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

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Recommendations for Executive Action

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

Agency Affected: Environmental Protection Agency

Status: Open

Comments: The criteria for evaluating the performance of mitigation projects and the procedures for assessing the achievement of wetlands ecological performance and results are being finalized and will be reviewed by EPA, Commerce, and Interior as part of the Mitigation Action Plan process. The criteria and procedures are scheduled to be published in the Federal Register in the winter of 2005.

Recommendation: To better assure the ecological success of mitigation efforts under ad hoc arrangements, the Secretary of the Army should instruct the Corps districts to establish procedures to clearly identify whether developers or recipients of funds are responsible for the ecological success of mitigation efforts and, using the same success criteria applicable to in-lieu-fee arrangements, to develop and implement procedures for assessing success.

Agency Affected: Department of Defense: Department of the Army

Status: Closed - Implemented

Comments: The agency agreed with the recommendation and has issued appropriate guidance.