonprofit 4,120,000 84 2 86 85.0 170 - 850 i 1,499.0

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 26 GAO- 01- 325 Wetlands Protection

    Percentage of dollars obligated/ spent Number of wetland acres

    Arrangement/ organization name Effective

    date a Type of organization Dollars

    received That

    directly mitigate adverse impacts

    That do not directly mitigate adverse impacts Total Adversely

    impacted Required to be mitigated Actually

    mitigated Sacramento

    Tulloch Lake/ Tridam and The Nature Conservancy

    Jun- 99 Nonprofit 33,000 0 0 0 b bb Washoe Story Conservation District

    Jan- 00 Nonprofit b bbb b bb The Nature Conservancy Apr- 00 Nonprofit 88,000
    b b 100 2.0 2. 0 2.0

    Savannah

    Georgia Wetlands Trust Fund/ Georgia Land Trust Service Center

    Jul- 97 Nonprofit 407,967 0 7 7 28.3 117.9 j 0 c

    Vicksburg

    The Nature Conservancy of Louisiana

    Jan- 92 Nonprofit b bbb b 365.5 365.5 Delta Land Trust Jul- 93 Nonprofit b
    bbb b 271.0 271.0 Delta Wildlife Foundation Oct- 94 Nonprofit 7,931 0 0 0
    25.3 25.3 0 Arkansas Highway and Transportation Department

    May- 96 Public b bbb 86.7 161.8 161.8

    Walla Walla

    Burlington Northern/ Ducks Unlimited

    Jun- 97 Nonprofit 166,000 100 0 100 2.0 2. 0 2.0 North Hill/ The Nature
    Conservancy

    Feb- 00 Nonprofit 140,000 0 0 0 3.0 4. 0 0 c

    Wilmington

    Wetland Restoration Program/ North Carolina Department of Environment and
    Natural Resources

    Nov- 98 Public 15,442,655 b b 10 45.2 k 90.4 k 0 c

    Appendix I: Select Characteristics of In- LieuFee Arrangements, by Corps
    District Office

    Page 27 GAO- 01- 325 Wetlands Protection

    a This is the date of the formal arrangement as reported by the Corps
    districts and verified, to the extent possible, with written arrangements
    provided by the districts. It is possible that some arrangements were in
    effect under general permits prior to the effective date. Arrangements with
    the effective date listed as ?not final? have collected money although no
    written arrangement has been finalized. b This information was not reported
    by the district because, for example, the data were not tracked or

    were not readily available. c Mitigation was not performed because no
    projects had been started.

    d The in- lieu- fee organization received fees for stream and open waters
    mitigation: a total of 8, 780 linear feet of streams was adversely impacted,
    and 4,970 linear feet are required to have mitigation performed; a total of
    1.4 acres of open waters was adversely impacted and 1.2 acres are required
    to have mitigation performed. e The in- lieu- fee arrangements are
    relatively new, and no money had been collected or

    obligated/ spent. f In addition to the 1, 204 acres for which mitigation was
    performed, Jacksonville district officials reported that the in- lieu- fee
    funds have assisted or will assist in the acquisition of approximately 180
    acres, in the restoration of approximately 150 acres, in the enhancement of
    approximately 52,000 acres through exotic vegetation removal, and in the
    management or monitoring of 15, 800 acres. g The in- lieu- fee arrangement
    is solely for stream mitigation: a total of 2. 8 acres of streams was

    adversely impacted and 2. 8 acres are required to have mitigation performed.
    h The in- lieu- fee arrangement is solely for stream mitigation: a total of
    7, 975 linear feet of streams was

    adversely impacted, 12,000 linear feet are required to have mitigation
    performed, and a mitigation effort is in progress. i The number of wetland
    acres required to have mitigation performed equals either 170 restored acres
    or 850 preserved acres. j While a total of 117.9 acres are required to have
    mitigation performed, the district limits the amount of

    mitigation that can be satisfied using in- lieu- fee arrangements to no more
    than 50% of that total. k The in- lieu- fee arrangement received fees for
    mitigation of adverse impacts to streams: a total of

    73,596 linear feet of streams was adversely impacted, and 73, 596 linear
    feet are required to have mitigation performed.

    Source: Prepared by GAO using data provided by Corps districts.

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 28 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 29 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 30 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 31 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 32 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 33 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 34 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 35 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 36 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 37 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 38 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 39 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 40 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 41 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 42 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 43 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 44 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 45 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 46 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 47 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 48 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 49 GAO- 01- 325 Wetlands Protection

    Appendix II: Results of Telephone Survey of the Army Corps of Engineers
    Officials in District Offices With the In- Lieu- Fee Option

    Page 50 GAO- 01- 325 Wetlands Protection

    Appendix III: Comments From the Department of Defense

    Page 51 GAO- 01- 325 Wetlands Protection

    Appendix III: Comments From the Department of Defense

    Appendix III: Comments From the Department of Defense

    Page 52 GAO- 01- 325 Wetlands Protection

    See comment 2. See comment 1.

    Appendix III: Comments From the Department of Defense

    Page 53 GAO- 01- 325 Wetlands Protection

    See comment 5. See comment 4.

    See comment 3.

    Appendix III: Comments From the Department of Defense

    Page 54 GAO- 01- 325 Wetlands Protection

    Note: The department inadvertently inserted the acronym ?GAO? in this
    sentence. See comment 10.

    See comment 9. See comment 8.

    See comment 7. See comment 6.

    Appendix III: Comments From the Department of Defense

    Page 55 GAO- 01- 325 Wetlands Protection

    See comment 13. See comment 12. See comment 11.

    Appendix III: Comments From the Department of Defense

    Page 56 GAO- 01- 325 Wetlands Protection

    1. Defense stated that developers? payments to a consultant to construct
    off- site mitigation projects may be interpreted as ad hoc arrangements. We
    agree that confusion exists about ad hoc mitigation, as illustrated in our
    discussions on the disagreement about whether such arrangements are covered
    by the October 2000 in- lieu- fee guidance and whether or not ad hoc fund
    recipients are responsible for the ecological success of mitigation efforts.
    We revised our report to reiterate that ad hoc arrangements, for purposes of
    this report, involve mitigation payments from developers to third parties
    that are neither mitigation banks nor considered by Corps districts to be
    in- lieu- fee arrangements. We also added that we found no definition of ad
    hoc arrangements in mitigation guidance. Clarification of in- lieu- fee and
    ad hoc arrangements is an issue that could be discussed when the agencies
    hold a stakeholder forum in the summer of 2001 and when the agencies review
    the use of the guidance by the end of October 2001.

    2. We agree that establishing criteria and developing and implementing
    procedures to determine the ecological success of in- lieu- fee mitigation
    is a big step that entails more than assuring mitigation compliance. Our
    report notes that it is difficult to measure the success of efforts to
    mitigate losses to functions and values because, at least in part, of
    variations in wetlands across the country. However, like the Environmental
    Protection Agency, Fish and Wildlife Service, and National Oceanic and
    Atmospheric Administration, we believe that scientifically sound criteria is
    essential to determine if the objectives of compensatory mitigation are
    being fulfilled. We also believe that such criteria is essential to measure
    whether progress is being made toward achieving the national goal of no net
    loss of the nation?s wetlands through section 404 mitigation efforts, and
    that the federal agencies need to work together to establish the criteria.

    3. Defense stated that lack of context renders some of our report
    potentially meaningless or distorted. We disagree. In particular, we do not
    believe that the example cited by Defense illustrates the lack of context.
    Our intent in reporting that arrangements in three districts used in- lieu-
    fees for research and/ or education was to illustrate situations where funds
    were used for purposes that do not directly mitigate adverse impacts. Other
    agencies have raised concerns about such uses. We did not imply that the
    districts did not achieve the goal of no net loss of wetlands because they
    allowed funds to be used for such purposes. In fact, data collected during
    our survey shows that arrangements in two of the districts that reported
    using funds for GAO Comments

    Appendix III: Comments From the Department of Defense

    Page 57 GAO- 01- 325 Wetlands Protection

    research and/ or education also reported that the number of wetland acres
    for which mitigation had been performed had equaled or exceeded the number
    of acres lost through development. Moreover, we disagree with Defense?s
    position that as long as the mitigation provided meets the compensatory
    need, excess funds belong to the inlieu- fee administrators to expend as
    they see fit. This position contradicts the October 2000 in- lieu- fee
    guidance that states that inlieu- fee funds should not be used to finance
    nonmitigation programs and priorities, such as research and education.

    4. Defense stated that our report does not describe how different
    requirements for institutional arrangements can affect the Corps? roles and
    responsibilities for in- lieu- fee arrangements. During our audit work we
    identified instances where in- lieu- fee arrangements were based on
    Programmatic General Permits developed by the Corps. However, our report
    does not focus on specific details of individual inlieu- fee agreements or
    the relationships between Corps districts and individual arrangements.
    Rather, our report provides a broad overview of the in- lieu- fee program
    across the country. In addition, the October 2000 in- lieu- fee guidance
    should cause agreements between Corps districts and in- lieu- fee
    organizations to be more consistent.

    5. We revised the report to show that the information regarding adversely
    affected acres and dollars collected covered the periods from the time each
    in- lieu- fee arrangement was established through fiscal year 2000.

    6. While we did not define the term ?ecological success,? our recommendation
    calls for the agencies to establish criteria to determine ecological
    success. Defense also stated that the scientific and professional
    disciplines associated with wetlands management do not possess sufficient
    information to make a definitive statement about ecological success. While
    recognizing that assessing wetland functions and values is difficult, we
    believe that it is possible to establish scientific criteria to determine
    ecological success. EPA, FWS, and NOAA officials told us during our audit
    work that assessing ecological success is possible. In fact, NOAA officials
    said that there are many existing methodologies from which agencies can draw
    to establish criteria for ecological success. Further, the Corps? Engineer
    Research and Development Center has developed information, such as
    Hydrogeomorphic Approach data that can be used to assess functions of some
    regional wetlands, that may be useful for establishing criteria.

    Appendix III: Comments From the Department of Defense

    Page 58 GAO- 01- 325 Wetlands Protection

    7. We revised the report to show that some of the arrangements in the five
    districts that have not started any projects have been operating only a
    short period of time and, consequently, have had little time to collect fees
    and initiate projects.

    8. Defense stated that local agency rules and/ or in- lieu- fee structure
    and protocol may result in constraints in terms of use of compensatory
    mitigation options that override other decisions and could affect
    competition between in- lieu- fee organizations and mitigation banks. As
    explained in our response to Defense comment 4, our report provides a broad
    overview of the in- lieu- fee program rather than specific details about
    individual arrangements. Moreover, during our audit work, none of the
    districts that reported no competition between in- lieu- fee organizations
    and mitigation banks said that local rules and/ or in- lieu- fee structures
    or protocols had constrained competition.

    9. We revised the footnote to show that state trust funds, such as those in
    Pennsylvania and Maryland, are included as ad hoc arrangements in our
    report. Corps districts reported to us those instances where developers were
    allowed to compensate for adverse impacts to existing wetlands by paying
    third parties that are neither mitigation banks nor considered by the
    districts to be in- lieu- fee arrangements. As explained in our report, ad
    hoc fund recipients usually do not have a formal agreement with the Corps
    and typically perform mitigation at a single site with funds received from
    one developer for one development project. However, ad hoc arrangements
    identified by Corps districts also include state trust funds, which receive
    payments from multiple developers that can be used for more than one
    project.

    10. Defense suggested that we change our first recommendation to give the
    lead to the Corps instead of EPA and to have the federal agencies develop
    criteria to determine ?that wetlands functions have been adequately
    compensated? instead of criteria to determine the ecological success of
    mitigation efforts. We disagree and did not revise our recommendation. While
    we recognize that the Secretary of the Army clearly has authority and
    responsibility under section 404( a) of the Clean Water Act regarding
    compensatory mitigation, section 404( b) authorizes the Administrator of
    EPA, in conjunction with the Secretary, to issue section 404 guidance. Also,
    we did not change the recommendation regarding the type of criteria because
    we continue to believe that development of criteria for ecological success
    is not only possible, but essential.

    Appendix III: Comments From the Department of Defense

    Page 59 GAO- 01- 325 Wetlands Protection

    11. Defense stated that our report appears to concentrate on in- lieu- fee
    arrangements developed prior to 1997. While we choose to make site visits to
    districts with arrangements developed in 1997 or earlier because in- lieu-
    fee organizations in those districts had had more time to develop projects
    than those in districts with more recent arrangements, our report provides
    information about all in- lieu- fee arrangements established through fiscal
    year 2000. We did not include the in- lieu- fee arrangement in St. Louis in
    our report because, according to a Corps St. Louis District official, it was
    not established until October 2000, which was after fiscal year 2000 ended.

    12. As explained in the Scope and Methodology section of our report, we used
    implementing agreements to obtain an understanding of the extent to which
    in- lieu- fee arrangements were being used nationwide and to devise
    questions for the second phase of our survey. We did not report the extent
    to which in- lieu- fee arrangements followed their implementing agreements
    because many, if not all, agreements should change substantially to comply
    with the protocol in the October 2000 in- lieu- fee guidance.

    13. Defense did not concur with our first recommendation. We disagree. See
    comments 6 and 10.

    Appendix IV: Comments From the Environmental Protection Agency

    Page 60 GAO- 01- 325 Wetlands Protection

    Appendix IV: Comments From the Environmental Protection Agency

    Appendix IV: Comments From the Environmental Protection Agency

    Page 61 GAO- 01- 325 Wetlands Protection

    See comment 2. See comment 1.

    Appendix IV: Comments From the Environmental Protection Agency

    Page 62 GAO- 01- 325 Wetlands Protection

    Appendix IV: Comments From the Environmental Protection Agency

    Page 63 GAO- 01- 325 Wetlands Protection

    1. EPA stated that a useful addition to our first recommendation would be to
    recognize the significant role that many states play in decisions on
    wetlands restoration and compensatory mitigation and the close working
    relationship between EPA and the states in administering the Clean Water
    Act. EPA also suggested that we recommend coordination with states in
    developing ecological success criteria. We did not change our
    recommendation. However, coordination with states in developing ecological
    success criteria is an EPA prerogative that our recommendation does nothing
    to preclude. We revised our conclusions to state that where states play a
    significant role in decisions on compensatory mitigation, the agencies could
    coordinate with them in developing ecological success criteria.

    2. We agree that the same ecological success criteria applicable to in-
    lieufee arrangements should be used to assess ad hoc arrangements?
    mitigation efforts, as stated in our second recommendation. Also, we believe
    that procedures should be developed and implemented to assess the ecological
    success of ad hoc arrangements? mitigation efforts. However, the procedures
    should allow the Corps flexibility in assessing the success of ad hoc
    mitigation efforts, taking into consideration such factors as available
    resources as well as potential environmental impacts. GAO Comments

    Appendix V: Comments From the Department of Commerce

    Page 64 GAO- 01- 325 Wetlands Protection

    Appendix V: Comments From the Department of Commerce

    Appendix V: Comments From the Department of Commerce

    Page 65 GAO- 01- 325 Wetlands Protection

    Appendix V: Comments From the Department of Commerce

    Page 66 GAO- 01- 325 Wetlands Protection

    See comment 1.

    Appendix V: Comments From the Department of Commerce

    Page 67 GAO- 01- 325 Wetlands Protection

    1. Comments provided by Commerce for NOAA stated that NOAA concurs with our
    two recommendations. The comments also stated that rather than developing
    procedures for assessing the ecological success of ad hoc mitigation on a
    district- by- district basis, NOAA believes that Corps headquarters should
    develop the procedures so that a consistent approach is taken throughout the
    country. We clarified our recommendation to have the Secretary of the Army
    direct the Corps, instead of its districts, to establish procedures to
    clearly identify whether developers or recipients of funds are responsible
    for the ecological success of mitigation efforts. In addition, Commerce
    stated that Corps headquarters should resolve widespread confusion about the
    applicability of the in- lieu- fee guidance by explicitly stating that ad
    hoc mitigation is covered by the in- lieu- fee guidance. Because, as noted
    in our report, EPA and Corps headquarters officials disagree as to whether
    ad hoc mitigation is covered by the October 2000 guidance, we agree that
    there should be clarification. This is an issue that should be discussed
    when the agencies hold a stakeholder forum in the summer of 2001 and
    considered when the agencies review the use of the guidance by the end of
    October 2001. GAO Comment

    Appendix VI: Comments From the Department of the Interior

    Page 68 GAO- 01- 325 Wetlands Protection

    Appendix VI: Comments From the Department of the Interior

    See comment 1.

    Appendix VI: Comments From the Department of the Interior

    Page 69 GAO- 01- 325 Wetlands Protection

    See comment 3. See comment 2.

    Appendix VI: Comments From the Department of the Interior

    Page 70 GAO- 01- 325 Wetlands Protection

    1. Interior stated that full implementation of the October 2000 in- lieu-
    fee guidance would prevent or rectify many of the problems with in- lieufee
    mitigation programs identified in our report. We agree that full
    implementation of the guidance may rectify some of the problems we
    identified. For example, the guidance sets time frames for mitigation
    efforts and states that in- lieu- fee funds should be used for replacing
    wetlands functions and values. However, full implementation of the guidance
    does not address the problems that our recommendations are intended to
    correct. That is, the guidance does not establish criteria for ecological
    success and does not clearly establish responsibility for mitigation success
    performed by ad hoc organizations.

    2. Interior said that the Corps should suspend the use of any in- lieu- fee
    programs found to be in noncompliance with the October 2000 guidance until
    such time that corrective measures are enacted. We did not develop
    information on this issue as part of our audit work. However, suspension
    might be an option that agencies could discuss at the stakeholder forum in
    the summer of 2001 and when the agencies review the use of the guidance by
    the end of October 2001.

    3. Interior stated that, with regard to our recommendations, it does not
    agree that federal agencies should establish national criteria to determine
    the ecological success of mitigation efforts. Our recommendation does not
    call for national criteria. In fact, our survey showed that over 80 percent
    of the Corps districts with in- lieu- fee arrangements said that national
    performance standards for measuring the success of mitigation efforts were
    not feasible. In addition, we agree that establishing national standards
    would be infeasible given the diversity of wetland types across the country.
    Further, we believe that criteria are most appropriately developed at the
    local level where experienced agency personnel may work together to develop
    success criteria that are keyed to local ecosystems or watersheds. GAO
    Comments

    Appendix VII: GAO Contacts and Staff Acknowledgments

    Page 71 GAO- 01- 325 Wetlands Protection

    Gary L. Jones (202) 512- 3841 Peg Reese (202) 512- 9695

    In addition to those named above, Nancy J. Eslick, June M. Foster, Byron S.
    Galloway, Lynn M. Musser, and Barbara L. Patterson made key contributions to
    this report. Appendix VII: GAO Contacts and Staff

    Acknowledgments GAO Contacts Staff Acknowledgments

    (141440)

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