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3LEGAL REQUIREMENTS FOR STATE TRANSPORTATION AGENCY PARTICIPATION IN CONSERVATION PLANS By James M. McElfish, Jr., Environmental Law Institute, Washington, DC I. INTRODUCTION This study examines the legal requirements related to compensatory mitigation for impacts to natural resources caused by state highway develop- ment projects, with specific attention to state trans- portation agenciesâ participation in conservation plans. The requirements for compensatory mitiga- tion are fulfilled using mechanisms recognized by federal and state laws and policies, and are increas- ingly linked to larger-scale conservation planning in order to improve the efficacy and durability of the mitigation being provided. Laws and regulations authorize programs that generate âcreditsâ to offset environmental damage, and include wetland and stream mitigation banks and in-lieu fee (ILF) accounts under the federal Clean Water Act1 and state wetlands and water quality laws; mitigation of habitat loss and offsets of impacts to species under the federal Endangered Species Act2 (ESA); and state habitat conservation banking.3 The specific compensatory mitigation mecha- nisms under consideration are: â¢ Compensatory mitigation for unavoidable im- pacts to the âwaters of the United Statesâ under per- mitted activities covered by Section 404 of the Clean Water Act,4 Section 10 of the Rivers and Harbors Act,5 and the Compensatory Mitigation Rule issued by the Corps of Engineers (Corps) and Environmen- tal Protection Agency (EPA)6. After the proposed action has been designed to avoid and minimize potential impacts to the waters of the United States, remaining permitted impacts must be offset by com- pensatory mitigationâthe creation, restoration, or enhancement of waters and wetlandsâordinarily in the same âwatershedâ as the projected impacts. The compensatory mitigation hierarchy established by the rule prefers mitigation provided through a mitigation bank7 or ILF8 over permittee-responsible mitigation created by the permit applicant.9 States may also approve use of these mechanisms to satisfy the mitigation requirements of state wetlands and water protection laws, usually in coordination with federal regulators. â¢ Habitat improvements and conservation actions undertaken to prevent âjeopardyâ to a listed threat- ened or endangered species pursuant to consulta- tion with the U.S. Fish & Wildlife Service (FWS) or National Oceanic and Atmospheric Administration (NOAA) under Section 7 of the ESA.10 â¢ Habitat improvements and conservation actions to protect a listed threatened or endangered species in connection with a Habitat Conservation Plan (HCP) approved by the FWS or NOAA supporting an âincidental take permitâ under Section 10 of the ESA;11 and Candidate Conservation Agreements with Assurances (CCAA) to conserve and enhance habitat for species that are not yet listed species 1 Federal Water Pollution Control Act, better known as the âClean Water Actâ, Pub. L. No. 92-500, 86 Stat. 816, (1972) (codified as amended at 33 U.S.C. Â§Â§ 1251-1387). 2 Pub. L. No. 93-205, 87 Stat. 884 (1973) (codified as amended 33 U.S.C. ch. 35, Â§Â§ 1531-1544). 3 Michael Bean, ReBecca KihslingeR, & Jessica WilKinson, Design of U.s. haBitat BanKing systeMs to sUppoRt the conseRvation of WilDlife haBitat anD at-RisK species (Environmental Law Institute, 2008). 4 33 U.S.C. Â§ 1344. 5 Id. Â§ 403. 6 33 C.F.R. Parts 320-332; 40 C.F.R. Parts 230-233. 7 A mitigation bank is a site or suite of sites where aquatic resources are restored, established, enhanced, or preserved for the purpose of compensating for impacts authorized by Corps of Engineers permits. In general, a bank sells compensatory mitigation credits to permittees, whose obligation to provide compensatory mitigation is then assumed by the bank sponsor. 33 C.F.R. Â§ 332.2; 40 C.F.R. Â§ 230.92. 8 An ILF program involves the payment of funds to a governmental or nonprofit natural resources management entity to satisfy compensatory mitigation requirements through certain activities aquatic resources are restored, established, enhanced, or preserved for the purpose of com- pensating for impacts authorized by Corps permits. Simi- lar to banking, the compensatory mitigation obligation is assumed by the ILF sponsor. 33 C.F.R. Â§ 332.2; 40 C.F.R. Â§ 230.92. 9 Permittee-responsible mitigation is an aquatic resource restoration, establishment, enhancement, and/or preserva- tion activity undertaken by the permittee (or its authorized agent or contractor) to satisfy compensatory mitigation obligations required in connection with a Corps permit. The permittee remains fully responsible for the satisfaction of the mitigation requirements. 33 C.F.R. Â§ 332.2; 40 C.F.R. Â§ 230.92. 10 16 U.S.C. Â§ 1536. 11 Id. Â§ 1539.