In May, a Supreme Court decision ended two decades of regulatory uncertainty and confusion over the extent of federal jurisdiction over wetlands. The ruling also forced the Biden administration to revamp a regulation it had finalized in December 2022 to ensure consistency with the legal standard established by the court’s ruling. The decision in Sackett v. EPA, and the impact it has on regulations from federal agencies going forward, will have a significant effect on the commercial real estate industry.
There is a need for reasonable regulations to protect the environment and wetlands. But knowing what areas are subject to regulation is a fundamental requirement for any rule, both for the public and for the regulatory agencies. Without it, rulemaking becomes overly subjective, leading to unpredictable, inconsistent and arbitrary decisions. That had become the case for commercial real estate, agriculture and other industries because of conflicting judicial opinions and federal regulations involving the definition of “waters of the United States.”
The power to regulate bodies of water and wetlands has traditionally been a state function. In 1972, the federal government was also given power to protect the nation’s lakes, streams, rivers and other bodies of water when Congress passed the Clean Water Act (CWA), which gave the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (USACE) authority to regulate “navigable waters.” That term in the statute was further defined as being “waters of the United States," (WOTUS). The Clean Water Act was updated in 1977 to include wetlands that are “adjacent” to a WOTUS, giving the EPA and USACE regulatory authority over these areas.
The task of defining a WOTUS, as well as establishing how close a wetland must be to a WOTUS for it to be classified as “adjacent,” were delegated to the EPA and the USACE. These agencies were tasked with formulating these definitions within the framework of regulations implementing the CWA. Since then, the agencies have struggled to develop a clear, concise and objective standard that would provide environmental advocates, property owners and the oversight agencies with regulatory certainty and predictability.
The result was constant litigation, with both state and federal courts issuing contradictory rulings. Instead of clarifying, the Supreme Court added to the confusion in 2006 when it issued a ruling in Rapanos v. United States. That case focused on whether the federal government could assert jurisdiction over a wetland near a ditch that drained into navigable waters 11 miles away. The court ruled against the government, but it did not offer a controlling legal standard. Justice Antonin Scalia wrote an opinion supported by three other justices. It held that federal jurisdiction extends only to those wetlands with a continuous surface connection to a relatively permanent body of water that was itself connected to a traditional interstate navigable water. Justice Anthony Kennedy issued a concurring opinion that extended jurisdiction to any wetland with a “significant nexus” to a traditional navigable water.
Essentially, the two competing legal standards gave litigants and courts the ability to pick and choose which test to apply. It also gave successive presidential administrations the ability to rewrite regulations using their preferred test. The result was a patchwork of different controlling legal standards, with the public and federal regulators see-sawing back and forth.
President Obama’s administration issued an expansive rule in 2015 based on the “significant nexus” approach, but it never went into effect after 27 states filed suit against it. In 2019, President Trump’s administration repealed the Obama rule and issued one that essentially codified the Scalia “permanent water” standard. A federal district court in Arizona later struck that rule down. President Biden’s administration then replaced the Trump rule with its own interpretation in December 2022. Implementation was then stayed in 27 states.
On May 25, the Supreme Court issued a decision in Sackett v. EPA that could end the WOTUS regulatory confusion. The Sacketts were an Idaho family who purchased land approximately 300 feet from a lake. They began backfilling the lot in preparation to build a home, only for the EPA to inform them that the property contained wetlands. The Sacketts were threatened with fines of $40,000 per day if they did not restore the site. The EPA argued that the wetlands on the property were WOTUS because they were “adjacent” to a ditch that fed into a tributary on the other side of a 30-foot road. The lot was also near another larger wetlands complex, allowing the EPA to claim that there was a “significant nexus” that allowed the agency to assert jurisdiction.
The EPA lost 9-0, with all the justices agreeing that the agency had overstepped its authority. But not all agreed with the reasoning in the majority opinion, which was authored by Justice Samuel Alito and joined by four others. The majority opinion essentially adopted as the controlling legal standard a test similar to the Scalia test from Rapanos. The court held that to assert jurisdiction, the government must establish that the body of water is a WOTUS (a relatively permanent body of water connected to traditional interstate navigable waters) and that the wetland has a continuous surface connection with that body of water.
The court’s ruling essentially forces the Biden administration to revise its WOTUS regulation — a result that NAIOP predicted would happen if the administration did not wait for the court’s ruling before issuing their regulation as a final rule (see Development’s Summer 2022 issue, “Biden Wetlands Regulation May Be Upended by Supreme Court”). The EPA and USACE have stated their intent to have a revised rule in place by September.
The court’s ruling applies to the federal government’s jurisdiction over wetlands and is seen as a setback by many environmental advocates, but it does not limit the power of states to regulate or act in this area. It will undoubtedly serve to prevent future presidential administrations from attempting to expand federal jurisdiction to wetlands and streams that are temporary, isolated or not connected to navigable waters. Many states will revisit their own laws regarding wetlands in response. What the Sackett decision does provide, however, is a more objective standard and additional clarity that was long needed.
Aquiles Suarez is the senior vice president for government affairs for NAIOP.