New Federal Water Rule Creates Confusion for Developers

Winter 2015/2016

A new rule that aims to clearly define which waters are federally protected results in more confusion than clarity.

THE U.S. ENVIRONMENTAL Protection Agency (EPA) and Army Corps of Engineers (Corps) recently finalized the Clean Water Rule, a controversial rule designed to determine which waters across the country will receive federal protection. For real estate interests, this means they will have to obtain a dredge and fill permit (known as a 404 permit) for all development activities that affect these bodies of water. Applying for these permits and complying with their requirements is widely considered a time-consuming and expensive process.

Over the past several years, the determination of who needs to obtain a permit has become one of the most cumbersome aspects of water policy. Developers, confused by recent Supreme Court rulings, were uncertain about which waters required federal permits, and agency staff in different Corps districts were often at odds with each other, resulting in inconsistent on-the-ground decisions.

According to the EPA’s website, the stated goal in drafting the new rule was to ensure that protected waters are more precisely defined, more predictably determined and easier for business and industry to understand. After careful review of both the draft and final versions of the rule, the one thing that most people can agree upon is that the lengthy technical regulation provides anything but clarity. 

Industry groups, headed by the agricultural community, have decried the EPA’s efforts, characterizing the Clean Water Rule as the biggest federal power grab in the history of the U.S., one that will affect nearly all waters across the country. Republicans in Congress as well as state officials have picked up on this message, and have used it as a rallying cry to stop the EPA and the Obama Administration from moving forward on a host of environmental regulations.

To complicate the issue, recently leaked memos from the Corps to the EPA in the days leading up to the rule’s final release reveal wide disagreements between the agencies on the impact of the rule. They brought into question whether more or fewer bodies of water are covered under the regulation and to what extent. The EPA’s economic analysis shows that the new regulations will increase the agency’s overall jurisdiction by roughly 3 percent, even though its officials have repeatedly stated that if a permit wasn’t required before the rule, then one would not be needed as a result of the new regulation.

At odds with the EPA’s economic analysis, the Corps memos suggest that the rule undercuts current wetlands regulations by as much as 10 percent. Regardless of the controversy, both agencies now claim that the disagreements were overblown, and they firmly stand behind the final rule as written.

In the midst of this confusion, NAIOP aggressively negotiated with the EPA to mitigate the rule’s potential impacts and to safeguard its members’ interests. In numerous meetings with EPA senior staff, NAIOP approached the rule in a pragmatic fashion. NAIOP avoided divisive rhetoric, and a productive dialogue ensued. As a direct result of those talks — and official comments that NAIOP filed with the EPA — the agencies have codified several safeguards, or exemptions, in the rule that positively impact commercial real estate developers.

These exemptions include the following:

  • Ditches that do not flow year-round and are not created in a wetland, drain a wetland or relocate a tributary of a navigable water.
  • Settling basins used during construction activities.
  • Erosional features that do not have a bed, bank and ordinary high water mark.
  • Stormwater control features constructed to convey, treat or store stormwater that are created on dry land.
  • Low-impact development features, such as rain gardens.

These exemptions go a long way to clarify several, but not all, of the issues about which NAIOP members are concerned. For instance, in the arid West, dry erosional features in the landscape known as dry arroyos convey water in the event of a storm. NAIOP argued in its comment letter that these types of erosional features should be explicitly exempt from the rule, as they have never before been considered federal waters. The EPA met NAIOP halfway with the erosional feature exemption, but left the door open to field determinations. This could become problematic if they find the presence of an eroded bank and an ordinary high water mark.  

Certain ditches are now expressly exempt from federal regulations. They have been a point of contention for years, so the admission that ditches used only to convey water from one end of a property to another will not be regulated is a clear advantage over previous regulations. 

Streams that flow occasionally during a given year, however, are a problem that has not been adequately addressed. These intermittent or ephemeral streams, which were not federally protected before, will in many cases now require federal permits because of the new federal definition of tributary. In many areas of the country the impacts are negligible. However, as with dry arroyos, western states will likely be impacted. The EPA’s economic analysis shows that Arizona would see an increase of 54,862 linear feet of streams that would now require permits. Conversely, Virginia, New Jersey, Maryland, Massachusetts, Connecticut and Delaware would not see any increase at all.  

On Aug. 27, 2015, the day before the rule was implemented, a surprise decision was announced by the U.S. Court for the District of North Dakota. The federal judge issued a temporary injunction blocking the controversial water rule from immediately taking effect in 13 states. Those 13 states (Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota and Wyoming) had sued the agencies, arguing that the rule constitutes a federal overreach and would be unduly costly and confusing to landowners. While they were not the only states that asked the courts to stop the rule from moving forward, other federal court districts dismissed similar injunction requests. 

In the wake of the North Dakota District decision, on Oct. 9, the 6th U.S. Circuit Court of Appeals issued a national stay on the Clean Water Rule to determine whether it has jurisdiction over the issue, or if the fate of the rule should be decided at the District Court level. That determination, which is expected in December, may provide a clearer path for how this regulation will play out in the courts.  

It will take months, if not years, for the full impact of the new water rule to become clear. If the District Courts end up deciding the merits of the rule in a piecemeal fashion, it will be impossible for Corps districts across the country to make consistent determinations regarding permit requirements. Under that likely scenario, developers will have no choice but to continue to muddle through the new regulations, having even less certainty and clarity on the issue than they had before the rule was announced.