Corps and State Agencies Reach Agreement on Joint Mitigation Bank Financial Assurances
Applicants for a state mitigation bank permit must apply to the Department of Environmental Protection (DEP) or a water management district (collectively “state agencies”) for an environmental resource permit pursuant to Section 373.4136, Florida Statutes and Chapter 62-342, Florida Administrative Code (F.A.C.) (collectively “state mitigation bank requirements”). In order to provide reasonable assurance that state mitigation bank requirements are met, a mitigation bank applicant must provide proof of financial responsibility for bank construction and implementation and perpetual bank management. The monetary commitment by the mitigation banker to secure financial assurances is very significant.
Rule 62-342.700, F.A.C. allows mitigation bankers to provide several forms of financial assurances: surety or performance bond; irrevocable letter of credit; insurance policy; escrow or trust fund. The rule includes standard forms for these financial assurances. The applicant must submit a financial assurance form with language in substantial conformance with the adopted forms.
The Army Corps of Engineers (Corps) also requires financial assurances for issuance of the Corps’ mitigation banking instrument. The Corps financial assurance mechanism generally protects the same environmental interests and values that are protected by the state financial assurances. The Corps also accepts the same type of financial assurances and the value of the state and Corps financial assurances are generally the same. This means the mitigation banker is providing duplicate financial assurance of generally the same value to protect the same resource.
The Corps has been willing to be a joint beneficiary on the state financial assurance instrument, but water management districts maintained that they would not have the necessary protection and reasonable assurances with a joint instrument to satisfy state mitigation bank requirements. The state agencies and the Corps negotiated on this for quite some time. The final sticking point was the requirement for a dispute resolution provision to be used if it is necessary to call upon the financial assurance instrument, should the mitigation bank fail to meet permit or mitigation banking instrument requirements.
Finally, in November 2020, an informal resolution was reached between state agencies and the Corps on dispute resolution provisions. The Corps and the state agencies have an existing operating agreement which defines the interactions between the Corps and state agencies. The Corps and the state agencies informally agreed to amend this agreement to provide dispute resolution provisions. In November 2020, the Corps wrote a letter to the Southwest Florida Water Management District stating that the Corps agrees to be bound by the informal revisions to the operating agreement. This letter provides state agencies with the reasonable assurances necessary to accept joint financial assurance instruments. The Corps and state agencies still have minor provisions to be negotiated on other parts of the operating agreement, unrelated to financial assurances. The Corps and DEP also informally agreed on joint financial assurance forms.
The Operating Agreement is adopted as a rule into Chapter 62-330, F.A.C. Once the Corps and state agencies agree on the remainder of the revisions to the operating agreement, DEP and the water management districts must do rulemaking to adopt the new operating agreement.
The existing mitigation bank financial assurance forms are adopted into Rule 62-342.700, F.A.C. Therefore, DEP must do rulemaking pursuant to this Chapter to authorize the use of the joint forms. In the meantime, mitigation banks can apply for a variance to DEP or the applicable water management district to immediately use the agreed upon unadopted joint financial assurance forms, rather than maintaining two separate financial assurance instruments.
Precedent for such a variance was set by DEP, even before the recent resolution on the operating agreement financial assurance provisions. In the Florida Department of Environmental Protection, OGC Case No 20-0232, regarding In Re: Ranchelo, Inc., Horseshoe Creek Mitigation Bank, DEP granted a variance from the requirement to utilize the financial assurance form incorporated into Rule 62-342.700 (DEP Order). DEP found that strict application of the requirement to use a form in substantial compliance with the adopted form language “would create a substantial hardship as the Corps is unable to accept the Department’s existing form language and will require duplicate financial assurance.” DEP Order page 3.
Substantial cost savings will be achieved by applicants for new mitigation banks that file a petition for variance to use the unadopted joint financial assurance forms. The new banks may request authorization to utilize the joint financial assurance instruments for both bank construction and implementation and long term bank perpetual management.
Existing mitigation banks may also achieve cost savings by amending their mitigation bank permits and mitigation banking instrument to allow use of one joint financial assurance mechanism for perpetual management.
At this time, both existing and new banks must file a petition for variance to utilize an unadopted joint financial assurance instrument.
Susan Roeder Martin
Attorney at Law
Nason Yeager Gerson Harris & Fumero, P.A.