Science and Law Conference 2015

SAN RAFAEL • SAN DIEGO • DENVER • FORT BRAGG www.wra-ca.com (415) 454-8868 1
(415) 454-8868SAN RAFAEL  SAN DIEGO  DENVER FORT  BRAGG
County of Marin
Preliminary Engineering, Environmental and Design Services for
Mill Valley – Sausalito
Path Preservation STPL-5927(107)
(415) 454-8868SAN RAFAEL  SAN DIEGO  FORT BRAGG  DENVER
Science and Law of Water in California
Conservation and Mitigation Banking:
Challenges for the Future
Michael Josselyn, PhD, PWS

Topics to be covered
Mitigation and Conservation
Banking
• What is a mitigation/conservation bank?
• What are the trends in mitigation/conservation
banking?
• What are some of the issues associated with
banking that attorneys need to know?
• What are the future issues related to climate
change and water that require legal attention?

Bottom Line
Mitigation Banking is the preferred method to achieve offsets for habitat and species
impacts but will face challenges from climate change that will affect their long-term
success. Changes in their legal status will be needed to address these issues.

What is a mitigation bank?

Where can you sell credits

Who are the players?
Bank Sponsor
• Landowner
• Consultant team
• Legal counsel
• Bank operator
• Conservation
Easement
Holder
Agencies
• Corps of
Engineers
• Regional Water
Quality Control
Board
• DFW
• USFWS/NMFS
Purchaser
• Developer or
Government
Agency needing
credits

Why use mitigation banks?
Mitigation Credits versus Permittee-Responsible
Mitigation:
• Expedited process for Purchaser
• Favored in mitigation hierarchy by Agencies
• Lower mitigation ratio required by Agencies
• Specialization of Bank Sponsor favored by Agencies
• Liability and Performance Standards Transferred
from Purchaser to Bank Sponsor
• Less expensive to Purchaser in most cases when all
factors considered

Wetland vs Conservation Bank

Where are banks?
• California and
Florida lead the way
in # banks
• Other states in
southeast have
many wetland banks
• Fewer in Plain states

Who is a “typical” banker
An entity that is comfortable with:
1. High Cost of Entitlement ($750K -
$1M Equity)
2. Construction Costs / Financial
Securities
3. High Regulatory and Market Risk
4. Long Timeframe (2-4 year
Entitlement period / 10-15 year
credits sales)
No typical banker, but usually firms with
large landholdings (e.g. forest product
or real estate) or specialized
companies and investment groups.
Discourage “mom and pops”

What roles do legal counsel play
Legal Guidance and Review
• Bank Enabling Instrument (BEI)
– Indemnification
– Consistency
• Conservation Easement
– Prohibited uses
• Endowment Agreement
– Revisions to Template
– Structure and timing of payments in accordance with BEI
• Property Assessment and Warranty (PAW)
• Agency Coordination
– Watch out for client’s interests
– Push when pushing is warranted

Easements and Endowments
Easement in Perpetuity
• Is not revocable
• Conditions are permanent
• Financing proforma must deal
with uncertainty
• Returns must include inflation
estimate
• Usual return for activities at
3.5%
• Third party holder stability
• Expectation that habitats will
always be the same
Annual Maintenance = $50,000/yr
Endowment = $1,428,600

Practice Issue:
Lawsuits related to banking
• Pioneer Reserve LLC: Bank agreement is a binding
contract, not merely a regulatory approval subject to
revocation.
• Walther v US: Corps directed purchasers to another
mitigation bank outside Service Area
• South Carolina Coastal League v Corps: Mitigation bank
will harm other adjoining wetlands
• Conservation Resources: Consultant failed to perform in
design of wetland areas that were denied credit by Corps
• Swallow Tail : Agencies favoring non-profit foundation
mitigation bank for stream credits

Banking success = Stability
Climate change can lead to instability
• Long term drought can reduce wetland acreage
• Stream flow reduction affects riparian habitat
quality
• Climate effects on species distribution
• Invasive species may alter habitat conditions
• Insect pests can affect tree survival necessary
for habitat or carbon sequestration
• Sea level rise will alter tidal marsh distribution

Habitat design solutions
Sea-level rise
• Create suitable
habitat for current
needs
• Build in areas that
will be suitable for
tidal marsh in future
• Credits allowed to be
“floating”

Habitat design solutions
Vernal pool
and drought
• Careful assessment of water budgets
• Build features that may be seasonal wetlands under
current conditions; but vernal pools under drought and
allow credit change.

Species issues more difficult
Habitat
shifts
• Temperature
and rainfall
• Fire frequency
• Snow levels
• Development

Shifting easements
• Larger scale holdings within conservation
easements to allow for species shifts
• Allowing for more adaptive management within
conservation holdings
• Conservation easements may be revocable if
purpose is impossible due to climate change
– Atlantic & North Carolina Railroad Co. v. Way
• Conservation land leasing and allowance for
shifting easements
– Usually reserved for large land holdings or government agencies

Tradable Easement for Vulnerable
Conservation Objectives (TEVCO)
1. Securing an easement over a new property that is better property for
the conservation objective
2. Securing an updated appraisal of the value of the restrictions on the
property on which easement will be removed
3. Securing from the owner of the original property an agreement to sell
back the restrictions for an amount for the updated appraised value of
the restrictions
4. Carrying out a simultaneous closing in which the restrictions are
released from original easement including provisions in the successor
easement that are consistent with federal tax regulation
5. Placing any excess funds recovered in a restricted account to be
expended solely on the acquisition of land or interests in land that
contributes to the primary conservation objectives
http://labs.russell.wisc.edu/rissman/files/2013/10/Weeks-tradeable-CEs-vulnerable-goals-Duke-LCP.pdf

Practice tips:
Conservation Easements
• Draft goals broadly to
allow for ecosystem goals
• Include multiple purposes
• Include amendment
provisions
• Termination and release
provisions OR Climate
change cannot be used to
terminate agreement
• Allow adaptive
management

Thank you for listening
WRA, Inc.
www.wra-ca.com
Mitigation and Conservation
Solutions
www.mitigationandconservation.com

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