Wetlands destroyed, wetlands restored: Both mean big profits

Investors have spent and made millions converting thousands of acres of forests and farm fields to wetlands near the Great Dismal Swamp, the Northwest River and other parts of Chesapeake, Suffolk and northeastern North Carolina.

Their clients are a "who's who" list of developers and government agencies that need to offset natural wetlands paved or filled to accommodate houses, shopping centers, roads and office buildings.

It's a business that draws mixed opinions about whether creating new wetlands to replace natural ones helps or harms the environment.

Wetlands advocates, who include federal environmental regulators, tout restoration as a way to restore and then preserve swamps, bogs and marshes that filter pollutants, control flooding and provide animal habitat.

Critics argue that wetlands restored by private companies often do not mimic natural ones destroyed by development.

"When a wetland is lost in a community and replaced at a significant distance away, perhaps in another locality, the values provided by that wetland are permanently lost to that community," said Ann Jennings, executive director of the Chesapeake Bay Foundation in Virginia.

The building boom of the past two decades fueled demand for replacement wetlands. Since 1995, local firms doing wetlands restoration have taken in at least $25 million in revenue, according to a Pilot review of records.

The concept is simple and one promoted under federal law: For every acre of natural wetlands developers are allowed to destroy, they must then create or restore an acre or two of wetlands to offset that loss. It's a policy meant to guarantee "no net loss" of the nation's wetlands.

Wetlands-restoration firms, called "wetland mitigation banks," have made this policy easier on developers.

The firms and their experts plug drainage ditches and plant trees to turn 300- and 400-acre farm fields back into moist, swampy wetlands. Developers here have paid them up to $55,000 for each "credit," which generally equals an acre of restored wetlands. The restoration firms then shoulder all the responsibility for monitoring the replacement wetlands.

Some environmentalists argue that natural wetlands shouldn't be destroyed in the first place. At best, the wetlands banks probably "minimize the damage to the environment," said Skip Stiles of the Norfolk-based advocacy group Wetlands Watch. "That's about as much as you can say."

The Army Corps of Engineers, which monitors wetlands restoration, applauds the program. Robert "Bud" Needham, a former corps worker who's now a consultant for the area's largest restoration firm, points out that most developers must pay to restore 2 acres of wetlands for every 1 acre they build over. If the federal government wants to regain wetlands lost to development, he said, what better way to get them back than to encourage the private sector to do the work.

"It's a win-win situation," said Needham, a consultant with the Great Dismal Swamp Restoration Bank. "It's a business venture, and yet the environment wins in the end."

 

In 1763, a businessman - and future president - named George Washington formed a company called Adventurers for Draining the Dismal Swamp. Its goal was to harvest the swamp's lumber and then farm the land after it dried out. Others had the same idea.

Over the last two centuries, the state has lost more than 40 percent of its wetlands to agricultural, industrial and urban development, according to a study this year by the Environmental Law Institute.

Even with all that development, about a third of Chesapeake still appears to be wetlands, according to a map provided by the city.

One local expert called Chesapeake the "poster child" for nontidal wetlands - anything from deep swamps to seasonally wet areas that may look no different from fields or forests.

Federal agencies began enforcing a policy of "no net loss" of the nation's wetlands in the late 1980s.

In response, developers would simply set aside a chunk of their projects and attempt to restore or create wetlands on their own. But studies found that they often did a poor job, and there were so many of these small patches of man-made wetlands that it became difficult for agencies to inspect.

The government wanted better projects that were easier to monitor and had a better shot at replacing lost wetland functions.

In 1995, a group of federal agencies came up with some guidelines for how private companies could do "wetland mitigation banking." The Government Accountability Office later described those guidelines as vague and inconsistent.

Some local government agencies were already doing mitigation banking without any guidelines at all. The Virginia Department of Transportation started one of the nation's first wetland banks in Chesapeake in 1982. Virginia Beach was among the first localities in the country to found its own bank.

If VDOT or Virginia Beach needed to build over wetlands, they were often allowed to make a withdrawal from their banks.

Private investors followed the agencies' lead in the 1990s.

Nationwide, the number of commercial banks increased more than twelve-fold between 1995 and 2001, federal reports show. They nearly doubled between 2001 and 2005. Virginia had fewer than 20 banks in 2001. Now, there are more than 50 sites. Another 30 are proposed.

 

The largest area wetlands mitigation company, the Great Dismal Swamp Restoration Bank, is doing work on more than 5,000 acres in Virginia and North Carolina.

Rivals are entering the market. A private equity group spent $5 million last year on a 1,000-acre farm near the Dismal Swamp with plans to convert it to wetlands so credits can be sold to developers.

Some wetlands bank operators buying farmland in Chesapeake have paid $6,000 per acre. Some firms reported spending an additional $4,000 per acre to turn the farmland into wetlands, according to estimates filed with the Corps of Engineers.

The restored wetlands allowed them to sell credits that fetched big dollars. Federal and city documents show banks charged developers and agencies anywhere from $12,000 to $55,000 for one credit, or 1 acre of restored wetlands.

Wetlands bankers would not reveal their profits, but federal records show they have done steady business. Customers included the Suffolk Executive Airport, Dominion Virginia Power and APM Terminals, according to corps documents.

Since the mid-1990s, the city of Chesapeake has spent at least $2.7 million on wetlands-restoration credits and sites, city records show. Officials say the city makes a serious effort to avoid or minimize wetlands impacts. But some of Chesapeake's most important new road projects, such as Moses Grandy Trail and the Chesapeake Expressway, could not have been built without significant wetlands losses - and sizable bank credit purchases to make up for them.

The Hampton Roads Executive Airport needs more than 500 wetlands and wildlife habitat credits in its plan to expand a runway, and several wetlands banks are in the running for the job. The sale could be worth several million dollars to the winning wetlands bank or banks.

"It's lucrative, or people wouldn't be doing it," said Stiles of Wetlands Watch.

The demand for replacement wetlands grows as developers, cities and the state seek to build in areas with swamps. Most of the highest and driest property in the region has long been developed.

The Corps of Engineers' Norfolk district regulates most activities that involve placement of fill in Virginia's wetlands.

It led all other districts last year in meetings intended to get developers to minimize or avoid destroying wetlands before projects are designed.

Still, the Norfolk corps in fiscal year 2007 issued 4,000 permits to affect Virginia's regulated waters, including wetlands, putting the Norfolk district among the busiest in the nation.

A proposed 420-acre Chesapeake development near Stumpy Lake would destroy 180 acres of wetlands - believed to be one of the largest proposed wetlands losses in Virginia. The corps' Norfolk district initially denied a permit for the project, but the developer is appealing.

The proposed Southeastern Parkway, a 21-mile divided highway that would link Virginia Beach to Chesapeake, could ruin more than 200 acres of wetlands and require costly mitigation, corps officials say.

Many local developers don't use mitigation banks and still try to create or restore wetlands on their own.

But as long as Hampton Roads develops over an area saturated with wetlands, there will likely be a need for developers to buy bank credits, experts say.

"People are going to need to develop," said Norfolk environmental consultant Thomas L. Stokes Jr., who runs the Lower James River Wetland Mitigation Bank. "People are going to need to cross wetlands with roads. They need to replace what the impacts are. It's probably the kind of thing that will continue."

 

The biggest challenge to wetlands restoration isn't on the business side; it's the science. Soil conditions have to be right to support the moister trees and plants found on functioning wetlands.

On drained forests, the trees are already there. It's just as easy as plugging or filling ditches, which effectively helps convert it to wetlands by just adding water to the site. Needham calls it "Betty Crocker" restoration.

"The real high-tech part of wetland restoration is having enough experience to recognize a really good site. That's the key," said Doug Davis, a Virginia Beach environmental consultant who is considered one of the area's wetlands-restoration experts. "The actual work is pretty low-tech stuff."

The corps' Norfolk office is responsible for monitoring all wetlands creation, restoration and preservation projects in Virginia. Other state and federal agencies also play a role.

With only federal guidelines and no regulations, it was often up to corps officials in Norfolk to figure out some of the finer details of how the banks should work.

As they helped develop the network of banks, Norfolk corps officials came up with a few general policies:

n Developers and agencies had to restore 2 acres for every 1 acre of forested wetlands they destroyed.

n Banks that secured land and signed a banking contract with the corps could sell 15 percent of their credits before doing any wetlands-restoration work, allowing them to recoup some of the startup costs.

n Developers who receive permits to build over wetlands can pay into a trust fund administered by the corps and run by the Nature Conservancy, which used more than $2 million of that money to protect and restore wetlands on more than 1,700 acres in Chesapeake and Virginia Beach.

A review of all of the wetlands bank files shows a mix of successes and problems that mirror how the industry is faring nationwide.

Once pastures and bean fields, one of Davis' wetlands-restoration sites in Suffolk is now covered in tall sweet gum and swamp chestnut oak. The project off Jericho Ditch Lane has been so successful in nurturing wildlife that one of Davis' biggest problems is keeping bears from eating a nearby farmer's corn.

More than 160,000 tires once sat on a separate 7.5-acre property off Libertyville Road in Chesapeake. Since Tom Tye scooped up the property and began restoring wetlands there, thick, wavy strands of salt marsh cordgrass now cover the site.

Rather than inexperienced developers creating wetlands on "postage-stamp parcels," banks are much better because they have experts restore wetlands on larger tracts that will be easier to monitor, said Steve Martin, an Army Corps of Engineers environmental planner.

But the banks' progress hasn't always pleased corps officials. VDOT's Goose Creek Wetland Bank in Chesapeake, one of the first in the nation, was invaded by phragmites, undesirable reeds that the corps generally tries to keep off the wetlands-restoration sites. "It was pretty obvious it had just taken over," said Alice Allen-Grimes, an environmental scientist with the corps' Norfolk district.

 

In order to track the banks, the Corps of Engineers often has to rely on written reports that may be incomplete. Documents show the city of Chesapeake failed to submit site monitoring reports on several occasions but eventually filed the reports after the corps asked for them.

Awarding advance credits has occasionally resulted in problems. In a 2004 letter, the corps noted that minimal progress had been made on converting one site to wetlands even though the Great Dismal Swamp Restoration Bank had already been allowed to sell 35 credits.

Another problem is making sure the restored wetlands are protected forever.

One of the area's largest wetlands-restoration operations was run on an 895-acre Chesapeake property owned by Stanley Tseng, a businessman who also invested in real estate, scrap metal yards and a fast-food chain. The city of Chesapeake paid Tseng at least $1 million for wetlands credits, records show.

Tseng prepared documents restricting future development on nearly half the site and agreed to protect the rest of the property after it was converted to wetlands, officials say.

Instead, Tseng used the site as collateral for a $472,000 debt. After a federal lawsuit, the entire property was auctioned to one of Tseng's former associates. The corps suspended a wetlands bank on the site, and officials are unsure about the property's future.

Corps districts across the country rarely punish firms that fail to comply with wetlands-restoration guidelines, according to a GAO study, because enforcement actions are more time-consuming and don't always result in the restoration work being done.

More rigid and definitive rules for the industry were issued in April, 13 years after Hampton Roads' first private wetlands bank opened for business.

The new rules will steer even more business to the banks, said Jessica Wilkinson, wetlands program director for the Environmental Law Institute. When a developer needs to offset wetlands losses, the new rules make wetlands banks the No. 1 option.

Mike Saewitz, (757) 222-5207, mike.saewitz@pilotonline.com