Fla. Admin. Code Ann. R. 62-342.700 - Financial Responsibility

(1) To provide reasonable assurances that the proposed Mitigation Bank will meet the requirements of section 373.4136, F.S., this rule and the associated permit conditions, non-governmental bankers shall provide proof of financial responsibility for:

(a) the construction and implementation of the bank, and

(b) the perpetual management of the bank, as required in this section. Governmental entities shall provide proof of financial responsibility under subsection 62-342.700(15), F.A.C. The amount of financial responsibility provided in the mechanisms required in this rule shall be based on the cost estimates determined under subsection 62-342.700(13), F.A.C.

(2) Submitting Financial Responsibility Documentation. The applicant shall provide draft documentation of the cost estimate and required financial responsibility mechanisms described in subsections 62-342.700(5) through (11) and 62-342.700(13), F.A.C., with the permit application, and shall submit to the Agency the executed or finalized documentation within the time frames specified in the permit. The provisions of this section shall also apply to any modifications to the Mitigation Bank Permit.

(3) General Terms for Financial Responsibility Mechanisms. In addition to the specific provisions regarding financial responsibility mechanisms for construction and implementation in subsection 62-342.700(4), F.A.C., and perpetual management in subsection 62-342.700(12), F.A.C., the following terms shall be complied with:

(a) The financial responsibility mechanisms shall be payable at the direction of the Agency to its designee or to a standby trust or standby escrow. The financial responsibility mechanism shall be retained by the Agency if it is of a type which is retained by the beneficiary according to industry standards.

(b) Demonstration of financial responsibility shall be continuous until complete satisfaction of the applicable permit conditions and approved release of financial responsibility by the Agency.

(c) Collectively, the financial responsibility mechanisms must guarantee that the banker will perform all of its obligations under the permit. Within 90 days after receipt by both the banker and the Agency of a notice of cancellation or termination of a financial responsibility mechanism, the banker shall establish a financial responsibility mechanism that meets the criteria of this rule, subject to the Agency's written approval.

(d) A banker may satisfy the requirements of this section by establishing more than one acceptable financial responsibility mechanism per Mitigation Bank. Whenever more than one mechanism is used, the banker shall identify the specific financial responsibility mechanism for each individual activity on the cost estimate as required under subsection 62-342.700(13), F.A.C.

(e) A banker may use a financial responsibility mechanism allowed under this section for more than one Mitigation Bank. The amount of funds available through the mechanism must be no less than the sum of funds that would be required for separate mechanisms for each Mitigation Bank.

(f) A banker must notify the Agency by certified mail within 10 days after the commencement of a voluntary or involuntary proceeding:

1. To dissolve the banker;

2. To place the banker in receivership;

3. For entry of an order for relief against the banker under Title 11 of the United States Code; or

4. A general assignment of its assets for the benefit of creditors under chapter 727, F.S.

A banker will be without the required financial assurance in the event of the suspension or revocation of the authority of any trustee to act as trustee, or in the event of a bankruptcy or receivership of the issuing institution of a financial responsibility mechanism, or the revocation of the authority of such institution to issue such instruments. The banker must notify the Agency within 10 days, and establish other financial assurance within 60 days after such an event.

(4) Financial Responsibility for Construction and Implementation.

(a) No financial responsibility shall be required where the construction and implementation of the Mitigation Bank, or a phase thereof, is completed and successful, as determined by the Agency pursuant to the final success criteria in the Permit, prior to the withdrawal of any credits.

(b) Financial responsibility for the construction and implementation activities of the Mitigation Bank, or each phase thereof, may be established by surety bonds, performance bonds, irrevocable letters of credit, insurance policies, escrow accounts, or trust funds, as described below.

(c) The amount of financial responsibility established shall equal 110 percent of the cost of construction and implementation of the Mitigation Bank, or each phase thereof, in accordance with subsection 62-342.700(13), F.A.C., and as adjusted in accordance with subsection 62-342.700(14), F.A.C., during the course of the project. When the bank has been completely constructed, implemented, and is trending toward success in compliance with the permit, the respective amount of financial responsibility shall be released.

(d) The financial responsibility mechanism shall become effective prior to the release of any mitigation credits.

(5) Surety or Performance Bond.

(a) A banker may satisfy the requirements of subsection 62-342.700(1), F.A.C., by obtaining a surety or performance bond that conforms to the requirements of this subsection. The company issuing the bond must be authorized to do business in Florida. The company must also be among those listed as acceptable sureties in the latest Circular 570 of the U.S. Department of the Treasury (July 1, 2017), which is incorporated by reference herein and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09504, or a Florida-domiciled surety or insurance company with at least an A- rating from the A.M. Best and authorized to write individual bonds up to 10 percent of the policyholder's surplus. The banker shall provide documentation evidencing that the bond company meets these requirements.

(b) The surety or performance bond shall be worded in substantial conformance with Form 62-342.700(5), "Mitigation Bank Performance Bond to Demonstrate (Construction and Implementation or Perpetual Management) Financial Assurance" (June 12, 2018), which is incorporated by reference herein and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09498. This form and all the forms incorporated in rule 62-342.700, F.A.C., also are available from the Department of Environmental Protection's Internet site, https://floridadep.gov/water/submerged-lands-environmental-resources-coordination/content/forms-environmental-resource; or by contacting the Division of Water Resource Management, Department of Environmental Protection, 2600 Blair Stone Road, MS #2500, Tallahassee, Florida 32399-2400, (850)245-8336. Deviations from the form shall be identified and submitted to the Agency.

(c) Under the terms of the bond, the surety shall become liable on the bond obligation when the mitigation banker fails to perform under the terms of the Mitigation Bank Permit. In all cases, the surety's liability shall be limited to the sum stated in the bond.

(d) The mitigation banker who uses a surety or performance bond to satisfy the requirements of subsection 62-342.700(4), F.A.C., must establish a standby escrow or standby trust fund when the surety or performance bond is acquired. Under the terms of the bond, all amounts paid by the surety under the bond will be deposited directly into the standby escrow or standby trust fund for distribution by the agent or trustee in accordance with the Agency's instructions. The standby escrow agreement and standby trust fund agreement must meet the requirements specified in subsections 62-342.700(9) and 62-342.700(10), F.A.C., respectively.

(e) The bonding company shall provide notice of cancellation of a bond by certified mail to the banker and to the Agency. Cancellation may not occur, however, during the 120 days beginning on the date of receipt of the notice of cancellation by both the banker and the Agency, as evidenced by the return receipt.

(f) A bond may be canceled by the banker if the Agency has given prior written consent. The Agency shall provide such consent when either the banker substitutes alternative financial assurance allowed under this rule and such alternate financial assurance is approved by the Agency and is effective or the Agency approves release of financial assurance in accordance with paragraph 62-342.700(4)(c), F.A.C.

(6) Irrevocable Letter of Credit.

(a) A mitigation banker may satisfy the requirements of subsection 62-342.700(1), F.A.C., by obtaining an irrevocable letter of credit that conforms to the requirements of this subsection. The irrevocable letter of credit shall be provided by a federally insured depository that is "well capitalized" or "adequately capitalized" as defined in Section 38 of the Federal Deposit Insurance Act [12 USC 1831o(b)], incorporated by reference herein and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09505. The banker shall submit documentation evidencing that the federally insured depository is appropriately capitalized.

(b) The irrevocable letter of credit shall be worded in substantial conformance with Form 62-342.700(6), "Mitigation Bank Irrevocable Letter of Credit to Demonstrate (Construction and Implementation or Perpetual Management) Financial Assurance" (June 12, 2018) [available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09499, and as described in paragraph (5)(b), above], incorporated by reference herein. Deviations from the form shall be identified and submitted to the Agency.

(c) A mitigation banker who uses an irrevocable letter of credit to satisfy the requirements of subsection 62-342.700(4), F.A.C., must also establish a standby escrow or standby trust fund when the irrevocable letter of credit is acquired. Under the terms of the irrevocable letter of credit, all amounts paid pursuant to a sight draft by the Agency will be deposited by the issuing institution directly into the standby escrow or standby trust fund to be distributed by the agent or trustee in accordance with instructions from the Agency. This standby trust fund must meet the requirements specified in subsections 62-342.700(9) and 62-342.700(10), F.A.C., respectively.

(d) Letters of credit must be irrevocable and issued for a period of at least one year, and the expiration date must be automatically extended for a period of at least one year unless, at least 120 days prior to the expiration date, the issuing institution notifies both the banker and the Agency by certified mail of a decision not to extend the expiration date. The terms of the irrevocable letter of credit must provide that the 120 days begins on the date when both the banker and the Agency have received the notice, as evidenced by the return receipts.

(7) Insurance Policy.

(a) A mitigation banker may satisfy the requirements of subsection 62-342.700(1), F.A.C., for construction and implementation activities by obtaining an insurance policy that conforms to the requirements of this subsection. The insurance policy shall be provided by an insurance company that is authorized to transact insurance in the State of Florida and has at least an A- rating from the A.M. Best. The banker shall provide documentation to the Agency evidencing that the insurance company meets these requirements.

(b) The insurance policy must be worded in substantial conformance to Form 62-342.700(7), "Mitgation Bank Insurance Coverage Form" (June 12, 2018), incorporated by reference herein [available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09500 and as described in paragraph (5)(b), above]. Deviations from the form to meet insurance company documentary requirements must satisfy all criteria listed on the "Mitigation Bank Insurance Coverage Form" and be identified and submitted to the Agency.

(c) The insurance policy must be issued for a period of no less than one year beyond the anticipated completion and success of the mitigation bank, or the last success criterion insured, which ever occurs first based on the construction and implementation schedule in the mitigation bank permit.

(d) The insurance policy must be non-cancellable for the term of the policy. The insurance policy shall include a provision to notify the Agency and banker by certified mail at least 120 days prior to the termination of the policy, nonrenewal of the policy, or a change to the terms and conditions of the policy. The insurance policy must automatically renew for the same terms and conditions of the policy unless the insurance company provides notice of nonrenewal to the banker and the Agency as required in this subsection.

(e) Under the terms of the insurance policy, the Agency must have the authority to file claims when the banker either fails to perform under the terms of the mitigation bank permit, as determined solely by the Agency, or fails to replace the insurance policy with an alternative financial responsibilty mechanism prior to the termination of the insurance policy. The insurance policy must afford the Agency with the sole authority to determine whether the action taken or proposed to be taken by the insurance company is sufficient to satisfy a claim made by the Agency. A claim is satisfied when the amount received by the Agency is greater than or equal to the most recent approved cost estimate or adjustment in accordance with subsections 62-342.700(13) and 62-342.700(14), F.A.C., respectively, and the bank is in compliance with the terms of the permit.

(f) The mitigation banker who uses an insurance policy to satisfy the requirements of subsection 62-342.700(4), F.A.C., must establish a standby escrow or standby trust fund when the insurance policy is acquired. Under the terms of the insurance policy, all amounts paid by the insurance company in satisfaction of a claim will be deposited directly into the standby escrow or standby trust fund for distribution by the agent or trustee in accordance with the Agency's instructions.

(g) The declaration's page of the insurance policy shall include all of the following items:

1. Insured location - the bank address;

2. Mitigation bank permit number;

3. Insurer's claim's notice address;

4. Regulatory entities and addresses, to include the U.S. Army Corps of Engineers;

5. Surplus line agent - name, address, license number;

6. Producing agent's name, address, and other contact information;

7. Insured's name, address, and other contact information;

8. Policy premium;

9. Limit of liability;

10. Policy inception and expiration dates;

11. Service fee;

12. Premium receipts tax; and

13. Deductible amount.

(8) Escrow.

(a) A mitigation banker may satisfy the requirements of subsection 62-342.700(1), F.A.C., by a deposit of cash into an interest-bearing escrow account with the Florida Department of Financial Services.

(b) The escrow agreement must be worded in substantial conformance to Form 62-342.700(8), "Escrow (Standby Escrow) Agreement" (June 12, 2018), incorporated by reference herein [available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09503 and as described in paragraph (5)(b), above]. Deviations from the form must be identified and submitted to the Agency.

(c) The escrow agreement must be irrevocable until the Agency approves release of financial security in accordance with paragraph 62-342.700(4)(c), F.A.C., and authorizes a final payout.

(9) Standby Escrow.

(a) A mitigation banker using a surety or performance bond, irrevocable letter of credit, or insurance policy shall contemporaneously establish either a standby escrow with the Florida Department of Financial Services meeting the requirements of this subsection or a standby trust fund under subsection 62-342.700(10), F.A.C.

(b) The standby escrow agreement shall be worded in substantial conformance with Form 62-342.700(8), F.A.C., incorporated by reference in paragraph 62-342.700(8)(b), F.A.C., except that the agreement will identify that it is establishing a standby escrow account. Deviations from the form must be identified and submitted to the Agency.

(c) The standby escrow agreement must be irrevocable until the Agency determines that it is no longer required.

(10) Standby Trust Fund.

(a) A mitigation banker using a surety or performance bond, irrevocable letter of credit, or insurance policy shall contemporaneously establish either a standby trust fund meeting the requirements of this subsection or a standby escrow under subsection 62-342.700(9), F.A.C. The trustee of the standby trust shall be an entity that has the authority to act as a trustee and whose trust operations are regulated and examined by a federal agency or an agency of the State of Florida. The banker shall provide documentation evidencing such regulation and examination to the Agency.

(b) The standby trust agreement shall be worded in substantial conformance with Form 62-342.700(10), "Mitigation Bank Standby Trust Fund Agreement to Demonstrate (Construction and Implementation or Perpetual Management) Financial Assurance" (June 12, 2018) [available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09502 and as described in paragraph (5)(b), above], incorporated by reference herein. Deviations from the form shall be identified and submitted to the Agency. This form and Form 62-342.700(11), incorporated in subsection 62-342.700(11), F.A.C., references the Investment Company Act of 1940, as amended, 15 U.S.C. 80a-1 et seq. (February 19, 2015), which is incorporated by reference herein and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-05064 and as described in paragraph (5)(b), above. A copy of the Act may also be obtained by contacting the Division of Water Resource Management, Department of Environmental Protection, 2600 Blair Stone Road, MS #2500, Tallahassee, Florida 32399-2400, (850)245-8336.

(11) Trust Fund.

(a) A mitigation banker may satisfy the requirements of subsection 62-342.700(1), F.A.C., by establishing a trust fund that conforms to the requirements of this section. The trustee of the trust fund shall be an entity that has the authority to act as a trustee and whose trust operations are regulated and examined by a federal agency or an agency of the State of Florida. The banker shall provide documentation evidencing proof of such regulation and examination to the Agency.

(b) The trust fund agreement must be worded in substantial conformance to Form 62-342.700(11), "Mitigation Bank Trust Fund Agreement to Demonstrate (Construction and Implementation or Perpetual Management) Financial Assurance" (June 12, 2018) [available at http://www.flrules.org/Gateway/reference.asp?No=Ref-09501 and as described in paragraph (5)(b), above], incorporated by reference herein. Deviations from the form shall be identified and submitted to the Agency.

(12) Financial Responsibility for Perpetual Management.

(a) A banker shall establish financial assurance for the perpetual management of the Mitigation Bank, or phase thereof, using the financial responsibility mechanisms described in subsections 62-342.700(5) through 62-342.700(11), F.A.C., except that an insurance policy under subsection 62-342.700(7), F.A.C., may not be used. When an escrow agreement or trust fund is used, the requirements of subsections 62-342.700(8) and 62-342.700(11), F.A.C., respectively, must be met and all references to perpetual management in Forms 62-342.700(8) and 62-342.700(11) shall be selected. When a surety bond, performance bond, guarantee bond, or irrevocable letter of credit is used, a standby trust fund agreement must be established by the banker, and the requirements of subsections 62-342.700(5), 62-342.700(6), 62-342.700(9) and 62-342.700(10), F.A.C., respectively, must be met, and all references to perpetual management in Forms 62-342.700(8) and 62-342.700(11) shall be selected.

(b) The amount of financial responsibility provided shall be sufficient to be reasonably expected to generate annual revenue equal to the annual cost of perpetual management, established under subsection 62-342.700(13), F.A.C., at an assumed average rate of return of six percent per annum, for the bank, or for banks constructed in phases, for all phases for which credits have been released.

(c) The financial responsibility mechanism must be in effect prior to the withdrawal of credits from the Mitigation Bank, or applicable phase thereof.

(13) Cost estimates.

(a) For the purposes of determining the amount of financial responsibility that is required in this section, the banker shall submit a detailed written estimate, in current dollars, of the total cost of construction and implementation and of the cost of perpetual management of the Mitigation Bank. The written cost estimate shall be certified by a licensed professional whose license authority in the State of Florida includes the ability to provide such estimates.

(b) The cost estimate for construction and implementation shall include all costs associated with completing construction and implementation of the Mitigation Bank, or phase thereof, including, as applicable, earthmoving, planting, exotic/nuisance vegetation removal, prescribed fire, land surveying, structure installation, consultant fees, taxes, monitoring activities and reports.

(c) The cost estimate for the perpetual management of the Mitigation Bank shall be based on the costs of maintaining and operating any structures, controlling nuisance or exotic species, fire management, consultant fees, monitoring activities and reports, taxes, and any other costs associated with perpetual management. The amount of financial responsibility shall equal the cost of perpetual management for the bank, or, for banks constructed in phases for all phases for which credits have been released.

(d) The banker shall submit written cost estimates with verifiable basis for the estimates to the Agency along with the financial responsibility mechanism. If more than one financial responsibility mechanism is proposed for the construction and implementation or for perpetual management, the cost estimate shall specify the appropriate mechanism for each itemized cost.

(e) The costs shall be estimated based on a third party performing the work at the fair market value of services. The source of any cost estimates shall be indicated.

(14) Cost adjustments.

(a) Every two years, the banker shall undertake an estimate of the costs of the remaining construction and implementation, and perpetual management. The banker shall submit the estimate to the Agency in writing certified by a person licensed in the State of Florida to provide such estimates, accompanied by supporting documentation. Construction, implementation activity costs, and perpetual management costs shall be listed separately. The Agency shall review the cost adjustment statement and supporting documentation to determine if they reflect all construction, implementation costs and perpetual management costs. If the cost adjustment statement and supporting documentation accurately reflect a good faith estimate of all construction, implementation costs and perpetual management costs, the Agency shall approve the cost adjustment statement.

(b) At each cost adjustment, the banker shall revise the construction, implementation, and perpetual management cost estimate for inflation and changes in the costs to complete or undertake the current phase of the Mitigation Bank or appropriate phase thereof in accordance with subsection 62-342.700(13), F.A.C.

(c) Revised cost estimates shall be used as the basis for modifying the financial responsibility mechanisms. If the value of any financial responsibility mechanism is less than the total amount of the current construction and implementation and perpetual management cost estimates, the banker shall, upon Agency approval of the cost adjustment statement, increase the value of the financial mechanism to reflect the new estimate within 60 days. If the value of any funding mechanism is greater than the total amount of the current cost estimate, the banker may reduce the value of the funding mechanism to reflect the new estimate upon receiving Agency approval of the cost adjustment statement.

(d) The Agency shall require adjustment of the amount of financial responsibility provided for construction, implementation and perpetual management at times other than the cost adjustment period when the estimated costs associated with compliance with the permit conditions exceed the current amount of financial responsibility and such financial assurances are deemed necessary to ensure compliance with the permit conditions.

(e) The banker may provide revised cost estimates more frequently than every two years. If at any time the banker learns that actual costs exceed estimated costs by more than 25 percent, the banker shall provide a revised cost estimate and adjust the corresponding amount of financial responsibility under this rule.

(15) Financial Responsibility for Governmental, Non-Department and Non-Water Management District, Mitigation Banks.

(a) A governmental entity other than the Department or Districts shall demonstrate reasonable assurances that it can meet the construction and implementation requirements in the Mitigation Bank Permit by any of the mechanisms in subsection 62-342.700(4), F.A.C., above, or by other financial mechanisms which are sufficient to meet the requirements of this section.

(b) Governmental entities other than the Department or Districts shall establish a trust fund for the perpetual management of the Mitigation Bank which meets the requirements of subsection 62-342.700(11), F.A.C., above. The trust fund for perpetual management may be funded as Mitigation Credits are withdrawn, provided that the trust fund is fully funded when all Mitigation Credits are withdrawn. Governmental entities shall comply with the cost adjustment provisions in subsection 62-342.700(14), F.A.C.

Notes

Fla. Admin. Code Ann. R. 62-342.700

Rulemaking Authority 373.4131, 373.4135(1), 373.4136(11) FS. Law Implemented 373.4131, 373.4135, 373.4136, 403.0877 FS.

New 2-2-94, Formerly 17-342.700, Amended 12-12-94, 9-12-95, 5-21-01, Amended by Florida Register Volume 41, Number 022, February 3, effective 2/19/2015, Amended by Florida Register Volume 44, Number 105, May 30, 2018 effective 6/12/2018.

New 2-2-94, Formerly 17-342.700, Amended 12-12-94, 9-12-95, 5-21-01, 2-19-15, 6-12-18.