The Appellate Division recently issued an opinion upholding part of DEP’s Highlands Act rules while sending a part of it to the Office of Administrative Law for a hearing. The Court’s opinion can be found here. In May 2005, DEP adopted interm rules implementing the Highlands Act. Final rules were adopted by DEP in December 2006. The New Jersey Farm Bureau filled an appeal of these rules challenging the sections dealing with water allocation and the septic density.
Essentially the Farm Bureau alleged that the water allocation rules, as proposed by DEP, were not authorized by the statute. DEP’s rules provided that DEP may modify an existing water allocation permit if the permittee had been using less than 80% of the allocation over the five years or if “all practical water conservation measures are not undertaken.” NJAC 7:38-3.2. Before DEP may reduce an allocation DEP must provide a permittee with a public hearing on the reduction prior to the modification of the permit. The Farm Bureau argued that the authorizing statute, NJSA 13;20-32(d) provide DEP the authority to reduce an allocation only when, “measures to the maximum extent practicable are not implemented to reduce demand.”
First the Court noted that DEP could not modify an allocation solely because the permittee was using less than 80% of the allocation. The Court then went on to uphold the DEP’s regulations because the regulations were permissive not mandatory. It noted that “DEP ‘may’ reduce an approved water allocation if the actual usage has been less than 80% of the allocation for the previous five years.” And that before tDEP could modify the permit, the permittee has to be afforded a hearing on the modification. If a permittee could show that it has reduced demand “to the maximum extent practicable” then DEP could not reduce the permittee’s allocation. Therefore, the Court reasoned there was no conflict between the authorizing statute and the implementing rule.
The Court also made short work of the Farm Bureau’s other argument that the rules conflicted with the Water Supply Management Act by noting that the Highlands act specifically permitted the regulations to conflict with the Water Supply Management Act. NJSA 13:20-32(d).
Where the Farm Bureau did score somewhat of victory was its challenge to the septic density standard. The Highlands Act directs DEP to adopt a septic system density standard, in the preservation area, that will prevent the degradation of water quality or that is necessary to restore the water quality and that is protective of ecological uses. NJSA 13:20-32(e). The DEP regulations provided that on lots containing all forests a septic system would require 88 acre lots. On non-forested lots a septic system would require 25 acre lots. N.J.A.C. 7:38-3.4(b)(1) & (2). The Farm Bureau alleged that DEP should have used average recharge rates instead of recharge rates based upon a drought. They also argued that DEP’s assumption of the number of people per household was too high and DEP’s selection of ambient nitrate levels were too low. Therefore, the Farm Bureau argued that if DEP used better numbers in their calculations that the density requirements would be much lower.
The Court found that the Farm Bureau had raised sufficient questions as to the methodology used by DEP to arrive at the standards that a hearing before the office of administrative law should be held to create a sufficient record to determine whether DEP’s methodology could be found not to be arbitrary and capricious. In essence the Court found that DEP did not create a sufficient record in its rulemaking to allow the Court to defer to the agency’s expertise. In its opinion the Court directed DEP in the OAL hearing, “that this methodology has been used by any other agency with comparable regulatory authority.”
The remand by the Court is either an opportunity for DEP to back up its methodology with facts or an opportunity for the Farm Bureau to show that DEP’s methodology and resulting rule is not based upon science and the facts; therefore it is arbitrary and capricious.