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'Take' or Not to 'Take'-What The Koontz Decision Means For Mitigation Banking


After the Supreme Court's ruled on the Koontz v. St. Johns River Water Management case and found that the government must adhere to 'nexus' and 'proportionality' conditions when granting or denying permits to private land developers, the mitigation banking industry is wondering how they will be affected.


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2 July 2013 |
At a time when the mitigation banking industry is looking to cement its 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 (Clean Water Act)-permitted impacts, this Koontz decision included comments that weren’t in favor of everything about mitigation banks.

The case came about when Coy Koontz 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. Koontz challenged their ability to make such requirement. There are some more immediate take-home messages for mitigation bankers.

One is that yes, you can compensate under the CWA. Being unable to compensate for impact would have meant the end of the mitigation banking industry. The question of compensation arose in the Koontz case because the case asked whether it’s legal for a government agency to require landowners obtain a permit in order for them to develop on their land. And to obtain the permit from the government, landowners must perform certain actions, like environmental compensation on a separate area of land. If a government agency withholds rights to develop private land then this can be considered a ‘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 it 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 a ‘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 a ‘take’, and when it is not.

The first condition the Koontz 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 the ecosystem services blog, Wetlandia, 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."

And mitigation bankers say to that – 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. This decision could potentially direct compensation to privately owned mitigation banks.

The next step of the Koontz decision, however, takes a step away from supporting mitigation banks. The other part of the Nollan/Dolan ruling is that in 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 Koontz mitigation in question required over 40 acres of mitigation for 1 acre of impact. And the Koontz decision found that ‘take’ does occur when there is far more compensation required compared to the impact.

Now, many a mitigation bankers would assert that the creation and trading of mitigation credits is indeed in proportion to the impact. Aligning the same credit type 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, impacts that cause more severe environmental damage are required to purchase more credits (and so more acres) to achieve the equivalency required.

Wetlandia also recognizes that mitigation banks’ use of functional assessments (where the ecological function is assessed rather than the physical size) increases the likelihood that an impact and compensation are proportional even if they are different area measurements. The Koontz decision does not provide definitive answers as to what, exactly, needs to be proportional. 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 brings us to the final element that might pose a challenge to the mitigation bankers: the ‘nexus’. A nexus requirement could boil down to physical proximity, which mitigation banking has already taken into account. Credits are sold in service areas that are in the immediate watershed or, 6 digit Hydrological Unit Code.

Doug Lashley, current President of the NMBA (National Mitigation Banking Association) emphasizes the possible benefits and optimistic messages in the Koontz decision for mitigation banking in respect to both nexus and proportionality.

"I think we as an association and its members will be fine," Lashley says. "Mitigation banks within the same watershed or geographic area as the proposed project should satisfy the nexus test. Further, given that mitigation banking is premised on the use of science-based credits to measure impacts and related offsets, mitigation banks provide a clear pathway to a determination that the appropriate proportionality exists."

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 Koontz 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 must be.

This return to geographic proximity seems curious, given the FWS (Fish and Wildlife Service) and USACE's (US Army Corps of Engineers) 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? Is it possible to meet the requirements of the Koontz decision and achieve the widespread, effective, efficient and landscape-level conservation we’re all after?

"Mitigation banking should facilitate and expedite project approval as compared to other forms of mitigation," says Lashley. "It should also be noted that the Court clearly recognized the importance of mitigation in the context of permits involving the use of natural resources."

Perhaps mitigation banks aren't the gold standard of compensation when viewed through the eyes of this latest legal decision. But judging it by its years of experience, mitigation banking still makes good environmental sense (not to mention regulatory sense), even in light of the sector's latest benchmark.

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Jemma Penelope is a private consultant to the species and conservation banking industry. She can be reached at jemmapenelope@gmail.com.
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