The issues before the court concern whether state administrative land use regulations, applicable to the designation of plaintiffs' land as a floodway, for a four-year period, is a "taking' of property in the constitutional sense, and, if so, what is the appropriate remedy. The first issue appears to be novel in New Jersey.
Plaintiffs' complaint originally sought a declaration that the enabling legislation, N.J.S.A. 58:16A-50 et seq. , and regulations promulgated by the Department of Environmental Protection (DEP), Division of Water Resources, N.J.A.C. 7:13-1.1 et seq. , were unconstitutional. At trial plaintiffs conceded that the subject legislation and regulations were constitutionally valid; such contentions are now resolved. In any event, jurisdiction to review the propriety of a decision or action or rule of a state agency originates in the Appellate Division of the Superior Court, rather than this court. R. 2:2-3(a).
On August 23, 1968 plaintiffs acquired a vacant tract of about seven acres, triangular in shape, having an average depth of 575' and a width of 1150', which parallels a 50' railroad right-of-way which, in turn parallels Metuchen Road. The property has water and electricity available, but lacks gas and sewer lines which could be brought in from Metuchen Road. That road is paved to within 300' of the property. Access would require the additional paving of Metuchen Road and construction of an access road across the railroad's property, for which permission
has already been obtained. The property is zoned for heavy industrial uses, which include office buildings, research laboratories, light and heavy manufacturing, the storage of building materials, fuels and similar matter, and retail sales. Junk yards and residential uses are prohibited. The generally surrounding properties have been 50%-70% developed. A heavy industrial use would be the highest and best use of the site.
In February 1973 the DEP proposed certain acreage, including this site as within a "floodway.' This designation was officially adopted on May 21, 1973. In mid-1973 plaintiffs had a professional prepare an evaluation of subsurface conditions and perform other preliminary site work, which noted that the property was situated in a "floodway.' In December 1974 a DEP official wrote to plaintiffs' counsel stating that because of the "floodway' designation "no construction will be permitted.' That author acknowledged he did not know of any exception to the bar against construction, but invited plaintiffs to submit their plans and encroachment application to the Water Policy and Supply Council. Plaintiffs ignored the invitation.
Effective June 2, 1975 the DEP promulgated land use regulations applicable to "floodways,' N.J.A.C. 7:13-1.1 et seq. The enabling legislation provided:
"It is in the interest of the safety, health, and general welfare of the people of the State that legislative action be taken to empower the Division of Water Resources to delineate and mark flood hazard areas, to authorize the Department of Environmental Protection to adopt land use regulations for the floodway, and to coordinate effectively the development, dissemination, and use of information on floods and flood damages that may be available. [ N.J.S.A. 58:16A-50]
The department is authorized to adopt, amend and repeal rules and regulations concerning the development and use of land in any designated floodway which shall be designed to preserve its flood carrying capacity and to minimize the threat to the public safety, health and general welfare. [ N.J.S.A. 58:16A-55]
A floodway was defined as:
The regulations prohibit, within floodways, the erection of a structure for occupancy at any time for humans or livestock, the storage of materials or equipment, and the depositing of any solid waste. N.J.A.C. 7:13-1.4. Permitted uses include lawns, gardens, play areas, recreation fields and lands for cultivating crops or plants or for the grazing of animals, provided such uses did not require the importation of fill nor the erection of a structure or the impeding of water flow. N.J.A.C. 7:13-1.5. The regulations further provide that all other uses should be sanctioned through stream encroachment permits (N.J.S.A. 58:1-26 et seq.), although permits would not be issued for any prohibited uses. N.J.A.C. 7:13-1.6 and 7:13-1.4(d). The regulations did provide an appeal mechanism upon a showing of hardship, to facilitate the limited rebuilding of a preexisting prohibited use. N.J.A.C. 7:13-1.4(c).
In the Fall of 1975 counsel for plaintiffs inquired of the borough building inspector whether a building permit could be issued. The official responded that a permit would be refused because of the DEP's designation. Nevertheless, on January 22, 1976 plaintiff filed an application to build a 30,000 sq. ft. warehouse, a permitted use under local zoning. A variance would be required because the property lacked street frontage. Plaintiffs had limited building plans but they were not required by the borough. Rather, the building inspector wrote plaintiffs on January 26, "[Y]our application for a building permit must first be approved by the Department of Environmental Protection, Division of Water Resources, State of N.J. before any action can be taken by the Borough, as your land is located in the flood hazard area.' Presumptively, the building inspector had in mind a stream encroachment permit, N.J.S.A. 58:1-26 et
seq. , and as modified by N.J.A.C. 7:13-1.6 and 7:13-1.4(d). Plaintiffs never applied for any state approval. The land remains fallow today.
On June 2, 1979 the DEP redesignated plaintiffs' property from a "floodway' to a "flood fringe' area because of refinements in technology and topographical changes of surrounding properties. The prohibited uses of the Administrative Code do not apply to "flood fringe' areas. Plaintiffs' complaint originally sought that the State be required to institute condemnation proceedings. Because of the DEP's 1979 redesignation, plaintiffs alternatively now seek money damages.
Utilizing the comparative sales approach, plaintiffs' expert testified that the land, regulated only by the zoning ordinance, over any period at issue, is valued at $22,000 an acre, or a total of $154,000. Plaintiffs contend that the state prohibited uses rendered the property substantially useless, having only a total $17,500 value to a land speculator.*fn1 Plaintiffs calculated damages by using a constant 10%*fn2 of the full land value, as the lost annual rental value. To the lost annual rental value plaintiffs added the actual taxes paid for the given year.*fn3 These totals are the claimed damages. According to plaintiffs, if the taking occurred when plaintiffs learned the property was designated a floodway and the temporary taking continued until the designation was lifted December 13, 1974 to June 2, 1979, the damages are $78,610; if the taking occurred when the prohibited "floodway' uses became effective, June 1, 1975 to June 2, 1979, the damages are $70,380; if the taking occurred when plaintiffs
actively sought development which the building inspector denied because of the State's prohibition, January 26, 1976 to June 2, 1979, the damages would be $59,971.
Defendant's valuation of damages, also using a comparative sales approach, was more modest. Without considering the effects of the State's use regulation and acknowledging an industrial use as the most appropriate, defendant urges that in 1975 the seven-acre site was worth $15,000 an acre, or $105,000. Its value would increase annually, at the rate of 7.5%, so that in 1979 the tract would be worth $20,000 an acre, or $140,000. Considering the use regulations for a floodway, the State agreed that the property's total value decreased to $17,500, which would stay constant over the years. The State took a credit for this residual value, contending therefore that the loss in property value, due to the State regulations, in 1975 was $87,500; in 1976 was $95,400; in 1977 was $103,600; in 1978 was $112,700 and in 1979 was $122,500. The State agreed that 10% of these values was the proper factor to calculate damages in any given year. Therefore, without yet considering taxes paid, the State urges that plaintiffs were damaged in 1975 in the sum of $8,750; in 1976 the sum of $9,540; in 1977 the sum of $10,360; in 1978 the sum of $11,270, and in 1979 the sum of $12,250. Cross-examination of the State's expert revealed a dispute as to the proper apportionment of paid taxes between the land's residual value and its loss value. For the periods at issue the disputed amount was less than $1,000. I find that a factor determined from the quotient of the annual value of the land divided by the annual taxes paid, and the application of that factor annually to both the loss value and to the residual value ...