At a time where the mitigation banking industry is looking to cement it’s place as the gold standard of wetland compensation, this week’s Supreme Court decision in Florida’s Koontz v St Johns River Water Management District decision is not all good news. Although the Corps issued a Guidance Memo in 2010 to suggest Mitigation Banking is the preferred of three possible compensation option for 404 CWA-permitted impacts, this Koontz decision included comments that weren’t in favor of everything about mitigation banks.
The case came about when Snr. Coy Kaantz applied to develop a portion of his property, and The St John’s River Water Management District issued a 404 permit that required a very specific form of compensatory mitigation. Mr. Kaantz challenged their ability to make such requirement. SCOPUSblog.com and Wetlandia have presented some excellent summaries of the more elegant legal details, but for those Mitigation Bankers in the field and out their bankin’, there are some more immediate take-home messages.
One is that yes, you can compensate under the CWA. Whew, because being unable to compensate for impact would have taken the Mitigation Banking Industry out completely. The question of compensation arose in the Koontz case because part of the case asked whether it’s legal for a government agency to withhold a landowner their right to develop their property by requiring a permit and then requiring certain actions (e.g. environmental compensation) to obtain such a permit. If a government agency withhold rights to develop private land then this can be considered ‘take’: the government is ‘taking’ some value away from landowners land. This idea of ‘take’ comes up quite a bit in understanding the Koontz decision.
The Koontz Decision affirmed that is indeed legal for agencies to require permits to allow certain development, and to require compensation for said permit. In effect, agencies aren’t conducting ‘take’ by issuing permits and requiring compensation. The decision did establish new legal specificity regarding ‘take’ – and here is the new development this decision has brought – when a compensation requirement is ‘take’, and is not.
The first condition the Kaantz decision cements is that in order to avoid ‘take’ the permit must follow the “Nollan/Dolan” outcome. One need not appreciate the finer points of this older legal decision because Welandia pulls out the most important part:
“Under Nollan and Dolan the government may choose whether and how a permit applicant is required to mitigate the impacts of a proposed development, but it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts.”
Which, to Mitigation Bankers says – it’s not acceptable to require or establish compensation on conservation land held by the regulating agency approving the permit. In this case it was the Florida State Agency. This statement might not be new to those in Mitigation Banking already, but seeing it here in this decision brings clarity to where compensation can and cannot be, and could be a positive for Mitigation Banking. It potentially directs compensation to privately owned Mitigation Banks perhaps?
The next step of the Kaantz decision, however, takes a step back from such encouragement for Mitigation Banks. The other part of the Nollan/Dolan ruling is that order to be in line with the law and US constitution, the compensation must have a ‘nexus’ and be ‘in proportion’ to the impact. Regarding ‘in proportion’ it is interesting to note that the Kaantz mitigation in question required over 40 acres of mitigation for 1 acre of impact. And the Kaantz decision found that ‘take’ does occur when there is far more compensation require compared to the impact.
Now, many a Mitigation Banker would assert that the creation and trading of Mitigation Credits is indeed in portion to the impact. Aligning the same credits types ensures the impact and credit trade is like for like. And in most cases it indeed requires an acre to create a credit. When trading, the impacts doing more sever environmental damage are required to purchase more credits (and so more acres) to achieve the equivalency required.
Wetlandia also recognises that Mitigation Banks’s use of functional assessments (where the ecological function is accessed rather than the physical size) increases the possibility of showing an impact and compensation are proportional even if they are different area measurements. The Kaantz decision does not provide definitive answers as to what, exactly, needs to be proportional so it seems plausible that a pro-active and adaptable industry such as Mitigation Banking will be able to take this in their stride and adapt to this potential burden of proof.
So this leaves the last element as likely to present issues to Mitigation Bankers: the important of the ‘nexus’. This might be the most important element for Mitigation Banking because to have a nexus might come down to physical proximity. Mitigation Banks already take proximity into account by having service areas where credits are sold only in the immediate watershed, or 6 digit Hydrological Unit Code.
Service areas and proximity is somewhat of a double-edged sword because the larger the service area the more chance of selling credits and having the finance to establish the bank in the first place. But too large a service area potentially takes the impact geographically further away from the compensation, which might not be as environmentally preferable.
The Kaantz decision picks up on this need for proximity between impact and compensation by requiring the ‘nexus’. It’s not yet clear just how or what a nexus means in terms of determining how geographically close impact and conservation site must be.
This return to geographic proximity seems curious, given FWS and USACE not-so-recent enthusiasm to recognize conservation of wetlands and species on a landscape level. Since the early days of hit-and-miss wetland banking in the 1990’s it’s appeared obvious that ‘closer’ is not synonymous with ‘better’.
So, nexus and proportionality: can you have your cake and eat it too? Can it be possible to achieve all the requirements the Kaantz decision lays down together with the widespread, effective, efficient and landscape-level conservation we’re all after?
Perhaps Mitigation Banks may not be the gold standard of compensation when seen through the eyes of this latest legal decision, the years of mitigation banking still makes fairly good environmental sense (not to mention regulatory sense) too, even if not by the Kaantz decision’s benchmark.
- Supreme Court Delivers Blow to Wetlands Protection (hispanicbusiness.com)
- Thoughts on the Koontz Takings Clause Case (volokh.com)
- Koontz: 5-4 Supreme Court Sides with Landowner in Takings Case (lawprofessors.typepad.com)