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Should Federal Wetlands Regulation Give Way to State and Private Initiatives?

Environmental Law & Property Rights Practice Group Newsletter - Volume 3, Issue 2, Summer 1999
By Jonathan H. Adler
October 01, 1999

It is hard for many to believe that Maryland developer James J. Wilson could be an environmental criminal. Wilson is characterized in the press as a "conscientious, environmentally sensitive" developer. His planned communities are known for their parks, scenic trails, and open space. St. Charles, one of Wilson's most recent developments in Charles County, Maryland, provided for 75 acres of wetland preservation, in addition to housing for several thousand families. "In my experience with developers all over America, I have met few who have as much concern for the environment as James Wilson," land-use consultant James Parker told the Baltimore Sun.

The federal government, however, has taken a less charitable view of Wilson's development in Charles County. According to U.S. attorney Lynne Battaglia, Wilson "wantonly destroy[ed]" several dozen acres of wetlands that were "very critical to the continued health of the Potomac River watershed and the Chesapeake Bay." In 1995, the Justice Department indicted Wilson and his company, Interstate General Co. ("IGC") for depositing fill material in the "waters of the United States" without a federal permit, in violation of Section 404 of the Clean Water Act. One year later, Wilson was sentenced to 21 months in federal prison and fined $1 million. The court fined Wilson's company, IGC, an additional $3 million.

Wilson appealed his conviction, alleging that the federal government had no jurisdiction over his development. Wilson's attorneys maintained that no unacceptable threat to the Chesapeake was posed because Wilson's development was several hundred yards from the nearest creeks and miles from any of the Chesapeake Bay's tributaries. Although parts of the St. Charles development had wetland characteristics, including hydrologic soils and hydrophytic plants, there is no clear connection between the land at St. Charles and the "waters of the United States," as protected by Section 404 of the Clean Water Act. Without such a connection, the federal government has no basis for regulating Wilson's development. Federal authority over the "waters of the United States" stems from Congress's constitutional power to regulate "commerce among the several states." It is a stretch to interpret this grant of authority as the justification for regulating almost every slightly wet spot of land in the country. Because the Army Corps of Engineers' regulations define "`waters of the United States' to include intrastate waters that need have nothing to do with navigable or interstate waters," the Fourth Circuit Court of Appeals invalidated the rules and overturned Wilson's conviction.2

And Wilson's is not the only successful challenge to the federal government's regulatory authority over wetlands. Last year, the National Mining Association successfully challenged the so-called "Tulloch Rule," which prohibited the dredging of wetlands.3 The D.C. Circuit found that the rule, which the Corps had promulgated in 1993 as part of a consent decree, exceeded the agency's authority to regulate the filling of wetlands under the Clean Water Act. The Corps, backed by environmental groups, argued that it is impossible to dredge or excavate a wetland without trace amounts of material falling back into the wetland. This was too much for the court, as a law prohibiting the addition of dredge or fill material could not very well prohibit the removal of material. In the court's words, "Congress could not have contemplated that the attempted removal of 100 tons of [dredged material] could constitute an addition simply because only 99 tons of it were actually taken away."4

To top it off, landowners are beginning to win some takings cases based on wetlands regulations against the federal government. In several recent cases, landowners who had been denied the right to develop private land because of a federal wetlands designation successfully sued for compensation from the federal government under the Fifth Amendment's takings clause. More such takings suits are in the works, as is litigation to expand the Wilson ruling to ensure that it is enforced.

The recent string of court losses in this area have been a shock to federal regulators and much of the environmental community. Environmentalists fear that a restriction of federal regulatory authority over wetlands will lead to environmental ruin. Natural Resources Defense Council attorney Drew Caputo claims that court-imposed limitations on federal authority will be a "really bad thing for wetlands." In a similar vein, Howard Fox of the Earth Justice Legal Defense Fund (formerly known as the Sierra Club Legal Defense Fund) warns that without regulation by the EPA and the Corps, wetlands will be at the mercy of greedy developers. "To kick this back to the states opens up a bidding war to attract industry by lowering water pollution standards," Fox told the Washington Post. The invalidation of the Tulloch rule was likewise lamented as creating new opportunities for environmental destruction.

The conventional wisdom certainly holds that federal regulation is necessary because state efforts and nonregulatory initiatives are insufficient to safeguard environmental values. By that view, competitive pressures will trigger a "race to the bottom" preventing states from enacting costly wetland protection programs, and only proscriptive land-use controls can ensure that wetlands are conserved. The view is facially plausible, and is akin to that which justifies most federal environmental programs, but it is misinformed on a more fundamental level.

The history of wetland conservation efforts suggests that states were hardly the environmental laggards that many suppose. Not only did many states begin to enact wetland protections before the federal government, but states continue to develop new approaches to wetland conservation even as the federal program atrophies. Moreover, there are substantial nonregulatory conservation efforts. Indeed, it is quite likely that such programs are restoring sufficient wetland acreage that America has achieved "no net loss" of wetlands.

Taken together, state programs, nonregulatory federal programs, and private conservation efforts appear quite capable of filling the gap left by receding federal regulation. New limitations on federal wetlands regulation do not necessarily mean the end of effective wetlands protection.

The Beginnings of Federal Intervention

For years, the federal government enacted policies to eliminate wetlands. The Swampland Acts of 1849, 1850, and 1860, for example, transferred to states tens of millions of acres of wetlands to be drained for agricultural purposes. Agricultural programs, subsidized disaster insurance, and various flood control and channelization projects further abetted the destruction of wetlands, as did local efforts to control mosquitoes and disease. Robert Stavins and Adam Jaffe estimate that some 30 percent of the loss of forested wetlands in the lower Mississippi Valley came about as a result of various federal programs.

Just as wetlands were disappearing at a dramatic rate in the middle of this century, however, America's environmental conscience was awakening. Lands that had been disparaged as swamps and bogs were now recognized as essential wildlife breeding grounds, buffer zones, and water filters. Conservationists began to call for wetland protection, with some success. The first wetlands protection statute was enacted in 1963 in Massachusetts. That early law required a state permit for filling or dredging wetlands. In 1965, the state legislature enacted controls on inland wetlands as well. Connecticut, Georgia, and Washington soon followed with wetland conservation measures of their own.

Although state wetland conservation efforts began in the 1960s, federal regulations would not be issued until 1975, and even then only as a result of litigation. When the Clean Water Act of 1972 was enacted, few in Congress thought that Section 404, which bars the deposit of dredge or fill material in navigable waters, authorized the Corps to regulate the filling of wetlands. According to former wetland regulator Bernard Goode, "If Congress meant in 1972 for Section 404 to protect wetlands, it kept that secret to itself." Yet by the time the Clean Water Act was enacted, several states were experimenting with wetland conservation programs.

In 1975, the Natural Resources Defense Council sued the Corps for failing to assert jurisdiction over wetlands under the Clean Water Act. A federal district court agreed, holding in NRDC v. Callaway that Congress "asserted federal jurisdiction over the nation's waters to the maximum extent permissible under the Commerce Clause of the Constitution," and the Corps declined to appeal.5 Thus, a single federal judge, not Congress, gave the federal government extensive authority to regulate wetlands. But by the time the regulations were issued, every coastal state except Texas had issued coastal wetlands protections of some kind, and 11 more states had enacted statutes to protect freshwater wetlands as well. Congress would not get around to rubber-stamping something akin to the Corps' authority under Callaway until 1977, and even then it stopped short of explicitly authorizing the federal regulation of wetlands. Indeed, as of this writing, Congress has never given the Corps such direct authority.

What Race to the Bottom?

According to the prevailing view in the academy (which is now beginning to give way), the states theoretically should not have been regulating wetlands before the federal government got into the act. Instead, there should have been a "race to the bottom" that precluded state conservation efforts. The "race to the bottom" theory is rather simple: States will compete with one another to attract industry by lowering regulatory burdens to create a more friendly business climate. Such competition, so the theory goes, will generate a downward spiral of weakening environmental protections as firms seek out those states with the weakest environmental protections. The theory holds that states are faced with a prisoner's dilemma: Although the states would be better off if they collectively maintained stringent environmental safeguards, each state has the incentive to relax its standards, even though not all states will successfully attract additional economic investment. Federal standards are thus necessary to prevent states from competing in this fashion.

The race to the bottom theory has many flaws, not the least of which is its equation of costly regulation with environmental protection. Recent state experimentation with environmental reforms demonstrates clearly that it is possible for states to reduce the regulatory burden imposed on firms without lessening environmental safeguards. Moreover, as New York University Law School Professor Richard Revesz has demonstrated in several influential law journal articles, the theory proves too much.6 Insofar as states compete with one another for business, they compete in many areas, from tax policy to education to workplace regulation. Foreclosing welfare-reducing competition in one sector -- environmental regulation -- will not eliminate rivalry among states but will simply serve to shift it to another policy context. If the race to the bottom theory holds that federal regulation is necessary to prevent lax environmental regulation, a similar justification can be made to nationalize just about every other question of public policy.

In the case of wetlands, the race to the bottom theory would predict that few, if any, states would enact wetland regulations more stringent than those administered by the Corps, and that those states with the most wetlands would be the least likely to enact protections. As Oliver Houck and Michael Rolland argue in the Maryland Law Review, for example, "[a]s a general rule, the larger a state's wetland inventory, the more important it is to the nation, but the less important saving it may appear to the state itself -- indeed, the more onerous the burden of protecting it will appear."7 A state in which more lands are to be regulated as wetlands has comparatively more to lose than a state in which a smaller proportion of its lands will be affected as a wetland program will limit development on a greater proportion of its lands.

The experience of state wetland regulation, however, fails to confirm the race to the bottom theory. Indeed, the record of state regulation is the opposite of what the theory predicts. "Most of the states with the largest wetland acreages have adopted wetland regulatory efforts for all or a portion of their wetlands," notes Jon Kusler of the Association of State Wetland Managers. According to the federal National Wetlands Inventory, wetlands constitute 10 percent or more of the land in 15 states. Every one of those states, save Alaska, enacted its first wetland protection statute before 1975, when the Corps was granted regulatory jurisdiction by a federal judge. As of 1994, according to Kusler, none of the states had "repealed or substantially undercut its wetland statutes," despite any competitive pressures that the states might have faced. Wetland protection efforts in most of those states address both inland and (where applicable) coastal wetlands.

State wetland conservation efforts certainly have their limitations, as do all regulatory efforts at any level of government. The issue is not whether state wetland protection efforts achieve all that the most ardent environmentalist would like, but whether a greater reliance on state efforts, in lieu of federal regulation, would lead to environmental ruin. Given that the economies of scale in this context favor localized, as opposed to national, efforts, and given the actual record of state programs, it is difficult to conclude that federal regulations are inherently superior, particularly when one considers the legacy of federal regulation.

Is Federal Regulation Worth the Candle?

Federal wetlands regulations have faced withering criticism over the past decade. To both developers and property rights activists, Section 404 imposes a repressive burden—one that often disenfranchises small landowners. Although the Corps denies only a small portion of wetland fill permits, over half of the individual permits submitted are withdrawn before the Corps responds. It is the rare instance in which the Corps approves or rejects a permit application within the 60-day window that federal regulations require. In one instance, the Corps sat on an application to fill 0.0006 acres of wetlands -- approximately 26 square feet, or half the size of a ping-pong table -- for 450 days before it was withdrawn.

Environmental activists have not been happy with federal wetlands regulations either. Writing in Audobon in 1995, Ted Williams charged that Section 404 "is a hoax perpetrated and perpetuated by a wasteful bloated bureaucracy" that "spews wetlands destruction permits as if it were a piñata." This criticism may go too far -- in 1995 the Corps processed wetlands permits for only 26,000 acres, yet an estimated 150,000 acres were converted. That is, some 80 percent of gross wetland losses occurred without the Corps' involvement, leading environmental groups to pursue litigation strategies to induce more stringent regulation, such as that which produced the now-invalidated Tulloch rule. But, as discussed above, the Corps has neither the staff nor the resources to regulate wetlands comprehensively. There is only so much a centralized federal agency can accomplish.

Defenders of Section 404 note that wetland losses have dropped dramatically since the inception of federal regulation. That is certainly true, but wetland loss rates began to declined well before the judge in Callaway authorized the Corps to begin regulating wetlands under Section 404. It is estimated that net wetland losses before World War II totaled approximately 800,000 acres per year. In the 1950s and 1960s, conversion rates dropped to an estimated 458,000 acres per year, and in the 1970s they dropped still further, to an estimated 290,000 acres per year. Although environmental activists repeatedly testify that the United States continues to lose hundreds of thousands of wetland acres per year, the last U.S. Department of Agriculture National Resources Inventory estimated a net loss rate of under 80,000 acres per year from 1982 to 1992, even without the Tulloch rule, which was not created until 1993. A more recent USDA report concluded that "the United States is within 47,000 acres per year of achieving `no net loss' of wetland acreage," even if state, local, and purely private restoration efforts are excluded. Because such efforts are substantial, it is most likely the case that more wetlands are created each year than are converted to other uses.

Conservation Without Regulation

Land-use regulations are clearly the most conspicuous type of wetland protection program. They generate controversy and spawn litigation, irrespective of whether they effectively achieve their goals. Often overlooked are the various nonregulatory government programs and private conservation efforts that seem to work with landowners rather than against them. Such programs appear to be a more cost-effective and less bureaucratic means of conserving wetlands, and could well make up for the diminishing scope of federal regulatory authority.

The federal government enacted a handful of nonregulatory conservation programs before World War II for the purpose of preserving duck habitat. Although these programs have been good for ducks, it is doubtful that they did much to conserve other wetland functions, particularly when other federal programs encouraged wetland conversion.

In the 1980s, Congress created a new generation of wetland conservation programs: the North American Waterfowl Management Plan in 1986, the Partners Wildlife program in 1987, and the Wetland Reserve program in 1990. Those programs all operate similarly, that is, they fund the restoration and conservation of wetlands in private hands. Typically, the program covers the costs of restoration and the purchase of an easement to ensure that the restored wetlands are protected. Private organizations, such as Ducks Unlimited, often work in conjunction with the programs to help ensure that the restoration is effective. All conservation agreements under the programs are purely voluntary.

The three programs alone restored an estimated 160,000-plus acres of wetlands per year from 1992 through 1996, at the relatively low cost of $1,000 per acre or less. By contrast, the cost of Section 404 mitigation projects -- whereby landowners are required to "mitigate" wetlands conversions by funding the creation of new wetlands as a condition of obtaining a fill permit -- can reach as high as $30,000 per acre, not including the legal and other costs borne by the permit applicant. The cost per recovered acre is probably much higher than $30,000 because Section 404 mitigation projects have a reported failure rate as high as 50 percent. Requiring a developer to mitigate does not mean that there will actually be mitigation.

Of course, not all wetland restoration is the result of federal policy. Several states have nonregulatory conservation programs of their own. More significantly, private conservation organizations, such as Ducks Unlimited, Delta Waterfowl, Chesapeake Wildlife Heritage, and others, have been funding wetland conservation and creation for decades. Ducks Unlimited restored or enhanced over 50,000 acres of wetlands in 1994 alone. Private companies seeking to burnish their environmental image fund wetland conservation as well. Dow Chemical, for example, won a conservation award in 1995 for restoring thousands of acres of wetland on its various properties around the country.

Ironically, federal wetland regulations are often a barrier to private conservation efforts. Regulatory requirements delayed Sebastiani Vineyards' plans to restore 90 acres of wetlands in California's Sonoma Valley and more than tripled the eventual cost. Bill Ellen, a wetlands consultant, was even jailed for technical violations of Section 404 when constructing duck ponds on private land. Because federal regulations apply equally to "natural" and artificially constructed wetlands, some landowners may well fear that to restore wetlands on their property is to invite federal land-use control. The existence of such perverse incentives against conservation have been well-documented under other environmental laws for many years. Thus, the extent of private wetland conservation and restoration would likely be greater if federal regulations did not get in the way.

The Future of Section 404

Congressional authorization of the Clean Water Act expired in 1990, and some legislators are eager to revisit the law. Environmental activist groups, in particular, want Congress to restore some of the federal regulatory authority taken away from the Corps by the courts. As of this writing, it appears that some industry groups, such as the National Wetlands Coalition, may go along, at least on the restoration of the Tulloch rule. Environmental activists are also seeking to restrict regulatory provisions that exempt some small landowners from Section 404's reach.

Granting additional regulatory authority to the Corps would be a mistake. Indeed, if Congress reauthorizes the Clean Water Act, it should question the need for Section 404 altogether. Voluntary wetland restoration programs, modeled on the successful efforts of private conservation groups, are less expensive and more effective than federal land-use control. Transferring the $70-80 million spent by the Corps on administering the Section 404 program to nonregulatory initiatives would likely be a boon for wetlands and landowners alike. Moreover, the record suggests that states are willing and able to play a substantial role in protecting wetlands and could fill any potential gaps left by eliminating the federal program. Indeed, there is no reason to believe that both the states and private groups would do more if the federal government would get out of the way.

Recent court decisions limiting federal regulatory authority should not be seen as an environmental threat. They present an opportunity to begin forging a new approach to environmental protection. It is time for the country to embrace this approach.

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   1. * Mr. Adler is senior fellow of environmental policy at the Competitive Enterprise Institute in Washington, D.C., author of numerous books and articles about environmental law and policy, and serves as the Vice Chairman for Committee Oversight for the Federalist Society's Environmental Law & Property Rights Practice Group. Some of the thoughts expressed in this article were developed while the author was the Broadbent Research Fellow at the Political Economy Research Center in Bozeman, Montana. In addition, a longer version of this article appeared in volume 22 no. 2 of Regulation magazine.
   2. United States v. Wilson, 133 F.3d 251 (4th Cir. 1997).
   3. National Mining Ass'n v. Army Corps of Eng'rs, 145 F.3d 1399 (D.C. Cir. 1998).
   4. Id. at 1404.
   5. 392 F. Supp. 685, 686 (D.D.C. 1975).
   6. See, e.g., Richard L. Revesz, The Race to the Bottom and Federal Environmental Regulation: A Response to Critics, 82 Minn. L. Rev. 535 (1997).
   7. Oliver A. Houck & Michael Rolland, Federalism in Wetlands Regulation: A Consideration of Delegation of Clean Water Act Section 404 and Related Programs to the States, 54 Md. L. Rev. 1242, 1253 (1995).