From Texas: Attempting to Deal Rationally with Limited Water Supplies is a Regulatory "Taking" of Private Water Rights

The Texas courts are once again refining their description of private water rights. On Wednesday (August 28, 2013), the Texas Court of Appeals in San Antonio confirmed that implementation of the Edwards Aquifer Act resulted in a constitutional "taking" of landowners' property rights in groundwater. Edwards Aquifer Authority v. Bragg, --- S.W.3d ---, 2013 WL 4535935 (Tex. App.--San Antonio Aug. 28, 2013). More disturbing than the actual decision, however, is its implications for state authorities trying to deal rationally with increasing water shortages.

Some background is in order, because EAA v. Bragg is the first application of the Texas Supreme Court's 2012 decision that overlying landowners in Texas own groundwater in situ. Edwards Aquifer Authority v. Day, 369 S.W.3d 814 (Tex. 2012). Many of us who teach Water Law would argue that EAA v. Day represented a radical departure from both traditional Texas groundwater law, which uses the English rule of capture, and the Edward Aquifer Act's possible creation of a correlative rights-type regime for the Edwards Aquifer. But hey, I'm not the Texas Supreme Court.

The Edwards Aquifer Act has a long and litigious history. The Texas Legislature enacted the Act in 1993 in response to increasing drought threats and Endangered Species Act litigation seeking to protect five listed species living (or trying to live) in the Edwards Aquifer. The Act created the Edwards Aquifer Authority and mandated a permit regime to limit withdrawals from the aquifer. As the Texas Court of Appeals explained in EAA v. Bragg, "In the Act, the Legislature established an aquifer-wide cap on water withdrawals by nonexempt wells of 450,000 acre-feet of water per year through 2007 and 400,000 acre-feet per year thereafter." 2013 WL 4535935, at *2. Moreover, "Under the Act, the Authority may grant initial regular permits ('IRPs') only to existing users who properly file a “declaration of historical use,” and who can establish, by “convincing evidence,” beneficial use of underground water withdrawn between June 1, 1972, and May 31, 1993." Id.

The Braggs own two properties overlying the Edwards Aquifer that are commercial pecan orchards. They have irrigated the pecan trees with two wells drawing water from the Edwards Aquifer, one drilled in 1980 and one drilled in 1995 as authorized by a permit from the Medina County Groundwater Conservation District. The EAA was not yet issuing permits; because of lawsuits, the Act did not become effective until 1996.

When the Braggs applied to the EAA for permits in 1996, they claimed withdrawals of 228.85 acre-feet of water per year from the 1980 well and 193.12 acre-feet of water per year from the 1995 well. Their permit authorized 120.2 acre-feet of water per yeard from the 1980 well and nothing from the 1995 well, the use of which was outside the historic period that the EAA could consider under the Act. The Braggs sued the EAA in November 2006, alleging a constitutional taking of private property and a violation of federal civil rights. The state trial court found in their favor, concluding that no physical taking of their water rights had occurred but that nevertheless both the denial of water rights from the 1995 well and the reduction in water rights from the 1980 well constituted regulatory takings that required compensation.

The Texas Court of Appeals affirmed the takings liability but remanded  for a re-calculation of the damages. First, it found that the EAA (as opposed to the State of Texas) was the proper defendant. Id. at *8. Second, it found that the statute of limitations was 10 years, id. at *10, and had not run because it did not accrue until the EAA acted on the Braggs' permit applications in 2004 and 2005. Id. at *13.

Third, with regard to the regulatory taking, the Texas Court of Appeals relied heavily on EAA v. Day, making short shrift of the EAA's argument "that the Act gave the Braggs something they did not previously own (permits) and, therefore, there is no taking . . . ." Id. at *14. With regard to the economic impact of the permit decisions (the first Penn Central factor for in the standard regulatory takings analysis), the court concluded that:

To reduce their water consumption, the Braggs reduced the number of trees by thirty to fifty percent and reduced the watering of the remaining trees. This, in turn, resulted in the Braggs' inability to raise a commercially viable crop on their properties, unless they purchased or leased water under the permit scheme. Despite what might amount to only a ten percent increase in their irrigation expense, we do not consider this merely an incidental diminution in value. The result of the regulation forces the Braggs to purchase or lease what they had prior to the regulation—an unrestricted right to the use of the water beneath their land.

Id. at *17.

With respect to the Braggs' investment-backed expectations, the court emphasized that they purchased both properties as pecan orchards before the Texas Legislative enacted the Edwards Aquifer Act. As a result, "Although the Braggs had no reasonable investment-backed expectation that there would never be a regulatory scheme in place that might govern their use of the water beneath their land, the lack of such regulations when they purchased both orchards shaped their expectation that they would have unrestricted use of their water to supply the needs of their pecan trees." Id. at *19. Moreover, "considering Mr. Bragg's extensive understanding of pecan crops, the Braggs' understanding that they owned the water under their land, and that no regulatory entity existed that governed the use of their water when they purchased the property as an existing pecan orchard, we conclude the Braggs' investment-backed expectations as to the D'Hanis Orchard were reasonable." Id. at *20.

Finally, with respect to the character of the government action, the Texas Court of Appeals acknowledged that groundwater regulation is a legitimate government purpose and that "[o]ne purpose of groundwater regulation is to afford each owner of water in a common, subsurface reservoir a fair share of the water." Id. Nevertheless, while this factor thus counted against finding a taking, the court emphasized the surrounding circumstances (i.e., drought) to conclude, on balance, that a regulatory taking had in fact occurred:

In this case, the Braggs' business is agricultural and therefore heavily dependent on water. The particular crop cultivated by the Braggs, pecans, needs water year-round. The Braggs' source of water is either sub-surface or rain. Rain, at least in drought-ridden Texas, is inconsistent and unpredictable. . . . This is especially so in semi-arid Medina County, Texas. Mr. Bragg's testimony established that a lack of sufficient water not only effects the yield of the current crop but also the quality and size of the pecans in a future crop. No expert disputed that rain alone could not provide a sufficient source of water. Therefore, we conclude the Act's restrictions on the amount of water the Braggs could draw from their own wells weighs in favor of a compensable taking. 

Id. at *21.

With this declaration, I submit, the Texas Court of Appeals both has attempted to elevate historical water rights over new ecological realities and created a major legal impediment for any government entity trying to rationally address changing--especially declining--water resources. Endangered species or not, government regulation or not, overpumping the Edwards Aquifer and increasing droughts in Texas will eventually destroy the value of all private property claims to water (and maybe the value of all private property, period) in many parts of Texas. Instead of encouraging the Texas Legislature and the EAA to deal rationally with these new realities--including the reality that there just isn't enough water for everyone to do everything they want for the rest of their lives--the Texas courts have effectively forced the EAA to assume all costs of attempting to ameliorate the shortage. 

Should the State of Texas or EAA callously let the Edwards Aquifer go dry? I'd like to argue "no"--but I don't think it should have to pay landowners who rush headlong into that disastrous result, either. Constitutional "takings" clauses need to accommodate changing ecological realities and the tragedy of the commons, or they will just make those tragedies worse. At one point, the common law recognized this hard reality through the doctrine of public necessity and police power defenses to takings liability, but those limitations on "takings" liability seem to have been forgotten.

So, the question we should all be contemplating: When does groundwater pumping become a public nuisance, or create a public emergency?

--Robin Kundis Craig, William H. Leary Professor of Law, University of Utah S.J. Quinney College of Law