Valuing ecosystem services—the streams of benefits functioning ecosystems provide to human populations—has become a powerful theme in natural resources management research and policy, but not so much yet in hard law to apply. The problem has not been with the ecosystem services that are obvious and well registered in markets—crops, recreation, timber, and water supply to name a few. We have plenty of law surrounding services like those. Rather, ecosystem services such as groundwater recharge by wetlands, storm surge protection by coastal dunes, and pollination by wild honeybees are not bought and sold in markets and thus suffer from a classic Tragedy of the Commons dilemma. People get that these are valuable benefits in a big picture sense, but incorporating these values in law—whether in protective regulations, performance standards, incentives, or in core principles of property law—has proven difficult. Yet with climate change looming as a threat to property in general—increased flooding, drought, storm surges, and other threats are not far into the future—it seems that there would be some urgency to incorporating ecosystem services ideas into property law.
One big step in that direction has come from a recent decision by the New Jersey Supreme Court regarding how much compensation beachfront owners are due when the state plops sand dunes on their property. See Borough of Harvey Cedars v. Karan, 70 Atlantic Rep. 524 (NJ 2013). Like many states, New Jersey (with federal help) spends considerable money shoring up the shore, so to speak, by importing sand to beaches subject to erosion. Sometimes these projects go further, in the form of constructing massive dunes on the beach to, in the court’s words, “serve as a barrier-wall, protecting homes and businesses…from the destructive fury of the ocean.” In other words, the idea is to create or supplement the dune ecosystem to enhance the flow of one very valuable ecosystem service—stopping storm surges. And after Hurricane Sandy, there’s not a person in New Jersey who doesn’t get that.
Well, maybe there are a few. There’s another ecosystem services that’s pretty valuable to beachfront owners—their view of the beach! You can see the problem already—higher dunes mean less view. So when the federal, state, and local governments embarked on a dune project in Long Beach Island, some property owners resisted. The project involved purchasing perpetual easements from the beachfront owners and constructing a 22-foot dune system the length of the beach. The local borough was more than willing to provide compensation for the easement, and most property owners were happy to have the dunes. One couple, however, decided not to sell. The borough exercised its power of eminent domain and took the easement from them anyway. Things got interesting when it came time to decide how much “just compensation” was due to the property owners.
This situation involves what is called a “partial taking” of property. If the borough had taken title to the entire property, the owners and the government would have argued over the fair market value of the entire parcel, which while contestable is fairly easy to determine within a reasonable range the same way appraisers estimate home values for loans. It’s trickier when the government is taking only part of the property (in this case the easement), because one has to determine the value of what was taken as well as the impact on the value of what remains. For over a century, New Jersey law allowed the government to offset the losses to the property owners for that “remainder” (in this case the diminished view) with the benefits the owners receive from the public project that required the partial taking (in this case the protection from the ocean), but only if the benefits were “special benefits” the owner received independent of the “general benefits” the project provides to the public at large. At the trial level in the case, the trial court ruled that the protection benefits from the dune project were general benefits, which meant the jury could not include them as offsets. Under that approach, the jury awarded the owners $375,000, and the appellate court affirmed. As is easy to imagine, if the government had to pay every beachfront owner a sum like that–and there were a lot of owners who refused to participate in the project–the project would have been dead in the water (no pun intended). (Note: I’m going to stay away from the part of the story involving public vilification of the recalcitrant owners, like when Governor Christie called them “knuckleheads.”)
The New Jersey Supreme court turned the case into an opportunity to ditch the outdated special benefits/general benefits doctrine. After a very careful review of the history and policy of the doctrine, the court concluded that “the terms special and general benefits do more to obscure than illuminate the basic principles governing the computation of just compensation in eminent domain cases.” Instead, the court ruled, “just compensation should be based on non-conjectural and quantifiable benefits, benefits that are capable of reasonable calculation at the time of the taking.”
From there the court made some rather obvious but refreshing observations about the dune project, as in “without the dune, the probability of serious damage or destruction to the [owners’] property increased dramatically over a thirty-year period,” and thus it is “likely that a rational purchaser would place a value on a protective barrier that shielded his property form partial or total destruction.” Seriously, this is not rocket science—if you want your house standing in 30 years, deal with the dunes!
The court sent the case back to the trial court with instructions that “at that trial, the Borough will have the opportunity to present evidence of any non-speculative, reasonably calculable benefits that inured to the advantage of the [owners’] property at the time of the taking.” In other words, calculate the value of the ecosystem services the dunes provide to beachfront owners. That trial never took place, however, because the parties settled – the borough paid the owners one dollar in compensation (and covered $24,000 of their attorneys fees). One can reasonably assume the property owners saw the writing on the wall.
The Karan case is a huge development for the law of ecosystem services. Not only did the court recognize the inherent value of the dunes, it gave that value firm legal status. One can anticipate many public infrastructure projects in the future as part of climate change adaptation, many of which will require use of or impacts to private property. As with the Long Beach Island dune project, one can hope that many of these infrastructure projects will rely on restoration, enhancement, or creation of natural ecosystems such as dunes, wetlands, and riparian habitat. Certainly just compensation will be due to the property owners, but at least in New Jersey the calculation of just compensation will include recognition of and valuation of the ecosystem services provided by those ecosystem-based projects.
Nice article, JB. How different do you think this really is from the Florida law passed in 2007 (Laws of Florida Ch. 2007-99 (http://laws.flrules.org/2007/99)) that added text to Fla. Stat. section 161.141 that essentially provides for an offset of added value to the property against any payment required by the government if a taking is found to have occurred?
Hi Tom–Good to hear from you!
You make a great point–Florida codified this ecosystem services principle well before the NJ Court adopted it as its common law of takings compensation. Both instances illustrate that valuing ecosystem services makes good economic sense. do you know of any cases in which the offset valuation has been mad/contested?