

[Federal Register: March 28, 2006 (Volume 71, Number 59)]
[Proposed Rules]               
[Page 15519-15556]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28mr06-16]                         


[[Page 15519]]

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Part II





Department of Defense





Department of the Army, Corps of Engineers



33 CFR Parts 325 and 332



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Environmental Protection Agency

40 CFR Part 230



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Compensatory Mitigation for Losses of Aquatic Resources; Proposed Rule


[[Page 15520]]


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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]
RIN 0710-AA55

 
Compensatory Mitigation for Losses of Aquatic Resources

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

ACTION: Proposed rule.

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SUMMARY: The U.S. Army Corps of Engineers (the Corps) and the 
Environmental Protection Agency (EPA) are proposing to revise 
regulations governing compensatory mitigation for activities authorized 
by permits issued by the Department of the Army. The proposed 
regulations are intended to establish performance standards and 
criteria for the use of permittee-responsible compensatory mitigation 
and mitigation banks, and to improve the quality and success of 
compensatory mitigation projects for activities authorized by 
Department of the Army permits. The proposed regulations are also 
intended to account for regional variations in aquatic resource types, 
functions, and values, and apply equivalent standards to each type of 
compensatory mitigation to the maximum extent practicable. The proposed 
rule includes a watershed approach to improve the quality and success 
of compensatory mitigation projects in replacing losses of aquatic 
resource functions, services, and values resulting from activities 
authorized by Department of the Army permits. We are proposing to 
require in-lieu fee programs, after a five-year transition period, to 
meet the same standards as mitigation banks.

DATES: Submit comments on or before May 30, 2006.

ADDRESSES: You may submit comments, identified by docket number EPA-HQ-
OW-2006-0020 and/or RIN 0710-AA55, by any of the following methods:
     Federal eRulemaking Portal (recommended method of comment 
submission): http://www.regulations.gov. Follow the on-line 

instructions for submitting comments.
     E-mail: ow-docket@epamail.epa.gov. Include the docket 
number, EPA-HQ-OW-2006-0020, and/or the RIN number, 0710-AA55, in the 
subject line of the message.
     Mail: USEPA Docket Center, Attention Docket Number EPA-HQ-
OW-2006-0020, 1200 Pennsylvania Ave., NW., Washington, DC 20460.
     Hand Delivery: USEPA Docket Center, Room B102, EPA West, 
Attention Docket Number EPA-HQ-OW-2006-0020, 1301 Constitution Ave., 
NW., Washington, DC 20460. Such deliveries are only accepted during the 
Docket's normal hours of operation, and special arrangements should be 
made for deliveries of boxed information.
    Instructions: Direct your comments to docket number EPA-HQ-OW-2006-
0020 and/or RIN 0710-AA55. All comments received will be included in 
the public docket without change and may be made available on-line at 
http://www.regulations.gov, including any personal information 

provided, unless the commenter indicates that the comment includes 
information claimed to be Confidential Business Information (CBI) or 
other information whose disclosure is restricted by statute. Do not 
submit information that you consider to be CBI, or otherwise protected, 
through http://www.regulations.gov or e-mail. The www.regulations.gov Web site 

is an anonymous access system, which means we will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail directly to EPA without going 
through http://www.regulations.gov, your e-mail address will be automatically 

captured and included as part of the comment that is placed in the 
public docket and made available on the Internet. If you submit an 
electronic comment, we recommend that you include your name and other 
contact information in the body of your comment and with any disk or 
CD-ROM you submit. If we cannot read your comment because of technical 
difficulties and cannot contact you for clarification, we may not be 
able to consider your comment. Electronic comments should avoid the use 
of any special characters, any form of encryption, and be free of any 
defects or viruses. For additional information about EPA's public 
docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm
.

    Docket: For access to the docket to read background documents or 
comments received, go to http://www.regulations.gov. All documents in the 

docket are listed. Although listed in the index, some information is 
not publicly available, such as 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 in http://www.regulations.gov or 

in hard copy at the Water Docket, EPA/DC, EPA West, Room B102, 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.
    Consideration will be given to all comments received within 60 days 
of the date of publication of this notice.

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-
8323 or by e-mail at mitigationrule@epa.gov. Information can also be 
found at the EPA compensatory mitigation webpage at: http://www.epa.gov/wetlandsmitigation
.


SUPPLEMENTARY INFORMATION:

I. Background

    Section 314 of the National Defense Authorization Act for Fiscal 
Year 2004 (Pub. L. 108-136) 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), 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.''
    The statute states that the regulation should address wetlands 
compensatory mitigation. However, we believe that this regulation 
should apply to compensatory mitigation for all types of aquatic 
resources that can be impacted by activities authorized by Department 
of the Army permits, including streams and other open waters. We also 
believe that this regulation should apply to compensatory mitigation 
required for activities in navigable waters of the United States that 
are subject to regulatory jurisdiction under Sections 9 and 10 of the 
Rivers and Harbors Act of 1899. We believe this approach does not 
conflict with the intent of the statute, and will provide the regulated 
public with clear national standards and requirements for all aquatic 
resource compensatory mitigation required by Department of the Army 
permits, while

[[Page 15521]]

allowing district engineers flexibility to address permit-specific 
situations. We also believe this approach will enhance regulatory 
efficiency and improve protection of the aquatic environment.
    The statute states that the regulation should be developed by the 
Department of the Army, with the provision that the standards and 
criteria developed be consistent with Section 404 of the Clean Water 
Act. We believe that the goals of the Clean Water Act and the Defense 
Authorization Act will be more effectively met if this proposed rule is 
issued jointly by the Corps and EPA. A jointly-issued proposed rule 
reflects the important roles played by both agencies in the Section 404 
program, in which the permit program is administered by the Corps, 
while the responsibility for developing the regulations providing the 
environmental criteria for permit issuance is given to EPA. Since the 
proposed rule is in part a clarification of EPA regulations concerning 
Section 404 mitigation, a joint rule helps to ensure maximum 
consistency in the implementation of the section 404 regulatory 
program. Furthermore, CWA Section 501(a) authorizes EPA to conduct any 
rulemaking necessary to carry out EPA's functions under the Clean Water 
Act.
    Joint issuance also provides basic regulatory consistency. 
Environmental criteria for the selection of disposal sites for 
discharges of dredged or fill material are set by EPA regulations at 40 
CFR part 230, and referenced by Corps regulations at 33 CFR part 320. 
Since the proposed rule is in part a clarification of EPA's regulations 
at 40 CFR part 230, EPA must add the proposed rule text to its existing 
regulations in order to maintain consistency between the two linked 
Parts of the CFR. Making the two agencies' additions concurrent will 
avoid any confusion on the part of the regulated community and the 
public. Moreover, the history of a joint EPA/Corps relationship on 
mitigation issues is long. All national guidance on compensatory 
mitigation has been developed and issued jointly by the Corps and EPA, 
including Regulatory Guidance Letter 02-02 (issued on December 24, 
2002); the ``Federal Guidance for the Establishment, Use, and Operation 
of Mitigation Banks'' (as published in the November 27, 1995, issue of 
the Federal Register, 60 FR 58605); the ``Federal Guidance on the Use 
of In-Lieu Fee Arrangements for Compensatory Mitigation Under Section 
404 of the Clean Water Act and Section 10 of the Rivers and Harbors 
Act'' (as published in the November 7, 2000, issue of the Federal 
Register, 65 FR 66914); and the ``Memorandum of Agreement Between the 
Environmental Protection Agency and the Department of the Army 
Concerning the Determination of Mitigation Under the Clean Water Act 
Section 404(b)(1) Guidelines'' (issued on February 6, 1990).
    We also believe the proposed rule establishes, to an extent that is 
feasible and practical, equivalent standards for all forms of 
compensatory mitigation, given the basic differences between the 
current mechanisms for providing compensatory mitigation (i.e., 
permittee-responsible mitigation, mitigation banks, and in-lieu fee 
programs). In many cases, it is not practical to impose all the same 
requirements on permittee-responsible mitigation projects as on 
mitigation banks, so some differences in the requirements for these 
types of mitigation remain. However, we are proposing to require in-
lieu fee program sponsors to modify their programs within five years to 
comply with the same standards and requirements as mitigation banks, to 
provide greater assurances that compensatory mitigation projects 
undertaken by in-lieu fee programs will successfully replace lost 
aquatic resource functions and services. We are also seeking comment on 
alternative approaches that would retain in-lieu fee programs as a 
separate category of mitigation with somewhat different requirements. 
These alternatives are explained in further detail in Section VI of 
this preamble.
    By establishing, to the maximum extent practicable, equivalent 
standards for all forms of compensatory mitigation, we believe success 
rates of compensatory mitigation projects will improve, and 
entrepreneurs and others will be encouraged to develop mitigation 
banks. Improving the processes applicable to the development and 
approval of mitigation banks is expected to result in more mitigation 
banking proposals, which would provide more compensatory mitigation in 
advance of authorized impacts to waters of the United States.
    The proposed rule does not apply to compensatory mitigation that 
may be required for impacts other than to aquatic resources resulting 
from activities authorized by DA permits, such as impacts to historic 
properties. Under appropriate circumstances, a DA permit may require 
compensatory mitigation measures to ensure compliance with the 
Endangered Species Act or the National Historic Preservation Act, or to 
address some other public interest requirement. Those compensatory 
mitigation requirements are addressed through other regulations and 
authorities.
    During the development of the proposed rule, we considered the 
following compensatory mitigation guidance documents and lessons 
learned from their implementation: Regulatory Guidance Letter 02-02 
(issued on December 24, 2002); the ``Federal Guidance for the 
Establishment, Use, and Operation of Mitigation Banks'' (as published 
in the November 27, 1995, issue of the Federal Register, 60 FR 58605); 
the ``Federal Guidance on the Use of In-Lieu Fee Arrangements for 
Compensatory Mitigation Under Section 404 of the Clean Water Act and 
Section 10 of the Rivers and Harbors Act'' (as published in the 
November 7, 2000, issue of the Federal Register, 65 FR 66914); and the 
``Memorandum of Agreement Between the Environmental Protection Agency 
and the Department of the Army Concerning the Determination of 
Mitigation Under the Clean Water Act Section 404(b)(1) Guidelines'' 
(issued on February 6, 1990).
    In preparing the proposed rule, we considered the findings and 
recommendations in the National Research Council's report issued in 
2001 entitled ``Compensating for Wetland Losses Under the Clean Water 
Act'' (NRC Report). We also contemplated other studies and documents 
cited in the draft Environmental Assessment/Regulatory Analysis that 
was prepared by the Corps for this proposed rule. The Environmental 
Assessment/Regulatory Analysis is available at the Corps Headquarters 
Regulatory Home page at: http://www.usace.army.mil/inet/functions/cw/cecwo/reg/citizen.htm.
 Hard copies of this document can be obtained by 

contacting Corps Headquarters at the phone number provided in the FOR 
FURTHER INFORMATION CONTACT section, above.
    The proposed rule incorporates many of the recommendations 
suggested in the NRC Report to improve the ecological success and 
sustainability of wetland compensatory mitigation projects. Through the 
standards and requirements in this proposed rule, we intend to improve 
the quality and success of aquatic resource restoration, establishment, 
enhancement, and preservation activities used to provide compensatory 
mitigation for DA permits, and to help maintain and improve the aquatic 
environment within watersheds.
    In the NRC Report, the committee concluded that a watershed 
approach would improve permit decision making, and stated that wetland 
functions must

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be understood from a watershed perspective to fulfill the objectives of 
the Clean Water Act. The committee noted that an automatic preference 
for in-kind and on-site compensatory mitigation is inconsistent with a 
watershed approach since there are circumstances in which on-site or 
in-kind mitigation is neither practicable nor environmentally 
preferable. In addition, the committee suggested using an analytical 
process for assessing wetland needs within a watershed and the 
potential for compensatory mitigation projects to persist over time.
    In the proposed rule, we revise compensatory mitigation policies 
and procedures to conform with current principles of ecological 
restoration and landscape ecology. The proposed rule also aims to 
reduce regulatory burdens on mitigation bank sponsors by making the 
mitigation bank approval process more efficient through changes in the 
review and approval process.
    The proposed rule also complements the Corps' and EPA's ongoing 
efforts to implement the National Wetlands Mitigation Action Plan 
(NWMAP). In response to the NRC report and other independent critiques 
of the effectiveness of compensatory mitigation for authorized losses 
of wetlands and other aquatic resources under Section 404 of the Clean 
Water Act, the Corps, EPA, and the Departments of Agriculture, 
Commerce, Interior, and Transportation released the NWMAP on December 
26, 2002. The NWMAP includes 17 tasks designed to improve the 
ecological performance and results of compensatory mitigation. Thus 
far, eight of the tasks called for in the NWMAP have been completed and 
work continues on efforts to improve wetland impact and mitigation data 
collection and tracking. However, work on the remaining guidance 
documents called for in the NWMAP awaits finalization of this proposed 
rule.
    The proposed rule is consistent with Executive Order 13352, 
Facilitation of Cooperative Conservation. The proposed rule includes 
collaborative approaches to decision-making for compensatory mitigation 
required by DA permits consistent with the definition of cooperative 
conservation in the Order. The provisions of the rule will ensure that 
determinations regarding compensatory mitigation requirements take into 
account the interests of landowners and other legally recognized 
interests in land and other natural resources, and accommodate agency 
and local participation in federal decision-making.

II. General Principles in the Proposed Rule

    For the purposes of the Corps Regulatory Program, compensatory 
mitigation is used to replace aquatic resource functions, services, and 
values that are lost to permitted impacts. Compensatory mitigation for 
losses of aquatic resources can help sustain or improve watershed 
functioning, and support the objective of the Clean Water Act, which is 
to ``restore and maintain the chemical, physical, and biological 
integrity of the Nation's waters'' (33 U.S.C. 1251(a)). One intent of 
the proposed rule is to improve the quality of compensatory mitigation 
for DA permits, to satisfy the objective of the Clean Water Act by 
improving the performance of compensatory mitigation projects in 
replacing aquatic resource functions, services, and values. Another 
intent of the proposed rule is to improve regulatory efficiency, 
especially for the review, approval, and implementation of mitigation 
banks. Finally, the proposed rule fulfills the mandate to ensure 
opportunities for federal agency participation in mitigation banking.
    In addition to supporting the objective of the Clean Water Act, the 
proposed rule will support the ``no overall net loss'' goal for wetland 
acreage and functions, through appropriate site selection for wetlands 
compensatory mitigation projects. Locating compensatory mitigation 
projects where they will provide the desired habitat type and functions 
to appropriately offset impacts will support the ``no overall net 
loss'' goal for wetland acreage and function.
    The proposed rule does not alter Corps regulations which address 
the general mitigation requirements for DA permits. In particular, it 
does not alter the circumstances under which compensatory mitigation is 
required. Also, the proposed rule does not alter Corps or EPA 
enforcement authorities for the section 404 program, as specified in 
sections 301(a), 308, 309, 404(n), and 404(s) of the Clean Water Act.
    Site selection is a critical planning step for compensatory 
mitigation projects, and the watershed approach in the proposed rule is 
intended to focus on choosing appropriate locations for compensatory 
mitigation activities. Restoring or establishing a specific aquatic 
habitat type, such as a wetland, requires careful site selection for 
two primary reasons. First, development activities may alter the 
interaction between hydrology, soils, and organisms within a landscape, 
affecting the type of habitat that can be supported by the project 
site. For example, forested wetlands require narrow hydrologic regimes 
because many tree species cannot tolerate long periods of inundation. 
Development activities may change local hydrology, resulting in new 
patterns of inundation and saturation that cannot support forested 
wetlands. Therefore, it is important to find a compensatory mitigation 
project site that will support the appropriate hydrology for the 
desired type of wetland habitat. Second, even if the desired habitat 
type can be restored or established at that site, surrounding 
development may result in an isolated or fragmented habitat that is 
less capable of supporting viable populations of species of import. 
Motile species require corridors to move between different habitats in 
the landscape, and if the surrounding area is occupied by roads and 
buildings, the ability of many species to move between habitats and 
interact with each other is restricted. Therefore, compensatory 
mitigation projects, especially those that are intended to replace 
wetland habitat, need to be planned within larger landscape contexts, 
such as watersheds. In its report on wetland compensatory mitigation, 
the NRC stated that ``[l]andscape position, hydrologic variability, 
species richness, biological dynamics, and hydrologic regime are all 
important factors that affect wetland restoration.''
    For activities authorized by DA permits in coastal and urban areas, 
compensatory mitigation required by district engineers will be located 
in areas where it is appropriate and practicable to conduct aquatic 
resource restoration, establishment, and enhancement activities. It is 
important that coastal and other urban areas do not become devoid of 
aquatic resources simply because it is more difficult to successfully 
restore or establish aquatic habitat in developing areas. In some 
cases, however, preservation may be the most appropriate form of 
compensatory mitigation in coastal and urban areas. In addition to 
providing important ecological functions, wetlands and other aquatic 
resources also perform important services, such as wildlife viewing and 
education, that can only be accomplished when people have opportunities 
to interact with those aquatic resources. The functions and services 
that aquatic resources perform in turn provide the basis for the values 
that society derives from them. These include use values, such as 
recreation, and non-use values such as biodiversity and stewardship for 
future generations. Aquatic resource functions, services, and values 
should be considered when

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evaluating sites in developed areas as options for providing 
compensatory mitigation. Mitigation projects for impacts authorized by 
DA permits should compensate for lost functions and services. While 
values are also considered as part of the public interest review, it is 
not always possible to fully compensate for lost values, as these are 
often dependent on proximity to population centers. Replacing aquatic 
resources at more remote locations may enhance some values (e.g., 
preservation of species) while decreasing others (e.g., recreational 
enjoyment).
    Within a watershed context, it may be more appropriate to replace 
certain aquatic resource functions on-site, whereas it may be more 
appropriate to replace other functions off-site. For example, it may be 
environmentally preferable, to replace hydrologic and water quality 
functions at the impact site with a mitigation project that performs 
these functions, and to replace habitat functions at an off-site 
location, such as a mitigation bank or a compensatory mitigation 
project site near a park or nature reserve.
    Through the watershed approach in the proposed rule, we intend to 
improve environmental outcomes of compensatory mitigation required for 
DA permits, including the effectiveness of compensatory mitigation in 
replacing impacted aquatic resource functions. The watershed approach 
uses a landscape perspective that places primary emphasis on site 
selection, through consideration of landscape attributes that will help 
provide the desired aquatic resource types and ensure they are self-
sustaining. The watershed approach also considers how other landscape 
elements (e.g., other natural resources and developments) interact with 
compensatory mitigation project sites and affect the functions they are 
intended to provide.
    In the proposed rule, the district engineer determines whether the 
compensatory mitigation option or proposal submitted by the permit 
applicant is adequate to offset unavoidable impacts, based on what is 
practicable and what will appropriately compensate for the aquatic 
resource functions and services that will be impacted as a result of 
the permitted activity. In pre-application consultation, the Corps may 
also provide information on existing watershed plans or watershed 
needs.
    The proposed rule also establishes that the district engineer makes 
decisions regarding the approval of mitigation banking instruments, 
after coordinating a review of the prospectus for the proposed 
mitigation bank and the draft mitigation banking instrument with an 
Interagency Review Team (IRT). We are proposing to establish clearly 
defined time frames for this review and a dispute resolution process 
whereby members of the IRT can expeditiously elevate issues associated 
with proposed mitigation banks for higher level review where necessary.

III. Watershed Approach

    In the NRC Report, the committee recommended that the Corps adopt a 
watershed-based approach to compensatory mitigation. The committee 
stated that the ecological functions of a restored or established 
wetland are dependent on its design and its setting or context within a 
watershed. The committee also said that the types and locations of 
wetlands in the landscape are important for providing desired 
functions.
    Ideally, the watershed approach is based on a formal watershed 
plan, developed by Federal, state, and/or local environmental managers 
in consultation with affected stakeholders. Currently, there are many 
areas where no watershed plan exists. The Corps and EPA are committed 
to working with our counterparts at other levels of government to 
develop watershed plans, especially for areas facing significant 
development pressure. In the meantime, the watershed approach described 
in the NRC Report does not require a formal watershed plan. Instead, 
the watershed approach may be based on a structured consideration of 
watershed needs and how wetland types in specific locations can fulfill 
those needs.
    The use of a watershed approach is based on analysis of information 
regarding watershed conditions and needs. Where an applicable watershed 
plan exists, such information will generally already have been 
considered in the development of the plan. Where no such plan exists, 
project sponsors may propose compensatory mitigation based on the 
watershed approach using appropriate information from other sources. 
Such information includes: Current trends in habitat loss or 
conversion, cumulative impacts of past development activities, current 
development trends, the presence and needs of sensitive species, site 
conditions that favor or hinder the success of mitigation projects, 
chronic environmental problems such as flooding or poor water quality, 
and local watershed goals and priorities. Project sponsors should make 
a reasonable effort, commensurate with the scope and scale of the 
project and impacts, to obtain as much of this information as possible 
as they design the compensatory mitigation projects. Project sponsors 
may consult with the Corps to see if such information has been 
developed in the past in association with other projects in the 
watershed. For smaller projects requiring DA authorization, all of the 
types of information listed above may not be available, but that 
information should generally be available (or developed) for larger 
projects.
    The agencies request comment on whether the rule should specify 
minimal information requirements for use of the watershed approach. 
Commenters should bear in mind that specifying minimum information 
requirements will likely limit the areas where a watershed approach can 
be used, at least in the medium term, as much of the above information 
is currently not available for many areas. This problem was recognized 
by the NRC, which recommended that in such situations watershed based 
decision-making should rely on the scientific expertise of wetlands 
program staff (i.e., Corps permit writers and other Federal agency 
review staff) and broad-based stakeholder participation. As discussed 
below, the proposed rule includes a requirement that information on how 
a prospective permittee plans to address avoidance, minimization, and 
compensatory mitigation requirements be included in the permit 
application and published by the Corps in the public notice for the 
permit application. This requirement is intended to promote the kind of 
broad-based stakeholder involvement in watershed based mitigation 
decisions envisioned by the NRC Report.
    A watershed approach to compensatory mitigation involves a regional 
or landscape perspective, and should involve consideration of Federal, 
Tribal, state, community, and private interests, including the 
requirements of other programs and objectives, such as habitat 
conservation, storm water management, flood control, pollution 
prevention, and economic development when determining compensatory 
mitigation requirements for DA permits.
    The agencies note that the term ``watershed approach'' is now used 
by a variety of Federal, State, and local agencies, as well as by 
private parties, but a consensus definition of this term has not yet 
emerged. The watershed approach presented in this proposed rule is a 
framework being proposed for use in determining compensatory mitigation 
requirements for DA permits. The watershed approach described in the 
proposed rule does not supersede or replace other uses of the term 
``watershed approach'' in natural

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resource management programs conducted by other government agencies. We 
are soliciting comments on whether, and if so, how, the watershed 
approach in the proposed rule differs from the watershed approaches 
used in other natural resource management programs, and how any such 
differences may affect implementation of the watershed approach for 
determining compensatory mitigation requirements for DA permits.
    The watershed approach in the proposed rule will be implemented by 
district engineers with available information to determine the types 
and locations of compensatory mitigation activities that would best 
serve the watershed. Available information used by district engineers 
includes current trends in habitat loss or conversion, cumulative 
impacts of past development activities, current development trends, the 
presence and needs of sensitive species, site conditions that favor or 
hinder the success of mitigation projects, chronic environmental 
problems such as flooding or poor water quality, local watershed goals 
and priorities, assessments of watershed conditions, best professional 
judgment, and site conditions, as well as other relevant data.
    The watershed approach in the proposed rule will help support the 
objective of Clean Water Act, and is intended to result in more 
effective replacement of aquatic resource functions impacted by 
activities authorized by DA permits. The level of detail used in the 
watershed approach for a specific activity is dependent on the 
availability of information and on the scope and scale of that 
activity.

IV. Organization of the Proposed Rule

    The proposed compensatory mitigation regulation in 33 CFR part 332 
[40 CFR part 230], is organized into the following sections:
    Section 332.1 [230.91], Purpose and general considerations, 
describes the basic purpose of the proposed rule and general principles 
concerning compensatory mitigation.
    Section 332.2 [230.92], Definitions, provides definitions of 
important terms relating to compensatory mitigation and the Corps 
Regulatory Program.
    Section 332.3 [230.93], General compensatory mitigation 
requirements, describes general compensatory mitigation requirements 
for DA permits, including permit conditions and financial assurances. 
This section also describes the watershed approach to compensatory 
mitigation.
    Section 332.4 [230.94], Planning and documentation, describes the 
review of proposed compensatory mitigation activities, as well as 
requirements for mitigation plans.
    Section 332.5 [230.95], Ecological performance standards, describes 
principles for establishing ecological performance standards for 
compensatory mitigation projects.
    Section 332.6 [230.96], Monitoring, describes general requirements 
for monitoring compensatory mitigation projects.
    Section 332.7 [230.97], Management, describes general requirements 
for site protection, sustainability, adaptive management, and long-term 
management of compensatory mitigation projects.
    Section 332.8 [230.98], Mitigation banks, provides requirements and 
standards that are applicable to mitigation banks.
    Section 332.9 [230.99], In-lieu fee programs, establishes deadlines 
for existing in-lieu fee programs to modify their current agreements to 
comply with the requirements of this rule.
    It is important to note that Sec. Sec.  332.1 to 332.7 apply to all 
new compensatory mitigation projects, including mitigation banks, while 
Sec. Sec.  332.8 and 332.9 contain special provisions for new 
mitigation banks and existing in-lieu fee programs, respectively. 
Existing mitigation banks may continue operating under the terms of 
their approved instruments, but any modifications to such instruments, 
including the addition of new sites for umbrella instruments, would be 
subject to the requirements in this rule. New in-lieu-fee programs 
would not be approved once the rule goes into effect. Existing in-lieu-
fee programs may continue to operate under the terms of their approved 
instrument for up to five years after the effective date of the rule.

V. Discussion of Specific Sections of the Proposed Rule

    The proposed rule is presented in two parallel sections: changes to 
Corps regulation in 33 CFR and changes to EPA regulation in 40 CFR. The 
two sections are almost entirely the same, with minor exceptions. These 
include: (1) Corps changes to permit application requirements at 33 CFR 
325.1; (2) Conforming changes to EPA's existing mitigation regulations 
at 40 CFR part 230, making appropriate citations for the addition of 
new Sec. Sec.  230.91 through 230.99; and (3) References to the Rivers 
and Harbors Act of 1899, in which the EPA does not have a regulatory 
role, have been omitted from the text in part 230.

33 CFR 325.1 Application for Permits

    Since Sec.  332.4(b)(1) of the proposed rule requires applicants 
for standard section 404 permits to submit a statement explaining how 
impacts to waters of the United States are to be avoided, minimized, 
and compensated, we are also proposing to modify Sec.  325.1(d) by 
adding a new paragraph (paragraph (d)(7)). This new paragraph would 
further clarify the information required for a complete standard permit 
application for activities that involve discharges of dredged or fill 
material into waters of the United States, so that we can describe the 
proposed avoidance, minimization, and compensation in the public 
notice. The remaining paragraphs in this section would be renumbered, 
but the text of those paragraphs would remain the same.

40 CFR 230.12 Findings of Compliance or Non-Compliance With the 
Restrictions on Discharge

    Section 230.12(a)(2) specifies that permits may only be issued if 
certain conditions are met that avoid, minimize, and compensate for 
impacts to aquatic resources. The proposed change would indicate that 
requirements for compensation for impacts can be found in Subpart J as 
well as Subpart H.

40 CFR Part 230 Subpart H--Actions To Minimize Adverse Effects

    We propose to add a sentence to the introductory ``Note'' of 
Subpart H indicating that Subpart J also contains requirements 
regarding compensating for impacts to aquatic resources. At Sec.  
230.75(d), we propose to add a similar reference to Subpart J following 
the second sentence of the paragraph.
    Other than the inclusion of the citations described above noting 
the addition of Subpart J, we are not seeking comment on the existing 
text or provisions in Subparts B or H.

33 CFR 332.1 and 40 CFR 230.91 Purpose and General Considerations

    The proposed rule will not alter the circumstances under which the 
district engineers require compensatory mitigation. In other words, the 
threshold for determining when compensatory mitigation is required for 
a particular activity that needs a DA permit is unchanged by the 
proposed rule. For example, district engineers will continue to use the 
criteria at 33 CFR 320.4(r) and 33 CFR 330.1(e)(3) to determine when 
compensatory mitigation should be required. The proposed rule will not 
increase compensatory mitigation requirements, but it focuses instead 
on where and how

[[Page 15525]]

compensatory mitigation will be provided.
    The proposed rule also does not affect regulatory jurisdiction 
under Section 404 of the Clean Water Act or Sections 9 and 10 of the 
Rivers and Harbors Act of 1899. However, areas not subject to 
regulatory jurisdiction under these statutes may be used as 
compensatory mitigation, if the creation, restoration, enhancement, or 
preservation of aquatic resources in those areas will compensate for 
ecosystem functions lost at the impact site.

33 CFR 332.2 and 40 CFR 230.92 Definitions

    The definitions provided in this section of the draft rule are 
intended to provide clarity to the regulated public, and promote 
consistency in the implementation of this rule. The definitions were 
adapted from several sources, including the Federal guidance documents 
listed in the ``Background'' section in this preamble.
    We are proposing a definition of the term ``adaptive management'' 
as follows. Adaptive management means the development of a management 
strategy that anticipates the challenges associated with likely future 
impacts to the aquatic resource functions of the mitigation site. It 
acknowledges the risk and uncertainty of compensatory mitigation 
projects and allows modification of those projects to optimize 
performance. The process will provide guidance on the selection of 
appropriate remedial measures that will ensure the continued adequate 
provision of aquatic resource function and involves analysis of 
monitoring results to identify potential problems of a compensatory 
project and identification of measures to rectify those problems.
    In the September 2003 report of the National Environmental Policy 
Act (NEPA) Task Force, which is entitled ``Modernizing NEPA 
Implementation,'' the NEPA Task Force recommended that the NEPA 
workgroup consider establishing a definition of adaptive management 
that would be promulgated in the NEPA regulations at 40 CFR part 1508. 
If a definition of ``adaptive management'' is promulgated by the 
Council on Environmental Quality (CEQ), we will evaluate our proposed 
definition of this term to determine if any changes are necessary to 
conform with CEQ's final definition. If such changes are necessary, we 
will propose those changes in a future Federal Register notice.
    In the proposed definitions of ``on-site,'' we are proposing to add 
the phrase ``or near'' after the phrase ``parcel of land contiguous 
to'' to include lands near the impact site as ``on-site'' lands. We are 
also proposing a corresponding change to the definition of ``off-site'' 
so that these definitions are parallel to each other.
    We are also proposing definitions of the terms ``functions'', 
``services'', and ``values.'' All three of these terms have been used 
by various documents in the past to describe the attributes of aquatic 
resources that are being replaced through compensatory mitigation. The 
agencies believe it is important to articulate the differences among 
these terms and the appropriate role of each within the Section 404 
Program.
    We are proposing the following definition of ``functions.'' 
Functions means the physical, chemical, and biological processes that 
occur in aquatic resources and other ecosystems. The primary purpose of 
compensatory mitigation is to replace lost aquatic resource functions 
at the impact site. The agencies have a long standing policy of 
achieving no overall net loss for wetland acreage and functions. 
Services means the benefits that human populations receive from 
functions that occur in aquatic resources and other ecosystems. For 
example, providing habitat for birds is a biological function of some 
aquatic habitat types, which in turn provides bird watching services to 
humans. In general, compensatory mitigation projects, in replacing lost 
functions at the impact site, should also replace the lost services 
associated with these functions.
    Values means the utility or satisfaction that humans derive from 
aquatic resource services. Values can be described in monetary terms or 
in qualitative terms, although many of the values associated with 
aquatic resources cannot be easily monetized. Values can be either use 
values (e.g., recreational enjoyment) or non-use values (e.g., 
stewardship ethic). Values are considered by the District Engineer as 
part of the public interest review of a proposed project. However, the 
values associated with compensatory mitigation projects may not fully 
mirror those lost at the impact site. For example, replacing a resource 
in a more remote area may reduce use values (because the area is less 
accessible) while enhancing non-use values (because people may value 
resources on stewardship grounds more when they are in more pristine 
areas). We are seeking comment on the definitions in this proposed 
rule, including the proposed definitions of ``on-site'', ``off-site'', 
``functions'', ``services'' and ``values.''

33 CFR 332.3 and 40 CFR 230.93 General Compensatory Mitigation 
Requirements

    This section of the proposed rule establishes criteria for 
determining the location and type of compensatory mitigation and 
describes the watershed approach to compensatory mitigation for losses 
of aquatic resources. When project impacts are located in the service 
area of an approved mitigation bank, and the mitigation bank has 
credits available for the type of resource impacted, the project's 
mitigation requirements may be met by the purchase of an appropriate 
number of credits from the mitigation bank. The use of a watershed plan 
is the most preferable option when evaluating permittee-responsible 
compensatory mitigation proposals and draft mitigation banking 
instruments. If a watershed plan is not available, the watershed 
approach described in Sec.  332.3(c) should be used. If it is not 
practicable to use a watershed approach, then the district engineer 
will consider the practicability of on-site compensatory mitigation, as 
well as the compatibility of on-site mitigation with the proposed 
project. The watershed approach will identify resource types and 
locations for compensatory mitigation projects within the watershed. It 
is important to understand that a watershed approach may include on-
site compensatory mitigation, off-site compensatory mitigation 
(including mitigation banks), or a combination of on-site and off-site 
mitigation. Also, the identified compensatory mitigation projects may 
be in-kind, out-of-kind, or a mixture of in-kind and out-of-kind 
compensatory mitigation.
    The information used to conduct a watershed approach is listed in 
Sec.  332.3(c)(3). Where a watershed plan exists, all or most of this 
information will have been considered in the development of that plan. 
Where no formal watershed plan exists, project sponsors should make a 
reasonable effort, commensurate with the scope and scale of the 
project, to obtain as much of this information as possible as they 
design the compensatory mitigation projects. Project sponsors may 
consult with the Corps to see if such information has been developed in 
the past in association with other projects in the watershed. For 
smaller projects requiring DA authorization, all of the types of 
information listed in this paragraph may not be available, but that 
information should generally be available (or developed) for larger 
projects.

[[Page 15526]]

    We are seeking comment on the watershed approach proposed in this 
rule, as well as the proposed criteria regarding the location of 
compensatory mitigation projects.
    The amount of required compensatory mitigation is dependent upon 
the functions (or area when functions cannot be readily assessed) lost 
as a result of the impacts authorized by the DA permit and the 
functions (or area) provided by the compensatory mitigation project. In 
some cases, replacing the functions provided by the impacted aquatic 
resource may be achieved by a compensatory mitigation project smaller 
in area than the impact site. In other cases, a larger compensatory 
mitigation project may be needed to replace the functions provided by 
the impacted aquatic resource.
    To determine the amount of compensatory mitigation required for a 
specific activity, acres or similar units of measure are likely to be 
the principal units for determining credits and debits. However, in 
cases where functional assessment methods are available, appropriate, 
and practical to use, district engineers should use those functional 
assessment methods to determine how much compensatory mitigation should 
be required. For activities authorized by general permits, it may not 
be practical to conduct functional assessments for each general permit 
activity. For certain types of aquatic resources, such as streams, it 
may be more appropriate to quantify credits and debits by using linear 
feet. The value of a credit or debit is dependent upon the amount of 
aquatic resource functions provided per acre (or linear foot).
    In the proposed rule, site selection is a primary consideration for 
compensatory mitigation projects. The watershed approach provides an 
analytical approach similar to the approach recommended by the NRC 
committee. A watershed approach to compensatory mitigation considers 
the importance of landscape position and resource type for the 
ecological functions and sustainability of aquatic resources within the 
watershed. A watershed approach also considers the services provided by 
aquatic resources, as well as the values derived from aquatic resource 
functions and services. Such an approach considers how the types and 
locations of compensatory mitigation projects will provide the desired 
aquatic resource functions, and will continue to function over time in 
a changing landscape. It also considers the habitat requirements of 
important species, habitat loss or conversion trends, sources of 
watershed impairment, and current development trends, as well as the 
requirements of other regulatory and non-regulatory programs that 
affect the watershed, such as storm water management or habitat 
conservation programs.
    Another site selection factor is the compatibility of compensatory 
mitigation projects with proposed or existing facilities or projects. 
For example, it is not appropriate to locate compensatory mitigation 
projects designed to attract wildlife species that are known to be 
hazardous to aviation near airports. The Federal Aviation 
Administration issued Advisory Circular 150/5200-33, ``Hazardous 
Wildlife Attractants on or Near Airports,'' In addition, the 
``Memorandum of Agreement Between the Federal Aviation Administration, 
U.S. Air Force, U.S. Army, U.S. Environmental Protection Agency, and 
U.S. Department of Agriculture to Address Aircraft Wildlife Strikes, 
which became effective in July 2003, also addresses this particular 
issue. District engineers need to consider these types of issues when 
determining compensatory mitigation requirements for DA permits (see 
Sec.  332.3(b) of the proposed rule).
    If the district engineer determines that all of the aquatic 
resource functions cannot be effectively replaced at a single site, 
then more than one site may be used to provide the desired aquatic 
resource functions. Therefore, to maintain aquatic resource functions 
in a watershed, the district engineer may require a combination of on-
site and off-site compensatory mitigation. For example, on-site 
compensation may be required to provide water quality, water storage, 
and flood protection functions and services, while off-site 
compensation may be required for losses of habitat functions. In 
general, the proposed rule requires off-site compensatory mitigation to 
be located in the same watershed as the impact site.
    The proposed rule generally requires wetland compensatory 
mitigation for wetland losses, and stream compensatory mitigation for 
stream losses. However, the proposed rule provides flexibility for 
district engineers to require compensatory mitigation that is best for 
the watershed. For example, out-of-kind compensatory mitigation may 
involve the restoration or establishment of an aquatic habitat type 
that is now rare, because of disproportionate impacts to that habitat 
type in the past. Restoring or establishing rare habitat types may help 
restore valuable ecological functions and services to the watershed. In 
the watershed approach in the proposed rule, district engineers will 
first consider in-kind compensatory mitigation, but if the watershed 
approach determines that out-of-kind compensatory mitigation would 
result in greater benefits to the aquatic environment within the 
watershed, then out-of-kind compensation may be authorized.
    The NRC Report stated that the preservation of wetlands is 
appropriate in a watershed approach to compensatory mitigation, because 
it helps support the objective of the Clean Water Act. Preservation of 
aquatic resources helps secure desired wetland types in a watershed and 
maintain wetland diversity in that watershed. The preservation of 
aquatic resources through appropriate real estate and legal instruments 
helps provide long-term maintenance of the aquatic environment in 
watersheds.
    Both wetland and non-wetland riparian areas are also important for 
maintaining the aquatic resource functions and services of watersheds. 
Riparian areas are important for stream restoration activities, as well 
as the restoration of other open waters. Riparian areas are important 
to streams and other open waters, and help augment aquatic resource 
functions by moderating temperature changes, removing excess nutrients 
and pollutants, providing a source of detritus for aquatic food webs, 
providing aquatic habitat heterogeneity, storing flood waters, 
stabilizing sediments, and providing habitat for a variety of aquatic 
and terrestrial species.
    Restoration or establishment of non-aquatic riparian areas normally 
would be used in conjunction with aquatic resource restoration, 
establishment, enhancement, and/or preservation activities, as part of 
an overall compensatory mitigation project to offset losses of aquatic 
resources. With the watershed approach, we are looking at combinations 
of different habitats as components of a functioning landscape, instead 
of habitat units in isolation from one another.
    The NRC Report also acknowledged the importance of upland areas as 
part of the watershed approach to compensatory mitigation. The proposed 
rule also requires consideration of the establishment and maintenance 
of upland buffers around the restored, established, enhanced, or 
protected aquatic habitats to ensure the sustainability of those 
habitats. Buffers may augment aquatic resource functions, and help 
increase the overall ecological functions of the

[[Page 15527]]

compensatory mitigation project site. Under limited circumstances, the 
district engineer may grant compensatory mitigation credit for upland 
areas within a compensatory mitigation project, if those uplands 
increase the overall ecological functioning of the compensatory 
mitigation site or other aquatic resources in the watershed or 
ecoregion. For example, uplands may provide connections between aquatic 
habitats that are essential for the preservation of certain species, 
such as amphibians. When determining the amount of compensatory 
mitigation credit provided by uplands, the district engineer must 
consider whether the uplands perform ecological functions that are 
important to the watershed and are under threat of loss or substantial 
degradation.
    The proposed rule requires that mitigation providers secure 
sufficient financial assurances to assure completion of the 
compensatory mitigation project consistent with an approved mitigation 
plan. Government agencies may use other mechanisms to provide 
reasonable assurances that compensatory mitigation projects will be 
completed, such as partnerships established in accordance with the 
Economy Act. In cases where alternative mechanisms are used to provide 
reasonable assurances that compensatory mitigation projects will be 
completed, financial assurances may not be necessary or appropriate. 
The district engineer will determine appropriate financial assurances 
on a case-by-case basis. Financial assurances may take a number of 
forms including letters of credit, performance bonds, or other 
sureties. In some circumstances in the past, mitigation providers have 
allowed their financial assurance arrangements to lapse before the 
mitigation project was completed leaving the Corps without the 
necessary funds to ensure completion of the mitigation project should 
the mitigation provider default. The proposed rule does not 
specifically address this issue. We are soliciting comment on whether 
to include a regulatory provision to require that the providers of 
these financial assurances obtain permission from, or alternatively, 
notify the district engineer prior to canceling them or allowing them 
to lapse. We are also soliciting comment on the appropriate time frame 
(e.g., 120 days) for any such advance notification.
    If failure of a compensatory mitigation project is due to natural 
catastrophes, such as floods, droughts, diseases, or pest infestations, 
that occur during the monitoring period, the district engineer normally 
would require the responsible party to implement appropriate remedial 
measures, unless the compensatory mitigation project is expected to 
respond to the event in a similar manner as comparable types of aquatic 
resources in the watershed. After the monitoring period has ended, the 
district engineer would normally not require remediation if he 
determines that the failure is due to a natural catastrophe that was 
beyond the control of the responsible party to prevent or mitigate. In 
such cases, the provisions of the conservation easement (or other legal 
mechanism for long-term protection of the site) will remain in effect 
so that the compensatory mitigation project site will be allowed to 
continue to evolve through natural ecosystem development processes. 
This approach to addressing natural catastrophes acknowledges the 
dynamic nature of the environment.
    We are seeking comment on the provisions in this section.

33 CFR 332.4 and 40 CFR 230.94 Planning and Documentation

    In paragraph (b) of this section, we are proposing to require 
applicants for standard permits involving discharges of dredged or fill 
material into waters of the United States to submit a statement 
explaining how impacts to waters of the United States will be avoided, 
minimized, and compensated. Information from that statement will be 
provided in the public notice for the proposed permit. This requirement 
will necessitate changing the standard permit application form (ENG 
Form 4345), and compliance with the requirements of the Paperwork 
Reduction Act of 1995. Compliance with the Paperwork Reduction Act is 
discussed in more detail in Section VII, Administrative Requirements, 
below.
    The agencies recognize that government agencies sponsoring projects 
that require National Environmental Policy Act (NEPA) compliance 
generally try to coordinate their NEPA review with their DA permit 
review. This may mean submitting a permit application while the draft 
Environmental Impact Statement (EIS), including analysis of 
compensatory mitigation options, is still undergoing public review and 
comment. We believe that the requirements of paragraph (b) of this 
section are fully consistent with such efforts. In such cases, the 
information provided with the permit application should provide a 
conceptual discussion of the proposed compensatory mitigation, and 
reference the more detailed description of options in the draft EIS. 
This should further facilitate public participation in both the permit 
application and NEPA review process. The purpose of the new permit 
application requirements is to inform the public of the sponsor's 
compensatory mitigation plans, as of the time the application is filed, 
and most importantly, to solicit informed public comment on those 
plans, in whatever stage of development they may be. It is not 
necessary for the final compensatory mitigation option to have been 
selected prior to submitting a DA permit application.
    Paragraph (c) of this section of the proposed rule requires 
permittees or mitigation bank sponsors to submit draft and final 
mitigation plans to district engineers. In the proposed rule, there is 
a requirement for the district engineer to approve the final mitigation 
plan prior to issuing the DA permit or approving the mitigation banking 
instrument.
    This section also lists the types of information to be provided in 
draft and final mitigation plans. Permittees proposing to use a 
mitigation bank to provide required compensatory mitigation would be 
required to submit only information concerning the mitigation bank they 
plan to use, project baseline information, and credit determinations.
    We are seeking comment on the provisions in this section.

33 CFR 332.5 and 40 CFR 230.95 Ecological Performance Standards

    This section discusses, in general terms, ecological performance 
standards that will be used to assess whether compensatory mitigation 
projects, including mitigation banks, are achieving their objectives. 
Since ecological performance standards usually vary by aquatic type and 
geographic region, this section provides only general considerations 
for establishing those standards.
    We are seeking comment on the provisions in this section.

33 CFR 332.6 and 40 CFR 230.96 Monitoring

    This proposed rule provides general standards for monitoring 
compensatory mitigation projects, including mitigation banks. 
Monitoring reports are used for assessing how well the compensatory 
mitigation project is satisfying its objectives. We are proposing a 
minimum required monitoring period of five years, with flexibility for 
district engineers to stop requiring monitoring reports if compensatory 
mitigation projects, such as those involving the establishment of open 
water habitats, meet their performance standards in a shorter period of 
time. Longer

[[Page 15528]]

monitoring periods may be required for compensatory mitigation 
activities, such as the establishment of forested wetlands, that 
develop slowly, or that require remediation.
    We are seeking comment on the provisions in this section. We are 
also requesting comment on examples of specific types of compensatory 
mitigation projects (e.g., specific habitat types) where monitoring 
periods of less than five years may be appropriate.

33 CFR 332.7 and 40 CFR 230.97 Management

    This section of the proposed rule establishes criteria and 
standards for the management of compensatory mitigation projects, 
including mitigation banks. Some compensatory mitigation projects may 
require active management and maintenance, as well as adaptive 
management. For some aquatic resources, such as fringe wetlands in 
coastal areas, long-term management may not be feasible or desirable 
because of the dynamic nature of the environment.
    The various real estate or legal instruments that can be used to 
protect compensatory mitigation project sites may differ from state to 
state, or among other government jurisdictions. Therefore, we are not 
proposing detailed requirements for real estate instruments used for 
long-term protection of compensatory mitigation project sites. We 
believe those instruments are best addressed by district engineers on a 
case-by-case basis.
    For compensatory mitigation projects on public lands, other long-
term protection mechanisms may be more appropriate, such as Federal 
facility management plans or integrated natural resources management 
plans. Therefore, this section of the proposed rule has flexibility for 
district engineers to determine requirements for site protection on a 
case-by-case basis. The agencies recognize that changes in statute, 
regulation or agency needs or mission may sometimes necessitate 
authorization of an incompatible use on public lands originally set 
aside for compensatory mitigation. In such cases, the public agency 
authorizing the incompatible use would be responsible for providing 
alternative compensatory mitigation for any loss in functions resulting 
from the incompatible use.
    Paragraph (c) of this section discusses remediation requirements if 
a compensatory mitigation project is not progressing towards meeting 
its performance standards. In addition to consulting with the 
responsible party to determine appropriate remediation requirements, 
the district engineer should also consult with any other Federal, 
Tribal, state, or local agency ``where appropriate.'' In general, such 
consultation would be appropriate if the other agency was involved 
earlier in the review of the compensatory mitigation requirements in 
the DA permit.
    The proposed rule requires that the permit conditions or mitigation 
banking instrument identify the party responsible for the ownership and 
long-term management of the compensatory mitigation project. The 
permittee or mitigation bank sponsor must provide long-term financing 
as necessary to ensure that funds are available for the long-term 
management of the project site once the monitoring period is over. This 
can be accomplished in a number of ways, but in the past problems have 
arisen when arrangements for the capitalization of long-term management 
funds have not taken place in a timely fashion. Although the rule text 
does not address this deficiency, we are soliciting comments on the 
inclusion of a provision that would require that the arrangements for 
the adequate capitalization of long-term management funds be finalized 
prior to permit issuance.
    If the entity responsible for long-term management is a government 
agency or public authority, and that entity is willing to accept the 
stewardship responsibilities for the compensatory mitigation project 
site, the district engineer may accept the stewardship commitment by 
the government agency or public authority in lieu of imposing long-term 
financing requirements in the DA permit or mitigation banking 
instrument. Such acceptance of stewardship responsibilities will 
generally involve a formal transaction of some type (e.g., transfer of 
title, designation as a protected area, etc). We are aware of 
situations where government agencies have accepted stewardship 
responsibilities without adequately considering long-term financial 
needs for the management of a site, and strongly encourage agencies to 
plan for such needs before accepting stewardship responsibilities. Such 
planning may include requiring a financial commitment from the original 
responsible party as a condition of accepting long-term stewardship 
responsibilities.
    We are seeking comment on the provisions in this section.

33 CFR 332.8 and 40 CFR 230.98 Mitigation Banks

    The proposed rule establishes criteria and standards for mitigation 
banks, including requirements and processes for the review, approval, 
and oversight of those banks. We are seeking comment on all provisions 
of this section, especially the timeframes and milestones for 
mitigation bank review and approval.
    The proposed rule contains explicit requirements for the mitigation 
bank prospectus, and requires the district engineer to notify the 
sponsor within 15 days if the prospectus is incomplete. The proposed 
rule also has requirements for the content of mitigation banking 
instruments.
    The district engineer is responsible for the review and approval of 
mitigation banks that are intended to be used to provide compensatory 
mitigation for DA permits, after seeking comment from the Interagency 
Review Team (IRT) and the public. The role of the IRT is to advise the 
district engineer on the establishment and management of mitigation 
banks. Representatives of the U.S Environmental Protection Agency, 
National Marine Fisheries Service, and U.S. Fish and Wildlife Service 
hold ex officio positions on the IRT. Beyond this, the district 
engineer determines the composition of the IRT. The IRT in the proposed 
rule replaces the Mitigation Bank Review Team (MBRT) in the 1995 
mitigation banking guidance.
    Each proposed mitigation bank will be subject to a public notice 
and comment process, regardless of whether a DA permit is required to 
construct or establish the mitigation bank. In the proposed rule, we 
are specifying formal procedures and timeframes for establishing 
mitigation banks, to provide more predictability and efficiency to the 
mitigation bank review and approval process.
    In general, the timelines provided in this section of the proposed 
rule should result in a decision on the proposed mitigation bank within 
one year of receipt of a complete prospectus. However, there may be 
exceptional circumstances associated with a particular proposed 
mitigation bank that may result in a longer review period.
    The district engineer, in consultation with the IRT and using a 
watershed approach to the extent practicable, will determine the 
service area of an approved mitigation bank. The service area of a 
mitigation bank is to be described in the mitigation banking 
instrument. The service area should be large enough to support an 
economically viable mitigation bank, but must not be larger than is 
appropriate to ensure that the aquatic resources provided by the 
mitigation bank will effectively compensate for adverse environmental 
impacts across the entire service area. In

[[Page 15529]]

Sec.  332.8(c)(5)(ii), we provide some guidelines for service areas 
based on the hydrologic unit codes designated by the U.S. Geological 
Survey. The service areas suggested in the text of this section may not 
be appropriate for some mitigation banks, such as single-user 
mitigation banks sponsored by state departments of transportation. For 
these sponsors, it may be infeasible to have relatively small service 
areas for their mitigation banks, such as those based on 8-digit 
hydrologic unit codes, because they incur a relatively small amount of 
debits per year. Also, having relatively small service areas for some 
single user mitigation banks may discourage the establishment of large 
mitigation banks that provide substantial amounts of habitat and other 
aquatic resource functions and services. On the other hand, in areas 
with significant development, service areas even smaller than an 8-
digit hydrologic unit code may be appropriate.
    We are proposing a dispute resolution process to resolve agency 
concerns about proposed mitigation banks. The dispute resolution 
process involves higher levels of review, up to the respective agency 
headquarters. We are seeking comment on the milestones and timeframes 
in the proposed dispute resolution process. It is intended as a last 
resort for significant issues that cannot be resolved in a timely 
manner within the IRT. The agencies anticipate that it will be used 
infrequently.
    In cases where initial establishment of the mitigation bank 
requires authorization through a DA permit, it is important that the 
permit be fully consistent with the provisions of the mitigation 
banking instrument. Issuing the permit before all relevant provisions 
of the mitigation banking instrument have been substantively determined 
may lead to inconsistencies between the permit and the instrument and/
or may constrain the district engineer's ability to address substantive 
concerns that arise through the IRT review process. Where issues 
potentially affecting permit conditions are still unresolved within the 
IRT, the district engineer should delay permit issuance until the final 
terms of the mitigation banking instrument have been determined.
    We are proposing to establish a process for modifying mitigation 
banking instruments. For example, a mitigation banking instrument may 
be modified if the mitigation bank develops aquatic resource functions 
that are substantially greater than expected, to allow the sponsor to 
sell those extra credits after achieving all performance standards 
specified in the bank's instrument. The full IRT review process would 
be used for major modifications to the mitigation banking instrument, 
such as expanding the mitigation bank by conducting more aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at the bank site. Certain types of minor modifications to instruments, 
such as changes in credit release schedules, may be accomplished 
through a streamlined modification process.
    Umbrella mitigation banking instruments, which have been used to 
establish mitigation banks on multiple sites, are provided for in the 
proposed rule with additional sites treated as modifications of the 
original mitigation banking instruments. In the proposed rule, a 
mitigation banking instrument would have to be approved for the initial 
mitigation bank site, and subsequent mitigation bank sites under the 
``umbrella'' instrument would be added to that instrument as major 
modifications.
    The proposed rule also establishes criteria for credit release from 
mitigation banks. A limited proportion of projected credits may be 
released when the mitigation banking instrument and mitigation plan 
have been approved, the bank site secured, and required financial 
assurances have been established. The proposed rule also requires a 
substantial proportion of credits to be released only after performance 
standards are achieved. Criteria for determining the credit release 
schedule are provided in the text of the proposed rule. District 
engineers must also approve credit releases.
    Existing mitigation banks may continue operating under the terms of 
their approved instruments. However, modifications to the instrument, 
including the addition of new sites for umbrella instruments, must be 
made in accordance with the requirements of Part 332. We are also 
seeking comment on the appropriate legal mechanism for transferring the 
responsibility for providing compensatory mitigation from the permittee 
to a mitigation bank. One option would be through parallel provisions 
in DA permit special conditions and mitigation banking instruments. 
Therefore, we are seeking comment on the following language for a 
special condition for a DA permit to transfer responsibility for 
providing compensatory mitigation in cases where credits are secured 
from a mitigation bank:

    ``You have agreed to provide compensatory mitigation for the 
permitted impacts by purchasing credits at [INSERT NAME OF 
MITIGATION BANK]. As compensation for impacting [INSERT NUMBER] 
acres [OR OTHER UNIT OF MEASURE] of [INSERT AQUATIC RESOURCE TYPE], 
a total of [INSERT NUMBER] credits must be acquired from the [INSERT 
NAME OF MITIGATION BANK]. Upon the mitigation bank sponsor's 
acceptance of payment for those credits, that compensatory 
mitigation requirement will be considered fulfilled, and your 
responsibility for providing that compensatory mitigation will be 
transferred to the [INSERT NAME OF MITIGATION BANK]. Proof of 
securing these compensatory mitigation credits must be provided to 
this office prior to initiating any work in waters of the United 
States on the project site, unless the district engineer waives this 
requirement. If you cannot obtain the required amount and type of 
credits from [INSERT NAME OF MITIGATION BANK], you must submit a 
revised compensatory mitigation proposal to this office, and receive 
approval of the revised compensatory mitigation plan, prior to 
initiating any work in waters of the United States.''

    We are also seeking comment on the following language for a 
mitigation banking instrument, whereby the mitigation bank would then 
accept responsibility for providing compensatory mitigation for a DA 
permit in cases where the permittee secures credits from that 
mitigation bank sponsor:

    ``For projects in the service area of this Mitigation Bank that 
require Department of the Army authorization pursuant to Section 404 
of the Clean Water Act and/or Section 10 of the Rivers and Harbors 
Act of 1899, and if such authorizations require compensatory 
mitigation, credits from this Mitigation Bank may be used to satisfy 
those compensatory mitigation requirements, subject to Corps 
approval on a case-by-case basis.
    In accordance with the terms of this Instrument, the sponsor 
agrees that upon Corps approval of a proposal by the Permittee to 
secure mitigation bank credits through a contract with this 
Mitigation Bank, a fully executed contract between the Sponsor and 
the Permittee shall act to transfer to this Mitigation Bank all 
responsibility for the compensatory mitigation required by the 
permittee's DA permit.''

    We are also seeking comment on other possible mechanisms for 
transferring legal responsibility for providing compensatory mitigation 
from the permittee to a mitigation bank. One potential mechanism may be 
co-permitting, where the mitigation bank sponsor would sign the DA 
permit and assume responsibility for providing compensatory mitigation 
credits, once the permittee has secured those credits from the 
mitigation bank. The compensatory mitigation provisions of the permit 
(and those provisions only) would then be directly enforceable against 
the mitigation bank sponsor using normal Clean Water Act enforcement 
authorities. The agencies seek comment on these and other mechanisms 
for transferring legal responsibility for providing

[[Page 15530]]

compensatory mitigation from the permittee to the mitigation bank 
sponsor.
    In addition to the Corps, other Federal agencies (as well as some 
state agencies) have, in the past, signed mitigation banking 
instruments to indicate their agreement with the terms of those 
instruments. Since district engineers are responsible for approving 
instruments for mitigation banks, as well as for approving the use of 
credits from those banks as compensatory mitigation for specific DA 
permits, we are seeking comment on whether the provisions in Sec.  
332.8(b)(3) relating to other IRT members signing mitigation banking 
instruments are appropriate. In particular, do, or should, the 
signatures of other agencies have any legal effect in the 
implementation and enforcement of the banking instrument?

33 CFR 332.9 and 40 CFR 230.99 In-Lieu Fee Programs

    Since we are proposing to require in-lieu fee programs after five 
years to comply with the same criteria, requirements, and standards as 
mitigation banks, we believe there is a need for a grandfathering 
provision for current in-lieu fee programs. We are seeking comments on 
this section, in particular the proposed time frames. Section VI below 
explains our rationale for phasing out in-lieu fee programs and 
discusses possible alternative approaches.

VI. In-Lieu Fee Programs/Arrangements

    Under the proposed rule, existing in-lieu fee programs would have 
to be modified within five years to meet the requirements for 
mitigation banks in 33 CFR 332.8 and 40 CFR 230.98 in order to continue 
to provide compensatory mitigation credits for DA permits. In other 
words, after five years, in-lieu fee programs would cease to exist as a 
separate mechanism for providing compensatory mitigation. As of the 
effective date of the rule, new programs would have to meet the 
requirements in 33 CFR 332.8 and 40 CFR 230.98 in order to sell 
credits. Current in-lieu fee programs with multiple sites could develop 
umbrella mitigation banking instruments (see 33 CFR 332.8(g) and 40 CFR 
230.98(g) of the proposed rule).
    Under 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, at least those that are third-party mitigation 
providers. Second, in-lieu fee programs rely on collected fees 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 mitigation has been provided. In 
contrast, in-lieu fee programs generally provide mitigation only after 
collecting fees, and there is often a substantial time lag between 
permitted impacts and implementation of compensatory mitigation 
projects. In-lieu fee programs are also not generally required to 
provide the same financial assurances as mitigation banks. For all of 
these reasons, in some cases there may be greater uncertainty 
associated with in-lieu fee programs regarding the final mitigation and 
its adequacy to compensate for lost functions and services. On the 
other hand, some in-lieu fee programs have been able to protect high 
quality aquatic resources under threat of imminent impact, to employ a 
conservation strategy that is consistent with the watershed approach 
discussed in Sec.  332.3(c) of the proposed rule, and to partner with 
government agencies and non-profit non-governmental organizations to 
maximize protection of those at-risk resources. In-lieu fee programs 
may also be able to provide effective compensatory mitigation in 
certain areas, such as coastal areas, where options for economically 
viable mitigation banks are limited.
    The 2004 National Defense Authorization Act directs that, ``To the 
maximum extent practicable, the regulatory standards and criteria shall 
maximize available credits and opportunities for mitigation * * * and 
apply equivalent standards and criteria to each type of compensatory 
mitigation.'' The agencies carefully considered this directive in 
developing the proposed rule. Based on this consideration, the agencies 
believe that the proposed requirements for mitigation banks are 
necessary and sufficient to ensure that third-party compensatory 
mitigation is actually completed, while also balancing the need to make 
mitigation banking economically viable and thus ``maximize available 
credits.'' The agencies are concerned that providing less stringent 
oversight or up-front requirements for in-lieu fee programs may not 
ensure that compensatory mitigation is actually performed, or satisfy 
the statutory directive to apply equivalent standards and criteria to 
each type of mitigation to the maximum extent practicable. The agencies 
recognize that the proposed requirements for permittee-responsible 
mitigation are not exactly the same as those for mitigation banks, 
though we have tried to harmonize them to the extent practicable. But 
there are certain requirements, such as formal review by an IRT, that 
are not practicable for permittee-responsible projects, particularly 
smaller ones. However, for in-lieu fee programs, which as third-party 
mitigation providers sell credits to permittees and take on 
responsibility for providing required compensatory mitigation in the 
same way that mitigation banks do, we have not found strong grounds for 
concluding that meeting the same requirements as mitigation banks is 
not appropriate and practicable.
    Another concern with in-lieu fee programs is the sale price of 
credits. Because credits are often sold before the details (or even the 
location) of a specific compensatory mitigation project have been 
determined, it may be difficult for the project sponsor to determine a 
price that will fully fund the future compensatory mitigation project. 
Because the market pressure of needing to provide a sufficient return 
to investors is missing, in-lieu fee sponsors may underestimate the 
credit price, and perhaps undercut a mitigation bank doing business in 
the same service area. Furthermore, it is difficult for the Corps to 
determine what an adequate price might be in the absence of definitive 
information about the location and type of mitigation project to be 
provided.
    The agencies realize that phasing out in-lieu fee programs entails 
some challenges. In some areas, there are no mitigation banks and in-
lieu fee programs provide the only option for third-party mitigation. 
However, the agencies are concerned that this may to some extent 
reflect the less stringent requirements under which in-lieu-fee 
programs currently operate. The agencies believe that if in-lieu fee 
programs are required to meet the same requirements as banks, this will 
provide a level playing field that will allow mitigation banks to 
compete in areas where this may not be currently possible. We also 
recognize that in areas with a ``thin'' market (e.g., areas where there 
is a low density of dredge and fill projects requiring compensatory 
mitigation) it may not be economically viable to obtain the level of 
up-front financing that is necessary to start a mitigation bank. This 
concern can be at

[[Page 15531]]

least partially addressed through the size of the mitigation bank's 
service area. Proposed Sec.  332.8(5)(ii) provides that the service 
area ``should be large enough to support an economically viable 
mitigation bank, but must not be larger than is appropriate to ensure 
that the aquatic resources provided by the mitigation bank will 
effectively compensate for adverse environmental impacts across the 
entire service area.''
    The agencies recognize that phasing out in-lieu fee programs would 
represent a substantial departure from current practice. We are aware 
that there are a number of successful in-lieu fee programs that are 
providing effective compensatory mitigation. We therefore request 
comment on the challenges associated with transforming these projects 
into mitigation banks over a five-year period. We also request comment 
on retaining in-lieu fee programs as a distinct regulatory entity. 
Under this approach, in-lieu fee programs would have equally specific, 
but somewhat different, requirements from mitigation banks. Areas in 
which in-lieu fee programs might be different include: (1) The degree 
of up-front planning required before credits could be sold (e.g., in-
lieu fee programs might not be required to identify and secure a site 
and provide detailed site plans for the compensatory mitigation 
project); (2) the level of financial assurances that would be required, 
although we note that under the proposed rule district engineers retain 
substantial discretion in determining appropriate financial assurances 
for banks, and may consider factors such as the type of sponsoring 
entity (e.g., government, private, non-profit); (3) the types of 
projects for which they could be used (e.g., in-lieu fee programs might 
be limited to providing compensatory mitigation only for nationwide 
permits and other general permits, or for projects below a specified 
acreage cutoff, such as 1 acre); (4) the required compensation ratios 
(e.g., these could be higher for in-lieu fee programs than for 
mitigation banks); (5) the credit release schedule (e.g., in-lieu fee 
programs might be permitted to sell more credits at an earlier point in 
the planning process); (6) limiting the establishment and use of in-
lieu fee programs to specific types of aquatic resources (e.g., tidal 
wetlands) or specific geographic regions, such as coastal areas; and 
(7) the types of permitted sponsoring entities (i.e., in-lieu fee 
programs might be limited to government agencies and/or non-profit land 
stewardship entities with proven track records). Commenters may suggest 
other ways in which the requirements for in-lieu fee programs might be 
different from those for mitigation banks.
    Another option would be to retain in-lieu fee programs but provide 
a ``preference'' for in-place compensatory mitigation (e.g., 
compensatory mitigation sites such as mitigation banks established in 
advance of permitted impacts) over compensatory mitigation that would 
be established after permitted impacts are authorized (e.g., many in-
lieu fee programs) because of their greater certainty of successfully 
providing compensatory mitigation credits. Under this approach, if the 
permitted project was in the service area of both an established 
mitigation bank and an in-lieu fee project that had not been 
constructed, the permittee would first have to consider purchasing 
credits from the mitigation bank, and could only use the in-lieu fee 
program if purchasing credits from the mitigation bank was not 
practicable.
    Comments will be most helpful if they provide specific information. 
Current in-lieu fee program sponsors should explain exactly what 
difficulties they would experience in transitioning to a mitigation 
bank. Commenters who support retaining in-lieu fee programs as a 
distinct regulatory entity should explain exactly what requirements 
would be different from those for mitigation banks, and what would be 
the basis for establishing these different requirements in light of the 
statutory directive noted above. The agencies believe that the detailed 
discussion of issues and options in this preamble provides sufficient 
notice and opportunity for informed public comment, such that we may 
choose to finalize a rule that retains a separate in-lieu fee option 
along the lines discussed here without issuing a new proposed rule.

VII. Administrative Requirements

Plain Language

    In compliance with the principles in the President's Memorandum of 
June 1, 1998, (63 FR 31855) regarding plain language, this preamble is 
written using plain language. The use of ``we'' in this notice refers 
to the Corps and EPA. We have also used the active voice, short 
sentences, and common everyday terms except for necessary technical 
terms.

Paperwork Reduction Act

    This proposed action will impose a new information collection 
burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 
3501 et seq.). Applicants for Clean Water Act section 404 permits will 
be required, under 33 CFR 332.4(b)(1) and 40 CFR 230.93(b)(1) of the 
proposed rule, to submit a statement explaining how impacts associated 
with the proposed activity are to be avoided, minimized, and 
compensated for. This statement must also include a description of any 
proposed compensatory mitigation, or the intention to use an approved 
mitigation bank.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
For the Corps Regulatory Program under Section 10 of the Rivers and 
Harbors Act of 1899, section 404 of the Clean Water Act, and section 
103 of the Marine Protection, Research and Sanctuaries Act of 1972, the 
current OMB approval number for information collection requirements is 
maintained by the Corps of Engineers (OMB approval number 0710-0003, 
which expires on April 30, 2008). As a result of the new information 
collection requirement in the proposed rule, we are proposing to modify 
our standard permit application form in accordance with the 
requirements of the Paperwork Reduction Act.
    Title, Form, and OMB Number: Application for a Department of Army 
Permit; Eng Form 4345; OMB Control Number 0710-0003.
    Type of Request: Revision.
    Number of Respondents: 85,500.
    Responses Per Respondent: 1.
    Annual Responses: 85,500.
    Average Burden Per Response: 11 hours.
    Annual Burden Hours: 374,000.
    Needs and Uses: Information collected is used to evaluate, as 
required by law, proposed construction or filing in waters of the 
United States that result in impacts to the aquatic environment and 
nearby properties, and to determine if issuance of a permit is in the 
public interest. Respondents are private landowners, businesses, non-
profit organizations, and government agencies.
    Affected Public: Individuals or households; business or other for-
profit; not-for-profit institutions; farms; Federal government; State, 
local or tribal government.
    Frequency: On occasion.
    Respondents Obligation: Mandatory.
    OMB Desk Officer: Jim Laity.
    Written comments and recommendations on the proposed information 
collection should be sent to Jim Laity at the Office of Management and 
Budget, Desk Officer for USACE, Room 10202, New Executive Office 
Building, Washington, DC 20503.

[[Page 15532]]

Executive Order 12866

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), we must 
determine whether the regulatory action is ``significant'' and 
therefore subject to review by OMB and the requirements of the 
Executive Order. The Executive Order defines ``significant regulatory 
action'' as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, we have determined 
that the proposed rule is a ``significant regulatory action'' and the 
draft was submitted to OMB for review.
    The regulatory analysis required by E.O. 12866 has been prepared 
for this proposed rule. The regulatory analysis is available on the 
Internet at: http://www.usace.army.mil/inet/functions/cw/cecwo/reg/citizen.htm.
 It is also available by contacting Headquarters, U.S. Army 

Corps of Engineers, Operations and Regulatory Community of Practice, 
441 G Street, NW., Washington, DC 20314-1000.

Executive Order 13132

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires the Corps to develop an accountable process to 
ensure ``meaningful and timely input by State and local officials in 
the development of regulatory policies that have Federalism 
implications.'' The proposed rule does not have Federalism 
implications. We do not believe that the proposed rule will have 
substantial direct effects on the States, on the relationship between 
the Federal government and the States, or on the distribution of power 
and responsibilities among the various levels of government. The 
proposed rule does not impose new substantive requirements. In 
addition, the proposed rule will not impose any additional substantive 
obligations on State or local governments. State and local governments 
that administer in-lieu fee programs to provide compensatory mitigation 
for impacts to wetlands and other aquatic resources can modify their 
in-lieu fee programs to conform with the requirements of this proposed 
rule. Therefore, Executive Order 13132 does not apply to this proposed 
rule. However, in the spirit of Executive Order 13132, we specifically 
request comment from state and local officials on the proposed rule.

Regulatory Flexibility Act, as Amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996, 5 U.S.C. 601 et seq.

    The Regulatory Flexibility Act generally requires an agency to 
prepare a regulatory flexibility analysis of any rule subject to 
notice-and-comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations and small governmental jurisdictions.
    For purposes of assessing the impacts of this proposed rule on 
small entities, a small entity is defined as: (1) A small business 
based on Small Business Administration size standards; (2) a small 
governmental jurisdiction that is a government of a city, county, town, 
school district, or special district with a population of less than 
50,000; or (3) a small organization that is any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.
    The statutory basis for the proposed rule is Section 314 of the 
National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-
136), which is discussed above. After considering the economic impacts 
of the proposed rule on small entities, we certify that this action 
will not have a significant impact on a substantial number of small 
entities. Small entities subject to the proposed rule include those 
small entities that need to obtain DA permits pursuant to Section 404 
of the Clean Water Act and Section 10 of the Rivers and Harbors Act of 
1899.
    This rulemaking will not change compensatory mitigation 
requirements, or change the number of permitted activities that require 
compensatory mitigation. This rule further clarifies mitigation 
requirements established by Corps and EPA, and is generally consistent 
with current agency practices. Some provisions of the rule may result 
in increases in compliance costs, other provisions may result in 
decreases in compliance costs, but most of the provisions in the rule 
are expected to result in no changes in compliance costs. To the extent 
that it promotes mitigation banking, the rule may lower compensatory 
mitigation costs for small projects by making credits more widely 
available. Overall, we believe the proposed rule will result in no net 
change in compliance costs for permittees, including small entities 
that need to obtain DA permits. For a more detailed analysis of 
potential economic impacts of this rule, please see the regulatory 
analysis in the Environmental Assessment prepared for the proposed 
rule. We are interested in the potential impacts of the proposed rule 
on small entities and welcome comments on issues related to such 
impacts.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under Section 202 of the UMRA, the 
agencies generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, and Tribal 
governments, in the aggregate, or to the private sector, of $100 
million or more in any one year. Before promulgating a rule for which a 
written statement is needed, Section 205 of the UMRA generally requires 
the agencies to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, most cost-effective, or least 
burdensome alternative that achieves the objectives of the rule. The 
provisions of section 205 do not apply when they are inconsistent with 
applicable law. Moreover, section 205 allows an agency to adopt an 
alternative other than the least costly, most cost-effective, or least 
burdensome alternative if the agency publishes with the final rule an 
explanation why that alternative was not adopted. Before an agency 
establishes any regulatory requirements that may significantly or 
uniquely affect small governments, including Tribal governments, it 
must have developed, under Section 203 of the UMRA, a small government 
agency plan. The plan must provide for notifying potentially affected 
small governments, enabling officials of affected small governments to 
have meaningful and timely input in the development of regulatory 
proposals with significant Federal intergovernmental mandates, and

[[Page 15533]]

informing, educating, and advising small governments on compliance with 
the regulatory requirements.
    We have determined that the proposed rule does not contain a 
Federal mandate that may result in expenditures of $100 million or more 
for State, local, and Tribal governments, in the aggregate, or the 
private sector in any one year. The proposed rule is generally 
consistent with current agency practice and therefore does not contain 
a Federal mandate that may result in expenditures of $100 million or 
more for State, local, and Tribal governments, in the aggregate, or the 
private sector in any one year. Therefore, the proposed rule is not 
subject to the requirements of Sections 202 and 205 of the UMRA. For 
the same reasons, we have determined that the proposed rule contains no 
regulatory requirements that might significantly or uniquely affect 
small governments. Therefore, the proposed rule is not subject to the 
requirements of Section 203 of UMRA.

Executive Order 13045

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997), applies 
to any rule that: (1) Is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that we have reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, we must evaluate the environmental health or 
safety effects of the proposed rule on children, and explain why the 
regulation is preferable to other potentially effective and reasonably 
feasible alternatives.
    The proposed rule is not subject to this Executive Order because it 
is not economically significant as defined in Executive Order 12866. In 
addition, it does not concern an environmental or safety risk that we 
have reason to believe may have a disproportionate effect on children.

Executive Order 13175

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires agencies to develop an accountable process to ensure 
``meaningful and timely input by tribal officials in the development of 
regulatory policies that have tribal implications.'' The phrase 
``policies that have tribal implications'' is defined in the Executive 
Order to include regulations that have ``substantial direct effects on 
one or more Indian tribes, on the relationship between the Federal 
government and the Indian tribes, or on the distribution of power and 
responsibilities between the Federal government and Indian tribes.''
    The proposed rule does not have tribal implications. It is 
generally consistent with current agency practice and will not have 
substantial direct effects on tribal governments, on the relationship 
between the Federal government and the Indian tribes, or on the 
distribution of power and responsibilities between the Federal 
government and Indian tribes. Therefore, Executive Order 13175 does not 
apply to this proposed rule. However, in the spirit of Executive Order 
13175, we specifically request comment from Tribal officials on the 
proposed rule.

Environmental Documentation

    The Corps has prepared a draft Environmental Assessment (EA) and 
Finding of No Significant Impact (FONSI) for the proposed rule. The 
draft EA and FONSI are available at: http://www.usace.army.mil/inet/functions/cw/cecwo/reg/citizen.htm.
 It is also available by contacting 

Headquarters, U.S. Army Corps of Engineers, Operations and Regulatory 
Community of Practice, 441 G Street, NW., Washington, DC 20314-1000.

Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. We will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States. A 
major rule cannot take effect until 60 days after it is published in 
the Federal Register. The proposed rule is not a ``major rule'' as 
defined by 5 U.S.C. 804(2).

Executive Order 12898

    Executive Order 12898 requires that, to the greatest extent 
practicable and permitted by law, each Federal agency must make 
achieving environmental justice part of its mission. Executive Order 
12898 provides that each Federal agency conduct its programs, policies, 
and activities that substantially affect human health or the 
environment in a manner that ensures that such programs, policies, and 
activities do not have the effect of excluding persons (including 
populations) from participation in, denying persons (including 
populations) the benefits of, or subjecting persons (including 
populations) to discrimination under such programs, policies, and 
activities because of their race, color, or national origin.
    The proposed rule is not expected to negatively impact any 
community, and therefore is not expected to cause any 
disproportionately high and adverse impacts to minority or low-income 
communities.

Executive Order 13211

    The proposed rule is not a ``significant energy action'' as defined 
in Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 
28355, May 22, 2001) because it is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy.

National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (NTTAA), Public Law 104-113, section 12(d), (15 U.S.C. 272 
note), directs us to use voluntary consensus standards in its 
regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g., materials specifications, test methods, 
sampling procedures, business practices) that are developed or adopted 
by voluntary consensus standards bodies. The NTTAA directs us to 
provide Congress, through the Office of Management and Budget (OMB), 
explanations when the we decide not to use available and applicable 
voluntary consensus standards.
    This action does not involve technical standards. Therefore, the 
Corps and EPA did not consider the use of any new voluntary consensus 
standards.

List of Subjects

33 CFR Part 325

    Administrative practice and procedure, Intergovernmental relations, 
Environmental protection, Navigation, Water pollution control, 
Waterways.

33 CFR Part 332

    Administrative practice and procedure, Intergovernmental relations, 
Navigation (water), Water pollution control, Water resources, 
Watersheds, Waterways.

[[Page 15534]]

40 CFR Part 230

    Environmental protection, Water pollution control.

Corps of Engineers

33 CFR Chapter II

    For the reasons stated in the preamble, the Corps proposes to amend 
33 CFR chapter II as set forth below:

PART 325--PROCESSING OF DEPARTMENT OF THE ARMY PERMITS

    1. The authority citation for part 325 continues to read as 
follows:

    Authority: 33 U.S.C. 401 et seq.; 33 U.S.C. 1344; 33 U.S.C. 
1413.

    2. Amend Sec.  325.1 by redesignating paragraphs (d)(7), (d)(8), 
and (d)(9) as paragraphs (d)(8), (d)(9), and (d)(10), respectively, and 
adding new paragraph (d)(7) as follows:


Sec.  325.1  Applications for permits.

* * * * *
    (d) * * *
    (7) For activities involving discharges of dredged or fill material 
into waters of the United States, the application must include a 
statement describing how impacts to waters of the United States are to 
be avoided, minimized, and compensated (see Sec.  332.4(b)(1)).
* * * * *

PART 332--COMPENSATORY MITIGATION FOR LOSSES OF AQUATIC RESOURCES

    3. Add part 332 to read as follows:

PART 332--COMPENSATORY MITIGATION FOR LOSSES OF AQUATIC RESOURCES

Sec.
332.1 Purpose and general considerations.
332.2 Definitions.
332.3 General compensatory mitigation requirements.
332.4 Planning and documentation.
332.5 Ecological performance standards.
332.6 Monitoring.
332.7 Management.
332.8 Mitigation banks.
332.9 In-lieu fee programs.

    Authority: 33 U.S.C. 401 et seq.; 33 U.S.C. 1344; and Pub. L. 
108-136.


Sec.  332.1  Purpose and general considerations.

    (a) Purpose. (1) The purpose of this part is to establish standards 
and criteria for the use of all types of compensatory mitigation, 
including on-site and off-site permittee-responsible mitigation, 
mitigation banks, and in-lieu fee mitigation to offset unavoidable 
impacts to waters of the United States authorized through the issuance 
of Department of the Army (DA) permits pursuant to Section 404 of the 
Clean Water Act (33 U.S.C. 1344) and/or Sections 9 or 10 of the Rivers 
and Harbors Act of 1899 (33 U.S.C. 401, 403). This part implements 
Section 314(b) of the 2004 National Defense Authorization Act (Pub. L. 
108-136), which directs that the standards and criteria shall, to the 
maximum extent practicable, maximize available credits and 
opportunities for mitigation, provide for regional variations in 
wetland conditions, functions, and values, and apply equivalent 
standards and criteria to each type of compensatory mitigation. This 
part is intended to further clarify mitigation requirements established 
under U.S. Army Corps of Engineers (Corps) and U.S. Environmental 
Protection Agency regulations at 33 CFR part 320 and 40 CFR part 230, 
respectively.
    (2) These rules have been jointly developed by the Secretary of the 
Army, acting through the Chief of Engineers, and the Administrator of 
the Environmental Protection Agency. From time to time guidance on 
interpreting and implementing these rules may be prepared jointly by 
EPA and the U.S. Army Corps of Engineers at the national or regional 
level. No modifications to the basic application, meaning, or intent of 
these rules will be made without further joint rulemaking by the 
Secretary of the Army, acting through the Chief of Engineers and the 
Administrator of the Environmental Protection Agency pursuant to the 
Administrative Procedure Act (5 U.S.C. 551 et seq.).
    (b) Applicability. This part does not alter the regulations at 
Sec.  320.4(r) of this title, which address the general mitigation 
requirements for DA permits. In particular, it does not alter the 
circumstances under which compensatory mitigation is required or the 
definitions of ``waters of the United States'' or ``navigable waters of 
the United States,'' which are provided at parts 328 and 329 of this 
title, respectively. Use of resources as compensatory mitigation that 
are not otherwise subject to regulation under Section 404 of the Clean 
Water Act and/or Sections 9 or 10 of the Rivers and Harbors Act of 1899 
does not in and of itself make them subject to such regulation.
    (c) Sequencing. Pursuant to these requirements, the district 
engineer will issue a section 404 permit only upon a determination that 
the permit applicant has taken all appropriate and practicable steps to 
avoid and minimize adverse impacts to waters of the United States. 
Practicable means available and capable of being done after taking into 
consideration cost, existing technology, and logistics in light of 
overall project purposes. Compensatory mitigation for unavoidable 
impacts may be required to ensure that a section 404 activity complies 
with the Section 404(b)(1) Guidelines. Compensatory mitigation may also 
be required to ensure that an activity requiring authorization under 
Section 404 of the Clean Water Act and/or Sections 9 or 10 of the 
Rivers and Harbors Act of 1899 is not contrary to the public interest.
    (d) Accounting for regional variations. Where appropriate, district 
engineers shall account for regional characteristics of aquatic 
resource types, functions, services, and values when determining 
performance standards and monitoring requirements for compensatory 
mitigation projects.


Sec.  332.2  Definitions.

    For the purposes of this part, the following terms are defined:
    Adaptive management means the development of a management strategy 
that anticipates the challenges associated with likely future impacts 
to the aquatic resource functions of the mitigation site. It 
acknowledges the risk and uncertainty of compensatory mitigation 
projects and allows modification of those projects to optimize 
performance. The process will provide guidance on the selection of 
appropriate remedial measures that will ensure the continued adequate 
provision of aquatic resource function and involves analysis of 
monitoring results to identify potential problems of a compensatory 
project and identification of measures to rectify those problems.
    Buffer means an upland and/or riparian area that protects and/or 
enhances aquatic resource functions associated with wetlands, rivers, 
streams, lakes, marine, and estuarine systems from disturbances 
associated with adjacent land uses.
    Compensatory mitigation means the restoration (re-establishment or 
rehabilitation), establishment (creation), enhancement, and/or in 
certain circumstances preservation of aquatic resources for the 
purposes of compensating for unavoidable adverse impacts which remain 
after all appropriate and practicable avoidance and minimization has 
been achieved.
    Compensatory mitigation project means a restoration, establishment, 
enhancement, and/or preservation activity implemented by the permittee 
as a requirement of a DA permit (i.e.,

[[Page 15535]]

permittee-responsible mitigation), or by a third party (e.g., a 
mitigation bank).
    Credit means a unit of measure (e.g., a functional or area measure) 
representing the accrual or attainment of aquatic functions at a 
compensatory mitigation site. The measure of function is based on the 
aquatic resources restored, established, enhanced, or preserved.
    DA means Department of the Army.
    Days means calendar days.
    Debit means a unit of measure (e.g., a functional or area measure) 
representing the loss of aquatic functions at an impact or project 
site. The measure of function is based on the aquatic resources 
impacted by the authorized activity.
    Enhancement means the manipulation of the physical, chemical, or 
biological characteristics of an aquatic resource to heighten, 
intensify, or improve a specific aquatic resource function(s). 
Enhancement results in the gain of selected aquatic resource 
function(s), but may also lead to a decline in other aquatic resource 
function(s). Enhancement does not result in a gain in aquatic resource 
area.
    Establishment (creation) means the manipulation of the physical, 
chemical, or biological characteristics present to develop an aquatic 
resource that did not previously exist at an upland or deepwater site. 
Establishment results in a gain in aquatic resource area.
    Functional capacity means the degree to which an area of aquatic 
resource performs a specific function.
    Functions means the physical, chemical, and biological processes 
that occur in aquatic resources and other ecosystems.
    Impact means adverse effect.
    In-kind means a resource type that is structurally and/or 
functionally similar to the impacted resource type.
    Interagency Review Team (IRT) means an interagency group of 
Federal, Tribal, State, and/or local regulatory and resource agency 
representatives that reviews documentation for, and advises the 
district engineer on, the establishment and management of a mitigation 
bank.
    Mitigation bank means a site, or suite of sites, where aquatic 
resources such as wetlands or streams are restored, established, 
enhanced, and/or preserved for the purpose of providing compensatory 
mitigation for authorized impacts to similar resources. Third-party 
mitigation banks generally sell compensatory mitigation credits to 
permittees whose obligation to provide mitigation is then transferred 
to the mitigation bank sponsor. The operation and use of a mitigation 
bank are governed by a mitigation banking instrument.
    Mitigation banking instrument means the legal document for the 
establishment, operation, and use of a mitigation bank.
    Off-site means an area that is neither located on the same parcel 
of land as the impact site, nor on a parcel of land contiguous to or 
near the parcel containing the impact site.
    On-site means an area located on the same parcel of land as the 
impact site, or on a parcel of land contiguous to or near the impact 
site.
    Out-of-kind means a resource type that is structurally and/or 
functionally different than the impacted resource type.
    Performance standards are observable or measurable attributes that 
are used to determine if a compensatory mitigation project meets its 
objectives.
    Permittee-responsible mitigation means an aquatic resource 
restoration, establishment, enhancement, and/or preservation activity 
undertaken by the permittee (or an authorized agent or contractor) to 
provide compensatory mitigation for which the permittee retains full 
responsibility.
    Preservation means the removal of a threat to, or preventing the 
decline of, aquatic resources by an action in or near those aquatic 
resources. This term includes activities commonly associated with the 
protection and maintenance of aquatic resources through the 
implementation of appropriate legal and physical mechanisms. 
Preservation does not result in a gain of aquatic resource area or 
functions.
    Re-establishment means the manipulation of the physical, chemical, 
or biological characteristics of a site with the goal of returning 
natural/historic functions to a former aquatic resource. Re-
establishment results in rebuilding a former aquatic resource and 
results in a gain in aquatic resource area.
    Reference aquatic resources are aquatic resources that represent 
the range of variability exhibited by a regional class of aquatic 
resources as a result of natural processes and anthropogenic 
disturbances.
    Rehabilitation means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of repairing 
natural/historic functions to a degraded aquatic resource. 
Rehabilitation results in a gain in aquatic resource function, but does 
not result in a gain in aquatic resource area.
    Restoration means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of returning 
natural/historic functions to a former or degraded aquatic resource. 
For the purpose of tracking net gains in aquatic resource area, 
restoration is divided into two categories: re-establishment and 
rehabilitation.
    Riparian areas are lands adjacent to a waterbody. Riparian areas 
are transitional between terrestrial and aquatic ecosystems, through 
which surface and subsurface hydrology connects waterbodies with their 
adjacent uplands. Riparian areas are adjacent to streams, lakes, and 
estuarine-marine shorelines and provide a variety of ecological 
functions and services and help improve or maintain local water 
quality.
    Service area means the geographic area within which impacts can be 
mitigated at a particular mitigation bank, as designated in its 
instrument.
    Services means the benefits that human populations receive from 
functions that occur in aquatic resources and other ecosystems.
    Sponsor means any public or private entity responsible for 
establishing and, in most circumstances, operating a mitigation bank.
    Standard permit means a standard, individual permit issued under 
the authority of Section 404 of the Clean Water Act and/or Sections 9 
or 10 of the Rivers and Harbors Act of 1899.
    Values means the utility or satisfaction that humans derive from 
aquatic resource services. Values can be described in monetary terms or 
in qualitative terms, although many of the values associated with 
aquatic resources cannot be easily monetized. Values can be either use 
values (e.g., recreational enjoyment) or non-use values (e.g., 
stewardship, biodiversity).
    Watershed plan means a plan developed by federal, tribal, state, 
and/or local government agencies, in consultation with relevant 
stakeholders. A watershed plan addresses ecological conditions in the 
watershed, multiple stakeholder interests, and land uses. Watershed 
plans may also identify priority sites for aquatic resource restoration 
and protection. Examples of watershed plans include special area 
management plans, advance identification programs, and watershed 
management plans.


Sec.  332.3  General compensatory mitigation requirements.

    (a) General considerations. The fundamental objective of 
compensatory mitigation is to offset environmental losses resulting 
from unavoidable impacts to waters of the United States authorized by 
DA permits. The district engineer must determine the

[[Page 15536]]

compensatory mitigation to be required in a DA permit, based on what is 
available, practicable, and capable of compensating for the aquatic 
resource functions that will be lost as a result of the permitted 
activity. In making this determination, the district engineer must 
assess the likelihood for ecological success and sustainability, the 
location of the compensation site relative to the impact site and their 
significance within the watershed, and the economic costs of the 
compensatory mitigation. Compensatory mitigation requirements must be 
commensurate with the amount and type of impact that is associated with 
a particular DA permit. Permit applicants are responsible for proposing 
an appropriate compensatory mitigation option to offset unavoidable 
impacts.
    (b) Location and type of compensatory mitigation. (1) Where project 
impacts are located within the service area of an approved mitigation 
bank, and the mitigation bank has credits available for the type of 
resource impacted, the project's compensatory mitigation requirements 
may be met by the purchase of an appropriate number of credits from the 
mitigation bank.
    (2) Where practicable and appropriate, the district engineer will 
require that the location and aquatic resource type of permittee-
responsible compensatory mitigation necessary to offset anticipated 
impacts be consistent with an established watershed plan or be 
determined using the principles of a watershed approach as outlined in 
paragraph (c) of this section. The district engineer and the IRT should 
also use a watershed approach to the extent practicable in reviewing 
mitigation banking instruments.
    (3) Where reliance on a watershed plan or approach is not 
practicable, the district engineer will consider opportunities to 
offset anticipated aquatic resource impacts by requiring on-site and 
in-kind compensatory mitigation. The district engineer must also 
consider the practicability of on-site compensatory mitigation and its 
compatibility with the proposed project.
    (4) If, after considering opportunities for on-site, in-kind 
compensatory mitigation as provided in paragraph (b)(3) of this 
section, the district engineer determines that these compensatory 
mitigation opportunities are not practicable, are unlikely to 
compensate for the permitted activity, or will be incompatible with the 
proposed project, and an alternative, practicable off-site and/or out-
of-kind mitigation opportunity is identified that has a greater 
likelihood of offsetting the permitted activity, the district engineer 
shall require that this alternative compensatory mitigation be 
provided. In general, compensatory mitigation should be located within 
the same watershed as the impact site, and should be located where it 
is most likely to successfully replace lost functions, services, and 
values, taking into account such watershed scale features as aquatic 
habitat diversity, habitat connectivity, relationships to hydrologic 
sources (including the availability of water rights), and compatibility 
with adjacent land uses.
    (c) Watershed approach to compensatory mitigation. (1) The district 
engineer must use a watershed approach to establish compensatory 
mitigation requirements in DA permits to the extent appropriate and 
practicable. Where an applicable watershed plan is available, the 
watershed approach should be based on the existing plan. Where no such 
plan is available, the watershed approach should be based on 
information provided by the project sponsor or available from other 
sources. The ultimate goal of a watershed approach is to maintain and 
improve the quality and quantity of aquatic resources within watersheds 
through strategic selection of compensatory mitigation sites.
    (2) Considerations. (i) A watershed approach to compensatory 
mitigation considers the importance of landscape position and resource 
type of compensatory mitigation projects for the ecological functions 
and sustainability of aquatic resources within the watershed. Such an 
approach considers how the types and locations of compensatory 
mitigation projects will provide the desired aquatic resource 
functions, and will continue to function over time in a changing 
landscape. It also considers the habitat requirements of important 
species, habitat loss or conversion trends, sources of watershed 
impairment, and current development trends, as well as the requirements 
of other regulatory and non-regulatory programs that affect the 
watershed, such as storm water management or habitat conservation 
programs. It includes the protection and maintenance of terrestrial 
resources, such as non-wetland riparian areas and uplands, when those 
resources contribute to or improve the overall ecological functioning 
of aquatic resources in the watershed.
    (ii) Locational factors (e.g., hydrology, surrounding land use) are 
important to the success of compensatory mitigation for impacted 
habitat functions and values and may lead to siting of such mitigation 
away from the project area. However, consideration should also be given 
to functions, services, and values (e.g., water quality, flood control, 
shoreline protection) that will likely need to be addressed at or near 
the areas impacted by the permitted project.
    (iii) A watershed approach to compensatory mitigation may involve 
planning efforts to inventory historic and existing aquatic resources, 
including identification of degraded aquatic resources, and planning 
efforts to identify immediate and long-term aquatic resource needs 
within watersheds that can be met through permittee-responsible 
mitigation projects or mitigation banks. Watershed planning efforts may 
identify and/or prioritize aquatic resources that are important for 
maintaining and restoring ecological functions of the watershed.
    (3) Information Needs. The use of a watershed approach is based on 
analysis of information regarding watershed conditions and needs. Such 
information includes: Current trends in habitat loss or conversion, 
cumulative impacts of past development activities, current development 
trends, the presence and needs of sensitive species, site conditions 
that favor or hinder the success of mitigation projects, chronic 
environmental problems such as flooding or poor water quality, and 
local watershed goals and priorities. This information may be contained 
in an existing watershed plan or may be available from other sources. 
The level of information and analysis needed to support a watershed 
approach must be commensurate with the scope and scale of the proposed 
project requiring a DA permit, as well as the functions lost as a 
result of that project.
    (d) Site selection. The compensatory mitigation project site must 
be ecologically suitable for providing the desired aquatic resource 
functions. In determining the ecological suitability of the 
compensatory mitigation project site, the district engineer must 
consider the following factors:
    (1) Hydrological conditions, soil characteristics, and other 
physical and chemical characteristics;
    (2) Watershed-scale features, such as aquatic habitat diversity, 
habitat connectivity, and other landscape scale functions;
    (3) The size and location of the compensatory mitigation site 
relative to hydrologic sources (including the availability of water 
rights) and other ecological features;
    (4) Compatibility with adjacent land uses and watershed management 
plans;
    (5) Reasonably foreseeable effects the compensatory mitigation 
project will have on ecologically important aquatic or terrestrial 
resources (e.g., shallow sub-tidal habitat, mature forests),

[[Page 15537]]

cultural sites, or habitat for Federally- or State-listed threatened 
and endangered species; and
    (6) Other relevant factors including, but not limited to, 
development trends, anticipated land use changes, habitat status and 
trends, local or regional goals for the restoration or protection of 
particular habitat types or functions (e.g., re-establishment of 
habitat corridors or habitat for species of concern), water quality 
goals, floodplain management goals, and the relative potential for 
chemical contamination of the aquatic resources.
    (e) Mitigation type. (1) In general, in-kind mitigation is 
preferable to out-of-kind mitigation because it is most likely to 
compensate for the functions, services, and values lost at the impact 
site. For example, restoration of wetlands is most likely to compensate 
for unavoidable impacts to wetlands, while restoration of streams is 
most likely to compensate for unavoidable impacts to streams. Thus, 
except as provided in paragraph (e)(2) of this section, the district 
engineer should require that compensatory mitigation be of a similar 
type to the impacted aquatic resource.
    (2) If the district engineer determines through the decision 
framework in paragraph (b) of this section that out-of-kind 
compensatory mitigation will serve the aquatic resource needs of the 
watershed, the district engineer may authorize the use of such out-of-
kind compensatory mitigation. Factors that should be considered in 
making this determination include historic loss of habitat types within 
the watershed, the needs of sensitive species, appropriate mixes of 
habitat to maintain ecosystem viability, the relative likelihood of 
success in establishing different habitat types, needs for ecosystem 
services, and local watershed goals and priorities. The basis for 
authorization of out-of-kind compensatory mitigation must be documented 
in the administrative record for the permit action.
    (f) Amount of compensatory mitigation. The district engineer must 
require an amount of compensatory mitigation for unavoidable impacts to 
aquatic resources sufficient to replace lost aquatic resource 
functions. In cases where functional assessment methods are available, 
appropriate, and practical to use, district engineers should use those 
functional assessment methods to determine how much compensatory 
mitigation should be required. If a functional assessment is not used, 
a minimum one-to-one acreage or linear foot replacement ratio should be 
used as a surrogate for functional replacement. The district engineer 
must require a mitigation ratio greater than one-to-one where necessary 
to account for the method of compensatory mitigation (e.g., 
preservation), differences between the functions lost at the impact 
site and the functions expected to be produced by the compensatory 
mitigation project, temporal losses of aquatic resource functions, and/
or the difficulty of restoring or establishing the desired aquatic 
resource type and functions. The rationale for the required replacement 
ratio must be documented in the administrative record for the permit 
action.
    (g) Use of mitigation banks. Mitigation banks may be used to 
compensate for impacts to aquatic resources authorized by general 
permits and individual permits, including after-the-fact permits.
    (h) Preservation. (1) Preservation may be used to provide 
compensatory mitigation for activities authorized by DA permits where:
    (i) The resources provide important physical, chemical, or 
biological functions for the watershed;
    (ii) The resources contribute to the ecological sustainability of 
the watershed;
    (iii) Preservation is determined by the district engineer to be 
appropriate and practicable;
    (iv) The resources are under threat of destruction or adverse 
modifications; and
    (v) The preserved site will be permanently protected through an 
appropriate real estate or other legal instrument (e.g., easement, 
title transfer to state resource agency or land trust).
    (2) Where preservation is used to provide compensatory mitigation, 
to the extent appropriate and practicable the preservation shall be 
done in conjunction with aquatic resource restoration, establishment, 
and/or enhancement activities. This requirement may be waived by the 
district engineer where preservation has been identified as a high 
priority using a watershed approach, as described in paragraph (c) of 
this section, but compensation ratios should be higher.
    (i) Buffers. District engineers may require that compensatory 
mitigation project sites include, and may provide compensatory 
mitigation credit for, the establishment and maintenance of riparian 
areas and/or upland buffers around the restored, established, enhanced, 
or preserved aquatic resources where necessary to ensure the long-term 
viability of those resources.
    (j) Relationship to other Federal, Tribal, State, and local 
programs. Compensatory mitigation projects for DA permits may also be 
used to compensate for environmental impacts authorized under other 
programs, such as Tribal, State, or local wetlands regulatory programs, 
the National Pollutant Discharge Elimination System Permit Program, 
Corps civil works projects, and Superfund removal and remedial actions, 
consistent with the terms and requirements of these programs and 
subject to the following considerations. The project must include 
appropriate compensatory mitigation for unavoidable impacts to aquatic 
resources authorized by the DA permit, over and above what would be 
required under other programs to address other impacts. Under no 
circumstances may the same credits be used to provide mitigation for 
more than one activity. However, where appropriate, compensatory 
mitigation projects, including mitigation banks, may be designed to 
holistically address requirements under multiple programs and 
authorities for the same activity. Except for projects undertaken by 
Federal agencies, or where Federal funding is specifically authorized 
to provide compensatory mitigation, Federally-funded wetland 
conservation projects undertaken for purposes other than compensatory 
mitigation, such as the Wetlands Reserve Program and the Partners for 
Wildlife Program activities, cannot be used for the purpose of 
generating compensatory mitigation credits for activities authorized by 
DA permits. However, compensatory mitigation credits may be generated 
by activities undertaken in conjunction with, but supplemental to, such 
programs in order to maximize the overall ecological benefits of the 
conservation project.
    (k) Permit conditions. The compensatory mitigation requirements for 
a DA permit, including the amount and type of compensatory mitigation, 
must be clearly stated in the special conditions of the individual 
permit or general permit verification (see 33 CFR 325.4 and 330.6(a)). 
The special conditions must be enforceable and describe the objectives 
of the compensatory mitigation project. The special conditions must 
also identify the party responsible for providing the compensatory 
mitigation. The special conditions must incorporate, by reference, 
compensatory mitigation plans approved by the district engineer. The 
performance standards and monitoring required for the compensatory 
mitigation project must also be clearly stated in the special 
conditions or the approved compensatory mitigation plan. The special 
conditions must also describe any required financial assurances or

[[Page 15538]]

long-term management provisions for the compensatory mitigation 
project. If a mitigation bank is used to provide the required 
compensatory mitigation, the special conditions must indicate which 
mitigation bank will be used, and specify the required number and type 
of credits the permittee is required to purchase.
    (l) Party responsible for compensatory mitigation. (1) The special 
conditions of the DA permit must clearly indicate the party or parties 
responsible for the implementation, performance, and long-term 
management of the compensatory mitigation project.
    (2) For mitigation banks, the mitigation banking instrument must 
clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project.
    (3) If a mitigation bank is approved by the district engineer to 
provide required compensatory mitigation for a DA permit, the special 
conditions of that DA permit must indicate which mitigation bank will 
be used to provide that compensatory mitigation. In such cases, the 
mitigation bank assumes responsibility for providing the required 
compensatory mitigation after the permittee has secured those credits 
from the sponsor.
    (m) Timing. Implementation of the compensatory mitigation project 
shall be, to the maximum extent practicable, in advance of or 
concurrent with the activity causing the authorized impacts. Where it 
is not practicable to complete the initial physical and biological 
improvements required by the approved mitigation plan by the first full 
growing season following the impacts resulting from the permitted 
activity, the district engineer may require additional compensatory 
mitigation to offset temporal losses of aquatic functions that will 
result from the permitted activity.
    (n) Financial assurances. (1) The district engineer shall require 
sufficient financial assurances to ensure a high level of confidence 
that the compensatory mitigation project will be successfully 
completed, in accordance with applicable performance standards. In 
cases where an alternate mechanism is available to ensure a high level 
of confidence that the compensatory mitigation will be provided and 
maintained (e.g., a formal, documented commitment from a government 
agency or public authority) the district engineer may determine that 
financial assurances are not necessary for that compensatory mitigation 
project.
    (2) The amount of the required financial assurances must be 
determined by the district engineer, in consultation with the project 
sponsor, and must be based on the size and complexity of the 
compensatory mitigation project, the degree of completion of the 
project at the time of project approval, the likelihood of success, the 
past performance of the project sponsor, and any other factors the 
district engineer deems appropriate. Financial assurances may be in the 
form of performance bonds, escrow accounts, casualty insurance, letters 
of credit, legislative appropriations for government sponsored 
projects, or other appropriate instruments, subject to the approval of 
the district engineer. The rationale for determining the amount of the 
required financial assurances must be documented in the administrative 
record for the DA permit.
    (3) Financial assurances shall be phased out once the compensatory 
mitigation project has been determined by the district engineer to be 
successful in accordance with its performance standards. The DA permit 
or mitigation banking instrument must clearly specify the conditions 
under which the financial assurances are to be released to the 
permittee, sponsor, and/or other financial assurance provider, 
including, as appropriate, linkage to achievement of performance 
standards, adaptive management, or compliance with special conditions.
    (o) Compliance with applicable law. The compensatory mitigation 
project must comply with all applicable Federal, state, and local laws. 
The DA permit or mitigation banking instrument must not require 
participation by the Corps or any other Federal agency in project 
management, including receipt or management of financial assurances or 
long-term financing mechanisms, except as determined by the Corps or 
other agency to be consistent with its statutory authority, mission, 
and priorities.


Sec.  332.4  Planning and documentation.

    (a) Pre-application consultations. Potential applicants for 
standard permits are encouraged to participate in pre-application 
meetings with the Corps and appropriate agencies to discuss potential 
compensatory mitigation requirements and information needs.
    (b) Public review and comment. (1) For an activity that requires a 
standard DA permit pursuant to Section 404 of the Clean Water Act, the 
public notice for the proposed activity must explain how impacts 
associated with the proposed activity are to be avoided, minimized, and 
compensated for. This explanation shall address the amount, type, and 
location of any proposed compensatory mitigation, including any out-of-
kind mitigation, or indicate an intention to use an approved mitigation 
bank. The level of detail provided in the public notice must be 
commensurate with the scope and scale of the project.
    (2) For activities authorized by general permits, review of 
compensatory mitigation plans must be conducted in accordance with the 
terms and conditions of those general permits and applicable 
regulations.
    (c) Mitigation plan. (1) The permittee or mitigation bank sponsor 
must prepare a draft mitigation plan and submit it to the district 
engineer for review. After addressing any comments provided by the 
district engineer, the permittee or sponsor must prepare a final 
mitigation plan, which must be approved by the district engineer prior 
to issuing the DA permit or approving the mitigation banking 
instrument. The approved mitigation plan must be incorporated into the 
DA permit or mitigation banking instrument by reference. The mitigation 
plan must include the items described in paragraphs (c)(2) through 
(c)(14) of this section, except that the district engineer may waive 
specific items if he determines that they are not applicable to a 
particular project. Permittees who plan to fulfill their compensatory 
mitigation obligations by purchasing credits from an approved 
mitigation bank need only include the name of the mitigation bank and 
the items described in paragraphs (c)(5) and (c)(6) of this section in 
their mitigation plan. The level of detail of the mitigation plan 
should be commensurate with the scale and scope of the project.
    (2) Objectives. A description of the aquatic resource type(s) and 
amount(s) that will be provided, the method of compensation (i.e., 
restoration, establishment, enhancement, and/or preservation), and the 
manner in which the aquatic resource functions of the compensatory 
mitigation project will address the needs of the watershed, ecoregion, 
or other geographic area of interest.
    (3) Site selection. A description of the factors considered during 
the site selection process. This should include consideration of 
watershed needs, on-site alternatives where applicable, and the 
practicability of accomplishing ecologically self-sustaining aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at the compensatory mitigation project site.
    (4) Site protection instrument. A description of the legal 
arrangements and instrument, including site ownership, that will be 
used to ensure

[[Page 15539]]

the long-term protection of the compensatory mitigation project site.
    (5) Baseline information. A description of the ecological 
characteristics of the proposed compensatory mitigation project site 
and, in the case of an application for a DA permit, the impact site. 
This may include descriptions of historic and existing plant 
communities, historic and existing hydrology, soil conditions, and 
other site characteristics. A prospective permittee planning to 
purchase credits from an approved mitigation bank only needs to provide 
baseline information about the impact site, not the mitigation bank 
site.
    (6) Determination of credits. A description of the number of 
credits to be provided, including a brief explanation of the rationale 
for this determination. For permittee-responsible mitigation, this 
should include an explanation of how the compensatory mitigation 
project compensates for unavoidable impacts to aquatic resources 
resulting from the permitted activity. For mitigation banks, it should 
include a description of resource types for which the mitigation bank 
may be used as compensatory mitigation and the number of credits to be 
provided for each resource type. This may include provisions for 
adjusting credits in the future, both downward (if performance 
standards are not met) or upward (if performance standards are 
significantly exceeded). For permittees intending to purchase credits 
from an approved mitigation bank, it should include the number and type 
of credits to be purchased and how these were determined.
    (7) Mitigation work plan. Detailed written specifications and work 
descriptions for the compensatory mitigation project, including, but 
not limited to, the geographic boundaries of the project; construction 
methods, timing, and sequence; source(s) of water, including 
connections to existing waters and uplands; plant species to be planted 
at the site; the use of natural regeneration or seed banks to provide 
the desired plant community at the site; plans to control invasive 
plant species; the proposed grading plan, including elevations and 
slopes of the substrate; erosion control measures; and proposed stream 
geomorphology, if applicable.
    (8) Maintenance plan. A description and schedule of maintenance 
requirements to ensure the continued viability of the resource once 
initial construction is completed.
    (9) Performance standards. Ecologically-based standards that will 
be used to determine whether the compensatory mitigation project is 
achieving its objectives.
    (10) Monitoring requirements. A description of parameters to be 
monitored in order to determine if the compensatory mitigation project 
is on track to meet performance standards and if adaptive management is 
needed. A schedule for monitoring and reporting on monitoring results 
to the district engineer must be included.
    (11) Long-term management plan. A description of how the 
compensatory mitigation project will be managed after performance 
standards have been achieved to ensure the long-term sustainability of 
the resource, including the party responsible for long-term management 
and long-term financing mechanisms.
    (12) Adaptive management plan. A description of procedures to 
address potential changes in site conditions or other components of the 
compensatory mitigation project, including the party or parties 
responsible for implementing adaptive management measures. The adaptive 
management plan will guide decisions for revising compensatory 
mitigation plans and conducting remediation to provide aquatic resource 
functions.
    (13) Financial assurances. A description of financial assurances 
that will be provided and how they are sufficient to ensure a high 
level of confidence that the compensatory mitigation project will be 
successfully completed, in accordance with its performance standards.
    (14) Other information. The district engineer may require 
additional information as necessary to determine the appropriateness, 
feasibility, and practicability of the compensatory mitigation project.


Sec.  332.5  Ecological performance standards.

    The mitigation plan must contain performance standards that will be 
used to assess whether the project is achieving its objectives. 
Performance standards should relate to the objectives of the 
compensatory mitigation project, so that the project can be objectively 
evaluated to determine if it is developing into the desired resource 
type and providing the expected functions. Performance standards should 
be based on attributes that are objective, verifiable, and can be 
measured with a reasonable amount of effort. Performance standards may 
be based on variables or measures of functional capacity described in 
functional assessment methodologies, measurements of hydrology or other 
aquatic resource characteristics, and/or comparisons to reference 
aquatic resources of similar type and landscape position. Performance 
standards based on measurements of hydrology should take into 
consideration the hydrologic variability exhibited by reference aquatic 
resources, especially wetlands. Where practicable, performance 
standards should take into account the expected stages of the aquatic 
resource development process, in order to allow early identification of 
potential problems and appropriate adaptive management.


Sec.  332.6  Monitoring.

    (a) General. Monitoring the compensatory mitigation project site is 
necessary to determine if the project is meeting its performance 
standards, and to determine if remediation is necessary to ensure that 
the compensatory mitigation project is accomplishing its objectives. 
The district engineer must require the submission of monitoring reports 
to assess the development and condition of the compensatory mitigation 
project, unless he determines that monitoring is not practicable for 
that compensatory mitigation project. The mitigation plan must address 
the monitoring requirements for the compensatory mitigation project, 
including the parameters to be monitored, the length of the monitoring 
period, the party responsible for conducting the monitoring, the 
frequency for submitting monitoring reports to the district engineer, 
and the party responsible for submitting those monitoring reports to 
the district engineer.
    (b) Monitoring period. The mitigation plan must provide for a 
monitoring period that is sufficient to demonstrate that the 
compensatory mitigation project has met performance standards, but not 
less than five years. A longer monitoring period must be required for 
aquatic resources with slow development rates (e.g., forested wetlands, 
bogs). Following project implementation, the district engineer may 
waive the remaining monitoring requirements upon a determination that 
the compensatory mitigation project has achieved its performance 
standards. Conversely the district engineer may extend the original 
monitoring period upon a determination that performance standards have 
not been met or the compensatory mitigation project is not on track to 
meet them. The district engineer may also revise monitoring 
requirements when remediation is required.
    (c) Monitoring reports. (1) The district engineer must determine 
the information to be included in monitoring reports. This information

[[Page 15540]]

should be sufficient for the district engineer to determine how the 
compensatory mitigation project is progressing towards meeting its 
performance standards, and may include plans, maps, and photographs to 
illustrate site conditions. Monitoring reports may also include the 
results of functional assessments used to provide quantitative or 
qualitative measures of the functions provided by the compensatory 
mitigation project site.
    (2) Monitoring reports should be provided by the district engineer 
to interested Federal, Tribal, State, and local resource agencies. The 
district engineer and representatives of Federal, Tribal, State, and/or 
local resource agencies may conduct regular (e.g., annual) on-site 
inspections, as appropriate, to monitor performance of the mitigation 
site. Monitoring reports must be made available to the public upon 
request.


Sec.  332.7  Management.

    (a) Site protection. The aquatic habitats, riparian areas, buffers, 
and uplands that comprise the overall compensatory mitigation project 
should be provided long-term protection, through appropriate real 
estate instruments such as conservation easements held by, or transfer 
of title to, entities such as Federal, Tribal, State, or local resource 
agencies, non-profit conservation organizations, or private land 
managers, or other acceptable means for government property, such as 
Federal facility management plans or integrated natural resources 
management plans. The real estate instrument for the long-term 
protection of the compensatory mitigation site should restrict or 
prohibit incompatible uses (e.g., clear cutting) that might otherwise 
jeopardize the objectives of the compensatory mitigation project. Where 
appropriate, multiple instruments recognizing compatible uses (e.g., 
fishing or grazing rights) may be used.
    (b) Sustainability. Compensatory mitigation projects should be 
designed, to the maximum extent practicable, to be self-sustaining once 
performance standards have been achieved. This includes minimization of 
active engineering features (e.g., pumps) and appropriate siting to 
ensure that natural hydrology and landscape context will support long-
term sustainability. Where active long-term management and maintenance 
are necessary to ensure long-term sustainability (e.g., prescribed 
burning, invasive species control, maintenance of water control 
structures, easement enforcement), the responsible party must provide 
for such management and maintenance. This includes the provision of 
long-term financing mechanisms where necessary.
    (c) Adaptive management. (1) If monitoring or other information 
indicates that the compensatory mitigation project is not progressing 
towards meeting its performance standards as anticipated, the 
responsible party must notify the district engineer. The district 
engineer must require remediation to correct the deficiencies in the 
project to the extent appropriate and practicable. In determining 
appropriate and practicable remediation, the district engineer will 
consider whether the compensatory mitigation project is providing 
ecological benefits comparable to the original objectives of the 
compensatory mitigation project.
    (2) The district engineer, in consultation with the responsible 
party (and other Federal, Tribal, state, and local agencies, as 
appropriate), will determine the appropriate remediation requirements. 
The required remediation may include site modifications, design 
changes, revisions to maintenance requirements, and revised monitoring 
requirements. The remediation must be designed to ensure that the 
modified compensatory mitigation project provides aquatic resource 
functions comparable to those described in the mitigation plan 
objectives.
    (3) The performance standards must be revised where necessary to 
assess the success of remediation efforts and/or the realization of 
comparable ecological benefits that were considered in determining 
remediation requirements.
    (d) Long-term management. (1) The permit conditions or mitigation 
banking instrument must identify the party responsible for the 
ownership and long-term management of the compensatory mitigation 
project, once performance standards have been achieved. The permit 
conditions or mitigation banking instrument may contain provisions 
allowing the permittee or sponsor to transfer the long-term management 
responsibilities of the compensatory mitigation project site to a land 
stewardship entity, such as a public agency, non-governmental 
organization, or private land manager, after review and approval by the 
district engineer. The land stewardship entity need not be identified 
in the original permit or mitigation banking instrument, as long as the 
future transfer of long-term management responsibility is approved by 
the district engineer.
    (2) Provisions necessary for long-term financing must be included 
in the original permit or mitigation banking instrument. Appropriate 
long-term financing mechanisms include endowments, trusts, contractual 
arrangements with future responsible parties, and other appropriate 
financial instruments. In cases where the long-term management entity 
is a public authority or government agency, a formal commitment to 
accept stewardship responsibilities for the project is acceptable in 
lieu of specific financial arrangements.


Sec.  332.8  Mitigation banks.

    (a) General considerations. (1) All mitigation banks must have an 
approved instrument signed by the sponsor and the district engineer 
prior to being used to provide compensatory mitigation for DA permits. 
To the maximum extent practicable, mitigation banks must be planned and 
designed to be self-sustaining over time, but some active management 
and maintenance may be required to ensure their long-term viability and 
sustainability. Examples of acceptable management activities include 
maintaining fire dependent habitat communities in the absence of 
natural fire and controlling invasive exotic plant species.
    (2) Mitigation banks may be sited on public or private lands. 
Siting on public land is only permitted when done in accordance with 
the mission and policies of the land management agency and with its 
written approval. Credits for mitigation banks on public land must be 
based solely on aquatic resource functions provided by the mitigation 
bank, over and above those provided by public programs already planned 
or in place.
    (3) All mitigation banks must comply with the standards in this 
part, if they are to be used to provide compensatory mitigation for 
activities authorized by DA permits, regardless of whether they are 
sited on public or private lands and whether the sponsor is a 
governmental or private entity.
    (b) Interagency Review Team. (1) The district engineer will 
establish an Interagency Review Team (IRT) to review documentation for 
the establishment and management of the mitigation bank. The district 
engineer or his designated representative serves as Chair of the IRT. 
In cases where a mitigation bank is proposed to satisfy the 
requirements of another Federal, Tribal, State, or local program, in 
addition to compensatory mitigation requirements of DA permits, the 
district engineer may designate an appropriate official of the 
responsible agency as co-Chair of the IRT.
    (2) In addition to the Corps, representatives from the U.S. 
Environmental Protection Agency, U.S.

[[Page 15541]]

Fish and Wildlife Service, NOAA Fisheries, the Natural Resources 
Conservation Service, and other Federal agencies, as appropriate, may 
participate in the IRT. The IRT may also include representatives from 
Tribal, State, and local regulatory and resource agencies, where such 
agencies have authorities and/or mandates directly affecting, or 
affected by, the establishment, operation, or use of the mitigation 
bank. The district engineer will seek to include all public agencies 
with a substantive interest in the establishment of the mitigation bank 
on the IRT, but retains final authority over its composition.
    (3) The primary role of the IRT is to facilitate the establishment 
of mitigation banks through the development of mitigation banking 
instruments. The IRT will review the prospectus, mitigation plan, and 
mitigation banking instrument and provide comments to the district 
engineer. Members of the IRT may also sign the mitigation banking 
instrument, if they so choose. By signing the mitigation banking 
instrument, the IRT members indicate their agreement with the terms of 
the instrument. The IRT will also advise the district engineer in 
assessing monitoring reports, recommending remedial measures, approving 
credit release, and approving modifications to a mitigation banking 
instrument.
    (4) The district engineer will give full consideration to the 
comments and advice of the IRT. However, the district engineer alone 
retains final authority for approval of the mitigation banking 
instrument. However, in cases where the mitigation bank is also 
intended to satisfy the requirements of another agency, that agency 
must also approve the mitigation banking instrument before it can be 
used to satisfy such requirements.
    (c) Review process. (1) The sponsor is responsible for preparing 
all documentation associated with establishment of the mitigation bank, 
including the prospectus, mitigation plan, and mitigation banking 
instrument. The prospectus provides an overview of the mitigation bank 
project and serves as the basis for public and initial IRT comment. The 
mitigation plan, as described in Sec.  332.4(c), provides detailed 
plans and specifications for the mitigation bank. The mitigation 
banking instrument provides the authorization for the mitigation bank 
to provide credits to be used as compensatory mitigation for DA 
permits. The mitigation banking instrument must also incorporate the 
mitigation plan by reference.
    (2) Prospectus. The prospectus must provide a summary of the 
information that will be included in the mitigation plan, at a 
sufficient level of detail to support informed public and IRT comment. 
In particular, it must describe the objectives of the proposed 
mitigation bank, how the mitigation bank will be established and 
operated, the proposed service area, and the general need for, and 
technical feasibility of, the proposed mitigation bank. The prospectus 
must discuss the ecological suitability of the site to achieve the 
objectives of the proposed mitigation bank. This includes the physical, 
chemical, and biological characteristics of the site and how that site 
will support the planned types of aquatic resources and functions. It 
should also discuss the proposed ownership arrangements and long-term 
management of the mitigation bank. The review process begins when the 
sponsor submits a complete prospectus to the district engineer. The 
district engineer will notify the sponsor within 15 days whether or not 
a submitted prospectus is complete.
    (3) Preliminary review of prospectus. Prior to submitting a 
prospectus, the sponsor may elect to submit a draft prospectus to the 
district engineer for comment and consultation. The district engineer 
will provide copies of the draft prospectus to the IRT, and provide 
comments back to the sponsor within 30 days. Any comments from IRT 
members will also be forwarded to the sponsor. This preliminary review 
is optional but is strongly recommended. It is intended to identify 
potential issues early so that the sponsor may attempt to address those 
issues prior to the start of the formal review process.
    (4) Public review and comment. Within 30 days of receipt of a 
complete prospectus, the district engineer will provide public notice 
of the proposed mitigation bank, in accordance with the public notice 
procedures at 33 CFR 325.3. The public notice must include a summary of 
the prospectus and indicate that the full prospectus is available to 
the public for review upon request. The comment period for public 
notice will generally be 30 days, unless the district engineer 
determines that a longer or shorter comment period is appropriate. The 
district engineer will notify the sponsor if the comment period is 
extended beyond 30 days, including an explanation of why the longer 
comment period is necessary. Copies of all comments received in 
response to the public notice must be distributed to the other IRT 
members and to the sponsor within 15 days of the close of the public 
comment period. The district engineer and IRT members may also provide 
comments to the sponsor at this time, and copies of any such comments 
will also be distributed to all IRT members. If the construction of a 
mitigation bank requires DA authorization through the standard permit 
process, the public notice requirement may be satisfied through the 
public notice provisions of the standard permit processing procedures, 
provided all of the relevant information is provided.
    (5) Draft mitigation banking instrument. After considering comments 
from the district engineer, the IRT, and the public, if the sponsor 
chooses to proceed with establishment of the mitigation bank, he must 
prepare a draft mitigation banking instrument and submit it to the 
district engineer. The draft mitigation banking instrument should be 
based on the prospectus and must describe in detail the physical and 
legal characteristics of the mitigation bank and how it will be 
established and operated. The draft mitigation banking instrument must 
include the following information:
    (i) Mitigation plan, including all applicable items listed in Sec.  
332.4(c)(2) through (14);
    (ii) Geographic service area of the mitigation bank. The service 
area is the watershed or other geographic area within which a 
mitigation bank is authorized to provide compensation for unavoidable 
impacts authorized by DA permits. The service area should be large 
enough to support an economically viable mitigation bank, but must not 
be larger than is appropriate to ensure that the aquatic resources 
provided by the mitigation bank will effectively compensate for adverse 
environmental impacts across the entire service area. The district 
engineer must consider relevant environmental and economic factors when 
approving the service area. The district engineer may also consider 
locally-developed standards and criteria. In urban areas, a U.S. 
Geological Survey 8-digit hydrologic unit code (HUC) watershed or a 
smaller watershed may be an appropriate service area. In rural areas, 
several contiguous 8-digit HUCs or a 6-digit HUC watershed may be an 
appropriate service area for the mitigation bank. The basis for 
determining the service area must be documented in writing and 
referenced in the mitigation banking instrument;
    (iii) Credit release schedule. Credit release must be tied to 
achievement of specific milestones. If the mitigation bank does not 
achieve appropriate milestones (e.g., performance standards) as 
anticipated, the district engineer may

[[Page 15542]]

modify the credit release schedule, including reducing the number of 
available credits or suspending credit sales altogether;
    (iv) Accounting procedures;
    (v) A provision stating that legal responsibility for providing the 
compensatory mitigation lies with the sponsor;
    (vi) Default and closure provisions; and
    (vii) Any other information deemed necessary by the district 
engineer.
    (6) IRT review. Upon receiving a draft mitigation banking 
instrument, the district engineer must provide copies of the draft 
instrument to the IRT members for a 30-day comment period. Following 
the comment period, the district engineer will discuss any comments 
with the appropriate agencies and with the sponsor. The district 
engineer will seek to resolve any issues using a consensus-based 
approach. Within 90 days of receipt of the complete draft mitigation 
banking instrument, the district engineer must notify the sponsor of 
the status of the IRT review. Specifically, the district engineer must 
indicate to the sponsor if the draft mitigation banking instrument is 
generally acceptable and what changes, if any, are needed. If there are 
significant unresolved concerns that may lead to a formal objection 
from one or more IRT members to the final mitigation banking 
instrument, the district engineer will indicate the nature of those 
concerns.
    (7) Final mitigation banking instrument. If the sponsor still 
wishes to proceed with establishment of the mitigation bank, he must 
submit a final mitigation banking instrument to the district engineer 
for approval. The final mitigation banking instrument should address 
any comments provided as a result of the IRT review process. The final 
mitigation banking instrument must be provided directly by the sponsor 
to all members of the IRT. Within 15 days of receipt of the final 
mitigation banking instrument, the district engineer will notify the 
IRT members whether or not he intends to approve the mitigation banking 
instrument. If no IRT member objects, by initiating the dispute 
resolution process in paragraph (d) of this section within 30 days of 
receipt of the final mitigation banking instrument, the district 
engineer will notify the sponsor of his final decision and, if the 
mitigation banking instrument is approved, arrange for it to be signed 
by the appropriate parties. If any IRT member initiates the dispute 
resolution process, the district engineer will notify the sponsor. 
Following conclusion of the dispute resolution process, the district 
engineer will notify the sponsor of his final decision, and if the 
mitigation banking instrument is approved, arrange for it to be signed 
by the appropriate parties. The final mitigation banking instrument 
must contain the types of information items listed in paragraphs 
(c)(5)(i) through (vii) of this section.
    (d) Dispute resolution process. (1) Within 15 days of receipt of 
the district engineer's notification of intent to approve a mitigation 
banking instrument, the Regional Administrator of the U.S. EPA, the 
Regional Director of the U.S. Fish and Wildlife Service, the Regional 
Director of the National Marine Fisheries Service, and/or other senior 
officials of agencies represented on the IRT may notify the district 
engineer and other IRT members by letter if they object to the approval 
of the proposed final mitigation banking instrument. This letter must 
include an explanation of the basis for the objection and, where 
feasible, offer recommendations for resolving the objections. If the 
district engineer does not receive any objections within this time 
period, he may proceed to final action on the mitigation banking 
instrument.
    (2) The district engineer must respond to the objection within 30 
days of receipt of the letter. The district engineer's response may 
indicate an intent to disapprove the mitigation banking instrument as a 
result of the objection, an intent to approve the mitigation banking 
instrument despite the objection, or may provide a modified mitigation 
banking instrument that attempts to address the objection. The district 
engineer's response must be provided to all IRT members.
    (3) Within 15 days of receipt of the district engineer's response, 
if the Regional Administrator or Regional Director is not satisfied 
with the response he may forward the issue to the Assistant 
Administrator, Office of Water of the U.S. EPA, the Assistant Secretary 
for Fish and Wildlife and Parks of the U.S. FWS, or the Undersecretary 
for Oceans and Atmosphere of NOAA, as appropriate, for review and must 
notify the district engineer by faxed letter (with copies to all IRT 
members) that the issue has been forwarded for Headquarters review. 
This step is available only to the IRT members representing these three 
Federal agencies, however other IRT members who do not agree with the 
district engineer's final decision do not have to sign the mitigation 
banking instrument or recognize the mitigation bank for purposes of 
their own programs and authorities. If an IRT member other than the one 
filing the original objection has a new objection based on the district 
engineer's response, he may use the first step in this procedure 
(paragraph (d)(1) of this section) to provide that objection to the 
district engineer.
    (4) If the issue has not been forwarded to the objecting agency's 
Headquarters, then the district engineer may proceed with final action 
on the mitigation banking instrument. If the issue has been forwarded 
to the objecting agency's Headquarters, the district engineer must hold 
in abeyance the final action on the mitigation banking instrument, 
pending Headquarters level review described below.
    (5) Within 20 days from the date of the letter requesting 
Headquarters level review, the Assistant Administrator, Office of 
Water, the Assistant Secretary for Fish and Wildlife and Parks, or the 
Undersecretary for Oceans and Atmosphere must either notify the 
Assistant Secretary of the Army (Civil Works) (ASA(CW)) that further 
review will not be requested, or request that the ASA(CW) review the 
draft mitigation banking instrument.
    (6) Within 30 days of receipt of the letter from the objecting 
agency's Headquarters request for ASA(CW)'s review of the draft 
mitigation banking instrument, the ASA(CW), through the Director of 
Civil Works, must review the draft mitigation banking instrument and 
advise the district engineer on how to proceed with final action on 
that instrument. The ASA(CW) must immediately notify the Assistant 
Administrator, Office of Water, the Assistant Secretary for Fish and 
Wildlife and Parks, and/or the Undersecretary for Oceans and Atmosphere 
of the final decision.
    (7) In cases where the dispute resolution procedure is used, the 
district engineer must notify the sponsor of his final decision within 
150 days of receipt of the final mitigation banking instrument.
    (e) Extension of deadlines. (1) The deadlines in paragraphs (c) and 
(d) of this section may be extended by the district engineer at his 
sole discretion in cases where:
    (i) Compliance with other applicable laws, such as Endangered 
Species Act Section 7 consultation, is required;
    (ii) Timely submittal of information necessary for the review of 
the proposed mitigation bank is not accomplished by the sponsor; or
    (iii) Information that is essential to the district engineer's 
response cannot be reasonably obtained within the specified time frame.

[[Page 15543]]

    (2) In such cases, the district engineer must promptly notify the 
sponsor in writing of the extension and the reason for it. Such 
extensions shall be for the minimum time necessary to resolve the issue 
necessitating the extension.
    (f) Modification of mitigation banking instruments. (1) In general, 
modification of an approved mitigation banking instrument must follow 
the procedures in paragraph (c) of this section, unless the district 
engineer determines that the streamlined review process described in 
paragraph (f)(2) of this section is warranted. The streamlined review 
process may be used for changes reflecting adaptive management of the 
mitigation bank, changes in credit release schedules, and changes that 
the district engineer determines are non-significant.
    (2) If the district engineer determines that the streamlined review 
process is warranted, he must notify the IRT members and the sponsor of 
this determination and provide them with copies of the proposed 
modification. IRT members and the sponsor have 30 days to notify the 
district engineer if they have concerns with the proposed modification. 
If IRT members or the sponsor notify the district engineer of such 
concerns, the district engineer shall attempt to resolve those 
concerns. Within 60 days of providing the proposed modification to the 
IRT, the district engineer must notify the IRT members of his intent to 
approve or disapprove the proposed modification. If no IRT member 
objects, by initiating the dispute resolution process in paragraph (d) 
of this section, within 15 days of receipt of this notification, the 
district engineer will notify the sponsor of his final decision and, if 
the modification is approved, arrange for it to be signed by the 
appropriate parties. If any IRT member initiates the dispute resolution 
process, the district engineer will so notify the sponsor. Following 
conclusion of the dispute resolution process, the district engineer 
will notify the sponsor of his final decision, and if the modification 
is approved, arrange for it to be signed by the appropriate parties.
    (g) Umbrella mitigation banking instruments. A single mitigation 
banking instrument may provide for future authorization of additional 
mitigation bank sites. As additional sites are selected, they must be 
included in the mitigation banking instrument as modifications, using 
the procedures in paragraph (c) of this section.
    (h) Coordination of mitigation banking instrument and DA permit 
issuance. In cases where initial establishment of the mitigation bank 
involves activities requiring DA authorization, the permit should not 
be issued until all relevant provisions of the mitigation banking 
instrument have been substantively determined. This is to ensure that 
the DA permit accurately reflects all relevant provisions of the final 
mitigation banking instrument.
    (i) Project implementation. Authorization to sell credits to 
satisfy compensatory mitigation requirements in DA permits is 
contingent on compliance with all of the terms of the mitigation 
banking instrument. This includes constructing a mitigation bank in 
accordance with the mitigation plan as approved by the district 
engineer and incorporated by reference in the mitigation banking 
instrument. If the aquatic resource restoration, establishment, 
enhancement, and/or preservation activities cannot be implemented in 
accordance with the approved mitigation plan, the district engineer 
must consult with the sponsor and the IRT to consider modifications to 
the mitigation banking instrument, including adaptive management, 
revisions to the credit release schedule, and alternatives for 
providing compensatory mitigation to satisfy any credits that have 
already been sold.
    (j) Credit withdrawal from mitigation banks. The mitigation banking 
instrument may allow for initial debiting of a percentage of the total 
credits projected at mitigation bank maturity provided the following 
conditions are satisfied: the mitigation banking instrument and 
mitigation plan have been approved, the mitigation bank site has been 
secured, appropriate financial assurances have been established, and 
any other requirements determined to be necessary by the district 
engineer have been fulfilled. The mitigation banking instrument must 
provide a schedule for additional credit releases as appropriate 
milestones are achieved (see paragraph (k)(7) of this section).
    (k) Determining credits. (1) Units of measure. For mitigation 
banks, the principal units for credits and debits are acres or linear 
feet or functional assessment units of particular resource types. 
Functional assessment units may be linked to acres or linear feet.
    (2) Functional assessment. Where practicable, an appropriate 
functional assessment method (e.g., hydrogeomorphic approach to 
wetlands functional assessment) must be used to assess and describe the 
aquatic resource types that will be restored, established, enhanced 
and/or preserved by the mitigation bank.
    (3) Credit production. The number of credits must reflect the 
difference between pre- and post-mitigation bank site conditions. If an 
existing resource is being enhanced, the number of credits should 
reflect only the enhancements produced by construction of the 
mitigation bank. This may be reflected in a discounted number of 
credits relative to the total acres or linear feet encompassed by the 
mitigation bank.
    (4) Credit value. Once a credit is debited, its value cannot 
change.
    (5) Credits provided by preservation. These credits should be 
specified as acres or linear feet of preservation of a particular 
resource types. In determining the compensatory mitigation requirements 
for DA permits using the mitigation bank, the district engineer should 
apply a higher mitigation ratio if the requirements are to be met 
through the use of preservation credits. In determining this higher 
ratio, the district engineer must consider the relative importance of 
both the impacted and the preserved aquatic resources in sustaining 
watershed functions as described in Sec.  332.3(c).
    (6) Credits provided by riparian areas, buffers, and uplands. These 
credits should be specified as acres or linear feet of riparian area, 
buffer, and uplands respectively. Non-aquatic resources can only be 
used as compensatory mitigation for impacts to aquatic resources 
authorized by DA permits when those resources are essential to 
maintaining the ecological viability of adjoining aquatic resources. In 
determining the compensatory mitigation requirements for DA permits 
using the mitigation bank, the district engineer may authorize the use 
of riparian area, buffer and/or upland credits if he determines that 
these areas are essential to sustaining watershed functions as 
described in Sec.  332.3(c) and are the most appropriate compensation 
for the authorized impacts.
    (7) Credit release schedule. The terms of the credit release 
schedule must be specified in the mitigation banking instrument. The 
credit release schedule may provide for release of a limited portion of 
projected credits once the mitigation banking instrument, including the 
mitigation plan, has been approved, the site secured, and appropriate 
financial assurances established. Release of the remaining credits must 
be tied to performance based milestones (e.g., construction, planting, 
establishment of specified plant and animal communities). The credit 
release schedule should reserve a significant share of the total 
credits for release only after full achievement of ecological 
performance standards. When determining the credit release schedule, 
factors to be considered may include,

[[Page 15544]]

but are not limited to: The method of providing compensatory mitigation 
credits (e.g., restoration), the likelihood of success, the nature and 
amount of work needed to generate the mitigation bank credits, the 
aquatic resource type(s) and function(s) to be provided by the 
mitigation bank, and the initial capital costs needed to establish the 
mitigation bank. Once released, credits may only be used to satisfy 
compensatory mitigation requirements in a DA permit if they have been 
specifically approved by the district engineer as part of the permit 
review process.
    (8) Release of credits. Credit releases must be approved by the 
district engineer. The sponsor must submit documentation to the 
district engineer demonstrating that the appropriate milestones for a 
release of credits have been achieved and requesting the release. The 
district engineer will provide copies of this documentation to the IRT 
members for review. IRT members must provide any comments to the 
district engineer within 15 days of receiving this documentation. 
However, if the district engineer determines that a site visit is 
necessary, IRT members must provide any comments to the district 
engineer within 30 days of receipt of this documentation. After full 
consideration of any comments received, the district engineer will 
determine whether the milestones have been achieved and the credits can 
be released.
    (9) Adjustments to credit totals and release schedules. (i) If, 
after achieving all performance standards as specified in the 
mitigation banking instrument, the sponsor finds that the mitigation 
bank has developed aquatic resource functions substantially in excess 
of those upon which the original credit totals and release schedule 
were based, he may request that the mitigation banking instrument be 
amended in accordance with the procedures in paragraph (f) of this 
section. This request must include detailed documentation of the 
aquatic resource functions provided by the mitigation bank site, an 
explanation of how those aquatic resource functions substantially 
exceed the functions upon which the original credit totals were based, 
an explanation of the basis for calculating the additional credits, and 
any other information deemed necessary by the district engineer.
    (ii) If the district engineer determines that the mitigation bank 
is not meeting performance standards, he may reduce the number of 
available credits or suspend credit sales. The district engineer may 
also require adaptive management and/or direct the use of financial 
assurances for remediation.
    (l) Reporting. (1) Ledger account. The mitigation banking 
instrument must contain a provision requiring the sponsor to establish 
and maintain a ledger to account for all credit transactions for the 
mitigation bank. Each time an approved credit transaction occurs, the 
sponsor must notify the district engineer. The sponsor must compile an 
annual ledger report showing the beginning and ending balance of 
available credits of each resource type, all additions and subtractions 
of credits, and any other changes in credit availability (e.g., 
additional credits released, credit sales suspended). The ledger report 
must be submitted to the district engineer, who will distribute copies 
to the IRT members. The ledger report is part of the administrative 
record for the mitigation bank. The district engineer will make the 
ledger report available to the public upon request.
    (2) Monitoring reports. The sponsor is responsible for monitoring 
the mitigation bank site in accordance with the approved monitoring 
requirements to determine the level of success and identify problems 
requiring remedial action. Monitoring must be conducted in accordance 
with the requirements in Sec.  332.6, and at time intervals appropriate 
for the particular project type and until such time that the district 
engineer, in consultation with the IRT, has determined that the 
performance standards have been attained. The mitigation banking 
instrument must include requirements for periodic monitoring reports to 
be submitted to the district engineer, who will provide copies to other 
IRT members.
    (m) Use of credits. All activities authorized by DA permits are 
eligible, at the discretion of the district engineer, to use a 
mitigation bank to compensate for unavoidable impacts to aquatic 
resources, such as streams and wetlands. The district engineer will 
determine the number and type(s) of credits required to compensate for 
the authorized impacts. Permit applicants may propose to use a 
particular mitigation bank to provide the required compensatory 
mitigation. The banker must provide the permit applicant with a 
statement of credit availability. The district engineer must review the 
permit applicant's compensatory mitigation proposal, and notify the 
applicant of his determination regarding the acceptability of using 
that mitigation bank. In making this determination, the district 
engineer must fully consider agency and public comments submitted as 
part of the permit review process. Use of an approved mitigation bank 
consistent with the terms of its instrument (e.g., the permitted 
activity is located within the approved service area, credits are 
available for an appropriate resource type) will generally satisfy the 
requirement to use a watershed approach to determine compensatory 
mitigation requirements where feasible and considering opportunities 
for on-site, in-kind mitigation, as described in Sec.  332.3(b).
    (n) IRT concerns with use of credits. If, in the view of a member 
of the IRT, an issued permit or series of issued permits raises 
concerns about how credits from a particular mitigation bank are being 
used to satisfy compensatory mitigation requirements (including 
concerns about whether credit use is consistent with the terms of the 
mitigation banking instrument), the IRT member may notify the district 
engineer in writing of the concern and request an IRT consultation. The 
district engineer shall promptly consult with the IRT to address the 
concern. Final resolution of the concern is at the discretion of the 
district engineer, consistent with applicable statutes, regulations, 
and policies regarding compensatory mitigation requirements for DA 
permits.
    (o) Long-term management. The legal mechanisms and the party 
responsible for the long-term management of the mitigation bank and the 
protection of the site must be documented in the mitigation banking 
instrument. The sponsor must make adequate provisions for the 
operation, maintenance, and long-term management of the mitigation bank 
site. The mitigation banking instrument may contain provisions for the 
sponsor to transfer long-term management responsibilities to a land 
stewardship entity, such as a public agency, non-governmental 
organization, or private land manager. Where needed, the acquisition 
and protection of water rights must be secured by the sponsor and 
documented in the mitigation banking instrument.
    (p) Grandfathering of existing mitigation banking instruments. All 
mitigation banking instruments approved after [date 90 days after 
publication of final rule] must meet the requirements of this part. 
Mitigation banks approved prior to [date 90 days after publication of 
final rule] may continue to operate under the terms of their existing 
instruments. However, any modification to such a mitigation banking 
instrument after [date 90 days after publication of final rule], 
including authorization of additional sites under an umbrella 
mitigation banking instrument, must be consistent with the terms of 
this part.

[[Page 15545]]

Sec.  332.9  In-lieu fee programs.

    (a) Suspension of future authorizations. As of [date 90 days after 
publication of final rule] district engineers will not authorize new 
in-lieu fee programs to provide compensatory mitigation for DA permits.
    (b) Transition period for existing in-lieu fee programs. (1) In-
lieu fee programs with an approved instrument in effect as of [date 90 
days after publication of final rule] may continue to sell credits 
consistent with the terms of that instrument until [date 5 years and 90 
days after publication of final rule]. Credits that have already been 
sold by the in-lieu fee program on or before this date (or the date 
resulting from an extended deadline, as provided in paragraph (b)(2) of 
this section) continue to be subject to the terms and conditions of the 
instrument for that in-lieu fee program.
    (2) In-lieu fee programs that wish to continue operating beyond 
this date must reconstitute themselves as a mitigation bank, consistent 
with the requirements of this part. If an in-lieu fee program has 
submitted a prospectus satisfying the requirements of Sec.  332.8(c)(2) 
by [date 4 years and 90 days after publication of final rule] and is 
making a good faith effort to complete the process of obtaining an 
approved mitigation banking instrument that satisfies the requirements 
of this part, the district engineer may extend the deadline for final 
approval of this instrument beyond [date 5 years and 90 days after 
publication of final rule] as necessary.
    (3) If the district engineer determines that the substantive 
requirements of this part pertaining to mitigation banks are already 
satisfied by the existing in-lieu fee program instrument, any changes 
necessary to reconstitute the in-lieu fee program as a mitigation bank 
may be accomplished using the streamlined review process in Sec.  
332.8(f)(2), otherwise a new mitigation banking instrument must be 
developed using the procedure in Sec.  332.8(c).
    (4) Any in-lieu fee program that has not reconstituted itself as a 
mitigation bank by the applicable deadline in paragraphs (b)(1) or 
(b)(2) of this section must cease selling credits as of that date. 
However, any such in-lieu fee program is still responsible for 
providing all credits already sold, consistent with the terms of its 
instrument.

    Dated: March 13, 2006.
John Paul Woodley, Jr.,
Assistant Secretary of the Army (Civil Works), Department of the Army.

Environmental Protection Agency

40 CFR Chapter I

    For the reasons stated in the preamble, the Environmental 
Protection Agency proposes to amend 40 CFR part 230 as set forth below:

PART 230--SECTION 404(b)(1) GUIDELINES FOR SPECIFICATION OF 
DISPOSAL SITES FOR DREDGED OR FILL MATERIAL

    1. The authority citation for part 230 continues to read as 
follows:

    Authority: Secs. 404(b) and 501(a) of the Clean Water Act of 
1977 (33 U.S.C. 1344(b) and 1361(a)).


Sec.  230.12  [Amended]

    2. In Sec.  230.12(a)(2) revise the reference ``subpart H'' to read 
``subparts H and J''.

Subpart H--[Amended]

    3. In subpart H the Note following the subpart heading is amended 
by adding a sentence to the end to read as follows:

    Note: * * * Additional criteria for compensation measures are 
provided in Subpart J.

    4. In Sec.  230.75 add a new sentence after the second sentence in 
paragraph (d) to read as follows:


Sec.  230.75  Actions affecting plant and animal populations

* * * * *
    (d) * * * Additional criteria for compensation measures are 
provided in Subpart J. * * *
* * * * *
    5. Add Subpart J to part 230 to read as follows:
Subpart J--Compensatory Mitigation for Losses of Aquatic Resources
Sec.
230.91 Purpose and general considerations.
230.92 Definitions.
230.93 General compensatory mitigation requirements.
230.94 Planning and documentation.
230.95 Ecological performance standards.
230.96 Monitoring.
230.97 Management.
230.98 Mitigation banks.
230.99 In-lieu fee programs.

Subpart J--Compensatory Mitigation for Losses of Aquatic Resources


Sec.  230.91  Purpose and general considerations.

    (a) Purpose. (1) The purpose of this subpart is to establish 
standards and criteria for the use of all types of compensatory 
mitigation, including on-site and off-site permittee-responsible 
mitigation, mitigation banks, and in-lieu fee mitigation to offset 
unavoidable impacts to waters of the United States authorized through 
the issuance of permits by the U.S. Army Corps of Engineers (Corps) 
pursuant to Section 404 of the Clean Water Act (33 U.S.C. 1344). This 
subpart implements Section 314(b) of the 2004 National Defense 
Authorization Act (Pub. L. 108-136), which directs that the standards 
and criteria shall, to the maximum extent practicable, maximize 
available credits and opportunities for mitigation, provide for 
regional variations in wetland conditions, functions, and values, and 
apply equivalent standards and criteria to each type of compensatory 
mitigation. This subpart is intended to further clarify mitigation 
requirements established under Corps and EPA regulations at 33 CFR part 
320 and this part, respectively.
    (2) These rules have been jointly developed by the Secretary of the 
Army, acting through the Chief of Engineers, and the Administrator of 
the Environmental Protection Agency. From time to time guidance on 
interpreting and implementing these rules may be prepared jointly by 
EPA and the U.S. Army Corps of Engineers at the national or regional 
level. No modifications to the basic application, meaning, or intent of 
these rules will be made without further joint rulemaking by the 
Secretary of the Army, acting through the Chief of Engineers and the 
Administrator of the Environmental Protection Agency pursuant to the 
Administrative Procedure Act (5 U.S.C. 551 et seq.).
    (b) Applicability. This subpart does not alter the circumstances 
under which compensatory mitigation is required or the definition of 
``waters of the United States,'' which is provided at Sec.  230.3(s). 
Use of resources as compensatory mitigation that are not otherwise 
subject to regulation under Section 404 of the Clean Water Act does not 
in and of itself make them subject to such regulation.
    (c) Sequencing. Pursuant to these requirements, the district 
engineer will issue a section 404 permit only upon a determination that 
the permit applicant has taken all appropriate and practicable steps to 
avoid and minimize adverse impacts to waters of the United States. 
Practicable means available and capable of being done after taking into 
consideration cost, existing technology, and logistics in light of 
overall project purposes. Compensatory mitigation for unavoidable 
impacts may be required to ensure that a section 404 activity

[[Page 15546]]

complies with this part of the Section 404(b)(1) Guidelines.
    (d) Accounting for regional variations. Where appropriate, district 
engineers shall account for regional characteristics of aquatic 
resource types, functions, services, and values when determining 
performance standards and monitoring requirements for compensatory 
mitigation projects.


Sec.  230.92  Definitions.

    For the purposes of this subpart, the following terms are defined:
    Adaptive management means the development of a management strategy 
that anticipates the challenges associated with likely future impacts 
to the aquatic resource functions of the mitigation site. It 
acknowledges the risk and uncertainty of compensatory mitigation 
projects and allows modification of those projects to optimize 
performance. The process will provide guidance on the selection of 
appropriate remedial measures that will ensure the continued adequate 
provision of aquatic resource function and involves analysis of 
monitoring results to identify potential problems of a compensatory 
project and identification of measures to rectify those problems.
    Buffer means an upland and/or riparian area that protects and/or 
enhances aquatic resource functions associated with wetlands, rivers, 
streams, lakes, marine, and estuarine systems from disturbances 
associated with adjacent land uses.
    Compensatory mitigation means the restoration (re-establishment or 
rehabilitation), establishment (creation), enhancement, and/or in 
certain circumstances preservation of aquatic resources for the 
purposes of compensating for unavoidable adverse impacts which remain 
after all appropriate and practicable avoidance and minimization has 
been achieved.
    Compensatory mitigation project means a restoration, establishment, 
enhancement, and/or preservation activity implemented by the permittee 
as a requirement of a DA permit (i.e., permittee-responsible 
mitigation), or by a third party (e.g., a mitigation bank).
    Credit means a unit of measure (e.g., a functional or area measure) 
representing the accrual or attainment of aquatic functions at a 
compensatory mitigation site. The measure of function is based on the 
aquatic resources restored, established, enhanced, or preserved.
    DA means Department of the Army.
    Days means calendar days.
    Debit means a unit of measure (e.g., a functional or area measure) 
representing the loss of aquatic functions at an impact or project 
site. The measure of function is based on the aquatic resources 
impacted by the authorized activity.
    Enhancement means the manipulation of the physical, chemical, or 
biological characteristics of an aquatic resource to heighten, 
intensify, or improve a specific aquatic resource function(s). 
Enhancement results in the gain of selected aquatic resource 
function(s), but may also lead to a decline in other aquatic resource 
function(s). Enhancement does not result in a gain in aquatic resource 
area.
    Establishment (creation) means the manipulation of the physical, 
chemical, or biological characteristics present to develop an aquatic 
resource that did not previously exist at an upland or deepwater site. 
Establishment results in a gain in aquatic resource area.
    Functional capacity means the degree to which an area of aquatic 
resource performs a specific function.
    Functions means the physical, chemical, and biological processes 
that occur in aquatic resources and other ecosystems.
    Impact means adverse effect.
    In-kind means a resource type that is structurally and/or 
functionally similar to the impacted resource type.
    Interagency Review Team (IRT) means an interagency group of 
Federal, Tribal, State, and/or local regulatory and resource agency 
representatives that reviews documentation for, and advises the 
district engineer on, the establishment and management of a mitigation 
bank.
    Mitigation bank means a site, or suite of sites, where aquatic 
resources such as wetlands or streams are restored, established, 
enhanced, and/or preserved for the purpose of providing compensatory 
mitigation for authorized impacts to similar resources. Third-party 
mitigation banks generally sell compensatory mitigation credits to 
permittees whose obligation to provide mitigation is then transferred 
to the mitigation bank sponsor. The operation and use of a mitigation 
bank are governed by a mitigation banking instrument.
    Mitigation banking instrument means the legal document for the 
establishment, operation, and use of a mitigation bank.
    Off-site means an area that is neither located on the same parcel 
of land as the impact site, nor on a parcel of land contiguous to or 
near the parcel containing the impact site.
    On-site means an area located on the same parcel of land as the 
impact site, or on a parcel of land contiguous to or near the impact 
site.
    Out-of-kind means a resource type that is structurally and/or 
functionally different than the impacted resource type.
    Performance standards are observable or measurable attributes that 
are used to determine if a compensatory mitigation project meets its 
objectives.
    Permittee-responsible mitigation means an aquatic resource 
restoration, establishment, enhancement, and/or preservation activity 
undertaken by the permittee (or an authorized agent or contractor) to 
provide compensatory mitigation for which the permittee retains full 
responsibility.
    Preservation means the removal of a threat to, or preventing the 
decline of, aquatic resources by an action in or near those aquatic 
resources. This term includes activities commonly associated with the 
protection and maintenance of aquatic resources through the 
implementation of appropriate legal and physical mechanisms. 
Preservation does not result in a gain of aquatic resource area or 
functions.
    Re-establishment means the manipulation of the physical, chemical, 
or biological characteristics of a site with the goal of returning 
natural/historic functions to a former aquatic resource. Re-
establishment results in rebuilding a former aquatic resource and 
results in a gain in aquatic resource area.
    Reference aquatic resources are aquatic resources that represent 
the range of variability exhibited by a regional class of aquatic 
resources as a result of natural processes and anthropogenic 
disturbances.
    Rehabilitation means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of repairing 
natural/historic functions to a degraded aquatic resource. 
Rehabilitation results in a gain in aquatic resource function, but does 
not result in a gain in aquatic resource area.
    Restoration means the manipulation of the physical, chemical, or 
biological characteristics of a site with the goal of returning 
natural/historic functions to a former or degraded aquatic resource. 
For the purpose of tracking net gains in aquatic resource area, 
restoration is divided into two categories: re-establishment and 
rehabilitation.
    Riparian areas are lands adjacent to a waterbody. Riparian areas 
are transitional between terrestrial and aquatic ecosystems, through 
which surface and subsurface hydrology connects waterbodies with their 
adjacent uplands. Riparian areas are

[[Page 15547]]

adjacent to streams, lakes, and estuarine-marine shorelines and provide 
a variety of ecological functions and services and help improve or 
maintain local water quality.
    Service area means the geographic area within which impacts can be 
mitigated at a particular mitigation bank, as designated in its 
instrument.
    Services means the benefits that human populations receive from 
functions that occur in aquatic resources and other ecosystems.
    Sponsor means any public or private entity responsible for 
establishing and, in most circumstances, operating a mitigation bank.
    Standard permit means a standard, individual permit issued under 
the authority of Section 404 of the Clean Water Act.
    Values means the utility or satisfaction that humans derive from 
aquatic resource services. Values can be described in monetary terms or 
in qualitative terms, although many of the values associated with 
aquatic resources cannot be easily monetized. Values can be either use 
values (e.g., recreational enjoyment) or non-use values (e.g., 
stewardship, biodiversity).
    Watershed plan means a plan developed by federal, tribal, state, 
and/or local government agencies, in consultation with relevant 
stakeholders. A watershed plan addresses ecological conditions in the 
watershed, multiple stakeholder interests, and land uses. Watershed 
plans may also identify priority sites for aquatic resource restoration 
and protection. Examples of watershed plans include special area 
management plans, advance identification programs, and watershed 
management plans.


Sec.  230.93  General compensatory mitigation requirements.

    (a) General considerations. The fundamental objective of 
compensatory mitigation is to offset environmental losses resulting 
from unavoidable impacts to waters of the United States authorized by 
DA permits. The district engineer must determine the compensatory 
mitigation to be required in a DA permit, based on what is available, 
practicable, and capable of compensating for the aquatic resource 
functions that will be lost as a result of the permitted activity. In 
making this determination, the district engineer must assess the 
likelihood for ecological success and sustainability, the location of 
the compensation site relative to the impact site and their 
significance within the watershed, and the economic costs of the 
compensatory mitigation. Compensatory mitigation requirements must be 
commensurate with the amount and type of impact that is associated with 
a particular DA permit. Permit applicants are responsible for proposing 
an appropriate compensatory mitigation option to offset unavoidable 
impacts.
    (b) Location and type of compensatory mitigation. (1) Where project 
impacts are located within the service area of an approved mitigation 
bank, and the mitigation bank has credits available for the type of 
resource impacted, the project's compensatory mitigation requirements 
may be met by the purchase of an appropriate number of credits from the 
mitigation bank.
    (2) Where practicable and appropriate, the district engineer will 
require that the location and aquatic resource type of permittee-
responsible compensatory mitigation necessary to offset anticipated 
impacts be consistent with an established watershed plan or be 
determined using the principles of a watershed approach as outlined in 
paragraph (c) of this section. The district engineer and the IRT should 
also use a watershed approach to the extent practicable in reviewing 
mitigation banking instruments.
    (3) Where reliance on a watershed plan or approach is not 
practicable, the district engineer will consider opportunities to 
offset anticipated aquatic resource impacts by requiring on-site and 
in-kind compensatory mitigation. The district engineer must also 
consider the practicability of on-site compensatory mitigation and its 
compatibility with the proposed project.
    (4) If, after considering opportunities for on-site, in-kind 
compensatory mitigation as provided in paragraph (b)(3) of this 
section, the district engineer determines that these compensatory 
mitigation opportunities are not practicable, are unlikely to 
compensate for the permitted activity, or will be incompatible with the 
proposed project, and an alternative, practicable off-site and/or out-
of-kind mitigation opportunity is identified that has a greater 
likelihood of offsetting the permitted activity, the district engineer 
shall require that this alternative compensatory mitigation be 
provided. In general, compensatory mitigation should be located within 
the same watershed as the impact site, and should be located where it 
is most likely to successfully replace lost functions, services, and 
values, taking into account such watershed scale features as aquatic 
habitat diversity, habitat connectivity, relationships to hydrologic 
sources (including the availability of water rights), and compatibility 
with adjacent land uses.
    (c) Watershed approach to compensatory mitigation. (1) The district 
engineer must use a watershed approach to establish compensatory 
mitigation requirements in DA permits to the extent appropriate and 
practicable. Where an applicable watershed plan is available, the 
watershed approach should be based on the existing plan. Where no such 
plan is available, the watershed approach should be based on 
information provided by the project sponsor or available from other 
sources. The ultimate goal of a watershed approach is to maintain and 
improve the quality and quantity of aquatic resources within watersheds 
through strategic selection of compensatory mitigation sites.
    (2) Considerations. (i) A watershed approach to compensatory 
mitigation considers the importance of landscape position and resource 
type of compensatory mitigation projects for the ecological functions 
and sustainability of aquatic resources within the watershed. Such an 
approach considers how the types and locations of compensatory 
mitigation projects will provide the desired aquatic resource 
functions, and will continue to function over time in a changing 
landscape. It also considers the habitat requirements of important 
species, habitat loss or conversion trends, sources of watershed 
impairment, and current development trends, as well as the requirements 
of other regulatory and non-regulatory programs that affect the 
watershed, such as storm water management or habitat conservation 
programs. It includes the protection and maintenance of terrestrial 
resources, such as non-wetland riparian areas and uplands, when those 
resources contribute to or improve the overall ecological functioning 
of aquatic resources in the watershed.
    (ii) Locational factors (e.g., hydrology, surrounding land use) are 
important to the success of compensatory mitigation for impacted 
habitat functions and values and may lead to siting of such mitigation 
away from the project area. However, consideration should also be given 
to functions, services, and values (e.g., water quality, flood control, 
shoreline protection) that will likely need to be addressed at or near 
the areas impacted by the permitted project.
    (iii) A watershed approach to compensatory mitigation may involve 
planning efforts to inventory historic and existing aquatic resources, 
including identification of degraded aquatic resources, and planning 
efforts to identify immediate and long-term aquatic resource needs 
within watersheds that can be met through

[[Page 15548]]

permittee-responsible mitigation projects or mitigation banks. 
Watershed planning efforts may identify and/or prioritize aquatic 
resources that are important for maintaining and restoring ecological 
functions of the watershed.
    (3) Information Needs. The use of a watershed approach is based on 
analysis of information regarding watershed conditions and needs. Such 
information includes: Current trends in habitat loss or conversion, 
cumulative impacts of past development activities, current development 
trends, the presence and needs of sensitive species, site conditions 
that favor or hinder the success of mitigation projects, chronic 
environmental problems such as flooding or poor water quality, and 
local watershed goals and priorities. This information may be contained 
in an existing watershed plan or may be available from other sources. 
The level of information and analysis needed to support a watershed 
approach must be commensurate with the scope and scale of the proposed 
project requiring a DA permit, as well as the functions lost as a 
result of that project.
    (d) Site selection. The compensatory mitigation project site must 
be ecologically suitable for providing the desired aquatic resource 
functions. In determining the ecological suitability of the 
compensatory mitigation project site, the district engineer must 
consider the following factors:
    (1) Hydrological conditions, soil characteristics, and other 
physical and chemical characteristics;
    (2) Watershed-scale features, such as aquatic habitat diversity, 
habitat connectivity, and other landscape scale functions;
    (3) The size and location of the compensatory mitigation site 
relative to hydrologic sources (including the availability of water 
rights) and other ecological features;
    (4) Compatibility with adjacent land uses and watershed management 
plans;
    (5) Reasonably foreseeable effects the compensatory mitigation 
project will have on ecologically important aquatic or terrestrial 
resources (e.g., shallow sub-tidal habitat, mature forests), cultural 
sites, or habitat for Federally-or State-listed threatened and 
endangered species; and
    (6) Other relevant factors including, but not limited to, 
development trends, anticipated land use changes, habitat status and 
trends, local or regional goals for the restoration or protection of 
particular habitat types or functions (e.g., re-establishment of 
habitat corridors or habitat for species of concern), water quality 
goals, floodplain management goals, and the relative potential for 
chemical contamination of the aquatic resources.
    (e) Mitigation type. (1) In general, in-kind mitigation is 
preferable to out-of-kind mitigation because it is most likely to 
compensate for the functions, services, and values lost at the impact 
site. For example, restoration of wetlands is most likely to compensate 
for unavoidable impacts to wetlands, while restoration of streams is 
most likely to compensate for unavoidable impacts to streams. Thus, 
except as provided in paragraph (e)(2) of this section, the district 
engineer should require that compensatory mitigation be of a similar 
type to the impacted aquatic resource.
    (2) If the district engineer determines through the decision 
framework in paragraph (b) of this section that out-of-kind 
compensatory mitigation will serve the aquatic resource needs of the 
watershed, the district engineer may authorize the use of such out-of-
kind compensatory mitigation. Factors that should be considered in 
making this determination include historic loss of habitat types within 
the watershed, the needs of sensitive species, appropriate mixes of 
habitat to maintain ecosystem viability, the relative likelihood of 
success in establishing different habitat types, needs for ecosystem 
services, and local watershed goals and priorities. The basis for 
authorization of out-of-kind compensatory mitigation must be documented 
in the administrative record for the permit action.
    (f) Amount of compensatory mitigation. The district engineer must 
require an amount of compensatory mitigation for unavoidable impacts to 
aquatic resources sufficient to replace lost aquatic resource 
functions. In cases where functional assessment methods are available, 
appropriate, and practical to use, district engineers should use those 
functional assessment methods to determine how much compensatory 
mitigation should be required. If a functional assessment is not used, 
a minimum one-to-one acreage or linear foot replacement ratio should be 
used as a surrogate for functional replacement. The district engineer 
must require a mitigation ratio greater than one-to-one where necessary 
to account for the method of compensatory mitigation (e.g., 
preservation), differences between the functions lost at the impact 
site and the functions expected to be produced by the compensatory 
mitigation project, temporal losses of aquatic resource functions, and/
or the difficulty of restoring or establishing the desired aquatic 
resource type and functions. The rationale for the required replacement 
ratio must be documented in the administrative record for the permit 
action.
    (g) Use of mitigation banks. Mitigation banks may be used to 
compensate for impacts to aquatic resources authorized by general 
permits and individual permits, including after-the-fact permits. 
Mitigation banks may also be used to satisfy requirements arising out 
of an enforcement action, such as supplemental environmental projects.
    (h) Preservation. (1) Preservation may be used to provide 
compensatory mitigation for activities authorized by DA permits where:
    (i) The resources provide important physical, chemical, or 
biological functions for the watershed;
    (ii) The resources contribute to the ecological sustainability of 
the watershed;
    (iii) Preservation is determined by the district engineer to be 
appropriate and practicable;
    (iv) The resources are under threat of destruction or adverse 
modifications; and
    (v) The preserved site will be permanently protected through an 
appropriate real estate or other legal instrument (e.g., easement, 
title transfer to state resource agency or land trust).
    (2) Where preservation is used to provide compensatory mitigation, 
to the extent appropriate and practicable the preservation shall be 
done in conjunction with aquatic resource restoration, establishment, 
and/or enhancement activities. This requirement may be waived by the 
district engineer where preservation has been identified as a high 
priority using a watershed approach, as described in paragraph (c) of 
this section, but compensation ratios should be higher.
    (i) Buffers. District engineers may require that compensatory 
mitigation project sites include, and may provide compensatory 
mitigation credit for, the establishment and maintenance of riparian 
areas and/or upland buffers around the restored, established, enhanced, 
or preserved aquatic resources where necessary to ensure the long-term 
viability of those resources.
    (j) Relationship to other Federal, Tribal, State, and local 
programs. Compensatory mitigation projects for DA permits may also be 
used to compensate for environmental impacts authorized under other 
programs, such as Tribal, State, or local wetlands regulatory programs, 
the National Pollutant Discharge Elimination System Permit Program, 
Corps civil works projects, and Superfund removal and remedial actions, 
consistent with the terms and requirements of these programs and 
subject to the following

[[Page 15549]]

considerations. The project must include appropriate compensatory 
mitigation for unavoidable impacts to aquatic resources authorized by 
the DA permit, over and above what would be required under other 
programs to address other impacts. Under no circumstances may the same 
credits be used to provide mitigation for more than one activity. 
However, where appropriate, compensatory mitigation projects, including 
mitigation banks, may be designed to holistically address requirements 
under multiple programs and authorities for the same activity. Except 
for projects undertaken by Federal agencies, or where Federal funding 
is specifically authorized to provide compensatory mitigation, 
Federally-funded wetland conservation projects undertaken for purposes 
other than compensatory mitigation, such as the Wetlands Reserve 
Program and the Partners for Wildlife Program activities, cannot be 
used for the purpose of generating compensatory mitigation credits for 
activities authorized by DA permits. However, compensatory mitigation 
credits may be generated by activities undertaken in conjunction with, 
but supplemental to, such programs in order to maximize the overall 
ecological benefits of the conservation project.
    (k) Permit conditions. The compensatory mitigation requirements for 
a DA permit, including the amount and type of compensatory mitigation, 
must be clearly stated in the special conditions of the individual 
permit or general permit verification (see 33 CFR 325.4 and 330.6(a)). 
The special conditions must be enforceable and describe the objectives 
of the compensatory mitigation project. The special conditions must 
also identify the party responsible for providing the compensatory 
mitigation. The special conditions must incorporate, by reference, 
compensatory mitigation plans approved by the district engineer. The 
performance standards and monitoring required for the compensatory 
mitigation project must also be clearly stated in the special 
conditions or the approved compensatory mitigation plan. The special 
conditions must also describe any required financial assurances or 
long-term management provisions for the compensatory mitigation 
project. If a mitigation bank is used to provide the required 
compensatory mitigation, the special conditions must indicate which 
mitigation bank will be used, and specify the required number and type 
of credits the permittee is required to purchase.
    (l) Party responsible for compensatory mitigation. (1) The special 
conditions of the DA permit must clearly indicate the party or parties 
responsible for the implementation, performance, and long-term 
management of the compensatory mitigation project.
    (2) For mitigation banks, the mitigation banking instrument must 
clearly indicate the party or parties responsible for the 
implementation, performance, and long-term management of the 
compensatory mitigation project.
    (3) If a mitigation bank is approved by the district engineer to 
provide required compensatory mitigation for a DA permit, the special 
conditions of that DA permit must indicate which mitigation bank will 
be used to provide that compensatory mitigation. In such cases, the 
mitigation bank assumes responsibility for providing the required 
compensatory mitigation after the permittee has secured those credits 
from the sponsor.
    (m) Timing. Implementation of the compensatory mitigation project 
shall be, to the maximum extent practicable, in advance of or 
concurrent with the activity causing the authorized impacts. Where it 
is not practicable to complete the initial physical and biological 
improvements required by the approved mitigation plan by the first full 
growing season following the impacts resulting from the permitted 
activity, the district engineer may require additional compensatory 
mitigation to offset temporal losses of aquatic functions that will 
result from the permitted activity.
    (n) Financial assurances. (1) The district engineer shall require 
sufficient financial assurances to ensure a high level of confidence 
that the compensatory mitigation project will be successfully 
completed, in accordance with applicable performance standards. In 
cases where an alternate mechanism is available to ensure a high level 
of confidence that the compensatory mitigation will be provided and 
maintained (e.g., a formal, documented commitment from a government 
agency or public authority) the district engineer may determine that 
financial assurances are not necessary for that compensatory mitigation 
project.
    (2) The amount of the required financial assurances must be 
determined by the district engineer, in consultation with the project 
sponsor, and must be based on the size and complexity of the 
compensatory mitigation project, the degree of completion of the 
project at the time of project approval, the likelihood of success, the 
past performance of the project sponsor, and any other factors the 
district engineer deems appropriate. Financial assurances may be in the 
form of performance bonds, escrow accounts, casualty insurance, letters 
of credit, legislative appropriations for government sponsored 
projects, or other appropriate instruments, subject to the approval of 
the district engineer. The rationale for determining the amount of the 
required financial assurances must be documented in the administrative 
record for the DA permit.
    (3) Financial assurances shall be phased out once the compensatory 
mitigation project has been determined by the district engineer to be 
successful in accordance with its performance standards. The DA permit 
or mitigation banking instrument must clearly specify the conditions 
under which the financial assurances are to be released to the 
permittee, sponsor, and/or other financial assurance provider, 
including, as appropriate, linkage to achievement of performance 
standards, adaptive management, or compliance with special conditions.
    (o) Compliance with applicable law. The compensatory mitigation 
project must comply with all applicable Federal, state, and local laws. 
The DA permit or mitigation banking instrument must not require 
participation by the Corps or any other Federal agency in project 
management, including receipt or management of financial assurances or 
long-term financing mechanisms, except as determined by the Corps or 
other agency to be consistent with its statutory authority, mission, 
and priorities.


Sec.  230.94  Planning and documentation.

    (a) Pre-application consultations. Potential applicants for 
standard permits are encouraged to participate in pre-application 
meetings with the Corps and appropriate agencies to discuss potential 
compensatory mitigation requirements and information needs.
    (b) Public review and comment. (1) For an activity that requires a 
standard DA permit pursuant to Section 404 of the Clean Water Act, the 
public notice for the proposed activity must explain how impacts 
associated with the proposed activity are to be avoided, minimized, and 
compensated for. This explanation shall address the amount, type, and 
location of any proposed compensatory mitigation, including any out-of-
kind mitigation, or indicate an intention to use an approved mitigation 
bank. The level of detail provided in the public notice must be 
commensurate with the scope and scale of the project.
    (2) For activities authorized by general permits, review of 
compensatory mitigation plans must be conducted in

[[Page 15550]]

accordance with the terms and conditions of those general permits and 
applicable regulations.
    (c) Mitigation plan. (1) The permittee or mitigation bank sponsor 
must prepare a draft mitigation plan and submit it to the district 
engineer for review. After addressing any comments provided by the 
district engineer, the permittee or sponsor must prepare a final 
mitigation plan, which must be approved by the district engineer prior 
to issuing the DA permit or approving the mitigation banking 
instrument. The approved mitigation plan must be incorporated into the 
DA permit or mitigation banking instrument by reference. The mitigation 
plan must include the items described in paragraphs (c)(2) through 
(c)(14) of this section, except that the district engineer may waive 
specific items if he determines that they are not applicable to a 
particular project. Permittees who plan to fulfill their compensatory 
mitigation obligations by purchasing credits from an approved 
mitigation bank need only include the name of the mitigation bank and 
the items described in paragraphs (c)(5) and (c)(6) of this section in 
their mitigation plan. The level of detail of the mitigation plan 
should be commensurate with the scale and scope of the project.
    (2) Objectives. A description of the aquatic resource type(s) and 
amount(s) that will be provided, the method of compensation (i.e., 
restoration, establishment, enhancement, and/or preservation), and the 
manner in which the aquatic resource functions of the compensatory 
mitigation project will address the needs of the watershed, ecoregion, 
or other geographic area of interest.
    (3) Site selection. A description of the factors considered during 
the site selection process. This should include consideration of 
watershed needs, on-site alternatives where applicable, and the 
practicability of accomplishing ecologically self-sustaining aquatic 
resource restoration, establishment, enhancement, and/or preservation 
at the compensatory mitigation project site.
    (4) Site protection instrument. A description of the legal 
arrangements and instrument, including site ownership, that will be 
used to ensure the long-term protection of the compensatory mitigation 
project site.
    (5) Baseline information. A description of the ecological 
characteristics of the proposed compensatory mitigation project site 
and, in the case of an application for a DA permit, the impact site. 
This may include descriptions of historic and existing plant 
communities, historic and existing hydrology, soil conditions, and 
other site characteristics. A prospective permittee planning to 
purchase credits from an approved mitigation bank only needs to provide 
baseline information about the impact site, not the mitigation bank 
site.
    (6) Determination of credits. A description of the number of 
credits to be provided, including a brief explanation of the rationale 
for this determination. For permittee-responsible mitigation, this 
should include an explanation of how the compensatory mitigation 
project compensates for unavoidable impacts to aquatic resources 
resulting from the permitted activity. For mitigation banks, it should 
include a description of resource types for which the mitigation bank 
may be used as compensatory mitigation and the number of credits to be 
provided for each resource type. This may include provisions for 
adjusting credits in the future, both downward (if performance 
standards are not met) or upward (if performance standards are 
significantly exceeded). For permittees intending to purchase credits 
from an approved mitigation bank, it should include the number and type 
of credits to be purchased and how these were determined.
    (7) Mitigation work plan. Detailed written specifications and work 
descriptions for the compensatory mitigation project, including, but 
not limited to, the geographic boundaries of the project; construction 
methods, timing, and sequence; source(s) of water, including 
connections to existing waters and uplands; plant species to be planted 
at the site; the use of natural regeneration or seed banks to provide 
the desired plant community at the site; plans to control invasive 
plant species; the proposed grading plan, including elevations and 
slopes of the substrate; erosion control measures; and proposed stream 
geomorphology, if applicable.
    (8) Maintenance plan. A description and schedule of maintenance 
requirements to ensure the continued viability of the resource once 
initial construction is completed.
    (9) Performance standards. Ecologically-based standards that will 
be used to determine whether the compensatory mitigation project is 
achieving its objectives.
    (10) Monitoring requirements. A description of parameters to be 
monitored in order to determine if the compensatory mitigation project 
is on track to meet performance standards and if adaptive management is 
needed. A schedule for monitoring and reporting on monitoring results 
to the district engineer must be included.
    (11) Long-term management plan. A description of how the 
compensatory mitigation project will be managed after performance 
standards have been achieved to ensure the long-term sustainability of 
the resource, including the party responsible for long-term management 
and long-term financing mechanisms.
    (12) Adaptive management plan. A description of procedures to 
address potential changes in site conditions or other components of the 
compensatory mitigation project, including the party or parties 
responsible for implementing adaptive management measures. The adaptive 
management plan will guide decisions for revising compensatory 
mitigation plans and conducting remediation to provide aquatic resource 
functions.
    (13) Financial assurances. A description of financial assurances 
that will be provided and how they are sufficient to ensure a high 
level of confidence that the compensatory mitigation project will be 
successfully completed, in accordance with its performance standards.
    (14) Other information. The district engineer may require 
additional information as necessary to determine the appropriateness, 
feasibility, and practicability of the compensatory mitigation project.


Sec.  230.95  Ecological performance standards.

    The mitigation plan must contain performance standards that will be 
used to assess whether the project is achieving its objectives. 
Performance standards should relate to the objectives of the 
compensatory mitigation project, so that the project can be objectively 
evaluated to determine if it is developing into the desired resource 
type and providing the expected functions. Performance standards should 
be based on attributes that are objective, verifiable, and can be 
measured with a reasonable amount of effort. Performance standards may 
be based on variables or measures of functional capacity described in 
functional assessment methodologies, measurements of hydrology or other 
aquatic resource characteristics, and/or comparisons to reference 
aquatic resources of similar type and landscape position. Performance 
standards based on measurements of hydrology should take into 
consideration the hydrologic variability exhibited by reference aquatic 
resources, especially wetlands. Where practicable, performance 
standards should take into account the expected stages of the aquatic 
resource development process, in order to allow

[[Page 15551]]

early identification of potential problems and appropriate adaptive 
management.


Sec.  230.96  Monitoring.

    (a) General. Monitoring the compensatory mitigation project site is 
necessary to determine if the project is meeting its performance 
standards, and to determine if remediation is necessary to ensure that 
the compensatory mitigation project is accomplishing its objectives. 
The district engineer must require the submission of monitoring reports 
to assess the development and condition of the compensatory mitigation 
project, unless he determines that monitoring is not practicable for 
that compensatory mitigation project. The mitigation plan must address 
the monitoring requirements for the compensatory mitigation project, 
including the parameters to be monitored, the length of the monitoring 
period, the party responsible for conducting the monitoring, the 
frequency for submitting monitoring reports to the district engineer, 
and the party responsible for submitting those monitoring reports to 
the district engineer.
    (b) Monitoring period. The mitigation plan must provide for a 
monitoring period that is sufficient to demonstrate that the 
compensatory mitigation project has met performance standards, but not 
less than five years. A longer monitoring period must be required for 
aquatic resources with slow development rates (e.g., forested wetlands, 
bogs). Following project implementation, the district engineer may 
waive the remaining monitoring requirements upon a determination that 
the compensatory mitigation project has achieved its performance 
standards. Conversely the district engineer may extend the original 
monitoring period upon a determination that performance standards have 
not been met or the compensatory mitigation project is not on track to 
meet them. The district engineer may also revise monitoring 
requirements when remediation is required.
    (c) Monitoring reports. (1) The district engineer must determine 
the information to be included in monitoring reports. This information 
should be sufficient for the district engineer to determine how the 
compensatory mitigation project is progressing towards meeting its 
performance standards, and may include plans, maps, and photographs to 
illustrate site conditions. Monitoring reports may also include the 
results of functional assessments used to provide quantitative or 
qualitative measures of the functions provided by the compensatory 
mitigation project site.
    (2) Monitoring reports should be provided by the district engineer 
to interested Federal, Tribal, State, and local resource agencies. The 
district engineer and representatives of Federal, Tribal, State, and/or 
local resource agencies may conduct regular (e.g., annual) on-site 
inspections, as appropriate, to monitor performance of the mitigation 
site. Monitoring reports must be made available to the public upon 
request.


Sec.  230.97  Management.

    (a) Site protection. The aquatic habitats, riparian areas, buffers, 
and uplands that comprise the overall compensatory mitigation project 
should be provided long-term protection, through appropriate real 
estate instruments such as conservation easements held by, or transfer 
of title to, entities such as Federal, Tribal, State, or local resource 
agencies, non-profit conservation organizations, or private land 
managers, or other acceptable means for government property, such as 
Federal facility management plans or integrated natural resources 
management plans. The real estate instrument for the long-term 
protection of the compensatory mitigation site should restrict or 
prohibit incompatible uses (e.g., clear cutting) that might otherwise 
jeopardize the objectives of the compensatory mitigation project. Where 
appropriate, multiple instruments recognizing compatible uses (e.g., 
fishing or grazing rights) may be used.
    (b) Sustainability. Compensatory mitigation projects should be 
designed, to the maximum extent practicable, to be self-sustaining once 
performance standards have been achieved. This includes minimization of 
active engineering features (e.g., pumps) and appropriate siting to 
ensure that natural hydrology and landscape context will support long-
term sustainability. Where active long-term management and maintenance 
are necessary to ensure long-term sustainability (e.g., prescribed 
burning, invasive species control, maintenance of water control 
structures, easement enforcement), the responsible party must provide 
for such management and maintenance. This includes the provision of 
long-term financing mechanisms where necessary.
    (c) Adaptive management. (1) If monitoring or other information 
indicates that the compensatory mitigation project is not progressing 
towards meeting its performance standards as anticipated, the 
responsible party must notify the district engineer. The district 
engineer must require remediation to correct the deficiencies in the 
project to the extent appropriate and practicable. In determining 
appropriate and practicable remediation, the district engineer will 
consider whether the compensatory mitigation project is providing 
ecological benefits comparable to the original objectives of the 
compensatory mitigation project.
    (2) The district engineer, in consultation with the responsible 
party (and other Federal, Tribal, state, and local agencies, as 
appropriate), will determine the appropriate remediation requirements. 
The required remediation may include site modifications, design 
changes, revisions to maintenance requirements, and revised monitoring 
requirements. The remediation must be designed to ensure that the 
modified compensatory mitigation project provides aquatic resource 
functions comparable to those described in the mitigation plan 
objectives.
    (3) The performance standards must be revised where necessary to 
assess the success of remediation efforts and/or the realization of 
comparable ecological benefits that were considered in determining 
remediation requirements.
    (d) Long-term management. (1) The permit conditions or mitigation 
banking instrument must identify the party responsible for the 
ownership and long-term management of the compensatory mitigation 
project, once performance standards have been achieved. The permit 
conditions or mitigation banking instrument may contain provisions 
allowing the permittee or sponsor to transfer the long-term management 
responsibilities of the compensatory mitigation project site to a land 
stewardship entity, such as a public agency, non-governmental 
organization, or private land manager, after review and approval by the 
district engineer. The land stewardship entity need not be identified 
in the original permit or mitigation banking instrument, as long as the 
future transfer of long-term management responsibility is approved by 
the district engineer.
    (2) Provisions necessary for long-term financing must be included 
in the original permit or mitigation banking instrument. Appropriate 
long-term financing mechanisms include endowments, trusts, contractual 
arrangements with future responsible parties, and other appropriate 
financial instruments. In cases where the long-term management entity 
is a public authority or government agency, a formal commitment to 
accept stewardship responsibilities for the

[[Page 15552]]

project is acceptable in lieu of specific financial arrangements.


Sec.  230.98  Mitigation banks.

    (a) General considerations. (1) All mitigation banks must have an 
approved instrument signed by the sponsor and the district engineer 
prior to being used to provide compensatory mitigation for DA permits. 
To the maximum extent practicable, mitigation banks must be planned and 
designed to be self-sustaining over time, but some active management 
and maintenance may be required to ensure their long-term viability and 
sustainability. Examples of acceptable management activities include 
maintaining fire dependent habitat communities in the absence of 
natural fire and controlling invasive exotic plant species.
    (2) Mitigation banks may be sited on public or private lands. 
Siting on public land is only permitted when done in accordance with 
the mission and policies of the land management agency and with its 
written approval. Credits for mitigation banks on public land must be 
based solely on aquatic resource functions provided by the mitigation 
bank, over and above those provided by public programs already planned 
or in place.
    (3) All mitigation banks must comply with the standards in this 
part, if they are to be used to provide compensatory mitigation for 
activities authorized by DA permits, regardless of whether they are 
sited on public or private lands and whether the sponsor is a 
governmental or private entity.
    (b) Interagency Review Team. (1) The district engineer will 
establish an Interagency Review Team (IRT) to review documentation for 
the establishment and management of the mitigation bank. The district 
engineer or his designated representative serves as Chair of the IRT. 
In cases where a mitigation bank is proposed to satisfy the 
requirements of another Federal, Tribal, State, or local program, in 
addition to compensatory mitigation requirements of DA permits, the 
district engineer may designate an appropriate official of the 
responsible agency as co-Chair of the IRT.
    (2) In addition to the Corps, representatives from the U.S. 
Environmental Protection Agency, U.S. Fish and Wildlife Service, NOAA 
Fisheries, the Natural Resources Conservation Service, and other 
Federal agencies, as appropriate, may participate in the IRT. The IRT 
may also include representatives from Tribal, State, and local 
regulatory and resource agencies, where such agencies have authorities 
and/or mandates directly affecting, or affected by, the establishment, 
operation, or use of the mitigation bank. The district engineer will 
seek to include all public agencies with a substantive interest in the 
establishment of the mitigation bank on the IRT, but retains final 
authority over its composition.
    (3) The primary role of the IRT is to facilitate the establishment 
of mitigation banks through the development of mitigation banking 
instruments. The IRT will review the prospectus, mitigation plan, and 
mitigation banking instrument and provide comments to the district 
engineer. Members of the IRT may also sign the mitigation banking 
instrument, if they so choose. By signing the mitigation banking 
instrument, the IRT members indicate their agreement with the terms of 
the instrument. The IRT will also advise the district engineer in 
assessing monitoring reports, recommending remedial measures, approving 
credit release, and approving modifications to a mitigation banking 
instrument.
    (4) The district engineer will give full consideration to the 
comments and advice of the IRT. However, the district engineer alone 
retains final authority for approval of the mitigation banking 
instrument. However, in cases where the mitigation bank is also 
intended to satisfy the requirements of another agency, that agency 
must also approve the mitigation banking instrument before it can be 
used to satisfy such requirements.
    (c) Review process. (1) The sponsor is responsible for preparing 
all documentation associated with establishment of the mitigation bank, 
including the prospectus, mitigation plan, and mitigation banking 
instrument. The prospectus provides an overview of the mitigation bank 
project and serves as the basis for public and initial IRT comment. The 
mitigation plan, as described in Sec.  230.94(c), provides detailed 
plans and specifications for the mitigation bank. The mitigation 
banking instrument provides the authorization for the mitigation bank 
to provide credits to be used as compensatory mitigation for DA 
permits. The mitigation banking instrument must also incorporate the 
mitigation plan by reference.
    (2) Prospectus. The prospectus must provide a summary of the 
information that will be included in the mitigation plan, at a 
sufficient level of detail to support informed public and IRT comment. 
In particular, it must describe the objectives of the proposed 
mitigation bank, how the mitigation bank will be established and 
operated, the proposed service area, and the general need for, and 
technical feasibility of, the proposed mitigation bank. The prospectus 
must discuss the ecological suitability of the site to achieve the 
objectives of the proposed mitigation bank. This includes the physical, 
chemical, and biological characteristics of the site and how that site 
will support the planned types of aquatic resources and functions. It 
should also discuss the proposed ownership arrangements and long-term 
management of the mitigation bank. The review process begins when the 
sponsor submits a complete prospectus to the district engineer. The 
district engineer will notify the sponsor within 15 days whether or not 
a submitted prospectus is complete.
    (3) Preliminary review of prospectus. Prior to submitting a 
prospectus, the sponsor may elect to submit a draft prospectus to the 
district engineer for comment and consultation. The district engineer 
will provide copies of the draft prospectus to the IRT, and provide 
comments back to the sponsor within 30 days. Any comments from IRT 
members will also be forwarded to the sponsor. This preliminary review 
is optional but is strongly recommended. It is intended to identify 
potential issues early so that the sponsor may attempt to address those 
issues prior to the start of the formal review process.
    (4) Public review and comment. Within 30 days of receipt of a 
complete prospectus, the district engineer will provide public notice 
of the proposed mitigation bank, in accordance with the public notice 
procedures at 33 CFR 325.3. The public notice must include a summary of 
the prospectus and indicate that the full prospectus is available to 
the public for review upon request. The comment period for public 
notice will generally be 30 days, unless the district engineer 
determines that a longer or shorter comment period is appropriate. The 
district engineer will notify the sponsor if the comment period is 
extended beyond 30 days, including an explanation of why the longer 
comment period is necessary. Copies of all comments received in 
response to the public notice must be distributed to the other IRT 
members and to the sponsor within 15 days of the close of the public 
comment period. The district engineer and IRT members may also provide 
comments to the sponsor at this time, and copies of any such comments 
will also be distributed to all IRT members. If the construction of a 
mitigation bank requires DA authorization through the standard permit 
process, the public notice requirement may be satisfied through the 
public notice provisions of the standard permit processing

[[Page 15553]]

procedures, provided all of the relevant information is provided.
    (5) Draft mitigation banking instrument. After considering comments 
from the district engineer, the IRT, and the public, if the sponsor 
chooses to proceed with establishment of the mitigation bank, he must 
prepare a draft mitigation banking instrument and submit it to the 
district engineer. The draft mitigation banking instrument should be 
based on the prospectus and must describe in detail the physical and 
legal characteristics of the mitigation bank and how it will be 
established and operated. The draft mitigation banking instrument must 
include the following information:
    (i) Mitigation plan, including all applicable items listed in Sec.  
230.94(c)(2) through (14);
    (ii) Geographic service area of the mitigation bank. The service 
area is the watershed or other geographic area within which a 
mitigation bank is authorized to provide compensation for unavoidable 
impacts authorized by DA permits. The service area should be large 
enough to support an economically viable mitigation bank, but must not 
be larger than is appropriate to ensure that the aquatic resources 
provided by the mitigation bank will effectively compensate for adverse 
environmental impacts across the entire service area. The district 
engineer must consider relevant environmental and economic factors when 
approving the service area. The district engineer may also consider 
locally-developed standards and criteria. In urban areas, a U.S. 
Geological Survey 8-digit hydrologic unit code (HUC) watershed or a 
smaller watershed may be an appropriate service area. In rural areas, 
several contiguous 8-digit HUCs or a 6-digit HUC watershed may be an 
appropriate service area for the mitigation bank. The basis for 
determining the service area must be documented in writing and 
referenced in the mitigation banking instrument;
    (iii) Credit release schedule. Credit release must be tied to 
achievement of specific milestones. If the mitigation bank does not 
achieve appropriate milestones (e.g., performance standards) as 
anticipated, the district engineer may modify the credit release 
schedule, including reducing the number of available credits or 
suspending credit sales altogether;
    (iv) Accounting procedures;
    (v) A provision stating that legal responsibility for providing the 
compensatory mitigation lies with the sponsor;
    (vi) Default and closure provisions; and
    (vii) Any other information deemed necessary by the district 
engineer.
    (6) IRT review. Upon receiving a draft mitigation banking 
instrument, the district engineer must provide copies of the draft 
instrument to the IRT members for a 30 day comment period. Following 
the comment period, the district engineer will discuss any comments 
with the appropriate agencies and with the sponsor. The district 
engineer will seek to resolve any issues using a consensus-based 
approach. Within 90 days of receipt of the complete draft mitigation 
banking instrument, the district engineer must notify the sponsor of 
the status of the IRT review. Specifically, the district engineer must 
indicate to the sponsor if the draft mitigation banking instrument is 
generally acceptable and what changes, if any, are needed. If there are 
significant unresolved concerns that may lead to a formal objection 
from one or more IRT members to the final mitigation banking 
instrument, the district engineer will indicate the nature of those 
concerns.
    (7) Final mitigation banking instrument. If the sponsor still 
wishes to proceed with establishment of the mitigation bank, he must 
submit a final mitigation banking instrument to the district engineer 
for approval. The final mitigation banking instrument should address 
any comments provided as a result of the IRT review process. The final 
mitigation banking instrument must be provided directly by the sponsor 
to all members of the IRT. Within 15 days of receipt of the final 
mitigation banking instrument, the district engineer will notify the 
IRT members whether or not he intends to approve the mitigation banking 
instrument. If no IRT member objects, by initiating the dispute 
resolution process in paragraph (d) of this section within 30 days of 
receipt of the final mitigation banking instrument, the district 
engineer will notify the sponsor of his final decision and, if the 
mitigation banking instrument is approved, arrange for it to be signed 
by the appropriate parties. If any IRT member initiates the dispute 
resolution process, the district engineer will notify the sponsor. 
Following conclusion of the dispute resolution process, the district 
engineer will notify the sponsor of his final decision, and if the 
mitigation banking instrument is approved, arrange for it to be signed 
by the appropriate parties. The final mitigation banking instrument 
must contain the types of information items listed in paragraphs 
(c)(5)(i) through (vii) of this section.
    (d) Dispute resolution process. (1) Within 15 days of receipt of 
the district engineer's notification of intent to approve a mitigation 
banking instrument, the Regional Administrator of the U.S. EPA, the 
Regional Director of the U.S. Fish and Wildlife Service, the Regional 
Director of the National Marine Fisheries Service, and/or other senior 
officials of agencies represented on the IRT may notify the district 
engineer and other IRT members by letter if they object to the approval 
of the proposed final mitigation banking instrument. This letter must 
include an explanation of the basis for the objection and, where 
feasible, offer recommendations for resolving the objections. If the 
district engineer does not receive any objections within this time 
period, he may proceed to final action on the mitigation banking 
instrument.
    (2) The district engineer must respond to the objection within 30 
days of receipt of the letter. The district engineer's response may 
indicate an intent to disapprove the mitigation banking instrument as a 
result of the objection, an intent to approve the mitigation banking 
instrument despite the objection, or may provide a modified mitigation 
banking instrument that attempts to address the objection. The district 
engineer's response must be provided to all IRT members.
    (3) Within 15 days of receipt of the district engineer's response, 
if the Regional Administrator or Regional Director is not satisfied 
with the response he may forward the issue to the Assistant 
Administrator, Office of Water of the U.S. EPA, the Assistant Secretary 
for Fish and Wildlife and Parks of the U.S. FWS, or the Undersecretary 
for Oceans and Atmosphere of NOAA, as appropriate, for review and must 
notify the district engineer by faxed letter (with copies to all IRT 
members) that the issue has been forwarded for Headquarters review. 
This step is available only to the IRT members representing these three 
Federal agencies, however other IRT members who do not agree with the 
district engineer's final decision do not have to sign the mitigation 
banking instrument or recognize the mitigation bank for purposes of 
their own programs and authorities. If an IRT member other than the one 
filing the original objection has a new objection based on the district 
engineer's response, he may use the first step in this procedure 
(paragraph (d)(1) of this section) to provide that objection to the 
district engineer.

[[Page 15554]]

    (4) If the issue has not been forwarded to the objecting agency's 
Headquarters, then the district engineer may proceed with final action 
on the mitigation banking instrument. If the issue has been forwarded 
to the objecting agency's Headquarters, the district engineer must hold 
in abeyance the final action on the mitigation banking instrument, 
pending Headquarters level review described below.
    (5) Within 20 days from the date of the letter requesting 
Headquarters level review, the Assistant Administrator, Office of 
Water, the Assistant Secretary for Fish and Wildlife and Parks, or the 
Undersecretary for Oceans and Atmosphere must either notify the 
Assistant Secretary of the Army (Civil Works) (ASA(CW)) that further 
review will not be requested, or request that the ASA(CW) review the 
draft mitigation banking instrument.
    (6) Within 30 days of receipt of the letter from the objecting 
agency's Headquarters request for ASA(CW)'s review of the draft 
mitigation banking instrument, the ASA(CW), through the Director of 
Civil Works, must review the draft mitigation banking instrument and 
advise the district engineer on how to proceed with final action on 
that instrument. The ASA(CW) must immediately notify the Assistant 
Administrator, Office of Water, the Assistant Secretary for Fish and 
Wildlife and Parks, and/or the Undersecretary for Oceans and Atmosphere 
of the final decision.
    (7) In cases where the dispute resolution procedure is used, the 
district engineer must notify the sponsor of his final decision within 
150 days of receipt of the final mitigation banking instrument.
    (e) Extension of deadlines. (1) The deadlines in paragraphs (c) and 
(d) of this section may be extended by the district engineer at his 
sole discretion in cases where:
    (i) Compliance with other applicable laws, such as Endangered 
Species Act Section 7 consultation, is required;
    (ii) Timely submittal of information necessary for the review of 
the proposed mitigation bank is not accomplished by the sponsor; or
    (iii) Information that is essential to the district engineer's 
response cannot be reasonably obtained within the specified time frame.
    (2) In such cases, the district engineer must promptly notify the 
sponsor in writing of the extension and the reason for it. Such 
extensions shall be for the minimum time necessary to resolve the issue 
necessitating the extension.
    (f) Modification of mitigation banking instruments. (1) In general, 
modification of an approved mitigation banking instrument must follow 
the procedures in paragraph (c) of this section, unless the district 
engineer determines that the streamlined review process described in 
paragraph (f)(2) of this section is warranted. The streamlined review 
process may be used for changes reflecting adaptive management of the 
mitigation bank, changes in credit release schedules, and changes that 
the district engineer determines are non-significant.
    (2) If the district engineer determines that the streamlined review 
process is warranted, he must notify the IRT members and the sponsor of 
this determination and provide them with copies of the proposed 
modification. IRT members and the sponsor have 30 days to notify the 
district engineer if they have concerns with the proposed modification. 
If IRT members or the sponsor notify the district engineer of such 
concerns, the district engineer shall attempt to resolve those 
concerns. Within 60 days of providing the proposed modification to the 
IRT, the district engineer must notify the IRT members of his intent to 
approve or disapprove the proposed modification. If no IRT member 
objects, by initiating the dispute resolution process in paragraph (d) 
of this section, within 15 days of receipt of this notification, the 
district engineer will notify the sponsor of his final decision and, if 
the modification is approved, arrange for it to be signed by the 
appropriate parties. If any IRT member initiates the dispute resolution 
process, the district engineer will so notify the sponsor. Following 
conclusion of the dispute resolution process, the district engineer 
will notify the sponsor of his final decision, and if the modification 
is approved, arrange for it to be signed by the appropriate parties.
    (g) Umbrella mitigation banking instruments. A single mitigation 
banking instrument may provide for future authorization of additional 
mitigation bank sites. As additional sites are selected, they must be 
included in the mitigation banking instrument as modifications, using 
the procedures in paragraph (c) of this section.
    (h) Coordination of mitigation banking instrument and DA permit 
issuance. In cases where initial establishment of the mitigation bank 
involves activities requiring DA authorization, the permit should not 
be issued until all relevant provisions of the mitigation banking 
instrument have been substantively determined. This is to ensure that 
the DA permit accurately reflects all relevant provisions of the final 
mitigation banking instrument.
    (i) Project implementation. Authorization to sell credits to 
satisfy compensatory mitigation requirements in DA permits is 
contingent on compliance with all of the terms of the mitigation 
banking instrument. This includes constructing a mitigation bank in 
accordance with the mitigation plan as approved by the district 
engineer and incorporated by reference in the mitigation banking 
instrument. If the aquatic resource restoration, establishment, 
enhancement, and/or preservation activities cannot be implemented in 
accordance with the approved mitigation plan, the district engineer 
must consult with the sponsor and the IRT to consider modifications to 
the mitigation banking instrument, including adaptive management, 
revisions to the credit release schedule, and alternatives for 
providing compensatory mitigation to satisfy any credits that have 
already been sold.
    (j) Credit withdrawal from mitigation banks. The mitigation banking 
instrument may allow for initial debiting of a percentage of the total 
credits projected at mitigation bank maturity provided the following 
conditions are satisfied: the mitigation banking instrument and 
mitigation plan have been approved, the mitigation bank site has been 
secured, appropriate financial assurances have been established, and 
any other requirements determined to be necessary by the district 
engineer have been fulfilled. The mitigation banking instrument must 
provide a schedule for additional credit releases as appropriate 
milestones are achieved (see paragraph (k)(7) of this section).
    (k) Determining credits. (1) Units of measure. For mitigation 
banks, the principal units for credits and debits are acres or linear 
feet or functional assessment units of particular resource types. 
Functional assessment units may be linked to acres or linear feet.
    (2) Functional assessment. Where practicable, an appropriate 
functional assessment method (e.g., hydrogeomorphic approach to 
wetlands functional assessment) must be used to assess and describe the 
aquatic resource types that will be restored, established, enhanced 
and/or preserved by the mitigation bank.
    (3) Credit production. The number of credits must reflect the 
difference between pre- and post-mitigation bank site conditions. If an 
existing resource is being enhanced, the number of credits should 
reflect only the enhancements produced by construction of the 
mitigation bank. This may be reflected in a discounted number of 
credits

[[Page 15555]]

relative to the total acres or linear feet encompassed by the 
mitigation bank.
    (4) Credit value. Once a credit is debited, its value cannot 
change.
    (5) Credits provided by preservation. These credits should be 
specified as acres or linear feet of preservation of a particular 
resource types. In determining the compensatory mitigation requirements 
for DA permits using the mitigation bank, the district engineer should 
apply a higher mitigation ratio if the requirements are to be met 
through the use of preservation credits. In determining this higher 
ratio, the district engineer must consider the relative importance of 
both the impacted and the preserved aquatic resources in sustaining 
watershed functions as described in Sec.  230.93(c).
    (6) Credits provided by riparian areas, buffers, and uplands. These 
credits should be specified as acres or linear feet of riparian area, 
buffer, and uplands respectively. Non-aquatic resources can only be 
used as compensatory mitigation for impacts to aquatic resources 
authorized by DA permits when those resources are essential to 
maintaining the ecological viability of adjoining aquatic resources. In 
determining the compensatory mitigation requirements for DA permits 
using the mitigation bank, the district engineer may authorize the use 
of riparian area, buffer and/or upland credits if he determines that 
these areas are essential to sustaining watershed functions as 
described in Sec.  230.93(c) and are the most appropriate compensation 
for the authorized impacts.
    (7) Credit release schedule. The terms of the credit release 
schedule must be specified in the mitigation banking instrument. The 
credit release schedule may provide for release of a limited portion of 
projected credits once the mitigation banking instrument, including the 
mitigation plan, has been approved, the site secured, and appropriate 
financial assurances established. Release of the remaining credits must 
be tied to performance based milestones (e.g., construction, planting, 
establishment of specified plant and animal communities). The credit 
release schedule should reserve a significant share of the total 
credits for release only after full achievement of ecological 
performance standards. When determining the credit release schedule, 
factors to be considered may include, but are not limited to: the 
method of providing compensatory mitigation credits (e.g., 
restoration), the likelihood of success, the nature and amount of work 
needed to generate the mitigation bank credits, the aquatic resource 
type(s) and function(s) to be provided by the mitigation bank, and the 
initial capital costs needed to establish the mitigation bank. Once 
released, credits may only be used to satisfy compensatory mitigation 
requirements in a DA permit if they have been specifically approved by 
the district engineer as part of the permit review process.
    (8) Release of credits. Credit releases must be approved by the 
district engineer. The sponsor must submit documentation to the 
district engineer demonstrating that the appropriate milestones for a 
release of credits have been achieved and requesting the release. The 
district engineer will provide copies of this documentation to the IRT 
members for review. IRT members must provide any comments to the 
district engineer within 15 days of receiving this documentation. 
However, if the district engineer determines that a site visit is 
necessary, IRT members must provide any comments to the district 
engineer within 30 days of receipt of this documentation. After full 
consideration of any comments received, the district engineer will 
determine whether the milestones have been achieved and the credits can 
be released.
    (9) Adjustments to credit totals and release schedules. (i) If, 
after achieving all performance standards as specified in the 
mitigation banking instrument, the sponsor finds that the mitigation 
bank has developed aquatic resource functions substantially in excess 
of those upon which the original credit totals and release schedule 
were based, he may request that the mitigation banking instrument be 
amended in accordance with the procedures in paragraph (f) of this 
section. This request must include detailed documentation of the 
aquatic resource functions provided by the mitigation bank site, an 
explanation of how those aquatic resource functions substantially 
exceed the functions upon which the original credit totals were based, 
an explanation of the basis for calculating the additional credits, and 
any other information deemed necessary by the district engineer.
    (ii) If the district engineer determines that the mitigation bank 
is not meeting performance standards, he may reduce the number of 
available credits or suspend credit sales. The district engineer may 
also require adaptive management and/or direct the use of financial 
assurances for remediation.
    (l) Reporting. (1) Ledger account. The mitigation banking 
instrument must contain a provision requiring the sponsor to establish 
and maintain a ledger to account for all credit transactions for the 
mitigation bank. Each time an approved credit transaction occurs, the 
sponsor must notify the district engineer. The sponsor must compile an 
annual ledger report showing the beginning and ending balance of 
available credits of each resource type, all additions and subtractions 
of credits, and any other changes in credit availability (e.g., 
additional credits released, credit sales suspended). The ledger report 
must be submitted to the district engineer, who will distribute copies 
to the IRT members. The ledger report is part of the administrative 
record for the mitigation bank. The district engineer will make the 
ledger report available to the public upon request.
    (2) Monitoring reports. The sponsor is responsible for monitoring 
the mitigation bank site in accordance with the approved monitoring 
requirements to determine the level of success and identify problems 
requiring remedial action. Monitoring must be conducted in accordance 
with the requirements in Sec.  230.96, and at time intervals 
appropriate for the particular project type and until such time that 
the district engineer, in consultation with the IRT, has determined 
that the performance standards have been attained. The mitigation 
banking instrument must include requirements for periodic monitoring 
reports to be submitted to the district engineer, who will provide 
copies to other IRT members.
    (m) Use of credits. All activities authorized by DA permits are 
eligible, at the discretion of the district engineer, to use a 
mitigation bank to compensate for unavoidable impacts to aquatic 
resources, such as streams and wetlands. The district engineer will 
determine the number and type(s) of credits required to compensate for 
the authorized impacts. Permit applicants may propose to use a 
particular mitigation bank to provide the required compensatory 
mitigation. The banker must provide the permit applicant with a 
statement of credit availability. The district engineer must review the 
permit applicant's compensatory mitigation proposal, and notify the 
applicant of his determination regarding the acceptability of using 
that mitigation bank. In making this determination, the district 
engineer must fully consider agency and public comments submitted as 
part of the permit review process. Use of an approved mitigation bank 
consistent with the terms of its instrument (e.g., the permitted 
activity is located within the approved service area, credits are 
available for an appropriate resource type) will

[[Page 15556]]

generally satisfy the requirement to use a watershed approach to 
determine compensatory mitigation requirements where feasible and 
considering opportunities for on-site, in-kind mitigation, as described 
in Sec.  332.3(b).
    (n) IRT concerns with use of credits. If, in the view of a member 
of the IRT, an issued permit or series of issued permits raises 
concerns about how credits from a particular mitigation bank are being 
used to satisfy compensatory mitigation requirements (including 
concerns about whether credit use is consistent with the terms of the 
mitigation banking instrument), the IRT member may notify the district 
engineer in writing of the concern and request an IRT consultation. The 
district engineer shall promptly consult with the IRT to address the 
concern. Final resolution of the concern is at the discretion of the 
district engineer, consistent with applicable statutes, regulations, 
and policies regarding compensatory mitigation requirements for DA 
permits.
    (o) Long-term management. The legal mechanisms and the party 
responsible for the long-term management of the mitigation bank and the 
protection of the site must be documented in the mitigation banking 
instrument. The sponsor must make adequate provisions for the 
operation, maintenance, and long-term management of the mitigation bank 
site. The mitigation banking instrument may contain provisions for the 
sponsor to transfer long-term management responsibilities to a land 
stewardship entity, such as a public agency, non-governmental 
organization, or private land manager. Where needed, the acquisition 
and protection of water rights must be secured by the sponsor and 
documented in the mitigation banking instrument.
    (p) Grandfathering of existing mitigation banking instruments. All 
mitigation banking instruments approved after [date 90 days after 
publication of final rule] must meet the requirements of this part. 
Mitigation banks approved prior to [date 90 days after publication of 
final rule] may continue to operate under the terms of their existing 
instruments. However, any modification to such a mitigation banking 
instrument after [date 90 days after publication of final rule], 
including authorization of additional sites under an umbrella 
mitigation banking instrument, must be consistent with the terms of 
this part.


Sec.  230.99  In-lieu fee programs.

    (a) Suspension of future authorizations. As of [date 90 days after 
publication of final rule] district engineers will not authorize new 
in-lieu fee programs to provide compensatory mitigation for DA permits.
    (b) Transition period for existing in-lieu fee programs. (1) In-
lieu fee programs with an approved instrument in effect as of [date 90 
days after publication of final rule] may continue to sell credits 
consistent with the terms of that instrument until [date 5 years and 90 
days after publication of final rule]. Credits that have already been 
sold by the in-lieu fee program on or before this date (or the date 
resulting from an extended deadline, as provided in paragraph (b)(2) of 
this section) continue to be subject to the terms and conditions of the 
instrument for that in-lieu fee program.
    (2) In-lieu fee programs that wish to continue operating beyond 
this date must reconstitute themselves as a mitigation bank, consistent 
with the requirements of this subpart. If an in-lieu fee program has 
submitted a prospectus satisfying the requirements of Sec.  
230.98(c)(2) by [date 4 years and 90 days after publication of final 
rule] and is making a good faith effort to complete the process of 
obtaining an approved mitigation banking instrument that satisfies the 
requirements of this subpart, the district engineer may extend the 
deadline for final approval of this instrument beyond [date 5 years and 
90 days after publication of final rule] as necessary.
    (3) If the district engineer determines that the substantive 
requirements of this subpart pertaining to mitigation banks are already 
satisfied by the existing in-lieu fee program instrument, any changes 
necessary to reconstitute the in-lieu fee program as a mitigation bank 
may be accomplished using the streamlined review process in Sec.  
230.98(f)(2), otherwise a new mitigation banking instrument must be 
developed using the procedure in Sec.  230.98(c).
    (4) Any in-lieu fee program that has not reconstituted itself as a 
mitigation bank by the applicable deadline in paragraphs (b)(1) or 
(b)(2) of this section must cease selling credits as of that date. 
However, any such in-lieu fee program is still responsible for 
providing all credits already sold, consistent with the terms of its 
instrument.

    Dated: March 23, 2006.
Stephen L. Johnson,
Administrator, U.S. Environmental Protection Agency.
[FR Doc. 06-2969 Filed 3-27-06; 8:45 am]

BILLING CODE 3710-92-P
