Developers and businesses take note: as the feds roll back wetland regulation, California is stepping in

by DLA Piper
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Land developers, commercial property owners and industrial entities should closely watch the major shifts in the ways significant wetland habitats are regulated, as the Trump Administration strips away relevant federal regulations and environmentally active states like California respond with new laws. In important ways, these changes will affect how wetland impacts are handled for new developments and ongoing operations. Businesses operating in California − and like-minded states − need to understand how these political dynamics will influence future projects.

The dynamic between the Trump Administration and the states starts with a critical question in environmental law: "What are navigable waters, or waters of the United States?" The federal Clean Water Act (CWA) requires a complex, costly permit for discharging dredged or fill material into "navigable waters or waters of the United States" (WOTUS). Through decades of litigation, regulators and businesses have grappled over whether non-navigable, saturated lands called wetlands (which can be adjacent to or isolated from navigable waters) fall within the CWA's jurisdiction − resulting in a hodgepodge of federal guidance documents and court decisions.

In 2015, the Obama Administration issued the Clean Water Rule to put wetlands squarely within the definition of WOTUS and clearly under the CWA's rule. That rule was quickly suspended by a federal court ruling, and Donald Trump's election was widely expected to toll its death knell.

In July 2017, the US-California showdown began in earnest. The US Environmental Protection Agency and Army Corps of Engineers (USACE) began the process of undoing the Clean Water Rule and rolling back wetland protection by revising the definition of WOTUS. Almost immediately, California − home to significant wetlands in every type of landscape − kick-started its rulemaking process to fill the potential regulatory gap, using its "no-net-loss" Wetlands Policy (established to ensure no overall net loss of and a long-term net gain of wetland acreage and value in California).

The push and pull between US and California regulation on this topic will strongly influence the path forward for those owning, developing or managing property on or near California wetlands.

A KEY BATTLEGROUND − CALIFORNIA VERNAL POOLS

Certain wetlands known as "vernal pools" are a critical focus of battles over the WOTUS definition because of their unique isolation from other water bodies and their presence in California's coastal regions and Central Valley, home to some of the country's most valuable real estate and California's $50 billion agricultural industry. Vernal pools generally hold water in the spring and early summer after heavy rains or flooding. State regulators have described them as 'some of the most ecologically important and distinctive areas in California.'

Not surprisingly, the protection of these wetlands has been litigated intensely. Currently, vernal pools can fall within the CWA's jurisdiction when courts apply Justice Anthony Kennedy's concurrence in Rapanos v. United States, 547 U.S. 715 (2006) − the most adopted of the three key opinions in that seminal case. Justice Kennedy's opinion uses a case-by-case approach to determine the CWA's application to wetlands and examines whether networks of wetlands significantly affect the integrity of other jurisdictional waters. This is the "significant nexus" standard. The federal rollback under way is poised to reject this standard.

The federal rollback: rescind and revise

Just weeks after inauguration, President Trump signed an Executive Order directing EPA and USACE to rescind the Obama Clean Water Rule and revise the definition of WOTUS with a goal of "promoting economic growth" and "minimizing regulatory uncertainty." The agencies published their Proposed Rule on July 27, initiating a two-step rulemaking process to:

  1. Rescind President Obama's Clean Water Rule and reset the definition of WOTUS to the "status quo" prior to the promulgation of the Rule (which is exactly where we are today because of the federal court suspension of the Rule) and
  2. Pursue notice-and-comment rulemaking to reevaluate and revise the scope of WOTUS, and to "consider" interpreting the term "navigable waters" in a manner consistent with the opinion of Justice Antonin Scalia in Rapanos − an opinion that has, until now, given way to Justice Kennedy's Rapanos opinion in lower courts.

Step one, rescinding Obama's Clean Water Rule, is under way. Step two, redefining WOTUS, has not yet begun. When it does, the agencies' conformance to Justice Antonin Scalia's plurality opinion in Rapanos will dramatically limit federal oversight of wetlands and most likely eliminate seasonal and isolated wetlands from CWA jurisdiction altogether. Justice Scalia's Rapanos opinion requires a "continuous surface connection," providing:

"[o]nly those wetlands with a continuous surface connection to bodies that are 'waters of the United States' in their own right, so that there is no clear demarcation between the two, are 'adjacent' to such waters and covered by the [CWA]."

Justice Scalia's standard will hobble any argument that vernal pools (or any temporary and isolated wetland) would fall within the CWA's jurisdiction. Vernal pools are seasonal or ephemeral (not continuous) and isolated (no surface connections to adjacent water bodies). A strict reading of the "continuous surface connection" standard would further usurp the significant nexus standard and render a decade of precedent irrelevant − including seminal Ninth Circuit cases like Northern California River Watch vs. City of Healdsburg, 496 F.3d 993, 999 (9th Cir. 2007), which held that, for CWA jurisdiction, a water body "need not be continuously flowing, but… there must be a 'significant nexus' to a waterway that is in fact navigable." Such a result will create a wide gap in federal oversight of interstate wetlands and, important to California, vernal pools.

CALIFORNIA'S PLAN TO FILL THE REGULATORY GAP − WHAT DOES IT MEAN FOR BUSINESS?

California regulators are moving to counteract this reduction in coverage by the CWA. On July 21, 2017, the California State Water Resources Control Board published its final draft "State Wetland Definition and Procedures for Discharges of Dredged and Fill Material to Waters of the State" (Wetland Procedures). The Wetland Procedures provide a first-of-its-kind wetland definition under California's no-net-loss Wetland Policy and create Water Quality Certifications and Waste Discharge Requirements for applicable dredging or fill activities in the state. The proposed Wetland Procedures are poised to fill whatever gap may exist after the federal rollback, including the oversight of western vernal pools, and likely more.

California's definition of "waters of the state" regulated by the State Board is far broader than WOTUS, covering "any surface water or groundwater, including saline waters, within the boundaries of the state." This broad authority and current political support likely will push the Wetland Procedures through rulemaking, and the gap will be filled.

The key question for businesses is how much of the application and approval process, which can be time-consuming and costly well (e.g., mitigation and alternative impact studies), will make it through the promulgation process?

The proposed rule's comment period ends on September 7. The Water Board has set an aggressive goal of finalizing the process in Winter 2017.

FURTHER CONSIDERATIONS

Naturally, businesses are tightly focused on the Trump Administration's policy regarding WOTUS. But focus must also be given to regulatory pushback from California and like-minded states. Land developers, commercial real estate owners and industrial businesses operating in California must understand the significant impact of California's proposed regulatory direction on projects affecting California wetlands whether or not those wetlands meet new, narrower proposed federal definitions of WOTUS.

DLA Piper's environmental and government affairs attorneys are watching both rulemaking procedures closely and will continue to report on significant events.

The federal rule proposed by EPA and USACE can be found here.

The proposed changes to California's rules on wetlands can be found here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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