What is a Mitigation Endowment?
– What is a mitigation endowment for a land trust or non-profit land management entity?
When real estate developers, municipalities, or companies disturb natural habitat through planned or accidental actions, a variety of federal, state, and local laws provide mechanisms to offset or mitigate injury to the habitat. After habitat is restored or conserved to offset injury or impacts, federal and state laws require perpetual care of the land, funded by a non-withering trust or endowment.
– How does a mitigation endowment differ from financial assurance?
Financial assurances are like construction bonds–they are held in place for a period of time while the mitigation project is initially established and then achieves success–as defined prior to project implementation in regulatory documents. Habitat restoration success is measured during a monitoring program. Once regulators agree that success criteria have been met (typically after 5 years), the financial assurance obligation is complete and the site switches to long term management, typically financed by a mitigation endowment.
Financial assurances are held in place via bonds, escrow accounts, insurance products, letters of credit, or other financial devices. A mitigation endowment is a non-withering trust that is held in perpetuity.
– Why are mitigation endowments sometimes called “non-withering trusts”?
The concept behind a non-withering trust is that the capital in the endowment remains in place in “perpetuity” or some pre-determined period of time. The long-term management plan is financed by the interest, or returns, of the invested funds of the endowment, and thus the principal never withers away. This differs from a sinking fund, in which a portion of the principal is used towards long-term management until it becomes zero and the obligation is over and from a revolving fund in which capital is replenished on a regular basis.
– Who holds the mitigation endowment?
Independent third parties hold the mitigation endowment. This may include long-term conservators, such as land trusts, conservation organizations, land management groups, universities and colleges. In some cases, Associations, Clubs, Leagues, or even local or state governmental entities may hold the mitigation endowment.
– What is a Long-Term Management Plan?
A Long-Term Management Plan is a regulatory document that describes the obligations of the long-term manager. This might include keeping weeds and invasive species in abeyance or control, fixing fences, and keeping trails maintained. This plan might also involve more intensive undertakings such as hydrological manipulations or implementing adaptative management strategies.
– Who implements the Long-Term Management Plan and decides what is in it?
The plan is implemented by the long-term manager, typically a land trust or conservation organization. In some cases, the plan is developed with input by the long-term manager. In other cases, it is developed before the long-term manager is identified.
– Who becomes responsible for the outcome of the Long-Term Management Plan?
The long-term manager bears the responsibility for the financial viability of the plan.
– Who is responsible for site maintenance?
The long-term manager bears the responsibility for site maintenance.
– How is the endowment capital used?
Earnings from the endowment finance the Long-Term Management Plan which lays out the specific obligations of the long-term manager. The management actions can be done by the long-term manager or by contractors, consultants, or freelance ecologists.
– What if an emergency situation or an unplanned perturbation arises?
Depending on the level of disturbance, the long-term manager can determine that changing land management requirements necessitates capital beyond what was conceived when the conservation easement was established. The application of supplemental capital towards a management problem can sometimes be negotiated with regulators but in all cases, it is up to the long-term manager to determine. In all situations, EES recommends the long-term manager plan their capital expenditures in partnership with their financial advisors.
– Can the long-term manager take endowment dollars and use them as needed?
This depends on state regulations, the terms of the Long-Term Management Plan, and the specific situation. EES recommends the manager plan capital expenditures in partnership with their financial advisors. EES understands the biological imperatives as well as the financial implications of such a move.
– How do I determine how much money to put into my endowment account?
The Nature Conservancy publishes a long-term management calculator which serves as a helpful guide. EES can provide guidance specific to your property.
The amount of money in the account has to account for inflation, years of low growth, and unexpected expenses. Center for Natural Lands Management developed Property Analysis Records (PAR) analysis software (click here to learn more) to help determine annual maintenance costs.
– How can EES help me achieve my mitigation endowment goals?
The long-term manager should be able to prioritize the biology of the site—not finances and reporting. EES provides ease of mind for the financial, reporting, investment, regulatory, and ecological aspects of long-term endowment management.
– I am a mitigation banker – am I required to set up an endowment?
Under federal mitigation rules, the mitigation banker or sponsor is required to provide funding for the long-term management of the restoration project. The form of this varies and depends on:
• The state in which the project occurs;
• The project manager;
• The influence of the interagency review team (IRT); and
• The long-term plan for the land after the mitigation project has achieved its success criteria.
EES along with your regulators and consultants can help you determine what is needed.
– I am a Land Trust – am I required to set up an endowment?
Land trusts have flexibility in the form that the long-term management financing takes. EES recommends forming an endowment, but we can work with other structures as well.
– What are my reporting requirements as a Land Trust?
All non-profit organizations are required to conduct an annual audit and file a number of forms to the IRS and state tax authorities. The long-term manager reports to a board of directors that also hold responsibilities.
– Are there federal laws requiring mitigation lands to have endowments?
Federal laws are vague on the form the long-term management funds take, but federal regulators have a variety of standard and accepted approaches developed over decades of practice for thousands of mitigation banks and projects.
– Are there state laws requiring mitigation lands to have endowments?
Some states require mitigation properties to have endowments; it is highly variable. California has rigid requirements. EES can assist you in navigating federal and state requirements.
– If California is the only state with guidance, do they have templates for endowment and management plans?
California has advanced guidance and regulations available. (click here for more info). The state must approve endowment holders, but is not authorized to designate specific entities to hold endowments.
– Can any entity manage mitigation endowment money in California?
Typically, endowment management is restricted to state and local agencies, special districts, and non-profit organizations. Endowment holders in California are commonly community foundations with policies and practices consistent with the Uniform Prudent Management of Institutional Funds Act (Part 7 (commencing with Section 18501) of Division 9 of the Probate Code).
– Can any entity manage mitigation endowment money in the other 49 states (outside California)?
The rules and regulations are highly variable across the other states. For instance, in Oregon the guidance states:
Endowments are most secure if invested through a fiduciary that also holds the funds in a trust account. The fiduciary should be instructed by a strict set of written investment guidelines as to the kinds of investment instruments to be used, the allocation of the endowment between instruments, and reporting of the results. Withdrawals should be planned well in advance so that the fiduciary may maintain the correct proportion of dollars in investments at all times. The board of directors of the organization holding the funds should have a regular review of the investment holdings and returns.
– Does EES maintain a relationship with any community foundations in California?
EES has a strategic alliance with the San Diego Foundation – a community foundation with almost $1B in assets. The San Diego Foundation can hold the endowment and EES can manage the assets contained within.
– Does EES maintain a relationship with any community foundations outside California?
EES is currently establishing relationships with community foundations across the United States.
– What regulatory agency is responsible for enforcement?
The IRS requires long-term managers to perform certain reporting requirements. EES can assist with the development of reporting materials associated with your endowment. The US Army Corps of Engineering is responsible for all requirements associated with implementation of the Long-Term Management Plan. State and local laws also apply to financial and environmental reporting requirements and practices.
– How can EES help keep me in compliance with local and federal regulations?
EES works with the land trust, mitigation banker, governmental agency, or long-term manager to ensure compliance for all financial reporting and can guide environmental compliance and reporting as well.
Land Trusts & Other Land Managers
– Do Land Trusts have financial reporting requirements to the IRS?
Yes as a non-profit, land trusts must produce audited financials every year.
– Do Land Trusts have financial reporting requirements to an accrediting program?
Reporting requirements are robust (click here to learn more) – EES can support reporting to the Land Trust Alliance as well as IRS and other entities.
– What can go wrong for Land Trusts regarding reporting?
The board of directors has responsibility and liability for failure to report accurate information to the IRS. Long-term managers have an obligation to the properties they manage and the regulators overseeing them. There are consequences for entities that don’t follow the guidelines or provide proper planning.
– Have Land Trusts ever failed?
Yes – in 2005 The Environmental Trust (TET) held 1,400 in easements and over 4,600 acres of land in conservation in San Diego but went bankrupt. It is widely agreed upon that poor endowment management lead to the collapse – TET used its endowment capital for operating expenses and ran out of money. This led to the development of stringent state regulations for land trusts and mitigation endowments in California.
– How can EES help me achieve my reporting goals?
EES is capable of producing transparent and detailed financial reports to satisfy a wide variety of state and federal reporting requirements. EES also provides real-time online access for endowment accounts.
History of EES
– You are a new company. What is your history?
– How can I trust a new company to manage our financial resources?
EES is a newly formed division within Carmel Capital Partners which has been in business for over 20 years and currently manages $220M in assets.
– What is Carmel Capital Partners?
Carmel Capital is an SEC-registered investment advisory firm. The SEC is a federal agency that oversees and regulates investment advisory firms. As an SEC-registered firm, CCP is required to uphold strict government standards and annual reporting requirements to the federal government.
– What is the relationship between EES and CCP?
EES, as a division of Carmel Capital, is subject to the same rules, regulations, and operating procedures in place for the parent company.
– Who is Mr. Russell Silberstein?
Mr. Silberstein has over 20 years of experience as an investment manager and is the co-founder of Carmel Capital Partners and EES. Mr. Silberstein has built a company committed to the preservation and growth of its clients’ capital.
– Who is Dr. Mark Laska?
Dr. Mark Laska is an environmental entrepreneur, and owner of four operating businesses, with over 25 years in the industry. He is a leader in the mitigation banking industry, with expertise in land management and principals of strategic planning.
– What is Dr. Laska’s experience with mitigation and land trusts?
Dr. Laska owns a mitigation banking company with a partner (Tellurium Partners) and an environmental consulting company (Great Ecology) that has worked on dozens of mitigation banking projects and for several land trusts.
– Do you have an investment track record?
Carmel Capital has been investing financial assets for 20 years and today, manages $220M in assets. Our track record is available upon request.
– Do you invest our money into a fund?
NO!! – Carmel Capital/ EES creates a custom portfolio for each individual investor/land trust/mitigation banker. EES does not place money into any fund.
– What do you invest the money in?
EES creates a proprietary combination of stocks, bonds, and real estate, dependent on the needs and goals of each land trust.
– Where is the money held?
Capital is held at nationally recognized bank and brokerage custodians.
– How does EES help me achieve the financial goals of my organization?
EES will support the financial goals of your organization by providing careful planning, constant communication, regular reporting, and prudent investment advice.
– How will the EES investment philosophy help my organization?
We plan for your needs and customize your portfolio to help you achieve your goals. We ensure reporting and communication leads to the results you strive for.