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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