Open Space Mitigation Proposal

November 10, 2000

TO: Subcommittee on Farmland and Open Space \ N.C. Legislative Smart Growth Commission

FROM:

Kate Dixon, Executive Director, Triangle Land Conservancy

George Howard, President, Restoration Systems, Inc.

RE: Mitigation Banking for Open Space

The Triangle Land Conservancy and Restoration Systems (a private mitigation company) believe that Open Space Mitigation Banks could be a useful tool in efforts to protect Open Space in the Triangle and the state. We urge the Subcommittee on Farmland and Open Space to study mitigation banks as a tool for open space protection, and we recommend that the State enact legislation to give counties and municipalities authority to operate mitigation banks. We have therefore put together the following briefing memo to outline how we think such a program might help local governments in North Carolina protect important open space for their citizens.

What is "Mitigation Banking"?

Mitigation Banking is an innovative approach currently used to off-set losses to wetlands and endangered species. Mitigation banks work by requiring anyone who destroys wetlands or endangered species habitat to create, restore and protect wetlands or habitat elsewhere. Such programs can be extended to mitigate for other types of open space, such as stream buffers, places for people to hike and hunt, and farmland. Mitigation Banking for Open Space would use the same principles as current programs to off-set impacts to our surroundings by protecting large areas with ecological, aesthetic and recreational importance in regional banks.

How would an Open Space Mitigation Bank work?

Developers of raw land would be required by local governments to protect a certain number of acres of "mitigation land" for every acre of land that they develop. Local governments would establish guidelines for the amount, location and nature of land that qualifies for protection. In addition, guarantees would be required to ensure that the land will be permanently protected. Developers may then approach landowners to buy land and donate the required number of acres to the local government or land trust according to the pre-established guidelines. Alternatively, a land trust or private firm (like Restoration Systems) may buy large tracts of land ahead of time and sell mitigation credits for the required number of acres to the developer. Local governments will need to establish a system, either through conservation easements or registration, which ensures that credits are not sold from the same land more than once.

What are the benefits of this system relative to current methods of conservation?

Mitigation banking is fair because it asks developers to help cover the broader community costs associated with their development, including loss of wildlife habitat, places for people to enjoy the outdoors, and water quality. Mitigation banking creates market incentives to reduce the amount of land impacted by development. The concept behind mitigation banking is easy to understand. Mitigation banking can avoid the not-in-my-backyard fights against increased density or down-zoning which have occurred in communities which try transfer of development rights programs.

What is a county-specific example of how a mitigation bank might work?

We have discussed the concept of mitigation banking with a county commissioner, the planning director, and a prominent developer in Chatham County. All were supportive of the concept. Unlike most counties, Chatham has received statutory authority from the State Legislature to establish mitigation programs. We plan to make a presentation to the Chatham Commissioners about how it might establish a mitigation banking program for open space. Here is an example of how such a program might work:

What land would require mitigation?

Any development which requires county approval would be required to purchase mitigation credits on a per-acre-developed basis.

How much land would be required to be protected for every acre developed?

One of the strengths of a mitigation banking program is that the "ratio" of developed land to protected land is set by elected officials who can balance public needs when setting the ratio. They can also adjust the ratio for different types of development and by location of the land to be protected. For example, the county might first establish a ratio which would allow it to protect 50% of its desired open space through the banking framework. If the county projected that 15,000 acres would be developed in the next ten years and it wanted to protect 5,000 acres in that time, it would use the mitigation bank(s) to protect 2,500 acres. This would mean that 15,000 acres of development would need to protect 2,500 acres of open space at a ratio of one acre of open space to six acres of development or a "ratio" of 1 credit = .166 protected acres.

In future years, if the county needed more housing, industry or shopping centers, it might lower the ratio on any of these types of development to encourage increased development of that type. The county might also establish different ratios for different areas of the county. This could be used to encourage development in underserved areas or protection of open space in areas where land prices are high.

Where would the mitigation occur?

Chatham County and the Triangle Land Conservancy have created a number of plans which could be used by the County to certify areas that would qualify as mitigation banks. These include Chatham's parks and recreation plan, the county natural heritage inventory, and TLC's Deep River plan. As the county adopts additional plans, such as its portion of the Triangle Greenprint, it could continue to qualify new areas as mitigation banks.

Under this plan, the land identified as potential mitigation bank sites would not be downzoned, and landowners would not be restricted from developing that land. On the contrary, landowners of qualified mitigation bank land would benefit from having an additional market of buyers for their property. This market would be most beneficial to landowners who are in areas of the county under little development pressure.

If a developer were developing a tract with a potential mitigation site on it, the developer could donate the required mitigation acres using land on that tract. If the mitigation site was larger than the required number of mitigation acres, the county might seek a way to purchase the remaining acreage of the mitigation site.

What would the credits cost?

A credit can be very affordable depending on the location of the land being protected, and the ratio of development to conservation. In Chatham County there is interest in locating banks in the western half of the county. Western Chatham has not experienced the boom in real estate prices seen in the northern part of the county near Chapel Hill and east of 15-501 around Jordan Lake. By off-setting impacts to high priced properties with credits produced from lower-priced conservation lands, credits prices can become a fraction of developable land prices. In addition, rural land owners not currently sharing in the real estate boom would have the opportunity to join in the prosperity by selling credit lands.

Example: Attractive development property might sell for $8,000 per acre. If credits were produced from lower-priced rural areas, for instance, a credit acre might cost $2,000. If credits were applied a 1-6 ratio, the development of one acre would effectively require the purchase of 1/6 acre of much lower value land ($2,000). This means the land cost per credit would $2000/6, resulting in a land cost per credit of $333. In this case, the land cost of a credit would be 1/25 of the $8000 land cost of the development.

Can mitigation banking be used to protect farmland?

Mitigation banking could be used to protect farmland and timberland through easements as well as through fee simple purchase. The easement would need to held by a local government or qualified conservation organization such as the Triangle Land Conservancy. Because the easement will only restrict development of the land, and not its use for farming and logging, the County may want to adjust the mitigation ratios to require that more acres be protected for land under easement than for fee simple ownership. One of the benefits to the County of using mitigation to buy easements is that the land would stay in private ownership and therefore on the tax rolls.

Who could purchase mitigation land?

Although developers could purchase mitigation land themselves, the County, private mitigation firms, or local conservation groups (like the Triangle Land Conservancy or Haw River Assembly) might also buy the land and sell mitigation credits to developers in order to reduce prices through economies of scale and competition. For example, Restoration Systems or Triangle Land Conservancy might identify a 200-acre conservation property, receive approval for the property as a "bank"from County officials, purchase and conserve the land according to County guidelines, and receive 1200 credits for sale to developers. If a government sought to create a competitive market for credits, several organizations could be permitted to sell credits competitively.

Who will manage the mitigation land after the credits from it are sold?

After mitigation credits are sold from the land, it should be owned and managed by a government agency or by an established non-profit conservation organization. Land originally purchased by a developer or private firm will need to be transferred to this new ownership at the time the credits are accepted and the development is approved. The County should place a conservation easement or deed restriction on the property so that it cannot be developed in the future or re-sold for additional mitigation credits. Funds needed for long-term maintenance of the property may be sought by conservation organizations if the land is transferred to them by developers or private firms.

How would the application process work?

Review and approval of the acres to be acquired for mitigation could be added as an additional step in the County's existing development review process. A final step will be to record a conservation easement or other legal restriction limiting future development or sale of mitigation credits from that land.