APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY.
Weis, Becker and Van Dusen, Circuit Judges.
Finding that circumstances warranted an exception to its general prohibition against floodplain development, New Jersey granted permission for construction of dwelling units in a seaside community. The federal Environmental Protection Agency later agreed to grant funds for the construction of an indispensable sewage treatment plant in the area, but only on the condition that no hookups be permitted to the proposed residences. In view of the record in this case and because Congress has encouraged state and local regulation of coastal areas, we conclude that EPA acted arbitrarily in imposing the hookup restriction in defiance of the state and local action. Accordingly, we vacate the judgment entered in favor of EPA and remand for further proceedings.
Plaintiff Cape May Greene, Inc. sought injunctive and declaratory relief against the restrictive condition, but the district court denied relief and entered summary judgment against plaintiff. Other claims against non-federal defendants and cross-claims were ultimately terminated and plaintiff appeals.
The plaintiff, a land developer, owns most of two parcels of land, designated as tracts A and B, in Cape May City, New Jersey. The City is part of the Cape May region located at the southern tip of New Jersey. The Atlantic Ocean borders the region on the east and south, the Delaware Bay lies to the west, and to the north the mainland is cut off by a canal and the Cape May Harbor.
The region encompasses some 5700 acres. More than 3,600 acres, or 64% of the area, consist of wildlife habitats, wetlands, public open space, dunes, and beaches, all of which are closed to development by state and local regulation. Thirty-one percent of the area has been developed and provided with sewers. The controversy in this case centers on plans to install sewers in a part of the remaining 5%, or 297 acres. Tracts A and B constitute 196 acres, or 3% of the region.
Tract A consists of 47 acres surrounded by existing structures and paved streets; 5.7 acres are already developed. Tract B contains 149 acres and is bounded on the west and north by housing and on the east by a United States Coast Guard Receiving Center. Fifteen acres of that parcel are developed.
In 1979, the plaintiff developer applied to the New Jersey Department of Environmental Protection for a permit to construct 244 residential units in tract A. The state agency reviewed the developer's proposal in accordance with the Coastal Area Facility Review Act, N.J. STAT. ANN. §§ 13:19-1 to -21 (West 1979 & Supp. 1982). That Act, which is the New Jersey management plan for regulation of the coastal area, had been approved by the federal government pursuant to the Coastal Zone Management Act of 1972, 16 U.S.C. §§ 1451-1464 (1976 & Supp. IV 1980). The New Jersey agency reviewed such factors as flood hazard possibilities, air and water quality, traffic volume, road access, and the effect on environmentally sensitive areas. In 1980, a permit was approved, conditioned on the availability of sewage hookups to the housing units.
As the New Jersey agency was aware, the developer expected that a proposed regional sewage disposal plant would service the new housing. The treatment plant had been under consideration for some years, but the federal EPA had indicated it might restrict sewer connections to the plant.
The existing waste water treatment plant is owned and operated by the City of Cape May. Constructed in 1958, it has a capacity of 3.0 m.g.d.*fn1 The plant is unsatisfactory because of the high level of pollutants it discharges into Delaware Bay. The need to improve the plant's efficiency became apparent in the summer of 1975 when the beaches in this resort area had to be closed because of pollution. In the following year, the New Jersey Department of Environmental Protection imposed a ban on any further hookups to the plant. The ban was lifted in November 1978 after plans to rehabilitate the facility were undertaken.
The Cape May County Municipal Utilities Authority proposed to construct a new, more efficient and slightly larger (3.2 m.g.d.) system on the site of the existing plant and applied to EPA for a matching funds grant. EPA is authorized to grant funds for the construction of sewage facilities under the Water Pollution Control (Clean Water) Act, 33 U.S.C. §§ 1251-1376 (1976 & Supp. IV 1980).
In October 1978, EPA informed the Authority that it would fund a disposal plant whose capacity could service the existing population and projected growth in the area, but not any development within the floodplain or environmentally sensitive areas of the Cape May region.*fn2 To that end, EPA proposed a plant capacity of 3.0 m.g.d. The Authority accepted the reduction in capacity, and in January 1979, EPA determined that no significant detrimental environmental impacts would result from the proposed facility. Based on that determination, EPA preliminarily decided not to prepare an environmental impact statement.*fn3
The agency invited comments from the public and interested entities. Included in the EPA announcement was a statement that the agency had recommended changes that reduced the capacity of the system to service flood-hazard areas. The notice continued, "However, we cannot do local land use planning for the municipalities in the region and some treatment capacity could very well be used up by development in floodplains and other sensitive areas unless local measures are adopted."
Several environmental groups protested the EPA action and complained that the agency was not doing enough to prevent development in environmentally sensitive and floodplain areas. In response to one of these communications, the EPA Regional Director wrote:
"We continue to believe that it is the primary function of local government to provide the 'fined [sic] tuned ' growth control through land use measures. A sewer hookup ban as a condition to the grant would, we believe, be neither appropriate nor effective in providing the kind of 'guarantee ' against future development in environmentally sensitive areas that you seek."
In a reply to another environmental group, an EPA official wrote:
"We fully support your view that controls over land uses in environmentally sensitive or critical areas should be required, but we feel that this should be done by the affected municipalities. The EPA is not the empowered agency with jurisdiction to change, enforce or control local land use."
Despite these statements, EPA changed its position and told the Authority, in June 1979, that the grant would be conditioned on a ban against sewer hookups to designated lots in the floodplain and environmentally critical areas.*fn4 In September 1979, EPA advised that it would be receptive to fully justifiable exceptions to the policy and would accept redevelopment of lots that previously had structures.
A number of the municipalities to be serviced by the new facility adopted resolutions protesting the EPA action, arguing that land use planning and controls were matters reserved for determination by state and local governments. They pointed out that the critical areas had already been removed from development by ordinances and the municipalities were in compliance with all provisions of the federal flood insurance program.
After extensive consultations with the affected municipalities, the Authority submitted an amendment to the disposal plant plan in January 1980 and supplemented it in April of that year. In brief, the Authority's proposal excluded sewer hookups in environmentally sensitive areas, such as beaches, dune complexes, intermittent stream corridors, bogs, and fresh water wetlands. These areas had already been designated by the state coastal management plan as prohibited for development. Although, with the exception of wetlands, the state plan applied only to housing projects consisting of 25 or more units, the Authority's proposal would extend the ban on hookups to individual lots as well.
In addition, the prohibition against hookups would be extended to critical wetland and upland habitat areas, consistent with local plans and the state coastal management program. The net result would be that any new construction in the region would be forced to take place within or adjacent to areas that were previously developed and already had available the infrastructure for transmission of waste water to the disposal plant. With respect to tracts A and B, the Authority pointed out that the value of the storm, sanitary and water service infrastructure in place was approximately $1,423,000. Moreover, both of these tracts had been identified as development areas in the Cape May County comprehensive plan and the state's Coastal Zone Management Plan.
Summarizing, the Authority stated that "all recognized environmentally sensitive areas are excluded from future sewer connections under this proposal and any new structures which would be allowed within the floodprone areas must, by existing ordinances, comply with FEMA [Federal Emergency Management Agency] safety regulations."
In response, EPA agreed to allow hookups only from tracts that were less than 3.4 acres in size, were surrounded by existing structures, and had all infrastructure for municipal services in place. Such development was characterized as "fill in." Since most of tracts A and B did not meet these criteria, the EPA action was in effect a denial of the Authority's proposal. Yielding to the necessity of having the long-delayed project get under way, the Authority reluctantly, and under protest, accepted the EPA demands. The agency then issued its approval for a grant of $529,087 toward the total cost of $705,499.
In a published report of its Cape May environmental review, EPA stated it would take steps to designate the critical and floodplain areas as unsuitable for septic tanks. It also stated, "EPA will deny permits for any package treatment plant that is proposed to serve development that is delineated as 'nonsewerable ' in the approved 201 facilities plan." Thus, the agency announced its intention to ban, not only sewer hookups, but any other means of waste water disposal as well.
The developer then asked the district court to declare the restrictive condition void as beyond EPA's authority, and to prohibit the Authority from agreeing to the grant condition.*fn5 The district court, however, granted summary judgment in favor of EPA, finding the grant condition to be reasonable and in accordance with the agency's authority. The court read Executive Order 11,988, 42 Fed. Reg. 26951, reprinted in 42 U.S.C. § 4321 app. at 820 (Supp. IV 1980), as exhorting ...