July 18, 2013 – Private property values, business income, and local tax revenue are factors the Wisconsin Department of Natural Resources (DNR) must consider when deciding if a lake’s water level, regulated by a dam, should be allowed to rise.
But the DNR also has statutory authority to consider impacts on wetlands and wetland water quality, a 4-3 majority of the Wisconsin Supreme Court recently ruled in Rock Koshkonong Lake District et al. v. Wisconsin DNR, 2013 WI 74 (July 16, 2013).
The case presents a balancing act between environmental, economic, and recreational interests focused on the impacts of letting water levels rise or fall on Lake Koshkonong, a large inland lake located primarily in Jefferson County southwest of Fort Atkinson.
The majority ruled the DNR cannot invoke its constitutionally-based “public trust” authority to regulate non-navigable wetlands, but confirmed the agency’s statutory “police power” to consider various factors in making water level determinations.
What does it all mean? The case must go back so the DNR can make a water level determination for Lake Koshkonong while considering the impact on wetlands and local economic interests without relying on the “public trust” authority.
“Although the DNR is granted substantial discretion in its decision-making under the statute, it must consider all probative evidence when its decision is likely to favor some interests but adversely affect others,” wrote Justice David Prosser for the majority.
The dissent, led by Justice Patrick Crooks, says the majority opinion “represents a significant and disturbing shift in Wisconsin law” relating to the “public trust doctrine” and wrongly includes economic impact as a factor in water level determinations.
Water Level Litigation
The case began in 2003 when the Rock-Koshkonong Lake District (Lake District), which owns and operates a dam affecting water levels on Lake Koshkonong, petitioned the DNR to let water levels exceed maximum levels previously set by the DNR in 1991.
Under Wis. Stat. section 31.02(1), the DNR may control water levels on navigable waterways “in the interest of public rights in navigable waters or to promote safety and protect life, health and property.”
Lake Koshkonong is a shallow lake with an average depth of five feet. Its water level generally exceeded the 1991 order, because a dam on Rock River, which feeds into the lake, was not working at full capacity.
In 2002, the dam was restored, and water levels began to recede to the maximum level prescribed by the DNR. According the Lake District’s experts, lower water levels would adversely impact private property values and commercial activity, tax revenue and jobs.
A lower water level meant longer piers for lakefront property owners, as well as decreased waterfront access and recreational use. Over time, petitioners argued, reduced access would affect businesses reliant on the lake’s allure for business.
The Lake District, which operates the dam blocking Rock River, petitioned to increase water levels. The DNR initially denied the petition, and a 10-day contested case hearing followed to determine whether the DNR properly denied the Lake District’s petition.
The DNR cited adverse impacts of increased water levels on water quality, adjacent wetlands and wildlife preservation, as well as indirect consequences for recreational hunters, fisherman and birdwatchers. Local farmers cited the negative impact that higher lake levels would have upstream, where farm lands are subject to flooding.
Ultimately, an administrative law judge upheld the DNR’s decision to deny the petition. In reaching a conclusion, the judge struck the District’s evidence relating to “secondary or indirect economic impacts” as outside the scope of what the DNR must consider.
On review in circuit court, the Lake District argued that under section 31.02(1), the DNR cannot consider a water level’s negative impacts on wetlands, including water quality, because wetlands are generally not “navigable waters.”
The Lake District also argued that the statute requires the DNR to consider impacts on “property” when making water level determinations, so economic factors are relevant and should not have been excluded from the administrative judge’s fact-finding.
However, the circuit and appeals courts affirmed in favor of the DNR. Notably, the appeals court ruled that “protecting property” does not contemplate economic interests, but is limited to protection of property from hydrologic events such as flooding.
Reviewing the case de novo, with no deference to the DNR, a Wisconsin Supreme Court majority ruled that economic impacts are relevant when the DNR is making decisions related to lake water levels under Wis. Stat. section 31.02(1).
The majority ruled that section 31.02(1) allows the DNR to protect property, “not only the land itself, but improvements to the land, the community’s interest in the land, and investments in capital derived from the land.”
“These property interests … must be balanced against impacts on wildlife, water quality, wetlands, recreation, and other more modern considerations,” wrote Justice Prosser.
Thus, consideration of a water level’s impact on “property” is not limited to the potential for hydrologic damage to real property and riparian rights, the majority explained, and the administrative law judge was wrong to exclude economic factors from the decision.
“We do not hold that the DNR must consider remote economic impacts; a reasonableness standard should apply,” Justice Prosser wrote. “However, it is clear that the DNR must consider the economic impacts in the first place.”
The majority observed that regulation of water levels could give rise to a “regulatory taking” if the landowner is denied all or substantially all use of the property.
Impact on Wetlands
The DNR did not exceed its authority when it considered impacts on wetlands adjacent to Lake Koshkonong, the majority ruled, because the DNR has statutory authority to consider the impact of lake water levels on public and private wetlands.
However, the majority also ruled that the DNR’s authority to regulate wetlands and shorelands is not derived from the constitutionally-based “public trust doctrine,” which requires the state to hold “navigable waters” in trust for the public’s benefit.
The public trust doctrine allows the DNR to protect, through regulations, “navigable waters” for boating, swimming, fishing, hunting, and to preserve scenic beauty, but the doctrine does not extend to wetlands, the majority concluded.
“There is no constitutional foundation for public trust jurisdiction over land, including non-navigable wetlands, that is not below the [ordinary high water mark] of a navigable lake or stream,” wrote Justice Prosser.
The distinction between the DNR’s statutory and constitutionally-based public trust authority is significant, the majority noted, because statutory authority “is subject to constitutional and statutory protections afforded to property, may be modified from time to time by the legislature, and requires some balancing of interests in enforcement.”
The majority also ruled that the DNR may apply wetland water quality standards in determining whether the lake’s maximum and minimum water levels can be changed.
In a dissenting opinion, Justice Patrick Crooks – joined by Chief Justice Shirley Abrahamson and Justice Ann Walsh Bradley – said the majority opinion attempts to “rewrite history” and unnecessarily disrupts settled law on the public trust doctrine.
“It needlessly unsettles our precedent and weakens the public trust doctrine that is enshrined in the Wisconsin Constitution,” Justice Crooks wrote. “This represents a disturbing shift in Wisconsin law.”
The dissent argued that the state’s public trust authority is a broad grant of power to preserve the state’s waters, often bolstered by statutes and regulations affecting land.
“Our cases demonstrate that the scope of the public trust doctrine is such that the state holds title to the land between the ordinary high water marks, and state regulation consistent with the public trust doctrine extends to surrounding areas,” Crooks wrote.
That would include the wetland areas surrounding Lake Koshkonong, even though the wetlands are above the ordinary high water mark for that lake, the dissent explains.
“The majority also errs in expanding the type of evidence that the Department of Natural Resources (DNR) must consider in these cases,” Justice Crooks wrote.
That is, the DNR need not consider “secondary or indirect economic impact when making water level determinations,” the dissent argued, so it was not error for the administrative law judge to strike evidence that fell into this category.
The dissent pointed out that other statutes administered by the DNR specifically require the DNR to consider the economic impacts of regulation, such as ar pollution regulations, but Wis. Stat. section 31.02(1) does not.
“If the legislature intended that the DNR must consider such secondary or indirect economic impact, the legislature would have drafted the statute to signal such a requirement,” Justice Crooks wrote.