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Christie DEP Flood Credit Trading Scheme Is an Illegal Tax On Development

Flood Risks Are Not Property and Not DEP’s To Tax, Bank, and Trade

The Legislature has Not Authorized A Flood Credit Trading Scheme

DEP Monetizes Flood Risk

ul·tra vi·res/ˌəltrə ˈvīrēz/
beyond one’s legal power and authority

The State Department of Environmental Protection (DEP) is not authorized to levy taxes, print money, create banks, or regulate financial products and services.

The Legislature has passed no such law delegating such broad and sweeping powers to DEP.

But that is precisely what DEP has done in a proposed regulation that would establish a flood credit mitigation and trading scheme and flood credit bank.  Look how DEP explains that huge policy expansion – buried in the fine print of a 900+ page rule proposal, justified as just some kind of minor bureaucratic “alignment”

The rules will require that the applicant provide riparian zone mitigation for all vegetation removed in excess of the limits.

Reflective of the alignment of the land use regulatory programs, riparian zone creation and preservation are proposed to be added as compensation alternatives, as these are compensation options for disturbance to freshwater wetlands and transition areas under the FWPA rules. Also, standards for riparian zone mitigation banks are proposed, similar to freshwater wetlands mitigation banks under the FWPA rules. (page 10)

Standards for riparian zone mitigation banks are also proposed to be adopted, which will encourage the development of banks similar to the freshwater wetlands mitigation banks. A definition for “mitigation bank” is proposed at N.J.A.C. 7:13-1.2, which mirrors the existing definition in the FWPA rules and proposed definition in the CZM rules, and which establishes the type of operation that may be undertaken to provide compensatory mitigation for disturbances to riparian zone vegetation under the FHACA Rules. (page 128)

Mitigation bank” means an operation in which riparian zone vegetation is created, restored, enhanced, or preserved by a mitigation bank operator, for the purpose of providing compensatory mitigation for disturbances to riparian zone vegetation.

“Credit purchase” means the purchase of credits from a mitigation bank, as that term is defined at N.J.A.C 7:13-1.2, as a substitute for performance of creation, restoration, enhancement, or preservation by a permittee.

There’s just a slight legal problem with this DEP proposal: it has no legal basis!

The Freshwater Wetlands Act does in fact create a Wetlands Mitigation Council and authorize a wetlands mitigation trading scheme that can be implemented via freshwater wetlands permits.

But the Flood Hazard Area Control Act DOES NOT authorize a riparian compensation or trading scheme that can be implemented via stream encroachment permits.

DEP can’t simply say that they are “aligning” disparate wetlands and flood hazard programs and create a major new “riparian compensation” and “riparian trading” scheme out of whole cloth.

Just Write A Check To Destroy Stream Buffers and Increase Downstream Flood Risks

Here’s how this scheme would work:

Right now, it is illegal for a developer to cut down a forest and build within 300 feet of a Category One stream. DEP can’t issue a permit for that.

Under the proposal, the developer would now be allowed to do so by merely providing “compensation” and purchasing credits from the DEP created bank.

Meanwhile, not only is the environment destroyed, downstream properties face increased flood risk.

In proposing this scheme, without even an assertion of legislative authorization, DEP has used environmental regulatory power to require the flood hazard permit applicant to purchase credits, in certain cases.

DEP, by regulation, has created flood mitigation credits. Those credits are a fungible commodity that will have significant economic value.

DEP, by regulation, has created a market for valuing, banking, and transacting financial trades of this new economic commodity. DEP regulations provide oversight and enforcement power over this financial scheme.

In essence, DEP has used environmental regulatory powers, delegated  by the Legislature to reduce flood risks and protect water quality, to extract a tax on development, while increasing flood risks and creating more water pollution.

Make no mistake, the cost of a mitigation credit is no different, functionally, than a tax.

Disturbance of stream vegetation creates flood risks to people and property. DEP should set standards to prevent it and not issue permits  that would allow it.

It is bad enough that DEP is allowing huge increases in allowable destruction of stream vegetation. But it is an outrage for DEP to monetize flood risk and create a market trading scheme. That is not only illegal, it is immoral.

This is so over the top it is remarkable. Not since the Big Map has DEP so over-reached.

Perhaps DEP Commissioner Bob Martin didn’t get the memo from Gov. Christie regarding “no new taxes” and the Executive Order #2 mandate to provide”regulatory relief”.

The DEP proposal is not only blatantly illegal and immoral, it makes a mockery of Gov. Christie anti-tax and anti-red tape claims.

Easy Fodder for legislative Veto

On Monday, the Senate Environment Committee will hear a Resolution, SCR 180, to begin the process of legislatively vetoing this DEP proposed rule.

The first step in analyzing whether a proposed regulation is “inconsistent with Legislative intent” is to determine the specific legislative provision that provides authorization for the regulation.

In this case, because the proposed trading scheme lacks any legislative authorization – something the lawyers call ultra viresby definition the DEP rule can not possibly be consistent with legislative intent and therefore must be inconsistent because there is no legislative intent!

The NJ Experience with trading schemes

Trading schemes have proven extremely controversial in New Jersey and nationally.

Most recently, Gov. Christie sees a hidden bureaucratic tax in the greenhouse gas “cap and trade” program:

Finally and importantly, RGGI does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernable or measurable impact upon our environment.

While Gov. Christie may have acted unilaterally to exit from RGGI, the entrance was authorized by the Legislature.

So let me provide a few examples of how – in all cases – the legislature made findings, established policy, and and passed laws that authorized various forms of trading BEFORE they were implemented via regulation.

Power Plant Emissions Trading in the Regional Greenhouse Gas Initiative (RGGI)

Although DEP negotiated and Gov. Codey signed the original Memorandum of Understanding with Northeastern States to create the Regional Greenhouse Gas Initiative (RGGI), it took the Legislature to pass a law to authorize DEP to create a regulatory program to implement RGGI. The legislature found:

The Legislature finds and declares that New Jersey should implement cost-effective measures to reduce emissions of greenhouse gases, and that emissions trading and the auction of allowances can be an effective mechanism to accomplish that objective.

“Transfer of Development Rights” (TDR)

Here’s the State Agricultural Development Committee’s website:

On March 29, 2004, the New Jersey Legislature enacted the State Transfer of Development Rights Act.  This legislation made New Jersey the first state in the nation to authorize statewide comprehensive TDR enabling legislation.

The State TDR Act provided municipalities statewide with the ability to participate in both intra-municipal and intermunicipal development potential transfers. This bill also formalized the planning process required to enact TDR and mandated a list of planning documents required prior to adopting a TDR ordinance. To assist municipalities in planning for TDR, the Act also authorized the State TDR Bank Board to provide Planning Assistance Grants.

State TDR Act (N.J.S.A. 40:55D-13.7 et. seq.)
Requirements for TDR Establishment

NJ State TDR Bank Regulations (N.J.A.C. 2:77)

Pinelands Development Credits and Bank in the Pinelands Act

Here is authorizing language from the Pinelands Protection Act:

13:18A-30. “Pinelands Development Credit Bank Act”; short title

This act shall be known and may be cited as the “Pinelands Development Credit Bank Act.” L. 1985, c. 310, s. 1, eff. Aug. 28, 1985.

13:18A-31. Legislative findings

The Legislature finds and declares that, pursuant to the provisions of P.L. 1979, c. 111 (C. 13:18A-1 et seq.), the comprehensive management plan for the pinelands area has been adopted and is now being implemented; that this plan includes a program for the allocation and transfer of pinelands development credits; and that the intent of the pinelands development credit program is to provide a mechanism to facilitate both the preservation of the resources of this area and the accommodation of regional growth influences in an orderly fashion.

The Legislature further finds and declares that the concept of transferable development credits is innovative and, as yet, unprecedented on a regional scale; that in order to realize the full measure of the benefits of such a program, steps must be taken to assure the marketability of these credits; and that the best means of providing this assurance is through the establishment of a Pinelands Development Credit Bank empowered to purchase and sell pinelands development credits and to guarantee loans secured thereby, all as hereinafter provided.

Highlands TDR and Development Credit Bank in the Highlands Act

The Highlands Act was based on the Pinelands Act. Here is the enabling authority in the Highlands Act

(1) The council may use the State Transfer of Development Rights Bank established pursuant to section 3 of P.L.1993, c.339 (C.4:1C-51) for the purposes of facilitating the transfer of development potential in accordance with this section and the regional master plan. The council may also establish a development transfer bank for such purposes.

Wetlands Mitigation Trading, Mitigation Bank, and Mitigation Council in the Freshwater Wetlands Protection Act

DEP is proposing a huge expansion of the Freshwater Wetlands Act legislatively authorized mitigation scheme to all waters of the state.

Here is DEP’s authority under the Freshwater Wetlands Act -notice this says nothing about flood mitigation:

§ 13:9B-13. Mitigation of adverse environmental impacts

a. The department shall require as a condition of a freshwater wetlands permit that all appropriate measures have been carried out to mitigate adverse environmental impacts, restore vegetation, habi- tats, and land and water features, prevent sedimentation and erosion, minimize the area of freshwa- ter wetland disturbance and insure compliance with the Federal Act and implementing regulations.

b. The department may require the creation, enhancement, or restoration of an area of freshwater wetlands of equal ecological value to those which will be lost, and shall determine whether the creation, enhancement, or restoration of freshwater wetlands is conducted onsite or offsite. The depart- ment shall accept and evaluate a proposal to create, enhance, or restore an area of freshwater wet- lands only after the department has evaluated the permit application for which the proposal is made, and shall evaluate the proposal to create, enhance, or restore an area of freshwater wetlands inde- pendently of the permit application. The department’s evaluation of a proposal to create, enhance, or restore an area of freshwater wetlands shall be conducted in consultation with the United States En- vironmental Protection Agency.

c. If the department determines that the creation, enhancement, or restoration of freshwater wetlands onsite is not feasible, the department, in consultation with the United States Environmental Protection Agency, may consider the option of permitting: the creation of freshwater wetlands or the enhancement or restoration of degraded freshwater wetlands offsite on private property with the restriction on these freshwater wetlands of any future development; the protection of transition areas or upland areas offsite, on private property, that are deemed by the department to be valuable for the protection of a freshwater wetlands ecosystem, with the restriction on these areas of any future development; or the making of a contribution to the Wetlands Mitigation Bank. The contribution shall be equivalent to the lesser of the following costs: (1) purchasing, and enhancing or restoring, existing degraded freshwater wetlands, resulting in preservation of freshwater wetlands of equal ecological value to those which are being lost; or (2) purchase of property and the cost of creation of freshwater wetlands of equal ecological value to those which are being lost. The applicant may also donate land as part of the contribution if the Wetlands Mitigation Council determines that the donated land has potential to be a valuable component of the freshwater wetlands ecosystem. The department shall permit the donation of land as a part of the contribution to the Wetlands Mitigation Bank only after determining that all alternatives to the donation are not practicable or feasible.

DEP’s website explains this:

The Wetlands Mitigation Council (Council) serves as an oversight committee for monetary contributions or donations of land to satisfy mitigation requirements. No monetary contribution or land donation can be accepted to satisfy a mitigation requirement unless it is first approved by the Council.

The Council is established by statute under the Freshwater Wetlands Protection Act and is comprised of seven members …

Proposed Flood Credit Trading Scheme Lacks Any Legislative Authorization

The Flood Hazard Act, and the other statutes pursuant to which the proposed rule is proposed, say nothing about any DEP powers to create a mandatory riparian mitigation program, create mitigation credits or a mitigation bank, or a mitigation trading scheme. Read it yourself.

The only “bank” the law mentions is a stream bank!

DEP has made the whole thing up out of whole cloth, a huge statewide expansion of regulatory power based on the Wetlands Mitigation scheme that was authorized by Legislation.

The Legislature must veto the DEP’s proposed rule as inconsistent with legislative intent on this basis alone.

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