Compensatory Mitigation for Losses of Aquatic Resources, 19594-19705 [E8-6918]

Agencies

• DEPARTMENT OF DEFENSE
• ENVIRONMENTAL PROTECTION AGENCY
• Department of the Army, Corps of Engineers
• Engineers Corps

[Federal Register Volume 73, Number 70 (Thursday, April 10, 2008)]
[Rules and Regulations]
[Pages 19594-19705]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-6918]



[[Page 19593]]

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Part II





Department of Defense





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Department of the Army, Corps of Engineers



33 CFR Parts 325 and 332



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Environmental Protection Agency





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40 CFR Part 230



Compensatory Mitigation for Losses of Aquatic Resources; Final Rule

Federal Register / Vol. 73, No. 70 / Thursday, April 10, 2008 / Rules 
and Regulations

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DEPARTMENT OF DEFENSE

Department of the Army, Corps of Engineers

33 CFR Parts 325 and 332

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 230

[EPA-HQ-OW-2006-0020; FRL-8545-4]
RIN 0710-AA55


Compensatory Mitigation for Losses of Aquatic Resources

AGENCIES: U.S. Army Corps of Engineers, DoD; and Environmental 
Protection Agency.

ACTION: Final rule.

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SUMMARY: The U.S. Army Corps of Engineers (the Corps) and the 
Environmental Protection Agency (EPA) are issuing regulations governing 
compensatory mitigation for activities authorized by permits issued by 
the Department of the Army. The regulations establish performance 
standards and criteria for the use of permittee-responsible 
compensatory mitigation, mitigation banks, and in-lieu programs to 
improve the quality and success of compensatory mitigation projects for 
activities authorized by Department of the Army permits.
    This rule improves the planning, implementation and management of 
compensatory mitigation projects by emphasizing a watershed approach in 
selecting compensatory mitigation project locations, requiring 
measurable, enforceable ecological performance standards and regular 
monitoring for all types of compensation and specifying the components 
of a complete compensatory mitigation plan, including assurances of 
long-term protection of compensation sites, financial assurances, and 
identification of the parties responsible for specific project tasks.
    This rule applies equivalent standards to permittee-responsible 
compensatory mitigation, mitigation banks and in-lieu fee mitigation to 
the maximum extent practicable. Since a mitigation bank must have an 
approved mitigation plan and other assurances in place before any of 
its credits can be used to offset permitted impacts, this rule 
establishes a preference for the use of mitigation bank credits, which 
reduces some of the risks and uncertainties associated with 
compensatory mitigation. This rule also significantly revises the 
requirements for in-lieu fee programs to address concerns regarding 
their past performance and equivalency with the standards for 
mitigation banks and permittee-responsible compensatory mitigation.

DATES: The effective date is June 9, 2008.

ADDRESSES: Headquarters, U.S. Army Corps of Engineers, Operations and 
Regulatory Community of Practice, 441 G Street, NW., Washington, DC 
20314-1000. Headquarters, U.S. Environmental Protection Agency, 
Wetlands Division, Mail code 4502T, 1200 Pennsylvania Ave, NW., 
Washington, DC 20460.

    The Corps and EPA have established a docket for this action under 
Docket ID No. EPA-HQ-OW-2006-0020. All documents in the docket are 
listed on the https://www.regulations.gov web site. Although listed in 
the index, some information is not publicly available, e.g., CBI or 
other information whose disclosure is restricted by statute. Certain 
other material, such as copyrighted material, is not placed on the 
Internet and will be publicly available only in hard copy form. 
Publicly available docket materials are available either electronically 
through https://www.regulations.gov or in hard copy at the Water Docket, 
EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, 
DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744, and the telephone number for the 
Water Docket is (202) 566-2426.

FOR FURTHER INFORMATION CONTACT: Mr. David Olson at 202-761-4922 or by 
e-mail at david.b.olson@usace.army.mil, or Mr. Palmer Hough at 202-566-
1374 or by e-mail at hough.palmer@epa.gov. Additional information can 
also be found at the Corps Headquarters Regulatory Program webpage at: 
https://www.usace.army.mil/cw/cecwo/reg/ or the EPA 
compensatory mitigation webpage at: https://www.epa.gov/
wetlandsmitigation.

SUPPLEMENTARY INFORMATION: 

I. Background
II. General Comments and Responses
    A. Overview
    B. Most Frequently Raised Issues
    1. Section 404(b)(1) Guidelines
    2. Compensatory Mitigation Standards for Streams
    3. Discretionary Language
    4. Watershed Approach
    5. In-Lieu Fee Programs
    C. Other General Comments
III. In-Lieu Fee Programs
IV. Compliance With Section 314 of the NDAA
V. Organization of the Final Rule
VI. Discussion of Specific Sections of the Final Rule
VII. Administrative Requirements

I. Background

    Compensatory mitigation involves actions taken to offset 
unavoidable adverse impacts to wetlands, streams and other aquatic 
resources authorized by Clean Water Act section 404 permits and other 
Department of the Army (DA) permits. As such, compensatory mitigation 
is a critical tool in helping the federal government to meet the 
longstanding national goal of ``no net loss'' of wetland acreage and 
function. For impacts authorized under section 404, compensatory 
mitigation is not considered until after all appropriate and 
practicable steps have been taken to first avoid and then minimize 
adverse impacts to the aquatic ecosystem pursuant to 40 CFR part 230 
(i.e., the CWA Section 404(b)(1) Guidelines).
    Compensatory mitigation can be carried out through four methods: 
the restoration of a previously-existing wetland or other aquatic site, 
the enhancement of an existing aquatic site's functions, the 
establishment (i.e., creation) of a new aquatic site, or the 
preservation of an existing aquatic site. There are three mechanisms 
for providing compensatory mitigation: permittee-responsible 
compensatory mitigation, mitigation banks and in-lieu fee mitigation. 
Permittee-responsible mitigation is the most traditional form of 
compensation and continues to represent the majority of compensation 
acreage provided each year. As its name implies, the permittee retains 
responsibility for ensuring that required compensation activities are 
completed and successful. Permittee-responsible mitigation can be 
located at or adjacent to the impact site (i.e., on-site compensatory 
mitigation) or at another location generally within the same watershed 
as the impact site (i.e., off-site compensatory mitigation).
    Mitigation banks and in-lieu fee mitigation both involve off-site 
compensation activities generally conducted by a third party, a 
mitigation bank sponsor or in-lieu fee program sponsor. When a 
permittee's compensatory mitigation requirements are satisfied by a 
mitigation bank or in-lieu fee program, responsibility for ensuring 
that required compensation is completed and successful shifts from the 
permittee to the bank or in-lieu fee sponsor. Mitigation banks and in-
lieu fee programs both conduct consolidated aquatic resource 
restoration, enhancement, establishment and preservation projects; 
however, under

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current practice, there are several important differences between in-
lieu fee programs and mitigation banks.
    First, in-lieu fee programs are generally administered by state 
governments, local governments, or non-profit non-governmental 
organizations while mitigation banks are usually (though not always) 
operated for profit by private entities. Second, in-lieu fee programs 
rely on fees collected from permittees to initiate compensatory 
mitigation projects while mitigation banks usually rely on private 
investment for initial financing. Most importantly, mitigation banks 
must achieve certain milestones, including site selection, plan 
approval, and financial assurances, before they can sell credits, and 
generally sell a majority of their credits only after the physical 
development of compensation sites has begun. In contrast, in-lieu fee 
programs generally initiate compensatory mitigation projects only after 
collecting fees, and there has often been a substantial time lag 
between permitted impacts and implementation of compensatory mitigation 
projects. Additionally, in-lieu fee programs have not generally been 
required to provide the same financial assurances as mitigation banks. 
For all of these reasons, there is greater risk and uncertainty 
associated with in-lieu fee programs regarding the implementation of 
the compensatory mitigation project and its adequacy to compensate for 
lost functions and services.
    As noted in the preamble for the March 2006 proposal, the majority 
of the existing guidance regarding compensatory mitigation and the use 
of these three mechanisms for providing compensation exists in a number 
of national guidance documents released by the Corps and EPA over the 
past seventeen years (sometimes in association with other federal 
agencies such as the U.S. Fish and Wildlife Service and the National 
Marine Fisheries Service). Since these guidance documents were 
developed at different times, and in different regulatory contexts, 
concerns have been raised regarding the consistent, predictable and 
equitable interpretation and application of these guidance documents. 
In November 2003, Congress called for the development of regulatory 
standards and criteria for the use of compensatory mitigation in the 
section 404 program.
    Section 314 of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2004 (section 314) requires the Secretary of the Army, 
acting through the Chief of Engineers, to issue regulations 
``establishing performance standards and criteria for the use, 
consistent with section 404 of the Federal Water Pollution Control Act 
(33 U.S.C. 1344, also known as the Clean Water Act), of on-site, off-
site, and in-lieu fee mitigation and mitigation banking as compensation 
for lost wetlands functions in permits issued by the Secretary of the 
Army under such section.'' This provision also requires that those 
regulations, to the maximum extent practicable, ``maximize available 
credits and opportunities for mitigation, provide flexibility for 
regional variations in wetland conditions, functions and values, and 
apply equivalent standards and criteria to each type of compensatory 
mitigation.''
    In response to this directive, the U.S. Army Corps of Engineers and 
the U.S. Environmental Protection Agency (the agencies) published a 
proposed rule in Part II of the March 28, 2006, issue of the Federal 
Register (71 FR 15520), with a 60-day public comment period. As a 
result of several requests, the Corps and EPA extended the comment 
period by an additional 30 days. The comment period ended on June 30, 
2006.
    In the preamble to the March 2006 proposal, the agencies noted 
their decision, in light of their respective statutory roles in the 
section 404 program, to pursue this rulemaking as a joint effort 
between the Corps and EPA. The preamble also discussed the Corps's 
decision to develop these standards for all DA permits which could 
potentially require compensatory mitigation. Thus, in addition to Clean 
Water Act section 404 permits, these standards also apply to DA permits 
issued under sections 9 and 10 of the Rivers and Harbors Act of 1899. 
Finally, the preamble also discussed why these standards should apply 
to compensatory mitigation for impacts to streams and other open waters 
in addition to wetlands.
    As discussed in the preamble to the March 2006 proposal, in 2001 
the National Research Council (NRC) released a comprehensive evaluation 
of the effectiveness of wetlands compensatory mitigation required under 
section 404 of the Clean Water Act. This report noted concerns with 
some past wetland compensatory mitigation and provided recommendations 
for the federal agencies, states, and other parties to improve 
compensatory mitigation. This report was an important resource in the 
development of today's rule.

II. General Comments and Responses

    In response to the proposed rule, approximately 12,000 comments 
were received, including about 850 distinct comments and 11,150 
additional substantially identical e-mails and letters. Comments were 
provided by regulated entities, the scientific community, non-
governmental organizations, mitigation bankers, in-lieu fee program 
sponsors, state and local government agencies, and other members of the 
public.

A. Overview

    Most of the distinct commenters said that this rule is a necessary 
addition to regulations for implementing the Corps Regulatory Program 
and some expressed appreciation that the rule incorporates stakeholder 
feedback and lessons learned. Many commenters expressed general support 
for the proposed rule because: (1) It will promote predictability and 
consistency in compensatory mitigation; (2) it will further effective 
partnerships with private sector mitigation banks; (3) it responds to 
concerns raised by those participating in the development of Mitigation 
Action Plan products; (4) many provisions of the rule are consistent 
with the 2005 Millennium Ecosystem Assessment; (5) it brings greater 
technical clarity to the process of determining appropriate mitigation; 
(6) it provides greater focus on accountability through measurable and 
enforceable ecological performance standards, monitoring, and 
management; (7) it fosters incorporation of aquatic ecosystem science 
into compensatory mitigation plans; and (8) it increases public 
participation in the compensatory mitigation process. Some of these 
commenters also suggested modifications to the proposed rule, which are 
discussed in more detail below.
    Some commenters, including most of the form letters, opposed the 
proposed rule or suggested extensive revisions to increase the 
protection of aquatic resources. The issues most frequently raised, 
considering both the individual and form letters, were: (1) Interaction 
of the proposed rule with the existing requirements of the Section 404 
(b)(1) Guidelines, (2) compensatory mitigation standards for streams, 
(3) the amount of discretionary language in the proposed rule, (4) use 
of the watershed approach for identifying mitigation projects, and (5) 
the proposed phase-out of in-lieu fee mitigation. These five major 
issues and our responses to them are discussed below in part II.B. Many 
other general issues were raised as well, and a number of these are 
discussed in part II.C. Additional detail, and responses to comments on 
specific rule provisions, are provided in part VI.

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B. Most Frequently Raised Issues

1. Section 404(b)(1) Guidelines
    Many commenters stated that, consistent with existing regulations 
and policy, the rule should emphasize impact avoidance and that 
compensatory mitigation should not be considered until all efforts have 
been made to first avoid and then minimize impacts to streams and 
wetlands. Some commenters also asserted that the proposal would expand 
the district engineer's existing level of discretion in determining 
that an applicant has taken all appropriate and practicable steps to 
first avoid and then minimize impacts to the aquatic ecosystem. Some 
further asserted that the proposal could be construed to allow permits 
to be issued even if they cause or contribute to significant 
degradation of aquatic resources, an action prohibited by the Section 
404(b)(1) Guidelines (40 CFR 230.10(c)).
    The agencies agree that impacts must be first avoided and then 
minimized, and that compensatory mitigation should be used only for 
impacts that cannot be avoided or minimized. The agencies disagree that 
the rule will weaken or undermine the 404(b)(1) Guidelines, which are 
codified in regulation and remain unchanged. These requirements are 
essential to meeting the overall objective of the Clean Water Act to 
restore and maintain the chemical, physical and biological integrity of 
the nation's waters. We have clarified that none of them have changed 
by adding a new paragraph at 33 CFR 332.1(c)(1) [40 CFR 230.91(c)(1)] 
stating that nothing in these new rules affects the requirement that 
all DA permits subject to section 404 of the Clean Water Act comply 
with applicable provisions of the Section 404(b)(1) Guidelines. Thus, 
this rule does not expand the district engineer's existing level of 
discretion in determining that an applicant has taken all appropriate 
and practicable steps to first avoid and then minimize impacts to the 
aquatic ecosystem. Paragraph (c)(2) of this section has also been 
modified to clarify that individual section 404 permits will be issued 
only if compliance with all applicable provisions of the 404(b)(1) 
Guidelines has been achieved including those which require the permit 
applicant to take all appropriate and practicable steps to avoid and 
minimize adverse impacts to the aquatic ecosystem. For general permits, 
compliance with the Section 404(b)(1) Guidelines is clarified at 40 CFR 
230.7.
    In addition, a new paragraph at 33 CFR 332.1(f)(2) [40 CFR 
230.91(f)(2)] has been added to the final rule which clarifies which 
provisions of the 1990 Memorandum of Agreement (MOA) between the 
Department of the Army and the Environmental Protection Agency on the 
Determination of Mitigation Under the Clean Water Act Section 404(b)(1) 
Guidelines have been superseded by this rule and which provisions 
remain in effect. Those that remain in effect include the provisions 
related to impact avoidance and minimization, evaluation of the least 
environmentally damaging practicable alternatives, and circumstances 
where the impacts of the proposed project are so significant that 
discharges may not be permitted regardless of the compensatory 
mitigation proposed.
    Today's rule is focused on the compensation component of the 
mitigation sequence. Its purpose is to develop a comprehensive set of 
standards for compensatory mitigation pursuant to section 314 of the 
NDAA. Fulfilling this directive necessitates a detailed treatment of 
all critical aspects of compensatory mitigation. This does not affect 
compliance with other parts of our regulations, including the 404(b)(1) 
Guidelines. Additional discussion of this issue can be found in part VI 
of the preamble.
2. Compensatory Mitigation Standards for Streams
    Many commenters stated that compensatory mitigation for stream 
impacts should not be addressed in this rule. Some stated that there is 
no scientific evidence that streams can be established (i.e., stream 
creation) or that other approaches taken in this rule such as stream 
restoration can compensate for stream losses. They suggested that the 
agencies should conduct further research on stream mitigation and 
demonstrate its success before including standards for stream 
mitigation in the rule. Some also noted that the statutory language in 
the NDAA refers only to wetlands.
    On the other hand, other commenters expressed support for applying 
the rule to streams and other open waters. These commenters believe 
that physical alteration of aquatic resources should be mitigated to 
the extent practicable to support the objectives of the Clean Water Act 
and that because section 404 of the Clean Water Act authorizes 
discharges of dredged or fill material into lakes, streams, and 
wetlands, mitigation for those impacts should be required (and 
addressed in this rule) as well.
    As noted in the preamble to the March 2006 proposal, we believe 
this rule should apply to compensatory mitigation for all types of 
aquatic resources that can be impacted by activities authorized by DA 
permits, including streams and other open waters. We recognize that the 
scientific literature regarding the issue of stream establishment and 
re-establishment is limited and that some past projects have had 
limited success (Bernhardt and others 2007).\1\ Accordingly, we have 
added a new paragraph at 33 CFR 332.3(e)(3) [40 CFR 230.93(e)(3)] that 
specifically notes that there are some aquatic resources types that are 
difficult to replace and streams are included among these. It 
emphasizes the need to avoid and minimize impacts to these `difficult-
to-replace' resources and requires that any compensation be provided by 
in-kind preservation, rehabilitation, or enhancement to the extent 
practicable. This language is intended to discourage stream 
establishment and re-establishment projects while still requiring 
compensation for unavoidable stream impacts in the form of stream 
corridor restoration (via rehabilitation), enhancement, and 
preservation projects, where practicable. District engineers will 
evaluate compensatory mitigation proposals for streams, and assess the 
likelihood of success before deciding whether the proposed compensation 
should be required.
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    \1\ Bernhardt, E.S., E.B. Sudduth, M.A. Palmer, J.D. Allan, J.L. 
Meyer, G. Alexander, J. Follastad-Shah, B. Hassett, R. Jenkinson, R. 
Lave, J. Rumps, and L. Pagano. 2007. Restoring rivers one reach at a 
time: Results from a survey of U.S. river restoration practitioners. 
Restoration Ecology 15:482-493.
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    We recognize that the science of stream restoration is still 
evolving and that more research is needed; however, the lack of a 
fully-developed set of tested hypotheses and techniques does not mean 
that stream mitigation (particularly via restoration, enhancement and 
preservation) cannot be successfully performed or that it should not be 
required where avoidance of impacts is not practicable. As noted by 
Bernhardt and others (2005),\2\ ``stream and river restoration can lead 
to species recovery, improved inland and coastal water quality, and new 
areas for wildlife habitat and recreational activities.'' There is a 
growing body of research that documents successful outcomes for stream 
restoration projects, examines stream restoration techniques and 
provides recommendations for effective stream and river restoration.

[[Page 19597]]

Successful outcomes for stream restoration with respect to water 
quality, habitat creation, species recovery and recreation, have been 
documented by Baron and others (2002); \3\ Buijse and others (2002); 
\4\ Muotka and Pekka (2002); \5\ Nakamura and Kunihiko (2006); \6\ and 
Petersen (1999).\7\ Criteria and recommendations for ecologically 
successful stream restoration have been addressed by Hassett and others 
(2005) \8\ Kauffman and others (1997) \9\ Lavendel (2002) \10\ Palmer 
and others (2005) \11\ and Whalen and others (2002).\12\ Assessment of 
the physical and biological effects of restoration activities has been 
performed by Reeves and others (1997); \13\ Slaney and others (1994) 
\14\ and Solazzi and others (2000).\15\ The applicability of specific 
tools to measure stream restoration success has been investigated by 
Paller and others (2000) \16\ and Lester and others (2006).\17\ 
Somerville and Pruitt (2004) \18\ reviewed existing stream assessment 
and mitigation protocols and Roni and others (2002) \19\ reviewed 
stream restoration techniques. Shields and others (2003) \20\ discussed 
the unique challenges associated with stream restoration research.
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    \2\ Bernhardt, E.S., M.A. Palmer, J.D. Allan, G. Alexander, K. 
Barnas, S. Brooks, J. Carr, S. Clayton, C. Dahm, J. Follstad-Shah, 
D. Galat, S. Gloss, P. Goodwin, D. Hart, B. Hassett, R. Jenkinson, 
S. Katz, G.M. Kondolf, P.S. Lake, R. Lave, J.L. Meyer, T.K. 
O'Donnell, L. Pagano, B. Powell, and E. Sudduth. 2005. Synthesizing 
U.S. river restoration efforts. Science 308: 636-637.
    \3\ Baron, J.S. et al. 2002. Meeting ecological and societal 
needs for freshwater. Ecological Applications 12: 1247-1260.
    \4\ Buijse, A.D. et al. 2002. Restoration strategies for river 
floodplains along the large lowland rivers in Europe. Freshwater 
Biology 47: 889-907.
    \5\ Muotka, T. and P. Laasonen. 2002. Ecosystem recovery in 
restored headwater streams: The role of enhanced leaf retention. 
Journal of Applied Ecology 39: 145-156.
    \6\ Nakamura, K. and K. Amano. 2006. River and wetland 
restoration: Lessons from Japan. Bioscience 56(5): 419-129.
    \7\ Petersen, M.M. 1999. A natural approach to watershed 
planning, restoration and management. Water Science and Technology 
39(12): 347-352.
    \8\ Hassett, B. et al. 2005. Restoring watersheds project by 
project: Trends in Chesapeake Bay tributary restoration. Frontiers 
in Ecology and the Environment 3(5): 259-267.
    \9\ Kauffman, J. Boone, R.L. Beschta, N.O., and D. Lytjen. 1997. 
An ecological perspective of riparian and stream restoration in the 
western United States. Fisheries 22(5): 12-24.
    \10\ Lavendel, B. 2002. The business of ecological restoration. 
Ecological Restoration 20: 173-178.
    \11\ Palmer, M.A. et al. 2005. Standards for ecologically 
successful river restoration. Journal of Applied Ecology 42: 207-
217.
    \12\ Whalen, P.J., L.A. Toth, J.W. Koebel, and P.K. Strayer. 
2002. Kissimmee River Restoration: A case study. Water Science and 
Technology 45(11): 55-62.
    \13\ Reeves, G.H., D.B. Hohler, B.E. Hansen, F.H. Everest, J.R. 
Sedell, T.L. Hickman, and D. Shively. 1997. Fish habitat restoration 
in the Pacific Northwest: Fish Creek of Oregon. Pages 335-359 in 
J.E. Williams, C.A. Wood, and M.P. Dombeck, editors. Watershed 
Restoration: Principles and Practices. American Fisheries Society, 
Bethesda, Maryland.
    \14\ Slaney, P.A., B.O. Rublee, C.J. Perrin, and H. Goldberg. 
1994. Debris structure placements and whole-river fertilization for 
salmonoids in a large regulated stream in British Columbia. Bulletin 
of Marine Science 55: 1160-1180.
    \15\ Solazzi, M.F., T.E. Nickelson, S.L. Johnson, and J.D. 
Rodgers. 2000. Effects of increasing winter rearing habitat on 
abundance of salmonoids in two coastal Oregon streams. Canadian 
Journal of Fisheries and Aquatic Sciences. 57: 906-914
    \16\ Paller, M.H., M.J.M. Reichert, J.M. Dean, and J.C. Seigle. 
2000. Use of fish community data to evaluate restoration success of 
a riparian stream. Ecological Engineering 15: 171-187.
    \17\ Lester, R., W. Wright, and M. Jones-Lennon. 2006. 
Determining Target Loads of Large and Small Wood for Stream 
Rehabilitation in High-Rainfall Agricultural Regions of Victoria, 
Australia. Ecological Engineering 28: 71-78.
    \18\ Somerville, D.E. and B.A. Pruitt. 2004. Physical stream 
assessment: A review of selected protocols for use in the Clean 
Water Act Section 404 Program. Prepared for the U.S. Environmental 
Protection Agency, Office of Wetlands, Oceans, and Watersheds, 
Wetlands Division (Order No. 3W-0503-NATX). Washington, DC, 213 pp.
    \19\ Roni, P. et al. 2002. A review of stream restoration 
techniques and a hierarchical strategy for prioritizing restoration 
in Pacific Northwest watersheds. North American Journal of Fisheries 
Management 22: 1-20.
    \20\ Shields, F. Douglas, C.M. Cooper Jr., Scott S. Knight and 
M.T. Moore. 2003. Stream corridor restoration research: A long and 
winding road. Ecological Engineering 20: 441-454.
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    Under this final rule, mitigation plans for all wetland 
compensatory mitigation projects must contain the following twelve 
elements: Objectives; site selection criteria; site protection 
instruments (e.g., conservation easements); baseline information (for 
impact and compensation sites); credit determination methodology; 
mitigation work plan; maintenance plan; ecological performance 
standards; monitoring requirements; long-term management plan; adaptive 
management plan; and financial assurances (see 33 CFR 332.4(c) [40 CFR 
230.94(c)]). Existing literature regarding stream restoration, as well 
as our experience with past stream mitigation projects supports our 
decision to require mitigation plans for stream compensatory mitigation 
projects to contain the same twelve fundamental elements. Some 
commenters noted that aspects of the mitigation work plan will differ 
between stream and wetland mitigation projects. Today's rule highlights 
some of these potential differences by noting additional elements that 
may be necessary for stream mitigation project work plans. These 
elements include planform geometry, channel form, watershed size, 
design discharge, and riparian area plantings and can be found at 33 
CFR 332.4(c)(7) [40 CFR 230.94(c)(7)].
    Another important modification was made to the section of the rule 
describing ecological performance standards. Like the proposal, today's 
rule requires that every mitigation plan include objective and 
verifiable ecological performance standards to assess whether the 
compensatory mitigation project is achieving its objectives. Neither 
the proposal nor today's rule prescribe the individual variables or 
metrics that should be used to evaluate each aquatic resource type 
potentially restored, enhanced, established, or preserved in 
compensatory mitigation projects. Given the extremely large variation 
among the aquatic resource types found across the country, and the 
constant advances in the science of aquatic ecosystem restoration, 
overly prescriptive requirements would be impractical. However, in 
recognition of the need to strengthen this provision and to ensure that 
compensatory mitigation project performance standards reflect the 
latest advances in the science of stream and wetland restoration, we 
have modified the final rule at 33 CFR 332.5(b) [40 CFR 230.95(b)] to 
include a requirement that ecological performance standards be based on 
the best available science that can be measured or assessed in a 
practicable manner.
    As stream scientists have noted, the proportion of stream 
restoration projects that have been monitored for performance is low 
(Bernhardt and others 2005).\21\ Today's rule, however, requires 
monitoring of mitigation projects for a minimum of five years with 
longer monitoring periods required for aquatic resources with slow 
development rates. This monitoring requirement will provide new data on 
stream restoration performance that will serve to increase knowledge 
and improve stream mitigation over time. (See 33 CFR 332.6 [40 CFR 
230.96]). Also, in response to public comment, we removed a provision 
from 33 CFR 332.6(a) [40 CFR 230.96(a)] that would have allowed the 
district engineer to waive all monitoring requirements if they were 
determined not to be practicable.
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    \21\ Bernhardt, E.S., M.A. Palmer, J.D. Allan, G. Alexander, K. 
Barnas, S. Brooks, J. Carr, S. Clayton, C. Dahm, J. Follstad-Shah, 
D. Galat, S. Gloss, P. Goodwin, D. Hart, B. Hassett, R. Jenkinson, 
S. Katz, G.M. Kondolf, P.S. Lake, R. Lave, J.L. Meyer, T.K. 
O'Donnell, L. Pagano, B. Powell, and E. Sudduth. 2005. Synthesizing 
U.S. river restoration efforts. Science 308: 636-637.
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    While section 314 of the NDAA refers only to the development of 
compensatory mitigation standards for wetlands, we believe that in 
order to improve the performance and results of all types of 
compensatory mitigation this rule should include compensatory 
mitigation standards for all types of aquatic resources that can be 
impacted by activities authorized by DA permits, including streams and 
other open waters. Section 404(b) of the Clean Water Act authorizes EPA 
to develop

[[Page 19598]]

the substantive environmental criteria used by the Corps in making 
section 404 permit decisions including those associated with all forms 
of compensatory mitigation. Also, section 501(a) of the Clean Water Act 
provides EPA with broad authority to conduct any rulemaking necessary 
to carry out its functions under the Clean Water Act.
    While many stream restoration and rehabilitation activities have 
been conducted across the country, we recognize that not all of them 
have been successful. Much of the literature suggests that this is due 
to a lack of the kinds of comprehensive standards for project planning, 
implementation and management included in this rule. Accordingly, we 
determined that including stream mitigation in this rule would improve 
current standards and practices for compensatory mitigation of streams. 
Today's rule, with the addition of the above referenced modifications, 
includes the necessary provisions to appropriately treat stream 
mitigation. Additional discussion of this issue can be found in part VI 
of the preamble.
3. Discretionary Language
    Many commenters expressed concern that the proposal leaves too much 
discretion to district engineers. Some commenters objected to use of 
``may'', ``should'', and ``can'' in some rule provisions, and/or to use 
of the qualifier ``appropriate and practicable'' for some requirements. 
Commenters were concerned that such discretion might lead to 
authorization of inappropriate compensatory mitigation projects, 
inadequate enforcement and oversight, or excessive litigation.
    In contrast, other commenters suggested even greater flexibility, 
to allow cost-effective compensatory mitigation based on case-specific 
circumstances.
    In response to these comments, we have carefully evaluated all of 
the discretionary language in the proposed rule, and replaced it with 
binding and/or more clearly articulated requirements where appropriate. 
Such modifications were made to a number of key provisions in the rule 
including those related to mitigation type, the amount of mitigation 
necessary to offset permitted losses, financial assurances, credit 
releases, the use of preservation, ecological performance standards, 
and long-term site protection and management. Also, a number of 
requirements for in-lieu fee programs have been added to the rule, as 
part of the decision not to phase them out as originally proposed. 
(Note that the preamble to the proposed rule included an extensive 
discussion of and request for comment on alternatives to the proposed 
phase-out. The new requirements for in-lieu fee programs reflect many 
of the comments received.) These specific modifications and additions 
are discussed in more detail in part VI of the preamble.
    With these modifications, we believe that today's rule achieves a 
proper balance of binding requirements and discretion. The rule will 
help improve the quality and success of compensatory mitigation, while 
providing flexibility necessary to ensure that compensatory mitigation 
requirements for a particular DA permit appropriately offset authorized 
impacts. Some discretionary language is necessary for this rule because 
resource types, project impacts, and compensatory mitigation practices 
vary widely across both projects and regions of the country. District 
engineers need to take such variations into account, including 
variations in state and local requirements that affect the 
implementation and long-term management of compensatory mitigation 
projects. For example, laws and regulations governing real estate 
instrument and financial assurances vary from state to state. In 
addition, practices for restoring, establishing, and enhancing aquatic 
resources vary by resource type and by region. For these reasons, 
discretionary language is used where appropriate to promote both 
regulatory efficiency and project success, and to ensure that required 
mitigation is practicable.
4. Watershed Approach
    Many comments addressed the watershed approach included in the 
proposal. A majority of commenters expressed support for the use of a 
watershed approach to compensatory mitigation. They noted that use of a 
watershed approach would improve the sustainability of compensatory 
mitigation projects and ensure that they are better integrated with the 
needs of the watershed. However, some commenters believed that 
additional specificity in the requirements relating to the use of a 
watershed approach was needed. For example, commenters requested 
clarification regarding use of the watershed approach in the absence of 
a watershed plan, parameters needed to implement a watershed approach, 
and the definition of the terms ``watershed,'' ``watershed plan'' and 
``watershed approach.''
    Other commenters opposed the watershed approach described in the 
proposed rule. Some were particularly concerned about use of the 
watershed approach in the absence of a detailed watershed plan, arguing 
that this could lead to inappropriate compensatory mitigation decisions 
and the cumulative loss of wetland functions. Others were more 
concerned about the analytical burden on permit applicants of 
developing watershed plans or justifying mitigation projects in terms 
of wider watershed considerations. Still others thought the concept was 
too ambiguous to be included in a regulation.
    The agencies continue to believe that the watershed approach 
provides the appropriate framework for making compensatory mitigation 
decisions, but have made a number of changes to address specific 
comments. The primary objective of the watershed approach included in 
today's rule is to maintain and improve the quantity and quality of 
wetlands and other aquatic resources in watersheds through strategic 
selection of compensatory mitigation project sites. The watershed 
approach accomplishes this objective by expanding the informational and 
analytic basis of mitigation project site selection decisions and 
ensuring that both authorized impacts and mitigation are considered on 
a watershed scale rather than only project by project. This requires a 
degree of flexibility so that district engineers can authorize 
mitigation projects that most effectively address the case-specific 
circumstances and needs of the watershed, while remaining practicable 
for the permittee. In response to the concern about additional burden 
on permittees, the agencies recognize that the level of data and 
analysis appropriate for implementing the watershed approach must be 
commensurate with the scale of the project, and that there will be 
situations, particularly for projects with small impacts, where it 
would not be cost-effective to utilize a watershed approach. For this 
reason, the regulations at Sec.  332.3(c)(1) [Sec.  230.93(c)(1)], 
state that the watershed approach is to be used to the extent 
appropriate and practicable, and the regulations at Sec.  
332.3(c)(3)(iii) [Sec.  230.93(c)(3)(iii)] state that the level of 
information and analysis must be commensurate with the scope and scale 
of the authorized impacts and functions lost.
    We recognize that there are many different types of watershed plans 
that have been developed for purposes other than aquatic resource 
restoration, establishment, enhancement, and/or preservation activities 
and that such plans may be of limited use in making compensatory 
mitigation decisions. For example, some watershed plans are conceived 
to guide development activities or the placement of storm

[[Page 19599]]

water infrastructure. Therefore, we have modified Sec.  332.3(c)(1) 
[Sec.  230.93(c)(1)] to state that the district engineer will determine 
whether a given watershed plan is appropriate for use in the watershed 
approach for compensatory mitigation.
    We further recognize that in many areas, watershed plans 
appropriate for use in planning compensatory mitigation activities have 
not been developed. Therefore, consistent with the 2001 NRC Report, the 
watershed approach described in this final rule does not require a 
formal watershed plan. Although it would always be preferable to have 
an appropriate watershed plan, we believe that implementing a watershed 
approach to the degree practicable, even without a watershed plan, can 
improve compensatory mitigation site selection and project 
implementation. For example, the use of appropriately sited mitigation 
banks can support a watershed approach without using watershed plans. 
In the absence of an appropriate watershed plan, the watershed approach 
should be based on a structured consideration of watershed needs and 
how wetlands and other types of aquatic resources in specific locations 
will address those needs. To implement this approach, district 
engineers will utilize the considerations specified in Sec.  
332.3(c)(2) [Sec.  230.93(c)(2)] and available information on watershed 
conditions and needs, as described in Sec.  332.3(c)(3) [Sec.  
230.93(c)(3)].
    In response to public input, we have revised the definition of 
``watershed plan'' to clarify the kinds of plans appropriate for use in 
making compensation decisions. We have also added definitions for the 
terms ``watershed'' and ``watershed approach'' at Sec.  332.2 [Sec.  
230.92]. The appropriate watershed scale to use for the watershed 
approach will vary by geographic region, as well as by the particular 
aquatic resources under consideration. Since using a watershed approach 
is not appropriate in areas without watershed boundaries, such as 
marine waters, we have also added a provision (Sec.  332.3(c)(2)(v) 
[Sec.  230.93(c)(2)(v)]) to clarify that other types of spatial scales 
may be more appropriate in those areas. To enhance the use of the 
watershed approach, we have added a sentence to Sec.  332.3(c)(2)(iv) 
[Sec.  230.93(c)(2)(iv)] stating that the identification and 
prioritization of resource needs should be as specific as possible. We 
have also added a provision, stating that a watershed approach may 
include on-site compensatory mitigation, off-site compensatory 
mitigation, or a combination of on-site and off-site compensatory 
mitigation (see Sec.  332.3(c)(2)(iii) [Sec.  230.93(c)(2)(iii)]).
    We have revised Sec.  332.3(c)(3) [Sec.  230.93(c)(3)] to clarify 
that district engineers will use available information for the 
watershed approach. That available information will address watershed 
conditions and needs and include potential and/or priority sites for 
compensatory mitigation projects. We have also indicated potential 
sources of appropriate information, such as wetland maps, soil surveys, 
aerial photographs, local ecological reports, etc. Public input on the 
watershed approach and our response to this input including the above 
mentioned modifications are discussed in more detail in part VI of the 
preamble.
5. In-Lieu Fee Programs
    Many commenters, including many state officials, opposed the 
proposed phase-out of in-lieu programs. These commenters indicated that 
in certain areas (especially rural and coastal regions, the West, and 
Alaska) there are few mitigation banks and little potential for their 
development, and that permittee-responsible compensatory mitigation is 
often impractical. In-lieu fee programs are therefore the best (or 
only) option for compensatory mitigation in these areas. Some 
commenters also argued that in-lieu fee programs provide important 
benefits that other types of mitigation do not, such as a more thorough 
consideration of the needs of a watershed and the most appropriate 
locations and mitigation types to sustain and enhance its long-term 
health. Some commenters representing in-lieu fee programs stated that 
if they were held to all of the same standards as mitigation banks, 
particularly the requirement to secure project sites before selling any 
credits, they would have to cease operation and these benefits would be 
lost.
    Many of these commenters also acknowledged problems in the current 
administration and performance of in-lieu fee mitigation, but stated 
that these problems were due to existing requirements and policies (or 
the lack thereof) rather than the in-lieu fee concept itself. They 
suggested that instead of phasing out in-lieu fee programs, the final 
rule should include standards that address these problems and ensure 
that in-lieu fee programs do in fact deliver mitigation that 
compensates for the impacts associated with the credits they sell. 
Commenters noted that the NDAA does not require that these standards be 
exactly the same as those for mitigation banks but rather 
``equivalent'' to the maximum extent practicable. Some standards for 
in-lieu fee programs suggested by commenters included: Limiting the 
number of credits that in-lieu fee programs can sell before they have 
secured sites, limiting the types of organizations that can be in-lieu 
fee sponsors, and establishing financial accounting standards to 
improve their accountability for credit fulfillment. A number of 
commenters acknowledged that even with significant improvements to in-
lieu fee mitigation, mitigation banks would be more likely to minimize 
project uncertainties and temporal losses of aquatic resource 
functions. They suggested that the final rule should therefore 
stipulate that where the service areas of an in-lieu fee program and a 
mitigation bank overlap, the mitigation bank should be the preferred 
credit provider.
    Other commenters supported the phase-out of in-lieu fee programs as 
proposed. These commenters pointed out shortfalls associated with 
current administration of in-lieu fee programs noting, for example, 
that prices for in-lieu fee credits are often too low and fail to cover 
all of the costs necessary to deliver the promised mitigation, 
including expenses for program administration, long-term maintenance of 
projects, and corrective action. This may result in undercutting of 
mitigation bank credit prices, since banks, as commercial ventures, 
must charge prices based on the full cost of producing compensation 
credits or go out of business. Furthermore, in-lieu fee programs often 
require fees from multiple permitted projects before they can initiate 
compensation projects, resulting in substantial delays between 
permitted impacts and compensation. Several commenters further stated 
that it was not fair for in-lieu fee programs to be allowed to continue 
to operate with lower or looser standards than mitigation banks and 
permittee-responsible mitigation. Commenters also noted that because 
credit release schedules for mitigation banks are tied to performance, 
they have a financial incentive to produce timely, successful 
mitigation that is lacking for in-lieu fee programs.
    After carefully considering all comments received, the agencies 
have decided to retain in-lieu fee programs in today's rule as a 
separate and distinct mechanism for providing compensatory mitigation 
for DA permits. We believe they can fulfill an important role in 
providing effective mitigation in circumstances where mitigation banks 
and permittee-responsible mitigation are not practicable. At the same 
time, we have included a number of new requirements for in-lieu fee 
programs to improve accountability and

[[Page 19600]]

performance, based to a large extent on existing practice at the most 
successful currently-operating in-lieu programs. Specifically, we have 
added a requirement for a compensation planning framework at Sec.  
332.8(c) [Sec.  230.98(c)] which details how the in-lieu fee program 
will select and secure project sites and implement mitigation projects 
in a watershed context. The framework is essentially a watershed plan 
designed to support resource restoration, and must include an analysis 
of historic aquatic resource losses and current conditions, a 
description of the general amounts, types and locations of aquatic 
resources the program will seek to provide and a prioritization 
strategy for selecting and implementing compensatory mitigation 
activities. This type of advanced planning will ensure that in-lieu fee 
programs are guided by a thorough understanding of the needs, 
opportunities, and challenges of the areas in which they operate, which 
will allow them to select and design more successful projects and 
better estimate full project costs.
    The final rule also requires that the in-lieu fee program 
instrument establish a cap on the number of credits that the program 
can sell before securing a compensatory mitigation project site and 
conducting aquatic resource restoration, establishment, enhancement, 
and/or preservation at that site. These are defined as ``advance 
credits'' (see Sec.  332.2 [Sec.  230.92]) and the rules for their 
establishment and use are provided at Sec.  332.8(n) [Sec.  230.98(n)]. 
The rule also limits sponsorship of in-lieu fee programs specifically 
to governmental or non-profit natural resource management entities (see 
definition of ``in-lieu fee program'' at Sec.  332.2 [Sec.  230.92]). 
District engineers and Interagency Review Team (IRT) members should 
carefully evaluate the capabilities and demonstrated performance of 
these natural resource management entities prior to approving them as 
in-lieu fee program sponsors in order to minimize the risks associated 
with allowing advance credit sales.
    We have added a provision at Sec.  332.8(i) [Sec.  230.98(i)] 
requiring in-lieu fee programs to establish a program account, 
including criteria for the management of this account. Funds collected 
from permittees, including interest on these funds, may only be used 
for the selection, design, acquisition, implementation, and management 
of in-lieu fee projects, with a small percentage allowed for 
administrative costs.
    Provisions at Sec.  332.8(d)(6)(iv)(B)-(C) [Sec.  
230.98(d)(6)(iv)(B)-(C)] and Sec.  332.8(o)(5)(ii) [Sec.  
230.98(o)(5)(ii)] were included to improve the estimation of in-lieu 
fee project costs and the establishment of adequate fee schedules. 
Today's rule ensures that the review, approval, and oversight of in-
lieu fee programs is subject to the same level of interagency and 
public review as mitigation banks (see Sec.  332.8(d) [Sec.  
230.98(d)]). Similarly, today's rule requires in-lieu fee projects to 
develop mitigation plans that meet the same standards as those 
applicable to mitigation banks and permittee-responsible projects (see 
Sec.  332.8(j) [Sec.  230.98(j)]).
    Properly organized in-lieu fee programs which comply with the new 
requirements established by today's rule should actively support a 
watershed approach to compensatory mitigation, and will help advance 
goals for protecting and restoring aquatic resources within watersheds, 
especially in areas where there are no mitigation banks.
    We recognize that even with these improvements to in-lieu fee 
programs, there will likely be less temporal loss of resources 
associated with mitigation provided by banks than with mitigation 
provided by in-lieu fee programs. We have therefore established a 
hierarchy in Sec.  332.3(b) [Sec.  230.93(b)] for selecting the type 
and location of compensatory mitigation with an explicit preference for 
mitigation bank credits over advance credits from in-lieu fee programs 
when appropriate bank credits are available for use. Public input 
regarding in-lieu fee mitigation as well as all of these specific 
modifications and additions are discussed in more detail in parts III 
and VI of the preamble.

C. Other General Comments

    Some commenters stated that the proposed rule should be revised to 
incorporate principles of ecological restoration and landscape ecology. 
Other commenters said that the proposed rule fails to recognize the 
dynamic nature of wetlands and provides disincentives for active 
management of wetland resources in ways that would benefit society. A 
few commenters remarked that the proposed rule does not adequately 
address compensatory mitigation for marine habitats or aquatic species.
    We have revised the final rule to better incorporate principles of 
ecological restoration and landscape ecology, for example, at Sec.  
332.3(d) [Sec.  230.93(d)], which specifies detailed factors for the 
district engineer to use in determining ecological suitability for 
mitigation project sites. Section 404 directs the Corps to issue 
permits for discharges of dredge and fill material, not to promote 
``active management'' of wetlands. To the extent that active management 
may provide an alternative to permitted discharges, permit applicants 
should consider such approaches as part of the avoidance and 
minimization mitigation sequencing. Also, both permitted projects and 
compensatory mitigation projects may require on-going active management 
to protect resources, and conditions for such management may be 
incorporated into DA permits where appropriate. Finally, management of 
existing wetlands may itself involve discharges requiring DA permits, 
and in this case permit conditions will address issues related to the 
management and protection of affected resources, in accordance with 
applicable regulations, including this rule. We disagree that the rule 
does not adequately address marine habitats and species. While the 
specific projects needed to mitigate impacts to marine resources may be 
different, the procedural and analytical framework established in the 
final rule applies equally well to freshwater and marine resources.
    Several commenters said that the proposed rule did not address 
concerns raised in recent reports on compensatory mitigation in the 
Corps Regulatory Program that were issued by the Government 
Accountability Office (GAO). Some commenters said that the proposed 
rule incorporates some of GAO's recommendations, but expressed 
skepticism that the Corps has the resources to implement those 
provisions of this rule. These commenters asserted that the Corps needs 
to make compensatory mitigation compliance a high priority to ensure 
effective replacement of wetland acreage and function lost as a result 
of permitted activities.
    One GAO report was issued in May 2001, and was entitled ``Wetlands 
Protection: Assessments Needed to Determine Effectiveness of In-Lieu 
Fee Mitigation.'' Another GAO report, ``Wetlands Protection: Corps of 
Engineers Does Not Have an Effective Oversight Approach to Ensure That 
Compensatory Mitigation Is Occurring'' was issued in September 2005. We 
have incorporated many of the recommendations of these GAO reports into 
this rule, by requiring the use of enforceable permit conditions, 
performance standards, and third-party agreements. In addition, this 
rule states that it supersedes certain agency guidance on compensatory 
mitigation, specifically the 1995 mitigation banking guidance, the 2000 
in-lieu fee guidance, and Regulatory Guidance Letter (RGL)

[[Page 19601]]

02-02. That RGL provides guidance on compensatory mitigation projects 
for aquatic resources impacted by activities authorized by DA permits. 
This rule also clarifies the requirements for compensatory mitigation, 
as recommended by GAO. We agree that taking actions to determine 
compensatory mitigation compliance should be a high priority, and have 
provided general principles for establishing ecological performance 
standards and criteria. Corps districts and EPA regional offices will 
continue to work with other federal and state resource agencies to 
develop and refine specific performance standards and criteria to 
evaluate and ensure success of compensatory mitigation projects in 
their geographic areas of responsibility. These performance standards 
and criteria will take into account regional variations in aquatic 
resource characteristics, functions, and services.
    A number of commenters discussed ad hoc mitigation, which has been 
defined in various reports as cash donations made by a permittee to 
satisfy their mitigation requirements. The majority of commenters 
stated that ad hoc mitigation should not be approved unless it meets 
the requirements specified in the rule. One commenter said that ad hoc 
mitigation is often unsuccessful because there is no evaluation process 
and no oversight for the compensatory mitigation that is to be 
completed, and there is no way to track the compensatory mitigation 
that was to occur. One commenter proposed that ad hoc mitigation should 
be allowed on a one-time basis where a compensatory mitigation 
opportunity and need arise concurrently, but are not of such a scale as 
to justify going through the review process in Sec.  332.8 [Sec.  
230.98]. Two of these commenters discussed ad hoc mitigation 
arrangements and stated that the Corps needs to improve record-keeping 
for ad hoc mitigation activities.
    The May 2001 GAO report defines ad hoc mitigation as involving 
``mitigation payments from developers to third parties that are neither 
mitigation banks nor considered by the Corps to be in-lieu fee 
organizations.'' For the purposes of this rule, ad hoc mitigation is 
considered to be a form of permittee-responsible mitigation. For a 
mitigation bank or in-lieu fee program to be used to provide 
compensatory mitigation for DA permits, and to have the responsibility 
for providing the required compensatory mitigation transfer from the 
permittee to the mitigation bank sponsor or in-lieu fee sponsor, there 
must be a mitigation banking or in-lieu fee program instrument approved 
by the district engineer in accordance with the procedures in this 
final rule (see Sec.  332.8 [Sec.  230.98]). Any other compensatory 
mitigation arrangements are considered to be permittee-responsible 
mitigation where the permittee retains responsibility for providing the 
required compensatory mitigation, and this will be reflected in the 
terms of the DA permit. Permittee-responsible mitigation also includes 
any ad hoc payments made to governmental or non-governmental 
organizations that are not in accordance with the terms of an approved 
in-lieu fee program instrument. When a governmental or non-governmental 
organization accepts an ad hoc payment from a permittee, that 
organization is in essence acting as a contractor to provide the 
compensatory mitigation for that permittee, and the permittee retains 
responsibility for any long-term protection and/or management of the 
compensatory mitigation project.
    We also recognize the importance of record-keeping for compensatory 
mitigation projects, and have established procedures for using permit 
conditions, instruments, and ledgers to track the implementation and 
success of those projects. The Corps will also track permitted impacts 
and compensatory mitigation through databases, such as the OMBIL 
Regulatory Module (ORM-2), which is the primary automated information 
system for the Corps Regulatory Program, and the Regional Internet Bank 
Information Tracking System (RIBITS). All 38 Corps districts are now 
using ORM-2, which will help standardize data collection in the Corps 
Regulatory Program. It will also be used to collect data to assess the 
performance of the Regulatory Program. RIBITS is an automated 
information system with an interactive Web site. It is currently 
designed to track the status of mitigation banks and to provide up-to-
date information to mitigation bank sponsors and customers. We are also 
considering modifying RIBITS to track the status of in-lieu fee 
programs. Use of RIBITS is currently limited to several districts, but 
we are planning to make RIBITS the standard tool for tracking sale and 
production of compensatory mitigation credits by third parties.
    Several commenters expressed appreciation that the agencies 
incorporated many of the recommendations made in the 2001 NRC Report. A 
few commenters acknowledged that the proposed rule prioritized the 
location and types of compensatory mitigation projects in accordance 
with the NRC's recommendations. However, they said that they disagree 
with the NRC's recommendations and suggested that the agencies 
establish a preference for on-site and in-kind mitigation in the final 
rule. They said that a preference for on-site and in-kind compensation 
would better support a ``no net loss'' goal for aquatic resources.
    We disagree that the rule should establish a preference for on-site 
compensatory mitigation, because the failure rate for such projects is 
quite high. On-site compensatory mitigation activities, especially 
wetland restoration or establishment, are particularly sensitive to 
land use changes. Land use changes often alter local hydrology. 
Establishing appropriate hydrology patterns (i.e., duration and 
frequency) to support the desired aquatic habitat type is a key factor 
in successfully restoring or establishing those habitats. In many 
cases, there are circumstances in which on-site mitigation is neither 
practicable nor environmentally preferable. Under the watershed 
approach, it may be desirable to require some on-site mitigation 
measures to address water quality and quantify functions, and to 
require off-site mitigation to compensate for habitat functions.
    We do agree that, in general, in-kind mitigation is preferable to 
out-of-kind mitigation because it is more likely to compensate for the 
functions and services lost at the impact site. The rule states that 
the compensatory mitigation should be of a similar type (e.g., Cowardin 
and/or hydrogeomorphic class) to the affected aquatic resource, unless 
the district engineer determines using the watershed approach described 
in the rule (see Sec.  332.3(c) [Sec.  230.93(c)]) that out-of-kind 
compensatory mitigation will better serve the aquatic resource needs of 
the watershed. The term ``in-kind'' in Sec.  332.2 [Sec.  230.92] is 
defined to include similarity in structural and functional type; 
therefore, the focus of the in-kind preference is on classes of aquatic 
resources (e.g., forested wetlands, perennial streams). However, all 
compensatory mitigation projects should provide a high level of 
functional capacity, even when compensating for degraded or low-quality 
resources. Replacement ratios may be used to adjust for the relative 
quality of impact sites and mitigation projects, where appropriate. 
With this rule, we are moving towards greater reliance on functional 
and condition assessments to quantify credits and debits, instead of 
surrogates such as acres and linear feet. We believe that more frequent 
use of such assessment methods will help improve the quality of aquatic 
resources in the United States.

[[Page 19602]]

    For example, in a case where a project proponent is proposing to 
fill a degraded three acre wetland that provides one unit of wetland 
function per acre (as determined by a rigorous functional assessment 
method), the loss of that wetland may in some cases be offset by a 
compensatory mitigation project that provides fewer acres of high-
functioning wetlands (as determined by the same functional assessment 
method). Conversely, where the impact is to a high-value resource, more 
than one-to-one replacement on an acreage basis may be necessary just 
to achieve functional equivalence between the impact and mitigation 
sites. Note that replacement ratios may also be greater than one-to-one 
for other reasons, such as to address uncertainty of success or 
temporal losses.
    One commenter said that the Corps should be the principal agency 
administering the 404 wetlands regulatory program. The commenter stated 
that the involvement of multiple agencies in wetlands regulation only 
hinders the overall efforts of the Corps Regulatory Program. This 
commenter also stated that the Corps should build a stronger, more 
predictable compensatory mitigation program to both enhance 
environmental protection and provide a measure of certainty to both 
regulatory staff and permit applicants.
    While we agree that the section 404 regulatory program should be as 
streamlined and efficient as possible, we do not agree that the 
involvement of other agencies necessarily hinders that efficiency. 
Today's rule will foster greater efficiency and predictability in the 
interagency process by providing clear deadlines for action on all 
types of compensatory mitigation, particularly banking and in-lieu fee 
program instruments. We note that the participation of other agencies 
in the section 404 permit process is required