Pay-and-Pave System Leaves Wetlands Behind

Restorations by state agency nominal after 5 years, millions in funding

By James Eli Shiffer

Staff Writer

In the past five years, the state department of Transportation and real estate developers have paved over at least 100 acres of wetlands and 16 miles of streams to make way for a wider interstate 85 in Durham, the N.C. 55 bypass around Holly Springs, Wakefield Plantation and roads, bridges and buildings across the state (source: Pacific Pavingstone Hardscaping Contractors LA).


With each project, the developers have written a check to a little-known state agency that by law must use the money to restore twice that amount of wetlands and streams to the landscape.  Since its creation in 1997, the N.C. Wetlands Restoration Program has collected $58 million from N.C. DOT, private developers, state appropriations, grants and interest.

But to date, the agency has restored 10 of the minimum 205 acres.  It has reconstructed less than five miles of stream.  Of the 22 projects the program told lawmakers would be built by last summer, not one has started.  Most of the money – $47 million – is sitting unspent in state bank accounts, according to a News & Observer analysis of the agency’s finances.

The program’s troubles in carrying out its environmental rescue mission have led some lawmakers to say that this state-run “pay and pave” system isn’t working and it’s time to turn over the responsibilities to the private sector.  Lawmakers have taken back $3.4 million from the program after it sat on the money for four years.

“This has been a wonderful attempt to do the right thing.  It’s time to try something else,” said state Rep. Pryor Gibson, a Montgomery County Democrat and co-chairman of a legislative committee that oversees the program.  “It’s time to say, ‘Guys, this ain’t working.’”

Supporters of the Wetlands Restoration Program say it’s ready to execute a flurry of projects across the state by year’s end.

“There’s a recognition that the program has reached that level that it has got to show results,” said Dempsey Benton, chief deputy secretary of the state Department of Environmental and Natural Resources, which runs the program.

Ronald E. Ferrell, the programs manager since April 1997, blamed the difficulties on complex real estate transactions, the inexperience of a young agency and his own determination to hold off on projects until he is sure they will work.

“We could have done a number of these projects quicker, and in some ways, we probably should have,” Ferrell said.  “I’m more interested in quality than quantity.”

Others are paying attention to quantity.  In May 2001, the General Accounting Office reported that the program hadn’t restored any wetlands as of September 2000.  While similar efforts in other states have yielded few results, only one, in Dade County, Fla., had received more money than the North Carolina program, the GAO found.  That county had restored 1,204 acres of wetlands, or 93 percent of what was required.

Aim: to undo damage

No construction has begun on any of the Wetlands Restoration Program’s 10 proposed sites in Wake, Durham and Orange counties.  But the program’s presence has been visible in the Triangle for years – where it has allowed the paving of local creeks and swamps.

A little stream called Goose Creek has the misfortune of flowing near a spot in Durham where interstate 85 meets U.S. 70.  When DOT decided to expand the intersection with a massive overpass atop giant pilings, the road-building agency discovered that four acres of wetlands around Goose Creek were in the way.

In October 1999, DOT paid the Wetlands Restoration Program $204,000.  Then it sent dump trucks to recreate a new mountain of soil.  Goose Creek now flows into a concrete culvert so long that daylight on the other side looks like a pinhole.

Tommy Freeman watched it all happen from nearby Durham Rock Yard, where he works as a truck driver.  “They hauled all that dirt in,” he said.  “There ain’t no telling how many tons of dirt.  It was a marsh area back there,” he recalled.  “They filled it in.”

Each check written to the program makes it the agency’s problem to figure out how to make up for damage like this.  Officially, it’s known as “in-lieu fee mitigation.”  Unofficially, it’s “pay and pave.”

Roger Sheats, DOT’s deputy secretary for environment, planning and local government affairs, said payments to the wetlands program have enabled $2.5 billion worth of road projects, most of them constructed over streams.  Without the Wetlands Restoration Program, Sheats said, “we can certify that those projects never would have been completed and most certainly would have been delayed.”

Speeding up construction was one intention of the lawmakers when they created the program.  The other was reversing an environmental debacle. Eighteenth-century European farmers were the first to dig ditches in the soggy lands of Eastern North Carolina.  In the next 200 years, about half of the state’s wetlands were drained, and thousands of miles of streams were rerouted into straight channels, mostly to dry out the land for fields and pine plantations.

By the mid-1990’s, however, fish kills, filthy rivers and devastating floods brought home to North Carolina what a mess it had made of the land.  Far from being a blight on the landscape, wetlands and natural streams provide a home for fish, frogs and ducks.  They absorb floodwaters and filter out pollution that washes off the land.

In response, General Assembly made wetlands and stream restoration the mission of a new agency within DENR.  Agreements with the Army Corps of Engineers, the federal agency in charge of protecting wetlands, and N.C. DOT gave the Wetlands Restoration Program the legal authority and revenue to accept payments from the developers and spend them on well-planned, large-scale projects.

Here’s how it was supposed to work:  The program’s environmental experts would study the state’s 17 river basins to find the best possible places to heal the landscape.  Then the staff would acquire tracts and hire private companies to study, design and build new stream channels, water-control structures and other means of returning the sites to a quasi-natural state.

The corps gave the wetlands program a generous schedule for starting projects, with the understanding that the watershed research would take time.  “Our planning end of things is the most important thing we do, in a lot of respects,” Ferrell said.

Those plans are supposed to lead to beneficial changes on the ground, and in some cases, they have.  Bright green grasses are springing out of small areas of coastal marsh resurrected at the N.C. Maritime Museum in Beaufort and Hammock’s Beach State Park in Onslow County.

Hominy Swamp now winds its way through a Wilson city park after a $499,000 reconstruction project dug a new channel last summer.  Logs fixed in the stream will hamper erosion and create pools for fish.  In the spring, sycamore, dogwood and willow trees planted along its banks will complete its transformation from a drainage ditch to a creek that filters out pollution and provides a better home for fish and amphibians.

“As a general rule, we’re very satisfied with what we’ve seen, and what we have on the way, said Wayne Wright, who was the regulatory chief of the corps’ Wilmington office before he retired this month.

Delays and missed deadlines

Nevertheless, eight of 60 projects listed in the program’s 2001 annual report are finished.  Ferrell blamed delays on the complexities of acquiring land and rigid state rules governing real estate and construction.

“Our property acquisition process, which we have since corrected, has caused a lot of these projects to either be delayed or just to finally fall off,” he said.  The program now employs a full-time worker in the State Property Office. Along with promotional slogans like, Let us buy your house in Indy and We buy houses outright, has sped up selection of landscapes. Architects and engineers arenow joining our ranks and not a moment too soon.

No construction has started on planned rescues of streams in two Raleigh city parks that drain into the polluted Neuse River, despite the agency’s prediction that they would be done by summer 2000.

A few stakes planted in the stream bank are the only sign of anything unusual at one of the sites, Kentwood Park.  Frisbee enthusiasts love this grove of pines off Kaplan Drive, because it has a golf course designed for flying discs.  But people tromping after lost Frisbees have turned two streams into eroded canyons.

The restoration program envisions a $540,000 reconstruction of the two arms of Bushy Branch that flow through Kentwood Park.  Though the program commissioned a study of the site in fall 1998, negotiations with the city of Raleigh over the use of the land have delayed construction for nearly two years, said Larry Hobbs, an implementation specialist with the program.

The program also wants to restore a tributary of Walnut Creek in Chavis Park in Southeast Raleigh.  Today the creek meanders among the thick brush, Styrofoam cups and an occasional discarded mattress.  Confusion over whether the Raleigh Housing Authority owned some of the land dragged that project out for 18 months, Ferrell said.  He expects construction in both parks to start this spring.

“It was just learning as you go, the amount of time things take,” he said.

The only wetlands restoration effort near the Triangle has dragged on even longer.

In 1998, the agency announced its first effort to restore a swamp that had been ditched out of existence.  On a remote flood plain along the Neuse River in eastern Johnston County, workers would plug up a stream on the grounds of Johnston Community College’s Howell Woods Environmental Learning Center.  The water table would rise and reclaim the former farm field, which would be planted with bald cypress and other water-loving trees.

Four years later, no wetlands have been restored at Howell Woods.  Problems emerged with a decision to enlarge the project from 28 acres to 139 acres, wrangling with the college’s trustees and competition from a private wetlands company.  Ferrell said trees were planted and some water-control structures built in spring 2000, but he now predicts construction in the spring.

Finishing work at Howell Woods is more urgent than ever.  The agency wants the corps to count the Howell Woods site as a replacement for the wetlands lost around Goose Creek in Durham and other Piedmont sites, even though those sites are up to 50 miles away.

A guiding philosophy of the program is restoring landscape close to where degradation occurs.  But the agency doesn’t have a wetlands restoration project closer to the Triangle that could meet deadlines set by the corps.

“We had a requirement that we needed to meet,” Ferrell said.  “It doesn’t mean that we like it and we want to do that a lot.  We don’t.  We’re still in the process of trying to find something better suited to that particular impact.”

Problems kept under wraps

The Wetlands Restoration Program chose not to share its problems with its legislative overseers.  Instead, its annual reports to the legislative Environmental Review Commission have featured projections of success that have proved impossible to fulfill. Ferrell said his presentations to the commission didn’t dwell on troubles either.

“I don’t spend a lot of time talking about problems,” he said.  “Do I want to go to the General Assembly and make a big case out of, ‘We didn’t know what we were doing?’  ‘There are all these little pieces that cropped up.’  I’ve never felt like that was in my best interest.  I use the 15 minutes they give me to accentuate the positives of the program.”

Ferrell said he has revised his annual reports to avoid the “optimistic” schedules of past reports.

“All the information I’ve put in those reports are put in those reports with the best intentions…Things happen.  Things don’t get done in advance or on the time schedules we have.  But they’re not put in there with the intention of deceiving somebody that we’ve done more than we have.  Overly optimistic, particularly in the earlier years, there’s no doubt in my mind that that’s and accurate description.”

By last summer, however, the rosy projections couldn’t keep the problems from emerging into public view.

Program under Review

The May report from GAO, Congress’s investigative arm, raised questions about whether in-lieu fee programs such as the Wetlands Restoration Program were accomplishing anything.

When data collected from the corps showed the Wetlands Restoration Program had taken in $15 million without restoring any wetlands by the summer of 2000, U.S. Rep. Walter B. Jones, a Republican from Greenville, took notice.  He already was pushing a bill to improve the prospects of private companies that offered the same service.  He called the agency’s lack of progress “inexcusable” and “an environmental tragedy.”

In July 2001, Ferrell, Benton and two DOT officials traveled to Washington to do damage control.  They met with staff members of at least eight House and Senate lawmakers from North Carolina to tout the program’s virtues.

The program faced a more tangible threat in Raleigh.  Lawmakers scrounging for money to balance the budget noticed the wetlands agency’s bank account.  They took $3.4 million, part of the $9.2 million given to the agency on its founding in 1997 to reverse decades of swamp draining.

“My goal was to hold onto that money until we had done some of the planning activities that we had, where we could do some really good projects that could really send the message on what this program was all about,” Ferrell said.  “In that respect, I made a bad decision.  It’s a situation where you’re damned if you do and damned if you don’t.  I could have spent it easily, then somebody could ask me, ‘What did you get for it?’”

More money might be taken from the program in the near future.

“Seeing that amount of money in their bank accounts kind of raised my eyebrows,” Gibson said.  “Given that we cut programs and are probably going to cut even more…this kind of sticks out.”

He said he has drafted legislation that would create a pilot program to farm out wetlands mitigation to private companies.

But Ferrell and DOT officials are counseling patience.

“I’m confident that if we’re allowed to continue operating this program for another five years and hopefully a lot longer than that, then the value of what we’ve done will become apparent,” Ferrell said.  “Right now, it’s not.”

News researcher Susan Ebbs contributed to this report.  

Staff writer James Eli Shiffer can be reached at 836-5701 or

Private Companies Struggle to Compete with N.C Agency

A fledgling industry in North Carolina thinks its good business to restore swamps and creeks.  But the “wetland banking” companies complain that they can’t compete with the state’s own swamp builder, the N.C. Wetlands Restoration Program.

The main reason: The state agency doesn’t actually have to restore anything before it takes money from those who pay for destroying streams and wetlands.  By contrast, private entrepreneurs have to construct expensive engineering projects before they can make money from developers who want a piece of their swamp.  Then they can sell a specific number of acres each year if the government determines the environment has been improved.

George A. Howard is an entrepreneur who helped create the 618-acre Barra Farms wetland bank in Cumberland County four years ago.“To go in and compete with an entity that frankly doesn’t have to perform the work ahead of time is very difficult,” said Howard, now with a Raleigh-based company, Restoration Systems LLC.

That’s only one of the problems.   The wetlands program acknowledges that the $125-per-linear-foot it charges developers who damage streams isn’t enough to cover the cost of restoring them, so a profit-oriented wetlands bank can’t possibly match the price.

Wetlands Restoration Program representatives also sit on the Mitigation Banking Review Team, a board that has to approve any restoration projects by the programs private-sector competitors.

For that reason, many of the companies have given up trying to do business in parts of 11 watersheds.   Those are the areas in which the biggest buyer of wetlands and streams, the state Department of Transportation and the Wetlands Restoration Program, have signed an agreement that the bankers say gives the wetlands agency a virtual monopoly on DOT business. Ronald E. Ferrell, manager of the Wetlands Restoration Program, said that the arrangement is fair because government has more accountability than business.

“The reality is that the state of North Carolina and the Department of Environment and Natural Resources stand behind this program and are committed to making it work,” Ferrell said.“With the private sector, you don’t have that assurance. What’s going to keep the private banker from walking away from this project?”

Over the past several months, DOT has insisted that it wants to do business with private companies as well as the Wetlands Restoration Program.  On Jan. 9, the state Board of Transportation’s safety and emerging issues committee invited the N.C. Environmental Restoration Association, the trade group of wetlands bankers, to air its gripes.

The board asked DOT staff to investigate the concerns and issue a report within 90 days.  Roger Sheats, DOT’s deputy secretary for environment, planning and local government affairs, said his agency has made overtures to private mitigation bankers.  “No mitigation options are off the table with DOT.”

Staff writer James Eli Shiffer can be reached at 836-5701

Deadbeat Dams-Perhaps it’s Time to Pull the Plug

Most people who think of dams envision strapping big boys: Hoover, Glen Canyon, Grand Coulee, or Three Gorges in China. Asked how many dams are in the United States, people typically guess eight or nine hundred. In fact, America’s rivers contain 79,000 high-hazard dams the size of a two-story building; another estimated two million smaller dams clog upstream tributaries. Worldwide, there are ten times more dams than in the United States, most of them in China and India.

That’s a lot of dams and they’re not getting any younger or healthier. Dams in the United States have an average life span of 50 years, according to the American Society of Civil Engineers, and by the year 2020 some 85 percent of them will have outlived their ‘natural’ existence.

Perhaps it’s time to pull the plug.


What have I got against dams? Nothing, personally. But antiquated dams have a lot going against them: seismic shifts shake them from below; compound water pressures scour them from behind; sediment fills reservoirs; evaporation drinks more than people; invasive species choke intake and out flow; and a fast-changing climate brings drought and then flooding on scales for which they were never designed.

Not surprisingly, some dams can no longer serve the purpose for which they were originally built—to help turn mills, transport barges, irrigate crops, store drinking water, generate power, manage floods, and provide recreation. All dams created economic benefits at some point, and many still do. Unfortunately, most benefits have diminished with time and with competition. Stone mills are now shopping malls; canals are freeways; and farms are subdivisions.

More irrigators now pump groundwater than tap dam reservoirs. Water is far more securely stored in cool, clean aquifers than on hot, polluted surfaces. Cleaner power comes from wind, sun, geothermal or wave energy than from warm, stagnant, shallow dams filled with rotting vegetation. More lucrative recreation splashes from whitewater than from flat ponds. As one recent survey found, residential property values rose overnight after a liberated current transformed lakefront lots into riverfront property.

All of which remind us of dams’ mortality. As dams age they have physical weaknesses, cracks and leaks that require frequent and expensive care to keep them active or simply alive. To be sure, some dams may cheat death or prolong activity via private investments or public subsidies for facelifts. But despite lobbying and D-grade warnings by engineers, taxpayers have so far kept a tight fist. With interest earnings higher elsewhere, and with safety compliance costs escalating, the number of obsolete, orphaned, or “deadbeat” dams has risen; today 15 percent of America’s National Inventory of Dams are classified as being of “indeterminate ownership.”



In economic terms, I began to see it this way: Dams are bonds, no to be mistaken for trust deed & pensions. Bonds once generated strong yields and high-grade investment ratings but have deteriorated to the status of junk—personal, legal, and financial fixed liabilities. Junk bonds that cannot compete in the current marketplace will be liquidated.

So what I’m betting my personal savings on is that when faced with a hefty price tag for fixing what has become a public nuisance, dam owners—whether a farmer or a county executive—will logically seek a more affordable exit strategy.

With half a dozen colleagues at PERC, I began to develop a business plan for dam removal. It focuses less on structural removal, which is straightforward, and more on whom might finance it, which is trickier. Though dam removal has proven to be roughly one-third the price of repair, it is never cheap. On the Baraboo River in Wisconsin, for example, a dam’s repair was pegged at $694,000; removal cost locals $214,000.In Wisconsin, as elsewhere, removal funds come from the generous purses of foundations, environmental groups, and taxpayers trying to make the world a better place.

That’s fine. But in my experience, these sources of funding can prove sporadic and slow, with hidden strings attached. To lower transaction costs, I have begun to pursue the more reliable dark side of dam removal financing—to raise additional funds from the so-called evildoers. These are the economic interests that lead public and private institutions to build roads, pave parking lots, develop golfcourses, add pesticides, cut forests, degrade watersheds, emit pollutants and, ironically, dam more rivers.

How and why would dam builders or freeway pavers fund dam removal? Here’s where it gets interesting. Before business interests start any development, they must by law complete an environmental impact assessment to show how their action will result in no net loss for the public or the environment. For every acre of wetland that developers drain, for example, they need to restore two acres of wet-lands somewhere else. Similarly, emissions from new coal burning operations must be offset by reductions in emissions elsewhere.

The quantification of damage should be transparent in the environmental impact assessment; and the corrective offsetting proof comes as a credit. Until a credit is approved by government, the development sits on hold, driving up project costs by millions. Non-compliance leaves business interests liable for additional hefty punitive lawsuits, bankruptcy, or foreclosure.

To avoid these before-or-after costs, businesses seek out credits generated by third-party projects for environmental services in advance of their proposed development—and pay handsomely for them. A lucrative national market is emerging for those credits in many areas of the environment such as endangered species habitat conservation, wetlands mitigation banking, emissions trading, and water quality trading credits. Demand for these credits, however, currently outstrips supply because it is hard to manufacture a functional artificial wetland (or carbon sink, or fish habitat) where nature never intended one in the first place.

It is easier to re-create healthy wetlands, fresh air, and spawning grounds where they thrived during the pre-dam millennia. In short, the average obsolete dam may be worth far more broken up than left intact; the sum of its removed parts are worth more than the integrated whole. Busting the dam could release a net gain in legitimate, measurable economic value, which can be brought to market and sold to willing buyers.


How realistic is this approach? It’s early, but variations of the business model have been tested before. Consider several cases around the country:

  • In North and South Carolina, two innovative restoration engineers [referring to George Howard and John Preyer, although RS is not an engineering firm] who qualified for wetlands credits have begun to make money off dam removal for their restoration and wetlands mitigation business .
  • When the Federal Energy Regulatory Commission required the removal of Edwards Dam in Augusta, Maine on the Kennebec River, the cost of removal was financed in large part by upstream industrial interests as part of their mitigation for environmental compliance. .
  • In northern Wisconsin, the regional power company bought and removed two weak dams in exchange for a 25-year operating license to operate three healthier ones on the same watershed. .
  • Funds generated by the Bonneville Power Administration for the Columbia River Basin in Oregon are being used to pay for dam removals on its tributaries. .

I wish I could say my idea is original. In truth I’m just following established models.

When I recently described this concept to one of my finance friends, a former investment banker, he likened my venture to that of Michael Milken, the “junk bond king” who, in the 1980s, brought discipline to a neglected financial field that had grown soft and complacent. Buying and breaking up unproductive firms, his predatory approach, like mine to obsolete dams, erased dysfunctional inventory. Conversely, ‘bonds’ that remain grow progressively stronger, tighter, healthier and more vigorous through the process. Deadbeat dams can once again become lucrative assets.

For the last decade JAMES G. WORKMAN has helped: U.S. Interior Secretary Bruce Babbitt pioneer consensus-based dam removal; Nelson Mandela articulate the landmark World Commission on Dams; and the government of Karnataka, India reverse its destructive spiral of groundwater over-pumping. He can be reached at

By James G. Workman