The Metropolitan Water District must complete an environmental impact report before creating a mitigation bank that MWD and private developers would use to offset building on habitat for endangered species, the Fourth District Court of Appeals has ruled. The ruling reverses a trial court judge's decision that allowed plans for the multiple species reserve in western Riverside County to go forward with only a mitigated negative declaration. The appellate court backed San Bernardino Valley Audubon Society's contention that, under the California Environmental Quality Act, a fair argument could be made that the project will have significant effects on endangered, threatened and other plant and animal species, and, therefore, an EIR was required. "The fair argument is not speculative or hypothetical because the documents themselves allow for these possibilities. Thus, there is substantial evidence in the record that these potentially significant effects may occur," Justice Thomas E. Hollenhorst wrote for the unanimous three-judge court. The court was especially troubled that the Lake Mathews Habitat Conservation Plan and Natural Community Conservation Plan provided a "blank check" for Southern California developers wanting to build on habitat for endangered species. However, Chris Beale, a Department of Fish & Game attorney, downplayed the ruling's impact on mitigation banks. "We have always maintained you would have to do appropriate CEQA review of subsequent projects," he said. The ruling means that officials must ensure mitigation bank agreements make clear that CEQA review is still necessary for projects that would use the mitigation bank, and that mitigation credits are determined on a case-by-case basis. There was no intention for the HCP and NCCP to authorize "incidental take" permits, as the Audubon Society implied, he said. The Metropolitan Water District, U.S. Fish & Wildlife Service, the state DFG and the Riverside County Habitat Conservation Agency prepared the Lake Mathews Multiple Species Habitat Conservation Plan and Natural Community Conservation Plan for 6,000 acres owned by MWD around Lake Mathews. The plan creates a 5,110-acre multi-species reserve around the lake. The plan also would serve as a basis for incidental take permits for six endangered species and 59 target species under the Endangered Species Act, according to the court. The reserve would act as a mitigation bank for MWD. The plan further estimates that MWD would not need about 650 acres of the reserve, so it could sell the mitigation credits to private developers from all over Southern California. The Audubon Society filed a petition for writ of mandate to compel the agencies to prepare an environmental impact report. Riverside County Temporary Superior Court Judge Gloria Trask ruled that the mitigated negative declaration was adequate. The Audubon Society appealed. At the appellate court level, the public agencies contended this is not a development project; rather it is a "conservation program [that] will not cause any unmitigated environmental impacts itself, but merely provides a mechanism whereby biological mitigation can be implemented for any future projects …." They contended the plan, which contained a lengthy biological report describing the plant and animal species in the proposed mitigation bank, will be good for endangered and threatened species. The Audubon Society, however, argued that the plan would allow MWD and private developers buying into the bank to wipe out endangered and threatened species during the course of future construction — without additional public review — for 50 years. The public agencies pointed to the plan's four "effect-minimizing" measures, which would extend to off-site projects. The first measure gives the California Department of Fish & Game 10 days notice if a listed plant species is present at a construction site and gives DFG access to salvage plants or collect seeds. A second measure calls for avoiding the habitat of threatened birds during breeding season. Thirdly, use of pesticides that could harm listed species would be "avoided and minimized." Finally, construction near the multi-species reserve would be monitored. The court found a variety of different ways in which a fair argument could be made that the project would have unmitigated environmental effects. "First, Audubon could fairly argue that the provisions allowing the mitigation bank to be used as mitigation for take on other projects throughout Southern California essentially gives developers a blank check to disregard endangered and threatened species on the projects, so long as they utilize the mitigation bank. Such provisions greatly expand the scope of the project," Justice Hollenhorst wrote. The court found no proof that the effect-minimizing measures would work. Furthermore, the plan would allow MWD and developers to offset actual destruction of endangered species with potential habitat. "Thus, for example, an animal with limited range, such as the western spadefoot toad, would be taken in an outside project and the mitigation bank would provide mitigation for the take merely because it is potentially suitable habitat, not because any toads actually live there," the court said. The plan's habitat value formula troubled the court. The complex formula did not call for the acre-for-acre and species-for-species mitigation usually required. Instead, it allowed an acre to be used as mitigation multiple times if it contained multiple species. The court said this "apparently novel idea" was a "compression of habitat that could have a significant effect." Finally, the court said cumulative impacts could be substantial. The case: San Bernardino Valley Audubon Society v. Metropolitan Water District of Southern California, No. E021361, 99 C.D.O.S. 2724. The lawyers: For the Audubon Society: Kate Neiswender, (805) 639-0035. For MWD: William S. Abbey, deputy attorney general, (213) 897-2604, and Gene Tanaka, Best, Best & Krieger, (909) 686-1450.