The Virginia Department of Environmental Quality (“DEQ”) recently signed a Memorandum of Agreement (“MOA”) with the U.S. Army Corps of Engineers (“USACE”) to revise the agencies’ respective responsibilities for reviewing applications for new or expanded wetland and stream mitigation banks and releasing credits to the market.  The MOA is one of several initiatives led by DEQ Director Mike Rolband to address recurring credit supply shortages which have resulted in cost overruns and project delays for residential developments across the state.  More information can be found in DEQ’s April 2023 newsletter and in the signed MOA.

What are “mitigation credits” and why does the housing industry care?

Under state and federal law, residential developers are required to offset a project’s impact on existing wetlands and streams, which is often accomplished offsite by purchasing “mitigation credits” from a “mitigation bank”.  While widely viewed by land developers and environmentalists as the preferred method of offsetting a project’s impacts, the availability and price of wetland and stream mitigation credits has been a persistent challenge for Virginia’s residential and commercial development industries and others.

Over the last decade, mitigation credit shortages around the state have resulted in project delays and cost overruns for development projects, local and state infrastructure projects, and economic development investments.  The problem has been particularly acute in Virginia’s metropolitan areas but has also extended into more rural localities.

For example, developers in Northern Virginia have seen credit prices fluctuate between $100,000 to $500,000 per credit in recent years, while developers in Richmond and Fredericksburg have grappled with credit supply that fluctuates between extremes on a monthly basis.  Additionally, unpredictability in the supply of credits has led developers to abandon  projects, including many potentially catalytic developments in Southside and Southwest Virginia.

Why is there a shortage of mitigation credits and what are we doing about it?

The U.S. Army Corps of Engineers (“USACE”) plays an integral role in approving new mitigation banks and releasing credits to the market.  While congressional funding of the Corps overall has increased annually, its funding of the USACE Regulatory Branch has remained “flat” for nearly a decade, leading to staff attrition and increased workload for the personnel who are responsible for reviewing permit applications and applications for new or expanded mitigation banks.

The USACE District office responsible for permitting and mitigation banks in Virginia – the “Norfolk District – has been one of many across the country directly affected by the lack of funding.  The personnel shortage and permit review delays at the Norfolk District reached a tipping point in 2021, prompting the HBA of Virginia, Virginia Association for Commercial Real Estate (VACRE), and Virginia Environmental Restoration Association to begin working with Virginia’s Congressional delegation to secure additional funding for the USACE Regulatory Branch, specifically to hire more staff.  Thanks to the efforts of U.S. Senators Mark Warner (VA) and Tim Kaine (VA), the 2022 federal budget bill included an additional $8M for the USACE Regulatory Branch to increase staffing at the District level.  The HBA of Virginia and VACRE continue to work with Senators Warner and Kaine to seek additional funding during this year’s budget cycle.

How will the new “Memorandum of Agreement” help address mitigation credit shortages in Virginia?

While the HBA of Virginia will continue pressing for the USACE Regulatory Branch to receive the budgetary resources it needs, other measures can be advanced to expedite the process of getting mitigation credits to the market.  The Memorandum of Agreement (“MOA”), for example, is designed to transfer responsibility for several parts of that process from the USACE to the Virginia Department of Environmental Quality.

Under the MOA, the USACE will remain the lead agency responsible for review through mitigation site approval, initial mitigation credit release, and final construction plans.  The DEQ will serve as the lead agency, with federal oversight, for compliance review of approved mitigation sites after construction, including review of as-built reports, monitoring reports, and financial reports, as well as mitigation credit releases and correction actions associated with these reports.

Additionally, the MOA also references the development of a new 2023 Monitoring Report template for regular compliance monitoring of third-party mitigation sites. The new template is designed to streamline the agency’s review of monitoring reports to allow for faster credit release decisions.

Read more about the new Memorandum of Agreement between Virginia DEQ and the U.S. Army Corps of Engineers.

Other HBA of Virginia initiatives to address mitigation credit shortages

In 2021, the Home Builders Association of Virginia and the Virginia Association for Commercial Real Estate (“VACRE”) began working to address volatility in the supply and price of credits during the annual General Assembly Session, including:

• HB 1628 (Delegate Carrie Coyner – 2023 Session) to allow developers to mitigate a project’s impact by paying into the state’s in-lieu fee (ILF) program. State ILF programs provide another compliance option for projects in areas of the state with low credit supply, increase predictability during the project planning process, and reduce the need to rely on “onsite mitigation” which can impact designs, reduce the number of buildable lots, and raise development costs. HB 1628 was passed by the General Assembly and signed by the Governor. The HBA of Virginia is also working to pass a state budget amendment to provide the DEQ with the funding necessary to expedite the process of getting approval from the USACE to operate this Fund.   (Read more about this legislation)
• HB 1983 (Delegate David Bulova – 2021 Session) provides the development community with greater flexibility to purchase credits from a larger geographic area. This legislation was passed by the legislature and signed by the Governor. (Read more about this legislation)

For more information about HBA of Virginia’s efforts to address delays at the U.S. Army Corps of Engineers and increase the supply of mitigation credits, please contact Vice President of Government Affairs, Andrew Clark.