Primer on Wetland Banking

Wetland Banking is a relatively new concept in Minnesota that allows a developer to purchase of wetland credits to replace wetland areas lost to development. The credits are established by a landowner who restores a wetland after going through a rather complex administrative / regulatory process that involves state, federal, and local government agencies. The credits can be quite valuable, depending upon the location of the restored wetland and the local market (the amount of local development activities). The value of wetland credits can range from $5,000 to $15,000 per acre in non-metro areas and from $15,000 to $100,000 per acre in the seven county metro area. A number of wetland bank owners have sold all or parts of their wetland bank credit allocation to the State of Minnesota to mitigate wetland losses caused by improvements to state, county and city roads. Due to the slump in the housing market, the State of Minnesota may now be the major market for wetland credits for the next few years.

Over the past eight years or so many landowners have asked me for guidance as to whether they should consider developing a wetland bank. While a few landowners have successfully developed wetland banks as a business, it is a risky business if immediate and regular revenue (credit sales) is needed to provide a regular source of income. Also, there have been differences between the State and the Federal government as to what is eligible for credit. These differences have been debated over the past five years and there has been some movement lately to provide a more uniform system of assigning credit values.

Some things to consider before investing in a wetland bank include:

1) Developing a wetland bank should be considered if:

- you desire to restore a wetland for its conservation benefits to your land

- you do not need immediate cash flow to fund the project

- you understand that long term maintenance of the vegetation and water control structures is required and will cost money

- you understand that you will need to grant a perpetual conservation easement to the State and that this will prevent you from future cropping or development on the easement area

2) If you are considering developing a Wetland Bank as a business venture, your business plan should include detailed research on: pricing, market trends, existing and potential competing wetland banks in your wetland bank’s service area.

3) State and federal laws and rules are constantly evolving and could increase or decrease the value of your wetland credits over the long term.

4) Wetland banking is not considered to be a conservation program as for each acre of wetland credit you establish and sell ultimately represents 0.5 to 1.0 acres of wetland lost to development at another location.

5) The Minnesota Board of Water and Soil Resources (BWSR) is the “Banker” in the Minnesota Wetland Bank, and the restorer of the wetland is the “Account Holder.” The BWSR keeps track of each account’s balance and charges a 6.5% fee for each transaction.

6) You can sell the underlying property and have the option of retaining the wetland credits or transfer them to the new property owner. Unless otherwise specified in your contract, the new owner is required to maintain the wetland in accordance with the easement.

Text By: Bruce Sandstrom, Former BWSR Wetland Bank Administrator, March, 2008