The SCOW docket: Indirect environmental impacts matter

Note: We are crunching Supreme Court of Wisconsin decisions down to size. The rule for this is that no justice gets more than 10 paragraphs as written in the actual decision. The "upshot" and "background" sections do not count as part of the 10 paragraphs because of their summary and very necessary nature. We've also removed citations from the opinion for ease of reading, but have linked to important cases cited or information about them.  ​

The case:  Applegate-Bader Farm, LLC v Wisconsin Department of Revenue​

Majority: Justice Patience Roggensack (26 pages), joined by Justices Ann Walsh Bradley, Rebecca Grassl Bradley, Rebecca Dallet, and Jill Karofsky.

Dissent: Justice Brian Hagedorn (10 pages)

Not participating: Justice Annette Ziegler

Roggensack

The upshot

​​We conclude that administrative agencies must consider indirect, as well as direct, environmental effects of their proposed rules when deciding whether to prepare an EIS. Therefore, Applegate met its threshold burden even though it alleged only indirect environmental effects of the rule. On review of the Department's decision not to prepare an EIS, we conclude that the Department failed to develop a reviewable record that demonstrates that it made a preliminary investigation and reached a reasonable conclusion about the environmental consequences of its action. Therefore, the ​Department failed to comply with WEPA. Accordingly, we reverse the court of appeals' decision that concludes to the contrary.

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Background

Applegate operates a farm in southern Wisconsin on approximately 11,000 acres of land. Roughly 2,000 of those acres are enrolled in a federal Wetland Reserve Easement (WRE) ("easement") through the Agricultural Conservation Easement Program (ACEP). Applegate's easement is permanent, and therefore it is unable to use the land subject to the easement for agricultural purposes. This action arises out of a 2015 revision of Wis. Admin. Code § Tax 18.05(1)(d) and the effect that that revision had on landowners with certain conservation easements....

(State law allows agricultural land to be taxed at a generally lower rate than other types of property, which must be taxed uniformly. In 2015, the state adopted a  rule limiting the types of land subject to an easement that qualified for the agricultural rate. Applegate's 2,000 acre easement did not qualify. – WJI)

As it relates to Applegate's WEPA (Wisconsin Environmental Policy Act) claim, Applegate alleged the following:

206. The final rule order excluded wetlands covered by the ACEP and WRE and completely removed agricultural use value assessment from wetlands enrolled in the Stream Bank Protection program...; the Conservation Reserve Enhancement program...; and the Non-point Source Water Pollution Abatement program....

207. The Department ignored and/or failed to consider evidence in its possession from the Department of Natural Resources that the exclusion and removal of wetlands in agricultural conservation easements from Tax 18.05(1)'s definition of "agricultural use" causes farmers to destroy sensitive wetlands by placing cows within the wetlands to achieve use value assessment.

208. The Department further ignored and/or failed to consider evidence in its possession from the [Department of] Natural Resources that the exclusion of WRP/WRE easements from Tax 18.05(1) is causing property owners to not enroll their wetlands into the federal program.

209. The removal and exclusion of wetlands conserved in agricultural easements from agricultural use value will result in the further destruction, degradation and loss of wetlands in this State.

210. The exclusion and removal of wetlands conserved in agricultural easements from agricultural use value has and will continue to have a significant effect upon the environment, thus, necessitating compliance with WEPA, Wis. Stat. [§] 1.11....

215. The Defendants failed to fulfill their independent duties under WEPA, Wis. Stat. § 1.11, to evaluate the environmental impact of excluding permanent conservation easements from Tax 18.05(1)(d) and failed to consider [the] full range of reasonable alternatives to minimize adverse social, economic and environmental impacts to the Plaintiff, state taxpayers, the effect on the State's wetlands and associated wildlife. 

216. The final decisions (and non-decisions) of the Defendants relative to the passage of Tax 18.05(1)(d) were arbitrary, capricious, erroneous and contrary to law under WEPA...


The court granted the Department's motion for summary judgment on the WEPA claim, holding that Applegate failed to allege facts that supported its claim of environmental effect of the rule.... 

(The Court of Appeals upheld the ruling. – WJI)

The court of appeals read our decision in Wisconsin's Environmental Decade, Inc. v. DNR ​to obviate the need for an EIS for indirect environmental effects. Because Applegate's claims of environmental harm were all indirect, the court held that it had not raised a bona fide WEPA claim....

The guts

The court of appeals was incorrect. As we have consistently held, agencies must consider both direct and indirect environmental effects of their major actions to determine whether those effects will have a significant effect on the human environment. Accordingly, we conclude that Applegate met its threshold burden under WED III, and we therefore address the record underlying the Department's negative-EIS decision.

As WEPA is based principally on the National Environmental Policy Act (NEPA), we may look to federal law in our quest to interpret WEPA's requirements. Under NEPA, "effects" include both direct and indirect effects, and indirect effects are defined as those that "are caused by the action and are later in time or farther removed in distance, but are still reasonably foreseeable." Especially pertinent to this case, "[i]ndirect effects may include growth inducing effects and other effects related to induced changes in the pattern of land use, population density or growth rate, and related effects on air and water and other natural systems, including ecosystems." Similarly, federal courts have long held that federal agencies must consider both direct and indirect environmental effects of major agency actions when determining whether to prepare an EIS. 

Despite what we thought was clear direction, the court of appeals read part of our decision in (Wisconsin Environmental Decade) as requiring a WEPA petitioner, such as Applegate, to allege that an agency action must have direct environmental effects in order to raise a bona fide WEPA claim. Specifically, the court of appeals concluded that "Applying WED [IV] here, it is clear that [Applegate's] theory of indirect effects of (the tax code) on how farmers use easement program lands cannot, on its own, give rise to a bona fide claim under WEPA." The court of appeals misread WED IV....

We were not referring to indirect environmental effects, but rather, we were referring to indirect, nonenvironmental effects.... However, that holding does not undermine the principle that indirect environmental effects may on their own become "significant" and necessitate an EIS.

Having confirmed that indirect environmental effects are to be considered in deciding whether to prepare an EIS and that Applegate has made sufficient allegations to constitute a bona fide WEPA challenge, we now consider the two-step review that we apply to negative-EIS decisions. Once again, the steps are: (1) whether the agency has developed a reviewable record, and (2) whether the record reveals that the agency's determination not to prepare an EIS was reasonable. We conclude that, for the reasons discussed below, the Department failed the first step of this analysis. It did not develop a record from which we may conclude that its negative-EIS decision was reasonable. ...

We have, on several occasions, concluded that an agency's record was satisfactory despite the record not having the specific information or investigation that the petitioner would have preferred....However, in each of those cases, the record revealed that the respective agency's decision was well reasoned and considered both the relevant environmental effects and the consequences of those effects. Such a record was not developed here. 

The Department's rulemaking record spans just over 800 pages. The Department argues that this record is sufficient to permit judicial review of its negative-EIS decision. We disagree. Upon a review of the record we notice documents and information that would signal to an agency that its action may have environmental effects and that it may need to take a "hard look" at those potential effects. However, what is not present within this administrative record is any agency discussion of the environmental effects of the rule. Nor is there any discussion, memoranda, e-mail, transcript or other documentation that explains the Department's rationale behind its negative-EIS decision. Without anything in the record that demonstrates the Department's reasoning for its negative-EIS decision, we are unable to conclude that the Department satisfied the first step of our required review....

We conclude that administrative agencies must consider indirect, as well as direct, environmental effects of their proposed rules when deciding whether to prepare an EIS. Therefore, Applegate met its threshold burden even though it alleged only indirect environmental effects of the rule. On review of the Department's decision not to prepare an EIS, we conclude that the Department failed to develop a reviewable record that demonstrates that it made a preliminary investigation and reached a reasonable conclusion about the environmental consequences of its action.

Hagedorn

The dissent

The majority concludes administrative agencies must consider both direct and indirect environmental effects when deciding whether to prepare an Environmental Impact Statement (EIS) under the Wisconsin Environmental Protection Act. I agree. I part ways with the majority, however, because Applegate-Bader Farm, LLC (Applegate) did not assert a bona fide challenge, and therefore the Department of Revenue (DOR) was not required to prepare an EIS.

To raise a bona fide challenge, Applegate must credibly allege that the rule change would significantly affect the environment's status quo prior to the change. Applegate's allegations do not come close to credibly alleging that the policy under the new rule as compared to the old rule would cause significant environmental impact. I respectfully dissent because I conclude that the rule amendment was not promulgated in violation of WEPA....

How is the judiciary to determine when an action might have a significant effect on the environment such that an EIS is required? State and federal courts analyzing this kind of language have understood this statutory call to leave significant room for agency discretion. To that end, this court adopted the following approach for so-called negative-EIS determinations:

We are of the opinion that the test of reasonableness should be applied to review a negative threshold decision under WEPA. Complete de novo review would be akin to treating the entire question of significant environmental effect as one of law. Where a question of law is presented, the reviewing court of course will determine the question independently regardless
of the standard by which the agency's overall decision is to be tested. However, the question whether there is present in a given case a major action significantly affecting the environment will in general be a matter of both law and fact. . . . [Wis. Stat. § 1.11(2)(c)] contemplates the exercise of judgment by the agency, but that judgment must be reasonably exercised within the limits imposed by the Act.  

This reasonableness standard has governed review of WEPA claims ever since.

Moving beyond the statutory command, we went further...and mandated a process for the express purpose of enabling judicial review. Namely, an agency must create "a reviewable record reflecting a preliminary factual investigation covering the relevant areas of environmental concern."  We then review that record to determine whether the agency made a "reasonable judgment" that no EIS is needed. This court recognized, however, that an agency need not undertake a preliminary investigation for every single major agency action. We observed that some alleged environmental challenges would be so "patently trivial or frivolous" that an agency may reasonably conclude no preliminary investigation is required to pass them over; searching judicial review in that circumstance would be inappropriate. Id. at 424. We explained that where it is clear that an action will not significantly affect the quality of the human environment, no bona fide challenge is made and an agency may reasonably decide not to conduct any further investigation. 

DOR has not challenged this framework here, and I accept these basic principles. Nonetheless, it is worth candidly observing that the preliminary investigation requirement is a judicial creation, not a statutory mandate. While the desire for courts to have something to work with is understandable, and perhaps necessary, this judicially-imposed preliminary procedure is a means to review compliance with actual statutory commands, and should be understood in that light. 

This case raises the question of whether a bona fide claim was made, thus requiring a preliminary investigation. In my view, the majority's approach to this requirement is too strict, and insufficiently attentive to the fact that we're a judicially-created step removed from the statutory requirement itself. Again, WEPA requires an EIS for major actions significantly impacting the environment, not a preliminary investigation into whether an EIS is required....

Additionally, as a matter of consistency with the statute, a bona fide challenge should also demonstrate that the agency knew or should have known of the significant environmental effect at the time it considered the major action. Unless the agency is presented the information during the rulemaking process, it may not learn of the alleged effect until long after the rule has been promulgated. WEPA does not require invalidation of already-promulgated rules based on information about the environment that was not known, constructively or otherwise, before the rule was adopted. Therefore, the bona fide challenge requirement should demand credible allegations that the agency knew or should have known of the particular and potentially significant environmental effects alleged in the challenger's complaint. 

In this case, Applegate's complaint references documents found in the rulemaking record, but it nevertheless falls short of stating a bona fide challenge. Even assuming DOR knew of Applegate's allegations during the rulemaking process, these allegations, as articulated in the majority's citation to Applegate's complaint, do not rise to the level where DOR needed to prepare an EIS or even investigate further....

Nowhere does Applegate explain how the 2014 amendment to § Tax 18.05 altered...baseline environmental condition(s) (or for that matter how DOR should have evaluated such an effect). Therefore, I conclude Applegate failed to state a bona fide WEPA challenge.

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