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Synopsis of Corps Memoranda on Cattle Grazing and Financial Assurance Pertaining to Permittee-Responsible Compensatory Mitigation

Posted Friday, February 12th, 2016

Cattle Grazing

On December 15, 2015, the U.S. Army Corps of Engineers (Corps), Jacksonville District (District), issued a memorandum for the District’s Mining Team regarding the review of permittee-responsible compensatory mitigation plans that propose cattle grazing as a compatible use within mitigation areas in the site protection instrument. In the memorandum, the District, regardless of scientific evidence and language in the 2008 Compensatory Mitigation Rule (Rule) to the contrary, makes an overall conclusion that “unless an applicant submits compelling case-specific evidence demonstrating that cattle grazing is consistent with the objectives of the proposed permittee-responsible mitigation plan, the Mining Team PMs [Project Managers] will generally conclude that cattle grazing is incompatible with compensatory mitigation areas and will jeopardize the objectives of the compensatory mitigation project.” Currently under the Rule, compatible uses are allowed within mitigation areas if they do not jeopardize the mitigation objectives.

If the non-binding guidelines in the District’s memorandum remain unchanged, it is expected that permit applicants will generally need to overcome a presumption of incompatibility and meet a new, more stringent “compelling evidence” burden of proof in order to obtain approval of a permittee-responsible compensatory mitigation plan that proposes managed cattle grazing as a compatible use in the site protection instrument for the mitigation. This is despite the fact that the District recognizes in the memorandum that there is “evidence that shows that properly managed cattle grazing can have a beneficial effect on biodiversity within wetlands” and that “grazing can be used to successfully manage exotic and nuisance species in upland and wetland habitats, including those found in Florida.”

The clear intent of the memorandum is to discourage permit applicants from seeking to allow secondary uses within conservation areas that might preserve some of the economic value of the area.

Financial Assurance

Additionally, the District issued a separate memorandum on December 15, 2015, regarding financial assurances for permittee-responsible compensatory mitigation. 33 C.F.R. § 332.3(n)(1) directs the District to “require sufficient financial assurances to ensure a high level of confidence that the compensatory mitigation project will be successfully completed, in accordance with applicable performance standards.” A 2002 Corps guidance document provided that the following approved instruments are suitable for financial assurance:

1. Performance bonds;
2. Irrevocable trust;
3. Escrow accounts;
4. Casualty insurance;
5. Letters of credit; and
6. Legislatively enacted dedicated funds for government operated banks.
The memorandum issued by the Corps questions whether performance bonds are acceptable forms of financial performance, and urges the Mining Team to be cognizant of the following downsides of using performance bonds:

1. The requirement for the permittee to post collateral;
2. Duration of assurances have typically ranged from 1-2 years; and
3. The surety has the ability to determine whether to perform or pay.

The memorandum answers this question by concluding that “all appropriate financial assurance instruments should be considered and the District retains the discretion for determining on a case-by-case basis the most appropriate form of financial assurance to ensure a high level of confidence that a compensatory mitigation project will be successfully completed.” The memorandum also asserts that the Corps has the discretion to determine whether financial assurances provided by Florida “adequately address” the Corps’ compensatory mitigation requirements, and that the Corps has the authority to determine that the amount or type of financial assurance proposed to meet state requirements is not sufficient to meet Corps’ requirements. This grant of unbridled discretion to choose the “most appropriate” mechanism goes beyond the authority provided to the Corps in the 2008 Compensatory Mitigation Rule. The memorandum should recognize that, pursuant to 33 C.F.R. § 332.3(n), performance bonds meeting the criteria of the state Financial Assurance Rules are presumptively appropriate mechanisms to demonstrate financial assurances.

Additionally, the memorandum raises concerns regarding the adequacy of performance bonds required by Florida because, according to the memorandum, state performance bond duration is between 3 and 5 years, whereas the federal mitigation performance standards include monitoring and reporting for 5 to 12 years. To alleviate these concerns, the memorandum provides that if state performance bonds are considered for Corps permits, then an adequate time period of coverage is required. However, the Corps’ reference to the 3 to 5 year duration for state performance bonds is incorrect. Throughout the memorandum, the Corps appears to confuse the Conceptual Reclamation Plan (CRP) and Environmental Resource Permit (ERP) programs, and, unlike most activities subject only to the ERP program, phosphate mine activities are subject to both programs. This is important in this case because the state ERP rules specifically require financial assurances to remain in place until the mitigation is successful and released just like the Mitigation Rule.

Lastly, the memorandum provides the overall conclusion that the Mining Team must carefully review the mining industry’s adherence to the financial assurance requirements, and, in order to ensure such compliance, the memorandum provides the following direction to the Mining Team:

1. It is the Mining Team’s decision whether financial assurances provided by the State “adequately address” the Corps’ compensatory mitigation requirements.
2. Financial assurance determinations need to be made prior to permit issuance.
3. When considering the use of a state required financial assurance, Office of Counsel must be provided a copy for review and approval.
4. The industry needs to provide a District-specific financial assurance which can overlap with the state but the permittee must ensure the Corps’ compensatory mitigation requirements are fully addressed.

For additional information, contact Adam Blalock.

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