STATEWIDE AGRICULTURAL WETLAND MITIGATION BANKING FRAMEWORK FOR SOUTH DAKOTA Framework Draft v. 1

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1 STATEWIDE AGRICULTURAL WETLAND MITIGATION BANKING FRAMEWORK FOR SOUTH DAKOTA Framework Draft v. 1 Administrative Framework and Operational Guidance for the establishment and operation of wetland mitigation banks under the Food Security Act in the State of South Dakota

2 Table of Contents PART I ADMINISTRATIVE FRAMEWORK... 1 Purpose of the Framework... 1 Scope of the Framework... 2 Legal Authorities for the Framework... 2 Framework Reporting and Term... 3 Mitigation Bank Instrument Term... 4 Statutory / Policy Considerations of the Framework Eligible conversion areas Eligible Mitigation Bank Areas Eligible Mitigation Bank Sponsors Eligible Means of Developing Credits Basis of Crediting Crediting Ratios Transfer of Responsibility Use of Mitigation Bank Areas Approval of Mitigation Banks Role of the Technical Evaluation Panel (TEP) Mitigation Bank Default, Termination and Suspension Responsibilities Bank Sponsor Responsibilities NRCS The Credit Transaction Process PART II OPERATIONAL GUIDANCE A. Purpose and Scope of Bank Project B. Mitigation Bank Goals and Objectives C. Bank Site Selection Criteria D. Mitigation Work Plan E. Monitoring Protocol F. Reporting G. Performance Standards H. Crediting and Debiting Methodology I. Credit Ledger and Release Schedule i

3 J. Effect of Monitoring Results on Credits K. Financial Assurances L. Real Estate Protection Instruments M. Geographic Service Area for the Bank N. Modifications O. Bank Closure P. Long-term Management Q. Transfer of Assets R. Force Majeure S. Credit Purchase Certification T. Memorandum of Agreement ii

4 PART I ADMINISTRATIVE FRAMEWORK Purpose of the Framework The National Food Security Act Manual ( NFSAM ) states that, To be eligible for USDA benefits, a person who converts a wetland or produces an agricultural commodity on a converted wetland.must mitigate the loss of the functions, values, and acreage of the converted wetland. (NFSAM C[1]). Further, C[2][v] states, Approved mitigation banks may be used to compensate for converted wetlands. This Framework provides a legal and procedural foundation, consistent with Swampbuster provisions of the Food Security Act of 1985, as amended ( FSA ) and the NFSAM, for the use of mitigation bank credits to off-set impacts associated with wetland conversion. In accordance with the NFSAM, primary guidance for establishment of a mitigation bank is provided in Federal Guidance for the Establishment, Use and Operation of Mitigation Banks (hereafter 1995 Federal Guidance ; Federal Register: Nov. 28, 20015, Vol 60, Number 228, pp ), to which NRCS is a signatory agency. This Framework may be used as additional guidance for certain elements of the 1995 Federal Guidance as it would be applied in South Dakota, with the goal of creating the foundation of establishment, operation and use of mitigation banks as an approved means of off-setting wetland conversion. Finally, other guidance documents on the establishment, use and operation of mitigation banks have been developed on a regional (Omaha District, Corps of Engineers) and state-wide basis (North Dakota, Minnesota), and such guidance documents are referenced under this Framework where such guidance is consistent with the FSA, the NFSAM and the 1995 Federal Guidance. This Framework has several provisions that are preemptive ; that is, provisions which establish procedures, protections and/or assurances that mitigation credits (i.e. units of wetland acres, functions and values) will be legally established, properly utilized and protected, and remain functional at projected levels over the long-term via various mechanisms. Such mechanisms include eligibility criteria (for conversion sites, types of mitigation bank sponsors and credit sources), real estate protection instruments, financial assurances, performance standards, and a credit release schedule, among others. This Framework provides clarification and application of mitigation banking provisions of the FSA, the NFSAM and the 1995 Federal Guidance specific to South Dakota. For any case where there is determined to be inconsistent or contradictory language between this Framework and the FSA and/or the NFSAM, the FSA and the NFSAM will take precedence. For any case where there is determined to be inconsistent or contradictory language between this Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 1 41

5 Framework and the 1995 Federal Guidance, this Framework shall take precedence to the extent it is determined to be consistent with the FSA and the NFSAM. To the degree there are interpretations of this Framework by NRCS or other prevailing authority that are significantly different from precedent set in neighboring states and/or national policy, such interpretations will be justified through a public forum. Scope of the Framework The scope of this Framework is limited to FSA eligible producers ( persons or USDA participants in the FSA and the NFSAM) who desire to convert wetland areas mapped as CW, CWTE, FW, FWP, TP, W, WX and who choose a mitigation bank as the means by which to qualify for a mitigation exemption (NFSAM 515 Sub-part B). Mitigation banks developed to satisfy the mitigation exemption may be established by private entities within certain limitations as further defined below. Mitigation banks and credits developed under this Framework are NOT to be considered compliant with 33 USC 1344 (Permits for Dredged or Fill Material), with implementing regulations at 33 CFR 325. Producers using credits from banks established and operated under this Framework should consult the Corps of Engineers and other regulatory agencies to assess whether their actions require additional permits and/or authorizations. Notwithstanding the foregoing, in accordance with 16 USC 3822(f)(4), no person shall be ineligible for program loans or USDA payments if the wetland conversion is authorized by a permit issued under Section 404 of the Clean Water Act and the wetland conversion is mitigated through use of a wetland credit from a Corps of Engineers-approved mitigation bank. Legal Authorities for the Framework Under this Framework, producers converting wetlands must be in compliance with wetland provisions of existing federal, tribal, and state statutes and regulations, and perform work consistent with the following: Soil Conservation and Domestic Allotment Act of 1936 (16 USC 590a-590f, 590q and 7 CFR 610); Food Security Act of 1985 (PL ), as amended, including the Federal Agricultural Improvement and Reform Act of 1996 (PL ) (authority for wetland mitigation); Executive Order 11990; Food Security Act mitigation provisions (16 USC 3822); Agricultural Act of 2014 (PL ); PL , Section 714 and 7 USC 6962(A) (authority to enter into agreement). Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 2 41

6 Likewise, these authorities provide the basis for development and use of wetland mitigation bank credits as compensatory off-sets for wetland conversions. Producers who are not currently in compliance with wetland provisions of these authorities may be able to come into compliance through use of mitigation bank credits as off-sets for unauthorized and/or unmitigated wetland conversions. The State Conservationist will evaluate the nature of the non-compliance and, at his sole discretion, determine whether and to what extent mitigation bank credits can provide a remedy (NFSAM ). Framework Reporting and Term To document the efficacy and outcomes of this Framework, an annual report will be developed by NRCS and made available to the public providing an overview of the following: number of banks; their locations; approved Functional Capacity Units (FCUs)/acres by type; released FCUs/acres by type; FCUs/acres transacted by type and geographic service area (GSA); and FCUs/acres converted by type and location (GSA and Section/Township/Range). Of particular importance in the report will be an accounting of the wetland type, as well as size, of each wetland converted, in comparison to the wetland type/size in the mitigation banks from which credits have been drawn. If at any time, following the review of an annual report by the NRCS and the public, the State Conservationist makes a determination that wetland type/size for converted wetlands is not commensurate with wetland type/size replacement in mitigation banks, a modification may be needed to the crediting and debiting methodology provided herein. In addition to annual reports, there will be a standing review of the Framework every five (5) years, consisting of a summary report on FSA-related mitigation banking in South Dakota, developed by the NRCS and which collates and analyzes data from annual reports described above. The Five-year Review will assess the need to modify Framework administrative provisions, operational parameters and underlying authorities to accommodate new and/or amended statute and guidance. There is no expiration of this Framework or the operational guidance provided herein. This Framework may be modified from time to time as necessary to accommodate new/ amended law, guidance and/or policy developed after the adoption of this Framework, or in light of findings resulting from the annual reviews noted above. Such modification(s) will first Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 3 41

7 be made available to the public by the State Conservationist for a period of no less than 90 days for review and input. Following review of public input regarding the proposed modification(s), the State Conservationist, at his sole discretion, will adopt or reject the modification(s) and, in the case of adoption, set a timetable for implementation of the modified Framework. While there is no prescribed expiration date, this Framework may be terminated at any time pursuant to procedures established in this Framework. Termination of this Framework may be effected by the State Conservationist with or without cause by providing public notice not less than 180 days in advance of the proposed termination date. Upon such notice, the public will be granted opportunity to provide input regarding termination of this Framework, with such input to be given all due consideration by the State Conservationist. Should the State Conservationist elect to terminate this Framework, a date will be set after which no new mitigation bank prospectuses will be accepted. All mitigation banks with an approved prospectus before that date will be processed (i.e. approved or denied) in accordance with this Framework. All transactions (i.e. wetland conversions mitigated by credits from approved mitigation banks) from mitigation banks approved prior to the date of termination may proceed without any effect associated with Framework termination until cessation of bank operations in accordance with bank closure provisions of the Operational Guidance presented below. Mitigation Bank Instrument Term Mitigation bank entitlement (i.e. approval) will take the form of a Mitigation Bank Instrument (MBI), appended to a form of Memorandum of Agreement (MOA) as further described later in this Framework. The MBI will have no prescribed expiration date; however, provisions of the MBI will describe the process through which mitigation bank operations will cease (see Bank Closure under Operational Guidance below) and the responsibilities for managing the mitigation bank s wetland resources legally transferred to a qualified third party. Foundational laws, guidance and/or policy in place at the time of MBI execution will remain the prevailing authority during the operation of a mitigation bank, regardless of changes in those laws, guidance and/or policy (i.e. existing banks will be grandfathered in ). However, modifications to existing banks must comply with any new law, guidance and/or policy in place at the time of the modification. For umbrella agreements covering multiple bank sites, while the umbrella agreement itself will be grandfathered in, any new bank site added over time must comply with laws, guidance and/or policy in place at the time the new bank site is added. Notwithstanding the above, mitigation bank operations can be suspended, credit sales suspended and/or terminated, and mitigation banks can be decommissioned or terminated by the State Conservationist for non-compliance with the provisions of this Framework and/or Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 4 41

8 its underlying authorities. Specific actions related to determination and consequences of noncompliance are provided in the FSA and NFSAM. Statutory / Policy Considerations of the Framework Per the FSA and the NFSAM, no person shall be determined to be ineligible for USDA benefits for converting a wetland.if NRCS determines that the person has adequately mitigated for the lost wetland acreage, value and functions. (NFSAM [A]); and. The Secretary shall exempt a person from ineligibility provisions of section 16 USC 3821 of this title if The wetland and the wetland values, acreage and functions are mitigated by the person. (16 USC 3822[f][2]). As a matter of policy, it is a stated goal of this Framework to emphasize the establishment of mitigation banks on large, potentially high quality, restorable wetland complexes as an efficient way to off-set the ecological impacts of wetland conversions associated with agricultural production. Mitigation banks that restore diverse wetland complexes best accomplish the goal of replacing wetland functions and values lost from such conversions. This Framework is based on the principle that developing larger, regionally located mitigation banks with a diverse assemblage of wetlands is ecologically and logistically preferable to developing numerous small sites scattered across the landscape. Establishing a mitigation bank featuring wetlands with different sizes, shapes, and water regimes, as well as diverse plant and invertebrate communities, will result in far greater benefits to the habitat requirements of resident wildlife and migratory birds than restoring an individual sub-basin. Restoring a diverse complex of wetlands also minimizes the consolidation of impacts from numerous individual wetlands into one large wetland area of limited complexity. Provided below are a number of policy considerations specific to establishment and operation of mitigation banks under this Framework. Following these policy considerations is Part II Operational Guidance which provides specific applications of various policy considerations as well as specific application of general guidance provided by the 1995 Federal Guidance and the NFSAM. 1. Eligible conversion areas Wetland areas for which there is a Certified Wetland Determination in accordance with the NFSAM (514.3) and appendix are generally eligible for consideration under the mitigation exemption. Exceptions may be made by the State Conservationist with advice from the State Technical Committee per NFSAM [B]; however, at the time of adoption of this Framework, no wetland type or class has been Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 5 41

9 identified as non-eligible via publication in the Federal Register as specified at 7 CFR 12.5(b)(4)(iii). Notwithstanding the foregoing, the following limitations are established for the area (i.e. size) of wetland conversion that is eligible for use of mitigation bank credits under this Framework: A cropland wetland no limit; A non-cropland wetland limited to a wetland that is 5.0 acres in its entirety; For a non-cropland wetland >5.0 acres in its entirety determined on a case-by-case basis by the State Conservationist. Cropland is defined as those lands designated on the FSA map as such. Note that this limitation is for the total area of any single wetland to be converted; there are no limits on the number of individual wetlands a producer may propose for conversion. At his sole discretion, the State Conservationist may modify these limitations on a case-by-case basis, with such modification based on circumstances specific to the wetland conversion proposal of the producer. 2. Eligible Mitigation Bank Areas In accordance with the FSA and NFSAM, there are a number of areas which, while perhaps in need of some measure of wetland restoration, enhancement, or improved management, are NOT eligible to be used as mitigation bank sites. Such areas include, but are not limited to the following: Any area where credits are to be developed at the expense of the Federal Government, to wit: o No Federal funds can be used for any portion of the direct or indirect costs of development and operation of a mitigation bank (7CFR12.5[b][4][i][C]); Sites that are ineligible in accordance with NFSAM [E]), specifically: o Wetland Reserve Program (WRP), Conservation Reserve Program (CRP), or similar lands during the easement or contract period; o Federal lands owned in fee title or easement; o Lands on which Federal funds were used, in whole or in part, to purchase an easement; o Mitigation wetlands that have been created, restored, enhanced or acquired, in whole or in part, with Federal funds; o State-owned or other public lands which do not have specific provisions for management and protection in perpetuity as a wetland mitigation area. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 6 41

10 Preference should be shown by mitigation bank sponsors for wetland mitigation bank areas that meet the stated preference of this Framework for large, restorable wetland complexes with potential for eventually (following restoration, enhancement and/or creation) producing high quality wetland functions. HOWEVER, wetland complexes should include individual wetland areas of various sizes, from smaller, non-contiguous, pothole or pocket wetlands to larger, contiguous marshes and sloughs, including those along linear features such as rivers and streams. 3. Eligible Mitigation Bank Sponsors In accordance with the FSA, NFSAM and 1995 Federal Guidance, there are broad parameters for defining an appropriate mitigation bank sponsor, generally relating to sources of funding and organizational mandate. Such parameters include, but are not limited to the following: Private individuals and for-profit organizations, and/or non-profit organizations within certain stipulations (see below) are eligible bank sponsors; The following are ineligible to serve as bank sponsors: o Federal agencies; o State agencies receiving federal funds, any portion of which is associated, directly or indirectly, with wetland restoration/creation; o Any organization receiving Federal funding for any purpose, unless such funding can be demonstrated to the satisfaction of the State Conservationist to be separated, in its entirety, from funds used to produce mitigation credits (including indirect costs); o Any organization receiving Federal funding for purposes of wetland creation, restoration, enhancement or acquisition for either direct or indirect costs; o Non-profit organizations without specific resolution for use of donated funds to develop and operate a mitigation bank (to avoid member litigation regarding speculative expenditures of donated funds). Bank sponsors are not required to be the fee title owners of the real estate upon which the mitigation bank is located. If the bank sponsor is NOT the owner of the real estate where the mitigation bank is located, then evidence must be provided, to the satisfaction of the State Conservationist, that landowner has granted license to the bank sponsor to perform the activities presented in the MBI for the specific purpose of developing mitigation bank credits for sale. In addition, the landowner must agree to establish the real estate protection instrument associated with approval of the MBI. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 7 41

11 4. Eligible Means of Developing Credits (i.e. creditable actions) In accordance with FSA (16 USC 3822[f]) and NFSAM (515.10[G]), there are three types of wetland mitigation authorized (in order of priority per the 1995 Federal Guidance): restoration, enhancement and creation of wetland functions, values and acres. Preservation of wetlands is not authorized. Use of upland buffers for wetland mitigation credits is authorized in the 1995 Federal Guidance only to the degree that such features increase the overall ecological functioning of the bank. Specific policy considerations presented in the FSA, NFSAM and 1995 Federal Guidance that determine creditable actions include: 16 USC 3822[f][2].the restoration of a converted wetland, the enhancement of an existing wetland, or the creation of a new wetland. ; 16 USC 3822[f][2][D].in the case of enhancement or restoration of wetlands, on not greater than a 1-for-1 acreage basis unless more acreage is needed to provide equivalent functions/values; 16 USC 3822[f][2][E].in the case of creation of wetlands, on greater than a 1-for-1 acreage basis if more acreage is needed to provide equivalent functions/values; Credits cannot be derived from enhancement if the enhancement results in the improvement of some wetland functions but loss or reduction of others (e.g. conversion of vegetated wetlands to open water); Limited wetland credit can be given to upland areas protected within the mitigation bank boundary to reflect the functions inherently provided by such areas (e.g. nutrient and sediment filtration of runoff, wildlife habitat diversity) or which directly enhance or maintain the integrity of the aquatic ecosystem (1995 Federal Guidance II.B.5.). Given these and other policy considerations, the following are creditable actions under this Framework, presented in order of preference: (1) Restoration/Re-establishment manipulation of the physical, chemical and/or biological characteristics of a site with the goal of returning natural/historic functions to a former wetland, resulting in a gain of wetland acres; (2) Restoration/Rehabilitation manipulation of the physical, chemical and/or biological characteristics of a site with the goal of repairing natural/historic functions of a degraded wetland, resulting in a gain of function but not acres; (3) Enhancement manipulation of the physical, chemical and/or biological characteristics of a degraded wetland that will heighten, intensify and/or improve specific wetland functions without a decline in other wetland functions; Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 8 41

12 (4) Creation development of the physical, chemical and/or biological components necessary to support and maintain a wetland where none previously existed; any wetland establishment on non-hydric soil is considered creation (5) Upland Buffer establishment of an upland buffer to provide benefits and functions inherent in such areas, and/or which provide ecological benefit to the adjacent, buffered wetland; credits for such areas are limited to no more than 10% of the total credits in the mitigation bank. In addition, credit can be derived from a wetland that is in a Conservation Reserve Program contract, provided however that the credit is not added to the mitigation bank ledger until the CRP contract has expired or otherwise been properly terminated. 5. Basis of Crediting Wetlands will be classified using the Hydrogeomorphic (HGM) classification system, as well as the Cowardin et al. (1979) classification system (NFSAM [B]). Wetland function will then be generally determined using an assessment model which quantifies wetland functional values in Functional Capacity Units (FCUs) or similar measures of function. Approved wetland functional assessments are provided in the South Dakota Field Office Technical Guide, Section I Resource Evaluation Tools Wetlands (Notice SD-136, August 2002); however, other functional assessment models may be needed for wetland types for which no approved HGM model currently exists. In such cases the bank sponsor may propose an alternative model to be used. An appropriate HGM model will be employed for the wetland to be converted to determine that wetland s functions and levels of those functions. This will be used, in part, as the basis for determination of debits or wetland FCU losses. Similarly, wetland mitigation bank sites which at the outset already contain wetlands (to be restored/rehabilitated or enhanced) will be assessed using this same array of HGM models to determine baseline functions and levels of those functions in FCUs. Further, the bank sponsor will make a projection, based on the mitigation work plan, of post-restoration values and thereby determine the number of credits or wetland functional gains in FCUs. For wetland mitigation bank sites where wetlands are to be restored/re-established or created on nonwetland acres (which by their nature have no baseline wetland functions), the HGM model will be employed only to determine post-restoration/creation functional gains and therefore FCUs. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 9 41

13 Unfortunately, while FCUs do account for acres, they do so only indirectly (total FCUs for a site are the product of the site s total FCI or functional capacity index and site size in acres). Use of FCU crediting and debiting may not be entirely compliant with the FSA and NFSAM in that, while functional mitigation may be fully addressed, in some cases acres may not. For example, cropped wetlands to be converted may have, per an HGM functional assessment, a relatively low number of FCUs per acre, which could be effectively mitigated at a mitigation bank site with fewer acres but relatively high number of FCUs per acre; however such FCU exchange would be inconsistent with FSA and NFSAM language regarding mitigation of functions, values and acres (emphasis added). Therefore, under this Framework a functional assessment will be conducted for the wetland proposed for conversion to determine function capacity (in FCUs) that will be lost, and likewise a functional assessment will be conducted for wetlands proposed for restoration and enhancement (both pre- and post-effort) to determine the number of FCUs gained and available as mitigation of those losses. Additionally, however, the total number of acres lost by the wetland conversion must be compensated by the same number of acres gained at the mitigation bank site. Using this example, the three, one-acre wetland conversion, functioning at 2 FCUs per acre (resulting in 6 total FCUs lost) must be compensated by three acres of mitigation (at 3 FCUs per acre, or 9 FCUs), regardless of the fact the functional gain is 50% greater than necessary (see illustration). This meets the specific requirement of the FSA and NFSAM to compensate for both functions/values AND acres. 6. Crediting Ratios In accordance with the FSA and NFSAM (515.12[D][1][iii] and [iv]), a ratio of 1:1 (converted acre to mitigation acre) is the minimum replacement ratio; however, more acreage may be needed to provide equivalent functions (16 USC 3822[f][2][D]). As Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 10 41

14 provided for above, an HGM or similar functional assessment will be used to ensure the number of FCUs lost at wetland conversion sites is replaced by the same or greater number of FCUs at mitigation bank sites, AND wetland acres lost will be matched by at least the same number of wetland acres gained at mitigation bank site, regardless of FCU calculations. There are, however, other considerations in determining appropriate mitigation for wetland conversion, including risk of failure and temporal losses of function associated with certain types of mitigation, as well as cases where wetland losses are replaced out-of-kind (e.g. a prairie pothole wetland type is mitigated by a linear fringe / depressional wetland type). In such cases it is appropriate to assign a debit ratio to account for these factors. Specific to this framework, the following ratios will apply: For cases in which a wetland conversion debit is being mitigated by a wetland creation credit, a ratio of 2.0:1.0 (2.0 credits for each 1.0 debit) will be assigned. This ratio will be added to account for the higher risk of failure for this type of wetland development (per the National Academy of Science / National Research Council, 2001, Compensating for Wetland Losses under the Clean Water Act), and for temporal loss of habitat values associated with the prolonged timeframes needed for wetland creation areas to fully develop the array of intrinsic wetland values (515.12[D][1][iv]); this ratio will apply until the created wetland area is determined by the State Conservationist to have met all performance standards per the bank s MBI; For cases in which a wetland conversion debit is of a different HGM type than the wetland mitigation credit, a ratio of 1.5:1.0 will be assigned. This ratio will be added to discourage out-of-kind mitigation, without prohibiting such transactions which may be necessary in areas where an imbalance develops between conversions of a particular type of wetland and available credits of that same type of wetland. 7. Transfer of Responsibility This mitigation banking Framework is crafted to ensure bank sponsors are held legally and financially accountable for the performance of their mitigation bank credits. Under this Framework, therefore, responsibility for performance of wetland mitigation credits purchased by producers from an NRCS-approved mitigation bank is terminated for the producer following credit purchase. Responsibility for the mitigative effort transfers away from the producer and to another party in different ways, depending upon the method of protecting and managing the mitigation bank area. If a Warranty Easement Deed held by the USDA is used by the mitigation bank sponsor as the real estate protection instrument for the bank area(s), then responsibility for mitigation Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 11 41

15 bank credit performance transfers away from the producer and to the USDA, which in turn holds the bank sponsor responsible/accountable. If, with prior approval of the NRCS State Conservationist, an alternative form of real estate protection instrument is used by the mitigation bank sponsor, then responsibility for mitigation bank credit performance transfers away from the producer and directly to the bank sponsor. The bank sponsor is the legally and financially liable party, and the mechanism for establishing responsibility for the mitigation bank credits is through the MOA (signed by the bank sponsor and NRCS) and credit transaction certifications (signed by the bank sponsor, producer and NRCS). For other mitigation banking programs (e.g. under section 404 of the Clean Water Act, conservation banks under the Endangered Species Act), responsibility transfers completely to the mitigation bank sponsor, and subsequently to a qualified, third-party, long-term manager, in accordance with the MBI and MOA. The legal mechanisms for this transfer are established in: (1) the bank agreement (MBI, MOA, and other legally binding instruments), executed by the oversight agency (in this case the NRCS) and the bank sponsor; and (2) the credit purchase transaction, which is signed by the bank sponsor selling the credit, the producer converting a wetland and purchasing the credit, and the NRCS, with such transaction document to include specific language notifying the NRCS that the bank sponsor is formally and legally accepting responsibility for the mitigation action. Legal counsel for both the Department of the Army / Corps of Engineers, and the US Environmental Protection Agency have found this establishes a legally enforceable transfer of responsibility (33 CFR 332.3[l]). In all cases, the accountability of mitigation bank sponsors is ensured by way of financial assurances (bonds, insurance, letters of credit, etc.), as further defined herein. In addition, mitigation bank credits are made available for sale ( released ) gradually over time, and then only after meeting established performance standards and/or milestones. Finally, mitigation bank operations can be suspended and/or terminated by the NRCS at any time based on failure to perform (e.g. wetland areas not performing per standards established in the MBI, wetland mitigation areas not afforded real estate protection, and/or other noncompliance with provisions of this Framework). Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 12 41

16 8. Use of Mitigation Bank Areas Regardless of ownership of mitigation bank lands, certain general statements can be made regarding the use of those lands following the establishment of the mitigation wetlands and associated real estate protection instrument. Allowable uses would include: Restoration, monitoring, management activities; Maintenance of restored resources, monitoring access trails, bridges, berms, dams, outlet and spillway structures, irrigation conveyances, etc.; Hunting, trapping, fishing, and passive recreational uses (hiking, bird watching) in such a manner as to assure such activities do not affect the functions of the restored area, but without limitation; Agricultural uses, such as grazing and haying, which may, in the context of an NRCSapproved management plan, provide significant benefits to the long-term ecological health of the mitigation wetlands; The use of private lands as mitigation wetlands does not in and of itself grant any right of public access. Additional uses may be approved on a case-by-case basis, at the sole discretion of the State Conservationist, in consultation with the Technical Evaluation Panel described below. 9. Approval of Mitigation Banks The approval process for mitigation banks is provided in this Section 9, while content of the MBI is described in more detail in Part II Operational Guidance. Described herein are the levels of documentation and administrative steps needed to gain approval for establishment and operation of a mitigation bank. A more detailed description of each level of documentation can be found in the 1995 Federal Guidance, and is described here only insofar as how such documentation will advance through an administrative process tailored to South Dakota and this particular Framework. Documentation for establishment and operation of mitigation banks will have two parts: A mitigation bank instrument (MBI), with fully detailed administrative provisions and technical descriptions of the mitigation plan; and an MOA, signed by the lead agency (NRCS and bank sponsor), with the MBI as an attachment. As a general rule, processing for a bank instrument should take no more than 12 months, assuming timely response on the part of the bank sponsor to input from the NRCS and commenting entities further described below. Prospectus the mitigation bank prospectus is intended to provide an overview of the mitigation bank strategy and should include: o Bank goals and objectives; o Bank sponsor and qualifications; Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 13 41

17 o Site selection criteria; o Generalized mitigation plan, including wetland types (although a certified wetland determination will not be required at this stage for existing wetland areas); o Crediting estimate (acres and estimated FCUs, although a full HGM model is not required at this stage); o Proposed financial assurances; o Proposed real estate protection instrument; o Proposed geographic service area. The Prospectus is submitted to the State Conservationist or his designee for review and approval regarding completeness and clarity. Comments will be provided within 30 days to the bank sponsor which may: (1) incorporate such comments, if any, in anticipation of thereby having the Prospectus designated as complete; or (2) withdraw the Prospectus. Public Notice / Public Comment Once the Prospectus is determined to be complete, the State Conservationist will form a Technical Evaluation Panel (TEP, described in Section 10 below) to provide input on technical aspects of the mitigation bank. At the same time, the State Conservationist will publish a Public Notice for 21 days which solicits public comments on the merits of the mitigation bank proposal. Within 10 days of the close of the Public Notice period, comments will be collated and forwarded to the bank sponsor for incorporation into the MBI. Draft Instrument Following receipt of Public Notice Comments, the bank sponsor will develop and submit a Draft MBI which provides an initial presentation of all components needed for establishment and operation of the mitigation bank. Details regarding these components is provided in Part II of this Framework (Operational Guidance), and in the 1995 Federal Guidance. The Draft MBI will be submitted to the State Conservationist or his designee, who will then distribute copies to the TEP for their review over a 30-day period. At the request of the bank sponsor, a meeting of the TEP may be called at any time during the 30-day review period to discuss the technical merits of the Draft MBI. Within 10 days of the end of the 30-day review period all comments from the TEP must be submitted to the State Conservationist or his designee, who will (1) determine if the comments are appropriate under the TEP s mandate; and (2) forward all appropriate comments to the bank sponsor for incorporation in a Final MBI. Final Instrument Following receipt of the TEP s comments on the Draft MBI, the bank sponsor will develop and submit a Final MBI which provides final language for all components needed to establish and operate the mitigation bank, including incorporation of TEP comments as appropriate. The Final MBI should also include a Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 14 41

18 draft of the MOA to be signed by the State Conservationist and bank sponsor, as well as a draft of the transactional document that will be signed by the NRCS, bank sponsor and producer for each credit/debit transaction. Final MBI Execution The MBI will be approved in two parts: o A TEP signature page, executed by each member of the TEP and representing the concurrence of its members with a decision by the State Conservationist to execute the MOA for the mitigation bank; and o The MOA, signed by the bank sponsor and the State Conservationist, with the Final MBI document as an attachment. The State Conservationist and bank sponsor may execute the MOA in the absence of the TEP s concurrence, and under this Framework, the only signatories needed for the MOA are the bank sponsor and NRCS / State Conservationist. Umbrella Agreements An alternative but comparable process for mitigation bank approval can be used by bank sponsors who wish to establish and operate multiple bank sites. In such cases, an umbrella MBI (UMBI) is developed by a bank sponsor for approval by the State Conservationist describing all general administrative and operational provisions the bank sponsor would employ in its banking program. Review and approval of the UMBI would follow the process described above. One or more bank sites must be included with the UMBI, with specific application of administrative and operational provisions generally described in the UMBI. Should the bank sponsor seek to add additional bank sites subsequent to UMBI approval, the bank sponsor can propose specific mitigation bank sites for authorization under the UMBI as modifications of the UMBI (Part II, Section N of this Framework). 10. Role of the Technical Evaluation Panel (TEP) The purpose of the TEP is to provide review of proposed mitigation banks, to offer comments and constructive input on technical issues such as wetland ecology, wildlife and habitat utilization aspects of the mitigation bank, and to subsequently provide a concurrence document in the form of a signature page for the Final MBI to the NRCS regarding approval of the bank. Potential members of the TEP may include: NRCS representative (Agency Wetland Expert); Conservation district representative from the county where the bank is located; Others from a Local Government Unit (LGU); SDSU Water Resource Institute representative or similar; Optional Watershed Advisory Task Force member. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 15 41

19 The TEP will be directed by the State Conservationist or his designee to review the draft and final versions of the MBI and provide feedback regarding the technical merit of the restoration, enhancement and/or creation strategies proposed therein. The TEP is encouraged to meet together as needed to discuss individual views, and to meet at least once as a group with the bank sponsor to allow presentation of the technical approach and context for the bank project. For mitigation bank sites submitted by sponsors of umbrella agreements, the TEP will likewise review the technical aspects of the bank site plan(s) and provide feedback to the State Conservationist, with approval taking the form of a signature page to be attached to each bank site plan modifying the UMBI. The TEP would not be involved with approval of a standalone UMBI, only bank site plans associated with the UMBI. Any member of the TEP may terminate his/her participation upon written notification to all signatory parties of the TEP without invalidating an MBI. Participation of the TEP member seeking termination will end 30 days after such written notification. 11. Mitigation Bank Default, Termination and Suspension Should the State Conservationist determine that a bank sponsor is in material default of any provision of the MBI, then the sale or transfer of any credits may be suspended and, in such event, the State Conservationist or his designee will notify the bank sponsor that the sale or transfer of any credits has been suspended until the appropriate deficiencies have been remedied to the satisfaction of the State Conservationist. Upon notice of such suspension, the bank sponsor must agree to immediately cease all sales or transfers of credits until the State Conservationist or his designee informs the bank sponsor that sales or transfers may be resumed. If the bank sponsor fails to submit one or more required monitoring reports, additional years of monitoring and reporting may be required to document compliance with the MBI. Should the bank sponsor remain in default, the State Conservationist may terminate all future credit transactions. Upon termination, the bank sponsor will be required to perform and fulfill all obligations under the MBI relating to credits that were sold or transferred prior to termination. A MBI may be considered null and void by the State Conservationist if the physical improvements identified in the mitigation work plan have not been completed within five years of the last date of signature or approval. The bank sponsor may reinitiate the process by submitting a new prospectus consistent with the latest mitigation banking Framework in place at that time. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 16 41

20 12. Responsibilities Bank Sponsor The bank sponsor provides administrative oversight of all aspects of bank entitlement and operation. The bank sponsor is solely responsible for MBI development and implementation, as well as day-to-day credit marketing, sales and tracking. The bank sponsor will assist the transactional process (debits for credits) by developing the HGM model for wetland areas that are being proposed for conversion, with such conversion to be mitigated at the bank sponsor s mitigation bank. Banks sponsors will also facilitate mitigation bank visits by NRCS / TEP representatives, and will perform all monitoring/maintenance of the mitigation bank. Bank sponsors are solely responsible for posting and maintenance of all financial assurances (bonds, insurance policies, etc.), as well as the establishment of a real estate protection instrument. Bank sponsors will maintain a mitigation bank credit ledger and submit an updated ledger to the State Conservationist or his designee following each credit sale. Bank sponsors will submit quarterly reporting of transactional history for the bank (credit source by type) and debiting farm (by location, farm number or other producer identifier) to the State Conservationist or his designee. Bank sponsors will facilitate implementation of a long-term management plan, including field reviews by NRCS personnel as needed. 13. Responsibilities NRCS The State Conservationist will maintain a point of contact for each bank sponsor, and work to ensure good and timely communication and processing of mitigation bank documents. The State Conservationist or his designee will provide regulatory oversight of mitigation banks, including ensuring a timely and complete certified wetland determination (CWD) process. To this end, and in order for the document review process to proceed in strict accordance with review/response timeframes specified in this Framework, wetlands at mitigation bank sites for which a Prospectus has been approved as complete, and for which a CWD is subsequently needed to develop the Draft MBI, will receive priority treatment by the NRCS to comply with such timeframes and process. The State Conservationist or his designee will further facilitate implementation of this Framework by providing timely review of producer requests to mitigate wetland losses for consistency with FSA provisions, as well as issuing compliance documents (e.g. revised mapping & labels) following completion of credit transaction. In addition the State Conservationist or his designee will facilitate the use of approved mitigation banks by Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 17 41

21 maintaining a list of providers by geographic service area, and by allocation of staff time to review wetland mitigation requests by producers, and mitigation bank site plans as needed. 14. The Credit Transaction Process Provided below is a generalized and practical overview of the process to be followed by producers, mitigation bank sponsors and the State Conservationist or his designee when conducting a wetland conversion / mitigation bank credit transaction: Producer requests a CWD from NRCS via form AD-1026; NRCS provides Producer a CWD via form CPA-026 and Certified Wetland Map; Producer requests info from NRCS about mitigation options; Producer receives list of approved Bank Sponsor(s) and banks for the GSA; Producer coordinates directly with Bank Sponsor(s); Bank Sponsor reviews Producer project, including producing debit calcs (HGM) and credit requirements (number, type, availability) and provides Producer with a credit purchase agreement; If acceptable, Producer executes the credit purchase agreement and bank sponsor notifies NRCS of proposed transaction; NRCS completes scoping/screening/ea to ensure Food Security Act criteria is being met; if approved, NRCS notifies Producer and bank sponsor that the mitigation credit purchase may proceed; Credit transaction takes the form of an agreement signed by the bank sponsor, producer and NRCS per (A)(2) and (D)(2); Concurrently with signatures, Producer submits credit fee payment to bank sponsor (transaction closing ); NRCS issues new CPA-026 and CWD Map designating the site as MIW (Mitigation Exemption). It should be made clear that under this Framework mitigation bank credit costs are marketbased (i.e. pricing is not set by NRCS). The anticipated dynamic for the process under this Framework is a willing-seller / willing-buyer transaction over which NRCS has no influence and will receive no monetary benefit. NRCS is not, nor will it be a party to any contracts, sales agreements, options, etc. between buyers and sellers. NRCS is responsible for approving all credit releases and debiting transactions from each bank, and bank sponsors are responsible for maintaining a current ledger of available credits and submitting an updated ledger to NRCS following each debiting transaction. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 18 41

22 PART II OPERATIONAL GUIDANCE Per the National Food Security Act Manual, Fifth Edition (NFSAM), Subchapter B, (C)(2)(v), much of the detail required to establish and operate a mitigation bank under this Framework is provided in Federal Guidance for the Establishment, Use and Operation of Mitigation Banks (Federal Register: Nov. 28, 20015, Vol 60, Number 228, pp ; hereafter, 1995 Federal Guidance ). The purpose of this Framework, Part II is to provide additional information regarding the application of several of the 1995 Federal Guidance directives as they would be specifically applied in South Dakota under the Food Security Act (FSA). For example, debiting and crediting methodology is generally described in both the 1995 Federal Guidance and the NFSAM in terms of purpose, need and/or basis, but is described in this Framework, Part II in specific detail to establish consistent operating procedures. A performance standard is defined and purpose described in the 1995 Federal Guidance and NFSAM, but the nature and type of performance standards for mitigation banks under the FSA in South Dakota are specifically prescribed in this Framework, Part II. For each of the provisions presented below, there has been great effort expended to create consistency between a number of overlapping and/or disparate guidance documents for the state, including the 1995 Federal Guidance, NFSAM, Guidance for Compensatory Mitigation and Mitigation Banking in the Omaha District (Corps of Engineers, 2005, hereafter Corps/Omaha Guidance ), and the April 10, 2008, Compensatory Mitigation for Losses of Aquatic Resources; Final Rule (hereafter 2008 Federal Rule ). While the USDA/NRCS is not signatory to the Corps/Omaha Guidance nor the 2008 Federal Rule, both were developed after decades of research on effective mitigation banking strategies, and so are useful as references for this Framework. Described below are the components needed in order for a Mitigation Bank Instrument (MBI) to be considered complete and appropriately structured, for approval by the TEP and for authorization by the State Conservationist as an attachment to the Memorandum of Agreement (MOA) between the NRCS and bank sponsor. This Operational Guidance provides context and direction for various components of the MBI; in addition, templates for the MOA signed by the bank sponsor and NRCS, and the credit transaction document signed by the bank sponsor, USDA participant (credit purchaser) and NRCS, are described and provided as attachments. A. Purpose and Scope of Bank Project Fundamental to the establishment of a sustainable mitigation banking enterprise is a proper assessment and characterization of Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 19 41

23 the purpose of the mitigation bank, as well as a demonstration by the bank sponsor of a clear understanding of the scope of the endeavor. Purpose The bank sponsor should clearly and concisely describe the purpose of the mitigation bank by providing the location of the bank and briefly quantifying the size of the bank lands and anticipated credit yield by Hydrogeomorphic (HGM) type, as well as a statement characterizing the type of wetland conversion the bank sponsor purports as appropriate for debiting from the bank. Depending on the nature of the bank sponsor s enterprise, a statement should be provided as to the ways in which the mitigation bank serves the particular interests of the enterprise, as well as the USDA participants who may utilize the bank for purposes of attaining a mitigation exemption for wetland conversion. Scope The MBI will contain a section describing the scope of the mitigation bank project, including a brief description of the geographic service area (GSA) within which the bank s credits are authorized for use. The scope of the MBI should include language specifying whether the bank has credits authorized under other statutes (e.g. Section 404 of the Clean Water Act) and, if so, how the bank lands are effectively compartmentalized to segregate the creditable acres among statutory authorities. This section of the MBI must include the following statement regarding the transfer of liability from debiting parties (i.e. credit purchasers) to the mitigation bank sponsor: Bank Sponsor, its heirs, successors or assigns will assume all liability and responsibility for the establishment, performance, operation and long-term maintenance and management of mitigation credits (collectively mitigation ) as specified in this Mitigation Bank Instrument, to which Bank Sponsor and the U. S. Department of Agriculture / Natural Resources Conservation Service are party. Bank Sponsor shall indemnify and hold harmless any and all end users of credits from the mitigation bank described herein from and against any and all claims, demands, or actions for damages arising out of, or resulting from, Bank Sponsor s failure to perform mitigation under this Mitigation Bank Instrument, including, but not limited to, damages, costs, and attorney fees, provided such damages are caused in whole or in part by the default, and/or negligent act, error, or omission of Bank Sponsor or any of its employees, agents, consultants, or subcontractors. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 20 41

24 B. Mitigation Bank Goals and Objectives A mitigation bank instrument should discuss the environmental goals and objectives of the bank, describing in broad terms how the mitigation provided in the bank will last as long as the impacts for which the bank mitigates. The overall goal of a mitigation bank is to provide economically efficient and flexible mitigation opportunities, while fully compensating for wetland and other aquatic resource losses in a manner that contributes to the long-term ecological functioning of the watershed within which the bank is to be located. The bank goal should include a statement regarding the need to replace essential aquatic functions which are anticipated to be lost through authorized activities within the bank's service area. It is desirable to set the particular objectives for a mitigation bank (i.e. articulate the anticipated outcomes of the banking effort) in advance of site selection. The goal and objectives should be driven by the anticipated mitigation need, and the site selected should support achieving the goal and objectives associated with that need. Typical bank objectives include: Choosing a site that takes an ecosystem view; Minimizing fragmentation and promoting natural patterns and habitat connectivity; Promoting native species and avoiding introduced/non-native species; Protecting rare and ecologically important species; Enhancing and protecting unique and sensitive environments; Maintaining and/or mimicking natural ecosystem processes, as well as structural and genetic diversity; Restoring ecosystems, communities and species; Monitoring the restorative efforts and providing adaptive management as needed. C. Bank Site Selection Criteria The TEP and NRCS will give careful consideration to the ecological suitability of a site for achieving the goal and objectives of a bank, i.e., that it possess the physical, chemical and biological characteristics to support establishment of the desired aquatic resources and functions. Size and location of the site relative to other ecological features, hydrologic sources (including the availability of water rights), and compatibility with adjacent land uses and watershed management plans are important factors for consideration. It is also important that ecologically significant aquatic or upland resources (e.g., high quality prairie habitat, mature forests), cultural sites, or habitat for Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 21 41

25 Federally or State-listed threatened and endangered species are not compromised in the process of establishing a bank. Other significant factors for consideration include, but are not limited to, development trends (i.e., anticipated land use changes) in the vicinity of the bank, 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 and floodplain management goals, and the relative potential for chemical contamination of the mitigation bank area. Specific questions that can be considered for site selection include: Will the site possess the physical, chemical and biological characteristics to establish a functional wetland area? Will the site possess adequate water? Make sure the site can provide enough water with the geomorphic setting while avoiding any context where the hydroperiod may be unnatural or unduly affected (e.g. wetland areas should NOT be developed for banking purposes in borrow pits, stormwater management facilities, etc.). Will the site possess adequate functions to replace functions that are being lost? Since mitigation will typically be on an in-kind basis (in accordance with HGM type), the bank site should support HGM types the bank sponsor is proposing to develop for crediting purposes to compensate for wetlands lost at debiting sites. Will the site possess adequate protection from development? Site selection should include a careful analysis of the adjacent land uses and development activities in the larger catchment contributing flows to the bank site. D. Mitigation Work Plan Mitigation work plans should be specific, measurable, out-come based and tied to performance standards (see Section G below) rather than simply elements of the design. As a general requirement, the mitigation work plan must fully document the physical work required to produce the ecological values that would adequately compensate for the wetland types and functions described in the mitigation bank agreement as suitable for debiting from the bank. For cases in which exiting CRP acres are to be included for crediting in a mitigation bank, a mitigation work plan is still required, despite the advanced nature of the wetland function typical of such areas. At a minimum, the mitigation work plan must describe the acres to be included in the bank site for wetland credits, classified according to HGM type and sub-type. For upland buffer areas, HGM type/sub-type are not applicable; instead, the area should be characterized in terms of vegetation community and the value of the buffer to enhancement of the ecological integrity of the adjacent wetlands. If existing wetland areas are proposed for inclusion in a Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 22 41

26 mitigation bank, such areas must have a CWD. If a CWD has not been issued for a mitigation bank where existing wetlands will be included for crediting, the NRCS will prioritize issuance of the CWD to maintain the agency s compliance with this Framework regarding timeframes for review/approval of the MBI. The work plan should have sufficient figures, aerial photographs and other graphic representations to show the location and landscape features of the mitigation bank site. The work plan should include a clearly defined and supported water budget and other hydrologic specifications such as depth, duration and timing (hydroperiod) for the wetland area, as well as structures required to create/maintain the hydrology (if any), and sources of hydrology and any water rights issues associated with the hydrologic basis for the site. Work plans should include details regarding soil types in the bank, and grading plans and associated erosion control for modifications of site topography (if any). Other requisite components of the work plan include a detailed planting plan, time limits and construction schedule (including implementation sequencing), and other necessary permits (if any) to complete the project. In accordance with the NFSAM Parts 515 and 516, the mitigation work plan must also include a functional assessment procedure to assess wetland functions for mitigation evaluations (7 CFR 12.30[a][3]). At the time of adoption of this Framework, the following are the HGM models approved for use in South Dakota: A Regional Guidebook for Applying the Hydrogeomorphic Approach to Assessing Functions of Prairie Potholes M Gilbert, P Whited, E Clairain and R Smith. US Army Corps of Engineers, Environmental Research and Development Center, ERDC/EL TR-06-5; Interim Hydrogeomorphic Functional Assessment Model for Low-Gradient, Fine Substrate Riverine Wetlands with Defined Channels and Intermittent (Seasonal) Flow Regimes in Eastern South Dakota, Version 1.1, November Approved for use in wetlands associated with intermittent stream systems; Interim Hydrogeomorphic Assessment for Groundwater Discharge, Low Permeability (Glacial Till) Substrate, Slope (Linear) Wetlands in the Northern Plains, Version 4.0, May Approved for use on slope wetlands lacking concentrated (channel) flow; Interim Functional Assessment Model for Lake Dakota Sand Plains, Version 2.2, February Approved for use primarily in northeastern South Dakota; Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 23 41

27 Draft Interim Model for Kansas Wooded Riverine Wetlands, Version 3.0, July To be used primarily on forested wetlands associated with perennial streams; Interim Functional Assessment Model for Playa Wetlands, Revised Draft, January To be used primarily on depressional wetlands (high plains playa) in western South Dakota; A Procedure for Assessment of Endosaturated Depressional Wetlands on MLRA 65 Sand Plain, Version 1.0, October For use on depressional wetlands in the NE-SD sand hills (MLRA 65). In the absence of an appropriate HGM model for a particular wetland type proposed to be included in a mitigation bank, other functional assessment procedures acceptable to the State Conservationist or his designee may be used. Such acceptability will be represented by approval in writing, in advance, by the State Conservationist or his designee. E. Monitoring Protocol Monitoring is a required component of the MBI (515.12[D][1][ii] and [E]), and is to be conducted annually by the bank sponsor at its sole expense. Monitoring should be done for a period of no less than three (3) years for restoration (rehabilitation and re-establishment) and enhancement projects, and for no less than five (5) years for creation projects. In cases where forested wetlands are proposed to be developed for crediting, monitoring should be done for no less than five (5) years for restoration and enhancement projects, and no less than ten (10) years for creation projects. Monitoring will document (by way of HGM modeling and other measurements) the progression of the mitigation work toward meeting performance standards, including any problems and/or failures that need to be corrected. Monitoring protocols should be proposed in the Draft MBI, and modified to the satisfaction of the TEP for inclusion in the Final MBI. The NRCS will conduct follow-up inspections of the mitigation bank until all elements of the mitigation work plan have been implemented and performance standards met. Inspections will be done on an as-needed basis at the discretion of the NRCS, but in all cases will be done at least once during the requisite monitoring period for the mitigation bank. Inspections will consist of the following actions: Ensure the performance standards in the MBI are met, including successful establishment of vegetation, restoration/enhancement of hydrologic and landscape features, and evaluation of maintenance and remedial activities; Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 24 41

28 Determine whether there has been any violation of the mitigation work plan, real estate protection instrument or other aspect of the MBI; and Ensure that the extent to which the mitigation bank has progressed toward meeting performance standards accurately and reasonably reflects the credits released to the bank sponsor for sale. F. Reporting Results of monitoring efforts will be submitted to the State Conservationist or his designee on an annual basis during the prescribed monitoring period, or until all performance standards are met, whichever occurs later. Monitoring reports should provide sufficient written, illustrative, and photographic information, along with specific vegetation species data and HGM modeling, for the State Conservationist or his designee to evaluate the effectiveness of the mitigation work plan as implemented by the bank sponsor. At a minimum, information collected should reflect annual measurements of all performance standards prescribed for the bank, as well as a current credit ledger (Section I). G. Performance Standards When success of the mitigation bank is tied to adequate performance measures and criteria (i.e. standards), failure to achieve those standards results in the failure, in whole or in part, of the mitigation bank to meet the requirements of the MBI. Upon such failure (as reflected quantitatively in the annual monitoring report), the State Conservationist may require further actions to achieve the prescribed standards and therefore come into compliance with the MBI. Since not all performance standards can be met in the early days of the mitigation bank s operational life (i.e. following MBI execution), interim performance standards should be established to ensure the mitigation bank is on the right trajectory of functional increases as it goes through the succession stages necessary to become fully functional. The following performance standards at a minimum will be required for all mitigation banks under this Framework: All wetland areas proposed in the MBI from which credits will be produced must meet wetland determination criteria in the last year of monitoring, except in the case of wetland creation efforts, where soils may not fully reflect hydric characteristics for a prolonged period of time; such areas should meet vegetation and hydrology criteria which it can be assumed will produce hydric soil characteristics in the future; Wetland areas must have a minimum of 70% aerial cover of rooted herbaceous or woody species, and coincidently <30% component of permanent open water; Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 25 41

29 Wetland areas must meet the HGM functional improvement targets established in Section H below, as evidenced by model data in the last year of monitoring; Upland areas proposed under the MBI from which wetland credits will be produced must support a minimum aerial cover of 50% vegetation species native to the area; All mitigation bank lands must be in compliance with South Dakota Code and any County-specific noxious species control ordinance and policy by the last year of monitoring; For wetland areas of the mitigation bank proposed specifically as scrub-shrub or forested per Cowardin et. al 1979 classification, such areas must exhibit a 30% aerial/canopy cover of woody species at maturity. Since accomplishing this standard could take many years, a surrogate measure for achieving this standard is the presence of 174 stems of shrub and tree species per acre for two consecutive years, since this density would result in 30% aerial/canopy cover at maturity for most shrub and tree species in South Dakota. Other performance standards specific to the mitigation bank should be developed beyond the minimum standards itemized herein. Such additional standards can be associated with hydrologic improvements (e.g. extending hydro-period length, subsequently measured by piezometers; increasing saturation/inundation, measured by staff gauges; restoration and/or stabilization of riverine wetland geomorphology, measured by cross-sections), vegetation community diversification (e.g. establishment of forested wetlands, measured by belt transects of tagged trees to record survivorship and vigor), and/or other features unique to the mitigation bank. H. Crediting and Debiting Methodology Crediting and debiting will be based on a combination of HGM functional assessment modeling, to ensure adequate functional mitigation, as well as by acre, to ensure compliance with FSA and NFSAM provisions. As noted above in Section D, per the South Dakota Field Office Technical Guide, Section I Resource Evaluation Tools Wetlands (Notice SD-136, August 2002), functional assessment models are to be used in determining baseline and target values for various wetland functions. Other wetland functional assessment models may be appropriate for use in South Dakota, particularly in cases where the functional assessment models approved herein are not appropriate for the wetland types to be debited/credited. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 26 41

30 As employed under this Framework, wetland areas for which the baseline FCUs (or functional equivalent) have tripled (i.e. increased 3x, or 200% above baseline) will be awarded one (1.0) full credit per acre. Wetland areas which exhibit a doubling (increased 2x or 100% over baseline) of FCUs will be awarded one-half (0.5) credit per acre. Wetland areas that do not achieve at least a doubling of FCUs will be awarded no credits per acre. Credits will be released gradually over time and only to the extent such credits are meeting or trending toward meeting performance standards (including target HGM functional values). Created wetland areas may be awarded one (1.0) credit per acre regardless of HGM model outputs; however, target HGM functional values must be established in the mitigation work plan of the MBI, and at value levels which, to the satisfaction of the TEP and State Conservationist or his designee, represent a fully functioning wetland. These levels can be set using area reference sites as outlined in various HGM model guidebooks, and meeting these functional levels will be a performance standard for the bank. While 1.0 credits will be awarded per acre of mitigation effort, credits will be released gradually over time and only to the extent such credits are meeting or trending toward meeting performance standards (including target HGM functional values). Credit may be given for qualified wetland areas that have been in a Conservation Reserve Program (CRP) contract under certain circumstances. Credits cannot be awarded to such wetlands until the CRP contract has expired; however, these credits can be identified in the mitigation work plan, and a schedule provided of when the credits will be added to the mitigation bank ledger (and thereby available for sale). Once acres from former CRP contracts are available to be added to the bank s ledger, they will be awarded one-half (0.5) credit per acre of qualified wetland. This diminished crediting is due to the assumption that wetland acres in CRP have unknown historic cropping histories, functional values, etc. and so should be awarded credits conservatively to ensure appropriate functional mitigation. Credit may be given for the inclusion of upland areas occurring within a mitigation bank only to the degree such features increase the overall ecological functioning of the bank. If such features are included as part of a mitigation bank, it is important that they receive the same real estate protection as the rest of the mitigation bank and be subject to the same operational procedures and specific performance standards. The presence of upland areas may increase the per-unit value of the aquatic habitat in the bank per some HGM models. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 27 41

31 In addition, limited credit may be given to upland areas protected within the mitigation bank to reflect the functions inherently provided by such areas (e.g., nutrient and sediment filtration of stormwater runoff, wildlife habitat diversity) which directly enhance or maintain the integrity of the aquatic ecosystem and that might otherwise be subject to threat of loss or degradation. Under this Framework, a minimum upland buffer of 20 feet will be required around mitigation bank wetland(s). Credit will be granted for this upland area at a rate of onequarter (0.25) wetland credit per acre, provided, however, that wetland credits sourced from upland buffers may not exceed 10% of the total wetland credits proposed for a mitigation bank site. Additional upland buffer may be appropriate to provide the functional supports noted herein (taking into consideration slope, input and output topography, etc.), and will be approved on a case-by-case basis. In no instance, however, will more than 10% of the mitigation bank site credits originate from upland sources. I. Credit Ledger and Release Schedule Credits and debits will be accounted for by way of a mitigation bank ledger, maintained by the bank sponsor and submitted no less frequently than annually to the State Conservationist or his designee, containing the following information: Date of mitigation bank approval and initial credit release, with the amount of credit released by HGM or other functional type; Date of each subsequent credit release, number of credits released by HGM or other functional type, and balance of credits available by type; Date of each debit, number of debits by HGM or other functional type, and the source of the debit (Section, Township and Range). An updated copy of the bank s ledger will be submitted to the State Conservationist or his designee following each approved credit transaction; if no credit transactions have occurred then the bank sponsor will submit a copy of the ledger annually with the bank s annual monitoring report. In general, when a mitigation bank s credits are secured by a WED or other real estate protection instrument and financial assurances, and are shown by annual monitoring reports to be functioning in accordance with performance standards established in the MBI, they are available for release upon approval of the State Conservationist or his designee. In most cases, given the time periods necessary to fully meet all performance standards, only Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 28 41

32 a small portion of a mitigation bank s credits would be performing at full function in the initial year or two of operation. In recognition of the good faith efforts of bank sponsors to establish mitigation banks under this Framework, a percentage of each mitigation bank s total credits will be eligible for initial release, with additional releases over time, upon approval by the State Conservationist or his designee. For mitigation banks which propose wetland restoration (re-establishment/rehabilitation and enhancement), the following credit release schedule applies: Mitigation banks for which there is an executed MOA, and the real estate protection instrument and financial assurances have been established, and which propose restoration and/or enhancement, are eligible for an initial release of 30% of the bank s estimated credit yield; These mitigation banks are eligible for an additional release of 30% of the bank s estimated credit yield (60% total) at the end of Year One following execution of the MOA and one growing season of implementation; provided, however, the credit release is based on project performance, with the release tied to defensible data in one or more monitoring reports illustrating that the mitigation bank is trending toward meeting established performance standards; These mitigation banks are eligible for an additional release of 20% of the bank s estimated credit yield (80% of total) at the end of Year Two following execution of the MOA and two growing seasons of implementation; provided, however, the credit release is based on project performance, with the release tied to defensible data in additional monitoring reports illustrating that the mitigation bank is continuing to trend (beyond Year One results) toward meeting established performance standards; The release of credits from these mitigation banks will reserve 20% of the total proposed credits for release only after full achievement of ecological performance standards prescribed in the MBI. For mitigation banks which propose wetland creation, the following credit release schedule applies: Mitigation banks for which there is an executed MOA, and the real estate protection instrument and financial assurances have been established, and which propose wetland creation, are eligible for an initial release of 20% of the bank s estimated credit yield; These mitigation banks are eligible for an additional release of 20% of the bank s estimated credit yield (40% total) at the end of Year One following execution of the Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 29 41

33 MOA and one growing season of implementation; provided, however, the credit release is based on project performance, with the release tied to defensible data in the Year One monitoring report illustrating that the mitigation bank is trending toward meeting established performance standards; These mitigation banks are eligible for an additional release of 20% of the bank s estimated credit yield (60% total) at the end of Year Two following execution of the MOA and two growing seasons of implementation; provided, however, the credit release is based on project performance, with the release tied to defensible data in monitoring reports in Years One and Two illustrating that the mitigation bank is trending toward meeting established performance standards; These mitigation banks are eligible for an additional release of 20% of the bank s estimated credit yield (80% total) at the end of Year Three following execution of the MOA and three growing seasons; provided, however, the credit release is based on project performance, with the release tied to defensible data in monitoring reports in Years One Year Three illustrating that the mitigation bank is trending toward meeting established performance standards; The release of credits from these mitigation banks will reserve 20% of the total proposed credits for release only after full achievement of ecological performance standards prescribed in the MBI. When determining the schedule of credit releases, factors considered include the method of providing compensatory mitigation credits and the likelihood of success of such efforts (lower risk and reduced temporal losses associated with rehabilitation and enhancement of existing wetlands versus higher risk and temporal losses associated with creation). In keeping with this reasoning, wetland credits awarded to eligible wetland acres exiting a CRP contract are available for immediate release at 100% of the credits presented in the MBI, since such credits are already at or near fully functional and therefore represent low risk of failure and no temporal loss of habitat values. J. Effect of Monitoring Results on Credits Should any monitoring report reveal a failure to make reasonable progress toward meeting performance standards such as inability to achieve specified vegetative community quality within a specified timeframe, etc., release of additional credits and/or sale of released but unsold credits may be immediately suspended. The State Conservationist or his designee will then coordinate with the bank sponsor to determine if remedial action is required. If remedial actions are Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 30 41

34 found to be necessary, credits may remain suspended until such time as these actions are taken. If the required performance standard(s) are not met the following year as evidenced by an additional monitoring event, the State Conservationist or his designee will convene a meeting with the bank sponsor at the earliest opportunity to discuss a course of action, including but not limited to: (1) no further action and return to normal release of credits; (2) further corrective measures; or (3) termination of the mitigation bank s operation and related closure actions. If further corrective measures are taken and the mitigation bank still does not meet performance standards within one year as evidenced by an additional monitoring event, the State Conservationist or his designee may adjust the remaining credit balance to reflect the revised site potential or, if all credits are sold, require the bank sponsor to offset mitigation shortfalls associated with the mitigation bank s failure to perform. If, in the final year of monitoring, the mitigation bank is determined to be functioning as projected and in accordance with MBI performance standards, any changes beyond the control of the Sponsor (i.e. Act of God see Force Majeure, Section R below) which may affect the function of the mitigation bank will not reduce the credits already released; however, release of additional credits may be suspended until such time as reevaluation of unreleased credits can be performed by the State Conservationist or his designee, and with input from the bank sponsor. K. Financial Assurances The bank sponsor is responsible for securing sufficient funds or other financial assurances to cover contingency actions in the event of bank default or failure. Accordingly, mitigation banks posing a greater risk of failure (e.g. where the majority of credits are sourced from wetland creation), will be expected to have comparatively higher financial sureties in place than those where the likelihood of success is more certain (e.g. restoration/rehabilitation, enhancement). In addition, the bank sponsor is responsible for securing adequate funding to monitor and maintain the mitigation bank throughout its operational life, as well as beyond the operational life to ensure that it is selfsustaining during the long-term management period. Total funding requirements should reflect realistic cost estimates for real estate basis, wetland work plan design and implementation, monitoring, long-term maintenance, contingency and remedial actions. Financial assurances may be in the form of performance bonds, irrevocable trusts, escrow accounts, casualty insurance, letters of credit, legislatively-enacted dedicated funds for Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 31 41

35 banks managed by government entities (e.g. Conservation Districts) or other approved instruments. If a performance/surety bond is used, the bond will normally be written by a surety company which is on the most recent US Department of the Treasury Financial Management list of approved bonding companies as published in the Federal Register. If an irrevocable letter of credit or a cash-in-escrow account is used, the letter or account must be provided by a federally insured depositor that is well-capitalized or adequately capitalized as defined in Section 38 of the Federal Deposit Insurance Act. In all cases the beneficiary of such accounts will be a third party acceptable to the State Conservationist or his designee, excluding the bank sponsor and NRCS, and which is named in advance in the MBI. The third party beneficiary of funds from the Contingency Fund must accept this role in writing prior to release of credits from the mitigation. The exception to this provision is for cases in which the third party beneficiary is identified as the State Conservationist s designee. In such cases the State Conservationist will identify a qualified third party recipient of payments when and if circumstances arise requiring payout from the Contingency Fund. CONTINGENCY FUND A Contingency Fund will be required for each mitigation bank (or bank site under a UMBI), the amount for which will be determined for each mitigation bank based on the cost associated with risk of failure or default during the time credits are being developed. The Contingency Fund will be established before release of any credits and carried, in whole or in part, until all credits are released within the mitigation bank. The Contingency Fund will constitute the maximum aggregate liability of the bank sponsor for failure to take remedial actions specified by the State Conservationist at the mitigation bank until establishment of the Long-term Management Fund (see below). The Contingency Fund may be phased-out or reduced, once it has been demonstrated that the bank is functionally mature and/or selfsustaining (e.g. meeting performance standards for two consecutive years). The bank sponsor may, at its discretion, and with written approval of the State Conservationist, replace the entities providing the Contingency Fund with a different company, agent, or entity registered to do business in the State of South Dakota. The bank sponsor will provide the State Conservationist with notice of its desire to replace the entity and a draft of the new instrument for review. The provisions of the new instrument will conform to the provisions of the former instrument. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 32 41

36 LONG-TERM MANAGEMENT FUND A Long-term Management Fund will be required to be established in perpetuity for each mitigation bank (or mitigation bank site under a UMBI), typically upon completion of active restoration and other implementation activities. A non-wasting endowment in the form of a cash-in-escrow account, managed by a qualified escrow agent, is a common financial assurance for this purpose. An alternative form of Long-term Management Fund is an endowment established with a qualified third party Fund Manager, typically a non-profit or financial institution that can then invest the endowment in a proper financial vehicle to grow the Fund. The State Conservationist may authorize use of other forms of Long-term Management Fund that are non-wasting and representative a conservative investment strategy. Endowment funds are to be deposited in their entirety before final release of credits, and/or closure of the mitigation bank. Following deposit of the endowment funds, all unused interest/earnings which accrue from year to year within the Long-term Management Fund will be reinvested in the Fund. These monies are available to the long-term manager once the mitigation bank has been determined by the State Conservationist to be successful (i.e. meeting all performance standards). These funds are to provide financial assurance that the mitigation bank will be properly maintained and managed in the long-term as a conservation area pursuant to the real estate protection instrument and long-term management goals. At the discretion of the State Conservationist, some or all of these funds may be withdrawn and used if any provision of such protection instrument or the long-term management goals are violated. The amount for the Long-term Management Fund will be established for each mitigation bank based on average annual return needed to cover annual maintenance at the mitigation bank, as documented in the MBI, and other cost components, specifically: 3%/year for inflation; a Fund administration fee; and anticipated annual maintenance costs. In order for the Fund to have a non-wasting principal, the bank sponsor must demonstrate that the average annual return on the invested principal is sufficient to cover these cost components in perpetuity. At the discretion of the State Conservationist, principal and accrued interest/earnings of the Long-term Management Fund may also be used in the case of catastrophic events as further defined in Section R below. The Long-term Management Fund will constitute the maximum aggregate liability of the Sponsor and long-term steward associated with management/remedial actions to repair conditions at the mitigation bank. Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 33 41

37 The bank sponsor or Long-term Manager may, at its discretion, and with written approval of the State Conservationist, replace the form of Long-term Management Fund with a different form, company, agent, or entity registered to do such business in the State of South Dakota. The bank sponsor or Long-term Manager will provide the State Conservationist with notice of its desire to replace the form and/or entity and a draft of the new instrument for review. The provisions of the new instrument will conform to the provisions of the former instrument. L. Real Estate Protection Instruments Per the FSA and NFSAM, bank sponsors should generally be required to provide USDA with a Warranty Easement Deed (WED) for mitigation bank lands. Such easements will be in effect for the length of time the converted wetlands are in agricultural use or not restored to their previous wetland condition. For mitigation banks the assumption must be that at least some of the converted wetlands debiting from the mitigation bank will be in agricultural use for the long-term, and so the WED or other real estate protection instrument must remain in place and enforced indefinitely. The WED must be recorded in the public records, with the bank sponsor responsible for any and all related WED development and recording costs. The bank sponsor and landowner (if different from the bank sponsor) must certify that there is/are no lien(s) on the land, or that if the land is mortgaged, then the mortgage-holder must agree to subordinate the mortgage interest to the interests of the USDA under the WED. An alternative form of real estate protection instrument acceptable to the USDA/NRCS Office of the General Counsel may be used on a case-by-case basis. M. Geographic Service Area for the Bank The geographic service area (GSA) of a mitigation bank is the area (e.g., major basin, sub-basin, watershed) wherein a bank can reasonably be expected to provide appropriate compensation for impacts to wetlands and/or other aquatic resources. This area must be designated in the banking instrument and should be based on consideration of hydrologic and biotic criteria. Use of a particular mitigation bank to compensate for impacts beyond the designated GSA may be authorized, on a case-by-case basis, where it is determined by the State Conservationist to be practicable and environmentally desirable. The geographic extent of a GSA should, to the extent environmentally desirable, be guided by the cataloging units of the ``Hydrologic Unit map of the United States'' (USGS, 1980) and the ecoregion of the ``Ecoregions of the United States'' (James M. Omernik, EPA, 1986) or Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 34 41

38 section of the ``Descriptions of the Ecoregions of the United States'' (Robert G. Bailey, USDA, 1980). In the interest of integrating banks with other resource management objectives, a mitigation bank GSA may encompass larger watershed areas if the designation of such areas is supported by local or regional precedent, practice, or Federally recognized mitigation strategy. Furthermore, designation of a more inclusive service area may be appropriate for mitigation banks whose primary purpose is to compensate for disparate projects involving numerous, small impacts in several different sub-basins scattered across an expansive, relatively homogenous landscape. It has been determined that, for this Framework and the mitigation banks developed in accordance with its provisions, it is ecologically preferable to establish initial GSA boundaries for the State of South Dakota that match, with some exceptions, the USGS HUC- 6 watershed boundaries. There are a number of cases where Level III or Level IV eco-region boundaries take precedence over the watershed boundaries (e.g. the Black Hills), or where Statewide Agricultural Wetland Mitigation Banking Framework for South Dakota Page 35 41