United States: President Orders Agencies To Adopt Earlier Consideration Of Economic Impacts From Critical Habitat Designations

On February 28, 2012, President Obama issued a Presidential Memorandum for the Secretary of the Interior, directing the Department of the Interior to revise its regulations regarding the evaluation of economic impacts associated with designating critical habitat under the Endangered Species Act (ESA). The Presidential Memorandum was issued in conjunction with a proposed rule to revise the critical habitat designation of the threatened northern spotted owl in the Pacific Northwest. The president's direction comes as part of the U.S. Fish and Wildlife Service's (FWS) efforts to improve regulatory efficiency pursuant to the January 18, 2011, Executive Order No. 13563.

Timing of EconomicCconsiderations Under the Endangered Species Act

Section 4(b)(2) of the ESA provides that "[t]he Secretary shall designate critical habitat . . . on the basis of the best scientific data available and after taking into consideration the economic impact, the impact on national security, and any other relevant impact, of specifying any particular area as critical habitat." 16 U.S.C. § 1533(b)(2) (emphasis added). Unless doing so would result in a species' extinction, the secretary may exclude any area from critical habitat designation if he determines that the benefits of exclusion outweigh the benefits of inclusion. Id. FWS and the National Marine Fisheries Service's (NMFS) (collectively, the Services) joint regulations affirm the duty to consider economic impacts prior to designating critical habitat. See 50 C.F.R. § 424.12.

The Services' current practice is to complete economic evaluations of the designation of critical habitat after the completion of the scientific analysis, rather than having them be completed simultaneously. As a result, the Services have released proposed critical habitat designations prior to the completion of the economic analysis, meaning that both the Services and the public do not have the benefit of such analysis when conducting their review of the proposed rule. The Presidential Memorandum directs the Services to promptly begin the process of revising the regulations to require that economic analyses be completed and made available for public review and comment at the time of the publication of the proposed rule for a critical habitat designation.

Exclusion of Private and State Lands

In the context of the spotted owl designation, FWS has been encouraged to balance the economic and public benefits associated with excluding some private and state lands from critical habitat designations. The Presidential Memorandum and accompanying proposed rule emphasize "the importance of flexibility and pragmatism" in determining how to measure the benefit of excluding particular areas from critical habitat designations. In particular, the Presidential Memorandum notes that "based on a recognition that habitat typically is best protected when landowners are working cooperatively" as impetus for the Services to consider excluding private lands from critical habitat designation.

Additional Issues Involving Economic Considerations in Critical Habitat Designations

Over the years, there has been considerable confusion surrounding economic exclusions from critical habitat. While the timing of the economic analysis related to exclusions has been problematic, even more contentious has been the manner in which the Services determine the level of economic impacts. The central dispute has been over the use of the so-called "baseline" method. The U.S. Office of Management and Budget (OMB) sets guidelines for economic analysis of regulations. The guidelines direct federal agencies to measure the costs of a regulatory action from a set baseline, which it defines as "the best assessment of the way the world would look absent the proposed action." See Office of Mgmt. & Budget, Circular A-4 (Sept. 17, 2003), available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf. In the context of Section 4(b)(2) of the ESA, the baseline includes the existing regulatory and socio-economic burdens imposed on landowners, managers or other resource users potentially affected by the designation of critical habitat. Under OMB guidance as long interpreted by FWS and NMFS, the baseline includes costs associated with listing particular species under the ESA. Impacts that are incremental, or occurring over and above the baseline, are considered attributable to the proposed regulation and included in the Section 4(b)(2) analysis.

Over the past decade, significant debate has arisen over whether the use of this baseline approach when assessing the impacts of proposed critical habitat designations is appropriate. Prior to 2001, the Services generally applied the so-called baseline approach in such a manner that the costs of critical habitat designation were considered to be coextensive with those caused by listing. Thus, because listing occurred first, the Services claimed that critical habitat designation added little or nothing to these baseline costs. As a result, economics-based exclusions did not occur because no additional costs were attributed in excess of any listing-related costs.

In 2001, the 10th Circuit Court of Appeals issued an opinion in New Mexico Cattle Growers Association v. U S. Fish & Wildlife Service, 248 F.3d 1277 (10th Cir. 2001), holding that the baseline approach is not consistent with the ESA and instructing FWS to conduct a full analysis of all the economic impacts of proposed critical habitat designations, regardless of whether those impacts are attributable coextensively to other causes (i.e., existing regulatory burdens, such as species listing decisions). Since the 10th Circuit's decision, however, some courts in other jurisdictions have held that the practice of examining economic impacts using a baseline analysis of impacts stemming solely from critical habitat rulemaking is proper. See, e.g., Cape Hatteras Access Pres. Alliance v. Dep't of Interior, 344 F. Supp. 2d 108 (D.D.C. 2004); Ctr. for Biological Diversity v. Bureau of Land Mgmt., 422 F. Supp. 2d 1115 (N.D. Cal. 2006); Ariz. Cattle Growers' Ass'n v. Kempthorne, 534 F. Supp. 2d 1013 (D. Ariz. 2008), aff'd sub nom. Ariz. Cattle Growers' Ass'n v. Salazar, 606 F.3d 1160 (9th Cir. 2010), cert. denied, 131 S. Ct. 1471 (2011).

During the period since the issuance of these conflicting interpretations, the Services' approach to economic analysis has been widely varied, and the agencies have operated without a consistent set of principles governing how economic costs associated with critical habitat designation are calculated.

Next Steps

As part of its regulatory streamlining program, the Obama Administration has set forth a number of initiatives to improve administration of the ESA. While the timing of economic analysis for critical habitat designations is one such action, also important will be the manner in which the Services address the need for a uniform set of principles that will govern the substantive basis for determining the grounds for economic exclusions.

The Presidential Memorandum does not itself propose any changes to the regulations; rather, it orders the Services to undertake rulemaking to implement the Memorandum's changes to the timing of the economic analyses of critical habitat designations. Once the Services issue a proposed rule, it will be made available for public comment.

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