IN RE: HIGHLANDS WATER PROTECTION AND PLANNING ACT RULES, N.J.A.C. 7:38-1 et seq.

    Decided: July 22, 2008

The opinion of the court was delivered by

In August 2004, the Governor signed into law the Highlands Water Protection and Planning Act (the Highlands Act), N.J.S.A. 13:20-1 to -35.¹  This legislation establishes a state agency, called the Highlands Water Protection and Planning Council (Highlands Council), N.J.S.A. 13:20-4, which is delegated responsibility for land use planning for the Highlands Region, including adoption of a master plan.

The Highlands Act creates two areas within the Region:  a preservation area, in which further development is strictly regulated, and a planning area, in which development consistent with the Act’s goals is encouraged.   See N.J.S.A. 13:20-7(b), (c);  N.J.S.A. 13:20-10(b), (c).  The Act delegates responsibility to the Department of Environmental Protection (DEP) to establish a permitting review program for all major development in the preservation area.  N.J.S.A. 13:20-31 to -35.   The Act also delegates responsibility to the DEP to adopt “rules and regulations establishing the environmental standards for the preservation area upon which the regional master plan adopted by the [Highlands Council] and the  Highlands permitting review program administered by the [DEP] ․ shall be based.”  N.J.S.A. 13:20-32.   These rules and regulations are required to contain certain provisions specified in the subsections of N.J.S.A. 13:20-32, including “a septic system density standard.”  N.J.S.A. 13:20-32(e).

In May 2005, the DEP discharged its rulemaking responsibility under N.J.S.A. 13:20-32 by adopting Highlands Act rules, N.J.A.C. 7:38, which became known as the “interim” rules.   See 37 N.J.R. 2050(a).   These rules included the “septic system density standard” mandated by N.J.S.A. 13:20-32(e).   Specifically, the rules provided that in the preservation area no more than one “individual subsurface disposal system” is permitted per eighty-eight acres of any lot containing “all forest” or twenty-five acres of any lot that “does not contain forest[.]”  N.J.A.C. 7:38-3.4(b)(1), (2).

Appellant New Jersey Farm Bureau filed a notice of appeal challenging the validity of the interim rules.   Thereafter, in December 2005, the DEP proposed to readopt these interim rules, with certain amendments, to produce a “final” set of Highlands Act rules and regulations.   The final rules provided for the same septic density standards as the interim rules.   The DEP set forth its justification for those standards in a document entitled, “Basis & Background of the Septic Density Standard of the Highlands Water Protection and Planning Act Rule at N.J.A.C. 7:38-3.4.”

The DEP received extensive public comments regarding these proposed rules, including comments from the Farm Bureau.   The final Highlands rules were adopted in November 2006, to become effective on December 4, 2006.   38 N.J.R. 5011(a).

We conclude that the water allocation rule is valid.   However, the Farm Bureau has raised substantial questions regarding the validity of the septic density rule that require an evidentiary hearing to determine whether the DEP has reasonably implemented the section of the Highlands Act requiring adoption of a septic system density standard.

I

One subsection of N.J.S.A. 13:20-32 requires the DEP to include rules relating to water diversions and allocations in the rules and regulations establishing environmental standards for the preservation area.   This subsection provides in pertinent part:

Existing unused allocation or allocations used for nonpotable purposes may be revoked by the department where measures to the maximum extent practicable are not implemented to reduce demand.

[N.J.S.A. 13:20-32(d);  see also N.J.S.A. 13:20-30(b)(3)(same).]

To implement N.J.S.A. 13:20-32(d), the DEP has adopted a comprehensive rule relating to water diversions and allocations.  N.J.A.C. 7:38-3.2.   The subsections of this rule dealing with unused water allocations provide in pertinent part:

(g) In accordance with N.J.S.A. 13:20-32d, and pursuant to (h) below, the Department may reduce an approved water allocation to eliminate any unused portion as follows:

1.  Monthly and/or annual allocations may be reduced through a Department-initiated minor permit modification, or during the review of a permit renewal or modification application, if usage is less than 80 percent of the allocation, based on records for the previous five years;  or

2.  If all practicable water conservation measures are not undertaken․

Although a challenge to the validity of an administrative regulation is ordinarily determined based solely on the record developed before the agency in considering adoption of the regulation, a court has the authority to remand for supplementation of the record, including the conduct of an evidentiary hearing, if it concludes that such proceedings are required for a proper determination of the challenge.   See The Mortgage Bankers Ass’n of N.J. v. N.J. Real Estate Comm’n, 102 N.J. 176, 191, 506 A.2d 733 (1986);  Texter v. Dep’t of Human Servs., 88 N.J. 376, 382-83, 443 A.2d 178 (1982);  McKenna v. N.J. Highway Auth., 19 N.J. 270, 277-78, 283-84, 116 A.2d 29 (1955).

We conclude that this is an appropriate case for such a remand.   The Farm Bureau has raised substantial questions regarding the reasonableness of the methodology that the DEP used in establishing the septic density standards.   The sole justification for the use of this methodology is the “Basis and Background” statement.   The DEP has not shown that this methodology has been used by any other agency with comparable regulatory authority.   Therefore, the Farm Bureau should be afforded the opportunity for an evidentiary hearing to contest the validity of these standards.

Accordingly, we uphold the validity of the water allocation rule.   We remand the case to the DEP to afford the Farm Bureau an opportunity for an evidentiary hearing before the Office of Administrative Law (OAL) regarding the validity of the septic density standards.   The proceedings before the OAL, including the issuance of appropriate findings of fact and conclusions of law, shall be completed within one hundred days of the filing of this opinion, and the DEP shall complete the remand within one hundred fifty days of this opinion.   Jurisdiction is retained.

FOOTNOTES

1.   A challenge to the constitutionality of the Highlands Act is currently pending before the Supreme Court.  OFP, L.L.C. v. State, 395 N.J.Super. 571, 930 A.2d 442 (App.Div.), certif. granted, 193 N.J. 277, 937 A.2d 979 (2007).

2.   We note that the DEP’s standards for subsurface sewage disposal systems in the Pinelands, which can be found in N.J.A.C. 7:50-6.81 to -6.87, are not based on lot sizes.   Instead, the pertinent Pinelands regulation provides:The design of the system and its discharge point, and the size of the entire contiguous parcel on which the system or systems is located [must] ensure that ground water existing from the entire contiguous parcel or entering a surface body of water will not exceed two parts per million nitrate/nitrogen calculated pursuant to the Pinelands dilution model[.][N.J.A.C. 7:50-6.84(4)(ii).]The dilution model is set forth in Appendix A to the regulation.

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