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APPENDIX E
LEGAL AND INSTITUTIONAL ASPECTS RELEVANT FOR MULTIPLE OBJECTIVE PLANNING
E.1 INTRODUCTION
In Appendix B we examined the present structure of
federal laws and regulations which are relevant for Wyoming's
construction and management of water resources. In this
section, we consider the legal environment relevant for water
resources planning in the state. An important objective for
the state must be the protection and conservation of its water
resources base. As demonstrated, in Appendix A, the growing
scarcity of water resources in Wyoming's sister states will
surely create incentives for challenging future plans by
Wyoming to develop water resources. An understanding of the
positions taken by courts in resolving interstate conflicts
over water then adds two important dimensions:
Section E.3 turns to a parallel series of court decisions which focus directly on interstate competition for water. Concern is with property rights for water as they are relevant for the "certainty" with which a state can claim rights to the water resources within its boundaries.
E.2 CONTEMPORARY FEDERALISM: A STATE'S ABILITY TO CONTROL,
REGULATE, AND TAX ITS NATURAL RESOURCES
Limitations on a state's ability to control, regulate,
and levy taxes on the natural resources within its boundaries
is determined, in large part, by Article I, Section 8 (the
"Commerce Clause") of the U.S. Constitution which provides
that Congress has the power "to regulate Commerce with foreign
Nations, and among the several states, and with the Indian
Tribes" (U.S. Constitution). The negative implication of the
phrase ". . . regulate Commerce . . . among the several
States . . ." i.e., that states may not enter that province,
has been the source for considerable debate almost from the
time of its adoption:
". . . the history of commerce clause adjudication is a history of the search for that balance of federal-state power that best serves the society's needs at a particular time" (Browde et al. [1981], p. 11).The somewhat polar limits of that search are seen in the opinions of Justices Frankfurter and Jackson:
The interpretations of modern society have not wiped out state lines. It is not for us to make inroads upon our federal system either by indifference to its maintenance or excessive regard for the unifying forces of modern technology" (Polish National Alliance v. NLRB).In these interpretations of the commerce clause as it bears on state's rights to impose control over its natural resources, the Supreme Court has taken many twists and turns. In the early 1800s, the Court's strong federalist positions, as seen in the 1824 Gibbons v. Ogden decision, firmly established the theory of the exclusivity of federal power over commerce. One then sees a period over which the Court is seemingly attempting to define what a state might, and might not do, i.e., to properly define federal and state powers. At the outset, these attempts took the direction of distinguishing between a state's legitimate exercise of its police power and the regulation of commerce. In Brown v. Maryland the Court distinguished between the power to direct (regulate) the removal (extraction) of gunpowder, a legitimate exercise of police power, and the licensing of wholesalers of imported gunpowder, an unlawful disruption of interstate commerce. This notion then evolved into a distinction between actions which were "local" and "national" in nature. The Court was then to look beyond the subject of a state regulation to the examination of the effect of the regulation on the flow of commerce (e.g., Cooley v. Board of Wardens).Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation, that no home embargoes will withhold his exports, and no foreign state will by customs duties or regulations exclude them" (H.P. Hood & Sons v. DuMond).
The "local v. national" focus of the Court in the late 1800s and early 1900s is important in that state regulations are allowed on its natural resources even if some burden on commerce resulted. A state's regulation was allowed so long as the burden on commerce was deemed by the Court to be "only indirectly, incidentally, and remotely" (Smith v. Alabama). The stage was then set for a period of judicially supported laissez faire economics, wherein, in the "Heisler trilogy" (Browde et al. [1981], p. 18), the Court took the position that taxes and/or regulations applied to the act of severance or production, which preceded the flow of commerce, were not subject to commerce clause constraints (see Heisler v. Thomas Colliery Co., Hope Natural Gas Co. v. Hall, and Oliver Iron Mining Co. v. Lord). Thus, in Heisler v. Thomas Colliery Co., the state of Pennsylvania imposed a tax on a type of anthracite coal shipped to other states, states which were prohibited to use other coals of higher sulphur content. Notwithstanding the resulting, essentially monopolistic, position of Pennsylvania, the Court reasoned that a tax levied when coal has been mined and prepared for shipment precedes the time at which the coal is governed and protected by the commerce clause (Heisler v. Thomas Colliery Co. at 260-61).
Thus, the basis for state's confidence in their "ownership" of natural resources within its boundaries, certainly as respect to its ability to exercise regulatory and tax powers as it chose, is readily apparent. So long as a specific activity was not "in" commerce, such as the activity involved in the extraction of resources (e.g., groundwater, coal, etc.), regulatory and or tax actions by the state were simple, and allowable, applications of its police powers, commerce clause constraints did not apply. This was the setting for state regulation and control of intrastate natural resources through the 1960s.
Beginning in 1970 with Pike v. Bruce Church, Inc., however, the Supreme Court moved sharply away from the "local" v. "national" criterion underlying the principles of the Heisler trilogy. In looking for ways to balance the conflicting claims of state and national power, in Pike the Court established a test for the determination of whether or not a state tax or regulation was in violation of the commerce clause. A regulation on natural resource use within a state to be allowable vis-a-vis the commerce clause, was judged on the basis of (1) evenhandedness, (2) the legitimacy of local public interest, (3) the burden imposed on commerce in relation to local benefits, and (4) least intrusive means. The "evenhandedness" criterion, of course, relates directly to discriminatory effects of a regulation vis-a-vis citizens of other states (see, e.g., Exxon Corp. v. Governor of MD). The "legitimacy of local public interest" essentially involves the Court's assessment of a hierarchy of interests. At one end of the hierarchy, regulations whose primary effects are to protect economic well-being would most likely be judged illegitimate on their face. Alternatively, regulations whose major effects are to protect public health and safety would most likely be viewed as legitimate exercises of police power. The "legitimacy" of regulations, the major effects of which lie in between these extremes, is an open question (see, e.g., City of Philadelphia v. New Jersey). The "burden on commerce in relation to local benefit" criterion requires the Court's balancing benefits claimed for a regulation, even health/safety benefits, against effects on interstate commerce (see Bibb v. Navajo Freight Lines, Inc. and Southern Pacific v. Arizona). Finally, even if the Court finds burdens on commerce to be acceptable vis-a-vis local benefits, the regulation is not permissible in cases where there exists alternative, less intrusive (in terms of commerce effects) means for achieving the same objective (see Hughes v. Oklahoma). In virtually all modern resources cases, however, the Court has consistently struck down state regulation schemes which have the effect of placing the state in a position of economic isolationism, or which tend toward "economic Balkanization" (City of Philadelphia v. New Jersey; Pennsylvania v. West Virginia; West v. Kansas Natural Gas Co.).
Looking next to taxes, the Court moved from the principles of the Heisler trilogy in the late 1970s with their decisions in Complete Auto Transit. Inc. v. Brady, Department of Revenue v. Association of Washington Stevedoring Cos., and Michelin Tire Corp. v. Wages. Beginning with Complete Auto Transit, the Court established, essentially, a four-pronged test for determining whether or not a state tax on natural resources violates the commerce clause. Thus, a state tax does not violate the commerce clause when it: (1) is applied to an activity with a substantial nexus with the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the state (see Japan Line, Ltd. v. County of Los Angeles).
Hopefully, these discussions serve to make clear the substantial changes which have occurred over the last decade in terms of range over which states may impose taxes on, and/or regulations for, the use of natural resources within their boundaries. Until the 1970s, the Heisler trilogy guided the Court, and the extraction, diversion, or use of natural resources were, in the main, insulated from commerce clause challenge, activities involving the extraction or gathering of resources per se did not involve commerce. Beginning in the 1970s, however, the "local v. national" distinction no longer held, and any tax or regulation on resources use became subject to the Court's scrutiny as to its effect on commerce. The implications of this general observation for water resources in particular are developed in the following section.
E.3 PROPERTY RIGHTS AND THE STATES' CONTROL OVER WATER
RESOURCES: THE RATIONALE FOR UNCERTAINTY AS A
COMPONENT RELEVANT FOR WATER PLANNING
Narrowing our focus now to water resources, there are
three distinct lines of development in the positions taken by
the Court which are of primary importance for our discussions
of the relevance of evolving legal institutions for water
planning. The first of these concerns commerce clauses
challenges to a states' right to control water, particularly
groundwater, within its borders, and therefore relates
discussions in the preceding section directly to water
resources. The second line of legal developments to be
discussed concerns the dramatic shifts in the criteria used by
the Court in deciding "equitable apportionment" suits
involving interstate claims on water in interstate streams and
rivers. Central to these discussions is the apparent trend
whereby intrastate water rights based upon the prior
appropriation doctrine are seemingly being replaced by
comparisons of interstate efficiency in water use. Finally,
we examine Court decisions which relate to the bastion of
state control over water resources-the interstate compact.
E.3.1 Water Rights and The Commerce Clause
Prior to 1982, western states had every reason to be
confident in their absolute control over groundwater resources
within their boundaries. Their control over surface waters,
for interstate streams, were typically constrained only by
limits imposed by adjudicated equitable apportionments or by
interstate compact. Given our discussions above, commerce
clause considerations were viewed as totally irrelevant; after
all, the extraction of groundwater was a "local" matter, and
involved an extraction process which preceded commerce. In
irrigated agriculture, the extraction of water was a local
activity which provided an input to the process which produced
articles in commerce (agricultural products). The state's
control over its groundwater resources was viewed as absolute,
and extended to laws and/or regulations which prohibited the
out-of-state export of water resources.
Paralleling the general shift in the Court's position vis-a-vis the regulation and taxation of resources noted above, the nature of a state's control over groundwater resources shifted markedly in 1982 with the Court's decision in Sporhase v. Nebraska. In Nebraska, like most western states, groundwater was considered to be "owned" by the state, and therefore subject to state control over its use. In particular, Nebraska laws prohibited the export of groundwater to other states unless the importing state had a reciprocal agreement for groundwater imports to Nebraska. While recognizing the need by state's for planning and management of groundwater resources, the Court rejected the notion that a state can "own" its groundwater resources, such "ownership" was held to be a "legal fiction." Further, using the line of reasoning that, since more than 80 percent of water supplies are used for agricultural purposes and agricultural markets are worldwide, the Court ruled that a state's interference with interstate exports of groundwater would be in violation of the Commerce Clause of the U.S. Constitution.
In expressly overruling (Greer v. Connecticut) three years ago, this Court traced the demise of the public ownership theory and definitively recast it as `but a fiction expressive in legal shorthand of the importance to its people that a State have power to preserve and regulate the exploitation of an important resources (citing Hughes v. Oklahoma [Complete Auto Transit, Inc. v. Brady])."Appellee's argument is still based on the legal fiction of state ownership" (Sporhase v. Nebraska at 3461).
Recall that in the post-Heisler trilogy Court, scrutiny of regulations on natural resource, looked to the "burden on commerce in relation to local benefit" criterion, wherein the Court balances benefits claimed for a regulation, even health/safety benefits, against effects on interstate commerce. In Sporhase, the Court looked to balance the local benefits of managing water for health and safety against the burdens on interstate commerce resulting, not from the local extraction of water, but on the agricultural commodities which used water as an input.
Appellee . . . [has] convincingly demonstrated the desirability of state and local management of groundwater. But the States' interests clearly have an interstate dimension. Although water is indeed essential for human survival, studies indicate that over 80% of our water supplies is used for agricultural purposes . . . [and] . . . agricultural markets supplied by irrigated farms are worldwide (Sporhase v. Nebraska at 3462).The notion that groundwater is an article in commerce, and thus subject to Commerce Clause protection is later reaffirmed in South-Central Timber v. Winnicke. For example,. . . appellee's claim that Nebraska ground water is not an article of commerce goes too far: it would not only exempt Nebraska ground water regulation from burden-on-commerce analysis, it would also curtail the affirmative power of Congress to implement its own policies concerning such regulation . . . . If Congress chooses to legislate in this area under its conmierce power, its regulation need not be more limited in Nebraska than in Texas and States with similar property laws" (Sporhase v. Nebraska at 3463).
For a state regulation to be removed from the reach of the dormant Commerce Clause, congressional intent must be unmistakable clear . . . (requiring states to prove that Congress affirmatively contemplated a waiver of the commerce power) . . . reduces significantly the risk that unrepresented interests will be adversely affected by restraints on commerce" (South-Central Timber v. Winnicke at 2238).
These extensions of commerce clause applications to groundwater over the last few years have implications which go well beyond groundwater per se, and include surface waters supposedly protected by adjudicated equitable apportionments as well as compacts. In El Paso v. Reynolds the City of El Paso had applied to New Mexico's State Engineer for permits to pump some 250,000 a.f. per year from the Mesilla Bolson in New Mexico, about 20 miles to the south of the City. The Mesilla Bolson is a tributary aquifer to the Rio Grande whose waters are divided between New Mexico and Texas (as well as Colorado and Mexico) by the Rio Grande Compact. If allowed, El Paso's pumping would then unquestionably reduce flows in the Rio Grande after some period of time, thereby impairing the compact-established water rights in the Rio Grande. The District Court seemingly stepped around the effects of El Paso's pumping on compacted surface water rights, and focused solely on New Mexico's law which prohibited water exports and, following the example of Sporhase, ruled the law unconstitutional on commerce clause grounds.
This then leaves unanswered the issue as to whether the Supreme Court will consider pumping effects from tributary aquifers on surface water rights established by prior appropriation or compact in their considerations of "local" benefits claimed by states.
E.3.2 Equitable Apportionment and Water Markets: The Demise
of The Prior Appropriation Doctrine
In most western states, water rights were established by
an individual's putting water to beneficial use, and the
priority of such rights was governed by the prior
appropriation doctrine: "first in use, first in right."
Prior to 1921, it was generally thought that prior
appropriation would rule absolutely throughout the course of a
stream, notwithstanding state boundaries. The "absoluteness"
of the prior appropriation doctrine was modified by the courts
in 1921, however, when, in Wyoming v. Colorado it ruled that
prior appropriation based on annual flows of a river was not
the basis for quantifying rights; rather, it was the amount of
water which could be available with the construction of
appropriate facilities for water storage. Wyoming's claim
that they should not be required to build storage facilities
to facilitate Colorado's needs for greater water supplies was
rejected by the Court:
The question here is not what one State should do for the other, but how each should exercise her relative rights in the waters of this interstate stream. Both are interested in the stream and both have great need for water. Both subscribe to the doctrine of appropriation, and by that doctrine rights to water are measured by what is reasonably required and applied. Both States recognize that conservation within practicable limits is essential in order that needless waste may be prevented and the largest feasible use may be secured . . . . We think that doctrine lays on each of these States a duty to exercise her right reasonably and in a manner calculated to conserve the common supply (Wyoming v. Colorado at 484).The prior appropriation doctrine, as it relates to the state's rights to surface water flows, was further weakened in the Court's 1945 decision in Nebraska v. Wyoming. In this case, the Court held that water claims of a state based on prior appropriation must be considered within a context that includes physical and economic factors. Most importantly, the Court holds that prior appropriation must give way in instances where its recognition would result in harm to existing economies.
That (claims for the just and equitable results realized with the prior appropriation doctrine) does not mean that there must be a literal application of the priority rule . . . in determining whether one State is using, or threatening to use, more than its equitable share of the benefits of a stream, all the factors which create equities in favor of one State or the other must be weighted as of the date when the controversy is mooted. . . . But if an allocation between appropriation States is to be just and equitable, strict adherence to the priority rule may not be possible. For example, the economy of a region may have been established on the basis of junior appropriations. So far as possible these established uses should be protected though strict application of the priority rule might jeopardize them. . . . But physical and climatic conditions, the consumptive use of water in the several sections of the river . . . the extent of established uses . . . the practical effect of wasteful uses on downstream areas, the damage to upstream areas as compared to the benefits to downstream areas if a limitation is imposed on the former--these are all relevant factors. . . . They indicate the nature of the problem of apportionment and the delicate adjustment of interests which must be made (Nebraska v. Wyoming at 618).By the 1980s, however, the Court's focus on commerce and, implicitly, markets and efficiency noted in resource regulation and tax cases was seemingly carried over into equitable apportionment considerations. In the Court's 1982 decision in Colorado v. New Mexico, the Court held that water rights claims based upon prior appropriation considerations are subject to the extent to which diligence in the exercise of the rights can be shown, but most importantly, could be forfeited in instances wherein junior claims could be shown to be more efficient (or valuable). That is, relative benefits and costs were the yardstick to be used in deciding whether to protect senior rights based on prior appropriation against challenges by junior users. The dictum of the Court, selections of which follow, raises serious questions as to the extent to which prior appropriation can still serve as a means for establishing certain rights in a state's surface waters.
. . . will protect only those rights to water that are 'reasonably required and applied' . . . 'there must be no waste . . . of the treasure of a river. . . . Only diligence and good faith will keep the privilege alive' . . .. Thus, wasteful or inefficient uses will not be protected. . . . Similarly, concededly senior water rights will be deemed forfeited or substantially diminished [emphasis added] where the rights have not been exercised or asserted with reasonable diligence (Colorado v. New Mexico at 184).
. . . we have held that . . . it is proper to weigh the harms and benefits to competing States . . . we held water rights . . . which under state law were senior, had to yield to the 'countervailing equities' of an established economy . . . even though it was based on junior appropriations. . . . We noted that the rule of priority should not be strictly applied where it 'would work more hardship' on the junior user 'than it would bestow benefits' on the senior user. . . . The same principle is applicable in balancing the benefits of a diversion for proposed uses against the possible harms to existing uses (Colorado v. New Mexico at 186, 187).
E.3.3 Providing Security For a State's Water Rights:
The Interstate Compact
The ultimate bastion for the protection of a state's
water rights has always been viewed as the interstate compact,
surely a state's water supplies allocated under compact must
be secure from acquisition by other states. But even here,
with interstate compacts, uncertainties as to the state's
ability to use its compact waters in whatever ways she wishes
was challenged in 1983. In the Court's 1983 decision in
Intake Water Company v. Yellowstone River Compact, the Court
held that a state's compact allocation of water was immune to
the Commerce Clause. A state might prohibit the interstate
export of its compact water supplies only if the language of
the Compact approved by Congress explicitly prohibits such
transfers:
Just as Congress may itself enact a law that interferes with interstate commerce, it may also give its approval to a state law interfering with interstate commerce and thereby immunize the law from challenge under the Commerce Clause . . . the issue is whether Congress in fact approved the state law . . . Congress's approval of the Yellowstone River Compact in 1951 may be considered the express statement of intent to immunize the Compact from attack that the Court found lacking in Sporhase (Intake Water Company v. Yellowstone River Compact at 296).While states, like Wyoming, who are parties to the Colorado River Compact (which does contain such "express statement(s) of intent") might seek comfort in the Court's decision in the Intake case, many legal scholars would view such comfort as sanguine. As demonstrated above, the persistent movement of the Court toward the position that waters, interstate and intrastate, should be used wherever the needs and benefits are greatest--essentially, that water resources should be subject to the forces of free, interstate markets--there exists (in the minds of many legal writers) considerable uncertainty as to the ultimate protection offered a state by their participation in compacts.
Under the Court's interpretation of the tenth amendment it would seem that compacts create state-held proprietary interests not subject to any limitation derived from the dormant commerce clause. . . . (however, in Sporhase, the) . . . court has placed into the matrix a countervailing need-the need in our federal system for water to flow to its highest economic use in the interstate water system. . . . While the argument that congressional approval of compacts creates exclusive state apportionments of water seems clear on its face, there is sufficient uncertainty to suggest that there are circumstances in which the protection might not be absolute (Rodgers [1986], p. 373).My guess is that the Court, in the absence of explicit territorial limitations [in a compact] will tend to be unfavorably disposed to state restrictions which interfere with providing water to expanding population centers and it will not construe compacts as placing territorial limitations on water use that avoid commerce clause scrutiny. The Court will be more inclined to solve the population problems than to read the intent of state legislatures into federal law (Simms [1985]).
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