Bustos Law Firm

A New Day for Texas Water Rights?

In Landowners, Texas Law, Water Law on March 21, 2012 at 10:50 AM

If last summer taught Texans anything, it was that water scarcity is no joke. With record droughts and temperatures affecting everything from agriculture to wakeboarding, water was on everyone’s minds.

With water on the brain in Texas, many waited to see what the state Supreme Court would do with groundwater rights in a long pending case, Edwards Aquifer Authority v. Day, decided on February 24, 2012.

At issue in Day was the validity of the Edwards Aquifer Authority’s (EAA) implementation of a permit system that prioritized water rights based on landowners’ historic usage patterns. The EAA was created by the Texas Legislature in 1993 as part of Texas’s broader groundwater regulation structure through localized Ground Water Districts (GWDs). Under Texas’s regulatory structure, GWDs have the ability to apportion the amount of water that landowners inside the district may pump in a given year. Although the GWDs face some restrictions, they generally have broad authority to regulate the consumption of groundwater in their districts.

While GWDs possess broad authority to craft their regulatory structures, most GWDs have allocated their permits on the consideration of how much groundwater a landowner had previously put to use on their land. The Texas Water Code (TWC) requires GWDs to consider historic use as a factor to be considered by the GWDs, but the TWC does not make that factor dispositive. Indeed, the TWC does not mandate that any historic usage pattern be preserved.

The EAA, by contrast, does not have the same flexibility that GWDs possess. Instead, the Texas legislature included a mandatory consideration in the EAA’s enabling act that “[t]o the extent water is available . . . [the EAA] shall issue the existing user a permit for withdrawal of an amount of water equal to the user’s maximum beneficial use of water . . . for any one calendar year [during June 1, 1972 to May 31, 1993].” Thus, the EAA is not free to choose from a broad array of considerations to structure its permitting system like GWDs are under Chapter 36 of the Texas Water Code. This rigidity is what prompted Day.

Day began when the EAA was first created. R. Burrell Day and Joel McDaniel purchased a tract of land inside the EAA’s authority. That tract of land had a well that tapped into the Edward’s Aquifer and had been used by the previous owners to irrigate the land. Problematic for Day and McDaniel was that the well primarily filled a lake on the property that was used mostly for recreation. Although some of the irrigation water was drawn directly from the well, most of the irrigation water was drawn from the lake. This fact caused the EAA to severely curtail the amount of historic use Day and McDaniel’s property qualified for because the only use that counted under the EAA’s regulatory scheme was water that came directly from the well and was put to a beneficial use; filling a lake to play in does not constitute a beneficial use.

More than ten years after the EAA issued the usage permit to Day and McDaniel, the Supreme Court addressed Day and McDaniel’s challenge. The case centered on the ability of the EAA, a state entity, to curtail access to the water below an owner’s land without any kind of compensation. The challenge implicated the Texas Constitution’s takings clause. Article I, section (17)(a) states “[n]o person’s property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation.”

Day required the court to first address a question it had artfully dodged for over a century: Can someone own water beneath their land if that water is not stationary beneath only their land and instead flows through an underground aquifer that covers anywhere from hundreds to thousands of square miles? The court answered this question in the affirmative by drawing on the court’s similar conclusion in its well settled case law relating to oil and gas rights. Although the court announced that landowners do have property interest in the water underneath their land, the court did not announce a definitive test to determine the amount of water a land owner possesses. Instead, the court merely provided that landowners have a property interest in the “fair share” of water beneath their land.

With that threshold question out of the way, the court then addressed Day and McDaniel’s takings claim. The taking claim at issue was specifically a regulatory taking because the state was not literally taking or occupying the property at issue, but instead limiting its use. To succeed on a regulatory taking claim, one most demonstrate that (1) that the regulation economically interferes with (2) a reasonable investment backed expectation the owner had in acquiring the property, and (3) that the regulation is not reasonable.

The court found that the factual record developed in the courts and agency proceedings below it did not provide enough information for it to determine whether Day and McDaniel could succeed on the first two factors. The key fact absent from the record was what amount of water, if any, Day and McDaniel expected to receive under the EAA’s historic use allocation. But the court did analyze the third factor. To determine whether the EAA’s permitting allocations were reasonable, the court focused on the differences between the EAA’s enabling act and the TWC. The court searched for a justification for the EAA’s specific legislative mandate to absolutely prioritize water allocation based on the historic usage of landowners in light of the TWC’s more flexible test that allows each GWD to form their own priorities in allocating water. Neither the EAA itself, nor the court could supply a viable justification for why the EAA could not follow a similar approach to GWDs that derive their authority from the TWC. Based on the lack of factual development and the court’s inability to say that EAA’s absolute prioritizing of historic use is reasonable, the court sent the case back down to the trial court to develop the facts necessary to decide whether Day and McDaniel had a compensable taking claim.

With the persistence of drought conditions throughout much of Texas, the pronouncement that water rights curtailment through permits issued by the EAA or other GWDs may constitute compensable taking claim has the potential to greatly shake the current structure of Texas water law. When the Texas legislature convenes next January, Day will likely force a hard look at the current structure of GWDs and special entities like EAA. In the intervening months, landowners whose permits are limited mostly by historic use considerations may have the potential to gain compensation through a takings claim theory. Day, then, appears to provide a catalyst for a reconfiguration of water regulation in Texas that will come on the heels of one of the hottest and driest summers in Texas history. Thus, for a case that did very little to advance the litigation of the parties before the court, Day likely constitutes a game-changing case, the impact of which will be felt for many years.

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